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Fulton Financial Corp (NASDAQ:FULT)

Q4 2007 Earnings Call

January 23, 2008 10:00 am ET

Executives

Laura Wakeley – Vice President, Corporate Communications

Scott Smith – Chairman, Chief Executive Officer, President

Charlie Nugent – Senior Executive Vice President, Chief Financial Officer

Analysts

Rick Weiss - Janney Montgomery Scott LLC

Robert Hughes - Keefe Bruyette & Woods Inc.

Collyn Gilbert - Stifle Nicolaus & Company Inc.

Matthew Schultheis - Ferris Baker Watts Inc.

Mac Hodgson - SunTrust Robinson Humphrey

Operator

Good day, everyone and welcome to today’s Fulton Financial Fourth Quarter Conference Call. Today’s call is being recorded. All lines are now in a listen only mode and we will have a question and answer session at the end of today’s presentation. Instructions on how to signal for a question will be given at that time.

And now for opening introductions, I would like to turn the call over to Miss Laura Wakeley.

Laura Wakeley

Thank you. Good morning and thank you for joining us for Fulton Financial Corporation’s Conference Call and web cast to discuss our earnings for the fourth quarter and year end of 2007. Your host for today’s conference call is Scott Smith, Chairman, Chief Executive Officer and President of Fulton Financial Corporation. Joining him is Charlie Nugent, Senior Executive Vice President and Chief Financial Officer.

Our comments today will refer to the financial information included with our earnings announcement which was released at 4:30pm yesterday. The documents can be found on our web site at www.fult.com by clicking on investor information and then on news.

Please remember that during this web cast representatives of Fulton Financial Corporation may make certain forward-looking statements regarding future results or future financial performance of Fulton Financial Corporation. Such forward-looking statements are based on certain underlying assumptions, risks and uncertainties. Because of the possibility of change in the underlying assumptions actual results could differ materially from those forward-looking statements. Risks and uncertainties that may affect future results include pricing pressures on loans and deposits, actions of bank and non-bank competitors, changes in local and national economic conditions, changes in regulatory requirements, actions of the Federal Reserve Board, credit-worthiness of current borrowers, the corporation’s success in merger and acquisition integration and customer’s acceptance of the corporation’s products and services. Fulton Financial does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date on which those statements were made.

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

Scott Smith

Good morning and thanks for joining our call.

In the fourth quarter of 2007 we earned $0.22 per share, a 15.8% increase over the $0.19 we reported in the third quarter. We were encouraged to see this progress on a linked-quarter basis. Compared to 2006, 2007 was a particularly challenging year for us. As you know, we’re not alone. Real estate driven problems continued to impact earnings. We took significant resource mortgage related charges in the first three quarters of last year. The relatively small charges incurred in the fourth quarter give us reason to believe that this problem may be winding down. That assumption, of course, is dependant upon the real estate market not experiencing significant further deterioration in values.

As you can see in our financial information, we have no exposure to collateralized debt obligations, nor do have exposure to sub-prime mortgages in our bond portfolio. All our mortgage-backed securities are agency guaranteed. Our capital and liquidity positions are string. Consequently we have no short-term plans to raise additional capital.

We will focus our attention on 2008 on two themes that will directly impact our earnings growth: a continuation of our cost-reduction initiatives; and investing in revenue-generating activities that include new branches, technology initiatives, product and service enhancements and the addition of revenue-generating sales people. In addition we will aggressively continue our core deposit marketing initiatives. These include a switch-kit to obtain new account relationships that include cash incentives. We are cautiously optimistic that these activities will give some traction to our core deposit balance growth in 2008. We will also continue the utilization of targeted direct mail, using our segmentation capabilities.

