fifth third bancorp (fitb) earnings report: q2 2015 conference...

CompanyName:Fif thT hirdBancorpCompanyTicker:FIT BSector:FinancialIndustry:Banking

EventDescription:Q22015EarningsCallMarketCapasofEventDate:17.11BPriceasofEventDate:21.46

FifthThirdBancorp(FITB)EarningsReport:Q22015ConferenceCallTranscriptThefollowingFifthThirdBancorpconferencecalltookplaceonJuly21,2015,09:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

JimEglseder;FifthThirdBancorp;Director-IRKevinKabat;FifthThirdBancorp;ViceChairman,CEOGregCarmichael;FifthThirdBancorp;President,COOTayfunTuzun;FifthThirdBancorp;EVP,CFOFrankForrest;FifthThirdBancorp;EVP,CROJamieLeonard;FifthThirdBancorp;SVP,Treasurer

OtherPart icipants

ErikaNajarian;BofAMerrillLynch;AnalystScottSiefers;SandlerO 'NeillandPartners;AnalystKenZerbe;MorganStanley;AnalystMattO 'Connor;DeutscheBank;AnalystKenUsdin;JefferiesandCompany;AnalystMikeMayo;CLSALimited;AnalystChrisMutascio;Keefe,BruyetteandWoods;AnalystJohnPancari;EvercoreISI;AnalystDavidEads;UBS;AnalystThomasLeTrent;FBRandCompany;AnalystMartyMosby;ViningSparks;AnalystGeoffreyElliott;AutonomousResearch;AnalystSameerGokhale;JanneyCapitalMarkets;AnalystMattBurnell;WellsFargoSecurities;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

AtthistimeIwouldliketowelcomeeveryonetotheFifthThirdBankearningsreleasecall.

(OperatorInstructions).

Thankyou.JimEglseder,DirectorofInvestorRelations,youmaybeginyourconference.

JimEglseder (Director-IR):

Thanks.Goodmorning.

Today,wewillbetalkingwithyouaboutoursecondquarter2015results.

Thisdiscussionmaycontaincertainforward-lookingstatementsaboutFifthThirdpertainingtoourfinancialcondition,resultsofoperations,plansandobjectives.Thesestatementsinvolvecertainrisksanduncertaintiesandthereareanumberoffactorsthatcouldcauseresultstodiffermateriallyfromhistorical

performanceandthesestatements.Wehaveidentifiedsomeofthesefactorsintheforward-lookingcautionarystatementattheendofourearningsreleaseandinothermaterialsandweencourageyoutoreviewthem.

FifthThirdundertakesnoobligationandwouldnotexpecttoupdateanysuchforward-lookingstatementsafterthedateofthiscall.

I'mjoinedonthecalltodaybyseveralpeople:ourCEOKevinKabatandCFOTayfunTuzun;FrankForrest,ChiefRiskOfficer;andTreasurerJamieLeonard.AlsoheretodayisourPresidentandCOOGregCarmichael.

Duringthequestion-and-answerperiod,pleaseprovideyournameandthatofyourfirmtotheoperator.

Withthat,IwillturnthecallovertoKevinKabat.Kevin?

KevinKabat (ViceChairman,CEO):

Thanks,Jim.Goodmorning,everybody.Thanksforjoiningus.

Asyouallknow,IannouncedmyretirementasCEOthatwillbeeffectivelaterthisyear.

Beforewegetintothehighlightsofthisquarter'sresults,Iwanttotakeamomenttoreflectonmy33yearsinthebankingindustry,especiallythelastroughly10leadingFifthThird.I'mproudofthehardworkanddedicationoftheverytalentedindividualsI'vehadtheopportunitytoworkwithovertheyears.Togetherwehavenavigatedsomeofthemostchallengingtimestheindustryhaseverfaced.

Inearly2007whenIwasnamedCEO,wewerejuststartingtoseecracksinthefoundationthatultimatelyturnedouttobetheworstcrisistheindustryhasseensincetheGreatDepression.OurdecisiveandearlyactionsbuiltasignificantlybetterCompanythatistodaypositionedtooperateinallenvironmentswithstrongmomentumgoingforward.

Todaywehaveverysolidcapitallevelsthatsupportsomeofthehighesttotalpayoutratiosofourpeers.Wehavemadechangestohowweapproachourcommercialbusinessand,morerecently,ourretailbusinessinresponsetothechangingconditionsandpreferencesofourcustomers.

WehavepositionedtheCompanywellinordertoeffectivelyendurethecurrentlowrateenvironment,butalsomaintaintheflexibilitytoaccelerategrowthoncetheeconomyregainsfullgrowthandratesstarttorise.

LetmeintroduceyoutoGregCarmichaelwhowilltakeoverformeas[COO]inNovember.GreghasbeenourChiefOperatingOfficersince2006andPresidentandCOOsince2012.HeisaverycapableleaderandI'mconfidentthatunderhiswatchtheCompanywillcontinuetothriveandgrow.Greg?

GregCarmichael(President,COO):

Thanks,Kevin.IamexcitedtohavetheopportunitytobuilduponKevin'saccomplishmentsthathavefirmlychangedourCompanyoverthelast10years.IamalsoappreciativeoftheBoard'sconfidenceinmeandourteamtocontinuetobuildvalueforourshareholders.

Ilookforwardtomeetingyouintheupcomingmonthsandsharewithyoumyplanstocontinueourprogressandmoveourfranchiseforwardinthisfast-changingenvironment.NowIwillturnitbacktoKevinsohecancoverthehighlightsofthequarter.Kevin?

Thanks,Greg.ObviouslythereisagreatdealofrespectthatwehaveforeachotherandI'mconfidentthetransitionwillgosmoothly.Icontinuetobeoptimisticaboutourfuture.Sowiththatlet'stalkaboutthequarter.

Todaywereportedsecond-quarternetincometocommonshareholdersof$292millionandearningsperdilutedshareof$0.36,including$0.07ofitemsthatTayfunwillgoovershortly.Weareverypleasedwithourcorebusinesstrends,althoughtheenvironmentcontinuestochallengebanks.

Weareveryfocusedonourbusinessesandcontinuetodemonstrateourwillingnesstotakedecisiveactionwhennecessary,asyousawwithourbranchannouncementinJune.

Ultimatelywearebuildingafranchisethatmeetstheneedsofourcustomersbyenablingthemtoconductbusinessinthemannertheywish,whilealsobuildingaCompanythatiswellpositionedtocompeteeffectivelytodayandbewell-positionedwiththeappropriatestrategiesinplacetosucceedinthefuture.

Forthesecondquarter,excellentbalancesheettrendscontinuedwithloangrowthledbyC&Iwhichwasup3%bothsequentiallyandyearoveryear.Strongdepositgrowthcontinuedwithcoredepositsup$2.3billionfromthefirstquarterdrivenprimarilybydemanddepositswiththosebalancesup5%sequentiallyandup13%overlastyear.

FeeincomewasledbyverygoodresultsinCorporateBankingwhichwereup$50millionsequentiallyonstrengthincapitalmarketsandhighersyndicationfees,whichwereupfromsoftmarketactivitylevelsinthefirstquarter.

MortgageBankingwasup$31millionfromthelastquarterasoriginationswereup39%to$2.5billion.Expenseswereupcomparedwithlastquarterasexpected.Second-quarterexpenseswerehigherlargelyduetolong-termincentivepayoutsthatoccurredinthequarterandseveralotherputsandtakesthatTayfunwilldiscuss.

WeremainveryfocusedonourcurrentoperatingresultsaswecontinuetoinvestinourCompanywithalong-termstrategicview.Creditmetricscontinuetobeexcellentandournetcharge-offratiowas37basispointsinthequarter,thelowestlevelI'veseeninmytenureasCEO.

Netperformingassetsweredown25%fromayearagoandourNPAratioendedthequarterat67basispoints,down12%sequentially.We'veseensignificantandsustainedimprovementinourcreditresultsoverthepastseveralyearsandwefeelverygoodaboutthepeopleandtheinfrastructuresthatwehaveinplacerightnow.

Thisquartermarksanotherinalonglinethatincludesactionsundertakeninordertoproactivelyadapttothechangingmarketplace.Wehavemaintainedoursitesandourprudentapproachtolendingwithafocusonappropriaterisk-adjustedreturns.

We'veactivelymanagedtheretailfranchiseoverthelastseveral--overthelastfewyearsandwehavebeenveryproactiveinadaptingtothechangingdemographicsandourcustomers'usageofnewtechnologies.

We'vetalkedabouttheinvestmentswearemakingtostrengthenourriskandcomplianceinfrastructureandweexpecttoseeacompetitivebenefitfromthem.UltimatelywearemanagingtheCompanyforthelong-term,thatisourfocus,andwedoexpectittobebeneficialtoshareholdersthroughtime.

WiththatIwillturnitovertoTayfuntodiscussoursecond-quarteroperatingresultsandouroutlookforthesecondhalfoftheyear.Tayfun?

T ayfunT uzun (EVP,CFO):

Thanks,Kevin.Goodmorningandthanksforjoiningus.Iwillstartwiththefinancialsummaryonpage3ofthepresentation.

