Fifth Third Bancorp (FITBI) 2002 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Fifth Third Bancorp conference call.

At this time, all participants have been placed on a listen-only mode. And we will open the floor for your questions and comments following the presentation.

It is now my pleasure to turn the floor over to your host, Mr. Brad Adams.

Sir, you may begin.

This conference call may contain certain forward-looking statements about Fifth Third Bancorp pertaining to the financial conditions, results of operations, plans and objectives of the . These statements involve certain risks and uncertainties. There are a number of factors that could cause results to differ materially from historical performance and these forward-looking statements.

At this time, I would like to turn the call over to Mr. George Schaefer, President and CEO of Fifth Third Bancorp.

Good morning, and thank you for taking the time to listen in. I'm sure that most of you have been somewhat distracted by what's going on at this time out in the markets. Neal and I are going to keep things relatively brief for you this morning. We'll take just a couple of minutes to review what we think are the highlights for the quarter, and as always our prospects for the future, and then we'll open it up for your questions.

By this time I'm sure most of you had a chance to take a look at our second quarter results. I think you would agree that this was a pretty good quarter for us. We're very pleased with what happened in the quarter. The bottom line was up 19 percent, we had strong fee income trends across the board, our checking account growth continues to be very excellent, and credit quality and loan growth were both better than we'd expected.

From my perspective the highlights for the quarter were, number one, continuation of strong deposit growth trends. Average interest checking account balances increased 41 percent, and average demand deposits are up 22 percent over a year ago. Sequentially, transaction deposits are up 40 percent on an annualized basis. Essentially we've added ten and a half billion dollars in transaction deposits in the last 12 months. This is extremely strong deposit growth.

Next we've had strong revenue and service income growth. Our net interest income was up 11 percent over last year, showing some of the benefits of our deposit focus, and our more recent emphasis on direct loans. Fee income was up 20 percent over last year. Next, credit quality showed some real signs of improvement with charge-offs at 40 basis points, and NPAs at 53 basis points.

I would also like to point out that we now have 8.2 billion in shareholder's equity out there, and as all of you know, we did receive an upgrading from Moody's in June, which was very rewarding to us, given what's going on out there in the economy. And then finally loan growth. Overall, loan growth was very strong, with period end loans and leases increasing 1.8 billion over the second quarter last year. The highlight here is retail installment loans, which were up about 19 percent over last year, on record origination levels. And these are primarily home equity loans.

For the remainder of the year, we're going to focus on a couple of things. Number one, as we always do, sustaining solid revenue, deposit and loan growth in our retail and commercial business. I'd like to point out that we have considerable deposit market share upside in our footprint. I think most of you know, and I say this on almost every conference call and at every presentation, we have less than ten percent deposit share in the five main states that we operate in, so there's significant momentum there.

And in addition, in the bigger cities that we're just going into, the Chicagos, Detroits, Cleveland, with I think that's, you know, two and a half, three, maybe four percent deposit share respectively, there's tremendous upside there. Expanding the contribution of the investment advisory business and our MPS, our electronic payment processing services, to the overall mix obviously we would like to have our investment advisory and our processing business be a much bigger portion of our revenue stream. And so we're going to continue to push both of those businesses very hard.

At this time I'd like to turn it over to Neal for some additional review of our businesses, and some trends you can expect in the future. Neal?

Thank you George. Couple things on line of business, first of all let me touch on MPS. MPS up 55 percent year over year. Kind of hard to be disappointed with those numbers, including 22 million of that is USB year over year, so ex USB we'd be up 27 percent on core MPS revenue. I would also say probably the most heartening thing in MPS - we've seen the benefit of having a well-diversified customer base focused on businesses that aren't cyclical in nature like the travel business has been for some, so we feel very fortunate with the trends we're seeing on the MPS side.

Investment advisors up 14 percent over the second quarter of 2001. We feel pretty good about that at this point. Certainly we want to see that continue. This is obviously an area of emphasis.

Brokerage and private banking working with our retail bank brethren has been the story there. We've had a very strong year on both brokerage and the private banking side and feel good about those trends.

