Fifth Third Bancorp (FITBP) 2003 Q1 法說會逐字稿

Good morning, and welcome to the Fifth Third Bancorp first quarter 2003 earnings conference call. At this time all participants have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation. It is now my pleasure to introduce your host, Brad Adams, the Investor Relations Officer. Sir, you may begin.

Thank you for dialing in this morning. I know everybody is quite busy so we'll go through this quickly and then take a few questions. I apologize in advance for any body we don't get to.

This conference call may contain certain forward-looking statements about Fifth Third Bancorp pertaining to the financial condition result of operation plans and objectives of the Bancorp. 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. Fifth Third undertakes no obligation to update these statements after the end of this call. At this time I would like to turn over the call to Mr. George Schaefer, the President and CEO of Fifth Third Bancorp.

Thank you Brad. Good morning and thank you for taking the time to listen in. Neal and I are going to keep things very brief this morning. We'll take a couple of minutes to review what we feel are the highlights of the quarter and then we'll quickly open it up for a few questions. I hope most of you have had a chance to look at our first quarter results which we released earlier this morning.

I feel good about the results this quarter given the external environment and the number of things that we have had on our plate recently. Loan growth was very strong, revenue growth continues to show strength despite a low rate environment, checking account growth remains very good and credit quality continues to be manageable despite a lack of a meaningful recovery. From my perspective the highlights for the quarter were as follows:

Loan growth overall was very strong out there with average loans and leases increasing by 13%analyzed from last quarter and 15% over last year. Commercial lending continues to show signs of strengths with period end balances up over 770 million from last quarter, that is an annualized increase of about 13%. Retail installment lending remained good with balances increasing 19% over the first quarter last year.

Second highlight is the continuation of strong deposit growth trends. Our average interest checking balances increased 29% and average demand deposits are up 13% over last year. Sequentially, period end command demand departments are up 15% and interest checking account balances are up 18% on an annualized basis.

In the first quarter, first quarter alone we opened 120,000 new checking accounts. Eighty thousand of these were non-interest bearing. We also opened up about five thousand capital management accounts. We now have about twenty two thousand of these accounts which combine our securities and deposits in the -- into one vehicle.

2002 was an amazing year for transaction account growth at Fifth Third and we remain optimistic moving forward in 2003, but we are not expecting this type of elevated growth rates we saw in new checking account openings to continue this year.

The third point is strong revenue growth and service income growth. That interest income was up 9% over last year showing some of the benefits of our emphasis on lending and giving us comfort moving forward in to 2003. Our fee income line was up 18% over last year showing the benefits of Fifth Third's very diversified mix of fee services. I'll let Neal go through some of the trends here in greater detail in a minute.

Number four, we feel very fortunate to have had continued good credit performance of late but the lack of a meaningful recovery is beginning to go strain all companies here in the Midwest. Given our absolute low-levels of chargeoffs and non-accrual loans we have had in the recent past, the additional few mid-sized credits this quarter shows up in basis points discussions for us.

The metrics in the quarter increased somewhat with net chargeoffs at 56 basis points and NPA's non-performing assets, ending up at 65 basis points. These are still very good numbers by industry averages. I'll let Neal go through some of the details but I would like to point out that our total non-accrual loans and leases at the end of the period are only 277 million on an $84 billion balance sheet, that is about 33 basis points.

The balance sheet overall continues to exhibit very strong capital levels with 8.7 billion, 8.7 billion of equity capital and a total capital ratio of 10.4% at 331. And that is a very strong tangible capital base, I might add.

Overall economic conditions in our Midwestern footprint continue to show mixed signals. With that in mind, Fifth Third is going to continue approaching the business the same way we always have. I think we've been successful because we always focus on daily execution and we stay extremely focused on just the basic business of banking.

We're going to continue to build market share within each of our existing markets as we've done over the past years. We're going to improve our cross selling of our loan and fee based products taking advantage of the 5.5 million customer base we have out there, we have a big customer base both on the retail side and the commercial side. And we're going to continue to maintain an extremely low risk profile.

