Fifth Third Bancorp (FITBM) Q2 2015 Earnings Report, Transcript and Summary

Good morning. My name is Angel, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Fifth Third Bank Earnings Release Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions]. Thank you. Jim Eglseder, Director of Investor Relations, you may begin your conference.

Thanks Angel, and good morning. Today, we’ll be talking with you about our second quarter 2015 results. This discussion may contain certain forward-looking statements about Fifth Third pertaining to our financial conditions, results of operations, plans and objectives. These statements involve certain risks and uncertainties and there are a number of factors that could cause results to differ materially from historical performance and these statements. We’ve identified some of these factors in our forward-looking cautionary statement at the end of our earnings release and in other materials, and we encourage you to review them. Fifth Third undertakes no obligation and would not expect to update any such forward-looking statements after the date of this call. I’m 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. Also here today is our President and COO Greg Carmichael. During the question-and-answer period, please provide your name and that of your firm to the operator. With that, I’ll turn the call over to Kevin Kabat. Kevin?

Thanks, Jim. Good morning, everybody. And thanks for joining us. As you all know, I announced my retirement as CEO that will be effective later this year. And before we get into the highlights of this quarter’s results, I want to take a moment to reflect on my 33 years in the banking industry, especially the last roughly 10 leading Fifth Third. I’m proud of the hard work and dedication of the very talented individuals I’ve had the opportunity to work with over the years. Together we’ve navigated some of the most challenging times the industry has ever faced. In early 2007 when I was named CEO, we were just starting to see cracks in the foundation that ultimately turned out to be the worst crisis the industry has seen since the Great Depression. Our decisive and early actions to build a significantly better company, that is, today positioned to operate in all environments with strong momentum going forward. Today we have very solid capital levels that support some of the highest total payout ratios of our peers. We’ve made changes to how we approach our commercial business and more recently our retail business in response to the changing conditions and preferences of our customers. We’ve positioned the company well in order to effectively endure the current low-rate environment but also maintain the flexibility to accelerate growth once the economy regains full growth and rates start to rise. Let me introduce you to Greg Carmichael, who’ll take over from me as COO in November. Greg’s been our Chief Operating Officer since 2006 and President and COO since 2012. He’s a very capable leader. And I’m confident that under his watch, the company will continue to thrive and grow. Greg?

Thanks Kevin. I’m excited to have the opportunity to build upon Kevin’s accomplishments that have firmly changed our company over the last 10 years. I’m also appreciative of the board’s confidence in me and our team to continue to build value for our shareholders. I look forward to meeting you in the upcoming months and share with you my plans to continue our progress and move our franchise forward in this fast-changing environment. Now I’ll turn it back to Kevin so he could cover the highlights for the quarter. Kevin?

Thanks Greg. Obviously, there is a great deal of respect that we have for each other. And I’m confident the transition will go smoothly. I continue to be optimistic about our future. So, with that, let’s talk about the quarter. Today, we reported second quarter net income to common shareholders of $292 million and earnings per diluted share of $0.36 including $0.07 of items that Tayfun will go over shortly. We’re very pleased with our core business trends although the environment continues to challenge banks. We’re very focused on our businesses and continue to demonstrate our willingness to take decisive action when necessary as you saw with our branch announcement in June. Ultimately we’re building a franchise that meets the needs of our customers by enabling them to conduct business in the manner they wish while also building a company that is well positioned to compete effectively today and be well positioned with the appropriate strategies in place to succeed in the future. For the second quarter, excellent balance sheet trends continued with loan growth led by C&I which was up 3% both sequentially and year-over-year. Strong deposit growth continued with core deposits of $2.3 billion from the first quarter driven primarily by demand deposits with those balances up 5% sequentially and up 13% over last year. Fee income was led by very good results in corporate banking which were up $50 million sequentially on strength and capital markets and higher syndication fees, which were up from soft market activity levels in the first quarter. Mortgage banking was up $31 million from the last quarter as originations were up 39% to $2.5 billion. Expenses were up compared with last year as expected, second quarter expenses were highly - were higher largely due to long-term incentive payouts that occurred in the quarter and several other puts and takes that Tayfun will discuss. We remain very focused on our current operating results as we continue to invest in our company with a long-term strategic view. Credit metrics continued to be excellent. And our net charge-off ratio was 37 basis points in the quarter, the lowest level I’ve seen in our tenure as CEO. Non-performing assets were down 25% from the year ago. And our NPA ratio ended the quarter at 67 basis points down 12% sequentially. We’ve seen significant and sustained improvement in our credit results over the past several years and we feel very good about the people and the infrastructure that we have in place right now. This quarter marks another in a long line that includes actions undertaken in order to proactively adapt to the changing marketplace. We’ve maintained our sites and our prudent approach to lending, the focus on appropriate risk adjusted returns. We’ve actively managed the retail franchise over the last several - over the last few years and we’ve been very proactive in adapting to the changing demographics and our customers’ usage of new technologies. We’ve talked about the investments we’re making to strengthen our risk and compliance infrastructure. And we expect to see a competitive benefit from them. Ultimately we’re managing the company for the long-term, that’s our focus. And we do expect it to be beneficial to shareholders through time. With that, I’ll turn it over to Tayfun to discuss our second quarter operating results and our outlook for the second half of the year. Tayfun?

