Regions Financial Corp (RF) 2004 Q4 法說會逐字稿

Good afternoon.

My name is Tanya and I will be your conference facilitator today.

At this time I would like to welcome everyone to the AmSouth Bancorporation's fourth quarter earnings conference call.

[Operator Instructions].

I would now like to turn the conference call over to Mr. Dowd Ritter.

Good afternoon everyone.

This is List Underwood.

Given the busy earnings calendar today, we very much appreciate your participation in our call.

Our presentation, we'll discuss AmSouth's business outlook and includes 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 answer period following the discussion.

These forward-looking statements are subject to a number of risks and uncertainties, and actual result may differ materially.

Information on the risk factors that could cause actual results to differ is available from today's earnings press release or our Form 10-K for the year ended December 31, 2003, or on 10-Q for the quarter ended September 30, 2004, and the Form 8-K that we filed today.

As a reminder, forward-looking statements are effective only as of the date they are made.

And we assume no obligation to update information concerning our expectations.

Dowd?

Thank you, List and good afternoon, everyone.

We appreciate you joining us for the conference call.

Also here, of course, is Beth Mooney, our Chief Financial Officer.

Today, AmSouth reported fourth quarter diluted earnings per share of 49 cents, an increase of 8.9% over the same time period a year ago.

Net income in the quarter reached a record level of $176.9 million, while profitability remains strong with a return on equity of 20.2%.

As we announced on November 1, we sold our $550 million credit card portfolio and prepaid $1.250 billion of Federal Home Loan Bank borrowings during the fourth quarter.

The sale of the credit card portfolio resulted in a pretax net gain of $166.1 million being recorded, while $129.6 million of costs were incurred from the prepayment of the Federal Home Loan Bank debt during the quarter.

There were also increases versus the third quarter in other costs, including a higher loan loss provision, increases in professional fees, personnel costs and other non-interest expenses.

We were pleased by the growth in key business lines during the quarter.

For example, our total average deposits grew $944 million compared to the third quarter led by a $709 million or 13.3% annualized increase in low cost deposits.

The growth in low cost deposits was driven by strong increases in non-interest-bearing deposits, up slightly over 20% annualized, and money market deposits higher by 26.7% on an annualized link quarter basis.

The increase in non-interest bearing deposits was broad based across all of our lines of businesses and geographies.

The growth in money market deposit reflects the success of a new product offering we made across all of our markets during the fourth quarter.

This new offering raised nearly $1 billion in net growth during the quarter.

Florida's deposit growth rates were even stronger than the companies with total deposits in Florida growing during the fourth quarter almost 21% on link quarter annualized basis while low-cost deposits were up 26.3% on the same basis.

These results were aided not only by solid growth in households and new branches, but hurricane recovery efforts helped create higher customer deposit levels through government emergency relief and private insurance company payments.

We expect the effects of the recovery to favorably impact our results in Florida for a number of quarters to come.

Loan demand remains strong during the quarter.

Excluding the credit card balances, total loans increased by 9.5% on an annualized basis between quarters.

Commercial real estate led the way, capping off another record year in the fourth quarter with annualized link quarter growth and average outstandings of just over 25%.

This is the fifth consecutive quarter of double-digit growth.

For the year, commercial real estate closings reached a new high for us of $5.6 billion, an increase of 34% over the prior years' record level.

In fact, December was the largest new business closing month in our history in commercial real estate with $726 million in commercial real estate transactions closed.

Production was again strong in Florida, with an emphasis on single family residential, multifamily rental and sales units, and retail properties.

Most importantly, this production provides strong positive support as we enter 2005and its growth prospects.

Commercial middle market loans on average grew 12.3% on an annualized link quarter basis during the fourth quarter, reflecting continued strong sales efforts from the generation of new business through our new relationship campaign.

For the year in fact, we completed over 10,250 sales calls to prospects which resulted in some 578 new relationships, representing almost $28 million in annualized new revenues.

We have now experienced four consecutive quarters of double-digit growth in commercial middle market lending.

Wealth management experienced positive momentum in the trust and private client services area.

Trust income grew 28% on an annualized basis in the fourth quarter.

A major contributing factor in their performance was continued solid growth in our natural resource management business.

In addition, we added 556 new private client households in the quarter, resulting in just over 20% overall growth in private client households for the year.

Two key credit quality metrics, non-performing assets and loans 90 days past due continued their improvement in the fourth quarter.

