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Fulton Financial (NASDAQ:FULT)

Q4 2013 Earnings Call

January 22, 2014 10:00 am ET

Executives

Laura Wakeley

E. Philip Wenger - Chairman, Chief Executive Officer, President, Member of Executive Committee and Ex-Officio Member of Risk Management Committee

Patrick S. Barrett - Chief Financial Officer and Senior Executive Vice President

Analysts

Jason A. O’Donnell - Merion Capital Group

Frank Schiraldi - Sandler O'Neill + Partners, L.P., Research Division

Michael Perito - Keefe, Bruyette, & Woods, Inc., Research Division

Nicholas Karzon - Crédit Suisse AG, Research Division

Casey Haire - Jefferies LLC, Research Division

Thomas Frick - FBR Capital Markets & Co., Research Division

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Blair C. Brantley - BB&T Capital Markets, Research Division

Matthew J. Keating - Barclays Capital, Research Division

Operator

Good morning, ladies and gentlemen, and welcome to the Fulton Financial Corporation Fourth Quarter Earnings Conference Call. Today's call is being recorded. I would now like to turn the conference over to Laura Wakeley, Senior Vice President of Corporate Communications.

Laura Wakeley

Thanks, Dana. Good morning, and thank you, all, for joining us for Fulton's financials conference call and webcast to discuss our earnings for the fourth quarter and year-end 2013. Your host for today's conference call is Phil Wenger, Chairman, President and Chief Executive Officer of Fulton. Joining Phil is Patrick Barrett, 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 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 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 and Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Fulton's filings with the SEC.

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

E. Philip Wenger

Thanks, Laura, and good morning, everyone. We're glad you could join us. I'm pleased to welcome our new Chief Financial Officer, Pat Barrett, to our call. Pat will cover the financial details with you as soon as I conclude my comments. Then we will both respond to your questions.

I'd like to begin our discussion with a few comments about the year just completed. Then we will look more specifically at the fourth quarter. 2013 was a good year for the corporation, and we look back on our performance with a sense of accomplishment.

Full year diluted earnings per share came in at $0.83, up 3.8% over $0.80 earned in 2012. We ended the year with a return on average assets of 0.96% and return on average equity at 7.88%. There were number of positive developments in the credit area that contributed to our success. Average loan growth exceeded 5% year-over-year. We saw reductions in nonperforming loans and the provision for credit losses and in overall delinquency. As a result, we begin 2014 with the strongest overall asset quality metrics we have seen since late 2007.

Loan growth remains a top priority, and we will pursue opportunities to expand existing relationships and develop new ones.

Highlights of 2013 include the completion of our 3-year conversion project to a new core processing platform. We are now better positioned than ever before to help our customers find the best solutions to their financial needs. While we are pleased to have this project behind us, investment in technology will continue as we position ourselves to operate more efficiently and to provide our customers with enhanced delivery channel capabilities. This technology commitment, particularly when supplemented with the continuing costs associated with building out our regulatory and compliance infrastructure requires us to constantly be examining every area of our organization for potential savings to offset those cost pressures.

Throughout 2013, we generated capital and deployed it appropriately. In addition to our cash dividend that currently yield 2.5%, we have repurchased a total of 10 million shares of our stock at an average cost $11 per share since the third quarter of 2012. On October 22, 2013, we announced the new stock repurchase program of up to 4 million shares or 2.1% of our outstanding stock through March 31, 2014. To date, no purchases have been made under the new program. It is our intent to complete our repurchase programs as permitted by security laws, other legal requirements and subject to market conditions.

Of course, the past year had some headwinds. Higher interest rates caused a slowdown in our residential mortgage business in the corresponding level of mortgage sale gains. Pressure will likely continue on this business line, especially if rates continue to push higher. As you know, new mortgage rules went into effect on January 10. We believe we are in full compliance with the new guidelines.

Based on our calculations, about 3% to 5% of our total 2013 mortgage volume would not have met the new qualified mortgage standards which equates to about 235 loans or about $80 million of 2013 originations. Since the mortgage business is cyclical, we constantly monitor staffing levels. For example, we rely on temporary staff when business is bricked -- brisk, particularly during periods of increased refinancing activity. Given lower volumes, we have reduced our current mortgage staff level by approximately 25%, and we'll continue to make adjustments as activity changes.

