Old National Bancorp (ONB) 2005 Q1 法說會逐字稿

Welcome to the Old National Bancorp's first quarter earnings conference call. This call is being recorded and has been made accessible to the public in accordance with the SEC's Regulation FD. The call, along with the corresponding presentation slides will be archived for 12 months on the Shareholder Relations page at www.oldnational.com.

A replay of the call will also be available beginning at 5:30 p.m. Central Time today through 12:00 midnight on May 5th. To access the replay dial 888-203-1112 and the confirmation code is 8495021.

Those participating today will be analysts and members of the financial community. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time.

With us today is Old National Bancorp's President and Chief Executive Officer, Bob Jones, Senior Executive Vice President and Chief Operating Officer, Mike Hinton, the Chief Financial Officer, Chris Wolking, the Chief Credit Officer, Daryl Moore, and the Vice President of Investor Relations, Lynelle Walton. At this time for opening remarks and introductions, I would like to the call over to Miss Walton. Please go ahead, ma'am.

Thank you. I'd like to again welcome everyone to our call today and just as a reminder our slides are currently available on our Web site and we will be following them in the presentation.

If you turn to Slide 3 it's our complete forward-looking statement. During the call we will be making forward-looking statements regarding the outlook for future earnings and expectations and expected trends. For these statements all national claims of protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Slide 4 is our non-GAAP financial measures. Certain numbers in this presentation have been adjusted to provide more comparable data between periods as an aid to see realistic trends. We will be using those today.

Slide 5 is our agenda. We have a lot of information to cover today.

First, Bob Jones, our CEO, will discuss our recent initiatives, the Flynn acquisition, and the planned divestitures of Terrell and FEG and how these actions fit into our overall strategic plans. Then a discussion of our second quarter and full-year earning's guidance with expectations and trends, an assessment of performance against our strategic imperatives.

Our CFO, Chris Wolking, will then give an in depth look at our first quarter earnings, our areas of strengths and opportunities, and discus capital management. Then our Chief Credit Officer, Daryl Moore, will be pleased to give a credit quality update as we have our second quarter in a row of positive trends in that area. Bob will then conclude with giving us where we are as compared to the financial targets that we have set for ourselves.

Now I'd like to turn the call over to our CEO, Bob Jones.

Great. Thank you, Lynelle and good afternoon to all of you afternoon to all of you on the phone.

We begin on Slide 7. We thought it very important to begin the presentation today to discuss some of the strategic actions that we've taken in the first quarter.

The first we'll begin with as we previously announced, the purchase of the J.W.F. Insurance Company, headquartered in Indianapolis, Indiana. This is a terrific compliment to our banking franchise in Indianapolis.

We've all stated we are Indiana's largest bank. We feel it's very important to continue to have a strong presence in the Indianapolis market. J.W.F. Insurance brings us strong brand recognition, a very high quality management team that we believe will create terrific synergies with our banking franchise in Indianapolis.

As part of our continuing evaluation of the best use of our capital and equity, we've made a decision, and as noted in our 10-K, to put some of our entities up for sale. We are classifying those as discontinued operations.

The first is the planned sale of the J.W. and Terrell Insurance Agency. J.W. Terrell is based in St. Louis, Missouri.

It was purchased at a time when we believed we were going to be expanding into St. Louis in a banking franchise. We have since re-evaluated that expansion into St. Louis at the current time and we are working to sell the J.W. Terrell Insurance Agency because of its inconsistency with the strategic vision we've set out for the Company at this stage.

In addition, we are also planning the sale of the Fund Evaluation Group, more commonly known as FEG. FEG is based in Cincinnati.

We found we weren't able to get the synergies with FEG and the rest of the bank and in fact, found that having FEG owned by a bank put them at certain times at an uncompetitive situation, so we've made a decision to sell FEG as well. If you look at our first quarter earnings this did have a penny per share impact in terms of discontinued operations, and it is, as I said earlier, it is part of our ongoing evaluation of the best use of our capital on our equity.

Let's start then on Page 8 with really getting to the heart of the guidance because as you look at these, what is the effect on what was the prior guidance we've again you.

We are still comfortable with the guidance as you look at it from continuing operations, our second quarter guidance remains at 31 to $0.35 per share from continuing operations. For the full-year we're still comfortable at $1.33 to $1.41 guidance again from continuing operations.

There will be some non-recurring expenses associated with the disposition of these discontinued operations. It ranges from 11 to $0.13 per share, but again, we are comfortable with the guidance as we gave it to you prior as continued operations.

