Fulton Financial Corp (FULT) 2008 Q4 法說會逐字稿

Good day, everyone, and welcome to the Fulton Financial fourth quarter and year end 2008 earnings 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, Ms. Wakeley.

Thank you and good morning. Thank you for joining us for Fulton Financial Corporation's conference call and webcast, to discuss our earnings for the fourth quarter and 2008. Your host for today's conference call is Scott Smith, Chairman and Chief Executive Officer. Our comments today will further the financial information included with our earnings announcement, which we released at 4:30 yesterday afternoon. These documents can be found on on our website 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 the future financial performance of the Fulton Financial Corporation. Such forward-looking statements reflect the Corporation's current views and expectations based largely on information currently available to it's management, and on current expectations, assumptions, plans, estimates, judgements and projections about it's business and it's industry, and they involve inherent risks, contingencies, uncertainties and other factors.

Although the Corporation believes that these forward-looking statements are based on reasonable estimates and assumptions, the Corporation is unable to provide any assurance that it's expectations will in fact occur, whether it's estimates or assumptions will be correct, and actual results could differ materially from those expressed or implied by such forward-looking statements, and such statements are not guarantees of future performance. The Corporation undertakes no obligation to update or revise any forward-looking statements. Accordingly, investors and others are cautioned not to place undue reliance on such forward-looking statements.

Many factors could affect financial results, including without limitation, acquisition and growth strategies, market risks, changes or adverse developments in economic, political, or regulatory conditions, a continuation or worsening of the current disruption in credit and other markets, including the lack of, or reduced access to, and the abnormal functioning of the markets for mortgage and other asset backed securities and for commercial papers through other short-term borrowings.

The effect of competition and interest rates on net interest margin and net interest income, investment strategy and income growth, investment securities gains, declines in the value of securities which may result in charges to earnings, changes in rates of deposit and loan growth, asset quality and the impact on assets from the adverse changes in the economy, and credit and other markets and the resulting effect on credit risk and asset values, balance of risk sensitive assets due to their sensitive liability, salaries including benefits and other expenses, amortization and intangible assets, goodwill impairment, capital and liquidity strategy, and other financial and business matters for future periods.

As mentioned before, 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 would like to turn the call over to your host, Scott Smith.

Thank you, Laura. Good morning everyone, and thank you for joining us. Here with us today this morning is Charlie Nugent, our Chief Financial Officer, and Phil Wenger, who was recently named President and Chief Operating Officer of the Corporation. Phil is a key member of our Senior Management Team, and will participate in future calls.

I would like to begin with a discussion and overview of 2008, then Charlie will provide the financial details for the fourth quarter and for the year, when he concludes the three of us will be happy to answer your questions. As you saw from yesterday's news release, 2008 was a difficult year for us. Every quarter brought with it one or more financial issues, some credit related, some market related, but negatively impacted our earnings. The last quarter was no exception.

These most recent issues, as well as the negative impact they had on our earnings were significant. They included the impairment of goodwill for the Columbia Bank, the other than temporarily impaired adjustments on our pooled trust preferred securities, the additional increase on our loan loss provision. These items were all contained in an 8-K that we filed on December 16th. Since that filing and as noted in yesterday's release, we have recorded an additional $12.9 million OTTI write-down on our bank stock portfolio.

The Corporation ended the year with a loss of $0.03 per share, and a loss of $0.58 for the fourth quarter. This performance is a disappointment to me and to our Senior Management Team. We have confronted and continue to confront each one of our challenges head on. We have taken what we believe to be appropriate steps to respond to each one. However, regaining our earnings momentum will be contingent upon the timing and the strength of a rebound in the economy.

In late December the Corporation received $376.5 million from the Treasury's capital purchase program. The intent of this program is to provide fuel for economic growth, by enabling healthy banks to continue to focus on lending to credit worthy businesses and consumers. There have been stories in the media recently regarding the recipient accountability for lending these funds. As a family of community banks, we know how important both the retail and business sectors will be to providing the necessary impetus for the economic growth in our market.

