Good morning and welcome to KeyCorp's Third Quarter 2017 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to the Chairman and CEO, Beth Mooney. Please go ahead.

Thank you, Operator. Good morning and welcome to KeyCorp's third quarter 2017 earnings conference call. In the room with me are Don Kimble, our Chief Financial Officer; Chris Gorman, President of Banking; and Bill Hartmann, our Chief Risk Officer. Slide 2 is our statement on forward-looking disclosure and non-GAAP financial measures. It covers our presentation materials and comments as well as the question-and-answer segment of our call. I am now moving to Slide 3. This morning, we announced third quarter earnings of $0.32 per share or an adjusted $0.35 per share excluding merger-related charges and other notable items. My comments this morning will focus on the adjusted results which are comparable to prior periods. This was our seventh consecutive quarter of year-over-year positive operating leverage and a return on average tangible common equity was just over 13% which is consistent with our long-term target of 13% to 15%. Our results this quarter included a number of moving parts. Most notably a large commercial loan recovery that impacted our provision that was largely offset from lease residual losses in non-interest income. Don will walk you through these line items in his remarks. We were pleased that net interest income excluding purchase accounting accretion was up $27 million from last quarter with the core net interest margin increasing by 2 basis points. Average loans grew 0.4% linked-quarter driven by commercial and industrial loans which were up 2% unannualized. Our business model and middle market focus enabled us to continue to add clients and take share, which resulted in growth in both C&I loan balances and fee. Our total average loan growth this quarter reflects higher paydowns especially in September and relatively stable trends in our consumer portfolio. Commercial real estate balances were impacted by clients continuing to take advantage of attractive capital…

Thanks Beth. I am now on Slide 5. We reported third quarter net income from continuing operations of $0.32 per common share. This compares the $0.16 per share on a year ago period and $0.36 in the second quarter. Our results this quarter included a $0.03 impact from merger-related charges in an adjustment to the merchant services gain. Excluding merger-related charges and notable items, earnings per common share was $0.35 up 17% compared to the prior year and up 3% on a linked-quarter basis. As Beth mentioned earlier, excluding notable items our cash efficiency ratio remain below 60% and we had a return on tangible common equity up over 13%. I will also like to highlight a number of quarter specific items that impacted our results. First, we had a large C&I recovery which reduced our net charge-offs and resulted in a lower loan loss provision. In non-interest income, we also recognized impairment losses on some equipment leases most of which matured in 2018 and later as we thought it was prudent to reflect current market conditions. These two items were essentially offsetting and as such did not impact our core earnings for the quarter of $0.35 per share. Also professional fees were elevated due to several short-term initiatives and while our recent acquisitions of HelloWallet and Merchant Services will be accretive over time. They added $8 million of expense in the third quarter. I will cover many of the remaining items on this slide in rest of my presentation. So I will now turn to Slide 6. Total average loan balances of $87 billion were up $9 billion or 12% compared to the year ago quarter and up $312 million or 0.4% on annualized from the second quarter. Compared to the year ago period, average loan growth primarily reflects…

Thank you. [Operator Instructions] First from the line of Matt O'Connor with Deutsche Bank. Please go ahead.

Good morning.

Good morning.

Good morning.

I want to circle back to the cash efficiency ratio target. You're just below 60% this quarter on adjusted basis and that's in line with the year-to-date. As we think beyond the fourth quarter and you've got a couple of these deals that obviously are a drag on the efficiency ratio, you still got the $50 million sales coming in. Any early thoughts on what to expect in 2018?

Matt, we would expect to continue to drive the efficiency ratio down from here. As you highlighted, the most recent transactions are not helpful in that case, but we do believe that there are opportunities between the additional expenses savings that we have remaining of $50 million from First Niagara, which we expect to realize early in 2018. The additional revenue synergies that we'll be achieving from that acquisition and just the organic growth where we continue to drive positive operating leverage to help drive the efficiency ratio down in 2018.

And then just quickly on the purchase accounting accretion. I guess to take that $40 million for the fourth quarter and shrink that 10% per quarter for next year, and I guess you're getting the kind of 120 to 125 ranges for the full-year?

That makes sense in that range, yes.

Okay. Thank you very much.

