Fifth Third Bancorp (FITBM) Q3 2016 Earnings Report, Transcript and Summary

Good morning. My name is Shelby and I will be your conference operator today. At this time, I would like to welcome everyone to the Fifth Third Bank's Third Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Sameer Gokhale, Head of Investor Relations, you may begin your conference.

Thank you, Shelby. Good morning and thank you for joining us. Today, we'll be discussing our financial results for the third quarter of 2016. This discussion may contain certain forward-looking statements about Fifth Third pertaining to our financial condition, results of operations, plans, and objectives. These statements involve risks and uncertainties that could cause results to differ materially from historical performance and these statements. We've identified some of these factors in our forward-looking cautionary statement at the end of our earnings release and in other materials, and we encourage you to review them. Fifth Third undertakes no obligation and would not expect to update any such forward-looking statements after the date of this call. Additionally reconciliations of non-GAAP financial measures we reference to in today’s conference call are included in our earnings release along with other information regarding the use of non-GAAP financial measures. A copy of our most recent quarterly earnings release can be accessed by the public in the Investor Relation section of our corporate website www.53.com. This morning, I'm joined on the call by our President and CEO, Greg Carmichael; CFO, Tayfun Tuzun; Chief Operating Officer, Lars Anderson; Chief Risk Officer, Frank Forrest; and Treasurer, Jamie Leonard. Following prepared remarks by Greg and Tayfun, we will open the call up to questions. Let me turn the call over now to Greg for his comments.

Thanks, Sameer, and thank all of you for joining us this morning. As you can see on Page 3 of the presentation, we reported third quarter net income to common shareholders of $501million and earnings per diluted share of $0.65. During the quarter some notable items resulted in a net positive $0.22 reported earnings per share. Tayfun will provide further details in his opening comments. During the quarter we continue to focus on North Star Initiative. Our Q3 results provided further evidence of the progress we were making. Our net interest margin was well managed and stable sequentially, reflecting our focus on higher quality customer relationships. Adjusted fee income excluding MSR valuation adjustments was up 4% year-over-year and the growth rate has accelerated since the beginning of the year. Expenses were down 1% this quarter, compared to second quarter of 2016. During the quarter credit quality remained stable with a decrease in both non-performing and criticized asset levels for the second quarter in a row. The slight elevation in our charge-offs primarily reflects quarterly volatility in the low levels we’ve been experiencing. We expect the benign credit environment to continue for the foreseeable future. Production metrics continue to be strong with mortgage volume up $2.9 billion, up 7% sequentially and up 27% from last year. Q3 volume represented the highest level of quality originations in the last three years. In our commercial business, we remain focused on higher quality relationships that will enable our business to outperform through the cycle. As a result commercial loan production for relationship manager is up 7% and fees for relationship manager up 22% on a year-to-date basis. Our overall commercial loan balances reflect the soft loan demand which persisted during the quarter. Regardless of the environment we’ll continue to focus on relationships that meet our return objectives. We’re also investing in developing new origination channels. For example, during the quarter we announced our strategic alliance with GreenSky and investment in and partnership with GreenSky will help us to efficiently generate additional consumer loan volumes while allowing us to leverage the technology platform in existing merchant relationships. While we continue to invest for growth in our businesses, we recognize that this remains a challenging environment for quality revenue growth, given a limited support from the broader economic environment to maintain a strong focus on expense management. The ongoing reviews across business and staff functions, we’ve already taken significant steps to reduce our expense base. We completed sell and consolidation of 108 branches this year which is expected to drive approximately $60 million in annualized cost savings. Last month we announced the plan to sell and consolidate an additional 32 bank branches, which should generate incremental cost savings of $12 million annually. As a result total branches are expected to be down 12% since we began this process late last year. We expect these actions to generate expense savings of $72 million yearly. With rapid changes in technology and customer behavior we’ll continue to implement our omni channel strategy. We believe this will allow us to further optimize our branch network to best serve the needs of our customers. We’re also making a necessary technology that just acts like [ph] digital and operational capabilities. Our investments in digital channel are paying off. In the third quarter approximately 20% of consumer deposits were made using our mobile app, compared to 60% a year ago. Overall, we’ve seen a 25% increase in mobile usage year-over-year. We’ve also seen 106% increase year-over-year in checking savings accounts opened online. We expect to continue to making investments to drive higher digital option and creating more integrated customer experience while creating efficiencies [indiscernible]. To optimize workspace utilization, we’re evaluating non-branch facilities for additional efficiency. During the quarter we saw one of our Michigan facilities which generated $11 million pretax stake. We’re working on similar opportunities to reduce expense, run rate, while improving the overall work environment for our employees. We also renegotiate key vendor contracts during the quarter as disclosed earlier. As a result of our strong execution and focus on expense management, we now expect year-over-year expense growth to be sub 4% in 2016, compared to our original guidance of 4.5% to 5% at the start of the year. The actions we’re taking should help us to achieve a positive operating leverage in 2017. For the near term expense management is at the top of our priority list, we’re also maintaining a long-term perspective on our strategic plans. During the third quarter, we formerly launched Project North Star to line our entire organization toward a higher and more sustainable level of profitability within the next three years. Our energies are focused on generating the right mix of expense reductions, key revenue enhancement opportunities and balance sheet optimization in order to achieve ROTCE targets. Assuming the current operating environment persists, we expect to achieve 12% to 14% ROTCE run rate by the end of 2019. We expect the contributions from Project North Star to be additive to the improvements that we’re already making on our base run rate. These initiatives will leverage our strength and middle market lending, industry verticals, especially lending areas in our commercial business. In the consumer business growth initiatives in mortgage banking and personal lending will provide support for more balanced growth in our overall loan portfolio. We continue to expand our capabilities in businesses such as capital markets, insurance and wealth management that generate attractive returns. In initiatives such as our commercial end-to-end process redesign project will help generate additional efficiencies for improving the overall customer experience. We intend to achieve these targets without changing our risk appetite or our ongoing discipline of maintaining a strong balance sheet. Our capital and liquidity levels remain strong and improved from last quarter. Our common equity Tier 1 ratio reached 10.16% from 9.94% at the end of the second quarter and our liquidity coverage ratio was 150%, 25% above the current requirement. As previously disclosed, reserve an object [ph] to an increase in our common dividend of $0.14 per share in the fourth quarter. In summary, I was pleased with the solid results we generated despite soft economic conditions. Our results demonstrate the progress we’re making toward our targets on the Project North Star as well as our longer term strategic goals. I also want to thank all of our employees for their hard work and dedication and for keeping the customer at the center of everything we do. With that, I will turn it over to Tayfun to discuss our third quarter operating results and current outlook.