Now I'd like to turn it over to Neal for some additional comments and trends in our business -- Neal?

Thank you, George. As George said, I'm going to walk through several of the fee areas, talk a little bit about the balance sheet and then cover some of the other credit quality. As it relates to the line of business results, let me step through the first quarter highlights.

First of all, Fifth Third processing solutions used to be MPS was up 20% year-over-year. As most of you know from the fourth quarter we're down sequentially and that is a seasonality that we've experienced in years past as a result of the holiday shopping period, but I'd say up 20% for the first quarter, we feel pretty good.

Our new customer flows here remain extremely encouraging but I'd say we are mindful that the exciting book of business transaction activity is modestly slower from some of the consumer activity in the quarter. We continue to see a lot going on in this segment. Obviously across the whole industry and we think the opportunities here continue to look bright.

On the investment advisor side, downsidely (ph) year-over-year with several of our new markets showing some strength but in total impacting us because of the market. We continue to work hard here add (ph) people in markets but continuing to spend a lot of time focusing on it.

The bulk of our recent improvement we've seen in this business has been in retail brokerage and private banking. Those are the areas we have seen strength in 2002 as well.

On the commercial side, commercial banking revenues are up 29% over last years'. George highlighted in his discussion focusing on cross selling, we're seeing excellent deposit commercial loan growth as well as our fee product side. We continue to have some of our best fee income growth rate within the commercial business unit on the cross-selling side. We're gaining momentum on those areas. I think our fee income on the commercial side up 24% year-over-year.

On the retail side, as George alluded to, loan and deposit growth remains very strong. Our direct lending out of the branch side continues to show remarkable kind of origination volumes and excess of 20% growth here. I would say on the deposit side, as George said, the transaction account campaigns continue to bring in new accounts to Fifth Third across both totally free and the platinum and the CMA accounts.

On the mortgage side, I think probably we've been in a period of transition on the mortgage banking side but I would say very meaningful fee income activity from the mortgage side as a result of stronger origination coupled with the following rate environment provided more revenue on the fee income side for mortgage plus I think we've gotten the bulk of all the old (ph) Kent mortgage integration behind us so I feel very good there.

Let me spend a moment on the balance sheet and then interest income trends. I think obviously a lot of people are paying a lot of attention to. I think the challenge for most of us is that we're putting on earning asset loans today at rates that are well below what used to be the Reg Q deposit rates of pass book accounts of 5%s so I think all of us are challenged with lower rates.

The interest margin is down six basis points from last quarter. NAI is up 9% and we feel very good about that for the first quarter. Certainly that was led both by the balance sheet side as well as the loan growth that we have seen in all our markets. I think it is highlighted in prior quarters the best thing we can do in a low rate environment is bring in demand deposits and make loans. It's about the only way you can still get a 4% spread at these kind of rate levels.

Spend a moment on decrease emergent (ph) , obviously driven by a lower rate environment. I think as you look at spreads and margins, this is an area where having a big capital base and demand deposits impact the overall value of free funds. But again, we feel pretty good as we look at our NAI trends and what we're seeing these are some of the peers out there.

Let me spend a moment on credit quality, as George said, absolute level feels quite good. I would say the ratio up-tick is still quite manageable and I'll spend a moment on it.

Net chargeoffs as a percent of average loans were 56 basis points this quarter versus 46 basis points last quarter and I think this is in the range of what we were forecasting as it relates to the 8-K filing we did earlier in the quarter.

Total consumer net chargeoffs were up about $10 million. Concentrated really in the residential mortgage area, better than half of it coming out of that area. I would say on the consumer loan side, if you looked at gross chargeoffs, pretty flat to a year ago and up-tick modestly seasonally but when you look to a year ago, consumer chargeoffs on gross amount are pretty consistent with the year ago, recoveries are down a whisker.

On the commercial chargeoff side, they're up 4.6 million in net chargeoffs. That is really driven by five credits that range in size from 6 million on the high side to a million and-a-half on the low side spread out across about five different markets and no one's particular market there. but again I think function to what we're seeing there.

