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CompanyName:Fif thThirdBancorpCompanyTicker:FITBSector:Financial
Industry:BankingEventDescription:Q4 2014 EarningsCall
©2014TheStreet,Inc.AllRightsReserved Page1of 24
FifthThirdBancorp(FITB)EarningsReport:Q42014ConferenceCallTranscriptThefollowingFifthThirdBancorpconferencecalltookplaceonJanuary21,2015,09:00AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
JimEglseder;FifthThirdBancorp;Director-IRKevinKabat;FifthThirdBancorp;CEOTayfunTuzun;FifthThirdBancorp;EVP,CFOFrankForrest;FifthThirdBancorp;ChiefRisk,CreditOfficerJamieLeonard;FifthThirdBancorp;SVP,Treasurer
OtherPart icipants
ErikaNajarian;BofAMerrillLynch;AnalystMattBurnell;WellsFargoSecurities;AnalystMattO'Connor;DeutscheBank;AnalystKenZerbe;MorganStanley;AnalystRyanNash;GoldmanSachs;AnalystKenUsdin;JefferiesandCompany;AnalystScottSiefers;SandlerO'NeillandPartners;AnalystThomasLeTrent;FBR;AnalystMikeMayo;CLSALimited;AnalystJeffreyElliott;RobertW.BairdandCo.;AnalystVivekJuneja;JPMorgan;AnalystMartyMosby;ViningSparks;AnalystSameerGokhale;JanneyCapitalMarkets;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator:
Goodmorning.MynameisJake,andIwillbeyourconferenceoperatortoday.
AtthistimeIwouldliketowelcomeeveryonetotheFifthThirdBankQ42014earningsconferencecall.Alllineshavebeenplacedonmutetopreventanybackgroundnoise.Afterthespeakers'remarks,therewillbeaquestion-and-answersession.(OperatorInstructions).Thankyou.
Mr.JimEglseder,DirectorofInvestorRelations,youmaybeginyourconference.
JimEglseder(Director-IR):
Thanks,Jake,andgoodmorning.Todaywewillbetalkingwithyouaboutourfull-yearandfourth-quarter2014results.
Thisdiscussionmaycontaincertainforward-lookingstatementsaboutFifthThirdpertainingtoourfinancialcondition,resultsofoperations,plansandobjectives.Thesestatementsinvolvecertainrisksanduncertainties.Thereareanumberoffactorsthatcouldcauseresultstodiffermateriallyfromhistorical
CompanyName:Fif thThirdBancorpCompanyTicker:FITBSector:Financial
Industry:BankingEventDescription:Q4 2014 EarningsCall
©2014TheStreet,Inc.AllRightsReserved Page2of 24
performanceandthesestatements.Wehaveidentifiedsomeofthesefactorsinourforward-lookingcautionarystatementattheendofourearningsreleaseandinothermaterials,andweencourageyoutoreviewthem.
FifthThirdundertakesnoobligationandwouldnotexpecttoupdateanysuchforward-lookingstatementsafterthedateofthiscall.
Iamjoinedonthecalltodaybyseveralpeople,ourCEO,KevinKabat,andCFO,TayfunTuzun;FrankForrest,ChiefRiskOfficer,andTreasurer,JamieLeonard.Duringthequestion-and-answerperiod,pleaseprovideyournameandthatofyourfirmtotheoperator.
Withthat,IwillturnthecallovertoKevinKabat.Kevin?
KevinKabat (CEO):
Thanks,Jim.Goodmorning,everyone.In2014,wecontinuedtoexecuteonourstrategicplans.Wepostedsolidresultsinspiteofthechallengingenvironment.Returnonassetswas1.1%andreturnontangiblecommonequitywas12.2%.Netinterestincomeincreased1%andwegeneratedstrongfeeincomeinourcorebusinesseswith8%growthincardandprocessingrevenue,7%growthincorporatebankingfeerevenue,and4%growthininvestmentadvisoryfees.
Additionally,wemaintainedourexpensedisciplinewithexpensesdown6%whilemakingcontinuedinvestmentsinourbusiness.
Wegrewaverageloans2%comparedwith2013including9%growthinC&Iand7%growthinbankcard.Wemadesignificantprogressrebuildingourcommercialconstructionbookandnearlydoubledouroutstandingbalancesoveryear-end2013.
Inaddition,wegrewaveragecoredeposits8%including10%growthinsavingsandmoneymarketbalancesand6%growthindemanddepositbalances.Wehaveplacedastrongemphasisonbuildingfullandprofitablecustomerrelationshipsandwearefocusedonaligningvalueprovidedandvaluereceivedgivenchangesintheprofitabilityofretailproducts.
Webelievethestrengthofourdepositfranchisewillbeverysignificantinthecomingratecycleandtheinvestmentsthatwearemakinginourretailbusinessareincreasinglybuildingacompetitiveadvantageforus.
Ourstrongearningscontributedtothesolidreturnsweprovidedourshareholdersasweexecutedonourcapitalplans.Werepurchasedoutstandingsharesworth$654millionwhichdecreasedoursharecountby4%andweincreasedourcommondividend9%allwhilemaintainingstronglevelsofcapital.Intotal,wereturnedmorethan$1billionincapitaltoshareholderswhilegrowingourtangiblebookvalueby11%andourTier1commonratioby20basispoints.
OverallIbelievethat2014wasasuccessfulyearforusandIbelievewearepositionedwellforthecurrentenvironment.
Nowturningtotheresultsofthequarter.Todaywereportedfourth-quarternetincometocommonshareholdersof$362millionandearningsperdilutedshareof$0.43.Resultsincludedtheimpactofa$56millionpositivevaluationontheVantivwarrant,$25millioninchargesassociatedwiththetransferofcertainloanstoheldforsale,anda$19millionchargerelatedtothevaluationofourVisatotalreturnswapwhichintotalessentiallywashed.
Wehavediscussedoureffortstoreduceourriskexposuresandduringthequarterwemoved$720millionofTDRstoheldforsaleaswelooktotakeadvantageofmarketconditionsforthesetypesofassets.Ultimately
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Industry:BankingEventDescription:Q4 2014 EarningsCall
©2014TheStreet,Inc.AllRightsReserved Page3of 24
weexpectthistransactiontoimproveouroverallcreditprofile,reducingservicingcostsandenableustousemoreofourcapitalefficiently.
Fourth-quarterfeeincomeresultswerehighlightedby20%sequentialgrowthincorporatebankingfeerevenuedrivenbyhighersyndicationvolumesandbusinesslendingfeesduetoincreasedvolatilityinthefourthquarter.Resultswerealsosupportedbystrongcardandprocessingfeesandinvestmentadvisoryrevenue.
Wemaintainedabalancedapproachtoexpensedisciplinethatischaracterizedbyanintensefocusonmanagingexpenseswhilecontinuingtoinvestinourinfrastructureandourrevenue-generatingcapabilities.Expensesyear-over-yearweredown7%andasexpectedincreased3%sequentiallyfromrelativelylowlevelsinthethirdquarter.
Aswediscussedlastquarter,ourfinancialsreflectsomeofthedeliberateactionswehavetakenthatwebelievearetherightdecisionstomakeforthelong-termandwillpositionuswellastheeconomyandinterestrateenvironmentchange.Partofthisistakingaprudentapproachtolendingstandardsandmaintainingariskreturnprofile.
Thishadanimpactonloangrowthinthequarter.Wecontinuetoseeaggressivepricingandstructurefrombothbanksandnon-banksandhavechosentonotchasedealsthatdonotoffertheappropriatereturnfortheriskwearetaking.WearemanagingtheCompanyforthelong-termandwearecommittedtomaintainingourdisciplineeveninthischallengingenvironment.
Averageportfolioloanswereup4%comparedwithfourth-quarterof2013withmodestsequentialgrowth.Growthfrom2013wasdrivenby6%growthinC&Iand6%growthinbankcardloans.Wecontinuedtogeneratesolidcoredepositgrowth,up8%comparedwithlastyearandhighlightedby13%growthinconsumersavingsandmoneymarketbalances.Commercialdepositsincreased10%comparedwithlastyearwithcheckingaccountbalancesup13%anddemanddepositbalancesup10%.
Wecontinuetomakegoodprogressincredit.Excludingnetcharge-offstakeninconjunctionwiththetransferofTDRloans,ournetcharge-offratiowas45basispointsofloans.Non-performingassetlevelscontinuetotrenddownandournon-performingassetratioendedtheyearat82basispoints.
OverallI'mpleasedwiththeprogresswehavemadeoverthepastseveralyearscontinuingoureffortstorepositiontheCompanyinthiscurrentlychallengingenvironment.Wearewellalongthepathbecauseoftheworkwehavedonetoaddresschangingcapitalandliquidityrequirementsandheightenedregulatoryexpectationsandtoadapttothelowinterestlowrateenvironment.
Wedorecognizethat2015istopofmindandthatwearefacingsomenear-termheadwinds.Likeothersintheindustry,wewillcontinuetomanagethroughthelowinterestrateenvironmentanditsimpactonloanyieldsandtheinvestmentportfolioaswellasincreasingcostsrelatedtocomplianceandriskmanagement.
Wewillalsobeimpactedbythechangesweannouncedtoourdepositadvanceproduct.WewillworkthroughallofthatthisyearwhilecontinuingtorepositiontheCompanyinordertoachieveourlonger-termobjectives.Weremainfocusedonthethingswecancontrol.Wearemakingstrategicdecisionstoachievetherightbusinessmix,onewhichproduceslessvolatileandmoresustainableearningsgrowthandwecontinuetopursueopportunitiesthatadduniquevalueforourcustomerswhileprovidingasolidreturnforourinvestors.
Thebenefitsofourstrategieswillprovemoreenduringthroughthecontinuedenhancementswearemakingtoourriskcultureandourfocusonappropriatelybalancingriskandreward.
