Fifth Third Bancorp (FITB) 2014 Q1 法說會逐字稿

Good morning, my name is Sally and I will be your conference operator today. At this time I would like to welcome everyone to the Fifth Third Bank first-quarter 2014 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). Thank you.

Mr. Jim Eglseder, Director of Investor Relations, you may begin your conference.

Thank you, Sally. Good morning. Today we will be talking with you about our first-quarter 2014 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 have 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 am joined on the call by several people -- our CEO Kevin Kabat and CFO Tayfun Tuzun; Frank Forrest, Chief Risk Officer; Treasurer Jamie Leonard; and Jeff Richardson, Director of capital Planning. During the question-and-answer period, please provide your name and that of your firm to the operator.

With that, I will turn the call over to Kevin Kabat. Kevin?

Thanks, Jim. The reported first quarter net income to common shareholders was $309 million and earnings per diluted share of $0.36. Significant items during the quarter include a $36 million negative valuation on the Vantiv warrant, litigation reserve charges of $51 million and a few other items that Tayfun will cover.

These items reduced EPS in the quarter by approximately $0.07. Additionally, we recognized charge-offs of about $60 million on three relatively large credits. Some of the higher charge-offs during the quarter [was expected].

Our credit outlook for the remainder of the year hasn't changed absent the impact of these credits. Each of these situations had unique characteristics that led to charge-offs. We don't believe this is indicative of a change in direction of the broader portfolio.

Highlights in the quarter include 3% growth in both average core and transaction deposits. Year-over-year core deposits were up 8% and transaction deposits were up 9%. For the quarter, average portfolio loans group 2% sequentially and period and portfolio loans increased $1.1 billion or 1%.

Average commercial loan balances were up 3% sequentially, led by C&I growth of 4% over last quarter. Commercial real estate average balances continued their rebound, driven primarily by construction loans with total commercial real estate balances up 1% sequentially.

Excluding mortgage revenues which continue to decline, fee income results were solid. You know they exhibited some seasonal trends. I would add the lower levels of consumer fee income relative to what we expected coming into the quarter exhibited more than the normal seasonal softness. Whether it was debit, credit activity, ATM, account and household activity in the branches, all were a bit lighter than expected in the first quarter.

We still have enough of our footprint in parts of the country that were significantly impacted by be severe weather in January and February. And we did see activity pick up in March.

I don't know that we will ever get that lost activity back, but certainly the March trends continued into April are much more in line with what we have seen historically and supported by solid household growth and other trends resulting from our consumer banking design.

Highlights in the quarter were corporate banking fees up 11% sequentially and 6% from a year ago and also investment advisers had a record quarter. It was up 4% sequentially, led by solid production from our private banking business and higher trust tax fees. Our private banking business, which is a little under half of that total business line in aggregate, showed year-over-year growth of 8% and sequential growth of 11%.

We continue to manage cost in a disciplined manner. Quarterly expenses decreased 4% sequentially, driven primarily by a reduction in total employee cost. And that includes the impact of seasonally higher benefits expense.

If you exclude the litigation charges in the quarter, non-interest expenses were approximately $900 million, the lowest level on that basis in several years. Overall, this was a strong quarter in terms of core controllable expense management.

Capital levels remained very strong. Our Tier 1 common ratio was 9.5% on a Basel I basis and 9.1% pro forma per US Basel III rules. Our ability to generate capital and our strong capital position under current and future capital rules give us the ability to support balance sheet growth, while continuing to return capital to shareholders in a prudent manner.

During the quarter we announced and completed the repurchase of roughly $100 million of common stock, which completed our 2013 CCAR plan. Also in March, we announced our capital plan relating to the 2014 CCAR process. That plan included a potential dividend increase during the CCAR period, up to $0.13, as well as up to $669 million of share repurchases.

We also will be able to utilize any after-tax gains from sales of Vantiv shares for additional repurchases. We think our plan is prudent while still returning significant amounts of capital to shareholders and we believe that our stressed results demonstrate our robust capacity to withstand stress conditions and maintain a strong capital position.

Although there was a bit of noise in the quarter, we expect a return to previous charge-off trends although results may be lumpy from time to time. Regulatory and litigation costs in this environment are challenging, but we do not expect them to remain at this level. And we feel good about our investment in Vantiv although as a mark to market instrument, our warrant will likely continue to add some volatility through reported results.

Core operating results were otherwise generally strong, and as Tayfun will discuss, we currently expect second-quarter results to return to trend.