Thanks, Kevin. Good morning and thanks for joining us. I will start with the financial summary on page 3 of the presentation. We reported net income to common shareholders of $292 million or $0.36 per diluted share. There were several items that affected earnings in the quarter, as Kevin mentioned. The largest was the $97 million non-cash impairment charge related to the changes in our branch network that we announced in June. We also had a positive Vantiv warrant valuation mark of $14 million this quarter. These two items had a net negative impact of $0.07 per share. I will comment on the branch announcement at the end of the discussion of our operating trends and metrics. With that, let’s move to the average balance sheet and page 4 of the presentation. The stronger loan activity we had in the second half of first quarter carried throughout the second quarter. Average portfolio loan balances increased $1.7 billion from the first quarter driven by increases in C&I, commercial construction and residential mortgage balances. Specifically, our C&I balances were up 3% on an average basis. Loan growth metrics reflect the results of our team’s focus on growing our existing relationships as well as selecting new clients that meet our return profile within our risk tolerance levels. Although our payouts were higher than the first quarter, our loan production this quarter was very strong across all industries except energy. In total, our second quarter production was the highest in the last five quarters. The average credit rating for this quarter’s production pool was the highest of the last five quarters as well. There is no let down in competition but we are confident that our client retention and selection efforts are supportive of loan growth. New production coupons are lower, to a certain extent in line with better credit quality. At the same time, our payoff coupons were also lower than the first quarter indicative of events-related rather than refi-related balance. Line utilization was flat. Average commercial mortgage balances were down 1% as we continue to see refinancing activity of our legacy book. Commercial construction lending remained strong. Growth in multifamily and industrial commercial construction remained strong with 75% of production coming from within our footprint. Our new commitments, net of prepayment activity should support second half loan growth in this portfolio. In the second quarter, average investment securities increased by $4.2 billion or 18% sequentially reflecting the full quarter impact of our first quarter purchases and $2 billion of additional securities during the second quarter. On an end-of-period basis, we added $1.5 billion of securities. We saw very strong deposit growth throughout 2014. And as we expected, that continued in the first half of 2015. Average core deposits increased $2.3 billion from the first quarter driven by growth in demand deposit and money market accounts. Moving to NII on page 5 of the presentation, taxable equivalent net interest income increased $40 million sequentially to $892 million, primarily driven by the faster than anticipated deployment of cash into earning asset growth and lower deposit costs. NII has also positively impacted by $7 million due to an extra day in the quarter. The net interest margin was 290 basis points, up 4 basis points from the first quarter driven by a 6-basis point benefit due to the faster than anticipated deployment of cash that I mentioned, 3 basis points due to better funding rates including the continued rationalization of deposit rates, partially offset by 4 basis points of loan yield compression and 1-basis point decrease primarily due to day-count. Shifting to fees on page 6 of the presentation. Second quarter non-interest income was $556 million compared with $630 million in the first quarter. Results included the $97 million impairment charge related to the changes in the branch network and the $14 million positive mark on the Vantiv warrant that I mentioned earlier. First quarter results included a $70 million positive mark on the Vantiv warrant, a $37 million gain on the sale of the residential TDRs and a $30 million-impairment associated with aircraft leases. Quarterly results also included charges on the Visa total return swap of $2 million in the current quarter and $17 million last quarter. Excluding these items in both quarters, fee income of $641 million increased $71 million or 12% sequentially with broad-based increases in almost all categories led by increases in corporate banking revenue and mortgage banking net revenue. Adjusted fee income was 42% of revenue in the second quarter. Excluding the impact of the $30 million aircraft lease residual impairment in the first quarter, corporate banking fees increased $20 million sequentially due to improvement in institutional sales revenue and higher syndication fees. Syndication activity was better this quarter than last and we had a strong quarter in corporate bond fees. Total risk management fees which include our interest rates, foreign exchange and derivative businesses were stable. Card and processing revenue increased 8% sequentially and 1% from the second quarter of 2014 as we continue to benefit from an increase in the number of actively used cards. Mortgage banking net revenue of $117 million was up 36% sequentially. Originations increased to $2.5 billion from $1.8 billion in the first quarter. Gain on sale margins were down 39 basis points to 288 basis points. We had a good quarter in mortgage servicing revenues. Net servicing asset valuation adjustments which include amortization and valuation adjustments were positive $18 million this quarter versus negative $17 million last quarter. Deposit service charges increased 3% from the first quarter and were flat relative to the second quarter of 2014. Total investment advisory revenue of $105 million decreased 3% sequentially due to higher tax related private client service revenue in the first quarter partially offset by an increase in securities and brokerage fees and increased 3% from the second quarter last year. Within investment advisory revenue, personal asset management fees were up 5% while brokerage fees were up 8% from the second quarter of 2014. We show non-interest expense on page 7 of the presentation. Expenses were higher in the quarter in-line with our expectations and came in at $947 million compared with $923 million in the first quarter. The sequential increase was impacted by higher revenue base incentive compensation and long-term incentives in the second quarter as well as an increase of $2 million in severance. Overall, our first half comp related expenses were 2.3% higher than the comp related expenses for the first half of 2014. Included in our expense total, is also a $6-million sequential quarter change in the provision expense related to unfunded commitments in-line with the broader directional move in provision. The sequential comparison also exaggerates the expense growth as the first quarter benefited from a settlement of a tax liability related to prior years. These were partially offset by a decrease in FICA and unemployment tax expense recorded in quarterly benefits which are seasonally high in the first quarter. I will spend more time on expenses in our outlook section. Turning to credit results on page 8. Total net charge-offs of $86 million or 37 basis points as a percentage of average loans decreased $5 million sequentially. Non-performing assets excluding loans held for sale were $626 million at quarter end, down $65 million from the first quarter bringing the NPL ratio to 51 basis points and the NPA ratio to 67 basis points. Commercial NPAs decreased $45 million sequentially primarily due to a $23 million decline in C&I and $20 million decline in commercial mortgage. Consumer NPAs decreased $20 million from the first quarter driven by $12 million decline in residential mortgage and $5 million decline in home equity NPAs. Our energy portfolio declined to $1.7 billion and the quality of the firms we have relationships with remains very good. The portfolio was reduced by $155 million from the first quarter, of which approximately 50% relates to reserve based lending. Utilization in the portfolio declined 3% as companies continue to access capital markets to bolster their balance sheets. There were some negative ratings migration but not material in the context of the overall portfolio. We continue to be comfortable with our portfolio from a loss given the full perspective, with appropriate collateral, liquidity, cash flow and reserve coverage levels. In our RBL portfolio, we are a senior secured lender with in many cases significant levels of subordinated risks ahead of the bank’s position. Of this $66 million in NPA in-flows only $11 million related to the energy portfolio. Also, SNC results were communicated to banks in the second quarter and while I won’t get further into specifics or material impacts from the exam are included in our results in the second quarter. Wrapping up on credit, the allowance for loan and lease losses declined $7 million compared with $22 million decline last quarter. Provision coverage of net charge-offs increased to 92% from 76% last quarter and