Non-performing assets declined to $110.6 million or 34 basis points of total net loans, foreclosed properties and repossessions, while loans 90 days past due decreased $12.8 million between quarters.

Other operating highlights in the fourth quarter included, we opened an additional 10 branches during the quarter, bringing our total for the year to 41, of that total, 31 were in Florida.

Since the beginning of 2002, we opened 108 branches, 80 in Florida, which contributed about $820 million in deposit growth in 2004, and just under $500 million in consumer and small business loans.

On average, our new branches continue to break even, around the 15th month of operation, and that contribution will only improve as we go forward.

Household growth is also strong in Florida, where we are focused on doubling the pretax contribution.

During 2004, consumer checking households in Florida grew by net 8.4%.

Business banking households were up 18.5%, and private client households increased 30.8%.

In October, our board of directors approved a 4.2% increase in our dividend, which represented the 34th consecutive year of increased dividends at AmSouth.

As of this morning, our dividend yield was an attractive 4%.

With that overview, let me turn it over to Beth to cover the fourth quarter results in greater detail.

Beth?

Thank you, Dowd.

Let's go ahead and get right into the details.

Net interest income for the quarter was $379.2 million.

An increase of $3.3 million or 3.5% link quarter annualized.

The higher levels of net interest income primarily reflects loan growth during the quarter of 5% annualized or 9.5% after considering the sale of our credit card balances.

It also includes an increase of low-cost deposits of 13.3% annualized, and a stable net income margin of 3.43%.

For the third consecutive quarter now, our net interest margin has remained stable.

This is notable because during the past six months, the Federal Reserve has raised interest rates five times.

The yield curve has flattened and market spreads have tightened.

We believe this reflects positively on our decision to maintain an essentially neutral interest rate sensitivity position throughout this period, and will continue to serve us well going forward.

Let's now turn to some of the specifics behind the loan growth.

Average commercial middle market loans grew $137.3 million or 12.3% annualized compared to the third quarter.

The growth was broad based and well diversified by both geography and industry.

As Dowd just pointed out, new business generation was the main driver of the growth, reflecting our sales-calling efforts and new relationship campaign that focused on adding new business.

Average commercial real estate loans grew 25.2% annualized versus the third quarter and reflects both the funding of record production from the prior year as well as new business in 2004.

We expect a strong growth to continue into 2005, as 2004's record production will fund up throughout that year.

Small business lending experienced a solid quarter.

Average small business loans increased 6.6% on a link quarter annualized basis in the fourth quarter and reflected success of recent calling efforts.

While still strong at nearly $1 billion, company-wide production of home equity lending slowed somewhat in the quarter.

The primary reason for the slowdown was that the first month of the quarter's production was below normal due to the lingering effects of the hurricane in Florida and South Alabama, and thus, applications for new credits were down.

Production returned to more normal levels and even began to accelerate the latter two months of the quarter.

We expect the growth to continue to accelerate in the months ahead.

New originations of residential mortgages this year reached $3.9 billion.

This quarter we originated $825 million in loans.

Importantly, 76% of the volume continues to represent new purchases.

Adjustable rate mortgages continue to be the product of choice by our customers, resulting in more loans funded on the balance sheet.

In the fourth quarter, mortgage loans, on average, increased nearly $300 million versus the third quarter.

The investment securities portfolio at period end was $12.5 billion, and represented 27.5% of total earning assets, both below third quarter levels.

The average duration of the portfolio is unchanged from the third quarter at 3.6 years.

Shifting to the funding side of the balance sheet for a moment, deposit growth in the fourth quarter rebounded sharply from the somewhat slower pace we saw in the third quarter.

Total deposits increased in the fourth quarter 11.7% on a link quarter annualized basis.

The growth reflects broad-based sales efforts across all lines of business, overall household growth and new branches.

As mentioned earlier, low cost deposits led this strong growth.

Non-interest bearing deposits contributed to the growth, increasing 20.2% on an annualized basis between quarters.

The increase, as earlier stated, was broad based and across all lines of businesses in geography.

Money market deposits also contributed to the growth.

Up 26.7% on an annualized basis due to the success of the new product offering in the quarter.

Household growth across the company also contributed to deposit growth.

Consumer banking achieved household growth of 3.6% for the year.

Business banking households grew 6.4% and private client households increased by 20.4%.

Turning now to asset quality.

Net charge-off for the quarter did increase from the relatively low third quarter level.

Net charge-off was 0.41% of average net loans in the fourth quarter, an increase of 5 basis points between periods.