Webelievethesestrategieswillenableustoachieveourlong-termtargetsinanormalizedenvironmentwhichwouldincludehigherrates.Tothatendwehavenotchangedourobjectivesandwecontinuetowork
CompanyName:Fif thThirdBancorpCompanyTicker:FITBSector:Financial
Industry:BankingEventDescription:Q4 2014 EarningsCall
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towardareturnonaverageassetsinthe1.3%to1.5%rangeandanefficiencyratiointhemid50s.Wethinkthosearereasonabletargets.Wehaveprudentstrategiesinplacewithatalentedworkforceallalignedtowardsthoseobjectives.
OurdedicatedemployeessetFifthThirdapartastheyworkwithourcustomerstoprovidesolutionstotheirfinancialneedsandIthankthemfortheirmanycontributions.Whilewehavealotofworkaheadofus,wehaveasolidfoundationfromwhichtogrow.Wewillcontinueourtransitionin2015andwewillprovideupdatesthroughouttheyearaboutourprogress.
Withthat,IwillturnitovertoTayfunanddiscussourfourth-quarteroperatingresultsandouroutlook.Tayfun?
TayfunTuzun(EVP,CFO):
Thanks,Kevin.
Goodmorningandthankyouforjoiningus.
In2014,despitethemanyenvironmentalchallengesthatKevinmentioned,wecontinuedtoexecuteonourstrategicprioritiesandtookdeliberateactionstopositionourCompanywelltomeetthosespecificchallenges.Inayearwithcontinuedpressureonmargins,wegrewnetinterestincome1%andfurtherstrengthenedthebalancesheetwithrespecttoourliquidity,interest-rateandcreditriskexposures.
Growthinfeeincomeincludingcorporatebanking,cardandprocessing,investmentadvisoryanddepositfeesprovedthebenefitofourdiversebusinessmodelaswecontinuetotransitionfromthemortgagerefinanceboom.Full-yearexpensesweredown6%evenaftera4%increaseintechnologyrelatedexpensesaswecontinuetoinvestinourbusiness.
Ourstrongresultssupportedourcapitalreturnsaswedistributed$1.1billiontocommonshareholdersthroughdividendsandsharerepurchasesin2014resultinginatotalpayoutratioof76%.
Lookingindetailatthefourthquarter,Iwillstartwithafinancialsummaryonpage3ofthepresentation.
Wereportednetincometocommonshareholdersof$362millionor$0.43perdilutedshare.TherewereseveralitemsthataffectedearningsinthequarterandIwillnotetheirimpacttovariouslineitemsthroughoutmycomments.
Inthefourthquarter,wetransferredapproximately$720millionofprimarilyaccruingfirstlienresidentialmortgagesthatwereclassifiedastroubleddebtrestructuringtoheldforsale.Thevastmajority,about97%oftheseloans,wereoriginatedin2008orpriorandapproximately50%ofthebalancewaslocatedinMichiganandFlorida.Weexpecttoexecuteasaleoftheseloansearlythisyear.
Inconnectionwiththeloantransfer,werecognizedincrementalnetcharge-offsofabout$87millionor38basispointsandotherrelatedexpenses.However,thiswaspartiallyoffsetbya$64millionreductionintheallowanceforloanlosses.Asaresult,thepretaxnetincomeimpactofthetransactionincludingexpensesof$2milliontotaled$25millionor$0.02pershare.Thistransactionrepresentsanotherstepinourstrategicdirectiontoreducepotentialsourcesofearningsvolatilityinourbusiness.
Withthat,let'smoveontotheaveragebalancesheetandpage4ofthepresentation.Inthefourthquarter,averageinvestmentsecuritiesdecreasedby$216millionor1%sequentiallyreflectingourlowappetitetodeployadditionalcashintoinvestmentsecuritiesgiventhecurrentrateenvironment.Consequently,wedidnotreinvestallofourcashflowsintheinvestmentportfoliothisquarter.Asaresultwhencombinedwithourstrongdepositgrowth,ourcashbalancesattheFedreachedover$7billionattheendofthequarter.
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Industry:BankingEventDescription:Q4 2014 EarningsCall
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Shiftingtoloans,wecontinuetobeprudentonpricingandterms.Asaresult,wesawrelativelystableaverageportfolioloanbalancesup$242millionfromthethirdquarterdrivenbygrowthincommercialconstructionandresidentialmortgagebalances.Otherwise,payoffsandpaydownsoffsetsolidfourth-quarterC&Iproduction.Competitioncontinuestobefierceandaswehavestatedbefore,pricingdoesnotleavemuchroomforerror.
Wehaveandwillcontinuetomakedeliberatedecisionsnottoaddorrenewloansattermsorpricingthatwouldproducesub-optimalriskreturnprofilesaswedeployourcapital.
Wehaveseenverystrongdepositgrowththroughouttheyearendandasweexpectedthatcontinuedinthefourthquarter.Averagecoredepositsincreased$3.2billionfromthethirdquarterdrivenbygrowthinmoneymarketanddemanddepositaccounts.
OurLCRratioatyear-endexceeded110%,averysignificantachievementaccomplishedin2014.
MovingtoNIIonpage5ofthepresentation.Taxableequivalentnetinterestincomedecreased$20millionsequentiallyto$888millioninlinewiththeexpectationswesharedwithyouinDecember.A$6millionreductionduetocreditspreadcompression,$9millionduetothefollowingimpactoffixed-ratedebtissuance,and$4millionrelatedtothedelayinthedeploymentofourportfolioinvestmentsdrovethedecline.
Thenetinterestmarginwas296basispoints,down14basispointsfromthethirdquarterwith8basispointsofcompressionrelatedtoourelevatedcashbalances.Debtissuancesandloanrepricingwereresponsibleforthebalanceofthedecline.Thequarterlydeclineinourloanyieldswerethesmallestoftheyear.
Shiftingtofeesonpage6ofthepresentation,fourth-quarternoninterestincomewas$653millioncomparedwith$520millioninthethirdquarter.Resultsincludeda$56millionpositivevaluationadjustmentontheVantivwarrantanda$19millionchargerelatedtothevaluationoftheVisatotalreturnswap.Theseimpactswerenegative$53millionandnegative$3millionrespectivelyinthethirdquarter.Excludingtheseitemsinbothquarters,feeincomeof$616millionincreased$40millionor7%sequentiallydrivenbysolidcorporatebankingresultsandthepaymentunderourtaxreceivableagreementwithVantiv.
Corporatebankingfeesincreased$20millionor20%sequentiallyonhighersyndicationandbusinesslendingfees.Onafull-yearbasis,corporatebankingfeesincreased7%aswecontinuetogrowthecontributionsfromourcapitalmarketsolutionsandothernoncreditproductsandservices.
Cardandprocessingrevenueincreased2%fromthethirdquarterandwasup7%fromthefourthquarterof2013aswecontinuedtobenefitfromgreatercardutilizationandhigherconsumerpurchasevolumes.Forthefullyear,cardandprocessingrevenuewas$295million,up8%from2013andthehighestlevelwereportedsince2011whentheDurbinAmendmentwasimplemented.
MortgagebankingnetrevenuewasflatsequentiallywhichwasconsistentwithourOctoberexpectations.Originationsdeclinedseasonallyandwere$1.7billioncomparedwith$1.9billioninthethirdquarter.Increasesingainonsalerevenueweremostlyoffsetbydeclinesinservicingfees.Gainonsalemarginswereup60basispointsto284basispoints.
Depositservicechargesdeclined2%fromthethirdquarterandwereflatrelativetothefourthquarterof2013.Commercialdepositservicechargesandretaildepositservicechargeseachdeclined2%sequentially.
Ontheconsumerside,wesawadecreaseinoverdraftoccurrencesduringthequarter.Totalinvestmentadvisoryrevenuedeclined2%sequentiallybutforthefull-yearrevenueof$407millionwasarecord.Thedeclinewasinmorevolatilerevenueitems.
Wehavebeensuccessfulingrowingassetsundermanagementwhichareup8%from2013andwecontinuetofocusonshiftingfeestructurestoanassetbaserecurringmodelawayfromtransactionalpricing.
CompanyName:Fif thThirdBancorpCompanyTicker:FITBSector:Financial
Industry:BankingEventDescription:Q4 2014 EarningsCall
©2014TheStreet,Inc.AllRightsReserved Page6of 24
Excludingmortgage,theyear-over-yearincreaseinourtotaladjustednoninterestincomewas3.3%in2014whichisaverygoodaccomplishmentinthisenvironment.
Weshownoninterestexpenseonpage7ofthepresentation.Expensescameinat$918millionthisquartercomparedwith$888millioninthethirdquartermatchingourexpectations.Noninterestexpenseincludedhighercompensationrelatedexpenseincluding$4millionhighermedicalclaimsaswellas$6millioninseveranceexpense.
PPNRonpage8ofthepresentationwas$618million.Whenadjustedfortheitemsnotedontheslide,PPNRwas$580million,down$13millionfromthird-quarteradjustedPPNRprimarilyduetohigherexpensespartiallyoffsetbytheVantivTRApayment.Theefficiencyratioadjustedonthesamebasiswas61%forthequarter.
Turningtocreditresultsonpage9,totalnetcharge-offsof$190millionincreased$75millionsequentially.Fourth-quarternetcharge-offsincluded$87millionrelatedtothetransferoftheresidentialmortgageloansclassifiedasTDRstoheldforsale.Excludingthisimpact,netcharge-offswere$104million,asequentialdeclineof$11millionor10%andwere45basispointsofaverageloans.
Non-performingassetsexcludingloansheldforsalewere$748millionatquarterendanddown$48millionfromthethirdquarterbringingtheNPLratioto64andtheNPAratioto83basispoints,itslowestlevelinsevenyears.CommercialNPAsandconsumerNPAsdecreased$26millionand$22millionrespectivelyfromthethirdquarter.ResidentialmortgageNPAsdecreased$40millionprimarilyreflectingthetransferofTDRstoheldforsale.
