Good morning everyone. And welcome to the Citizens Financial Group's Second Quarter 2015 Earnings Conference Call. My name is Brad and I’ll be your operator for today's one hour call. Currently, all participants are in a listen-only mode. Following the presentation, we will conduct a brief question-and-answer session.

As a reminder, this event is being recorded. I'd now like to turn the conference over to Ellen Taylor, Head of Investor Relations. Ellen, you may begin..

Thanks so much Brad. Good morning everyone. We really appreciate you joining us this morning for our call, particularly on such a busy morning. We're going to start things off with our Chairman and CEO, Bruce Van Saun; and our CFO, Eric Aboaf reviewing our second quarter results and then we’ll open the call up for questions.

Also joining us on this call today is Brad Conner, our Head of Consumer Banking. We’d like to remind everyone that in addition to today’s press release, we’ve also provided a presentation and financial supplement. And these materials are available at investor.citizensbank.com.

I also need to remind you that during the call, we may make forward-looking statements, which are subject to risks and uncertainties. Factors that may cause our actual results to differ materially from expectations are detailed in our SEC filings including the Form 8-K filed containing our earnings release and quarterly supplements.

Additionally, any information about any non-GAAP financial measures, including a reconciliation of those measures to GAAP measures, may also be found in our SEC filings, in the earnings release and in the quarterly supplement available on our Web site. And with no further ado, I’ll hand it over to Bruce..

Thank you Ellen and good morning everyone. We are pleased with the progress that we've made in the second quarter as we are executing well against our strategic priorities. We continue to achieve good loan and deposit growth. We are doing a great job in controlling expenses. We see some lift in fee revenue this quarter.

We continue to deliver annualized positive operating leverage of over 5% which is really the key to improving our profitability. Our credit provision was up in the quarter towards more normalized levels.

In prior quarters where we show the comparisons, we had large commercial recoveries but with our portfolio so clean it's now unlikely we'll continue to see such meaningful recoveries.

In sight of absorbing the higher level of credit provisioning in this quarter, we still showed EPS growth versus linked and prior quarter given our good operating performance. And the credit strengths remain very favorable as NPLs declined 86 million or 8% versus last quarter.

We feel we are making good progress in delivering for our stakeholders, investors, customers, colleagues, community and regulators. We have adjusted the timeframe for some of our initiatives given market conditions and we've developed some new ones which we'll describe in more detail in a few minutes.

This morning we filed two S-1s, one covering RBS' intent to continue their sell down and the other covering our planned issuance of 250 million in subordinated debt with proceeds to be used likely to buy back stock from RBS through their participation in our next stock offering.

Our capital plans are progressing well and we continue to have a very strong solid and clean balance sheet. With that, let me turn it over to Eric to give more color on our financial results.

Eric?.

Thank you Bruce and good morning everyone. We are pleased with our overall performance in the quarter as we continue to drive positive operating leverage and good loan and deposit growth and strong execution of our initiatives.

As I take you through some of the details of our financials I will refer to slides in our investor presentation that you can find on our Web site. Let me start on Page 3, with our second quarter financials which demonstrate our strong progress in executing on our strategy.

Our second quarter GAAP net income of 190 million was down 19 million or 9% from the first quarter and down a 123 million or 39% from the second quarter 2014. Diluted earnings per share was $0.35 down $0.03 from the first quarter and down $0.21 from the second quarter 2014.

Linked quarter results reflect revenue growth offset by a $30 million increase in restructuring charges and special items and $19 million increase in provisions. Prior year quarter results reflect the previous year's gain from the Chicago divestiture.

Page 4 summarizes restructuring and other special items for this quarter associated with the productivity initiatives that we plan as well as the separation costs from RBS. We recorded 40 million in pre-tax charges this quarter -- in line with our expectations for the first half of the year of 45 million to 50 million in total.

I will focus the rest of my comments this morning on our adjusted results which exclude the impact of these items. Turning to Page 5 we posted strong operating results with net income of 215 million, EPS of $0.40. Net income was stable linked quarter was roughly 10 million reduction in share accounts EPS was up a penny.

Relative to a year ago, net income was up 5% and EPS was up 8% as PPNR growth of 13% was partially offset by $28 million provision increase from very low levels a year ago. Operating leverage continues to be strong at 1.3% linked quarter and 5% year-over-year.

Revenue was up 17 million linked quarter on growth in both net interest and non-interest income and also up year-over-year as we more than replaced the foregone revenues from the Chicago branches sold last year.

Expenses were flat on a linked quarter basis demonstrating good discipline that we drove a second fee savings while also reinvesting in a business. In credit cost from prior period which have benefited from strong recovery in commercial but remained at the ['09] level.

