Good morning. My name is Adam and I will be your conference operator today. At this time, I would like to welcome everyone to the Fifth Third Bank Fourth Quarter 2017 Earnings Call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Sameer Gokhale, Head of Investor Relations, you may begin.

Thank you, Adam, and good morning and thank you for joining us. Today, we'll be discussing our financial results for the fourth quarter of 2017. This discussion may contain certain forward-looking statements about Fifth Third pertaining to our financial condition, results of operations, plans and objectives. These statements involve risks and uncertainties that could cause results to differ materially from historical performance and 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 to and would not expect to update any such forward-looking statements after the date of this call. Additionally, reconciliations of non-GAAP financial measures we reference during today's conference call are included in our earnings release along with other information regarding the use of non-GAAP financial measures. A copy of our most recent quarterly earnings release can be accessed by the public in the Investor Relations section of our corporate website, www.53.com. This morning, I'm joined on the call by our President and CEO, Greg Carmichael; CFO, Tayfun Tuzun; Chief Operating Officer, Lars Anderson; Chief Risk Officer, Frank Forrest; and our Treasurer, Jamie Leonard. Following prepared remarks by Greg and Tayfun, we will open the call up for questions. Let me turn the call over now to Greg for his comments.

Thanks, Sameer, and thank all of you for joining us this morning. As you'll see in our results, we reported full year 2017 net income of $2.2 billion and EPS of $2.83. Our results reflect the hard work of our employees, the support of our North Star initiatives. In 2017, we again took a number of significant steps to improve profitability and better position us for success. We will discuss the economic environment in our fourth quarter results. I would like to take a few moments to review some of the key accomplishments during the year. First, we continued to optimize and strengthen the balance sheet. We exited approximately $1.5 million in C&I loans that did not meet our targeted risk or return profile and this helped drive a significant improvement in our credit metrics. This fold [ph] the exit of $3.5 billion in C&I loans in 2016. As I mentioned before, we have now completed this process. We also continue to reduce our indirect auto exposure. This reflects our decision over two years ago to curtail originations to improve returns while mitigating credit risk. We have succeeded in improving returns in this business and plan to gradually increase our production volumes in 2018. These decisions highlight our commitment to building a franchise that performs well with the various business cycles. During the year, we re-launched our brand campaign through print, television, radio, and digital advertising. As we share with you this number, the re-launch was very well received and continues to strengthen our brand in the marketplace. We continue to focus on improving the customer experience by advancing our digital first, customer centric agenda and have made significant progress through several of our North Star initiatives. We launched our innovation center and just recently introduced an app called Momentum…

Thanks, Greg. Good morning and thank you for joining us. Let's start with the financial summary on slide 4 of the presentation. As Greg mentioned, during the quarter, our underlying NIM expansion, continued focus on disciplined expense control, stable credit quality and efficient capital management reflected our commitment to driving improved financial performance and shareholder returns. Reported results were significantly impacted by the items noted on page 1 of our release, including a number of items primarily resulting from the recently passed Tax Cuts and Jobs Act. The largest item was a $220 million income tax benefit resulting from the re-measurement of our deferred tax liabilities. The detailed benefit was partially offset by a $68 million impairment related to affordable housing investments in the fourth quarter. We also recognized a $27 million reduction to interest income related to the re-measurement of our leverage lease portfolio. Lastly, we recognized $30 million in one-time discretionary expenses related to employee bonuses and charitable contributions in response to the passage of the tax act. In addition to the items associated with the new tax law, our reported results were impacted by a couple of other items. As we discussed during the last quarter's earnings call, this quarter's taxes reflected additional tax expense of $20 million related to our gain from the Vantiv sale in the third quarter. Our fourth quarter results also reflected an $11 million reduction to non-interest income associated with the Visa swap. Adjusting for the non-core items disclosed today and in our prior periods, on a sequential, year-over-year, and full year basis, our ROA, ROTCE increased, our efficiency ratio improved, net interest margin expanded, expenses remained relatively flat, and our credit metrics also improved. We achieved our objective of delivering positive operating leverage, while lowering the risk profile of our company…

Thanks, Tayfun. Before we start Q&A, as a courtesy to others, we ask that you limit yourself to one question and a follow-up and then return to the queue if you have additional questions. We will do our best to answer as many questions as possible in our time we have this morning. During the question-and-answer period, please provide your name and that of your firm to the operator. Adam, please open the call up for question.

