Regions Financial Corp (RF) 2005 Q1 法說會逐字稿

Good afternoon.

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

At this time I would like to welcome everyone to the AmSouth Bancorporation first-quarter earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) I would now like to turn the conference call over to Mr. Ritter.

Please go ahead.

Good afternoon, everyone.

This is List Underwood.

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

Our presentation this afternoon will 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, forecasts 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 results may differ materially.

Information on the risk factors that could cause actual results to differ is available from today's earnings press release or on our Form 10-K for the year ended December 31, 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 your joining AmSouth's first-quarter earnings conference call.

And of course also here this afternoon with me is Beth Mooney, our Chief Financial Officer.

Today AmSouth reported first-quarter diluted earnings per share of $0.50, an increase 11.1% over first quarter of last year.

Net income in the quarter reached a record level of 178.6 million, while our profitability remains strong with a return on equity of 20.5%.

The solid earnings performance was driven by strong loan growth in deposits -- strong growth in deposits particularly the low-cost categories, solid loan growth, and a stable net interest margin.

Excellent credit quality as well with disciplined expense management.

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

For example, our total average low-cost deposits in the first quarter grew $1.6 billion or 29% on a linked-quarter annualized basis.

This growth was driven by strong increases in non-interest-bearing deposits of 14% annualized and money market deposits higher by 71% on a linked-quarter annualized basis.

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

The growth in money market deposit reflects the continued success of the new product offering we introduced across all of our markets midway through the fourth quarter of 2004.

This new offering has raised to date some 2.1 billion in net growth since we introduced it.

Florida's deposit growth rates were even stronger than the Company's.

Total deposits in Florida grew in the first quarter 35% on a linked-quarter annualized basis while low-cost deposits were up 52% on the same basis.

These results were aided by solid growth in households, the 31 new branches that we opened last year in Florida, and continued favorable impact from hurricane recovery activities.

Loan demand remained strong during the quarter as well.

If you exclude the credit card balances, total loans increased by 11% on an annualized basis between quarters.

The commercial real estate line of business led the way with linked-quarter annualized growth and average outstandings of 24%.

This is the sixth consecutive quarter of double-digit growth, reflecting the funding of our record production over the last two years.

This strong production continued again this quarter with commercial real estate closings reaching 1.3 billion, an increase of 22% over the first quarter of 2004.

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

Commercial middle market loans on average grew 18% on a linked-quarter annualized basis during this first quarter.

It reflects our continued strong sales calling efforts to generate new business and improve any trends that we saw in our line utilization.

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

Importantly, ending loans were higher; linked-quarter and the pipelines were strong at the end of the first-quarter, giving us excellent momentum as we go into the second quarter.

Wealth Management experienced positive momentum and investment services.

Income from investment services grew 57% on a linked-quarter annualized basis.

A major contributing factor was solid growth in fixed-rate annuity sales during the quarter.

Other operating highlights during the first quarter would include solid credit quality results which contributed to earnings growth during the period in.

Net charge-offs declined 14.1 million to 23 basis points, their lowest level since 1996.

Both commercial and consumer loan categories experienced lower loss levels versus the prior quarter.

Disciplined expense control during the quarter resulted in more normalized noninterest expense levels versus the fourth quarter.

In fact when compared to the same period in 2004, non-interest expenses actually declined almost 1%.

Also during the first quarter to take advantage of disruption in our markets caused by recently announced mergers, we continued the hiring of quality talent with a particular focus on sales positions.

We are also conducting very effective marketing campaigns which target customers in our markets impacted by the mergers.

In addition during the first-quarter we launched additional television advertising campaigns emphasizing AmSouth's brand and our relationship banking way of doing business.

Finally we repurchased 5 million shares during the quarter to prevent any earnings dilution that might occur during the year from various stock-based employee benefit plans.

With that overview, let me now turn it over to Beth to cover the first-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 379.7 million, essentially unchanged from the prior quarter but reflecting a net interest margin of 3.45% and an average earnings asset base of 45.9 billion.

