Fulton Financial Corp (FULT) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fulton Financial Corporation's fourth quarter and year-end 2010 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Laura Wakeley, Senior Vice President.

Good morning, and thank you for joining us for Fulton Financial's conference call and webcast to discuss our earnings for the fourth quarter and year-end 2010. Your actual host for today's conference call is Scott Smith. Scott is Chairman and Chief Executive Officer of Fulton Financial Corporation. Joining Scott are Phil Wenger, President and Chief Operator Officer, and 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 was released at 4.30 yesterday afternoon. These documents can be found on our website at fult.com, by clicking on Investor Relations and then on News.

On this call, representatives of Fulton may make forward-looking statements with respect to Fulton's financial condition, results of operations, and business. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond Fulton's control and difficult to predict, and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Fulton undertakes no obligation other than required by law to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

In our earnings release, we've included our Safe Harbor statement on forward-looking statements. We refer you to this statement in the earnings release, and the statement is incorporated into this presentation. For a more complete discussion of risks and uncertainties affecting Fulton, please see the sections entitled Risk Factors and Management Discussions, and Analysis of Financial Conditions and Results of Operation set forth in Fulton's filings with the SEC.

Now I'd like to turn the call over to your host, Scott Smith.

Thanks, Laura, and good morning, everyone. Thank you for joining us. After Phil, Charlie and I conclude our prepared remarks, we'll be happy to respond to your questions.

For the fourth quarter, we reported diluted net income per share of $0.16, even with the third quarter. For all of 2010, we reported diluted net income per share of $0.59, up 90% over the $0.31 we reported in 2009. Before addressing the fourth quarter specifically, I would like to share a few comments about the past year.

2010 was a year of significant improvement in our financial performance. It was also a year of continued challenges as well as important opportunities. The markets responded positively to our common stock offerings in the spring, enabling us to repay our TARP funds in full and repurchase the treasury warrants. Our recognition by Forbes as one of America's most trustworthy companies also created opportunities to leverage that designation throughout our markets.

Continued business and consumer deleveraging enabled us to grow our low-cost core deposit base, resulting in an expansion of our net interest margin. But as we all know, growth in the asset side of the balance sheet was not brisk. The slow pace of economic activity was not conducive to meaningful earning asset growth. New loans originated in 2010 were largely offset by normal run-offs, higher charge-offs, and a planned reduction in our construction book.

Net interest income ended the year with an increase, despite legislative headwinds from overdraft fees. We experienced good growth in mortgage banking income for year-over-year as a result of continued strong refinancing activity and improved spreads. Overall expenses were well-controlled and lower for the year.

With that capsule summary of the 2010 as a backdrop, let's look more specifically at the fourth quarter performance.

Looking first at credit, we saw a decrease in our nonperforming assets and overall delinquency linked quarter, which we find encouraging. However, we also saw increase in charge-offs. Credit costs, as we have indicated in prior calls, remain elevated. The provision [was flat] linked quarter, as we are comfortable with our overall loan loss provision. With what is currently being predicted to be a slow rebound in economic activity, we believe credit costs will remain at higher levels than we had experienced before the financial crisis.

We expect growth in earning assets and net interest income to be a challenge until we see more rapid economic expansion. Adding to this challenge will be increased price competition for quality new credit opportunities at the bank -- all banks aggressively seek to grow earning assets. Phil will give you more color on credit in a few minutes.

As the economy picks up steam, we believe we are positioned well to meet the credit needs of our customers. Aided by industry trends, promotional efforts, and growing awareness of relationship banking strategy and brand, core deposit growth has been good and liquidity is strong.

In the fourth quarter, we continued to see some margin pickup, partially as a result of certificate of deposit repricing. However, our pace of margin expansion was tempered somewhat by increased pressure on earning asset yields. Non-interest income, while up for the year, was down for the quarter. Mortgage banking income, an area of very strong performance in the third quarter, slowed somewhat toward the end of the year.

While non-interest income growth will continue to face challenges as a result of current and future regulatory changes, a great deal of time and energy is being invested by our people to meet those challenges. We are closely monitoring developments in the Durbin Interchange Amendment and the repeal of the prohibition to pay interest on business accounts, while simultaneously exploring the pros and cons of a number of strategic options.