Thanks, Greg. Good morning and thank you for joining us. Let's move to the financials summary on Page 4 of the presentation. As Greg said, overall we are pleased with our results in the current economic environment. The growth in our net interest income, the stability of the net interest margin and the decline in our expenses are indicative of our focus on improving shareholder returns. For the third quarter, there was a net positive impact of $0.22 per share resulting from several items. The most significant item was $280 million pre-tax gain from the termination and settlement of certain Vantiv TRA gross cash flows and the expected obligation to terminate and settle the remaining TRA gross cash flows. Our underlying fee revenues were solid during the quarter. Mortgage origination and pass through fees were 31% higher in the third quarter on a year-over-year basis. Corporate banking revenues were seasonally down slightly from a robust second quarter as we had previously indicated. Expenses continued to be tightly controlled as we continue to look for efficiencies throughout the organization. The quarter-over-quarter improvement in overall key credit risk indicators is supportive of the benign credit outlook. So with that let’s move to Page 5 for the balance sheet discussion. Average commercial loan balances decreased 1% sequentially and increased about 1% year-over-year. The sequential decline reflected some softness in C&I loan demand and was consistent with industry trends. Our spreads widened as we continued to reposition and optimize the portfolio into a more attractive risk return profile that we believe will be more resilient in the economic downturn. Our C&I has increased every quarter since the third quarter of last year. CRE growth of $354 million this quarter partially offset some of the decline in C&I loan balance. As we discussed before, in construction as well as in term lending our teams are cognizant of valuations and supply demand dynamics created by the lack of attractive investment alternatives. Our discipline client selection and credit underwriting in CRE will continue to rely on stringent standards. Average consumer loans decreased $78 million from last quarter and we’re down 2% year-over-year. Auto loans were down 3% from last quarter and 12% year-over-year in line with our lower origination targets and focus on improving risk adjusted returns in this business. Our strategy so far this year has resulted in higher returns on assets and capital than our initial expectations in our indirect auto business. Residential mortgage loans grew by 3% sequentially and 10% year-over-year, as we kept jumbo mortgages, RMs as well as 10 and 15 year fixed rate mortgages on our balance sheet during the quarter. Our residential mortgage originations were up 7% from last quarter 27% year-over-year. During the quarter our origination mix was roughly in half between purchase and refinance volumes. About 70% of the originations came from the retail and direct channels and the remaining were originated through the correspondent channel. Our home equity loan portfolio decreased 2% sequentially and 7% year-over-year, as loan pay downs exceeded strong origination volume. Our originations this quarter were up 15% compared to last quarter and 20% higher year-over-year. Our goal is to achieve a better balance between commercial loan growth and consumer loan growth. Our new partnership with GreenSky should help enhance our ability to generate consumer loans, especially as we start to implement their technology in our own business. In addition our new initiatives in credit card lending should also support stronger growth going forward. Average investment securities decreased by 239 million in the third quarter or 1% sequentially. Our yield widened by 2 basis points quarter-over-quarter, partly due to higher discount accretion during the quarter. Average core deposits decreased $98 million from the second quarter. Average core deposits were negatively impacted by approximately $302 million due to the Pennsylvania branches sold in April. Excluding these deposits, average core deposits were flat on a sequential basis and up 1% on a year-over-year basis. Our liquidity coverage ratio was very strong at 115% at the end of the quarter. Moving to NII on Page 6 of the presentation; taxable equivalent net interest income increased by $5 million sequentially to $913 million. The increase was primarily driven by improved investment portfolio yields, an increase in 1-month LIBOR, and the impact of the day count. The increase was partially offset by the full quarter impact of $1.25 billion of unsecured debt issued late in the second quarter and lower average C&I loan balances. The NIM was stable from the second quarter at 2.88% and wider than we forecasted in July. The positive impact of higher yielding investments and an increase in 1-month LIBOR was offset by the full quarter impact of the second quarter debt issuance and the day count. Our outlook for NIM has improved relative to our July forecast. With no rate hikes for the rest of the year, we now expect the NIM to be stable to down 1 basis points in the fourth quarter, which includes the full quarter impact of our September debt issuance. On a full year basis, we would expect a NIM of about 2.89% which is up 1 basis point from 2015. We expect NII to be down slightly in the fourth quarter from the full quarter impact of our debt issuance and more normalized discount accretion on the investment securities portfolio. We are still projecting full year NII growth of 2% despite ongoing challenges the low environment - the rate environment and stable loan growth. We will continue to execute a balanced interest rate risk management strategy as we have over the last three years. Our NIM out performance should not imply that we have outside exposure to a declining portfolio yields. We estimate that in a static interest rate environment, the investment portfolio would only have a detrimental impact of 2 basis points in 2017 on the Bancorp’s net interest margin. A key contributor to this stability is that approximately 48% of our investment portfolio consists of lockout and bullet securities. Keeping nearly our entire investment portfolio in the available for sale category has also allowed us to maintain some flexibility to reposition the investment portfolio in response to changing market conditions. Shifting to fees on Page 7 of the presentation, third quarter non-interest income was $840 million compared with $599 million in the second quarter. Our fee income adjusted for items disclosed in our earnings release was $596 million. Also excluding the impact of the net MSR valuation, fee revenue was up 2% versus last quarter and up 4% compared to the third quarter of 2015. Despite the environmental factors, our underlying fee revenues were solid. Mortgage production gains on sale were up 13% quarter-over-quarter, reflecting the robust origination volume that I mentioned earlier and a 39 basis points increase in the gain on sale margin. Mortgage banking net revenue of $66 million was down $9 million sequentially, primarily due to net MSR valuation adjustments during the quarter. Net MSR valuation adjustments were negative $9 million, compared to a positive $6 million last quarter. We expect our fourth quarter mortgage origination revenue to be seasonally a little lower than the third quarter by 5% to 10% above last year’s fourth quarter. Corporate banking fees of $111 million was seasonally down $6 million or 5% sequentially, reflecting decreases in loan syndication revenue and foreign exchange fees, partially offset by an increase in corporate bond underwriting revenue. These were up 7% on a year-over-year basis, driven by strong corporate bond underwriting and loan syndication revenues. The expansion highlights, our efforts to increase the scale and scope of our product offering in line with relationship driven model that we’re executing. We expect corporate banking fees in the fourth quarter to be stable relative to the third quarter. Deposit service charges increased 4% from the second quarter driven by a 6% increase in retail service charges as well as 3% increase in commercial service charges. The increase in retail service charges reflected seasonally higher customer activity. Deposit service charges decreased 1% relative to the third quarter of 2015, reflecting reduced monthly service charges as part of our new consumer checking account line up. Total wealth and asset management revenue of $101 million was flat sequentially as market value improvements were offset by lower transaction driven retail brokerage fees. Revenues declined 2% relative to the third quarter of 2015 as investment management and institutional fees were more than offset by lower brokerage fees. We discussed the third quarter impact of Vantiv TRA transactions in July during our second quarter earnings call. These transactions were very beneficial from both risk management as well as shareholder return optimization perspective. As you may recall, our prior guidance for 2016 called for 5% annual adjusted fee growth off base of $2.3 billion for 2015. The space excluded impacts of Vantiv as previously discussed which are mentioned on Slide 11 of our presentation. Excluding Vantiv related items the Visa total return swap adjustments and any impacts from branch sales and consolidations we continue to expect annual fee growth of 5% growth for the full year. Next, I would like to discuss noninterest expense on Page 8 of the presentation. Expenses of $973 million were $10 million lower than in the second quarter including the impact of the FDIC surcharge. This reflects a decrease in compensation related expenses and employee benefits resulting from the impact of the second quarter of 2016 retirement eligibility change as well as other reductions in operational expenses. As Greg stated earlier, we are making good progress in executing on key strategic initiatives and managing our expenses at the same time. We now expect expense growth to be below 4% level compared to our July guidance of 4% and 4.5% to 5% at the start of the year. Once again I would like to remind you that our guidance includes the impact of the increased amortization of our low income housing investments which most of our peers reflect in their tax line. On an annual basis this line item contributes nearly 3% to our efficiency ratio. It also includes an increase in the provision for unfunded commitments and the impact of one-time benefits related to the settlement of legal cases in 2015. These three items make up roughly 2% of the forecasted increase in expenses. As we have previously discussed generating positive operating leverage is our top priority going into 2017 and our recent trends are supportive of that outcome. Turning to credit results on Slide 9, net charge-offs were $107 million or 45 basis points in the third quarter, compared to $87 million and 37 basis points in the second quarter of 2016 and $188 million and 80 basis points in the third quarter a year ago. The sequential increase in charge-offs was primarily due to $22 million increase in C&I net charge-offs. Total non-performing loans excluding loans held for sale were $586 million, down $107 million or 15% from the previous quarter resulting in an NPA ratio of 63 basis points. Commercial NPAs decreased $94 million or 17% from the second quarter. In addition our criticized asset has steadily improved over the last four quarters and our criticized asset ratio is now at the lowest point since third quarter of 2007. The strength in the key credit metrics indicates continued overall stability, but given the absolute loan levels there may be volatility in some periods periodically. Our provision was $11 million lower than that last quarter, partially driven by improving non-performing loans and criticized asset levels. Our results in reserve coverage as a percent of loans and leases decreased one basis point to 1.37%, but was up two basis points from last year. Our previous guidance that led charge offs would be range bound with some quarterly variability is unchanged. We expect the fourth quarter charge-offs to be lower than the third quarter charge-offs. Also we continue to believe that our provision expense will be primarily reflective of loan growth. Moving on to capital and liquidity on Slide 10, our capital levels remain strong and are growing. Our common equity Tier 1 ratio was 10.16%, an increase of 22 basis points quarter-over-quarter and 76 basis points year-over-year. At the end of the third quarter common shares outstanding were down approximately 11 million or 1.4% compared to the second quarter of 2016 and down 40 million shares or 5% compared to last year's third quarter. During the quarter we executed an accelerated share repurchase of $240 million which reduced the share count by 10.98 million shares. This repurchase includes our 2016 CCAR repurchases as well as the third quarter after tax cash flows realized from the Vantiv TRA termination and settlement. Our book value and tangible book value are up 12% and 13% respectively year-over-year. We expect our fourth quarter tax rate to be between 23.5% to 24.5% range. This quarter we will be finalizing our 2017 financial plan as well as our outlook for Project North Star which is a three year project. As Greg said, we expect Project North Star to contribute meaningfully to our base performance which makes it slightly [ph] improving dependency compared to our more recent performance. The priorities embedded within the North Star project are intense focus on expense management, smart balance sheet management and capital efficiency and revenue growth initiatives in high return businesses. These expectations include higher to historical growth in personal lending including credit cards, expansion of our middle market and vertical business commercial and widening the scope and scale in our capital markets businesses. Expense savings should include lower infrastructure and delivery cost in IT, lower total compensation cost and other operational expense savings in foreign exchange management, legal work and savings related to a more efficient data infrastructure and end-to-end process redesign. This quarter we are working on finalizing our 2017 financial plan as well as the construct of our Project North Star. Our goal is to share our expectations with you later this quarter and more in our January call. We have included the updated outlook on Slide 11 for your reference. And with that let me turn it over to Sameer to open the call up for Q&A.

