Fulton Financial Corp (FULT) 2006 Q1 法說會逐字稿

Good day and welcome to today's Fulton Financial first quarter 2006 earnings conference call and webcast. This call is being recorded. At this time for opening remarks, I will now turn the conference over to Ms. Laura Wakeley. Please go ahead.

Good morning and thank you for joining us for Fulton Financial Corporation's conference call and webcast to discuss our earnings for the first quarter of 2006.

Your host for today's conference call is Scott Smith, Chairman, Chief Executive Officer and President of Fulton Financial Corporation. Joining him is Charlie Nugent, Senior Executive Vice President and Chief Financial Officer.

Our comments and today will refer to the financial information included with our earnings announcement which we released at 4:30 yesterday afternoon. These documents can be found on our website at fult.com, by clicking on investor information, and then on news. Please remember that during this webcast, representatives of Fulton Financial Corporation may make certain forward-looking statements regarding future results or future financial performance of Fulton Financial Corporation. Such forward-looking information is based on certain underlying assumptions, risks and uncertainties. Because of the possibility of change in the underlying assumptions, actual results could differ materially from these forward-looking statements.

Risks and uncertainties that may affect future results include pricing pressures on loans and deposits, actions of banks and non-bank competitors, changes in local and national economic conditions, changes in regulatory requirements, actions of the Federal Reserve Board, creditworthiness of current borrowers, the corporation's success in merger and acquisition integration and the customer's acceptance of the corporation's products and services. Fulton Financial does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date on which such statements were made. Now I would like to turn the call over to your host, Scott Smith.

Thank you, Laura, and good morning everyone and thank you for joining us. I trust you have reviewed our news releases and accompanying financial information. Before Charlie discusses our financial performance, I want to share a few thoughts about our first quarter.

We were pleased our earnings achieved consensus. As you know, our goal is to produce the best financial results we can for our shareholders. However, a number of the trends that I indicated we were watching in the last call put some pressure on our earnings momentum here in early 2006.

First, overall loan demand was not as strong as we had anticipated. Compounding this trend was the significant price competition for good credit that placed additional pressure on our ability to grow loan outstandings and corresponding interest income as rapidly as we had expected. We also plan to deploy a greater portion of cash flows from our investment portfolio into higher-yielding [loans]. Instead, we found ourselves reinvesting those cash flows into investments. Our residential mortgage business slowed somewhat and consumer loan demand was fair as customers remained somewhat cautious.

Second, funding costs are rising. For the last few years with rates at historical lows, customers were willing to maintain larger balances in low or no cost checking and savings accounts. As rates are rising, that trend is changing. Customers are shifting funds into certificates of deposit and higher-yielding money market funds and competition for these funds is intense in all our markets. These higher cost funds in conjunction with the flat to negatively sloping yield curve caused our margin, which had been holding up very well, to decline slightly.

Third, other expenses were impacted by an additional $1.6 million reserve for a potential loss associated with the settlement of a previously reported lawsuit brought under the Telephone Consumer Protection Act.

A positive trend that I discussed with you last call was our non-interest income growth from our investment management and trust services affiliate, Fulton Financial Advisors. They had another solid quarter. As equity markets are showing positive trends, we have seen good demand for services provided from this business line. Brokerage activity and referrals remain steady.

On February 1, we welcomed The Columbia Bank as our 15th affiliate, and as you know, Columbia is a very well-managed strong performer that will enhance shareholder value. The robust growth that has characterized the Baltimore-Washington corridor should provide multiple opportunities for continued strong growth profitability for Columbia in the future.

The organic growth we expected from Fulton Bank's State College, Pennsylvania loan production office is also materializing and we've recently approved two new branches for that market. We will continue to place new branches in the strongest growth areas throughout our footprint to aid our organic growth.

Yesterday, we were pleased to announce both a 5% stock dividend as well as an increase in our quarterly cash dividend to $0.1475. The dividend our shareholders will receive on July 15 will be 6.8% greater than the one they received in April. As you know, we have used both types of dividends over the years to create additional shareholder value.

