Fulton Financial Corp (FULT) 2008 Q3 法說會逐字稿

Good day, and welcome, everyone, to the Fulton Financial Third Quarter 2008 Earning Results Conference Call. This call is being recorded.

At this time, I would like to turn the call over to Vice President, Corporate Communications Manager Ms. Laura Wakeley. Please go ahead.

Thank you. Good morning, and thanks for joining us today. Your host for our Conference Call is Scott Smith, Chairman, Chief Executive Officer and President of Fulton Financial Corporation. And joining him is Charlie Nugent, who is 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 Web site at fult.com by clicking on Investor Information and then on News.

Please remember that during this Webcast representatives of Fulton Financial Corporation may make certain forward-looking statements regarding future results or future financial performance of Fulton Financial Corporation. Such forward-looking information is based on certain underlying assumptions, risks and uncertainties. Because of the possibility of change in the underlying assumptions, actual results could differ materially from those forward-looking statements.

Risks and uncertainties that may affect future results include pricing pressures on loans and deposits, actions of bank and nonbank competitors, changes or adverse changes in economic, political or regulatory conditions, the continuation or worsening of the current disruption in credit and other markets, including the lack of or reduced access to and the normal and abnormal functioning of markets from mortgage and other asset-backed securities, and for commercial paper and other short-term corporate borrowings; the impact on assets from adverse changes in the economy, and in credit and in other markets; and resulting effects on credit risk and asset values, actions of the Federal Reserve Board, credit-worthiness of current borrowers, the Corporation's success in merger and acquisition integration, and customers' acceptance of Fulton Financial Corporation's products and services.

Fulton Financial does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date on which such statements were made.

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

Thank you, Laura, and good morning. And thank you all for joining the call.

We reported diluted earnings per share of $0.17 for the third quarter, a $0.02 increase over the prior quarter but short of expectations. General economic conditions have deteriorated further in the last 90 days, placing additional stress on the performance of our loan portfolios and our credit metrics.

While we were encouraged to see continued strength in many of our core banking operations during the quarter, these trends were not enough to offset write-downs in the investment portfolio and a significant increase in the provision for loan losses, preparation for higher potential charge-offs. As much as I would like to tell you that we see a light at the end of the tunnel, we do not. As a result, we felt it was prudent to proactively increase the allowance.

Builders and developers have been particularly hard hit and continue to have difficulty reducing inventories. Home appraisals continue to trend lower. Recent retail sales numbers show a broad decline, and predictions for holiday sales are weak. We expect these and other negative trends to continue into at least the early part of next year. If that's the case, we will continue to have our share of challenges.

The current downtrend, we first saw real estate collateral values begin to erode. More recently, and with greater frequency because of the ripple effects of deteriorating business conditions, some of our residential real estate developer borrowers are not able to repay their loans according to terms. As a result of these conditions, as we mentioned earlier, we significantly increased our reserve [on] loan loss.

Yet even this in environment, loan demand and loan growth continues due to market share increases. Deposit funding for this growth has been a challenge. Our deposit growth has been flat for the last two quarters, despite almost constant advertising and promotional activities. In the last few months, we have seen some of the largest increases in net new account openings we've experienced in the last year. This activity has not yet translated into balance sheet growth.

Recent legislative actions increasing the FDIC coverage [to] $250,000, and most recently covering all non-interest-bearing deposits, may provide some additional impetus. Our slow deposit growth is somewhat puzzling, given the volatility in the equity markets as well as recent noise about net asset value on some money market (inaudible).

And yet, even though these deposits are flat, deposit account-related income remains very strong. Charlie will cover some of the details in his discussion.

In-market acquisitions of community bank competitors continue to present new growth opportunities for us. However, balancing this loan demand against our funding levels and cost of that funding can be quite challenging. In media throughout our footprint, we are seeing hundreds of deposit ads. Many are from out-of-market and out-of-state financial institutions that have not previously targeted our markets.