This Company has a long-standing reputation for tightly controlling expenses. In the fourth quarter, our expenses were higher than normal. As I mentioned earlier, in April of last year, Forbes named us as one of the 100 most trustworthy companies in the country. And since we were one of only four banks on the list, we felt it was important to leverage this designation across all of our markets at a time when industry perception was at a low point. As a result, we significantly increased our marketing, promotional and media expenses to use this recognition to enhance our brand. We also believe these efforts contributed to strong core deposit growth that we generated in 2010.

Charlie will cover our financial performance in more detail in a few minutes.

Other notable items in the fourth quarter included the completion of our merger of Delaware National Bank into Fulton Bank, reducing the number of affiliates from eight to seven. We have been monitoring developments around the mortgage foreclosure and secondary sale putbacks from Fannie Mae and Freddie Mac. No material concerns exist at this time. And, of course, we, along with the industry, are working to stay abreast of the 16 titles under the Dodd-Frank legislation. We believe our appointment of a high-level Dodd-Frank steering committee and specifically appointed titled Chair is an effective organizational response.

Our capital position remains strong, and exceeds current regulatory and Basel guidelines. For 2011, we believe growth in earning assets will be both our greatest challenge and our greatest opportunity. While we sense that the pace of business activity is improving somewhat, most economists expect stable to modest growth. We, along with some of our business customers, remain hopeful that 2011 will be bringing with it a meaningful uptick in business activity and economic expansion.

Now I'd like to turn the call over to Phil Wenger for his discussion on credit. Phil?

Thank you, Scott. As Scott indicated, we were pleased to see reductions in the level of both our delinquencies and our nonperforming loans. Our charge-off pace was higher than prior periods. The level of charge-offs had been previously recognized within our reserves, and without prospects for full repayment from liquidity or cash flow in these assets, we took the necessary charges.

Having said that, there are indications that credit quality is showing signs of improving. While one quarter is not a trend, we are pleased with the results. Let me give you some specifics. My comments will be linked quarter unless I indicate otherwise.

First, with regard to delinquency, as you saw on the chart on page 6 of the press release, we had a 28 basis point or $34 million decline in overall delinquencies, which was reflected across the board in each of the loan categories. 30-day delinquencies declined 13 basis points or $15 million; 60-day delinquencies declined 4 basis points or $4 million; and 90-day-and-over delinquencies declined 12 basis points or $14 million. Delinquencies declined in every loan type, with the largest decline in dollars in the commercial loan category, $13 million. Overall delinquency decline remained flat in each of the five states in our territory.

Total delinquency at quarter-end is the lowest it has been since December of 2009. Further, 30- and 60-day delinquencies are at the lowest quarterly level they have been since June of 2008. Nonperforming loans also declined. Dollars decreased $14 million or 4% to $329 million from $343 million. The decline occurred in all loan types with the exception of C&I, which increased modestly by $2 million. Nonperforming loans declined in all five states as well. Construction nonperforming loans declined the most with a $7 million reduction. Charge-offs, payoffs, reduction in balances through customer repayments, as well as a slowing of additions to nonaccruals during the fourth quarter, drove this reduction in nonperforming loans.

Despite the increase in net charge-offs, we determined that a provision of $40 million was appropriate for the quarter, based on the results of our allowance allocation procedures. Net charge-offs were $49 million, an increase of $14 million from last quarter. Charge-off mix changed from last quarter, with commercial mortgage charge-offs representing $17.5 million versus $3.7 million last quarter. Our largest commercial mortgage charge-offs were on a hotel, a mixed-use project, and a hospitality company in Pennsylvania, Virginia, and New Jersey, respectively. These loans were under water on value and did not have sufficient cash flow to service the debt.

Charge-offs on construction loans represent the next largest category at $13.2 million, a significant decline from $22.9 million in the third quarter. C&I charge-offs were $12 million, up from $4.5 million last quarter, and are comprised of a number of loans, with the largest individual charge at $1.5 million; the remainder, all under $750,000.

Construction loans, as we had mentioned in the past, have been a significant challenge for us. We continue to make meaningful progress in reducing our exposure to troubled borrowers within this industry. In December of 2006, our construction portfolio was $1.440 billion. At the end of 2010, the balance was at $801 million. The balance has declined $33 million in the fourth quarter, further reducing the risk in this portfolio. Other real estate increased from $30 million to $33 million. The increase was driven by the addition of several commercial properties in Maryland.