During 2002, the most recent low-interest rate cycle, we experienced good growth in core deposits as consumers and businesses seemed unmotivated to move money into certificates of deposit and other alternative investments paying relatively low rates. Historically, we’ve seen core deposit growths in the equity markets are particularly volatile, while we’re hopeful that these two current trends, along with our promotional activities, will result in accrued core deposit growth in 2008. I’m not suggesting that the continuing uncertain economic environment will make earnings growth will make earnings growth any less difficult; however we are intently focused on returning the company to stronger financial performance.

The cost of credit is one of the challenges that will need continued close attention. Fourth quarter annualized charge-offs reached 15 basis points, the number I had mentioned in previous calls as a normal level for us. Future charge-off levels will obviously be impacted by the economic conditions in our markets. Analysis of both our watch-list and delinquency numbers also reflect a return to historically normalized levels.

We’re pleased with our commercial loan growth both year-over-year and linked-quarter. That pipeline continues to be healthy. The consumer sector, however, is soft. We produced a new home equity product in the fourth quarter of last year that appears thus far to have been well-received by our customers. It enables them to choose both a fixed and floating rate option from a portion of their credit line. And, of course, we are closely watching current economic stimulus discussions that could boost consumer confidence and spending.

Looking more closely at the fourth quarter, we had some non-recurring items that were identified in our release. Excluding those we are beginning to see the benefits of the consolidation and centralization and standardization initiatives that we shared with you in 2007. Linked-quarter salary expenses were flat as a result of last year’s staff reduction. We also expect to see declining benefit costs as a result of the changes we made in our retirement programs last year. Linked-quarter other income, although off slightly, also showed some bright spots.

Overdraft and NSF income increased significantly with the introduction of a matrix-based overdraft management program. It has enabled us to increase the number of items we pay for our customers. Debit-card related fees showed a nice increase as well. The biggest detractor from other income category is the decline in mortgage sale gains that was expected. The board announced a first quarter 2008 dividend of $0.15 per share. At the current price of our stock, the dividend yield is almost 6%.

To summarize, in 2008 we will focus on the basics, increasing interest income with quality loans, decreasing funding costs through increased core deposits, increasing other income and aggressively managing other expenses. We will remain focused on those basics because they have worked effectively for us and because we believe that if we continue to do them well, our financial performance will improve.

Thanks for your attention and now I’d like to turn the call over to Charlie Nugent for a discussion of our financials.

Charlie Nugent

Thank you, Scott. Good morning, everyone, thank you for joining us today.

We reported earnings per share of $0.22 for the fourth quarter which was a 15.8% increase over the third quarter and an 18.5% reduction from the fourth quarter of last year. On a year-over-year basis earnings per share declined 17% to $0.88, unless otherwise noted comparisons are from this quarter’s results to the third quarter.

Net interest income improved 1.2 million or 1%. Average earning assets increased 398 million or 2.9%. Average loans grew 225 million or 2.1%. Average investment securities increased 240 million or 8.6%. Our loan growth of 225 million occurred throughout the portfolio. Commercial loans grew $80 million or 2.8%, of that growth 46 million was in Pennsylvania, 16 million in New Jersey and 12 million in Maryland. Commercial line-of credit usage was 40% at the end of December compared to 38% at the end of September and to 27% at the end of December 2006.

Commercial mortgages increased 55 million or 1.6% with most of the growth occurring in New Jersey due to continued strengtheners, local economies and our solid market presence. Construction lending declined 5.6 million or 0.4%. A $25 million reduction in the Columbia, Maryland market was offset with moderate growth in other markets. The decline in Maryland is due to softening demand in the real estate acquisition and development loans sector.

Residential mortgages grew 62 million or 8.1%. Approximately 15 million of this increase is due to repurchased and reclassified loans. Growth of 35 million represented loans originated from Fulton Mortgage Company and retained in our portfolio. Twenty-eight million of these loans were adjustable rate mortgages with 7 million fixed rates. Home equity loans increased $31 million or 2.2%, with 25 million representing growth in floating lines and $6 million representing growth in term loans. This improvement occurred primarily within the Fulton Bank and Columbia Bank markets. Fulton Bank’s successful promotion of a new home equity outline product along with some of the larger banks becoming less competitive in the Maryland market contributed to this improvement.

