Good morning. My name is Tanisha, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Fifth Third Bank Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] Thank you. Mr. Jeff Richardson, you may begin your conference.

Thanks, Tanisha. Good morning. Today, we'll be talking with you about our full year and fourth quarter 2013 results. This call may contain certain forward-looking statements about Fifth Third pertaining to our financial condition, results of operations, plans and objectives. These statements involve certain risks and uncertainties. There are a number of factors that could cause results to differ materially from historical performance in these statements. We've identified some of these factors in our forward-looking cautionary statement at the end of our earnings release and in other materials, and we encourage you to review them. Fifth Third undertakes no obligation and would not expect to update any such forward-looking statements after the date of this call. I'm joined on the call by several people: Our CEO, Kevin Kabat; and CFO, Tayfun Tuzun; Frank Forrest, Chief Risk Officer and Credit Officer; Treasurer, Jamie Leonard; and Jim Eglseder from Investor Relations. [Operator Instructions] . With that, I'll turn the call over to Kevin Kabat. Kevin?

Thanks, Jeff, and good morning, everyone. Before touching on the fourth quarter highlights, I want to make a few comments about 2013 as a whole. Net income to common shareholders of $1.8 billion was the highest in the company's 155-year history. Net income to common shareholders increased 17% over last year. Earnings per diluted share of $2.02 were up 22% from a year ago. Our return on assets was 1.5% and return on average tangible common equity was 16%. Those ratios were 1.3% and 14%, excluding the benefit of Vantiv and other unusual items outlined on Slide 10 of our presentation. These are strong returns, particularly in this low interest rate environment. Net interest income was down 1% in 2013 despite a 23-basis-point decline in the margin. On a reported basis, fee income was up 8%, expenses were down 3% and PPNR was up 12%. Excluding the items I just referred to, PPNR was stable despite the significant decline in mortgage revenue with fee income down just 2% and expenses down 1%. The efficiency ratio declined 3.5% on a reported basis to 58% and was 60% on an adjusted basis. Full year average transaction deposits increased 6%, and loans grew 5%. Credit quality metrics showed significant continued improvement with charge-offs for the year down 29% and nonperforming assets down 25%. Fifth Third continues to accrete significant amounts of capital through earnings. We repurchased $1.7 billion and net of the equity issued in the Series G conversion, returned $1.3 billion to shareholders. Of that, about $200 million was related to the repurchases equal to 100% of gains from sales of Vantiv stock. The remaining $1.1 billion repurchases and dividends represented a 70% payout ratio of earnings excluding Vantiv gains. The same time, we retained the capital needed to support asset growth.…

Thank you, Kevin, and good morning, everyone. As Kevin discussed, 2013 was a very good year for Fifth Third as we reported record net income. In a year with continued pressure on margins, our interest -- net interest income remained stable. Strong and consistent growth in card and processing revenue, investment advisory and deposit fees proves our ability to protect and grow our earnings as we transition from the mortgage refi blues [ph] . Full year expenses were down 3% despite a 4% increase in technology and communications expense as we continue to invest in our businesses. All said, these are results we are proud of, despite a challenging interest rate environment. Moving to Slide 5 of the presentation. Fourth quarter earnings per diluted share were $0.43. Recall that current [ph] quarter results included $19 million or $0.02 per diluted share preferred stock dividends, which we did not have in the third quarter. There were also several items that affected earnings in this quarter which contributed about $0.01 overall to fourth quarter EPS. Those are outlined on page 2 of our release, and I'll note their impact to various line items throughout my comments. Turning to Slide 6. Tax equivalent net interest income increased $7 million sequentially to $905 million. Despite ongoing margin pressure, we have grown net interest income the past 2 quarters. Net interest margin was 321 basis points versus 331 basis points last quarter. The 10 basis points margin contraction was attributable to higher cash balances, which reduced the margin by 8 basis points. Stronger-than-expected deposit growth and the debt issuances drove the cash position for the quarter. In terms of balance sheet composition, you'll recall that last quarter we took advantage of higher interest rates to add to our securities portfolio and to change its composition.…

[Operator Instructions] And your first question comes from the line of Matt O'Connor with Deutsche Bank.

