Good morning. My name is Tamiya and I will be your conference operator today. At this time, I would like to welcome everyone to the Fifth Third Bancorp Q1 2018 Earnings Conference Call. [Operator Instructions] Thank you. Sameer Gokhale, Head of Investor Relations, you may begin.

Thank you, Tamiya, good morning and thank you all for joining us. Today, we'll be discussing our financial results for the first 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 Chairman and CEO, Greg Carmichael; CFO, Tayfun Tuzun; Chief Operating Officer, Lars Anderson; Chief Risk Officer, Frank Forrest; and 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. Earlier today, we reported first quarter 2018 net income available to common shareholders of $689 million and EPS of $0.97. Our reported EPS included a positive impact of $0.40 from a few significant items including a step-up gain of $414 million recognized from a Worldpay stake. Our first quarter results were strong and reflect our efforts to enhance the resilience of our balance sheet, capitalize on rate hikes and maintaining tight control over expenses. Recall that last quarter we revised our ROA and ROTCE targets higher after tax legislation resulted in lower corporate tax rates. Now on year two of Project North Star, our first quarter results showed that we remain on track to achieve the upper-end of our leasing device ROTCE target in the 15.5% to 16% range, an ROA of 1.35% to 1.45% by the fourth quarter of 2019. Excluding the Worldpay gain, another non-core items are underlying ROTCE for the first quarter was over 30% further adjusting for additional capital generated from the step-up gain or ROTCE for the quarter was 13.7% compared to 9.7% in the first quarter of 2017. We remain focused on driving improved shareholder returns as we continue to executive on our strategic initiatives under project North Star. We're discussing some of the highlights for the quarter, I'd like to make a few observations about the broader economic environment. We are closely watching our commercial client activity and remain cautiously optimistic about the outlook for employment and capital investment. For the low level of employment is supportive of a healthy consumer sector we’re also cognizant of elevated consumer debt levels. Moving on to our first quarter results, our asset sensitive balance sheet allows the benefit from increased short-term interest rates. Our…

Thanks Greg. Good morning and thank you for joining us. Let's move to the financial summary on Slide 4 of the presentation. As Greg mentioned, during the quarter NII growth and expansion, expense control and ongoing strength in credit quality metrics reflected our commitment to driving improved financial performance and shareholder return. Reported results were positively impacted by the items noted on Page 1 of our release. The most significant item was the $414 million positive pretax impact of the Worldpay step-up gain which we had previously discussed. This was partially offset by a $39 million pretax charge related to the Visa total return swap and $8 million impairment related to our plan to reduce our branch network by nine branches and an $8 million charge associated with an increase in litigation reserves. As we had discussed on last quarter's earnings call, our first quarter results were affected by seasonally higher expenses resulting from compensation related item. Despite this headwind, our underlying ROA, and ROTCE metrics improved substantially from the fourth quarter. Core ROA of 1.23% improved 11 basis points sequentially with core ROTCE of 13.4% up 1.7% from adjusted fourth quarter result. Recall that last quarter we revised our ROA and ROTCE targets to reflect our confidence in retaining the majority of the benefits from recently enacted tax legislation. As Greg mentioned earlier, we are taking a closer look at our expense base in light of the ongoing lack of strength in loan growth and the muted fee environment more on that a little bit later. Moving to Slide 5, loan growth continues to be challenging in commercial lending. The all end impact of tax reform has been modestly positive for the quarter. Clients have largely maintained their wait-and-see approach and as a result both loan production and payoff…

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 the time we have this morning. During the question-and-answer period, please provide your name and that of your firm to the operator. Tamiya please open the call up for question.

[Operator Instructions] And your first question comes from the line of Peter Winter with Wedbush Securities.

This is Anthony Elian for Peter. My first question - so with all the uncertainty regarding tariffs, are you guys seeing that this is keeping some borrowers on the sidelines until there is some more clarity or legislation out of Washington?

We are hearing some kind of feedback on that, but I would say that number one thing that we're hearing from our clients is really digesting still the tax law changes along with our rising labor cost. I wouldn't say that tariffs are really the number one priority, but it's clearly an issue on their mind and certainly is causing them to - I think take a pause which is what we saw in the first quarter.

