Fifth Third Bancorp (FITBI) 2016 Q3 法說會逐字稿

Good morning, my name is Shelby and I will be your conference operator. At this time I would like to welcome everyone to the Fifth Third Bank third-quarter 2016 earnings conference call. (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 will 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 have 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 to 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 during 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 Relations section of our corporate website, www.53.com.

This morning I am joined 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 for 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 $501 million and earnings per diluted share of $0.65. During the quarter some notable items resulted in a net positive $0.22 impact to reported earnings per share, Tayfun will provide further details in his opening comments.

During the quarter we continued to focus on our North Star initiative. Our Q3 results provided further evidence of the progress we are 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 2016. During the quarter credit quality remained stable with a decrease in both nonperforming loans and criticized asset levels for the second quarter in a row. The slight elevation in our charge-offs primarily reflects quarterly volatility from the low levels we have been experiencing. We expect the benign credit environment to continue for the foreseeable future.

Reduction metrics continue to be strong with mortgage volume of $2.9 billion, up 7% sequentially and up 27% from last year. Q3 volume represented the highest level of quarterly 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 are up 23% on a year-to-date basis.

Our overall commercial loan balances reflect the softer loan demand which persisted during the quarter. Regardless of the environment we will continue to focus on relationships that meet our return objectives. We are also investing in developing new origination channels.

For example, during the quarter we announced our strategic alliance with GreenSky. Our investment in and partnership with GreenSky will help us to efficiently generate additional consumer loan volumes while allowing us to leverage their technology platform and 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 the limited support from the broader economic environment we need to maintain a strong focus on expense management.

Through ongoing reviews across business and staff functions we have already taken significant steps to reduce our expense base. We completed the sale and consolidation of 108 branches this year which is expected to drive approximately $60 million in annualized cost savings.

Last month we announced plans to sell and consolidate an additional 42 bank branches which should generated 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 run rate expense savings of $72 million annually.

With rapid changes in technology and customer behavior we will continue to implement our omnichannel strategy. We believe this will allow us to further optimize our branch network to best serve the needs of our customers.

We are also making the necessary technology investments to enhance our digital and operational capabilities. Our investments in the digital channel are paying off. In the third quarter approximately 20% of consumer deposits were made using our mobile app compared to 16% a year ago. Overall we have seen a 25% increase in mobile usage year over year.

We have also seen a 150% increase year-over-year in checking and savings accounts opened online. We expect to continue making investments to drive higher digital adoption and create a more integrated customer experience while creating efficiencies for Fifth Third.

To optimize workspace utilization we are evaluating non-branch facilities for additional efficiencies. During the quarter we sold one of our Michigan facilities which generated an $11 million pretax gain. We are working on similar opportunities to reduce the expense run rate while improving the overall work environment for our employees.

We also renegotiated 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 are taking should help us achieve positive operating leverage in 2017.

Although near-term expense management is at the top of our priority list, we are also maintaining a long-term perspective on our strategic plans. During the third quarter we formally launched project North Star to align 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, fee revenue enhancement opportunities and balance sheet optimization in order to achieve our ROTCE targets. Assuming the current operating environment persists, we would expect to achieve a 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 are already making in our base run rate.

These initiatives will leverage our strength in middle market lending, industry verticals and specialty lending areas in our commercial business. And 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. Initiatives such as our commercial end-to-end process redesign project will help generate additional efficiencies while improving the overall customer experience. We intend to achieve these targets without changing our risk appetite or our ongoing discipline in 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 115%, 25% above the current requirement. As previously disclosed, the Federal Reserve did not object 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 are making toward our targets under 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 financial summary on page 4 of the presentation. As Gregg 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 a $280 million pretax gain from the termination and settlement of certain Vantiv TRA gross cash flows and the expected obligation to terminate and settle 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 our robust second quarter, as we had previously indicated.

Expenses continue 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 continue to reposition and optimize the portfolio into a more attractive risk/return profile that we believe will be more resilient in an economic downturn. Our C&I yield 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 balances. As we discussed before, in construction as well as in perm lending our teams are cognizant of valuations and supply/demand dynamics created by the lack of attractive investment alternatives. Our disciplined client selection and credit underwriting in CRE will continue to rely on stringent standards.