We also point out in the quarter provide an additional 20 million in excess of our chargeoff in provisioning, maintaining our consistent coverage on our NPA's and in that category I think we feel pretty good given economic trends we're seeing.

Let me spend a moment on non-performing assets, as George said, that was an up-tick. They were up 30 million in the quarter sequentially I want to spend a moment and talk through the categories there. Residential mortgage was up about 4 million, this is predominantly focused in residential construction.

On the installment side, we're up about 7 million. I wouldn't say that that was broad-based, but I think it was say fairly narrow piece of the business and we feel pretty good about that.

On the commercial side we had NPA's up about $19 million. There is one of those credits which is a lease which is to further --Midwest express, that amounts to $12 million. The rest are quite small. There are four other credits that are quite small in nature, 4 million to 1.5 million in size.

So I think in total, credit quality while it's up, I think it is explainable and it is something that we feel pretty manageable at this point.

A couple of other things I want to highlight real quickly before I open it up to questions, just to hit some of the quick highlights, I think most of you saw earlier in the quarter our announcement of in addition to our management team we announced the hiring of Malcolm Griggs (ph) who is coming out of Wachovia to be our chief risk officer. That is an area that a lot of banks have obviously added to and one that we feel fortunate to have somebody with Malcolm's experience and background to come into our organization.

Second thing I'd highlight is that as we've talked about in prior quarters, we continue to make progress on the recovery of the$82 million chargeoff as it relates to our treasury item that we had in the third quarter of last year. We continue to expect to conclude our review here in the second quarter, we're on pace to have that completed and we don't believe that there will be any negative event as it relates to that. We remained (ph) optimistic about our ability tore coup part of that $82 million.

With that, I will turn it back to open it up for questions. I appreciate your patience.

Thank you. The floor is now open for questions. If you do have a question or a comment, please press the numbers 1 followed by 4 on your touch-tone telephone at this time. If at any point in your question it has been answered, you may remove yourself from the queue by pressing the pound key. Questions will be taken in the order they are received. And we do ask that by posing your question you please pick up your handset to ensure proper sound quality. Please hold the line while we poll for questions

Your first question is coming from Betsy Graseck from Morgan Stanley. Please pose your question.

Good morning.

Good morning.

Betsy Graseck I have two questions, one was on the lease growth and one on net chargeoffs. On the lease growth it would be great to understand a little bit more about how you're generating the high sequential growth you posted and if you can talk to organic versus purchased and non-organic, is there anything you can say where the growth is coming from?

Yeah, I would say, Betsy, if you look at the supplemental data as it relates to the balance sheet on the loan growth side, I think the -- let me see if I if I can't get the page. I think if you look at the see at the sequentials on page 11 there, if you look at some of the quarterly data, the lease growth I think is coming out of a broad group of assets, the bulk of it was the prior two quarters, but I would tell you that it's broad-based in the newer markets. It isn't of much substantial size to anyone individual credit, but I would say I don't know that I would call it economic in nature at this point.

(inaudible) In other words, it's not a forward-looking trend there.

So you would expect that perhaps lease growth would potentially decelerate going forward?

It is lumpy is probably the best way I would describe it as you look back through time,-- we tend to get a pickup into the end of the year as people are motivated to get transactions closed, but I would say what has been unusual this year is we have had some carry over into the first quarter. The first quarter is usually quieter than it was this year.

Okay, and is this potentially some of the asset-based lending that has been growing out there?

No, it's not asset-based. This is what I would call a bigger ticket items that are manufacturing kinds of activity.

Okay, great. And on net chargeoffs, you touched on the consumer which was up somewhat. The mortgage portfolio is up both sequentially year on year.

Yes.

And I'm just wondering if you can talk to trends there and should we expect any further acceleration here?

No, I think mortgage chargeoffs have been coming through as a result of the integration of the old -- old Kent mortgage. I think you'll see it being pretty consistent. A mortgage charge off cycle is fairly long, it's 12 months just to go through a foreclosure process and so I think that is what you're seeing come through, Betsy, but I don't think that is an on-going trend.

