Fulton Financial Corp (FULT) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Fulton Financial announces fourth quarter, year-end 2014 results conference call. This call is being recorded. I would now like to turn the call over to Laura Wakeley, Senior Vice President of Corporate Communications.

Good morning, everyone. Thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for 2014. Your host for today's conference call is Phil Wenger, Chairman, President, and Chief Executive Officer of Fulton Financial. And joining Phil is Pat Barrett, Senior Executive Vice President and Chief Financial Officer.

Our comments today will refer to the financial information and related slide presentation 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 relations and then on news. The slides for today's presentation can also be found on the Presentation page under Investor Relations on our website.

On this call representatives of Fulton may make forward-looking statements with respect to Fulton's financial condition, results of operation, 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 which 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, and we refer you to this section and we incorporate it into today's presentation. For a more complete discussion of certain risks and uncertainties affecting Fulton, please see the sections entitled Risk Factors in Management Discussion and Analysis of financial condition and results of operation set forth in Fulton's filings with the SEC.

In discussing Fulton's performance, representatives of Fulton may refer to certain non-GAAP financial measures. Please refer to the supplemental financial information included with Fulton's earnings announcement released yesterday for a reconciliation of those non-GAAP financial measures to the most comparable GAAP measures.

Now, I would like to turn the call over to your host, Phil Wenger.

Thanks, Laura, and good morning, everyone. Thank you for joining us. I have a few prepared remarks before our CFO, Pat Barrett, shares the details of our 2014 and fourth-quarter performance. When he concludes we will both respond to your questions.

For the first time we are pleased to introduce an annual outlook for the coming year as well as a slide presentation into our quarterly call. So we will refer to the slide numbers for your reference throughout our presentation. Our forward-looking statement is on slide 2.

In my comments today I want to briefly review the year just completed and provide some additional color on our strategy. So turning to slide 3 of our presentation for 2014, we reported diluted per-share earnings of $0.84, up 1.2% over the $0.83 we reported for 2013. For the year our return on average assets was 0.93% and our return on average tangible equity was 10.31%. Quality earning assets growth remains a top priority. After a slow weather-related start to the year, full-year loan growth was modest and ended just short of our target 3% to 7% range.

With the stronger demand for credit that we experienced in the second half of 2014 along with our current commercial loan pipeline running nearly $250 million higher than the same time last year, we are clearly starting 2015 with better momentum than we had a year ago.

From a funding standpoint, overall average deposit growth outpaced our loan growth. We were particularly pleased with the year-over-year increase in our core deposits, enhancing our funding position to support further loan growth. The most significant headwind in 2014 was the persistently low interest-rate environment. Lower loan yields resulted in year-over-year margin compression and lower net interest income.

Reduced mortgage banking income was a result of lower sales gains, reflecting narrower spreads. Over the last several weeks we have seen a pickup in residential mortgage applications. If rates remain at current levels or trend lower, further increases in mortgage activity and related sales gains could be expected.

Over the last several years we have in pleased to report steady improvement in overall asset quality. 2014 was no exception, again resulting in lower provisioning and broad improvement across all credit metrics. We expect credit quality to show further improvement consistent with the pace we realized during 2014.

Throughout the year we have been focused on building out our regulatory compliance and technology infrastructures. We believe we have made significant progress on all these fronts throughout 2014. As we stated, these projects are expensive from a talent and outside consulting standpoint. Despite the high cost associated with these buildouts, we were pleased to see a modest year-over-year decrease in total expenses. Having said that, we, like many others in the industry, faced continued upward pressure on regulatory compliance and related costs, and therefore must continue to prioritize overall cost discipline.

You will recall that in early 2014 we consolidated 14 branches, reorganized our regional management structure and made changes to our employee benefit programs. These factors all contributed to our year-over-year expense reduction. We will be pursuing the consolidation of nine additional branches over the next several months. These should be completed early in the second quarter of this year. We expect total annualized savings of $2.4 million and one-time costs of $1.5 million. We also expect to achieve the high customer retention rate we have experienced with this past year's consolidations.