Wereportednetincometocommonshareholdersof$292millionor$0.36perdilutedshare.Therewereseveralitemsthataffectedearningsinthequarter,asKevinmentioned.Thelargestwasthe$97millionnon-cashimpairmentchargerelatedtothechangesinourbranchnetworkthatweannouncedinJune.

WealsohadapositiveVantivwarrantvaluationmarkof$14millionthisquarter.Thesetwoitemshadanetnegativeimpactof$0.07pershare.Iwillcommentonthebranchannouncementattheendofthediscussionofouroperatingtrendsandmetrics.

Withthatlet'smovetotheaveragebalancesheetandpage4ofthepresentation.Thestrongerloanactivitywehadinthesecondhalfoffirstquartercarriedthroughoutthesecondquarter.Averageportfolioloanbalancesincreased$1.7billionfromthefirstquarterdrivenbyincreasesinC&I,commercialconstructionandresidentialmortgagebalances.Specifically,ourC&Ibalanceswereup3%onanaveragebasis.

Loangrowthmetricsreflecttheresultsofourteam'sfocusongrowingourexistingrelationshipsaswellasselectingnewclientsthatmeetourreturnprofilewithinourrisktolerancelevels.

Althoughourpayoutswerehigherthanthefirstquarter,ourloanproductionthisquarterwasverystrongacrossallindustriesexceptenergy.Intotal,oursecond-quarterproductionwasthehighestinthelastfivequarters.

Theaveragecreditratingforthisquarter'sproductionpoolwasthehighestofthelastfivequartersaswell.Thereisnoletdownincompetition,butweareconfidentthatourclientretentionandselectioneffortsaresupportiveofloangrowth.

Newproductioncouponsarelower,toacertainextentinlinewithbettercreditquality.Atthesametimeourpayoffcouponswerealsolowerthanthefirstquarter,indicativeofevent-relatedratherthanrefi-relatedpayoffs.Lineutilizationwasflat.

Averagecommercialmortgagebalancesweredown1%aswecontinuetoseerefinancingactivityofourlegacybook.Commercialconstructionlendingremainsstrong.Growthinmulti-familyandIndustrial/Commercialconstructionremainsstrongwith75%ofproductioncomingfromwithinourfootprint.Ournewcommitmentsnetofprepaymentactivityshouldsupportsecondhalfloangrowthinthisportfolio.

Inthesecondquarteraverageinvestmentsecuritiesincreasedby$4.2billion,or18%sequentially,reflectingthefullquarterimpactofourfirst-quarterpurchasesand$2billionofadditionalsecuritiesduringthesecondquarter.Onanendofperiodbasisweadded$1.5billionofsecurities.

Wesawverystrongdepositgrowththroughout2014and,asweexpected,thatcontinuedinthefirsthalfof2015.Averagecoredepositsincreased$2.3billionfromthefirstquarterdrivenbygrowthindemanddepositandmoneymarketaccounts.

MovingtoNIIonpagefiveofthepresentation.Taxableequivalentnetinterestincomeincreased$40millionsequentiallyto$892million,primarilydrivenbythefasterthananticipateddeploymentofcashintoearningassetgrowthandlowerdepositcosts.NIIwasalsopositivelyimpactedby$7millionduetoanextradayinthequarter.

Thenetinterestmarginwas290basispoints,up4basispointsfromthefirstquarter,drivenbya6basis

pointbenefitduetothefasterthananticipateddeploymentofcashthatImentioned;3basispointsduetobetterfundingratesincludingthecontinuedrationalizationofdepositrates;partiallyoffsetby4basispointsofloanyieldcompressionanda1basispointdecreaseprimarilyduetodaycount.

Shiftingtofeesonpage6ofthepresentation.Second-quarternon-interestincomewas$556millioncomparedwith$630millioninthefirstquarter.Resultsincludedthe$97millionimpairmentchargerelatedtothechangesinthebranchnetworkandthe$14millionpositivemarkontheVantivwarrantthatImentionedearlier.

First-quarterresultsincludeda$70millionpositivemarkontheVantivwarrant,a$37milliongainonthesaleoftheresidentialTDRs,anda$30millionimpairmentassociatedwithaircraftleases.QuarterlyresultsalsoincludedchargesontheVisatotalreturnswapof$2millioninthecurrentquarterand$17millionlastquarter.

Excludingtheseitemsinbothquartersfeeincomeof$641millionincreased$71millionor12%sequentiallywithbroad-basedincreasesinalmostallcategoriesledbyincreasesinCorporateBankingrevenueandMortgageBankingnetrevenue.Adjustedfeeincomewas42%ofrevenueinthesecondquarter.

Excludingtheimpactofthe$30millionaircraftleaseresidualimpairmentinthefirstquarter,corporatebankingfeesincreased$20millionsequentiallyduetoimprovementsininstitutionalsalesrevenueandhighersyndicationfees.Syndicationactivitywasbetterthisquarterthanlastandwehadastrongquarterincorporatebondfees.

Totalriskmanagementfees,whichincludeourinterestrates,foreign-exchangeandderivativebusinesses,werestable.

Cardandprocessingrevenueincreased8%sequentiallyand1%fromthesecondquarterof2014aswecontinuetobenefitfromanincreaseinthenumberofactivelyusedcards.

MortgageBankingnetrevenueof$117millionwasup36%sequentially.Originationsincreasedto$2.5billionfrom$1.8billioninthefirstquarter.Gainonsalemarginsweredown39basispointsto288basispoints.

Wehadagoodquarterinmortgageservicingrevenues.Netservicingassetvaluationadjustments,whichincludeamortizationandvaluationadjustments,werepositive$18millionthisquarterversusnegative$17millionlastquarter.Depositservicechargesincreased3%fromthefirstquarterandwereflatrelativetothesecondquarterof2014.

Totalinvestmentadvisoryrevenueof$105milliondecreased3%sequentiallyduetohighertax-relatedPrivateClientservicerevenueinthefirstquarter,partiallyoffsetbyanincreaseinsecuritiesandbrokeragefees,andincreased3%fromthesecondquarterlastyear.

Withininvestmentadvisoryrevenue,personalassetmanagementfeeswereup5%whilebrokeragefeeswereup8%fromthesecondquarterof2014.

Weshownoninterestexpenseonpage7ofthepresentation.Expenseswerehigherinthequarter,inlinewithourexpectations,andcameinat$947millioncomparedwith$923millioninthefirstquarter.Thesequentialincreasewasimpactedbyhigherrevenuebasedincentivecompensationandlong-termincentivesinthesecondquarter,aswellasanincreaseof$2millioninseverance.Overall,ourfirsthalfcomp-relatedexpenseswere2.3%higherthanthecomp-relatedexpensesforthefirsthalfof2014.

Includedinourexpensetotalisalsoa$6millionsequentialquarterchangeintheprovisionexpenserelatedtounfundedcommitmentsinlinewiththebroaderdirectionalmoveandprovision.

Thesequentialcomparisonalsoexaggeratestheexpensegrowthasthefirstquarterbenefitedfromasettlementofataxliabilityrelatedtoprioryears.ThesewerepartiallyoffsetbyadecreaseinFICAandunemploymenttaxexpenserecordedinthequarterlybenefitswhichareseasonallyhighinthefirstquarter.Iwillspendmoretimeonexpensesinouroutlooksection.

Turningtocreditresultsonpage8,totalnetcharge-offsof$86million,or37basispointsasapercentageofaverageloans,decreased$5millionsequentially.Nonperformingassets,excludingloansheldforsale,were$626millionatquarterend,down$65millionfromthefirstquarterbringingtheNPLratioto51basispointsandtheNPAratioto67basispoints.

CommercialNPAsdecreased$45millionsequentially,primarilyduetoa$23milliondeclineinC&Iand$20milliondeclineincommercialmortgage.ConsumerNPAsdecreased$20millionfromthefirstquarterdrivenbya$12milliondeclineinresidentialmortgageanda$5milliondeclineinhomeequityNPAs.

Ourenergyportfoliodeclinedto$1.7billionandthequalityofthefirmswehaverelationshipswithremainsverygood.Theportfoliowasreducedby[105]--$[55]millionfromthefirstquarterofwhichapproximately50%relatestoreservebasedlending.

Utilizationintheportfoliodeclined3%ascompaniescontinuetoaccesscapitalmarketstobolstertheirbalancesheets.Thereweresomenegativeratingsmigrationbutnotmaterialinthecontextoftheoverallportfolio.

Wecontinuetobecomfortablewithourportfoliofromalossgivendefaultperspectivewithappropriatecollateral,liquidity,cashflowandreservecoveragelevels.InourRBLportfolioweareaseniorsecuredlenderwith,inmanycases,significantlevelsofsubordinatedriskaheadoftheBank'sposition.

Ofthe$66millioninNPAinflowsonly$11millionrelatedtotheenergyportfolio.Also,SNCresultswerecommunicatedtobanksinthesecondquarter.AndwhileIwon'tgetfurtherintospecifics,allmaterialimpactsfromtheexamareincludedinourresultsinthesecondquarter.