Although loans and low-cost deposits experienced solid growth and the net interest margin was stable versus the prior quarter, competitive pressures on commercial loan fees and lower consumer loan late fees from improved credit quality as well as fewer days in the quarter held net interest income is in line with the fourth quarter of 2004.

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

This is notable because during the past nine months the Federal Reserve has raised interest rates seven times including two times thus far in 2005.

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.

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

Average commercial middle market loans grew 202 million or 18% annualized compared to the fourth 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, the continued success of our new relationship campaigns that focused on adding new business, and continued growth and strength in the economy as a whole.

Also contributing to the increase although to a lesser extent was improved line utilization.

Average commercial real estate line of business loans grew 24% annualized versus the fourth quarter and reflect both the funding of record production from the prior year and new business in 2005.

We expect this strong growth to continue in 2005 as record production continues to fund up throughout the year.

Small-business lending experienced a solid quarter.

Average small-business loans increased 6.7% on a linked-quarter annualized basis in the first quarter and reflects the success of recent calling efforts.

Companywide production of home equity loans was 894 million for the quarter.

On average, home equity loans and lines increased 14 million or less than 1% on a linked-quarter annualized basis.

However, the growth between quarters was also impacted by the sale of 215 million of fixed-rate home equity loans in the first quarter.

Excluding the effect of the sale, home equity loans would have increased on an annualized 3.5% between periods.

New originations of residential mortgages this quarter reached 954 million, nearly 16% above fourth-quarter production and providing strong momentum going into the traditionally seasonally strong second quarter.

Importantly 78% of the volume continues to represent new purchases.

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

As a result during the first quarter, mortgage loans on average increased nearly 347 million or 28% on a linked-quarter annualized basis versus the fourth quarter.

The investment securities portfolio at period end was 12.7 billion and represented 27% of total earning assets, essentially unchanged from fourth quarter levels.

The average duration of the portfolio at quarter end was 3.9 years.

Shifting to the funding side of the balance sheet for a moment, as we have experienced over the last year, deposit growth continues to be very strong.

Total deposits increased in the first quarter by 17% on a linked-quarter annualized basis.

The growth reflects broad-based sales efforts across all lines of business, overall household growth, and new branches opened since 2004.

The commercial line of business deposit growth was particularly strong, increasing nearly 39% between quarters.

As mentioned earlier, low-cost deposits led the way.

Non-interest-bearing deposits contributed to the growth, increasing 14% on an annualized basis between quarters.

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

Money market deposits also contributed 1.2 billion during the quarter due to the continued success of a new product offering that was introduced in the latter part of 2004.

Turning now to asset quality.

Net charge-offs reached their lowest level since 1996 during the first quarter of 2005.

At 19.1 million, net charge-offs were 23 basis points of average net loans in the first quarter, a decrease of 18 basis points between periods.

Lower total net charge-offs of nearly 14 million were led by a decline in consumer charge-offs of 9.2 million resulting from a decrease in nearly all consumer categories as well as lower losses resulting from the fourth quarter sale of our $550 million credit card portfolio.

Commercial loan losses were also down versus the quarter.

The loan loss provision in the first-quarter was 1.5 million higher than net charge-offs at 20.6 million, resulting in an allowance balance at quarter end of $366.8 million.

As a result, the allowance to net loans was relatively stable, ending the period at 1.11%.

At the same time, the allowance coverage in nonperforming loans continues to improve, reaching 420% at quarter end.

Nonperforming assets were up modestly to $112.7 million at the end of the first quarter, but still near historically low levels.

The ratio of nonperforming assets to loans plus foreclosed properties and repossessions remained unchanged from the fourth quarter level at 0.34%.

Turning now to noninterest revenues.

Noninterest revenues at 215.4 million for the quarter were modestly higher when compared to the fourth quarter revenues after adjusting for the gain from the sale of our credit card portfolio.

Investment services income of 20 million was up 2.5 million or 57% linked-quarter annualized over the fourth quarter.

This increase was driven by higher sales of fixed-rate annuities in the quarter.