Okay, thank you.

The next question is coming from Fred Cummings (ph) of McDonald Investments. Please pose your question.

Good morning George and Neal. Just a couple of questions. Neal, on the expense side, you detailed that the third-party review as well as some other expenses related to the written agreement, incremental 10 million in the fourth first quarter.

Yeah.

Can you talk about how much that is going to cost you in subsequent quarters and I also wanted to get a feel for as you billed out the staffing in the risk management area and hire internal auditors and the like, what type of impact might that have on expenses? Are you just going to cutback in terms of the revenue producing personnel that you hire to offset it?

Let me deal with the last one, of course not. Revenue producers are the people that help pay the bills, but I would say as it relates to specifically internal audit and risk management and third-party, let me deal with them.

In the first quarter we had 10 million. If I had forecast second quarter I think you'll see a like amount, but I don't think third-party reviews will be expenses beyond the second quarter of any material amount, there might be a couple of items into the third quarter but I don't think there will be anything of a material amount. I think you'll see a similar kind of trend. It would be my best guess at this point, Fred.

As it relates to internal audit, I think that is the area we're the furthest on. We have added to that staff pretty meaningfully. I think George, the head count increase there is already in the run-rate, but I would say that that is the furthest. As Malcolm arrives, we obviously will add to that, there is some Bossel (ph) related expenses that people will have across the whole industry, I think, but again I don't think it will be dramatic, I think, as you hire people it's going to blend in.

Fred, also, as part of this process, we're automating a lot of manual processes and automating a lot of reconciliations so there is going to be some off sets because of the new systems we're putting in that are going to handle a lot of this automation rather than the way it was done manually. You know, we process this year we'll process about 9 billion transactions in our processing company and a lot of that technology that we're using in the processing company, we're now bringing in to the back office here in terms of reconciliation and settlements and so we think we're going to have some savings, some offsets to some of that expense on the other side, also. And obviously when you automate it the quality goes up quite a bit there so that should be a savings, also.

Okay. And one other question for you, Neal.

Sure.

This morning Provident had to restate its numbers again as related to reclassifying some automobile leases from direct finance leases to operating leases and my understanding of it was it was due in part to the type of residual insurance they have, based on their residual insurance being a pool (ph) insurance as opposed to a car-by-car issue (ph). Is that of any -- is that an issue for you all? Can you explain how you insure your leases? Is it pool basis? Is it car-by-car and might you have to, you know, change the accounting for your leases?

Yeah, I would say, Fred, we have been busy dealing with Fifth Third so we have tried not to read other people's press releases.

Understood, yes.

I would say that I haven't seen all of what Provident announced, Fred, in total. I would tell you that our residual policy is one that we've been through many pieces of the structure overtime. Those things have changed. I think through most companies but I'd say I'm not aware of their particular individual issues and I'm comfortable with what we have.

Okay. One last question, if I may. In terms of the merchant and debit processing business, obviously this big lawsuit, Wal-Mart versus the Visa and Master Card, what is your take on, it seems like there might be a change in that business model and to the extent that it might be hurting the debt card business, what is your take on that, Neal?

Yeah, and Fred, this is George. I think from what we can tell for us it's going to be revenue neutral out there. Now, it hasn't all been decided as how that's going to fall out. out there, but as you know, our forte is to process transactions cheaply and in the outset of this, I think maybe worse case it would be neutral for us.

And I think, Fred, when you look at the payments business, merchant had grown the fastest over the last several years and in reality the last 18 months or so the EFT business has grown more quickly and I think there's a lot going on in the debit side. I don't think it's all a net minus. In other words, it might have impacted some folks' margin but it matters whether or not you have interchange, you know, it matters where you play in that business. So, I think, as George said, we don't think we have exposure to the negative but I'd also say, I think with what is going on at Concord, with what we're seeing going on in the industry, we think there is more opportunity.

Okay. All right, thank you.

Yes.

The next question is coming from Ken Puglisi (ph) of Sandler O'Neill & Partners. Please state your question.