I will turn it over to him now to discuss the operating results in more detail and give some comments about our outlook. Tayfun?

Thank you, Kevin, good morning and thank you for joining us. I will start with the financial summary on page 4 of the presentation. There were a number of moving parts to this quarter which Kevin mentioned in his remarks. [EPS] were expected by elevated litigation reserve charges as well as the mark on the Vantiv warrants which have been mostly upward the past couple of years.

We reported net income to common shareholders of $309 million or $0.36 per diluted share. The negative Vantiv warrant valuation mark of $36 million and seasonal declines in some C items drove no interest income lower compared with last quarter.

Expenses were well-controlled despite a seasonal increase in benefits expense and reflected the impact of further efficiencies in our mortgage and retail businesses. Commercial loan and core deposit growth were solid and in line with our expectations.

We continue to believe that our underlying trends and our focus on executing our strategic plan position us very well for the remainder of the year.

Turning to the average balance sheet on page 5 of the presentation. Average earning asset increased 1% sequentially, driven by higher loan balances and investments. Total average commercial loans grew $1.7 billion or 3% with good production in middle-market C&I, commercial real estate, and our other specialty lending businesses, including healthcare. Average balances also benefited from a 1% uptick in line utilization during the quarter to 30%.

On the consumer side, [health flow] investment loan balances were flat on a linked quarter basis and growth in residential mortgage, credit cards and auto loans offset by lower home equity balances. Investment securities increased by $2 billion or 11%, reflecting our incremental purchases of highly liquid assets.

Turning to deposits. Average core deposits increased by $2.2 billion or 3% in the first quarter, driven primarily by added sales growth. This was due to growth and checking balances as well as new money market account relationships and longer duration of retail CDs.

Taking a look at NII on page 6 of the presentation. As expected, taxable equivalent net interest income decreased $7 million sequentially to $898 million, driven by a $12 million negative impact from two fewer days in the quarter. Otherwise the net addition of about $2.1 billion of investment securities and commercial loan growth drove a sequential increase in net interest income.

These benefits offset the negative effects of loan repricing, higher deposit balances, and debt issuances from the last two quarters. These activities were generally consistent with our plans coming into the quarter and we feel we have made very good progress towards exceeding the [RCR] limit. We will likely continue with similar actions over the course of the year which may affect the NIM somewhat, but they should not affect NII.

As we expected in our outlook in January, the net interest margin came in relatively stable at 322 basis points, up 1 basis point from the fourth quarter. The benefits of lower cash balances held at the [Fed], they count and the full (technical difficulty) impact of the fourth quarter TruPS [redemption] offset the effects of loan repricing and the recent debt issuances.

Shifting to fees on page 7 of the presentation. First-quarter noninterest income was $564 million, compared with $703 million last quarter. The most significant impact sequentially was the Vantiv warrant valuation which experienced a $127 million swing from the fourth quarter, primarily due to the 7% decline in Vantiv's share price.

Despite this quarter's decline, Vantiv's share price has increased 48% since the beginning of 2013 and we have recorded $171 million in positive valuation adjustments on our warrant during that period. Seasonally lower deposit service charges and card and processing revenue, as well as lower mortgage banking revenue, each reduced fee income in the quarter.

Mortgage originations were $1.7 billion this quarter, compared with $2.6 billion in originations last quarter. Gain on sale revenue declined $19 million from the prior quarter, reflecting lower origination and gain on sale margin which declined 22 basis points sequentially to 242 basis points.

MSR valuation adjustments, including hedges, were a positive $28 million in the fourth quarter compared with a positive $26 million last quarter.

Other highlights of the quarter included an 11% increase in corporate banking revenue and a 4% increase in investment advisory revenue to a record $102 million, driven by seasonal trust tax preparation fees, growth in personal assets under management and higher market values.

On a year-over-year basis, all main fee categories showed growth other than mortgage. Our operating platform is strong and we demonstrated great versatility in managing our fee-generating businesses which is a very good indicator of (technical difficulty) ability to successfully transition from periods of peak mortgage activity.

Noninterest expense shown on page 8 of the presentation was $950 million this quarter, compared with $989 million in the fourth quarter. Expense result included $51 million in litigation reserve charges, a seasonal $24 million increase in FICA and unemployment tax expense, and $4 million in severance expense.

Adjusting for these items and seasonal increases, expenses declined 5% compared with the fourth quarter. Compensation-related expense declined 7% sequentially, largely due to two key drivers. We continue to rationalize our mortgage business lines, in line with lower production levels. Since the second quarter of 2013, we have taken out $55 million of mortgage costs, including an additional $5 million in the first quarter.