Thanks, Tayfun. Before we begin Q&A, as a courtesy to others, we ask that you limit yourselves to one question and a follow-up and then return to the queue if you have additional questions. We will do our best to answer as many questions as possible in the time we have this morning. During the question-and-answer period, please provide your name and that of your firm to the operator. Shelby, please open the call up for questions.

[Operator Instructions] Your first question comes from the line of Jill Shea with Credit Suisse. Your line is open.

Good morning guys, just on the loan growth side, can you provide us some color in terms of what you are hearing from customers and just any color in terms of overall demand and then just how much is the foreign exchange related to the environment and softness and demand and how much it is actually related to deliberate pulling back in terms of relationships or industries?

Yeah, so Shea this is Lars and just a few comments there. First of all what we are hearing from clients, they continue to be cautious, they are asking about making significant investments. I guess you'd seen some of that play out in the lower M&A activity that we are seeing as we've headed further into the year. That uncertainty also revolves around questions about political what is going on in China, Brexit, EU type issues. So those are certainly coloring some of the advancement that we are seeing. We did clearly see a slower production in the third quarter, but I would see that as a little bit more seasonal which we typically see lower levels in July and August. So I would say it was more pronounced this third quarter, however with the things that we are doing investing in our verticals, new businesses and frankly we’ve got some geographies some markets there are performing very well. I would expect that we will continue to see loan growth at a good stable rate on a go forward basis. We got great business model one that clearly is being well received in the market place, our advisory base relationship model is long embraced and we are seeing that reflected in deeper client relationships that is helping us to drive fee income.