Ken Puglisi Good morning, yes, actually, Fred already answered most of my questions as he often does. Yes, I wonder if you can just elaborate a little more on the salary and expenses line. I was kind of surprised to see it down as much as it was from the fourth quarter. I imagine some of that is seasonal and maybe there was some overtime, the December quarter.

Yeah.

But Neal, you indicated that most of the headcount is necessary to reply with what the regulators want is in the run rate. Can we view the first quarter as a run rate or is it something other than that?

No, I think and let me be clear, as it relates to internal audit, the headcount is in the run rate. I think in risk management it will build over time. As you go through that, so I would say, Ken, that we -- I think we historically have had fourth quarter, first quarter, this kind of trend, so, I think you're going to see that it's going to build but I think it's not going to build dramatically.

Okay, and, Neal, on the margin, can you give us some idea what the margin might have been running towards the end of the quarter?

It's down from the period, but I think sequentially you're seeing the re-pricing on the asset side continue. I think at the end of the quarter we would have probably been down another four to five basis points from what the average was.

Okay, thank you.

Yes.

The next question is coming from Mike Mayo(ph) of Prudential Securities. Sir, please pose your question.

Hi.

Good morning, Mike.

How much in NPA's do you sell this quarter?

Non.

And just to confirm what you said earlier, the $10 million increase in consumer net chargeoffs due to residential mortgages, all that is due to old Kent or most of it?

No, I would say that this was -- there are two pieces to it. As it relates to the charge off part of it was residential construction and a little less than half I think is what it was, Mike. And the rest of it was just -- you have a longer charge-off cycle there and these are non-performers that have been coming through the snake, if you will, as you go through the foreclosure process.

Ok, and with regard to the margin, should we take your last comment to mean that the margin might be down five basis points or so in the second quarter or more or less? What is the outlook there?

I would tell you I don't have a firm thought there at this point. I think all of us are trying to figure out not just the level of rates but what happens to the yield curve, you know, this financing the deficit steepen (ph) it or flatten it, I think, that is what all of us are wrestling with it, Mike. We will update that when we file the 8-K in the second quarter.

Mike Mayo Your loan quarter was faster than your guidance previously. What happened there to make it better?

I think, may be George has some color, but I would say, it was broad market participation, retail has been very strong, and so I'd say both the - all the products seem to have been hidden on the gears (ph) but I also think a lot of our affiliate markets, we're seeing they're hiring and the kind of pickup in those areas.

Yes, I think, Mike, we have commented this - maybe in the last quarter but just in our Cincinnati commercial lending business, we had a national marketing survey done towards the end of last year and it showed that in the last five and-a-half or six years and this is in the Cincinnati market where we have been for 145 years. Our Cincinnati commercial lending business has gone from 26% six years ago to 31% three years ago to now, so, we have a 38% market share here in Cincinnati. And the same type of program and marketing we're starting to see these results in a lot of our other markets, especially the new markets. So we're seeing some really good increases in market share. I think those are not so much from the fact that the economy is not growing at those kinds of rates obviously out there, we're having some very good success just on daily execution, staying focused, selling checking accounts and treasury management products and dealing with the higher end of the credit spectrum out there. We're spending a lot of time out with the customers talking to them, delivering the basic banking products and that is what always has made for the last 30 years that is why we do so well we stay focused on that basic banking and that seems to be working very well.

And, last question. Your revenues were up12 million and I get your core expenses up 20 million late link quarter and usually you have positive or flat operator flat quarter and that would be negative operating leverage. Any story behind that, or?

No, I would say, no, certainly we detailed the onetime expenses, Mike, that we think are in there. I think we're grappling with that but I think lower rates have put more pressure on margin. I think, am I comfortable that the long-term formula works? Yes.

Okay, thanks a lot.

Yes.

The next question is coming from Christopher Marinac (ph) from SunTrust Robinson Humphrey. Please pose your question.

Hi, George and Neal, can you give us on your (inaudible) portfolio and what your duration looks like today and what your expectation is for prepays in the future?