In addition to mortgage, the changes in the retail banking environment, our investments in and the success of our digital platforms and our strategic decisions on branch design and staffing have enabled us to enhance our services while also reducing branch costs, which are down $29 million on a full year run rate basis since the first quarter of 2013, primarily due to lower FTE costs.

We have made a lot of progress, we are in a very good competitive position, relative to our peers, and we believe that there is more opportunity as we continue to evolve our structure.

All in PPNR shown on page 9 of the presentation was $507 million. When adjusted for the items noted on the slide, PPNR was $590 million down about 5% from the fourth-quarter adjusted PPNR. This decline was primarily driven by the seasonal increase in FICA and unemployment tax expense. Adjusted for this seasonal uptick, PPNR was $614 million. The efficiency ratio adjusted on the same basis was 60% for the quarter. We still expect our efficiency ratio to decline below 60% during the second half of the year.

Turning to credit results on page 10 and starting with charge-offs. Total net charge-offs of $168 million increased $20 million sequentially. Consumer net charge-offs declined $7 million.

As Kevin mentioned, first-quarter commercial charge-offs included three larger credits that added $60 million to the quarter. These credits represent three unique sets of circumstances and I will spend a few moments on each. They do not share geographic (inaudible) and they were not leveraged or syndicated credits. Each contributed about $20 million in losses during the quarter. The remainder of our losses were more typical and range from $0 to $7 million.

The first of these credits was a letter of credit that was extended to a public entity a number of years ago. Deterioration in its financial situation led to the outcome. We have no other public entity exposure of this size and nature, and there is no change in our expectations for the rest of this portfolio.

The second credit was an exposure to a company where there is currently an investigation underway regarding potential financial irregularities. We need to wait until our analysis is complete, but once again, our credit team believes that the nature of the disruption is unique to this transaction.

The third credit was to a company that recently lost key contracts which had a negative impact on its financial performance, and subsequently led to a default of our loan. Although the hard than anticipated losses this quarter have the effect of increasing our expected charge-offs for the full year, we have not seen a change in the broader credit trends in our portfolio. As a result, our outlook for charge-offs for the remainder of the year has not changed.

In terms of our other credit trends, commercial early-stage delinquencies, [criticized] asset levels and NPAs all declined relative to the fourth quarter. Total delinquencies of $337 million declined $42 million or 11%, and included only $10 million of commercial loans.

Looking across the page, nonperforming assets of $946 million at quarter and were down $34 million or 4% from the fourth quarter. The improvement was due to a $25 million sequential decline in commercial real estate NPAs and a $22 million decline in residential mortgage NPAs, partially offset by a $14 million increase in C&I (technical difficulty).

Reserve coverage remains solid at 1.65% of loans and leases. The allowance for loan and lease losses declined $99 million sequentially reflecting the portfolio's overall risk profile and charges to the allowance.

Page 11 of the presentation includes a rollforward of nonperforming loans. Commercial inflows in the fourth quarter -- in the first quarter were $163 million, up $56 million from the fourth quarter, largely driven by inflows from the credits I discussed earlier. Consumer inflows for the quarter were $93 million down $72 million sequentially reflecting the fourth-quarter change in our home equity nonaccrual policy.

Turning to capital on slide 12. Capital levels continue to be well above their growth-oriented (technical difficulty). The tier 1 common equity (technical difficulty) 9.5%, up 12 basis points from last quarter. Changes in capital ratios reflected growth and retained earnings beyond an impact of dividend and share repurchase activity.

We completed the repurchases related to our 2013 capital plan in the first quarter. Repurchases in 2013 and the first quarter of 2014 totaled 73 million shares, including those related to after-tax gains on the sale of Vantiv shares.

Our repurchases have driven significant declines in our fully diluted share count, down over 100 million shares or 10% from their peak while, at the same time, maintaining common equity capital ratios significantly above regulatory (technical difficulty).

The Federal Reserve's 2014 CCAR review is complete and we received no objection to our capital plan. We believe our results demonstrate the relative strength of our capital position and our ability to absorb significant stress. Given our capacity for internal capital generation, we would expect to continue to prudently return additional capital to shareholders under our 2014 [CCAR plan].

Now turning to the outlook page, on page 13. We have updated parts of this slide to reflect any changes to our full year expectation, but in general our first-quarter results did not have a significant impact other than on charge-offs as I already mentioned. I did note that, as in the past, comparisons with 2013 exclude the impact of any gains on Vantiv share sales and changes in warrant value in 2014 and 2013, as indicated in the footnote on this slide.

