Fifth Third Bancorp (FITBM) Q4 2014 Earnings Report, Transcript and Summary

Good morning. My name is Jake and I will be your conference operator today. At this time, I would like to welcome everyone to the Fifth Third Bank Q4 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.

Thanks Jake and good morning. Today, we will be talking with you about our full year and fourth quarter 2014 results. 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 certain risks and uncertainties. There are a number of factors that could cause results to differ materially from historical performance and these statements. We have identified some of those 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 today by several people; our CEO, Kevin Kabat and CFO, Tayfun Tuzun; Frank Forrest, Chief Risk Officer; and Treasurer, Jamie Leonard. During the question-and-answer session, 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. Good morning everyone. In 2014, we continued to execute on our strategic plans. We posted solid results in spite of the challenging environment. Return on assets was 1.1% and return on tangible common equity was 12.2%. Net interest income increased 1% and we generated strong fee income in our core businesses. With 8% growth in card and processing revenue, 7% growth in corporate banking fee revenue and 4% growth in investment advisory fees. Additionally, we maintained our expense discipline with expenses down 6%, while making continued investments in our business. We grew average loans 2% compared with 2013 including 9% growth in C&I and 7% growth in bank card. We made significant progress rebuilding our commercial construction book and nearly doubled our outstanding balances over year end 2013. In addition, we grew average core deposits 8% including 10% growth in savings and money market balances and 6% growth in demand deposit balances. We placed a strong emphasis on building full and profitable customer relationships and we are focused on aligning value provided and value received given changes in the profitability of retail products. We believe the strength of our deposit franchise will be very significant in the coming rate cycle and the investments that we are making in our retail business are increasingly building a competitive advantage for us. Our strong earnings contributed to the solid returns we provided our shareholders as we executed on our capital plans. We repurchased outstanding shares worth $654 million, which decreased our share count by 4% and we increased our common dividend 9% all while maintaining strong levels of capital. In total, we returned more than $1 billion in capital to shareholders while growing our tangible book value by 11% in our Tier 1 common ratio by 20 basis points. Overall, I believe that 2014 was a successful year for us and I believe we are positioned well for the current environment. Now, turning to the results of the quarter. Today, we reported fourth quarter net income to common shareholders of $362 million and earnings per diluted share of $0.43. Results included the impact of $56 million positive valuation on the Vantiv warrant, $25 million in charges associated with the transfer of certain loans to held per sale and $19 million charge related to the valuation of our Visa total return swap, which in total essentially washed. We have discussed our efforts to reduce our risk exposures and during the quarter we moved $720 million of TDRs to held for sale as we look to take advantage of market conditions for these types of assets. Ultimately, we expect this transaction to improve our overall credit profile reducing servicing costs and enable us to use more of our capital efficiently. Fourth quarter fee income results were highlighted by 20% sequential growth in corporate banking fee revenue driven by higher syndication volumes and business lending fees due to increased volatility in the fourth quarter. Results were also supported by strong card and processing fees and investment advisory revenue. We maintained a balanced approach to expense discipline that's characterized by an intense focus on managing expenses while continuing to invest in our infrastructure and our revenue generating capabilities. Expenses year-over-year were down 7% and is expected increased 3% sequentially from relatively low levels in the third quarter. As we discussed last quarter, our financials reflects some of the deliberate actions we have taken that we believe are the right decisions to make for the long-term and will position us well as the economy and interest rate environment change. Part of this is taking a prudent approach to lending standards and maintaining a risk return profile. This had an impact on loan growth in the quarter. We continue to see aggressive pricing and structure from both banks and non-banks and have chosen to not chase details that do not offer the appropriate return for the risk we are taking. We are managing the company for the long-term. And we are committed to maintaining our discipline even in this challenging environment. Average portfolio loans were up 4% compared with fourth quarter of 2013 with modest sequential growth. Growth from 2013 was driven by 6% growth in C&I and 6% growth in bank card loans. We continued to generate solid core deposit growth up 8% compared with last year and highlighted by 13% growth in consumer savings and money market balances. Commercial deposits increased 10% compared with last year with checking account balances up 13% and demand deposit balances up 10%. We continued to make good progress in credit excluding net charge offs taken in conjunction with the transfer of TDR loans, our net charge off ratio was 45 basis points of loans. Non-performing asset levels continued to trend down and our non-performing asset ratio ended the year at 82 basis points. Overall, I'm pleased with the progress we have made over the past several years continuing our efforts to reposition the company in this currently challenging environment. We are well along the path because of the work we have done to address the changing capital and liquidity requirements and heightened regulatory expectations and to adapt to the low interest, low rate environment. We do recognize that 2015 is top of mind and that we are facing some near term headwinds like others in the industry we will continue to manage through the low interest rate environment and its impact on loan yields on the investment portfolio as well as increasing costs related to compliance and risk management. We will also be impacted by the changes we announced to our deposit advance product. We will work through all of that this year while continuing to reposition the company in order to achieve our longer term objectives. We remain focused on the things we can control. We are making strategic decisions to achieve the right business mix one which produces less volatile and more sustainable earnings growth. And we continued to pursue opportunities that add unique value for our customers while providing a solid return for investors. The benefits of our strategies will prove more enduring through the continued enhancements we are making to our risk culture and our focus on appropriately balancing risk and reward. We believe these strategies will enable us to achieve our long-term targets in a normalized environment, which would include higher rates and to that end we have not changed our objectives and we continue to work toward a return on average assets in the 1.3% to 1.5% range and an efficiency ratio in the mid-50s. We think those are reasonable targets. We have prudent strategies in place with a talented work force all aligned towards those objectives. Our dedicated employees set Fifth Third apart as they work with our customers to provide solutions to their financial needs and I thank them for their many contributions. While we have got a lot of work ahead of us, we have a solid foundation from which to grow. We will continue our transition in 2015 and we will provide updates throughout the year about our progress. With that, I will turn it over to Tayfun, who will discuss our fourth quarter operating results and our outlook. Tayfun?