Within those key sectors are a number of sub-segments on which we will focus our lending activities. They include the residential mortgage business, home equity lines and loans, indirect automobile financing, and small businesses, which is a sector we also view as an important source of deposit funding.

While our best intentions will not create loan demand where it does not exist, our objective through targeted marketing and promotional programs is to create greater opportunity for quality loan growth. In addition, the capital purchased money allows us to fill some product gaps as a result of fewer secondary market investors. We have developed a product to help our residential builders move inventory financed by our affiliate banks.

Please know that we have not relaxed our underwriting standards and have no intention of doing so. However, based on our projections and given the recent increase we have seen in mortgage refinancing activity, we expect our loan growth in 2009 to exceed the $376.5 million from the Treasury. The Treasury's investment in conjunction with retail and wholesale funding will be used to support and enhance all of our lending activities.

Despite the economic conditions and challenges facing us, we understand that it is our core banking business that continues to under grid this economy and on which our future success depends. That foundation includes our 3,900 dedicated, well-trained community bankers in five states, serving customers in sufficiently strong markets. These same markets will eventually regain their strength, although I think we all agree it will take some time.

One of my biggest concerns as we manage through the headwinds of last year, was to make sure that we didn't let our problems take our focus off our customers and it did not. In fact, throughout 2008 we increased our customer focus by rallying the entire Company around the creation of a superior customer experience culture. We launched a corporate-wide service promise initiative, and every employee by signed commitment pledged to care, listen, understand, and deliver his or her personal best to every customer. We also launched a company-wide recognition program, that rewards employees when they deliver on our Customer Service promise.

While maintaining each local affiliate's name and community presence, we launched a corporate branding campaign across the entire footprint, with the tag line 'Listening is just the beginning.' We will now offer more efficient and effectively reach our customers and prospects, with a consistent message throughout our branches and in the media.

On the asset side of the balance sheet, we are confining our new loans to creditworthy borrowers, in keeping with our high underwriting standards. Changes in the competitive landscape have created an opportunity for us to price new and some existing credits more rationally. I think it is important to note that our longstanding customer relationship strategy takes on greater significance in this difficult economic environment.

Our personal approach to building meaningful customer relationships includes deposit funding, fee income, and related business lines, and revenue producing retirement investment and trust services and as a result our balance sheet strengthens over time. We would expect to leverage our capital purchase funds many times over. We continue to see customer deposits funding with aggressive advertising and promotion. I must say, however, throughout 2008 obtaining rationally priced funding from the retail sector has been a significant challenge.

With our continued focus on core banking we opened five new branches, one in Maryland, two in New Jersey, one in Pennsylvania, and one in Virginia, in markets that provide significant current and future opportunities to grow households and to capture new market share. We have increased our branch based new business development efforts in markets that have been disrupted by merger and acquisition activity and are taking advantage of market opportunities, to cultivate new customers who as a result of this economic turmoil have a new appreciation for community banking. In fact, one of our new brand TV spots focuses exclusively on this theme.

Loan growth remained reasonably strong throughout the year. We believe that trend is a result of three factors, market competitor turmoil, the fact that some sources of credit have disappeared, and more rational underwriting standards across the industry. Charlie will address the granularity of our portfolio and credit trends more fully in his comments.

I want the stress that we continue to actively manage the quality of our new and existing loan exposure. On new loan originations we have increased our selectivity with regard to both borrower and the business line in which the borrower operates. We are focusing on borrowers and industries that have the greatest likelihood of successfully weathering the current economic conditions.

Other actions include enhancing our ability to manage troubled assets, particularly in the homebuilding sector. We have increased staffing levels in our special assets group by reassigning several lending officers to our workout efforts, and we have reemphasized to all of our lenders that early recognition and management of troubled credit is both a priority and an expectation.