Our NII, NIM, and balance sheet expectations are unchanged from our January guidance. So I will start with net interest income.

We expect full year 2014 NII to increase from full year 2013 NII of $3.6 billion in the 2% growth range. The key drivers of the 2014 growth are loan growth and higher investment security balances partially offset by increased funding cost and some additional loan (technical difficulty) compression. We still expect NII to trend up throughout the year. We anticipate a full-year NIM in the 315 basis point range plus or minus and again unchanged from the January guidance as we continue to add [LCR] friendly portfolio investments and see loan spread compression.

Turning to loan growth, we still expect mid-single-digit growth for the full year average, primarily driven by continued growth in C&I as well as growth in commercial real estate. These increases will be partially offset by declines in residential mortgage balances and continued runoff in the home equity portfolio. We expect both commercial and consumer deposits to increase.

Moving on to overall fee income and expense expectations for 2014. As a reminder, these comparisons exclude $534 million in 2013 fee income related to gains on Vantiv sales and changes in the warrant value. Our 2014 guidance likewise excludes any effect from Vantiv events, other than our normal recurring income.

Overall, we currently expect a mid- to high-single-digit decline in total fee income in 2014 compared with adjusted fee income in 2013, primarily reflecting a forecast reduction in mortgage banking revenue of about $325 million.

The forecasted reduction in mortgage revenue is about $50 million more than we expected in January, primarily reflecting continued softening in originations and the impact of our decision to existed broker channels that we announced in March.

Excluding mortgage, we expect fees to grow in the mid-single-high -- mid-single digits range in aggregate versus 2013 with growth in all other fee categories.

Looking at the details within fees. We would expect to see mid-single digit percentage growth in deposit fees. We have brought our expectation down a bit reflecting a moderation in both consumer and commercial service charges. We continue to expect investment advisory revenue growth in the 10% range, corporate banking revenue growth in the mid-teens range and card and processing revenue growth in the mid- to high-single digits range.

And lastly, as I mentioned, we currently expect mortgage banking revenues to decline about $325 million from 2013. We currently expect originations and gain on sale revenue to be fairly consistent throughout the last three quarters of the year.

Turning to expenses, we expect full year noninterest expense to be down in the mid-single digits, relative to recorded 2013 expenses. I would note that we have been managing our expenses very carefully and, given the revised outlook in some of our key categories, we would also expect to reduce expenses and (technical difficulty) on a large base so it does not change our numerical percentage guidance. We will continue to manage expenses carefully and aggressively in line with revenue results and the economic environment.

Overall, we still expect to achieve positive core operating leverage in 2014, excluding Vantiv, and we expect PPNR growth in the low single digits range for the year.

Importantly, we still expect the efficiency ratio to move below 60% in the second half of the year. As for taxes, we expect a full year 2014 effective tax rate to be in the 27 to 27.5 (technical difficulty) range.

Turning to credit, we have adjusted our outlook for full year net charge-offs upwards by about $60 million to reflect the elevation in first-quarter charge-offs. That translates to about 50 basis points for the year. There was no meaningful change otherwise to our outlook for the last three quarters of the year as we continued to see improvements in overall credit quality metrics, including nonperforming and criticized assets. We still expect a significant decline in the NPAs, down about 15% from last year's levels and for the NPA ratio to move solidly to our 1% year over year. With respect to loan-loss reserves, we continue to expect the benefit of improvement in credit results to be partially offset by new reserves related to loan growth.

Finally, a housekeeping note. The segment reporting that we provide on page 34 of the earnings release reflects a reorganization of our business banking unit which primarily impacted the commercial and branch banking segments [this quarter]. This change was also applied retrospectively to our segment reporting and is reflected in all periods presented.

In summary, the strong fundamental progress in our business was obscured to some extent this quarter. However, with strong momentum in our core businesses and our ability to make progress in our strategic initiatives is generating core PPNR growth in (technical difficulty) challenging environment for banking institutions.

We are improving efficiencies while investing in our business. And we believe we remain well-positioned as we progress through the year.

That wraps up my remarks. Sally, can you open the line for questions, please?

(Operator Instructions). Paul Miller, FBR.

Good morning. This is actually Jessica Ribner for Paul. Just a couple of questions. The first is how much more room do you think you have for reserve releases in the coming quarters given that you are at a 165 basis point reserve ratio?

