FNB Corp (FNB) 2012 Q4 法說會逐字稿

Good day and welcome to the F.N.B. Corporation fourth-quarter 2012 earnings conference call. At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. (Operator Instructions) As a reminder, today's call is being recorded.

And now I would like to turn the conference over to Cynthia Christopher, Manager of Investor Relations for F.N.B. Corporation. Please go ahead.

Thank you and good morning, everyone. Welcome to our fourth-quarter and full-year 2012 earnings call. This conference call of F.N.B. Corporation and the reports it files with the Securities and Exchange Commission often contain forward-looking statements. All forward-looking statements involve risks, uncertainties, and contingencies that could cause F.N.B. Corporation's actual results to differ materially from historical or projected performance. Please refer to the forward-looking statement disclosure contained in our fourth-quarter and full-year 2012 earnings release, related presentation materials, and in our reports and registration statements F.N.B. Corporation files with the Securities and Exchange Commission and available on our corporate website.

F.N.B. Corporation undertakes no obligation to revise these forward-looking statements to reflect events or circumstances after the date of this call. A replay of this call will be available until midnight on January 31 by dialing 877-870-5176 or 858-345-5157. The confirmation number is 481-6875. A transcript of this call and the webcast link will be posted to the Shareholder & Investor Relations section of our corporate website.

I would now like to turn the call over to Vince Delie, President and Chief Executive Officer.

Thank you, Cindy. Good morning and welcome to our quarterly earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer, and Gary Guerrieri, our Chief Credit Officer.

I will be highlighting our fourth-quarter and full-year 2012 results and accomplishments. Gary will review asset quality, and Vince will provide additional detail on our financial results along with expectations for 2013.

The fourth quarter was a great quarter and a strong finish to a successful year, with operating results reflecting consistent, solid performance. Loan and deposit growth was strong, and profitability continued to build. We are very pleased with the quarter and full-year results, and we are excited to review our accomplishments with you.

First, looking at the fourth quarter, operating net income was $32 million or $0.23 per diluted share. This represents a 21% increase in earnings per share over the prior year. Return on average tangible assets increased to 118 basis points.

Organic loan growth was strong with an annualized growth rate of 6%. Our core commercial portfolio grew 8.4% annualized and continues to be the primary growth engine.

Average consumer loans grew nearly 12% annualized. Both the commercial and consumer teams had a great quarter and accomplished record fourth-quarter production levels.

Slide 4 shows our 2012 quarterly loan growth trends. Our team has accomplished this consistent growth despite a challenging economic environment and historically low line utilization. Additional headwinds included significant reductions in the Florida portfolio and acceleration of prepayment speeds in the residential portfolio.

Our success consistently growing loans is a result of a focus on people and execution. We have built a great team and continue to invest in our people while leveraging our best-in-class proprietary sales management system. F.N.B.'s proven new client acquisition strategy, with its sharp focus on performance, has been deployed across all of our business units.

Now let's review our full-year results. It was a great year for F.N.B. We earned record net operating income, up 31% from a year ago.

Operating net income was $0.84 per diluted share, representing growth of 17% compared to 2011. The quality of our earnings is demonstrated by pre-provision earnings per share growth of 10%.

Profitability was solid, showing positive trends over the last two years. 2012 results included the following financial highlights.

Return on tangible equity improved to 18.77%, representing growth of 245 basis points; and return on tangible assets grew 10 basis points to 1.12%. The net interest margin was 3.73%, showing relative stability in the current interest rate environment.

Loan and deposit growth were again strong, with record production levels for consumer, commercial, and small business. Asset quality metrics were very good and trended positively throughout the year, and our efficiency ratio improved to 58% even with significant investments made during the year that prepare us for the future.

There are many contributing factors to these positive results. In fact, many of our lines of business had great success, contributing to top-line revenue growth. For example, Wealth Management accomplished all-time high organic sales, doubling new sales volume from the prior year. The small-business unit that handles clients with revenue up to $2 million increased production over 200% since its reorganization in 2010.

The private banking team formed in 2009 increased its households nearly 30% last year. Our asset-based lending group is another business unit that has contributed to consistent growth since its inception in 2009. This portfolio has grown to over $300 million in commitments at year-end.

The commercial team exceeded their annual cross-sell revenue goals by over 30%. And the treasury management team, while collaborating with our bankers, was successful in bringing in new accounts, with year-over-year average organic growth in DDAs and repos totaling 24%. These balances support the net interest margin and cross-sell revenue generation.

