Fulton Financial Corp (FULT) 2006 Q4 法說會逐字稿

Good day, everyone, and welcome to today's Fulton Financial fourth-quarter and year-end 2006 earnings conference call and webcast. This call is being recorded. At this time I would like to turn the conference over to Ms. Laura Wakeley. Please go ahead, ma'am.

Thank you. Good morning. Thanks for joining us today for Fulton Financial Corporation's conference call and webcast to discuss our earnings for the fourth quarter and for the year-end 2006. Your host for today's conference call is Scott Smith, who is 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 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 bank and nonbank competitors; changes in local and national economic conditions; changes in regulatory requirements; actions of the Federal Reserve Board; credit-worthiness of current borrowers; the Corporation's success in merger and acquisition integration; and customers' 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, and thank you all for joining us. Before Charlie gives you the financial details, I want to summarize the key points and trends that we saw last quarter.

As you know, we reported fourth-quarter earnings per share of $0.27 and $1.06 for the year. As we anticipated, we continued to deal with a number of persistent headwinds that tempered our fourth-quarter performance somewhat. Throughout 2006, we saw pressure on our net interest margin, and managing our margin compression remains the challenge. The negatively-sloping yield curve increased our cost of funds relative to the yields available on our longer-term loans and investments.

A number of non-interest income producing areas, like Fulton Financial Advisors, showed positive trends; and we began to see stronger residential mortgage results as well. Asset quality remained strong. But as we have been predicting for some time now, we saw an uptick in the fourth-quarter nonperforming loans.

Funding costs increased due to growth in time deposits and continued customer migration from lower-cost checking and savings accounts into CDs and money market accounts. We are not aggressively pursuing long-term time deposits at this point in the economic cycle.

In the third quarter of 2006, our loan growth across all sectors was strong. That momentum did not carry into the fourth quarter; yet we still saw healthy year-over-year growth of 10%. On a linked-quarter basis, average loan growth was a modest 1.4%. Charlie will give you details on loans in a moment.

We're working to increase our non-interest income as well as our low-cost deposit balances through corporatewide incentive-based sales programs that are focused on these two areas. These programs are designed to encourage healthy competition among our affiliates, while keeping the needs of our customers as a top priority.

The Columbia Bank, which joined us in February continues to make a significant contribution to our earnings growth, along with our two other largest affiliates, Fulton Bank in Pennsylvania and The Bank in New Jersey. We completed the merger of Premier Bank into Fulton Bank in early December and expect to complete the merger of First Washington State Bank into The Bank in early 2007. When completed, we will have reduced our number of affiliates from 15 to 13.

We recently announced that Somerset Valley Bank based in Somerville, New Jersey, will merge with Skylands Community Bank in Hackettstown later in 2007. We do not anticipate significant workforce reductions as a result of this consolidation, but we do expect to gain some operational and marketing efficiency by leveraging existing brand awareness.

We continue to open new branches in markets that we believe offer significant opportunity. These areas include Centre and Chester Counties in Pennsylvania; Atlantic, Burlington, and Camden Counties in New Jersey; the Baltimore-Washington corridor; and the Richmond, Virginia, market.

Affiliates are aggressively pursuing the small-business sector, a market that provides organic low-cost funding opportunities and one that we believe -- and we have historically served very effectively with our style of relationship banking. We continue to enhance our small-business product line as well as the retail product package for employees of those businesses. As of January 1, our affiliates now have access to a new remote deposit capture product for their business customers.

With regard to M&A activity in the past year -- was one where we did not announce a new acquisition. I can tell you it was not due to lack of opportunities. We had more banks than ever before presented to us. While acquisitions have been an important part of our success, we believe we can achieve required earnings per share growth by better leveraging organic growth opportunities across our five-state footprint.

We expect more acquisition opportunities in 2007, and we look will look at each one carefully. Until we see one that meets our criteria, we will focus on achieving our organic growth goals through our existing 263 branches.

Incidentally, we will continue to repurchase our stock when we believe it is appropriate.

Management is actively engaged in increasing personal accountability for results across the Corporation, as we continue to press for organic growth. Our objective is to make certain that we better execute our growth and profitability strategy.