Thanks Kevin. Good morning and thank you for joining us. In 2014, despite the many environmental challenges that Kevin mentioned we continued to execute on our strategic priorities and took deliberate actions to position our company well to meet those specific challenges. In a year with continued pressure on margins, we grew net interest income 1% and further strengthened the balance sheet with respect to our liquidity, interest rate and credit risk exposures. Growth in fee income including corporate banking, card and processing, investment advisory and deposit fees proved the benefit of our diverse business model as we continued to transition from the mortgage refinance boom. Full year expenses were down 6% even after a 4% increase in technology related expenses as we continued to invest in our business. Our strong results supported our capital returns as we distributed $1.1 billion to common shareholders through dividends and share repurchases in 2014 resulting in a total payout ratio of 76%. Looking in detail at the fourth quarter, I will start with the financials summary on Page 3 of the presentation. We reported net income to common shareholders of $362 million or $0.43 per diluted share. There were several items that affected earnings in the quarter and I will note their impact to various line items throughout my comments. In the fourth quarter, we transferred approximately $720 million of primarily accruing firstly lien residential mortgages that were classified as troubled debt restructuring to held for sale. The vast majority about 97% of these loans were originated in 2008 or prior and approximately 50% of the balance was located in Michigan and Florida. We expect to execute a sale of these loans early this year. In connection with the loan transfer, we recognized incremental net charge offs of about $87 million or 38 basis points in other related expenses. However, this was partially offset by a $64 million reduction in the allowance per loan loses. As a result, the pretax net income impact of the transition including expenses of $2 million totaled $25 million or $0.02 per share. This transaction represents another step in our strategic direction to reduce potential sources of earnings volatility in our business. With that, let's move on to the average balance sheet in Page 4 of the presentation. In the fourth quarter, average investment securities decreased by $216 million or 1% sequentially reflecting our low appetite to deploy additional cash into investment securities given the current rate environment. Consequently, we did not reinvest all of our cash flows in the investment portfolio this quarter. As a result, when combined with our strong deposit growth, our cash balances at the Fed reached over $7 billion at the end of the quarter. Shifting to loans, we continued to be prudent on pricing and terms. As a result, we saw relatively stable average portfolio loan balances up $242 million from the third quarter driven by growth in commercial construction and residential mortgage balances. Otherwise, payoffs and paydowns offset solid fourth quarter C&I production. Competition continues to be fierce and as we have stated before pricing does not leave much room for error. We have and will continue to make deliberate decisions not to add or renew loans at terms or pricing that would produce sub-optimal risk return profiles as we deploy our capital. We have seen very strong deposit growth throughout the year end and as we expected that continued in the fourth quarter. Average core deposits increased $3.2 billion from the third quarter driven by growth in money market and demand deposit accounts. Our LCR ratio at year end exceeded 110% a very significant achievement accomplished in 2014. Moving to NII on Page 5 of the presentation. Taxable equivalent net interest income decreased $20 million sequentially to $888 million in line with the expectations we shared with you in December. $6 million reduction due to credit spread compression, $9 million due to following impact of fixed rate debt issuance and $4 million related to the delay in the deployment of our portfolio investments throughout the decline. The net interest margin was 296 basis points down 14 basis points from the third quarter with 8 basis points of compression related to our elevated cash balances. Debt issuances and loan repricing were responsible for the balance of the decline. The quarterly decline in our loan yield was the smallest of the year. Shifting to fees on Page 6 of presentation, fourth quarter non-interest income was $653 million compared with $520 million in the third quarter. Results included a $56 million positive valuation adjustment on the Vantiv warrant and a $19 million charge related to the valuation of the Visa total return swap. These impacts were negative $53 million and negative $3 million respectively in the third quarter. Excluding these items in both quarters, fee income of $616 million increased $40 million or 7% sequentially driven by solid corporate banking results and the payment under our tax receivable agreement with Vantiv. Corporate banking fees increased $20 million or 20% sequentially on higher syndication and business lending fees. On a full year basis, corporate banking fees increased 7% as we continued to grow the contributions from our capital market solutions and other non-credit products and services. Card and processing revenue increased 2% from the third quarter and was up 7% from the fourth quarter of 2013 as we continue to benefit from greater card utilization and higher consumer purchase volume. For the full year, card and processing revenue was $295 million up 8% from 2013 and the highest level we reported since 2011 when the Durbin amendment was implemented. Mortgage banking net revenue was flat sequentially, which was consistent with our October expectations. Originations declined seasonally and were $1.7 billion compared with $1.9 billion in the third quarter. The increases in gain on sale revenue were mostly offset by declines in servicing fees. Gain on sale margins were up 60 basis points to 284 basis points. Deposit service charges declined 2% from the third quarter and were flat relative to the fourth quarter of 2013. Commercial deposit service charges and retail deposit service charges each declined 2% sequentially. On the consumer side, we saw a decrease in overdraft occurrences during the quarter. Total investment advisory revenue declined 2% sequentially, but for the full year revenue of $407 million was a record. The decline was in more volatile revenue items. We have been successful in growing assets under management, which are up 8% from 2013 and we continued to focus on shifting fee structures to an asset base recurring model away from transactional pricing. Excluding mortgage, the year-over-year increase in our total adjusted non-interest income was 3.3% in 2014, which is a very good accomplishment in this environment. We show non-interest expense on Page 7 of the presentation. Expenses came in at $918 million this quarter compared with $888 million in the third quarter matching our expectations. Non-interest expense included higher compensation related expense including $4 million higher medical claims as well as $6 million in severance expense. PPNR on Page 8 of the presentation was $618 million when adjusted for the items noted on this slide, PPNR was $580 million down $13 million from third quarter adjusted PPNR primarily due to higher expenses partially offset by the Vantiv TRA payment. The efficiency ratio adjusted on the same basis was 61% for the quarter. Turning to credit results on Page 9. Total net charge offs of $190 million increased $75 million sequentially. Fourth quarter net charge offs included $87 million related to the transfer of the residential mortgage loans classified as TDRs to held for sale. Excluding this impact, net charge offs were $104 million a sequential decline of $11 million or 10% and were 45 basis points of average loans. Non-performing assets excluding loans held for sale were $748 million at quarter end and down $48 million from the third quarter bringing the NPL ratio to 64 and the NPA ratio to 83 basis points, its lowest level in seven years. Commercial NPAs and consumer NPAs decreased $26 million and $22 million respectively from the third quarter. Residential mortgage NPAs decreased $40 million primarily reflecting the transfer of TDRs to held for sale. As an update in light of the decline in the price of crude oil in the energy portfolio our balances are fairly modest just over $2 billion. We have relationships with about $170 customers focused on the middle market and large corporate borrowers only 2% are criticized with no delinquencies. In our reserve base lending portfolio, we only lend against proven reserves. The vast majority of our producer clients that are leveraged to oil have reasonable levels of hedging