Additional cost-saving modifications to our employee benefit programs are also being made in 2015. These changes principally focus on standardizing the benefit levels for all employees and are expected to produce an additional $2.2 million in annualized cost reduction.

Strategically, the deployment of our capital for the enhancement of long-term shareholder value remains one of our highest priorities. We delivered that value in 2014 through open market share repurchases during the first and third quarters totaling 8 million shares combined with a $100 million accelerated share repurchase agreement we executed in the fourth quarter. Additionally, we issued $100 million of subordinated debt that funded the accelerated repurchase. These actions will have a positive impact on future earnings per share and [can] on our return on equity.

Last but not least, in December we paid a special cash dividend of $0.02 per share. As we continue to see economic expansion and improvement in business and consumer confidence we believe we are positioned well to compete in all our markets in 2015, remaining focused on increasing shareholder value.

On slide 4 you will see a summary of our 2015 outlook. We look for loan and deposit growth both in the range of 3% to 7%. Based on the current interest-rate environment we expect to see continued net interest margin compression in the range of 0 to 4 basis points per quarter on average. Provision levels are expected to remain relatively stable with potential volatility from changes in individual credits.

We anticipate non-interest income growth excluding the impact of security gains will be in the mid-to high single-digit range, barring any further regulatory intervention on products or pricing. We expect increases in mortgage banking income from improved volumes as well as higher fee income generated from growing deposit balances and account activity. We expect non-interest expense to increase modestly, in the low single-digit range, reflecting higher staffing costs, which will largely be offset by the impact of cost savings initiatives and lower outside service expenses. It is our goal to improve our efficiency ratio to below 65%.

We will continue to focus on the buildout of our compliance, risk management, technology infrastructures and other initiatives that drive operational excellence. One good example of an initiative that is geared to improving our overall operational excellence is our developing plan to seek regulatory approval to move forward with combining our bank charters. The timing of the commencement of this multiyear process will depend on our making the necessary progress towards the buildout and sustainability of our BSA/AML program. Finally, we remain committed to returning capital to our shareholders to enhance the value of their investment.

At this point, I would like to turn the call over to Pat to discuss our financial performance in more detail. Pat?

Thank you, Phil. And good morning to everyone on the call. Unless I note otherwise, quarterly comparisons are with the third quarter of 2014, annual comparisons with 2013.

Starting on slide 5, as Phil referenced, for the year our net income was $158 million, a decrease of 2.4% from 2013. Earnings per share, however, increased by $0.01 or 1.2% due to share repurchases. The net income decrease resulted from lower net interest income and lower non-interest income, partially offset by significant improvements in loan-loss provisions. Net interest income was down 2.3%, mainly due 11 basis points of net interest margin compression. Non-interest income decreased $14.3 million or 8%, primarily due to lower mortgage banking income and overdraft fees. Our loan-loss provisions decreased to $28 million or 69% as a result of improving asset quality. Non-interest expense declined by about 0.5% as investments in the buildout of our compliance, risk management, and technology infrastructures were offset the impacts of cost savings initiatives implemented in early 2014.

Turning to our fourth-quarter results on slide 6, earnings per diluted share were $0.21 per share, unchanged from the third quarter, on net income of $38 million, which was down $617,000 or 1.6%. The decrease in net income resulted from lower net interest income and non-interest income combined with an increase in non-interest expense. These were partially offset by the positive effects of lower income tax expense, lower loan-loss provision, and an increase in securities gains. Returns on average assets and tangible equity were 88 basis points and 9.96%, respectively. And our efficiency ratio was 67.5%.

Turning to slide 7, for the quarter net interest income decreased $1.3 million or 1.0% due to an 8 basis point decrease in net interest margin partially offset by the impact of a 1.3% increase in average earning assets. Average earning assets increased to $210 million including $133 million or 1% increase in average loans. Average yields on interest-earning assets decreased 5 basis points with the yield of average loans declining four basis points to 4.16%.