Our priorities for the remainder of 2006 will be to prudently manage our funding costs, maintain our focus on strong loan quality, carefully control our expenses, further leverage our non-interest income opportunities through our affiliate banks, as well as increase our rate of organic growth through those affiliates.

At this point, Charlie will give you some color on the financials for the quarter and then both of us will be happy to address your questions.

Thank you, Scott, and good morning everybody. We're happy that you've joined us today. Please make a note of any questions you have as we review our results so that we can respond to them after I'm finished.

Unless otherwise noted, comparisons are of this quarter's results to the fourth quarter of last year.

We reported diluted earnings per share of $0.27 for the first quarter, which represents a 3.8% increase over the first quarter of last year and the previous quarter. Our acquisition of The Columbia Bank was effective on February 1 of this year and had a significant impact on our results, as did the $150 million trust preferred offering that we did to fund this acquisition.

Other highlights of the quarter were modest internal loan growth, approximately 7.2% annualized; good growth in timed deposits, approximately 7.6% annualized; continued excellent asset quality, growth in investment management and trust revenues and slightly decreased operating expenses. Offsetting these positive items were declines in deposit service charges and mortgage banking income and a slight reduction in core deposits.

Net interest income increased 7.1 million, or 6.6%, which primarily represents the contribution of the Columbia acquisition. Internal growth in average earning assets was 7.2% annualized. Average loans increased $848 million, or 10.1%, including Columbia, and 154 million, or 1.8% excluding the Columbia merger. Organic loan growth occurred in all categories. Commercial mortgages increased $78 million, or 2.8%. Construction loans grew $38 million, or 4.5%. Commercial loans increased 28 million, or 1.4% and residential mortgage and home equity loans grew 22 million, or 1.3%. Loan growth occurred throughout all of our markets.

Our asset growth was funded by a combination of deposits and short-term borrowings. Average deposits increased 673 million, or 7.7%, including Columbia, and 37 million, or about 1%, excluding the Columbia acquisition. This quarter, we saw strong growth in certificates of deposits of $63 million, or 1.9%. With the increases in short-term rates, we continue to see customers becoming more price sensitive. This is a trend that if it continues will drive the total cost of our deposits upward. Like all banks, we're trying to prudently manage these costs.

Demand in savings balances were down slightly from the previous quarter. The net interest margin declined to 3.88% from 3.92% that we reported in the last three quarters. The yield on earning assets increased 24 basis points, however, the cost of funds grew 26 basis points. Asset quality continues to be very good, non-performing assets were just 35 basis points of total assets at March 31 compared to 38 basis points of total assets last quarter and 25 basis points last March.

While the non-performing assets increased from last year, the level is still very low on an absolute basis. Net charge-offs were only 3 basis points in the first quarter compared to 9 basis points last quarter and 2 basis points last year. The relatively low level of loan loss provision for the quarter is the result of our detailed analysis of the loan portfolio. Our goal is to maintain our excellent asset quality levels, but as we all know, levels this low will be a challenge to sustain in the future.

We're pleased to see strong organic growth in investment management and trust services of 11.6%. Brokerage revenues increased $1 million, or over 30%, while the more traditional asset management fees increased 3.9%. Historically, we've seen a seasonal increase in brokerage revenues in the first quarter.

Another significant item impacting our results was mortgage banking income. Gains on sales of mortgage loans declined 915,000, or 17%. Loans sold decreased from 610 million last quarter to 496 million in the first quarter. Other income categories showing organic growth were cash management fees, merchant credit card processing revenues and letter of credit fees. Service charges on deposits decreased slightly, primarily due to overdrafts, which in our experience show a seasonal decrease in the first quarter.

We realized investment security gains of almost $2.7 million in the first quarter compared to just under $1 million last quarter. Excluding the amounts contributed by Columbia, operating expenses were down 1.1 million, or 1.4%. However, without the [tax] litigation cost, they would have shown a $600,000 increase.

