First Horizon Corp (FHN) 2005 Q1 法說會逐字稿

Welcome to First Horizon National Corporation's first quarter earnings conference call.

Today's call is being recorded.

In addition you can listen along simultaneously at www.shareholder.com/fhnc/medialist.cfm.

Hosting the call today from First Horizon National Corporation is Ken Glass, Chairman and Chief Executive Officer, and Marty Mosby, Chief Financial Officer.

They are also joined by Mark Yates, Director of Investor Relations.

Before we begin, management has asked me to inform you this conference call contains forward-looking statements involving significant risks and uncertainties.

A number of factors could cause actual results to differ materially from those in forward-looking information.

Those factors are outlined in the recent earnings press release and more in the most current 10-Q and 10-K.

First Horizon National Corporation disclaims any obligation to update any forward-looking statements that are made from time to time to reflect future events or developments.

At this time all participants have been placed in a listen-only mode, but the floor will be open for your questions following management's comments.

Now it is my pleasure to turn the floor over to Ken Glass.

Sir, you may begin.

Thank you Operator.

I want to wish all of you a good morning and again thanks for joining the call.

The first quarter results represent a solid start to our year.

The execution of our strategic initiatives resulted in improved operating performance over last quarter in all of our business segments in spite of a continued weak market environment.

As a result we've produced earnings growth over the fourth quarter even though this quarter included the unfavorable impact from several things such as the integration of Spear, Leeds and Kellogg, our SLK acquisition; normal first quarter seasonality; and increased loan loss provision.

In addition the quarter did not include any unusual gains.

I'd like to touch on four key things that I think are important for you to know.

First, our retail commercial banking segment had 36% growth in pre-tax earnings as we experienced double-digit growth in loans and deposits compared to a year ago.

Secondly, the contribution from our national expansion continued to grow.

Pre-tax income from these initiatives jumped 40% over a year ago.

Thirdly, in the mortgage business, we grew our market share primarily as a result of the expansion of the retail origination sales force, which is now 19% larger than it was a year ago.

And finally, we accomplished the successful integration of SLK into our capital markets business.

We expect this to be accretive for the rest of the year.

Now I'll turn it over to Marty.

He will go through the details.

Thanks Ken.

Let me reiterate Ken's greeting and wish you all a good morning.

Thank you for joining us.

First quarter 2005 earnings per share came in at $0.85, which represents a 5% increase over fourth quarter 2004.

The sequential quarter increase was driven by higher secondary marketing fees and improving origination margins.

Even though FTN Financial's revenues increased this quarter, its net interest income is down due to the impacts of a capital charge and integration items related to the SLK acquisition.

The retail commercial banking segment contributed 73% of our total pre-tax earnings for the quarter.

First quarter's earnings also reflect an 8% decline in earnings per share from the same period last year when the operating environment was still favorable for fixed income demand and mortgage.

Now I'd like to take a quick look at each segment's performance.

As with last quarter, we have furnished a financial supplement, which includes significant detail on each business segment.

The supplement is also available on our new corporate website at www.FHNC.com.

The press release, the supplement, and our SEC filings include detailed information on the quarter.

So I will only discuss a few points.

In our retail commercial banking segment pre-tax earnings were $119 million this quarter, a 36% increase over first quarter last year.

Our national expansion initiatives continued to contribute to the growth in this segment with almost 40% growth in pre-tax earnings this quarter compared to last year's first quarter profitability levels.

This added $18 million in earnings to this quarter.

On a sequential basis, this segment showed a 2% decline from fourth quarter 2004.

This decline reflected a return to a more normal level of gains on sale and securitization of loans, an increase in loan loss provision, and a normal seasonal decline in fees.

This quarter's loan transaction was a whole-loan sale instead of a securitization executed as each of our previous deals have been through FTN Financial.

This displays a broadening market and a new delivery channel for obtaining alternative funding sources for a robust loan growth.