Average consumer loans decreased $78 million from last quarter and were 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, ARMs as well as certain 10- and 15-year fixed-rate mortgages on our balance sheet during the quarter. Our residential mortgage originations were up 7% from last quarter and 27% year over year.

During the quarter our origination mix was split roughly in half between purchase and refinance volumes. About 70% of the originations came from the retail and direct channels and the remainder were originated through the correspondant 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 deposit balances 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 is 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 one-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 that we forecasted in July. The positive impact of higher yielding investments and an increase in one-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 point 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 third-quarter 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 with the low environment -- low 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 outperformance should not imply that we have outsized exposure to a decline in 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 point 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 lower than the third quarter but 5% to 10% above last year's fourth quarter.

Corporate banking fees of $111 million were seasonably 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. Fees 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 the relationship driven model that we are 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 a 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 2017 -- 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 the 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 perspectives.

As you may recall, our prior guidance for 2016 called for 5% annual adjusted fee growth off a base of $2.3 billion for 2015. This base excluded impacts from 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 impact from the branch sales and consolidations we continue to expect annual fee growth or 5% growth for the full year.

Next I would like to discuss non-interest 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 for 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 a $22 million increase in C&I net charge-offs.

Total nonperforming loans, excluding loans held for sale, were $586 million, down $107 million or 15% from the previous quarter resulting in an NPL ratio of 63 basis points. Commercial NPLs decreased $94 million or 17% from the second quarter. In addition, our criticized assets have steadily improved over the last four quarters and our criticized asset ratio is now at the lowest point since the third quarter of 2007.

The strength in the key credit metrics indicates continued overall stability, but given the absolute low levels there may be volatility in some periods periodically. Our provision was $11 million lower than the last quarter partially driven by improving nonperforming loan and criticized asset levels.

Our resulting reserve coverage as a percent of loans and leases decreased 1 basis point to 1.37% but was up 2 basis points from last year. Our previous guidance that net 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 in the 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 we expect to improve independently compared to our more recent performance.

The priorities embedded within the North Star project are an intense focus on expense management, smart balance sheet management and capital efficiency and revenue growth initiatives in high return businesses. These expectations include higher than historical growth in personal lending including credit cards, expansion of our middle market and vertical businesses in 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 costs and other operational expense savings in workspace management, legal work and savings related to a more efficient data infrastructure and end-to-end process redesign.

This quarter we are working or 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 preference. 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 yourself 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). Jill Shea, Credit Suisse.

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 of the slowness is related to the environment and softness in demand? And how much is actually related to deliberate pulling back in terms of relationships or industries?

Jill, this is Lars. Just a few comments there. First of all what we are hearing from clients -- they continue to be cautious, are reticent about making significant investments. I figured you have seen some of that play out in the lower M&A activity that we have seen as we headed further into the year. That uncertainty also revolves around questions of the political, what is going on with China, Brexit, the EU type issues.

So those is certainly [coloring] some of the investments that we are seeing. We did clearly see 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 have got some geographies, some markets that are performing very well -- I would expect that we would continue to see loan growth at a good stable rate on a go-forward basis.

We have got a great business model, one that clearly is being well received in the marketplace. Our advisory based relationship model is one that is embraced and we are seeing that reflected in deeper client relationships that is helping us to drive fee income.

Great, thanks. That is 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 expectation of keeping that margin stable sequentially as we move forward? And maybe just the puts and takes there.

Yes, I think we obviously were happy to see a stable margin. A good amount of that is due to what just -- Lars just talked about, disciplined pricing on the commercial side. We actually, as I mentioned, have 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 too. Jamie, anything else you want to add to the margin side?

Yes, 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 1 basis point of improvement. And then the investment portfolio discount accretion was another 2 basis points on top of that. And then that was offset by the day count impact of negative 1 basis point and the debt funding impacts of negative 2 basis points.

So what 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 loan yield expansion that we have seen every quarter this year we expect to continue into the fourth quarter. And that for us is driven by C&I and auto yields, they both increased 3 basis points in the third quarter.

And then the one anomaly from the third quarter would be the investment portfolio had tremendous performance in the third quarter with the discount accretion. You saw that is how we are obviously pleased with how we are positioned on the portfolio, but that should normalize in the fourth quarter just given the faster speeds in the third quarter than what we were expecting in the fourth quarter.

