Regions Financial Corp (RF) 2001 Q1 法說會逐字稿

1 AMSOUTH INC. CONFERENCE CALL

Good afternoon and welcome to the AmSouth quarterly conference call. All participants will be able to listen only until the question and answer session of the call. At the request of AmSouth, this call is being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce you host for today Mr. Ritter. Sir, you may begin.

Good afternoon everyone. This is List Underwood, and we appreciate your participation today, knowing how busy you are with the numerous earnings announcements. Before we begin, we have a brief administrative item to mention. Our presentation today discusses AmSouth's business outlook and will include forward-looking statements. Those statements include descriptions of management's plans, objectives or goals for future operations, products or services, forecast of financial or other performance measures and statements about AmSouth's general outlook for economic and business conditions. We also may make other forward-looking statements in the question and 2 answer period following managements discussion. These forward-looking statements are subject to a number of risks and uncertainties, and actual results may differ materially from those discussed today. Information on the risk factors that could cause actual results to differ are available from the earnings press release that was released today and the recently filed form 10-K for the year ended December 31, 2000. Forward-looking statements are effective only as of the date they are made, and AmSouth assumes no obligation to update information concerning its expectations, Dowd.

Thank you List. Also joining us today is our Chief Financial Officer, Sloan Gibson. Today, AmSouth reported a solid first quarter with diluted earnings per share of 34 cents on net income of 126.2 million. This resulted in an 18.1% return on equity, and an efficiency ratio of 55.1%. Although this was a satisfactory quarter, and we are moving in the right direction, we believe we can deliver higher levels of performance in future quarters and are determined to do so. Growth in this quarter occurred in core businesses across the franchise, a reflection of the intense focus by all of us on 3 the execution of our 6 strategic initiatives. Among the financial highlights from the quarters' results, new production of equity lines and loans during the quarter was almost 700 million, a 41% increase over our fourth quarter production. Average low-cost deposits grew 280 million over the fourth quarter through growth among interest checking and money market deposits. Non-interest revenues were higher compared to the fourth quarter on the strength of almost 10% annualized growth and service charges, and almost 40% growth in investment services income. Non-interest expenses grew 5.3% on an annualized basis compared to the fourth quarter, reflecting good cost control in spite of seasonally higher personnel cost. Before turning it over to Sloan for details on the quarter, let me mention just a few other highlights. We are extremely pleased about our announcement last week that Jeff [________________] is joining us as head of our Wealth Management Group from his position as Head of the US Private Banking Group at Citicorp.

Jeff's decision to join AmSouth demonstrates, in the clearest possible terms, our commitment to building a top-tier wealth management business, and I have no doubts that his leadership and vision will help us meet our 4 goal of more than doubling the contribution of our Wealth Management Group by 2003. Also in the wealth management area, the AmSouth loans have experienced strong growth in terms of assets and available portfolios as well as in national recognition. [________________] Magazine ranked the AmSouth family of funds best among all the bank run funds in their survey, and tenth overall for 2000 performers. In addition, our fund family, currently, provides investors with eight funds that have either 4 or 5-star rating by Morning Star as of the end of the first quarter. The AmSouth funds had a higher percentage of total assets under management in funds with a 4 or 5-star designation from Morning Star than any other bank run fund family in the nation. Finally, during the quarter, we received significant recognition for our free Internet banking for life campaign, which provides our customers free Internet banking services including electronic bill payment for life with an AmSouth check-in account. We will share more detail about some of these highlights and how they fit into our strategic plans after Sloan covers the financial performance for the quarter. Sloan? 5

Thank you Dowd. My discussion today will focus on the first quarter results compared to the fourth quarter, and were appropriate the first quarter of 2000. Late quarter comparisons for loans and deposits are adjusted for the impact of branch sales completed during the fourth quarter. We are pleased to report a quarter free of items related to the merger and the financial restructuring. As Dowd mentioned earlier, diluted earnings were 34 cents per share on net income of $126.2 million. During the quarter, we repurchased 4.3 million shares of AmSouth stock. Today, we have repurchased 26.6 million shares of our current 35-million share authorization approved last April. Over the near term, we expect our share repurchases to continue at a similar pace, as we believe the shares represent an attractive value at current prices. The interest income was $329.8 million for the first quarter, an increase of $9.7 million compared to the fourth quarter. The increase was the result of the fourth quarter impact at the restructuring of additional assets and leverage lease portfolio. The net interest margin was 3.93% for further quarter, five basis points higher than the fourth quarter. The 6 higher margin was primarily a result of growth among consumer and business banking, loans, and low-cost deposits. Further margin expansion was limited by the $1.7 billion of lower-yielding FED fund sold position on the balance sheet during the quarter. As loan demand accelerates, we will shift these assets in the higher-yielding loans raising the level of loans on the balance sheet and expanding the margin. We still expect the margin to improve to a range of 4% to 4.2% for the full year. On manage basis, average loans in the first quarter were $30.6 billion, a decrease of $75 million versus the fourth quarter adjusted for branch sales. Average loans on the balance sheet during the quarter were $24.6 billion, $116 million higher compared to the fourth quarter.