Great thanks, it’s very helpful and then maybe just quickly on the margin, it held up quite nicely this quarter. Can you just walk through the moving parts there, I think you spoke to some of that in your opening remarks in terms of the loan and securities yields, but could you just walk us through your expectations keeping that margin stable sequentially as we move forward, maybe just some puts and takes there?

Yeah, I think, we obviously were happy to see a stable margin, a good amount of that is due to what Lars just talked about, discipline pricing on the commercial side, we actually as I mentioned has been able to increase our C&I yield four quarters in a row now, that is helping out, very focused management of the investment portfolio, environmental factors clearly have played out very similar to the way we envision them and the investment portfolio is contributing a lot to. Jamie, anything else you want to add to the margin side?

Yeah, as Tayfun mentioned the third quarter walk is what we would expect some of these to recur in the fourth quarter. So from the second quarter to the third quarter, loan yield expansion was one basis point of improvement and then the investment portfolio of this kind of accretion was another 2 basis point on top of that and that was offset by the day count impact of negative 1 basis point in the debt funding impacts of negative 2 basis points. So we expect going forward for the fourth quarter, obviously it’s been an active year on the debt side for us and we have refinanced all of our maturities for the year, so the debt you can expect to be pretty quiet. But the long yield expansion that we’ve seen every quarter this year we expect to continue into the fourth quarter and for us it is driven by C&I and auto yields, they both increased 3 basis points in the third quarter. And then the one - normally from the third quarter would be the investment portfolio had tremendous performance in the third quarter with the discount accretion, you saw that how we are obviously pleased with our position on the portfolio, but that should normalize in the fourth quarter just given the faster speeds in the third quarter than what we are expecting in the fourth quarter. So that will be a little bit of headwind for us in the fourth quarter but I think the loan yield and the other actions we have taken to generate either a stable and perhaps down a basis point and that assumes there is not Fed increase in the fourth quarter.

Jill, and if I could just tag on this has been a very deliberate strategy over the past years. We focused on balance sheet managed event and redeploying our capital into business that we felt that we could get better returns. By stabilizing our core coupon we have been able to benefit more from the LIBOR rise than many of our peers and we are going to continue to do that and in fact that’s part of our North Star strategy.

And beyond the fourth quarter we stand by our statement that we made last quarter that we see stability in 2017 without any rate increases and what is encouraging is when you take a look at the debt refinancing that we had this year, 2017 is relatively lighter year, so that also would be supportive of that stable outlook for 2017.

Okay, great thank you so much.

Thank you.

Your next question comes from the line of Erika Najarian with Bank of America. Your line is open.

Yes, good morning.

Good morning, Erika.

So I just wanted to ask a follow up question, you mentioned that beyond fourth quarter you see stability in the net interest margin without a rate hike. I am wondering as you continue to go through the balance sheet optimization which is clearly beneficial to margin, how should we think about average earning asset growth going forward? It’s been flattish this year and I am wondering if some of the heavy lifting in terms of exiting certain portfolios is going to abate next year and perhaps average earning asset gross could pick up.

Thanks for the question Erika, this is Greg. First of all we have done a lot of - maybe in the last year plus and really exiting out of all other sectors and focusing on profitability would it be commodities, term loans, leverage loans. We basically pushed out almost $2 billion over the last year. So while that is going to abate as we go into 2017, 2018 a lot of heavy lifting is going to be done and has been done this year. So when you get to think about next years, we’re looking at the forecast, we expect commercial loan growth to be close to nominal on GDP maybe slightly north of that. And consumers given some of our focus on indirect auto and bringing down the originations, there we expect that to be flat to slightly up next year. Then we focus on other opportunities such as mortgage and unsecured lending as Tayfun mentioned in his operating comments. And Lars do you want to add any colors.

We will be finalizing this outlook obviously before in January and I don’t take this as guidance for 2017, but the trends that Greg mentioned is fairly high intact [ph].

Yeah, I would just emphasis again this has been a very deliberate plan of balance sheet management and to ensure that we are optimizing our capital and our liquidity from a corporate perspective and is an alignment with our relationship banking strategy. And I would tell you one of the complements to this is, as we build out businesses such as the verticals where we are delivering specialized industry expertise, it is also helping to speed our capital markets business and drive that at rates that are far beyond the expansion of what has been pretty much a flat industry. We may be growing our capital markets in the 14%, 15% rate.

And the other color I want to make Erika is, away from the commercial portfolio, our decision to take down auto loan originations at the start of this year had an impact clearly on total loan growth on an average to average basis compared to last year’s third quarter, our auto loan portfolio balances are down $1.3 billion. So making those adjustments and focusing on capital returns and other balance sheet target. Actually we are quite pleased with where we are with respect to where our balance sheet is today.

Got it and my follow up question is, I thought you made a very important point on the defensiveness of your securities yield. Could you explain further what exactly it means to have, I'm talking about 48% of your investment portfolio and lockout or bullet securities as we think about in a static environment for the yield curve, why that's not going to pressure the yields further?

Thanks for that question and I'm going to ask Jamie to provide some details. We have seen some write-offs during the quarter that clearly had a different tone and what we are seeing. So, it's important for us to provide you more details about our thoughts here. Jamie?

Yeah, what's important about it is, Erika, and one of the changes we actually made in the disclosure this quarter was that when you have 48% of the portfolio or last quarter's 51%, we actually updated that disclosure to reflect the 24-month time horizon where is prior times we've discussed it. We just looked at it 12 months, but obviously this is a big focus item for all of the analysts and investors just given the outperformance in the yield and the point and then updating the disclosure was the same in the next 24 months about half our portfolio, we will not have cash flows return to us and we've talked every quarter about whether we were or not going to reinvest cash flows out of the portfolio. In the third quarter we didn't like the entry points we were seeing and so we didn't reinvest over half of the cash flows from the portfolio, but the total level of cash flow that come off the portfolio are a pretty low level as a percent of our book relative to our peers and that's really where you can dig in and see when folks are invested in pass-through securities, you have extension risk and you have prepayment risk in the bullet and locked out cash flow play that we've been running for over two years and talking to you about that really benefits in the environment that we're seeing today and that's why we're very pleased with how we're positioned. We're obviously over a long-term time horizon going to be subject to market yields and next year that will be about a two basis point NIM impact if rates were to stay where they were today. But overall this is just not a big risk for the third given how we've positioned the portfolio.