Wrappinguponcredit,theallowanceforloanandleaselossesdeclined$7millioncomparedwitha$22milliondeclinelastquarter.Provisioncoverageofnetcharge-offsincreasedto92%from76%lastquarterandreservecoveragedecreasedto1.39%ofloansandleases.

Virtuallyallofourcreditmetricscontinuetoimproveaswemoveintothesecondhalfof2015.

Lookingatcapitalonslide9,capitallevelscontinuetobestrongandwellaboveregulatoryrequirements.CommonequityTier1ratiowas9.4%.Attheendofthesecondquartertheaveragedilutedsharecountwasdownanother1%sequentially.

Duringthequarterweannouncedcommonstockrepurchasesof$155million.AnASRsettlementisexpectedtooccuronorbeforeJuly28andreducethesecondquartersharecountby6.7millionshares.

Now,afewcommentsaboutourannouncedretailbranchactionsandourperspectivesonthecurrentenvironmentbeforewemovetoouroutlooksection.

Aswehavebeendiscussingwithyouforthelastcoupleofyears,ourretailfranchisehasperformedverywellinthischallengingenvironmentandwehavebeenveryproactiveinadaptingtothechangingdemographicsandourcustomers'usageofnewtechnologies.

Afterexecutingasuccessfuldepositsimplificationstrategyin2012and2013,wehavebeenoptimizingourbranchFTEcountbybothreducingserviceemployeesaswellasreinvestinginsalesassociates.

Thesechangesnotonlyenabledustooptimizeourexpenses,butalsohelpedimproveourcustomerservicelevelsandalignourservicechannelswithourcustomers'preferences.

Upuntilthisquarter,thebranchcounthasbeenfairlystable.Butgiventhesechangesadeeperreviewofourbranchnetworkwasconductedduringthesecondquarterwhichledtotheplannedreductionofourbranchcountby105.

Weuseascorecardwithover50variablesinassessingournetwork,includingproductionvolumesandtrends,transactionvolumesandtrendsandoverlapsamongothers.Wewillbeexecutingthisstrategyoverthenext12months.

We'vetakena$97millionimpairmentchargerelatedtotheownedbranchesandlandwhichis$12millionhigherthanourJuneannouncement.Theincrementalimpairmentchargewebookedwasduetotheadditionofahandfulofadditionallocationsandthereceiptofactualappraisals.

Ourannualizedexpensebenefitisalsogreatergiventhehighernumberofbranchesthanoriginallyannounced.Wewillidentifytheexpenseimpactrelatedtotheleasedbranchesforyouastheyflowthroughournumbersoverthenextsixmonthsbasedontheclosingdateofthosebranches.

Weexpecttofullyexecutethisstrategybymid-2016andthusexpectthereductiontoimpactexpensetotalsonarunratebasisduringthesecondhalfofthenextyear.

Betweennowandthenwewillcontinuetoupdateyouastotheprogressoftheproject,butatthistimeIamnotreadytosharemoredetailswithyouregardinggeographiesandtimingasIknowyouwillunderstandIwouldliketopreserveourabilitytoexecutetheplanasefficientlyaspossible.

Onafullyannualizedbasisweexpecttolowerourexpensesby$65milliononcetheentireactionisexecuted,whichis$5millionbetterthanoriginallyannounced.

Ourmanagementteamiskeenlyfocusedoncapturingasignificantportionoftheseexpensesavingsinourbottomline,butwearealsoanticipatingaportionofthesavingstobereinvestedinthebusinesstocontinuetobuildourdigitalchannelplatformsnotonlyforretailbutforourentireCompany.

Theseinvestmentsaredesignedtoprovidefurtheropportunitiestoimproveourcostefficienciesandimproveourcustomerserviceaswellassupportrevenuegrowth.Wewillbesharingourreinvestmentplanswithyouaswefinalizeourstrategicstudies.

Iwanttoreemphasizeourmanagementteam'sfocusonexpensemanagement,especiallyastheexpensecarryoftheriskandcompliancestructuresinoursectorcontinuestorampup.

Thetypesofstrategicactionsthatwearecurrentlyevaluatingarelong-termorientedactions,veryclearlyfocusedonbuildingourCompanytoachieveourrevenuegrowthandouroperationalexcellenceobjectivesinrecognitionoftheevolutionintechnology,demographicchangesandrequiredinfrastructuredesignsinthecurrentregulatoryenvironment.

Turningtotheoutlookandifyoucommentsonthethirdquarter.Thusfarwehavemaintainedandcommunicatedarealisticperspectiveontheeconomyandtheoverallmarketconditionsandsharedouroutlookwithyouonthatbasis.Thisperspectiveenabledustoreactappropriatelytomarketdrivenopportunitiestosupportourassetgrowthandearnings.

OurupdatedoutlookisnotmateriallydifferentthanwhatweprovidedinJanuaryandagaininApril.Wecontinuetofeelcomfortablewithourfull-yearNIIexpectations.Asareminder,wehaveonerateincreaseassumptioninthefourthquarteraswediscussedinApril.

WehaveandwillcontinuetoactivelymanageourbalancesheettoadapttochangingmacroeconomicandFedpolicyexpectations.Wedon'thaveanyunderlyingassumptionsrelatedtoswapactivitybuiltintoourNIIoutlookandwehavefairlymodestlevelsofswapsrelativetopeers.

WedostillexpectourNIItogrowyearoveryearexcludingthedepositadvanceimpactandforthethirdquarterweexpectNIItobeslightlyhigherthantheseconddrivenprimarilybyloangrowthanddaycount.AtthistimewealsoexpectNIItogrowinQ4overthethird-quarterlevels.

AswediscussedinApril,weexpectourNIMtobestableduringbigyearfromthefirst-quarterlevels.We'veoutperformedourNIMexpectationsthisquartersowedon'texpectourNIMtowidenfurtherfromhereinthethirdquarterandouroverallNIMduringthesecondhalfshouldbestablewithourfirsthalfNIMwhichis2.88%.

Third-quartercorporatebankingfeestendtobeseasonallylowwithastrongerfourthquarterwhichshouldelevatethesecondhalftotalsandcorporatefeesoverthefirsthalftotals.

OurcurrentexpectationisthatthatMortgageBankingproductionthatrevenuewillbesomewhatbelowthesecond-quarterlevelsbutabovelastyear'sthirdquarter.Theservicingrevenueswillbeafunctionoftherateenvironment.

Excludingthemortgageservicingrevenuesweexpectastrongsecondhalfintotalfeeincome,butfollowingseasonaltrendswithastablethirdquarterandastrongfourthquarter.Overall,feetrendslookpositiveforthesecondhalf.

Ontheexpenseside,aswediscussed,wearecontinuingtoinvestinourbusinessesandinfrastructureandthoseinvestmentswillfurtherincreaseouremployeeexpensesprimarilyinourriskandcompliancefunctions.Inaddition,ourinvestmentsincybersecurityandfraudareaswillbuildasaferenvironmentforusaswellasforourcustomers.

ForthesecondhalfIexpectthatourtotalcompensationexpenseswillberelativelyflatincludingemployeebenefitsandincentivecompforbusinessactivity.

Inaddition,duringthisphasethird-partyexpensestendtobemoreelevated.Someoftheseexpensesareclearlynotpermanent.Youhaveseenthesetypesofincreasesfromotherbanksdependinguponwheretheyareinthecycle.

Weexpecthigherpaymentsprocessingexpensesasagoodportionofthosearedirectlytiedtopaymentactivity.Inaddition,aswediscussedwithyouearlierintheyear,wewillseeanuptickinEMV-relatedexpenditures,whichwillreducerisksgoingforward.

Technologyinvestmentswillcontinuetoincrease.WeexpectourITexpensesduringthesecondhalftobeabout10%higherthanthefirsthalf.AsIdiscussedearlier,wearemakinglong-termstrategicdecisionsandinvestinginourfranchise.

WealsowanttomakesurethatweallocatetheprioritiessmartlybetweenITprojectsthataretargetedforriskandcomplianceinfrastructureandthosethataretargetedfordirectbusiness-relatedpurposessuchasdigitaltechnology.

Webelievethatwecannotapproachtheseinvestmentsinasequentialmannerandthereforeinvestingonthesetwopathssimultaneously.Simplystated,wecannotaffordtodelayourtechnologyinvestmentsinourbusinessesastheenvironmentischangingfast.

Overallourcoreexpenseswillincreasenextquarterrelativetothesecondquarter.Thepredominantdriverwillbemarketingasweexpectaseasonaluptickinthethirdquarterrelatedtoourplanned

campaign.

Excludinganyone-timeitemsinthesecondhalf,suchastheleaseterminationexpensesrelatedtothebranchoptimizationannouncementorotherone-timeexpenses,ourtotalexpensesduringthenexttwoquartersshouldbeapproximately2.5%higherthanourfirsthalfexpenses.

Aswediscussed,ourexpenseadjustmentsrelatedtothebranchstrategyshowsweareveryfocusedonlong-termexpensedriversandwilltakedecisivestrategicactionstomaximizetheperformanceofourCompanybothintermsofrevenuesandexpenses.