Average investment securities increased due to purchases made in both the third and fourth quarters. During the fourth quarter we purchased securities totaling 335 million at an aver yield of 5.79%. The corporation realized net losses on securities sales 537,000 in the fourth quarter compared to net losses of 134,000 in the third quarter. Net security losses of 670,000 were offset by gains on bank stocks of 133,000. Net securities of 37 million were sold during the fourth quarter; including 29 million in non-agency issued collateralized mortgage obligations. With these sales, all the corporation’s mortgage-backed securities are agency guaranteed, and the corporation does not have any collateralized debt obligations.

Attracting and retaining reasonably priced customer deposits continued to be a challenge in the fourth quarter. The total of customer funding decreased 110 million or 1%. We saw declines in all categories of deposits and in business, personal and municipal accounts, reflecting the continuing competitive market and our decision not to overpay for certificates of deposit in a declining rate environment.

Non-interest bearing demand deposits declined $28 million or 1.6%, while Not Now accounts decreased $7.5 million or 0.4%. Savings and money-market accounts decreased 79 million or 3.5%, with 36 million of this decline occurring in Resource Bank’s Internet money-market account. The reduction in time deposits was $22 million or 0.5%.

We have continued to use our new checking account promotions to generate core deposits. While the balances do not show increases, we are optimistic about its success based on recent new account openings. Also because of the importance of core deposits we have recently established a formal deposit committee and have designated a chief deposit officer.

Our funding shortfall was covered by an increase in federal funds purchased, 219 million, and a repurchase agreement of 297 million. Also during the fourth quarter federal home loan bank advances long-term debt declined $31 million.

Our net interest margin for the third quarter was 3.56%, a 6 basis point decline from the third quarter. Yields on earning assets decreased 15 basis points, while the cost of interest bearing liabilities decreased 13 basis points and our non-interest bearing funding declined. The provision for loan losses increased 2.2 million to $6.8 million in the fourth quarters. Net charge-offs were 15 basis points or $4 million in the fourth quarter, compared to eight basis points in the third quarter.

Non-performing assets to total assets increased to 76 basis points at December 31st, compared to 69 basis points at September 30th, and 39 basis points at December 2006. The balance increase from the end of September was 13.8 million.

I’d like to point out to you the change we had made in the reporting of our allowance for credit losses. Generally accepted accounting principles require the allowance for loan losses to be allocated solely on outstanding loans, and a separate loan to be maintained for committed loans which are reported as a liability. Historically, we and many other banks in the industry have reported both of these items as part of the allowance for loan losses due to immateriality. As of December 31, 2007 we’ve begin to report these items separately in our financial statements.

Excluding security gains, our other income decreased 1.1 million or 3%. Service charges on deposits increased 2.1 million or 18%. Cash management fees were up 234,000 or 8.2% due to growth in customer accounts. Overdraft fees increased 1.8 million or 34% due to the roll-out of a new overdraft program on November 1st. We do believe the contributions from this program will moderate from the current level.

Gains on mortgage home sales decreased 351,000 or 13.9%. Residential mortgage loans sold were 170 million in the fourth quarter compared to 265 million in the third quarter. Resource Mortgage Company’s volume dropped 76 million or 53% while Fulton Mortgage Company’s volume dropped 17 million or 16%.

The other category decreased 2.7 million to 2.5 million in the fourth quarter. During the third quarter we recognized a gain of $2.1 million related to the settlement of litigation in the sale of certain asset, as well as approximately $500,000 of non-recurring items.

Operating expenses decreased 9.5 million or 8.8%. We took charges totaling $16 million in the third quarter related to the repurchase and potential repurchase issues at Resource Mortgage. During the fourth quarter total charges were $640,000.