Our efficiency ratio was 56.8, consistent with the previous quarter. Salaries and benefits increased 723,000, or 1.6%. This increase reflects the impact of state unemployment taxes which are disproportionately higher in the first quarter, and Social Security taxes, which are disproportionately lower in the fourth quarter.

Occupancy and equipment expenses were up 675,000, or 6.4%, due to some volume-related rebates received under bank equipment contracts in the fourth quarter. Advertising expense was lower due to the timing of various promotions. The decrease in the other expense line relates to charges related to the tax litigation charge. A $1.2 million charge was taken in the fourth quarter while a $1.6 million charge was taken in the first quarter.

Okay, thank you for your attention and for your continued interest in Fulton Financial Corporation. Now we would be glad to answer any questions.

(OPERATOR INSTRUCTIONS) Fred Cummings, KeyBanc Capital Markets.

Scott and Charlie, a couple of quick questions. First, with respect to the deposit competition, price competition for deposits, are you seeing that primarily from the larger banks, or is this coming from more of the community banks?

Good morning. I'd say a combination of both. I think the industry is recognizing the need for funding and we're all in this together trying to get more deposits and the change in consumer attitude about where they want to put their deposits.

And then, Scott, as it relates to your loan growth, I'm unassuming, Charlie, the 7.2% annualized excludes Columbia. (MULTIPLE SPEAKERS) That is actually a pretty solid number. What type of growth rates were you targeting? Were you hoping to get kind of 10% growth, but 7% is seemingly not that bad?

Fred, we were hoping for about 10% loan growth, and we are about 1.5% under what we expected in our budget. The weak spot seems to be C&I lending and we are not seeing a lot of demand there. And in regard to line usage at our lead bank, Fulton Bank, line usage is at 34.5%, which is extremely low. And prior to 2005, usually the line usage would be between 37 and 39%.

One last question, Charlie. In the past, you've talked about if the Fed were to start raising short-term rates, your margin would likely increase. Do you still feel that way, given the pressures you're seeing on the deposit side?

You know, Fred, our modeling would show that our margin is going to stay stable. And as you know, as the Fed has increased rates, our margin has increased. Last year, it was up 11 basis points for the year. And we've got [14] Fed increases and our margin is going up or stayed stable. But in the first quarter, last year -- of this year, it has gone down 4 basis points. And I think what we have seen for the first time is a change in customer behavior and we are seeing customers reducing their balances in their DDA accounts and statement savings and in NOW and Super NOW. And then what is happening is we are funding, we're replacing those funds with CDs. And we were down -- although our number of accounts keep on increasing, the average balances in our interest-free DDA accounts was down 20.6 million. We were down a lot in our statement savings, 13 million, and we were also down in our NOW and Super NOW by about 11.5 million. Our cash management accounts were down also.

So we are seeing a decrease in this lower cost funding and it's being replaced by CD's that are growing nicely. So that is what hurt our margin in the first quarter. Going forward, we hope it's going to increase a little bit or it's going to be stable, but it's easy to model, it's easy to put through assumptions, but it's hard to guess what's going to happen, what the customer is going to do.

Certainly. Thanks, Charlie.

Thank you, Fred.

Steve Moss, Janney Montgomery Scott.

A question on asset quality. What is your outlook? And I noticed that 90 days past dues have been trending up the past couple quarters. A little color on that, if you could.

We're still feeling very comfortable about asset quality. And as we have mentioned earlier, it's as good as it gets. But we don't have -- we aren't expecting a significant change in cost of charge-offs in the near future. The numbers have been trending up slightly, but still pretty good and we still feel very comfortable about how we are positioned in some of those loans.

Alright, thank you very much.

Adam Barkstrom, Stifel Nicolaus.

I wanted to circle back to the -- first of all, core, you guys talked about the core loan growth, the 7.2% annualized excluding Columbia. What is that same number for deposit growth?

Core deposit growth, Adam would be, if we take out Columbia, would be -- on average, it would be $37 million, and it would be right around 1%.

That's 1% average deposits?

Yes, yes.

And Adam, where we're seeing nice growth in CDs, it would be up 7.6%. But we had declines in our -- in the core balances.