Service charges on deposit accounts were down versus the fourth quarter.

The primary reason for the decline was lower fees from insufficient funds.

In fact, the volume of overdraft was down 12% between quarters.

Also the fourth quarter is a seasonal peak for consumer service charges.

Additionally on the commercial side, higher balances, which are also being credited at a higher rate, are being used to pay for services in lieu of hard dollar fees.

In coming quarters we expect total service charges to increase from first-quarter levels.

Mortgage revenue was down due to lower levels of sales during the quarter and as anticipated, portfolio income declined this quarter due to higher interest rates.

However, we were able to take advantage of rising rates by prepaying 350 million of Federal Home Loan bank advances that were on a $2.7 million gain position and subject to being called within the year.

The gain is included in other noninterest revenues.

Also included in other noninterest revenues is a gain of 2.1 million from the sale of 215 million in student loans and a $4.2 million gain from the sale of a 215 million of fixed-rate home equity loans.

We periodically sell student loans whenever we have sufficient volume and the home equity loans were a fixed-rate higher risk portfolio.

In addition, included in other noninterest revenues is 3.7 million in income related to FAS 133 valuation adjustments after the termination of a hedge.

Lastly, we were a small investor in the pulse ATM network that was sold in the first quarter and we received a gain of $3 million.

Looking at expenses, total noninterest expenses for the first quarter were $319.5 million.

This compares to a reported level in the fourth quarter of 460.4 million; however as we stated last quarter, our core expense level, which excluded certain items, was approximately 313 million.

Using the latter number as a base, our noninterest expense increase was 8% on a linked-quarter annualized basis.

However year-over-year, total noninterest expenses declined 2.8 million or nearly 1%.

As in past years, personnel costs increased in the first quarter.

They were up 8 million or 19% on a linked-quarter annualized basis.

The increase was primarily due to seasonally higher payroll taxes, specifically FICA, and higher pension and health insurance costs.

As expected, professional fees returned to more normal levels in the first quarter as our fourth quarter legal and consulting costs were unusually high due to some one-time items related to our regulatory compliance efforts.

Also the category of other noninterest expenses at 37 million returned to a more normal level this quarter as compared to the prior quarter.

As Dowd mentioned in his opening remarks, we did repurchase 5 million shares during the quarter.

The amount of shares repurchased represents those shares expected to become outstanding during the year under our various employee benefit plans.

By repurchasing them now, we prevent those shares from potentially diluting our earnings this year.

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

We expect earnings per share for the year in a range of $2.00 to $2.06 and this forecast generally assumes an improving economy, moderately rising interest rate environment, and flat equity market as well as the following factors.

Higher net interest income reflecting a relatively stable net interest margin; solid balance sheet growth with commercial loan growth continuing at current levels; and improving loan demand in consumer categories coupled with continued strong low-cost deposit growth.

Stable credit quality metrics, total noninterest revenues including categories such as service charges, trusts in investment services should experience steady growth through the remainder of the year.

In modest noninterest expense growth in the mid single digits calculated from its 2004 noninterest expense base primarily excluding the $129.6 million in Federal Home Loan bank prepayment costs and the pre-tax $54 million settlement charge.

And with that, I conclude my remarks.

Dowd?

Thank you, Beth.

As you just heard, our first quarter performance resulted from favorable growth trends in loans and deposits, excellent credit quality, and disciplined expense management.

We firmly believe that we have the plans in place that will enable us to continue to focus and execute on these areas of strength.

Looking ahead, we see opportunities for continued loan and core deposit growth.

Commercial and commercial real estate, small business, home equity, and residential mortgage lending represent areas where we have solid momentum going into the second quarter.

Our continued emphasis on growing core consumer and small business households and expanding commercial relationships will help us sustain our momentum in low-cost deposit growth.

In addition by focusing on businesses such as trust, our private client services, our brokerage services, and investment sales through our branches and electronic payment services, we are emphasizing the areas that can have the greatest impact on non-interest expense growth as we go forward.