The average cost of interest-bearing liabilities increased 3 basis points due to a change in funding mix driven by the results of our November issuance of $100 million of subordinated debt. Average deposits increased $302 million or 2.3% due to increases in demand and savings accounts. This growth was driven by increases in both business and municipal account balances.

Our net interest margin for the fourth quarter of 3.31% was outside the estimated range that we gave you last quarter of 3.33% to 3.39%. This was largely due to a transfer of clearing account balances from non-interest earnings to low-yielding interest earning asset balances and higher interest expense on the subordinated debt issued during the quarter, partly offset by accelerated accretion from nearly $50 million in auction rate securities that were called at par during the quarter.

Moving to credit on slide 8, as Phil said, we saw continued broad-based improvement in credit. The provision for credit losses for the fourth quarter decreased $500,000 to $3 million. For the year our net charge-offs decreased from $61 million to $32 million for an annualized net charge-off rate of 24 basis points compared to 49 basis points in 2013. Nonperforming loans decreased from $154 million at the end of 2013 to $139 million at the end of 2014. Nonperforming loans as a percentage of loans also decreased from 1.21% to 1.06%. The allowance for credit losses to loans decreased from 1.60% to 1.42% while the allowance for credit losses to nonperforming loans outstanding increased from 1.33% to 1.34%.

Turning to fourth-quarter non-interest income on slide 9, we saw a $566,000 or 1.4% decrease excluding the impact of securities gains. Mortgage banking income declined $315,000 or 7.8% as spreads declined on volumes that were consistent with third-quarter levels. Other noninterest income was essentially flat as decreases in deposit service charges were offset by increases in other service charges and fees.

Moving to slide 10, non-interest expenses increased $1.9 million to $117.7 million for the quarter, within the range of $116 million to $120 million that we indicated last quarter. The higher expenses reflected a $3 million increase in salaries and benefits with employee benefit increases accounting for approximately $2 million of this increase as a result of increased self-insured health care costs. This increase was partly offset by a decrease in ORE and reposition expense.

As always, I want to remind you that expense run rates and certain expenses such as ORE expenses and operating risk losses can and do experience unexpected volatility.

New progress turning to slide 11, as Phil mentioned, we continue to make progress towards building out our regulatory compliance and technology infrastructures. Total BSA/ AML-related outside services expense was approximately $8 million in 2014, bringing the total since the beginning of 2012 to $14 million. As we expected, the impact of these investments on our expense run rates has been largely offset by the cost savings initiatives announced earlier in the year.

Looking towards 2015, we expect outside consulting services relating to BSA/AML to decrease by approximately $5 million, while the full-year impact of our 2014 staffing increases for BSA/AML will result in a slight increase in overall salaries and benefits. However, as with expenses in general, there is a certain degree of volatility related to the timing of expenditures for professional fees and outside consulting expense.

Income tax expense decreased $1.9 million or 14.4%, reflecting the timing of tax credits from our investments in community development projects. We expect that our tax rate will remain at approximately 25% during 2015.

Moving to profitability and capital on slide 12, for the past four years our annual returns on average assets has been at least 90 basis points and our return on average tangible shareholders' equity has been in the mid-10% range. We will continue to focus on improving these levels going forward. As you know, capital management has been a priority for us.

As Phil mentioned, 2014's share repurchases and our November capital actions improved our capital mix and costs and had positive impacts on both diluted earnings per share and returns on average shareholders' equity. From the regulatory capital perspective, our capital levels remained strong with our ratios for tangible common equity at 8.8%, Tier 1 at 12.2%, and total risk-based capital 14.5%, respectively. We will continue to be proactive in managing our capital to optimize returns to our shareholders while continuing to meet the requirements and expectations of our regulators.

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

(Operator Instructions). Bob Ramsey with FBR.

I wanted to touch quickly on just the dynamics of the accelerated share repurchase transaction. As I understand it, you initially settled the 6.5 million shares. But based on volume weighted average price, at least to date, that suggests you probably have got, when you do your final settlement if current prices were to prevail, another 2 million shares will come out of the share count. Is that about right?

