James P. Eglseder - Manager-Investor Relations Gregory D. Carmichael - President, Chief Operating Officer & Director Tayfun Tuzun - Chief Financial Officer & Executive Vice President James C. Leonard - Treasurer & Senior Vice President Frank Forrest - Executive VP, Chief Risk & Credit Officer.

Erika P. Najarian - Bank of America Merrill Lynch Matthew H. Burnell - Wells Fargo Securities LLC Scott Siefers - Sandler O'Neill & Partners LP Kenneth M. Usdin - Jefferies LLC Geoffrey Elliott - Autonomous Research LLP John Pancari - Evercore ISI Sameer S. Gokhale - Janney Montgomery Scott LLC Paul J. Miller - FBR Capital Markets & Co.

Matthew Derek O'Connor - Deutsche Bank Securities, Inc. Ken Zerbe - Morgan Stanley & Co. LLC David Eads - UBS Securities LLC Terry J. McEvoy - Stephens, Inc. Vivek Juneja - JPMorgan Securities LLC Marty Lacey Mosby - Vining Sparks IBG LP Mike L. Mayo - CLSA Americas LLC William Carcache - Nomura Securities International, Inc..

Good morning. My name is Sean. I'll be your conference operator today. At this time I'd like to welcome everyone to the Fifth Third Bank's Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you.

Head of Investor Relations, Mr. Jim Eglseder, you may begin your conference..

Thanks, Sean, and good morning. Today we'll be talking with you about our third quarter 2015 results. 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 certain risks and uncertainties, and we encourage you to review them. There are a number of factors that could cause results to differ materially from historical performance and these statements.

We've identified some of these factors in our forward-looking cautionary statement at the end of our earnings release and in other materials. Fifth Third undertakes no obligation and would not expect to update any such forward-looking statements after the date of this call.

I'm joined on the call today by several people, our President, Greg Carmichael; and CFO, Tayfun Tuzun; Frank Forrest, Chief Risk Officer; and Treasurer, Jamie Leonard. During the question-and-answer period please provide your name and that of your firm to the operator. With that I'll turn the call over to Greg..

Thanks, Jim, and thank all of you for joining us this morning. On November 1 I will officially start my tenure as the Chief Executive Officer of our company. Today we thank Kevin Kabat for his 33 years of service to this institution, the last nine years as CEO. We are grateful for his leadership during a difficult period in our company's history.

His contributions will continue to build value for our shareholders. I am looking forward to building upon Kevin's accomplishments and leading our company to become a top through-the-cycle performer in our industry. In September I had the opportunity to meet some of you.

And I look forward to having frequent dialogue in the coming quarters to share my team's priorities. We have a number of new faces who joined our senior leadership team over the last 60 days. Lars Anderson, Heather Koenig, and Tim Spence are great additions to an already strong team and have hit the ground running.

By all accounts we have had a very active quarter. During the last 30 days we've resolved three significant regulatory and compliance items. Importantly, these items were already reserved for.

We are pleased to have solved these matters as we continue to focus on improving our operations, efficiency, and customer experience, which in turn will generate better returns for our shareholders. Driving better efficiency through technology and improving our ability to serve has been a priority for Fifth Third.

Over the last few years we've done just that, focused on improving customer service and driving operational improvements. These changes over the past couple of years have resulted in approximately $60 million of annual savings.

In June we announced plans to sell or consolidate 105 branches across our footprint, and we expect to generate another $65 million in annual savings once complete. We are well on our way to executing our branch plans with the two announcements regarding the sale of our branches in St. Louis and Pittsburgh.

As disclosed we will maintain our commercial activity in both markets. The first phase of our remaining retail branch consolidations is underway. And we are on track to have this project completed by the middle of 2016 as originally planned. So now a few comments about the quarter.

We reported third quarter net income to common shareholders of $366 million and earnings per diluted share of $0.45, including $0.06 of volumes that Tayfun will go over shortly. The operating environment continues to be challenging, but our focused strategies have resulted in continued loan and net interest income growth.

The structure and composition of our balance sheet continues to produce current period earnings with balanced exposures to alternative rate environments. Our strategic partnership and ownership stake in Vantiv continues to produce substantial earnings.

As you can see we recognized $130 million on the Vantiv warrant in the quarter, bringing our earnings year-to-date on the mark to $214 million. We have benefited greatly from this relationship. And our ownership stake leaves us with significant future revenue potential. Our core business performance is strong.

For the third quarter positive balance sheet trends continued with average loan growth led by C&I, which was up 1% sequentially and 4% from a year ago. Core deposits were up $5.6 billion from a year ago, but down $1.8 billion sequentially, the majority of which was due to intentionally reducing deposits that are unfavorable from an LCR perspective.

The income results continue to show momentum, highlighted by corporate banking revenue that was up 4% from the prior year on continued strength in capital markets. And mortgage banking that was up 16% from a year ago. We continue to closely manage our expenses with a sharp focus on extracting efficiencies from our day-to-day operations.

Our non-interest expense in the third quarter was flat with the prior period. We will remain focused on cost containment, while continuing to invest in our company for the long term. Continuous fundamental improvement is the key here. Our expense management philosophy supports our goal of continuing to invest in the growth of our business.

Credit results reflect the impact of a legacy commercial credit that Tayfun will discuss in further detail. But it is important to note that this is not the type of credit we would underwrite today, nor is it reflective of our credit risk appetite going forward.

Student loan portfolios are being assessed more conservatively in the market, and we reflected the valuation of the underlying loans in this commercial credit exposure. Excluding this legacy credit our net-charge-off ratio would have been 37 basis points, consistent with the previous quarter. Non-performing assets were down 24% from a year ago.

And our NPA ratio continues to decline, ending the quarter at 65 basis points. As we discussed all year we are at a threshold in our provisioning, as we are starting to cover our quarterly charge-offs. In addition our provision this quarter reflects the acknowledgement of the stresses that are building in the domestic and global economic environment.

The third quarter set us up well for a strong finish in 2015. I mentioned before that driving better efficiencies through technology and improving our ability to serve has been a priority. Both customer and regulatory expectations continue to change.

And I am focused on technology investments as a core part of our strategic agenda to drive revenue growth, improve how we operate, enhance the customer experience, and achieve regulatory excellence.

We are very focused on taking this company forward with an increased pace of play and establishing ourselves as a top through-the-cycle performer in our sector. With that I'll turn it over to Tayfun to discuss our third quarter operating results and our outlook for the remainder of the year..

Thanks, Greg. Good morning and thank you for joining us. As Greg said this quarter was an active quarter for us. In addition to the legal settlement and other business activities, with Greg's transition and the approaching year end, our teams are heavily engaged in our strategic and financial plan reviews.