We are also concentrating on continuing to be disciplined with our expense management to ensure that our expenses do not outpace our revenue growth.

All of these factors should combine to improve our operating leverage and result in higher earnings going forward.

Before we wrap up, let me give you an update on the considerable progress that we have made during the quarter in strengthening our Bank Secrecy Act compliance.

We implemented new policies and procedures both at the top of the Company and across 40 different business units.

Our employees have received continued additional training customized for their particular area of the bank, and we've restructured the compliance area to provide the right checks and balances in the process for filing suspicious activity reports as well as the acquisition and installation of state-of-the-art monitoring software.

All together over the past several months we now estimate that our employees have undergone more than 113 hours of Bank Secrecy Act and other regulatory compliance training.

I don't have any doubts that we are clearly demonstrating that we are committed to having an effective compliance program.

We designed our program to be as strong or stronger than the programs you would find at banks several times our size and we've already implemented the great majority of it.

Based on this progress, we have every reason to be confident that we have a very effective program in place today.

As always, our goal continues to be sustainable quality earnings growth and higher profitability achieved through internal growth driven by executing on our seven strategic initiatives.

We believe this combination of focus and execution will result in high returns for our shareholders.

Operator, that would conclude our remarks and why don't we open it up now for any questions?

(OPERATOR INSTRUCTIONS) Todd Hagerman with Fox-Pitt Kelton.

Beth, I was wondering if you could give a little bit more color on the funding strategy that you deployed.

Obviously you have been paying down some of the home loan bank borrowings over the last few quarters and really ramping up on the deposit side as a replacement.

I was wondering if you could just talk a little bit about that going forward and what we can expect there?

And the one thing I noticed however is I'm a little surprised we're not getting a little bit more lift in terms of margin in terms of paying down the home loan bank borrowing.

Okay, your first question, Todd, relates to giving you a little more color on our money market program and replacing core funding with some of our other borrowed funds, is that correct?

Correct.

You cut out there just initially at first.

Yes, we have been very pleased with that.

In fourth quarter we introduced a money market offering that was tied during the fourth quarter to rate increases in the Fed Funds rate.

It started at a 2% rate and ended at the end of the special period at 2.5%.

We have held it there ever since and as you have heard from our numbers, it has been a very dynamic success for us and it continues to be highly attractive.

At this point it is 2.5%.

We continue to get strong growth as we look at those accounts.

We have cross-sells of over 4%, strong household balances.

And it is allowing us as you said to replace a 275 Fed Funds world and rising noncore funding and borrowings including home loan bank debt that was going to be called within the year that was in a gain position that we could anticipate because of this strong deposit growth we would no longer need.

So this has been highly successful.

We think it has been a good use of the balance sheet bringing in new households, new dollars, and strong new customers.

In the margin I think part of what you're seeing in the first quarter is the impact of less business days and then as we said, some seasonally lower fees.

Okay, but I know you have additional bank borrowings, home loan bank borrowings left out there.

And there was a big prepayment in the fourth quarter.

It just seems like you would get a little bit more lift replacing those higher cost funding sources with the money market and the other non-interest-bearing DDA.

I think the difference, Todd, is part of a dynamic of the fourth quarter we did pay off the credit card portfolio, which was a high yielding portfolio, and were successful in restructuring as you said a significant portion of our home loan bank book.

I think at the time we indicated that we would probably get upwards of 2 basis points of net interest margin expansion in that, but that is what you would actually see in the NIM.

Okay, and so going forward whether or not we can expect any additional prepayments, is that in the mix of things or just more opportunistic?

I would say opportunistically with continued strong core deposit growth, as we have seen.

We will have the opportunity to potentially replace or prepay some additional Federal Home Loan Bank outstandings that are subject being called and are currently in a gain position.

So to replace those borrowed funds with core deposits and realize a gain on something that's going to get called within the year seems to make good business sense to us.

Thanks very much.

David Stumpf with A.G. Edwards.

Good afternoon Beth and Dowd.

Beth or Dowd, if you could possibly go into a little more detail on the deposit service charge line?