Asanupdateinlightofthedeclineinthepriceofcrudeoilintheenergyportfolio,ourbalancesarefairlymodestatjustover$2billion.Wehaverelationshipswithabout170customersfocusedonthemiddlemarketandlargecorporateborrowers.Only2%arecriticizedwithnodelinquencies.
Inourreservebaselendingportfolio,weonlylendagainstprovenreserves.Thevastmajorityofourproducerclientsthatareleveragedtooilhavereasonablelevelsofhedginginplacethrough2015andmanyarehedgedthrough2016andincertaincasesinto2017.
Overall,thequalityofthefirmswehaverelationshipswithisverygood.Wecurrentlyhavenoexposuretoshaleactivityinouroutstandings.Wecontinuetomonitordevelopmentsbutwedofeelgoodaboutourpositions.
Wrappinguponcredit,theallowanceforloanleaselossesdeclined$92millionsequentiallyincludinga$64millionreleaserelatedtotheTDRtransfer.OurreservereleaseexcludingtheTDRrelatedimpactwas$28millionrelativeto$44millionlastquarterandsoourprovisionexcludingtheTDRsalewas$76millioncomparedto$71millionlastquarter.
Reservecoverageremainedsolidat1.47%ofloansandleasesand227%ofNPLs.Wearepleasedwiththelevelofcreditmetricsaswestart2015.
Lookingatcapitalonslide10,capitallevelscontinuetobestrongandwellaboveregulatoryrequirements.Tier1commonequityratioonaBaselIbasiswas9.6%,up1basispointfromlastquarter.ProformaforBaselIIIrules,ourcommonequityTier1ratiowas9.4%andincreased1basispointfromlastquarter.
Attheendofthefourthquarter,theaveragedilutedsharecountwasdownanother1%sequentiallyandisthelowestwehaveseensincethethirdquarterof2010.Duringthequarter,weannouncedcommonstockrepurchasesof$180million.ThatASRwas[sold]earlierthismonthandthetotalfortheentiretransactionwasapproximately9.1millionshares.
RelativetoCCAR,wesubmittedourcapitalplaninearlyJanuaryandwewillprovideyoumoredetailsonour
CompanyName:Fif thThirdBancorpCompanyTicker:FITBSector:Financial
Industry:BankingEventDescription:Q4 2014 EarningsCall
©2014TheStreet,Inc.AllRightsReserved Page7of 24
planinMarch.
Nowturningtoouroutlookfortheyear.Beforewediscussthebroadguidelinesofourfinancialperformanceexpectationsfor2015,wewouldliketoprovideyouwithourunderlyingassumptionsonthemostrelevanteconomicdriversinourbusiness.Thisyeartheabilitytoconfidentlyforecastthelevelofeconomicgrowthandthepathoftherateenvironmentaremorechallengingasthepastthreeweekshaveclearlyshown.Nevertheless,weneedtouseabaseforecastwhichweknowwillbesubjecttofrequentchanges.
Ourbaseeconomicoutlookisbasedonmostrecentconsensusmarketingexpectationsfordomesticeconomicactivity.CurrentconsensusexpectationsindicatethattheUSeconomywillachieveyear-over-yeargrowthof2.5%to3%in2015withlowerinflation.Onaverage,weshouldexpectourindustrytoachieveoverallloangrowthapproximatingGDPgrowth.
Incommerciallending,weexpectourgrowthtoexceed3%supportedpartiallybyourrecentstrategicinvestments.Wealsoexpectcontinuingdeclinesinconsumerloans,HELOCsandautosastheresultsofbothcontinuedweaknessinloandemandandcompetitivepricingpressuresthatwilllikelymaintainourcautiousapproach.
WiththeLCRrelatedinvestmentslargelybehindus,ourportfolioinvestmentswillbeopportunisticinthisenvironment.Weexpecttoincreasethesizeoftheportfoliobutthetimingwillbedependentonratesandotherbalancesheetdynamics.Wedon'thaveanysignificantderivativecontractsthatareexpiringthisyear.
Undertheexpectationofarelativelyhealthyeconomy,weassumetheFedwillstartraisingtheFedfundsrateduringthesecondhalfoftheyear.Ourrateoutlookforthefirsthalfoftheyearisflat.Reflectingourdetailedpublicdiscussionsanddisclosuresonourassetsensitivityandbaseduponthecombinationofourloangrowthoutlookandinterestrateassumptionsandincludingthe$100millionreductionrelatedtoourdepositadvanceproductthatwecommunicatedbefore,weexpecta1%to2%declineinNIIonayear-over-yearbasisbutagrowingrunrateafterthemidyearpoint.
OnJanuary1ofthisyear,therepricingofourdepositadvanceproducttookeffectandtheNIIimpactwasimmediate.Althoughouryear-over-yearcomparisonswillhavetheimpactofthisreduction,theunderlyingtrendofourcoreNIIprogressshouldbepositivethroughouttheyear.Excludingthisimpact,wewouldexpectourNIItogrowthisyear.
WithrespecttoNIM,includingtheimpactofthe$100milliondeclineinourdepositadvancerelatedinterestincomewhichisonanannualbasisequivalenttoabout8basispoints,weexpectcontinuedcontractionduringthefirsthalfoftheyearbutbasedontherateassumptionsourNIMshouldrecoverbyyearendtoQ42014levels.Ifratesstayflat,wewouldexpectcontinuedcontractionduringthesecondhalfoftheyearandend2015roughly5to7basispointsbelowQ42014levelsexcludingtheimpactofthedepositadvanceproducts.
Forthefirstquarter,weexpecttheimpactofthedepositadvanceproducttobe$20millionto$25million.Inaddition,daycounthas$12millionnegativeimpact.Otherwisewegenerallyexpectthebenefitfromloangrowthtobeoffsetbycontinuedrepricingintheportfolio.WeexpectNIMtobelowerduringthequarterduetoelevatedcashbalancesandongoingpricingpressures.
WeexpectourcreditperformancetocontinuetoimprovebutwewouldliketoremindyouthatweexpectALLLreleasesin2015tobesignificantlybelowthe2014levelsandloangrowthwillresultinhigherlevelsofprovisioning.Weareveryencouragedbytheoverallgoodqualityofnewloansthatweareputtingonourbalancesheetsoourfundamentalcreditperformanceshouldimprove.
WeexpectournoninterestincomeexcludingVantivrelatedgainsof$155millionin2014tocontinuetogrowatahealthyrate.Wecurrentlyexpectanincreaseinthemid-singledigitspercentrangewiththemaindrivers
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Industry:BankingEventDescription:Q4 2014 EarningsCall
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beingfeeincomerelatedtocommercialbankingandinvestmentadvisory.
Mortgagerevenuewillbeafunctionoftherateenvironmentwhichatthistimeisdifficulttoforecastforthefullyear.TogetherwithourNIIexpectations,wewouldexpectourfull-yeartotalrevenuestoexceedour2014corerevenues.
Forthefirstquarterfeeincome,mostfeerevenuelinesincludingdepositfees,cardandprocessingrevenueandcorporatefeestendtobeseasonallylowandweexpectcorporatebankingfeestobeadditionallyimpactedbythecurrentmarketenvironment.Additionally,wewillnothavethebenefitoftheVantivTRApaymentinthefirstquarter.
Ontheexpenseside,asalways,wewillmaintainourfocusonmanagingourCompanyefficiently.Wewillhowevercontinuetoinvestinourbusinessestogrowthrevenuesandbuildandmaintainaninfrastructurethatwillbeacompetitiveadvantageforus.
Asyouhaveheardfromotherbanks,riskandcomplianceinfrastructuresarebeingreevaluatedandredesignedandwearedoingthesame.Ourheadcountintheseareaswillincrease.Wewillcontinuetodriveefficiencieslikewhatyousawin2014wherewereducedourheadcountbyalmost1100butasaresultofthesehires,weexpecttoaddtoourtotalheadcountin2015.
Customerdemandisdrivingtechnologyinvestmentsbothtocreatenewefficienciesaswellastoadapttothechangingenvironment.Someofthesearepermanentchangestoourexpensebase,someofthemaretemporary.
For2015fullyearundertherevenueassumptionsthatIoutlined,weexpecttoachieveafull-yearefficiencyratiointhelow60s.Theyear-over-yearincreaseincompliancerelatedexpensesisexpectedtobeinthe$25millionrange,predominantlyheadcountrelated.Inaddition,weexpectroughly$15millioninexpensesduringthesecondhalfoftheyearrelatedtotheEMVtechnologyinourcreditcardbusiness.
TheimpactofthereductioninrevenuerelatedtothedepositadvanceproductandthecomplianceinEMVrelatedexpensesareequivalenttoroughly2%intermsofourefficiencyratio.Therewillbequarterlyfluctuationsduetotheseasonalnatureofsomeitemsasalwaysandintheneartermwemayexperiencehigherexpenses.
Forthefirstquarter,wewillseehigherexpensesprimarilyduetoseasonallyhigherFICAandunemploymentexpensemuchlikewhatwesawlastyearandcontinuedinvestmentsinriskmanagementcompliance.Inaddition,marketingexpenseswillhaveaseasonalpickup.
WearestillofthefirmopinionthatwecanoperatethisCompanyinthemid-50sefficiencyratiowhenrevenuesnormalize.
Forthefullyear,weareassuminganeffectivetaxrateinthe26%range.Wealsowouldjustliketoremindyouthattherevenueexpectationsthatwesharedwithyoutodaydonotincludepotentialbutcurrentlyun-forecasteditemssuchasVantivwarrantmarksorgainsorlossesonsharesales.
Insummary,weareenteringthenewyearwithastrategicfocustomanageourCompanyefficientlyandwithalong-termfocusongrowthandachievingoptimalreturnsforourshareholders.Webelievethatourstrategieswilldrivelessvolatile,moresustainablelong-termearningsgrowthandreturnsandwelookforwardtoprovidingupdatesaswegoalongthisyear.