You can see that there is a broad-based success across F.N.B. Through our investments in these business units and our employees, we have deployed a well -- we have developed a well-diversified revenue stream and a cross-sell oriented culture.

F.N.B. continues to evolve and reposition in order to provide a solid foundation to support sustainable positive results. Slide 8 provides a summary of some of the significant accomplishments during 2012.

We continued to be active, disciplined acquirers with the completion and integration of Parkvale and the announcement of Annapolis Bancorp. The Parkvale acquisition, one of our larger acquisitions to date, continues to perform well. Despite consolidating 17 of the acquired branches, we have experienced significant loan and deposit growth in the market.

As expected, our strengthened market presence in Pittsburgh has clearly proven beneficial for F.N.B. The pending acquisition of Annapolis Bancorp will take us into the neighboring state of Maryland and a market with very attractive demographics and growth potential.

We recently made several key hires in the region, including the hiring of Mac Tisdale as Regional President. Mac has extensive corporate banking experience in the Baltimore and DC markets, previously working for one of the nation's largest banks. He will work with Rick Lerner to promote the F.N.B. culture.

We focused on our delivery channels, both physical and electronic, to address the evolving landscape of customer preferences. Since resources have been invested in our leading-edge eDelivery strategy, we now have 35,000 customers signed up for mobile banking since its introduction this past June. We expect to continue seeing improved penetration in our existing customer base.

Last month, we began offering mobile remote deposit capture, a service that has been very well received by our customers. The next phase of our eDelivery strategy is slated for implementation throughout 2013.

In addition to promoting account acquisition, this investment is critical in managing retention as we rationalize our retail delivery channel. With this in mind, we accelerated our branch optimization strategy in 2012.

In addition to consolidating 17 Parkvale locations, 20 locations were consolidated, and we expanded through six de novos into higher potential markets. The consolidation of 20 branches alone is expected to produce annual pretax cost savings of $4 million.

Our sales management system, an integral part of our success, continues to be refined and expanded, covering all lines of business. Our Web-based sales management tools are aligned with our financial objectives, incentive compensation plans, and risk management systems.

As you can see, we accomplished a number of significant strategic initiatives over the past year as we continuously position F.N.B. for future success. Now I would like to turn the call over to Gary for his remarks on our solid asset quality.

Thank you, Vince, and good morning, everyone. We closed out 2012 with another solid quarter of positive performance. Our fourth-quarter credit results further contributed to the favorable trends that we have experienced throughout the year, reflecting the consistency of our core portfolio along with the benefit of significant reductions in the Florida portfolio.

I will now walk you through some quarterly credit quality highlights for our originated book, followed by an update on our acquired portfolio and a brief look at our full-year results. If you'll direct your attention to slide 9, nonperforming loans and OREO to total originated loans and OREO improved 9 basis points on a linked-quarter basis to end the quarter at 1.6% and were driven by lower non-accruals.

This also drove an improvement in originated delinquency during the quarter, which was down 2 basis points to stand at 1.64%. While we experienced an overall reduction in delinquency, early-stage levels did tick up by $6 million during the quarter, with a majority of the increase due to a seasonal migration in the mortgage portfolio, most of which cured very shortly after the close of the quarter.

Net charge-offs remained relatively consistent with the prior quarter at 38 basis points annualized on a GAAP basis, and were up slightly at 45 basis points annualized for the originated book, with both measures remaining at very good levels. Provision for loan losses of $8.1 million was up slightly as we continue to provide for increased loan volumes. Our ending reserve position at 1.39% is directionally consistent with the performance of this portfolio.

Shifting now to our acquired portfolio, we ended the year at $900 million in loans. The level of contractually past-due accounts, at $59 million, increased slightly from the previous quarter and is largely attributed to the seasonality in the mortgage portfolio that I mentioned earlier.

Looking now at slide 10, I will touch on some year-to-date highlights for 2012. During the year, we reduced our nonperforming loans and OREO by $25 million or 18%, representing a 55 basis point improvement compared to year-end 2011. Originated delinquency also improved significantly year-over-year, down 44 basis points, to end 2012 at a very solid 1.64%.

Our net charge-off performance on the originated portfolio was very good at 41 basis points for the year, representing a 21 basis point improvement over 2011 results. As we close out another successful year, we are very pleased with the position of our portfolio as we move into 2013. The stability and consistency of our performance is reflective of the strength, experience, and knowledge of our banking team.