I know you commented about the compensating sort of balance issue.

I would assume there are also maybe some seasonal influences maybe on the retail side.

I know you commented that you thought it would bounce back some but maybe just walk us through some of the moving parts there and maybe how much of that is actually on the compensating down side maybe it is gone forever.

Sure, David.

I'd be glad to do that.

I think you've seen in a number of banks that have reported this first quarter that we have all experienced probably a greater than anticipated decline in the consumer service charge line item.

So I would tell you that that exceeded what we would have expected while there is some seasonality in there.

We also saw a significant decline in the level of overdraft and insufficient funds.

Again, that partially reflects seasonality but also again higher balances by the consumer as well.

On the analysis side, I think it is a little harder to gauge because as we said, the impact of higher balances as well as the higher earnings credit rate, you get an interplay there between hard dollar fees and paying for it with balances.

So over time that is something that we will monitor because it is not as easy to gauge at what level those balances will stay.

But we did have significant deposit growth in our commercial line of business in the first quarter and that is part of the impact in our service charge line items as well.

You seem to be just attributing a little less of the decline to maybe what other banks have determined is seasonal factors.

For example, in the NSF fees, a lot of banks of said yes, higher balances is part of it but there is clearly a seasonal influence that fourth quarter for example the charges are much higher.

Is some of that here?

Are you seeing some of that as well?

And if not, I guess, Beth, what would then drive -- if there is not a lot of seasonal influence -- what then is going to drive some growth there?

Would it be customer growth or expansion of the franchise, etc.?

Yes, David.

It does include and I said it in my remarks and I should've emphasized it again.

There is absolutely a seasonal decline fourth quarter to first in consumer service charges and I think it is what you're hearing from us as well as other banks reporting, it probably exceeded our expectations.

It was a little more severe than it usually is fourth to first.

So yes, a huge piece of the consumer piece is the seasonality of the fourth quarter peak topping off in the first and starting to rebuild throughout the year from there.

That's great.

Thank you.

David, I guess I would just add that goes along with a part of that is I think I said this last quarter and it’s still in my opinion unprecedented.

We are in five quarters of double-digit commercial loan growth here and yet commercial deposits keep going up at a faster rate than I ever remember and how long that will continue no one knows.

But it is -- I think it certainly shows a level of nervousness, whether it is liquidity, desires on an ongoing basis, or worried about future even though companies are borrowing, they still are increasing their liquidity.

And so whether I say that in line with your question of when will those commercial service charges pick up.

If those deposits keep growing, it is probably a transition we won't see until they draw them down.

If I could ask an unrelated question if that's okay?

The student loan and the gain on the home equity line sale, those are obviously could maybe be described as I guess periodic gains as opposed to nonrecurring.

Could you give us a little color on how frequently you have had student loan gains in the past and maybe give us some feel for how often we might expect them going forward?

I would be happy to, David.

On student loans as I said, we periodically sell those when we get to sufficient volume.

That is a very low yielding asset and we do degenerate those for the purpose of sales.

Looking back over the last couple of years, we typically do them twice a year and it really is a function of when we get to critical mass.

Okay, great.

Thank you.

Kevin Reynolds with Stanford Group.

I've got a quick question along those gains, whether they are periodic or non-recurring.

But help me if we can to reconcile guidance for the year with -- I have actually got a couple of questions but I want to just go through this one more time -- guidance for the year with what equates to it looks like about $0.03 per share this quarter so the core recurring runrate going into Q2 appears to be about 47.

Is that correct?

Actually I would --

I would disagree with you on that just due to what we just talked about.

We sell student loans twice a year.

We sell home equity loans whether it's fixed-rate or whether it is some buckets that we generate.

With a lower FICO score, we've done that over the past couple of years as well and I would say those are kind of parts of normal business and obviously we're not going to have acquired a small interest in an ATM network as we did when we acquired First American that we sold.

That one I would certainly agree is non-recurring, but parts of this I think are normal course of business.

Okay, and then the second question I've got is clearly your credit quality today and it has been for awhile now improving and looks probably as good as you can maybe remembered in your Company.