We also continue to think we have a strong opportunity working together with our commercial folks on the institutional side of that business really working on the 401(k) business as more and more people focus on that given some of the uncertainty out there. As we've said in past quarters, we'll continue to add to the sales force out in our newer markets continuing to build that from predominantly retail and commercial line of business focus in most of our newer markets.

On the commercial side, commercial banking revenues are up 39 percent over last year, so we're very, very pleased with those trends. We're gaining momentum on a lot of our deposit and our fee product sales. Average deposits on the commercial side up 20. Deposit revenues up 33 percent. We're starting to see the payoff of the focus on the commercial side and still think that's out there. Obviously we benefit from lower rates as well.

On the retail side, as George said earlier, loan and deposit growth trends remain very strong and they really started the year with a bang. Clearly their focus on the direct lending side is why we're seeing better retail loan growth. They continue to hit the campaigns extremely hard working with the execution side and we're seeing on continually.

On the mortgage side, let me spend a moment. They're down 29 percent sequentially as we've seen two things - originations down slightly, which we expect to moderate modestly. But we're still up 14 percent over last year. You can see the revenue breakdown on the text of the earnings release, and obviously late in the quarter we had some significant movements in rates. had the securitization. We used the securitization gain to continue to conservatively mark down any of our mortgage servicing rates. We feel very good about where we're at there given the level of refinance activity. So, again, it's been a challenging time for mortgage, but I would say they continue to manage the risks in a very strong fashion.

Let me spend a moment on the balance sheet and trends. Net interest income - net interest margin - excuse me - was stable. We were up 31 basis points versus second quarter of last year and on quarter, we were down three basis points on net interest margin. We feel pretty good about where the margin is - really benefiting those strong transaction account balances and lower rates. up 11 percent versus a year ago, as George said.

So, again, we feel pretty good about where the margin is. We think the trends in the future quarters, given the lower level of rates, is clearly a function of having - watching loan growth. I think loan growth will be the name of the game probably over the next six months to a year in the banking industry and we certainly are mindful of that and where margin trends are going to go. So we're cautious, but optimistic given the trends we saw within the quarter.

A couple of trends - let me spend a moment on the loan side to give you a little further detail. As George said, the direct to retail installment very strong, up 18, 19 percent. Indirect installment also up mid teens. I would say on the commercial side modest growth; commercial lease a little better.

Commercial mortgage has come down here really as a result of probably focused in the old Old Kent . And I think that will be more stabilized going forward from where we're at, at this point.

So again, feel very good about the liability side. The loan side will be the bulk of the focus.

A little more detail on the credit quality side. Improved sequentially, as we're seeing out there. Primarily driven on the consumer side. We've seen certainly consumer trends better both on charge-outs. But I would also say the commercial side as well.

and are very low, as you all know, non-accrual balances of $212 million. And as George said, with over an $8 billion capital base we feel very good, and a $43 billion loan portfolio.

are down $9 million from last quarter. Net charge-offs improved to 40 basis points from 49 last quarter, $43 million in charge-offs versus $50 million last quarter. Again, we think that's credit quality. We're trends. We're certainly cautious, but I'd say on the credit quality side, it certainly gives us flexibility as we go forward.

The remainder of the year clearly our focus, as George said. Continuing to build out new markets. That's hiring more sales people. That means we've probably put more branches on the build schedule for the next several months in most of these new markets. So we have fair amount of banking center on the build schedule. And whether it's Detroit or Chicago.

We also would consider smaller acquisitions in some of those markets. But at this point, fairly cautious there.

With that, those are kind of the general comments that we have. I'd be happy to open it up to questions. And we'll take those questions from you.

Thank you.

Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press the numbers one, followed by four on your touch-tone phone at this time. Pressing one, four a second time will remove you from the queue should your question be answered. Lastly, we do ask while posing your question that you please pick up your handset if listening on speaker phone for optimum sound quality.

Please hold while we poll for questions.

Hello? Questions?

Thank you.

Our first question comes from . Please state your affiliation, then pose your question.

Hi, good morning - in Atlanta.

Hi .

George and Neal, can you comment on business trends you were seeing late in the quarter as some of this negative news has hit late in June, early July? Any different to how you were seeing business earlier in the quarter?