Looking ahead, we will continue to rely on the core foundation of our business philosophies that drive our credit culture, the strength and consistency of our underwriting, and our passion for managing risk, which have been the driving forces behind our positive results. I would now like to turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.

Thanks, Gary, and good morning, everyone. As Vince discussed, we are very pleased with the fourth quarter's strong finish to a successful year. I will focus my remarks this morning on additional highlights of our operating results and expectations for the year.

Let's begin with balance sheet highlights on slide 11. Loan growth shows continued momentum, with average loans growing $120 million or 6% annualized. The fourth quarter marks the 14th consecutive quarter of total organic loan growth, with positive results seen in both the commercial and consumer portfolios.

Through continued market-share gains across all regions, growth for the core commercial portfolio was strong at $89 million or 8.4% annualized. This portfolio has grown for 15 consecutive quarters at an average growth rate of 6.7%, something we're very proud of, especially since we continue to see clients deferring capital expenditures and the commercial line utilization rate remains at historical lows.

The consumer portfolio also achieved strong results, with average loan growth of $73 million or 11.7% annualized, driven by home-equity related products. Lastly, regarding loan activity, we continue to see accelerated pre-payment in the residential mortgage portfolio.

On the funding side, growth for total deposits and customer repos was $141 million or 5.7% annualized. We continue to see strong growth in relationship-based transaction deposits and customer repos, with these average balances increasing $215 million or 11.9% annualized. Meanwhile, time deposits declined 11.2% annualized, as we remained focused on attracting lower-cost, fee-generating, transaction-based accounts, further strengthening our deposit mix.

The fourth-quarter net interest margin of 3.66% included a 10 basis point benefit of $2.6 million in accretable yield due to better than expected cash flows on acquired portfolios. Full-year net interest margin results were in line with our expectations following the Parkvale acquisition at the beginning of the year.

Fourth-quarter non-interest income results include the impact of a $1.7 million accrual to recognize the expected loss on asset disposals related to the 20 branch consolidations completed during the quarter; and the third quarter included a $1.4 million gain on sale of a former headquarters building. Absent these items, overall fee income results were favorable, with positive trends in Wealth Management revenue and gain on sale of loans. The lower insurance commissions and fees reflect normal seasonal trends.

Turning to non-interest expense on slide 14, fourth-quarter non-interest expense included the previously disclosed $3 million charge to create a settlement fund for a class action lawsuit. Adjusting for this, non-interest expense decreased 4.5% through continued expense control as well as the benefit of lower OREO cost due to a $1.5 million recovery on the disposal of a Florida-related property and lower compensation and benefits costs, which reflect favorable medical insurance claims, that were partially offset by higher accruals for commissions and incentive compensation consistent with our strong financial results. The full-year efficiency ratio improved 198 basis points to 58%.

Looking at our capital position on slide 15, regulatory capital levels at year-end are equal to or slightly higher than last quarter-end. The tangible common equity ratio increased to 6.1% as we continue to exceed all regulatory well-capitalized thresholds.

Now looking ahead to 2013, we expect to continue to build on the momentum we have established and leverage the strategic accomplishments Vince discussed earlier to generate continued solid loan growth. Year-over-year organic growth in total average loans is expected to be in the mid single digits, with the addition of Annapolis bringing the total increase into the high single digits.

On the funding side, we expect total average growth in deposits and repos to be in the low single digits on an organic basis and mid single digits including Annapolis. We will continue to focus on attracting lower-cost relationship-based accounts, and manage the decline in time deposits as we look to support the net interest margin and generate fee income.

The full-year net interest margin is expected to be in the low to mid 3.60%s range. Support for the margin will come from the strong expected loan growth and continued improvements in deposit mix.

Loan pricing will remain disciplined, and downward rationalization of deposit pricing will partially mitigate the margin pressure created by the extended low rate environment and the impact of lower expected accretable yield. Organic core non-interest income growth is expected to be in the low single digits, and including Annapolis in the mid single digits.

Recall that the Durbin Amendment will affect us beginning July 1. We have taken a number of actions to offset this loss of revenue, including changes in both product structure and pricing.

A number of actions have also been taken on the expense side to address these regulatory impacts and maintain positive operating leverage. For example, the acceleration of our branch optimization strategy in 2012 is expected to result in pretax cost savings of $4 million on an annual basis. Additionally, solid performance is expected from our diverse revenue sources through a continued focus on collaborative cross-sell efforts.