So that will be a little bit of a headwind for us in the fourth quarter, but I think the loan yields and the other actions we have taken should generate either a stable NIM or perhaps down a basis point. And that assumes there is no Fed increase in the fourth quarter.

Jill, and if I could just tag on, this has been a very deliberate strategy over the past year as we focused on balance sheet management and redeploying our capital into businesses 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 is 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 refinancings that we had this year, 2017 is a relatively lighter year. So that also would be supportive of that stable outlook for 2017.

Okay, great. Thank you so much.

Erika Najarian, Bank of America.

So I just needed 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 has 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 growth could pick up.

Thanks for the question, Erika, this is Greg. First off, we have done a lot of heavy lifting over the last year plus really exiting out of all those sectors and focusing on profitability whether it be commodities, term loan B, leveraged loans. We basically have pushed out close to almost $2 billion over the last year.

So a lot of that is going to abate as we go into 2017, 2018. A lot of the heavy lifting is going to be done, it has been done this year. So what you can think about next year as we are looking at the forward forecast, we expect commercial loan growth to be close to nominal on GDP, maybe slightly north of that.

On consumer, given some of our focus on indirect auto and bringing down the originations there we would expect that to be flat to slightly up next year. They will be focused on other opportunities such as mortgage and unsecured lending, as Tayfun mentioned in his opening comments. I don't know if you wanted to add anything to that, Lars?

Yes, we will be finalizing this outlook obviously a bit firmer in January. Don't take this as a guidance for 2017, but the trends that Greg mentioned certainly are [intact].

Yes, I would just emphasize 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 in alignment with our relationship banking strategy.

And I would tell you one of the compliments to this is as we build out businesses such as the verticals where we are delivering specialized industry expertise, it is also helping us to feed our capital market business and drive that at rates that are far beyond the expansion of what has been pretty much a flat industry. We have been growing our capital markets in the 14%, 15% rate.

And the other comment 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 sort of capital returns and other balance sheet targets, 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 on your securities yield. Could you explain further what exactly it means to have -- I'm just looking back at my notes -- 48% of your investment portfolio in lockout or bullet securities as we think about in a static environment for the yield curve why that is not going to pressure to the yields further?

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

Yes, what is important about it, Erika, is that in one of the changes we actually made in the disclosure this quarter was that when you have 48% of the portfolio, or last quarter it was 51%, we actually updated that disclosure to reflect a 24-month time horizon, whereas prior times we've discussed that we just looked out at 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 in updating the disclosure was to say over the next 24 months about half our portfolio we will not have cash flows returned to us. And we have talked every quarter about whether we were or were 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 the cash flows from the portfolio.

But the total level of cash flows that come off the portfolio are a pretty low level as a percent of our book relative to our peers. And that is 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.

And the bullet and locked out cash flow play that we have been running for over two years and talking to you about that really benefits in the environment that we are seeing today and that is why we are very pleased with how we are positioned.

We are obviously over a long-term time horizon going to be subject to market yields. And next year that will be about a 2 basis point NIM impact if rates were to stay where they were today. But overall this is just not a big risk for Fifth Third given how we have positioned the portfolio.

And then we have seen it in the third quarter with respect to how discount accretion played against premium amortization, that was deliberately done. We positioned the portfolio for potentially higher prepayment. So I think all in all we are pretty pleased with where the portfolio stands.

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

Christopher Marinac, FIG Partners.

I wanted to delve into the GreenSky relationship. And I was curious, we will see balances in the first quarter from that? And also how many quarters in the future until the technology is beginning to be implemented system-wide?

First, Christopher, we are on boarding asset as we speak and we are very pleased with the initial pilot phase that we are in right now. The average FICO that we're (inaudible) right now is about 750. So we are on boarding assets as we speak. We have targeted roughly $90 million to $100 million a quarter is what our forward-looking expectations are for asset generation of GreenSky.

On the technology front we are going to focus on two phases. First phase is our digital adoption, deploying it through our digital channels or our mobile Web-based applications. That will start to roll out second quarter next year is what we are targeting for right now. And then after that we will focus on the branch adoption of the technology which will probably be later 2017, early 2018.