Turningtocredit,westillexpectminimalbenefitsfromALLLreleasesduetoloangrowthandtheassociatedhigherlevelsofprovisioning.Ourfundamentalcreditperformanceshouldremainathistoricallylowlevelsgiventhecurrentenvironment.

WealsowouldliketoremindyouthattherevenueexpectationsthatwesharedwithyoutodaydonotincludepotentialandcurrentlyunforecasteditemssuchasVantivwarrantmarksorgainsonshareofsales.Withthatlet'sopenthelineforquestions.Angel?

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions).ErikaNajarian,BankofAmerica.

ErikaNajarian (Analyst-BofAMerrillLynch):

IjustwantedtomakesureIunderstoodthemessageonexpenses.Iknowyouarenotgoingtogiveusthe2016outlook,butaswethinkaboutwhatisareasonableexpectationfornextyear,shouldwetakethatsecondhalfrunratethatisup2.5%morethanthefirsthalf?

Iunderstandthatyoumentionedthattherearesomeseasonallyhighexpensesinthere,butitsoundedlikeyouwerecommunicatingastrongmessageonyourneedtore-investintechnology.

Yes.Whenyouthinkaboutourstrategieshere,Erika,weareclearlycontinuingtosaveandoptimizeourexpensesontheretailside,forexample,wehavebeendoingthatforawhile.

Andtheannouncementclearlyaddsanotherlayerontopofthat,the$65millionrunrateexpenses.Butatthesametime,weareclearlygoingtocontinueourinvestmentsinbuildingtheriskandcomplianceinfrastructureandalsoreinvestingbackinthebusiness,especiallyonthedigitalside.

Havingsaidthat,atthispointwearenotgivingguidancefor2016andwewouldliketospendalittlebitmoretimeinevaluatingourstrategiesgoingforwardwithrespecttocostefficiencies.

Aswesaidthe$65millionwillnotinitsentiretywillfalltothebottomline.Butasignificantportionofthatshouldfall.Andwewilldetailthatforyougoingforward.Greg,doyouwanttocommentonyourthoughtson--?

Andonceagain--andthanks,Tayfun,andErika--asyoulookatourbusinessesandthechangingneedsofourcustomersastheymovetowantingtobankanywhereanytime,ourabilitytoinvestfromatechnologyperspectiveonopportunitiestoimproverevenue,improvethecustomerexperienceandobviouslydriveefficiencies,wearegoingtostayfocusedonthat.

Andwewillalsocontinuetolookatourinvestmentsthatwehavetodayinourinfrastructureandbetterwaysofreengineeringourinfrastructuretoserveourcustomersgoingforward.

AndGreg,justasafollow-uptothat.

Inoticedinthepressreleasethattherewassomelanguagefromyouaboutlookingforfurtheropportunitiestoimproveoperationalefficiency.

AndIknowthatclearlyitistooearlytoaskwhatthoseare,butshouldweexpect,whenyoutakeoverinNovember,adeeperdiveintotheexpensebaseinFifthThird.Andthatwemayhearaboutperhapsmoreefficienciesatsomepointnextyear?

FifthThirdhasalwaysbeenfocusedonprudentexpensemanagement.Wearegoingtocontinuethatgoingforward.Technologyisagreatopportunityforus,especiallywithsomeoftherecentadvancements.

Mobilecheckdeposit--wehaveover15%ofourdepositsnowcomingthroughremotedepositcapture;thatdrivesefficiencyinourbackoperation.Wewillcontinuetolookforwaystoacceleratethatpaceofplayaroundthoseinvestmentswhereitmakegoodsenseforourcustomerandourshareholders.

Gotit.And,Kevin,goodluckwithyourretirement.

Thanks,Erika,Iappreciateit.

Operator :

ScottSiefers,SandlerO 'Neill&Partners.

Scott Siefers (Analyst-SandlerO 'NeillandPartners):

Tayfun--firstofall,KevinandGreg,congratulationstobothofyou.Tayfun,Iwashopingyoucouldexpanduponsomeofthecommentsaboutloangrowthyoumadeinyourearlypreparedremarks,whereIthinkyoujustnotedkindoftheclientretentionandselectioneffortsyouguyshavemadewouldsuggestloangrowth.

Justgiventhatthedynamic,inotherwordstheacceleration,haschangedoverwhathasbeenthelastthreequartersorsoIwasjusthopingyoucouldexpandalittleonthosecomments.Inotherwords,despitethecompetitivedynamicwhatisitthatkindofmakesyoufeelbetteraboutgrowingtheloanbookmorerobustly?

Sure.So,Scott,IthinkwhatisveryencouragingiswhenIlookatthelastsortoftwoquartersoftrends,despitethefactthatpayoffsremainedathealthylevels,ourproductionnumbersarecominginstronglyabovethosetodrivenetloangrowth.

WhenwegobacktothesecondhalfoflastyearIthinkasaCompanywehavedoneaverygoodjobinunderstandingtheimpactofthecompetitivedynamicsinthemarket.Andhavebeenableto,between

sortofthesalesgroups,thecreditgroupaswellasmyfinancegroup,toorganizeourselvesinamuchmoreefficientmannertorespondtothemarketandtorespondtoourclients.

AndIthinkthatisreallydrivingthehealthyincreaseinproductionlevels.Andwhenyoulookatthecreditprofileofthesenewloanscomingonbalancesheet,asImentioned,thecreditprofilethisquarterofthisnewproductionwasthehighestinfivequarters.

Soitisclearthatwearenotstretchingorsacrificingoncreditasweincreasethenumberofourrelationships.Andalso,we'vebeenobviouslyfocusedindeepeningtheexistingrelationshipsandthatisworkingwellaswell.

Andthisisalso--Ihavetosaythatduringthelastthreeorfourquarterswehaveaddedgreattalentbothinoriginationsaswellasonthecreditside.Ithinkthatisworkingverywellforus.

Andwehaveidentifiedtherightareas,whetheritisourspecializationinhealthcare,ourcontinuedfocusonmid-core,ournewretailvertical.Ithinkthisisreallyabroadbasedsupportforloangrowththatweareseeingtoday.

Okay,perfect.Thankyou.Andthenmaybeifyoucouldspendaquicksecondjusttouchingonoverallearningassetgrowthbeyondjusttheloanportfolio.

Iguessyouaremaybecallitroughlytwoquartersintobeingalittlemorecomfortableinvestinginthesecuritiesportfolio--inotherwordsthatmixfromcashtosecuritiesandyoustillgetaprettyrobustdepositgrowth.SohowdoyouseeIguessthesecuritiesportfolioinparticularplayingoutintermsofgrowthaswelookahead?

JamieLeonard (SVP,Treasurer):

Yes,Scott,itisJamie.Aswesaidonourfirst-quartercall,wewouldexpectduringthecourseof2015toaddanother$1billionto$2billionofleverageduringthecourseoftheyear.Duringthequarterwemadethedecisiontoacceleratethatadditionalleverageasyousawinourresults.

Soourportfolio,asweexitthesecondquarter,iswherewewouldlikeittobe.Weareprettypleasedwiththeexecutionandcontinuetobemindfuloftheraterisk.Sogoingforwardyoucanexpectourportfoliotobefairlystableandtogrowinlinewithearningassetgrowth.

Okay,allright,perfect.Thanksalot,guys.

Operator :

KenZerbe,MorganStanley.

KenZerbe (Analyst-MorganStanley):

Justacouplequickquestions.Thefirst,intermsofthebranchrestructuring,Iknowobviouslyyoutookthechargenow,butImayhavemissedthepreparedcomments.Didyousayyouweregoingtotakeadditionalchargesduringthenextcouplequartersbutjusttellusasyoutakethemor--?

Yes,thesecondpiece,Ken,we--actuallyitwasinour8-KthatwefiledinJune,therearesomeleasedbranchesandtheexpenseimpactonthosewillflowthroughournumbersasweclosethosebranches

andreflecttheimpactofthoseleasesonagoingforwardbasis.Thatnumberwas--Ithinkwediscloseditbetween$6millionand$10million.

Gotit,okay.Andthensecondquestion,intermsoftheloangrowth,obviouslyalotofgrowthcomingfromtheconstructionportfolio.Howmuch--someofthebanksthathavealsoreportedhavetalkedaboutlikehighvolatilityCRE.

Canyoujusttalkalittlebitabouttheconstructionpiece?Likeisanyofthathighvolatility?Doesithaveahigherriskweighting?Justtryingtogetasenseofthetypesofconstructionthatyouareputtingon,thanks.

FrankForrest (EVP,CRO):

Hi,thisisFrank,goodmorning.Goodquestion.AsTayfunmentionedthough,whenyoulookatourgrowthitisnotheavilyconcentratedinconstructionactivity.Itisacrossallsectorsand,again,theriskprofileisverystrong.

Theconstructionactivityweareseeingisquitefranklyinnon-speculativeofficebuildings,apartmentbuildings,someretail.They'retonationalbuildersthatwe'vehadalongtimerelationshipwith.Andagain,IwillemphasizewearetakingIthinknominalriskinmanagingthatbookaswegoforward.