Thank you.

Next we will go to Scott Siefers with Sandler O'Neill. Please go ahead.

Good morning, guys.

Good morning.

First one is just sort of a ticky-tack one on that PAA. I think the expectation before had been for a quest like $48 million a quarter for a while. It seems like a fairly large change in the expectation, just curious what drove that change and thinking there?

I think as far as the future expectation, we expected that purchase accounting accretion will continue to wind down year after year and continue to get to the point five, four years from now. It would not be adding any benefit at all. I would say that the current quarter came in lower than our expectations as far as that $48 million number because the purchase accounting benefit from the prepayments came in lower than what we would have expected. And so that's the only difference from that perspective and just our outlook will continue to reflect that as our new start point.

Okay. And then Don, when you've given the margin guidance, I think you used that core including the PAAs would be stable. Was that they reported margin you expect to be stable in the fourth quarter or the core the way we would think about it without the PAA?

What we had said in the script was the core without the PAA. That even with the PAA that still be in that same general ranges because when we say stable we say plus or minus a couple basis points and we would expect the purchase accounting to have that kind of or an offsetting impact.

Okay, perfect. I think I just miss heard that, so apologies. And then final question just on the - you got some puts and takes in the loan growth and then it looks like sort of the ongoing growth is pretty strong particularly in the commercial portfolio, but then we've got these kind of unexpected paydowns. I know it can be difficult, but to what extent do you have visibility into the paydowns or I guess more to the point to what extent have you incorporated such phenomenon continuing into the updated guidance.

In our updated guidance, we have assumed that the prepayments or paydown would be higher than typical. And that's why we're showing loan growth getting us to $87 billion to $87.5 billion for the fourth quarter. As far as our insights, we were a little surprised by the level of paydowns we saw in September, so I wish our crystal ball is a little clearer than what it is right now, but I would say that that came in higher than expectations and so we're - our updated guidance would reflect that we would see some continuation of some of those higher levels of paydowns.

Okay. All right, I appreciate the color. Thank you.

Thank you.

Next we will go to Ken Zerbe with Morgan Stanley. Please go ahead.

Great, thanks. I guess first question just in terms of the expenses - the expense guidance. I just want to make sure; I'm using kind of the right numbers here to get your $3.7 billion to $3.8 billion of total expenses. If I put instead of this similar numbers this quarter into fourth quarter, I get at the very high end of that range. Is that how you're thinking about it or is there - I did see those items that you mentioned in the HelloWallet and Merchant Services et cetera? Should we back out all those $20 million or whatever million dollars in fourth quarter, so the number would be $20 million or something million dollars lower than where it is now. Any clarity would be helpful.

Good comment. As far as our outlook, we're not backing out any of the impact from HelloWallet or the impact of Cain Brothers, so those were included in the numbers. So you're right, if you would add in a similar number for this quarter and the impact of Cain Brothers, we would be at the higher end of that guidance range. I would say that an outlook for the fourth quarter would assume that the core expense levels and Cain Brothers would probably be a little bit below the third quarter level, but when you add in Cain Brothers it would be higher than the third quarter level of 956.

Got it. Understood. Okay. And then just a quick question in terms of going back to the loan balances, I guess that you are expecting the prepayments or the payoffs to continue at this level. But if I just look at like CRE on an average basis down a percent and a half construction is down a lot more, if the past due continue at this point like what point can you actually drive growth in those particular lines?

I would say one is, as we've been counting on and continuing to show growth in our C&I of book. I would say that CRE and our construction portfolio did good show decline this quarter. We would not expect that that level of decline to continue that we would expect to be more of an ongoing stable look to that portfolio in the future. That we have seen some decline, especially in the construction portfolio and would expect to see that continue to trend down a little bit.

All right. Great, thank you.

Thank you.

Next question is from Erika Najarian with Bank of America Merrill Lynch. Please go ahead.

Hi, good morning.

Good morning.

Good morning.

If I - fully appreciate the guidance on the efficiency ratio, but as you both know the conversation with investors sometimes always focuses a lot on dollar expenses. So, on the back of Ken's comments, as we think about some of the core growth that you expect for next year relative to the cost savings from First Niagara? Don, how do you expect that the quarterly trend line on absolute expenses to go sort of in the first half of next year versus the second half?