Troubled debt restructurings totals increased to $95 million from $87 million, with residential TDRs increasing $4 million to $56 million. The remainder of the increase is spread among all loan types. $29 million of the TDR portfolio is nonaccrual. All commercial TDRs are current in payment. Delinquency in the accruing TDR portfolio is 6.1%.

2010 was a robust year for mortgage activity. We closed over $1.8 billion in loans, resulting in mortgage banking income of $29.3 million. With regard to mortgage activity going forward, the pipeline is down from last year, currently at $154 million versus $237 million last year at this time. There has been discussion in the press regarding repurchase activity, and I can report that our outstanding repurchase requests are less than $5 million and are appropriately reserved for.

Generally, loan demand remains modest. We are beginning to see signs that customers are less pessimistic and are undertaking projects that have been deferred, which should lead to increased spending. Commercial loan closings were 25% higher in the fourth quarter of 2010 than they were in the fourth quarter of 2009. And despite charge-offs, construction reductions, and regular amortization, we continue to hold outstandings relatively level.

Now I will turn the discussion over to Charlie Nugent, for his comments. Charlie?

Okay. Thank you, Phil, and good morning, everyone. Thank you for joining us today. Unless otherwise noted, comparisons are of this quarter's results to the third quarter.

As Scott mentioned, we reported net income available to common shareholders of $31.5 million, with $0.16 per share in the fourth quarter unchanged from the third quarter. Net income, which excludes preferred stock cost, was also $31.5 million in the fourth quarter as compared to $37.5 million for the fourth quarter, a $6.2 million or 16% decline.

In the third quarter, preferred stock costs were $6.2 million. As a result of redeeming the preferred stock, there was no cost in the fourth quarter. The decline in net income resulted mainly from a $4.4 million increase in operating expenses; a $2.6 million decrease in non-interest income; and a $1.6 million reduction in net security gains. Net interest income showed a moderate improvement of $710,000. Our net interest margin was 3.85% for the fourth quarter as compared to 3.81% for the third quarter.

Our total cost of interest-bearing liabilities decreased to 1.35% from 1.48% in the third quarter. Time deposit costs declined to 1.74% in the fourth quarter as compared to 1.82% in the third quarter. During the fourth quarter, $1.2 billion of time deposits matured at a weighted average rate of 1.38%, while $1 billion of certificates of deposit were issued at a rate of 0.83%. In the first quarter of 2011, $884 million of time deposits were scheduled to mature at a rate of 1.28%.

Federal Home Loan Bank advances totaling $81 million matured in the fourth quarter at a weighted average rate of 3.74%, while $84 million scheduled to mature in the first quarter of 2011 and the rate on those are 3.44%. Yields on our average earning assets decreased 8 basis points to 4.93% in the fourth quarter as compared to 5.01% in the third quarter. Average interest earning assets declined $59 million and average investments decreased $45 million, while ending balances increased $99 million. During the fourth quarter, purchases of investment securities, primarily agency collateralized mortgage obligations exceeded sales and maturities by approximately $140 million, as rates increased slightly, making such investments more attractive than they had been during the first nine months of the year.

Average loans declined $13 million as a [$50 million] decrease in construction loans was partially offset by a $24 million increase in commercial mortgages and a $12 million increase in commercial loans. Total average deposits grew $108 million, or 1% from the third quarter. While this growth is reflective of the industry trend of consumers and businesses saving, we also believe our customer experience and our promotional initiatives have contributed to this growth.

We continue to experience good growth in core demand and savings accounts, with average balances increasing $334 million or 4.5%. This growth was partially offset by $226 million or a 4.5% decrease in average time deposits.

Non-interest-bearing demand deposits increased $78 million or 4%, almost entirely in business accounts. Interest-bearing demand deposits grew $133 million or 6%, primarily in municipal accounts. Saving deposits grew $123 million or 4%. Of this amount, $66 million was in municipal accounts; 35% was in personal accounts; and $21 million was in business accounts. Excluding net security gains, our other income for the fourth quarter declined $2.6 million or 5%. The reduction in other income was driven mainly by mortgage banking income, which decreased $3.5 million or 29%.

During the third quarter, we revised our methodology for determining the fair value of our mortgage banking pipeline to properly recognize expected gains in the period when mortgage rates are locked into borrowers. This revision resulted in an acceleration of mortgage sale gains in the third quarter totaling $3.3 million.