Wehavelearned,asotherinstitutionshave,ourlessons.ThisbookissmallrelativetoIbelieveourpeers.Andwearebeingveryprudentinclientselection.

Soitis--wearehappytoseethegrowth,butagaintheyaretoclientswefeelverygoodabout.TheseareagainloansthatIthinkhaveaverysolidriskprofileandwe'llcontinuetomanageitprudentlyaswegoforward.

Allright,thankyou.

Operator :

MattO 'Connor,DeutscheBank.

MattO'Connor (Analyst-DeutscheBank):

Canyoutalkaboutwhatisgoingonintheconsumerautolendingspace?Iknowitisanareathatyoupulledbackalittlebitseveralquartersagogiventightpricingthere.

Butobviouslythereisgoodloansalesand--orautosalesandtheaveragepriceofautoshasgoneup.Sooveralltheindustryseemstobedoingprettywell,buttalkaboutthelendingenvironmentandyourapproachrightnow,please.

Matt,ourcolorthereisnodifferentthanthesamemessagethatwehavebeengivingoverthelasttwoyears.Yes,carsalesareathealthylevels,butwhenwelookatthepricingandprofitabilityofthatbusinesswithinthecreditprofilethatwearecomfortablewith,wearecomfortablewiththeoriginationlevelsthatwehaveandtheyhavebeenverystable.

Anumberofourcompetitorsobviouslyareoperatingatcreditprofilesbelowours.Theimmediateprofitmetricslookreasonable,butitjustdoesn'tfitourriskprofileandrisktolerancelevels.

So,Idon'treallyhaveanynewnewsforyouinthatarea.Ithinkthenextfewquartersthenumberswilllookverysimilartowhatyouhaveseenfromusoverthelasttwo,threequarters.

Andthenmaybejuststeppingbackbiggerpictureforconsumerlendingoverall.Mostofthecategorieshavebeenrelativelystableforyouguys.Aretherepocketsofopportunitytobalancesheetgrowthorstillmostlyfocusedonthecommercialsideintermsofonbalancesheetgrowth?

Thedevelopmentofourbalancesheetisreallyanextensionofwhatweareseeinginthebroadeconomy.Homeequitiescontinuedtheirsoftdecline.Atonepointthatisgoingtoturnandclearlyinourbranchnetworkweareveryfocusedinmakingsurethatwhenthathappensinourfootprintthatwearereadytoexperiencethatgrowth.

Creditcards,Ithinkthatstillcontinuestobeagoodbusinessforustosupportongoinggrowth.Thatbusiness,asyouknow,isaverybrandfocuseddirectretailportfolioforus;ithasgreatcreditprofileandwearehappytogrowthatportfolioandwewillgrowthatportfolio.

Wehaveaddedsomemanagementtalentoverthepastcoupleofquartersthere.Andaswefocusonthe[MV]projectandthecreditcardbusinessatthesametimewearefocusingonbusinessgrowthopportunities.Soyouwillseecontinuedgrowthincreditcards.

Andthenwealsowillobviouslymaintainourmortgagepresenceandasweseeopportunitiestherewewillsupportthat.Soatthispointthetrendsaregoingtolookfairlysimilar,butastheconsumercontinuestoimproveinitsbalancesheethealth,weareheretoabsorbobviouslymoregrowthinthatarea.ButrightnowC&Iwilldominateloangrowth.

Okay,thankyouverymuch.

Operator :

KenUsdin,Jefferies.

KenUsdin (Analyst-JefferiesandCompany):

Tayfun,justasummaryquestionontheoutlook.IfIheardyourightaboutexpectinggrowthinNII,abetterbackhalfforfees,andthenthisexpenseguidance,amIcorrectinassumingthatthePPNRoutlookwouldbebetterthanthe578adjustednumberthatyoupostedforthesecondquarter?

Ken,IwillleavemyoutlookstructureasIlaidoutwithoutsortofaddingmoretothat.Imeanclearlythefundamentaldriverscontinuetobehealthy.AnditisnodifferentthanwhatwethoughtwasgoingtohappeninJanuary,whatwethoughtwasgoingtohappeninApril.

Wejustmaintainaverysimilarperspective.Weareconfidentinthehealthofthefundamentaldrivers,thatbeingearningassetgrowth,whichnowgoingforwardforthisyearwillreallyreflectloangrowthratherthansecuritiesgrowth.

NIMisgoodlevels;themomentumthereishelpful.Webelievethatthesecondhalfshouldshowgoodsort

offeeincomelevels.SoIwilljustleaveitthereandwegaveyoualittlebitmoredetailedexpenseguidancebeyondthat.

IwouldbecarefulinnotprotectingQ2'sPPNRlevelsfortherestoftheyear.Weclearlyhaveperformedinthesecondquarter,butthingslookgoodandaswemoveintothethirdquarterweareconfidentinthefundamentaldrivers.ButIjustwanttopointoutthatinQ2weoutperformedsignificantly.

Understood.Andthensecondly,justonyouroutlookforcreditwhereclearlythereweresomeadjustmentsmadeinside,soundslikealittlebitfortheenergyside.

UnderlyingthatandwhateveryoumayhaveadjustedfortheSNCspecifically,Iwasjustwonderingifyoucouldfurtherteaseoutwhatwascorecreditperformance,whatmighthavebeenSNCrelated.Andthenyourjustkindofunderlyingoutlookforanyfurthercharge-offimprovementandreserverelease.

Yes,firstofall,Ididnotmakeanystatementsrelatedtotheenergybeingpartoftheunderlyingcredittrends.SoI'mgoingtoturnthatovertoFrankandthenIwillcomebackwithcommentsonprovisioning.

Thanks.Aswehavesaidbefore,thisenergybookisrelativelysmallincontextofbothcommercialandthebandcorp.asawhole.Itislessthan2%ofourbandcorp.loans,it's$1.67billion,soit'sasmallbook.

Wehaveahighlyexperiencedteamoflenderswhohavebeenwithusover20yearsonaverage.ItispredominantlyamidandlargecorporatefocusthatisconsistentwithourotherFifthThirdnationallines.Weexercisewhatwebelieveisconservativeunderwriting.

Itisadiversifiedbook,asTayfunhastalkedabout.Upstreamrepresents50%ofallenergy-relatedexposuresandthattendstobeawellstructuredbook.Itisunderatraditionalsecuredreservebaseborrowingbase.Thebalanceofthatbookispredominantlytoinvestmentgradecredit.

Sowhenyoulook--andaswewentthroughthisSharedNationalCreditexam,effectivelyforusitwasawash.ThenumbersthatTayfunsaidareinoursecond-quarterresults,therewerenomaterialadversechangesasaresultoftheexamacrossthebroadportfolioorintheenergysector.

Sothesectoritself,wetalkedaboutthefactthatwehadaslightmigrationonnonperformingassets,butthenonperformingassetsintheenergybookarelessthan1%andwedon'texpectanymaterialchangethere.Wedon'texpectanymaterialchangesintheoutlookforthesecondquarterasaresultofourenergybook.

Sowefeelgoodaboutthebookasawhole.Again,itissmall,well-managedandperformingtodate.Wehaveseensomeriskratingmigrationashaveothers.Butagain,itisjustnotamaterialnumberintermsofbandcorp.

Andontheirprovision,Ken,Ithinkwesignaledattheendoflastyearveryclearlythatwewouldexpectthisyeartocrossthethresholdatsomepoint.Ourcoveragelevel,provisiontocharge-offcoveragelevelmovedupnowabove90%thisquarter.

Soouroutlookbasicallyisforthattrendtocontinueintofullcoverage.Butthatisjustthenaturalprogresswithrespecttoourexistingcreditprofile,ourloangrowthstatisticsandIthinkdespitethefact

thatwefeelveryconfidentthatjustasanaturalprogressionatthispointthatweareexpecting.

Understood,thanks.Sorryforthatmisstatementontheenergycommentearlier.

Noproblem.

Operator :

MikeMayo,CLSA.

MikeMayo (Analyst-CLSALimited):

Whatwasthetippingpointforthisbranchreduction,105branchesoverthenext12months.I'mnotsayingitdoesn'tmakesense,itjustseems--whynow?

Look,Mike,Ithinkwediscussedwithyou,aswellaswiththebroaderinvestorcommunity,thatwehavebeenaggressivelytakingactionsinourbranchnetworktoadapttonewtechnologies.

Wehavebeenobservingwhathasbeenhappeningintheunderlyingdemographicsandusagepatterns.Andthisisjustbasicallyanaccumulationofthosetrendsoverthelastnumberofquarters.

Andwehad--weanalyzedthissecondquarteroflastyearandthisquarterwasagoodtimetotakeanotherlookbecause,asyouknow,technologyismovingveryfast,thereareopportunities.Andwehadn'tmadesignificantchangesinourbranchnetworkoverthepastnumberofyears.

Sothiswastherighttimetodoit.Wefeltcomfortablewithwhatwasavailabletous.Andwehaveabetterlookintothefutureastohowourcustomersareutilizingourbranchestodaythanwedidbefore.