We continue to make measurable progress with our goals with a 67% efficiency ratio and 6.7% return on tangible common equity both improved since the prior year. On Slide 6, we analyze net interest income which grew 7 million or 1% over the prior year but that was needed by the Chicago Divestiture which impacted NII by 13 million or 2.5% in effect.

Over the course of the year we also grew earning assets by 6% or 7.2 billion driven by strong performance in both commercial and consumer as we continue to put our strong capital position to work to serve our customers.

Compared to the first quarter net interest income was up slightly as the impact of 2% loan growth and an additional day was needed by the continued impact of the low rate environment. Turning to Slide 7.

Our net interest margin this quarter was impacted by several factors including yield compression on loan, higher premium amortization cost in the securities portfolio and slightly higher deposit costs. Commercial yield picked up modestly this quarter as we continue to see back to front office yield that were higher than the origination.

Consumer yields were down as the mix of all higher credit quality products and prepayments worked against us this quarter. Given that market interest rates were below where we had expected them to be we've taken some additional steps to defend the market and we believe that we have likely reached a bottom from in.

Specifically on the asset side we’re actively emphasizing originations in the selected products that exhibit wider margins and stronger returns, such as student lending and middle market and industry verticals.

And on the liabilities we’re actively managing deposit rating strategy across our businesses and products to slowly increasing cost we've seen lately.

We also continue to be highly asset sensitive, the impact of the 200 basis points gradual rise in rates of the forward curve is consistent with the last quarter and approximately 6.8% in the first year. This is driven primarily by the short-end of the curve.

On Slide 8, we generated a $13 million increase in linked quarter non-interest income which was driven by a strong uptick in capital syndications, card fees, trust and investment fees, and service charges. Year-over-year non-interest income increased 8 million from second quarter 2014 in spite of the drag from the Chicago Divestiture of 12 million.

And on an underlying basis we've generated non-interest income growth of approximately 6% with particular momentum in mortgage banking and capital market.

Taking a moment to talk on the key drivers of year-on-year growth, you can clearly see the progress of our mortgage initiatives we've increased our frontline origination capability with mortgage off up 23% year-over-year and improved the origination by 68% as the market is firming and we continue to gain market share.

In capital markets our continued efforts to build out the platform and enhance our loan syndication efforts are paying dividend as we grew fees in this category by 15% year-over-year. Early left and joint lead writer ranger transactions were up 18% for the first half of this year versus first half last year.

Moving on to non-interest expense on Slide 9. We’re intensely focused on driving continued improvement and the efficiency of the franchise our goal is to generate strong operating leverage by actively managing our expense base while continuing to invest across the franchise enhance of the products and distribution capabilities.

Our adjusted operating expenses of 801 million this quarter was relatively stable as a decrease in salaries and employee benefits and occupancy spend was offset by increased outside services equipment and software amortization.

Year-over-year adjusted expense was down 32 million or 4% largely due to the $21 million Chicago impact created aided by our efficiency initiative which more than offset the important investments to drive growth and effectiveness and we've kept headcount flat too.

As I mentioned we achieved an adjusted efficiency ratio of 67% which was down 95 basis points from the first quarter and down 353 basis points from the prior year quarter. And we’re pleased with our progress we’ll continue to focus on new initiatives improve our efficiency and drive revenue growth while controlling our cost savings.

Now turning to the consolidated average balance sheet on Slide 10. Our total earning assets of 123.2 billion were up 2% from last quarter and 6% from the second quarter 2014 driven by the benefit of our growth initiative. In consumer we generated strong growth in auto, mortgage, and students over the prior year.

Commercial growth has been broad based with growth in commercial real estate, industrial verticals, mid corporate, franchise finance and corporate finance. We continue to improve our deposit gathering capabilities with average deposits from the second quarter increasing by 2.9 billion or 3% over the first quarter.

Over the last year organic deposit growth was approximately 10.9 billion or 12% more than offsetting the $4.5 billion impact of the Chicago divestiture.

On Slide 11, consumer banking loans decreased 680 million or 1.4% sequentially as you see the results for the growth initiatives and we continue to ramp our own organic origination in auto, mortgage and students.

Because of the success and our focus on enhancing our return so far we have chosen to tactically reduce our SCUSA arrangement by more than half for around 200 million per quarter with an annualized target of 750 million going forward. Last quarter we made a tuck-in acquisition in other portfolio.

In this quarter in addition to closing on a purchase of a $200 million high quality to do portfolio facility we agree to purchase another 300 million over the next three quarters. These purchases represent a transition out of auto to more attractive risk adjusted return category.