Home-equity lending, a primary part of our consumer banking initiative continue to show strength for the quarter in spite of a higher level of refinance activity. For the quarter, total home equity loans grew 8.3%, to $4.7 billion. Production of new equity line commitments and equity loans was almost $700 million during the quarter compared to $474 million in the fourth quarter of 2000, a 41% increase between quarters. We expect origination volume to remain strong, when the surge in 7 refinancing activity slows, we expect higher growth rates to appear on the balance sheet. Dealer and direct loans on the balance sheet reached $3 billion during the quarter, an increase over the fourth quarter of 2000 of $103 million. A modest growth reflects weaker demand, the maturation of the dealer portfolio and continued pricing discipline. Because of these factors and our exit from the out of market origination business last year, managed dealer and direct lending is now expected to grow from current levels. In fact, total exposure in dealer and direct lending declined on a managed basis during the quarter by 6%. Within the commercial segment, business banking loans grew 2.4%, to $2.5 billion. Business banking loan demand was weaker this quarter as small businesses utilized excess cash balances to meet their operating needs rather than borrowing the funds. Overall, total commercial loans declined during the quarter reflecting the continuing runoff of syndicated loans and AmSouth's commitment to firm pricing discipline. Within this loan category, commercial real estate loans increased 1.3% during the quarter. Growth was slower as developers used recent declines in 8 interest rates as an opportunity to secure permanent financing. We anticipate that most of the loan growth issue will come from consumer in small business banking loan categories.

On the funding side of the balance sheet, low cost deposits grew $280 million or 7.4% from an annualized length quarter basis. The primary catalyst was interest-checking accounts, which grew $228 million or 23.6% compared to the fourth quarter. Money market accounts added $118 million or 8.7% versus the fourth quarter. Overall, core deposits increased $148 million dollars to $25 billion, an increase of nearly 2.5%. Strong growth in the low-cost categories was partially offset by declines among time deposits and non-interest checking deposits. Higher price certificates of deposits from the campaigns last year had been allowed to runoff through pricing adjustments. Finally, non-interest checking deposits were lower due to a decline in business banking deposits reflecting typical first-quarter weakness in this category. Balances improved measurably late in the quarter consistent with the trend of previous years. The deposit growth reflects our consistent focus over the last several quarters on growing core low-cost deposits. It also reflects our 9 aggressive deposit campaigns, as well as the change in customer behavior in light of recent stock market volatility. Turning now to credit quality, non-performing assets increased to $227.9 million, an increased to $31.6 million compared to fourth quarter. The increase was the result of higher non-performing assets in the commercial loan category with about half of the increase resulting from one syndicated credit, and the balance spread across three small credits. The deterioration was not concentrated in any particular industry. The ratio of non-performing assets to net loans plus foreclosed property and repossessions for the quarter was 0.93% within our previous guidelines of 90 to 100 basis points.

The loan-loss reserve coverage of non-performing loans was 181.8%. Based on our current expectations, we believe we may be near the peak in terms of non-performing assets, though we do not expect to see improvements until late in the year. Net charge also points to 63% of loans within our expected range of 55 to 65 basis points and $2.8 million lower than the fourth quarter. Ratio of loan-loss reserves to 10 net loans was 1.55%, unchanged from the fourth quarter. The loan-loss provision returned to a more normalized level in the first quarter at $38.2 million essentially matching charge-offs. This is an appropriate place to give you an update data on a couple of other areas within our overall asset quality starting with the syndicated loan portfolio. Syndicated loans, outstanding, declined at $94 million during the quarter, a decrease of approximately 6.5% from fourth quarter levels. This included a decline in classified syndicated loans of $22 million, a reduction of nearly 10% from the prior period. The commercial real estate portfolio continues to be a bright spot with no change in its strong performance through the current economic slowdown. Within the consumer portfolio, there was overall improvement during the first quarter from fourth quarter seasonally higher level of delinquencies and losses. In particular, we saw lower levels of charge-offs among dealer, direct, and equity loans, and significant improvement in delinquencies within the dealer and direct portfolio compared to the fourth quarter. Similar to others in the industry, we did see a rise in bankruptcy filings during the quarter. It was to primarily, we believe, to anticipate 11 any changes in bankruptcy loss. Within the dealer and direct portfolio, our loss rates and repossession experience improved. Charge-offs in the dealer portfolio fell 60 basis points or about $4.3 million from seasonally higher fourth quarter.