Andthenjustoneotherquestion.FifthThirdhashadtwoCEOsforthelast25years.Kevin,you'vebeenthereforawhile.AndIguess,Greg,youtakeoverlatethisyear.SocanyougiveussomecolorastowhytheCEOchange?Ithinkitwasalittlebitofasurprise.

Clearlyitwasn'tduetoanearningsshortfalloranything.ButwhatwasthemotivationbehindtheCEOchange?WhatwastheBoard'sthinking?AndGreg,howmight--howisyourstyleperhapsalittlebitdifferentthanKevin's?

Hey,Mike,letmestart--giveyoumyperspective.Wehavetriedtobeastransparentaspossiblerelativetoorientation.Butasyouknow,whenIwasworkingwiththeBoardrelativetolookingatakindofCEOtransition,andparticularlyintermsoflookingataboutadecadeoftimeframe,itisnotthe--asItoldtheBoard,itisnottheyears,itisthemiles.

Andso,frommyperspective,giventhattheBankisinreallygoodshape,whetheryoulookatthebalancesheet,asyoujustmentioned,orearnings.Andthenasyoualsolookatintermsofthesuccessioninthetalentthatwehaveinternallyfromthatperspective,itreallytometiestogetherverywellforaverynormal,verythoughtfultransitionforaFortune500Company.

AndIthinkIamreallycomfortable,IthinktheBoardwasreallycomfortableinourapproachandintheperspectivethatweputtogether.Asyousaid,long-servingCEOsandourexpectationisthatGregwilldothesameaswegoforwardfromthatstandpoint.

AndtheotherthingIwouldmentionisGreghasbeen--asIhighlighted,GreghasbeenChiefOperatingOfficersince2006.HehasbeenPresidentandChiefOperatingOfficersince2012.Sohehasalonghistory,heunderstandstheculture,heunderstandsboththechallengesandtheopportunities.

AndhewillgetachanceinthecomingmonthstoreallykindoflayouthisthoughtsandhisperspectiveintermsofwhereFifthThirdwillbegoingfromthatstandpoint.AndIthinkyouwillbepleasedwithwhathebringstothetablefromthatstandpoint.

So,Idon'tknow,Greg,ifyouwantedtoadd(multiplespeakers)?

Thanks,Kevin.Firstoff,KevinandIhavehadagreatrelationship.AsKevinmentioned,IhavebeentheCOOsince2006andPresidentsince2012.Itisbeenagreatpartnership.Andthishasbeenaverythoughtfultransition.Wehaveworkedhardtogetthisright.Wewillworkhardtocontinuetogetitrightgoingforward.

Leadershipstyle,Mike,whatIcantellyouaboutmyselfandwhatyoucanexpectfrommeisacouplethings.OneisIbelieveinclarity,makingsureourorganizationhascrystalclarityastoourmission,ourobjectives,whatwearetryingtoaccomplishasanorganization.

Beingverytransparentaboutwherewestand,whatweneedtogetaccomplish.Beingveryproactiveanddecisiveonmovingforwardandmakingsureweholdtheorganizationaccountableforouroverallmissionobjectivestoserveourcustomers.So,thatismystyle,Iwillcontinuethatgoingforwardintheorganization.

IlookforwardtoonceagainfocusingonhowwecanleveragemybackgroundandmyexperiencepriortoFifthThirdandwhenIfirstcameintoFifthThirdintechnology.

Weliveinatechnologyevolutionandtheworldischangingandmyexperienceinthatsectorandthepaceofplayinthatsectorwillcontinuetobeanopportunityforustogetitright.So,Iamlookingforwardtotheopportunity.

Ithink,Mike,thebottomlineisthatwewouldhope--theBoard,myself,Greg,theleadershipteamherewouldhopethattheStreetandyouallseethatwearegoingtocontinuethemomentumthatwehavetalkedabout,wearegoingtocontinuetheeffectiveapproachtoarapidlychangingandchallengingenvironment.

AndIthinkyoucanexpecttoholdusaccountabletothatstandardnowandinthefuturewithGreg,so--.

AndtheotherthingIwouldadd,Mike,iswehavegotgreatleadershipinthisorganizationwiththemoveswehaverecentlymade.Youlookatourmarketsandthetalentwehaveinourmarkets,wehavegotgreatpeoplerunningourmarkets,wehavegotgreatleadersrunningourlinesofbusinesses.AndIamveryproudoftheperformanceofthisorganization.

AsTayfunsaidandasKevinsaid,weareinaverysolidpositionrightnowwithalotofupsideopportunitiesgoingforward.

Thankyou.

Operator :

ChrisMutascio,KBW.

ChrisMutascio (Analyst-Keefe,BruyetteandWoods):

Tayfun,Ijusthadaquickquestionforyouifyoucanhelpmeout.Onslide14yougothroughyourinterestrateriskmanagementandhowyouarepositionedtoday.AndIlookedatacoupleofthingsofthose.

Andforexample,theinvestmentsecuritiesportfoliodurationisnow,what,4.9years.Ilookedbacklastpresentationanditwas4.3years.Thatmakessensebecauseyouare--Iguesswiththeinvestmentsecuritiespurchases.

Theshort-termwholesalefundingisnow3.5%to4%oftotalfunding,itwasonly1.5%atlastquarter.Andsecuritieshasn'tmovedagreatdealbecausemostofthebuildingoftheportfoliowasfirstquarter.Butsecuritiesasapercentofassetsisnowover20%;itwasjustover19%lastquarter.

Soitwouldseemtomelookingatsomeofthosecharacteristicsyourassetsensitivitywouldhavebeenreducedafairamount.ButwhenIcomparesomeofthenumbersonthisquarter's--theestimatedsensitivitiesandthosetables--whenIcomparethemthisquartertolastyear,therereallyisn'talotofmovement.

Somewhatdownward,but--socanyoukindofreconcilethebuildupofthesecuritiesportfolio,thedurationextensionandyetnotreallydeterioratingmuchofyourassetsensitivitygoingforward?

Yes,itisJamie.Thebiggestportionoftheanswertoyourquestionisifyoulookbackanotherpresentationpriorandyoulookatyearend,weareactually--thedurationoftheportfoliowasatfiveyears.

Sowhathappenedisratesralliedinthefirstquarterwhichdrovetheportfoliodurationtoshorten.Andthenrateshavesoldoffinthesecondquarter.Sowehavenotreallychangedthemixorcompositionoftheportfolio,itismerelyafunctionoftheratesthatareimpactingthedisclosedduration.

Andthenwhenyoulookatwhatwehaveaddedintheportfoliobothinthefirst-quartergrowthandthenthesecond-quarteractivity,youreallyseethatdrivingthechangeinthe[EBE]wherewediddeclinefromaminus3.8downtoaminus4.6.

Butintermsofthedisclosedassetsensitivity,youcanseethebiggestdriversofyourrateriskarethebeta,thepricinglagsandthentheDDAdisintermediationandwehavenotchangedthoseassumptions.

Theonlychangethatoccurredtoourinterestrateriskupdatewaswedidanannualdepositliveattritionstudyandthatresultresultedinasmallincreaseintheaveragedepositlivesof0.2yearsandthatisdrivenbythecontinuedsuccessfromourdepositsimplificationprogramandourabilitytoserviceourcustomers.

Andweareseeinglessattritioninourdepositbase.Soreallytherewerenolargechangesinourrateriskassumptions.

Chris,Imeanyourquestionispreciselythereasonwhywehavethisslideinourpresentation,becausewewantedtomakesurethatwewereverytransparentintermsofnumbers,intermsoftheassumptionsthatsupportthosenumbers.

Wekeepseeingreferencestohistoricalbetarangesfromourpeersandwewerehopingforthisdiscussiontobebasedmoreonfactualdata,whichweareintendingtodo.Yourreferencetotheshort-termwholesalefundingisaquarterlyfluctuation,isnotsortofameaningfulchangeintermsoftheoveralltrendswhichclearlywillrelyoncorefunding.

ChrisMutascio (Analyst-Keefe,BruyetteandWoods):

IappreciateitandIdo,thedisclosureisfantasticrelativetowhatIseefromothers,soIdoappreciatethat.

Operator :

JohnPancari,EvercoreISI.

JohnPancari(Analyst-EvercoreISI):

Justonequestionreallyonthecreditside.OntheSharedNationalCreditbookonslide16,Iknowyouindicatethatthesizeofthebookis$25billion,sothat'sabout27%ofloansnow.Whatwasthesizeofthebookaboutayearago?

Whatarethebusinessesthatarereallydrivingthatgrowth?Isthereanyspecificonethatisreallydrivingthegrowthofthatbook?Andthenalsowhatisthe--doyouhavetheaverageyieldofthatportfoliobychancejusttogetanideaofwherethesetypesofloansarecominginat?

Hi,thisisFrankletmetakeittobeginwithandwearelookingontheyieldquestionforyou.Thebookisupfromabout39%to44%overthepastyearasitrelatestotheSharedNationalCredite-Exam.