Higher net charge-offs of nearly $5 million in commercial banking were the primary reasons for the increase as consumer banking loan losses were down slightly between quarters.

The loan loss provision in the fourth quarter exceeded net charge-offs by $11.1million, resulting in the loan loss reserve balance at year end of $366.8 million.

At the same time, the loan loss reserves net loans declined 5 basis points versus the third quarter and ended the year at 1.12%.

The decrease of the loan loss reserve to net-loan ratio was primarily due to the amount of loan loss reserve that were released as part of the result of credit card sales in the quarter.

So let me recap.

The increases in both the loan loss provision and commercial net charge-off in the fourth quarter totaled $16 million, and make up the entire link quarter variance in the loan loss provision.

Already at historical lows, non-performing asset levels continued their improvement, climbing to $110.6 million at the end of the fourth quarter, while the ratio of non-performing assets to loans, plus foreclosed properties and repossessions, declined another 3 basis points in the third quarter to 0.34%.

Turning to now to non-interest revenues.

Included in the $380.3 million of total non-interest revenue in the fourth quarter was a gain of $166.1 million from the sale of our credit card portfolio.

The gain amount includes the premium from the sale and the release of loan loss reserves previously held against these receivables.

Trust income was the leading contributor of the overall increase of non-interest revenues in the fourth quarter increasing $2 million or 27.8% annualized between quarters.

As previously stated, our continued growth in our natural resources management business in the quarter was the primary reason for the increase.

Mortgage income at $5.6 million was up $1.5 million from the third quarter.

Interchange fees also increased on a link quarter basis, reflecting higher activity volume.

And finally, as anticipated, portfolio income declined slightly this quarter.

We expect portfolio income to moderate or continue to decrease in subsequent quarters based on market rate.

Looking at expenses.

Total non-interest expenses for the fourth quarter were $460.4 million.

They included $129.6 million of costs related to the pre-payment of $1.25 billion of Federal Home Loan Bank borrowing completed in the fourth quarter.

We were able to replace those borrowings with a variety of other, approximately three-year maturity, lower-cost funding instruments, saving us 244 basis points in spread and significantly reducing our borrowing costs going forward.

Total personnel costs were higher in the fourth quarter by $8.1 million compared to the prior quarter.

Increase was primarily due to an increase in salaries and the year-end true up of various incentive compensation plans.

Professional fees were also higher in the fourth quarter due to the increases in legal and costs -- consulting costs related to our regulatory compliance efforts and other non-recurring expenses.

In total, approximately $8 million of these professional fee costs are not ongoing, and as a result, professional fees are expected to return to more normal levels of $89 million in the first quarter of 2005.

Finally, other non-interest expenses in the fourth quarter include approximately $10million of non-recurring items, including a payment to AmSouth Charitable Foundation of $4 million to fund future contributions, and $6 million of costs related to a number of noncredit write-offs and other adjustments.

After taking all these unusual, non-recurring expenses into effect, our core non-interest expenses in the fourth quarter totaled approximately $313 million.

At the same time, our efficiency ratio, excluding the gain from the credit card sales, the cost of the debt prepayment and these expenses was a more normal level of 52.7% in the quarter.

Now let me take a moment to address earnings guidance for 2005.

We expect earnings per share for the year in a range of $2 to $2.06.

This forecast generally assumes an improving economy, moderately rising interest rate environment and flat equity markets.

As well as the following factors.

Higher net interest income, reflecting a relatively stable margin.

Improved balance sheet growth with commercial loan growth continuing at current levels, and improving loan demand and consumer categories coupled with continued, strong, low-cost deposit growth.

Stable credit quality metrics, non-interest revenues such as service charges, trust and investment services income should experience steady growth.

And overall we would expect non-interest revenues to grow in the high, single-digit range.

And finally, we expect modest, non-interest expense growth in single digits.

That would conclude my remarks, Dowd.

Thanks, Beth.

You just heard our fourth quarter performance resulted from favorable growth trends and loans and deposits, and provide solid momentum as we begin a new year.

Our goal continues to be sustainable, quality earnings growth, and higher profitability achieved through internal growth, driven primarily by the execution of the tactics under our seven strategic initiatives.

We believe that this combination of focus and execution will result in higher returns for our shareholders in the years ahead.

That concludes our remarks.

Operator, why don't we open it up for questions?

[Operator Instructions].

Your first question comes from the line of David Stumpf, AG Edwards.