Yes, in general, we have not provided forward-looking guidance on reserves, other than saying that in 2014 our reserves are likely to be lower than in 2013. We will probably stick to that guidance. We have a very solid ratio at 165 and feel very comfortable with the credit profile of our balance sheet, and in that respect we would still expect that number to go down. But beyond that, in this environment, it is difficult to provide a more precise outlook for reserves.

Okay, thank you. Then one question on the mortgage banking side. I know you mentioned during the call that you don't expect to see a pickup above last year or even to last year's level. But what are you seeing in the spring buying season? Is it encouraging for the rest of the year? (multiple speakers)

Too early to tell. We clearly are now entering the high season and coming out of a very cold winter in our footprint in the Midwest. It is early to tell, but so far I think originations are moving along as expected.

Okay, thank you very much.

Ken Usdin, Jefferies.

Good morning. Tayfun, I was wondering. On the expense side, when you talk about the outlook you are working off of last year's reported. So if I look at $950 million of reported expenses with the $51 million litigation and severance and the $24 million seasonal increase, I was wondering if you could level set us on how we should think about the progression off the first quarter. Do we start at $875 million and then move from there?

Well, obviously, the first quarter excluding the one time that you just mentioned, the number is below $900 million including the $24 million in employee-related seasonal numbers.

Going forward, we probably will be up a little bit, but the remainder of the year should fairly -- should be stable. We shouldn't see quarter-to-quarter changes. Relatively though, compared to the adjusted number, our expenses will probably inch up.

(multiple speakers) Can you talk to -- so just wanted to ask you to explain through that. So if you got the seasonal $24 million, what would the seasonal $24 million be completely replaced by if you are talking about mortgage continuing to be a little bit soft and underneath?

Yes, we will -- there's a little bit seasonality in our marketing expense. You will see that your second and third quarters of the year, and beyond that there are really small changes in different line items. Nothing big, quarter to quarter. In mortgage just because production goes up in the second and third quarter, you'll see some uptick in base compensation expense, probably just for a couple of quarters and it will subside towards the end of the year. Other than that, it really is sort of across the board (inaudible) nothing meaningful in any one line item.

Okay and then on the capital side, you talked about your thoughts about, well, just always it is tricky to understand the forwards versus the approvals that you got on this year's CCAR. So how do we think about how you are thinking about this year in terms of getting through the new approval and any change in your view about continuing to monetize the Vantiv?

Yes, so on capital when you look at our 2013 CCAR plan, what we announced at the beginning of that period and what we executed were very much in line. So we fully executed our 2013 capital plan.

Our expectation is that we will fully execute our 2014 capital plan as we disclosed in March with $669 million in buybacks and a potential increase in dividends to $0.13. And those are obviously subject to Board approval and financial conditions. But in general, our expectations would be the same as 2013.

With respect to Vantiv, we own 25% of the Company right now. The Company is doing very well, but we have publicly stated that our long-term strategic goal is not to maintain large ownership in a publicly traded company, and we will execute on that plan.

You will likely see sales this year. It is difficult to predict the timing, but what we laid out in our plan last year was that with respect to our thoughts [inventive] we will continue to execute this year.

Thanks very much.

Scott Siefers, Sandler O'Neill.

I was wondering if you could speak broadly to commercial pricing dynamics that you are seeing. And as you look at the prospect of additional pressure on the NIM, how heavily it is weighted towards pricing issues versus things like continuing to do liquidity build and prep for LCR, things of that nature?

I will make some comments and I will turn it over to Jamie to comment on his actions with respect to liquidity. In general the market continues to be competitive and you say that from other peer banks as well. We are maintaining a very tight discipline about pricing and around credit attached to those pricing levels. And we are likely to see more compression in commercial loans. We have seen some comments about pricing in commercial real estate. Where we play there is a bit different. The long-term commercial mortgage product doesn't necessarily fit our balance sheet. We are not competing in that segment where a lot of the insurance companies and pension funds appear to have increased their focus.

In commercial lending, C&I per se, we are seeing continued price compression although quarter over quarter and comparisons in our commercial use is a bit misleading because we had a couple of moving parts in Q4 to our benefit and a couple (technical difficulty).

So, Jamie, do you want to comment on how you see the spread compression coming from commercial versus everything else that you are doing on the balance sheet?