Just following up on the NIM outlook of 315 plus or minus for the year. I guess if it's relatively stable in 1Q, should we think about have a steady progression down throughout the year?

Matt, this is Dan. I do believe you're right. You have a few moving parts in the first quarter that drive stability. You have -- all the liability actions we had in the fourth quarter, really paying dividends in the first quarter and holding NIM up, and then what you have in second, third quarter is this loan repricing effect that's pretty consistently been 3, 4 basis points a quarter. And then we see that dissipating just as new production yields reach their inflection point in total portfolio yields. And then the other moving piece to the NIM outlook is just the additional portfolio leverage that will be coming on the sheet as we into a more LCR-friendly balance sheet.

As we just think about like what part of the interest rate curve you're most sensitive to, short end, mid-part, long end, what should we be focused on in terms of the rate environment, and what needs to happen to stabilize the NIM?

Well, clearly the very short end of the curve is very important. The LIBOR indices are very important to C&I yields as we have predominantly LIBOR-based floating loans there. In terms of the consumer loans, the auto yield typically get priced around the 2 to 3 year range and their portfolio is probably more in the 4 plus -- 4, 5, year range, and the 10 year is obviously is very important from a mortgage MBS pricing perspective. So we don't really have anything longer than that and that would impact us.

Okay. And then just lastly, in terms of how asset-sensitive you are, if short rates do rise?

I mean, short rates clearly are extremely helpful for NII growth, but our guidance for this year does not assume any increases in the underlying LIBOR indices as we expected that to be on hold. But we are very positive we leverage to the short end of the curve.

And your next question comes from the line of Eric Wasserstrom with SunTrust Robinson.

Just to follow up on the tail end of Matt's question, has your move to become more LCR-friendly, has that reduced your asset sensitivity at all?

No, we've been able to manage the asset sensitivity fairly consistently and slightly asset-sensitive. We wrapped up the year in a up 100 ramp at about positive 1%, and up 200 ramp at about 2% in year 1, and I think we've consistently been in that space all year.

What we have to keep in mind is that we have to look at both the asset and the liability sides and look at the duration on both ends and clearly, long-term debt issuances on the liability side tend to increase the duration of the liabilities as some of the investment portfolio numbers may lengthen the investment portfolios ratios a little bit. There is somewhat of a balance on the liability side to that.

And just on the asset growth, I have a few questions. It looks like your GAAP assets went up about 4% sequentially, but the Basel I risk-weighted went up only about 2% and the Basel III actually went up even less than that at about 1.7%. So I'm just wondering what would explain that progression?

You do have a little bit of the benefit in the RWA calculation as we migrated the investment portfolio out of less LCR-friendly instruments into U.S. Government backed, which carries 0 risk-weighting. So we finished the year a little bit north of $4 billion in Ginnie, which carry a 0 risk-weighted whereas couple of quarters ago, that allocation would have been near 0. So frees up a little bit of capital in the process.

And one other [ph] thing really in particular that would distinguish Basel I from Basel III, I mean, other than just the denominator is different.

And was there any growth in your off balance sheet loan commitments in the period?

Yes. I mean, there is continued growth there. That's probably, this quarter would have been commensurate with our interest total loan growth, I would assume.

Okay. And -- but the Basel III sounds like it did not reflect to any kind of operating risk charge related to your growth in litigation reserves.

No.

No.

And your next question comes from the line of Matt Burnell with Wells Fargo Securities.

You've given us some complete guidance in terms of the mortgage side of things. I guess, I'm just curious, in terms of the cost reductions within the mortgage business. I believe you said last quarter you took out about $25 million in cost from that business. I'm curious what the cost -- the incremental cost reduction was in the fourth quarter, and how you're thinking about cost reductions, specifically within the mortgage business over the course of 2014.