Good afternoon.

Can you address the slight increase in commercial charge-offs?

May be give us more detail, I know we are come offing an extremely low base, but you did sort of insinuate the provision expense was a little higher than normal and maybe a partial offset to the net gain that you had in the quarter on the sale of the card versus some of the other expenses.

There is still a little bit of a net gain there and maybe this higher provision expense was a partial offset.

Should we read into that you maybe did a little year-end cleanup in the commercial book?

Or was that just where the chips fell in the commercial charge-offs?

As you stated correctly, David, we did have some increase in our commercial charge-offs.

And as you know, those are less formulaic in terms of how we realize those in our consumer books.

They were related to three specific credits.

We experienced losses in the fourth quarter.

We appropriately recorded those amounts.

As it relates to our loan loss provision, I think we all believe we are at a point in the economic cycle where further improvement in credit quality is probably not likely.

There is a rising interest rate environment that is expected.

We looked at the status of our loan growth and made our allocations for loan loss provision in this quarter; felt it was appropriate to add to provisions by a $11 million over charge-offs.

Okay, thanks a lot.

Your next question comes from the line of Kevin Fitzsimmons, Sandler O'Neill.

Good afternoon.

Hi, Kevin.

Could you just clarify for us, the guidance range on non-interest expense growth when you say mid single digit?

Are you talking from the absolute level of expenses, are you talking from that core dollar amount that you mentioned for fourth quarter on an annualized basis and kind of how you are looking at that?

And then secondly, can you -- I know what you said about the margin for the full year, but can you address like over the next quarter or two how you think the sale of the card assets is going to affect the margin here over the next quarter or two?

Thanks.

Okay.

The first question as it relates to the core NIE, the mid single digit range.

That would be excluding our charges in the fourth quarter, as well as the Federal Home Loan Bank restructuring.

That would be our baseline for the mid single digit increase.

And then Kevin if you would, repeat your second question?

It was about the margin impact from the sale of the card portfolio?

Yes, the margin impact from the sale of the credit card portfolio, when you take all the various events of the fourth quarter in total, if nothing else, the prepayment of Federal Home Loan Bank debt at such a favorable rate variance for us will cause several basis points of expansion in the margin, which would help mitigate the natural compression that comes from such a large piece of our business plan being related to variable rate lending of prime and LIBOR based loans.

At the end of the day, that Federal Home Loan Bank restructuring would be positive for us.

Okay.

Great.

Thank you.

Your next question comes from the line of John Pandtle, Raymond James and Associates.

Okay.

Thank you.

Good afternoon.

I had a question about your guidance for 2005.

You mentioned in here improved balance sheet growth.

And you know I take the look at the growth that you had in 2004, which was pretty good from a balance sheet standpoint.

You are talking about a stable margin, good non-interest revenue growth.

I'm a little surprised that the EPS guidance is, frankly, not higher than it is, given the underlying assumptions.

I wonder if you can comment on that and then you can also touch on securities gains the expectations for 2005, maybe in a little more detail.

I know you noted that you expected them to decrease, but you do have a specific assumption baked into this guidance?

Thanks, John.

As it relates to our balance sheet growth, see we ended the year very strong momentum going to 2005, flown into positive growth from low cost to positive growth.

So, for our 2005 plan (indiscernible) guidance takes in to account our various assumptions is outlined (technical difficulty) on an operating basis roughly here.

Beth, I am having trouble hearing you.

I apologize.

We did take into account our strong momentum coming out of the 2004 quarter with both strong loan deposit growth a particularly strong growth in cost deposit area.

Our guidance reflects our assumptions for that momentum in 2005 relating net interest (technical difficulty) mostly to an operating leverage and takes our EPS guidance (technical difficulty) '06.

Second question again was about security gains.

And as I said, we would expect the level of security gains in the current interest rate environment and expectations (indiscernible) rising rates.

To either moderate (technical difficulty).

Okay.

Then as a quick follow-up, I understand you hired 100 plus employees from the South Trust organization.

Could you touch on the cost impact in the fourth quarter and maybe touch on hiring plans potentially for '06?

And are those costs factored into your assumptions?

All right.

I'll follow up on that.

Yes, we have hired approximately 100 folks from the South Trust organization and the beneficiary of key hires that you notice American Banker on Fridays with a well judged (technical difficulty).

But we have also been hiring significantly revenue for (technical difficulty) people across our franchise (technical difficulty).