I think when you pick up the newspaper in the morning and you read the paper, and when you go home at night and you read the news you get real negative feelings. But if you go out throughout our market places and our businesses, the economy continues to chug right along here. It's a totally different story from what you see at the congressional hearings and what you watch on CNN. And when you go out and visit 100 customers out there, you don't see any of that out here. So there's a huge disconnect out there.

The people in our markets aren't sitting there fretting over, yes, they, you know, WorldCom and Enron all issues here, but the economy's a lot better than what you're seeing on CNN.

We continue to see pretty good loan demand, improving on the retail side within the quarter, so I'd say our strongest month was the last month of the quarter. I think that's also true on the commercial side. We are cautious on indirect given zero percent financing out there, but I would say we see great trends in all of the rest of the business. I also think with lower rates you're going to see a fair amount more.

Great. And Neal, as a follow-up to your comment on acquisitions, is part of your caution having to do with pricing and the expectations of sellers, or is it more than just the environment?

Yes, you know, do you take a moving average of the volatility or of the price? You know, in this market, you know, I don't think expectations are the issue, I think you tend to get a bunch of sitting on hands when people are in those kinds of markets. But, yes, uncertainty breeds a lot of weird behavior, and, you know, we feel like we're well positioned and we'll just react to what comes.

This is George again. We're still trying to hire, I think the number Friday was 930 people. We're still paying a $500 bounty if anybody in our bank finds another employee to work here, and, you know, that's a different look than you're getting from most places.

That's right. Great. Super. Thank you guys.

Thanks.

Thanks.

Thank you. Our next question comes from . Please state your affiliation.

Hi, it's with Merrill Lynch. Hi George, hi Neal.

Hi .

Couple of questions, I'm curious if you'd talk a little bit about deposit pricing. I know you've been paying a premium rate because of your low cost structure, and I'm curious in, I know it's market by market, but in aggregate, if you looked at the premium you're sort of averaging across your franchise, whether that's been fairly constant over the last several months? And secondly, if you looked at the average transaction deposit growth, annualized is 40 percent, which is a remarkable growth rate ...

Right.

... I'm curious what kind of expectation do you have for the second half of the year at this point?

I think a whole lot, if you can tell us the interest rates, you know, you can get that down for us, we can probably tell you a lot better how these deposit flows are going to be. But generally these deposit flows are still really strong, and we do have a lot of flexibility in the pricing power. If we're paying a little bit higher rate, we've got much more flexibility in backing off on that. Neal, you might want to comment on that.

Yes, I would say two things . The deposit levels are clearly a function of people coming out of equities, you know, that's certainly part of what's happening out there. But I wouldn't, I wouldn't attribute it to both the rates because I think a lot of it's the people are sitting on cash, you know, just spooked. I also don't think that if you look at our deposit pricing, people are starting to hit deposit floors, we still have the benefit of protecting margin in falling rates. So I don't think everyone has that. You can't go below zero obviously.

The other thing that we're seeing out here, there've been a couple of bank failures and bank scandals out here in the Midwest. One over in Northern Kentucky, and so this upgrade by Moody's and the credit quality, that's sapient soundness. People are paying a hell of a lot more attention to that. I know I keep saying that each quarter, but trust me, people are, a bank is not a bank is not a bank, whether you're a corporate treasurer now and looking for safety and soundness, or whether you're, you know, Mrs. Smith out there that's got $25,000 CD. She's starting to ask those questions.

Keeping your money's become a little more fashionable I think's what George thinks.

Maybe a related question, and I'm sorry if I missed, I missed the beginning of your call, but in investment advisory fees, you're up this quarter year-over-year and sequentially. I'm wondering whether you're - what your asset flows look like and whether you can give us an update on the mix by asset type. But I wonder whether you're doing a particularly good job of converting, you know, sort of traditional deposit customers to investment advisory type products. And, you know, we talked about this recently on a visit, but I just wonder if you have anything you'd like to share in terms of margin outlook for investment advisory going forward.

Neal's not up nearly in the IA business, but I'll let him discuss it with you.

Couple things - I would tell you the mix is so far heavily focused on what I call transaction business. Expanding the product line, expanding the sales force. We do see pretty good asset flows into the various products on mutual funds - you know, growth less so than clearly the value, small cap kinds of pieces of the business.