As a result of these combined efforts, we have been able to enhance loan structure on many challenged credits. These enhancements include borrower funded reserves, obtaining additional collateral, and additional guarantor support, beyond the primary guarantor. We continue to monitor our largest problem credits very carefully, particularly construction loans throughout the Corporation, thus creating a better forum for front end problem loan management. All of the actions I have outlined place us in a better position to manage troubled assets in this environment.

Despite the need to increase our allowance for loan losses, we continue to make quality loans, building our base for future net interest income. However, as I indicated earlier, funding this loan growth will be with rationally priced consumer deposits, has been and continues to be a challenge.

In the last 90 days we have seen traction in our deposit balances due to the introduction of a new variable rate CD product in 2008. This product combines the convenience of liquidity of a Money Market Account, with a higher yield of a timed deposit, by allowing the customer to add to the CD at any time, while also providing the opportunity to access their funds once each quarter.

We were also pleased with our growth in noninterest income and in deposit account related revenue for the year. While we have done a good job managing and controlling our expenses, and continue to do so, cost cutting is receiving renewed emphasis because of the difficult economic conditions. In the last few weeks of 2008, and into the beginning of the new year, we have seen a modest increase in residential mortgage refinancing activity, which we find encouraging.

We are of course anxious to see if that increased level of activity can be sustained. Customer application activity has tripled in the last 60 days, and about half of those customers are taking cash out. While we hope they are using these funds to stimulate the economy, some are consolidating or reducing debt.

Before I turn the call over to Charlie, I want to reiterate my confidence in the ability of this Company and it's people, to meet every challenge that comes our way and our ability to emerge successfully, from what continues to be a relentlessly difficult economic environment. Every day I see our entire team pull together under adversity, helping each other when required to do more with fewer people, helping our customers through what has been for many the most financially difficult time in their lives.

I also believe that the adversity we face together will serve to make us stronger, more resilient, more efficient, and more productive in the future. However, we along with the industry and the economy are not out of the woods yet and until we are, we will respond to any future challenges just as we have to those in the past, swiftly and decisively.

I look forward to the time when I can again report to our shareholders the kind of strong financial performance that has historically been the hallmark of Fulton Financial Corporation. As we look out on the economic horizon, just when that opportunity again will present itself remains unclear.

Charlie.

Thank you Scott, and good morning everyone. Thank you for joining us today. Unless otherwise noted, comparisons are of this quarter's results to the third quarter of 2008. As Scott mentioned, we reported a loss of $102 million, or $0.58 per share for the fourth quarter and a loss of 6.1 million, or $0.03 per share for the full year. There are a number of significant items impacting our earnings, which we have summarized in the financial attachment to our press release and we hope that you have found that information helpful.

Our core banking earnings reflect the challenging economic environment as well as some positive trends. Net interest income decreased 1.7 million, or 1.3%, as a result of a 10 basis points decline in our net interest margin. With the recent change in the federal funds rate, we were not able to reduce funding costs in proportion to the decline in asset yields, yields on earning assets decreased 21 basis points, while the cost of interest-bearing liabilities declined only 13 basis points.

With the current rate environment and the strong competition for deposits, we expect further margin compression in the future. Total average earning assets increased slightly, with loans showing strong growth of $263 million or 2.3%. Investment securities decreased slightly by $38 million or 1.4%. Our commercial mortgages grew $175 million or 5%, with most of the growth occurring in Pennsylvania, New Jersey, and Maryland.

We believe that we are benefiting from the disruption in some of our markets caused by bank mergers. We are not currently expecting this rate of loan growth to continue. The home equity portfolio grew $54 million, or 3%. This growth is entirely in home equity lines and represents both increases in line usage and new lines. Residential mortgages grew $32 million or 3%, entirely in our adjustable rate mortgage portfolio.