Recognizing that the current operating environment has presented industrywide challenges for all banks, we expect to take additional actions to closely manage our expense base. Overall non-interest expense results are expected to reflect cost-saving actions and diligent expense control as well as continued investment in growth initiatives such as our eDelivery strategy. As a result, core expenses are expected to be flat prior to the addition of Annapolis, and increase in the low single digits inclusive of Annapolis.

As Gary discussed, we are very pleased with our credit quality results throughout 2012 and the position of our portfolios as we head into 2013. We expect this year to reflect continued stability and consistency.

The strong planned loan growth is expected to result in a slight dollar increase in the provision for loan losses compared to the full year of 2012. For taxes, we expect an effective tax rate between 28% and 29% on a GAAP basis during 2013.

In summary, we had a great 2012 and we are very pleased with our results across the Company. The favorable trends we have been reporting all year and continued in the fourth quarter provide us with solid momentum and a strong financial position as we enter 2013.

Now I would like to turn the call back to Vince for his closing remarks.

Thank you, Vince. We closed out the year with a very strong finish. Significant strategic actions were taken, providing a solid foundation as we head into 2013.

As Vince discussed, the current year is expected to present a continuation of the industrywide challenges we have faced over the past several years. Moderate forecasted economic growth and extended low rate environment and regulatory-related pressure on fee income are headwinds that are expected to persist.

Our strategy in light of these challenges remains consistent -- reposition and reinvest in the Company for sustainable growth and profitability while maintaining a low risk profile. In 2013, we will continue to reposition through the evolution of our delivery channels and, with the right opportunity, pursue potential M&A expansion into attractive markets. We will continue to reinvest in our people, processes, and infrastructure while remaining keenly focused on expense control and efficiency improvement.

There will also be a continuous focus on leveraging the strong cross-sell culture we have built. We are very well positioned to capitalize in this area due to the significant investments we have made in personnel and sales management.

I would like to congratulate the F.N.B. team on our outstanding accomplishments over the past year. I am confident that our strategies will serve us well and that our team will continue to deliver great results. That concludes our comments, and I would like to turn the call over to the operator for questions.

(Operator Instructions) Bob Ramsey, FBR.

Hey, good morning, guys. This is actually Tom Frick for Bob. I just had a quick question.

I appreciate the commentary on your branch cost savings of $4 million pretax, and you talked about how core expenses are going to be flat in 2013. I was just wondering; what other kind of expense actions are you considering in order to hold this level?

Sure. Well, as you know, we have a focus on disciplined expense control as just part of the culture at the organization. So some of the things that -- the branch optimization strategy is obviously a big part of managing our expenses. That is an annual program that we look at to evaluate all of our branches; and last year we accelerated that to really have those savings locked in as we start the beginning of the year.

For 2013 we have a big focus on vendor management and really looking at going out, pushing vendors, given the economic environment that exists, renegotiating contracts, and really try to garner whatever we can in savings out of those focuses throughout the Company. Then there is a variety -- we have a program where employees regularly make suggestions on ways to save costs. We have a variety of other things, suggestions that have come in from the field, that we are going to be looking to deploy, ways to just increase efficiency.

So it is really -- it is broad-based and something we always focus on and going to focus on even a little bit more this year.

Okay, great. Thanks. Then if I could move to the net interest margin, you guys had a 10 basis point benefit from accretable yield this quarter. How do you think that trends in 2013, given your low to mid 3.60%s guidance for NIM?

Are you focusing on the accretable yield or --?

Yes, yes, just the accretable yield piece.

Well, the $2.5 million or so that we had this quarter is comparable to the second quarter. The third quarter was a little bit lower.

I think as we look ahead to 2013, what is baked into the guidance is a range of about $500,000 to $750,000 of scheduled accretable yield that we would expect to see each quarter, with some variability. And then, as happens with accretable yields, if we get some positive surprises we will have upside to that number.

But on a scheduled basis, the $2.5 million compares more to a $500,000 and $750,000 that were at least built into our budget for 2013, and then we will see how it plays out as we go through the year. And that is all baked into my low to mid 3.60%s.

Got you. Great. Then one final modeling question. What was the Florida CRE balance at 12/31? I didn't see it in the release.

At 12/31, the loan book was at $68 million, Tom, so it has been reduced significantly.

Okay, great. That's all I had. Thank you very much, guys.