But I think at this point we're probably pleasantly surprised by the flows, and part of that's expanding distribution. You know, you can't - you know, market is the market. But it treats everybody somewhat the same.

And my last question is on expenses - you know, (great showing) year-over-year. I'm curious if you could talk a little bit - talk to whether Old Kent related saves are still a factor here. And more broadly, is there any way you could sort of isolate the earnings from Old Kent at this point so we could try to figure out a point in time return on investment?

Yes, I think, , we've gotten most of the Old Kent expense saves out of there now. Now we're starting to put in some technology process improvement kind of stuff that are eliminating a lot of manual processes, manual tickets - automatically debiting and crediting instead of filling out the tickets. There's been a whole lot of process improvement done. As you know, we've completed all the conversion work on the Old Kent acquisition a while ago. And we're spending a lot of time now getting into these processes, and they do save quite a bit. And if we can bring the technology that we have in our MPS business, you know, where we're going to do seven billion electronic transactions - there's not a piece of paper moves anywhere in that group - over into the bank side where we're, you know - we have 177 million debit and credit tickets every year, we're trying to do that on the same side here. So you are going to see a lot of process improvement expense control.

Neal, you might want to talk on that, too, a little bit.

Yes, I think we're opening the door for - we've looked harder at investment spending given the kind of revenue trends and the economy where it's at. And I think that's what we're signaling to people. Technology's one of the areas - people - expanding sales force. But I'd say on the Old Kent footprint, I think, you know, on the people side, headcounts have been stable. We've actually been adding in several of the markets. And I'd say on the branch side, we're clearly starting to spend more to expand in those markets. We're very happy with where the saves are. Clearly our focus is on the revenue side in those markets. And the trends, both on the fee income - the deposit side are quite strong in those markets. The loan growth we still think will be stronger part of that's mix driven.

OK?

Great. Thank you.

Thanks.

Our next question comes from . Please state your affiliation.

Prudential. Good morning.

Morning, .

A few other banks have repositioned at least a little bit for changed expectations with regard to interest rates. Are you making any adjustments?

Yes, this is Neal. Mortgage servicing is the one we certainly highlighted. You know I think in general people thought rates probably had bottomed early in the quarter. That certainly changed. We're mindful of the size of the balance sheet in this environment. But what we're really signaling to people is loan growth is the thing that's going to the kind of trends.

You know I don't think beyond that - you know can you make money in a one-percent rate world? Certainly in the early years, you know, it gets increasingly difficult as assets re-price. So I think the mix benefit we've seen on the deposit side has been the biggest thing we've been repositioning. I think on the asset side what we're really saying to you is the same discipline as what we're trying to do. It's all about mix on the asset side.

So where do things stand today? What would be kind of the best interest rate scenario and what would be the worst?

Yeah, I think prolonged lower rates are hard on the whole banking industry when you're at this rate level. You know it's hard to have a four-percent margin in a two-percent world. You know that's a fact of life.

Now the longer you stay down is where you feel that. And I think that's more 2003 than it is 2002, at this point. And I think those, with mix trends, both on the transaction account side and on the loan side, are the folks that are going to be able to weather that the best. And at this point, we feel better there. Partly the benefit of Midwest, and we're seeing good business.

And with such strong revenue growth, which really does stand out, would you nudge up earnings expectations? Or is there anything right now that would mitigate kind of getting too bullish?

Yeah. Yeah - no. We'd be embarrassed if we did. I think what we're really saying to people is we're going to use the opportunity to invest more in the business, not nudge up earnings. You know we think the opportunity to invest more in the business is the right investment in this market.

And we're doing that, , in a number of different ways. You know we've got 20 offices on the drawing board up in the Chicago market, probably 10 in the Detroit area, another five or seven in the Cleveland area. In all of our markets we're looking just to grow offices there.

But also, we're spending a lot of time and money and effort into cross-marketing. This whole cross-selling, where we're selling - we have 5.1 or 5.2 million customers. We only have, you know, 2.5 million checking accounts. So I've got two million people out there that I'm still trying to sell a checking account to.

And now we're getting very sophisticated systems that show up on each branch manager's screen when he walks in in the morning to tell him here's the 10 people you ought to contact, here's the 20 people you ought to contact. And we're doing that in the line of business and in the mortgage side of business and in all of the lines of business, really digging down and getting some valuable tools for the people to use.