As we are able to obtain funding, we continue to respond to loan demands. But we are extremely selective and very disciplined in qualifying and underwriting new credit. I trust that you would agree that [this] showing ability to perform well in this environment should, in all likelihood, be positioned to prosper when the current cycle [turns]. We want to be lending to those businesses now and acquiring new relationships.

Our loan growth for this quarter came largely from three areas -- consumer, residential mortgage, and commercial real estate. Consumers continued to respond well to our option line product introduced late last year. These loans are branch-originated and have been underwritten with conservative loan-to-value ratios. Residential mortgage growth is a result of retained adjustable-rate and jumbo loans that are underwritten to our internal standards. Thus far, we are not seeing any significant delinquency issues in either of these specific portfolios.

The third area, commercial real estate, is really the result of market share opportunities that I mentioned earlier. We're being asked to look at a lot of opportunities, and we are accepting only those that meet our stringent credit and underwriting standards and where we can obtain significant customer relationships. We also believe that for us to obtain required funding, we need to offer competitive but not unreasonably high deposit rates, particularly now that the FDIC insurance ceilings have been increased.

In order to stay deposit rate-competitive without negatively impacting our interest margin, we are carefully monitoring our loan pricing. You notice that our net interest margin held up well second to third quarter. We have recently adjusted our loan pricing targets across the Corporations and across all portfolios. We are redoubling our efforts to make sure we get paid commensurate with the risk inherent in a distressed market. Successfully moving loan yields up gives us greater pricing latitude on the liability side of the balance sheet.

We're fortunate to have an increasing base of non-interest income from related core banking business. And as we discussed in prior calls, cost-cutting initiatives started in 2007 continued to yield good results and should continue to do so. As you recall, those involved centralization of holding company departments and reductions in salary and benefit costs.

During the quarter, we announced that we plan to merge two of our Maryland affiliates, Hagerstown Trust and The People's Bank of Elkton, into the Columbia Bank, creating a statewide franchise in the third quarter of 2009. These actions, once completed, will bring the total number of affiliate banks in the holding company to eight, down from a high of 15 approximately three years ago. Combining these banks will provide greater statewide brand recognition and increase the marketing resources available for targeted growth in Central Maryland.

At the present time, our capital and liquidity positions remain more than adequate as defined by regulators. Be assured that we will keep a watchful eye on these metrics as economic scenarios unfold in the months ahead. We are currently evaluating the pros and cons associated with expanding our capital base to the issuance of government-purchased preferred stock under the Treasury's capital preferred share purchase program. We are studying other newly created opportunities as well.

I'm optimistic about our ability of our company to withstand the most difficult financial and economic headwinds that we've ever experienced. We all hope that recent federal legislation will restore order to domestic and global financial markets and put us back on the road to economic recovery. But we all know it will take time.

Now I'd like to turn the call over to Charlie Nugent for some additional color on the financials. And when he concludes, we'll be happy to take your questions. Charlie?

Thank you, Scott. And good morning, everyone. Thank you for joining us today.

Unless otherwise noted, comparisons are this quarter's results to the second quarter of 2008. As Scott mentioned, we reported earnings per share of $0.17 for the third quarter, which was $0.02 higher than the second quarter and $0.02 lower than the third quarter of last year. During this quarter, we recorded a $10.8 million noncash charge related to our investment security holdings that were determined to be other than temporarily impaired.

On a net-of-tax basis, this write-down was $7 million, or $0.04 per share. Approximately $2 million of this charge was related to bank stocks, $5 million was related to subordinated debt issued by Washington Mutual, $3 million was related to a pooled trust-preferred issue, and the remainder related to other securities.

During the second quarter of 2008, we recorded a $24.7 million impairment charge related to bank stocks. As of September 30th, our bank stock portfolio had a cost of $55.2 million and a market value of $54.3 million, for an unrealized loss of approximately $900,000. Our fixed income investment portfolio includes bank trust-preferred securities with a total book value of $129 million and an estimated fair value of $96 million.