And then Tayfun maybe one for you. If fee income for the year comes in a little bit stronger than expected, would you expect expenses will come at the low end of 4 billion to 4.1 billion range?

Yes, I think, so I mean there may be slight increases in incentive comp related line items, but in general I would expect to be able to hold on to that guidance.

And your next question comes from the line of Christopher Marinac with FIG Partners.

When you look at the fintech investment that have outside of Worldpay, would any of these be harvested in the Q3 that would make our CCAR impact or have a meaningful change to that plans?

Not really. Once again our focus on the fintech space is really going to be an additive to all our businesses, business like GreenSky or recent investment in [income bond], the acquisitions we made sort of fintech will be additive to our fee lines and really shouldn’t have an impact on our CCAR and capital distributions.

Your next question comes from the line of Mike Mayo with Wells Fargo.

This is Rob in for Mike. If I could follow-up on that last one, you had a pretty decent jump in the growth rate and technology spend year-over-year. I sort of wondering if this is permanent step-up and where the spending is occurring and how you guys think about your tech budget overall?

First of all we think our tech spend is consistent we are seeing in other businesses. As we go through this digital transformation, it’s important that we make our investments in smart place, it help us to be successful in our businesses. So we’re not to be digital everywhere, we’re not trying to grow everywhere, we’re really focused on our core businesses and be additive to our core businesses. We have a great technology organization, we continue to enhance our current capabilities and our additive to our current capabilities with new products and solutions for our customers. So we feel comfortable with our tech spend, we think it’s appropriate. We also are always considering opportunities once again to enhance our position. So our strategy around tech expend is basic buy first than partner and then build. I think the evidence is demonstrated here with our investments in fintech companies and some of the new things we rolled out like a momentum out are reflective of that strategy.

And if I could just follow-up with a bigger picture question on efficiency. I think a few years ago you talked about in efficiency ratio in the mid-50s with a normalized rate environment. Is the thought still that you could get there or is it more maybe a focus on fees and fee growth that might be lower efficiency but higher return on equity?

As Tayfun mentioned in his prepared remarks, we expect by the year-end to be at below 60% on efficiency ratio but we also believe there is more opportunity there both on the revenue side and on the expense side which is why we've engaged a third-party continue to look at additional items that we could focus on as we move into rest of 2018 and into 2019.

Your next question comes from the line of Saul Martinez with UBS.

On your capital guidance at your Investor Day you talked about payouts of 120% to 140% and then your guidance this morning you talked over 100%. So the wording I think it’s a little bit more general than what you had guided to at Investor Day. And so I’m curious, is there any change in thinking in terms of your capital planning and in your capital strategy in light of tougher CCAR examine and the new guidelines of stress capital buffers is this just - if you want to be a little bit more generalizing in your commentary ahead of this year’s CCAR?

There really isn't Saul. I think in general our targets remain intact clearly the stress scenario are in the current CCAR exercise was a little bit more stressed than we anticipated which may just slowdown our march towards that sort of mid-9s type of capital number. But we anticipate that we will get there and also there are some changes that the regulators are contemplated to make which may also have a positive impact, but in general our approach to where we think we can manage this balance sheet has not changed. I don’t know Jamie if you want to add anything.

Sums it up, I guess though the topic I think to touch on this the stress capital buffer in terms of all work we've done that derisk our balance sheet. If you look at the proposed rule and you go back over the last three years of CCAR submissions fourth with third our capital destruction is well below the 2.5% SCB buffer that's being proposed. So from a derisking standpoint we would certainly be - we would manage our portfolio well below 7% therefore will be subject to the 7% limit. And then from there obviously the benefit of the proposed rules will just allow us more flexibility for our management team and our board to manage capital going forward. But for now for 2018 CCAR scenario was pretty stressful in terms of the scenario. And therefore want to wait and see what the results look like at the end of June but like Tayfun said, we certainly - we’re targeting over 100% there.