And we look forward to sharing our perspectives with you in January. All business leaders and support functions are working with a clear direction to focus on growth, supported with efficient operations and client service excellence. Our established risk appetite and risk return targets are positioned for long-term shareholder value creation.

Speaking of shareholder value, the $130 million improvement in our Vantiv warrant position this quarter is a great example of shareholder value creation as a result of focused strategic decisioning.

We will continue to execute our frequently stated objective to manage our financial stakes in Vantiv in the optimal way for our shareholders, as we have demonstrated since the IPO. Our direct ownership, the warrant, and tax receivable agreement in aggregate are of significant strategic value.

Let's start with the financial summary on page 3 of the presentation. We reported net income to common shareholders of $366 million or $0.45 per diluted share. There were several items that affected earnings in the quarter as Greg mentioned.

The improvement in the value of our warrant position more than made up for the negative impact of a few one-time items this quarter. As I mentioned the positive warrant valuation was $130 million.

We also had a $9 million charge associated with executive retirement and severance, and an $8 million charge related to the valuation of the Visa total return swap. There were also charges to provision expense of $35 million related to the restructuring of a 2007 student loan backed commercial credit in the quarter.

The net impact was a benefit of $0.06 per share. The third quarter charge-offs were higher due to the restructuring of a large 2007 vintage student loan backed commercial credit. In connection with the restructuring we recognized net charge-offs of $102 million, $80 million of which had been specifically provided for in prior quarters.

This is a legacy credit dating back to the financial crisis. In late 2013 we had restructured a note and determined that we had appropriate cash flow and collateral coverage. And the note had performed well since then on a cash flow basis.

And as evidenced by the existing reserves of $80 million, we've been diligently focused on maintaining appropriate coverage. However this credit is backed by private student loans. And as you know during the quarter volatility in the student loan markets caused significant stress on the valuation of underlying student loans.

The reserve on this loan is based on the value of the underlying collateral. Based on updated valuations and cash flow projections associated with the collateral, we determined that another restructuring was needed, which triggered the $102 million charge-off under TDR accounting guidance. The remaining note balance after charge-offs is $205 million.

The collateral coverage is 107% of remaining performing underlying student loans, which have an outstanding principle balance of $225 million and an average attached FICO score of 756 with 75 months' seasoning.

In addition to the collateral coverage we added $13 million to our specific reserves for this note, which resulted in a net release of $67 million in specific reserves. We have no student loan exposure in our loan portfolio other than this indirect commercial exposure.

I'll cover the remaining asset quality details later in the presentation, so let's move to the average balance sheet and page 4 of the presentation. The strong loan production activity in the first half of the year carried throughout the third quarter and generated average portfolio loan balances that were $1.2 billion higher than the second quarter.

Loan growth metrics continue to reflect the results of our consistent efforts to select new clients that meet our return targets within our risk appetite. Our C&I balances were up 1% on an average basis with particular strength in middle market, mid-corp, and healthcare. Average commercial mortgage balances were down 2%.

Commercial construction lending remains strong with balances up 16% sequentially, mainly in multifamily and industrial commercial construction. Commercial production was seasonally lower compared to the second quarter, but was 14% higher year-over-year. The largest contribution came from the middle market portfolio.

Payoffs and pay downs were flat sequentially and down 5% from last year. Year-to-date most of the payoffs in our commercial portfolio resulted from clients' M&A activity and the permanent financing of commercial construction lines. Utilization rates were flat compared to the second quarter.

We have seen some stabilization in new production coupons, but it's too early to call an end to the credit spread contraction. In the third quarter average investment securities increased by $900 million or 3% sequentially, partially reflecting the impact of securities purchased during the second quarter.

Average core deposits decreased $1.8 billion from the second quarter, driven by lower interest rate checking account balances. The decrease largely – the decrease was largely due to targeted pricing changes in LCR punitive commercial accounts.

The early compliance that we have achieved with the final LCR targets is enabling us now to position our deposit composition in a more efficient manner to establish a very comfortable operating liquidity position. Our LCR ratio was at 107% at the end of the quarter. Moving to NII on page five of the presentation.

Taxable equivalent net interest income increased $14 million sequentially to $906 million, primarily driven by loan growth, partially offset by higher interest expense associated with the $1.1 billion of holding company and $1.3 billion of bank level debt we issued this quarter. These issuances are partially replacing upcoming maturities in 2016.

Our funding actions ahead of the maturities once again display our focus on long-term shareholder value creation instead of current quarter earnings focus.

The net interest margin was 289 basis points, down one basis point from the second quarter, driven by the impact of those debt issuances, day count, and loan yield compression, partially offset by the benefit of the slightly lower short-term cash position during the quarter. Shifting to fees on page six of the presentation.

Third quarter non-interest income was $713 million, compared with $556 million in the second quarter. Results included the $130 million positive mark on the Vantiv warrant that I mentioned earlier.

As a reminder second quarter results included a $97 million impairment charge related to the changes in the branch network and a $14 million positive mark on the Vantiv warrant. Quarterly results also included charges on the Visa total return swap of $8 million in the current quarter and $2 million last quarter.

Excluding these items in both quarters fee income of $591 million decreased $50 million or 8% (sic) [$46 million or 7%] (14:39) sequentially, led by mainly MSR related decreases in mortgage banking and seasonal decreases in corporate banking revenue.

Corporate banking fees decreased $9 million sequentially as expected due to seasonally lower institutional sales and business lending fees. These seasonal declines were partially offset by higher interest rate derivative fees that benefited from higher rate and currency volatility, lease remarketing fees, and syndications revenue.

Mortgage banking net revenue of $71 million was down $46 million sequentially, primarily due to lower net hedging gains this quarter. Originations were $2.3 billion in the third quarter with 58% purchase volume. 80% of the originations came from the retail and direct channels, and 20% from the correspondent channel.

Gain on sale margins were up 10 basis points sequentially. Net servicing asset valuation adjustments, which include amortization and valuation adjustments, were negative $29 million this quarter, versus positive $18 million last quarter. Deposit service charges increased 4% from the second quarter and were flat relative to the third quarter of 2014.

Total investment advisory revenue of $103 million decreased 2% sequentially, primarily due to the market decline during the quarter. We show non-interest expense on page seven of the presentation. Expenses were $943 million, compared with $947 million in the second quarter.

The sequential comparison reflected $9 million in higher compensation expense primarily associated with executive retirements and severance, partially offset by reversal of litigation reserves. Turning to credit results on page eight.

Excluding the student loan backed commercial credit, net charge-offs were $86 million or 37 basis points in the third quarter, flat with net charge-offs in the prior quarter.