Turning to Page 9, I just want to remind all of you the three strategic imperatives that we have set as a Company that continue to drive our operating performance. We continue to work to strengthen the risk profile. I believe, as you hear from Daryl, you'll see we continue to make very good progress on our credit areas.

On the compliance front, we spoke with you last quarter about the investment we've made in compliance. We are pleased with both our performance on Sarbanes Oxley as well as our recent conclusion of our BSA exam and are comfortable that that investment continues to pay for us.

We're going to talk, Chris will talk to you, our financial performance, but you'll begin to see that the leverage, the ASCEND process that we've talked to you a great deal about is beginning to pay off in terms of reduction in our cost, as well as increase in our non-interest income. Probably more importantly it's beginning to bring a stronger management discipline as reflected by the sale of FEG and Terrell, which is really part of that management discipline and how we best use the capital of the Company, but we continue to leverage that discipline and we continue to hold our people accountable for really the third strategic comparative which is how do we achieve consistent quality earnings.

While we are pleased with the first quarter performance, I think Chris will relay to you the positives as well as some of our challenges. We also know that we still have opportunities to continue to improve our performance, and Chris will lay out some of those ideas.

Let me turn it over to Chris Wolking, our CFO.

Thanks, Bob. Good afternoon, everyone. I'm pleased to report a really good start to the year for Old National in 2005.

If you'll go to Slide 11, you'll see that net income from continuing operations for the first quarter was $0.28 a share, up $0.02 per share from fourth quarter 2004, and up a penny per share from first quarter 2004.

If you add back the charge to goodwill triggered by the decision to sell Terrell and FEG, we earned 20.6 million, or $0.29 a share in the first quarter. We're certainly pleased to have met the first quarter guidance that we provided for you in January.

Moving to Slide 12, I'll highlight some of the strengths that we saw in the first quarter.

Non-interest revenues increased 1.1 million compared to fourth quarter, led by a strong performance in the insurance unit, an increase of $1.1 million for insurance. Additionally, our treasury capital markets unit had its strongest quarter ever with approximately $725,000 in revenue during the first quarter. Non-interest expenses declined 8.4 million from the fourth quarter of 2004, a great improvement.

We experienced expense improvements in many, many areas. Most notably occupancy expense, professional fees, and data processing expense.

The loan loss provision increased to 5.1 million in the first quarter 2005 from the atypical zero provision we had in the fourth quarter 2004. As you may recall from our fourth quarter conference call, we expected a provision of 5 to 6 million, and we're pleased to have come in on the low end of that range.

Moving to Slide 13.

You'll note we experienced a one basis point improvement in our net interest margin in the first quarter, not a tremendous improvement, but an improvement nonetheless. It was gratifying particularly given the decline in our loan portfolio from fourth quarter 2004, and the fact that the federal funds rate increased 50 basis points during the quarter.

The improvement in the margin is attributable to the continued improvement in our funding mix and by our ability to lag the increase in market rates when we established deposit rates during the first quarter.

As you can see from the graph on Slide 14, demand and savings accounts have increased steadily for us over the last two years and now comprise about 63% of our total core deposits.

Loan growth continues to be our greatest challenge. On Slide 14 you'll see that average loans declined fairly significantly compared to the fourth quarter of 2004, down approximately $144 million.

A portion of this decline, if you recall, was due to our successful sale of non-accrual loans late in the fourth quarter, and we do have some positive news in that period end loans at March 31, 2005 were only 15 million, approximately $15 million lower than December 31st, 2004. So the Company did not experience the same dramatic decline in loans during the first quarter that we experienced in late fourth quarter of 2004.

Although we are pleased with the significant decline in operating expenses during the first quarter, expense control and discipline continue to be an opportunity for us as Bob mentioned. We are absolutely committed to our ASCEND expense reductions and continue to monitor the implementation of the initiatives very, very closely.

Again, as Bob mentioned, ASCEND has helped establish a rigorous process for the analysis and approval of new projects. It's very, very important that we see the full impact and get the commitment of the sponsors of these projects and that's an integral part of the process.

As Bob noted also, business line and regional executives are held to a very high degree of accountability for unit performance, and this of course includes accountability for direct expenses. We are very confident that this high degree of attention to performance and the continued hard work by the managers will result in continued strong expense performance.

I think it's important to note the graph on Slide 16. You'll see that full time equivalent employees have declined over 10% from our high in 2003, really with the most dramatic decline in the third quarter of 2004 as we began our implementation of ASCEND.