reserve coverage decreased to 1.39% of loans and leases. Virtually, all of our credit metrics continue to improve as we move into the second half of 2015. Looking at capital on slide 9. Capital levels continue to be strong and well above regulatory requirements. The common equity tier-1 ratio was 9.4%. At the end of the second quarter, the average diluted share count was down another 1% sequentially. During the quarter, we announced common stock repurchases of $155 million. The ASR settlement is expected to occur on or before July 28 and reduced the second quarter share count by 6.7 million shares. Now, a few comments about our announced retail branch actions and our perspectives on the current environment before we move to our outlook section. As we’ve been discussing with you for the last couple of years, our retail franchise has performed very well in this challenging environment, and we’ve been very proactive in adapting to the changing demographics, and our customers’ usage of new technologies. After executing a successful deposit simplification strategy in 2012 and 2013, we have been optimizing our branch FTE count by both reducing service employees as well as reinvesting in sales associates. These changes not only enabled us to optimize our expenses but also help improve our customer service levels and align our service channels with our customers’ preferences. Up until this quarter, our branch count has been fairly stable. But given these changes a deeper review of our branch network was conducted during the second quarter which led to the planned reduction of our branch count by 105. We use the scorecard with over 50 variables in accessing our network, including production volumes and trends, transaction volumes and trends and overlaps among others. We will be executing this strategy over the next 12 months. We’ve taken $97 million impairment charge related to the owned branches and land which is $12 million higher than our June announcement. The incremental impairment charge we booked was due to the addition of a handful of additional locations and the receipt of actual appraisals. Our annualized expense benefit is also greater given the higher number of branches than originally announced. We will identify the expense impact related to the lease branches for you as they flow through our numbers over the next six months based on the closing date of those branches. We expect to fully execute this strategy by mid-2016 and thus expect the reduction to impact our expense totals on a run-rate basis during the second half of the next year. Between now and then, we will continue to update you as to the progress of the project. But at this time, I’m not ready to share more details with you regarding geographies and timing as I know you’ll understand, I would like to preserve our ability to execute the plan as efficiently as possible. On a fully annualized basis, we expect to lower our expenses by $65 million once the entire action is executed which is $5 million better than originally announced. Our management team is keenly focused on capturing a significant portion of these expense savings in our bottom line, but we are also anticipating a portion of the savings to be reinvested in the business to continue to build our digital channel platforms not only for retail but for our entire company. These investments are designed to provide further opportunities to improve our cost efficiencies and improve our customer service as well as support revenue growth. We will be sharing our reinvestment plans with you as we finalize our strategic studies. I want to reemphasize our management team’s focus on expense management especially as the expense carry of the risk and compliance structures in our sector continues to ramp up. The types of strategic actions that we are currently evaluating are long-term oriented actions, very clearly focused on building our company to achieve our revenue growth and operational excellence objectives in recognition of the evolution and technology, demographic changes and required infrastructure designs in the current regulatory environments. Turning to the outlook and a few comments on the third quarter. Thus far we’ve maintained and communicated a realistic perspective on the economy and the overall market conditions and shared our outlook with you on that basis. This perspective enabled us to react appropriately to market driven opportunities to support our asset growth and earnings. Our updated outlook is not materially different than what we provided in January and again in April. We continue to feel comfortable with our full-year NII expectations. As a reminder, we have one rate increase assumption in the fourth quarter as we have discussed in April. We have and will continue to actively manage our balance sheet to adapt to changing macroeconomic and Fed policy expectations. We don’t have any underlying assumptions related to swap activity built into our NII outlook and we have fairly modest levels of swaps relative to peers. We do still expect our NII to grow year-over-year excluding the deposit advance impact. And for the third quarter we expect NII to be slightly higher than the second driven primarily by loan growth and day-count. At this time, we also expect NII to growth in Q4 over the third quarter levels. As we discussed in April, we expect our NIM to be stable during the year from the first quarter levels. We’ve outperformed our NIM expectations this quarter so we don’t expect our NIM to widen further from here in the third quarter. And our overall NIM during the second half should be stable with our first half NIM which is 2.88%. Third quarter corporate banking fees tend to be seasonally low with a stronger fourth quarter, which should elevate the second half totals in corporate fees over the first half totals. Our current expectation is that mortgage banking production net revenue will be somewhat below the second quarter levels but above last year’s third quarter. The servicing revenues will be a function of the rate environment. Excluding the mortgage servicing revenues we expect a strong second half in total fee income but following seasonal trends with a stable third quarter and a strong fourth quarter. Overall, fee trends look positive for the second half. On the expense side, as we discussed, we are continuing to invest in our businesses and infrastructure. And those investments will further increase our employee expenses primarily in our risk and compliance functions. In addition, our investments in cyber security and fraud areas will build a safer environment for us as well as for our customers. For the second half, I expect that our total compensation expenses will be relatively flat including employee benefits and incentive comp for business activity. In addition, during this phase, third party expenses tend to be more elevated. Some of these expenses are clearly not permanent. You have seen these types of increases from other banks depending upon where they are in the cycle. We expect higher payment processing expenses as a good portion of those are directly tied to payment activity. In addition, as we discussed with you earlier in the year, we will see an up-tick in EMV related expenditures which will reduce risks going forward. Technology investments will continue to increase. We expect our IT expenses during the second half to be about 10% higher than the first half. As I discussed earlier, we are making long-term strategic decisions and investing in our franchise. We also want to make sure that we allocate the priorities smartly between IT projects that are targeted for risk and compliance infrastructure and those that are targeted for direct business related purposes such as digital technology. We believe that we cannot approach these investments in a sequential manner and therefore investing on these two-paths simultaneously. Simply stated, we cannot afford to delay our technology investments in our businesses as the environment is changing fast. Overall, our core expenses will increase next quarter relative to the second quarter. The predominant driver will be marketing as we expect a seasonal up-tick in the third quarter related to our planned campaign, excluding any one-time items in the second half such as the lease termination expenses related to the branch optimization announcement or other one-time expenses. Our total expenses during the next two quarters should be approximately 2.5% higher than our first half expenses. As we discussed, our expense adjustments related to the branch strategy shows we are very focused on long-term expense drivers and will take decisive strategic actions to maximize the performance of our company both in terms of revenues and expenses. Turning to credit, we still expect minimal benefit from ALLL releases due to loan growth and the associated higher levels of provisioning. Our fundamental credit performance should remain at historically low levels given the current environment. We also would like to remind you that the revenue expectations that we shared with you total do not include potential and currently un-forecasted items such as Vantiv warrant marks or gains on share sales. With that, let’s open the line for questions. Angel?