Look at the level of (indiscernible) increase in personal cost, several millions of dollars of that is salary line items.

In fact we did (technical difficulty).

Now Dowd Ritter will talk a little about our hiring (technical difficulty).

We would see if the opportunity continues to present itself, adding additional revenue producing personnel as they become available as we looked at the end of the year, that 100 Beth referenced, they are virtually across all of our lines of business, whether it be commercial, consumer, wealth management.

But we've also in our operations in technology area, Florida as well as Alabama has hired some people on both the business banking and the branch side.

And we would see that continuing.

You've got to remember, as you well know in a business like ours, there is constantly turnover.

And so the fact that we are talking about adding a 100 people, if I look at the first two weeks of the year, our net head count is actually down.

And so I don't know that I would count that addition in expense that you saw from ramping up those people then as something you would carry forward and grow throughout the year.

Okay, great.

Thank you.

Your next question comes from the line of Heather Wolf, Merrill Lynch.

Hi, good afternoon.

Good afternoon.

Just a couple of questions.

First clarification.

When you indicated that your expense guidance of mid single digits excludes the charges, does that just mean the charges associated with the debt pay down or does that also mean that it excludes the 8 million of professional, non-recurring professional fees and 10 million of other non-recurring?

It only would include the prepayment of Federal Home Loan Bank charges we incurred to the third quarter related to our operating expenses.

Okay.

And Beth, just if it has up you must be further away from the microphone.

Because I think you've been breaking in and out over the last couple of comments.

I don't know if everybody else is having trouble hearing you, as well.

Just the second question, in terms of your net interest margin guidance, I am a little confused because you indicated in the press release that you expect a stable margin, but then you indicated that the rebalance should be positive to the NIM.

So, I am wondering if you can help us to get some clarity how you are thinking about that?

Sure, Heather, I would be glad to and if I may, I will go ahead and say very pointed at the microphone so everybody can hear me.

Thanks, thank you.

Thanks for telling me that.

First as it relates to our NIM guidance, when you take into account that yes the Federal Home Loan Bank restructuring is positive to our NIM could help us to the tune of about several basis points embedded in our business plan in this current rate environment.

About 75% to 80% of our loan growth is in variable rate lending of prime and LIBOR based loans; those spreads are less than our current margins.

We said in the last several quarters that by definition has 3 to 4 basis points a quarter NIM compression that's essentially in that loan growth.

The last three quarters our volume has been successful in moderating that.

On any given point in time there is a dynamic between some compression based on our loan growth, some positive benefit from the way we were able to restructure our Federal Home Loan Bank debt, and our belief is the net of those will be a relatively stable net interest margin in 2005.

More importantly, that our business plan and net volume growth will increase net interest income and that top line revenue growth in 2005.

Okay, that's very helpful.

Just one more and then I will re-queue.

It seems to me if I calculate your core earnings for this quarter, you back out the $166 gain and $129 debt pay down and $18 million of non-recurring expenses.

You've got about 3 cents of a gain that is helping you get to the bottom line number of 49 cents.

It seems to me the sustainable number might be closer to 46 cents.

Is there any comment on that?

Clearly, we reported 49 cents.

I think the best way to look at our fourth quarter is on a linked quarter basis, at about a penny's growth in revenue, $16million is the provision line between commercial charge-offs and provisions excessive charge-offs.

Those $18 million were expenses and today with the solid growth we had in the fourth quarter that got us to 49 cents.

Looking forward to our 2005 guidance, $2 to $2.06 that is more consistent with our 49 cents in the fourth quarter.

Okay, thank you.

Your next question comes from the line of Cameron Hurst, Portales Partners.

Good afternoon.

Just following up on compensation line, I noticed that there seems upwards on the comp-to-revenue ratio.

I wasn't sure if that had to do with the hires you've been doing from South trust or what exactly -- I mean usually by the end of the year I expect a bit of down draft from some of the premiums you have to pay capping out.

If you just comment that Beth?

In that personnel line there is a really, a couple, two, three things going on.

One is some impact of higher salaries based on some of the hires that we made recently.

That would be a couple million dollars of it.

There are several million dollars of other personnel expenses.

And then the balance would be in throughout of our year-end incentive programming.

Okay, so that means you had a true up nod?

It wasn't at draw down at all to even things out?

The true up was a cost in the fourth quarter.

Okay.

Lastly, on -- secondly, on the tax rate, it may just be the way I'm adjusting it to get onto an operating number, but it looked like the tax rate was light.