If you move to Slide 17, another significant opportunity for Old National. It has to be described as a significant opportunity is our weak net interest margin.

Clearly 322 is not an acceptable margin for us and obviously a healthy margin for our bank is critical to our ability to generate revenue to generate the long-term return on equity targets that we've talked about in calls past, while continuing to improve our deposit mix and establishing consistent loan growth are key to an improved margin. Our near-term focus is on our large investment portfolio and high level of borrowed funding.

Investments are currently 34% of total assets, up from 23% of total assets in 2001. The portfolio has not really grown appreciably over the last three years, but as total assets declined the portfolio became a larger percentage of our total balance sheet.

And at 23% of total assets borrowed funding too, is larger than really appropriate for our current balance sheet. I think you'll see that through normal cash flow and continued attention to the portfolio, we will continue to reduce the size of the portfolio and borrowed funding during 2005.

Finally, on Slide 18, we'll see what we would consider another significantly important opportunity for Old National.

The sale of Terrell and FEG signals our desire to what we call rationalize our deployment of capital. In the near term, the newly available capital generated through the sales and capital freed up from a smaller investment portfolio will be used to continue our active buy back of the stock.

As you can see by our first quarter volume, we've been more active in the first quarter in 2005 than we were in 2004. We fully intend to execute the authorized 5% buy back that the board authorized 5% buy back during the year.

With that I'll turn the presentation over to Daryl Moore, our Chief Credit Officer.

Chris, thank you very much and good afternoon. I'd like to begin with Slide 20 where we show you the trend in non-accruals.

You can see that first quarter non-accruals remain basically unchanged from prior quarter. We feel however, that we're continuing our progress in reducing on accruals.

As all of you know, timing the final resolution in the number of these non-accruals is sometimes out of outside of our control to get [inaudible] before quarter end, and we do feel optimistic that we have a number of credits that we've been working on that will show positive results in the second quarter, so we do believe that we continue that strong push to move non-accruals down.

On Slide 21 you can see our non-accrual coverage. Again, similar to where we were at the end of the fourth quarter at 156 coverage, and significantly higher than the preceding six quarters prior to last year's final quarter.

On Page 22, you can see problem loans. We continue our downward trend on problem loans.

We decreased problem loans $9 million in the quarter. That is not, in addition to that $9 million decrease in problem loans, we also decreased our special mention loans by an additional $20 million, so we continue to move the problem and special mention loans out of the bank.

I might make a comment that our predictor obviously of problem loans in the future are delinquencies. Delinquencies at the end of the first quarter were the lowest they have been in many, many quarters. We believe that's an indication of the improved credit quality in the portfolio.

Finally on Page 23, it shows the annualized year-to-date net charge-offs.

In the first quarter we were at 37 basis points. That is lower than the prior three quarters. I would say that we're still hopeful that we'll be in the 40 to 50 basis point range.

I would not take the 37 in the first quarter to be an indication it will be any lower than that, it's just the way that the [charges] have fallen. But there haven't been any significant surprises and we expect to be within the stated range through the full year.

With that, I'll turn it back over to Bob.

Great. Thanks, Daryl. I'm going to close with the slide on Page 25 for those of you that were with us in November or that read the documents on the public site, we set goals which we feel are very important to put us back into our ability to achieve consistent quality earnings. What you'll see is where we stand in the first quarter of '05 versus those targets.

Two points that I would talk about here. One is we continue to find better and improved ways to get a return on our equity, thus the sale of FEG and Terrell, and then the efficiency ratio we talked a lot about expenses. We will continue to focus on reducing costs at the same time driving revenue consistent with what we said in ASCEND and consistent with our overall vision.

As Daryl said, the net charge-offs are below our target, but we don't believe that's a sustainable level given the growth in the portfolio, and then Chris talked about our equity, but we are pleased with the progress we've made, we consistently believe that we're on the right track.

And at this time we all would be glad to answer any questions you might have on our presentation or the release.

[Operator instructions] Up first we'll hear from Scott Siefers of Sandler O'Neill.

Good afternoon, everybody.

Hey, Scott, how are you doing?

Good.

How are you doing?

Good. I wondered if you could go into a little more detail on the outlook for other, a reduction in the pace of declines in the loan book or some increases. I note the a period on balance, the period end decline was much less than the average and I think you noted in your comments that the same kind of trend, just I'm curious if you could give us a little more color on the outlook? And then separately, do you know offhand what percent of the total loan portfolio is variable rate?