Yeah, how long do you have? A couple of things, I think, are going on in the balance sheet and I'm glad you asked that. The investment portfolio has increased in size, biggest thing there is we have been trying to -- we run a fairly short duration book, if I give you exact numbers, the duration at year-end was 1.5 years and at 331, it was at 2.2 years, and what I'd say is we are trying to protect ourselves from long-term low rates as well as curve flattening and what we intended to do is tried to buy prepayment to hold to size earlier in the year and then let that cash flow peel it off. So we've tended to be shorter than most and kind of the way we look at it is highly liquid consumer assets within the portfolio. We don't have a bunch of 30 year products or anything like that as the focus of this investment portfolio.

Neal, was there any significant impact from the derivatives on the spread income or margin in this quarter?

No.

Ok, and to what extent does the change in duration this last -- this last quarter help the margin and is that partially because you think that things are changing right now in rates?

Yeah, you know, I wish I knew that but I think in total our cash flow, we've always had a pretty short duration balance sheet, you know, both with consumer assets and retail assets where you have fairly tight cash flow. This prepayment speed on the asset side, I think, has been quicker than all of us expected, just because of the length of the time of lower rates. So, I think, where we're at today, I would call (inaudible) pretty well-balanced.

You know, if rates go back up, you know, I feel still very good about where we're at, we didn't put on a bunch of long duration product and what I'd readily say is the balance sheet, our biggest challenge is prolonged lower rates given the amount of free funding that we have, we have been taking actions over the last two-and-a-half quarters to deal with that both to hold its size and to manage the cash flow coming off the mortgage product.

Great. And Neal, just one follow up, can you walk through this quickly how the MSR is valued right now and do you think that that is the likely to see a further impairment?

No, I think that -- if you look at both our servicing portfolio size and if you look at the discussion that we put in the narrative at the front of the earnings release -

Right.

I'm actually pretty proud of how hard all our folks have worked to both protect that, it's very much down at a manageable level today. It think it was significantly higher, you know, 18months ago. Our servicing portfolio is actually down below 30 billion. If you look at our origination rates I think

14.

Yeah, I think we're at about a 14 billion kind of run rate so we're starting to get to a more balanced origination servicing book and I don't think that was true two years ago

Great, thanks so much, Neal.

Yes.

The next question is coming from Richard Sermoney (ph) of Putnam Investments. Sir, please pose your question.

Hi, I don't have as many questions as Fred, but I just -- just on the capital and buy back, I'm a big fan of the strength in the balance sheet. On the other hand, given the stock price and interest rates and the fact that you're earning over two on assets and well into the mid to high 20's on a reasonable level of equity, would you take that down, the leverage ratio down, you know, less equity in the near term to buy back stock?

I guess a couple of phenomenon, Richard, is that if you look at what is going on out there in the market broadly and what -- you know, as you said, I think earnings level has been very good, we obviously are not spending a bunch of money on expansion and so I think as I look over the next18 months, it's likely that we buy back more than we, you know, plowed into. Anything else - we didn't buy back a bunch of shares isn't in the first quarter, quite honestly we wanted to get a lot of the Fed agreement and items behind us, but I think, (inaudible) we will certainly deploy the capital in the way that benefits the shareholders. I don't think we're trying to get to 12% equity capital, you know. So I think we feel very good about the balance sheet structure. I think liquidity is very sound on the balance sheet. I think the capital levels are very good, and so, I think, it's likely that we're more active.

Okay, thanks.

The next question is coming from Jason Goldberg of Lehman Brothers. Please pose your question.

Thank you. Most of them have been asked but one question, if you back out the insurance gain last quarter, it looks like other -- the other income was up about $20 million link quarter. Anything in particular there?

No, I'd say it was -- if you looked on the commercial side in that line you'd have FX and - foreign exchange and our institutional bond business both had very sell stellar quarters and I think we showed that in the narrative discussion. I think on the consumer side we're seeing continued good fee income just with the number of accounts that George quoted, that we're opening on that side. So, you know, I think it's across the whole range.