And these actions come out with balance sheet review that I have been involved with the joint. We will continue to make refinements for our strategy in order to improve the underlying mix of portfolio in order to boost deals and offset the impact of low rates.

On Slide 12 commercial loans increased 1.2 billion or 3% linked quarter and you see the result from the tax flow adjustments that we've made. Middle market continues to rebound as we emphasize growth in this bread and butter business since late last year.

Asset finance results were flattish as we shifted towards an originated model which should deliver better return. Our commercial real-estate teams have been in surprised volume and earnings per share deals in the market and we continue to gain momentum in franchise finance.

The commercial market is highly competitive and this scenario where even maintained yield acquires both strong client relationship and strong discipline, we've recently added additional pricing analytics to help our bankers take advantage of the price diversion and what can be an opaque market.

And with the reinforcement risk for the roll out of enhance return calculator over the last few months. Slide 13 focuses on the liability side of balance sheet and are funding cost.

We grew the combination of net interest, money market and savings and term and time by approximately 17% this year were 10.5 billion despite the impact of the Chicago divesture.

We implemented this growth with the mix of demand deposit or supplemented this growth for the mix of demand deposit at FHLB borrowings and senior debt to further diversify our funding sources. On Slide 14 we played our key initiative that support the balance sheet and fee growth in our turnaround plan and assess progress during the quarter.

We continue to believe that we are broadly on track overall and we are actively adjusting these initiatives to improve execution or adapt to market conditions. Heighten watch barriers continue to be the initiative when we are hiring in the significant numbers.

We have expanded the timeline to hit our targeted coverage force in both mortgages and wealth by about a year given experience today. Bruce will comment on several of these in his closing remarks today. On Slide 15 you can see that our credit quality continues to be very strong on a relative basis.

With net charge-offs at 78 million and provision at 77 million. I will remind you that first quarter results included 15 million commercial real-estate recovery while this quarter's results reflect to return to more normalized level.

More generally we continue to see relatively low levels of growth charge-off across the book despite continued loan growth. We also continue to benefit from the run-off in the non-core book. This was down nearly 200 million in the quarter to a balance of 2.7 billion. Asset quality remains very, very good.

Our NPLs were down 86 million or 8% in the quarter and the allowance to NPL ratio improved from 106% to 114%. With our opinion in neutral issues in a relatively modest size synergy portfolio. Turning to Slide 16 our capital position remains robust this quarter CET1 ratio was 11.8% which is well above our regional peers.

We are above our FBR requirement and our LDR has been relatively consistent in early April we exited a 250 million preferred issuance and repurchase share from RBS. So from a pro forma basis impacted our CET1 ratio by 23 basis points but had no impact on our tier 1 ratio.

On Slide 17 we summarized our accomplishments in delivering for a various stakeholders with sustain progress against our plans to reach. And now turning to Slide 18, let me summarize some of what you can expect next quarter. But all on the context the full year 2015 outlook that we previously provided and that we broadly reaffirm today.

Compared to the second quarter of 2015 we expect to produce linked quarter loan growth of roughly 1.5%, this includes a little seasonality in the commercial book and we expect that Q4 will be seasonally stronger. We also expect net interest margins remains broadly stable from this quarter.

We are hopeful that we have reached the bottom of NIM compression with will require active management until rates are higher. We would expect to continue to generate positive operating leverage thereby improving our efficiency ratio and profitability.

We expect modest expense growth in Q3 from investments tied to our growth initiatives, we do not expect any additional restructuring cost in 2015. We expect credit to continue to be strong overall and with an expectation.

And finally we expect that our CET1 ratio will remain relatively unchanged from around 11.75% and we will hold LDR at around 97% to 98%. And with that let me turn it back to Bruce..

Thanks Eric. On Slide 19 we've mentioned for some time we've been working on further revenue and expense initiatives and we lay these out here. When we first launched our plan before going public we indicated that our initiatives would be managed dynamically given that the environment and our ability to execute would differ over time with our plans.

We have a mindset of continuous improvement and we have worked hard to finalize and launch several additional initiatives that are larger and more complex than those in our first lead program that we called Top I. These new initiatives referring to as Top II cover efficiencies, pricing and revenue enhancements, overall they tilt slightly to revenue.

The biggest initiative overall is ops transformation which is underway and will deliver some benefits in the second half and a meaningful benefit for 2016. We can see that overall we target a 2016 P&L benefit of approximately 90 million to 115 million.

Now turning to Slide 20 we talk about how to think about these benefits in the context of our forward forecast. First off we are affirming 2015 guidance provided early this year with some swings and roundabouts, otherwise called puts and takes.