Noninterest income continues to reflect our proactive responses to the heightened regulatory environment surrounding consumer loans and deposit accounts. The impact of these changes is reflected in lower deposit account revenue. However, we are continually striving to offset declines with additional noninterest income. And year-over-year, we saw good revenue increases in our merchant services, cash management, debit card, credit card and investment management and trust service businesses.

As to be expected with the buildout of our regulatory and compliance infrastructure and our core conversion project in 2013, total noninterest expenses trended higher. In a few minutes, I will review a series of cost-cutting initiatives we have recently announced throughout the company.

Looking at the fourth quarter, our diluted per share earnings were $0.22, up 4.8% linked quarter and up 10% over the same period last year. We ended the quarter with a return on average assets of 0.99% and a return on average equity of 8.14%. All of our credit metrics showed [ph] continued improvement. Delinquency declined at $232 million or 1.81% from $252 million or 1.97% during the fourth quarter. Nonperforming loans declined to $154 million from $168 million. Net charge-offs declined to $10 million from $14 million. ORE declined from $18 million to $15 million during the quarter. Additions to nonaccrual loans were $23 million versus $22 million last quarter and $55 million in the fourth quarter of 2012.

Late in the quarter, we did receive a $5 million recovery on a loan charge-off taken in 2011. That recovery, along with the continued improvement in other credit metrics, supports the reduction we made to our provision for credit losses. We expensed $2.5 million versus $9.5 million in the third quarter. Compared to 2013, we expect that our credit cost for 2014 will continue to reflect the improving environment and the overall reduction in credit risk in our portfolio.

I want to provide more data on our residential mortgage business. We closed about 1,200 mortgage loans this quarter compared to 1,800 in the third quarter. On December 31, our mortgage pipeline stood at $126 million, down from the $200 million at September 30. 68% of that total is purchased money; 32%, refinancing. We were pleased to see average loan growth for the year at 5.1%. The new loan pipelines did show some softening in the last 90 days, which is not unusual over the holiday season. Towards the end of the quarter, new loan requests did pickup modestly. It was good to see loan yields saw a new production increase for the fourth consecutive quarter in a highly competitive environment. To get more traction under loan growth in 2014, we will be launching promotional campaigns within both the consumer and commercial segments this quarter.

Saw a modest 3-basis-point expansion of our net interest margin, linked quarter, after several quarters of compression. However, we do believe we will see continued margin pressure, but to a lesser extent than in 2013, and Pat will give you more details in his remarks.

I've already shared some of the factors that impacted our noninterest income. At the same time, we work to keep a tight rein on noninterest expense. Although we saw a rise in overall expenses for the year, at linked quarter, they were flat.

Now I'd like to summarize our recent cost-cutting initiatives. They include the consolidation of 14 branches, changes to our employee benefit programs and regional management restructuring. We consolidated 1 branch in New Jersey on December 31 of last year. Of the 13 remaining branches to be consolidated, 6 are in Pennsylvania, 2 in New Jersey, 5 are in Maryland. They are scheduled to be completed by the end of the second quarter. Customers and accounts at those branches will be relocated to our next most convenient existing branch location. We have also developed and begun an extensive communication programs for customers impacted by these changes.

In order for us to operate as efficiently as possible, we also announced changes to our regional organizational structure to create larger roles for fewer people. And while we maintain our current structure, we have decreased the number of regional presidents and increased the scope of responsibility for those that remain. Since we evaluate our benefit plans regularly, we have decided to modify some of them and eliminate some that impacts smaller numbers of employees. And based on our analysis, the impact of all the changes I discussed will reduce expenses after implementation by approximately $8 million annually. We anticipate that a portion of these savings will be redirected to continued buildout of our regulatory compliance infrastructure and to further our technology investment. And since we believe there is an upward bias to overall expense levels in the futures -- in the future, the savings associated with these changes will help mitigate the impact of those increases. We continue to study additional opportunities to reduce expenses and as further actions are taken, we will share them with you.

To summarize the year in light of our corporate priorities, we produced solid EPS and earning asset growth. Asset quality improved significantly, and we expanded our funding base of lower-cost core deposits. We manage net interest margin effectively in a protracted low rate environment while generating good returns on average assets and equity. Expenses were kept in check, as we enhanced our risk management and compliance infrastructure. All of these remain priorities for 2014.