in place through 2015 and many are hedged through 2016 and in certain cases into 2017. Overall, the quality of the firms we have relationships with is very good. We currently have no exposure to shale activity in our outstandings. We continue to monitor developments, but we do feel good about our positions. Wrapping upon credit, the allowance for loan lease losses declined $92 million sequentially including a $64 million release related to the TDR transfer. Our reserve release excluding the TDR related impact was $28 million relative to $44 million last quarter and so our provision excluding the TDR sale was $76 million compared to $71 million last quarter. Reserve coverage remains solid at 1.47% of loans and leases and 227% of NPLs. We are pleased with the level of credit metrics as we start 2015. Looking at capital on Slide 10. Capital levels continued to be strong and well above regulatory requirements. Tier 1 common equity ratio on Basel I basis was 9.6% up 1 basis points from last quarter. Pro forma for Basel III rules, our common equity Tier 1 ratio was 9.4% and increased 1 basis point from last quarter. At the end of the fourth quarter, the average diluted share count was down another 1% sequentially and is the lowest we have seen since the third quarter of 2010. During the quarter, we announced common stock repurchases of $180 million. That ASR was sold earlier this month and the total for the entire transaction was approximately 9.1 million shares. Relative to CCAR, we submitted our capital plan in early January and we will provide you more details in our plan in March. Now, turning to our outlook for the year. Before we discuss the broad guidelines of our financial performance expectations for 2015, we would like to provide you with our underlying assumptions on the most relevant economic drivers in our business. This year, the ability to confidently forecast the level of economic growth and the path of the rate environment are more challenging as the past three weeks have clearly shown. Nevertheless, we need to use a base forecast which we know will be subject to frequent changes. Our base economic outlook is based on most recent consensus market expectations for domestic economic activity. Current consensus expectations indicate that the U.S. economy will achieve year-over-year growth of 2.5% to 3% in 2015 with low inflation. On average, we should expect our industry to achieve overall loan growth approximating GDP growth. In commercial lending, we expect our growth to exceed 3% supported partially by our recent strategic investments. We also expect continuing declines in consumer loans, HELOCs and autos as a result of both continued weakness in loan demand and competitive pricing pressures that will likely maintain our cautious approach. With the LCR related investments largely behind us, our portfolio investments will be opportunistic in this environment. We expect to increase the size of the portfolio, but the timing will be dependent on rates and other balance sheet dynamics. We don't have any significant derivative contracts that are expiring this year. Under the expectation of a relatively healthy economy, we assume the Fed will start raising the Fed funds rate during the second half of the year. Our rate outlook for the first half of the year is flat. Reflecting our detailed public discussions and disclosures on our asset sensitivity and based upon the combination of our loan growth outlook and interest rate assumptions and including the $100 million reduction related to our deposit advance product that we communicated before, we expect a 1% to 2% decline in NII on a year-over-year basis, but a growing run rate after the midyear point. On January 1 of this year, the repricing of our deposit advance product took effect and the NII impact was immediate. Although our year-over-year comparisons will have the impact of this reduction, the underlying trend of our core NII progress should be positive throughout the year. Excluding this impact, we would expect our NII to grow this year. With respect to NIM, including the impact of the $100 million decline in our deposit advance related interest income, which is on an annual basis equivalent to about 8 basis points, we expect continued contraction during the first half of the year, but based on the rate assumptions our NIM should recover by year end to Q4 2014 levels. If rates stay flat, we would expect continued contraction during the second half of the year and end 2015 roughly 5 to 7 basis points below Q4 2014 levels excluding the impact of the deposit advance products. For the first quarter, we expect the impact of the deposit advance product to be $20 million to $25 million. In addition, day count has $12 million negative impact. Otherwise, we generally expect the benefit from loan growth to be offset by continued repricing in the portfolio. We expect NIM to be lower during the quarter due to elevated cash balances and ongoing pricing pressures. We expect our credit performance to continue to improve, but we would like to remind you that we expect ALLL releases in 2015 to be significantly below the 2014 levels and loan growth will result in higher levels of provisioning. We are very encouraged by the overall good quality of new loans that we are putting on our balance sheet so our fundamental credit performance should improve. We expect our non-interest income excluding Vantiv related gains of $155 million in 2014 to continue to grow at a healthy rate. We currently expect an increase in the mid-single digits percent range with the main drivers being fee income related to commercial banking and investment advisory. Mortgage revenue will be a function of the rate environment which at this time is difficult to forecast for the full year. Together with our NII expectations, we would expect our full year total revenues to exceed our 2014 core revenues. For the first quarter fee income, most fee revenue lines including deposit fees, card and processing revenue and corporate fees tend to be seasonally low and we expect corporate banking fees to be additionally impacted by the current market environment. Additionally, we will not have the benefit of the Vantiv TRA payment in the first quarter. On the expense side, as always, we will maintain our focus on managing our company efficiently. We will however continue to invest in our businesses to grow revenues and build and maintain an infrastructure that will be a competitive advantage for us. As you have heard from other banks, risk and compliance infrastructures are being reevaluated and redesigned and we are doing the same. Our headcount in these areas will increase. We will continue to drive efficiencies like what you saw in 2014 where we reduced our headcount by almost 1100, but as a result of these hires, we expect to add to our total headcount in 2015. Customer demand is driving technology investments both to create new efficiencies as well as to adapt to the changing environment. Some of these are permanent changes to our expense base, some of them are temporary. For 2015 full year under the revenue assumptions that I outlined, we expect to achieve a full year efficiency ratio in the low 60s. The year-over-year increase in compliance related expenses is expected to be in the $25 million range, predominantly headcount related. In addition, we expect roughly $15 million in expenses during the second half of the year related to the EMV technology in our credit card business. The impact of the reduction in revenue related to the deposit advance product and the compliance in EMV related expenses are equivalent to roughly 2% in terms of our proficiency ratio. There will be quarterly fluctuations due to seasonal nature of some items as always and in the near term we may experience higher expenses. For the first quarter, we will see higher expenses primarily due to seasonally higher FICA and unemployment expense much like what we saw last year and continued investments in risk management and compliance. In addition, marketing expenses will have a seasonal pickup. We are still of the firm opinion that we can operate this company in the mid-50s efficiency ratio when revenues normalize. For the full year, we are assuming an effective tax rate in the 26% range. We also would just like to remind you that the revenue expectations that we shared with you today do not include potential, but currently unforecasted items such as Vantiv warrant marks or gains or losses on share sales. In summary, we are entering the New Year with a strategic focus to manage our company efficiently and with a long-term focus on growth and achieving optimal returns for our shareholders. We believe that our strategies will drive less volatile, more sustainable long-term earnings growth and returns and we look forward to providing updates as we go along this year. With that, let's open the line for discussions. Jake?