[Operator Instructions] And your first question comes from Gerard Cassidy. Gerard, your line is open.

Thank you. Good morning, guys.

Good morning.

Tayfun, can you share with us with the step-up process that you pointed out of $415 million in the first quarter of 2018, in the past, if I recall, the gains that you've been able to garner from this investment have been used to repurchase your common stock. Do you plan to -- go back to the Fed intra CCAR period to do that again, or would you wait until the next CCAR, and possibly use it at that time to buy back the stock.

Gerard, given that we are getting -- we're past the half-point and we're getting closer to the end of this CCAR period, we would plan to do that in the next CCAR period.

Okay, very good. And then second, on the commercial loans. I think you said you had elevated payoffs in the quarter. Can you give us some color what you're seeing where your customers are paying off the loans vis-à-vis what you saw maybe earlier in the year?

Yes, Gerard, good question. We did see, I think along with most of our other peers in the industry, significantly elevated pay-downs and payoffs. Over half of that I'd characterize in -- I would direct to our commercial real estate portfolio line of business. The majority of that were asset selling, very low cap rates, high quality assets. Also, a number of those that were moving to the permanent market with a continued flat yield curve, the balance of that would be some of those end-of-year movements that you've seen in the industry, where companies were simply de-levering and maybe positioning themselves relative to the new tax policy. Frankly, we're still trying to figure that one out and see where that one goes. But I would say that was widespread though across geographies and across our businesses, but nothing out of the ordinary beyond that.

Great. Thank you, guys.

Sure, thank you.

And your next question comes from Erika Najarian. Erika, please let us know your company name too. Your line is open.

Yes, good morning. Bank of America.

Good morning, Erika.

Thank you so much for the detailed outlook. And I'm wondering, you were very specific in terms of reiterating a dollar expense range for 2018. And as we think about the NII outlook and the NIM outlook, it appears as though there's some conservatism baked into either the number of hikes or the deposit reprising assumptions. And the question here is, if the revenue results in 2018 are better than what's outlined on slide 11, does the $4 billion to $4.1 billion range hold regardless?

With respect to the expenses, I would say, yes. I think more movement on the expense base related to variable revenues comes more from the fee line items. But in general, the impact of a higher-than-guided NII performance should still keep that expense range intact.

Got it. So just to be clear, if you outperform an NII that expense range is intact, but if you outperform on fees then that's when you may be at the high end or out of the range but still keeping with the positive operating leverage target?

Absolutely.

And Erika, this is Greg. We continue to focus on expenses as evident on our 2017 performance of flat year-over-year growth. This is an area of heighted focus in the organization. We continue -- will continue to focus on that as we move into 2018, and do a better job of managing expenses on as we move into the year.

And just so you know, in general, if during the year we outperform NII, everything else being equal, only, and only due to rate changes, our variable compensation typically does not move.

Thank you. That was clear, appreciate it.

Your next question comes from John Pancari. John, please let us know your company name. Thanks. Your line is open.

Evercore ISI. Wanted to get your thoughts on the payout target, longer-term post tax reform, any change to your targeted 120 million to 140 payout.

Look, I think in general, the more money we make, you would expect a higher payout in dollars. We're still clearly waiting for the Fed’s CCAR assumptions and background, and we will run that through our numbers. But we are still targeting a sort of mid 9-type cap -- CET1 position for 2019. And our payoffs will correlate to that target.