Withthat,let'sopenthelinefordiscussions.Jake?
QUESTIONS&ANSWERS
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Industry:BankingEventDescription:Q4 2014 EarningsCall
©2014TheStreet,Inc.AllRightsReserved Page9of 24
Operator:
(OperatorInstructions).
ErikaNajarian,BankofAmerica.
ErikaNajarian(Analyst-BofAMerrillLynch):
Yes,goodmorning.Myfirstquestionisonthecommercialloangrowthoutlook.Youmentionedthatyouexpectedtoexceedthe3%GDPgrowththatisbeingforecastedcurrently.IfIlookattheaverageC&Igrowththisquarter,itwasup6%yearoveryear.Imeanobviouslyexceeds3%couldmeanalotofthingsbutarewesupposedtotakeawayfromthisthatC&Iloangrowthcouldbeflatordecelerating?Andifso,inanimprovingGDPbackdropwhyisthatthecaseforFifthThird?
TayfunTuzun(EVP,CFO):
Idon'tthinkwearebackingawayfromgrowthincommerciallending.Wetotallyexpectcommerciallendingtogrowthisyeartothe3%pluslevel.In2014,weclearlyhadsomeheadwindswithrespecttopayoffsrelatedtocompetitiveoffersfromeithercapitalmarketsorothercompetitors.Ourexpectationfullyisthatwewouldgettosimilarlevelsofgrowthandourproductionnumberswouldindicatethatweshouldbeabletoachievethat.
Andalsogivensortofthevolatilitythatweareseeingincapitalmarkets,wewilljusthavetowaitandseewhatthepayoffandpaydownexperienceisandastheeconomyimprovesIsuspectthatourclientswillbeutilizingmoreoftheirborrowingcapacity.
SoatthispointweareoptimisticaboutC&Igrowth.Wearenotbackingawayfromitandwewillachievesortofthe3%pluswhetherthatisat4%,5%or6%willclearlydependalittlebitoneconomicactivity.
ErikaNajarian(Analyst-BofAMerrillLynch):
Gotit.Myfollow-upquestion,youweretrackinga61%efficiencyratioonanadjustedbasisthisquarterandyouareguidingtowardslow60%witha50basispointincreaseinthefront-endforthesecondhalfoftheyear.AndIguessisthemainmessagethatFifthThirdisunlikelytomovetowardthemid-50suntilwearemorematureintotheratecycleoristheresomethingfurthertodowiththeexpensebaseafteryouhaveinvestedinthecomplianceandtechnologyrelatedmattersthatyoumentioned?
TayfunTuzun(EVP,CFO):
Soclearlyonayear-over-yearbasis,theimpactofthe$100millionreductioninNIIrelatedtoourdepositadvanceproducthasabigimpact.(multiplespeakers)onrevenues.Andthenwehavetheadditional$40millionofexpensesthatImentioned.
WhatishappeningtodayisIdon'tthinkthatournewguidancechangesourperspectivesonwherewethinkourlong-termefficiencyratiowillbe.Ithinkourindustryisgoingthroughachangeinthewaywemanageriskandcompliance.
Thisisanewprototypethatbankslargeandsmallareadopting.Whereasinthepastriskandcompliancemanagementhadmoreofacentralizedstructure,thatstructuretodayisbeingredesignedtoincorporatethosefunctionsintothefrontlinesandaswellatthesametimeboostthecentralizedriskandcompliancemanagementunits.Sobydefinition,thatdeploymentrequiresheadcount.
Newprocessesarebeingdesignedtoaccommodatethestructureandthereisalwaysacostinvolvedwhensuchanundertakingistakingplace.Thisdevelopmentappliesnotjusttousbuttoallbanksinourpeergroupandeventuallywethinktherewillbetechnologyapplicationstotheseprocessesbutwearenotthereyet.
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Sothereforewhatishappeningtodayisthattheseefforts,headcounteffortsareheavyandhaveanegativeimpactonourefficiencyratiowithoutnecessarilycreatingnewrevenuestreams.Butwedobelievethatultimatelytheseeffortswillhaveotherpositiveexternalitiesthatwillimpactourefficiencyoncetheyareinplace.Ourcustomerswillforexampleexperiencebetterservicewhichshouldimpactcustomerretentionandweshouldexperienceloweroperatinglosses.
Sothatwillmovethroughourefficiencyratiointime.Butrightnowweareintheinvestmentphasewithoutnecessarilyrealizingthesebenefitsandontopofthatwearealsooperatinginadifficultrevenueenvironment.Soastheprocessmatures,wewillgettheefficienciesbackandasweapplymoretechnology,thosewillbeevenmorepronounced.
SoIguessthequestioniswhycan'tyoudothisallbytakingexpensesoutelsewheretopayfortheseinvestmentsandweare.Thefinalnetcostoftheseinvestmentsactuallyislowerthanwhatthegrowthexpensesarebecausewearepartiallypayingforthemwithsavingselsewhere.Butwecan'tstopalltheinvestmentsandwestillneedtolookforrevenuegrowthopportunitiesinourbusinesses.
Sotheotherpiecesforexample,theinvestmentinEMVthisyearwillhaveultimatelyverybeneficialimpactonfraudlosseswhichwillonceagainworkthroughtheefficiencyratio.Butthosebenefitsaregoingtoberealizedafterthetechnologyisinplace.Sothereforein2015fromacalendaryearperspective,wehavethisphenomenonoftheblipinourefficiencyratio.Butbynomeansouroperatingleveragepicturein2015revisesourperspectiveonhowwecanrunthisCompany.Itisjustacombinationofthenatureoftheseinvestmentsandtheoperatingenvironmentthatwearein.
ItisalonganswerbutweclearlyareveryfocusedintermsofmanagingourCompanyefficiently.
ErikaNajarian(Analyst-BofAMerrillLynch):
Gotit.Thanksfortakingmyquestions.
Operator:
MattBurnell,WellsFargoSecurities.
Matt Burnell(Analyst-WellsFargoSecurities):
Goodmorning.Thanksfortakingmyquestion.IguessIwantedtobroadenthequestiononcommercialloangrowthoutsideofC&Isinceyouhavealreadyansweredthatquestion.ButIguess--andIknowitisasmallnumberrelativetototalloansbutcommercialconstructionwasupfairlyvisibly,hasbeenupfairlyvisiblyoverthelastcoupleofquarters.
Canyougiveusalittlemorecolorastowhatyourexpectationsareforgrowthinthatportfolioandaretherespecificlocationsorprojectsthataredrivingthatandarethereancillaryprofitopportunitiesoutsideoflendingrevenuethatyouaregeneratingfromthoseloans?
TayfunTuzun(EVP,CFO):
Sure.Soweaboutdoubledourcommercialconstructionin2014andwhenwelookattheunderlyingproductiontrends,about75%to80%ofthatproductionisinourfootprintandabout75%or80%oftheunderlyingtypeofprojectiseitherindustrialormultifamilyandthereissomeofficebuildingsattachedtothataswell.
Clearlyduetotheshortnatureofthatlending,thenaturalgrowthinthatportfoliowillultimatelyslowdownfromwhatweareexperiencingtodaybecausethechurnitselfwilllimitthenetgrowth.
Atthispointduetothatnature,wearenotnecessarilyseeingasignificantfeepickupbutwearebroadening
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ourcustomerbaseandwouldpotentiallyobviouslyseektogrownoncreditrevenues.Butatthisstage,itisnotaverymeaningfulnumber.
AportionoftheconstructionloanswethinkwecancapturebutIhavetotellyouthatcompetitionfrominsurancecompaniesandotherverylong-termorientedinvestorsisverytoughandwearenotnecessarilycompetingastheyturnfromconstructiontoperm.
Matt Burnell(Analyst-WellsFargoSecurities):
Thankyou.Justasafollow-upbackoncommerciallending,itisclearthatyouarenotseeingthereturnsonthosetypesoflendingexposuresthatyouwouldliketosee.Whereareyouseeingthemostaggressivecompetitioncomingfrom?Isitsmallerregionalbanksorisitbiggerbanks?Andgivenyourcommentsabouttryingtodiversifyyourrevenuesource,givenyourstrongcapitalratios,arethereopportunitiesthatyouhaveseenoutinthemarketplacetopotentiallyaddcommercialfeerevenueviainorganicgrowth?
KevinKabat (CEO):
Matt,thisisKevin.Iwouldjusttellyouthatcompetitivelywehaveastheyearhasprogressedseenitcontinuetoratchetupnotonlyintermsofpricingbutinstructure.AndIwouldsayhardtocategorizeoutofonesegmentalthoughwewouldtellyouthatweseeitequallyintermsofthelargestinstitutionsthatarebeingveryaggressiveintermsofsomeoftheparticularlystructureofthedeals.Soithasjustcontinued.
Itisnotsurprisingtousfromthatstandpoint.Iguessthebiggestsurpriseisthespeedatwhichithasacceleratedandthatisreallykindofthedisciplinethatweputagainstourorientationfromthatperspective.Sowesawokayproduction,wesawalotmoreaggressivepaydownaswegotprogressivelyintotheyear.AndIthinkthatwillcontinueandthatisreallykindofwhatwearelookingat.
Relativetootherfeeincome,IthinkTayfunhastalkedaboutourexpansionintermsofcapitalmarketsandsomeoftheofferingsthatwenowhavethecapabilitiesofproducing.Wethinkthereisstillopportunitiesthere.Idon'tknowifthereareothers,Tayfun,thatcomeinto(multiplespeakers)
TayfunTuzun(EVP,CFO):
Theoneparticularnew--onenewverticalthatwelaunchedinthesecondhalfoftheyearisretailverticalandwedidthatdeliberatelybecausewehaveverystrongtreasurymanagementproductstocompeteinthatarea.Andthatwas,weexpectthefeeincomecomponentincorporatelendingviatheseverticalplaystoactuallycontinuetoincrease.