Yes, that's a pretty reasonable way to look at it. We don't know what the volume weighted average price is going to be between now and termination. All we do know is that it will be done by mid-April. So -- but you are right; based on where we were when we executed and where we have traded since then, we certainly would tend to get more shares rather than less.

Okay. And the full amount has already come out of capital. Right? You all have already made payment on those shares and then there would just be one final settlement or delivery of shares, whenever that is done, I guess likely in April?

Right. So the dollars that come out of capital for capital calculation, the number of shares, only 6.5 million came out because that was the upfront delivery, if that makes sense.

Yes, yes. Okay, and so then I guess if the final settlement happens in April there will be no shares coming out in the first quarter but then early in the second is when you see that final settlement?

Assuming that the termination occurs in April, yes.

Got it. Perfect. Okay, thank you.

So it's -- so April, just to be clear, we had a three- to five-month window, so it could bill and complete as early as February or at the latest mid-April. So I'll reserve that comment just as an unknown for us right now because the investment banks don't really tell us their progress.

Understood. And then on a go-forward basis after that point, I know you all have talked about that ability to continue to deploy a fair amount of capital to shareholders. How should we think about payout ratio in the remainder of the year? Would it be your goal to return more than 100% of earnings through a combination of dividends and buybacks to shareholders again this year?

I think our goal would be to return 100% again.

Okay. But not more than 100%, just something around 100%?

I would say around 100%.

Okay, great. Shifting the topic to margin quickly and then I'll hop back out of the queue, but I know you all have given guidance for NIM to be down somewhere between zero and 4 basis points a quarter through 2015, just curious how much of a difference does it make if rates were to follow the future curve or forward curve rather than where they are today, if that takes much pressure off of the margin or not. And then, as you think about quarterly progression, do you expect a little bit more in the first quarter as you have the full-quarter impact of the sub-debt offering and then maybe a little bit less in the second when I think you had some other debt maturing in early April? But just wanted to see if I was remembering that correctly.

That's two different questions. And let me see if I can get these right. So from an expectation perspective I don't think that the trend of actual rates is going to have a huge difference because when we were -- the last consensus that we modeled against is probably two to three months old at this point. So that was interest rates rising 25 basis points late in the third quarter and another 25 basis points in the fourth quarter, moving on to probably 100 basis points in 2016. So those expectations likely have moved out a bit, but the impact on our 2015 margin and results was very much back-ended and not significant.

So the second part of your question -- yes, it is fair to think that the compression is going to the at the higher end of that range that we gave early on because of the additional carry on the extra $100 million of sub debt which would mature on April 1. But we do anticipate continued steady modest loan compression if originations continue at this level and the continued roll-on impact of some of our CD promotions laddering out and extending our CD book.

Okay. That is helpful color. I appreciate the comments. I'll hop back out.

Casey Haire with Jefferies.

I wanted to dig in a little bit on the expenses. So if I got this correctly, you expected expenses to be up low single digits this year despite you've got about $5 million of sunsetting consultant expenses and cost-saving initiatives as well on the come. So what is overwhelming that and driving expenses higher on the year? What are the drivers, so to speak?

I think the single biggest driver is definitely salary and staff costs, because our mix of staff costs has shifted over the last 18 months. Although our overall number of staff hasn't changed meaningfully, our cost per person as we have ramped up so many of our risk and control activities and as we continue to look for branch optimization solutions, so we are trading risk and control professionals in for branch staff out, if you think about it in very high-level terms. So there's an upward bias that we are going to be having to address, probably on a permanent basis. And that's reflected in the BSA/AML costs that you see. We've reached nearly our full complement of staff at year-end, but our salary and benefits are only $3 million for the year. That will be $4 million as we get into the -- have the full-year run rate impacted. I think midyear hiring in a lot of areas will have similar upward bias.

Okay, understood. And then tying it all together in terms of the efficiency ratio, starting from 68% here, it doesn't look like there's a lot of operating leverage on the come in the guide. Is that sub-65% target -- is that still good for the year? Or is that at some point during the year?