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

Yes, good morning.

Good morning.

Good morning.

I just wanted to make sure I understood the message on expenses. I know you’re not going to give us the 2016 outlook, but as we think about what’s a reasonable expectation for next year, should we take that second half run rate that’s up 2.5% more than the first half? I understand that you mentioned that there are some seasonally high expenses in there, but it sounded like you were communicating a strong message on your need to re-invest in technology.

Yes, I mean, when you think about our strategies here Erika, we are clearly continuing to save and optimize our expenses. On the retail side for example we’ve been doing that for a while. And the announcement clearly adds another layer on top of that $65 million run rate expenses. But at the same time we are clearly going to continue our investments in building the risk and compliance infrastructure and also reinvesting back in the business especially on the digital side. Having said that, at this point we’re not giving guidance for 2016 and we would like to spend a little bit more time in evaluating our strategies going forward with respect to cost efficiencies. As we said, these $65 million will, not in its entirety will fall to the bottom line. But a significant portion of that should fall. And we will detail that for you going forward. Greg, do you want to comment your thoughts on that?

Once again, thanks Tayfun. And Erika, as you look at our businesses and the changing needs of our customers as they move to wanting to bank anywhere anytime. Our ability to invest from a technology perspective on opportunities to improve revenue, improve the customer experience and obviously drive efficiencies. We’re going to stay focused on that. And we’ll also continue to look at our investments that we have today in our infrastructure in better ways of reengineering our infrastructure to serve our customers going forward.

And, Greg, just as a follow-up to that. Because I noticed in the press release that there was some language from you about looking for further opportunities to improve operational efficiency. And I know that clearly it’s too early to ask what those are, but should we expect, when you take over in November, a deeper dive into the expense base in Fifth Third. And that we may hear about perhaps more efficiencies at some point next year?

Fifth Third has always been focused on prudent expense management. We’re going to continue that going forward. And technology is a great opportunity for us especially with some of the recent advancements. Mobile check deposit, we have over 15% of our deposits now coming through remote deposit capture. That drives efficiencies in our bank operations. We’ll continue to look for ways to accelerate that pace of play around those investments where it makes good sense for our customer and our shareholders.

Got it. And, Kevin, good luck with your retirement.

Thanks Erika, appreciate it.

Your next question comes from the line of Scott Siefers from Sandler O’Neill & Partners. Your line is open.

Good morning, guys.

Good morning, Scott.

Good morning.

Tayfun, first of all, Kevin and Greg, congratulations to both of you.

Thanks Scott.

Tayfun, I was hoping you could expand upon some of the comments about loan growth you made in your early prepared remarks, where I think you just noted kind of the client retention and selection efforts you guys have made would suggest loan growth. Just given that the dynamic, in other words the acceleration, has changed over what has been the last three quarters or so I was just hoping you could expand a little on those comments. In other words, despite the competitive dynamic what is it that kind of makes you feel better about growing the loan book more robustly?

Sure. So Scott, I think what’s very encouraging is when I look at the last sort of two quarters of trends, despite the fact that pay-offs remained at healthy levels, our production numbers are coming in strongly above those to drive net loan growth. When we go back to the second half of last year, I think as a company, we have done a very good job in understanding the impact of the competitive dynamics in the market and have been able to between sort of the sales groups, the credit group as well as my finance group to organize ourselves in a much more efficient manner to respond to the market and to respond to our clients. And I think that’s really driving the healthy increase in production levels. And when you look at the credit profile of these new loans coming on balance sheet, as I mentioned, the credit profile this quarter of this new production was the highest in five quarters. So, it’s clear that we’re not stretching or sacrificing on credit as we increase the number of our relationships. And also, we’ve been obviously focused in deepening the existing relationships and that’s working well as well. And this is also, I have to say that during the last three or four quarters, we’ve added great talent both in originations as well as on the credit side. I think that’s working very well for us. And we’ve identified the right areas whether it’s our specialization in healthcare, our continued focused on mid-core, our new retail vertical. I think this is really a broad-based support for loan growth that we are seeing today.

Okay, perfect. Thank you. And then maybe if you could spend a quick second just touching on overall earning asset growth beyond just the loan portfolio, I guess you’re maybe call it roughly two quarters into being a little more comfortable investing in the securities portfolio - in other words that mix from cash to securities and you still get a pretty robust deposit growth. So how do you see I guess the securities portfolio in particular playing out in terms of growth as we look ahead?

Yes, Scott, it’s Jamie. As we said on our first quarter call, we would expect during the course of 2015 to add another $1 billion to $2 billion of leverage during the course of the year. During the quarter, we made the decision to accelerate that additional leverage as you saw in our results. So, our portfolio as we exit the second quarter is where we would like it to be. And we’re pretty pleased with the execution and continue to be mindful of the rate risk. So going forward, you can expect our portfolio to be fairly stable and to grow in-line with earning asset growth.

Okay, all right, perfect. Thanks a lot, guys.

Thank you.

Your next question comes from the line of Ken Zerbe from Morgan Stanley. Your line is open.

Hi, guy, thank you. Just a couple of quick questions. The first, in terms of the branch restructuring, I know obviously you took the charge now, but I may have missed the prepared comments. Did you say you were going to take additional charges during the next couple quarters but just tell us as you take them or?

Yes, the second piece Ken, we - actually it was in our 8-K that we filed in June. There are some leased branches and the expense impact on those will flow through our numbers as we close those branches and reflect the impact of those leases on a going forward basis. That number had to be disclosed between $6 million and $10 million.

Got it, okay. And then second question, in terms of the loan growth, obviously a lot of growth coming from the construction portfolio. How much, some of the banks that have also reported have talked about like high volatility CRE. Can you just talk a little bit about the construction piece? Like is any of that high volatility? Does it have a higher risk weighting? I’m just trying to get a sense of the types of construction that you are putting on. Thanks.

Hi, this is Frank, good morning. Good question. As Tayfun mentioned though, when you look at our loan growth, it’s not heavily concentrated in construction activity. It’s across all sectors. And again the risk profile is very strong. The construction activity we’re seeing is quite frankly a non-speculative office building, apartment buildings, some retail it’s a national builders that we’ve had a long-time relationship with. And again, I’ll emphasize, we’re taking nominal risk in managing that book as we go forward. We’ve learned as other institutions have our lessons. This book is small relative to I believe our peers. And we’re being very prudent in client selection. So, it’s - we’re happy to see the growth. But again, they’re the client we feel very good about it. These are again loans that I think I have a very solid risk profile. And we’ll continue to manage it prudently as we go forward.

All right. Thank you.

Thank you.

Thank you.

Your next question comes from the line of Matt O’Connor from Deutsche Bank. Your line is open. Matt O’Connor: Good morning. Can you talk about what is going on in the consumer auto lending space? I know it’s an area that you pulled back a little bit several quarters ago given tight pricing there. But obviously there is good loan sales and or auto sales and the average price of autos has gone up. So overall the industry seems to be doing pretty well, but talk about the lending environment and your approach right now, please.