Certainly. [Operator Instructions] Your first question comes from Erika Najarian from Bank of America. Your line is open.

Yes, good morning.

Good morning, Erika.

Good morning.

My first question is on the commercial loan growth outlook. You mentioned that you expected to exceed the 3% GDP growth that is being forecasted currently. If I look at the average C&I growth this quarter, it was up 6% year-year. I mean obviously exceeds 3% could mean a lot of things, but are we supposed to take away from this that C&I loan growth could be flat or decelerating? And if so, in an improving GDP backdrop why is that the case for Fifth Third?

Yes. I don't think Erika we are backing away from growth in commercial lending. We totally expect commercial lending to grow this year to the 3% plus level. In 2014, we clearly had some headwinds with respect to payoffs related to competitive offers from either capital markets or other competitors. Our expectation fully is that we would get to similar levels of growth and our production numbers would indicate that we should be able to achieve that. And also given sort of the volatility that we are seeing in capital markets, we will just have to wait and see what the payoff and paydown experience is and as the economy improves, I suspect that our clients will be utilizing more of their borrowing capacity. So at this point, we are optimistic about C&I growth. We are not backing away from it and we will achieve sort of the 3% plus whether that is at 4%, 5% or 6% will clearly depend a little bit on the economic activity.

Got it. My follow-up question, you were tracking a 61% efficiency ratio on an adjusted basis this quarter and you are guiding towards low 60% with a 50 basis point increase in the front-end for the second half of the year. And I guess is the main message that Fifth Third is unlikely to move toward the mid-50s until we are more mature into the rate cycle or is there something further to do with the expense base after you have invested in the compliance and technology related matters that you mentioned?

So clearly on a year-over-year basis, the impact of the $100 million reduction in NII related to our deposit advance product has a big impact...

Got it.

…on revenues. And then we have the additional $40 million of expenses that I mentioned. What is happening today is, I don't think that our new guidance changes our perspectives on where we think our long-term efficiency ratio will be. I think our industry is going through a change in the way we manage risk and compliance. And this is sort of a new prototype that banks large and small are adopting. Whereas in the past risk and compliance management had more of a centralized structure, that structure today is being redesigned to incorporate those functions into the front lines and as well at the same time boost the centralized risk and compliance management units. So by definition, that deployment requires headcount. New processes are being designed to accommodate the structure and there is always a cost involved when such an undertaking is taking place. This development applies not just to us, but to all banks in our peer group and eventually we think there will be technology applications to these processes, but we are not there yet. So therefore what is happening today is that these efforts, headcount efforts are heavy and have a negative impact on our efficiency ratio without necessarily creating new revenue streams. But we do believe that ultimately these efforts will have other positive externalities that will impact our efficiency once they are in place. Our customers will for example experience better service, which should impact customer retention and we should experience lower operating losses. So that will move through our efficiency ratio in time. But right now, we are in the investment phase without necessarily realizing these benefits and on top of that we are also operating in a difficult revenue environment. So as the process matures, we will get the efficiencies back and as we apply more technology, those will be even more pronounced. And so I guess question is why can't you do this all by taking expenses out elsewhere to pay for these investments and we are. The final net cost of these investments actually is lower than what the growth expenses are because we are partially paying for them with savings elsewhere. But we can't stop all the investments and we still need to look for revenue growth opportunities in our businesses. And so the other pieces for example, the investment in EMV this year will have ultimately very beneficial impact on fraud losses which will once again work through the efficiency ratio. But those benefits are going to be realized after the technology is in place. And so therefore in 2015 from a calendar year perspective, we have this phenomenon of the blip in our efficiency ratio. Again, but by no means our operating leverage picture in 2015 revises our perspective on how we can run this company. It is just a combination of the nature of these investments and the operating environment that we are in. So it is a long answer, but we clearly are very focused in terms of managing our company efficiently.

Got it. Thanks for taking my questions.

Sure.

And your next question comes from Matt Burnell. Your line is open, from Wells Fargo Securities.

Good morning, Matt.

Good morning. Thanks for taking my question. I guess I wanted to broaden the question on commercial loan growth outside of C&I since you have already answered that question. But I guess – and I know it is a small number relative to total loans, but commercial construction was up fairly visibly, has been up fairly visibly over the last couple of quarters. Can you give us a little more color as to what your expectations are for growth in that portfolio and are there specific locations or projects that are driving that and are there ancillary profit opportunities outside of lending revenue that you are generating from those loans?

Sure. So we about doubled our commercial construction in 2014 and when we look at the underlying production trends, about 75% to 80% of that production is in our footprint and about 75% to 80% of the underlying type of project is either industrial or multifamily and there is some office buildings attached to that as well. Clearly due to the short nature of that lending, the natural growth in that portfolio will ultimately slow down from what we are experiencing today because the churn itself will limit the net growth. At this point due to that nature, we are not necessarily seeing a significant fee pickup, but we are broadening our customer base and would potentially obviously seek to grow non-credit revenues. But at this stage, it is not a very meaningful number. A portion of the construction loans we think we can capture, but I have to tell you that competition from insurance companies and other very long-term oriented investors is very tough and we are not necessarily competing as they turn from construction to perm.

Thank you. And then just as a follow-up back on commercial lending, it is clear that you are not seeing the returns on those types of lending exposures that you would like to see. Where are you seeing the most aggressive competition coming from? Is it smaller regional banks or is it bigger banks? And given your comments about trying to diversify your revenue source, given your strong capital ratios, are there opportunities that you have seen out in the marketplace to potentially add commercial fee revenue via inorganic growth?

Matt, this is Kevin. I would just tell you that competitively we have as the year has progressed seen it continue to ratchet up not only in terms of pricing but in structure. And I would say hard to categorize out of one segment although we would tell you that we see it equally in terms of the largest institutions that are being very aggressive in terms of some of the particularly structure of the deals. So it has just continued. It is not surprising to us from that standpoint. I guess the biggest surprise is the speed at which it has accelerated and that is really kind of the discipline that we put against our orientation from that perspective. So we saw okay production, we saw a lot more aggressive paydown as we got progressively into the year. And I think that will continue and that is really kind of what we are looking at. Relative to other fee income, I think Tayfun has talked about our expansion in terms of capital markets and some of the offerings that we now have the capabilities of producing. We think there is still opportunities there. I don't know if there are others, Tayfun, that come into --

The one particular new – one new vertical that we launched in the second half of the year is retail vertical and we did that deliberately because we have very strong treasury management products to compete in that area. And that was, we expect the fee income component in corporate lending via these vertical plays to actually continue to increase. Because I don't think at least in the near term our expectation is that the price and structure competition will probably still be with us so we are very keen on making sure that we supplement relationship profitability via non-credit products.