And can you just give us an update on how you're thinking about your M&A strategy of the use of capital both from the standpoint of the fee-based businesses and depositories?

M&A perspective our position hasn't changed. Our number one focus is on building out our core businesses, making those core businesses and better serving our customers in the markets that we operate in today. So that's job one. Lot of investments you've seen us make on non-bank M&A are geared towards supporting those businesses from a fee perspective. So we're to continue to look at those opportunities and to be additive to our fee and service products that we offer our customers, and that's job one for us. Other M&A opportunities that there may emerge we’ll assess those, but once again it's a difficult challenge right now to figure out where those opportunities lie and our ability to capitalize on it. But job one is focusing on building out our core and non-core businesses, non-bank M&A opportunities to be additive to our business lines, if bank M&A materializes it will be because of the best interest of our shareholders.

And your next question comes from the line of Matt O'Connor with Deutsche Bank.

I just want to follow up on the expenses. If I am doing the math correct, it seems like you're taking in a pretty nice decline and causing the back half of the year versus the first half that is 7% drop on average. So we haven't seen that kind of quarterly progression in the past, I know there is some seasonality in 1Q and I guess I am just trying to get a better sense of, how confident you are in getting that and how much you are kind of bacon in some of these initiatives that you highlighted in your prepared remarks versus just normal seasonality and some upfront investment spend maybe you had this quarter?

There's some seasonality associated with it, Matt. There's also the additional benefit from the FDIC surcharge going away towards the end of the year. So, we are picking that up as well. We feel fairly comfortable with the guidance and there were also some severance expenses in our numbers this quarter. We're not forecasting those, we don't include those in our outlook for the remainder of the year. So I think, all in all we should be a fairly decent decline on a quarterly basis in total.

And then I guess more broadly speaking, heard like you've been working on expenses for a few years here, you got the project North Star. And I guess, I'm just wondering kind of what made you think that there is more opportunity to increase the urgency, take another look, hire an outsider and take a stab at this?

First off the Project North Star, so we have a lot of expense initiatives baked in the project North Star which I chose to embrace, but we've executed well against those initiatives as evidenced by the fact we were roughly flat year-over-year last year under our guidance for the first quarter this year and we just discussed what looks going forward. So we're very pleased with the initiatives that we put into the initial pipeline. But we're also mindful of this whatever things happening in our business in our industry that creates opportunities for further improvement that we're assessing. We're also watching what other businesses and banks are doing and we continue to believe in maybe opportunities for us to do a better job of managing our expenses going forward. So we're going to take a look at the next level what opportunities. Our “low hanging fruit” wide-out was harvested in the first phase of project North Star because it is going to be difficult as you move forward, but we do believe there is opportunities for further improvement. We don't have anything on the table. So bringing in third party who has done a lot of work in other areas, it could be as it how we’re thinking about our business and want to take that opportunity to assess our position today whatever may look like in the future.

And Matt one clarification that I want to provide is these types of studies take a little time. So we are at the end of the first quarter here in 2018, and it will be some time before we can actually finalize our perspective. So, I don't want to - we gave you guidance for 2018 total expenses. The results of this study may have some impact at the very back end of 2018, but any changes will most likely come more in 2009. So our guidance for total expenses remains intact as stated our slides as well as in our script.

And your next question comes from the line of Ken Zerbe with Morgan Stanley.

Just going back to the NIM guidance, obviously has increased as positive. How much of that relates specifically to the higher LIBOR spreads? And I guess the question is LIBOR or spreads do decline or go back to where there were a couple months ago, does that pose a risk for your NIM guidance? Thanks.

On the LIBOR OAS spread what we've assumed in our outlook is that spared and for us it's really sensitive to one month LIBOR. So one month LIBOR to Fed funds, we assume a 13 basis point spread level. So that's obviously up from the 5 bps in the fourth quarter and the 12 bps in the first quarter, but a little bit below where we sit today. We have that at 13 basis points the rest of the year, but then we have it normalizing in December where we revert back to 5 basis points. So is there some risk in the number to the down? Yes, a little bit but the historical spread on one month to Fed funds, I think it's about 10 basis points. I think we're into a new normal, but we don't have that number expanding and there could be some upside if one month LIBOR were to expand. In terms of our balance sheet on a one month LIBOR basis about 30% of our interest earning assets are tied to one month and only about 1% of our liabilities are. So that certainly carries some benefit to a balance sheet likewise.