Matt, our color there is no different than the same message that we’ve been giving over the last two years. Now, yes, car sales are at healthy levels. But when we look at the pricing and profitability of that business within the credit profile that we are comfortable with, we are comfortable with the origination levels that we have. And they’ve been very stable. And a number of our competitors obviously are operating at credit profiles below ours. The immediate profit metrics look reasonable but it just doesn’t fit our risk profile and risk tolerance levels. So, I don’t really have any new news for you in that area. I think the next few quarters, the numbers will look very similar to what you’ve seen from us over the last two, three quarters. Matt O’Connor: And then maybe just stepping back bigger picture for consumer lending overall, most of the categories have been relatively stable for you guys. Are there pockets of opportunity to balance sheet growth or still mostly focused on the commercial side in terms of on balance sheet growth?

Unfortunately - the development of our balance sheet is really an extension of what we’re seeing in the broad economy. Home equities continued their soft decline. At one point that’s going to turn and clearly, in our branch network we’re very focused in making sure that when that happens in our footprint that we are ready to experience that growth. Credit cards, I think that still continues to be a good business for us to support ongoing growth. That business as you know is a very branch focused direct retail portfolio for us and has great credit profile and we’re happy to grow that portfolio. And we will grow that portfolio. We’ve added some management talent over the past couple of quarters there. And as we focus on the MV project and the credit card business at the same time, we are focusing on business growth opportunities. So, you will see continued growth in credit cards. And then we also will obviously maintain our mortgage presence and as we see opportunities there, we will support that. So, at this point the trends are going to look fairly similar but as the consumer continues to improve and it’s how balance sheet helps, we’re here to observe obviously more growth in that area. But right now C&I will dominate loan growth. Matt O’Connor: Okay, thank you very much.

Your next question comes from the line of Ken Usdin from Jefferies. Your line is open.

Thanks, good morning. Tayfun, just a summary question on the outlook, if I heard you right about expecting growth in NII, a better back half for fees, and then this expense guidance, am I correct in assuming that the PPNR outlook would be better than the 578 adjusted-number that you posted for the second quarter?

Ken, I’ll leave my outlook structure as I laid out without sort of adding more to that. I mean, clearly the fundamental drivers continue to be healthy. And it’s no different than what we thought was going to happen in January, what we thought was going to happen in April. We just maintain a very similar perspective. We are confident in the health of, the fundamental driver that being earning asset growth which now going forward for this year will really reflect loan growth rather than securities growth. NIM is at good levels, the momentum there is helpful. We believe that the second half should show good sort of fee income level. So, I will just leave it there and we gave you a little bit more detailed expense guidance. Beyond that I would be careful in not projecting Q2’s PPNR levels for the rest of the year. We clearly have outperformed in the second quarter. But things look good. And as we move into the third quarter, we are confident in the fundamental drivers. But I just want to point out that in Q2 we outperformed significantly.

Understood. And then secondly, just on your outlook for credit where clearly there were some adjustments made inside, sounds like a little bit for the energy side. Underlying that and whatever you may have adjusted for the SNC specifically, I was just wondering if you could further tease out what was core credit performance, what might have been SNC related. And then you’re just kind of underlying outlook for any further charge-off improvement and reserve release.

Yes, I mean, first of all, I did not make any statements related to the energy being part of the underlying credit trends. So I’m going to turn that over to Frank and then I’ll come back with comments on provision.

Thanks. As we’ve said before, the synergy book is relatively small in context of both commercial and the Bancorp as a whole. It’s less than 2% of our Bancorp loans, its $1.67 billion, so it’s a small book. We have the highly experienced team of lenders, who’ve been with us over 20 years on average. It’s predominantly a mid-to-large corporate focus that’s consistent with our other Fifth Third National Alliance. Now we exercise what we believe is conservative underwriting. It’s a diversified book as Tayfun has talked about. Upstream represents 50% of all energy related exposures and that tends to be a well-structured book. It’s under a traditional secured reserve base borrowing base. The balance of that book is predominantly to investment rate credit. So, when you look - as we went through this Shared National Credit exam, effectively for us it was a wash. The numbers that Tayfun said are in our second quarter results, there were no material adverse changes as a result of the exam across the broad portfolio or in the energy sector. So, the sector itself we talked about the fact that we had a slight migration on non-performing assets. But the non-performing assets in the energy book are less than 1%. And we don’t expect any material change there. We don’t expect any material changes in the outlook for the second quarter as a result of our energy book. So, we feel good about the book as a whole, again it’s small, well managed and performing to date, we’ve seen some risk rating migration as have others. But again, it’s just not a material number in terms of Bancorp.

And on the provision, Ken, I think we signaled at the end of last year very clearly that we would expect this year to cross the threshold at some point. Our coverage level provision to charge-off coverage level moved up now above 90% this quarter. So, our outlook basically is for that trend to continue into full coverage. But that’s just a natural progress with respect to our existing credit profile, our loan growth statistics. And I think despite the fact that we feel very confident that just as a natural progression at this point that we’re expecting.

Understood, thanks. Sorry for that misstatement on the energy comment earlier.

No problem.

Your next question comes from the line of Mike Mayo from CLSA. Your line is open.

Hi, what was the tipping point for this branch reduction, 105 branches over the next 12 months? I’m not saying it doesn’t make sense - it just seems, why now?

Look Mike, I think we discussed with you as well as with the broader investor community that we have been aggressively taking actions in our branch network to adapt to new technologies. We’ve been observing what’s been happening in the underlying demographics and usage patterns. And this is just basically an accumulation of those trends over the last number of quarters. And we had, we analyzed this second quarter of last year. And this quarter was a good time to take another look. Because as you know, technology is moving very fast, there are opportunities. And we hadn’t made significant changes in our branch network over the past number of years. So, this was the right time to do it. We felt comfortable with what was available to us. And we have a better look into the future as to how our customers are utilizing our branches to them than we did before.

And then just one other question, Fifth Third has had two CEOs for the last 25 years. Kevin, you’ve been there for a while. And I guess, Greg, you take over late this year. So can you give us some color as to why the CEO-change? I think it was a little bit of a surprise. Clearly it wasn’t due to an earnings shortfall or anything. But what was the motivation behind the CEO change? What was the Board’s thinking? And Greg, how might, how is your style perhaps a little bit different than Kevin’s?