At this time, I want to turn the call over to Pat for additional color on our financial results, and then we will take your questions. Pat?

Patrick S. Barrett

Thank you, Phil. Thanks to everyone at Fulton for the great opportunity to join the team, and good morning to everyone on the call. Unless I note otherwise, quarterly comparisons will be with the third quarter of 2013, and annual comparisons will be with 2012.

For the quarter, we reported earnings of $42.1 million or $0.22 per share. This represents 4.8% growth in EPS from the third quarter and 10% from the same quarter last year. Results for the quarter and the year reflected continued strong improvement in credit, partly offset by declines in certain noninterest income areas. While year-over-year results reflected net interest margin compression and increased expense levels, we've seen both areas stabilizing on a linked-quarter basis. The $2.1 million increase in quarterly net income reflected continued improvement in the provision for credit losses, largely offset by a decrease in noninterest income.

Net interest income and noninterest expenses were essentially unchanged from the third quarter. For the year, net income was $162 million or $0.83 per share. EPS was up 3.8% compared to 2012. As with the quarterly results, improving credit costs were partly offset by lower fee income, but declining net interest income due to net interest margin compression and higher expenses were also key drivers. For the quarter, net interest income increased slightly. There's a 3-basis-point increase in net interest margin, was partly offset by a slight decline in earning assets.

Two points to emphasize on net interest income this quarter: First, the net interest margin improvement, the 3.45% to 3.48%, was due to a higher-than-expected $1.3 million decrease in premium amortization on our agency securities portfolio, as well as the positive impact of certain other one-time securities cash inflows. Without these items, our margin would have been 3.44%, which was at the high end of our previous guidance range. Given the stabilization we've seen, we expect our first quarter 2014 net interest margin to be in the 3.42% to 3.46% range.

Second, while earning assets were down slightly, we did see a modest increase in average loans. A decline in the securities portfolio offset this increase as cash flows were not fully reinvested in that portfolio. Average yields on interest-earning assets increased 2 basis points, while average cost of interest earning liabilities decreased 2 basis points. The average yield on new loans originated during the fourth quarter was approximately 14 basis points higher than on loans originated in the third quarter. Average deposits increased $119 million or 0.9% due to a $219 million increase in demand in [ph] savings accounts, partly offset by $100 million decrease in time deposits. This reflects the mix shift trend in balances we've been seeing for some time, as well as the typical seasonal flow, public funds. For the year, net interest income was down 3%, reflecting a 26-basis-point decrease in net interest margin, partly offset by the impact of a 4% increase in average earning assets.

Turning to fourth quarter noninterest income. We saw a $4 million or 9% decrease compared to the third quarter, excluding the impact of security gains. Mortgage banking income decreased $2.8 million to $4.4 million. This decline was split evenly between mortgage sale gains and mortgage servicing income. The impact of higher long-term interest rates continued to affect both new loan commitments, which were down 27% to $212 million, as well as spreads, down 5 basis points to $148 million. The mortgage servicing income decline was due to the absence of a third quarter $1.7 million reversal of the last of our mortgage servicing rights valuation allowance. Excluding the impact of this reversal, mortgage banking income would have been down from the third quarter by just over $1 million.

For the quarter, service charges on deposits decreased $1.2 million or 8.4% mainly in overdraft fees, due primarily to changes in customer behavior. Net securities gains were only $33,000 in the fourth quarter as compared to $2.6 million in the third quarter. At the same time, the unrealized gains on our bank stock portfolio grew to over $12 million by yearend. As always, we'll continue to regularly evaluate our holdings in that portfolio.

For the full year, noninterest income, excluding securities gains, was down 16% mainly in mortgage banking income, deposit service charges and foreign currency processing revenues as a result of the December 2012 sale of our foreign currency payment processing business. That sale also generated a $6.2 million gain in 2012, which, of course, was absent this year. We did see solid growth in our investment management and trust and merchant services businesses with fees increasing about 10% for each, which partially offset these declines.

Non-interest expenses of $116.8 million for the fourth quarter were flat compared to the third quarter. While some expense categories saw increases on a linked-quarter basis, we were successful in managing our overall expense levels. Data processing, software, operating risk loss, marketing and other real estate expenses were all lower in the fourth quarter, mitigating the impact of increases in salaries and benefits, occupancy and other outside services.