Sounds great, Greg. Thank you.

Matt Burnell, Wells Fargo Securities.

Tayfun, 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 6 basis points from the fourth quarter -- sorry, for the first quarter 2016 after the hike in the fourth quarter. And I am 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 are thinking about margin through the course of the year since this year the margin sort of worked its way back down after the initial benefit in the first quarter.

Yes, Matt, this is Jamie, I will take that one. The benefit to us if the Fed were to move in the second week of December is about 1 basis point to margin benefit. And that is what we saw in the fourth quarter of 2015 with that move. When you dissect the margin transition from 4Q 2015 to 1Q 2016 we were up 6 bps, 8 of that actually was driven by the Fed move.

So our view on a December 2016 move if it were to happen is probably going to be slightly less beneficial than the 8 basis points that we saw last year just given the deposit rates may be a little more competitive on the second move and each prospective move. So I think on the high side it would be 8, we are looking at this more in the 6 range. But, yes, we are positioned that it would be very beneficial to us.

And then as Tayfun said, part of the change that occurred from 4Q 2015 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 the next year we are at $1.2 billion of maturities. That was really the biggest influence on the margin compression this year, but that obviously would not repeat and therefore you would expect some stability to grow from the NIM going forward if the Fed were to be raising rates.

Okay, that is 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 relatively flat as 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. 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 plan in the treasury management business and the expansion of our relationships we would expect to get back on a growth pattern in commercial deposits.

Thank you, Tayfun.

Matt O'Connor, Deutsche Bank.

Can you talk a bit about the underlying expense growth as we think about exiting this year into next, obviously 2016 was a big year on the technology (multiple speakers) the compliance spend. Has that peaked and just what are some of the puts and takes and any comments on overall expense growth as you think about next year?

I will make a few comments and I will turn it over to Tayfun. First off, we are fully committed and we expect to have positive operating leverage as we go into 2017. So that is the number one objective.

We will continue to stay focused on expenses. As I mentioned in prior discussions, 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 the current levels we are seeing today in 2016, so we expect that to improve.

In addition to that, a lot -- as we mentioned before, on project North Star, as you think about project North Star, a third of the opportunity -- the 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 we have already taken and the actions that we have planned coming forward. So, Tayfun, if you want to put a little more color on that.

Yes. It is a bit too early to provide more detailed outlook on 2017, 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 or three quarters, or even going beyond that to late 2015, we expected and we did achieve a peak on our risk and compliance related headcount. 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 just separately a clarification question regarding next year. You had said I think the NIM percent was going to be stable. I just want to make sure it was the NIM percent versus net interest income dollars stable in a flat rate environment and what base is that off of. If it is a NIM percent if it off of the 2.89% that you expect for this year?

Yes, we are basically referring to the full-year NIM. And at this point, Matt, it is too early to give you an NII guidance for 2017.

Got it. Okay, thank you.

Ken Usdin, Jefferies.

Credit quality continues to be very good aside from the points you made about variability. Noticing the pretty sizable release this quarter and that you still have an upper [one threes] type of reserve ratio. With the move to also build 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 as underneath the surface and what you would be concerned about as far as any variability in other parts of the book?

Yes, so, I will ask Frank to also chime in and comment on the credit quality. Look, Ken, I think we have seen a very significant change in the underlying credit factors. 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 have taken over the past year or so.

Beyond that -- obviously they all contributed to where we ended up with the reserves. But you have to keep in mind the reserve coverage only went down by 1 basis point. And we have been watching our peer group over the last two or three quarters, we have seen more meaningful decreases in coverage from others and ours has been relatively stable. We are 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 we will reflect that in the provision. As we said, barring any significant environmental changes we would expect provision to move overall with loan growth and that probably is a statement that others have made. Frank, any color on sort of credit environment today?

Ken, excuse my laryngitis. The work we have done has really been deliberate over the last 18 months to reposition the portfolio. The result of that is we have got $0.5 billion less in criticized assets this quarter, a big number, very meaningful. We've taken about $1.4 billion 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 outstandings is $35 million, that is it, that is all we have left. We are essentially out of the coal business. Our real estate exposure relative to our peers is much lower and it is underwritten primarily to national and large regional developers we believe in a very, very prudent manner.