I would say at some point during the year.

Okay. So likely over 65% on the year 2015?

That's reasonable, particularly when you think about cost initiatives tend to have upfront costs, and then realization of benefits doesn't start until we actually have executed those. So I think the trend would be a gradual improvement throughout the year rather than a shock immediate, early on.

Okay, understood. And just last question from me, the regulatory front -- can you just give us an take in terms of how you are working through the consent orders with regulators and, if all goes well, how you expect this to play out throughout the year in terms of the orders being lifted.

So we continue to work diligently on all fronts. I would say it is a process. It's a process from our end and it's a process from the regulatory end. We would have -- the orders, in all likelihood, would not be lifted to till first quarter 2016.

Okay, thanks for taking the questions.

Frank Schiraldi with Sandler O'Neill.

A couple of -- first, just to follow up on the margin, let's say -- and I know maybe this is -- guidance has even lengthened out a bit. But let's say you did get 50 basis points increase in the short end by the end of this year. Does that in itself start to take pressure off the margin as even we think about 2016? Or do you really need of it more increase in the short end before you get any real benefit?

Well, more of an increase would be beneficial, certainly, because we have some floors in place. But the real answer to your question, Frank, lies into what happens to deposit pricing during that time period, too. And that is pretty hard to estimate right now.

Right. Okay. But I guess as you look at it, you are thinking -- more impactful is the short end of the curve moving higher and not necessarily getting some steepening to the whole curve? Is that fair?

Steepening would be very beneficial, and also the short end going up. But we need -- in the short end we still have about $3 billion of loans that are tied to floors and we need about 50 basis points until we get past that.

Got you. Okay, and then I wondered if you could just maybe talk a little bit about -- I think you mentioned it, but a little bit more about what's driving your expectation for fee income up mid-to high single digits this year.

We've had some fee income categories that have done well, specifically investment banks and trust; we see that continuing. The two areas that really hurt us in 2014 were overdraft fees and mortgage banking. And we do feel that overdraft fees are, if they haven't bottomed, very close to bottoming. We think we can get growth there. And we also believe we can get growth in the mortgage banking area this year.

Okay. Is that something, on the mortgage banking front, that already maybe you have seen pretty good results as we've started the year, a tick up there? Or is that just something, as you look at the year in totality, you feel like you can get some growth out of?

Two things -- first off, we could have some turnover in the mortgage banking area that impacted our volumes in the second half of the year. And all those folks at this point have been replaced and I think that, especially in our Virginia mortgage operation we had some turnover last year and that's all back to full strength. So that's a positive for us.

And as the year is starting out, it looks positive. And that all depends on rates. But when we look at the first two weeks of January, Frank, we compare it to what we did in the first two weeks of October. October was by far our strongest month in the fourth quarter. But our applications are running -- they are 10% ahead of that pace and our rate locks from a numbers standpoint are up 18%. From a volume standpoint they are up 26%. So we are off to a pretty good start.

Okay, great. And then just finally, just looking at the -- if I look at the average securities and cash balances as a percentage of earning assets, how should we expect to see that trend in 2015?

I don't think I would set a fixed target for that as much as I would say that we are really trying to have some discipline about reinvestment risk. We really don't want to invest in a sub-2% yield market. We like the range of where we are now as a percentage of total. Could we take some more high-quality, liquid assets in this environment? Sure. But it's not something that we are trying to move the needle on at this point. So I think rates and yields are probably going to determine that more than anything else.

Got you. Okay, great. Thank you.

(Operator Instructions).

Matthew Kelley with Sterne Agee.

Just a question -- if we stay in a low interest-rate environment and overall balance sheet growth is modest and you are putting up decent returns on capital here, how low are you willing to take the intangible common equity ratio or the Tier 1 leverage ratio over the next year or two? Can you just remind me of what that bottom range or the comfort level is?