On the funding side, total deposits grew $354 million or 4%, with strong growth in certificates of deposit, offset by declines in checking and savings account balances. Demand and saving accounts balances declined $155 million or 3%, with personal balances declining 126 million or 4%, and nonpersonal balances decreasing 29 million or 1%. While we are pleased to be seeing new account growth, we are seeing lower average balances in our core accounts.

Total certificates of deposits grew $509 million or 12%, which includes growth in brokered certificates of deposits of 217 million, and jumbo certificates of deposits of 56 million. We have recently promoted a variable rate CD product that has been quite successful. Excluding security losses, our other income was down slightly to 38.8 million, trust commission income continued to decrease as a result of continued stock market declines. Merchant fees and foreign currency processing fees were also down slightly.

Gains on mortgage loan sales increased $820,000 to 36%, primarily as a result of favorable mark-to-market adjustments on the held for loan security mortgage portfolio at year end. The volume of loans sold actually decreased from 172 million in the third quarter, to 150 million in the fourth quarter. Based on the current application activity, we expect mortgage sale volume to be higher in the first quarter of 2009. Offsetting this growth was a $1 million impairment charge recorded on mortgage servicing rights. This amount is reflected as a reduction of servicing income included in the Other income line. Our mortgage servicing asset now has a remaining balance of $7.5 million.

Operating expenses excluding the goodwill charge increased 1.5 million, or 1.5%. The decrease in salaries and benefits is a result of the reversal of bonus accruals of approximately $6 million in the fourth quarter. This expense decrease was offset by a number of items, such as increased FDIC insurance, other real estate expenses and consulting costs.

As previously disclosed in December, we recorded a $90 million noncash goodwill impairment charge related to the Columbia Bank. This charge was a result of many factors, but primarily the current credit issues which have affected Columbia's asset quality, as well as the value of bank stocks in general. In addition, we announced that we would record an approximate $15 million charge for the other than temporary impairment of pooled trust preferred securities. The actual charge recorded was 12.8 million, slightly lower as a result of further guidance issued by the Financial Accounting Board on this issue.

In addition, we recorded the charge of $12.9 million for other than temporary impairment on bank stocks, we concluded this charge was appropriate based on continuing declines in values, and the lack of an expectation of significant recovery in the near term. As of December 31st, our bank stock portfolio had an adjusted cost basis of 42.8 million and a market value of 43.6 million.

Our fixed income investment portfolio includes bank issued debt securities, with an adjusted book value of $150 million and a fair value of 116 million. Included in this total are pooled trust preferred securities of $19 million, single issue trust preferred securities of $96 million, and subordinated debt of $35 million. The remainder of our fixed income investment portfolio is primarily comprised of municipal bonds and agency guaranteed mortgage backed securities and CMOs. Excluding the bank debt securities and auction rate securities, the portfolio had an unrealized gain of 43.6 million at December 31st.

During the fourth quarter, we also recorded an additional $3.9 million charge, related to auction rate securities held in customer accounts, where we have agreed to purchase those securities. The additional charge is required due to a decline in the fair value of the auction rate securities that remain in customer accounts. Auction rate securities with a par value of [104] million are still held in customer accounts as of December 31st and can be purchased in the future. The total charges for the year related to auction rate securities were $19.7 million.

Another significant item impacting our fourth quarter and year-to-date results is asset quality. As we discussed in December, the provision for loan losses increased 38.3 million to $65 million in the fourth quarter. Net charge-offs to average loans were 89 basis points in the fourth quarter. The 26.7 million in net charge-offs this quarter were primarily in construction loans. Those charge-offs totaled 11.9 million. Commercial loan charge-offs totaled 5.6 million, commercial real estate 4.7 million, and residential real estate 2.8 million.