Yeah, we've seen it in the third quarter with respect to how this discount accretion played against free amortization that was deliberately done. We positioned the portfolio for potentially higher prepayment. So, I think all in all we’re pretty pleased with where the portfolio stands.

Thank you. That was a clear explanation. I appreciate it.

Your next question comes from the line of Christopher Marinac with FIG Partners. Your line is open.

Thanks. Good morning all. I want to delve into the GreenSky relationship that I was curious. We will see bounces in the fourth quarter from that and also how many quarters in the future until the technology is beginning to be implemented system wide?

Chris, we’re onboarding on assets as we speak and we're very pleased with the initial pathways that we're in right now. The average cycle of boring [ph] right now is about 750. So, we are onboarding assets as we speak. We’ve targeted roughly $90 million to $100 million a quarter. It’s what our forward-looking expectations are for - as a generation of Green Sky. On the technology front, we're going to focus on two phases. First phase is our digital adoption, deploying our digital channels or mobile web-based applications that will start to roll out second quarter next year is what was targeted for right now and then after that we’ll focus on the branch adoption of the technology, which will probably be at 2017, early 2018.

It sounds great, Greg. Thank you.

Thank you.

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

Thanks for taking my questions. Let me start by asking a question on the margin and I know you haven't spent a lot of time talking about 2017. But if we were to get a 25-basis point hike in late December, I presume that doesn't have much effect on the December - sorry on the fourth quarter margin. But last year the margin was up about six basis points from the fourth quarter - sorry for the first quarter ‘16 after the hike in the fourth quarter. And I'm curious if your positioning is similar to that now where you might expect a roughly similar benefit from a 25-basis point hike. And then if that occurs, what you're thinking about margin through the course of the year since this year the margins sort of worked its way back down after the initial benefit in the first quarter?

Yeah, Matt, this is Jamie. I’ll take that one. The benefit to us if the Fed were to move in the second week of December, it’s about one basis point to margin benefit and that's what we saw in the fourth quarter of ‘05 with that move. When you dice that, the margin transition from 4Q ‘15 to 1Q ‘16 we were up six bps, eight of that actually was driven by the Fed move. So, our view on December 2016 move, if it were to happen, it's probably going to be slightly less beneficial than the eight basis points that we saw last year just given the deposit rates maybe a little more competitive on the second move in each prospective move. So I think on the high side it would be eight and then we're looking at this more in the six range. But, yes, it would - we’re positioned that it would be very beneficial to us. And then as Tayfun said, part of the change that occurred from Q4 ‘15 to where we are today on the margin was in a large part driven by the $3.7 billion of debt maturities we had this year and now - next year we’re at a $1.2 billion level of maturities. That was really the biggest influence on the margin compression this year that that obviously would not repeat and therefore you would expect some stability to growth in them going forward if that were to be raising rates.

Okay. That's helpful. And then for my follow-up, let me ask about deposit growth. It seems relative to others who have reported so far this quarter that your deposit growth even adjusting for the sale is really typically flattish. Many other banks have almost been complaining about the level of deposit growth relative to loan growth. How much of your client optimization activities have been - have affected deposit growth and what other trends are you seeing in deposit growth that you think might improve over the next couple of quarters?

I think you have to look at that picture from two sides. One is commercial. The other one is consumer. And on the consumer side, I think we expect to continue to grow the consumer book at healthy levels. On the commercial side, almost the entire decline has been on deliberate customer actions. And those are unlikely to repeat at that level and given our plans in the treasury management business and the expansion of our relationships, we would expect to get back on a growth pattern in commercials.

Thank you, Tayfun.

Your next question comes from the line of Matt O'Connor with Deutsche Bank. Your line is open.

Good morning.

Good morning.

Can you talk a bit about the underlying expense growth if we think about exiting this year into next? Obviously 2016 was a big year on the technology, the compliance spend, has that peaked? And some of the puts and takes and any comments on the overall expense growth as you think about next year?

I’ll make a few comments and I'll turn it to Tayfun. First off, we are fully committed and we expect to have positive operating leverage as we go into 2017, so that's number one objective. We’ll continue to stay focused on expenses. As I mentioned in prior discussions on our technology investment, the high watermark will be 2016. So, we expect our technology investments to subside as we go into 2017 and 2018, not at the current levels we are seeing today 2016, so we expect that to improve. In addition to that a lot - as I mentioned before on Project North Star, as you think about Project North Star, the opportunity to benefit we get from Project North Star is expense improvement. We expect to see that start to impact our run rate in 2017, some of the actions that we've already taken and actions that we have planned going forward. So, Tayfun, if you want to pull the bucket on here [ph].

Yeah, it’s a bit too early to provide more detailed outlook on ‘17, Matt. But we clearly are keeping a very close eye on compensation expenses and FD accounts. So, that is going to help us. And as you said many times here, over the last two, three quarters, or even going beyond that to late ‘15, we expected and we did achieve a peak on our recent compliance related headcounts and going forward that type of increase is unlikely to repeat itself. Some of these larger vendor contracts in 2017 will be hitting our expense line on a full year basis, which is going to be beneficial. There is going to be workspace management saves, some related to branch closings, some related to broader tactics and strategies that our team is executing there. So, there is a combination of factors that indicate to us that this expectation of positive operating leverage even in a static environment is achievable.

And then now just separately a clarification question regarding next year, you had said, I think the NIM percent, was it going to be stable? If I may choose the NIM percent versus net interest income dollars stable in a flat rate environment and on what bases that half of it? If it’s a NIM percent that half of 289 that you expect for this year?

Yeah, we’re already basically going through the full year NIM and at this point, Matt, it’s too early to give you an interim guidance for 2017.

Got it. Okay. Thank you.

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

Hey, guys, thanks very much. Your credit quality continues to be very good aside from the points you made about variability, I was just thinking the pretty sizable release this quarter and they still have upper 1,3 type of reserve ratio. With the move to also build the consumer going forward, you mentioned that provisioning would be in line with loan growth. Can you just help us think about just how much improvement you still see is underneath the surface and what would you be concerned about as far as any variability in other parts of the book?