Total reserves were 18.6 million at December 31st, compared to 19.8 million at September 30th. We believe that the reserves recorded as of September 31st, 2007 for the known Resource Mortgage issues are adequate; however continued declines in collateral values or the identification of additional loans to be repurchased could necessitate additional reserves in the future.

Outstanding repurchase requests increased 9.1 million during the fourth quarter from 10.7 million at September 30 to 19.8 million at December 31, 6.2 million of this increase relates to loans we had identified as of September as potentially having instances of misrepresentations of borrower information and were reserved for as of that date.

Foreclosed real estate totaled 14.9 million at December 31 compared to 12.5 million as of September 30. The amounts attributable to Resource totaled 14.4 million at December 31 compared to 11.4 million at September 30. Thirteen properties were added during the fourth quarter at a total value of $4 million. Sales and insurance proceeds of 670,000 were received. There were no significant gains or losses on the four properties sold during the fourth quarter. Of the foreclosed properties held at the end of the year, 80% are in Virginia or Maryland.

Other operating expenses increase 4.1 million or 22%. Included in the fourth quarter amount were the following: a 1.5 million loss accrual related to our exposure as a member of Visa USA. This accrual represents our share of Visa’s settlement with American Express as well as our estimated share of other outstanding litigation. As you are probably aware, Visa is expected to undergo a public offering in 2008. If this offering is successful we could expect to recover this loss. A 1.1 million write-off of trade name and tangible assets related to our recent internal bank mergers. And a $1 million cost related to our special review of Resource Mortgage.

Salaries and benefits increased 668,000 or 1.3%. Contributing to this increase was a decline in the amount of cost deferred related to loan originations. I’d like to point out that in the third quarter adjustments for non-recurring items, salary and benefits were down 2.5 million or 4.6%. This reflected the impact of our workforce reduction plan which reduced salary and benefit expenses by $1.1 million, as well as staff reductions at Resource Mortgage, which contributed $1.4 million to this savings.

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

Question-and-Answer Session

Operator

Thank you, Sir. Today’s question and answer session will be conducted electronically [operator instructions].

We’ll take our first question today from Rick Weiss of Janney.

Rick Weiss - Janney Montgomery Scott LLC

Good morning. I was wondering if you could talk about the net interest margin in relation to the fed cuts. Since you guys are active-centered I was wondering if you were going to try to increase your use of leverage possibly.

Charlie Nugent

Yes, Rick, when we do our rate-shocks on our static balance sheet, we think the ¾ cent cut will reduce our net interest in come over time by 1.6 million. We’re really liability sensitive. We’ve done everything that we could in the third and fourth quarter to improve our balance sheet and get it ready for interest rate cuts. But it’s still going to affect our margin and our net interest income. The 1.6 million is the effect on a static balance sheet, but you know as well as I do the change in the composition of the balance sheet will have an effect on the margin, too.

Rick Weiss - Janney Montgomery Scott LLC

So you’re not really thinking about guiding to a leverage upset.

Charlie Nugent

Not now. We reduced our static acquisition to .85 by buying securities, securities that we were going to have to buy, we bought ahead of time. The Federal Home Loan Bank advances mature, we let them mature, and all of our borrowings have been short-term. When rates stabilize, we won’t be buying as much as investments. But I think we might be locking in some longer-term debt at favorable rates.

Rick Weiss - Janney Montgomery Scott LLC

I was wondering your deposit service charges increased at 13.4 million. Yet the deposits decreased, and their average balances. I was wondering what was going on there.

Charlie Nugent

I think there are two things; one was the increase in the tax management fees from adding customers and brokering those accounts. The other thing was the introduction of our new overdraft program, before we didn't honor overdrafts as much as we’re doing now. That’s adding a lot.

Scott Smith

We put in that automated system as other have done that allows us to do a more thorough analysis and pay more overdrafts than we have historically. That’s a product we added back in November.