We have seen lower than expected revenues offset by favorability on expenses and credits and as Eric mentioned this should continue in the second half. We expect the Top II initiatives to deliver around 25 million or so in the second half benefits offsetting other pressures and thereby protecting our outlook.

For 2016 roughly 100 million in targeted Top II benefits we'll also undergird our ability to deliver the self improvement part of our plan. This is needed to offset some of the environmental pressure on NIM and a slower build on some of our fee based businesses.

We will continue to look to add to these initiatives as we go forward and that's what you should expect of us. While we won't provide 2016 guidance until January 2016, it now appears highly likely that it will take longer to hit our 10% Q4 2016 gross fee target given the current forward said Fed Funds curve.

Nonetheless we feel good about the progress we are making in running the bank better and about our ability to continue a steady upwards financial trajectory. So to sum up, Page 21, we are executing well on our overall agenda and we feel that we have good momentum in both the consumer and the commercial business.

Our new initiatives are designed to continue our upwards financial trajectory. We have maintained a stable level of asset sensitivity and we'll pick up a nice tailwind once the Fed starts to lift grades. And our balance sheet remains exceptionally strong and our credit quality is excellent. So with that, let's open it up for some questions.

Brad?.

Thank you Mr. Van Saun. We are now ready for the Q&A portion of the call. [Operator Instructions]. And our first question will come from David Eads with UBS. Please go ahead..

May be if we could just kind of start off on the initiatives you announced for the second wave.

Can you just kind of talk about what you are doing different and then kind of what approaches are incremental to what you guys talked about previously?.

Yes, sure. So David each of these initiatives really is completely incremental to what we have done in the prior initiatives, although they help to support and reinforce what we are trying to achieve. If I look at the categorization, you have some dealing with the cost side of the equation and efficiency.

We see some pricing opportunities where we can sharpen pricing strategies. And then lastly, broad revenue enhancement. And if you want I will just run through those briefly.

But operations transformation we've looked at how we're organized across what's in the central service unit and distributed across in our businesses and I think some of that just grows up from a historical legacy standpoint. So we have taken a step back to figure out how can we better organize and distribute that work and find some efficiency.

So that's been quite an undertaking. It's taken us a while to kind of asses that and come up with a plan but we are in the process of implementing that plan. And as I mentioned we'll already start to get some immediate benefits from that project in the second half. Procurement is pretty self explanatory.

So we are working on I guess in general looking to consolidate vendors and then have tighter standards and compliance. With contracts there's more opportunity there. We did some of that in the first Top program but I think there was more to do than we've been able to fair that out.

In pricing most of this is on the commercial side than the cash management business. We have been able to segment customers look at competitive pricing and we seek some opportunities to tighten pricing.

A two down below on revenue enhancement, one is there is opportunities for us to better use our distribution channels on the consumer side deep in relationships with customers understand their needs better and then deliver the products that really are suitable for their needs and so I think we can just sharpen again as sharpening our gain and then on a commercial and consumer second initiative what we’re trying to do there is really just hold on for that customers and reduce attrition.

So make sure that we have proper segmentation strategies and we’re really smothering those customers with lots of attention and right product capabilities.

So we've plans against each and just like you saw in our Top I we assigned accountability out to people so people know where the ownership resides across the bank and we have regular meetings to make sure that we’re delivering and that we’re staying on track..

So it sounds, these are all kind of business as usual type process, is just kind of getting better at each of these, the incoming opportunities is to get better there?.

I think that’s right. It’s not anything that’s out of the box it's just continuing to sharpen how we’re running the bank would be a distinct way of categorizing the whole program..

And then you talked a little bit about acquiring loan portfolios. Can you talk at what you are looking for in those acquisitions and would you consider doing something a little bit bigger I think that’s a pretty good opportunity for you guys..

Why don't I turn it over to Brad and perhaps driving on points of those acquisitions both with auto and now to shift into over into student Brad?.

I would say the acquisition that we did looks a lot like our education refinance product, we really like that segment a student lending is very high quality, you are dealing with customers that have proven track record of repayment they have a job so what we really like that segment and this segment that we acquired looks very much like our organic origination.

Same in terms of about our opportunities we like the student loan segment so we wouldn't back away from future acquisitions but we don't have any -- I would specific designs around that at this point..

And I would say look we have very good own organic originations right now capabilities. So I think we can be very selective in terms of what we do as evidenced by our dialing back on the SCUSA arrangement our own auto originations has ramped up and we’re now able to originate more prime paper thereby there is less need for that.