Alright. Circling back to the margin, I guess Charlie, you sort of hinted at, your modeling has indicated stability for I guess looking out into '06. But remind me, Columbia, they were fairly asset-sensitive, weren't they?

They were.

So that theoretically should help you or give you some lift in '06?

You're right, that should give us a lot of lift. But offsetting that, Adam, was we financed half of that purchase with cash in a trust preferred offering, and we issued $150 million in trust preferred. And the yield on that was a 6.41, which we felt was good. But they sort of neutralized themselves. Their margin increase, when we priced our assets to market, they had a nice margin, but offsetting that was the cost of the trust preferred.

Alright, so the big picture for '06, that has a couple more rate hikes, and they are done (indiscernible) fairly stable margins for '06.

We hope. And I would have told everybody last quarter that our margin this quarter would have been stable or up a little bit. But for the first time, we saw that change in -- I guess customer behavior change in our core accounts that we haven't seen before. We had 14 increases in interest rates and we saw deposits increase, and that 15 seemed to have an effect on it. So --

Looking at loan growth, what does the pipeline look like for 2Q? And you have Columbia there in a great growing market, you have Resource, the acquisition you did. I guess that closed last year. So you're in some pretty good growth markets. What is the outlook for '06 on the loan growth front?

The pipeline looks fairly good, particularly in the real estate related area. The C&I lending, as Charlie mentioned earlier, was softer than we had hoped the first quarter. Being the eternal optimist, what I'm hoping is that some of that cash that got drawn out of demand deposit accounts got used up and they're now ready to borrow on their lines. And we will see if that happens, but -- and the others, the question is the consumer business. As we said, there still seems to be some hesitancy there, but we will see how that goes. But real estate looks and continues to be fairly strong.

And then I guess you guys had talked about credit quality. Right now, credit quality has not looked -- it cannot get any better. But looking out right now, you don't really see any significant spots of weakness. But nevertheless, inevitably, credit will turn at some time. That being the case, do you think -- you run the reserves at 1.1%, call it. When the credit does turn, do you anticipate building reserves going into that kind of environment, or do you think a 1.1% reserve is sufficient here?

We have a model and a formula we use that we recalculate that quarterly as -- really monthly as we progress through the cycle, Adam. And we have to do what the model says, as you know. And so do I expect credit costs to increase? Certainly. As you said, they don't get better than this. It doesn't appear that anything on the immediate horizon is going to significantly impact that in the short term.

Scott, are you -- in your markets, I'm sure you're seeing this too, but a relaxing of credit standards, relaxing of required personal guarantees, more aggressive pricing structures, et cetera. Are you seeing this kind of stuff going on, and are you concerned about that at this point?

Yes and yes. And where we have been willing to give a little is in the pricing side of things. As we have said before, we feel like you can get that back at some point in time, structure you can't. So that has been part of the reason I think our growth was not as robust as we had hoped, particularly on blue-chip credits. Everybody wants those and big and small and banks are competing very aggressively for those. And we have had to give up some pricing from time to time to maintain the growth.

Okay, great. Thank you.

Collyn Gilbert, Ryan Beck.

Just two questions. First on the funding side. Do you all have a strategy in place in terms of sort of offsetting this phenomenon here of customers moving from money markets to CDs? And kind of what's your longer-term view on challenging this environment?

Collyn, our strategy will be for core customers to remain competitive. As we have talked before, there's a hot market for CDs of folks who don't have relationships with us. And when we need funding, we turn that on, and when we don't, we turn it off. But for our core accounts, and our banks have developed relationship kinds of pricing strategies so that we don't lose those multi-product user customers, and that means that we have to stay relatively competitive for that CD market. I expect that will continue and our strategy will be to try to stay competitive. We don't necessarily need to lead the market with those folks, but -- to stay competitive, to have several offerings in that market, the different maturities that work for us and that are attractive to customers. And then we have a strong push on small-business banking, and that is typically a good source of DDA deposits. So that is basically the strategy at this point, and new branches. We are, as I mentioned, opening a couple of branches. I think we have six in some form of either getting approved or in the process of being built. So in some fairly strong markets, so our expectation is to grow some deposits and funding from that source.