I think the cost reductions this quarter was about $19 million in the high teens relative to the $25 million. We will continue, obviously, to manage expenses in the mortgage business throughout the year in 2014. We are still making moves there even this quarter as we expect production numbers to come down. And we clearly are expecting some uptick in Q2 and Q3 related to purchase volumes and that business will remain strong and will maintain enough capacity to address any borrowing needs. But outside that, you will see that -- and we reflected, obviously, the impact of our 2014 plans on our guidance. But if production numbers change in actual, we will be very quick to respond either way.

A question on capital and specifically, you're thinking about including -- or excluding the AOCI from capital numbers. You noted in the release that they would benefit today from the inclusion of AOCI. How are you thinking about that going forward, given the rising rate environment would be likely to create some additional volatility in that number that might be less welcome?

Yes. I mean absolutely. I mean, we clearly are very focused on the impact of higher rates and on mark-to-markets and that will be a very big factor in our decision as we approach year-end. We would expect to opt out at this point.

I mean, we would expect opt out even if we were in a gain position.

Right. It doesn't -- really it will not necessarily reflect where we are at the end of this year, whether we are in a gain position or in a loss position. I just don't think that it pays to take that volatility in our capital ratios.

And then just finally, a quick administrative question. You noted at the end of the third quarter, your [ph] reasonable possible losses -- litigation losses would be about $177 million. Does that number come down by the amount that you provided for this quarter?

We will disclose that in the K, but I don't think there's any reason to expect any big move in that.

And your next question comes from the line of Ken Usdin with Jefferies.

Just a question on mortgage related to -- when you talk about a decline of 275 off of the 700 this year, was that decline -- would the '14 outlook for mortgage include any MSR gains in your outlook?

We don't typically include MSR gains in our outlook, Ken, I mean because that's clearly a very volatile number.

Right. So that would be gravy to that number. Okay, and then secondly, do you have any incremental plans to do additional preferred issuances and/or debt financing? That clearly -- that were big benefits to the size of the balance sheet. I'm just wondering what you're funding plans are you look ahead?

Yes. We are about 2/3 in our preferred bucket today, so we do have another $500 million or so left, and we do continue to believe that the way to manage the capital account efficiently would require us to fulfill that bucket. So we may include that in our 2014 fund. In addition, on an ongoing basis, we do have additional debt issuance plans in 2014.

And that -- is that -- okay, that's fine. So in terms of earning asset growth, can you talk about the mid-single digit loan growth, and I understand the basis of earning asset growth more than offsetting the NIM growth. But how would you compare your view of mid-single-digit loan growth, to what -- how big you expect the overall earning asset base to go next year?

I think our earning assets will likely to be north of that, and I would say, there's going to be probably 5%-plus. But as we have always said, there is an LCR component to our investment portfolio balance strategy, but there is also a risk/return component. And during the year we will make that determination as we see the market developing. So it's hard to tell exactly how much over 5% we may get to, but that's our current plan.

And then last quarter question, just on the deposit growth of Kevin, you mentioned how strong it was and especially in commercial. Was any of that kind of fleeting that came in the fourth and was gone by the end of the quarter from a yearend perspective or do you believe that this kind of pace of deposit growth is core and sustainable?

Ken, we did not see it fleet and so it's sticky and we expect that to continue obviously as we've talked and try to bake into the guidance that we gave you for '14, our anticipation is that we're continuing to have a platform with which to be able to grow, attract and keep our clients from that standpoint. We would expect some utilization of those deposit before they come to us for loans which we haven't seen yet, but no, those were sticky and safe.

Yes, the other thing I would add to that is, maybe 2 or 3 years ago, obviously, we were -- sort of [ph] passive receiver of large amounts of liquidity, but today, we're very active and the deposit growth numbers reflect true business strategies, both on the commercial side, as well as the consumer side. So that's part of the reason why these fluctuations are likely to stick because again, we're not passively receiving these funds.