Mac Hodgson, SunTrust Robinson Humphrey.

Good morning. Just a couple questions. Thanks for all the guidance, as usual.

Vince, on the net interest -- I mean non-interest expense guidance, I think you said flat on a core basis. Are you using the, I think, $319 million core reported number, or is it more a core number?

No, really, it's core if you look at core expenses for 2012 as a whole compared to what we have planned for 2013. So it is; it's on a core basis.

It is on a core basis? Okay. I can probably follow up with you on what you guys feel the core is, unless it's in the investor presentation. Then, on the Annapolis, remind us when that is expected to close.

It's scheduled to close -- I believe April. First week of April.

April 6.

April 6 is the exact date, Mac.

Great. On the margin guidance, Vince, I think you just had $500,000 to $750,000 as scheduled per quarter in '13 of accretion. Remind me again the offsets.

I think that would put you down in the low 3.60%s, maybe high 3.50%s. Remind the offsets to that again, to get you to the low to mid 3.60%s for the year versus the 3.66% this quarter.

Well, it is really just -- you mean, why is it coming down, Mac?

No. I'm saying if you take the accretable yield difference from this quarter relative to what you are expecting for next year, it seems like there would be more margin pressure than you are guiding. So remind me maybe the offset to that, that will keep the margin basically relatively stable.

Yes, well, I think there is a variety of things. I mean -- we continue to have significant amount of CDs that are still rolling off; we're still getting benefit from that. We still have $350 million to $400 million a quarter of CDs. We are picking up 45 to 55 basis points on that.

The strong loan growth that we have -- and as you know, the way we run our business, we are not just bringing in the loans; we are bringing in the demand deposits and the operating accounts. We have some significant growth planned for that. That obviously helps to support the margin.

Our investment portfolio, while the reinvestment rates are very low -- you know, we are reinvesting at about 1.30% -- the stuff that is rolling off is lower than what it had been. So last quarter we were losing 100 basis points; this quarter we're losing 75 as we look to the first quarter. So the impact on an incremental basis is less that's happening there.

It's just us managing the margin. It is a big focus at the Company and everybody in the field is motivated to bring in (multiple speakers).

Right. We have aligned our incentive compensation plans to help assist in the shift in deposit mix. So they're incented to bring in DDA balances and low-cost deposits. So that really has been a driving force behind us bringing down our costs of funds and managing through this difficult interest rate environment.

And I would expect that that would continue to be the case as we move forward. So we will get some help from the people in the field, who are keenly focused on margin improvement and bringing in low-cost deposits to help fund our operation.

But there is still -- even with all that, there is some level of compression that is in that number. But those things obviously help to mitigate the impact.

Okay, great. I appreciate the detail. Thanks.

Damon DelMonte, KBW.

Good morning, guys. How are you? Just to keep on the theme of the margin, could you talk maybe a little bit about the pricing dynamic you are seeing in the marketplace, and what the typical commercial real estate loan is pricing at, and a C&I loan as well?

Yes, sure. I mean it's definitely come down somewhat from last year when you look at the spreads. I think you can see -- if you looked at the Thomson Reuters information on loan spreads, particularly in the syndicated market, you can see those spreads coming in, in relation to the spread over our cost of funds. You see that come in a little bit.

I would say overall it has come in probably 25 to 50 basis points over the last year. So it is more competitive. I think that pricing definitely has been coming down over the course of the year.

But surprisingly when we look at some of our business units -- take leasing for example, the margin actually ticked up a little bit in the fourth quarter. So what I think is happening now, I'm hoping, is that there is a little bit of pricing rationalization setting in.

So it seems to have stabilized. And as you bounce along the bottom from a cost of funds standpoint, people who run models that look at returns on equity, when they do these deals start to rationalize the pricing. So I think that is probably happening.

And we have seen it. At least in the last quarter, pricing has stabilized somewhat.

So that is how I would characterize it. Obviously, I am not as in touch with it as I used to be; but looking at the reports that I see, I think that is a pretty good characterization of what has gone on.

That's helpful. Thanks. Then, Vince, with respect to the guidance of the margin for the year, does that take into account any potential impact from the Annapolis deal?

Yes. Yes, that is baked into it.

Okay. Would you expect there to be a positive impact on the margin given potential mark-to-market marks that you take?

It's pretty neutral, Damon. I think given its relative size to the total balance sheet and the position that their margin is, it is really relatively neutral.