In summary, we think the challenges we faced in 2006 will continue in the beginning of 2007. With that said, we will continue to carefully manage our funding cost and adhere to our conservative underwriting standards, despite competitive pressures to do otherwise. We will seek to attract low-cost funding and higher levels of non-interest income, and manage our investment portfolio conservatively. And we will continue to control expenses.

As the year unfolds, if economic conditions improve, we will be positioned well to benefit from these improving conditions. Now I would like to turn the call over to Charlie Nugent to give you details of our fourth quarter and 2006 performance. When Charlie concludes, we will both be happy to respond to your questions. Charlie?

Thank you, Scott, and good morning, everyone. I am happy that you were able to join us today. Please make a note of any questions that you have as I review our results. We can respond to your questions as I am finished. Unless otherwise noted, comparisons are of this quarter's results to the third quarter.

As Scott mentioned, we reported earnings per share of $0.27 for the fourth quarter, which was a 3.6% decline from the third quarter and an 8% increase over the fourth quarter of last year. Fourth-quarter net income decreased $1.7 million primarily due to a decline in net interest income. Net interest income decreased by $4.2 million or 3.3%.

During the third quarter, we received a total of $3.3 million in interest recoveries compared to $480,000 in the fourth quarter. $2.3 million of the recoveries in the third quarter related to one customer account. The remaining decline of $1.4 million is a result of a continued shift in deposit composition towards higher-cost certificates of deposit.

Average loans increased $145 million, or 1.4% with growth coming primarily in commercial and residential mortgages. Commercial mortgage loans grew $81 million or 2.6%. Residential mortgages increased $30 million or 4.6%. Construction loans increased $15 million or 1.1%. Home equity loans grew $13 million or 9/10 of a percent. Commercial loans were relatively flat after showing strong growth in the third quarter.

Commercial line of credit usage was a 37.3% at the end of December, compared to 39.8% at the end of September.

Our loan growth occurred throughout all of our markets. Our asset growth was funded by both borrowings and customer deposits. Average deposits grew $7 million, with a $111 million or a 2.6% increase in certificates of deposit being offset by decreases in core deposits.

As expected, we continued to see customers being price sensitive. Customer repurchase agreements and commercial paper increased $70 million or 13%. Our commercial paper product has been successful in bringing customer funds back on the balance sheet. Funding is also provided by Federal Home Loan Bank advances, which increased $84 million.

Our net interest margin for the fourth quarter was 3.68%, a 17 basis point decline from the third quarter. The decrease in interest recoveries resulted in a 9 basis point decline in our margin. The change in our deposit composition added approximately $870,000 to interest expense and resulted in margin compression of 3 basis points. Deposit rate increases and funding our growth with higher-cost deposits and borrowings caused the remaining reduction.

Loan yields were virtually flat after adjusting for the interest recoveries. Investment yields improved 14 basis points. Total deposit cost increased 14 basis points.

Asset quality continues to be strong. Net charge-offs in the fourth quarter were $1.6 million or 6 basis points, compared to net recoveries of $323,000 in the third quarter, and $1.9 million of net charge-offs in the fourth quarter of last year. The increase in the loan loss provision for the quarter is a result of the higher charge-offs and our detailed analysis of the loan portfolio.

Non-performing assets were 39 basis points at December 31, compared to 31 basis points at September 30 and 38 basis points last December. During our call last quarter we mentioned a $10 million credit that we expected to go on nonaccrual in the fourth quarter. This loan was for a CRA project related to low income housing. The loan was placed on nonaccrual in the fourth quarter. We believe that we are adequately reserved for any potential loss in this account.

Excluding security gains, our other income improved $3 million or 8.4%, with $2.1 million of this increase due to gains on other real estate sales. Investment management and trust service revenues increased $580,000 or 6.5%, primarily due to strong results in the brokerage area; and we are very pleased with this improvement.

Service charge loan deposits were relatively flat with the third quarter, while other fees increased $175,000 or 2.6%. This improvement was a result of both strong debit card activity in the fourth quarter and additional revenues from processing foreign currency transactions.

Gains on mortgage loan sales increased $167,000 or 3%. Residential and mortgage loans sold were $415 million in the fourth quarter, compared to $500 million in the third quarter. The spread on sales increased to 126 basis points in the fourth quarter from 110 basis points in the third quarter.

Operating expenses increased $2.3 million or 2.5%. Our efficiency ratio was 56.8%. Salaries and benefits increased $498,000 or 9/10 of a percent. This increase was primarily due to lower loan volumes in the fourth quarter and a corresponding reduction in the amount of expense capitalized under FASB 91.