Of the total charge-offs, 30% were in Virginia, 29% in Maryland, 23% in New Jersey, and 17% in Pennsylvania. There were four individual charge-offs exceeding $1 million, with an aggregate amount of $12 million, all of which were residential construction loans. Nonperforming assets to total assets increased to 1.3% at December 31st, with nonperforming loans increasing $32 million, 23 million of this increase was in the construction category, with about two-thirds of the total representing single-family residential construction. 9 million of the increase was related to commercial mortgages.

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). We will take our first question from Matt Schultheis, Boenning & Scattergood, please go ahead.

I actually have a few questions for you.

Good morning.

How are you guys doing?

Good.

You mentioned that you had a product to help builders move inventory it looked like, sounded like, I think Scott mentioned. What is that product?

Basically what we are doing, Matt, is we are going to portfolio some mortgages, and I will give you the basics, and then maybe Phil Wenger can follow up a little bit. But the idea is to make mortgages more available to our customers who are builders, to their customers who are buying their homes, and what we have agreed to do is to make up to 80% mortgages on those homes, and then allow the builder to finance the other 20% if required. Those are not salable in the secondary market, and so we have agreed to portfolio it, and we will see how much we will need to portfolio, but --

How has that product been received so far?

Go ahead, Phil.

Well, we are just coming out with it, but we've talked to some of our builders, and I think they are very appreciative. The underwriting standards from a credit scoring aspect, will still be what we consider to be fairly conservative, so we think there are good loans going on, but it kind of puts a product back in play, for folks who have good credit and good earnings, but don't have the down payment to buy.

Okay.

And there will be a 0.5 to 0.75 percent premium on those too, so we will get a little extra income on it.

Okay. You mention that had refis are up how much in the last 60 days?

Triple.

That is what I had. Why do you think that you had a decrease in business related NOW and DDAs that it was $29 million decrease?

We have done some analysis on that, and what seems to be happening is that customers are, particularly retail, well both retail and small business customers are just keeping less cash in their deposit accounts.

Okay. I know you guys are being fairly aggressive in looking for the deposit account with the loan relationship.

Our promotion this fall, we are getting nice new account openings, and frankly we are asking the same question, why aren't deposits going up more, and people are just relative to the past are keeping less there.

Okay.

Smaller average balances.

You mentioned two last questions, I guess it was your trust preferreds you said you had 150 book value, and 116 in market value?

Matt, that was total bank debt, that was single issue trust preferred. It was the pools, and it was subordinated debt. It was all three of those.

Okay. What was the geographic breakdown on the charge-offs again?

The charge-offs, 30% were in Virginia, 29% in Maryland, 23% in New Jersey, and 17% in Pennsylvania.

Okay. That is it for me. Thank you very much.

Thank you.

We will take our next question from Rick Weiss with Janney Montgomery Scott. Please go ahead.

Hey, guys.

Good morning, Rick.

Let me follow up a little bit with Matt, and I think I may have missed a number. How much of the charge-offs total were associated with construction loans?

For the --

For the quarter.

For the quarter it was $23 million. I am sorry. Wait a minute. It was $11.9 million.

That is a total?

Yes, that was a total.

And I think you said four loans?

Well, we just gave details on the top four.

Okay.

Rick, they were all construction loans.

Okay. I guess sticking with the construction, what kind of percentage or mix is the construction in terms of raw land, or loans in development? How would you categorize most of it?

We don't have that number, Rick.

Sorry, Rick.

Okay. Let me ask you, I guess with the TARP program, and right now it is just seems like after you taking the money, the yield you are getting on mortgage-backed securities has come down a lot, and so therefore what do you do, or how long will it take to deploy this kind of capital? What do you think?

Rick, that is the multi-million dollar question. Obviously we have to leverage this capital to make a return for our shareholders, and that is why we talked about in my discussion talked about isolating some certain market segments to try to increase our lending base.

What we would like to do is make $3 billion worth of loans out of it, but we are not going to do that in any short time period, so initially we will put it into securities, and use it as best we can to get some return, but hopefully as the economy picks up this goes into loans, and gets leveraged.