And we'll provide more clarity at the first quarter calls or 2018 outlook. But I would say generally that we would see the remaining $50 million realized in that first part of 2018. Also think about as our revenue synergies would be realized. We've said that that would be $300 million over the next two to three years. We'll also have expense added to tune of about $100 million to support that $300 million in growth. And so we would see that kind of proportionate throughout the next few years to grow to that level of additional revenue levels. I would I expect core expenses, absent those kind of trends and adjusted for these recent acquisitions would be relatively stable, what we've tried to do is continuing to drive the positive operating leverage by achieving cost savings to help offset some of the expense increases and allow those an investment to drive the revenue growth, which generates positive operating leverage.

Got it, and this next question is for Beth. Beth, as you recall there was a lot of consternation in the last quarter's call about some comments that may have been misconstrued on your part about your strategy and I'm wondering if you could - back with this big audience in front of you, you could give us a sense of how you're thinking about capital management for 2018 and 2019 for Key? And I'm asking that purposely in an open ended way.

Yes, and I appreciate the opportunity to be clear on point. As we look at Capital Management for 2018 and beyond, I think our priorities are very clear. First and foremost, our ability to use our capital to support our organic growth is our top priority. The ability to continue the dividend increases that have been outlined in our capital submission and was expected continue as we summit next year CCAR as we talked about migrating our dividend payout more - 50% range as a priority and then to continue to repurchase our share to be extent they are attractive for our shareholders and return of capital to our shareholders. From there strategically our priority would not be M&A. That is not a priority and yet on that front, we do not yet feel like we are fully complete realizing the value of First Niagara for our shareholders. So first and foremost, we believe and credibly important that we complete the job there and make sure that our shareholders realize the full benefit. And then to the extent, we have done investment, the people product in capability. Those are things that we continue to look to enhance our relationship strategy as well as our capabilities for our customers. Cain Brothers would be a recent example of that and within the second quarter HelloWallet and the purchasing our Merchant Services business would be examples of other areas where we feel like investment support our strategy and enhance our growth.

Great, thank you.

Our next question is from Peter Winter with Wedbush Securities. Please go ahead.

Good morning.

Good morning.

If I could just follow-up on Erika's question about the expense that that $100 million in expenses added to support the revenue synergies, would you expect the revenue synergies to come through in 2018 and be above that or is there some type of delay?

I would say as far as our revenue synergies, it's a total of $300 million a year, net building proportionally throughout 2018 and 2019 and intend to 2020 a little bit. And we would expect the incremental expenses to be proportionate to that revenue realization. So we don't think there will be any further early build out of those expenses and so we would expect to see that net benefit continue to build throughout the next two to three year time period.

Okay and just a quick follow-up. You added $19 million to the reserves this quarter, which it looks like - it mostly went in for the acquired loans. Is that a new pace that we should expect going forward?

Yes, the $19 million included both the allowance and the reserve for unfunded loan commitments. The $22 million for the - newly acquired loans was a little bit higher this quarter. I don't know that I would signal that's a new pace for us as far as having provision exceed charge-offs by $20 million that we do expect to continue to build that allowance at about a 1 basis point per quarter. So you will see some increased provision to account for that.

Thank you.

Next we'll go to Saul Martinez with UBS. Please go ahead.

Hi, good morning. Appreciate the commentary on the revenue synergies and the benefits you get there. But can you just talk a little bit more about how that's progressing and it does seem like it is something that it does take time free to penetrate and really extract value from those clients. But can you talk a little bit about what you're doing there and how you see that $200 million net run rate playing out and start to filter through the results over time?