Hi Mike, let me start, give you my perspective. We try to be as transparent as possible relative to orientation. But as you know, when I was working with the board relative to looking at kind of CEO transition and particularly in terms of looking at about a decade of timeframe it’s not the, as I told, the board it’s not the years, it’s the miles. And so, from my perspective, given that the bank is in really good shape, whether you look at the balance sheet as you just mentioned our earnings. And then as you also look at in terms of the succession and the talent that we have internally from that perspective, it really to me ties together very well for a very normal, very thoughtful transition for a Fortune 500 company. And I think I’m really comfortable, I think the board was really comfortable in our approach. And in the perspective that we put together as you said, long-serving CEOs and our expectation is that Greg will do that same as we go forward from that standpoint. And the other thing I would mention is, Greg has been, as I highlighted, Greg’s been Chief Operating Officer since ‘06, he’s been President and Chief Operating Officer since ‘12, so he has a long history. He understands the culture he understands both the challenges and the opportunities. And he’ll get a chance in the coming months to really kind of layout his thoughts and his perspective in terms of where Fifth Third will be going from that standpoint. And I think you’ll be pleased with what he brings to the table from that standpoint. So, I don’t know Greg, if you wanted to add anything.

Thanks, Kevin. First-off, Kevin and I have a great relationship. As Kevin mentioned, I’ve been the COO since 2006 and President since 2012, it’s been a great partnership. And this has been a very thoughtful transition. We’ve worked hard to get this right. We’ll work hard to continue to get it right going forward. Leadership style, Mike, what I can tell you about myself and what you could expect from me is a couple of things. One is, I believe in clarity, making sure organization has crystal clarity as to our mission of objectives, we’re trying to accomplish as an organization. Being very transparent about where we stand, what need to get accomplished. Being very, very proactive and decisive on moving forward and making sure we hold the organization accountable for our overall mission of objective to serve our customers. So that’s my style, I’ll continue that going forward in the organization. I look forward to once again focus on how we can leverage my background on my experience prior to Fifth Third. And when I first came into Fifth Third in the technology, we’re living a technology evolution. And all was changing. And my experience in that sector and the pace of playing that sector will continue to be an opportunity for us to get it right. So I’m looking forward to the opportunity.

I think Mike, the bottom line is we would hope, the board, myself, Greg, the leadership team here would hope that the streak and you all see that we’re going to continue the momentum that we’ve talked about, we’re going to continue the effective approach to rapidly changing and challenging environment. And I think you can expect the whole as accountable to that standard now and in the future with Greg, so.

And the only thing I would add Mike is we got great leadership in this organization with the moves we recently made. Made and we look at the market, and the talent we have in our markets, we’ve got great people running our markets, we’ve got great leaders running our lines of businesses. And I’m very proud of the performance of this organization. As Tayfun said, as Kevin just said, we’re in a very solid position right now with a lot of upside opportunities going forward.

Thank you.

Thank you, Mike.

Your next question comes from the line of Chris Mutascio from KBW. Your line is open.

Good morning, thanks for taking my question.

Good morning, Chris.

Tayfun, I just had a quick question for you if you can help me out. On slide 14 you go through your interest rate risk management and how you’re positioned today. And I looked at a couple of things of those. And for example, the investment securities portfolio duration is now what, 4.9 years. I looked back last presentation and it was 4.3 years. That makes sense because you’re I guess with the investment securities purchases. The short-term wholesale funding is now 3.5% to 4% of total funding it was only 1.5% at last quarter. And securities, hasn’t moved a great deal because most of the building of the portfolio was first quarter but securities as a percent of assets is now over 20%, it was just over 19% last quarter. So it would seem to me looking at some of those characteristics your asset sensitivity would have been reduced a fair amount. But when I compare some of the numbers on this quarter’s the estimated sensitivities and those tables when I compare them this quarter to last year, there really isn’t a lot of movement. Somewhat downward, but so can you kind of reconcile the buildup of the securities portfolio, the duration extension and yet not really deteriorating much of your asset sensitivity going forward?

Yes, it’s Jamie. The biggest portion of the answer to your question is, if you look back another presentation prior and you look at year-end, we’re actually the duration of the portfolio was 5 years.

Okay.

So, what happened is, rate rallied in the first quarter which drove the portfolio duration to shorten and then rates have sold off in the second quarter. So, we’ve not really changed the mix or composition of the portfolio. It’s merely a function of the rates that are impacting the disclosed duration. But then when you look, what we’ve added in the portfolio both in the first quarter growth and then the second quarter activity, you really see that driving the change in the EVE where we did decline from a minus 3.8% down to minus 4.6%. But in terms of the disclosed asset sensitivity, you can see the biggest drivers of your rate risk are the beta, the pricing lags and then the DDA disintermediation and we’ve not changed those assumptions. The only change that occurred to our interest rate risk update was we did an annual deposit live attrition study. And that resulted in a small increase in average deposit life of 0.2 years. And that’s driven by the continued success from our deposit simplification program and our ability to service our customers. And we’re seeing less attrition in our deposit base. So really there were no large changes in our rate risk assumptions.

Chris, I mean, your question is precisely the reason why we have this slide in our presentation because we wanted to make sure that we were very transparent in terms of the numbers, in terms of the assumptions that support those numbers. We keep seeing references to historical data ranges from our peers. And we were hoping for this discussion to be based more on factual data which we are intending to do. Your reference to the short-term wholesale funding it’s [indiscernible] it’s not sort of a meaningful change in terms of the overall trends which clearly will rely on core funding.

I appreciate it and I do, the disclosure is fantastic relative to what I see from others, so I do appreciate that.

Sure.

Your next question comes from the line of John Pancari from Evercore ISI. Your line is open.

Good morning.

Hi, John.

Hi, just one question really on the credit side. On the Shared National Credit book on slide 16, I know you indicate that the size of the book is $25 billion, so that’s about 27% of loans now. What was the size of the book about a year ago? What are the businesses that are really driving that growth? Is there any specific one that is really driving the growth of that book? And then also what is the, do you have the average yield of that portfolio by chance just to get an idea of where these types of loans are coming in at?

Hi, this is Frank, let me take it. To begin with, we’re looking on the yield question for you. The books up from about 39% to 44% over the past year as it relates to the Shared National Credit exam. Again, we have a large corporate book and that’s predominantly what this is, mid-Corp and large corporate, very high risk rated overall book, the overall risk profile is strong. And as I’ve said before, when you think about the SNC exam, and you think about this portfolio, we underwrite everyone into our own account. So it doesn’t matter whether we participate in the syndication, we lead the syndication or we do a standalone one-off to a corporate. We structured, we underwrite to our own account, to our own risk appetite into our own standards which we believe are high. So, relative to whether it’s 39% or 44%, I don’t necessarily think it’s that meaningful because again we underwrite to our own account and this is a portfolio that’s performed very well. And our portfolio performed very well in the most recent SNC exam.