And then all these tools also have monitoring systems. So we can tell, hey, if we gave the guy 20 leads in the morning and he didn't do anything about it, we know that at the end of the day. So this is some of the kind of stuff that's really going to help us going forward.

And...

And we notice there are fewer people playing offense in this sort of market more than the economy. So clearly, our approach is play more offense.

Well on that last point, with regard to acquisitions, you certainly have the ability to play offense. Where do you stand now that the Old Kent expense savings are mostly done? Are your eyes set for new deals?

I think as George said before, we put away our checkbook until we got through all the Old Kent stuff. And that was about this time of the year. I think what we're really seeing, though, in this market, is probably smaller than bigger.

Right.

OK. All right, thank you.

And , it's not Thanksgiving yet.

But the turkey is thawing.

Thank you.

Our next question comes from Catherine Murray. Please state your affiliation.

Good morning, from JP Morgan.

Hi .

Hi. Congratulations on a good quarter.

Thank you.

Just a couple of things here. Are you carrying any kind of revaluation reserve on the, on your mortgage servicing rates?

Yes.

OK. How large is that at this point?

It's in the area of ten percent of the total value. So I think our total mortgage servicing is about 450 some odd million, so I'd say it's in the 40 to 50.

OK. All right, great. And ...

And ...

Yes.

... you know, let me say that we're very comfortable, we have third parties look at it, but we also are, you know, have been at it for some period of time. Changes in the shape of the curve impacting not just the level of rates, so I would tell you we're quite pleased. It's been dang difficult, but I think we're very pleased with where we're at.

I would agree. And the MPAs look really great. The 90 day past due continue to kind of edge up, the pattern there is different than the MPAs. Can you just comment on that?

Yes. No, I would say on 90 days past due, part of that's consumer in the mix , and part of that's the function of the growth, but I don't, I don't see it as, it's a little hard on a sequential basis. You tend to see some seasonality to that. At this point, you know, I don't know if that trend continues or not.

Yes, , it moved up from 176 million to 182, you know, it's up six million and, you know, that's a fourth of a loan maybe in the whole, in the whole process there. You know what I'm saying? On an $80 billion, $75 billion balance sheet, that's can be, you know, one $20 million loan that's past due or something can cause that blip there. As you note in the footnote there on page 15, we've got 57 million of residential mortgage are in these, in these numbers also.

Yes.

OK.

So at this point I don't think you can call it a trend. I would call it seasonality.

OK. All right, good. Thank you.

Thank you. Our next question comes from . Please state your affiliation.

Lehman. Good morning.

Morning .

Couple questions. One, if you would, discuss your watch list trends, and you've touched on it, but if you would give us a sense of just what your investment plans are in terms of geography and by business line. And then lastly, where are you in terms of having the investment advisory unit performing relative to expectations? How much room is there for improvement?

I think , let me start with your second question. This is George. In terms of expansion, you heard me just talk about we would like to do a lot of expansion in our big area markets that we're in right now, you know, Chicago with 20 offices, the Detroit's, the Cleveland's, but that's also the, Indianapolis's and the Columbus's and the majority of the markets we're in, I mean, every market we're in, we're expanding to some degree, but the bigger ones where we have lower market share, we're putting particular emphasis on.

And I think you've heard me say that we do like what we call the next ring of cities around the Pittsburgh's, Charleston, West Virginia, Knoxville, Nashville, we've got 38, 40 people down in the Nashville market right now. The St. Louis, Milwaukee through our USB acquisition there, that Universal Bank that we acquired, that merchant processor, we would have about 200 people in Milwaukee. So those are kind of the geographies that we're looking at. Down in Naples, Florida we keep continuing to expand up that West coast.

We have 13 offices or so down there, maybe by the end of the year we'd have 14, 15 or 16, but that continues to go very, very well for us also. On the IA side, again I'll say, Neal's doing a good job but nearly where it ought to be. It is not meeting where we'd like it to be. But , Neal, ...

I would say let's spend a moment on asset quality. I would tell you that if I looked at the non-accruals loans added in the quarter, we only had four credits added in the quarter. All of those were below eight million and actually three of those were, you know, couple million dollars.