Hi, Saul. It's Chris Gorman. Good morning. It's really a few areas where we're principally focused and those areas are - and I'm going to come back to residential mortgage in a minute, it's residential mortgage payments that made a couple of comments about the trajectory of our repayments business where we have a pretty broad portfolio that we're doing a pretty good job penetrating. Next is private banking. If you look at the legacy First Niagara footprint, there is a lot of wealth in that footprint and our key private banking business can do a good job and we think of penetrating that. Next we've got a lot of activity in the commercial banking capital markets area. It's kind of fun for me as I'm out in the market calling with people, you really can't differentiate kind of the way we're going to market in the new areas in the legacy area. So I think we're making really a lot of progress there. And then lastly and importantly, I mentioned residential mortgage that's a business that First Niagara had that's a business that we - Key didn't have in that we're building and we think it's a significant opportunity. If we just get our fair share of the 3 million clients, we have that are taking out residential mortgages. We think that can be a pretty significant growth business and on that point we've added - if you look at our MLO count just in the last quarter, we've added 20% for that sales force. So that gives you maybe a little bit of the flavor of kind of where we're focused.

That's helpful and in terms of when we actually start to show up in the results of this? This sounds like it's a long-term process. You guys have talked about it being a multi-year kind of framework and there's a lot of blocking and tackling obviously. But is this a 2018? Is this a 2019 story? How should we think about what you just said in terms of it actually filtering through in resulted and in topline momentum?

I would think that you start to see that build in 2018. As Chris said, we've been building out that residential mortgage business and we'll start to see the benefits there. We're already - seeing some of the benefits start to show some sprouts as far as the payment business and the capital markets related activities. And so those will continue to build those annuities doing for us going forward and start to pickup in 2018.

That's helpful. If I could change gears a little bit on and ask about capital. Your CET1 is now above 10%. I think you correct me if I'm wrong. You guys have talked about biggest 9% and 9.5% is an optimal CET1 ratio. Any updated thoughts on capital, it seems like you have a lot of room to rationalize capital and if you could just comment also in relation to that how many changes in SIFI threshold would think about would influence your thinking there?

Sure. And you're right. We talked about our long-term target for that CET1 to be in that 9% to 9.5% range. Past year CCAR submission reflected the impact of our acquisition which has some punitive impact to it as far as how the math works, and so our expectation is that we should - that highlight would be able to continue to step up that dividend and have share repurchases to help manage that capital levels down toward that 9% to 9.5% targeted range. And so we're optimistic that we can take those steps here in the next CCAR submission. To your point as far as the SIFI designation and what type of benefit that might have. Last year, we started to see a little bit of relaxing of some of the payout levels and before we had constraints as far as the payouts couldn't exceed a 100% of total earnings, and so we think that if that SIFI designation would change that could even loosen those restrictions even further. But our objective continues to have a strong level of capital and we believe in that 9% to 9.5% range that would position us very well respectively.

That's helpful. Thank you very much.

Our next question is from Gerard Cassidy with RBC. Please go ahead.

Thank you. Good morning, guys.

Good morning.

Don can you share with us and looking at your earning asset yields particularly in the commercial loan portfolio, you see that they dropped from about 4.34 in the second quarter of 2017 to 4.11 in particular, the construction loans really dropped as well as commercial real estate. What are you guys seeing in that market for the yields to come down like that?

Gerard unfortunately what you're seeing in there really is some noise related to that purchase accounting true up that we had in the second quarter. And that was about $42 million most of which hit those categories that you talked about. And so if you would adjust for that, our commercial loan yields were up 15 basis points linked quarter, which reflects the impact of the increased LIBOR for the quarter. And so we're seeing on a core basis, it just makes it more difficult for you all to see it on a reported basis.

And do you guys find that the underwriting standards are being maintained in those lines of businesses or are you seeing something changes there by chance?

Gerard, it's Chris. So as you think about - specifically since your question was about real estate, what you're seeing is sort of what you would expect at this point in the cycle, so I don't think the underwriting standards are changing dramatically. I will say though with the capital markets being as wide open as they are what you're seeing is that our customers have a lot more opportunity to look at taking 10-year no recourse, 10-year paper, and I'm thinking of Fannie, Freddie, FHA/HUD, the Life company's, CMBS market has been open. So clearly there are opportunities for our customers, but in terms of what people are putting on their balance sheet, we haven't seen a huge change.

Very good. And then Chris speaking of just real estate, the investment banking and debt placement fee line, obviously $141 million good number. Can you break it out between the debt placement fees and pure investment banking? And then second is as part of that - are you able to capture any business from the First Niagara customers in the quarter?