Rick Weiss - Janney Montgomery Scott LLC

So you wouldn’t attribute the decline in deposits to your new charges?

Scott Smith

It’s a combination of things. As you saw, our line usage went up from 37%, I think, last year, to 40%. What you’re seeing, I think is that businesses are using what was excess cash and the fact that they’re increasing their line usage would indicate that that’s the case. Then there is typically a seasonal reduction in deposits, particularly retail, in the fourth quarter and frankly first quarter time frames. That’s when they tend to seasonally back off a little.

Rick Weiss - Janney Montgomery Scott LLC

One more, I was wondering if you could give some guidance of where you see charge-off ratios for 2008.

Scott Smith

This economy is so uncertain, Rick. It’s really difficult for us to say that. I think we feel as I mentioned in my comments, we feel like we’re back to then more normalized levels. And by that I mean normalized levels, not levels that are extraordinarily high or low. We’re going to ride this economy out and see what happens. If the fed and others that are attempting to stimulate the economy can be successful then I think we feel pretty good about where they’re going. But who knows what this economy’s going to do.

Rick Weiss - Janney Montgomery Scott LLC

Okay, thank you very much.

Operator

We’ll go next to Robert Hughes of KBW.

Robert Hughes - Keefe Bruyette & Woods Inc.

Good morning, guys. Another quick question on the overdrafts, I wasn’t entirely clear on that. Is it a function of waving fewer fees, or a function of a policy change and how you order checks? What is the catalyst there for that?

Charlie Nugent

It’s an automated system that looks at each individual overdraft and based on the history of that customer’s balances and overdrafts and what have you, allows us to pay more than we had typically paid before, and it reduces the waivers as well, because it’s all automated and centralized as opposed to being done at individual branches.

Robert Hughes - Keefe Bruyette & Woods Inc.

Okay, I think I get that. Scott, I was curious about your comments up front. You haven’t provided any EPS guidance for ’08. If you could clarify comments, initially I think you suggested that you see really no more deterioration in housing values; at least you’re not assuming that at this point with respect to the credit outlook. Am I characterizing that fairly?

Scott Smith

I think we’re cautious about it. I think what we’re saying is, in the values we put in our reserves for the resource issues, we think they’re adequate unless there is significant deterioration in housing value. We marked those down a couple of times and feel like we’re okay for now.

Robert Hughes - Keefe Bruyette & Woods Inc.

Okay, in your last quarter we spent some time talking about the difference in appraisals from say June 30 to September 30. Do you have any update for what you saw between September 30 and December 31 in terms of appraised values?

Scott Smith

No, I don’t. As Charlie mentioned the houses we were able to liquidate, we got about where we thought we were going to be. I don’t have any real new information on that.

Robert Hughes - Keefe Bruyette & Woods Inc.

Okay, finally, there’s still a lot of concern out there about construction portfolios, I think your credit number in the quarter looked better than most would have assumed. Could you give us a sense of what type of deep drilling you’re doing on the construction book, how you feel about borrower’s ability to sell properties in this environment and any reassessment of collateral values that you’ve done.

Scott Smith

It’s spotty and it depends on the markets. In some markets we have developments that are sitting. In the same markets there are developments that seem to be selling. In most of our markets the lower priced housing continues to move. In a couple of markets, the higher-priced is moving. As we have said, we deal with mostly local developers, and feel comfortable about their liquidity and ability to carry this. But that depends, as we’ve said in the past, how long this goes. Right now, we’re feeling about okay. Of course the costs will go down somewhat with the rates coming down.

What I keep hearing is longer-term we’re okay, but nobody will tell me what longer-term means. I don’t know if this clears up in mid-year, or whether this goes into ’09. In some of our markets, prices are holding up, Pennsylvania markets real estate prices seem to be holding up and some others. [Inaudible – 00:09:24] market I think continues to creep up, but there’s still some sales activity going on. Then if you look at the job growth predictions that everybody has about that Baltimore-Washington corridor and all that’s going on in that Northern Virginia market, I think, again, at some point that inventory’s going to get wound down, but it’s going to take a little while.