Yeah, so I’ll ask Frank to also join in and comment on the credit quality. Look, I think we have seen a very significant change in the underlying credit factors right. When you think about the decrease in NPLs, the decrease in criticized assets, those are meaningful, visible, and important changes and again results of some deliberate actions that we've taken over the past year or so. Beyond - obviously they all contributed to where we ended up with the results. But you have to keep in mind the reserve coverage only went down by 1 basis point and we've been watching our peer group over the last two, three quarters. We've seen more meaningful decreases in coverage from others and ours has been relatively stable. We're actually up compared to last year's third quarter. As we look forward clearly - if there is a significant change in the way the portfolio grows that we will reflect that in the provision as we said baring any significant environmental changes we would expect provision to move overall with loan growth and that probably is a statement that other have made. Frank, any color on sort of credit environment today?

Ken, and excuse me, I have laryngitis. The work we've done has really been deliberate over the last 18 months to reposition the portfolio. The result of that is we cut $0.5 billion less in criticized assets this quarter, big number, very meaningful. We've taken about a billion for off the leverage book in the last 12 months and that was the high risk piece of the leverage book. Our commodity exposure today in outstanding is $35 million. That’s it. It’s all we have left. We're essentially out of the coal business. Our real estate exposure relative to our peers is much lower and it's underwritten primarily to national and large regional developers, we believe in a very, very prudent manner. And our energy book as we talked about before is 2% of our total book. We're looking at maybe $60 million to $80 million of losses in energy that's over the next eight to nine quarters. So, we've taken very deliberate actions for the work we're doing and coordinated with Lars on the commercial side to reposition this balance sheet to ensure that as we move towards the next recession, we're far better done in control and a far better position to be very successful in managing credit through the cycle and so all of these things are, I think, are pretty self-evident today. Our non-accrual loans, again we've talked about before continue to come down quarter after quarter. We'll see some lumpiness like everybody does. But for the most, our outlook is very positive for 2017 relative the credit based on all the different things and the actions we've taken very deliberately with a lot of discipline in the last 18 months.

Great, thanks for that color. And so, as a follow-up to that point, you've gone to the - it seems like more to the end of kind of cleaning up the book, cleaning out the book, and so as you pivot to future loan growth, obviously a couple of things where you are clearly talking about on the consumer side, but where do you expect to then be looking to grow, I should say, on the commercial side aside from what the environment will give us, is to change this philosophy in terms of like how fast you want to be growing in other parts of commercial and where do you see the commercial side growth coming from?

Yeah, so first of all, I think, Ken, you’ve touched on a good point. I mean part of it's going to be driven by the overall economic environment and that's why we guide towards GDP. But as we continue to build out our industry verticals, those are continuing to provide nice lift for us, as well as drive excellent fee income and frankly attractive returns for our shareholders. We're going to continue to focus on that. We're going to continue to build that industry expertise, but I would tell you in some of our core middle market regions, we've seen nice growth in North Carolina, Chicago, throughout the Europe, South Florida, Cincinnati, so we're going to continue to focus on execution, improving that client experience, investing in new industry verticals, and frankly growing what is a very healthy commercial real estate portfolio where we've really seen some nicely improved attractive asset quality metrics under a underwriting structure that is much different from the last cycle centralized in an expert line of business both on the line and with risk partners.

Ken, the only other thing I would add to the Lars’ comments, if you exclude the deliberate exits, we would have grown the commercial book 6% to 7% in 2016. So, it gives you some perspective of just how much lift we've done to reposition a book about quality and profitability. These guys have done a fantastic job.

Helpful, thanks.

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

Good morning.

Good morning, John.

Regarding the North Star initiatives, I just want to try to get a little bit more detail there. I know you just said that the amount of cost saves is about a third of the overall benefit that you expect out of the program. So, of that cost save component, can you give us an idea of the timing of the recognition as you move through ‘17 and then ‘18? I'm just trying to get an idea how we could really start to put that to numbers. And then separately around the revenue enhancement side, assuming obviously that’s the rest of the savings that two-thirds, what type of revenue enhancement are you looking for? Thanks.

Yeah. So, in terms of - the way we look at project North Start to give you a very broad picture, the qualification of the improvements in returns translates to a roughly $800 million type pretax income improvement between now and 2019. So, the way we think about it is there is a base performance uplift from the businesses that we have and in a base-case scenario probably roughly divided, let's call it a $300 million to $400 million. We can do that by managing the expenses and then growing the revenues that are already in place. And then we look at some of the balance sheet optimization targets that we are establishing. That probably, I don't know, it’s called itself in the [ph] $100 million to $150 million range and then roughly another $150 million to $200 million in fee income growth. So, that leaves somewhere around $150 million or so in expenses. These are broad numbers. We will share more details with you. The timing of the expense saves will start coming in 2017. Some of them are already in play. You probably see the major restructuring and I think it will accelerate into 2018 and 2019. Some of the projects, underlying expensive projects relate to the commercial business and to redesign that project is picking up. It's going to have somewhat of a delayed impact, but again we would see probably a more meaningful save in 2018. And then there are other infrastructure investments that we're making. But that doesn't mean ‘17 does not have any of those. I think there are some expense initiatives in play that also will contribute to ‘17 and those are the types of details that we would like to share with you as we approach the year end and the beginning of the New Year [ph].

Okay good and then I know you gave the ROTCE expectations and ROA expectation. Have you given what this all means in terms of the efficiency ratio for North Star?

Our target for North Star John is sub 60 by the end of 2019 run rate.

Okay all right and then secondly on just a quick here on the credit side do you have your shared national credit balance as of September 30,I believe it was around $26 billion or so last quarter.

It is right around $26 billion, that’s correct.

Okay, so unchanged.

Yeah, unchanged.

And then the leverage loans, do you have that quantification?

We haven’t given out that probably and I don’t I think it is a little bit of misleading at this point given there is no single definition of market [ph] for us.

I would tell you that we have, continue to reposition that portfolio so that we position ourselves to outperform through more challenging economic times. We have been very specific and deliberate there so we are in a better position today.

And you are talking about the leverage portfolio, correct?

Leverage portfolio.

Okay and has there been any pressure to slow the growth initiative for the [ph] credit portfolio?