So I think the good news here is we’re getting very solid organic originations and we can be opportunistic when we see attractive portfolios..

And our next question will come from Scott Cyphers with Sandler O'Neill and Partners. Please go ahead..

I guess Eric maybe for you. So you alluded to some of the things that you'd done sort of that balance sheet maximization that you have been looking at.

Are those all just so I understand that correctly are those all included in the Top II initiative or are those mutually exclusive?.

No I say they are part of the BAU process for running the bank and then few of them are in Top II. The initiatives are as we talked about around product mix we've very strong origination and strength in all of our businesses so we can tactically shift a little more from one business to another.

I think I highlighted a couple of those already, student loans come in at a 110 basis points better yield and a couple of 100 basis points that are returned than some of our other opportunities and we’re emphasizing that’s an example and similarly there are areas like that on the commercial side.

And because we have the ability to originate and grow the balance sheet as this kind of 7% to 8% per year we really have an opportunity to emphasize a little more and accelerate in some areas and actually curtail actively curtail on others that we find a little less remunerative as time moves on..

I guess either Eric or Bruce I am just trying to square the revenue walk that you guys had given originally with what would be implied in the updated numbers and is it a fare characterization to just look at it as the $90 million to $115 million you disclosed today that basically captures what might have been a shortfall on the revenue side and then the only need to extend the revenue walk is based on the way the forward curve has softened relative to when you guys were initially doing the IPO roughly a year or so ago or 10 months or so?.

I will and Eric you can chime in, but I would say where we had pressure on the initial revenue walk principally it's been in building up our fee based businesses and so the pace at which we can attract the quality and depth on both the mortgage loan office reports and the wealth advisor force it's been a little tougher and we still are making great progress and we still think we’ll get there but it’s probably going to take us another year and we slowdown a little bit in business banking hiring as well.

So there is a little bit of headwind on the fee trajectory, there is a little headwind on kind of net interest income related to NIM and some of the pressure on the back book rolling off into kind of a lower rate environment and what we had anticipated.

So we've done everything we thought we do and more on expenses but we've been a little late on revenues.

So that’s really what we're trying to protect as to make sure overall that these initiatives allow us to deliver what we said it was something to deliver, if there is a little left over to partly offset the kind of said moving later and more languidly than expected, great. But that’s potentially a sizable impacted that is hard to fully offset.

So really that’s the thing were you still have that close trends when the rates go up we'll start to benefit from that and if takes a little longer it will push out realization a bit and we'll just stay on top of that..

And we'll see those initiatives right to start 60, 40 revenue to expand while we know the expense is quite we have a lot of confidence there revenue is always….

Pricing side of the revenue is also pretty foreseeable. So it's really the revenue enhancement we have to really work hard to execute against..

And our next question comes from Alan Strauss with Schroders. Go ahead..

Just a quick question.

Your outside services are there ability to kind of lot of expenses there?.

Let me take that, I think that is an ongoing area where there is all visibility to do more. So every third party vendor whether it's marketing, advertising firm, whether it's paper and pencil, whether it's equipment whether it's technology consulting.

Right there is a wide range areas there and one thing the capacity and disciple in bidding out every time things come off and also finding ways to simplify what we buy. And that’s the part of how we do business and we're going to continue to actively manage those spending area..

Are there a lot of consulting expenses in that..

Yes I think going through the period of change and all the various initiative and separating from our RBS and getting up from CCAR. We have used consultants more heavily then we have in the past. And they are also helping to guide us to some extent on some of these new initiatives.

So I'd say we're probably at a higher run rate then we were historically and that should come down with time..

And our next question will come from John Pancari with Evercore. Please go ahead..

Couples of quick questions just regarding the ROTCE expectations. What is your updated Fed assumption that’s baked into the 10% ROTCE push back? And also what are you now expecting? And then separately what type of timing do you think is now more appropriate for that 10%, is it in the first half of 2017 or is it by the end of the year..

What we do in terms of forward forecasting is we just use the forward rate curve. So I think the Fed Funds in the rate curve we used when we put the plan together was about 175 basis points at the end of '16. Today is about 110 basis points when we had the original rate curves the Fed was moving as of June.

So you get accumulative benefit from having already moved for a longer period of time. And now it looks like initial rate move would be kind of late in Q4. So if you just kind of run that forward you probably lose about half of the benefit versus the 300 million that we had initially assumed when we did the road to walk.

We are not giving guidance on 2016 so with respect to your second question I think it's safe to say that we're just saying at this point it's hard to cover that much of an impact having said that the curve does move around and you could see a snap back and maybe the Fed if the economy is trucking along has the confidence to go a little faster or in bigger increments.