Robert Hughes - Keefe Bruyette & Woods Inc.

Okay, great, thanks, Scott.

Operator

We’ll take our next question from Collyn Gilbert of Stifle Nicolaus & Company Inc.

Collyn Gilbert - Stifle Nicolaus & Company Inc.

Thanks, good morning, guys. Could you discuss a little bit on the deposit front and how that environment’s looking? It seems as if you, relative to what I’ve seen in other companies, have been pretty successful in lowering deposit costs this quarter.

Scott Smith

We did, we cut our CD rates when the fed lowered rates, as you can see, it hurt our growth, but we did not want to pay up in what we anticipated as a declining market. We’ll have to see its funding develop in this quarter, where we’re going to be. It looks like, given what happened earlier in the week, we’re going to be able to probably get some CD money and non-CD money at lower rates than we would have in the fourth quarter. The trick is going to be growing those funding options.

Collyn Gilbert - Stifle Nicolaus & Company Inc.

Are you finding that the borrowing costs are less than deposit costs and you may shift gears and build borrowing more than deposits?

Scott Smith

Traditionally we’ve preferred to fund through deposit, when you do that, you’re creating customer relationships and that means all the multiple things you can cross-sell them. So we always like to do it with deposits when we can. We use wholesale funding as needed and when there are opportunities cost-wise to replace what is called hot-money from the retail part of the business with wholesale funds.

We’re very focused on growing core deposits and trying to get market share of those core deposits again, so we can fund with them, but also more importantly so we can cross sell them other products.

Collyn Gilbert - Stifle Nicolaus & Company Inc.

Okay, could you just talk about the migration of MPAs this quarter, I mean if there were any big credits that went off, or were added and just give a little bit more color to those trends?

Charlie Nugent

Collyn, the non-performings increased 13.8 million and in the non-accrual category was up 4.6 million. There are not a lot of big things in there. There was a marina in New Jersey, two gas stations, a renovation at the shore. There were the big things, nothing big. There are always things moving in and out. But they were the big increase for non-accrual. The $2.4 million increase no RE was all related to mortgages that were repurchased that we foreclosed on and are trying to sell. There was a 6.4 million increase in 90 day in accruing, but it was some medical equipment, an MRI lease, that we didn't get paid on. It was a residential development in Maryland, a sports store in Northern New Jersey and a spec-10 project in New Jersey. These are just the typical things coming in, coming out.

Collyn Gilbert - Stifle Nicolaus & Company Inc.

Okay, just in terms of construction, primarily Columbia’s business, do you guys have much exposure in more of the rural Virginia markets? It sounds like that’s where a lot of the pressure is coming, is a little bit further out that the Baltimore, DC Metro markets are strong. But it’s when you push further out into some of the rural markets is where some of these developers are seeing some of the pain.

Scott Smith

I would say we’re not seeing a lot of pain, but I think we are hearing anecdotally that, I guess it’s gas prices, I’m not sure, but the closer in to the metropolitan areas seem to be doing better than the further out developments. We have some exposure there but I’m not hearing anything that’s of big concern right now.

Charlie Nugent

Collyn, we have 395 million in construction loans in Virginia. For the most part they’re centralized in Fairfax County in the north, centralized around city of Richmond and a lot in Norfolk, Virginia Beach and Tidewater. They’re still pretty vibrant areas. Most of our loans are concentrated in pretty good vibrant areas. Particularly the Virginia Beach market that continues to be doing okay given the environment that we’re in.

Collyn Gilbert - Stifle Nicolaus & Company Inc.

Okay, great, that’s all, thanks very much.

Operator

We’ll go next to Matthew Schultheis of Ferris Baker Watts.

Matthew Schultheis - Ferris Baker Watts Inc.

