美國合眾銀行 (USB) 2004 Q1 法說會逐字稿

The US Bancorp conference call will begin momentarily . Good day and welcome to the US Bancorp first quarter 2004 earnings conference call held on Tuesday, April 20, 2004. Copies of the company's earnings release and supplemental analyst guides rules can be found upon the financial release section of the company's website at www.USBANC.com or by contacting the US Bancorp Investor Relations Department at 612-303-0781 or toll free at 866-775-9668. I would like to turn the program over to your host, Mr. Matt McCollagh [sp].

Thank you Leo and thanks to everyone for joining the call. Jerry Grundhofer our CEO will open the call and then David Moffett, our CFO will cover first quarter performance details. I would like to remind you any forward-looking statements made during today's conference call are subject to risk and uncertainty. Factors that could materially change our current forward looking assumptions are detailed in our press release. Let me start out by pointing out that the company recorded a $90 million reduction in income tax expense in the quarter related to the final resolution of federal tax examinations covering substantially all of the company's legal entities for the years 1995-1999. This resulted in an effective tax rate of 28% for the quarter.

We expect to return to our normal effective tax rate of approximately 34% in the second quarter and for the remainder of 2004. As David will discuss in more detail later, the benefit of the lower tax expense was more than offset in the quarter by prepaying a portion of the company's long-term debt at a cost of $35.4 million or $23.2 million after tax and by recognizing mortgage servicing rights impairment of $109.3 million, or $71.7 million after tax. The company took no security gains in the quarter to offset mortgage servicing rights impairment. We would be happy to discuss this in more detail after our prepared comments, but let me turn the conference call over to Jerry now for more details.

Thanks, Matt. Thank you all for joining us today as we discuss a very good start to 2004. We have many positive developments to share with you today, so I'll start in on the highlights, really and David will provide much more details on the quarter. We ended the first quarter with higher commercial loan balances on March 31, 2004 compared to where we ended on December 31, 2003. The annualized rate was approximately 5%. The commercial loan growth was driven by both large corporate and middle market borrowers with half of our middle market regions showing point-to-point growth in the quarter. We see this as a very encouraging sign for the remainder of the year.

Average retail loans continue to grow on 10%, driven by growth in leasing, credit card, and home equity product. In addition, the branches continued to accelerate their growth rate of net new checking account, growing almost 55,000 or 7% in the first quarter. While average low-cost core deposits of the branch increased just under 8% compared to the first quarter 2003. We are very pleased with the strength of fee-based revenues in the first quarter, breaking historic first-quarter seasonal trends, non-interest income actually increased from the fourth quarter of 2003 by a little under 2% or almost 7% annualized. Compared to the first quarter of 2003, non-interest income, excluding securities gains increased 7.6%, driven by 11.3% growth in credit and Debit card fees, 10.2% growth in corporate payment product fee, 10.8% growth in merchant processing fees, 13.5% growth in deposit service charges, 12% growth in investment product fees and almost 9% growth in trust and investment management fees.

Transaction volumes in our payment businesses continue to gain momentum. Debit cards transaction volumes were approximately 23% from the same quarter of last year. Retail credit card transaction volumes grew in excess of 14%. Corporate card transaction volumes grew in excess of 9% despite unusual strength in the first quarter of last year. And that was driven by military spending in our government card business last year. And merchant transaction volumes grew just under 11%. We expect the shrink in fee-based revenues to continue as 2004 progressive. Expense control as you'd expect in the quarter was outstanding. Leading to another quarter of positive operating leverage for our company.

Non-interest expenses excluding mortgage service rights impairment, merger-related charges and the expenses related to the early retirement of long-term debt that Mac mentioned earlier was down approximately $25 million from the fourth quarter of 2003 and $6 million in the first quarter of 2000...for the first quarter of 2003. Credit improvement in the quarter also exceeded our expectations as net chargeoffs declined by approximately $51 million or 18% from the fourth quarter. Net chargeoffs to average loans came in at an annualized 79 basis points, already below the 80 to 85 basis points that we have been targeting as the average over a credit cycle. Truly the combination of US Bancorp and First Star is complete. While commercial chargeoffs declined significantly in the first quarter to 64 basis points from 114 basis points in the fourth quarter, we believe continued improvements in this category will allow further modest declines in total chargeoffs as 2004 progresses. Non-performing assets also continued to decline falling almost 9% from the fourth quarter.