Salaries and benefits were up due to higher incentive compensation and benefits, partially offset by lower overtime and temporary employee expenses resulting from the completion of our core systems conversion and lower residential mortgage volumes. Total expenses for the quarter were within our previous guidance range. With the cost saving initiatives still outlined, we expect improvement in the first quarter and are accordingly adjusting our guidance to a lower range of $113 million to $117 million.

As we've said previously, I want to remind you that certain expenses such as other real estate owned, repossession expense, mortgage repurchase losses, operating risk losses and outside services can and do experience volatility based on timing or events that can't always be reasonably predicted. Such volatility could result in expense levels being higher or lower than projected. For the full year, non-interest expenses were up 2.7%, reflecting higher staffing levels and outside service costs to support risk management and compliance activities combined with higher data processing and software costs, partly offset by improved other real estate and repossession expenses. We'll continue to make strong expense discipline a top priority.

One last item, our effective income tax rate dropped to 22.7% in the fourth quarter, due largely to deferred tax asset valuation adjustments. Aside from the impact of such adjustments, which could reoccur, our rate was and should remain in the mid-20s. So in summary, a good fourth quarter capping off the good year with solid earnings and EPS growth. And as always, thanks for your continuing interest in Fulton Financial Corporation. Now we'll turn it back over to the operator for the questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll go first to Jason O'Donnell with Merion Capital Group.

Jason A. O’Donnell - Merion Capital Group

My first question relates to the drop in loan loss provision expense this quarter. Obviously, part of that is related to the improvement in charge-offs and the lack of loan growth. But how are you all thinking about the reserves-to-loans ratio, specifically, these days? And is it your intention to manage that down to something closer to your peers? I think your asset class is currently somewhere around 125 basis points.

E. Philip Wenger

So Jason, we did -- at the end of the quarter, our allowance to total loans is 160. At the end of the third quarter, our peers, as you said, were about 125. We anticipate -- given what we see now, if that continues, we would anticipate ourselves moving closer to the peers as we go through the year. Our nonperforming loans as a percent of total loans are very close to our peer average now. So I would anticipate, assuming things stay as the way they are, that, that allowance percentage will start moving towards the peer average also.

Jason A. O’Donnell - Merion Capital Group

Okay. That's helpful. And then my second question is on the expense front. I think you gave a little bit of color around this on the comp and benefits expense in particular. I'm wondering how much of that was -- that increase was attributable to nonrecurring items, particularly certain deferred comp expense, et cetera.

E. Philip Wenger

So we had, in the fourth quarter, a total of $800,000 of expenses that were related -- one-time expenses related to those cost savings that I spoke about. In the first quarter, we anticipate another $3 million of one-time expenses, but they will be offset, to a large degree, by one-time gains and some reserve accounts that were set up for some of the benefit changes that we've made.

Jason A. O’Donnell - Merion Capital Group

Okay. So they would be largely offset?

E. Philip Wenger

Yes. It's somewhere -- the expenses in the first quarter compared to the recapture, based on our analysis right now, are going to be $400,000 to $500,000 -- the expenses will be $400,000 to $500,000 more than the recap. So it will be a little lighter in [ph] fourth quarter.

Jason A. O’Donnell - Merion Capital Group

And then my last question I'll hop out is on the buyback. It looks like you all held off on executing any share repurchases this quarter -- in the fourth quarter rather. Is that largely a function of stock price action, or have your capital deployment priorities changed at all?

E. Philip Wenger

No, Jason. This happened to us once before when we were in one of these buyback programs. But during that window, during the quarter where we weren't blacked out, our volume was down, and our stock price was going up. And it's -- through all of this, we've really tried to buy and not artificially impact our stock price. And when we get in those time periods, that is almost impossible to do, and that's really why we actually got through the quarter without buying any back. We anticipate, over time, to fully execute that. Whether we can get it accomplished in the second quarter or not is really going to depend on some of those market conditions.

Operator

And we'll take our next question from Frank Schiraldi with Sandler O'Neill.