Service charges on deposits decreased $661,000 or 4.5%, due mainly to the impact of Reg. E, which we began to see during the third quarter. Other service charges and fees grew $309,000 or 3%, mainly as a result of debit card fee income and foreign exchange income, both as a result of higher transaction volume.

The Federal Reserve recently issued proposed pricing guidelines regarding interchange income on certain debit card transactions, as required under the Dodd-Frank Act. In 2010, our debit card interchange income that would be subject to these regulations totaled $15.7 million. If the regulations are enacted as proposed, this interchange income would decline by approximately $9.7 million annually. We will continue to monitor our fee structure to identify changes that could be implemented, to mitigate the proposed reduction in this interchange income.

Investment management and trust services income improved $222,000 [or 3%] as a result of growth and trust commissions. Net security gains were $194,000 in the fourth quarter compared to $1.8 million in the third quarter. Other than temporary impairment charges of $2.5 million on pooled trust preferred securities, and $170,000 on bank stocks were more than offset by realized gains on sales of debt and equity securities of $2.2 million and $660,000, respectively.

Our investments in pooled trust preferred securities had a cost basis of $34 million and a carrying value of $8.3 million at the end of the fourth quarter. Operating expenses increased $4.4 million or 4% in comparison to the third quarter. The most significant increase was seen in marketing expenses, which increased $1.9 million or 72% as a result of various promotional campaigns.

Other categories seeing expense [add] increases were operating risk loss, which increased $541,000 or 81%; salaries and benefits increased by $422,000 or 1%; and our other expense category increased $725,000 or 4%, mainly due to outside services.

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

(Operator Instructions). Bob Ramsey, FBR Capital Markets.

First question for you has to do with commercial real estate charge-offs. I know you noted three larger credits. How big were those relative to the total amount of net charge-offs? And then what is the status of those loans now that they're charged down? Are they still on nonperforming or were they restructured? Or have they been worked off the books? What's going on there?

Yes, I'll answer that, Bob -- Phil Wenger. The size of the charge-offs were $3 million -- two were $3 million and one was $2.4 million. And two of them have been restructured and one is nonperforming.

Okay. And I guess also the C&I sounded pretty granular but was certainly up from last quarter and from recent run rates. Is that just normal quarterly lumpiness? Or is any of that seasonal year-end more thorough review or -- any other factors on the C&I jumps?

You know, our largest charge-off in the C&I was $1.5 million. So I would say it's normal lumpiness, but we had a lot of small charge-offs. This quarter -- our largest charge-off in general was $3.1 million. We actually had a total of 405 accounts -- this is for all charge-offs. But we'd certainly be represented of C&I also.

We had 405 accounts in the quarter that we had to charge against. In the third quarter, for example, we only had 275. So the average size was down quite a bit, but we took charges on more accounts.

Okay. And is the increase in the number of accounts, is that just sort of problems working their way through the normal pipeline? Or would you read into that any sort of pickup? Or what are the thoughts?

I think it was a normal work through the pipeline.

Okay, great. Maybe one last question and I'll hop back in the queue. But you guys mentioned, in terms of loan demand, you are seeing some signs of some borrowers beginning to, I guess, enter projects that had been previously deferred. What are you guys seeing in terms of line utilization? Is that still flat to down or has there been any pickup there?

It is -- it's been very flat. Where actually, if you look year-over-year, we're up from 41% to 43%, but it's been at that 43% level over the past three quarters.

Great. Thanks, guys.

Matthew Clark, KBW.

On the reserve release this quarter, can you give us a sense for -- we obviously see kind of the net new problem trends and the delinquency trends, but can you give us a better sense for the migration maybe of criticized classified credits, whether or not that's also improving? I'm just trying to get a better sense for whether or not this reserve release might continue, assuming you see kind of a sustained improvement.

You know, there was improvement in the fourth quarter. We are not ready to say that that is a trend. So, I'd guess -- I hate to be wishy-washy, but it -- I would not say that the release of reserves at this point is definitely a trend.

Okay. And then on the TDRs again, can you just reiterate that number again? I missed it. In terms of, I guess, the total TDRs. And then I think I got the piece that is in nonaccrual, which was $29 million.

Yes, the total TDRs went from $87 million to $95 million.

Okay. Got it.

And $29 million is in nonperforming.