We expect this trend to continue throughout 2004. Finally, we aggressively repurchased our stock in the quarter buying back almost 34 million shares. Going forward our primary goal is to demonstrate that our company is uniquely positioned to achieve consistent, 10% plus EPS growth as a result of our balanced business mix, advantage scale, reduced risk profile, low-cost leadership position and emphasis on customer service. We're very proud of our industry leading return on assets and equity of 2.14% and 20.7% respectively in the quarter. And while we believe you will continue to see modest improvements in these ratios as 2004 progresses, we understand the need to show above-average organic revenue growth that translates into double-digit EPS growth. Our in-store initiative is proceeding on schedule. We now have 58 Safeway locations open and we'll have 136 open by the end of 2004 with the remainder coming on-line in early 2005. Financial results for the initiative are already exceeding our expectations. As I mentioned earlier, transaction volumes in our very important payment businesses are gaining momentum as the economy gains strength. We also have a number of initiatives to penetrate our existing customer base with a broad array of payment products and services. We expect all our payment businesses to show improved growth as the year progresses. Finally, we are continuing to relentlessly focus improving the level of service that we provide to our great customers. As a company, we remain optimistic about our prospects for the remainder of this year aslo well as longer-term. We're looking forward to showing you what this company can do in an improving economy with the distraction of transformational acquisitions and integrations behind us. Now, let me turn it to David to give us more details on the quarter.

Thanks, Jerry. Today we reported first quarter earnings of 1 billion, 8 million or 52 cents per share on a diluted basis, 1 cent better than the first call concensus estimate. This was a 13% increase over the first quarter of 2003 and an annualized 16% increase over the fourth quarter of 2003. We expect double-digit annualized revenue growth in the second quarter, relative to the first quarter of 2004 led primarily by growth in our fee-based customer basis. Not interest expense was tightly controlled both on a link quarter and year-over-year basis. Credit quality continues to show rapid improvement in exceeding our expectations for the quarter. Commercial borrowing conditions are best characterized as improving with the expectation of continued loan growth in the second quarter.

During the quarter, our net interest margin fell 13 basis points to 429 from 442 in the fourth quarter of 2003. Approximately five basis points of decline was related to the actions we took during the quarter to position the balance sheets for higher interest rates. The actions that we took fell into three categories: Unwinding or not replacing, receive -- [ Indiscernible ] Issuing longer-term fixed-rate debt, and shortening the duration of the investment portfolio. These actions cost us approximately $25 million of net interest income in the quarter. Another four basis points in the margin decline was due to seasonally low lower fee- loan fees and net-free funds. The remainder of the decline was primarily due to investment securities making up a higher proportion of earning assets and the ongoing maturity of fixed-rate loans that are being replaced with lower fixed rates without the ability to reprise the associated funding. Who we ended the quarter slightly asset sensitive.

Going forward, we will continue to position the balance sheet for higher rates, we intend to fund future loan growths at a cash flow from an investment securities portfolio resulting in a declining investment portfolio as the year progresses. We believe the net interest margin will begin to expand in the second half of 2004. During the quarter, we recorded a $90 million reduction in income tax expense related to the final resolution of federal tax examination covering substantially all the company's legal entities for the years '99, 1995-1999. This benefit was more than offset in the quarter by propaying a portion of companies long-term debt at a cost of approximately $35 million or $23 million after tax and by recognizing mortgage servicing right impairments of $109.3 million or $71.7 million after tax. The company took no securities gains in the quarter to offset mortgage servicing rights impairment. We ended the quarter with net unrealized gains in the investment portfolio of approximately $218 million.