But in any case we'll just monitor that and our policy is we'll give guidance in for the current year and January of that year and that’s when we'll tell you our views and we'll have I think are more fresh view on kind of level of interest rates in the potential impact from that..

Alright and my second question is just around expenses. Given your Top II initiatives that they both expenses as well as revenue, comes along this.

But cab you just update us what your thoughts are around your long-term efficiency ratio where do you think Citizens ends up normalizing borrowing a major change in your rate outlook or anything? Where do you think it normalized in terms of [attrition]?.

I think when we've shown our target of getting to the 10% we had a series of other numbers underneath that that are all consistent with getting to 10%. We had a 1% ROA and we had an efficiency ratio down in the low 60s, near 60%. So we are making progress here.

So one of the good news again if you look at last several quarters we continue to generate positive operating leverage which is moving our efficiency ratio down. So this past quarter it went down by 95 basis points. So we need to continue that positive operating leverage.

I think it will be an accelerant when rates start to go up that's almost free money, that's revenues that are going to flow through the bottom-line without needing to add any expenses. So that's an accelerant to positive operating leverage which will fly that efficiency ratio faster towards where it needs to get to..

And our next question will come from Kevin Barker with Compass Point. Please go ahead..

On the student loan side, when you said you acquired a series of loans from SoFi which you also originated a bunch of your own refi loans during the quarter.

Could you expand upon some of your comments that you made earlier about your overall strategy here on whether you are going to focus on refis as the primary originations or maybe look at acquiring additional loans from SoFi or other sources?.

Well I'll start and then Brad or Eric you can chime in on this. But we feel good about how we are positioned in the student market.

We have been achieving good organic growth both on, one our underlying bread and butter products which is the basic student loans we call it TrueFit and then our ed-refi product was fairly innovative but we were first to market with that in Q4 of last year and we've been originating somewhere between 300 million and 350 million in the last two quarters.

So we are growing the portfolio well organically. But when we look out there we had opportunity to engage with SoFi who really I think targets the highest end of the market as super prime quality borrower and we think the paper that we can buy from them from a risk adjusted return standpoint is very attractive.

So we didn’t need to do that because we are growing well organically but since we were originating auto paper from SCUSA get a comparison is that hey you know what the SoFi paper here is an emerging company that needs some financing partners and we could step in and we can do an initial transaction of 200 million and then we're committed to buy 100 million for each of the next three quarters.

So that's what we've signed up to. At the same time, we've had some flexibility arrangements with SCUSA and so we are able to adjust that one down. So it's really that straight forward. We are not on the trial for lots of other flow agreements.

What we've found in the past is in the low spread low rate environment, there's not enough for two people to eat at the same trough if you will and it's hard to have these deals actually work for two parties. But occasionally you can find that and you have to be opportunistic. The nice thing that we have is we have a lot of capital flexibility.

We have an ability to use our balance sheet to grow loans and put good assets on the books and change that mix to the better. And so we will continue to seek opportunities to do that.

I don’t know if Brad or Eric want to add?.

I am not sure there's lot, much to add. I think you said that well, I mean the core strategies organic origination we have been very pleased with the demand in the marketplace for the refi products. We have been, it's a product that hits the market well, this was an opportunistic opportunity and I think the core strategy is organic originations..

Yes, good..

So when you think about your, the economics of a refi versus buying those loans, do you feel that you can achieve higher yields on your own refis versus what you are going to get buying or providing financing for so far other participants in the market?.

It's about the same, so if you look at the net yield after the servicing cost in the SoFi arrangement it's about the same yield that we're making on the ed-fi originations when we load in our cost to originate those loans..

But because we compare those yields and those returns across the bank right -- across all the consumer businesses and commercial businesses, if you look at the flow arrangements we are looking for an uptick something a little wider in spread and a little higher in return and won't do them just if they come at net average..

And then just quick question. We are seeing a lot of your competitors put on commercial loan swaps in order to extend duration given the outlook for rates right now.

Have you considered doing that or is that something you would consider doing given the top-line headwinds you are facing right now?.

I think right now we like the position that we run where the asset sensitivity is primarily at the front end of the curve, right the very front end which is the one, two, three months, just because we have that option to not raise the deposit rate as the Fed starts to move.

The data is particularly in our favor, I think we'd rather and we don't want to have a rate discussion here but typically rather liking for some terms structure whether it's five year, seven year, three year it's somewhat slightly higher rates than where we’re today and we’ll do that over time, we’ll do that as when we think are good level it's kind of hard to convince yourself that you want to long right now..