Okay. Then I guess just lastly, bigger picture, you have the Annapolis deal closing; I think you guys said April 6. How does that change your view or how does it impact your view on M&A going forward?

I mean, is it likely that if something came up you would be in a position to go after it in 2013? Or do you think you need a little bit of time to digest this one and get comfortable with the new market that you are moving into?

Well, it's a good question. If you look at our history, we have been able to integrate at least two deals in one year. This is a relatively small acquisition, so I would not expect it to inhibit us from pursuing other opportunities.

I think that, as we have stated in the past, we do these deals and expand into these markets to continue to grow. So we will continue to look for opportunities to grow through acquisition when the right situation arises.

So the pricing has to be right. We look for EPS accretion in the first full year; and decent IRRs, IRRs well above our cost of capital; and recouping diminution of capital in a relatively short period of time. So if there are targets out there that meet those thresholds, we're interested.

I think given that Parkvale is behind us -- when you look at Parkvale, we closed Parkvale, I mean really we consolidated those branches in February. So we consolidated those branches and also were pursuing closing the Annapolis deal. There has been quite a bit of integration, but we really haven't missed a beat from our original plans on that Parkvale acquisition.

So it has performed very, very well for us and we have delivered the accretion that we expected.

The early stages of the integration, Damon, are also moving along very positively. We are really pleased with that at this point.

Okay, great. That's all very helpful. Thanks a lot, guys.

David Darst, Guggenheim Partners.

Hey, good morning. Could you maybe comment on your mortgage banking strategy? And I guess more specifically how you are handling the runoff from Parkvale, and if you have been able to capture more of that than an originate for sale model.

Yes, we -- it's never been a primary focus for us historically, although we are in the process of retooling our mortgage banking operation and have been. So we have been building out the team over the last year or so, and that is certainly an area of opportunity for us as we move forward.

In relation to the portfolio that is repricing, I mean obviously given the interest rate environment, we are seeing quite a bit of acceleration in those prepayment speeds in that portfolio. The other business units have been able to -- the growth in the other business units have actually outpaced that runoff.

So there is a great opportunity for us, once we get our mortgage banking operation up and running, for us to generate some fairly significant gain on sale opportunities. That would be even if it wasn't a great refinance market, because of how we are positioned in the markets that we are in. So even on a purchase loan basis we have great upside.

So I think it is an area that we are continuing to focus on and should provide some good benefits for us into the future.

What is the timeline that we should -- we would begin to see the outcomes from the retooling?

Well, it is going to take some time to build out the team. So I would expect improvement this year; hopefully, it will be reflected in the numbers.

I can't give you a specific time, but it is an ongoing process and something that we have continued to focus on over the last 24 months or so and we have continued to make great improvements there. So hopefully it will provide benefit in the intermediate term.

Okay. Vince, from a big-picture perspective, the value proposition at F.N.B. for shareholders has been that kind of low single-digit EPS growth, high payout ratio, and something I guess in the 4% to 6% dividend yield.

Should we begin to think of the Company differently given that your lending trends have accelerated, you are looking at something higher from a loan growth perspective, and the payout ratio is coming down now? Do you need to accrete capital or retain more earnings to support this growth?

I wouldn't say that we have changed our investment thesis. I think that it is still the same thesis.

I think that what you have seen is really some extraordinary performance and market-share gains through a very difficult time period. So we have grown because of the investment we have made in our sales management systems, how we have aligned our incentive compensation plans. The people that we have hired have been paramount to our success.

So I would expect us to continue to move in the same direction we have moved in, and I don't see our investment thesis changing. I will tell you that we are efficient users of capital and we would deploy capital in the best possible way for our shareholders.

So if repatriation of capital is a method to achieve those total returns, that is the path we'll take. If we are seeing extraordinary growth, we will be reinvesting in the Company for growth.

So it is kind of difficult to say given all the turmoil. Our performance has been so stable throughout this time period, people often forget the headwinds that we faced and continue to face as an industry.

So I think we are just moving forward very cautiously, and we continue to focus on providing excellent shareholder value. That is the answer. And I don't see us deviating wildly from our investment thesis.

Do you think anything has changed in the local either economy or competitive landscape going into '13 relative to the results you've achieved in 2012?

I do. I think we are better positioned than ever.

I think now you have a Company that was nowhere in terms of market share in one of the largest MSAs in the country, and we are now number three by a number of measures and very well positioned. And as we expand into new markets like Maryland, that discipline and that sales management system that we rolled out will pay dividends there as well.