Just a reminder that all of our loan growth represents loans on our balance sheet and is net of loan sales and securitizations.

These transactions continue to bolster our liquidity and capital positions.

Again on a sequential basis, net interest income continued to show growth with a 2% increase of $4 million as net interest margin actually improved 5 basis points to 4.34%.

We saw commercial loan growth of 28% on an annualized basis reflecting the strength across our national footprint and continued market share gains in Tennessee.

Our deposit account balances grew 16% on an annualized basis from the fourth quarter.

However, fees related to deposit transaction and cash management declined $4 million due to normal seasonal impacts.

In the quarters ahead retail commercial banking should continue to produce growth through continued success of our national expansion, disruption from bank mergers in key markets, and general economic conditions.

Additionally, asset quality in general should remain relatively stable based on expected economic conditions with normal quarterly fluctuations around recent levels.

However, first quarter levels were relatively strong.

Moving onto the mortgage banking segment, pre-tax earnings were $41 million this quarter, a 37% increase over fourth quarter last year.

Total revenues increased 15 million as origination income improved while non-interest expense only increased $4 million sequentially.

The seasonality usually experienced in first quarter normally produces a downturn in purchased production.

However, total first lien production only fell to 7.6 billion from 7.8 billion last quarter and deliveries of loans into the market actually increased 246 million to 7.4 billion.

Market share gains from sales force growth continued to build momentum.

For instance, mortgage originations were up 11% in First Horizon over the last year compared to a 5% expected decline in the industry.

The primary driver of this out-performance was a 19% increase in the sales force over prior year.

Another benefit in this quarter was the improvement in mortgage origination margins.

Our margin this quarter was 120 basis points compared to 96 basis points in the fourth quarter and 137 basis points in the first quarter of 2004.

There was a change this quarter in the origination margins.

I wanted to highlight that for you.

We cleaned up our mortgage marketing margins.

We used to call this total marketing margin on deliveries before FASB 133.

You'll notice that this quarter's supplement actually takes the before-FASB 133 out.

The exclusion of FASB 133 pipeline valuation for the marketing margin on originations had two effects.

First, it lowered the margin in past quarters.

Secondly, it added volatility to the calculation that was naturally being offset in the FASB 133 pipeline valuation.

This quarter's supplement restates the statistics for this adjustment and we believe is a better reflection of that marketing margin.

Servicing fees increased from fourth quarter by $5 million as the portfolio grew.

While the servicing portfolio had modest growth of 2% from fourth quarter, compared to last year's first quarter it grew 25%.

The runoff rate dropped from 26% in fourth quarter to 22% this quarter.

Going forward, the seasonal pickup in home purchase originations and further maturation and growth of the mortgage sales force should continue to impact positively mortgage origination volume.

However, origination profitability could be impacted by the continuation of a competitive pricing environment.

In the servicing business, portfolio growth should continue to drive operation efficiencies and overall profitability.

Capital markets pre-tax earnings were $9 million this quarter, $1 million lower than fourth quarter last year.

The incremental profits from SLK were offset by approximately $3 million in integration items and $5 million in incremental capital costs related to the acquisition.

Going forward this acquisition should begin to be accretive.

Sequentially, total non-interest income grew 20%.

As a result of the SLK acquisition, non-depository fees increased from 22 million to 35 million.

This level of non-depository fees exceeded our traditional depository fees for the first time ever reflecting our customer and product expansion achieved with the SLK acquisition.

Additionally, we saw improvement in depository fees of 18%.

Non-interest expense increased 17% compared to fourth quarter primarily driven by personnel costs associated with the SLK acquisition.

Going forward, revenues from fixed income security sales may remain subdued due to investor uncertainty concerning the interest rate environment.

SLK should have a positive impact on results following the transition period in the first quarter.

Diversification strategy should continue to gain momentum notably through revenue growth in the equity research and investment banking businesses.