We feel that these are reasonable valuations based on the recent FASB guidelines on valuations in distressed markets. Included in this total are pooled trust-preferred securities with book value of $32 million and single bank-issued trust-preferred securities of $96 million. In addition, we held bank-issued subordinated debt with a book value of $40 million and an estimated fair value of $32 million. The remainder of our fixed income investments is comprised of municipal bonds and agency securities.

During the third quarter, we also recorded an additional $2.7 million charge related to auction rate securities held in customer accounts. During the second quarter, we recorded a $13.2 million charge for this guarantee. Auction rate securities with a par value of $165 million are still held in customer accounts as of September 30th and could be purchased in the future.

The most significant item impacting our third quarter results was asset quality. The provision for loan losses increased $10 million, to $26.7 million in the third quarter. Net charge-offs to average loans were 38 basis points in the third quarter, and the $11 million in net charge-offs this quarter was primarily in commercial loans, and they totaled $3.9 million; and construction lending, which totaled $4.6 million. These charge-offs occurred throughout our footprint. There were four individual charge-offs exceeding $1 million, with an aggregate amount of $6.8 million.

Nonperforming assets to total assets increased 115 basis points at September 30th, with nonperforming loans increasing $21 million and other real estate increasing $1.6 million. At September 30th, nonperforming loans were spread across most categories. Construction loans increased $20 million, to $57 million. Nonperforming commercial loans increased slightly to $41 million. Commercial mortgages declined by $7 million, to $32 million. And residential mortgages increased $4 million, to $26 million.

Other components of earnings were relatively strong. Net interest income increased $2 million, or 2%. Total average earning assets were essentially unchanged, but the mix changed as average loans grew $274 million, or 2%, and investment securities declined $215 million, or 7%.

Our net interest margin was essentially unchanged at 3.74% for the third quarter. Yields on earning assets declined 14 basis points, while the cost of interest-bearing liabilities decreased 15 basis points. Going forward, we expect that strong deposit competition will put pressure on our net interest margin.

On the funding side -- total deposits declined $33.6 million, or three tenths of a percent. A slight increase in demand accounts was offset by declines in savings and time deposits. The declines occurred in personal accounts but were offset by growth in commercial and municipal balances.

On the personal side, we were growing the number of accounts, as Scott mentioned, but we are not seeing overall balance growth. On the non-personal side, there is some seasonal impact related to the collection of taxes by school districts. Also we believe our business and municipal customers are being conservative and slower to move their money into investments.

As you would expect, growth in customer funding is an area of significant focus for us. We continue to closely monitor balance and pricing trends, and we will continue to invest in promotions and initiatives to generate deposits.

Excluding security losses or gains, and the gain on the sale of the credit card portfolio, our other income was essentially unchanged at $40 million. We saw strong growth in service charges on deposits of $858,000, or 6%, as a result of an increase in overdraft fees. This improvement is related to the lower balances in personal accounts. Non-deposit-related fees increased $470,000, or 5%, due to continued strength in our merchant and foreign exchange businesses.

These improvements were offset by declines in other fee businesses, and investment management and trust service income declined $345,000, or 4%. This reduction was in both brokerage and wealth management and resulted from the current unsettled equity markets.

Gains on mortgage loan sales decreased $400,000, or 15%. The volume of loans sold increased by $9 million, or 6%. However, the spread on sales decreased as pricing in the current environment tightened considerably.

Operating expenses declined to $10.6 million, or 10%, mainly due to a $10.5 million decrease in charges taken for the auction rate certificates. This charge is reflected in the operating loss line item in our financials.

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

(OPERATOR INSTRUCTIONS) Rick Weiss, Janney.

Good morning.

Morning, Rick.

Morning, Rick.

Hey, I was wondering if we can go right to asset quality, couple questions. First, with construction lending, do you still see the trend of nonperformance going up?