Taking a quick look at the first quarter business unit results compared to the first quarter of last year, wholesale banking increased net operating earnings by 17% driven by improved credit quality and reduced not interest expense reflecting a 6.2% decline in average loan balances, total revenue decline, 4.6%. Not interest expense declined 5.5% primarily due to reduced expenses associated with problem credit. Total net chargeoffs declined approximately $81 million coming in at 32 basis points of average loans in the first quarter of 2004 compared to 103 basis points in the first quarter of 2003. Consumer banking results for the quarter were impacted by the decision to not sell investment securities to offset mortgage servicing right impairment of 109 million recognized in the quarter. The mortgage servicing rights impairment was, of course, incurred in the mortgage banking business service unit which is part of the consumer banking line of business. While the offset to mortgage services impairment, the reduced tax expense was mentioned earlier was booked at the corporate level.

Looking at consumer banking excluding mortgage banking business unit net operating earnings increased 18.6% from last year. Revenue increased 6% driven by a 13% increase in fee income. Noninterest income increased 3.6% as average retail loans, including first LIEN home equity grew in excess of 8% while the combined commercial categories were down just over 1%. Deposit growths remained strong as low cost of core deposits in the branches increased 7.7% from last year. Contributing to the increase in fee in - fee income were deposit service charges up in excess of 13%. Investment product fees up in excess of 15% , and lower losses on end-of-term leases which are booked as a contra revenue, noninterest expense declined 2.7% from last year despite having 75 more branches in the first quarter of 2004 compared to the first quarter of 2003. Total net chargeoffs declined from 80 basis points in the first quarter of 2003 to 70 basis points in the first quarter of 2004.

In the private client trust and asset management recorded a 26% increase in net operating earnings from last year, driven by a 12% increase in revenue and reflecting the leverage that this business line has to an improving economy, a 2.1% decline in noninterest expense. While total average loans increased just under 3%, low cost core deposits increased $3.5 billion or 47% if from the first quarter of last year due to growth in corporate trust, institutional trust and private clients. Fee income increased just under 10% in the quarter driven by growth in excess of 25% in fund services and a 17.7% increase in trust and investment management fees and private client. Assets under management were 124.7 billion at March 31, 2004. A 9.9% increase from March 31, 2003. Equity assets under management increased 32.4% over the same timeframe and finally, payment services increased net operating earnings by 20.8% from last year driven by double digit fee revenue growth and flat not interest expense and again reflecting leverage to an improving economy in a 14.6% decline in net chargeoffs.

Total revenues grew 5.2% as tighter spreads on credit card receivables reduced net income over [inaudible] from last year. A 10.5% increase in fee revenue was driven by a 12.1% increase in retail and Debit card fees. A 10.9% increase in corporate payment fees and a 10.7% increase in merchant processing fees. As Jerry mentioned earlier, transaction volumes in all of our payment businesses continue to gain momentum as the economy gains strength. Total net chargeoffs declined from 450 basis points in the first quarter of 2003 to 365 bases points in the first quarter of 2004 due to improvements in both retail and commercial products. Turning to the consolidated credit picture, we're very pleased with first quarter results. Nonperforming assets declined just over $100 million or approximately 9% during the quarter to just over a billion dollars on March 31, 2004. Or 87 basis points of loans and Oreo.

We expect nonperforming assets to continue to trend lower throughout the year. Net chargeoffs fell on a link order basis to $233.9 million or 79 basis points of average loans. The lowest level since the fourth quarter of 2000. Total loan delinquency trends continue to show improvement as well. We expect net chargeoffs to trend modestly lower as the year progresses. Our average coverage ratios remain strong. The allowance for credit losses to nonperforming loans was 258% on March 31, the allowance for credit losses to period end loans at March 31 was 1.98%. Our capital ratios remain strong as well. We're comfortably above the minimum regulatory targets to achieve well capitalized status with a tier one capital ratio of 8.9% and a total capital ratio of 13.3%. Tangible common ratio ended the quarter at 6.4% comfortably above the 6.25% target. In summary, we made a lot of progress in the quarter.

Our high-value fee generating businesses are gaining momentum. In addition, the rapid improvement in commercial credit quality combined with an inflection point in commercial lending are encouraging signs for the remainder of the year. We'fe adding distribution in high-growth markets, investing in systems that will allow us to better penetrate our existing customer base. In addition, we never stop investing in customer service. We have a number of initiatives underway in systems and in people which will allow us to continue to make progress on this important front. As an organization, we're committed producing above average, organic revenue growth and that will translate into double-digit EPS growth. We believe that our balance business mix, our advantage scale, our risk - our reduced-risk profile, our low-cost leadership position and our emphasis on customer service will allow us to consistently achieve this goal in 2004 and beyond. This concludes our prepared comments, we will now take questions from institutional investors and analysts. Mac.