We would like our capital ratios in general to be close to our peer average. Right now on a tangible capital basis I think that's around 8%. Total is -- I can't recall -- is somewhere between 13.5% and 14%.

Got it.

And I think I'd just add onto that that, even with the capital changes that we had in the fourth quarter we still have a lot of headroom over the well-capitalized levels and even more over the minimums from a regulatory perspective, to the tune of between $400 million and $500 million, depending on the ratio you look at.

Got it.

So loan growth will also be a factor in dragging that down. We would not use more of that with growing the balance sheet.

Right. And then on the credit quality front, overall non-performers continue to drift lower. Again over the next one, two, three years, what is the low point you are willing to go to on reserve coverage to total loans?

You know, that is a tough question to ask. There are so many factors are involved there. We are currently, I think, 1.42%. Our peer average is about 1.15%. We believe we will continue to get closer to our peers. I don't see us getting maybe to 1.15% but I do see us getting closer to that number.

Got it. And on the auction rate securities that were paid off at par, what was that dollar amount benefit that ran through the securities yield, just so we understand the normalized to security deal going forward?

It was about $750,000, between $750,000 and $800,000 of accretion that rolled through margin. There was no gain or loss.

If you get the green light to combine the charters, how much will that save you?

So we are still working on that and we don't have a number. So I really wouldn't want to share anything at this point in time. There will be definitely some positive savings but there are also some offsets. But from a efficiency standpoint we will be able to operate much more efficiently [than right now].

And then last question, on your CD promotions and laddering out some of the funding, how much more work do you have to do on that front and what are you running it with right now, for promotional type efforts on the deposit front?

We had a 2% five-year that wrapped up in December. We will always have some sort of a pricing promotion so that our branch managers and so our CSRs have something to compete with. But I think as far as deliberately working to extend our duration, we are going to do that opportunistically. We feel really good about both of the promotions that we had in the spring and in the fall, notwithstanding higher interest expense, obviously. But we really liked the positive results; we were able to put on somewhere in the neighborhood of $700 million -- $600 million of four and five-year money that we think will serve us well as a longer-term funding source. And I think what we do in the future will be in large part dictated by what rates do and what expectations and competition for deposits looks like as we go into the first and second -- get through the first and into the second quarter this year.

Got it. All right, thank you.

Chris McGratty with KBW.

Pat, I may have missed it. On your margin guidance, one, did that incorporate the $100 million invested in the sub debt that matures, I think, on April 1? (multiple speakers)

When you said guidance, are you talking about last quarter for this quarter or 2015 outlook?

(Multiple speakers) your next four quarters of 0 to 4 down per quarter. Does that as soon -- it's about 3 basis points benefit if it did roll. Is that in the guidance or is that not in the guidance?

It is. It is.

Okay. And what about the Federal Home Loan advances? I think you've got $150 million at 4.5%, 4.60%. Is that something -- I think I asked last quarter is that something that's being contemplated or how are you thinking about that?

Yes, it's something that we continue to think about, particularly in this interest rate environment. And we will let you know if and when we come to any firm conclusions on that. But at this point there's nothing significant that you don't already know about or see that's included in our outlook.

Understood. Last question, more strategic -- the Susquehanna deal is still a few months out from being closed. Anything, Phil, that you can talk to in terms of tangible benefits for you guys, whether it be disruption in the market from an out-of-market competitor or some lending talent that may be available in the coming 12 months? Thanks.

Yes. So there will be disruption. And we've been through this a number of times, and we are actively putting plans together to obtain customers and to obtain talent. I think it will be beneficial for us, and we will work really hard to see that it's beneficial.

Bob Ramsey with FBR.

Thanks for taking the follow call. I know you mentioned earlier on the call that you think overdraft fees are probably near a bottom. And obviously, service charges on deposits were weaker this quarter because of overdraft fees. Just kind of curious if you could comment on what you saw in this quarter and what gives you confidence that there could be some lift from here and how you all are also thinking about -- I think the CFPB put out of paper on it, bank overdraft fees, but the potential for further regulation in this area.