, Okay. Would you say that to date, you have not been necessarily all that aggressive yet on your pricing of deposits?

Got there last quarter and have tried to maintain that through this quarter. But prior to fourth quarter, we are not.

Okay. So I'm just trying to get a gauge on that core deposit number that was -- Charlie, you said was up like about 1% on average. Just wondering if we could start to see that momentum pick up if you start to get a little bit more aggressive on pricing?

Collyn, I would think we're still going to be -- we're going to still see pretty good growth related to certificates of deposits.

Secondly, in terms of acquisitions, future acquisitions, where you all are looking and how you are prioritizing new markets?

Well, the acquisitions, we're looking where they are available as is the nature of that activity. You have seen our chart of the states that we're interested in going into, and it would be great to be able to direct that more specifically. But we basically have to go where the acquisitions are available.

Are you seeing any markets where there seem to be more available candidates than others?

No, but I do think there's an increased noise level in terms of talk about it, and I think we are seeing a few more opportunities than we did this time last year. So my expectation is that, either from us or somebody else, you're going to see some acquisitions.

Great, thanks guys.

Andy Borrmann, Robinson Humphrey.

Quick question -- on the margin specifically, we're doing our best here to kind of back out Columbia and a lot of different metrics. We look and see how the core company was doing. Do you all have what the margin would've been excluding Columbia for the quarter?

We think it would have been at 384.

Okay.

And that's factoring out not only Columbia, but also the trust preferred.

Right. And on the earning asset growth for the quarter, what would that have been? I might have missed that one, I was writing.

The earning asset growth, Andy, was 7.2% annualized. That's third to fourth quarter -- I'm sorry -- fourth quarter to first quarter annualized, 7%.

Gotcha. How is Columbia looking, now that you have them in the fold, and how are things going down there with client retention and all of the good stuff?

It's going extremely well and it's going better than we had expected.

Good, I think that's really all my questions. Thanks guys.

Wilson Smith, Boenning.

Most of the questions have been asked here, but let me see if I can just pick a couple of things. Scott, you had said that you were looking to try to reinvigorate organic loan growth. Do you have any specific plans that are in the works?

We do, and we have been around to all of the affiliates in the last six weeks, meeting with lenders and with the staff of those banks talking about invigorating that. We have increased the accountability and measurement techniques that we're using with the affiliate CEOs and getting them as focused on that as we can, and new branches I think will help us a little there as well to get into some new markets. We have, as I mentioned, the loan production office in State College are looking at some other markets to do a similar kind of reach into the market, initial reach into the market to build some loan base, and then the normal marketing activities that are ongoing.

And then, Charlie, just a couple of quick specific questions. Are the expenses due to the TCPA litigation -- are they over now? Was this the last bit of it?

Yes they are over, Wilson. We thought they were over in the fourth quarter. We thought we had insurance coverage bonus loss, and then we were notified the first week of April by the lawyers from our insurance carrier that they did not think it was covered. We think it is, our lawyers think it is. But, with the accounting guidance out there, we thought it was appropriate to reverse that receivable we booked from the insurance company. We still think we're going to get it, we hope.

Would you get back both amounts?

We would get back about 2.2 million.

Okay. And you discussed the mortgage banking revenue was off in the first quarter. Is this -- was this more of a seasonal move, or are we going to see that continuing weakness throughout the year?

Wilson, the first quarter is always very low because we are selling the mortgages that were originated in October, November and December. A lot of people don't look for houses at that time. So we always see that big drop-off, and the drop-off was 17%. We think the second quarter will be higher.

Good.

The drop-off; it's not only rates, but is a seasonal thing too.

Good. And any plans for stock buybacks?

Yes. The Board approved in January a 2 million share buyback, and we are doing that -- we're not doing it now. As soon as we found out what -- we were in the process of doing that, we bought 168,000 shares back. We stopped as soon as we knew what earnings were and we will resume Monday.