Frank Schiraldi - Sandler O'Neill + Partners, L.P., Research Division

A few questions. First, on provisioning, just a follow-up on the provisioning or the reserves. When -- as we look at loan loss provision run rate for next year, is a decent way to think about it the $2.5 million provision in 4Q plus the $5 million recovery that you said you got late in the quarter for a run rate closer to perhaps $7.5 million a quarter? Is that a good way to think about 2014, or is that just too simplistic?

E. Philip Wenger

Frank, here's how I'll answer that question. First, off, the level of provision is driven by our models. So it's a little difficult to come up with a range. If I had to -- given what we know now, if I had to give a range for the first quarter and I would hesitate going any further out than that, but I would say if you ask me right now, between $2.5 million and $5 million would be a range for the first quarter, but I do have to emphasize that it could be lower than that, and it could be higher. It depends on the model, and -- but our credit trends do remain positive.

Frank Schiraldi - Sandler O'Neill + Partners, L.P., Research Division

Okay. That's very helpful. And then I just want to make sure I understand the expenses -- expense guidance. Pat, you said $113 million to $117 million. That was for the first quarter, correct?

Patrick S. Barrett

Correct.

Frank Schiraldi - Sandler O'Neill + Partners, L.P., Research Division

Just the first quarter? Okay. And the $3 million you talked about, Phil, in one-time expenses, that is going to be -- the offsets are also in the expense, so that's all in the expense line, somewhere in the expense line?

E. Philip Wenger

The offsets would be in the expense line, yes.

Frank Schiraldi - Sandler O'Neill + Partners, L.P., Research Division

Okay. And then just thinking a bit further out in terms of 2014, you talked about some cost initiatives. You obviously talked about further investment in technology, further regulatory cost. How do we think about efficiency ratio as we move through the year? Are you expecting that will sort of remain flattish to current levels, or how do we think about that?

E. Philip Wenger

Yes. I would say flattish to current levels would probably be a good assumption, and we've been saying it's between 60% and 65%, and I think we're kind of still on those ranges.

Frank Schiraldi - Sandler O'Neill + Partners, L.P., Research Division

Okay, great. And then just finally, on loan growth expectations, you mentioned the pipeline softened a bit, but that isn't unusual for this time -- or for that of year. You mentioned, I guess, getting a bit more aggressive on some promotions. How do you think about loan growth in 2014? Do you expect that we may see similar growth to 2013 as we stand and look at things today, or obviously, you're hopeful for a better growth about? But what are your thoughts here?

E. Philip Wenger

So we did see activity slow in the fourth quarter. We're starting to see it coming back somewhat on the commercial side. On the consumer side, we're not seeing anything yet. And quite frankly, there is nothing worse for consumer demand than 10 inches of snow in single-digit weather. So we did -- a couple things happened. I think part of it was seasonal. We did make a concerted effort to increase our loan yields throughout the year. And so our loan yields on new production in the fourth quarter were actually 40 basis points higher than they were in the first quarter. And so I would say from the first quarter of last year to the fourth quarter of this year, we probably went from being one of the more aggressive pricers to one of the least aggressive pricers. And as we move forward, I think we want to try and get that more in the middle. And hence, we're going to be coming out with some programs in the first quarter. So for the year, just to get to your question, given what we see now, we see '14 similar to '13. And we were able to generate a 5% increase in '13, and we're going to work really hard to be in that range again. And we'll see as the year progresses if it's possible or not.

Operator

And we'll go next to Chris McGratty with KBW.

Michael Perito - Keefe, Bruyette, & Woods, Inc., Research Division

This is actually Mike Perito stepping on for Chris. I thought -- I appreciate the color on the service charges. When I look back, typically, that number has gotten stronger as the year has gone on, and it's just been under pressure the last couple quarters. I was wondering, near term, how you guys are thinking about that line? Can we expect to see a rebound, or is the first quarter probably going to be down as it has been in the past due to some seasonality?

E. Philip Wenger

Well, I can't -- I'm not positive I can speak to exactly the first quarter, but I can tell you that we are seeing change in consumer behavior, especially in the overdraft category, and that's been the biggest driver on the decrease in the services. I can't tell you I see anything that would change that in the first quarter and activity tends to be lesser in the first quarter also.

Michael Perito - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. All right. And then I just had a quick clarification on the expense side and I appreciate the color on the cost initiatives, but I just want to make sure I heard you guys correctly that the $8 million beneficial impact, once everything is implemented, but including that, you guys are still expecting year-over-year expenses to have some sort of natural increase.