So in terms of the breakout, Gerard we've never provided a breakout by product with respect to that number. So that number that has a trailing 12 run rate of about $550 million, it's obviously - it's a big business for us. We've grown it each of the last several years. We anticipate continuing to grow it this year. As it relates specifically to some penetration into First Niagara, we have had some successes which really gives us frankly a lot of comfort. One of the areas of success is in commercial mortgage. So far we placed about $300 million of commercial mortgages things that were on our books that first and foremost serve the client better because it's a better deal for the clients. We make a fee; we de-risk our balance sheet, so that's one area. We've also had some wins in terms of things like straight up financial advisory type work which is pretty early to already have been engaged in complete those. So we feel pretty good about that trajectory.

Great. Thank you, guys.

Thank you.

Thank you, Gerard.

Next we will go to Kevin Reevey with D.A. Davidson. Please go ahead.

Yes, good morning. I was wondering maybe Don, I know the auto loan book is a small percentage of your overall loans, but a key focus of investors' attention, if you can kind of give us some color as to how the credit in that book perform this quarter versus last quarter?

I would say that credit continues to be very strong there and no deterioration in that portfolio. Keep in mind that we focused on issuing super prime paper, so it's a 760 FICO score on average. So we're very pleased with the performance and we believe that we continue to be positioned well for that business.

And then Don, I just wanted to kind of understand the moving parts on your earlier discussion on the NIM. You'd mentioned something about the investment securities rolling off and did you say you expect to see 50 to 60 basis points increase in yield, so that should offset some of the runoff in the loan accretion as well as the increased deposit cost. So I just want to kind of understand the moving parts?

Sure. As far as the investment portfolio, we have about a $1.4 billion cash flow as a quarter coming off that portfolio. For the fourth quarter, we would expect to see about a 50 basis point pick up on that $1.4 billion compared to the run off of that portion of the portfolio and so that will be an add-in that, so we get back to the gains as far as a relatively stable core NIM for the quarter.

Great. Thank you. That's helpful.

Thank you.

Next we will go to Marty Mosby with Vining Sparks. Please go ahead.

Thanks. There's two things that really were kind of off track in a sense kind of kept me from doing a little bit better this quarter. And one of those was like you said the PAA as you had all these paydowns in September those paydowns should have really led to higher purchase accounting accretion. So what was the disconnect, I mean I think you mentioned earlier kind of off the huff that you were surprised that it didn't work. When you looked at it, what was the reason that it didn't work this quarter?

I would say that the paydowns that we saw throughout the quarter that put pressure on our loan portfolio didn't necessarily correspond to the same type of benefit we would've seen for some categories that had a higher purchase accounting discount recorded at the time of the acquisition. And so those higher credit discount portfolios didn't deteriorated as much this quarter as what they had in previous quarters. And so it was really more of a mix of those paydowns as opposed to the absolute level of paydowns to cause that balance come down at a slower pace.

That makes sense. Maybe the better barrowers were able to do that versus credit impaired borrowers. The other thing I was looking at is while your investment banking and debt placement moved up sequentially and was at a higher level. It still was down from last year, and I was just curious if you thought that possibly any of the disruptions that we saw across the country with hurricanes and everything else that was going on, does that somehow possibly delay some of the transactions just because of the business destructions that were going on out there at the back end of the quarter?

Marty, it's Chris. We don't specifically think that the hurricanes and some of the other disruptions had a material impact. A lot of these transactions have a pretty long lead time, and exactly when they happen is a whole to influence of things, but I don't think the weather per se had an impact on the timing of these deals. Having said that, we do feel good about where the pipeline is.

And Marty, I would add that if you look at 2016 the first half of the year that markets were depressed and not functioning well, so our levels of investment banking and debt placement fess were not consistent with the level of performance we would have expected. In the third quarter last year is the quarter where you really saw the markets open up and a lot of the pipeline flow through, so third quarter last year was actually a record year and reflects those pent-up demands coming out of the slow first half.

Thanks.

Next question is from John Pancari with Evercore ISI. Please go ahead.

Good morning. Thanks for taking my questions. On the loan demand side, just want to talk about the front end a little bit. I know you've been talking about in terms of loan growth the impact of the paydowns and everything, but in terms of the front end that you sounded a little bit more constructive in your commentary around the pipeline. So why don't you give us a little more color around where you're seeing the strengthening of pipeline and also a little bit around line utilization? Thanks.