To the first point, Scott, Mike Hinton is with us, who is our Chief Operating Officer response for the banks talk about loan growth within our banks.

To the second part, I'm not sure we can get that answer to you on the percentage of variable rate. We'll have to get back to you on that. So Mike, do you want to talk about pipelines?

Sure. Scott, we've been monitoring pipelines very carefully throughout all of our regions and I'll tell you that what we've begun to see and we're encouraged about is that the pipelines which have grown through the first quarter are beginning to be booked. We're particularly seeing encouraging signs and some of our larger markets in Evansville and Indianapolis and in Louisville, but throughout our Company, pipelines are up and we're getting to bat much more often with opportunities.

And I might just add on to that. You know, we talk about management discipline but we do hold monthly scorecard meetings with our regional presidents and our line of business folks. We talk about volumes, we talk about accountability for financial performance.

We now all get daily balance sheets so we can tell you point in time on how we're doing in every financial category, and Mike is not without calling people when he sees some slippage and pushing them a little bit harder. So we are declaring victory, but we are certainly seeing an increase in activity that leads to optimism.

Okay. Great. Thank you very much.

And Scott, we'll get back to you on the other side. Either Jim Ryan, our Treasurer or Chris will get back to you.

Okay. Appreciate it.

Up next we'll hear from Troy Ward of A.G. Edwards.

Good afternoon.

Troy, how you doing?

I'm doing fine, thank you. Can you just give us a little color on where you're at with ASCEND and specifically where the different enhancements and/or savings are with respect to your goals?

Sure. We said in the last call we are still comfortable that we're going to achieve our total expense savings. We're comfortable that we're going to get 95 to 100% of our fee. We're less comfortable, Troy, with the growth in revenue ideas, but you know, ASCEND continues to be monitored very closely. When an idea doesn't achieve what it's expected to, we expect replacement ideas.

If it was a revenue or a fee idea, we expect it to be replaced with an expense idea. Mike is clearly holding people accountable to achieve those numbers and at this stage we're still comfortable with the guidance we gave you last quarter.

So you say you're not as comfortable with the one aspect of it but with respect to the last piece of guidance we got nothing's really changed since then?

No.

Okay. Great. And if we look at full time equivalent employees, still trending downward, where are you with respect to where that will end up?

You know, actually we have Alan Mounts here with us who's our Chief Human Resource Officer, and he can answer that question. It will be his first time on an analyst call, so --

Good afternoon. We are pretty close to full utilization on that number at that time so I wouldn't expect a material change in future quarters.

All right. Good job, Alan.

Troy, that's the nicest thing you've ever said to us.

That's not true. All right. Thanks a lot, guys.

We'll take our next question from Charlie Ernst of Sandler O'Neill.

Good afternoon.

Charlie, how are you doing?

Good. Could you talk a little bit about the charge-off level this quarter and also your expectations for provisions going forward?

Yeah, Charlie, this is Daryl. The first quarter charge-offs were a bit lower than what we think our run rate's going to be going forward. It's just a matter of, you know, there were some credits that we didn't have resolution on and I don't really want to try to project where we'll be on charge-offs for the balance of the year but it will be higher than the 37 basis points.

With regard to provision, with the continuing improvement in credit quality, with any charge-off levels that we see the need for allowance continues to be pretty fluid. We would expect as we continue to decrease problem and special mention loans that the absolute need for allowance will come down with those, so as we sit here today, as you know, we had a $24 million budget for provision, we feel very comfortable with that provision number.

So it wouldn't be unreasonable to think that the provision level would be somewhere around this level over the remaining part of the year?

It would be between, yeah, between 20 and $24 million probably.

Okay. And in terms of the salaries line, were there full bonus accruals this quarter in that number?

Chris is going to answer that question.

I'm sorry.

Before Chris answers the question, let me just talk a little bit about our bonus program for '05. I think you'll all remember that we put in a new short-term incentive program for the management team as well as all those on short-term. Assuming we hit plan, we will only pay 75% of target to our employees that are eligible and that's a belief on Mike's and mine and Chris's part that we need to continue to ratchet up the performance of the Company and we don't believe that hitting plan this year is worthy of 100%.

You'll also remember within our short-term incentive program we're somewhat unique in that we do a peer comparison and where we fall within an aggregate quartile ranking, if we're in the fourth quartile against peers, we'll take an automatic 25% haircut. So we could achieve plan, be eligible for 75%. If we don't improve our performance against our peers we'll take another 25%. So with that I'll let Chris answer the question. Sorry.