Yes, the SNC portfolio John, as Frank mentioned, with respect to all the variables, credit variables is actually a better portfolio than our overall commercial portfolio. So, I will get you, but I don’t have the yield specific to the SNC portfolio but in one of our presentations we can share that with you.

Okay, all right. And then my second thing is on that same topic actually, but how much of that portfolio are you lead on? And then lastly, I know you indicated you didn’t have any issues in the SNC exam from it, is there, the risk of any lingering impact like next quarter for any of the stuff that you were not agent on or not lead agent on?

I’ll answer the first part then I’ll turn it over to Frank. The agent portion of that portfolio is about 6% to 7%, so it’s a small percentage of that total. Frank?

Again, the only piece of that that could be lingering as we talked about likely be in the energy sector. But the energy book for us is 2% of the SNC book, I mean it’s small. So, it’s a small piece of the overall pie. And again, we’ve booked all of the results from the SNC exam, all the ratings, adjustments, were all in the second quarter. So, we don’t expect any material changes going forward from that exam.

Okay, great. All right, thank you.

Thank you.

Thank you.

Your next question comes from the line of David Eads from UBS. Your line is open.

Hello, maybe just one for me. Can you guys talk a little bit about what you are seeing when it comes to deposit pricing? It seems like some people are starting to get a little bit more aggressive there and I’m just curious if you are seeing much in your footprint.

Yes. Well, we’ve discussed over the past couple of earnings calls is we felt there were some opportunities to rationalize deposit pricing especially in light of the LCR. So, our focus has been on reducing deposit rates especially in those buckets that are less LCR friendly. And you see that in our results this quarter on the NIM as Tayfun talked about the benefit from over-funding actions was roughly 3 basis points. And that should stabilize us as we head into what potentially is a rising rate environment at the end of this year. So, I think we’ve accomplished what we wanted to accomplish and you can expect that to be fairly stable going forward until the Fed begins to take action.

Great, thanks.

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

Hi, Paul.

Hi, good morning, is actually Thomas LeTrent on behalf of Paul. Most have been asked and answered, but a quick question on prepayment speeds. We have heard from a few regional peers that prepayment speeds in some of their portfolios were a little elevated in second quarter. Did you guys see any elevated TDRs on any of your books or in resi or term CRE specifically?

Are you referring broadly for the entire loan book or?

Yes, broadly the whole portfolio, were there any books that saw high prepayment speeds?

The resi stuff clearly, the second quarter was impacted by all the refi activity that took place in the first quarter which then shows up in our MSR amortization lines. The investment portfolio really was nothing beyond our expectations, just reflective of the market trends. As I mentioned, the commercial book showed little bit elevated pay-off levels but when we sort of looked at the details of those pay-offs, they appear to be more event related rather than refi related. There was some activity in the commercial construction book. There was some prepayment ahead of the project finalization dates. This quarter more than last quarters, nothing sort of outside a reasonable range. So that’s my color on prepay activity.

Okay. And one quick question on expenses. I believe you mentioned something about lease termination expenses. That’s an additional line, that is it additional expense that was not included in this quarter’s impairment charge, correct? That could come over the next 6 to 12 months?

Yes, exactly. Yes, that specifically related to those branches that we are going to consolidate where we have a lease rather than owning the property. And that’s going to flow through our expenses over the next couple of quarters.

And you did not size that correctly?

Well, we sized it in our 8-K, we said it’s going to be between $6 million to $10 million. But I did not include that, I exclusively stated that my expense guidance of 2.5% does not include that number.

Okay, perfect. Thanks.

Your next question comes from the line of Marty Mosby from Vining Sparks. Your line is open.

Hi Marty.

Hi, thanks. Tayfun, I wanted to ask you a little bit about the growth that you’ve done in the securities portfolio and your choice to almost 100% utilize available-for-sale versus held to maturity. I think this quarter you actually had some negative impact on your tangible book value as OCI came in a little bit. I was just curious what your strategy or tactic is there?

Yes, this is Jamie. The strategy on the available for sale is really just to maintain flexibility as we manage interest rate risk and see opportunities in the market. I know a lot of our peers have used HTM but given that our asset size were below $250 billion, we did elect AOCI opt-out, so that use of the AFS and the resulting marks don’t impact our capital ratios. Yes, there will be an impact on some of the screens that you all use on tangible book. But we’d also hope you just would fair-value the HTM portfolios from peers as well when screening across that metric.

And would you consider. Yes, go ahead, I’m sorry.

The flexibility of managing an AFS book outweighs the benefits of not marking a healthy maturity book, so that’s been our long subscribe philosophy here.

And what I was trying to add to that was given the excess capital that you have, would you think about having that flexibility so when rates start to move up you can utilize that excess capital in a short-term loss that gets recaptured very quickly, but yet improves your earnings pretty rapidly because you can continue to kind of churn the portfolio up as rates move higher? Have you kind of thought about that?

I mean, that clearly is a reasonable statement. We’ll see how the environment moves. But that type of flexibility is what we value.

And then just lastly, if you looked at the mortgage kind of detail back in the appendix, it looks like maybe with the gain you had in the servicing side you actually, looks like you held more mortgage originations versus securitizing. I didn’t know if you were kind of substituting origination for servicing income and creating some longer-term impact with having more in the portfolio versus securitizing this particular quarter?

Yes, a couple of comments on that one. One on MSR, we’ve been actually, when you look at our MSR management over the last three, four years, we have a very comprehensive approach to how we manage our MSR position with respect to production trends, interest rate environment and also the up and down trends in our servicing book, so the decision when and how much to portfolio or what portion of our mortgage production to portfolio really depends on environmental factors. We did have in the first couple of quarters a little bit more elevated balance sheet positions in mortgage production but that does not necessarily indicate what we will do going forward. That’s really a quarter-to-quarter determination in terms of where we see pricing in the market, what our portfolio characteristics look like. Right now we’re just holding the arm portion of our originations, we’re not holding on to, on the conforming side, we’re not holding on to longer-term fixed rate mortgages. We’ve always portfolio, the jumbo production because that just is more of a relationship business. But in general, the mortgage servicing asset risk management is a very comprehensive approach. And whether what we balance sheet from production is a little bit separate than that.

Understood. It just seems like there was an incremental leg up this particular quarter. So I was just curious about that. Thanks.