We saw a steady improvement in delinquencies through January, February, and March, as well as improvement in used car prices, which affect our recovery rates. We are also making changes in our consumer collections process that are producing favorable early results. To summarize, based on conditions today, we believe that credit quality should not have any impact on our ability to meet current earnings expectations. So far our experience has been consistent with previous guidance, and our forecast calls for improvements late in the year. Our guidance for non-performing assets and charge-offs is unchanged from the fourth quarter. Moving on to non-interest revenues, excluding the impact of gains on the sale of branches during the fourth quarter several non-interest revenues grew 6% on an annualized basis. The growth was driven by increases in service charges, trust income, investment services 12 revenue, and other non-interest revenue. Service charges grew $1.4 million or 9.9% over the fourth quarter on an annualized basis. A primary catalyst for the growth was fees from treasury management services. Continued emphasis on treasury management sales to commercial customers and new opportunities created by the merger contributed to the growth. Treasury management fees was $6.6 million in the first quarter compared to $6.1 million in the fourth quarter, representing annualized growth of approximately 32%. Trust income was $28.9 million or 2.2% for the first quarter compared to the fourth quarter, and 6% higher compared to the first quarter of 2000 excluding the effect of divestitures. This growth, occurring despite the substantial declines in the equity markets during the quarter was primarily generated from new business wandering the fourth and first quarters. Investment services income was strong again during the first quarter, especially considering the difficult markets.

Income from investment services increased $2.1 million or nearly 40% on an annualized and quarter basis. The growth reflexes sees only weaker fourth quarter, and the continued strong performance of our platform annuity sales program 13 which continues to be among the best performing in the nation. We expect revenues from this business to be a major contributor to revenue growth and the wealth management initiative over the next three years. Among other non-interest revenues bankcard interchange fees were lowered compared to the seasonally higher fourth quarter and mortgage income declined as new origination volume during the quarter was held on the balance sheet due to the available excess liquidity. Those loans are under contract for sale during the second quarter and should give a lift to mortgage income, this quarter. Non-interest expenses grew $3.8 million dollars or 5.3% on an annualized basis compared to the fourth quarter. Personnel costs were higher during the first quarter due to approximately $5 million of higher employment with taxes that occur with each New Year. At the same time, postage and supplies expense increased due to October 1999's annual reports and other yearend mailings, as well as the postal rate increase. Finally, I should comment on our recent report regarding FDIC deposit market share information, which we believe arrived at some erroneous conclusions about our market share in the national MSA 14 following the merger. A closer review of this FDIC deposit data which covers the period June 1999 to June 2000, revealed that the entire $800 million decline and deposits in the national MSA occurred in one branch, the main office branch in Nashville. Following the merger, we adopted our usual practice of booking commercial deposits out in the branches in the local markets closest to where the customers were based, as opposed to concentrating those deposits in one central location.

This difference in deposit approach accounts for all of the shift in deposits in the national MSA. Furthermore, overall deposit market share and all of our new markets taken together declined less than 1% between the period June 1999 to June 2000, the period covered by this FDIC report. On a more recent note, if you look at the first quarter results, household growth in our new markets this quarter increased to almost 3.5% annualized rate, while the deposit growth and interest checking money markets savings account categories was 9.5% on an annualized [line] quarter basis, and we're very pleased with what we are seeing occurring there in our new markets. That concludes my remarks. 15