E. Philip Wenger

We are going to work hard. I mean, there are still pressure on expenses. And so I think we'd be crazy to say that, that -- all that $8 million is going to drop, and we're going to work extremely hard to manage them at the best we can, so that increases year-over-year would be marginal.

Michael Perito - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And then just one last one for me on the securities book, can you help me with how you guys are thinking about the size of that securities book going forward, and then maybe what you guys are seeing right from reinvestment rates in the fourth quarter?

Patrick S. Barrett

Yes, Mike. This is Pat. Our book dropped by about $250 million. I would say we might see it drop a little bit further, but not too much more. It's about the level that we like it as a percentage of total assets. And of course, we're always looking for investment opportunities that meet our parameters, which is really to keep our extension risk down under a 6 with the appropriate shocking and get reasonable returns for the risk that we're taking. General terms, I think if we're going to take any more or stretch out our extension risk, we'd prefer to do it with loans rather than securities.

Operator

And we'll take our next question from Nicholas Karzon with Crédit Suisse.

Nicholas Karzon - Crédit Suisse AG, Research Division

I guess, first, you mentioned earlier the buyback, but I was wondering if you could kind of walk through, again, your capital priorities and then also kind of give us an idea of what you're seeing on the M&A front, and if there's a possibility of potentially a couple of deals or a few things that there is kind of increased chatter regarding M&A in the environment that we're in right now.

E. Philip Wenger

So our capital priorities are to fund growth, to raise dividends, repurchase a stock and finally, M&A. I would say that I've heard less chatter in the last 30 to 60 days. And as we've stated, we are, for the most part, still internally focused, and I think we'll see that continue over the next timeframe.

Nicholas Karzon - Crédit Suisse AG, Research Division

Got it. That's helpful. And then on the dividend front, with regulators really focused on payout ratios right now, is there an opportunity to increase that potentially, or how do you think about the dividend level?

E. Philip Wenger

It's going to be a function of earnings and payout ratios. So our goal is to have the earnings at a level that we can increase the dividend.

Nicholas Karzon - Crédit Suisse AG, Research Division

And one last one. I think you mentioned earlier that you're running some promotional loan growth campaigns in the early part of this year, and I was wondering if you could give us some color on what those are and where we might see a stronger growth this year.

E. Philip Wenger

So we're going to have a consumer promotion, and that probably will roll out a little later in the quarter just because the consumer tends not to be spending a lot in cold weather. We'll have another promotion that expands both C&I and CRE, and that will probably happen a little before the consumer.

Operator

And we'll go next to Casey Haire with Jefferies.

Casey Haire - Jefferies LLC, Research Division

Just a couple follow-ups on the expense side. Number one, how much of the -- how much realization of the $2 million -- I'm sorry, the $8 million of efficiency initiatives is expected or is contemplated by that $113 million to $117 million guide in the first quarter, as well as it sounds like you guys are rightsizing the mortgage banking business? What kind of leverage is expected from lighter mortgage banking volumes on the expense side?

E. Philip Wenger

So the run rate on those expense cuts is about $2 million a quarter. We will not have the full benefit in the first quarter. We really -- I'd say maybe the run rate would increase by about $0.5 million as we move out into the year. So we'll have most of it. Mortgage leverage, we made some significant cuts in the fourth quarter that really happened throughout the quarter. So there is -- the mortgage expenses should be lower in the first quarter than the fourth quarter, and it's not impossible that there could be some additional cuts throughout the quarter.

Casey Haire - Jefferies LLC, Research Division

Okay. And how -- what was the mortgage -- what were expenses tied to the mortgage banking business in the fourth quarter?

E. Philip Wenger

So I don't have -- I can tell you that once they're fully initiated, we reduced staff 25%. That was not a full -- I'd say if I had to guess, maybe 1/2 of that. And if you average it over the quarter, maybe we realized 1/2 of that.

Casey Haire - Jefferies LLC, Research Division

Okay, great. Okay. And then just one more on switching to NIM. It sounds like loan yields are going to come in a little bit as you guys roll out these promotions, and the securities book is going to run a little lighter, which should help the mix. I'm just curious, CD repricing has been a positive story for you guys. Is there more runway into 2014, or should we expect funding cost to kind of stabilized here?