Okay. And then just lastly, on the construction portfolio, would you mind just giving us an update on the mix of that portfolio by type? I think you've given us in the past raw land and other categories -- I think developed lots is another one. And then as a follow-on to that, if you can just update us on the -- whether or not there was any change in the performance of your commercial borrowers that are in the construction industry that we talked about in the past.

Yes, you know, I don't know that I have those numbers totally in front of me, but I do remember some of them. Raw land is at $80 million and then land development, which would be developments that have been improved, is about $360 million. And then the balance would be vertical. And then, I'm sorry, I didn't catch the rest of your question.

Just wondering how the performance of your commercial portfolio is doing that is exposed to the construction industry? It's an exposure that I think we've talked about in the past as being about $350 million.

I would say we have challenges in that portfolio and it certainly is an area that we're watching very closely.

Okay. Thank you.

Frank Schiraldi, Sandler O'Neill.

Just a couple of higher-level questions. Given the credit in the quarter and maybe it's not a trend yet, but looks like credit maybe has stabilized here, how do we think about potential dividend raise? Is it likely -- or do you think it could be a 2011 event? And what sort of payout ratio do you ultimately expect to target?

Well, Frank, as we've been saying for some time now, there's a series of events needed to take place before we could consider a dividend increase. One was repaying TARP, and of course, that's done. Another was to begin to improve our earnings, and we've done that. And then this clarity on capital from regulatory agencies, I think is clearer but not complete. As you know, they're going through this round with the 19 and stress testing all of them. We're getting very little information about what that stress test is and how it's being performed. We've done our own stress testing and we think our capital is in good shape, but we don't have the final, if you will, clarity on that from regulators.

And then to your comment, while we feel good about the way credit looks right now -- as I mentioned earlier, this economy is growing -- is stable but growing modestly. So we've got to kind of watch earnings as the year unfolds. But we are a dividend -- have always been a dividend paying Company, and I think the Board will look at that in a more positive vein than they have in the past, as we go through the quarters this year. I think it will be a little more clarity on capital and then whether the earnings can support it.

As far as the payout ratio, that's one of the areas where I think there's a lot of fogginess right now. You know, you hear this 30% turnaround in the press as the big banks looking at where the payout ratio should be. I think that will depend on the recovery and how robust it is or isn't, and how sustainable everybody thinks it will be.

So I think we're going to be -- all of us are going to be very careful about paying out too large a portion of earnings until we get a little more convinced that the economy really will rebound the way it's expected in '12 and on out. So, I guess to sum all that up, I think there are reasons to look positively at a potential dividend increase, but we're not declaring one yet.

Okay. And then, I guess, on the other side of the coin, M&A -- obviously, organic growth has been somewhat hard to come by. And obviously, in the past, Fulton has grown through M&A. And so I'm sure there's opportunities out there. So, do you see Fulton jumping back into that M&A mix anywhere in the short-term? Or is that sort of maybe even farther out than a potential dividend increase?

Well, I think we are looking at and will continue to look at opportunities. And if we think they're strategically fit us and if we can make a return for our shareholders on them, you're going to see us doing M&A going forward.

To date, primarily, the banks that have been available are what I'll call stressed. And in some situations, we have been involved with looking at those and, at least at this point in time, haven't been successful in being the final candidate. But we continue to look at all opportunities. My assessment is that short-term opportunities will continue to be the stressed banks. I think as we proceed through the year, if it goes the way all of us hope it will, we'll see some more consolidation with -- in the more typical kinds of normal consolidations with healthier banks.

Okay. And just, I guess, a follow-up on that -- the TCEs -- is there sort of a tangible common equity ratio that you have in mind, in terms of you don't want to get below here? Or, you know, I guess, if M&A does come up, if something does come up, where could we see that migrate downwards to where you'd still be comfortable?

Frank, is this tangible common equity the risk weighted assets or tangible assets?

Just off tangible assets.

Tangible assets -- our ratio is around 8.5% and we think that's more than adequate. And that would be above the fully phased-in Basel III requirements. So I think -- (multiple speakers) [that's] good.

[Maybe some room] there. Okay.

Maybe -- we used to be about 7%; maybe we can keep it at least 8%, I would think. (multiple speakers) (inaudible)

And Frank, it would be individualized by deal, depending on the strength of the company we're buying and our potential to grow it and all of that. So that becomes a very specialized decision as opportunities present themselves.