Well, it did this quarter, Rick.

Right.

Are you asking about --

Yes, going forward, really --

Well, as I mentioned in my comments, we don't see economic conditions improving dramatically any time soon. So, you know, we're trying to be prepared for additional issues there. We don't have a number that we're projecting what it's going to be. But the longer this goes, the more difficult it becomes to carry -- for some folks to carry the interest cost of this. We're trying to work with them.

And there are times when we are looking at interest reserves. And what we're looking for there is additional collateral. We have some that have put private equity, either their own or from additional investors they've been able to attract. And of course, we're using the most recent appraisals we have to make any alterations in our lending commitments to those folks. But as far as the markets improving soon, in the next couple of quarters, that's difficult to project.

Okay. And I'm just trying to figure -- were any of the construction loans charged off in the third quarter?

Rick, we mentioned that our charge-offs in the third quarter -- we had construction lending charge-offs of $4.6 million --

Okay, so that's grouped with the commercial, Charlie, in that table?

I'm not sure, Rick. Yes. Yes, they are. They're in that financial -- commercial financial [cash] agriculture. It's in the commercial section. And Rick, there was $4.6 million we charged off in the third quarter. Two of them are over $1 million. One was in New Jersey, related to low-income housing. And there was another one in Maryland, in the western part of Maryland. And that was $1.5 million. That was real estate development.

Okay. And would you foresee your loan loss allowance starting to rise from these levels now? I guess in the past few years, SEC auditors didn't want reserves higher. But now that charge-offs are starting to kick in, would it be a fair assumption to say reserves will be higher in '09 than they are today?

Rick, it's difficult to project the future. I wish I could.

(laughter)

But I can't. But we do this detailed analysis every quarter, and it's pretty comprehensive, by all our loan-review people, our workout people and our lenders. And we put in there [when] we think is appropriate. So what we think -- next quarter, it's going to be hard to guess right now. But the trends seem to be going up, so I would tend to think [a lot]. How much I don't know.

Okay. And one other question -- with regards to your non-interest-bearing deposits, looks like it was down 5.5% on a period-end basis. But it stayed pretty flat based on average balance.

Right.

And just kind of like -- what's the explanation for that?

Well, I'll tell you, it seems like we keep on opening new accounts. But it seems like the average balances that people keep in there are down. And it's just hard [for me] to tell you exactly what it is.

As I mentioned in my comments, Rick, we're a bit puzzled by it. And we don't have any data that we can give you good information about why it is. And it's not only new accounts, it's net new accounts that have been quite good the last couple of months. But it's not showing up in balances in the deposits on the balance sheet.

Okay. And one final question, I guess -- would you guys be interested in looking at the TARP program? (inaudible)

As I mentioned, we're looking at everything. We haven't made any decisions yet. The details continue to come out. I think we've got most of them now. But we are in the process of analyzing everything that's out there and seeing what's applicable to us and what isn't.

Okay. I'll get off the phone, let other people ask questions. Thank you very much.

You're welcome, Rick.

Collyn Gilbert, Stifel Nicolaus.

Thanks. Good morning.

Good morning, Collyn.

Just a follow-up, Scott, to Rick's question on the TARP plan -- in your intro comments, you had said you would look at other newly created opportunities as well? Could you just maybe give some specifics? You mean in terms of other forms of capital-raising, or what did you mean there?

Well, everything that's out there. There's a whole list of things the Fed's provided, there's a list of things the Treasury's provided. And we haven't made any specific decisions about any of them, other than some of the FDIC stuff, course, we've gone along with. And we have made the decision on the FDIC insurance for the DDA accounts, to offer that to our customers through '09. So that decision was made because we felt like we needed to get that message out to customers right away.

But other than that, we're still -- stay tuned. We'll announce our decisions as we make them.

Okay. Okay.

And then, just a question again on asset quality -- are you guys doing anything in the way of loan modifications to some of the residential borrowers that you might see are in trouble, or approaching sort of the kind of proactive management of these credits in any way?