Patrick S. Barrett

Casey. It's Pat. Yes, we've definitely seen the benefit of CD repricing each quarter. I think in the third quarter, that was about 40 basis points going from mid-80s to mid-40s. That actually has slowed down a bit. So in the fourth quarter, we had $650 million of maturities at 61 basis points and a little under $620 million of origination at 43 basis points. So our origination rates have stayed pretty constant, but the roll-offs keeps coming down. There should be a little bit more in the future, but it will continue to be slow. I think we've got about between 400 and 525 [ph] per quarter of maturities over the next 4 quarters, and the rates will continue to drift slowly down.

Casey Haire - Jefferies LLC, Research Division

Okay, great. And Pat, apologies if I missed this, but the reinvestment rate on the securities book, 2.35%, is that a reasonable expectation going forward, or are we going to come in from here? Okay. That's it for me.

Patrick S. Barrett

That 2.30% to 2.40% range is perfect.

Operator

And we'll take our next question from Bob Ramsey with FBR.

Thomas Frick - FBR Capital Markets & Co., Research Division

This is actually Tom for Bob. Just quickly to follow up on Jason's question about the buybacks. You guys said you were kind of -- had your hands tied due to the blackout and volume restrictions. Could you remind us what is your blackout time period during the quarter, and maybe give us your thoughts on setting up a 10b5-1 plan, so you guys can actually get through some of this authorization?

E. Philip Wenger

So yes, 2 thoughts. Our blackout starts on Friday -- this Friday. And then -- I'm sorry, it ends on Friday. We can start buying again. The blackout ends on Friday, and then it goes back into place when we know our second month of the quarter's earnings, which typically is the third or fourth day of the month, so somewhere -- the blackout will go back into place somewhere around March 3 or 4. And then there was another question.

Thomas Frick - FBR Capital Markets & Co., Research Division

Yes, on -- thoughts around maybe instituting a 10b5-1 plan?

E. Philip Wenger

Yes. We are looking at that again. In the past, we have felt that we could buy it back at better prices ourselves, but we are looking at the possibility of putting some plan in place. I'm not sure which way we'll go, but it's being considered.

Thomas Frick - FBR Capital Markets & Co., Research Division

Okay, great. And then kind of switching gears back to your guidance, I know you guys gave guidance for NIM and expenses. Could you give any -- do you have any thoughts around fee income for next quarter and maybe for 2014 as a whole, given kind of the weakness we've seen in mortgage banking?

E. Philip Wenger

Well, I would just say a couple of things. First quarter for noninterest income is always tough. Activity's down, we have 2 fewer days. The mortgage business doesn't start ramping up again until late February, early March. So I don't have a guidance number for you, but we do anticipate pressure in the first quarter. Year-over-year is hard to say and a lot of that really depends. We're confident we can grow most of our businesses, business lines. We expect growth in our business lines. Mortgage activity over the summer is really going to dictate whether we can grow that noninterest income for the year.

Operator

And we'll take our next question from Christopher Jackson with Sterne Agee.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

It's Matt Kelley. From the deposit service line there, how much of the $12.8 million is overdraft, and how much was that down year-over-year specifically?

E. Philip Wenger

I'll have that in 1 second. Overdraft fees for the year were down $5.1 million.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Okay. From what to what? How much of the $12.8 million was overdraft already?

E. Philip Wenger

That -- the overdraft fees for the year decreased from $33 million to $28 million.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Okay, got it. And do you have any plans to kind of restructure your pricing on consumer deposit products to regain some of these lost revenues in the year ahead?

E. Philip Wenger

We are constantly looking at -- well, first off, we have made some adjustments in some areas, which do show gains. We'll continue to look at those and a lot of it, I have to tell you, is dictated by competition. But yes, I think the industry is looking at that whole issue right now, and we've made some changes. And hopefully, we'll be able to make more in the future.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Okay, got you. And then on the premium amortization, you said it was down $1.3 million. But what was the dollar amount in the third quarter and the dollar amount in the fourth quarter, and any additional benefits going forward?