BecauseIdon'tthinkatleastintheneartermourexpectationisthatthepriceandstructurecompetitionwillprobablystillbewithussoweareverykeenonmakingsurethatwesupplementrelationshipprofitabilityvianoncreditproducts.
Matt Burnell(Analyst-WellsFargoSecurities):
Thankyouverymuch.
Operator:
MattO'Connor,DeutscheBank.
Matt O'Connor(Analyst-DeutscheBank):
Goodmorning.WasjusttryingtodosomeroughcalculationsonalltheguidancetobackintowhattheabsoluteexpenseoutlookisandfiguredIwouldjustaskinsteadoftryingtopullthemovingpiecestogether.Butjustaswethinkabouttotalcostfor2015,obviouslyXthingslikelitigationthatmightpopup,whatisthe
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outlookontheexpenses?
TayfunTuzun(EVP,CFO):
Well,theoutlookontheexpensesIthinkourguidance,theformatofourguidanceisasIwentthroughearlier.Whatweexpectisweexpecthigherheadcountsandthereforeinadditiontosortofnormalmeritincreaseswedoexpectouremploymentrelatedexpenseitemstoincrease.
WedoexpecthigherITexpensesbecausewecontinuetoinvestinourretailbusinessandourcommercialbusiness.Wehavetomaintainthelevelofinvestmentstogrowearnings.Weareinvestingquiteabitofmoneyinourdigitalrevenuegenerationcapabilitiesinretail.Wearecontinuingtoinvestinthecapitalmarketsbusinesssothoseitemswillcontinuetogoup.
Marketingislikelytobehigherandwearecomingoffofaloweryearin2014forthat.Soingeneral,Matt,Ithinkourexpenseguidanceyouwillneedtoworkthatthroughtherevenueguidanceandtheefficiencyratio,thelow60sefficiencyratiothatweprovidedyouwith.Andonarunratebasis,ournewhireincreaseswillprobablybehigherinthesecondhalfoftheyearcomparedtothefirstbutingeneralwewillseehigheremploymentrelatedexpenses.
Matt O'Connor(Analyst-DeutscheBank):
Okay.AnditseemslikeexsomeoftheITinfrastructurespend,thereismoreexpensecreepthanwehaveseen.Isitthatyouhaverunoutofareasthatyoucancuttooffsetsomeoftheinflationorisitthatwearecloseenoughtoratesincreasingandrevenuepickingupthatyoudon'twanttocutmoreintothecoreorintothecore?
TayfunTuzun(EVP,CFO):
Iwouldn'tcharacterizeitaswehaverunoutofareastosave.Iwouldcharacterizeitaswearenotnecessarilyreducingourinvestmentsinourbusinessesthisyearasweareverykeenonreachingtherevenuegrowthtargets.Ithinkourrevenuesaregrowingyear-over-yearwhichisimportanttonoteandwearekeenonmakingsurethatweputsomeofoursavingsforexampleinretail,backtoretailbecausewecontinuetoviewthatlineofbusinessasveryimportantnotonlyin2015butbeyond2015.
KevinKabat (CEO):
AndtheotherthingIwouldadd,Matt,asyouknowandhavefollowedusforawhile,youknowthatwearemindfulofmakingsurethatourrevenuecapabilitiescontinuetotrackrelativetotheenvironmentandtheanticipationoftheenvironment.SoasTayfunjustmentioned,wearedevelopinganewverticalinourcommercialspacethatwearehiring.Wearealsoinvestinginourinvestmentadvisoryspacethathasgottenusagoodreturnandsowewillcontinuetodothataswellaswegoforward.
Matt O'Connor(Analyst-DeutscheBank):
Andthenjustquicklyonthesecuritiesbook,youtalkedaboutitlikelygrowingfromheredependentonrates.Butaswethinkaboutthat$22billionofsecurities,howbigshouldthatbeifrateswere--youcanpickthelevel,2.25or2.5onthe10year--howdepressedisthatlevelrightnowjustgivenwhathashappenedtoratesinthelastthree,fourmonths?
JamieLeonard(SVP,Treasurer):
Matt,itisJamie.IthinkthewaytolookatthesecuritybookisreallyinthecontextoftheLCR.Wewereat92%lastquarter;weareat112%thisquarter.SothesizeofthesecuritybookwhatIwouldliketoseeisexitingtheyear100%ormoresohavinganacceptablebufferthere.
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Sittingon$7billionofcashattheendoftheyear,thereweren'talotofopportunitiesandwestilldon'tseealotofopportunitiesinthisrateenvironmentbutwewillcontinuetobeopportunistic.ButIthinkyoucanexpecttoseesomeofthatcashdeployedoverthecourseof2015intoLCRfriendlyHQLA.
Matt O'Connor(Analyst-DeutscheBank):
Andnothingonthemagnitude,thecashhasgoneupbycallit$5billionandchangethelasttwoquarters.Isthatacorebuildoristhatjustbecauseratesaresolow?
JamieLeonard(SVP,Treasurer):
Ithinkthebuild-upincashisinsomepartdrivenbyseasonalitybutinalargepartdrivenbyalotofthestrongdepositgrowthTayfunreferencedwithregardtoourretailbankingfranchise.
TayfunTuzun(EVP,CFO):
Ithinkthebroadermessageonthebalancesheet,Matt,isthatwetrulyareonadaytodaybasis,wearemonitoringthis.Wearemonitoringtheassetsideofthebusiness,theliabilitysideofthebusiness.Clearlydepositgrowthhasexceededourexpectationsin2014,whichwasgreat,butweareverykeenonmakingsurethatfromamarginperspectiveknowingthatwewillcontinuetoexperiencecreditspreadcontractionthatwemanagetheliabilitysideofthecostsasefficientlyaswecan.
Soyouwillseeusspendingquiteabitoftimeandfocusontheliabilitysidethisyear.
Matt O'Connor(Analyst-DeutscheBank):
Okay,thankyou.
Operator:
KenZerbe,MorganStanley.
KenZerbe (Analyst-MorganStanley):
Goodmorning.Firstquestion,justintermsofthetransactiondeposits,canyouaddresswhatdrovethebigincreasethere?Isthereaphilosophyshiftthatisactuallydrivingyourdesiretogrowdepositsmuchmoreaggressively?
TayfunTuzun(EVP,CFO):
Well,we'vealways--Ithinklastyearinmanyinstances,we'vediscussedourperspectiveonthevalueofdeposits,andwecontinuetomaintainthatperspective.Welikedeposits;webelievethatourdepositfranchisewillbetheanchortoourprofitabilityinourbalancesheet.
Andinthefourthquarterwehaveexperiencedabitofahighergrowthincommercialdeposits,andeverylineinourcommercialdepositbookhasgrown.AndIthinkthatismorereflectiveofsortofthecorporatecashpositionswithrespecttoourclientsmorethanjustadeliberateactionthatwetookinourcommercialdeposits.Butingeneral,wehavenotchangedourviewofdeposits.
KenZerbe (Analyst-MorganStanley):
Buthaveyouincreasedyourpricingofthosecommercialdepositstohelpdrawmoredepositsinatall?
TayfunTuzun(EVP,CFO):
No,therewerenoincreasesinourcommercialdepositpricing.
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KenZerbe (Analyst-MorganStanley):
Gotyou.Understood.Andthensecondquestion,intermsofthegainonsalemarginsobviouslymuchhigherthisquarter.Wasthatjustablipgivenwhathappenedwithinterestratesorshouldweexpectthosetocomebackdownagainnextquarter?
TayfunTuzun(EVP,CFO):
Wewillsee.Thereasonwhywedidnotwanttogivemortgageguidanceisbecauseofthevolatilityofthecurrentenvironment.Clearlyweareexperiencingapickupearlythisquarterin[AD]volumesandratelocks.Wewouldexpecttoseethatthisquarterandwewillseehowthatimpactsgainonsaleofmargins.Itisalittleearlytobeabletogiveyoucoloronthatyet.
KenZerbe (Analyst-MorganStanley):
Okay,great.Thankyou.
Operator:
RyanNash,GoldmanSachs.
RyanNash(Analyst-GoldmanSachs):
Goodmorning,guys.JustwantedtoaskoneclarificationontheNIMoutlook.Istheflatyear-over-yearguidancewithhigherrates,isthatinclusiveorexclusiveofthedepositadvanceproduct?
JamieLeonard(SVP,Treasurer):
Ryan,itisJamie.WhatTayfunhadmentionedwasforthefirstquarterwewouldexpectNIMtobedowndrivenbytheearlyadvancedproductandthatisabout8basispointsandthendaycountbenefitof3basispointsbringingyouintothatoutlookforthefirstquarterofdown5basispointsorsooffoffourthquarterlevels.Andthenfromthereitwouldbedependentupontherateenvironmenttogo--togrowfromthere.
TayfunTuzun(EVP,CFO):
OuroutlookintermsofthepicturethatIgaveyouwascomparingQ4of2014toQ4of2015.
RyanNash(Analyst-GoldmanSachs):
Andisthatinclusiveofdepositadvance--ofearlyaccess?
JamieLeonard(SVP,Treasurer):
Yes.
RyanNash(Analyst-GoldmanSachs):
Okay,gotit.Justshiftinggearstocredit,youtalkedaboutafewputsandtakesthatyouareexpectingcreditwillimprovebutloangrowthwilldrivehigherprovisions.Doyouthinkin2015wewillseetheinflectionpointwherecharge-offswillactuallystarttomeetprovisionsordoyouthinkyouwillactuallyhavetostarttobuildsomereservesin2015?
TayfunTuzun(EVP,CFO):
Wewouldexpectthedollarcharge-offstocontinuetodeclineandultimatelywebelievethatduringtheyeartheremaycomeapointwherewemayhitthatinflectionpoint.Itisabitearlytotellthatyet.