The delinquency in our residential portfolio -- not totally, but a lot -- comes from the issues we had with Resource Mortgage last year, okay? And so, those that have gotten back -- we've gotten back from the servicers are kind of beyond working with customers. Now, we have some delinquency in our portfolio that was there, but it's not of any huge consequence. A lot of the government-related issues that you're reading about really apply more to the servicers that have the majority of those issues. And frankly, the major problems are in other markets. Now, we have some in this market, and it's there. But we have always and will continue to work with any customer through a delinquency to try to work through the situation. Everybody wins more if we keep the customer in business or in the house, or whatever the lending situation might be.

Okay. Are you seeing more stress, then, on your commercial borrower than you are your consumer borrower?

Yes, I would say so. As I mentioned, our consumer portfolio, the delinquencies there -- the loans we originated and have run through our system are performing okay. They're not as good as they were a couple years ago, but there was almost nothing there then.

Yes.

As we mentioned, it's coming out of commercial portfolio. And there are always -- as always, there are different type of businesses impacted. But the area, I think, that gives us the most heartburn, of course, is the real estate development area.

Okay. And is that pretty much coming out of -- well, I shouldn't make the assumption -- but out of Columbia's franchise?

Well --

Or is it across the --

It would be primarily in the Baltimore, Washington, Northern Virginia, and some in New Jersey.

Okay.

Pennsylvania franchise is doing okay.

Okay. Thanks.

You're welcome.

(OPERATOR INSTRUCTIONS) Bob Hughes, KBW.

Hey, good morning, guys.

[Bob].

(inaudible)

I was hoping to maybe get a little bit more color. It seemed to me that functionally, the bulk of the increase in NPLs this quarter was driven by the homebuilder book. So a couple questions -- what drove the increase in NPLs specifically? Is it interest reserves running out and concerns over a long, hard winter with little sales activity? Is it a perspective view on collateral value declines? Could you shed a little light on that?

Well, as I mentioned, up until this quarter, we were primarily concerned about deterioration of collateral values. We began, particularly toward the end of the quarter, hearing from some developers about concerns about being able to -- the long, hard winters that you referred to. And so, as I said, we're working with them. We're trying to encourage them to provide additional collateral, so we can provide some additional support.

We are encouraging, and some have injected the equity from their liquidity, outside of the real estate development activities they have, additional investors that they can attract to it. And that's why we tried to put the reserves up a little, so we could absorb some of that that could be [happening].

Now, we continue to use updated appraisals. And so far, they're not going up. But --

Right.

It got -- it went from -- we're concerned about the collateral to some of our customers -- not all -- but some of them saying, I'm not sure I can carry the interest cost through the winter.

Are you guys extending additional interest reserves or extending additional lines in these borrowers to get them through the winter?

Well, when we can get additional collateral and/or equity support from them.

Okay. But to date, any concerns on collateral values have been pretty much predicated on updated appraisals, and certainly no prospective view of where collateral values could go?

I'm sorry, the last part of your question?

Yes. The views and actions you've taken on the construction book are largely predicated on a continuation of updated appraisals and where values are today, not necessarily predicated on any belief that collateral values can or will decline further?

We certainly don't expect them to go up. So yes, I can't tell you how much they're going down. But in certain markets, we think there's some more room for collateral values to decrease.

Okay. I know you've spent a fair amount of time talking about the deposit trends. A couple things -- it looks to me like you funded much of the balance sheet growth in the quarter with overnight borrowings. And we've had a recent 50-basis point cut. I'm wondering if you could comment upon your outlook for the margin in the context of those movements.

Bob, the margins certainly benefitted from the decline in the Fed Funds rate. But (inaudible) the wholesale funding has helped us. But deposit costs are still -- market deposit costs from other banks -- it's still very competitive. Most of the CDs we're seeing in our market are over 4%. So I think that customer deposit costs are going to go up, and it's going to put pressure on our margin as we going forward.