And your next question comes from the line of Paul Miller with FBR. Paul J. Miller - FBR Capital Markets & Co., Research Division: You talked about how your line usage, it went down, but you're also, at the same time, talking about -- and other banks have said this, that you feel that loan growth is -- that it's going to be very solid or not solid relative to where we used to be but pretty good 3% or 5% range. Can you just talk about, is this conversations that you're having out there, I mean, what are you seeing out there to give you self confidence that even though usage is down loan growth is going to pick up?

Yes, Paul, this is Kevin. I would tell you that, that is accurate in terms of kind of what we're seeing as a barometer. Our conversations directly with clients and prospects. The tonality I would tell you, has changed. So there's a little bit more positiveness in it. There is a bit more outlook and upbeat in terms of their view. How fast that comes, how fast the change comes, we're not sure, but we've seen fairly good production. Continued strong pipelines from that standpoint which will be consistent with some of that outlook and some of that optimism that we're really beginning to feel or see with our clients. And that definitely is a total change in the last 90, 120 days.

And we saw -- we had solid loan growth in 2013 while we saw line usage go down as well. So it's... Paul J. Miller - FBR Capital Markets & Co., Research Division: And what areas, I mean what are some of the areas that you really -- I guess where you're excited about, like some of the loan growth areas?

We continue to see good strength in manufacturing. We continue to see it in our mid corporate and large corporate. We continue to see it in our verticals, both in our healthcare and in our energy verticals. So pretty broad-based, Paul, from that standpoint. And as Tayfun mentioned in detailing some of the specifics for the quarter, we're beginning to see now some good demand showing up in the commercial real estate side. Our construction average balances were up, as you can see, substantially for us. Building, we think in terms of some momentum for commercial real estate. That will be positive for us and we're seeing some good projects to be able to continue that growth. So that's where we see it, so a broader focus from our standpoint still feels right [ph] from our standpoint.

And your next question will be from Ken Zerbe with Morgan Stanley.

Just wanted to go back to the comment that you're not passively receiving your deposits. Obviously, really strong deposit growth this quarter. How much of that was actually not related to your strategy so much, but because you chose to aggressively pull in deposits this quarter, whether through it's better pricing versus your strategy. I mean, if that make sense, because what I'm trying to figure out is, are you bolstering liquidity intentionally by bringing in deposits to bear pricing?

Actually that's a very good question. We have not done any significant pricing changes in either commercial or retail deposit space. I think what we are seeing is on the consumer side, the deposit simplification project that we finished earlier this year truly had a fairly significant impact on average balances. As depositors with higher average balances pay less fees, we've seen that impact fairly clearly during the year. On the commercial side, it truly is a function of our turnkey management activities. Overall, we talked about this, I think, in other earnings conference calls. The relationship-based approach, away from single credit relationships and commercial tends to have very good impact on deposits. Clearly, we like it. It's, from an LCR perspective, a large majority of deposits are LCR-friendly. So we are encouraging our sales force to focus on deposit growth, but we have not done anything from a pricing perspective. Now, looking into 2014 and beyond, obviously, we will -- reactive -- the competitive environment changes significantly from where we see today.

And your next question comes from the line of Keith Murray with ISI.

Could you just touch on deposit events, changes and you talked about service charges, revenue increasing. Is that baked into your guidance for '14?

Yes, and you've seen our announcement, it's a phase-out plan and it is baked into our forecast for the upcoming year.

Okay. And then you talked about growth assumptions for '14. What you assume risk weighted assets, either Basel I or Basel III will grow by in 2014?

It's probably going to below our true earnings asset growth as a portion of that earning asset growth is going to not put much pressure on that. We would expect that to be probably under 5% at this point.

Okay. And then finally on expenses, you mentioned potential in the mortgage business. Are there opportunities outside of mortgage that could be meaningful, and what kind of pension expense savings do you have baked in for '14?