Total net charge-offs were $188 million or 80 basis points as a percentage of average loans, including the restructured commercial credit charge-off of $102 million, $80 million of which had been specifically reserved for in prior quarters.

Non-performing assets excluding loans held for sale declined $20 million from the previous quarter to $606 million, bringing the NPL ratio to 49 basis points and the NPA ratio to 65 basis points. A year ago commercial NPAs were at 90 basis points. The sequential decline of $6 million was primarily due to a $10 million decline in C&I.

NPAs in the C&I bucket was 43 basis points, down from 45 basis points last quarter and 68 basis points in the third quarter of 2014. Consumer NPAs decreased $14 million from the second quarter, driven by a $10 million decline in residential mortgage and a $3 million decline in home equity NPAs.

Our criticized asset levels this quarter remained flat with last quarter's levels. Our energy portfolio declined by $45 million to $1.6 billion from the second quarter.

And the composition remained stable with approximately 50% related to reserve-based lending, where we are senior secured lender within many cases significant levels of subordinated risk ahead of the bank's position.

As expected, we have seen negative ratings migration in the portfolio, but especially in the reserve-based portfolio strong collateral coverage levels should limit the future migrations. Our team will have continued updates to the analysis this quarter. But overall expectations have not changed.

And we don't anticipate any material impact from a loss given default perspective. We have no NPLs in this portfolio.

Wrapping up on credit, due to the net $67 million specific reserve release related to the student loan backed commercial credit, the allowance for loan and lease losses declined $33 million, compared with a $7 million decline last quarter. The change in the allowance includes a $35 million addition to our overall reserves.

We have been publicly discussing our expectations that there would likely be a quarter in which the provision would equal if not exceed charge-offs on a quarterly basis. This credit cycle is diverting from the average length of expansion cycles with every passing quarter.

In light of further slowdown in global manufacturing activity, volatility in capital markets, and the projected prolonged downturn in the energy sector, addition to the ALLL was warranted. The resulting reserve coverage remains at 1.35% of loans and leases and 275% of NPLs. Looking at capital on slide nine.

Capital levels continue to be strong and well above regulatory requirements. The common equity Tier 1 ratio was 9.4%. At the end of the third quarter, end of period common shares outstanding were down approximately $15 million. During the quarter we announced two common stock repurchases of $150 million each.

The first started on July 29 and settled on August 31 and reduced third quarter share count by 7.4 million shares. The second ASR is expected to settle on or before December 4 and reduce the third quarter share count by 6.5 million shares. Turning to the outlook for the remainder of the year.

In terms of core business activity our expectations remain the same as the last few quarters. We see good loan activity in our commercial business. We should see that trend continue into the fourth quarter supported by diverse origination activity.

Our annual guidance in January called for growth in commercial lending to exceed 3%, supported by our strategic investments. Based on where we are today and our expectation for the fourth quarter, full year commercial loan growth should be approximately 4% for the full year.

On the consumer side we expect to see similar trends in the fourth quarter compared to previous periods. We are currently selling all of our conforming mortgage production other than the ARMs. We are not seeing meaningful changes in market conditions and loan demand across the categories that will have an impact on recent growth trends.

Our NII outlook remains roughly the same as our last guidance. Excluding the impact of the deposit advance product, we actually have grown NII this year so far compared to last year's first three quarters.

We are maintaining the guidance that we gave at the beginning of the year for full year 2015 NII growth compared to last year, excluding the roughly $100 million negative impact of the deposit advance product.

We do expect a slight downtick in our fourth quarter NIM and NII resulting from the removal of the December Fed move assumption, as well as the full quarter impact of our two debt issuances from the third quarter. In July our NIM guidance was 2.88% for the second half of the year.

And we will be within a basis point or 2 [basis points] of that guidance, despite the removal of the rate increase assumption and the carrying costs associated with prefunding a portion of our 2016 debt maturities.

Fourth quarter corporate banking fees tend to be seasonally stronger with higher business lending and syndication fees relative to the third quarter. As expected mortgage banking production net revenue should be seasonably below third quarter levels but in line with fourth quarter of last year.

The ongoing annual income from the tax receivable agreement payment we expect to receive from Vantiv is approximately $30 million. Our core non-interest expense guidance in July was a 2.5% increase in total core expenses during the second half of the year over the first half totals. Good news is that we expect to come slightly inside that guidance.

The seasonal uptick in expenses during the fourth quarter will include higher EMV-related expenditures, which we discussed earlier in the year, as well as higher performance-related compensation and the continuing uptick in base comp related to the buildup in compliance and risk infrastructure.

As we also discussed before, we expect our technology expenses during the fourth quarter to be about 10% higher than the third quarter.

These costs are designed to support our long-term strategic actions and investments in our franchise, including IT projects that are targeted for risk and compliance infrastructure and those that are targeted for direct business-related purposes, such as digital technology.

We are spending a significant amount of time on expense management in all of our core businesses and staff functions. As the Fed's anticipated rate actions continue to be pushed back, we are ratcheting up our focus on improving operating leverage in our businesses.

Greg's direction to the entire organization is to operate under the assumption that we will extract efficiencies from our processes year in and year out. We expect to continue to invest in our businesses to build shareholder value. And the savings from our existing processes will provide part of the funding for the new investments.

The upward slope in our risk and compliance infrastructure-related expenses is not permanent.

The combination of the renewed commitment to tighter expense management in our existing platforms in this environment, and the end to the upward slope in risk and compliance expenses in 2016 will be important to achieve our goal to outperform through the cycle. Turning to credit. As expected we have probably seen the end of reserve releases.

And going forward provision will be impacted by loan growth and the impact of broader economic trends on the portfolio. Net charge-offs are expected to be more in line with our core losses last quarter and the levels we have seen in the first two quarters of this year.

We also would like to remind you that the revenue expectations that we shared with you today do not include potential, but currently unforecasted items, such as Vantiv warrant marks and gains on share sales.

In summary we continue to be focused on making the right decisions for the long term, strategically positioning us to be a trusted partner to our client, and building a strong balance sheet with prudent liquidity, interest rate, and credit risk exposures for through-the-cycle performance. With that let's open the line for questions.

Sean?.

Thank you, sir. Your first question comes from the line of Erika Najarian from Bank of America. Your line is open..

Good morning, Erika..

Hi. Good morning..

Good morning..

Yes. My first question is for you, Greg. On an adjusted basis over the past two quarters the core efficiency ratio of this company has been around 62%.

Given that the revenue backdrop may be challenging for longer, and Tayfun's remarks about a renewed focus on expense management, can you improve that 62% over the next 12 months without really any help from the revenue environment? In other words is there savings that you can extract from today's cost base that could be above and beyond what's required to invest back into the company?.