Thanks Sloan. As you've just heard, we started the year with solid operating results. More importantly; however, we have a plan that focuses on the execution of the six powerful strategic initiatives where we have a demonstrated past level of success and track record. Last quarter, we briefly outlined each of these six initiatives with you, in order to help you better understand each of these initiatives and their potential impact on our future performance, we thought it would be appropriate to use this forum to update you on our progress and plan to cover one or two of these initiatives in each of our quarterly conference calls this year, beginning with today's call. The first initiative that I'll comment on is the doubling of the contribution from wealth management, which includes Amsouth's trusts, investment services, and private banking areas. The goal here is to increase the annual pretax contribution from these areas by $100 million by 2003. The foundation for driving performance in these areas is essentially providing high levels of service quality and superior investment performance that consistently ranks among the best. As I mentioned earlier, Jeff [________________] has been recruited, and 16 will lead our effort in this wealth management group spearheading this initiative. Before I get into details, let me digress just a minute for a brief overview of what comprises our wealth management business. In 2000, wealth management generated about $208 million in annual revenues. Our trust area has assets of almost 26 billion, actively managing assets of about 16 billion of that. Our trust area maintains just over 21,000 customer accounts with over 15,000 of those being personal trust accounts.

Assets under management in our 28 proprietary mutual funds include 7.3 billion of assets. Our trust area currently includes 180 sales and administrative officers, and I would finally note that our trust business through a long history is really our bank's headquarters in the South East is the 3rd largest behind only what can only be on SunTrust. The investment services group, which consist of 171 registered investment representatives and over 1,300, licensed platform annuity sales representatives with our branch system helps AmSouth customers manage over $8 billion of investments. AmSouth investment services sales penetration rate is a percentage of banks deposit base is about 8%. 17 Ranking AmSouth Brokerage Unit among the top bank on brokerage firms in terms of penetration of the deposit base. AmSouth's investment services representatives are very productive on an average producing just over 315,000 of annual revenue per RAFF compared to an industry average last year of 264,000, per RAFF. In our branches, AmSouth's platform annuity sales program continues to rank among the top performing programs in nation, and according to a recent independent study, we had the number one performing platform program in the nation, as ranked by sales as a percentage of bank assets and sales per full-time employee. Private banking, which services are higher network plans, manages a portfolio just in access of $6 billion, AmSouth currently has approximately 11,500, private banking customers. This portfolio consists of loans, deposits, investments, and trust balances, held by AmSouth by private banking households as a part of this wealth management initiative,

we plan to double the portfolio to over 12 billion within 3 years. This private banking group, as you would suspect, carries the highest cross-sale ratio in the company with an average of slightly over 10 products used per household. 18 While, we have made progress doing these businesses in recent years, there is still tremendous potential to expand this business within AmSouth's current household base. For example, in spite of numbers, I just talked about only 2% of AmSouth households have an AmSouth trust relationship, only 4% of our households have an AmSouth investment account, and with over 27,000, customers that we know qualify for private banking services and only 11,500, having private banking relationships with us, a great opportunity exits there as well. When you add this internal potential to the opportunities exits in our new markets and in our high-growth low-share markets in Florida, I think its pretty easy to see what we believe that wealth management can be a significant revenue growth area for AmSouth, but to serve customers like these you have to offer exceptional levels of service and investment options that are consistently among top performers. In terms of service quality improvement, we have plans over this 3-year period and this initiative to add over 70 private bankers to this private banking group by the end of 2003, many of which will be added in our fastest growing markets in Tennessee 19 and Florida, add 30 investment representatives to the consumer investment services area and obviously keep constant effort on sales training within these employee groups.

Expanding the use of technology within the wealth management group to ensure that we offer these customers, not only the service, but the convenience that they want and allow these customers to look to access all of their accounts in one location. This includes outsourcing some back office functions were best practices and economies of scale can improve the service and our efficiency. These are just the highlights of few of the steps that we are taking to bring the sales and service qualities to even higher levels within our wealth management group. Even [________________] service quality that's second to none, but we, and others have learnt that unless you have the products and investment performance to match it is difficult to grow this business. We believe we have a distinct advantage in this area as evidenced by the previously mentioned national recognition for performance that our fund families have recently received. In addition, we continue to work closely with our affiliated investment advisors some of which have been among the top performers 20 for their respective investment styles these past several years. We believe, we have the people and the tract record to successfully execute these plans and meet these goals. Let me turn for a minute, now, and make a few comments with regard to the Internet. We made a commitment as one of our initiatives to triple the number of our customers banking with AmSouth over the Internet and to triple the number of products that we sale over the Internet. AmSouth is absolutely committed to making sure that our customers can bank with us easily wherever they find it most convenient whether its over the Internet, in our branches, or through the call center. Our Internet strategy has really not different than over strategy of understanding our customers needs, meeting those needs, and building all those relationships.