Finally, the corporate segment had a $6 million pre-tax loss this quarter compared to a $14 million pre-tax loss in the fourth quarter.

Activity this quarter included improved managers' income from growth in the investment portfolio and the introduction of an incremental capital charge to the business segments.

In March 2005, First Tennessee Bank National Association issued 300,000 shares of non-cumulative perpetual preferred stock, which provided 295 million of additional capital net of issuance costs.

I wanted to highlight that the incremental balance sheet growth experienced this quarter impacted several key ratios.

This quarter capital markets balance sheet size grew approximately $3.5 billion primarily related to the SLK acquisition.

As we have stated previously, changes in mix can affect certain ratios.

For instance, while net interest margin declined from 3.57% in the fourth quarter to 3.12% in this quarter, keep in mind that 40 basis points was related to the incremental balance sheet growth in capital markets.

As we mentioned earlier, the retail commercial bank net interest margin increased 5 basis points from the fourth quarter.

Another ratio impacted was the return on assets, which at 1.3% dropped 10 basis points compared to fourth quarter.

The incremental balance sheet growth in capital markets impacted the ROA by 15 basis points.

Thus we would have seen an increase in our return on assets excluding the balance sheet growth that we saw in that area.

Due to this increase in assets, some of our capital ratios have also declined.

However, given the unique mix on our balance sheet, including the warehouse and securities inventory and the increasing acceptance of new sources of capital, we believe that the regulatory capital ratios of tier one and total capital are better measures of our capital adequacy.

Using these ratios, our capital position remained relatively stable and close to industry averages this quarter.

The last thing I want to talk about today is option expensing.

FASB 123-R related to option expense will be adopted when required, which is first quarter 2006 for us.

The impact to earnings per share should be in line with current disclosure in our annual report given no changes in the total amount of stock granted annually.

Now I'd like to turn it back over to Ken for some additional comments.

Thank you Marty.

Looking ahead, we'll continue to execute our strategies.

Let's take a moment now to look at our national expansion.

Over the past several quarters we have talked about the importance of this strategy and the progress we continue to make.

As we've said, this unique approach is built on our ability to leverage our success in the mortgage business by cross-selling additional products and expanding our presence in markets where we have a substantial mortgage customer base.

In addition to Northern Virginia, we recently announced focused expansion efforts in Georgia and Texas.

In Georgia we signed a definitive agreement to acquire West Metro Financial Services, Inc. in Atlanta.

While it is a small acquisition, it is strategically important due to the lack of reciprocity between Tennessee and Georgia and will provide us with the necessary banking charter needed to offer full services in that market.

Upon the closing of the acquisition, which we expect to be no later than third quarter, we will integrate West Metro with our existing team for that market.

Our Georgia customer base of approximately 30,000 customers gives us a powerful platform on which to cross-sell and expand.

Likewise in Texas, we have almost 35,000 customers and we've already hired 25 sales people over the last four months including an experienced market manager for that market.

The team is focused on expanding banking relationships with current mortgage customers and targeted businesses primarily in the Dallas and Ft Worth markets.

We look forward to updating you on our progress in the Georgia and Texas markets in our future updates.

In January this year I stated that we expect to return to year-over-year earnings growth.

Given our first quarter results, the continued success of our strategies along with the consensus economic forecast, I remain confident in our ability to do so.

Now we'd like to turn it over and take your questions.

(OPERATOR INSTRUCTIONS) Jason Goldberg, Lehman Brothers.

Thank you.

Good morning.

With respect to the 40-basis-point decline in the margin tied to capital markets, I guess a portion is obviously the assets coming off the balance sheet.

Is a portion of that also tied to funding the acquisition?

And I guess just maybe your outlook for that piece. (indiscernible) expect that to be this stable going forward?

How should we think about that?

Right.

If you look at the net interest margin – that's why we highlighted that.

We've talked about – and if you look back at our forward looking statements – the business mix and composition of our balance sheet will drive our level of corporate net interest margin.