Erika, we've been focused, as we announced earlier in my comments on expense management, as we announced the reduction of 105 branches and some of the talent re-engineering that we've accomplished. We'll continue to stay focused on our core efficiencies, making sure every investment dollar we put forth, we get return on that investment.

But it's a very difficult environment right now with low interest rates, high regulatory cost. We'll give more guidance in January for 2016 on efficiencies. But right now I would tell you job one is to make sure we're taking care of our customer. And wherever possible we're extracting efficiencies on our current core operating environment..

And my second follow-up – sorry. My follow-up to Tayfun is on the LCR, given that you're at 107%.

Are the wholesale changes on the balance sheet behind you with regards to either the repricing of non-operational deposits on the liability side? And should we think about the size of the securities portfolio relative to loan and deposit growth from here?.

Yeah. Yes, Erika. I think the broader increase in the size of the investment portfolio is behind us. From now on we probably will see investment portfolio growth more in line with the rest of the balance sheet growth. In terms of larger moves on the deposit side I think we've taken care of most of the large deposits that tend to be LCR punitive.

But we will always be focused to manage the deposit side efficiently in light of this continued low rate environment. And as I mentioned in my script, our early move on the LCR last year is giving us room to be able to do those efficiency moves on the rest of the deposit base..

Got it. Thanks..

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

Good morning. Thanks for taking my questions. First of all in terms of the rate sensitivity, Tayfun, it looks like that has not materially changed quarter over quarter.

And how would you think about that going forward, assuming we get a very minimal level of rate increase in the first half of 2016?.

Yeah. Matt, as I mentioned we removed our rate increase assumption from our outlook for this year. And it looks like next year right now, there are a couple of moves in the forward curve. In terms of our rate sensitivity we've always said that we are not taking the extreme rate sensitivity position and expectation for aggressive rate moves.

And we want to be balanced, because we see the risks balanced going forward. Even if the Fed starts moving rates, I think it's going to be less steep and [audio skip] (30:13) than people thought a year ago or so. So therefore we're not anticipating significant changes to our asset sensitivity from here.

We will be mindful obviously if and when rates start to rise to extract most of that benefit and let it fall to our balance sheet. But we've been very transparent in terms of the assumptions that we are using in our outlook.

Jamie, any comment?.

No. I think that – good summary..

Okay. Thank you for that.

And then in terms of my follow-up, based on what appears to be a less bullish outlook for rates certainly this year and it seems into 2016, how are you thinking about deposit pricing? Several other banks this earnings reporting season have discussed their view that there could be relatively high degrees of competition for core deposits as rates rise.

But that seems to imply a relatively stair-step increase in rates, which my sense is the market is not in line with.

So how are you thinking about potential deposit pricing competition in a lower for longer rate environment?.

Yeah. This is Jamie. One thing you can see from our activities this year and even from the deposit changes this quarter is we've been very focused on trimming deposit costs for what would appear to be a lower for longer environment. You've seen that in our core deposit levels down – rate costs down a bp or so each quarter this year.

And frankly with our LCR at a pretty strong position at 107%, it gives us a little bit of flexibility to wait and see how competition responds.

But the reason why we have pretty high betas in our interest-rate risk modeling is we believe your comments are on point, which is there could very well be higher price competition on retail deposits, should the Fed decide to raise rates for those banks that are below or barely compliant with the LCR.

So we model a 70% beta for every rate move linearly. However as Tayfun said, we would hope that given our strong balance sheet position, we'd be able to take advantage of maybe the first couple moves and operate at a beta lower than that. But again we'll have to wait and see how the competition plays out for those retail deposits..

Okay. Thanks very much..

Welcome..

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

Morning, Scott..

Hey, Scott..

Morning, guys. Hey, just want to get my arms around the credit outlook. So the net charge-off outlook, that seems very stable. All the NPA indicators basically seem fine. But sort of the written commentary and then, Tayfun, your comments, maybe a little more cautious.

And then the ongoing reserve build this quarter, when you net away all the noise from the student loan backed issue was perhaps more than I would've thought.

So, Tayfun, maybe if you could just sort of expand on your comments on credit broadly? And then I think the crux is if you could maybe discuss the need to add to reserves at a level consistent with this quarter's level going forward?.

Yeah. So I look at – we actually in the analysis that leads to the ultimate reserve levels, we look at the broad macro indicators. This expansion now is approaching I think the 76th month of from the start date, and it's now the fourth longest expansion since the Second World War. And the next one up is the 1980-1981 expansion.

And we have to respect where we are. I look – we look at all the credit spreads indicators. And you just have to respect what the market is telling us. It doesn't – the spread expansion doesn't necessary mean that a recession is right around the corner. But sometimes it can sort of potentially feed the sort of next moves in the credit cycle.

We're just basically cognizant of where we are in this expansion cycle. And want to make sure that our reserve levels appropriately reflect that positioning. Beyond that you've seen all of our credit metrics. Our guidance is for core charge-off performance to resemble more the first half rather than the actual levels this quarter.

I think we're just basically reflecting what we see in the broader macro sense. In terms of provision levels going forward we're not necessarily forecasting provision into the next quarter. We had a $35 million add this quarter. But all we're saying is it should – obviously this is all based on the analytics that supports our reserve levels.

But it should more resemble the actual credit performance. And we're obviously going to look at how the balance sheet is moving forward as well.

Frank, I don't know if you have any other comments on that?.

No, I think you covered it well, Tayfun. Again the thing – one thing to keep in mind is when you look at the size of our energy book and you look at the size of our commercial real estate book, they're relatively small compared to our peers. They're stable. They're performing very well. And we feel very good about the outlook.

So I have nothing else to add..

Okay. That sounds great. Thanks a lot for the color..

Thank you..

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

Hi. Thanks, guys. Just to follow up a little bit more on credit.

So can you just talk through the – were the NPA inflows, $194 million, how much of that was related if at all to the student loan? And then – or was it related to the other pieces that you're kind of walking through, some of the other just global commodity/stuff?.

Now $102 million of that number was related to that single student loan backed commercial line. So a big majority of that is based on that. In terms of the rest I mean you'll see quarter-over-quarter fluctuations in that number, but nothing beyond that that would indicate any sort of broader issues..

Okay.

And just to follow up on the commodities/energy side, can you just help us out, because it's obviously a concern? Any color on your reserve against your energy and commodities portfolio? And even specifically do you have exposure to some of the bigger names that have been mentioned in the press, like Glencore and others, where you guys have shown up on the loan docs at all?.

Yeah. Just a broader comment on the reserve level, then I'll turn it over to Frank. We don't comment on specific reserves. But all I can say is, given the description of our energy exposure and given how we feel that I discussed during the script, we feel we are appropriately reserved for that exposure.