To support these initiatives, on February 25th, we began what is turning out to be an incredibly successful marketing campaign. In a campaign on radio and newspapers across our markets, we announced that we would offer free Internet banking with bill payment for life. Since, the campaign officially began some 7 weeks ago, we signed up an additional 70,000, new 21 Internet banking accounts for an increase of 55%, and we are well on the way to reaching that 2-year goal. There are the primary reasons for our emphasis on this Internet customer is as follows, Internet customers looking at our own customer base have much higher retention rates. That Internet customers very attractive versus our average retail customer, for example, our Internet households use 6 products on an average compare to 3 products for our typical retail household. They also keep deposit balances that on average 46% higher than the typical consumer households and obviously of our 4 principal delivery channels, the Internet is by far our lowest cost. We've always been committed to providing easy access for all of our customers to bank, when, where, and how, they want. We believe, a point is indeed been reached where the Internet has gained greater acceptance as a convenient and secure way for people to do their banking particularly their bill paying and lookup their own information, and we are taking advantage of that trend. Wealth management and the Internet are 2 areas that you will hear lot about over the next 3 years and through our strategic plan, we've very selectively chosen these and other initiatives based again on a 22 demonstrated level of success previously.

We believe, the execution of these initiatives are key to producing results that would rank us among the highest performing banks and generate superior returns for our share holders. Further more, we are certainly not backing away from our aggressive longer terms financial objectives of generating the annual earning per share growth of 12% to 15% and return on equity of 20% to 22%. That would conclude our remarks this afternoon and operator, why don't we now open it up for some questions?

Thank you. At this time, we are ready to begin the formal question and answer session. If you would like to ask a question, please press * 1, you will be then be announced prior to asking your question. To withdraw your question press * 2. Once again, to ask a question, please press * 1. Our first question comes from Jeff Davis from Midwest [________________].

Good afternoon. Sloan, could you give us a little color on what NPA's were breaking them down between commercial and the other categories, in particular the dealer 23 and then related what the specific charge-offs was [_______________] quantify categories? And, then secondly, within the non-performing assets did you do any significant bulk-loan sales?

I missed a little part of that, so let me, I'll give you everything I heard, and I may have to get you to repeat one segment of it. On the non-performing asset level, all of the increased length quarter came in the commercial category. There was one syndicated credit that represented half of the increase and there were 3 smaller credits that accounted for all of the rest of the increase. In terms of total non-performing assets, you know, that's C&I segment is a little bit over 50% of the total non-performing asset level. The last question you had to do with whether or not there were any bulk sales. No, there were not. We continue to watch the market. I don't see any circumstance, currently, under which we would enter into another bulk sale, but we do look for opportunities for one off transactions as the market would permit, but we are yet to see any of those.

All right. Sloan for full year or for the quarter versus 4Q, what was loss 24 rate within the C&I portfolio?

Hi! Jeff. It's List.

Yes List.

Total commercial which include commercial real estate was 40 basis points.

Okay. Very good, thank you.

Our next question comes from Christopher Marinac from Robinson-Humphrey.

Good morning. Sloan, a question for you regarding the interest bearing deposits in the quarter. The progress that you made sequentially to 9.7 from 9.4 billion. Anything in terms of switching from categories in the quarter or any trends there to [________________]?

No there are no re-classes in there. It is no secret that we have been very consistently focused on trying to grow low-cost categories, and we think that has helped us some, but also in fairness, I think we are seeing as 25 well as others in the industries are seeing some shift in customer behavior. So a lot of the tactics that we have been employing quarter-after-quarter are really showing up on the balance sheet now.

Are you expecting to see deposits grow faster on an aggregate basis the next couple of quarters?

Based on what you saw in the first quarter, you saw a pretty significant change, and I would tell you, thus far, it is very early in the second quarter, but what we are seeing just in the first couple of weeks deposit growth continues to be very strong.

Thanks. And then the final question. Sloan, in your comment earlier regarding the small businesses who are using their liquidity and not using their borrowing. That seems to be somewhat of a different trend. We referred from other banks who were saying the opposite. Do you have any other anecdotal evidence on what the behavior of the small business customers, and what we have heard from other banks has been that small customers are less liquid in the past and 26 therefore they are actually borrowing more? Is it any different in your footprint that we are seeing?