And our energy book, as we have talked about before, is 2% of our total book. We are looking at maybe $60 million to $80 million of losses in energy, that is over the next eight to nine quarters.

So we've taken very deliberate actions for the work we are doing correlated with Lars on the commercial side to reposition this balance sheet to ensure that as we move towards the next recession we are far better in control and in a far better position to be very successful in managing credit through the cycle.

And so all of these things I think are pretty self evident today. For nonaccrual loans -- again, we have talked about before, continued to come down quarter after quarter. We will see some lumpiness, like everybody does, but for the most part our outlook is very positive for 2017 relative to credit based on all the different things and the actions we have taken very deliberately with a lot of discipline over the last 18 months.

Great, thanks for that color. And so as a follow up to that point, you have gotten 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 can -- 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, does it 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?

Yes, so, first of all I think, Ken, you've touched on a good point. I mean part of it is going to be driven by the overall economic environment and that is 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 are going to continue to focus on that. We are going to continue to build out 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 year, South Florida, Cincinnati.

So we are 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 have really seen some nicely improved, attractive asset quality metrics under a underwriting structure that is much different from the last cycle, centralized and an expert line of business both on the line and with risk partners.

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

Helpful, thanks.

John Pancari, Evercore.

Regarding the NorthStar initiative, 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 the cost save component can you give us an idea of the timing of the recognition as you move through 2017 and then 2018?

I am 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 is the rest of the savings, that two-thirds, what type of revenue enhancement are you looking for? Thanks.

In terms of the way we look at project North Star, to give you a very broad picture, the quantification of the improvement in returns translates to roughly a $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 to about, let's call it, $300 million to $400 million. We can do that by managing the expenses and then growing the revenues that are already in play.

And then we look at some of the balance sheet optimization targets that we are establishing. That probably -- I don't know, let's call it in the $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 in 2017. Some of them are already in play. You probably see major restructuring. And I think it will accelerate into 2018 and 2019. Some of the projects, underlying expense save projects, relate to the commercial business and end-to-end redesign. That project is kicking off. It is 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 are making. But that doesn't mean 2017 does not have any of those. I think there are some expense issues in play that also will contribute to 2017. And those are the types of details that we would like to share with you as we approach year end and then the beginning of (inaudible).

Okay, good. And then I know you gave the ROTCE expectations and the 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 to be sub 60 by the end of 2017 -- 2019 run rate.

Okay. All right. And then secondly, just a quick hit 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 is correct.

Okay, so unchanged.

Yes, unchanged.

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

We haven't given up that publicly and I think it is a little bit misleading at this point given there is no single definition of leveraged loans.

Yes, I would tell you that we have continued 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 in the shared national credit portfolio?

Well, what we are really focused on is client relationships and building those out. To the extent that we leverage the shared national credit market, that is more of kind of just symptomatic.

It is not an end for us, we are not focused on growing SNC. 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 SNC portfolio again, which is $26 billion or about 49% of our total commercial book, it is investment-grade quality. If you exclude the energy piece of SNC for a moment, we have very little loss in that. Our criticized asset level is 3.25% on the entire SNC book. It is primarily an investment-grade portfolio. Three quarters of that portfolio, as Lars said, is really deep relationships. About a quarter is credit only. And a lot of those are fairly new relationships that we are building the relationship on.

So this is not a standalone portfolio, credit only book that we are buying just to grow a portfolio. It is tied deeply into our strategy of dealing with relationships with top clients. I will tell you in many of our SNC relationships we have a very meaningful piece of the stack when you look at the number of banks that are in a syndicated facility.

So we feel very good about it. I don't think at the end of the day it will 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 it has given us and the fact that it is built into our core strategy of deepening our industry vertical in our mid-cap relationship.

Okay, great, thank you.

Scott Siefers, Sandler O'Neill & Partners.

I think at this point most of my questions have been answered, but maybe Tayfun or Jamie, just sort of a ticky-tack question on the base of average earning asset -- or the base of earning assets.

So your end of period versus your average, I think the end of period base is a couple billion dollars higher. Can you just go through some of the nuance of what happened with the base of earning assets in the fourth quarter? I am just trying to get a sense for movement within the balance sheet.