So our asset sensitivity one of the things Eric mentioned in the prepared remarks we kept for that 200 basis points gradual ramp in the Fed Funds rate our benefits over the first year have been fairly consistent at around 7%.

And our view is that we’ll keep that so called spring coiled and benefit once rates starts move hopefully we’re getting closer to that day..

[Operator Instructions]. Our next question comes from Matt O'Connor with Deutsche Bank..

Could you talk about the deposit pricing in your markets some competitors and some of your markets have started to increase ahead of Fed rate increases seems to give away inconsistence strategy out there in terms of some raising rates and some actually still cutting a little bit?.

Primarily what we see is we see some of the smaller community banks out there with some lead money market rates, some CD promotions I think they don't have the task that we do and a large banks do and so they are out there and sometimes when we need to do is match that prices to the depend market-by-market but you can imagine we’re trying to be quite disciplined in pricing and I think that we’re quite confident that the deposits pricing will lag for the first move or two as rate trend upwards..

And just from a high level point of view can you remind us why you think your deposit base might be a little bit stickier in terms of mix or geography or size?.

It's really that I don't know if stickier I think it's about average data in the industry I think we quoted out 60% I think the range is 50% to 70%.

I think we've confidence in that because we’re being a bit more conserved than we than what we saw in the last cycle on one hand and on the other we have real healthy mix of retail deposits, lot more retail than versus commercials than peers we have it in both city centers but also in more suburban areas and there we think we’ll do reasonably well..

And our next question will come from Geoffrey Elliott with Autonomous Research. Please go ahead..

If I look at the revenue initiatives in particular maybe starting with pricing can you give us more concrete examples of where you think there is scope build your customers and ask for more than you have been historically where is the room there and what are the examples?.

Let me give you one example, so in our cash management area we haven't raised prices in more than five years, we also have a series of waivers that are granted based on committed volumes and we haven't done a great job of compliance to make sure that the volumes are there, and so the waivers have continued in place.

So what we've done is we've stepped back and we've looked at what’s going on in that space in terms of competitive pricing actions and in fact many of our peers if not most have continued to take annual price adjustments and they are also I think much sharper in staying on top of some of these waivers.

So we developed I think market segmentation approach to categorize customers into different buckets and then go back and look for opportunities where we can tighten them and in some cases we basically say we’re going to raise your prices unless you start to go back to meet that committed volume but you are multibank and you have directed some of the volume away direct more back to us and then you can avoid the price increase and we win either way.

So it's really opportunities like that, where I think we’re being just very disciplined very systematic in terms of our approach and we don't really see much of a risk of customer pushback because frankly they've been getting a good deal for too long.

I don’t know Eric if you want to add to anything there?.

I will just add in particular, there are literally 600 different fees and services that you price and so many have done in the details and if you actually go through that you can benchmark that you can benchmark it against peers and you could benchmark it for clients size.

And so there is a rich data set by which really determine what’s fair pricings and you can play that back to clients and just on a fair price and say look here is the range and here is where the averages are, and here is where you are and so we had some good early successes and that will be part of the we do on a disciplined way over time..

And then to follow up same question around the 30 million to 40 million of revenue enhancements?.

Sure Brad maybe you could briefly describe the distribution channel effectiveness which again is I think doing a better job of marshalling the resources we have in the branches and in the contact center to reach out to customers and engage with them whether it's physical meeting in the branches or phone conversation to some of our specialist to make sure we're doing all that we can to satisfy their needs..

The key really on that particular initiative is customer behaviors have been changing over the last few years. And people are using alternatives in efforts for making deposits that are not coming in the branches as much we're using online mobile.

And one of the things that we know your heights conversion rate in terms of sales conversions with customer if you can get face to face for your customers.

So this initiative really is about having conversations with our customers inviting them into the branches and doing over a half conversation with them about what are their financial needs in the face to face way.

So the initiative at this stage is just reaching out to our customers inviting them into the branches and then being able to measure and see the effect of that and we've had some very good early success with that, we're actually piloting in the couple of markets and we're seeing some good success.

We're just learning as we go and expecting to continue to roll that out across the broader distribution network..

And that’s one that I would say again we've had some help from consultant and setting up the program and they've seen this approach work effectively at other banks. So combined with those insights and then our own piloting efforts we think that these revenues are pretty good estimate of what we should be able to achieve.

And then on the return program I think I don't know if I should through that back to you again or just some that funds to commercial as well..

It is, I can talk a little bit about the consumer side similar to this commercial.

The real issue on retention is just making sure that every point of interaction with our customers we understand what the satisfiers and the dis-satisfiers are and breaking down those dis-satisfiers in a way that we include overall customer satisfaction or repaying our customer.