Leo, can you queue up questions for us, please.

If you would like to ask a question at this time, please press the star and 1 now on your touch-tone telephone. To withdraw yourself, you may press the pound key. Once again, to ask a question, press star 1 now on your phone. One moment while we queue .

We'll take our first question from the site of Nancy Bush of NAB Research, LLC.

Good afternoon, guys.

Good afternoon, Nancy.

Would you address the whole issue of the composition of the securities portfolio, what percentage are MBS, how are you protecting yourself against extending durations there and just the whole sort of whisper campaign that seems to be going on about you being, quote, in denial about your rate sensitivity? [ Laughter ]

thanks. Nancy, this is David. I'll tackle that. First of all, since the third quarter of last year we have been working on both sides of the balance sheet to improve our overall interest rate risk position. There have been a lot of steps we have taken. Some of them quietly, some of them probably more known than others. But let me sort of lead you through this. We have for sometime been reducing the duration of the bond portfolio. Right now, it's around 3.3%. 98%, 90% of our bond portfolio are mortgage-backed securities, but they are about half of them fixed rate with short durations and about another half plus, in floating rate. That's point number one.

Point number two is we have been continuely issuing in the wholesale market primarily the senior debt market and also the borrowing from the federal home loan bank increasing our fixed rate debt and the duration of that debt over the course of the last three quarters. In addition, we have been unwinding and not replacing interest rate swaps. All those efforts have put us in a position, Nancy, to put us in a slight aset-sensitive position by the end of this quarter, and that was our target, to migrate ourselves from slightly negative to slightly positive, which is where we are today. I do believe based on the loan growth that we've seen, especially pointing out the point-to-point loan growth, the bond portfolio will begin to decline in the second quarter as the proceeds from the bond portfolio, primarily maturities, are going to be used upon loan growth. I think this company is very well-positioned for higher rates. We have our bond portfolio in a position where we can, because we have unrealized gains, we can take advantage of continuing opportunities to reduce the duration. We're continuing to take off opportunities in the market, in the debt market where we can issue a very attractive rate, and so I do not expect this company to have any negative impact from rising rates.

Could you just tell us, David, if you have those numbers this half of the MBS portfolio that fixed rate with short duration, the duration of that is the.

Those would be one to three-year fixed rate.

Thanks very much.

Our next question comes from the site of Mr. Matthew Clark of Deutsche Banc.

Can you, I assume part of that increase in commercial product fees is related to your initiative to further cross-sell your middle market customer base and if so, can you comment on how that's progressed and maybe quantify the opportunity there?

Yeah, this is Jerry, Matt. Over the last 2 1/2, the last three years with weak loan demand, we have, we have really focused on cross-selling our very robust products our treasury management products, corporate card, our fleet card, merchant processing to our customers and if you look at an example of, of that, if you look last year, our corporate bank had very robust fee income growth. Not great, not great, not interest rep... net interest income and that was driven by cross sell only. We have really focused it so to say it's 20% of it , or 30% of it I'm not quite sure, but I -- I bet -- I bet it's 35% cross sell would be my guess, and I bet I'm not wrong. I mean we're making great progress on it. We've got a products set that is demonstrating right now with the first quarter where historically it's a seasonly low quarter. It's the first time since we've been together when we've had growth from the fourth quarter. It really portends really good things, so I would attibute you know, somewhere between 30 and 45% to just that cross-sell.

Then what was the strength related to, if you typically see a weak quarter than the first quarter?

Well, I mean related to cross sell, I mean basically we'd be down a bit in total fee income. Instead of up on the payment side. So part of it is the economy, part of it is we're cross-sellers. We are. We're doing a very good job at it. I don't know, did I answer your question, Matt?

Yeah, thank you.

Our next question comes from the site of Carol Berger of Crest Investments.

Hi, guys.

Hi, Carol.