So this will be open market this time, not the mass repurchase?

Yes, that is correct.

I think that is it. Thank you.

Matt Schultheis, Ferris Baker Watts.

All my questions have been answered. Thank you.

Colin Dunn, KBW Asset Management.

A few quick questions. With security gains, how much of that came from the bank stock portfolio?

That was all from the bank stock portfolio.

Okay. And then the investment trust revenue -- was any of that seasonal in nature, or is that a good run rate to build from?

It was a great quarter, Colin and some of it is seasonal. Some of it is related to IRA activity that's over now and occurs in the first quarter. But I think a lot of it, I think a lot of it was just retail investors coming back into the market. And I don't know if that is the run rate, but our brokerage revenues were up $1 million at $30%; that is not the run rate for that. And the traditional asset management revenues were up 3.9% quarter to quarter, and hopefully that would be the run rate, but that would be high. We have a lot of trust salespeople in place throughout the affiliates, and they are generating good business, people have more confidence in the market and I expect a good run rate there, but I don't think it's 3.9% (MULTIPLE SPEAKERS) [linked-quarter]. (MULTIPLE SPEAKERS)

You guys have been obviously pretty active over your history, buying back stock and doing acquisitions, but your tangible capital levels were a little higher in previous years. To what extent are you constricted in your ability to do those going forward; that is, acquisitions and buybacks, given where your tangible ratios are now?

Colin, we still think our ratios are pretty high. I think the tangible ratio's down to 39 and Tier 1's just under 10%. And the weakest ratio we have is [total risk base], and that's about [11.27]. We still think our ratios are relatively high. It's well above what the regulators consider well capitalized. I still think they are high. And when we do the acquisitions, people always want a large component of common stocks, so we'll continue to do that and that will help our ratios. We will always keep our ratios high.

Alright, thanks a lot.

Gerard Cassidy, RBC Capital Markets.

A couple of questions. First, Charlie, what is left if you could give us an estimate in the investment securities portfolio in terms of unrealized gains?

Gerard, we have unrealized losses of 421,000, and we have a lot of net gains in there in smaller banks throughout our footprint primarily. And in the bigger banks, we have losses. But when you combine them, it's a net loss of 421,000.

Okay. The other question is -- could you give us some color on the construction loan portfolio? Obviously when you bought Columbia, they came over with their portfolio as well. Can you give us some color on how it breaks out between single-family home subdivisions and commercial office versus condominiums, et cetera?

They added a lot of construction loans -- this is Columbia -- they added 348 million. And Gerard, I thought I had that breakdown, but I can't (MULTIPLE SPEAKERS).

Okay, we can get it later. And then as a follow-up to the net interest margin, if the trends continue that you saw in the first quarter about the consumer, which I found interesting how you pointed out after the 15 rate rise, the consumers really did start to behave differently. Assuming we have another rate rise and they continue to behave that way, what kind of confidence do you have -- as you stated, you expect -- you hope the margin will stay flat. Is that a highly confident feeling, or less confident?

Gerard, I think that is a guess based on the past and what we have seen happen, but it's less confident now because what we've seen in the first quarter. But the last Fed increase was on March 28 and we have $4 billion in loans that repriced based on that and we haven't seen the effect of that yet. So that would be about 833,000 that would add per month. So that is going to been an add, but the subtract is going to be our increasing deposit costs, which I think we have already done to a large extent. And the other subtract would be a loss from core accounts.

One final question on those CDs that you've been successful with. What type of product are you using and what kind of rate is it -- a 6-month type of product or a 9-month or a 12-month?

It's a combination of a 6-month and 13-month, and we try to get our customers for that long, and they seem to be reluctant to do that. And usually, it's a relationship pricing to customers who receive an extra 25 basis points if they have a core account with us.

And if somebody did not have a core account and came in for a six-month today, what kind of rate would they receive from you folks?

It would probably be, I would think, around 4%. And if they had a core account, with $10,000 in that core account, they would receive a 4.25.

Thank you.