Again,wehavealargecorporatebookandthatispredominatelywhatthisis,mid-corp.andlargecorporate,veryhighriskratedoverallbook;theoverallriskprofileisstrong.

AndasIhavesaidbefore,whenyouthinkabouttheSNCexamandyouthinkaboutthisportfolio,weunderwriteeveryloantoourownaccount.Soitdoesn'tmatterwhetherweparticipateinthesyndication,weleadasyndicationorwedoastandaloneone-offtoacorporate,westructureitandweunderwritetoourownaccount,toourriskappetiteandtoourownstandardswhichwebelievearehigh.

Sorelativetowhetheritis39%or44%Idon'tnecessarilythinkisthatmeaningfulbecause,again,weunderwritetoourownaccount.AndthisisaportfoliothathasperformedverywellandourportfolioperformedverywellinthemostrecentSNCexam.

Yes,theSNCportfolio,John,asFrankmentioned,withrespecttoallthevariables,creditvariables,areactuallyabetterportfoliothanouroverallcommercialportfolio.Sowewillgetyou--Idon'thavetheyieldspecifictotheSNCportfolio.Butinoneofourpresentationswecansharethatwithyou.

Okay,allright.Andthenmysecondthingisonthatsametopicactually,buthowmuchofthatportfolioareyoualeadon?Andthenlastly,Iknowyouindicatedyoudidn'thaveanyissuesintheSNCexamfromit,isthere--theriskofanylingeringimpactlikenextquarterforanyofthestuffthatyouwerenotagentonornotleadagenton?

IwillanswerthefirstpartthenIwillturnitovertoFrank.Theagentedportionofthatportfolioisabout6%to7%,soitisasmallpercentageofthattotal.Frank?

Again,theonlypieceofthatthatcouldbelingering,aswetalkedabout,wouldlikelybeintheenergysector.Buttheenergybookforusis2%oftheSNCbook.Imeanitissmall.

Soit'sasmallpieceoftheoverallpie.Andagain,we'vebookedalloftheresultsfromtheSNCexam,alltheratingsadjustmentswereallinthesecondquarter.Sowedon'texpectanymaterialchangesgoingforwardfromthatexam.

Okay,great.Allright.Thankyou.

Operator :

DavidEads,UBS.

DavidEads (Analyst-UBS):

Maybejustoneforme.Canyouguystalkalittlebitaboutwhatyouareseeingwhenitcomestodepositpricing?ItseemslikesomepeoplearestartingtogetalittlebitmoreaggressivethereandIamjustcuriousifyouareseeingmuchinyourfootprint.

Yes,wellwehavediscussedoverthepastcoupleofearningscallsiswefeltthereweresomeopportunitiestorationalizedepositpricing,especiallyinlightoftheLCR.

SoourfocushasbeenonreducingdepositratesespeciallyinthosebucketsthatarelessLCRfriendly.AndyouseethatinourresultsthisquarterontheNIM,asTayfuntalkedabout,thebenefitfromallofourfundingactionswasroughly3basispoints.Andthatshouldstabilizeasweheadintowhatpotentiallyisarisingrateenvironmentattheendofthisyear.

SoIthinkwehaveaccomplishedwhatwewantedtoaccomplishandyoucanexpectthattobefairlystablegoingforwarduntiltheFedbeginstotakeaction.

DavidEads (Analyst-UBS):

Great,thanks.

Operator :

PaulMiller,FBR.

T homasLeT rent (Analyst-FBRandCompany):

Hey,goodmorning,is

actuallyThomasLeTrentonbehalfofPaul.Mosthavebeenaskedandanswered,butaquickquestiononprepaymentspeeds.

Wehaveheardfromafewregionalpeersthatprepaymentspeedsinsomeoftheirportfolioswerealittleelevatedinsecondquarter.Didyouguysseeanyelevated[CPRs]inanyofyourbooksorinresiortermCREspecifically?

Areyoureferringbroadlyfortheentireloanbookor?

Yes,broadly--thewholeportfolio,herethereanybooksthatsawhighprepaymentspeeds?

Theresistuff,clearly--thesecondquarterwasimpactedbyalltherefiactivitythattookplaceinthefirstquarterwhichthenshowsupinourMSRamortizationlines.Theinvestmentportfolioreallywasnothingbeyondourexpectations,justreflectiveofthemarkettrends.

AsImentioned,thecommercialbookshowedalittlebitelevatedpayofflevels.Butwhenwesortoflookedatthedetailsofthosepayoffs,theyappeartobemoreevent-relatedratherthanrefi-related.

Therewassomeactivityinthecommercialconstructionbook;therewassomeprepaymentaheadoftheprojectfinalizationdates.Thisquartermorethanlastquarterisnothingsortofoutsideareasonablerange.Sothatismycoloronprepayactivity.

Okay.Andonequickquestiononexpenses.Ibelieveyoumentionedsomethingaboutleaseterminationexpenses.Thatisanadditionalline,thatisitadditionalexpensethatwasnotincludedinthisquarter'simpairmentcharge,correct?Thatcouldcomeoverthenext6to12months?

Yes,thatisspecificallyrelatedtothosebranchesthatwearegoingtoconsolidatewherewehavealeaseratherthanowningtheproperty.Andthatisgoingtoflowthroughourexpensesoverthenextcoupleofquarters.

Andyoudidnotsizethatcorrectly?

Well,wesizeditinour8-K;wesaiditisgoingtobetween$6millionand$10million.ButIdidnotincludethat.Iexplicitlystatedthatmyexpenseguidanceof2.5%doesnotincludethatnumber.

Okay,perfect.Thanks.

Operator :

MartyMosby,ViningSparks.

MartyMosby(Analyst-ViningSparks):

Tayfun,Iwantedtoaskyoualittlebitaboutthegrowththatyouhavedoneinthesecuritiesportfolioandyourchoicetoalmost100%utilizeavailable-for-saleversusheldtomaturity.

IthinkthisquarteryouactuallyhadsomenegativeimpactonyourtangiblebookvalueasOCIcameinalittlebit.Wasjustcuriouswhatyourstrategyortacticisthere?

Yes.ThisisJamie.

Thestrategyontheavailableforsaleisreallyjusttomaintainflexibilityaswemanageinterestrateriskandseeopportunitiesinthemarket.IknowalotofourpeershaveusedHTM,butgiventhatourassetsizewe'rebelow$250billionwedidelecttheAOCIoptoutsothatuseoftheAFSandtheresultingmarksdon'timpactourcapitalratios.

Yes,therewillbeanimpactonsomeofthescreensthatyoualluseontangiblebook,butwe'dalsohopeyoujustwouldfairvaluetheHTMportfoliosfrompeersaswellwhenscreeningacrossthatmetric.

Andwouldyou[consider]the(inaudible)yes,goahead,I'msorry.

TheflexibilityofmanaginganAFSbookoutweighsthebenefitsofnotmarkingaheldtomaturitybook.Sothathasbeenourlongsubscribedphilosophyhere.

AndwhatIwastryingtoaddtothatwasgiventheexcesscapitalthatyouhave,wouldyouthinkabouthavingthatflexibilitysowhenratesstarttomoveupyoucanutilizethatexcesscapitalinashort-termlossthatgetsrecapturedveryquickly,butyetimprovesyourearningsprettyrapidlybecauseyoucancontinuetokindofchurntheportfolioupasratesmovehigher?Haveyoukindofthoughtaboutthat?

Imean,thatclearlyisareasonablestatement.Wewillseehowtheenvironmentmoves.Butthattypeofflexibilityiswhatwevalue.

Andthenjustlastly,ifyoulookatthemortgagekindofdetailbackintheappendix,itlookslikemaybewiththegainyouhadintheservicingsideyouactually--lookslikeyouheldmoremortgageoriginationsversussecuritizing.

Ididn'tknowifyouwerekindofsubstitutingoriginationforservicingincomeandcreatingsomelonger-termimpactwithhavingmoreintheportfolioversussecuritizingthisparticularquarter?

Yes,acoupleofcommentsonthatone,oneonMSR.Wehavebeenactually--whenyoulookatourMSRmanagementoverthelastthree,fouryearswehaveaverycomprehensiveapproachtohowwemanageourMSRpositionwithrespecttoproductiontrends,interestrateenvironmentandalsotheup-and-downtrendsinoursourcingbook.

Sothedecisionwhenandhowmuchtoportfolioorwhatportionofourmortgageproductiontoportfolioreallydependsonenvironmentalfactors.Wedidhaveinthefirstcoupleofquartersalittlebitmoreelevatedbalancesheetpositionsinmortgageproduction,butthatdoesnotnecessarilyindicatewhatwewilldogoingforward.

Thatisreallyaquarter-to-quarterdeterminationintermsofwhereweseepricinginthemarket,whatourportfoliocharacteristicslooklike.RightnowwearejustholdingtheARMportionofouroriginations;wearenotholdingonto--ontheconformingsidewearenotholdingontolonger-termfixed-ratemortgages.

Wehavealwaysportfolioedthejumboproductionbecausethatjustismoreofarelationshipbusiness.Butingeneralthemortgageservicingassetriskmanagementisaverycomprehensiveapproachandwhether--whatwebalancesheetfromproductionisalittlebitseparatethanthat.