I was wondering if there was anything there?

Cameron, I am not aware of anything specific.

That is a good question.

Why don't we get with List and give you a call back after this call.

Thank you.

Your next question comes from the line of Ken Usdin, Banc of America Securities.

Good afternoon.

Two quick questions.

First of all, I was wondering if you could talk about the trend in deposit service charges.

You've seen good growth in deposits throughout the year but that number did turn over a little bit.

I was wondering if you could talk us through any dynamics that's going on there?

Sure.

There are a couple of dynamics in that line.

First, we typically see some seasonal increases in our consumer service charges in the fourth quarter that we did not see this particular year, so those charges did not come through in the fourth quarter.

And then second was really a business issue related to our business customers.

In this rising rate environment, we made the decision to pass through a rate increase to our business customers who pay for their deposits with balances.

And the effect of that was more of their services were paid for by their balances, and then thus had a linked quarter effect on our service charges with the cost of that to share the benefit of rising rate environments.

So on both of those any reason why you didn't -- can you explain why you didn't see the seasonal balance I guess to begin with?

It was some seasonal service charges.

No, we do not have an explanation for that.

It was unusual not to see more seasonal increase.

And then on the business side, is that a trend that you expect that business customers will continue to pay via their compensated balances instead of through fees?

We have never before, in my memory, seen, at least I'll speak for AmSouth, but I understand for others, it's going on in the industry -- at a time when commercial loan demand has started, the first thing would you think would happen would be commercial customers draw down their deposits.

Whether this is an outgrowth of 9-11 or a lack of confidence about the economy or just plain old liquidity concerns, commercial customers have throughout the year, quarter after quarter, borrowings have increased and the deposits have increased.

I don't have anything in history to tell you -- normally that would never have happened.

You would see them draw down on their own deposits first.

Interesting.

The other question I had real quick, you didn't in your guidances for the year talk anything about capital management.

Are you going to continue to be on the sidelines on the share purchase front?

Any updates there?

Our current business plan would suggest that we would be very limited to share repurchases in 2005, and that a better use of our capital will be to continue to support our balance sheet growth.

Thank you.

Our next question comes from the line of Matthew Clark, Deutsche Bank.

Good afternoon.

Just a couple of questions.

Sorry to continue to harp on this.

The expense run rate, you are talking about $18 million of non-recurring, yet you are growing, based on your guidance the $313 rather than 313 or 314 based on your mid single digit guidance.

Is it truly non-recurring or not, the $18 million, I'm sorry.

Yes.

Matthew, what I think you need to do is look at full year.

Our guidance is off full year, not off the fourth quarter.

Okay.

On the household growth for wealth management, I think you talked about PCS growing about 20% in 2004.

Can you touch on trust and investment advisors, as well?

You mean household growth for 2004?

Correct.

And also or just the fourth quarter.

I guess if you could, just clarify what you mean.

I'm not sure I have followed your question.

I am thinking of wealth management in three pieces. and I think you just touched on PCS is that not true or was that for the whole segment?

Trust was also up in terms of revenue, had a very strong quarter, largely related to it -- why don't we go ahead and call you back?

Matthew I think that you might have a couple of questions that perhaps we could help with you off line.

Sure.

And then lastly on the -- should we expect reserve bill to continue here?

A loss for loan loss is a process that we go through quarterly based on a variety of factors.

That is something we would have to evaluate each and every quarter.

Fair enough.

Thanks.

Your next question comes from the line of Jeff Davis, FTN Securities.

Good afternoon.

A little bit of follow-up to Matt's question.

Beth, from thinking about the balance sheet, should we look to what earning asset growth of 8 to 10 with loans growing 10 to 12 in the securities portfolio in a holding pattern?

Is that a reasonable, roundabout numbers?

The business plan does have earnings asset growth in the high single digits.

That investment will continue to climb as a percentage of earnings assets.

Okay.

Am I missing something, but aside from numbers bouncing around this quarter versus last quarter, is not -- if the margin is stabilizing, is not the company going to see fairly good revenue growth over the next couple of years, whereas 2002-2003 we essentially saw no revenue growth, excluding the securities gains?

Yes, Jeff.

We would say that is relatively stable margin coupled with our balance sheet growth will drive top line NII growth in 2005.

And Beth, what's your sense?

Is the revenue proposition at AmSouth, is it now a 6 to 9 going forward over the next few years?

I would say that's a good range, Jeff.