I think, we also have been able to avoid the basis risk of some of our peers have seen negatively impacting their NIM. So that was a benefit.

And then just a follow up question, in terms of loan growth guidance, obviously starts off - seems like a starting off a little weaker this year. Can you just about the pull through rates because I know you mentioned like good pipelines in commercial they think that’s going to drive higher loan balances to hit your targets later in the year. But like what - I mean how much of those pipelines actually do end up resulting historically in an actual loan growth?

There is variation obviously throughout the cycle. And part of it has to do with your competition out there, how much they're structuring in terms of pricing, in terms of structure, in terms of your pipeline pull through. I would say today though that largely while it's very, very aggressive we've seen structure and pricing somewhat stabilized. So if I look at our pipeline today versus 90 days ago for example, I think we get pretty fairly compare apples to apples. And we see a very robust growth both in our core middle market across almost all of our regions and across almost all of our corporate banking operations. What the ultimate pull-through will be in the timing will be largely affected by the economic conditions, the confidence level of our clients we're going to stay very close to them. But I can't give you an exact pull- through number. But I would tell you just throughout my 30 some years of banking, the pull-through, the pipeline tends to be somewhere in the 25% range but I'm not sure that that's meaningful. I think what's more meaningful is the fact that our pipeline is becoming much more robust and frankly, it's growing in the businesses in the geographies where we would want it to be.

And your next question comes from the line of Vivek Juneja with JPMorgan.

Number one, do C&I yields if you could just talk about any recoveries in that number?

No.

Secondly, I'm trying to understand a little bit about your efficiency ratio on a core basis, trying to strip out all the non-core items and there's a bunch of them. And if I look at just total revenue growth and look at total expense growth and efficiency ratio, efficiency ratio was essentially flat year-on-year, despite all the stuff you've been doing on the North Star. And if I look at whole growth that also seems to be slightly above where - on a year on year basis. So any color on sort of what happened this quarter, why it stayed flat and we saw no improvement?

So a couple of comments to that, there are some - if you peel all the one timers, there are a couple of items that have impacted the year-over-year change. One of them is, the impact of the change in corporate tax regime on LIH amortization. There is a little bit of severance expense this quarter in our numbers. And also there is a reduction in fee income related to the closing of both the reduction in percentage ownership in Worldpay, as well as some of their quarterly noise. So if sort of peel those numbers out, I think there is a relatively decent directional improvement in our efficiency ratio. For the year, our guidance on NII clearly is now getting to from a pure 2017, 2018 comparison perspective to over 8%. And overall total revenues are getting near 6%. And so the combination of the very powerful - has a powerful - very powerful impact on core efficiency ratio. So, and if you peel down the low income amortization line item, that momentum takes us to below 60% and that is a pretty decent year-over-year total improvement. And we would expect that - going into 2019, we would expect- it's hard to give guidance for 2019, but we would expect that momentum to continue into next year as well.

Any color on sort of numbers around that LIH amortization expense, what are we talking about in terms of how much this year versus a year ago first quarter…

I think I mean - we don't necessarily give out - we give obviously annual guidance. This quarter the number was about $9 million or $10 million above the last...

And you think that's likely to continue at this sort of rate through the rest of the year…

There is a temporary uptick in that line item because of the change in corporate tax rates but towards the end of I think next year that incremental impact that is borne by the change in the tax rate should start to disappear.

And your final question comes from the line of Scott Siefers with Sandler O'Neill.

This is actually [Brendon] from Scott's team. Just want to ask the question on the provision here, came in a good deal lower than we were looking for despite charges being pretty consistent with what they've been running at. Do you view this quarter step down and reserve ratio as kind of a onetime step down or do you think given the current credit environment there is the potential for another step-down in the reserve ratio?