There may well be from a regional standpoint, we saw a softening of small business loan demand, really starting late in the third quarter, continued to be soft in the fourth quarter and was soft in the first quarter as well. I would be inclined to think that the South East would be one of the more vibrant sectors of the economy right now. We continue to market very aggressively. We are watching credit quality, diligently, and that segment of the portfolio as well. We are seeing great success in some of our small business campaigns. We have been working on a package product for small businesses that has ramped up very very strongly from the fourth quarter to the first quarter and ramped up during the first quarter, so I know that segment is getting an awful lot of attention and we are seeing some results here that's just not showing up in the loan category.

Well, how large as you define small business lending would that component behavior for total non-portfolio? 27

Small business loans are about $2.5 billion.

Okay. Very good and thanks a lot.

Sure.

Our next question comes from Charlie Ernst from Putnam Lovell Securities.

Good afternoon.

Hi! Charlie.

Just a few quick questions. First, on the new Internet customers. I was wondering how many of those were actually new customers to the bank, and also the amount of deposits that came with those customers, and then just to get an update on where you all stand with our acquisitions and kind of your appetite for either small or large deals? Thanks.

Charlie, [________________] my head know the number of those 70,000 new accounts that would be new. They are obviously is some percentage of those, but the data from our consumer's side, I just couldn't began to 28 tell you how many of those were new. Obviously, I think it helps with the deposits, but we don't at this point know how much new money is being brought by those, but obviously if you are a new customer you have to have a new account in order to qualify for this. So it indeed is causing us and anecdotally, as I talked to our branches, I know we are opening more checking accounts as people bring these in. To the second part of your question on acquisitions, we are absolutely focused on executing our strategic plan and have no faults whatsoever of any acquisitions, initiate [________________]

Does the current deal that just recently got announced, do you think that provides you with any opportunities or not in the not too distant future.

Charlie, I think we are a tremendously under valued stock and our focus is on the things we can control, which are our fundamentals and getting our stock price back to a premium PE as opposed to a discounted PE and we are absolutely focused in that regard.

Charlie, one opportunity we may see in Florida, where First Union is one 29 of key competitors, as the signs changeover over the time, we may see some opportunity there just from this location. But that's really where our focus is going to be.

Thanks a lot.

Our next question comes from David [_______________] from Prudential Security.

Hi!. I was going to ask whether you would have any interest in the potential First Union, Wachovia Divestitures, I think you just answered it, or is this maybe an exception to that rule?

No David, it is really not. From Sloan's point if you think back to the kind of what we have been doing for the past several years in Florida, we have been growing that business mix down there. Whether you take business, banking, commercial, commercial real estate, or consumer, it has been growing strong double digit. I mean 30, 40, and 50% per year, particularly those high-growth, low-share markets. We opened six new offices in the first quarter in Florida. We have plans, I believe I 30 am right for 11 more before the end of this year to bring us to 17 plus, I know they are already looking at another group for next year. What we may do, that we've done historically, is you don't need to acquire anything, you need to be sure you are recruiting the best people you can and let them bring the customers in the new business to you. We have never stopped that and don't plan to. This provides us I think an opportunity in that regard.

Right, and that would be the case in Florida, but how about the opportunity to enter Carolina. Is this unique enough?

No interest David.

Okay. Thanks.

Our next question comes from Jason Goldberg from Lehmann Brothers.

Thank you and good afternoon.

Good afternoon.

You mentioned that you 31 cannot believe the margin is going to be in 4 to 420 range and kind of going through, kind of your comments, last quarter you anticipated most of the increase to come in the first half of the year. I guess when you talk to the extent, you know, what is causing, I guess, this increase to be slower than expected, and why you think now you can still get to that 4 to 420 range coming off a lower base?