Do you have a best guess on how long the improving trend might continue?

Does it feel like we're getting about as good as it can be or do we have more room to go?

I think I would have to be honest like others who said it is somewhat of a surprise that it continues to improve but those of us who have been in this business, credit quality is cyclical.

We feel very good about it.

I think one of the reasons it keeps getting better is in our case is absolutely the things we have done to bring in human talent on the analytical side managing that risk and some tools to use to help that.

But things like selling those lower scored home equity loans the past couple of years, we talked about it when the losses were about three times this level in the home equity portfolio, but I think you see that what we said actually came through in the numbers.

And as to how long this will continue -- if you and I knew that, we probably would not be on this call.

Okay, and the last question I've got is given that right now your securities book as a percent of total earning assets is much bigger than the large CAP peers in the South operating within largely the same footprint.

And you've got some -- it sounds like you still got some advances that may be in a gain position, some debt that you could prepay.

Would it make sense at some point to offset those gains with maybe some securities losses should rates rise and just maybe delever the balance sheet just a tad to give yourself more dry powder particularly as you guys talk about the ability to generate liquidity from low-cost deposits is so strong?

Kevin, the way I would look at that is we have a good amount of cash flow coming off that investment portfolio in any quarter, approximately 400 million.

And I think what we are evaluating in this particular rate environment is allowing that to continue to decline as a percent of earning assets is a good way to look at the investment book.

Okay, thank you.

John Pandtle with Raymond James and Associates.

Good afternoon.

We have had a lot of anecdotal evidence of your hiring lenders and back office staff from SouthTrust and I was wondering if you could maybe summarize what you have done?

What are the early tangible revenue benefits of that, and how do you see it playing out going forward?

Then actually I have a follow-up question on the securities portfolio as well.

Sure, John.

We have been no strangers.

If you go back years ago into Florida and the acquisition of Barnett, we took good advantage and it served us very well with some talent that was available to hire in the marketplace in that.

We are a good beneficiary as you said.

A lot of people talk about it.

Last time I checked, we were north of 125 experienced, talented individuals from SouthTrust that we have added in the organization and they are scattered across everything from branch, jobs, to commercial lenders, to commercial real estate.

And they are in several of our markets.

Anecdotally, we have gotten some on the commercial side -- I know some good pieces of business and I expect more will come as conversions begin and signs change.

What we've done so far is what I would call minimal customer disruption because the customer has not been impacted.

Once they are, that's when you normally see the opportunities.

Okay, and then my question on the securities portfolio.

Looking at that as a percent of earning assets at least in our view is pretty much in line with regional banks across the country.

But it sounds like you don't feel like there is a need to make any dramatic restructurings of that portfolio.

You are just going to continue to reinvest cash in loan growth?

I would say that is correct.

It is performing as we would have expected as we purchase those various securities for our liquidity balance sheet, rate risk management.

But as we look at the prospects for continued strong loan and deposit growth, our view is we are definitely trying to support our loan growth at this time.

Okay, thank you.

Gary Townsend of FBR.

Good afternoon Beth and Dowd.

A couple of quick questions.

I think it is intriguing that your noninterest deposits have been so strong and how much has been just -- can you give an idea as to how much is new customers and marketshare grab as opposed to higher balances being held by commercial customers?

That is an excellent question and I guess I'll expand on something Beth said earlier in talking about our money market accounts.

That new money market account is not available for just anyone off the street.

You also have to have what I would term for this purpose a package checking account product with AmSouth.

So as a result, the cross-sell ratio on these new money market customers is 4.5 products per household right off the bat.

That is the averaging and about 21% of these customers are new households to the bank.

So when you hear that money market total of about 2.1 billion since we have introduced the product, a lot of that non-interest-bearing growth comes from those same households as well.

That's why we're so excited -- as a matter-of-fact whether it is consumer or small business, in both cases those particular households are keeping about three times the checking account balances as our normal consumer or business banking household.

And your competitors obviously they watch what you're doing too.