As we increased with the acquisition of SLK, capital markets percent of our balance sheet, that would then naturally reduce our corporate net interest margin.

It has no impact, as we've stated, on the banking unit.

If you look at our banking margin, we actually saw that 5-basis-points improvement in the banking net internet margin, which is related to the core balance sheet of loans and deposits and the pricing that is going on over there in those initiatives.

If you look at capital markets, the reason that it has the effect on the corporate is that we hedge with a cash position in the repo market.

What that naturally does, as you look back, is that we've naturally had almost no net interest income out of our capital markets area because we feel like that's the most efficient way to hedge our interest rate positions because we're not taking trading positions.

We’re actually just distributing those securities.

So the natural way for us to most efficiently hedge takes away net interest income.

But then on the other side, it just affects our ratio when you are looking at net interest margin.

So, corporately, the net interest margin wouldn't show a rebound naturally because we've had that acquisition.

We've changed the composition of the balance sheet permanently.

Then as that mix changes as we go forward, you'll see again to look at each of the business lines to look at the actual details of that margin and see improvements that we're making in pricing or other product decisions.

Okay, that's helpful.

You had I guess the 10 million gain on the loan sales this quarter.

How should we think about those sales going forward?

Bake in one a quarter?

How do you think that pans out?

That pans out that we would have about one a quarter.

That is a pretty normal level that we're looking at.

You mentioned improvement in mortgage margins.

How do you anticipate that panning out through the remainder of the year?

If you look at the mortgage margin, it was 120 basis points.

The improvement that we saw over last quarter was in two line items.

One was the OMSR valuation, which is a natural trend that we would start to see happening as we went through this part of the rate cycle.

The other thing was the marketing gain and loss which we had seen the drop last quarter that we had talked about through the execution that was going to come back into this quarter's margin.

So the pickup that we saw there were in two areas that are relatively sustainable.

We'd feel like that would be pretty close to what we would expect going forward.

Super.

Thank you.

Christopher Marinac, Fig Partners.

Good morning.

Can you talk a little bit about globally what your expectations are for Georgia both this year and also over the next two or three years.

Dial into how you look at profitability as well as margin because it seems that you'll have to have (indiscernible) strategy to get funding here.

Yes.

Very good question, Chris.

You can look at Georgia and Texas each of our markets.

Look at Northern Virginia to understand our model there.

We make our profits on – before we start, we create a profitable strategy before we start branching.

Georgia – we've already started producing commercial loan business cross-selling to that customer base.

What happens to us after a certain penetration, though, without the full-service capability, that growth rate slows down.

So then you will see us start adding branches.

Branching like we did in Northern Virginia, where we will have seven to ten branches in a metro area, we'll normally take about 18 to 24 months to breakeven on that branching activity.

So when we go into a metro area, we look at an investment of about $10 million bottom line earnings for that.

As we've told you in the past, we strategize to spend about $20 million a year in the expansion of two to three metro markets a year in the branching expansion.

I mentioned to you that we've already added 25 sales force in each of those markets.

Those people are producing revenue today.

Again, they need the full service capability to really increase their penetration into both the business and the consumer market.

And the 25 sales folks are both commercial as well as retail—consumer?

Exactly.

Alright.

And then how – are you still ahead of plan in Northern Virginia?

Any color on where that is and where you thought it would be?

The branching is about where we thought it would be on track to breakeven in the next few months, probably later in the year.

The non-branching part is ahead of plan.

Our commercial lending, our construction builder lending, finance business is well ahead of plan.

Our deposit growth has been ahead of plan.

Okay.

The last question is, can you talk about the mix between straight C&I lending and commercial real estate lending as you develop Northern Virginia, as you develop Texas and Atlanta down the road?

If you look at our rollout – and I think what you are getting at is the fact that we have been able to expand our builder-finance and one-time close business.

That actually has leveraged much beyond just the Virginia market.