John, its Chris Gorman. A couple things, as we look forward into the fourth quarter, the pipelines are strong and there's a few things really working in our advantage there. The first is that we have a leasing business that typically is a fourth quarter business. Second thing is just our business flows continue to be good. Even areas like real estate where we didn't grow loans, we're clearly growing the business. So we have really good for us, as it relates specifically the utilization, pretty flat. So if you go back a year, you go back a quarter right around that is the utilization has been flat. So that is potential upside if people feel the impetus to sort of go along on inventory, which heretofore we haven't seen.

Okay. And then in terms of the borrower sentiment are you still seeing the number of borrowers apprehensive to drawdown online to mid the uncertainty in Washington?

No, I think sentiment has remained sort of as it's been. I would describe it as cautiously optimistic. We're out talking to our clients all the time. But one of the interesting things that we've seen in places as diverse as say, Elkhart, Indiana and Boise, Idaho is all the sudden - it seems like unskilled labor is a little bit tight. It seems like the cost of building materials are starting to increase. So I would hold those out as sort of a little bit of a sort of green shoots as you think about people getting back to being a little bit more aggressive. But what we're seeing in general is sort of a continuation of what we've seen, which is that our clients are doing well, but they're cautiously optimistic.

And John I would add that there is dialog that relates around physical policy particularly related to tax reform and I do think that there is some tendency at this point here to way to see what that in uncertainty translate into an - with the more constructive tax environment. I do think there is some level of demand that might come for.

Okay, thanks Beth. And then on the comp expense, the 3% or 2.5% pickup their own linked quarter basis, how much of that was - I'd be related to relate to the performance in the investment bank and then one of the drivers impacted that? Thanks.

Sure, as far as the investment bank, we tend to see about a 30% correlation between the revenues changes and the comp expense that related investment banking debt placement fees. And so that's been fairly consistent over the last couple of years. One of the drivers this quarter as far as total personal cost, this is a - do we see seasonal increases in our healthcare and medical costs and that also drives an increase on a linked quarter basis around $5 million or so.

Okay and then one more from me. The Cain $20 million in revenue and expenses, do you expect in the fourth quarter? How does that trend further out the expense level pare back a bit or how we think about the profitability of the acquirement?

We do see a strong contribution coming from Cain. I would say the expenses do come down a little bit and we see a lot of revenue synergies opportunities for us as well as there a great with our world banking franchise. And you add that, Chris?

No, I would just say that as an enterprise, we have about $10 billion of exposure in places like hospital, seniors housing, skilled nursing. Cain is an organization that we have been keenly interested in for some time. So we're adding about 100 people, 25 senior bankers that have very, very good relationships that tie in really well with the business that we built. So the first test we always have when we're looking at any acquisition like this is can we integrate it into our core business and if you think about the offerings that we have in terms of debt payments, equity, we think Cain will be a great fit.

Great, thank you.

Thank you.

Our next question is from Mike Mayo with Wells Fargo Securities. Please go ahead.

Hi, there are a lot of in and out here. Where is your guidance by line and a little bit worse where is it better? That you look ahead, I think you said you expect that our efficiency next year, but there are some other in and out I might have missed?

Yes, as far as our guidance for outlook the one piece that we did change was the loans and so we do see those at a lower level for the fourth quarter than we previously expected and it came in a little light on the third quarter compared our expectations, and so that's the primary driver. As a result of that, we're seeing a little less net interest income, but we've still kept that in the overall guidance range that we established at the beginning of the year. We've also seeing purchasing accounting accretion come in a little lower than what we had previously expected and so we think that is - there is an area of challenge from that perspective. The opportunities we continue to see strong fee income growth and we think we're well positioned for the capital markets, space to be strong again in the fourth quarter and we think fee income is growing at a pace. That's an in line to better than where we had been position before. And I'd say as far as the expense guidance that the only adjustment we've made there really is reflect Cain Brothers that wasn't previously in our guidance and even with that we're still in the range that we could previously provide. So I don't know that has changed materially as well and so I think it's just the three pieces that really have moved a little bit.