Thank you very much.

Thank you.

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

Good morning.

Good morning, Matt.

Good morning, Matt.

Was just trying to do some rough calculations on all the guidance to back into what the absolute expense outlook is and figured I would just ask instead of trying to pull the moving pieces together. But just as we think about total cost for 2015, obviously X things like litigation that might pop up, what is the outlook on the expenses?

Well, the outlook on the expenses I think our guidance, the format of our guidance is as I went through earlier. What we expect is we expect higher headcounts and therefore in addition to sort of normal merit increases we do expect our employment related expense items to increase. We do expect higher IT expenses because we continue to invest in our retail business and our commercial business. We have to maintain the level of investments to grow earnings. We are investing quite a bit of money in our digital revenue generation capabilities in retail. We are continuing to invest in the capital markets business so those items will continue to go up. Marketing is likely to be higher and we are coming off of a lower year in 2014 for that. So in general, Matt, I think our expense guidance you will need to work that through the revenue guidance and the efficiency ratio, the low 60s efficiency ratio that we provided you with. And on a run rate basis, our new hire increases will probably be higher in the second half of the year compared to the first, but in general we will see higher employment related expenses. Matt O’Connor: Okay. I mean it seems like ex some of the IT infrastructure spend, there is more expense creep than we have seen. Is it that you have run out of areas that you can cut to offset some of the inflation, or is it that we are close enough to rates increasing and revenue picking up that you don't want to cut more into the core or into the core?

I wouldn't characterize it as we have run out of areas to save. I would characterize it as we are not necessarily reducing our investments in our businesses this year as we are very keen on reaching the revenue growth targets. I think our revenues are growing year-over-year, which is important to note and we are keen on making sure that we put some of our savings for example in retail, back to retail because we continue to view that line of business as very important not only in 2015, but beyond 2015.

And the other thing I would add, Matt, as you know and have followed us for a while, you know that we are mindful of making sure that our revenue capabilities continue to track relative to the environment and the anticipation of the environment. So as Tayfun just mentioned, we are developing a new vertical in our commercial space that we are hiring. We are also investing in our investment advisory space that has gotten us a good return and so we will continue to do that as well as we go forward. Matt O’Connor: And then just quickly on the securities book, you talked about it likely growing from here dependent on rates. But as we think about that $22 billion of securities, how big should that be if rates were – you can pick the level, 2.25 or 2.5 on the 10 year – how depressed is that level right now just given what has happened to rates in the last three, four months?

Hey, Matt, it is Jamie. I think the way to look at the security book is really in the context of the LCR. We were at 92% last quarter, we are at 112% this quarter. So the size of the security book what I would like to see is exiting the year 100% or more so having an acceptable buffer there. Sitting on $7 billion of cash at the end of the year, there weren't a lot of opportunities and we still don't see a lot of opportunities in this rate environment, but we will continue to be opportunistic. But I think you can expect to see some of that cash deployed over the course of 2015 into LCR friendly HQLA. Matt O’Connor: And nothing on the magnitude, I mean the cash has gone up by call it $5 billion and change the last two quarters. Is that a core build or is that just because rates are so low?

I think the build-up in cash is in some part driven by seasonality, but in a large part driven by a lot of the strong deposit growth Tayfun referenced with regard to our retail banking franchise.

I think the broader message on the balance sheet, Matt, is that we truly are on a day to day basis, we are monitoring this. We are monitoring the asset side of the business, the liability side of the business. Clearly deposit growth has exceeded our expectations in 2014, which was great, but we are very keen on making sure that from a margin perspective knowing that we will continue to experience credit spread contraction that we manage the liability side of the costs as efficiently as we can. So you will see us spending quite a bit of time and focus on the liability side this year. Matt O’Connor: Okay. Thank you.

Okay. And your next question comes from Ken Zerbe from Morgan Stanley. Your line is open.

Good morning, Ken.

Good morning. First question, just in terms of the transaction deposits, can you address what drove the big increase there? I mean is there a philosophy shift that is actually driving your desire to grow deposits much more aggressively?

Well, we've always – I think last year in many instances, we've discussed our perspective on the value of deposits, and we continue to maintain that perspective. We like deposits; we believe that our deposit franchise will be the anchor to our profitability in our balance sheet. And in the fourth quarter, we have experienced a bit of a higher growth in commercial deposits, and every line in our commercial deposit book has grown. And I think that is more reflective of sort of the corporate cash positions with respect to our clients more than just a deliberate action that we took in our commercial deposits. But in general, we have not changed our view of deposits.

But have you increased your pricing of those commercial deposits to help draw more deposits in at all?

No, there were no increases in our commercial deposit pricing.

Got you. Understood. And then second question, in terms of the gain on sale margins obviously much higher this quarter. Was that just a blip given what happened with interest rates or should we expect those to come back down again next quarter?

We will see. The reason why we did not want to give mortgage guidance is because of the volatility of the current environment. Clearly, we are experiencing a pickup early this quarter in app volumes and rate locks. We would expect to see that this quarter and we will see how that impacts gain on sale of margins. It is a little early to be able to give you color on that yet.

Okay, great. Thank you.

And your next question comes from Ryan Nash from Goldman Sachs. Your line is open.

Good morning, Ryan.

Good morning, guys. Just wanted to ask one clarification on the NIM outlook. Is the flat year-over-year guidance with higher rates, is that inclusive or exclusive of the deposit advance product?

Ryan, it is Jamie. What Tayfun had mentioned was for the first quarter we would expect NIM to be down driven by the early advanced product and that is about 8 bps and then day count benefit of 3 bps bringing you into that outlook for the first quarter of down 5 bps or so off of fourth quarter levels. And then from there it would be dependent upon the rate environment to go – to grow from there.

Our outlook in terms of the picture that I gave you was comparing Q4 of 2014 to Q4 of 2015. So --

And is that inclusive of deposit advance – of early access?

Yes.

Okay, got it. Just shifting gears to credit, you talked about a few puts and takes that you are expecting credit will improve, but loan growth will drive higher provisions. Do you think in 2015 we will see the inflection point where charge-offs will actually start to meet provisions or do you think you will actually have to start to build some reserves in 2015?