And I'll turn it over to Frank for the rest of the commentary..

Yeah. On the – again, on the energy book if you think about it, we had $1.6 billion in outstandings in our energy book. It's less than 3% of our total commercial loans, 2% of our total portfolio, so it's relatively small.

The place where we've seen the most stress has been in the oilfield services sector, and that sector is $330 million of outstandings or only 20% of the total. We will continue to see some stress, as Tayfun talked about. But we have no loans in the energy sector that are in NPL.

And losses have been minimal over the last four quarters to six quarters, so that book continues to be well managed. It's well managed predominantly by our vertical with people that have a deep experience in the industry. We're highly focused on client selection. It continues to decline versus going up.

And we believe it's – again it's being effectively managed today relative to the risk. And the size and scale of it is again I think fairly small..

All right. And my just last one is just on the size of the student loan credit is just $300-ish million is quite, quite large. And I'm just wondering how do we understand granularity? I know it's not a credit that you would underwrite today.

But how much of kind of other really huge outsize credits do you have in the rest of the portfolio? And how you get comfortable with that type of concentration?.

The thing to remember is this credit was underwritten at a different time, in 2007. It's an outsized exposure relative to our risk appetite today. We would – the loan originated at a larger size than the $307 million. It was approximately $0.5 billion when it was originated. The original purpose was to securitize it, to move it.

The markets were unstable at the time, and the securitization did not take place. Subsequent to that in the last 18 months we have added a number of elements into our overall risk management of the book to ensure that we are managing overall large credit exposure in a very prudent way. Our appetite has clearly changed and developed.

Subsequent to that we have guideline limits in place now tied to PD, tied to industries that we hold very strict. And we have a very small bucket and appetite for any exceptions to that. The same goes with concentration risk across the company, whether it be commercial real estate or energy or leveraged finance.

We have built in significant safeguards in place to ensure that that's the case. We have a handful of loans above $300 million. They are investment grade. Those would be the exceptions.

Our appetite is more in the sweet spot of middle mark in the mid-cap lending, which is more in the $100 million to $250 million range for the majority of what we do and we hold. And we are also intently focused on originating to distribute.

And so we built our syndication capabilities to be able to distribute more into the market, rather than holding it on our balance sheet. So the company has a completely different perspective and view in today's environment relative to appetite.

And we've built many controls in place that we think were appropriate and prudent for good portfolio management relative to this exception again that was made eight years ago..

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

Hi there. Thank you for taking the question. Coming back to some of those lender lists you've been showing up on again, names like Glencore and Trafigura.

I know you can't comment on the individual exposures, but could you give us a bit more background on what you're doing, showing up on that sort of lender list? What your value add is in participating in those deals to big commodities firms that are based outside of the U.S.?.

Hey, this is Frank again. Our exposure – overall exposure and commitments in the commodity sector is roughly $600 million. And we really have three to five key relationships that we've had longstanding relationships with, that we know the management teams exceptionally well. Very small number overall that we are very comfortable with.

And we have a strategy with them that's consistent with our overall strategy in how we would go to market with different clients. We don't have a broad appetite for this sector. And we don't have a broad appetite as we go forward to do things outside of our normal footprint.

But again we do have a very small number of select relationships, none of which we will talk about individually, that we are very comfortable with the management teams, with our strategy, and with our relationship. I'll also add that when you look at that book, it is a very short-term book in terms of maturity.

Most of it self-liquidates within 12 months. So it's liquid in that regard. And we feel comfortable with our exposure at this point..

And some of these relationships go back 7 years, 8 years, 10 years. They're very long term. And these are not relationships that were added in the latest part of the commodity cycle. So that was not the purpose..

Thanks. And then shifting tack a little bit, the 10-Q in August talked about some (43:22) risk around the CRA rating dropping to needs to improve.

I wondered if you could explain what happened there? And why you think that's a risk?.

Well, first off our CRA rating is very important to us. And it is certainly our intent to serve all of our customers fairly and to represent credit availability in all the markets that we do business.

Our publicly stated goal has been to achieve regulatory excellence in all facets of our business, and that certainly includes full compliance with the Community Reinvestment Act. I really can't speculate on the question that you have at hand. All I can tell you is that we expect to be fully compliant institution as we go forward.

And we've developed strategies in place to ensure that that will be the case as we advance forward..

Okay. Thank you very much..

Thank you..

Thank you..

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

Hey, John..

Hey, John..

Morning. Back on credit; sorry. On the – I wanted to ask a little bit around the Shared National Credit book. I know it stands at 27%-ish of your total loans. And I know you've grown that at a pretty solid pace over the past year.

Can you update us on the credit standing of that book? And what the average size of the credits in that portfolio? And how many of them are above that $300 million number that you just put out there?.

So, yeah. We can be clear about it. We actually have 47% of our total commercial book would be Shared National Credits. That's not really that unusual when you think about it from a regional bank perspective. We underwrite all those credits to our own account. We don't buy a credit blindly. We underwrite every credit as if we were the lead on that credit.

That portfolio has performed very well. It is predominantly an investment grade credit. We have approximately 2% of that broad portfolio that is criticized. 2%. So it has performed much better than the broader portfolio that we have in the company. It's a very diversified credit overall. I don't have the specific average number that we have.

But again as it relates to large exposures, I said before we have a very small number of exposure that would exceed $250 million to $300 million, very small handful of exposures. And those are to investment grade companies that have a very high PD.

Companies that we've been very selective in doing business with, where we have a high degree of confidence in the management team, who have a long track record of success operating through the cycle. So the bottom line with this SNC credit is that we get a lot of questions around it, and I understand why.

But it's a portfolio that is high grade, well managed, underwritten to our own book, and it has continued to have exceptionally strong asset quality. And we do not see any differences in that book as we go forward. It's a small book relative to leverage, and it's a small book to relative to energy.

It's a very diversified book of high-grade credits predominantly in our footprint within the U.S..

Okay. And just a follow-up to that.

So there's not much of that portfolio that is outside of your footprint or outside of the U.S.?.

No. 99% of that portfolio is in the continental U.S..

Okay. All right. And then separately wanted to ask around the Vantiv stake.

Can you just give us your updated thoughts around that stake? Do you still intend to sell it down and possibly fund buybacks with the proceeds? I mean if you can give us just your updated thoughts there?.

Yeah. This is Greg. Vantiv continues to be a very valuable partner of ours. And we know that business extremely well. We know that management team extremely well. And as we've said consistently we expect to continue to reduce our position in a manner that is in the best interest of our shareholders. So timing is important.

We want to be able to return much of that value to our shareholders as possible. You can expect us to continue along that strategy as we move forward..

Okay. All right.