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Weobviouslyhavetherightlevelofreservestodayat1.47%coverage.Newloansthatarecomingonthesheetareofgoodqualitywhichshouldimprovetheprofileandthenwewillseehowloangrowthproceeds.Theremaycomeapointin2015wherethatcrossovertakesplacebutatthispointIcan'ttellyouwhenandIcan'ttellyoubyhowmuch.
RyanNash(Analyst-GoldmanSachs):
Gotit.Thanksfortakingmyquestions.
Operator:
KenUsdin,Jefferies.
KenUsdin(Analyst-JefferiesandCompany):
Thanks.Goodmorning,guys.Aquestiononcapital.YourTier1commonratiohaskindofhunginhereatagood9.4level,otherpeershavetendedtogrowalittlebitmore.
SoyouarenowinlineifnotalittlebitbelowwheresomeothersareandI'mjustwonderingifthereisanychangeinyourphilosophyaroundthetypeofmagnitudeofaskwhenyouthinkaboutCCARgoingforward?Iknowyouarenotgoingtobeabletotellustheamountyouaskfor.Butjustphilosophicallydoyoustillfeelasgoodaboutthetypeofaskyouguyshavegenericallydoneinthepastaboutreturningoverallmajorityofyourannualearnings?
TayfunTuzun(EVP,CFO):
So,Ken,IthinkthelasttwoyearswehaveworkedonCCARwiththesamegoaltomaintainourcapitalratiogoingintotheperiodandcomingoutoftheperiod.Thatactuallyenabledustoachievemoreaggressivecapitalreturndollarscomparedtoourpeers.
Ourphilosophytherehasnotchanged.WestillmaintainourviewthatastablecapitalratiogoingintotheCCARperiodandcomingoutoftheCCARperiodisthebestoutcomegiventheabsolutelevel,giventherelativelevelofcapitaltoourpeers.ThathasnotchangedandhopefullywewillgettosharetheresultswithyouinMarch.
KenUsdin(Analyst-JefferiesandCompany):
Okay,gotit.Andthenjustonemoreclarificationontheoutlookintermsofjustyouroutlookforthefeesideandunderstandingwhatyousaidbeforeonnotbeingquiteclearonhowmortgagecancomethrough.Whenyouaretalkingaboutyourexpectedfull-yearoutlookforfeegrowth,canyoujustmakesureweareallbasedontherightstartingpointforit?Andthenisitbasicallythengoingtobethoseothercoreareasyouthinkyoucangrowwiththeswingfactorbeingmortgage?
TayfunTuzun(EVP,CFO):
SoasImentionedearlierinthecall,excludingmortgagein2014theyear-over-yearincreaseinourtotaladjustedforVantivnoninterestincomewas3.3%.Webelievethatagainexcludingmortgage,wecanachievethatnumberandevenbetterduringtheyearandthatiswhatouroutlookisbasedon.
KenUsdin(Analyst-JefferiesandCompany):
Okay,gotit.Thanksalot.
Operator:
ScottSiefers,SandlerO'Neill.
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Scot t Siefers (Analyst-SandlerO'NeillandPartners):
Goodmorning,guys.EitherTayfunormaybeJamie,justonthemarginIjustwanttomakesureIamunderstandingthedynamicscorrectly.Soitsoundslikequalitativelythebigpressurepointfortheimmediatetermisjustthedepositadvanceproductbutotherwisebasedonthetrajectoryyouhavegot,itsoundslikethecoremarginafterthefirstquarterwouldkindofhavetobeflattogetyoubacktothefourthquarter2014levelbytheendof2015.
Sowhatasyouseeitaresortofonacorebasisarethemaindynamicsthatwouldallowthecoremargintojustkindofstabilizeratherthankindofremainunderpressureinlightoftherateenvironment?
JamieLeonard(SVP,Treasurer):
ThisisJamieandasTayfunhadmentioned,wearesensitiveontheshortendofthecurvesoclearlyFedtighteninginthebackhalfoftheyearwouldbebeneficial.Secondarilycommercialloangrowthnorthofthe3%GDPlevelscertainlywillhelp.
ButinthemeantimewethinkwecanruntheCompanyandourbalancesheetispositionedtodeliverstableNIMinthefirsthalfof2015butfortheimpactoftheearlyadvancedproduct.Sowehavesomeopportunityontheliabilitysidejustgivenhowstrongourdepositgrowthhasbeen.
Wecanmaybeearnanotherbasispointortwotherebutforthemostpart,theloanyieldcompressionyousawduring2014continuedtobelessandlessandsowehavegotalittlebit,maybeabasispointortwoofheadwindtherebutthatiscertainlymanageable.
TayfunTuzun(EVP,CFO):
ClearlyNIMguidancethisyearisverychallenging.Whatwehaveseenheresofaraloneinthelastthreeweeksis30+basispointdropinthe10year,notthatnecessarilythe10-yeardrivesourNIM.
ButwerecognizethechallengesassociatedwithNIMguidancebecauseitalsodependsasImentionedonthetimingofourabilitytodeploymoreleverageintoourinvestmentportfolio,wewillbepatientduringtheyear.NoquestionaboutitwhichmayfluctuateourNIMfromtimetotimebutwewillmaintainthatcautiousapproachthatwehavemaintainedthroughout2014.
Whenwedoseeopportunitieswewillgoafterthem.Alsoitisdifficulttonecessarilygiveyougoodguidanceforcreditspreads.Asyouknow,creditspreadscontractionhasactuallyoverwhelmedsomeofthebaseratechangesthroughout2014andwefeltthatinourcommercialbook.
Whatencouragesusalittlebitisthatourfixed-rateportfoliosaretrulyshowingsignsofstabilityasweexpectedandwewouldhopetoachievethatin2015butagainasmuchguidanceaswearegivingyoutodayonNIM,werecognizetheimportanceofthe$100millionreductionininterestincomerelatedtodepositproductsandwearecognizantofthevolatilityofthisenvironment.
Scot t Siefers (Analyst-SandlerO'NeillandPartners):
Okay,Iperceivethatcolor.Thatishelpful.Andthenjustasasecondquestion,soasIamsortofweighingalltheguidancetogetherbutasyoulookatthingsandmaybethereisalittlepressureonexpensesthisyearbutallin,wouldyouexpecttogrowtherevenuebasemorethantheexpensebase?
Inotherwords,areyouexpectingpositiveoperatingleveragethisyearoristhisgoingtobekindofmorekindofayearthatreflectssomeinvestmentsandthentherevenuesidecomesnextyearwiththebenefitofhighrates?Howareyouthinkingaboutthatdynamic?
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TayfunTuzun(EVP,CFO):
Wewillnothavepositiveoperatingleveragethisyear.Wewillgrowrevenuesbutourexpenseswillexceedthat.Itisextremelydifficulttoovercometheyear-over-yeardeclineinourrevenuesof$100millionassociatedwiththedepositadvanceproduct.
Scot t Siefers (Analyst-SandlerO'NeillandPartners):
Okay,allright.Thankyouguysverymuch.
Operator:
PaulMiller,FBR.
ThomasLeTrent (Analyst-FBR):
Goodmorning,guys.ThisisactuallyThomasLeTrentonbehalfofPaul.MostofthequestionshavealreadybeenaskedandansweredbutIjustwanttoclarifyonthe1Q2015guidanceonexpenses,Icertainlyappreciatetheguidancethatseasonalitywilldrivethemhigher.
ButI'mtryingtofigureoutwhatbasetostartfrom.Youhad$33millionofcreditcostinOpExinthequarter.Obviouslythatishigherthanlet'scallit$10millionthelastfewquarters.IfIthinkaboutitlikethat,doesthatmeanthatexpensescouldberelativelyflatquarteroverquarterorhowshouldIgoaboutthat?
TayfunTuzun(EVP,CFO):
Notnecessarily.ClearlythebigmoverisgoingtobeintheseasonalpickupinFICAandsomeoftheunemploymentworkerscomplinesandthentherewillbeapickupinmarketing.SoIwouldn'tnecessarilykeepthelineitemsflat.TherewillbedecreasesinsomebutoverallclearlyseasonallywedoexperiencequiteabitofpickupinexpensesinQ1.
ThomasLeTrent (Analyst-FBR):
Okay.Andthenjustonefollow-upquestiononcredit.Ithinkyou'vegot$900millionleftintheconsumerportfolioIthinkinTDRandanother$800millionincommercial.Arethereanysortofnear-termplanstomovethosetoheldforsalelikeyoudidwiththeportfoliothisquarterorcanyoutalkaboutthatalittlebit?
TayfunTuzun(EVP,CFO):
No,atthistimewedon'thaveanyplans.TheremainingmortgageTDRsincludeagoodamountofgovernmentguaranteedmortgagesandthenwehaveabout$400millioninhomeequityloansandabout$100millionandautosandcreditcards.Atthistimewehavenoplans.
ThomasLeTrent (Analyst-FBR):
Okay,thatisall.Thankyouverymuch.
Operator:
MikeMayo,CLSA.
MikeMayo (Analyst-CLSALimited):
Justaclarification.Sowouldyouhavepositiveoperatingleveragein2015excludingthe$100milliondecline?
TayfunTuzun(EVP,CFO):
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Yes,Ithinkwewouldbemuchclosertothat.Igaveyoutheimpactofthe$100millionplusthe$25millionrelatedtoinfrastructureplusthe$15millionrelatedtoEMVwhichaddsuptoabout2%,Mike.Sothosearethemoversoftheoperatingleverage.Butagain,Icannotemphasizeitenough,thosenumbersdoinclude$100millionreductionandthatisthedifficultythatwearefacingthisyear.
MikeMayo (Analyst-CLSALimited):
Butonacorebasisyoustillexpectefficiencytoimproveexcludingthenoise?
TayfunTuzun(EVP,CFO):
[Yes,]wearelookingforallopportunitiestoimproveefficiencyonacorebasis.