Okay, thanks. And then my follow-up is around North Star. I know initially, when you laid out the program and in several of your updates posted, you were commenting on the 800 million in pretax income that you were targeting under North Star, but you didn't focus on that 800 million at the Investor Day. So is that still a target, that dollar amount? And does it change at all with tax reform, and if so what is the new number?

It does. And I don't necessarily have an updated number for you as to the impact of the tax reform. But as you recall, in December, during our Investor Day, we discussed that there were some adjustment to revenue expectations, especially related to loan growth assumptions. And we did say that, both in 2016, and '17, and also in '18, our loan growth assumption is somewhat lower than the initial estimate that we had when we laid out our expectations. But in return, we also mentioned the lower asset growth enabled us to purchase a higher amount of capital, which continues to support the same ROTCE targets that we laid out. And as the tax reform also is moving these targets out, we are actually ahead of our initial expectations with respect to that.

Okay, thank you.

And your next question comes from Matt O'Connor from Deutsche Bank. Please, your line is open.

Good morning.

Hi, Matt.

Sorry if I missed it. The expected TRA in the fourth quarter going forward, should we assume it stays at the $44 million, which I think came in higher than expected or what's the expectation on that at this point?

Yes, Matt, this is Jamie. The fourth quarter of '17 number was $44 million. That is what we guided to all throughout 2017, because it's based off of the Vantiv tax return from a year prior. So that number is locked in a year in advance. So the 4Q '18 number is also fairly close to being locked in, and that's about $20 million. And then going beyond 2018, given the change in tax rate from 35% down to 21%, the go-forward number on those TRA cash flows would be in the $24 million range. And then those numbers shouldn't change appreciably as long as Worldpay has sufficiency of income to utilize and tax rates don't further change. And the only then variable to all of this would be whenever we would sell our remaining Worldpay interest, it would generate another $340 million or so of cash flows over the next 16 years. So, really look at $20 million for 4Q '18, $24 million beyond and until another disposition occurs.

Okay, that's helpful. And then just separately, if we look at your [Technical Difficulty] seeing at some peers, as we think about reserves to loans. And I'm just wondering if you feel like that gives you a little more flexibility to essentially grow into the reserves levels or how you're thinking about those. You've obviously been de-risking, the loans have not been growing, and most of the credit metrics have been improving, and you've had very good release. So just wondering how your thought of those levels going forward. Thank you.

And I'll ask Frank to comment on the credit profile of that, but in general, we believe that the reserve levels are at the right level. So in that sense, I wouldn't characterize a future flexibility associated with the ratio. But, Frank, do you want to comment on credit?

Yes, I mean, our charge-off are a crazy number. Our commercial losses over the last five quarters have ranged from roughly 20 to 30 basis points. Our consumer losses have been in the 40 to 55 basis points range. Those have been slightly higher actually than our peers. Again, it's a trailing number. Our NPAs have been coming down nicely, and in fact, we talked about criticized assets. That will come down, but now the other remainder is from our perspective, we’re nine years into a recovery, and I think we will continue to see some early signs that we will continue forever. And so, there certainly is conservatism. I view this realism, that's nine years is far beyond where we typically would see a pressure. So overall, we feel we are not where we are, but 130 coverage we are comfortable with that that covers 275% [Technical Difficulty] we feel that that's prudent based on where sit today.

Your next question comes from Scott Siefers from Sandler O'Neill. Scott, your line is open.

Hey, good morning, guys. This is actually Brendon on the line for Scott. Just I wanted to start with the commercial loan outlook, I believe just compared to the outlook you gave in December, if you look, you've improved the outlook for commercial growth a little bit, can you just talk about what's underlying that improvement in the commercial outlook?