Occupancy and equipment expense increased $134,000 or 1%. Increases in occupancy expense were partially offset by approximately $250,000 in volume-related rebates received in the fourth quarter. During 2006, we opened 12 new branches, with four of those in the fourth quarter. Advertising decreased $510,000 related to the timing of discretionary and promotional expenditures.

The other expense line increased $2.2 million. Other expense in the third quarter was reduced by approximately $950,000 representing state tax recoveries and a favorable mark-to-market adjustment on our brokered certificate of deposit swaps. In the fourth quarter, our other expense was increased by nonrecurring items of approximately $800,000.

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

(OPERATOR INSTRUCTIONS) Rick Weiss with Janney.

I guess my first question would be, I am assuming that you didn't do any deals last year after Columbia because of the pricing that you saw out there. I was wondering, if that continues, would you anticipate stepping up de novo activities?

Rick, as Charlie mentioned, we have new branches in the plan. I don't anticipate changing the plan from what he has talked about. Even if we wanted to, the time of going from opening a branch to when you --- or starting a process, till you get through the zoning and what-have-you part of that, it takes too long to do it.

So we have some additional branches in the queue that will be in the '08 and some maybe even in '09. But I think that is pretty well. The only thing I could say is if, for whatever reason, there could be some delay in some of those branches; but my expectation is that that is the most we would be opening next year.

Okay. (indiscernible) asset quality stayed pretty good. Would you expect, though, to see higher loan loss provisioning going forward?

Well, we are budgeting for more normal -- let me put it this way, for an evolution to more normal times. We don't see anything that requires -- that would make a significant shift in that evolution in the short term. But as we all know, we can't maintain these kind of numbers, us or the industry. So we are budgeting for some additional credit costs. Whether they come or not, we will see.

Right. Actually it's been so long, what are kind of normal kind of times? Or in terms of charge-offs that you would think?

In our strategic plan, we have said that we wanted to keep charge-offs at under 15 basis points. The highest we have been is in the mid-20s and the lowest we have been is in the last year. So that is kind of the range which we have operated under over time. I don't see next year as one of those times when you can expect us to be at the top of that range.

Okay, got you. Thank you very much.

Collyn Gilbert with Ryan Beck.

(indiscernible) full of questions here. Just for clarification purposes, Charlie, you said $2.1 million on the (indiscernible) sale gain?

Yes.

Okay. Could you also --? Charlie, you had said that 3 basis points of the NIM compression was due to what? You said 9 (multiple speakers).

(technical difficulty) went down 17 basis points; 9 was from the interest recoveries not reoccurring. There is about 3 basis points in there, Collyn, from our CDs repricing.

There is also -- we were having a shift in our deposit mix. On average, we lost $50 million in DDA balances and $55 million in NOW and personal savings. That has added another 3 basis points to our margin compression, because it's being replaced by higher-cost CDs.

The additional thing is our growth. The growth, the $145 million in loans and the $55 million in investments, that is being funded by higher-cost CDs and borrowings.

So you have a number of sources for that margin compression. One is the repricing of CDs at higher rates; the other one is the shift in our mix of deposits; and the other one is the margins on our growth is way below the margins we are accustomed to.

What is the reasoning for building the investment portfolio, then?

Charlie Nugent Collyn, in the second quarter and continuing in the third quarter, we had a lot of cash flows coming off from our investment portfolio. We were thinking if rates went up we would really benefit; but if rates went down it would hurt us. So at that point we decided to prebuy about $250 million in investments ahead of time. And it paid off for us, I think.

If you go back, the appreciation on that, it added about 20 basis points in yield, prebuying as opposed to waiting for those cash flows to mature and reinvesting.

But you prebought those in the third quarter, right?

It was in the second and the third, but that $55 million increase is the average.

It is the average? Okay.

You know what I mean? We didn't buy any more; it was just the average increasing. We bought it over the third quarter.

Okay, okay. Just in terms of deposit pricing trends, it looks like -- and maybe these numbers, they may be inaccurate. But it looked like -- came up about 11 bps on a linked-quarter basis versus about a 25 basis point increase from the second to third quarter.

Do you see any stabilization in deposit pricing trends? Aside from the customer shift that you're experiencing. But just the overall rates that you're being forced to pay, are you seeing any stabilization in that regard?