Sure, Tayfun. And, Scott, it's Jamie. NIM outlook on 2Q, as Tayfun mentioned in his prepared remarks, we were -- we continue to expect a NIM of -- in 2014 -- of about 3.15%. I think that is where the second quarter should end up and the moving parts there, one to two be bps of loan yield compression, a couple bps decline due to day count. And then the remainder being the impact of the additional portfolio leverage and then the funding cost to go along with it. And, again, I think we managed the first quarter very effectively. We are pleased with the outcome at being up a bp while continuing to add the portfolio leverage. And a lot of that was due to continued discipline and pricing in commercial, auto, and mortgage.

Okay. That's perfect. Thank you very much for that color.

Matt O'Connor, Deutsche Bank.

You actually have Dan from Matt's team. Quick question on fees. With the fee income guidance coming down this quarter in some of the businesses like investment advisor and deposit fees, is that primarily due to a weaker January and February with the weather? Or are you seeing activity a bit lower than expected?

Well, look, we want to make sure that we provide you guys with an updated realistic look. And clearly the first quarter activity, as Kevin mentioned, in his opening remarks was lower than we expected and -- but that was due to weather or something else. At this point we don't want to speculate.

But we have seen the pickup in March. We have seen very good household build up in March and into April here, which should be indicative of a better direction in consumer-related fees. In general, our [agent list], which is primarily focused on private wealth management and brokerage is doing very well. Despite the fact that we may have to lower the outlook a little bit, that still is a strong growth business for us. Corporate banking is still expected to be up double digits.

So those are very strong numbers. We are not changing the tone of our outlook, but we felt we had to make some adjustments for what we have seen in January and February this quarter so far.

Said a little bit differently, Dan. It is really difficult to tell you whether or not those fees catch up or they simply trend back. And we are not going to make the assumption that we get any kind of catch up from those perspectives. Particularly as it relates to the consumer side of the house. It is just we don't think that is a reasonable expectation and that is why, to Tayfun's point, we have given the guidance that we have given.

Got it. Thank you.

Erika Najarian, Bank of America.

Good morning. My first question is on the efficiency guidance. And it is a bit of a two-parter.

Tayfun, I appreciate the color you gave on breaking the 60% efficiency ratio in the second half of the year. How much does the decline in your litigation reserve accrual play into that guidance? And additionally, could you give us a little bit more color in terms of the opportunity you mentioned to evolve the structure and what that could imply for your efficiency outlook for 2015?

Yes. First of all I think adjusting for the litigation reserves and of Vantiv, our number is already pretty close to 60%. So from here on, we don't forecast additional litigations to those so my guidance for the efficiency ratio does not include additional litigation reserves. We would not make that forecast. We would not build that into our forecast.

But we are confident given the strength in our fee income, our NII increase [2%] year-over-year and the ability to manage the expenses down that we will be able to reach a below 60% efficiency ratio in the second quarter. So those numbers obviously we have some expected efficiency gains on the retail side this year, which we would expect to continue into 2015.

We are seeing, as we have shared with you in December and again in February, we are tracking consumer behavior very closely. We have a very close eye on what that means for expenses in our branch system. We would expect that behavior to continue to move in our favor. We have seen that in Q1, we have seen increased usage of ATM and digital use in transaction volume. If that trend continues and I should say it is likely continued from our perspective, we should see increased efficiencies in 2015 in addition to what we are seeing this year.

Got it.

And just one -- color on it. That is all while still continuing to invest in our topline, our revenues in our ability to growth the Company from that perspective. So we have got a balanced perspective and we are trying to make sure that we do what is best for our shareholders long term, not just short term, given the environment we have.

Got it. And a follow-up question. There's been much talk during this earnings season about leverage loans and shared national credits. Could you give us a sense of let's say over the past four quarters, how much leverage lending and shared national credits have contributed to your overall C&I growth? And perhaps remind us how those credits perform during the last two credit cycles for Fifth Third relative to the rest of your C&I book.

Yes, let me -- thanks for asking the question. It has really been discussed in different platforms. First of all, I think relying on third-party information to deduct any type of origination levels on individual banks is extremely difficult. Because what is being published and what has been used to support some of the research is totally based on splitting book line on credit, without actually looking at how much credit each book runner is keeping from each transaction.

So, for example, in 2013, if you look at total lease table book runner credit, that is $5.3 billion that has been associated with us but when you look at actual -- our total committed levels, it is less than half of that amount and then you look at the outstanding, it is close to only 25% of those amounts.

So you can't -- it is very difficult to start with a topline relying on third-party unpublished numbers and coming up with NOLs in -- that hit our balance sheet. And all that amount, just remember, the way they define NOLs all that amounts, only a fraction of the $1.3 billion for 2013 is in leverage loans. And that is probably in the mid-teens.