We would expect the dollar charge-offs to continue to decline and ultimately we believe that during the year there may come a point where we may hit that inflection point. It is a bit early to tell that yet. We obviously have the right level of reserves today at 1.47% coverage. New loans that are coming on the sheet are of good quality, which should improve the profile and then we will see how loan growth proceeds. There may come a point in 2015 where that crossover takes place, but at this point I can't tell you when and I can't tell you by how much.

Got it. Thanks for taking my questions.

Okay. And your next question comes from Ken Usdin from Jefferies. Your line is open.

Thanks. Good morning, guys. A question on capital. Your Tier 1 common ratio has kind of hung in here at a good 9.4 level, other peers have tended to grow a little bit more. So you are now in line if not a little bit below where some others are and I'm just wondering if there is any change in your philosophy around the type of magnitude of ask when you think about CCAR going forward? I know you are not going to be able to tell us the amount you ask for. But just philosophically do you still feel as good about the type of ask you guys have generically done in the past about returning overall majority of your annual earnings?

So Ken, I think the last two years we have worked on CCAR with the same goal to maintain our capital ratio going into the period and coming out of the period. And that actually enabled us to achieve more aggressive capital return dollars compared to our peers. Our philosophy there has not changed. We still maintain our view that a stable capital ratio going into the CCAR period and coming out of the CCAR period is the best outcome given the absolute level and given the relative level of capital to our peers. That has not changed and hopefully we will get to share the results with you in March.

Okay, got it. And then just one more clarification on the outlook in terms of just your outlook for the fee side and understanding what you said before on not being quite clear on how mortgage can come through. When you are talking about your expected full year outlook for fee growth, can you just make sure we are all based on the right starting point for it? And then is it basically then going to be those other core areas you think you can grow with the swing factor being mortgage?

So as I mentioned earlier in the call, excluding mortgage in 2014, the year-over-year increase in our total adjusted for Vantiv non-interest income was 3.3%. We believe that again excluding mortgage, we can achieve that number and even better during the year and that is what our outlook is based on.

Okay, got it. Thanks a lot.

Okay.

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

Good morning, guys. Either Tayfun or maybe Jamie, just on the margin, I just want to make sure I am understanding the dynamics correctly. So it sounds like qualitatively the big pressure point for the immediate term is just the deposit advance product, but otherwise based on the trajectory you have got, it sounds like the core margin after the first quarter would kind of have to be flat to get you back to the fourth quarter 2014 level by the end of 2015. So what as you see it are sort of on a core basis are the main dynamics that would allow the core margin to just kind of stabilize rather than kind of remain under pressure in light of the rate environment?

This is Jamie and as Tayfun had mentioned, we are sensitive on the short end of the curve so clearly Fed tightening in the back half of the year would be beneficial. Secondarily, commercial loan growth north of the 3% GDP levels certainly will help. But in the meantime we think we can run the company and our balance sheet is positioned to deliver stable NIM in the first half of 2015, but for the impact of the early advanced product. So we have some opportunity on the liability side just given how strong our deposit growth has been. We can maybe earn another bp or two there, but for the most part, the loan yield compression you saw during 2014 continued to be less and less and so we have got a little bit, maybe a bp or two of headwind there, but that is certainly manageable.

Clearly NIM guidance this year is very challenging. What we have seen here so far alone in the last three weeks is 30 plus basis point drop in the 10 year, not that necessarily the 10-year drives our NIM. But we recognize the challenges associated with NIM guidance because it also depends as I mentioned on the timing of our ability to deploy more leverage into our investment portfolio, we will be patient during the year. No question about it, which may fluctuate our NIM from time to time, but we will maintain that cautious approach that we have maintained throughout 2014. When we do see opportunities we will go after them. And also it is difficult to necessarily give you good guidance for credit spreads. As you know, credit spreads contraction has actually overwhelmed some of the base rate changes throughout 2014 and we felt that in our commercial book. What encourages us a little bit is that our fixed-rate portfolios are truly showing signs of stability as we expected and we would hope to achieve that in 2015, but again, as much guidance as we are giving you today on NIM, we recognize the importance of the $100 million reduction in interest income related to deposit products and we are cognizant of the volatility of this environment.

Okay. I appreciate that color. That is helpful. So thank you and then just as a second question, so as I am sort of weighing all the guidance together but as you look at things and maybe there is a little pressure on expenses this year but all in, would you expect to grow the revenue base more than the expense base? In other words, are you expecting positive operating leverage this year or is this going to be kind of more kind of a year that reflects some investments and then the revenue side comes sort of next year with the benefit of high rates? How are you thinking about that dynamic?

We will not have positive operating leverage this year. We will grow revenues, but our expenses will exceed that. It is extremely difficult to overcome the year-over-year decline in our revenues of $100 million associated with the deposit advance product.

Okay, all right. Thank you guys very much.

Thank you.

And your next question comes from Paul Miller of FBR. Your line is open.

Good morning, guys. This is actually Thomas LeTrent on behalf of Paul. Most of the questions have already been asked and answered, but I just want to clarify on the 1Q 2015 guidance on expenses, I certainly appreciate the guidance that seasonality will drive them higher. But I'm trying to figure out what base to start from. You had $33 million of credit cost in OpEx in the quarter. Obviously that is higher than let's call it $10 million the last few quarters. If I think about it like that, does that mean that expenses could be relatively flat quarter-over-quarter or how should I go about that?

Not necessarily. Clearly the big mover is going to be in the seasonal pickup in FICA and some of the unemployment workers comp lines and then there will be a pickup in marketing. So I wouldn't necessarily keep the line items flat. There will be decreases in some but overall clearly seasonally we do experience quite a bit of pickup in expenses in Q1.

Okay. And then just one follow-up question on credit. I think you've got $900 million left in the consumer portfolio, I think in TDR and another $800 million in commercial. Are there any sort of near-term plans to move those to held for sale like you did with the portfolio this quarter or can you talk about that a little bit?

No. At this time we don't have any plans. The remaining mortgage TDRs include a good amount of government guaranteed mortgages and then we have about $400 million in home equity loans and about $100 million and autos and credit cards. At this time we have no plans.

Okay. That is all. Thank you very much.

And your next question comes from Mike Mayo from CLSA. Your line is open.

Good morning, Mike.

Hey, just a clarification. So would you have positive operating leverage in 2015 excluding the $100 million decline?

Yes. I think we would be much closer to that. I gave you the impact of the $100 million plus the $25 million related to infrastructure plus the $15 million related to EMV, which adds up to about 2%, Mike. So those are the movers of the operating leverage. But again, I cannot emphasize it enough, those numbers do include $100 million reduction and that is the difficulty that we are facing this year.