MikeMayo (Analyst-CLSALimited):
Okay.Separate.Somymainquestionreallygetstothelackofloangrowththisquarter.Soisthatgoodnewsorbadnews?Iguessthebadnewsiscomparedtopeer,youhavelessloangrowthbutthegoodnewscouldbewesawrisk,wearepullingback.Doyougetcreditwiththatpullbackwithregulators?AndyoumentionedinsurancecompaniesandIthinkotherlong-terminvestors,sowhoaretheseotherparticipantsbankingornon-banking,thataredisruptingcompetitionforyou?
TayfunTuzun(EVP,CFO):
Sointermsofloangrowth,thisgameislongerthanoneortwoquartersandIthinkweareobviouslypreservingsomecapacityinordertoparticipatebetter.Ourproductionnumbersareactuallyprettydecent.Itisjustthepayoffshavelimitednetloangrowth.
Pensionfundsisanotherparticipantandcommercialmortgage.Mycommentrelatedtoinsurancecompanieswasmoreinthecommercialmortgagespace.Onthecommercialsidethroughout2014,wehaveseencompetitionfromnon-banks.Wehaveseencompetitionfrombanks.Clearlysomebanksareshowingbetterloangrowththanwedoandonepotentiallycouldsaythattheywerehappierwiththeriskreturnoffersthanwewereandtheytookawaysomebusinessfromus.
Butagain,weviewthisasmorelong-term.Theregulatorsreallyarenotnecessarilycommentingonloangrowthonewayoranotherbecauseourdialoguewiththeregulatorsthroughouttheyearactuallyhasbeenpositive.Frank,Idon'tknowifyouwanttoaddtothatcolor?
FrankForrest (ChiefRisk,CreditOfficer):
TheonlythingIwouldadd,Mike,isthatallregulatorslookatnewdealsthathavebeenputoninthelast12monthssotheyarealllooking,thatiswheretheyarefocused.Whatisthequalityofthenewdealsthathavebeenonthebooksinthelast12months?
AllIcantellyouisweareverycomfortablewithwhatweputonthebooksthelast12monthsandwearecomfortablewithinourownshoesandwearegoingtomanageourbooksaccordinglybasedonourcomfortlevel.Wearenotgoingtobedrivenbythemarket.Banksthathavedonethatbeforeendupfollowingthemselvesinaspiraldownward.Wehaveallseenitbefore.Wehaveallbeenthroughitandwearenotgoingtogothroughitagainhere.
MikeMayo (Analyst-CLSALimited):
Youhaveseenalotofcyclesonthatlastpoint,justmylastfollow-up.Whenhaveyouseenapullbacklikethisinthepast?Alotoftimestheindustrykeepsmakingtheloansuntilyouactuallyseealothigherlosses.Soyou'renotreallyseeingalothigherlossesrightnowyetyouarepullingback.Whatpriorperiodwouldyou
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saythisiscomparableto?
FrankForrest (ChiefRisk,CreditOfficer):
I'mnotsureIcan.Imeanifyougobackfivetosixyearsthroughthedownturn,mosteverybodyfollowedeachotherinthewrongdirection.IwouldsaythatwherewearebetterandIwouldthinkthatalotofbanksarebetterandhavelearnedisreallyinbeingmuchmoreproactiveinmanagingriskmuchmoreanticipatory,usingmanymoretoolstoassesstheportfoliostoday.
Westresstesttodayeverywhichwayyoucanpossiblyimaginefromaborrowertotheportfoliosanddifferentsegmentsoftheportfolio.MaybethatispartofthatcameoutofCCARthreeorfouryearsagobutIwouldsaytheportfolioanalyticsthatwedotodayarefardifferentthantheywerebefore.
Sowearemuchmorecomfortablewithourforwardview.
MikeMayo (Analyst-CLSALimited):
Frank,onelasttime,youhavebeendoingthisforwhatliketwo,threedecades,canyoureachbackfurtherintimetofindacomparableperiodwhenyouliterallybackedawayfromloansasmuchasyouaredoingwhenyouhaven'tseenmuchhigherloanlosses?
FrankForrest (ChiefRisk,CreditOfficer):
Comeon,Mike.I'mnotthatold.I'mnotsureIcantobehonest.Youcanthinkthroughthedifferentcycles.Wehavegonethroughsomelonggoodcyclesontherealestatesidebutfundamentallyyouknowifyougoback15or20or25yearsmaybebeyondyourlifespan,bankshavehistoricallygottenintroublewithcommercialrealestate,thatisoneplace.Bankshavegottenintroublewithleveragedlending.Thestorytendstochangebuttheoutcomeattheendofthedaydoesn't.
SoIamnotsureIcantakeyoudownmemorylaneandtellyouagoodexampleofwheresomebodyhasdonesomethingdifferently.AllIcansayisthatIthinktheworldchangedfourtofive,sixyearsagowithwhatoccurredandIcan'tspeakforotherinstitutionsallIcanspeakforatFifthThirdisthatweareverycomfortablewithourperspectiveoncredittodayandwedonotwanttoputtheCompanyinapositiontoreturntopastpractices.
TayfunTuzun(EVP,CFO):
Mike,wealsohavetokeepinmindthatthesedecisionsarenotmadepurelyonacreditbasisbecausewhenyougobackthosedecades,youwillseedifferentcreditspreadenvironmentsanddifferentlevelsofcapitalthatbankshavebeenholdingatthetime.Sowhenyoulookatthereturns,thatcalculationincludesmorethanjustcredit.
Sowhenwesaythatwearebackingawayfromcredit,wearenotnecessarilysayingthatweareseeingsignificantlynegativecredittrends,it'sjustacombinationofspreads,ofcreditandwhereourcapitallevelsrequireadifferentperspectiveonwhatweareputtingonourbookstoday.
MikeMayo (Analyst-CLSALimited):
Gotit,thankyou.
Operator:
JeffreyElliott,AutonomousResearch.
Jef f reyEllio t t (Analyst-RobertW.BairdandCo.):
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I'vegotaquestiononthelitigationside.Youhavehadquiteafewquartersoverthelasttwoyearswhereyoutookfairlychunkylitigationchargesandthisquarteryouhavegotarecovery.Soareyoustartingtoseelightattheendofthetunneltherethatsomeoftheissuesthatyouhadtobuildreservesforarefinallygettingclosertoconclusion?
TayfunTuzun(EVP,CFO):
Thelitigationtunnelisalongone.ThisquarterthenumberwasarecoverybutasmallnumberandIdon'tthinknecessarilythattheseprocessesarefast-movingprocessessoIwouldn'tcharacterizeitasweareseeingthelightattheendofthetunnel.Ithinkitwilltakeawhileforustoworkthroughalloftheseitems.
Jef f reyEllio t t (Analyst-RobertW.BairdandCo.):
Andthenjustanotherquickexpenseone.The$33millioncreditrelatedexpensewithinnoninterestexpenses,canyougiveanycoloronwhatthatrelatedto?Itseemsprettylargecomparedwithwhatyounormallyseethere?
TayfunTuzun(EVP,CFO):
Itisnotnecessarilyoneortwoitems.Itisacombination.Forexample,derivativemarksgothere.Iwouldn'tnecessarilycharacterizethemasatotalthatreflectsoneortwotrends.ThatnumberwillbevolatilequarteroverquartersoIwouldn'tinterpretthe$33millionnumberasarunratenumber.
Jef f reyEllio t t (Analyst-RobertW.BairdandCo.):
Great,thankyou.
Operator:
VivekJuneja,JPMorgan.
VivekJuneja (Analyst-JPMorgan):
Acoupleofquestions.Firstly,energyloangrowth,youroilandgasloansthatyoutalkedaboutwhichisjustover$2billion,howmuchdidtheygrowin2014and2013andhowmuchofthatissharednationalcredits?
FrankForrest (ChiefRisk,CreditOfficer):
ThisisFrank.Thatbookgrewabout$450millionin2014.OurportfolioisreallyamixtureofthemiddlemarketandlargecorporatesoIdon'thaveaspecificpercentagebutmostofourcompanieswouldbeanywhereinthatsector.
VivekJuneja (Analyst-JPMorgan):
Okay.Sowhatyouaresayingisyoudon'thaveabreakoutofhowmuchissharednationalcredits?
FrankForrest (ChiefRisk,CreditOfficer):
Again,ourcompaniesarepredominantly--theyareintheUS,theyarepredominantlyintheSouthwest,theyareacombinationofmiddlemarket,midcapandlargecorporates.
VivekJuneja (Analyst-JPMorgan):
Tayfun,aquestionforyou.JusttoclarifytheNIMguidanceshort-termrate,youtalkedaboutthefactthatNIMwouldbedown5to7basispointsbyfourthquarter2015ifratesstayedflat.Justwanttoclarify,areyoureferringtoshort-termratesstayingflatmeaningnoFedhikesorareyoureferringtolong-termratesstaying
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wheretheyarecurrentlywhichisaround180both?I'mjusttrytogetasenseof...
TayfunTuzun(EVP,CFO):
Both.Vivek,itisboth.
VivekJuneja (Analyst-JPMorgan):
Okay.SoiftheFeddidraiseratesbutthelongendstillstayeddown,whatwouldNIMlooklikethen?
TayfunTuzun(EVP,CFO):
Thatwouldimpactmainlyourinvestmentportfolioyieldsandthetimingofourdeploymentsintotheinvestmentportfolio.Westillobviouslywouldbenefit.Wehaveapositiveexposuretotheshortendandthebenefitwouldbelessthanacompleteyieldcurve.
VivekJuneja (Analyst-JPMorgan):
Okay,allright.Thankyou.
Operator:
MartyMosby,ViningSparks.
MartyMosby(Analyst-ViningSparks):
Goodmorning.Nowthatwearetryingtoshifttowardinvesting,whatIwantedtoatleasthaveachancekindoftounderstandbetter,whataretheopportunitiesthatyouareinvestinginandhowdoesthatfitwithyourcompetitiveadvantagesorhowyouarelookingatbeingabletocompeteinthemarketplace?