There is nothing on the pension expense side. Yes, I mean, there clearly, we've talked in December in one of the conferences about the changes that are occurring on the retail side of the business. As we reconfigure our retail delivery channel, you will see some savings there. In addition to that, you need to look at this guidance in its entirety. Clearly, if the expense side goes together with the revenue side and if we see changes on the revenue side, we will react and there is going to be more expense savings. Across the board, we do truly -- many people talk about their ongoing focus on expenses, but I think we've proven to you guys that, that truly happens here and mortgage will not be the only business where we will see expense savings this year.

I just want to jump in and clarify on the last question. I think RWI growth is likely to be closer to the mid-single digits range that [ph] the about mid-single digits that earning assets growth will have -- I don't know may be little bit low but I'm not sure with respect to the growth opportunity [ph] .

And your next question comes from the line of Owen Lau with Janney Capital Market.

Actually this is Sameer Gokhale from Janney Capital. A couple of questions I wanted to ask. Firstly, in terms of the credit metrics, if you adjust for some of the charges that were taken this quarter in your commercial loan portfolio and then also the change in accounting policy for home equity loans and you back those out, it looks like there's some improvement in the credit metrics, but they seem more or less relatively stable, at least sequentially. And I was trying to look at those metrics and kind of reconcile those with your forward guidance for charge-offs to be down $100 million. I mean, it seems like certainly we're in a very good or benign charge-off environment. But what gives you increased confidence or confidence that the magnitude of the improvement in charge-offs should maybe accelerate a little bit just based again on the sequential trends between Q3 and Q4? It seems like that the metrics is somewhat stable. So could you talk about that a little bit?

This is a Frank Forrest, good question. The guidance we gave a year around charge-offs was $200 million down and our guidance this year is $100 million down, and when you look across our portfolio, it was rather granular, we're making substantial progress, we have intense focus on continuing to see improvement and both on the charge-off metrics, consumer and commercial, and also on the nonperforming portfolio, which our guidance is down 20% for 2014. We're confident that we'll continue to see progress. So we don't think we're at the inflection point yet at Fifth Third. We see substantial additional opportunity for progress. Might have slowed a little bit in the fourth quarter, but it's not necessarily reflective of our outlook for the entire year of 2014. Good question, though.

That's helpful. And then just in terms of your reserve ratio, your allowance to loan and leases, the guidance says that you expect it to be lower compared to the end of the year number of 1.79%. And clearly, where that allowance ratio goes, the reserve ratio goes, is going to be the only kind of missing piece from the guidance that will help us get to the provision number. So have you talked about where you expect that reserve ratio to go by the end of 2014? Should we anticipate going down as far as 1.5%? Does that seem aggressive? Could you help us size that?

This is Jeff. We have talked in the past about obviously, there are a lot of moving parts to where the allowance ratio ends up, including new rules. And we've indicated that it felt like maybe 1.5% would be the sort of place that the ratio may go. It obviously could end up being higher than that or lower. We can't really predict that and we do understand that, that may be the missing piece for our guidance. Our guidance is pretty clear, but we cannot predict with certainty what our allowance ratio will be at the end of the year and we're not going to provide guidance as if we can. That allowance is set at the end of the each quarter based on our models. So I don't know if [ph] you want to add anything there? Obviously, we expect it to go down, but we can't really sort of give you a good prediction as to where it will end.

Okay, that's helpful. And just on an unrelated note related to the deposit advances which you said you'll stop offering. Are you planning to replace that with any sort of other secured product as some of your competitors have indicated they might do? Or are you just completely stopping that and not replacing that with [ph] anything else?

No. Clearly, I think as we announced last week, our expectation, we see, with our consumers and our customers a high demand in this area, simply changing this doesn't change the demand perspective. We have been dealing [ph] and working with all of our stakeholders and trying to come up with solutions that we think would benefit everyone, from that standpoint. So we're committed to that. We got a lot of work to do. We'll continue that work and so I don't have anything that I would say to you today that is at hand for us in terms of replacing that. Our expectation is we'll continue to look to see if we can find a good solution, keep our clients in a regulated banking system, which we think is best for all.

Ladies and gentlemen, we have reached the end of the allotted time for the Q&A portion for today's call. Thank you for your participation. You may now disconnect.