So a question with potential two answers, I'm going to answer the quarterly change in the provision and then I'm going to turn it over to Frank to comment on credit. Clearly, it was a sizable step-down from 1.3% to 1.24%. But there were some significant decline on the parts of the portfolio that sort of supported a higher reserve coverage. So that was actually a very good development. There were some specific reserves that tend to impact coverage levels and changes in coverage levels quarter-over-quarter. But overall really that change was significantly due to an overall improvement in the risk profile of the loan portfolio. And having said all of this, we still remain in the top quartile of coverage levels when you look at our peers. So, Frank any comments on the credit.

Not really, we were up guidance for the year still range down to what we've given guidance on - we made various low lumpiness quarter-to-quarter. But our overall portfolio both in the commercial and the consumer side are they managed very well, our criticized assets are 4.8%, continue to come down quarter-after-quarter. There's not a whole lot of room probably left for that, just given where we are in the cycle. Our non-performing assets have been stable and our - and the upper quartiles relative to our peers we feel very good about that. And our charge-offs again you'll see for the most part a range in the 25 to 35 basis points over the course of the year. The work that we got over the last few years is paying off for us, we've taken out $5 billion of risk in our balance sheet, 1.7 of that is a leverage lending which had contributed in prior years to some more significant write-downs. So we've positioned the company as we said consistently to perform exceptionally well through cycles. We're seeing that. We're seeing that in the reserve. And you're going to see that I believe in our results going forward.

And then one final question just on the tax rate guidance beyond 2018. Just curious as to the change from the prior guidance of 14% to 14.5% up to 15.5%. Is this just the result of kind of digging deeper into the specifics of the tax law change or is there something more specific you want to call out?

It's really is more due to the increase in expected income levels because those marginal increases come at all tax rate versus the credit impacted tax rate so.

And we have time for one additional question. And your next question comes from the line of Gerard Cassidy with RBC.

This is actually Steven Duong in for Gerard. Thanks for taking my question. Just a question on GreenSky, can you guys remind us what your first loss protection is on that portfolio? And does it change with the different loss levels?

The protection you get in the GreenSky arrangement is a 1% escrow balance for first loss and then after that there's a lost coverage that's generated from what we call the waterfall the cash flows off the portfolio. And in total that number we ballpark in the 5% range. So we feel quite good that given the fico in the 760 range and a little bit over a 5% gross yield along with a little bit over 5% loss coverage. So these will be good assets for our return.

And just curious on that, have you guys modeled out what your losses would be if we had another big recession say on employment 8% to 10%.

So we actually do that in CCAR submission and it really shakes out how we look at the portfolio fairly close to what some home equity products would have been, pre-crisis and in the crisis to that in a base environment, we model a lost range could be around 3%. And then in a stress environment you could get two to three times that in losses. Obviously comfortable with how that plays out last year.

And just a final question, your construction loan portfolio you had some good year-over-year growth. Can you give us some color on that? What's driving the growth you're underwriting, the property types, where you're seeing the strongest growth et cetera?

So a couple of things, first of all the growth that you did see was really primarily driven with fundings under legacy construction facilities, frankly are beginning this season were coming towards the end of a cycle. In our opinion, we're being much more say prudent about our assets selection, our client selection. As you may recall, we previously after the great recession really pulled together on expert underwriting group with some talent versus having underwriting done out in the regions that's producing some excellent results, the asset quality and portfolio continues to be very, very strong. But as you look out this year, I wouldn't expect to see significant growth out of that portfolio's as we've previously shared. But to the last part of your question, we have really pivoted to some other asset classes away from multi-family a year ago, probably half of our production would have been in multi-family, today it's less than a quarter, as we really focus on those assets that we believe will have more economic scale to them and make sure that we are appropriately exposed to the commercial real estate market in the event of a cycle turn.

And I will now like to turn the call over to Sameer Gokhale for some final comments.

Great, thank you Tamiya. And thank you all for your interest in Fifth Third Banc. If you have any follow-up questions please contact the Investor Relations department and we will be happy to assist you. Thank you.

Thank you. Ladies and gentlemen, you may now disconnect.