I would tell you that the watch list - you know, the hardening trends versus a year ago are most of the watch list. Credits are getting resolved reasonably quickly - like, within six months. So, you know, while there are credits coming on, I think there are resolutions out there. It's not an economy where nothing's going on. So at this point, while things are coming on the list, I think we also have to pay attention to our deals getting resolved whether that's 70 cents on the dollar - whether that's 90 cents on the dollar. So, at this point, we probably feel better about commercial resolutions of watch list items than we did a year ago.

Thanks.

And as George said, I still have a lot of work to do.

Good.

Thank you. Our next question comes from . Please state your affiliation.

McDonald Investments. Good morning, George and Neal. Just a couple questions - George, to your point on cross-selling, how successful have you been at cross-selling home equity loans into your mortgage customer base particularly at the point of sale?

Yes, we've - we have been moving that number up significantly. And I don't know as we sit here the exact number, but it used to be we were getting in the range of 30 to 35 percent you know, if I'd go back three or four years ago, customers that got a first mortgage with us, 30 - 35 percent would get a home equity. That number now, I think, up to 46 percent. And some of our affiliates - you know, we measure it affiliate by affiliate - are up at 50 on that level. So we try to, again, best practice there and move up. That continues to move ahead. We know, for example, that we get about 90 checking accounts per 100 mortgages. We get 26 credit cards per 100 mortgages. We only get six or seven brokerage accounts per 100 mortgages right now. All of those numbers are moving up, though, Fred.

Yes, that - that's very encouraging.

And can you all just clarify something on this consumer loan growth? I'm looking at the analysts' supplement. I see the home equity loans broken out - see the growth there, but what would be - what would account for the growth in "Other Consumer?" What type of - are these boat loans or what type of assets are you lending against there?

Auto - it would be mainly auto.

Yes.

wants a car loan.

And that would be both leasing and installment in the auto?

It's predominantly indirect. We've done less leasing, but I would tell you the bulk of the growth out of the branches is auto related. It is secured credit in almost all cases.

OK, and then lastly - can you comment? We've been getting mixed reviews on growth in the small business segment. What's happening in the small business with you all?

I think our small business share - and, again, it depends on how you define it. There's not a real good , but I think throughout our markets everywhere, we're seeing a pretty good pick-up in small business lending. As you know, we have a group called , which works right with our banking center managers. And, you know, in Cincinnati, for example, we would have 18 or 20 people working with our 102 offices here. And it's a similar ratio throughout the area. And their volumes have been up double-digit in the small business lending.

Our regular middle market lending clients throughout whether you're talking the Chicagos, Detroits, Cleveland - Cleveland, particularly, has been going very well. But in all of our markets those continue to pick up. I don't know, Neal, do you have any trends there?

Yeah. I think, as George said, the thing is really tied closely with our branch activity. That has been increasing really over the last two years.

You know if you look at the big picture, retail we're real pleased with where we're at. I think on the commercial side we're down a billion dollars in commercial mortgages, you know from their peak in the pre Old Kent piece. And their focus was clearly much more commercial mortgage than it was a broad base of commercial product. So I think when you look market by market, we're seeing better trends, and we certainly have focused on it.

OK. Thanks, George and Neal.

Thanks, .

Thank you.

Our next question comes from Gary Townsend. Please state your affiliation.

Friedman, Billings.

Most questions have been answered and asked. Quickly, though, in terms of the deposit growth you enjoyed the last quarter, how much of that - would you say that the preponderance was more out of the old Old Kent franchise, or was it much more general?

No, it's much more general. It's coming across all 921 branches that we have. It is spread very, very much across. It's not any one particular area.

In fact, it's spread even among banks. If you go to Indianapolis and look at their top 10 branches, it's huge. And if you go to Detroit it's - you know if you pick the top 10 offices from each affiliate, it's really huge out there. And at the same time, there are some in our poorer locations that, you know, aren't doing as well.

And I think you saw also that we sold off six offices on July the 12th. We sold six in rural Illinois area that didn't have the growth potential there. And this is kind of a way for us to sort of weed those slower growth markets out there.

Thanks again.