Two things. Talk a little about your atm charges and then can nit pick a little bit on the purchase re-purchase, was it weighed towards the end of the quarter so that the average shares didn't go down that much or fully-diluted shares increasing at an increasing rate?

Carol we bought fairly consistently in -- through the first through the first two quarters and then we increased the buyback, I think, fairly significantly in the back half of February and March and, again, as we pointed out, we bought back about 34 million shares during the quarter. The diluted impact, I think you will see over time come by - come down because what is going to happen is, if you look at the share count at the end of the period, that's going obviously fall over to the second quarter, so that's going to help us quite a bit because, again, as the thing you pointed out about, buying it more heavily weighed towards the back half.

Also, Dave, let me add one point. Carol, also, Piper Jaffray had a lot of stock option exercises in the quarter because of just the way the deal was cut. They had, I think, 30 days, David?

Yeah.

30 days from the time we spun it off to get rid of these if they were in the money and that caused a substantial amount of exercise. And in fact, our overall dilution went down almost 3%. It was really significant in the quarter.

Yeah Carol, if you look at one of the tables, that we have in the press release, you'll see a fair amount of option exercise, both in the fourth quarter and the first quarter, and you look at past trends, it's not that high. I think the dilutive impact of that is going to come out and the actual share repurchase is going to come through a little stronger than it did because of the exact issue Jerry talked about. And that is the time limit in which the Piper Jaffray employee had to exercise options.

So what proportions of your options are now in the money?

um I'm not going to be far off. Matt, do you have an actual number? But I bet I'm not far off by saying, I bet 90% are in the money. No, we have the old U.S. bank. The old U.S. US Bancorp options. That's a lot. Probably Carol, I don't know that. Matt.

I don't have the number with me. Carol, I can get that to you.

Okay. And the ATM stuff?

We opened 250,000 accounts, 260,000 net new accounts last year, and that was a record for us, 250, 260,000. And again, this was a record first quarter for us as I talked about the 5.5% that we opened. So, I mean I attribute a lot to that and people are using the ATMs. You know we didn't raise prices there it's just people are using them. We're getting more customers.

And the year-over-year decline? In ATM processings services?

Oh, that's a different business.

That's what I meant.

Oh, I'm sorry. I apologize. I thought you were talking about just our ATM charges.

Sorry.

That is in our nova world, not nova -- .

transaction.

transaction services business. It's a, you know, a business we have to try to get more business and it's under pressure and not doing as well as it has in the past. yeah, Carol, I think what has happened is in that business, we have increased the actual numbers of ATMs throughout the market, but we're clearly seeing less and less transaction volume running through some of the ATMs. Now, we think part of that will return this summer and we think partly is because the mix of where the machines are and the proven economy will help us because we're doing a lot of processing that are not just obviously US - US Bank machines but we're doing it for others, and I think that's going to improve, but it's largely reflecting just the activity across our system and, quite frankly, across other systems we process for.

Yeah we've just got to - we have to sell more there.

Carol, about 2/3 of our outstanding stock options are in the money at this point, so it's probably close to 70%.

And do you continue to punish -- issue options at basically the same pace you have been?

No, we -- well, we issued options last December and we issue -- we issue them once a year.

Right.

Yeah.

And going forward is the plan to continue with options or move [ Indiscernible ]

Well we issued a lot less this year because we gave - we issued restricted stock as well, Mac about less than half. Overall. So we are -- you know it's going to be a blend and - a blend of both restricted stock and stock options. But less were issued We can get all of those numbers. I don't recall what they were. We can get this them to you.

Thanks, guys.

Sure.

Our next question comes from the site of Roger Lister of Morgan Stanley.

Yes, you mentioned you expect net interest margin to improve in the second half of the year. Can you elaborate on how you see this playing out?

Yes, I think our -- our view is that we will see some very modest decline in the second quarter. That's going to be driven a lot by loan growth but we're optimistic that we're going to see, obviously improvement in net interest income but a slight decline in margin, and then we expect the margin in the third quarter to resume and improvement largely driven by asset mix, improving loan portfolio growth, less securities and improving margins both through the third and fourth quarter.