So as you sort of peel the onion you will get to a number that is much smaller than what the topline number would indicate. So for the first quarter of 2014, if you were to add up the credits that we were a part of as a book runner, the gross number would be $2.4 billion. But our committed number total in Q1 was a little less than $700 million and the loans on our books currently is less than half of that, which is $340 million. And a smaller amount, a much smaller amount, is again in leverage loans.

So one needs to be careful in terms of syndicated loan volumes or leverage loan volumes because what they describe as leverage is truly loans that are the low investment grade.

Now, how do we sort of view syndicated lending within our commercial business? Syndicated lending is an important part of our business. As you know, over the last three, four years, we have been shifting our commercial lending up toward higher end of the corporate borrowing sector. Our investments in health care, our investments in the energy sector and our investments in the mid corporate sector, they all have moved us up in terms of the size of the borrower.

So when you look at the borrower, now these are companies with $250 million or higher in revenues, their borrowing needs are going to be larger and, clearly, no one bank can handle the entire borrowing needs of those institutions. So we end up basically participating in syndication.

And the other misnomer a little bit is people look at the agented volumes and they correlate those with leads where banks are participating heavily in either structuring or underwriting to credit. Well, again, very long -- our strategy in moving up and the size of the borrowers, we also have increased our capacity on the capital market side. And what we are seeing is that in half or even in some quarters closer to two thirds of the transactions we are heavily involved in structuring and syndicating these credits.

So, what is happening today is very much in line with what we expected two or three years ago when we ventured into the upgrade in our commercial lending platform and the upgrade in our capital markets platform and we are seeing the results and these are expected results.

Today, about 39% of our total commercial loan is in syndicated credit. That is a number that we are very comfortable with.

In terms of the credit profile of our syndicated book, when you look at the performance of these what you'll see is charge-offs, NPA ratios, nonaccruals, half of the remainder of the portfolio. The credit grades in this portfolio are better than the credit grades when you look at the broader commercial portfolio that we own.

So, again, what we are trying to do is we are trying to differentiate what it means to be in syndicated lending. The fact that it is part of our strategy and, at 39% of commercial loan, we are very comfortable where this portfolio is.

Let me just add, this is Jeff. Going back to your original question. Our leverage portfolio is using the regulatory definitions, it is about $4.8 billion. So less than 10% of our portfolio and we are also very (multiple speakers).

Yes and that is actually in the slide.

Yes and that has not grown over the last 12 to 15 months. So, it has not been really attributable to (technical difficulty).

And along with that let's clarify one more issue. Cov light lending has been talked about quite a bit over the last number of quarters. Our exposure to covenant light lending is less than 1% of our portfolio.

So, Dan, it pays to pay attention to the details and we are providing this disclosure to make sure that the research out there appropriately reflects our exposures.

That is a very complete answer. Thank you.

Kevin St. Pierre, Sanford Bernstein.

Good morning. So in the quarter we saw a significant increase in the loans transferred to nonperforming. Is that related to the three commercial credits?

Yes.

Okay. And if I could follow-up on capital and the CCAR. So, 2014, your submission was designed to maintain capital ratios. Do you anticipate a point be it 2015 or maybe you could tell me when we might be able to start managing ratios down to some endpoint target in the [8s]?

That is a question we asked frequently. We get to every year prior to our submission of our CCAR package we have debates here, we have debates with our peers and everything else. It is hard to forecast that, Kevin.

In this environment the regulators are doing a much better job in terms of communicating with us. Every year this process is getting better. We are learning more about how they view capital management, they are learning more about our processes. We would hope that going forward this process will continue to evolve in a positive direction as we have seen over the last two years.

All right and maybe if you could remind us of your capital deployment priorities and obviously this year's dividend and share repurchase, but as we get into next year and perhaps ramping up capital return how you would view M&A organic growth, share repurchase, what your priorities might be?

Yes, Kevin, again, I think the focus to this year's correct and accurate. I am not sure when or if 15 is significantly different as we get better ideas. As we get later in the year, we can give you a little bit better color on what we anticipate, but I wouldn't expect a lot of significant changes in terms of the immediate priority at least as far as we can see at this point.

I think we have said also that we are not inclined to pile up capital in case maybe there is an M&A deal in the future. We are managing capital in a general range and like any company if an M&A transaction came along we may adjust our capital activity. So anything that we ever did that was large, we might -- we would probably be issuing shares and if it were small we can manage that through adjusting our share repurchases.