That is a business that we're in 25 markets across the country and as a part of that phase II after we add the cross-sell complementary products to the customer base – T-logs.

We're putting in insurance and credit cards in that phase I, expanding from financial center one, which is just a mortgage office, to a financial center two, which has those complementary cross-sell products to that next phase.

Let's put other specialized sales forces that can leverage off our presence in the market.

So we are seeing builder-finance and one-time close, which is the ability for a home buyer or builder, a person to go in and finance their construction as well as their final mortgage.

That has been a business that we've been able to rollout in those other markets.

It has been very good for us.

What we are now doing is following up with that with small business lending.

So we are now putting into the market small business and middle-market lenders that again can tap into the presence that we already have.

And that is not waiting on the fact that we have to go into Northern Virginia or Atlanta or Dallas.

Once we then go into those other markets, that is when we will see all the other products beginning to build out.

We'll become full-service.

We're seeing a layering in of products as this process begins to evolve in each of those different markets.

Great.

That's helpful.

Thank you very much.

Heather Wolf, Merrill Lynch.

Good morning.

I have a couple questions regarding volumes in the retail bank.

On the loan volumes, the year-over-year growth was good.

But quarter-over-quarter you were down a little bit.

Is there seasonality in that that we should know about?

No seasonality.

What you are seeing there is, at the end of the year – if you looked at period (ph) end numbers, it would look very different than if you looked at average.

So what you are looking at in the supplement, is average to average.

In order for us to one, for liquidity standpoints where we're relying on securitization so we're moving loans into "held for sale".

That is one of the points I made earlier is all the balances that you are seeing on the balance sheet are portfolio numbers.

The held-for-sale account is where you are now seeing loans move as they are staging to be securitized or sold in hold-loan sales.

We moved about $1 billion into that account in the end of the year.

So your period-end held-for-sale number went up by $1 billion and your loan portfolio went down as those loans were being prepared for securitization in 2005.

So there was a shift as we went through and as we've built that program through the year.

Now as we're going forward, we'll be pushing originations into one area or the other.

If you look at the actual growth, we've still had that double-digit loan growth in the retail-commercial bank period-end, yearend or period end first quarter.

Okay.

On the deposits in that division you had fabulous growth.

Can you give us a feel for how much of that is core and how much of that is CD funded?

What you are seeing there is – that does not include any of the CDs that we go out into the market.

That is all core-related.

So there is nothing here – when you see on the actual balance sheet large CDs – and you'll see those numbers – that is where we go out and through FTN Financial and our other Wall Street connections, raise a lot of our purchase funds.

That number is not included at all here.

That is in our Treasury or in the balance sheet that is loaded up in the corporate area.

Okay.

How much of that would be retail deposits – or retail CDs?

Would those be in that line as well?

On the balance sheet you would have, yes, some large CDs that would be retail and even core-customer related.

We have probably about $0.5 billion of core large CDs that we don't get much credit for because they are underneath a much larger number that are Street CDs.

But if you look at the numbers that you've got here in total deposits, you are picking up the purest number in the sense of what's in the supplement as to what are real pure core deposits retail and commercial related.

Okay, so then to what do you attribute that deposit growth?

Is that from the new product that you've rolled out?

It is.

It's now expanding on that national basis.

It's looking at what we can do to get those deposit products layered in as one of those complementary products.

We have a what we call a money market account that can serve as a secondary checking account that can be pushed along in the mortgage origination process.

We also have —in Tennessee have very strong deposit growth as we've been out there marketing and gaining market share.

Middle Tennessee is helping.

Northern Virginia is helping.

There is a very board array of strategic initiatives to get that deposit growth up.

One of the things that Chris had just said earlier was the connotation that we are going to have to get the deposit growth.

We are starting to see the strategy evolve to the point where we'll start to see that deposit growth begin to accelerate as we're now leveraging the franchise across the country.

In that line, you'll recall we lead in our strategy with consumer loan-type products and then builder-finance type products.