Yes, some of those rate caps and swaps that we have been marketing also were very good given the low rate environment to protect us on the term lending side, it was also a good source of fees this quarter.

Okay, thank you.

The next question is coming from Carol Berger( ph) of Craft (ph) Investments. Please pose your question.

Hi, it's Carol. I had two questions. You said that the regulatory review should be done in the second quarter and in the press release you said it was nine and-a-half million dollars of expenses from that. Can we assume after the second quarter that number pretty much disappears or does it go away slowly? And I have a second question.

Okay. I have to be very good and careful about being clear here. What I would say Carol, we would be done with the PMA construction on the treasury side. That is the specific part that the -- where we took the$82 million write down, we expect to resolve that in the second quarter. The second piece of it is the ongoing expenses with regard to third-party, I said the bulk of those will be paid for in the second quarter. We've had a number of those reviews going on in the first quarter. We have a fair number of them that are also carrying over into second quarter, but I'd say that the written agreement that we have with the Fed is one that I don't have a definitive end date on. And so I would break it into those three parts, Carol.

But the increase in au audit expense for example, our audit team, is probably up 50%, Carol, year-over-year in terms of people there and then the Malcolm Briggs risk management group is going to come in here and there is going to be some expense with that on an ongoing basis. But again the offsets are we we're putting in a lot of automation on the process side and a lot of these reconciliation areas and manual ticket elimination, for example, that is going to have some offset to that there.

And the timing of those offsets?

Yes, it's a continuous improvement process out there so it is not like we have already done quite a bit of that and we're continuing to improve that.

And I would say, Carol, the third-party expenses are visible, you see them, they're lumpy, if you will, in the quarters. I think the first and second quarters is where we'll see the bulk of those costs and I think they're going to be in the range in the second quarter much like you saw in the first quarter so that is in the area of 10 million worth of expense. I think the personnel ads will, you know, you can't hire a bunch of people all at once. You know, it's just not physically possible. We have been adding people as it relates to the individual functions and I don't think that will have a meaningful disruption in the run rates.

Okay. And on loans for sale, you're running about 3 billion. Characterize that for me. It's largely mortgage warehouse and how should I think about the size of it going forward and how it's going to impact your overall loan growth?

Yeah, I would say, Carol, the activity there is heavily driven by residential mortgage originations. Obviously we had a pickup and I would describe it as the second two months in the first quarter, that activity continues. When does it slow down? I forecasted that refinances were over twice now and been wrong so I'd tell you, this one given what's in the pipeline right now I expect that it will have a meaningful addition to the second quarter and then I don't know from there. I guess you can refinance again when rates get to three, I suppose.

Bite your tongue.

We're just trying to restart the economy, you know, make sure everybody's mortgage payment is as low as possible.

Thank you.

At this time I think everybody has a lot of things to do this morning. We will take one more question then let you guys get back to work.

The final question is coming from Mike Holton (ph) from TL Price. Please pose your question.

Yeah, good morning.

Hi, Mike.

George, your comment about the remainder of the year remaining upbeat. Does that imply an acceleration in earnings growth or somewhat type earnings growth the rest of the year as we saw here in a pretty good first quarter?

I think as you know, Mike, I'm always upbeat. I have been that way constantly in spite of the external environments out there but I think you're going to see the same trends that you have seen here recently in this quarter. I think they would be pretty indicative out there. I mean, what we had here at Fifth Third is people that know how to go out there and hustle and sell banking products and I think you're going to see us continue to execute like we have done in the past 29, 30 years out here. We do seem to get better at this execution and now we have got some automated tools that are helping us a lot in the process so instead of using our old human wave attacks we're using much more - kind of like General Franks, most of our marketing stuff is a lot targeted now, maybe we have smarter weapons but I feel pretty good we're going to continue with the same trends that you have seen.

Okay, thanks.

We're just trying to take one city at a time.

Thanks a lot everybody for listening.

Thank you for your participation. It does conclude this morning's teleconference. You may disconnect your lines at this time and have a great day. Thank you.