But on a core basis you still expect efficiency to improve excluding the noise?

We are looking for all opportunities to improve efficiency on a core basis.

Okay. Separate. So my main question really gets to the lack of loan growth this quarter. So is that good news or bad news? I guess the bad news is compared to peer, you have less loan growth but the good news could be we saw risk, we are pulling back. Do you get credit with that pull back with regulators? And you mentioned insurance companies and I think other long-term investors, so who are these other participants banking or non-banking, that are disrupting competition for you?

So in terms of loan growth, this game is longer than one or two quarters and I think we are obviously preserving some capacity in order to participate better. Our production numbers are actually pretty decent. It is just the payoffs have limited net loan growth. Pension fund is another participant and commercial mortgage. My comment related to insurance companies was more in the commercial mortgage space. On the commercial side throughout 2014, we have seen competition from non-banks. We have seen competition from banks. Clearly some banks are showing better loan growth than we do and one potentially could say that they were happier with the risk return offers than we were and they took away some business from us. But again, we view this as more long-term. The regulators really are not necessarily commenting on loan growth one way or another because our dialogue with the regulators throughout the year actually has been positive. Frank, I don't know if you want to add to that color?

The only thing I would add, Mike, is that all regulators look at new deals that have been put on in the last 12 months, so they are all looking, that is where they are focused. What is the quality of the new deals that have been on the books in the last 12 months? All I can tell you is we are very comfortable with what we put on the books the last 12 months and we are comfortable within our own shoes and we are going to manage our books accordingly based on our comfort level. We are not going to be driven by the market. Banks that have done that before end up following themselves in a spiral downward. We have all seen it before. We have all been through it and we are not going to go through it again here.

Well, you have seen a lot of cycles on that last point, just my last follow-up. When have you seen a pull back like this in the past? I mean a lot of times the industry keeps making the loans until you actually see a lot higher losses. So you're not really seeing a lot higher losses right now yet you are pulling back. What prior period would you say this is comparable to?

I'm not sure I can. I mean if you go back five to six years through the downturn, most everybody followed each other in the wrong direction. I would say that where we are better and I would think that a lot of banks are better and have learned is really in being much more proactive in managing risk much more anticipatory, using many more tools to assess the portfolios today. We stress test today every which way you can possibly imagine from a borrower to the portfolios and different segments of the portfolio. Maybe that is part of that came out of CCAR three or four years ago, but I would say the portfolio analytics that we do today are far different than they were before. And so we are much more comfortable with our forward view.

Frank, one last time, you have been doing this for what like two, three decades, can you reach back further in time to find a comparable period when you literally backed away from loans as much as you are doing when you haven't seen much higher loan losses?

Come on, Mike. I'm not that old. I'm not sure I can to be honest. You can think through the different cycles. We have gone through some long good cycles on the real estate side, but fundamentally you know if you go back 15 or 20 or 25 years maybe beyond your life span, banks have historically gotten in trouble with commercial real estate, that is one place. Banks have gotten in trouble with leveraged lending. The story tends to change but the outcome at the end of the day doesn't. So I am not sure I can take you down memory lane and tell you a good example of where somebody has done something differently. All I can say is that, I think the world changed four to five, six years ago with what occurred and I can't speak for other institutions all I can speak for at Fifth Third is that we are very comfortable with our perspective on credit today and we do not want to put the company in a position to return to past practices.

Mike, we also have to keep in mind that these decisions are not made purely on a credit basis because when you go back those decades, you will see different credit spread environments and different levels of capital that banks have been holding at the time. So when you look at the returns, that calculation includes more than just credit. So when we say that we are backing away from credit, we are not necessarily saying that we are seeing significantly negative credit trends, it's just a combination of spreads, of credit and where our capital levels require a different perspective on what we are putting on our books today.

Got it. Thank you.

And your next question comes from Geoffrey Elliott from Autonomous Research. Your line is open.

Good morning.

Hello. I've got a question on the litigation side. You have had quite a few quarters over the last two years where you took fairly chunky litigation charges and this quarter you have got a recovery. So are you starting to see light at the end of the tunnel there that some of the issues that you had to build reserves for are finally getting closer to conclusion?

The litigation tunnel is a long one. This quarter the number was a recovery, but a small number. And I don't think necessarily that these processes are fast moving processes. So I wouldn't characterize it as we are seeing the light at the end of the tunnel. I think it will take a while for us to work through all of these items.

And then just another quick expense one. The $33 million credit related expense within non-interest expenses, can you give any color on what that related to? It seems pretty large compared with what you normally see there?

Yes. It is not necessarily one or two items. It is a combination. For example, derivative marks go there. I wouldn't necessarily characterize them as a total that reflects one or two trends. That number will be volatile quarter-over-quarter, so I wouldn't interpret the $33 million number as a run rate number.

Great. Thank you.

Thank you.

And your next question comes from Vivek Juneja from JPMorgan. Your line is open.

Hi. A couple of questions. Firstly, energy loan growth, your oil and gas loans that you talked about which is just over $2 billion, how much did they grow in 2014 and how much of that is shared national credits?

Hi. This is Frank. That book grew about $450 million in 2014. Our portfolio is really a mixture of both middle market and large corporate, so I don't have a specific percentage, but most of our companies would be anywhere in that sector.

Okay. So what you are saying is you don't have a breakout of how much is shared national credits?

I mean again, our companies are predominantly – they are in the U.S., they are predominantly in the Southwest, they are a combination of middle market, mid-cap and large corporates.

Okay. Tayfun, a question for you. Just to clarify the NIM guidance short-term rate, you talked about the fact that NIM would be down 5 to 7 basis points by fourth quarter 2015 if rates stayed flat. Just want to clarify, are you referring to short-term rates staying flat meaning no Fed hikes, or are you referring to long-term rates staying where they are currently which is around 180 both? I'm just try to get a sense of --

Both. Vivek, it is both.

Okay. So if the Fed did raise rates, but the long end still stayed down, what would NIM look like then?

That would impact mainly our investment portfolio yields and the timing of our deployments into the investment portfolio. We still obviously would benefit. We have a positive exposure to the short end and the benefit would be less than a complete yield curve move.

Okay, all right. Thank you.

And your next question comes from Marty Mosby from Vining Sparks. Your line is open.

Good morning, Marty.

Good morning. Now that we are trying to shift towards investing, what I wanted to at least have a chance kind of to understand better, or what are the opportunities that you are investing in and how does that fit with your competitive advantages, or how you are looking at being able to compete in the marketplace?