OK.

Thank you.

Our next question comes from Brad Vander Ploeg. Please state your affiliation.

Hi. Thanks, good morning. It's Brad Vander Ploeg at .

You mentioned 20 offices slated for opening in the Chicago area roughly. And I'm just curious, because it would seem to me that there are plenty of small acquisition candidates in the area, given how fragmented the market is. Are the sellers just that unwilling or is there no perfect fit or how are you approaching that?

I think our deal there is when we build them, we pay one times book. When we try to buy them, the sellers are still demanding. The price expectations, I think, are still way out of line and sometimes not in the best locations, and sometimes involve, you know, other issues there.

Now certainly with the Old Kent deal that we did, that worked very well. And certainly there are other properties up there that we would like to get together with. But it all depends on, you know, if they're not for sale, you can't buy them.

And the other thing is we have 102 offices in Cincinnati. We have 102 offices in Chicago. There is seven million more people in Chicago, so 20 is just kind of a drop in the bucket. Twenty doesn't even make a rounding up there.

Right - right, OK. And this is a pretty small number, but if you could just clarify on the installment loans, non-performing loans for the period, there is a bit of a blip there. And I'm just curious what happened there?

Yes. It's on the supplemental information, I think second to last page.

Right.

On the installment side, what you would see is a slight up tick in those numbers, nothing of consequence I think. It's both the lease, if you look at credit, I would say indirect is a little better than a year ago, leases we think are a little better, but on linked quarter up modestly.

OK. And finally, because stock ownership is so important to all of your employees, I'm just curious if you'd followed the news on what Coke is thinking about doing with their option plan and treating it as an expense and what you think about similar ideas, and how you're accounting for it now, and how that might change?

A couple things. Obviously Coke is, situation is, has something to do with Warren Buffet, I'm sure. I would tell you in our situation, we think we've been very upfront with people. We think we've been quite modest. You know, there have clearly been abuses in option granting where companies have given away significant pieces. Our trend has been one percent of outstanding shares. We certainly think we've disclosed what those costs are.

You know, it's hard to speak about moderation when the pendulum has swung so far in some directions out there. But we don't think we've been among the abusers. We think our people have done well because they've driven the stock price, not because of the number of shares given away. And I think that's what you want in capitalism.

We have, we just issued 4,087 options to our officers two months ago. We have, in addition to that, there are a number of people. 72 percent of our employees own stock through this stock ownership program. Where they can buy $10 worth of stock each pay period, and we give them $11 worth of stock. So we've got a lot of people buying shares that aren't in the options program. And I personally, again this is George, think that's been one of the biggest benefits and the reason for our success, is the stock option plan that we have, and I would hope that the government does not screw that system up.

That is the, really one of the basis of the Western Capitalism here, and that's what makes the program work out here. And I think the governments, as soon as they start figuring out what that does to their tax base, they're going, they're going to take a second look at it. You know, Alan Greenspan never had a stock option.

I, like you said, we think there've been abuses. We think if you look at the percent we've given away, we're in nowhere close to the levels where you've seen some of the people in the newspaper and, you know, we think you have to get wealthy the old fashioned way by earning it.

Yes, and also we think we've created a 450 different millionaires, through their option gains, through our profit sharing plan that applies to 100 percent of our people. Or through their direct ownership. We think we've got 450 employees out of our total 19,000 and some employees that have stock that has, you know, an equity value of $1 million. And that's, you're talking about the American dream here, here. That's what makes the, that's what makes us go here.

The abuses have to be curbed, and we certainly subscribe to that.

Well that 450 millionaires sounds pretty good. You said you are looking for people, right?

Very much so.

All right, thanks guys. Good quarter.

Well we've looked at Bloomberg's screens even.

Thank you. Our next question comes from . Please state your affiliation.

, and my questions have been answered. Thanks, guys.

Thank you.

, .

Sir, there appear to be no further questions in the queue. Do you have any remaining closing comments you'd like to make?

No, we would just like to thank everybody out there for their continued support. And, again, wrapping it up, this is a pretty beautiful quarter for the Fifth Third. Thank you.

Thank you, ladies and gentlemen. That concludes today's teleconference. You may disconnect your phone lines at this time and have a great day.