Scott, are you looking at end-of-period interest-bearing assets?

Yes, exactly, which I think are about $2 billion, $2.5 billion higher than the average base. So, in other words --.

Yes, 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 NII guidance for the fourth quarter, we typically see a run-up in those cash levels as we do expect strong deposit growth.

So our short-term overnight investments might have a little bit of a bloat there, but nothing that is -- we are not expecting anything that is unreasonable to what occurred last year.

Yes, if you look at page 29 of the earnings release table on the just loan side, you don't see that difference. So I would refer you to that.

Okay. Okay, good. So then the average just is kind of straight the best thing to kind of go off; nothing unusual at the end of period?

There is nothing unusual at the end of period.

And just we haven't talked about it, but I think part of where your question is headed 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 to third-quarter level. So don't expect a lot of movement from the investment security book in the fourth quarter.

Okay. All right, that is perfect. Thank you for the clarification.

Mike Mayo, CLSA.

I was looking for more color on project North Star. And I didn't completely understand that base performance uplift. So you are looking for $800 million in additional pretax improvement. It looks like about equal amounts balance sheet optimization fees and expenses. And then 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% ROTCE? Do expenses stay flat or do they go up a little bit or down or what?

The base performance on the expense side is pretty flat, Mike. I mean in terms of -- if you take out the initiatives I think we probably will be achieving a lot more stability in the expenses. In terms of the expenses related to these initiatives, a number of them are truly sort of organizational changes and investments that truly are going to lift revenues fairly quickly.

So our goal clearly is to fund those expense initiatives or to fund those revenue initiatives with expense saves elsewhere. So that is the only way we will be able to get some 60% efficiency level. So we are not necessarily looking to have added investment cost to achieve the revenue growth, but actually achieve base expense saves 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 with you towards the end of the year or early next year.

Okay and then just a big picture question. I mean you have 1,191 branches now and you have been fast out of the gate, Greg, in reducing those branches, you have more to go. And also your mobile banking, that is a big percent as the 20% consumer deposits for a mobile app, but I guess that is bigger than some big banks.

Right.

What is the right number of branches as the digital delivery catches hold? I mean if you look out over this entire 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 look at over 50 variables, as we mentioned before, when we decide to close or consolidate a branch. So it really is driven by the consumer preferences. And you are seeing that migration and adoption to our mobile apps, our digital capabilities. I think 40% plus of all of our checks now are coming from digital channels, 20% through our mobile. So that is going to pace us.

Could it be another 10% plus? Absolutely. So we are going to look at this every single year, we will continue to test against it, putting at through the lens of those 50 different variables we assess, and we will continue to make adjustments to our branch infrastructure.

Obviously that helps us fund some of our investments in digital where you have redundant costs. So we are looking for that transformational cost also as we reduce our branch infrastructure. But more to come it there. As far as the pace and the numbers, I am not comfortable yet giving a number.

All right, thank you.

Geoffrey Elliott, Autonomous Research.

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 have got. So I was wondering given the changes we have been hearing from the Fed on how the CCAR process is going to work, how they are going to look at different sorts of capital return, whether it is buyback or dividend. How does that influence your thinking on the role the 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 are 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 that is coming down from the regulators in terms of the design of the regime that they are expecting over the next number of years.

It is 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 has 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 a $1.3 billion or maybe $1.4 billion decline in leveraged loans. But then I also heard you say you didn't disclose the leveraged loan balances. So maybe you could just kind of tie those two comments together.

I think Lars and Greg have commented on the drop. The definition of leveraged loan portfolios today is not quite uniform. So it is a meaningful drop; let me say it that way. It is a meaningful drop from our leveraged loan book. And I doubt that our leveraged loan book is significantly different from peers. Frank, I don't know if you want to -- or, Lars, if you want to talk to that.

Well, the thing to focus on with leveraged lending, at least from our perspective, there is all types of companies that are leveraged. Where we have had issues and where most of our peers I think I've had issues have been over-reliance on enterprise value lending, financing M&A transactions, and deals that went sideways. And when they went sideways, the problem is the loss in event of default is very high. That is our prior experience.