Got you. Okay. Thank you very much.

Craig Siegenthaler, Credit Suisse.

First, just on the FASB guidance for TDRs -- is there any potential for increases in the first half of this year, just due to changes in the definition?

I don't think so, no.

Got it. Just a follow-up here -- you mentioned as kind of three credits -- two of them charged around $3 million, the other one around $2.2 million -- what was the notional size of the loan of each of those credits?

They varied from $7 million to $9 million.

And then just a final here. What was the addition to nonaccrual in the fourth quarter -- in aggregate -- so not just commercial mortgage, but the total bulk. And how does that compare to the third quarter?

Yes, fourth quarter was $64 million and third quarter was $72 million -- $73 million.

Got it. Alright, great, guys. Thanks for taking my questions.

Collyn Gilbert, Stifel Nicolaus.

Could you just give a little bit of color, Scott, or anyone else who want to field it, on the nature of the commercial loan credits where you -- I think if the percentage is right, you said there was a 20% increase this quarter in commercial loan closings versus what you saw the same period last year? Anything in particular that you're seeing within that segment where demand is coming back?

Part of it was new customers (inaudible). I don't know that I could identify one industry that there's [loan demand in efforts]. Certainly it wouldn't be housing, okay? But some -- I mean, autos are doing better than they were. And what I'm hearing anecdotally is that customers who had mothballed projects are starting to talk about them again. And so there's -- I think there's just more optimism now that some of the uncertainties have been resolved for folks with the tax changes and some of that.

So, yes, it gives us hope. But as far as short-term growth is concerned, we have to have a lot more projects in process to be telling you that you're going to see a nice pop in outstandings first quarter. But things can happen rather quickly. But we certainly feel better about loan growth now than we did a year ago.

Okay. That's helpful. And then, just, Phil, back on the question about the reserve and managing the credit recovery process, you said you're not ready to say that there's a trend quite yet. Is it -- what would need to happen for there to be a definitive trend? Is it just another quarter? Or do you need to see some change in customer behavior? I mean, what are you looking for to say, okay, the trend is there, we now legitimately feel comfortable?

I think we'd like to see what happened in the fourth quarter, [be sustained] for a period of time, [to] one [to] two quarters more I think would be very positive.

What's more important, Collyn, is what you think is the trend, not what we think is the trend. (laughter) So you tell us.

(laughter) I've totally misgauged this whole credit recovery trend, so I'm going to abstain from that question.

Okay. Just one thing -- and, Charlie, you may have touched on it, but the -- did you give an update as to what the full Reg. E impact is going to be for the year?

We said that when we compared quarters, it was down about $841,000 -- $641,000. So, it's hard to gauge. I think what Phil said on the last conference call, he thought it was between $400,000 to $500,000 a month. But we have also growth in accounts still, so.

It's actually been less than that. And I think we're looking somewhere around $2 million.

For the full year -- impact?

Yes.

Okay. Alright, I'll leave it at that. Thanks, guys.

Eric Beardsley, Barclays Capital.

You briefly allude to competition in your prepared remarks. I was just wondering if you could add any color to what you're seeing out there?

Well, what we're seeing is, as we are struggling for loan growth, so is everybody else. And we all want the quality credits that are available and there are some available. But we're seeing some pricing pressure as a result of that. Not to the extent it was pre-crisis, but it's certainly picked up from where it was six -- nine months ago.

Okay, great. Thanks. And in terms of your operating expenses, are we going to see the marketing expense higher going forward? Or is that something that was just one quarter?

I think it was one quarter, primarily. I think we'll see it drop back.

Okay. Terrific. Thanks so much.

(Operator Instructions). Rick Weiss, Janney.

I was wondering if you could talk a little bit about interest rate sensitivity? Has there been any material change since you filed the Q for the September quarter?

No, it's almost exactly the same, Rick. The static gap is [106]. And the -- we haven't updated our testing based on rates but I would think it would be exactly the same.

Okay. Thanks a lot. And also, with regard to a lot of news stories on Marcellus Shale in Pennsylvania, how does that impact Fulton?

Well, we are in State College and we are in Williamsport, and both of those are kind of at the edge of where that's all happening. I would say to date, it has not had significant impact on our growth, although we are seeing some investment management opportunities and some growth in some of our customers, particularly the State College customers who are involved with this -- it looks like some decent revenue growth for them and potential loan growth from some of those. But it's not something that I think's going to move the needle short-term. Anybody have anything to add to that?