So there is a very systematic approach to understanding when all those points of just said to satisfy our arm breaking them down.

And we are seeing some good early signs if you look at particularly in checking we're seeing steady improvement quarter-on-quarter in terms of our retention rates of our customers and now we're taking that across all of our products..

And I think on commercial some of it is really surveilling the back log and looking for situations where we think the company might want to refinance. And we can go classically to refinance that company to make sure they stay with us. So there is a number of initiatives on the commercial side as well.

But again similar to the first one I just mentioned we have had outside helping us design this program, we've seen the effectiveness that other institutions and so we have a reasonable degree of confidence that these are attainable numbers..

And our next question comes from Beck Nanja with JP Morgan..

Hi couple of questions Bruce and Eric. Firstly a quick one the SoFi loans that you purchased. What percentage of those are guaranteed in the apparent guarantee that you all normally get..

Yes relatively small close signing we have about 45%..

Yes most of these have back since these folks are typically graduate programs. And they have hiring from a good job, there is less need for the guarantor than in a straight student loan. But having said that the FICO scores on this portfolio I think are 70 to 80 plus some of brought by 2. But it's quite attractive..

Bruce another question you'd mentioned earlier. Last year you were spending a lot on regulatory stuff as you were building out your systems and making sure you got through a CCAR which obviously worked.

Are you seeing any opportunity reduce those up front expense or has that already begun?.

I think we've got in our run rate what we need to continue to make progress on our regulatory agenda. We did last year to get caught up on some of the models to really do a good job with CCAR we kind of expense some of that and consider that more one-time in nature. But we mentioned that we needed to hire about 70 to 80 people.

And by year-end we probably had 60 people in health and so by now that kind of the turn that middle of the year we've got all that in our run rate. So I don’t really see any opportunity for "piece dividend" anytime soon. I think there is still a sustainable amount of work to do if the regulators push the bar higher we need to keep pace.

And so I'd say where I'd put it is that we've got the right amount of resources. We're working hard. We are making progress but it's still going to take us some time to get fully where we need to be..

And our next question will come from Matt Brown with Wells Fargo Securities. Please go ahead..

Eric maybe a follow up for you in terms of a comment you made I think earlier today about the re-pricing initiatives on a commercial side. You said that your customers have gotten a good deal for too long. You haven’t really moved prices in that business across several products for about five years.

Can you give us some color as to so what kind of customer attrition you are thinking about? I would think in this environment a bank coming to a customer looking for higher fees might think about what other options there may be and other banks are certainly beefing up their cash management businesses.

So could you just provide a little color around how you are thinking about that?.

Actually, it's Bruce, and I was one who made those remarks. But I think the amount of attrition that we built a little bit I think it's a low single-digit number into our overall estimates and that's been formed by again having some consultants working with us who have seen in other institutions.

But if you look at the kind of uplift from the pricing up and very small subtraction for people frankly who aren’t paying us what they should for those services that see much, much more in favor up going ahead and taking those price actions.

So I think I would categorize is it as a fairly miniscule level of attrition and really which is bringing the book back to kind of fair and average market pricing relative to peers..

And Bruce just in terms of your outlook for rates. It sounds perhaps reading between the lines a little bit that you are maybe as a result may be a little more sanguine on the credit side of things.

Is that a fair characterization?.

Yes, I think what we've seen clearly over the last six to eight quarters is the flip side of having lower rates for longer is there's less stress on borrowers. So where ever you look in our book whether any of the consumer portfolios or any of the commercial portfolios, borrowers are doing well.

And delinquent loans are very manageable and trending in the right direction. So I think hopefully we can continue to sustain that good credit performance.

There is still probably a little normalization to go because we have on the commercial side some significant recoveries which once you book gets completely clean, there's not much more that you can recover. So we might see kind of little bit of increase and we're growing the portfolio which potentially creates little bit of increase.

But in terms of, if you look at the charge-off rate as a percentage of loan, we have been hanging around kind of a low 30 and are through the cycle average is probably 45-ish and I think it's hard to see how you're going to approach that through the cycle average any time soon.

Hopefully not same as last words, you can always get hit with a Scud missile. But we don’t see anything really in the book at this point that gives us any great concerns that we're going to go up meaningfully from where we are..

And there are no further questions in the queue. With that I will turn it over to Mr. Van Saun for closing remarks..

Okay, great. Well thanks everybody. I appreciate you dialing in today. Again we feel very good about the progress that we're making. We continue to execute against our key strategic priorities and look forward to the next time. Thanks and have a good day..

And that does conclude today's conference call. Thanks for participation and you may now disconnect..