Okay, all right.

Thanks.

Your next question comes from the line of Todd Hagerman, Fox-Pitt.

Good afternoon everybody.

Just a couple of follow-up questions.

One Beth, just on the fee side in the guidance in terms of high, single-digit growth.

I am having difficulty reconciling to your outlook in terms of, if you think about the question previously on the commercial side, compensating balances, the trends there, and if we just sold bank card portfolio, I am having a difficult time reaching that high single digit growth given some of the changes within the business line -- side of the house.

Well Todd, I think that's a good question.

Why don't we get back to you and give you more color on that.

It really does reflect our wealth management revenues, our various service charges and other line items with our non-interest revenue and see if we can't give you more color on that?

Okay.

If I could, just a follow-up on the so-called $18 million at one-time expenses this quarter.

Could you be a little more specific in terms of exactly what those items consisted of, so we have a better understanding in terms of why you think they were one-time in nature as opposed to why not they are more related to say ongoing initiatives that you may have in terms of your risk management processes?

In the professional fee line item there are a variety of one-time, non-ongoing expenditures that we did incur.

We have said in our previous 10-K filings that there will be some increased cost to our compliance and regulatory functions in 2005.These expenses, the piece that were related to that were more non-ongoing in nature, and were professional fees and then -- remember it includes our contribution, funding of our AmSouth Charitable Foundation, as well as some other noncredit NIE true ups at the end of the year.

Okay.

Thank you.

Your next question comes from the line of David Stumpf, AG Edwards.

Quick follow-up.

I saw a pretty good link quarter jump in fee income from bank owned life insurance.

Just curious whether there -- is any seasonal revenue reorganization associated with that or did you take on more boldly this quarter or a combination of the two?

Actually, David, as that represents life insurance, there was a claim paid in the quarterly variance.

Okay.

Thank you.

Your next question comes from the line of Heather Wolf, Merrill Lynch.

Just a clarification on the guidance for your fee revenue growth in the high single digits.

Can you talk a little bit about how you'll recognize sales fees associated with credit cards going forward?

And whether or not your guidance - and whether or not your high single-digit guidance includes credit cards, fees from credit cards in the past?

Yes, Heather going forward we will continue to see bank card income for several more quarters, as we are servicing that portfolio.

And then we will turn to agency income from that agreement.

We entered into an agreement with MBNA Corporation.

So there will be an ongoing, albeit somewhat less, less revenue stream from bank cards.

But that is included in our guidance.

Okay.

Can you give us color on that albeit at somewhat less?

Are we talking half or -- ?

You know Heather I don't have that in front of me.

So, why don't List and I get back to you with that?

Okay.

Thank you.

Your next question comes from the line of Cameron Hurst with Portales Partners.

Hello again.

Just a question following up on the reserve.

I know that it's a process you go through every quarter, and it's bottom-up process.

But I was wondering if you've seen any change in the tack on behalf of the regulators?

If you've got anecdotal information and some information from the SEC that says they are going to become a little more conservative with their provisioning policies and as that's really what drives how you guys are looking at it?

I am wondering if you had heard anything that way?

We haven't, absolutely heard nothing of the kind.

Okay.

Then secondly, you said there were some and those unusual some non-credit charges.

I wonder if you could be any more specific?

All right.

Yes, many companies are.

We've gone through a process of validating the valuation of our various balance sheet accounts, and P&L statements and we found a handful of accounts at the end of the year in the interest of being cautious that we did true-ups of those that are definitely non-recurring in nature.

Okay.

Thank you.

Your next question comes from the line of Christopher Marinac with FIG Partners.

Hi, good afternoon.

Can you talk about the possible pricing in Florida and you compare that with your other markets and to what extent are you seeing any sort of you know signs of irrationality?

Well, I'll give you a high level answer to that.

We have always given that Florida is a strategic initiative, attempted to make sure we were competitively priced in that marketplace.

There is always some irrational pricing from; particularly from the smaller community banks that typically tends to be in the CD product.

We have tried to make sure that among our core interest checking and money market accounts that we say well positioned within the market.

Are you pricing Florida differently than you are Alabama, Mississippi or Tennessee?

We virtually price all of our markets differently according to the market, but in no market that we operate in are we top of the market pricing.

We tend to be -- we want to be competitive.

We would like to be anywhere from the middle on up, but in nowhere do we try and lead the market.

Okay.

Very well.

Thanks, guys.