In terms of the loan growth, what signs are you seeing of any, the stronger demands on the commercial lending side?

I would say the best way to characterize it is across-the-board, if you look at our large, our 11 regional commercial banking areas, we've seen improvement in over half of those and with pipeline reports that we're beginning to see, we're beginning to see all of them report growth, um in those markets. We're seeing increased utilization of commercial credit lines which here to fore over the last three or four quarter had declined. So we've seen the influction point on the existing utilization. In the corporate side, we've seen improvements in the different businesses like commercial real estate. We're beginning to see improvements in some asset-based lending areas, we've seen improvements in some of the leasing areas, in transportation sectors. So I'd say across the board we're seeing pipelines that are building, we're seeing utilization improvements, so that all leads us to believe both across the corporate and commercial banking world we'll see nice, long growth, which we've already experienced already in the first quarter on a point-to-point basis and we think that will translate to average growth in the second quarter.

And, Roger, talking to customers. This is Jerry. There's no question they're feeling better about the world and that portends good things. Again, we're not terribly ecstatic about where we sit, but I think it's, you know, we're getting improvements in loan outstanding. And that's important what. Like David said I think what's real important is that from cyclic... from lows of usage of around 31% of total commitments, we've, we've bumped up a couple of percent in the March timeframe and I think April will continue to show it further utilization on commitment. That's a big number for us. And so we're not, you know, we feel pretty good about the fact that we think we can grow commercial loans.

On this sort of improving credit story, where do you see the sort of upside? I know 80 base points is kind of the normal run rate. But clearly as the economy recovers, you know you've an opportunity to do better. So where would you see signs of improvement on that side in?

Yeah, we sort of targeted that 80 basis points over the last three years, Roger, and I would say, look, I mean that's sort of the - about where it's going to hang around. It could get better, it could get, you know, I guess it could get to 65 basis points, it could get and go up to, you know, maybe 95. That's where, that's a game we want to play in you know what I'm saying, and I think we -- we're getting there. And again, depending upon the economy and the economy's pretty descent right you now. Can you see those kinds of improvement. We don't think it's going to - that's not going to occur next quarter. But again, we think we'd see modest improvement from where -- from the significant improvement we had this quarter.

Any concerns about rising rates having an impact on the consumer side on home equity lending or anything like that?

No, just on the mortgage business. As you know that is a good business for us but doesn't make our day here. And ah, so it's not, it's not a significant part of our overall company. But that would be the piece on the consumer side that would be affected. I mean rates are still so low and all the other consumer products, there's a lot of room there before you're going to shut them off.

Okay. Thank you.

Thank you.

Our next question comes from the site of Steve Gresdo of Satellite Asset Management.

Hi, Jerry, hi, Matt. Steve Gresdo here. Quick question regarding your thoughts on the reserve. You had pretty good credit quality improvement both in net chargeoffs and nonperformancers and sounds like you expect that to continue. But you chose to actually add to the reserve this quarter and some pure banks are actually starting to release their reserves in the face of this improving credit-quality environment. I'm just curious what your thoughts are on that in terms of where you target the reserve in terms of say loan coverage or nonperforming coverage. Thanks a lot.

We don't target the reserve. What we have is a very sophisticated process as our competitors and peers obviously have, that looks at all the factors, all the factors including, you know, loan composition and where we think the economy's going and other factors. The kind of different segments we're in, so, again, we are adequately reserved and, you know, we look at it every quarter and make a decision every quarter. But we certainly, you know have process in place and we'll continue to fine-tune yet as we go forward.

Great. Thanks.

okay. Carol. Carol Berger, I just, just to let you know, we issued in 2003 the end of 2003 about 23 million options. Last year we issued eight million. Okay.

Once again, if you would like to ask a question, please press the star and 1 now on your touch-tone telephone. We'll take our next question from Dennis Laplant of KBW.