You know, I think our affiliates are moving down the CD rates a little bit. I think our competition is also. That should provide a little relief. Then also, the CDs that are maturing now are maturing at higher rates than they were before. So there is less contraction.

At lower rates, you mean?

Yes, the CDs that are maturing now are coming off at higher rates than they were before.

Right, I got you.

So there is less compression there. You know what I mean?

Okay. Then just in terms of the kind of loan growth trends, any clarity as to what might be happening on the commercial side? It seems as if the usage lines are bouncing around a little bit. I am thinking maybe we are heading in a positive direction from usage trends. But then for them to fall off in the fourth quarter, maybe you could speak about that.

We were real excited about our loan growth linked-quarter in commercial loans. From the second to third it was up 5%; line usage was up. In the third to the fourth quarter, though, line usage went from 39.8% to 37.3%. So the line usage went down 2.48%.

If you apply that to the total commitments outstanding, our customers are borrowing linked-quarter $97.7 million less in commercial loans. So there was some growth in there that offset that, but the commercial loan had really flattened.

Collyn, Scott. Also we had several large payoffs in the quarter from where we had short-term loans on commercial buildings and they were paid out by a long-term provider. That typically happens; but we happened to have several that hit all in the quarter.

So if you discount the fact that our customers are borrowing less and that we had several significant payoffs, the growth in what is our bread and butter, which is the day-to-day commercial lending, is not all that concerning to us.

So we're expecting, I will say, okay growth over the next quarter and probably some nice growth over the year.

Okay. Then on the residential mortgage side, the improvement spread that you're seeing in the secondary market, the 126 you saw versus 110 in the third quarter, is that --? Do you see that market continuing to improve? Or what do you think is going on there. And if, given that improvement, are you changing your strategy at all as to what you are doing with your residential mortgage production?

What happened there was we put in some new technology and were able to package mortgages more effectively and get some better pricing as a result of that. So we expect that will -- that happened, and so we expect that increase in margin at least from that perspective to stay there.

Now there are competitive things that happen all the time, as you know, in the market, that could squeeze that down again. But it looks like our changes there and our mortgage folks' activity in trying to get better profit margins out of that has helped and should continue.

Okay, great. Then just one final question. Do you have a goal for where you want to see your tangible capital ratio?

Yes, we want our tangible capital ratio to be as high as it can, and we want to keep on building that. If you take our tangible equity, common equity, to assets it's close to 6%. But we'd like to be as high as we can.

But there is not necessarily a strategy to build it or aggressively build it? I mean, you're just going to kind of let the earnings growth grow that?

You know, we have capital goals. Our weakest ratio I think is the total risk-based capital; and there we keep it over 11%. And that would be 1% over what the regulators consider well capitalized. Our goal was to keep it way over well capitalized. That would include the leverage ratio in Tier 1. As you know, that goodwill is backed out of that number.

So we would like to keep on -- we want to keep our capital levels high at that 11% level. If it gets higher, and we're building capital we don't need for growth, we would give that back to the shareholder in terms of dividend increases that we have done every year; and then also repurchasing stock.

Okay, great. Thanks very much.

Adam Barkstrom with Stifel Nicolaus.

I think Collyn covered a couple of mine, but I've got a couple left. Securities, what is your unrealized gain left in the bank portfolio?

The net is a $100,000 loss.

Is that what was sold to drive the gain in 4Q?

We had $1.9 million, Adam, in gains in the fourth quarter. It was all bank stocks.

Okay.

In the bank stock portfolio, I think we started the year -- I think we were down like $1.5 million; and we were able to take $7 million in gains that we thought we should take. We ended the year at a net loss of $100,000. A lot of those gains were related to bank stocks that we held that were acquired by other banks.

How many different positions do you hold in that portfolio (indiscernible), roughly?

You know, I would say roughly 100; and I would say about 50 that are over $750,000. The biggest position about $3 million. It is spread out.

All right. Then looking at the tax rate, a little bit lower this quarter. Was that just year-end cleanup issues, or anything specific there? Then what are you thinking about a normalized tax rate for '07?

Yes, I think next year we are thinking that the normalized tax rate should go down a little bit. We had a lot of credits related to low income housing projects this year. The returns on those are not as good. In the income tax, the drop was primarily the Columbia Bank in Maryland; their state tax we were able to do better tax planning and tax strategies there to reduce that rate.