Your next question comes from the line of Jackie Reeves with Ryan Beck

Good afternoon.

Dowd, I just wanted to get in the cue for those additional comments with respect to the fees and the offsets to the credit card portfolio and where are the other drivers are.

And that was it?

Okay, Jackie, we will call you back.

Thank you very much.

Right.

Thanks.

Your next question comes from the line of Jennifer Demba with SunTrust.

Good afternoon.

I was just wondering if you could give us an update on how things are progressing with the regulatory agreements and the NASD Investigation?

On the regulatory, basically we are making what I would call very good progress.

We finished at the end of December we had finished over 25,000 hours with all of our employees taking the BSA and AML type training.

We delivered, I guess, January 10th was a milestone in terms of under the fed order, various by business line policies and procedures have been delivered regarding Bank Secrecy Act and the filing of suspicious activity reports.

A tremendous amount of effort and training there that has been accomplished.

And I guess I would say now that -- well, I would add the piece of good progress in purchasing and the insulation beginning on a significant piece of software to help on an ongoing forward basis.

And basically, we are right now at the key part, as I would put it, that most of the reporting under the order is complete, and now we are in a phase of putting into practice an execution of the changes in our policies and procedures, and are off to a very good start there.

I feel extremely good about the progress that as an organization that we are making so far.

Your next question comes from the line of Chris Shernard (ph), Morgan Stanley.

Hi, good morning, guys.

Good afternoon, sorry.

It's been a long day.

Feels like it.

Two questions.

First one is very short.

When in the quarter did you complete the sale of the card portfolio and the debt?

Was it done at the same time or different times during the quarter?

Actually, those were both done in the middle of November.

And secondly, could you give us an update where unfunded commercial real estate commitments are?

Something you talked about in past quarters.

You know Chris I do not have that number with me.

But we will give you some color on that.

Because I do know most of our production does fund up over time as construction lending.

And I do not know the balance that is unfunded.

Thank you very much.

Your next question comes from the line of Kevin Reynolds with Sanford Group.

Good afternoon, you all.

Hi, Kevin.

Hi, I wanted to go back and again -- I don't want to sound like I'm kind of beating you guys up over this because there have been a lot of questions on the non-recurring items, core run rate, the provisioning etc.

But if we could sort of tie it all together here and kind of walk off or work off the kind of 46 cent core number from an earlier person's question.

And then look at the provisional level, I understand that there was that you guys did sort of your normal quarterly look at reserve levels and decided to add this quarter and had the luxury of doing so.

But as we go forward if we still see double-digit loan growth, particularly strong commercial loan growth, I guess arguably the riskiest category, is it -- and then I guess we will also circle back with the revenue question, as well.

We are going to see double-digit loan growth in a stable margin, but credit quality does not improve at the same pace it has been, is it unreasonable to assume that maybe the total revenue-generating capacity of the balance sheet doesn't flow to the bottom line and there is actually some constraint as a result of having to add back to reserves as you go forward?

I'll try and take those in some order.

First on provision, I cannot - it's a quarterly process that we go through it is sort of what -- to decide what is the appropriate level of provision.

But our guidance for the full year does indicate that we believe credit quality metrics will be stable year-over-year, and that, again, our loan growth with the stable net interest, relatively stable net interest margin will help drive that top level NII growth in 2005.

Okay.

Looking at it maybe at slightly differently, what level, under the premise that you are not originating bad loans because no bankers do -- but if you are out originating good quality commercial credits at the margin, what level are you setting aside for those credits as you put them on the books?

That varies by segment of the portfolio and is a process that's gone through monthly.

And obviously trued-up quarterly and is absolutely an art as well as a science and everyone does it somewhat differently, but you do it under the full spotlight of your regulators and the SEC.

And we spend an awful lot of time with that and as Beth just indicated, this quarter it's a little bit of a mix in looking at the numbers with the bank card sale that freed up, as I remember somewhere, around $25 million and change in our reserve.

And as we looked at the strong loan growth, a record quarter for production and commercial real estate, the things we had seen throughout the balance sheet, we thought it was very appropriate to take advantage of the opportunity and more appropriately, bring that reserve to a level our process showed we were more comfortable with to be sure the adequacy was there.

Okay.

I think that's fair enough.

Thanks.

At this time, there are no further questions.

Mr. Ritter, are there any closing remarks?

Operator, there aren't.

We would thank everyone for joining us today, and we will stand adjourned.

This concludes today's conference call.

You may now disconnect.