Can I – if I could just ask one more? On the IT spend, sorry if I misheard this, but did you say that the tech expenses would be up 10% in fourth quarter versus third quarter, Tayfun?.

That's what we are expecting right now. That's correct. And I think that's in line with the guidance that we gave back in January..

Right. Okay.

And the abatement of that level of spend would occur sometime during 2016? Or how do we think about that?.

Let's talk about that in January when we give you the full-year guidance for 2016..

Okay. All right. Thank you..

Thank you..

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

Good morning, Sameer..

Thank you. Good morning..

Morning..

I just wanted to go back. Maybe I didn't – I missed this in your commentary, but on the loan related to the private student loan portfolio. Effectively where were those private – the underlying private student loans marked on a market-value basis? Could you give me a sense for that? I must have missed it in your comments..

We did not provide where they were marked, Sameer. All we said was that we had an $80 million reserve against this pool at the end of June. And then the charge-offs basically came in at $102 million. And that included the impact of the spread widening during the quarter. But beyond that we did not provide any more details on the market valuations.

But right now we feel pretty good at where we are with 107% collateral coverage. Should the additional $13 million of reserves against the pool of loans that – with attached FICO score of 750 plus and the 75 months' seasoning..

Okay..

And there again it's not on our books in the form of – this is a commercial line. So it's still in the commercial book..

Yeah. Okay. And then I just wanted to switch gears to the auto loan business. I think you had a settlement with the CFPB and had agreed to some changes in your pricing structure. It seems like a few other lenders have also agreed to similar changes, but perhaps not all of them.

So I was wondering to what extent do you think that those changes to your pricing caps could have an impact going forward on auto loan origination volumes if any?.

Yeah. Obviously it's tough to comment on the outlook for what other lenders may or may not choose to do. But in terms of the impact of the current structure, we're working with our dealers right now. And clearly our strong preference is to ensure the ongoing business relationships that we have and to be good partners.

And at this point we're not necessarily anticipating significant changes of the business that we do with our dealers. And as we look forward into 2016 after going through the dialogue that we have in place with our dealers, we'll give you a better perspective..

Okay. That's helpful. And then just my last question was, Greg, you talked about this also. And, Tayfun, you had discussed this at a recent conference. But you talked about replacing your head count heavy design with technology. And I think you said we'd get more guidance of course in January as far as expenses goes specifically.

But is it fair to say that it's going to maybe take some time for you to identify specific areas where you expect to realize those technology benefits? So it's not really a – by 2016 you'll have all of this mapped out.

That might be – take 2 years or 3 years before you identify and target specific areas where you want to become better with technology. Or are we looking at early 2016, we get a full-fledged plan as far as what you envision over the next 2 years or 3 years? I'm just trying to get a better sense of that..

Yeah, Sameer, this is Greg. First off we're in the midst right now of really solidifying our 2016, 2017 strategic plan. Now a lot of those technology initiatives once again focused on either driving revenue, extracting efficiencies, regulatory compliance are in our sights right now. And what we're really doing is just finalizing a plan.

And I think in January we'll be able to give you more guidance of what we expect to see from an expense perspective and where those investments are going to take place..

So, Sameer, the comment that we made during the script if you missed that part, is we believe that the upward slope in the risk in compliance-related expenses will stop in 2016. Clearly some of these technology applications would be expected to replace some of the human heavy processes. And that will come in after – obviously after that.

So but we will discuss this with all of you guys in a little bit more detail in the upcoming quarters..

Okay. That's great. Thank you..

Thank you..

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

Yeah. Thank you very much. I was just wondering, because a couple banks have mentioned on their calls that they might have to back off on capital management on the CCAR, because I guess in the CCAR exam, a lot of people are assuming rates are going up. And now where a lot of people like yourself are pulling those forecasts out.

Does that impact at all future capital management?.

No. I mean we've seen the same comments. But in terms of the way we have our capital management actions planned, we're comfortable with the CCAR plan that was approved last year..

And then as a follow-up you mentioned – correct me if I'm wrong. You mentioned that you might have to – that you might want to – you're going to try to increase operating leverage if rates don't go up over the next year. If I got these comments incorrect, please correct me.

But so are you going to try to have a more efficient expense plan if rates continue to stay where they are?.

I did not make any comments about our expectations for operating leverage over the next year. All I said was that the directive to the organization is very clear. We will extract efficiencies in our existing businesses and in recognition of the rate environment.

It's very important for us to make sure that we create an efficient-to-deliver infrastructure. That's really the comment that I made. Now we've talked about the $65 million for example of reduction related to the closing of the branches, which will start in the second half of next year.

We're clearly looking for more opportunities not necessarily in that area, but in all the parts of the company. And then going into the New Year we will share with you some of our strategic investment plans, and how they may impact at our expense base.

But the comment that I made was that we clearly look to extract efficiencies from the rest of our expense base to be able to make some of those investments..

Okay. Hey, guys, thank you very much..

Thank you..

Thank you..

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

Good morning..

Good morning..

Hey, Matt..

Question for Greg. Obviously a lot of talk on expense management.

But maybe just more broadly speaking with you officially taking over in a couple of weeks and some new people on the team, should we think about any kind of broader strategic outlook – sorry, strategic update as we think about the next few months?.

First off I feel really good about the businesses we're in and the strategies that we put forth over the last couple years. I've been the President since 2013, I've been instrumental in those strategies. So I think strategically the direction that we're taking and that we have taken is the right direction.

Obviously we're looking for opportunities to increase the pace of play, accelerate some of those investment opportunities for returns. So I think strategically we're in the right path. The talent that we brought in recently, I couldn't be more pleased with the additions to our management team. And I think going into 2016 we're very well positioned..

And then just separately a little bit more of a detailed question. The commercial construction loan growth versus a year ago is very strong, almost doubling, obviously off of a very small number.

But can you just remind us what that is, what kind of loans that is? And what's driving it up so much?.

Hey, this is Frank. It's predominantly multi-family and industrial. They are strong credit names, predominantly high-grade. I can stress we're doing no speculative lending in that book. So these are credits that we feel very good about. We are not a long-term lender. We are predominantly a construction lender.

The majority of the long-term financing is being taken care of by other financial institutions. Client selection for us is imperative. We're dealing with large regional and national developers that we know very well. Again as you said the overall size of our exposure in our book is still very small relative to where the company has been before.

But we're comfortable in that space. So high grade, it's predominantly multifamily and industrial. It's in good growth markets. And again we're very focused on client selection and very strong, sound, prudent underwriting, non-speculative..

And, Matt, just by the mechanics as you mentioned that the base was very small where it started from, which tends to elevate the percentage increases. And by nature of the shorter duration of those exposures, you will see a leveling off the growth rate.