Then we follow in those markets with deposit products.

So deposit growth is going to start.

It should start now.

It has started finally, but lagging a year or two the loan growth.

Okay, great.

Just one last question and then I'll re-queue.

The concessions line in your gain-on-sale margins deteriorated a little bit in the quarter.

Can you talk about pricing dynamics in the marketplace and what you expect going forward?

We've seen competitive pricing linger as we've talked about.

When you look at that, you went from 11 basis points, which is a very good improvement over the third quarter of 26 basis points, only up to 16.

So while you are still seeing some concessions there, it's not to the point that it was in the middle of last year where the second quarter was 33 and the third quarter was 26.

It is still, like we said in the discussion of the forward looking statements, a very competitive market.

That is reflecting in that line item.

Okay, great.

Thanks very much.

Gary Townsend, Friedman, Billings, Ramsey.

Good morning.

Most questions have been asked and answered well.

In Northern Virginia and also in the Atlanta area, how many branches do you see as needed to fill out those areas?

And approximately what is the investment per branch that is required?

We've got seven in Northern Virginia now.

That will probably advance to 10 over the next few years as those branches reach capacity and we can expand geographically to reach the customer base.

Atlanta – you'll probably see us add four or five hopefully the second half of this year.

We acquired three.

We'd like to get that up to seven just like we did in Virginia and then move to 10 after a year to a year-and-a-half all depending on our ability to penetrate the geographic markets that those branches serve.

Those branches would cost us, along with the entire support process behind those branches, are going to run us about $1 million a branch for the first year.

Then you could cut that in half for the second year.

Then it's gone.

It becomes a revenue producer.

And that would be the additional expense per branch on an annualized basis?

That and the – yes.

Not the brick-and-mortar per se.

Those would run about $0.5 million in cost.

Then you've got the lenders that will work out of those branches, the other things we do, and the infrastructure cost to support their transactions back in the bank—or back in Tennessee would be allocated out in that number.

Thank you.

Last fall you had some problems with the HELOC securitization.

Has that all worked itself through.

Were things normalized on that front in the first quarter?

Yes, it has.

I am happy to say that one of the things that Marty pointed out that I think is important for you all to understand is that we didn't do much of a securitization in the first quarter.

We did a whole-loan sale.

We did that to create additional channel for that liquidity.

It worked very well.

Now we have two channels to handle our loan originations that we want to fund off our balance sheet.

That is the securitization and the whole-loan sale.

You will probably see us do a combination of those two throughout the year.

Thanks very much.

Jon Balkind, Fox-Pitt Investment Bank.

Good morning.

Just a few quick questions.

As I look at how your balance sheet has migrated over time with the expansion strategy, your wholesale funding contribution particularly in the retail-commercial bank has gone up materially.

Your loan/deposit ratio is very high.

Does that you make you more prone to a flattening curve?

If so, what do you look at, what part of the curve?

What are stress points for you?

Secondarily on the securitization gains and whole-loan sale gains this quarter, you were running at about the same level combined as you did in the fourth quarter?

Is this the new level of run rate we can expect from a dollar perspective?

Okay, I'll handle those two questions.

If you look at the loans that we're putting on the books, the predominant pricing is that they are still floating.

You've got HELOCs and commercial loans, construction loans that are all basically in the variable-rate category.

So everything that we are putting on the books has been match funded.

We don't have really any risk in the sense of yield-curve play in that loan portfolio.

Number two is if you look at the securitization, actually there are two things going on.

We are actually down from the fourth quarter.

That number was, I think, 14, 14.5 in the fourth quarter dropped down to, I think, around $11 million.

But the actual gain on sale was closer to 10.

You can read that in the press release part.

There was about a $4 million drop in securitization this quarter.

The run rate that we’re at now is very close to the run rate that we'd have going forward.

I was just looking at the supplement.

It says you are at 13.6.

Is there something in there that ----?

There is.