TayfunTuzun(EVP,CFO):
Yes,soletmetalkaboutacoupleofspecificitems.Inretail,asIhavementionedoverthelastfewmonths,wehaveredesignedouremploymentinourbranchsystembaseduponthedemographictrendsandtransactiontrendsthatweareseeingfromretailcustomers.Customersarereachingusthroughdigitalchannels.Weneedtoreachthemthroughdigitalchannelstobeabletogrowrevenuesasweareseeinglessandlessofthemwalkingthroughthedoors.
Weareinvestinginourabilitytoreachourcustomersthroughdigitalchannels.Thatisoneareaandthatiswhatwebelieveneedstohappenaswecontinuetostrengthenourretailfranchise.
Theotherareathatwehavebeentalkingaboutclearlyisonthecorporatesideaswearefocusingontotalrelationshipprofitability,weneedtomakesurethatwecaptureanduseallthedifferentpiecesofrelationshiprevenuesandcostsappropriatelyinordertomaintainacompetitiveadvantageinthewaywepriceourproductsandservices.Thatisanotherarea.
Thethirdareathatweareinvestingisinourpaymentsbusiness.Wehaveasyouknowcombinedtheretailandcommercialpiecesofthepaymentspectrumunderoneumbrella.Wearemakinginvestmentstherebecausewedobelievethatgoingforwardwehaveadvantagesgivenourhistoryinthatbusiness.
Andthenininvestmentadvisory,whichisanotherimportantbusinessforus,weareaddingtalenttoensureacontinuedprogressonrevenuesothosearetheareasthatweareinvestingasidefromthecomplianceandriskrelatedinfrastructureinvestmentsthatwehaveinplace.
MartyMosby(Analyst-ViningSparks):
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AndthenthesecondquestionIhadwasasyoulookattheadvanceddepositsituationandthatrollingoff,wehadtalkedabouttryingtocomeupwithsomealternatives.Kindoftheaddresswhatyouarestilldoingthereornotdoingthereandalsowhatarethosecustomersgoingtoturntonowthattheyhavebeencutofffromtheproductthatyouwereprovidingthemattheendoftheyear?
TayfunTuzun(EVP,CFO):
SoonJanuary1,wereducedourpriceontheproductby70%andwealsomadesomechangestothedesignoftheproductthatwillimpactusageandthefrequencyofusageoftheproduct.Thatiswhatsortofwhenwegivetheguidanceofa$100millionreductioninrevenuesassociatedwiththeproduct,thosechangeswouldreflectthat.
Whatwedon'tknowtodayiswhentheregulatorswillprovidetheirguidanceproposalsandultimatelywillissuetheirguidance.Wedon'tknowthetimingofthatandthewayweformulatedthatfortheyearisdependingonthetimeofwhenthatguidancecomesout,therearethreeoutcomes.
Eitherwearetotallyoutofthebusinessbecausetheguidancedoesnotenableustoofferanyproduct.Ourcurrentproductfitstheguidance.Inthatcase,wewillcontinuetooffertheproductandpotentiallyofferittonewclients.Orwithintheguidance,weneededtomakeadjustmentstoourproductdesign.
Whatwedon'tknowtodayiswhetherthatisgoingtohappeninMarch,June,Septemberorin2015atall.Westillseektoaddresstheneedsofthosecustomersbecausewedobelievethatwiththeappropriateproductdesignedappropriately,itisbettertokeepthoseclientsinourfold.Butagain,theregulatorswilldecideonhowtheyseethisindustryworkingandwewillreactaccordingly.
MartyMosby(Analyst-ViningSparks):
Andgiventhedrasticreductioninpricing,isthereanychanceyoumightgetincrementalbusinessfromothercustomerswantingtotakeadvantageofit?
TayfunTuzun(EVP,CFO):
Tooearlytotellbutjustrememberthatwearenotofferingtheproducttopeoplewhowerenotsignedontotheproductatthebeginningof2014.Wehavenotexpandedthepopulation.
MartyMosby(Analyst-ViningSparks):
Gotyou.Thanks.
Operator:
SameerGokhale,JanneyCapitalMarkets.
SameerGokhale (Analyst-JanneyCapitalMarkets):
Great,thankyou.Justafewquestions.Firstly,Iwantedtotouchonyourautoloanportfoliowhichhasn'tgrownverymuch.IknowyouhadtalkedabouttryingtomaintainyourunderwritingstandardsandIthinktheexpectationfor2015isforthatportfoliotomaybeshrinkby3%orso.AndIwascuriousabouthowyouthinkaboutrunningthatbusinessbecauseitseemslikeitismoreofaflowbusinessanddealersclearlywanttoworkwithbanksandotherlendersthathaveloansmorereadilyavailablefortheircustomersatthepointofsale.
Soasyouthinkaboutmaintainingyourunderwritingstandardsandmaybethatloanportfolioshrinkingalittlebit,howdoyoubalancethatwiththefactthatyoustillneedtomaintainapresenceinthatbusinessandmaintainthoserelationshipswiththedealers.Ifyoucantalkaboutthat,thatwouldbealittlehelpful.
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TayfunTuzun(EVP,CFO):
Wehavebeeninthatbusinessforalongtime.Itgoesback30,40years.Wehaveverygooddeeprelationshipswithdealersandwehavemaintainedthoserelationshipsthroughcycles.Thereisgoodbusinesscomingfromthedealersthatwearebookingonourbalancesheetandwewillcontinuetodoso.Theyexpectwhattypeofbusinessthatwewillputonandtheyknowwhattypeofbusinessthatwewillnotputon.Thathasn'thurtus.
Itismoreorlessacommoditybusinesssupportedbymaintainingthosestrongrelationships.Soaslongaswearesatisfiedwiththeamountofloansthatwegetunderthecurrentprofitabilityguidelines,weshouldbeabletogetthatflow.
Giventhelong-termrelationships,ifyoudowanttogetmorecompetitive,youcangetmorepaperoutofthembecauseagaintheyknowthatwearenotintoday,outtomorrow.TheyknowthatthereisalongercyclesoIdon'tthinkwearenecessarilyeitherdamagingthoserelationshipsorimpactingflowsinadiscerniblemanner.
SameerGokhale (Analyst-JanneyCapitalMarkets):
Juststickingwiththeautoloansfornow,ifyouweretolookatvintagesandifyoulookattheautoloansoriginatedoverthelast12monthsorso,thishasbeenmoreofanissueIthinkorconcernforsubprimeauto,whichyourportfolioseemstobeprime.
ButtotheextentthatyoucantalkaboutLTVsfor,say,thelast12monthsandloantermsbecausewearehearingabouttermsaslongas84months.Hasthatneedlemovedatallinyourportfoliowithyourvintageforlastyearrelativetoprioryearsorhaveyoumaintainedthatataprettyconsistentlevel?
JamieLeonard(SVP,Treasurer):
Intermsoftermontheautobookoverthelastseveralyearswehaverun68months,68months,thispastyear69months,sonoappreciablemovementthere.IntermsofLTV,wehavebeenrunningandcontinuetoruninthe91%,92%level.AndintermsofFICA,weare751in2014,andthatisaveryconsistenttrendandtoyourpoint,reflectiveuponourfocusonprime,superprimecustomersandoverallstrongcreditprofilewithintheautobook.
SameerGokhale (Analyst-JanneyCapitalMarkets):
Okay.JustswitchinggearsifyoucouldjusttouchonagaintheLCR,Ithinkyousaidyouwereat112%andwhatIwasjusttryingtograpplewithalittlebitwaswhereyouarerelativetowhattherequirementsarethroughthebeginningof2016.Youseemtobewellaheadofthat.
AndIthinkyouhadreferredtomaintainingsamesortofcushionbutasIthinkaboutyourLCRandthensomeofthecommentaryaroundmaybethesecuritiesportfoliogrowing,itseemslikeitdoesn'tneedtogrowalotbecauseyoualreadyhavemorethanmettheLCRrequirement.
Soinlightofthat,shouldweexpectanynegativeimpactontheNIMgoingforwardfromtheadditionofmaybemorehigh-qualityliquidassets?IfyoucouldjusthelpclarifythatalittlebitbecauseIthinkIjustgotalittleconfusedwithsomeofthatdiscussions.
JamieLeonard(SVP,Treasurer):
Sure.Thegoodnewsisthegrowthindepositsandtheelevatedcashpositionreallystrengthensthebalancesheetandgivesusflexibility.Soour112%LCRincludesthebenefitof$7billionofcashheldattheFedatyearend.Soifweweretodeploy$7billionofcashtakeittoanextremeandputitallinC&Iloangrowth,
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thenyourLCRwoulddroprightbackdowntothat92%levelwherewewereatattheendofSeptember.
Somypointinansweringthequestiononsecuritiesdeploymentissomeofthatcashwillbeputtoworkinthecourseof2015asamodifiedapproachbank.WhenwereachJanuaryof2016,wewillneedtoexceeda90%LCR,andwewouldliketohaveabufferobviouslybeyondthe90%.
Thereissomebalancebetweenholding$7billionincashandhaving112%LCRanddeployingthatcashtobothloangrowthandfurthersupportHQLAadditionswherewewillmanagetheLCRbetween95and105overthecourseofthenextyearorso.
SameerGokhale (Analyst-JanneyCapitalMarkets):
Butjusttothinkaboutit.
Operator:
Iamsorry,wehavereachedtheendofourallottedtime.I'msorryfortheinterruption.Youmaygoaheadwithclosingremarks.
TayfunTuzun(EVP,CFO):
Thankyouforjoiningus.
Sameer,ifyouhaveanyquestions,I'msorrywecutyouoffthere.Butifyouhaveanyquestions,pleasecallus,andwewillclarifyyourquestions.
Again,thankyouforjoiningus,andwelookforwardtosharingwithyouourprogressthroughouttheyear.
Operator:
Thisconcludestoday'sconferencecall.Youmaynowdisconnect.
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