Well, what we are really focused on is buying relationship and building those out to the extent that we leverage the shared national credit market, that’s more kind of just symptomatic, it is not an end for us, we are not focused on growing snick [ph] what we are focused on is growing industry expertise core middle market where we believe that we can add value, develop deep client relationships that fit within our risk appetite and provide attractive returns.

Let me add a little bit to that, if you look at the snick portfolio again which is $26 billion or about 49% of our total commercial book, its investment grade quality. If you exclude the inter GPs of snick for a moment we have very little lose in that. Our criticized asset levels 3.75% [ph] on the entire snick, but it’s primarily an investment grade portfolio. Three quarters of that portfolio is as large as really deep relationships about a quarter is credit only and a lot of those are fairly new relationship to over building a relationship on, so this is not a standalone portfolio credit only book that we are buying jut to grow a portfolio. It is tied deeply into our strategy of dealing with relationships with top clients and I will tell you in many of our snick relationships we have a very meaningful piece of the fact that number of banks there is a syndicated facility [ph]. So we feel very good about it and I don’t think at the end of the day all exceed 50% of our total book over time but we don’t necessarily have a problem with where it is relative to the performance that has given us and the fact that it is built in to our core strategy of deepening our industry vertical in our lid cap relationship.

Okay great. Thank you.

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

Good morning guys.

Good morning Scott.

I think at this point most of my questions have been answered but maybe Tayfun or Jamie just sort of take that question the base of running assets. So your end of period versus your average I think the end of period base is a couple of trillion dollars higher. Can you just go through sort of nuance of what happens with the base of running assets in the fourth quarter, just trying to get a sense for movement within the balance sheet.

Scott are you looking at end of period interest earning assets?

Yeah exactly, which I think are about $2 billion to $2.5 billion higher than the average base.

Yeah, because in that you do have the $1.2 billion mark on the investment portfolio in the end of period and then you also will have a run up in some of the cash balances and then in our NIM guidance and our guidance for the fourth quarter we typically see a run up in those cash levels as we do expect strong deposit growth and so our short term overnight investments might have a little bit of a load there, but nothing that’s - we are not expecting anything that’s unreasonable to what it occurred last year.

If you look at Page 29 of the earnings release table on the just loan side you don’t see that [indiscernible].

Okay, just the average just as kind of the [indiscernible] the best think to kind of go off nothing unusual at the end of period?

There is nothing unusual.

We haven’t talked about it but I think part of what your question headed is just on the investment portfolio we will reinvest portfolio cash flows in the fourth quarter and that should result in average security portfolio being stable the third quarter level so, don’t expect a lot of movement from the investment security both in the quarter.

Okay, all right, that’s perfect. Thank you for the clarification.

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

Hi I was looking for more color on project North Star, I didn’t completely understand that base performance up lifts, you are looking for $800 million in additional pretax and it looks like about equal amount balance sheet optimization fees and expenses and that base performance uplift is what and just more generally how do you think about expenses over the next to get to that 12% to 14% RTCE, the expenses stay flat or they go up a little bit or down or what?

Based on the performance on the expense side is pretty flat Mike. I mean in terms of if you check out initiatives I think we probably will be lot more stability in the expenses and in terms of the expenses related to these initiatives and number of them are truly sort of well I guess more changes and investments that truly are going to lift revenue fairly quickly. So our goal clearly is to fund those expense initiatives, to fund those revenue initiatives with expenses elsewhere so, that’s the only way we will be able to get to sub 60% efficiency level so we are not necessarily looking to have added investment cost to achieve revenue growth but actually achieve based expenses to fund those initiatives.

So flat expenses from 2016 to 2019 is that the concept?

Mike just be patient with us as we finalize the details we will share more of it towards the end of the year or early next year.

Okay and just a big picture question and you have 1191 branches now and you have been passed out of the Greg and reduced those branches, you have more to go and also your mobile banking that is big percent, 20% consumer deposits for mobile apps that I guess that is better than some big banks. What is the right number of branches as digital delivery catches hold I mean if you look out over the some three to four year period where could that number go?

Mike it is a great question and I don’t know the answer, it really gets down, we looked it over 50 variables that we mentioned before when decided to close or consolidate branch. So it is really is driven by the consumer preferences and you’re seeing that migration and adoption to our mobile apps on our digital capabilities, I think 40% plus of all of our checks are now coming digital channels, 20% through mobile, so that’s going to pace us, could it be another 10% plus, absolutely. So we are going to look at this every single year, we’ll continue to test against it, probably get through the lenses, 50 different variable we assess and we will continue to make adjustments to our branch infrastructure. Obviously that helps us fund some of our investments in digital or [indiscernible], so we are looking for that transformational cost also as we reduce our branch infrastructure, but more to come there as far as the pacing the numbers I am not comfortable giving you a number.

All right, thank you.

Thank you.

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

Hello, thank you for taking the question. If I look at slide 10, I can see that the capital ratios have continued to build up even with the pretty significant repurchase you got. So I was wondering given the changes we have been hearing from the Fed on how the [indiscernible] process is going to work, how they're going to look at different sorts of capital return, whether it's buyback or dividend, how does that influence your thinking on the role that increased capital return could play in getting you to that 12% to 14% ROTCE?

So, our thoughts around capital returns really don't incorporate a significantly different capital base than what we have today. So, we're not counting on our ability to leverage the balance sheet more so than what we are doing today. Clearly, we are cognizant of the communication coming down from the regulators in terms of the design of the regime that they're expecting over the next, a number of years. It's a little too early exactly how that will play an impact on our business. We are mildly positive. But in our financial projections, we are foreseeing a stable capital picture, give-or-take a quarter from where we are today. So, it is not meaningfully contributed to the return expectations that we have.

And then if I could just clarify on something you were saying earlier, I thought I caught a number of 1.3 or maybe 1.4 billion decline in leverage loans, but then I also heard you say you didn't disclose the leverage loan balances. So, maybe you could just kind of tie those two comments together?

Yeah, I think, Lars and then Greg have commented on the drop. We - the definition of leverage loans, of course, today is not quite uniform. So, it's a meaningful drop. Let me stay it that way. It's a meaningful drop from our leverage loan book. And I doubt that our leverage loan book is significantly different from peers. Frank, I don't know, if you want to - or Lars, if you want to comment on that?