Okay. Like right now it is going to be a slower process because of what is happening, in terms of interest earning assets, and the yields on those?

Yes. More than it would be in normal times. As I mentioned, we are seeing some opportunities for market share, so we will get some growth that way, but it is not going to be the kind of growth that we have had in some years.

Okay. And finally, I guess would you be able to give any guidance on the loan loss provision, or I guess if you can, is there any change in the your method of determining the loan loss reserve?

No. It is basically the same models we have been using over time, and the numbers are just worse because of the information that is going into them is deteriorating.

Okay. Thank you.

Thanks, Rick.

We will take our next question from Matthew Clark with KBW. Please go ahead.

Hi, guys.

Good morning, Matt.

Can you give us a sense for your construction exposure within your commercial portfolio, in terms of how that is performing, types of businesses that are exposed to that industry, and I have a follow-on question to that.

Matt, help me. Say that again. You are talking about our non-?

Nonconstruction loans but exposure to the construction industry within the commercial loan portfolio?

I am still confused. You are talking about builders? Or are you talking about commercial construction?

No, not commercial construction. I would assume it would relate to wood product related businesses, but it is within the C&I portfolio, I think it is close to a third, it was in a recent slide deck of yours, I am just curious how that is performing?

Total portfolio, we had construction loans of $1.2 million, and that is about, there is a percentage of our portfolio, that would be just about 10%, and in our nonperforming assets, would you want to know, is your question is how much of the construction is nonperforming?

No. I know that. That is 6.23%, but outside of that construction book within your commercial, your C&I?

For example, subcontractors?

Correct.

I don't know off the top of my head what that percent is, Matt, but we to date have not experienced a lot of problems.

Okay.

We are certainly watching that portion of it also.

Okay. And then maybe within the commercial loan book, I believe there is a portion of it that is reliant on the larger builders taking down lots, and I am just curious as to what you are seeing, in terms of more recent activity, if there is a change, and what the appetite might be relative to the price, just trying to get a sense for the willingness to buy, and at what price?

I think we have seen with these large builders taking down lots we have seen weakness, and changing of deals since the middle of last year, and large builders tend to have the power in these deals, and when they are in development they don't want to be in, they have been walking away. I think some of the write-downs we have have been a result of that happening. I don't think it is any worse now than it was five months ago.

Okay. And I am trying to find my list of questions here. In terms of the on the single issue or trust preferreds, I am sorry, on the single issue or trust preferreds, can you just update us on the underlying collateral there, in terms of number of issuers, and the underlying performance of those issuers?

The single issue we have, 96 million, Matt, is 25 issuers. All of them, nearly all of them are rated, and the lowest rate is a BAA2, and most of them are between A-1 and A-3. They are companies like JPMorgan Chase, Wells Fargo, Bank of America, BB&T, Wells Fargo, Fifth Third, Suntrust, PNC, Comerica, M&T, and Key Corp. They would be the major ones.

That is very helpful. Thank you. Just a couple of quick ones. In terms of the Citi promo, the relatively new one, can you update us on what the current rate is on that product? I believe it was around 3.5 late last year, and whether or not you have been able to drop that rate more recently?

Yes, we have dropped it, and it is currently 3% for our relationship customers.

Okay. And the posted rate?

2.75.

Okay. Thank you. And then lastly, without a lot of color on kind of what to expect from provisioning going forward but knowing that things have, in terms of the broader economy only deteriorating more quickly since year end, can you talk to us a little bit about the dividend, and knowing that the core run rate is $0.05, but relative to the $0.15 dividend, whether or not that is something that you guys are considering, might consider cutting to help preserve capital or not?

Well, as we announced last year, we will be considering our dividend in the third month of each quarter this year, and so when March gets here, we will have that discussion with the Board, and make our decision at that point in time, and as we all know a lot can happen between now and then, so rather than, and it is the Board's decision, so I am not going to speculate on what the Board will do come March, but as soon as we have that decision we will make it.