So that should be ongoing in '07, should it not?

Yes, but -- for Columbia it should be, and it should be in that number. But there are a lot of things that affect that tax rate. I would expect this to go up a little bit, because we had $4 million in credits related to low income housing projects, and I don't think we're going to have that many next year. I think it is going to drop.

Okay. Then last thing, remind us; what is your current share repurchase capacity?

We were in I think was October -- October or September, the Board approved buying another million shares back; and we are in the process of doing that.

But of that million, how much have you bought back?

I would say about 100,000.

The capacity is 900,000?

Yes.

Okay, all right, great. Thanks.

Hey, Adam, can I check with that? The capacity is, I think, 1,062,000 we can still buy back, I think.

Okay.

I think. They approved -- it wasn't 1 million. I think was 1.1 million.

Okay, I got you. Okay, thank you.

Wilson Smith with Boenning & Scattergood.

Most of my questions have been answered by now, but a couple questions here. On asset quality, Charlie, I saw that on the 90 days past due it increased to almost $21 million. Can you give us a little color on that? Can you also tell us all a little bit about the watchlist and the trends?

The delinquency rate is going up, slightly. I am trying to remember what it is.

The 90 days past due is that loan we -- that $10 million we put on non-accrual. That is a major part of that.

Wilson, I think the average delinquency, I think our delinquency rate is 114; and last year it was 99 basis points, so it has gone up 15 basis points. But that this the low historically. Five of the affiliates have delinquency rates below 1%, and 12 of the 14 are below 2%. As Scott mentioned, the big one is The Bank of New Jersey that did the CRA loan.

Right. How much pressure are you seeing on loan structure at this point?

Some. And it's -- we don't have data on that, so it's kind of anecdotal information, but there always seems to be a few out there doing some things that are --. And some of the banks that are stretching for that are welcome to do it. But I wouldn't say it is a huge problem for us at this point in time.

Typically, the kind of credits that we book, now everybody -- the terms are not that terribly different for any of us.

Okay. Charlie, in terms of the margin compression, are there programs that you all have put in place to try to offset that, the 3 bp decline due to the CD repricing, and then the rest of it due to the loan growth, or the funding at higher cost forcing lower spreads there?

I mean, is there anything that you're doing you think is going to be able to alleviate that? Or were you going to continue to see continued spread compression on the loan side?

The CDS repricing, that should. The spread between what they're coming off and going on, should decline. All of our banks are trying to increase core deposit sales. (inaudible) They put in incentive programs to increase core deposits. Overall, the bank's performance goals and it goes down to their officers. We are putting together a marketing program to increase core deposits.

But you know, Wilson, it's tough. In the FDIC data between the second and third quarter, they were saying that the industry lost $42 billion in average DDA balances. It was a high percentage. And I don't know when that is going to stop. I wish I knew.

It doesn't seem to be a trend you can track, but there is a definite -- the customers -- we are still opening the same amount of accounts we always have, but the average balances are dropping. How far they're going to drop, I don't know. But we're trying the best we can to increase core accounts, and that will mitigate a lot of the compression.

Thank you.

Frank Schiraldi with Sandler O'Neill.

I just wondered, I know you said, Charlie, the loan growth was really across all markets. But I was wondering if there was a market that was strongest; and specifically if you had a number for Columbia's loan growth quarter-over-quarter.

I would say the three banks we mentioned, Columbia, Fulton, and The Bank in South Jersey, have all had pretty good loan growth. I think it is fairly well spread out through the geography, so I really can't point to one area and say that is where it is coming from. So it is pretty well spread out.

Okay.

You know, Frank, at Columbia, their loans increased on average linked-quarter $14 million. That's 1.3%.

Okay, great.

They were more or less in line with everybody else. But it is where you would expect it to be. It's in Lancaster, Chester County, Lehigh Valley, and the northern part of New Jersey.

Then this might be a more difficult question, but as far as expenses, I know they're a focus for you guys. I know you're going to consolidate some operations further in 2007. Do you think this is a decent run rate, what we had from third to fourth quarter, for expenses going forward on a quarterly basis? Or you'd be able to get that down with these consolidations?