The thing to focus on with leverage lending at least from our perspective, there is all types of companies that are leveraged. That’s where we've had injuries and where most of our peers, I think, have had issues. They’ve been over reliance on enterprise value lending, financing M&A transactions and deals went sideways. And when they went sideways, the problem is the loss and the default [ph] is very high. That's our prior experience. And as a result of that, we've been very judicious and going through as Lars has talked about and looking at all of our client relationships, looking at our sponsor relationships, looking at the types of credits that we would finance, and our leverage environment, industries that we should consider and industries, probably cyclical industries for example, we probably shouldn't consider finance in a leverage environment. So, we talk about 1.4 billion reclassifying or leaving the books. It's the highest risk piece that we've focused on which are enterprise value deals, highly leveraged deals, clients who don't fit our risk profile and leverage that's outside of our comfort zone. And those are the credits that we’re moving out. So, whether it's 10% or 20% to me it's a more meaningful number than that, because we're taking the highest risk slice of the portfolio and that’s leaving the books. And what remains of portfolio that we think is performing very well. We have clients that we know well. We respect well. We have a great history with them through cycles and they have the ability to manage their leverage, because they’ve proven it over time and it's the right kind of leverage in an industry that is much more stable versus much more cyclical. So, I think we know this space well. We’re repositioning ourselves in a place where we can continue to be delivering leverage finance to the right clients, right relationships, the right returns with a lot less volatility than what we've had in the past.

Great, thank you.

Thank you.

[Operator Instructions] Our next question comes from the line of Vivek Juneja with JPMorgan. Your line is open.

Hi, a couple of questions. Tayfun, I think I heard you say that or maybe it was Greg about balance sheet optimization as part of project North Star and you've talked about reducing your single product relationship. So, how much more run-off should we expect from commercial loans as part of that?

Yeah. So, it is a core part of North Star as we look in particular as a commercial bank. It will be difficult to tell the exact number as we look out over the next three years. I would maybe give you a little guidance that all things being equal in the economic environment, as Greg had said, we've done a lot of the heavy lifting this past year around $2 billion. I could see another billion dollars of balance sheet optimization, but frankly that's going to be over a period of time and we're going to be reinvesting that capital in relationships that provide the right kinds of return and right risk profile for our company on a go forward basis.

Okay. And given then intense competition for C&I loans, you’re confident of being able to get some higher spread, because obviously competition hasn’t awaited given the loan growth we are seeing in the industry?

Yeah, to that point, I mean, I think Lars and team have done a fantastic job and we have four quarters in a row. We've seen our yields improve in C&I lending. So, once again a testament to the work they've done to reposition the balance sheet and the relationships and, Lars, if you want to add any?

Well, I would just kind of go back to the prior question. This is about balance sheet management. This is about prudently using our capital and reinvesting it in the right kinds of relationships. And it's not just about credit, it's about the entire relationships. It's about the solutions in developing deep strategic advisory type relationships and we're seeing that happen and play out on a go-forward basis. So, I would just underscore as I look across almost every business line that we have in the commercial bank, we've either stabilized or slightly increased and in some cases moderately increased our core loan spreads, which has allowed our company really to benefit from a large part of the rise that we've seen in LIBOR or in some institutions you've seen some of that absorbed away within our spreads. Let me tell you something. The market is no easier today from a competitive environment perspective than it was several quarters ago. In fact, I would submit that it is more aggressive today. Smaller banks are going up market. Larger banks are going down market and non-banks are playing at levels we haven't seen before. So, we're going to have to be at our best. So, frankly we've got great bankers with great businesses. I've got a lot of confidence in them that we can continue not just for bulk orders, but for the long-term to produce.

And with this asset-based lending fit into that, has that been as part of your growth in this?

Yeah, that's a great question. So, asset-based lending, as you know, we would not include in the leverage lending portfolio. But it’s something that’s very attractive. When we are out with the client, we want to be very active in providing a broad range of solutions including credit solutions. ABL has not been a growth area of this company. We have a new leader. We have a new team in a number of our producers and we have new alignments both on the line and in credit and we see it as a significant area of growth for us on a go-forward basis. One of the benefits of that is it's a very relationship-centric type extension of credit with treasury management and other products and services and it also tends to outperform when the cycle turns, which is complimentary to what Greg shared with us as the vision for our company.

Thank you. Tayfun, if I may, just one quick one. Tax rate, very low for fourth quarter, is that a sustainable longer term rate and if so, what are you doing to get that much loss you’ve seen of [ph] any of our banks?

So, I think we commented that there was a positive tax impact from a couple of lease terminations here this quarter. Look, in terms of the tax as a combination of the fact that we are using a different accounting for our low income housing investments and leasing business really is contributing as well. I gave you some guidance for the next quarter and beyond that I don’t think that there’s any other color on the tax rate.

Yeah, my thought was, is the next quarter’s tax rates sustainable level going forward or is that just good to be in an unusually low level for that quarter?

Let’s talk about next year - when we give the guidance for next year Vivek. The 23.5 to 24.5 for the next quarter right now is the only comment that I’ll make.

Okay, all right. Thanks.

Your next question comes from the line of Kevin Barker with Piper Jaffray Your line is open.

Good morning, could you just expand upon some of the declines that you’re seeing in your auto loan balances. I know you’re re-pricing your yields on that, but are you moving into a more riskier credit or a less riskier credit, given that the yields are moving higher in that portfolio?

That is more about our approach heading into the year to trend back production in some of the lower spread, lower yielding asset classes. So for us last year we originated close to 5 billion, this year our expectation is, we’d be in the $3.4 billion range in terms of auto originations. But the credit profile this year - the average FICO was 746 year-to-date where 56% used, 45% new and that’s consistent with ‘15 levels, so it was 69 month average term and obviously the rations are much shorter than that and advance rate LTB is in the 91% range this year. So it’s pretty much the same old [ph] that we’ve had versus prior years. It’s more a function of trimming volume and focusing on getting better pricing.

So when you refer to better risk adjusted pricing, you’re just saying it’s not worth it to take market share in this type of market, is that fair?

Absolutely right.

Okay and then are you seeing the competitive pressures being stronger in the higher FICO scores or in the lower FICO scores?

I think the competitive pressures are about the same, I mean everybody is sort of focusing on this broad spectrum of origination and some even lower FICO bans than we are.

Okay, thank you for taking my questions.

There are no further questions at this time.

Okay, thank you Shelby and thank you all for your interest in Fifth Third Bank. If you have any follow up questions, please contact the Investor Relations department and we’ll be happy to assist you.