Gerard, I will get back to you with that breakdown on the types of construction loans.

Great.

(Operator Instructions). Kyle Cavanaugh[RM1], Palisade Capital.

I wanted to see if what the book looks like in terms of loans rolling over in the next three to six months -- what percentage do that? And the follow-up question to that is, is there any more difficulty in rolling those funds into -- those cash flows into new loans as it is [from] securities into new loans? Is there any kind of difference there?

Kyle, I should know but I don't how much of our loans are maturing. And I will find that out for you and let you know.

Okay. How about on the second part -- is there any difference there?

In what?

In terms of rolling the cash flows into new loans?

(MULTIPLE SPEAKERS) from the investment portfolio?

Yes.

The investment portfolio quarter-to-quarter on average was up about 3%, and I think it was up about $68 million. It was actually down if you factor out the effect of the $188 million that came in from Columbia. So we have been a little successful in rolling the investment cash flows into loans, but we had thought loan demand would be better and our investment portfolio would be a little smaller.

But you're keeping 100% of the cash flows on the -- loans are rolling over in loans. Is that --?

Yes, loans are growing, so we're keeping that and adding to it.

And then to follow up on the acquisition question earlier. What is your sense in the market now with regard to acquisition prices? Are people continuing to keep very strong expectations out there?

Yes. There have been and continue to be what I would call inflated expectations about what is available. Although -- and you see the reports the same as I do. Somebody needs to come along and pay them. So we have missed a few because of that, but we know what our price is and where we can go and then we don't go beyond that.

Okay. Is there still any more reluctance (indiscernible) like I guess it was about a year ago, there was reluctance on banks out there to make acquisitions because of the impact on the balance sheets. Is that anticipated at this point?

I don't see that as an issue. I'm not sure what you're referring to. Are you talking about the buildup of goodwill?

Primarily. I spoke to some other banks that were -- this was some time ago -- that were reluctant to make acquisitions because basically the compression on margins that was happening on [them].

Okay. As we talked earlier, Columbia has actually helped our margin. So, if we can do the right acquisitions, that would not be an issue. But certainly that would be part of the pricing if we looked at what we can expect from their margin and what it does to us, would impact what we're willing to pay for a bank.

Thanks, and Charlie, will you be able to get back to me on that?

Sure I will.

Thank you.

Tom Doheny, Sandler O'Neill Asset Management.

Good morning guys. Just a few follow-ups. I guess first, Charlie, was on the loan growth for the quarter. I guess if I look on an end of period basis and just kind of strip out the numbers you provided for Columbia, it looked like the annualized loan growth was closer to 11 or 12% for the quarter. Is there -- could you maybe provide some color on what the difference might be there? Maybe it was just what Columbia did since joining Fulton?

We always look at average. But you're right. If you looked at ending balances, the growth would be 11.2%. We think that's the better way to measure loan growth is looking at the averages. But Columbia has been doing a great job growing their loans, especially in the construction area and the commercial mortgage area. And their loan growth is exceeding the loan growth of the rest of our franchise. So going forward, they should help our loan growth.

And then on Columbia, again, obviously with the deal or the (indiscernible) about two months in the quarter, I know you weren't looking for significant cost saves out of that transaction, but was there any material efficiency drag this quarter that we could see come off of the next several quarters?

No. We did not expect a lot of efficiencies or cost savings there. And they had an efficiency ratio that was slightly better than ours. So I think it would be helping our efficiency ratio.

Great, thanks a lot guys.

And with no further questions holding at this time, I'd like to turn the conference back to Mr. Scott Smith for any additional or closing remarks.

Thank you all for joining us here today, and we appreciate your questions and look forward to talking with you again. We hope you will be able to be with us when we webcast our annual meeting, which takes place on Tuesday, May 2nd, and also for the second quarter earnings conference, which is scheduled for July 19. Thanks for your participation today and I hope to see you all soon.

Ladies and gentlemen, that will conclude today's teleconference. We do thank you for your participation and ask that you please disconnect your phone lines at this time.

[RM1]Unable to confirm this analyst.