Well, first of all, I will tell you that as I look at the activity levels that we had in the fourth quarter, they were substantially elevated. It was a very strong quarter of production, and it was across all of our corporate banking verticals, it was across nearly all of our geographies. If the tax policy changes, beginning to come into play, I frankly -- I had a lot of conversation with a number of CEOs and CFOs, middle market corporate relationships over the last few days, and various -- unquestionably a growing optimism, that can create a tailwind I believe for us as we look at 20018. But I'd also remind you that we've continued to reallocate our resources. We've, consistent with our North Star strategy, have built out new verticals, our TMT vertical continues to frankly accelerate, and we are developing a very strong name there. Our healthcare vertical had a great quarter. I think they were well positioned for 2018. The ACA Act, with that kind of becoming a little bit less of an issue; there is more clarity in that industry. We are very active there, and I think that you will see more around that space in the near future; energy -- with energy prices that's clearly creating a tailwind. And frankly, I'm really pleased we have some leadership, we have recruited additional middle market bankers throughout, some of our footprint, look you know, what we shared in the past around the Floridas and North Carolina, we got Tennessee really moving, Indiana being our strongest region for the year. But some of the markets where we have recruited bankers, we have new leadership such as Georgia, such as Cleveland, Northeast Ohio, such as Chicago, these are markets that frankly had a really good fourth quarter and we believe are very well positioned for 2018. Tayfun shared with you growth in that nominal kind of GDP, I believe that there could be some tailwind there. I'm optimistic we got the right business model, we got great talent and I'm looking forward to again.

I appreciate all the detail and color over there. And then, just turning to corporate bank fee just want to make sure I have the guidance for the 1Q, correct. Is it fair to say you take the 77 million from this question, add back the $25 million impairment and then the growth of 5% to 10% off of that higher level, is that correct?

Yes, it is correct.

And your next question comes from Peter Winter from Wedbush. Peter, your line is open.

Hi, this is actually Anthony on for Peter. My first question on deposit costs. They seem to tick up across most categories again similar pace we saw last quarter. Any of that promotional or what are you seeing there in terms of deposit pricing competition.

Yes, this is Jamie. The betas that Tayfun referenced, cumulative beta, roughly 22% does include some increases in promotional offers, both in the retail segment as well as with some exceptional pricing in commercial. In terms of the acceleration of the beta, the June hike, we experienced about a 35% beta relative to that 22% that we've had cycled to-date and when you break that down by product, commercial accounts experienced above average beta at about 41% cumulatively whereas the consumer accounts have experienced a below average beta of about 15%. And then add a little more color, when you break it down by the line of business, that 22% cumulative data translates to 6% in retail, 46% in our wealth and asset management line of business and then 52% in commercial. So I think that highlights where we’ve come and as Tayfun I mentioned, we are in that 45% to 50% modeling for the next couple of rate hikes.

Okay. And my follow-up is on the auto charge-off rates, it seems like it ticked up again a little bit this quarter about 10 basis points. I know you're looking to shrink the auto portfolio, but can you give any color on what's driving the continued increase in the charge-off in auto? Thanks.

Yeah. You have to realize that there is a denominator impact of that as well because the portfolio is shrinking and beyond just some seasonality, there is really no, but we’re pretty pleased with what's going out on the auto.

The next question comes from Christopher Marinac from FIG Partners. Christopher, your line is open.

Hi, good morning. Just wanted to ask about the LCR and as it pertains to not being part of your guidance and to what extent that could help if that plays into your hand later this year?

Our LCR target is to operate north of 110 level, so clearly the 129 is a bit elevated driven to some extent by just seasonal inflows and some cash positions, but it certainly gives us some flexibility as the year progresses. But also keep in mind, that’s just a point in time on the last day of the quarter. So it does move around intra quarter. But it would certainly give us some flexibility as 2018 progresses.

Do you think that will drive both margins and NII if that changes in your favor?

Yes.

Okay, great. Thank you very much guys.

Thank you.

And your final question comes from Saul Martinez from UBS. Saul, your line is open. Saul Martinez, your line is open. Please state your question.

All right. Okay, I think we will end the call there. Thank you Adam, and thank you all for your interest in Fifth Third Bank. If you have any follow-up questions, please contact the Investor Relations department and we will be happy to assist you.

And this concludes today's conference call. You may now disconnect.