Yes. So let me talk about a couple of specific items. In retail, as I have mentioned over the last few months, we have redesigned our employment in our branch system based upon the demographic trends and transaction trends that we are seeing from retail customers. Customers are reaching us through digital channels. We need to reach them through digital channels to be able to grow revenues as we are seeing less and less of them walking through the doors. We are investing in our ability to reach our customers through digital channels. That is one area and that is what we believe needs to happen as we continue to strengthen our retail franchise. The other area that we have been talking about clearly is on the corporate side as we are focusing on total relationship profitability, we need to make sure that we capture and use all the different pieces of relationship revenues and costs appropriately in order to maintain a competitive advantage in the way we price our products and services. That is another area. The third area that we are investing is in our payments business. We have as you know combined the retail and commercial pieces of the payment spectrum under one umbrella. We are making investments there because we do believe that going forward we have advantages given our history in that business. And then in investment advisory, which is another important business for us, we are adding talent to ensure a continued progress on revenue. So those are the areas that we are investing aside from the compliance and risk related infrastructure investments that we have in place.

And then the second question I had was as you look at the advanced deposit situation and that rolling off, we had talked about trying to come up with some alternatives kind of the address what you are still doing there or not doing there and also what are those customers going to turn to now that they have been cut off from the product that you were providing them at the end of the year?

So on January 1, we reduced our price on the product by 70% and we also made some changes to the design of the product that will impact usage and the frequency of usage of the product. That is what sort of when we give the guidance of a $100 million reduction in revenues associated with the product, those changes would reflect that. What we don't know today is when the regulators will provide their guidance proposals and ultimately will issue their guidance. We don't know the timing of that and the way we formulated that for the year is depending on the time of when that guidance comes out, there are three outcomes. Either we are totally out of the business because the guidance does not enable us to offer any product. Our current product fits the guidance. In that case, we will continue to offer the product and potentially offer it to new clients, or within the guidance, we needed to make adjustments to our product design. What we don't know today is whether that is going to happen in March, June, September or in 2015 at all. We still seek to address the needs of those customers because we do believe that with the appropriate product designed appropriately, it is better to keep those clients in our fold. But again, the regulators will decide on how they see this industry working and we will react accordingly.

And given the drastic reduction in pricing, is there any chance you might get incremental business from other customers wanting to take advantage of it?

Too early to tell, but just remember that we are not offering the product to people who were not signed on to the product at the beginning of 2014. We have not expanded the population.

Got you. Thanks.

And your next question comes from Sameer Gokhale from Janney Capital Markets. Your line is open.

Good morning, Sameer.

Great, thank you. Thank you. Good morning. Just a few questions. Firstly, I wanted to touch on your auto loan portfolio which hasn't grown very much. I know you had talked about trying to maintain your underwriting standards and I think the expectation for 2015 is for that portfolio to maybe shrink by 3% or so. And I was curious about how you think about running that business because it seems like it is more of a flow business and dealers clearly want to work with banks and other lenders that have loans more readily available for their customers at the point of sale. So as you think about maintaining your underwriting standards and maybe that loan portfolio shrinking a little bit, how do you balance that with the fact that you still need to maintain a presence in that business and maintain those relationships with the dealers. If you can talk about that, that would be a little helpful.

We have been in that business for a long time. I mean it goes back 30, 40 years. We have very good deep relationships with dealers and we have maintained those relationships through cycles. There is good business coming from the dealers that we are booking on our balance sheet and we will continue to do so. They expect what type of business that we will put on and they know what type of business that we will not put on. That hasn't hurt us. It is more or less a commodity business supported by maintaining those strong relationships. So as long as we are satisfied with the amount of loans that we get under the current profitability guidelines, we should be able to get that flow. And given the long-term relationships, if you do want to get more competitive, you can get more paper out of them because again they know that we are not in today, out tomorrow. They know that there is a longer cycle, so I don't think we are necessarily either damaging those relationships or impacting flows in a discernible manner.

Okay. And then just sticking with the auto loans for now, if you were to look at vintages and if you look at the auto loans originated over the last 12 months, or so this has been more of an issue I think or concern for subprime auto which your portfolio seems to be prime. But to the extent that you can talk about LTVs for say the last 12 months and loan terms because we are hearing about terms as long as 84 months. Has that needle moved at all in your portfolio with your vintage for last year relative to prior years or have you maintained that at a pretty consistent level?

In terms of term on the auto book over the last several years we have run 68 months, 68 months, this past year 69 months so no appreciable movement there. In terms of LTV, we have been running and continue to run in the 91%, 92% level. And in terms of FICA, we are 751 in 2014 and that is a very consistent trend. And to your point, reflective upon our focus on prime, super prime customers and overall strong credit profile within the auto book.

Okay. And then just switching gears, if you could just touch on again the LCR, I think you said you were at 112% and what I was just trying to grapple with a little bit was where you are relative to what the requirements are through the beginning of 2016. You seem to be well ahead of that. And I think you had referred to maintaining some sort of cushion, but as I think about your LCR and then some of the commentary around maybe the securities portfolio growing, it seems like it doesn't need to grow a lot because you already have more than met the LCR requirement. So in light of that, should we expect any negative impact on the NIM going forward from the addition of maybe more high quality liquid assets? If you could just help clarify that a little bit because I think I just got a little confused with some of that discussion.

Sure. The good news is the growth in deposits and the elevated cash position really strengthens the balance sheet and gives us flexibility. So our 112% LCR includes the benefit of $7 billion of cash held at the Fed at year end. So if we were to deploy $7 billion of cash take it to an extreme and put it all in C&I loan growth, then your LCR would drop right back down to that 92% level where we were at, at the end of September. So my point in answering the question on securities deployment is some of that cash will be put to work in the course of 2015 as a modified approach bank. When we reach January of 2016, we will need to exceed a 90% LCR and we would like to have a buffer obviously beyond the 19%. There is some balance between holding $7 billion in cash and having 112% LCR and deploying that cash to both loan growth and further support HQLA additions where we will manage the LCR between 95 and 105 over the course of the next year or so.

But just to think about it --

I am sorry, we have reached the end of our allotted time. I'm sorry for the interruption. You may go ahead with closing remarks.

Thank you for joining us. Sameer, if you have any questions, I'm sorry we cut you off there. But if you have any questions, please call us and we will clarify your questions. Again, thank you for joining us and we look forward to sharing with you our progress throughout the year.