Okay.

And then perhaps one last question -- clearly, much of the runoff in your deposits in the quarter -- not that total deposits were down dramatically, but --

Right.

-- but came in the form of non-interest-bearing. I'm wondering if you could comment upon the trends that you've seen quarter-to-date post the increase in FDIC insurance and other Stabilization Act factors.

We look at that every week in our outcome meetings. And we just see flat trends. We don't see any growth in our deposit balances. They're basically flat.

Okay.

I don't think we've seen any change since the FDIC insurance has gone up.

Okay. All right, thank you, guys.

You're welcome.

You're welcome.

Andy Stapp, B. Riley & Company.

Morning, Andy.

Morning.

Just, on your reserve -- your reserve coverage loans was up quite a bit. Just wondering, how much was that due to a change in deterioration in risk ratings versus more qualitative factors?

Boy, Andy, it's a combination of both. As we've talked in other calls, we have this model we run things through. And we use that. And so we did increase the allocations, some specific allocations, to certain customers. But we also did -- as I mentioned earlier, the deteriorating economic situation -- we held our unallocated up there as well.

Okay.

And was there any change in your 30-to-89-day delinquencies?

Any change in what? The 30?

Thirty-to-89 --

Oh, 30-to-89.

-- delinquents.

Okay. You mean from second quarter to third quarter?

Correct.

I would say they've trended up slightly.

Okay.

And you had some nice gains in residential mortgage loans. What was driving that?

We have been booking adjustable-rate loans and jumbos that -- and we have been [portfolioing] those, the jumbos. There really isn't a lot of market out there for them. Now I don't want you to get the impression we've done huge amounts of jumbos. But we do have high-quality customers with strong credit that we are providing those to. And then, our adjustables to date we've decided to keep on the portfolio, because the rates are decent. And again, they're underwritten to our standards, to our portfolio standards, not to secondary markets. And ours are at least as strong as secondary-market standards.

Okay.

And your jumbos would obviously not be 30-year fixed-rate stuff?

That's right. They're all [5] ARM -- mostly 5 adjustable ARMs.

And they're ARMs as well, okay.

On the pooled TruPS -- what tranche were they in?

The one that we wrote down, Andy, was in the mezzanine tranche. And we have 10 pools we own. And two are senior, and the other eight are mezzanine. Mezzanine will be in the middle.

Okay.

And in your single-issuer TruPS, any other troubled banking organizations that you have, like a NatCity, or anything like that?

No. I don't know what the definition of "troubled" is. We don't have any National City in the trust-preferreds. But they're all -- they all have A ratings or above except one, which is a local bank that we have a lot of faith in. That's rated BAA2. But things can change awful quick, as we've seen. The Wells Fargo, Bank of America, JP Morgan, BB&T, Fifth Third -- still rated at A2. SunTrust -- we have Wachovia, Royal Bank of Canada, Northern Trust, PNC, Comerica, KeyCorp -- you can keep on -- they're all, I would think, relatively solid banks.

Okay, great. Thanks.

You're welcome.

(OPERATOR INSTRUCTIONS) Frank Schiraldi, Sandler O'Neill.

Morning, guys.

Morning, Frank.

Morning, Frank.

Most of my questions have been answered, actually. But I guess just a couple follow-ons here. The CD growth in the quarter -- that was out of the branch's retail CDs, or was some of that brokered?

It's been all retail CDs. In fact, Frank, we've -- yes, we've had positive CD growth overall linked-quarter. Because we actually ran off some jumbo CDs and brokered CDs.

Okay. And like you said, the competition is still pretty tough there. [Are] those still -- so those are still sort of coming on the books at around 4%, or --

Our rate still isn't that high yet, I don't think. We're usually 3.75, maybe some of the banks are 4%. But most of the competitors are [at] very high rates relative to where we think market rates are.