So I think we are very well positioned as we move into next year.

David, I would just add to your question on the capital retention, the dividend payout ratio of 58%; full year was 61%. At that level of payout, the capital that we retain is plenty to support the loan growth, the strong loan growth that we have been experiencing. So I think that is just to add to what Vince was saying.

Okay, great. All right, thank you.

John Moran, Macquarie Capital.

Hey, guys. How's it going? Just a real quick kind of ticky-tack question on OpEx. I wanted to make sure that the guidance is inclusive of the $4 million in annual cost saves on the branch rationalization.

Yes, it is.

Okay. Then just on two other kind of bigger-picture questions. It looks like point-to-point loan growth was a little bit stronger than average loan growth. Anything happen with uncertainty around the tax situation that might have pulled forward some growth from first quarter or second quarter? Or are things just accelerating as we head into '13?

Well, I think you -- I think in the last few years we've had a little bit of that. I wouldn't say that it has been a huge driver of what closed in the fourth quarter, but there has been a little bit of that in the last couple of years because of the issues with taxation. Uncertainty around tax rates.

So I would say that that is part of it. But I truly believe that the momentum that we have experienced particularly in the fourth quarter is a direct result of measuring production as we move through the year, and the team out there focused on making sure that they hit their numbers, hit their bogey to get their incentive compensation. I think that is a big part of it.

So over the last few years, we have seen that actually improve. Actually, every team that we have has contributed to the growth. So it is pretty remarkable.

Got you. That's helpful. Then on the deposit side, just curious. Some others have mentioned that they have seen some impact from TAG expiration. Wondering if you guys have seen any of that.

We have not seen any impact that I know of. I haven't seen or heard that it has been an issue.

Not really. It has been nominal. I think there is maybe one account (multiple speakers); that's about it.

Yes.

Okay, great. Thanks very much.

Matthew Breese, Sterne, Agee.

Good morning, guys. Going back to the accretable yield, the guidance for $500,000 to $750,000. Compared to this quarter, $2.6 million, going into this quarter was the $500,000 something you had modeled out? Or were we looking originally at something much higher for this quarter?

No, I would say that the fourth quarter -- well, the $500,000 to $750,000 is our projection out for 2013. But in the fourth quarter, we had some positive occurrences that happened.

We had some loans that were specifically marked that we got paid off on. We had some of the pools that had positive outcomes where you bring the rest of the mark back because you don't need it. So there were some triggering events that occurred in the quarter that elevated that number.

We had our second re-estimation process that we went through. The second is more comprehensive than the first, as you get more complete at doing those. So that generated some additional value in there.

So as I have said before, this stuff is going to be volatile and lumpy as you go through the quarters. So I didn't expect to have $2.6 million during the fourth quarter; and I think the $500,000 to $750,000 is an indication of what we would think more on a regular scheduled basis.

But I think there is -- it will just be volatile each quarter. And I think there's upside to that number next year, but you really don't know. It depends on how the loans get resolved one by one.

Okay. Outside of accretable yield, were there any other factors that benefited the margin? Prepayment income, perhaps?

No. I would say, in fact, the quarter had some impacts from our Fed balances; we're up 35% cash at the Fed during the fourth quarter, average balance third to fourth quarter, and that actually knocks the margin down. Prepayment activity in our security portfolio was up maybe $0.5 million from where it was running earlier in the year, but that is not a significant increase from the level that it had been running on a quarterly basis.

So nothing particular to point out, other than just normal operation, beyond those items.

Okay. My last question, you guys talked about a mix shift in deposits, letting the CDs run off and building core deposits. So could you give us a better idea of where you think core deposits, total deposits will shake out over the course of the next year?

Well, I think that the transaction deposits and repos I would expect those to grow in the mid single digits. We said low single digits for total, so I would take kind of normal mid single digits for the trends, which is basically excluding the CDs. So transaction deposits and repos.

Okay, thank you, guys.

Frank Schiraldi, Sandler O'Neill.

Good morning. Most of my questions have actually been answered, and I didn't want to beat a dead horse on the margin issue, but I just want to make sure I am understanding it. So if I could -- if the margin is 3.66% for the quarter; and then you said you had 10 basis points of accretable yield; so you get to 3.56%, which I guess you can call sort of core. And then it sounds like for next year you're expecting like 2 to 3 basis points of accretable yield per quarter to flow through the margin.