Jason, this is Sloan. The real key issue there is lack of loan demand. As I mentioned, we have got close to $2 billion worth of excess liquidity in the form of FED fund sold sitting on the balance sheet. We are seeing good strong production. We mentioned the equity lending production numbers and as we see the refinance wave start to trail off, we ought to see some of that strong equity lending production stick on the balance sheet. Same thing as we believe as we see the economy start to firm back up, we will see small business loan demand coming back as well. And when this happens we are ready and you think about the P&L impact of nearly $2 billion worth of FED funds sold and getting that shifted over into higher yielding loan categories like equity loans and small business loans, that 32 is a pretty significant impact on the P&L without any increase in the balance sheet size at all. And that is what is going to drive net interest margin; that will be the change, and I should also mention with the FED's 3 rate cut thus far, we have been very pleased to actually stay ahead of the FED a little bit on those rate reductions, and so while didn't entirely show up in the first quarter because of the timing and how because of the timing and how those get phased in. We would expect to see the full impact of some of what we have been able to do there on the liability side on at the balance sheet, in the second quarter and that will be pretty evident to you.

Great. Thank you and an unrelated question. You mentioned, you know, that MPA growth appears to be moderating in terms of your net charge?offs remaining in the 55 to 65 basis point range, does that still hold truth for the remainder of the year?

Jason, I'd tell on the charge-off side as well as probably on the MPA side, we are toward the higher end of the guidance, but our forecast still has us in that range, 90 to 100 basis points on non-performers and 55 to 65 on charge-offs. 33

Sounds good.

Once again if you would like to ask question press * 1. Next question is from Michael Granger from JP Morgan.

Hi! everyone. Two questions, number one, could you give us an idea what the interest cost on the deposits, the interest bearing checking, and then money market deposit accounts that are growing the fastest. What the cost on those funds is? And, the second question would be, it is related to the Internet initiative, Dowd you said that the Internet accounts typically have higher products per account or products for household, how you describe it. I am wondering, I guess to some extent this is the same question that someone asked before if there are existing accounts or not, but are those accounts coming to you with the higher products, is it people who have higher number of products per household already who are just signing on for an Internet product as well, or are you finding that after you get them on the Internet account that you are able to sell them additional products? 34

Mike, I think obviously the twofold answer to the second part of. First the existing customer, I think it shows they are probably a little better educated, little more fluent, and do more things with that Internet for convenience, and so they tend to have other services with you, so they can bills or can move money between accounts, some of those type things, but they also, without a doubt of those customers, the Internet is not at all the only service avenue that they use, just about all of these as we did the research into making this offering, they are in a branch on a regular basis, they use the telephone through our telephone call centers, so this is just a another way for them to access the buying and frankly make that relationship better and you retain longer because they use it more. The new customers, unlike part of that is on the cross selling, and the fact that you've got to have a checking account, you use the Internet banking, we are pretty good at selling the check card when you come in, so you can use our debit card, and then obviously you've got to have a check-in account, so before you know it, these customers are really, that 6 services per household is, 35 well that's, a big number. People using these services, you can get there pretty easily, obviously it makes them more profitable.

Okay.

Mike on the interest rates on some of those growth categories, on the interest checking area, one of the products that has been a real growth engine for us over the couple of quarters has been our platinum checking products which has a blended interest cost currently of a little over 3%, 315. On the money market category, we are seeing more growth in some of the higher tier's there, and I would say that typically you are talking about something in the 4 plus percentage range.

Okay. Thank you.

Our next question comes from Ed Najarian from Merrill Lynch.

Good afternoon. Just a quick question on the average balance sheet, I am just comparing the fourth quarter of the last year to the first quarter of this year, and looking specifically at the yields on the 36 investment securities portfolios, and this various categories, but total investment securities essentially 8.8 billion, I guess, or similar balances in the fourth quarter as in the first quarter, but when I am looking at most closely the yields on the securities portfolio went up to 7.19% this quarter, from an average yield of 6.98% in the fourth quarter, and I am just wondering if you could provide some color on what would have driven that yield up in what seems to be a falling rate environment?

Okay, I think what you're seeing there, I alluded earlier to the impact of some liability re-pricing and that would include the re-pricing of some of the off balance sheet swaps that are there which gets folded into those investment security yields, and so there was some lift particularly, I guess, in month of February, there would have been a pronounced [mental lift] because of the number of days they are in terms of this stated yield in that portfolio. No other fundamental repositioning or changing is going on in that portfolio.

Okay, so basically the increase has to do with the re-pricing of 37 derivative securities related to that portfolio.

It is that as well as some of the off balance sheet; the conduit spread income.

Oh! I see, okay.

Reported over a net available for sale portfolio.

Okay. Thanks.

Sure.

At this time we have no further questions.

If that's the case, let me thank everyone for joining us this afternoon and we will stand adjourned. Thank you.

Thank you and that concludes today's conference call. All participants, you may disconnect.