Got it and maybe this is too simplistic, but I think a KeyCorp with the capital markets being able to capture more disintermediation from the traditional bank lending, in other words, the paydown on the loans borrowers accessing the capital markets more - you've seen more of those revenues there?

Mike, its Chris. We agree that we think the model that we've built is first and foremost well suited to our clients to be able to access whatever the most advantageous capital was. And so to the extent that there are pockets of pretty the markets are wide open in their pockets of opportunity out there, we think we're well positioned to serve our clients and continue to grow our business. It might in any given quarter, not be on the loans, on our balance sheet line. But we can continue to grow our business.

All right, thank you.

Thank you.

Our next question is from Steve Moss with FBR. Please go ahead.

Hey, guys. It's actually Kyle Peterson on for Steve today. Wondering you guys could talk a little bit more on the capital front, so you guys got the nice boost to CET1 this quarter kind of the methodology reclassification. Moving forward I guess is there a particular in terms of combined payout is there a kind of level or propound you guys are looking at in future cycles or is it more about managing that dividend payout ratio where you want and try to get CET1 more to that 9% and 9.5% range?

I guess more of the latter that we do believe we want to see our dividend continue to step up and get into that payout range of 50% and then we will adjust the other capital actions, share buybacks to help manage that capital level down to that target range over time and so that's where we think there should be a nice step up for us in future CCAR periods to be able to reflect those.

Okay, and then I guess a little bit more on the paydowns, I think if I heard commentary correctly and it's looking the numbers. It looks like there were total - is it fair to say they were total a little more toward CRE and construction over C&I and are those trends kind of continuing so far early in the fourth quarter?

The paydowns, you're right, probably had a disproportionate impact on the commercial real estate portion and construction. We would expect construction continue to wind down a little bit from the current levels and so we would expect that we also expect paydowns to continue to be an elevated level here in the fourth quarter. But longer-term, we do think that there's opportunity to show more stability and maybe down the road a little bit of growth there in the commercial real estate portion of the portfolio and that continue to see that line down.

All right, great. That's all from me. Thanks.

Thank you.

And next go to Steven Alexopoulos with JPMorgan. Please go ahead.

Hey, good morning everybody.

Good morning.

Good morning.

I wanted to follow-up on John's earlier question. I'm trying to better understand why you're not seeing the slowdown in C&I that many of your peers are seeing. It is just finding your markets more resilient, are you doing a better job of taking market share? Is there a particular market driving growth? Thanks.

I think as we step back and look at it, as you know we've always been strong in C&I. So we have a real business built around continuing to go out and as we look at it, it's really share capture because it's not as though we're holding any more of the credits that we're underwriting. So we really attribute that 2% linked quarter on annualized growth to really fortunate enough to be out there and be able to win in the marketplace.

One thing I'd like to add to that as well is that historically we rely more on the Corporate Bank as far as generating the C&I growth and I say over the last year and half to two years, we've seen the Community Bank portion of the commercial lending activity also be additive and that's been a real help for us and so we have the entire organization helping to drive that as opposed to just one portion of it.

And is the growth broad-based or is there one market they would point to really be heated the story here?

It's really broad-based, as Don mentioned in our Community Bank going to places, last week I was in Salt Lake, I was in Boise, we're getting really good growth across the board and a lot of that is C&I and that's the business of course that just last quarter had double-digit growth. So it's really broad-based.

And Steve I would just add to that also part of it if you think about it that we talked about last quarter and it continues into this quarter is that the First Niagara bankers in the new and overlap markets are starting to also contribute the first couple quarters or perhaps more focused on transitioning their relationship books and they are now also starting to see growth, which is gratifying.

Helpful, maybe just one final one Don, sorry if I missed this, the new purchase accounting guidance going down 10% quarter-over-quarter in 2018. I think you were originally said you expected 2019 to decline around 20%. How should we think about that? Should we decline 20% of that new level for 2018?

First of all, it goes a lot longer than mind - but I would say just continue to assume that 10% decline per quarter to continue for the foreseeable future be a good estimate at this point in time.

Perfect, thanks for all the color.

Thank you.

Thanks Steve. End of Q&A

And with that, no further questions. Ms. Mooney, I'll turn it back to you.

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