So our priorities are to hold capital in the general range that it's in, and not worry about future M&A.

And keep in mind, too, Kevin, and we -- again we try to be very transparent in terms of the strategy for us to we have an awful lot of what I refer to as off sheet capital as well to use in case something attractive to our shareholders came along for us to purpose.

Great. Thank you very much.

Brian Foran, Autonomous.

Good morning. A few clarifications on the guidance. As we think about the asset base to apply the ROA to, just going to straighten one my model to two lines. The -- you know you have been growing faster on assets or at least year over year on assets is faster than loans held for investment right now.

Is that going to continue for the whole year given the liquidity builds or is the mid-single digit held for investment a roughly good guide for total assets as well?

Yes, I think the way to look at it would be mid-single digit growth on loans, high single-digit growth on earning assets and then somewhere in between on the total assets would be the right way to model that.

And then on the deposit advance product, I apologize if I missed it earlier, but can you remind us what the impact is and the pace of that impact as we move through the year?

Yes. As you know, the -- in January we announced that we no longer are accepting new customers in that line item. We will continue to service existing customers until the end of the year and then we will be out of that product completely at the end of this year.

In terms of the earnings related to the early access product, those are in other consumer loan to leases category and that majority of that line item belongs to that product. In terms of the outlook as to where that will go, this year clearly we have taken out growth from earnings related to that product but we will continue to earn and our teams are currently working diligently for a substitute product.

It is too early to tell what that product is going to look like and how to build the earnings capacity of that product into our outlook.

And if I could sneak in one last one, the -- you referenced the pace of mobile banking change. On a couple of the past calls you talked about some pilot markets, where you were testing out some new branch formats, some new staffing formats.

Are there any early learnings from that that can help us think about what the framing of the opportunity for 2015 on the branches might be?

Let me answer the second part of your question first.

I think it is a bit early to start building expectations for 2015, but when we look at the pilots, the pilots continue to operate very successfully and as we have discussed, these tests are designed to address the customers' changing behavioral patterns and we continue to see uptick in their activity through whether it's the ATM channel or the mobile channel we continue to see changes in the way our teller lines are being utilized. We are very excited about how our newly created job definitions are working in addressing the combination of sales activity in the teller activity.

So, whether it is with respect to the quality of customer service or with respect to the efficiencies it is attached to those changes, we are very encouraged by the signs that we are getting from the test. And we will share with you as the year goes along what our expectations would be with respect to 2015. But we would like to take a little bit more time to read the tea leaves more closely.

I appreciate it. Thank you.

Keith Murray, ISI.

Good morning. Just a question on the other noninterest income line. I know it is volatile with the gains, et cetera, but if you back out the impacts from Vantiv, let's say, core number is around total $76 million this quarter. If you do it for last quarter it was in the $80 million plus range. You think about your outlook and folks in our seat trying to model it, what's kind of a core or average number you think is good to use for other noninterest income?

That line item is a combination of many different details. That includes, for example, our Vantiv earnings, that includes our BOLI income and cardholder fees, et cetera. It's difficult to predict precisely here and give you the guidance outlook. But in general I would expect over the next two or three quarters the fourth-quarter core numbers probably will approximate that you should expect there.

Okay. And then, going back to the LCR on top of obviously the impact of net interest margin, et cetera, if you think about it from a cost side and having calculated daily potentially, how big of an undertaking is that as far as potential cost and impact on expenses going forward?

I would say it is not as much of the cost to calculate it every day as much as it is the challenge that our employees will have to dedicate and have been dedicating months of effort in managing the data, the fields and staging all of this information and then the overall IT infrastructure work that has to occur.

We can do it all in-house with the assistance we have, so it is not a large cost from that perspective. However, it is a lot of manpower to do the LCR calculations and obviously having the ability to forecast and factor in the volatility from the different deposits basis and mixes that you have is really a challenging thing and why everybody is focused on having a buffer to the minimum compliance levels. But it is definitely a lot of work, but it should not be a lot of external spend to make that happen.

Okay. Thank you very much.

There are no further questions at this time. Mr. Eglseder, I will turn the call back over to you.

Great. Thanks for listening today. I just want to make one clarifying point. In our response to a question earlier I think we mentioned that the efficiency ratio would go below [60%] in 2Q. That is actually two apps, so that was not intended to be a change from our expectations, but just so everyone is clear on that.

But, otherwise, thanks for joining us on the call today. That is all.

This concludes today's conference call. You may now disconnect.