And Charlie, it's so early in the year I think that it's fair to say we're accruing at the levels that would be consistent with the budget.

And then back to the ASCEND program, so it sounds like on the head count side most of the benefit is probably in there. Are there other expenses outside of head count where you might get an added boost over the year or is this kind of where the run rate stands now?

I don't think you, we will continue to look for opportunities within the expense. ASCEND was a great tool to get us to this point in time. I would prefer to look at ASCEND as developing the management discipline.

We are always evaluating expenses. Part of what Mike does, and I should let him speak for himself here sometime, but as he holds his monthly meetings, as he's looking for opportunities to tell people how to they're going to achieve their plan, if it costs, if you have to put the brake on expenses we're willing to do that. So I don't think you can say that we're at where we're comfortable. We will continue to look for expense opportunities and we look everywhere.

And then lastly, is there any update to kind of what your rate sensitivity models are telling you?

I -- yeah. You know, I think, and I think a good example there is what actually happened in the first quarter in that change in the margin, we actually improved the margin slightly in the face of a pretty ugly environment from a short-term rate perspective. So our models continue to show us slightly liability sensitive but as I noted, our ability to, you know, our consistent improvement in our deposit mix and our ability to kind of keep the foot on the brake pedal of deposit rates has offset that quite a bit.

Great. Thanks a lot.

You know, I might just speak to that while we're waiting for the next call. We were pleased in the first quarter to hire back Jim Ryan, who has joined the team as the Treasurer. Jim had made the mistake and left Old National six months or so ago. We were able to convince him to come back as Chris got promoted. We're pleased to have Chris back, or Jim back as Treasurer.

We'll take our next question from Mark Kehoe of Merrill Lynch.

Hi. Good afternoon. I was wondering whether you could talk about how are your plans for the reduction in the securities portfolio over the next year to 24 months? Thanks.

Sure.

Yeah. Sure. You know, first of all, our portfolio is of a relatively short duration so simply cash flows from the portfolio, I think I've said this before in that 30 to $40 million a month range.

Additionally, we have looked very closely at the portfolio in conjunction with our analysis of our borrowed funds position and decided it certainly is inappropriate to increase the size of that portfolio so you should expect to see like you saw frankly, in the first quarter, when you see that slight security loss that we will take advantage of movements and rates to continue to reduce the size in the investment portfolio throughout the year.

Okay. And then turning toward deposit costs, for this quarter, has there been any catchup or you know, at some point will you need to phase in those, that lag effect into deposit costs?

Mike, do you --

Well, you know, certainly, I think it depends upon the rate and the sort of the speed of the movement of interest rates, Mark, but I couldn't sit here for a moment and tell you that we can continue to not move rates up. What we're really trying to do, I think, is manage by introducing new products that actually provide some current premium over perhaps the money market account, but would not be indexed to move up with rates we could administer that rate and hold it back. So this is not just a matter of what will interest rate increases do to us, but it's a matter of how we can introduce new products and manage that product set to hold those rates down.

And I think our ability to hold rates down is also reflective of the market share we hold in many of our markets, you know, being the dominant market share provider in a lot of these markets we can lead costs down and we don't need to be as aggressive as moving up the costs that our peer group does or our competition.

Thank you.

Thank you.

And now I'll move on to Karen Lamark of Merrill Lynch.

Good afternoon, Karen.

Good afternoon. Hi. How are you?

Good. How are you doing?

Good, thanks. A few questions. On the non-interest expenses, is the 8% drop a good sort of run rate for the rest of the year? Or is there anything high or low about this particular quarter?

Yeah, Karen, actually it was probably the fourth quarter was a little bit high given some of the special charges we had in the fourth quarter. I think we certainly like the expense level in terms of on a relative basis where it was in the first quarter. I think it was representative of kind of a continuing expense level. Certainly we would expect expenses as we continue to just focus very close attention on expenses that we'd like to see ourselves continue to come in kind of under expectations in expenses throughout 2005.

Okay. And also, with respect to C&I, are you seeing with respect to any new loans you're putting on, are they new accounts or it is higher utilization rates, maybe a little bit of color there?

Yeah, actually I'll let Mike answer that. He's tired of me talking for him.

Well, it really is fortunately a lot of new accounts. We still have, I would tell you, it's quite a bit of capacity in terms of increasing line usage on existing customers, so the C&I increases have been some new opportunities that we've been able to take advantage of in our existing and new markets.