It just – it's very difficult to continue to grow that portfolio once it reaches a certain level of maturity..

And there has been some talk about obviously frothiness in the broader multifamily lending area. So I guess how do you think about that? And maybe it's just you were so underexposed that you're catching up a little bit.

But how do you think about maybe that segment being a little overheated right now?.

Well it is becoming more frothy as you say, but we are not catching up. We're being very prudent and selective in who we want to do business with. And again it's credit tenants in these projects are – they're developers that have strong balance sheets. Client selection in commercial real estate is the first imperative.

And beyond that it's ensuring that we're not making exceptions in our underwriting practices. And it's making sure that we're doing things that fit our risk appetite. And doing speculative lending is not in our risk appetite now or going forward, and we're not doing that. So we're being very prudent in what we do and what we put on, very selective.

And we're very cognizant on how much exposure we have in the individual market, especially those that are showing more growth. So overall again we feel very, very good that we're – what we're doing is exactly consistent with what our appetite is, multifamily, industrial, high grade, strong client selection, non-speculative..

Okay. Thanks for the color..

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

Great. Thank you. Good morning, everyone..

Morning..

Last week one of your Ohio neighbors, KeyCorp, reported results and just knocked the cover off the ball with their C&I loan growth. And when we asked why that was, they talked about hiring lenders, they talked about just having a really deep product expertise that kind of gave them an advantage over the other Ohio-based companies.

Do you guys feel that that's a fair statement? That that's a fair advantage that they have? Or because I'm trying to just understand why they're growing so strongly in C&I specifically versus you guys, which are clearly seeing slower growth..

Yeah. We'll not make any comments about our friendly neighbors here in Ohio..

Well maybe....

So I think we feel very good about the talent that we have and the product menu that we have to offer to our clients. We're happy with what we have..

Is there any way that you could do something, whether it's new initiatives or hiring more talent or something that might actually help narrow the gap? Or just – let's just call it improve your own C&I loan growth from here?.

Ken, this is Greg. We've been very focused on talent in every single one of our markets. We have been growing our talent base in our markets. But once again we're really focused on the quality of our relationships, the right type of relationships, and being good through the cycle.

So we're very comfortable with our performance right now and at the pace we're on. And we feel really great about the relationships we're bringing to the bank and the profitability of those relationships..

All right. Thank you..

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

Good morning..

Morning..

You guys talked earlier about the impact of some widening credit spread from the credit perspective. And I'm just curious, there's (1:01:31) obviously seen high yield spreads go out quite a bit.

And I'm curious if you guys have seen any indications of that impacting the more – on the lending side, whether it comes to risk appetite or competition or pricing? Just any signs of that risk aversion filtering into the bank lending arena..

Some stabilization in production spreads is visible, but it's difficult to necessarily comment about whether it's going to last or not, because we've seen from quarter to quarter those types of moves, which did not last very long. But the difficulty is with respect to being able to project portfolio yields.

Clearly portfolio yields are a function both of production spreads as well as payoffs and pay-downs. So at this point we are choosing not to forecast. But we are somewhat optimistic that we may see the impact of that spread widening in capital markets in loan markets, but it takes a while for that to happen..

All right. That's helpful.

And then I know it's kind of early days, but have you seen anything surprising from the EMV switchover that would suggest there are opportunities or risks from either the revenue or expense side?.

No. This is Greg. As of right now our implementation's gone fairly smooth, obviously focusing on the customers with the highest usage. We're in full stride of getting those cards rolled out. As of right now it's to plan. So we're not seeing anything that's surprising to us..

Great. Thank you..

Your next question comes from the line of Terry McEvoy from Stephens. Your line is open..

Hi. Thanks. Good morning..

Morning..

Within the release you highlight the global economic slowdown as one reason behind the higher provision. And then on the call I think you specifically called out the manufacturing sector.

Could you just talk about what you're seeing within your manufacturing customers? How they're adapting to market volatility? It seems like it's a pretty big part of the C&I portfolio at over 20%..

It is, Terry. We're not seeing necessarily an impact of the slowdown yet in our manufacturing base. All we're doing is we're just recognizing that globally, manufacturing is slowing down. Consumer tends to be stronger. But we're seeing slowdowns. And just recognizing again where we are in the expansion cycle.

Recognizing that the global slowdown may impact U.S. manufacturing activity. But this is nothing specific relative to our specific clients or borrowers. It's more a recognition of the global macro environment..

And then as a follow-up the middle market was mentioned a couple times on the call as being a source of growth in terms of loan growth in Q3.

Could you just talk about the pipelines heading into year-end here?.

Fourth quarter tends to be a strong quarter in terms of pipelines. We've seen good production in Q3. And we are looking into Q4 with similar levels of activity..

Thank you..

Okay..

Your next question comes from the line of Vivek Juneja from JPMorgan. Your line is open..

Hi. Thanks for taking my question. Just want to try and get a little more color on the global commodities exposure. Tayfun, you mentioned those have been long-term relationships.

Can you give a little more color on where – given that these are global commodities players with a lot of business outside the U.S., what exactly is their relationship? And what's the strategic fit for you? And are there other global companies like that outside the U.S.

that you're – that you have sizable exposures to?.

This is Frank. We have a very small international book overall. And again as we've said before, we have a small number of commodity clients that we value. We've had a longstanding relationship with that have ties back into the U.S., back into our company. But our overall international exposure is very small. It's a very small piece of our company.

And our overall commodity exposure, as we indicated before, is very small as well. We're managing the book appropriately. And we're comfortable with the relationships that we have in place..

And given the volatility that we've seen, Frank, and Greg, and Tayfun, especially around Glencore and stuff in the markets, is there any plans to dial that back down?.

We do not have an appetite to increase our exposure broadly in that sector..

And Frank mentioned it's a pretty short duration portfolio..

Yeah..

Vivek, this is not our long-term commitment that we're talking about..

Right. Right. No, that's why I heard you say that and I thought, okay, does that mean that once these mature you sort of walk away from that and dial that back down..

We're clearly cognizant of the global environment, and we will make those decisions appropriately..

Correct..

Okay. One small one for you, Tayfun, litigation reserve reversal.

Could you give any color on how much that was?.

Just about $5 million..

Okay. Great. Thank you..

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

Thanks. Want to change the questioning a little bit, Greg. I wanted to ask you as you now assume your new role, one of the biggest challenges for the industry and in particular for Fifth Third is growing revenues.

What opportunities are you going to be focused on? Where do you think you can really make some difference in a sense on the revenue side? Financial engineering can only take you so far. Eventually you got to create some revenue growth..

I think obviously our commercial business is a source of opportunity for us, as is our wealth business, which is growing nicely traditionally over the years. But in addition to that we've launched a payments division.