And as a result of that, we have been very judicious in going through, as Lars has talked about in looking at all of our client relationships, looking at our sponsor relationships, looking at the types of credit that we would finance in a leveraged environment, industries that we should consider and industries -- highly cyclical industries, for example, we probably shouldn't consider financing in a leveraged environment.

So when we talk about $1.4 billion reclassifying or leaving the books, it is the highest risk piece that we focus on which are enterprise value deals, highly leveraged deals, clients who don't fit our risk profile, and leverage that is outside of our comfort zone. And those are the credits that we are moving out.

So whether it is 10% or 20%, to me it is a more meaningful number than that because we are taking the highest risk slice in the portfolio and that is leaving the books. And what remains is a portfolio that we think is performing very well with clients that we know well, we respect well; we have a great history with them through cycles. And they have the ability to manage leverage because they have proven it over time. And it is 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 are repositioning ourselves in a place where we can continue to be delivering leveraged finance to the right clients, right relationships, and the right returns with a lot less volatility than what we have had in the past.

Great, thank you.

(Operator Instructions) Vivek Juneja, JPMorgan.

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 have talked about reducing your single product relationship. So how much more right off should we expect from commercial loans as part of that?

Not sure. Yes, so it is a core part of North Star as we look in particular at the 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 have done a lot of the heavy lifting this past year at around $2 billion. I could see another $1 billion of balance sheet optimization. But frankly, that is going to be over a period of time, and we are going to be reinvesting that capital and relationships that provide the right kinds of return and right risk profile for our Company on a go-forward basis.

Okay. And given the intense competition for C&I loans, you are confident of being able to get some higher spreads? Because obviously competition hasn't abated yet, given the loan growth we are seeing in the industry.

Yes, and to that point, I think Lars and the team have done a fantastic job. And we have four quarters in a row, Lars, we have seen our yields improve in C&I lending?

That's correct.

So once again, a testament to the work that they have done to reposition the balance sheet and the relationships. And I don't know if you want to add anything?

Well, I would just 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 is not just about credit; it's about the entire relationship.

It's about fee solutions in developing deep strategic advisory type relationships. And we are 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 have 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 rights that we have seen in LIBOR, where in some institutions you have seen some of that absorbed away with thinner 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 as 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 are going to have to be at our best, but frankly we have got great bakers with great businesses. I have got a lot of confidence in them that we can continue, not just for four quarters but for the long-term to produce.

And where does asset-based lending fit into that? Has that been -- where has that been as part of your growth in this (multiple speakers)?

That is a great question. So asset-based lending, as you know, we would not include in the leveraged lending portfolio, but is something that is very attractive. When we are out with a 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 alignment, 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 complementary to what Greg has shared with us as the vision for our Company.

Thank you. Tayfun, if I may sneak in one quick one. Tax rate, very low for the fourth quarter. Is that a sustainable longer-term rate? And if so, what are you doing to get it that low? It is the lowest we have seen of 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 taxes, the combination of the fact that we are using a different accounting for our low-income housing investments and our leasing business clearly is contributing as well.

I gave you some guidance for the next quarter. And beyond that, I don't think that there is any other color on the tax rate.

No, my point was, is the next quarter's tax rate a sustainable level going forward, or is that just going to be 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 next quarter right now is the only comment that I will make.

Okay. All right, thanks.

Kevin Barker, Piper Jaffray.

Can you just expand upon some of the declines that you are seeing in your auto loan balances? I know you are repricing your yields on that, but are you moving into a more -- a riskier credit or a less riskier credit, given that the yields are moving higher in that portfolio?

It is more about our approach heading into the year to trim 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 would be in the $3.4 billion range, in terms of auto originations.

But the credit profile this year, the average FICO is 746. Year to date we are at 56% used, 45% new, and that is consistent with 15 levels. We have a 69-month average term, and obviously durations are much shorter than that. And advance rate LTVs are in the 91% range this year.

So it is pretty much the same old same old that we have had versus prior years. It is more a function of trimming volume and focusing on getting better pricing.

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

Correct, absolutely right.

And then are you seeing the competitive pressures be stronger in the higher FICO scores or in the lower FICO scores right now?

I think the competitive pressures are about the same. I mean everybody is sort of focusing on the full spectrum of originations and some even lower FICO bands 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 will be happy to assist you.

This concludes this morning's conference call. You may now disconnect.