Yeah. I think Karen, it's a great reflection of, if you remember in January we took out a level of management. Mike has direct responsibility now for our regional banks and I think you're seeing the benefits of stronger management discipline and a greater focus. We're getting a lot more activity out of our relationship managers than we've had in a while and I think that's the benefit of it.

Do you care to take a guess on whether or not your balance sheet will be I guess flat from here or even up?

Not with my controller sitting here looking at me right now with fire in her eyes.

How about the net interest margin? Any comments on that? The outlook?

I think as we've talked about before, Karen, you know, so much of it is contingent upon our asset mix and what happens on the deposit side, but we are certainly doing everything we can to make sure that frankly, we've seen the lowest margin that we possibly could. I mean, we feel like we'd hoped to see that margin begin to improve, and that's why we have a focus on some of our marginal assets like the investment portfolio and wholesale funding. But so much of it is really contingent upon that critical asset for us, the loan portfolio.

And then one last question. In your comments you indicated that the disposition of the non-core assets was part of an ongoing evaluation, capital usage, best use of capital. Can you give us some sense of how you're thinking about what you consider the core businesses or geographies and what might be on the block?

Well I can't give you a sense of what might be on the block, but I can tell you that we're comfortable that we are an Indiana, or Southern Illinois, Kentucky, and corresponding areas make sense to us. I think that we believe that a 15% ROE at the current time is a threshold for the businesses with which we operate.

Okay. Thank you.

Once again, if you would like to ask a question, please signal by pressing star one. And we'll hear next from Fred Cummings of Keybanc Capital Markets.

Yes. Good afternoon.

Hi, Fred.

Two quick questions. One, Mike, did you talk about what type of loan growth you're experiencing in the Indianapolis market? I may have missed that.

You mean in terms of the rate of growth or --

Yeah. I know that was the one market where you guys have had some success, and I'm just wondering if you saw a continuation of that here in the first quarter?

Yeah, we did, Fred. Actually, loans are up about $25 million from the end of the year, total loans in Indianapolis. So we're continuing to have nice growth in that market.

Okay. Then secondly, related to the home equity portfolio, what initiatives do you have in place to stimulate some growth in that segment?

That's a great question, Fred, because I would tell you that it's an area where we've recognized that we've maintained a pretty conservative approach in that product set, we have the benefit of having Richard Malloy, who is heading our mortgage operations, has tremendous experience with that from his time at Norwest, and Richard is working on a plan right now for a product set that would, I think, allow us to originate more home equities and in particular to do that in conjunction with our first mortgage origination.

Mike, how long has he been in place?

He was part of the reorganization, Fred, that we announced in the fourth quarter of last year.

Okay. All right. So relatively new still.

Yes.

Okay.

The add-on to that is that Jim Ryan, the short period of time he was away he was at Wells Mortgage and he's an active part of that group as well.

Okay. Good. So we'll be looking for good things out of that group.

No more than we will, Fred.

Thank you.

Thank you.

We'll take a follow-up question from Troy Ward of A.G. Edwards.

Yeah. Just a quick follow-up on Karen's comment. Can you talk or just give us some indication within, you know, you're looking at different businesses that aren't core. Have you done that within the banking footprint and is there a particular hurdle rate that would make a particular location kind of meet expectations and if not, has there been any thought to changing the footprint?

You know, we will continue to look at our banking franchise and see what makes sense from a return as well as a strategic standpoint. Clearly not ready to make any forecast on where we may go, but we, Mike and I and Chris continue to look at, we've developed management discipline around returns we expect from our franchise, and if we can't get comfortable we can achieve those returns then we'll think about what the next step might be.

Okay. Great. Thanks.

That does conclude our question-and-answer session. I would now like to turn the call back over to Bob Jones for any additional or closing remarks.

I appreciate everybody's questions. We look forward to the second quarter conference call. Should you have any follow-up questions Lynelle can be reached to coordinate that and we do owe you one answer on the balance between variable and fixed rate and we'll get that to you very shortly. Again, thank you and look forward to seeing you next quarter.

Thank you. This concludes Old National's call. Once again, a replay along with the presentation slides will be available for 12 months on the Shareholder Relations page of Old National's Web site at www.oldnational.com. A replay of the call will also be available by dialing 1-888-203-1112 and enter confirmation code 8495021. This replay will be available until 12:00 midnight on May 5th. If anyone has additional questions, please contact Lynelle Walton at area code 812-464-1366. Thank you for your participation in today's conference call.