Quarter yes, you are correct. Yes.

Your next question comes from the line of Geoffrey Elliott from Autonomous. Your line is open.

Hello there, good morning.

Good morning.

I’ve got a question on Vantiv. Can you give an update on your thinking about the stake there given that it’s now been over a year since you last sold some shares and the Vantiv share price has clearly moved up quite a lot over that time period?

Our long-stated strategic approach to our Vantiv ownership is that over the long-term we will not remain a majority or a large owner of Vantiv. And that decision really we look at it on a quarterly basis, we look at where we are, we look at where the stock price. It’s a barely complex ownership structure as we have the warrant position as well as the CRA as well as the direct ownership. So, at this time, our position has not changed, we still intend to reduce our ownership. But we want to make sure that we execute that in the best interest of our shareholders. And we will continue to monitor that situation.

And would that selling another slug of shares here, would that mean you have to deconsolidate the lost fee stream? Is that part of the thinking behind not selling over the last year or so?

No, I mean, we own currently nearly 23% of the company directly. So, we are not close to having that concern. And there is really no bright line as we have board memberships as we have the warrant position and a significant operating partnership with the company. So, that’s not the reason why we currently are still holding 23% of the shares.

Great, thank you very much.

You’re welcome.

Your next question comes from the line of Sameer Gokhale from Janney Montgomery. Your line is open.

Hi, good morning.

Good morning.

Firstly, Greg, I’d like to congratulate you on your new appointment and, Kevin, I was surprised by the announcement that you were retiring because 59 is now the new 49, but best of luck to you on that as well.

Thank you.

We covered quite a few of the questions I was going to ask, but just a couple of them just to flesh them out a little further. The first one was really for Greg. In your role as COO one would assume that perhaps you were more internally focused into the operations of the company. But now as the CEO I think the expectation would be that you might need to be more outwardly focused. So as you’ve taken on or will be fully officially taking on this responsibility later this year, what would you say are your top three priorities looking outwardly, mobile banking clearly is one of the things that have been focused on, but are there any other two or three things that at this point you have communicated to the Board or are ready to share with us?

First off, thanks for the question. And I have been focused on the organization obviously as Chief Operating Officer and President, spent a lot of time in the market, a lot of time with our businesses. So, one of the first things I want to do is make sure I touch base with all key constituents, our stakeholders out there, shareholders, key customers, employees and maintain their focus on our market. In addition to that, we’re going to continue to look for ways to take advantage of some of the dynamic changes that occur in our industries such as our investments and technologies accelerate our pace of change with respect to how we serve our customers and efficiencies. And also continue to look at our businesses making sure we’re aligned and we’re in the right businesses to get the right focus on those businesses, we have the right parties in place, we have enough resources decked against those opportunities. You can expect I’ll continue to focus on that and make sure that we’re aligned to capitalize on the market opportunities.

Sameer, I’m also trying to get him to pay attention to retirees because I’ll still be a significant shareholder and more aligned with you than ever, so.

I told him, my plate is full.

Terrific. Well, and then the other question I had was actually in terms of your appetite for M&A, I mean this ties into some of maybe your strategic actions you might look at over the next two years or three years. As you look at the portfolio of businesses you have today and the loan types, and one of the things I want to hone on is, or zone in on, is commercial and industrial loans. It’s a pretty broad-based asset category, many subcategories in there. Are there any specific areas that maybe you have earmarked as being of interest from an A standpoint and things you might want to acquire?

Yes. First off, we don’t typically comment on M&A activity Sameer, but I will state this. Anytime there was an opportunity to create value for our shareholders over a long-term horizon, we’re going to look at that very closely. And we’re not going to do a deal, just to do a deal, in order to do something as positive in a short term that doesn’t create long-term shareholder value. So, I think as we look at those opportunities in our business or a geography, we’ll always be mindful of, does it create value for our shareholders and net-net, our ability to be able to execute. And we’ll execute those opportunities at the end of the day when the time is right and when those opportunities emerge.

And Sameer, we’ve been very successful inorganically actually starting and growing sub-businesses inside the commercial corporate banking area. So that success gives us confidence that if we were to venture into a new area that we could actually do it with the right talent. And in this environment it almost is better to do that as the regulatory environment is very difficult for a non-bank to operate inside a bank. So, our success so far gives us confidence that we can do it internally if there are opportunities outside, we don’t mind looking at them but we’ll have to evaluate them as they come along.

Okay, that’s great. Thank you very much.

Thank you, Sameer.

Your final question comes from the line of Matt Burnell from Wells Fargo Securities. Your line is open.

Great, thanks for taking my question. First of all maybe Greg, a question for you, just following-up on the immediately prior question. We’ve been hearing for some time that increasing regulation has been a bigger challenge for smaller - much smaller banks than Fifth Third. I guess I’m curious within the context of your comments about you would be willing to consider longer-term accretive acquisitions, are you seeing a greater flow of those type of opportunities over the last 6 to 12 months than you saw maybe 2 to 3 years ago or has that stream been pretty steady?

No Matt, we really haven’t seen anything of significance or opportunities that we think that fit inside our wheelhouse. So not so significant and Tayfun, do you want to add anything to that?

No, Matt, I think as you know today when you look at M&A opportunities, you don’t only look at the next 10 years of that optimization but you look at the past 10 years. And the really attractive opportunities are few and far between and so, nothing really to report on that that commencement.

Fair enough. And, Tayfun, maybe just a follow-up for you, and I appreciate this might be a little bit sensitive. But in terms of the branch reductions, in terms of the full-time equivalent employees, those are down about over - on a year-over-year basis about the same rate as the banking centers. And given all the investment that you’re making in technology should there be an outsized reduction potentially in staffing levels within the branches given all the investment that you are clearly making in terms of delivering digital products to your customers? A number of other banks have been talking about that as an intermediate to longer-term benefit.

Yes, so, by definition this branch action will clearly impact the overall employment levels in our retail business. But it’s been now, I think it’s a good sort of two and half years since we have reduced our FTE counts in our branches. And that continued even into this quarter. I suspect that as we sort of continue to grow technology inside of our branches and reconfigure, redesign our existing branches that trend will continue. But on the other hand, I have to tell you that revenue growth continues to be of utmost importance in our retail business. And we have been and we will continue to add sales oriented associates. So, there are two trends that are going against each other but the 105 reduction itself will clearly take out a portion of our retail employee base.

Great, thank you.

Thank you very much for joining us this morning.

There are no further questions. This concludes today’s conference call. You may now disconnect.