Okay. And just trying to get an idea of this recent Fed cut. As far as the adjustable-rate stuff in the commercial book, is that primarily prime, or is there a lot of LIBOR in there? Is any sort of, kind of --

In the whole loan portfolio, I don't have the numbers for Columbia. I don't think Columbia has a lot. But there's $900 million in loans that are tied to LIBOR. And for the most part, they price on the 25th of the month. And you know LIBOR's a little inflated, so we're benefitting from that.

On the negative side, we have Federal Home Loan Bank advances. There's $400 million of those. And they price on LIBOR, too, they're floating on LIBOR, so that hurts us.

And then these recent -- maybe it's not the biggest thing on your minds right now, but as far as the FDIC assessment rate hike likely to come in '09, does that change your thinking at all on the liability side, as far as CDs versus FHLB borrowing?

Yes, it does. Because I think there's a penalty -- if your advances are 15% over your deposits, there's a penalty. And if your brokered CDs are 10% over deposits, there's a penalty. So it affects our thinking.

Overall for the Corporation, we're not above those levels. But individual banks are, so we're going to have to manage those banks a little bit different. And I don't think we'll be paying anything related -- any excess premiums because of that.

Okay.

We paid $3 million in premiums this year; we still had some credits. Next year, we expect that to go up to $12 million.

And just one last question on the trust-preferred pool stuff -- do you have the -- when you said "book," I know there's -- like you said, there's been some other-than-temporary impairment. So do you have just cost of that entire pooled portfolio versus where it's being held on the books at fair value now?

Yes. The $32.2 million in costs.

Okay.

And fair value, Frank -- it depends on -- we go to different brokers. And the fair value's all over the place, what they think fair value is. And we try to use a model, and we discount it for the changes in maybe the credit ratings of these, and we change it. We put in the liquidity adjustment. And when we do that, all the pools that we have, $32.2 million, we think the value is $9.5 million less.

And I don't think that's the economic value, but I think it's the value that we're using based on the new FASB guidance that just came out.

So the $32 million is cost, and then you -- the haircut is $9.5 million?

Yes.

Okay.

And it would seem to me that since the end of the quarter, since the TARP program was announced, that you should see some quotes, if not actual bids, coming up for pooled and trust-preferred single-issuer. Has that been the case that you've seen in talking to people?

I haven't seen it. Yes, it seemed like the pricing really changed after Lehman Brothers bailed, and more conservative pricing. You would think logically that a lot of these banks that are deferring their preferred dividend payments -- it doesn't look logically that they would. And when they defer, we treat it as a default.

And I would think -- I don't know, I can't predict the future -- but this program of the government that would give them additional capital -- if they got that additional capital, you would think they would start making their preferred dividend payments again.

So I would think -- I can't predict the future -- I would think, in my opinion, these guys should do well. Because we're not going to have deferments anymore. I think if they participate in that program, they're going to get additional capital, and they'll start making these payments. Because they have to make these payments before they can make the payments on the senior preferred issue in their common stock.

Right.

Okay, thanks.

You're welcome.

Andy Stapp, B. Riley & Company.

Do you participate in national shared credits? If so, what extent?

Limited extent, Andy. I think the technical definition is more than three banks in a deal. And they're all in-market stuff, where we have customers that we share with some of the larger banks, because their lending needs -- I'm being told there's 12. So it's a part of the portfolio, but it's primarily to service customer relationships in our market, where we know them and we [need] capacity to work with other banks and analysts.

Okay. Okay.

Thank you, ladies and gentlemen. At this time, I'd like to turn the Conference over to Mr. Scott Smith. Please go ahead, sir.

Well, thank you for joining us today. And I'd like to end this call at this point in time. And we hope you'll be able to be with us again in the fourth quarter year-end earnings conference call which is scheduled for January 21st, 10 a.m. Talk to you then.

This concludes today's Fulton Financial Corporation Fulton Financial Third Quarter Earnings Call. Thank you for joining us, and have a wonderful day. You may now disconnect.