That is helpful. Thank you.

(Operator Instructions). Our next question is from Frank Schiraldi with Sandler O'Neill. Please go ahead.

Good morning, guys.

Good morning.

Just on the home equity growth in the quarter, could you geographically is that mostly in Pennsylvania?

It is mostly in market. We are looking for some detail here, but I would say it would be because our presence there would be bigger, do we have the number?

In Pennsylvania it was $23 million on average this linked quarter third to fourth, in New Jersey it was 10 million. It was 12 million in Maryland, and in Virginia it was minimal, 1.6 million.

Okay.

Some of that was increased usage of lines. The line usage if you want on average is 46%. In the third quarter it was 44. At the beginning of the year I think it was 36%. It is not only new accounts but increased use of the lines.

That was going to be my next question. Do you have any breakdown between increased line usage and new accounts?

No. I have the balances, and I know how much the line usage went up, but I don't have the number of new accounts.

Okay. And then just on the pooled trust preferred security portfolio, it is now 19 million, is that the fair value?

It is 19, yes, the value, the book value now is 13.3 million. The fair value would be about $3.9 million less, and it is the 10 of them, and 6 of them are considered impaired, so they were Other Than Temporarily Impaired, so they were written down, and the others ones weren't, and that was based on the guidance from the SEC, the 9920 test. We went through and looked at the cash flows, looked at all the banks that are in those pools, and estimated what we thought would happen in the future in terms of the default and deferrals, and five of them were written down and five weren't.

Okay. So of the ones that were, I guess of the six that were considered impaired, so five of those were written down? I mean that five were, did you say five were the ratings?

Five of them were written down, and it was a combination of, four of them it was the ratings, and it was the analysis, the cash flow analysis, the 9920 analysis. One of them was still rated A-3, but based on our analysis cash flows and the banks that made up that pool, we decided to write that one down, too. If the other ones failed, Frank, we would write, the adjustment would be 4 million, but we are pretty confident on the ones we didn't write down, that we would get the cash flows, at least based on the information we have now.

Right. Okay. Relatively speaking there is 4 million left in fair value, so that is the most that can be written down.

Yes.

Any just on the stuff that has the ones that were impaired, can you give any details as far as is that generally the mezzanine traunch, and on the dollar what is the fair value now? What are you holding at?

It is all the mezzanine traunch, everything that was written down, and we wrote them down on average, each one was different, but I think the average was down 38. We wrote them down to $0.38 on the dollar.

Okay. Thank you. Just finally, just wondering if generally speaking are there any areas areas geographically that have weakened more significantly than you were expecting, say over the last three months? Just wondering where sort of the problem issues for you guys, where you think that the most problematic area is from a geographical standpoint, and if that includes southern PA now, or if Pennsylvania has held in much better than the other areas?

I would say the areas that we are concerned about haven't changed recently, and our concern has been that Baltimore Washington quarter I think from back a couple of quarters, and that is where the economy had the most run up, and where it has backed off the most.

Having said that, we are concerned with all our markets because this as you know slowdown in the economy has impacted every place, including some of the stronger markets in Pennsylvania, but our concerns continue to be the northern Virginia, Maryland markets, and to some extent a little bit in South Jersey, but that has been the case since this began to slow down.

And just one last question I wanted to ask if I could. Just on, Scott, you said that you have renewed focus on cost-cutting here. What are thoughts on branch expansion in 2009? Are you still pushing for expansion in the Virginia market?

We will be opening some branches, and I will let Phil give you some details, but we will be opening some branches in 2009 where we are committed to do that. Frankly we have pushed some branches that were planned for this year into '10, just because of trying to keep costs down. Phil, what are the numbers on that?

I think we are committed to five branches that we are going to be moving forward with, and we have pushed back a number that we will not be doing until at least 2010 now, and I think one of the five is in Virginia.

Okay. Thank you.

You are welcome.