Thank you. Could you elap race a bit on what you're seeing on the loan spreads and the commercial loan in the commercial loan book.

yeah, let me think through that. I think it's very competitive out there. Okay. And so I mean, compared to what period of time, compared to a year ago, I think, it's -- they're certainly contracted overall. And it is very competitive in particular in our community banking and middle market as, because, you know, our -- the banks that compete against us and I have a lot of respect for them, Maybe don't have the fee-based businesses we have, and so their principal source of revenue is spread and they're going to go out and be aggressive in trying to put on loans. That's damn near any, any spread or that's maybe lower spread than we'd like, but we're going to compete against those, Dennis. But there's no question that there is -- they are, they're not as strong as they were a year -- six months ago, a year ago.

Would you be able to quantify sort of where, are we down 25 basis points. Do you have a sense of?

Yeah, I think that's a pretty good number.

how about covenants and structure?

Of course everyone else loosening theirs -- [ Laughter ] -- but yeah, we -- we are seeing that. There's no question about that. Because it's getting, you know, it always happens this way. We've been in the business long enough out there that towards the beginning, end of one and beginning of another one you're trying to put on loan volume and so you're competing against your, you know, strongly competing for a -- for a scarce asset and so you start to see that occur and, again, you know, I'm sure we're guilty of it, not being tongue-and-cheek here, but we're really trying not to do it on that piece. We'll be competitive, back to your first question, Dennis, pricewise rather than structure. I think we -- no, I don't think. We are -- this is - this company is, it's credit-discipline and credit-equality in the way it does business is universal now, and I am very pleased with where we sit and the credit culture that we have developed over the last years, so, you know, we're being real aggressive, stay in on the game on the credit side, on the pricing side and really being pretty tough on the, I really think we are, on the structure side. But both of those, to answer your question, both of those certainly occur.

Thank you.

We have a follow-up question from Nancy Bush of NAB research LLC.

Yeah, guys, you may have said this already but if so, I apologize. It's been a long earnings day. Average commercial loans declined during the quarter but were up at quarter end. Was it just that growth started on occur in the latter part of the quarter, were there big paydowns what went on in that decline in the average?

No, you hit the nail early on. Exactly what happened is towards the last week of February, very first week of March, we begin to see two things. One is utilizations going up, lines - people drawing on lines and then we also saw a fair amount of just new deals coming in from existing borrowers for a number of purposes. Inventories, plant, expansion and so it no doubt occurred very late in the quarter and we're seeing the extension of that going into April and we expect that to continue throughout the rest of the quarter. So no, you're right. It's very much at the end.

Thanks very much.

Our next question comes from the site of Andrew Guilis of ING.

Actually Nancy just asked my question. Thanks.

Thank you, Andrew.

Once again, if you would like to ask a question, please press the star and 1 on your touch-tone telephone. We'll take the next question from John Balk and of Fox-Pitt Kelton.

Good afternoon, everyone.

Hi, John.

Hi, John.

Quick question on sort of the core banking operation. You mentioned that when you strip out the government business, et cetera, the branch-based business was generating 8% deposit growth. Is that a good number, you think, for the year, and how many -- where's the growth coming from within your footprint?

Well, I think it's broad-based. There's no question about the growth of where it's coming from and is that the number, that's a pretty good number, I think. I mean it may, I think, it may be a little on the high side, but I think that's a good number. That's what we do for a living and I think we do a good job on it. I don't -- David do you have any comments?

Yeah John, I think if you looked at the year-over-year numbers, the quarter-to-quarter over the last four or five quarters, it's a firly consistent 7- to 8% growth through the community and metropolitan marks.

Some quarter you were at 9.5, some down at four, but overall, it's a pretty good average.

And are you seeing any regions where on the margin you're seeing more improvement than others, either because you're doing something in the business or just the tailwind from what is going on with the economy?

Well, we -- we priced at every, you know, in over a hundred markets every Friday morning, so it's pretty broad-based. I mean it really is pretty broad-based. In a company our size, you know, it's -- the anomaly sort of gets -- gets pushed into the masses, if you know what I mean. It's sort of broad-based. Here's one particular area.

Sounds good. Thanks.

Thank you.

Once again, please press star 1 if you have a question. It appears you have no further questions at this time. I'll turn the program back over to our hosts.

This concludes the conference call for today. We appreciate you turning in and giving me a call if you have questions. Thanks.

thank you.

thank you.

This concludes our conference call for this afternoon, you may now disconnect your lines and thank you for participating.