What you end up getting now in that number is you start putting together from the securitizations, the earnings that you have from past securitizations.

So because we're servicing those portfolios, there becomes a stable amount of income that builds as you get the return from the securitization beyond the initial gain.

So there is another item that is built into that income stream that becomes much more sustainable as we go forward.

Okay, and then last question.

In terms of your capital commentary, in your discussions with both the rating agencies and the regulators, they are telling you that the tangible capital ratios basically are irrelevant from their perspective and that is why you are shifting to the tier one focus?

We've talked with the rating agencies.

It's not that those ratios are irrelevant.

We think that the ratios where you look at – and in talking to the rating agencies, the transition that they are making is to risk-weighted assets versus total assets.

That has an impact on us because of the heavy impact that the mortgage warehouse and the capital markets trading inventory has on our total asset or footings.

So when you begin to risk-adjust our assets, our capital ratios begin to get much more in line with what our peers would look like.

They are very willing to do that, even on the tangible equity ratios.

What we are basically communicating is the easiest way for the market to see that is to see in total – looking at tier one in total, which are numbers that are published and looked at very frequently, that those are a better reflection of our capital position.

Great.

And then last quick cleanup question, what was the revenue contribution from SLK in the quarter?

Will you shrink those assets in the capital markets business that came on going forward?

If you look at the revenue contribution, you can look at the pickup in fixed income that we saw from the fourth quarter to the first quarter.

That was predominantly driven by the acquisition of SLK.

We didn't see any rebound, so this quarter didn't have any pickup in the core fixed income business.

If you look incrementally, you would see that.

The other thing is, as you go forward, there was – especially in the average balance sheet – an inflated level of capital markets balances related to the SLK integration.

We will begin to see some of that roll off as we go forward.

That would be some improvement to the things we talked about earlier.

And your margin should go up along with that?

That's right.

The margin would be improved as we begin to see that incremental change.

Great.

Thanks Marty.

Thank you Jon.

We've got time for one more question, please.

We'll take our final question from Adam Starr, (ph) CRM.

Actually, my question has been answered.

Why don't you go to someone else.

Heather Wolf.

Just a couple of quick follow-up questions.

Can you update us on the cross-sell through your national expansion and your mortgage customer base?

Also, can you give us an update on your fixed versus variable loan mix across your entire book?

Alright.

While he’s looking up the fixed versus mixed, let me -- our cross-sell penetration continues to move up.

We're still in that 35 to 37.

We have acquired $11 billion of servicing in the last two quarters.

So that purchase servicing will not have the penetration in it that our originated servicing does.

That will slow down that penetration overall.

We are developing our database to pull the purchasing out of that penetration tracking.

So I'll be able to give you a better number in the future.

You can see the results in our revenue generated from that strategy continues to be very strong.

The other thing that we had was the average revenue per customer has improved from about 350 to a little bit over 400.

So that is the other reflection of what we're seeing in the rollout of those products.

Yes and again part of our deposit growth is coming from there.

That is basically a whole new product line offered to that customer segment.

Then I'll give you a rough estimate.

If you want a more specific number.

We're somewhere between probably 60% to 70% on the variable rate side on the loan side.

Okay, great.

Thanks very much.

I want to thank all of you for your questions.

Lastly, I'd like to take this opportunity to extend an invitation to all of you to our analyst investor day upcoming on May 3 in New York at the Waldorf Astoria.

We'll begin registration at 1:00 pm.

Our strategy presentations from management will go from 1:30 to 5:00 pm.

And maybe more importantly, we'll have a cocktail reception at 5:00 following our presentations.

We're taking this as an opportunity to bring a contingent of our senior managers to New York so that they can speak directly to you about our strategies.

We hope all of you will make plans to join us the afternoon of May 3.

With that I'll conclude this conference call.

I thank all of your for your interest.

Have a great day.

This does conclude today's conference call.

Thank you for your participation.

You may now disconnect.