How are they reacting to this?

This particular offer and there are plenty of other competitors in the markets that are talking about switching or changing banks in this environment but I have not seen a product advertised or focused on like this one.

I've seen some higher CD rates but we don't think that is the place to spend our money.

Couple more quick questions.

Provision was lower in the quarter.

How much of that was -- or how might that have been impacted by the sale of the credit card?

Gary, as we said last year when we sold the card portfolio and tried to outline several of the benefits, we said that we had about 15 to $19 million a year in charge-offs off that portfolio.

So if you kind of look year-over-year, it’s probably 4 to $5 million of the difference.

It is something less linked-quarter because those balances exited our balance sheet in the middle of November.

But there is some piece of the benefit that is related to the card sale but it also includes just stronger performance across all our consumer categories and a strong commercial quarter as well.

And with the twist of the yield curve now with the ten-year hovering around 420, can you discuss how that might affect your margin?

We have looked at the flattening yield curve and I don't think there's many banks that will tell you that's necessarily positive when you look at various reinvestment rates.

But we have stressed tested this level and of a decline of even another 50 basis points would find that we are less than 1% exposed to the current as well as in the even more flattened yield curve.

So again, our essentially interest rate neutral position is serving us well and we will welcome the time when rates do begin to rise.

And another huge piece of that is our core funding.

As you started with your question about our non-interest-bearing and low-cost deposit growth is so strong and that is actually giving us a significant benefit in this rate environment.

Thank you very much.

(OPERATOR INSTRUCTIONS) Heather Wolf with Merrill Lynch.

A couple of quick questions.

First on credit quality; can you give us an update on the commercial real estate markets, particularly in Florida and what you're seeing there from a credit quality perspective?

Heather, I would be happy to do that.

If one of the times where if you have a long institutional memory of credit quality in commercial real estate has probably never been stronger and our portfolio continues to perform in almost a pristine fashion.

We think there has been several structural changes in the way that we have expanded this business since the mid-1990s that are serving us well.

One is we stay at the very high end of the market with reputable if not national developers.

We underwrite cash flows as well as equity, as well as debt service coverage ratios that suggest these projects will perform well in a variety of interest rate as well as market environments.

And then last but not least, we are pretty careful about the product types.

We stick with single-family residential.

That has been a huge piece of our growth is working with national homebuilders.

Multi-family rentals, multi-family for sale, retail, and we've stayed away from a lot of the speculative lending of hotels, speculative -- spec office space and we feel like that mix as well as the strength of the economy has really served us well and that portfolio is virtually pristine.

So there's no real difference from -- in the Florida portfolio relative to the rest the portfolio?

All segments of this business are performing extremely well.

Great and then one last question.

I think you mentioned something in your commentary about competitive loan pricing environment.

I'm wondering if you can elaborate on that?

I would be glad to.

If our commercial lenders were in the room, they would tell you that they continue to see a lot of pressure in the market for good loans.

They're seeing less pressure on structure, which I think is a positive indicator over time for credit quality, and we are doing what we need to do to generate good quality loan growth at the right spreads.

But there is some dialogue about more market pressure in pricing and I would guess one of the places we have seen it first is on the fee side.

We've seen some recent pressure in fees.

Still overall yields, deposit growth as well as penetration of other products with our commercial customers, I will say we're growing a very profitable book of business.

And is there any more pricing pressure in any of your markets than others?

Again I would say it was broad-based and across the board but one area where you have probably heard where there is the most pricing pressure where we do not participate is in the large shared national credit market.

I think as you read the American Banker and other articles, that market has gotten just almost irrational but we do not participate in that market.

So while we see some commercial middle market pressure, it is not in any specific market.

It is just generally everybody trying to drive volume.

Okay, great.

Thanks much.

At this time, there are no further questions.

Are there any closing remarks?

No, operator.

There are not.

We just thank everyone for joining us today.

We appreciate your attention.

Thank you.

Thank you.

This concludes today's AmSouth Bancorporation first-quarter earnings conference call.

You may now disconnect.