And you look at our currency processing solutions, and our technology play in that sector supporting our retail and our healthcare sector. So I think payments is a source of opportunity for us. And we're looking hard at that technology stack, how it can be more additive in that respect through some potential M&A opportunities.

We'll also continue to expand our footprint where appropriate in mid-corporate. And also our talent on the middle market side of the house, there's opportunities there I think that continue to grow.

So it's really once again continuing to focus on quality relationships in our commercial business, partnerships, and extracting value in our payments business and being additive to our technology stack. And then obviously wealth management I think is a key integral part of our One Bank strategy.

So I think those are the three areas where we can see some uplift in revenue. And if you look at our strategies, they're really focused in those key areas from a revenue perspective..

And then Fifth Third has traditionally done really well with acquisitions back in the day when you had your premium stock price and a lot of excess capital.

What do you think and how does that play strategically into the growth of Fifth Third over the next five years to seven years?.

Marty, that's tough to say. But I would tell you this. Any time there's an opportunity to create long-term shareholder value, we're going to take a look at that opportunity, and that's important. But there's really no change to our core strategy around M&A.

If it's bank M&A, we really want to be more relevant in our core markets today, where we can better serve our customers and extract more efficiency. So if we do a bank M&A opportunity, it's really going to be in our current markets. But we're also looking at opportunities as I mentioned earlier that'd be additive to our payments business.

And that technology stack there once again is supporting our commercial business in retail and healthcare. We think there's some opportunities there from an M&A perspective..

Thanks. And then, Tayfun, I wanted to challenge you a little bit on your 70% deposit beta. In the initial phase we're assuming 40%, and you go the first 100 basis points. Once you get to post that it moves up to your 70% kind of number that you're estimating for all moves.

Is the difference in our analysis just the gamma? Or what we also showed in our analysis is that Firth Third has been pre-disposed to have higher deposit beta.

So is there something in your culture or your regions or your customers that just makes you have a higher deposit beta relative to the peers?.

Let me give you my side, and then Jamie will comment on it as well. Marty, the difficulty is that it's extremely difficult to look back and compare what happened pre-crisis with rate moves, because we are operating under a significantly different liquidity structure and market structure. Our cautiousness is due to the unknowns.

We want to make sure that we discuss with you what the outcomes may be. I don't think we – there is anything specific to Fifth Third that would drive these betas higher compared to our peers.

It's just the fact that under the current liquidity rules, which have never been in place before, it's difficult to extract our future experience based upon past experience..

Yeah. And we do use a 70% beta on every move, so it's not a gamma issue. But as Tayfun said we'll work very hard to potentially outperform that. And frankly our concern on the – and why we use a 70% beta is the combination of the LCR impact on retail deposits and frankly on banks that aren't LCR-compliant, whereas we already are.

So if anything you may say we should be able to outperform better than a 70% beta. But you also have technology is definitely at a different state in the banking industry today than it was 10 years ago in the last Fed tightening cycle. In the last tightening cycle we were right on the peer average of a 50% beta.

And now we just started conservatively modeling a 70% beta as Tayfun said, due to the unknowns. If we're able to operate at a 70% beta, a 25 basis point move in the Fed funds rate is about a $70 million NII benefit annually. And if we're able to execute at a 30% beta, the number's about $120 million.

So we just want to size up the impacts and just make sure that everyone understands the importance of the underlying assumptions that go into both your deposit betas and then ultimately your asset sensitivity..

It'll be interesting when we ever do get that first 25 basis point, when the comments, we're going to stop and wait and see what everybody else is doing. If everybody's looking at everybody else, nobody's moving, which just in my mind kind of pre-disposes to a little bit better beta early on versus later on in the cycle.

So it will be interestingly for – get that first move, see what happens..

You're right..

Absolutely..

Thanks..

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

Hey, Mike..

Hi, Greg. Hey.

I just want to confirm, you said you're closing 105 branches, and you'll be done by mid-2016?.

Correct..

So you start as CEO in 12 days.

So in your first 8 months, you'll be closing 8% of the branches?.

That'd be correct..

And so is it fair to characterize your approach as bricks to clicks? I'm using that term from the Internet era. But bricks to clicks, I mean you're reducing the bricks with the branch closures. And on the click side you said you're increasing technology investment. It sounds like more than just a 10% boost in the fourth quarter.

So would you subscribe to that? Or characterize it differently?.

Well what I would tell you is first off we live in a technology era. And you're seeing that with respect to our user preferences and how they want to bank, anytime, anywhere. You look at our mobile deposit applications, right now 50% of all of our deposits are coming through remote Web, 38% through our digital channels.

Mike, we've been very mindful of the impact that has on our branches and branch traffic and so forth. So we're really measuring for a couple things.

One is how do we touch and sell to our customers differently going forward? And also how do we drive back office efficiencies and improvement? And then what does that mean to our distribution channels, i.e., our branches? What do they look like? And how many do we need? So we looked at over 50 variables.

And we assessed the – and we came down to the 105 branches that we wanted to reduce. We think we're at the right level right now. But as we continue to move forward in this environment, as we continue to roll out additional technologies, as users continue to change and preferences changes, there will be more opportunities in the future.

I can't quantify that at this point..

Can you describe the end game? In January I guess you'll give us your plans for 2016.

But 3 years, 5 years, 10 years out, are you looking to be the low-cost producer? Are you looking to be the digital king? I mean what's the end game?.

I think at the end of the game we want to be very efficient in how we serve our channels. And I think retail and a lot of the stress on the retail revenue side of the house drives you really to focusing on efficiencies and how you serve that channel. That's a benefit for the customer and the bank. So it's really after efficiency, better service.

At the end of the day net-net, that's the model we want to be in. And we absolutely are focused on efficiencies here, Mike..

And lastly you said increased pace of play I think a couple times.

What metric would that be? What metric would best represent increased pace of play? Will that be the efficiency? Will that be ROE? Will that be some other – customer happiness with their experience?.

I think it's all of the above. It's hard to quantify.

What I can tell you is when we look at our strategies in 2016, 2017, what we're rolling out, we're focused on how do we roll that out faster? How do we drive those efficiency quicker? And how do we serve the customer better? So we're really looking at how we sharpen our pencil on the execution side of the house and get a better return quicker on our investments..

And, Mike, it's also the increase in the average hours work for Greg's team is also another metric that we're switching..

We're asking a lot of them. Yes..

All right. Thank you..

Thank you, Mike..

Your next question comes from the line of Bill Carcache from Nomura. Your line is open..

Good morning..

Bill..

Hi. My questions have been asked and answered. Thank you..

All right. Thank you..

And there are no further questions at this time, which brings us to the end of today's presentation. Thank you for joining. You may now disconnect..