We will take our next question from David Darst with FTN Midwest. Please go ahead.

Good morning.

Good morning.

Could you give us the balance of the construction portfolio that is in the Baltimore Washington corridor?

We are getting it.

And then while you are looking for that, a little bit of color maybe on what the description of the largest two or three NPLs in the construction portfolio?

The average balance, David, in that corridor would be, this is from Columbia Bank, and they are primarily in Montgomery and Howard County, but they also go out, their builders will go out of that area a little bit, too. For example, they might be in northern Pennsylvania, they might be in southern Pennsylvania, or northern Virginia, but the average balance down there in construction is 353 million.

And I am sorry, David, what was the last part of your question?

A little bit of color on the largest two or three nonperforming loans in the construction portfolio, location and property type?

Well, the location would be in that market. It would be residential housing projects in that market. I am being told one is in Virginia Beach.

Okay. Could you give us the average size?

I am just looking at a report that was handed to me here. Residential development, there are several of them, some of the larger ones would be that there is a food processing, a golf course, a condo development, and the average size would be 10 to 12 million.

Okay. And then looking at the other, the whole portfolio down there, is that the average customer relationship size as well? Or are you seeing more of your larger loans and larger relationships experience the problems?

If you look at numbers, most would be smaller than those.

Okay. Are the smaller builders with just one or two sites, or less than five, being more resilient at this point?

Phil.

I would say no. It is just the problem is so much smaller, but across the board I think the small builders are being hurt as the larger builders.

The action I am told continues to be in the lower cost houses, which is no surprise to you or anybody, I guess, but first time home buyers kind of price range, is where the best action is.

And was there more of that type, I guess there is more of that type development throughout Howard and Montgomery County, throughout those other parts of the region?

Yes.

Okay. Could you give us your FDIC premium for the quarter?

We are looking.

We are still looking. The premium, the insurance for the quarter was 1.9 million.

Okay. And you expect that to double in the first quarter? Or an additional 2 million roughly?

I think we were thinking just looking, if you look at our deposits and look at the current rates, I think we were thinking that would go up to 14 million in 2009. We have credits, and we have credits at each one of the different banks, and they are running off, and the rate is going up, and I think our budget was when we looked at deposits, when we thought in 2009 and looked at the rate, I think our year we are estimating 14 million for FDIC insurance in 2009.

Okay. I guess that is increasing throughout the year.

And that could go up more, if they can increase the rates also. That was our guess.

Okay.

It was the rate, applying the rate to our deposits.

Okay. Thank you.

You are welcome.

We will take our next question from Collyn Gilbert with Stifel Nicolaus. Please go ahead.

Thanks. Good morning, guys.

Good morning, Collyn.

I know this is a tough question to answer, and I think others have tried to ask it, and it boils down to the reserve and the provision, and I guess old age sort of reserve methodology as you guys have said before in the past, is that you have to reserve for the problem credits that you see in your portfolio today. I guess that is where sort of the regulatory guidelines sit, however looks at if that is subject to change.

I mean, the big jump in the reserve, do we assume that it is surely a function of what you see in the portfolio today, to then draw the conclusion that obviously we are in a continued deteriorating environment, which would lead to the need to only further build the reserve from here?

Collyn, it is us looking at the loans individually, all of the big ones, and the smaller ones on a pooled basis, but if the methodology is changed, but economic conditions have certainly worsened, and that has had an effect on our evaluation.

Okay. Okay. All right. That was all. Thanks.

You are welcome.

At this time, there are no further questions. Mr. Smith, I will turn the conference back over to you for closing comments.

Thank you. I would like to end this call by thanking everyone who joined us today. We hope that you will be able to join us again for our first quarter 2009 earnings conference call, which is scheduled for April 22nd at 10 a.m. Thanks again.

Ladies and gentlemen, this will conclude today's Fulton Financial teleconference. We thank you for your participation, and you may disconnect at this time.