So, Bob, just a couple comments -- when you look at linked quarter, we did -- in the fourth quarter there were actually two less business days than there were in the third quarter, which did have an impact in the decrease in those fees. So I think the actual decrease was probably substantially less than what the numbers look like.

As far as what may happen going forward, that's tough for us to see. We do think that the programs we have in place now are well in line with what's expected from the regulators. But if they take it further it's really hard to say.

Okay. On the net interest income front, when you put together the margin guidance and the loan growth guidance, balance sheet growth guidance, it seems to me that net interest income probably is flattish year over year. Is that in the right ballpark? And I'm just curious how you think about the growth potential for net interest income altogether.

Yes. I think, if you do the math, it will come out pretty flat. But there are so many things that can change that; it's going to depend a lot on the loan activity during the year, and it's going to depend a lot on whether we get some increases in our utilization rates, which continue to be at historical low levels. And it will depend on our depositor behavior, based on moving into CDs as compared to keeping funds in checking accounts. And interest recoveries have a big impact for us and there's just a lot of different variables.

Okay.

And I'd add, as you get close to an inflection level, that it doesn't take a whole lot to create volatility quarter on quarter.

Okay. Last question is, what is a good effective tax rate to use for 2015?

25%.

Okay. Thank you, guys.

Blair Brantley with BB&T Capital Markets.

Most of my questions have been asked and answered. Just in terms of loan to deposit ratio, is there any action there trying to move that lower? Or are you pretty comfortable with where you are at right now?

I think we finish the year at about 97%. We also look at a loan to customer funding ratio which would include some off-balance-sheet monies that our customers have, which would drive that number down. So I think we are pretty comfortable where we are at right now.

So nothing out there just to maybe push that lower over the next four to six quarters or anything like that?

Well, if our deposits continue to grow faster than our loans, that will decrease. I think we would actually like to have the opposite happen.

Okay. I just didn't know if there was anything targeted there. And then, bigger picture, what is it really going to take in this current environment for you guys to get back to above 1% ROI? And what is maybe some near-term and longer-term targets around ROI?

So a steeper yield curve and an increase in short-term rates would be extremely beneficial to meeting those goals. We will continue to manage expenses and do our best there. Increases in fee income are going to help for this year. So given everything that we see right now I'm not sure that we can get it accomplished this year. But it certainly is our goal to continue to move that number up.

Okay, thank you very much.

David Bishop with Drexel Hamilton.

Following up on Blair's question and, Pat, your answer, in terms of higher short-term rate, maybe update us in terms of your sensitivity or positioning to an increase in short-term rates, maybe what the impact at least in terms of what moving forward the first 25 or 50 basis points would have in terms of the loan portfolio.

Sure. Hasn't changed a whole lot from last quarter. We are at about a 4% interest sensitivity for a 100-basis-point rise. And that increase is -- I'm not going to say exponentially, but it's double or even a little bit more than that for the next 100-basis-point rise, which reflects that we give away the first 55 or 60 basis points to getting all of our loans that are at floors off of those floors.

We said in the past that we are modestly asset sensitive. I don't think that changes at this point. So just status quo. You let us know when you think interest rates are going to go up.

Got it. Thank you.

Matthew Kelley with Sterne Agee.

Just a quick modeling detail -- what was the AOCI at the end of the quarter? I have it was at negative $12 million at 9/30. What was that at 12/31?

Just one second, I think you'll be able to get that for you. You will hear pages flipping.

It's deep in the deck, I'm sure. On that line, were there any pension adjustments at year-end, I guess, is what I was driving at as well?

Yes, it was about $18 million at year-end. And at that point it reflected additional pension adjustments.

All right, got it. Thank you.

You bet. Thank you for asking about AOCI. (laughter)

And that does conclude today's question-and-answer session. I will now turn the call back over to Phil Wenger for any additional or closing remarks.

Well, thank you all for joining us today. We hope you will be able to be with us when we discuss our first-quarter results in April.

Thank you for your participation. This does conclude today's call.