Patrick S. Barrett

Matt. It's Pat. That is drifted down from the high-4s fourth quarter of last year through, I think it was $3.3 million in the second quarter, $3.1 million in the third quarter, and it's now dropped down to $1.7 million in the fourth quarter. Now if you look at what our unamortized premium is, it's around $29 million. And you think about the average life of our portfolio as being 4.5 years or so, you can see that there's not a whole lot left, but it can go down. So it had a 4-basis-point impact on our margin this quarter, and it could drift a little bit further down, but it's not going to be -- it would round to a basis point rather than being multiple.

E. Philip Wenger

On caveat, Pat was saying that's based on where we were. So if we buy more securities with premiums, that balance ramps up, and that becomes a factor again, but it's only because of the lower volume of buys and sells we've had that we can say that.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Got it. And then on the consumer delivery platform branches and consumer staffing. As everything changes pretty quickly here, how do you feel like your network from an ATM perspective, mobile banking perspective stacks up versus your competition, and how much more investment do you think you'll need to make in the year or 2 ahead?

E. Philip Wenger

So, though probably [ph] we'll need to make investments in branches, and we may make some this year and as we go forward, but our branches will not be -- we just don't need branches as close together as we did in the past. So there's really going to be a little change in our branch network because they just don't have to be as close together because more and more people are banking electronically on both online banking and mobile banking, and we will continue to make enhancements to both of those products as we go through the year.

Operator

And we'll take our next question from Blair Brantley with BB&T Capital Markets.

Blair C. Brantley - BB&T Capital Markets, Research Division

Had a question about loan growth and pipeline. From a geographic standpoint, can you talk about where you're seeing some strength and/or weakness?

E. Philip Wenger

We saw the pipeline declined, really, in every region.

Blair C. Brantley - BB&T Capital Markets, Research Division

Okay. Is there -- and any one that kind of caught you off guard more so than another or...

E. Philip Wenger

No. And as it starts to rebound, I think we see it across all regions also. I was just going to say we did go through a period of time where I think New Jersey was just not as strong as our other regions, but I think that's changed now also.

Blair C. Brantley - BB&T Capital Markets, Research Division

Okay. And going back to your promotional plans, is there any changing in terms of pushing for more variable pricing versus fixed rate and trying to increase your asset sensitivity or anything with that with your -- kind of with your forward plans?

E. Philip Wenger

That loan -- that mix with fixed and floating rate loans at the end of the day tends to be the consumers' decision, not ours. We still -- I believe that we are sensitive -- positively positioned for rising rates, and we're going to try to keep that position stable.

Operator

[Operator Instructions] We'll go next to Matthew Keating with Barclays.

Matthew J. Keating - Barclays Capital, Research Division

My question is also on the announced branch reduction. It looks like your branch count has been fairly stable really since 2007, and today's announcement of the 13 remaining branch closures through the second quarter of '14 still creates about 5% reduction in your overall branch footprint. How do you see that trending over time given the increases you've talked about in mobile banking and then online banking? Do you think that moves materially lower, or do you think you're relatively well situated post those closings?

E. Philip Wenger

Well, as I said, over time, I anticipate that we will be adding branches. They will be further apart. And so as the consumer continues to change their behavior, which we think that they will, I would say that the chances are better that the branch count would go down as compared to staying stable or increasing.

Matthew J. Keating - Barclays Capital, Research Division

Got you. That's helpful. And I guess, Pat, forgive me if I missed this, but could you supply any guidance on the effective tax rate relative to previous communication? For the full year of 2013, you guys were looking for a 24% to 26%. Is that a fair range as we think about 2014?

Patrick S. Barrett

Yes, I think it is. We wouldn't typically look out quite that far. But I would want to just to reemphasize that because of where we're coming from and where we're going to as with a lot of banks, we have deferred tax assets, net operating losses that some have provisions or valuation allowances against them. And with continued improvement, I mean, this is a bad -- this is a good problem to have. We have to reevaluate those regularly. And in some instances, we have to relieve or release some of those, and that's what happened this quarter, so we had a 3-percentage-point drop. Without that, we would have been squarely in the middle of our guidance range.

Operator

And it appears there are no further questions at this time. Mr. Wenger, I'd like to turn the conference back to you for any additional or closing remarks.

E. Philip Wenger

Well, thank you, all, for joining us today, and we hope you'll be able to be with us when we discuss first quarter results in April.

Operator

Thank you, and that does conclude today's conference call. Thank you for your participation.

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