Understood.Itjustseemsliketherewasanincrementallegupthisparticularquarter.SoIwasjustcuriousaboutthat.Thanks.

Quarter,yes.Youarecorrect,yes.

Operator :

GeoffreyElliott,Autonomous.

Geof f reyElliott (Analyst-AutonomousResearch):

IhavegotaquestiononVantiv.CanyougiveanupdateonyourthinkingaboutthestaketheregiventhatitisnowbeenoverayearsinceyoulastsoldsomesharesandtheVantivsharepricehasclearlymovedupquitealotoverthattimeperiod?

OurlongstatedstrategicapproachtoourVantivownershipisthatoverthelong-termwewillnotremainamajorityoralargeownerofVantiv.Andthatdecision,reallywelookatitonaquarterlybasis,welookatwhereweare,welookatwherethestockpriceis.

ItisafairlycomplexownershipstructureaswehavethewarrantpositionaswellastheTRA,aswellasthedirectownership.Soatthistimeourpositionhasnotchanged.Westillintendtoreduceourownershiplikewewanttomakesurethatweexecutethatinthebestinterestofourshareholders.Andwewillcontinuetomonitorthatsituation.

Andwouldsellinganotherslugofshareshere,wouldthatmeanyouhavetodeconsolidate,youlostthefeestream?Isthatpartofthethinkingbehindnotsellingoverthelastyearorso?

No,Imeanweowncurrentlynearly23%oftheCompanydirectly.Sowearenotclosetohavingthatconcern.AndthereisreallynobrightlineaswehaveBoardmemberships,aswehavethewarrantpositionandasignificantoperatingpartnershipwiththeCompany.Sothatisnotthereasonwhywecurrentlyarestillholding23%oftheshares.

Great,thankyouverymuch.

Operator :

SameerGokhale,JanneyMontgomery.

SameerGokhale (Analyst-JanneyCapitalMarkets):

Firstly,Greg,I'dliketocongratulateyouonyournewappointmentand,Kevin,Iwassurprisedbytheannouncementthatyouwereretiringbecause59isnowthenew49.Butbestoflucktoyouonthataswell.

WecoveredquiteafewofthequestionsIwasgoingtoask,butjustacoupleofthemjusttofleshthemoutalittlefurther.

ThefirstonewasreallyforGreg.InyourroleasCOOonewouldassumethatperhapsyouweremoreinternallyfocusedintotheoperationsoftheCompany.ButnowastheCEOIthinktheexpectationwouldbethatyoumightneedtobemoreoutwardlyfocused.

Soasyouhavetakenonorwillbefullyofficiallytakingonthisresponsibilitylaterthisyear,whatwouldyousayareyourtopthreeprioritieslookingoutwardly?Mobilebankingclearlyisoneofthethingsthathavebeenfocusedon,butarethereanyothertwoorthreethingsthatatthispointyouhavecommunicatedtotheBoardorarereadytosharewithus?

Firstoff,thanksforthequestion.AndIhavebeenfocusedontheorganization.ObviouslyasChiefOperatingOfficerandPresident,spentalotoftimeinthemarkets,alotoftimewithourbusinesses.

SooneofthefirstthingsIwanttodoismakesureItouchbasewithallkeyconstituents,ourstakeholdersoutthere,shareholders,keycustomers,employeesandmaintainthatfocusonourmarket.

Inadditiontothat,wearegoingtocontinuetolookforwaystotakeadvantageofsomeofthedynamicchangesthatareoccurringinourindustrysuchasinvestmentsintechnologytoaccelerateourpaceofchangewithrespecttohowweserveourcustomersandefficiencies.

Andalsocontinuetolookatourbusinessesmakingsurewearealignedandweareintherightbusinesses,we'vegottherightfocusonthosebusinesses,wehavetherightpartiesinplace,wehaveenoughresourcesdeckedagainstthoseopportunities.YoucanexpectIwillcontinuetofocusonthatandmakesurethatwearealignedtocapitalizeonthemarketopportunities.

Sameer,I'malsotryingtogethimtopayattentiontoretireesbecausesignificantshareholderandmorealignedwithyouthanever,so...

Itoldhimmyplateisfull(laughter).

Terrific.Well,andthentheotherquestionIhadwasactuallyintermsofyourappetiteforM&A,Imeanthistiesintosomeofmaybeyourstrategicactionsyoumightlookatoverthenexttwoyearsorthreeyears.

Asyoulookattheportfolioofbusinessesyouhavetodayandtheloantypes,andoneofthethingsIwanttohoneonis,orzoneinon,iscommercialandindustrialloans.Itisaprettybroad-basedassetcategory,manysubcategoriesinthere.Arethereanyspecificareasthatmaybeyouhaveearmarkedasbeingofinterestfrom(technicaldifficulty)standpointandthingsyoumightwanttoacquire?

Firstoffwedon'ttypicallycommentonM&Aactivity,Sameer,butIwillstatethis--anytimethereisanopportunitytocreatevalueforourshareholdersoveralong-termhorizonwearegoingtolookatthatveryclosely.Andwearenotgoingtodoadealjusttodoadeal.Norwouldwedosomethingthatispositiveintheshort-termthatdoesn'tcreatelong-termshareholdervalue.

So,Ithinkaswelookatthoseopportunitiesinourbusinessorourgeographywewillalwaysbemindfulofdoesitcreatevalueforourshareholdersand,net-net,ourabilitytobeabletoexecute?Andwewillexecuteonthoseopportunitiesattheendofthedaywhenthetimeisrightandwhenthoseopportunitiesemerge.

And,Sameer,wehavebeenverysuccessfulinorganicallyactuallystartingandgrowingsubbusinessesinsidethecommercialCorporateBankingarea.Sothatsuccessgivesusconfidencethatifweweretoventureintoanewareathatwecanactuallydoitwiththerighttalent.

Andinthisenvironmentitalmostisbettertodothatastheregulatoryenvironmentisverydifficultforanon-banktooperateinsideabank.So,oursuccesssofargivesusconfidencethatwecandoitinternally.Ifthereareopportunitiesoutsidewedon'tmindlookingatthem,butwewillhavetoevaluatethemastheycomealong.

Okay,thatisgreat.Thankyouverymuch.

Operator :

MattBurnell,WellsFargoSecurities.

MattBurnell(Analyst-WellsFargoSecurities):

Firstofallmaybe,Greg,aquestionforyou,justfollowingupontheimmediatelypriorquestion.We'vebeenhearingforsometimethatincreasingregulationhasbeenabiggerchallengeforsmaller--muchsmallerbanksthanFifthThird.

IguessIamcuriouswithinthecontextofyourcommentsaboutyouwouldbewillingtoconsiderlonger-termaccretiveacquisitions,areyouseeingagreaterflowofthosetypeofopportunitiesoverthelast6to12monthsthanyousawmaybe2to3yearsagoorhasthatstreambeenprettysteady?

No,Matt,wereallyhaven'tseenanythingofsignificanceoropportunitiesthatwethinkthatfitinsideourwheelhouse.Sonothingsignificantand,Tayfun,Idon'tknowifyouhaveanythingtoadd?

No,Matt,Ithink,asyouknow,todaywhenyoulookatM&Aopportunitiesyoudon'tonlylookatthenext10yearsofthatorganization,butyoulookatthepast10years.Andthereallyattractiveopportunitiesarefewandfarbetween.Andsonothingreallytoreportoninthatside.

Fairenough.And,Tayfun,maybejustafollowupforyou,andIappreciatethismightbealittlebitsensitive.Butintermsofthebranchreductions,intermsofthefull-timeequivalentemployees,thosearedownaboutover--onayear-over-yearbasisaboutthesamerateasthebankingcenters.

Andgivenalltheinvestmentthatyouaremakingintechnologyshouldtherebeanoutsizedreductionpotentiallyinstaffinglevelswithinthebranchesgivenalltheinvestmentthatyouareclearlymakingintermsofdeliveringdigitalproductstoyourcustomers?Anumberofotherbankshavebeentalkingaboutthatasanintermediatetolonger-termbenefit.

Yes.So,bydefinition,thisbranchactionwillclearlyimpacttheoverallemploymentlevelsinourretailbusiness.Butithasbeennow--Ithinkitisagoodsortof2.5yearssincewehavereducedourFTEcountinourbranchesandthatcontinuedevenintothisquarter.

Isuspectaswesortofcontinuetogrowtechnologyinsideofourbranchesandreconfigure,redesignourexistingbranchesthattrendwillcontinue.

Butontheotherhand,Ihavetotellyouthatrevenuegrowthcontinuestobeofutmostimportanceinourretailbusinessandwehavebeenandwewillcontinuetoaddsalesorientedassociates.

So,therearetwotrendsthataregoingagainsteachother,butthe105reductionitselfwillclearlytakeoutaportionofourretailemployeebase.

Great.Thankyou.

Thankyouverymuchforjoiningusthismorning.

Operator :

Therearenofurtherquestions.Thisconcludestoday'sconferencecall.

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