I would agree.

Do you think it could have an impact on the M&A activity within Pennsylvania? (multiple speakers) Not necessarily for Fulton, just (multiple speakers) --

Well, there's some -- you know, as you [certainly] know, there's some banks in that market who might become attractive to some folks. We are looking to get some branching opportunities there and also at what's available there from an M&A standpoint. But that remains to be seen, I guess.

Okay. Thank you very much.

Matthew Clark, KBW.

Just a follow-up, really, on the long end of the curve and the relief that we've seen on that end. Can you just talk to how that may have helped you intra-quarter? You know, obviously reinvesting at better rates on the securities front. It sounds like pricing pressures still persist, though, on the loan side, but just also on the deposit front -- any change in your ability to lower rates? If you could comment on that, I'd appreciate it.

You know, Matt, we had -- we mentioned this -- $1.2 billion in CDs that matured in the fourth quarter. And we replaced -- [the billion] new CDs were generated and they went on at 83 basis points. So there was a pickup there and reduction in cost of funds that helped us move down 12 basis points in total. And in the first quarter of this year, we have $884 million in CDs maturing. The weighted average maturity is a [128]. So if we could keep it at that 83 basis points that we've been keeping the CDs at, we would improve by 45 basis points.

We also have some Federal Home Loan bank advances maturing -- I think it's $84 million, and the weighted average maturity on those advances are 3.44. So, we think we'll see some more reductions in our cost of funds.

Thanks, guys.

Kyle Cavanaugh, Palisade Capital.

Charlie, I think you mentioned that the Durbin Amendment could have an effect on debit card. You said it would reduce the current $15.7 million to $9.7 million --

Yes.

-- or it would reduce it by $9.7 million?

Reduce it by $9.7 million. And Kyle, that was on our revenue last year and what the effect would have been on last year's income if what was proposed actually happens. And that would increase the income by $9.7 million and it would bring us -- that [$15.7 million] would have been $6 million.

Okay. Alright, thanks.

Bob Ramsey, FBR Capital Markets.

Just to follow-up on Matt's question -- I think you gave some good information about funding costs, near-term outlook. As you factor that through, is that offset by the pressure on asset yields when you think about marginal security and loan yields? Or how does it all fall out in terms of your margin outlook?

We've been pretty good at holding asset yields. They were down a little bit more than we expected. I think they were down 8 basis points in total. Loan yields were only down 6. The investment portfolio, the yields were down 20 basis points. A lot of that was early repayments on the mortgages and the mortgage-backed securities, and some of those had a premium on it, so we had to take that premium off. But I think the cost of our funds are going to keep on going down a lot faster than our asset yields.

Okay, great. Thank you.

Collyn Gilbert, Stifel Nicolaus.

Just quickly, could you guys give -- Charlie, could you just give a little bit of color into your municipal bond portfolio? And has the management strategy of that portfolio changed at all in the last six months? Or just kind of run through a little bit more detail on the book.

In the municipal bond portfolio, Collyn, we have -- it's around $340 million and -- that's $341 million in bonds. The market value has really deteriorated on those from quarter to quarter -- it went down from a $14 million net gain to $4.5 million. We look at that very carefully. When we bought them, we looked at the insurance rating and then also the underlying rating of the municipality. I think they were all highly rated. And over [96%] of those bonds are backed by the general obligation -- the ability to increase taxes. We feel pretty comfortable with those.

Okay. What about just a geographic nature of them -- where are they?

I don't have the breakdown, but I would think the majority would be in Pennsylvania and New Jersey. I'll have to look to make sure.

Okay. But given all that's going on in the market, I mean, should we not expect any kind of fundamental change in your willingness to hold them and have it be part of the tax strategy?

No. We still continue to buy them, and we look at the ratings and the insurance. We're still comfortable with [that].

Okay. That's all I had. Thanks.

At this time, I'd like to turn the call back over to Scott Smith for any closing remarks.

Thank you. We'll end the call by thanking everyone for joining us today. We hope we've been able to -- you'll be able to be with us again when we discuss first-quarter earnings in 2011 on April 20 at 10.00 a.m. We'll talk to you then. Thank you again.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may all disconnect. Everyone have a great day.