I think the run rate is a little bit higher than usual. We had a lot of non-reoccurring good things that happened in the third quarter. We had a state tax recovery. We had a positive adjustment on interest rate swaps we did down at Virginia. We had a lot of good things happen, and then -- in the third quarter.

In the fourth quarter, we had $800,000 in unusual, non-reoccurring items. The primary thing in there was we relocated a branch and had a write-off, $404,000 related to leasehold improvements. There were some other unusual things in there.

But when I look for the other expense, if I try to normalize it, it is 1.7% growth. The normalized other expense, I would think, is $17.7 million. That is a little bit higher.

But usually if you look at our expenses, if you look over year-over-year last year on average, take out the acquisitions, we are up 3%. I would expect us to continually continue to tightly control expenses.

Okay.

Frank, that rate, the increase you're seeing is too high. It is related to those unusual non-reoccurring things. Then also, one thing that happens is with the loan volume down and the mortgage volume down, we capitalized $2.9 million less than salaries under FASB 91, so that has an effect, too.

But if you look -- I wouldn't look at third to fourth quarter if you were trying to compute a run rate because there are so many unusual things in there. I would look for longer-term.

Okay, great. Then finally, I don't know if it was in the release, I didn't see it. But wondering if you could -- if you had how many shares you repurchased in the fourth quarter; and then your thoughts -- I know you said you would continue, Scott, to look at repurchases. Your thoughts on if that is going to ratchet up or down from here in the short term.

You know, last year, we repurchased 1.1 million shares. I am not exactly -- we didn't buy a lot, as I mentioned to Adam. We didn't buy a lot in the fourth quarter.

Okay.

But you know, as we continue to grow our earnings, and the earnings have grown at a faster pace than asset growth, I would think we were going to continue to repurchase shares. We have always been repurchasing our shares. I think we will continue to do that.

Okay, great. Thank you.

Bob Hughes with KBW.

Not too many stones unturned at this point, but I have a question on, Scott, your prepared comments. I think you said you expect that certainly some of the challenges you faced in 2006 will continue into early '07. Is there any cause as we sit here today to believe that something will change significantly in the second half of '07? Or is that just -- you know, that is what you feel is appropriate from a visibility standpoint? Or do you think that maybe we will just get some relief on yield curve and competitive pressures? Any thoughts there would be great.

Sure. You all are better at predicting what interest rates are going to do. But our expectation is that we are going to get some relief on yield curves at some point in time during the year.

But what we are closer to than you all are some of the -- particularly in the real estate market, and we have gotten input from all our markets. Right now, I think we feel like we're cautiously optimistic about real estate next year. But it is going to take a little while in some of our markets for this inventory to work its way through.

I think the folks in the Lehigh Valley, for instance, feel like that is kind of done there. They are expecting and they saw the last couple of months some okay pickup there. So they think it has kind of worked its way through. In some of the other markets, I think they feel like we are a few months or so away from that inventory burn-off to take place. But then after that, I think --.

And most of our customers are small and regional builders that are fairly conservative, so they are frankly some of them looking for opportunities now for some land. Because in many of those markets that is an issue, because it is so scarce.

So I think we are feeling like the real estate market will be helpful toward the last part of the year; and that, of course, helps our business. Our commercial and small-business customers seem to be optimistic about next year [as] the numbers keep showing the consumer holding up there and the job numbers look pretty good.

So we think we are seeing some seasonality in lending now. That happens. And that as we go into the spring we could -- and then into the summer warm months and fall, that we could see a nice pickup.

Okay, I guess that was going to lead into my next question, which is just on the outlook for loan growth. Clearly you're a little bit more optimistic on real estate related activities in the second half. The fourth-quarter results were -- maybe the organic growth was kind of dampened by some other factors.

Is something like a mid to high single digit loan growth expectation for '07 fairly reasonable at this point then, given what you have going on?

We don't typically talk about those numbers, but I will tell you that we are expecting at least that.

Okay, all right. Thanks a lot, guys.

This does conclude today's question-and-answer session. I would like to turn the conference back to Mr. Scott Smith for any additional or closing remarks.

Thank you all, and I would like to end this call by thanking you for joining us today. We hope you will be able to again be with us for the first-quarter earnings conference call, which is scheduled for April 18, 2007. Once again, thanks for participating. We enjoyed talking with you.

This does conclude today's conference. We thank you for your participation. You may now disconnect at this time.