So if you are looking at a mid to low 3.60%s number you are expecting I guess some modest expansion of the core margin year-over-year. Is that fair? Or not year-over-year, but at least off of the fourth-quarter run rate.

No, I would say that -- Frank, I mean first of all, the accretable yield all-in, you need to look at the margin on an all-in basis. If you looked at the core margin, taking out all the accretable year-over-year, there is flat to there is a little bit of compression in there. So I wouldn't say that the core is going up next year because of those factors that we talked about earlier.

I think you really need to look at the all-in low to mid 3.60%s. I am telling you what is in our plan. So that is really what that level of accretable yield that is in there, and we are still projecting rates to stay where they are now. So there continues some pressure on the investment side that is baked into that and then some of the other levers that we talked about.

So, it's -- low to mid 3.60% is really the range. That is what it is going to be as we go through the year.

I'm sorry if I missed it, but was there anything else besides the deposit remixing on the funding side? Is there some sort of restructuring opportunity that you guys are looking at that could boost the margin?

No, I would just say the normal focus on bringing in good quality loans and bring in the demand deposits and the treasury management business is really what is supporting the margin. So there is not any restructuring built into that.

Okay. Then just wanted to double-check on the provisioning. When you gave guidance, you said provision for the full year, I thought slightly above 2012 full-year levels? Right? Not off of the 4Q levels. That is not necessarily the run rate.

Right. So, for the full year it was $31.3 million, so a slight dollar increase from that base.

Got you.

For the full year.

Okay, thank you.

Bob Ramsey, FBR.

Hi, guys. Thanks for taking my follow-up again. Just one quick question. On your loan growth, your loan growth was very good this quarter. Are you guys seeing incremental demand from your clients, organic demand? Or is this still market-share gains?

Yes, I would characterize it as a continuation of what we've had. We are not seeing significant lift in demand. In fact line utilization contracted slightly.

So it is not happening from a need for working capital. There is very little capital large-ticket CapEx spending. This is a continuation of what I've said the last few quarters.

So our sales management systems and our incentive compensation is largely geared towards new client acquisition. I made that comment earlier in my remarks. And I still feel that that was the right move to make several years ago, and our people continue to drive market-share gains.

And that is where the bulk of this growth is coming from. It is coming from market-share gains and an investment in niche areas that provide a higher-growth opportunity, like private banking and asset-based lending, than other segments. That is the strategy.

I would add, too, Bob, the uncertainty in the economy continues to affect customers and their willingness to make those investments. So I think that that is still overlaying everything.

At some point, that will change. But that is definitely still a factor (multiple speakers).

And when that changes we should reap the benefits of that because we brought over hundreds of clients. So it's -- in the larger end of commercial banking. So we should get the benefits of the CapEx spend and hopefully someday increasing working capital facilities.

Okay. Thanks again, guys.

(Operator Instructions) John Moran, Macquarie Capital.

Hey, sorry to jump back in the queue here, guys. I actually had one that I forgot to ask. Vince, I think you said obviously Durbin kicks in middle of the year; you guys have gone over $10 billion.

Are there other additional regulatory costs that we need to think about into '13, '14, with crossing that line and some additional scrutiny that maybe regulators will have with you guys?

Really the only additional cost that kicks in is the FDIC insurance once you are above $10 billion for four quarters, which we are as we enter 2013. Our FDIC insurance for the year is going to go up $2 million, $2.5 million. So that is an extra cost in addition to Durbin.

Then beyond that, no, I don't see any other. I think that $50 billion is when a lot of things change regulatorily. I mean there are certain things as you are over $10 billion as far as maybe just different focuses within the examiners and those types of things.

But from a cost standpoint, it is really Durbin and the FDIC insurance that --

You know, we have built our compliance team over the years. We have done a number of acquisitions. We have very good relationship with the regulators.

We have a culture here of compliance and understanding the rules and regs. And I think that investment that we have made over the years has really helped us today, because there are a number of institutions that are playing catch-up. So that is already -- some of the expense associated with complying with the more complex regulatory environment is already baked into the core expense base of the Company.

Got you. That's helpful. Thanks, guys.

There are no other questions at this time. I would like to turn the conference back to our speakers for any closing remarks.

Well, I would just like to say thank you, everybody, for participating on the call. We appreciate your interest and look forward to producing another very productive year in '13. Thanks.

Thank you, everyone. That does conclude today's conference. We thank you for your participation.