Good morning, gentlemen. I have a quick question on this overdraft product. Is this something customers have to sign up for or is this just automatic?

Scott Smith

It’s automatic.

Matthew Schultheis - Ferris Baker Watts Inc.

Okay, so if there’s an honor’s checking you have to come in and sign some paperwork, et cetera?

Scott Smith

That’s correct.

Matthew Schultheis - Ferris Baker Watts Inc.

Okay and how much of the non-performers did you say were tied to repurchases et cetera?

Charlie Nugent

The total non-performing is 120 million, that includes ORA and 30 million relates to repurchases from mortgages at Resource Bank. There is 16.5 million in non-performing loans and there’s 14.3 million in ORE property related to the repurchases. It’s 25% of the 120 million.

Matthew Schultheis - Ferris Baker Watts Inc.

And as far as the Baltimore market is concerned, do you know how much lending you did in the downtown area with people rehabbing houses, primarily for resale? There are some neighborhood’s downtown that have gone from rehab and sale to rehab and rent. Can you comment on your exposure specifically to that downtown area?

Scott Smith

Matt, I don’t have those numbers. Again, I'm not hearing anecdotally that we have any major issues as a result of the situation that you’re talking about.

Matthew Schultheis - Ferris Baker Watts Inc.

Okay, I think that’s it for me, thank you very much.

Operator

We’ll go next to Mac Hodgson of SunTrust Robinson Humphrey.

Mac Hodgson - SunTrust Robinson Humphrey

Good morning, a couple of questions, on the expense side, I know you’ve been making some pretty good efforts on personnel expense to lower some of those costs, and I didn't know of you could give us a sense of a good run rate for salary and benefits. Is that 53 million this quarter pretty indicative of what you expect it to be in ’08 per quarter?

Scott Smith

I would say, Mac, we cut back on the profit sharing and the pension plan. We start seeing the savings from that starting January 1, in the first quarter. We’ve been watching that. I would say a 1% or 2% increase would be reasonable, I would say if you’re looking for a run rate. Hopefully, it will be below that.

Mac Hodgson - SunTrust Robinson Humphrey

Great, then on the advertising expense, it up ticked this quarter. Is that mainly due to seasonality or is there something else in there?

Scott Smith

We are, as we discussed earlier, focused on trying to increase our core funding base and so we did some fairly heavy advertising in the fourth quarter to try to do that. It looks like it’s working. My sense is that we’re going to continue to use marketing dollars as we have in the fourth quarter to continue to penetrate markets and to get market share. We don’t have significant increases in that area’s budget.

Mac Hodgson - SunTrust Robinson Humphrey

Okay, great. Finally, speak a little bit about your branching plans; I know you’ve mentioned the desire to increase the footprint of the Legacy Resource Bank in northern Virginia. What are the plans for ’08?

Scott Smith

I was told yesterday that we’re getting back on January 29, a complete analysis that we hired outside folks to do for us for the Virginia market. We’re going to be looking at that in the first quarter and begin the process of looking for ways to increase our retail franchise there. As I said in the past, we’re ready to do it. Whether we can get the locations actually bought and approved for franchise can vary from months to years. But we’re looking at it very carefully and we have some branches in some other parts of our markets that we’re looking at as well.

We budgeted as we have in the past, typically for 12-ish branches. My expectation in the mix of all of that will do about that many this year.

Mac Hodgson - SunTrust Robinson Humphrey

Okay, great, thanks, guys.

Operator

And, gentlemen, we have no further questions. I’ll turn the call back over to Mr. Smith for any additional and closing remarks.

Scott Smith

Thank you, I’d like to end the call by thanking everyone for joining us here today and we hope that you’ll be able to be with us again for our first quarter earnings conference call which is scheduled for April 23 at 10:00AM.

Operator

And that does conclude today’s conference call. Thank you for your participation. You may disconnect at this time.

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