Fulton Financial Corp (FULT) 2009 Q4 法說會逐字稿

Good day, and welcome to the Fulton Financial fourth-quarter earnings conference call and webcast. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to your host, Laura Wakeley. Please go ahead, ma'am.

Thank you. Good morning, and thank you for joining us for Fulton Financial Corporation's conference call and webcast to discuss our earnings for the fourth quarter and year-end 2009. Your host for today's conference call is Scott Smith, Chairman, Chief Executive Officer of Fulton Financial Corporation. Joining him are Phil Wenger, President and Chief operating officer, and 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 we released at 4:30 yesterday afternoon. These documents can be found 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 Corporation. Such forward-looking statements reflect the Corporation's current views and expectations, based largely on information currently available to its management and on its current expectations, assumptions, plan, estimates, judgments and projections about its business and its 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 its expectations will in fact occur or that its estimates or assumptions will be correct. Actual results could differ materially from those expressed or implied by such forward-looking statements and such statements are not guarantees of future performance.

Many factors could affect future financial results, including, without limitation, the factors listed in the Safe Harbor statement section of yesterday's earnings news release. 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. Accordingly, investors and others are cautioned not to place undue reliance on such forward-looking statements.

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

Thank you, Laura. Good morning, everyone. We appreciate your joining us. Charlie, Phil and I each have a few prepared remarks, and then we will be happy to respond to your questions.

I would first like to share my thoughts about the year just completed, along with some additional color on the fourth quarter in particular. Then Phil will discuss credit, and Charlie will provide details on our financial performance.

We reported diluted net income per share of $0.31 for the year and $0.11 for the fourth quarter. As you know, this was an improvement over 2008 and a 10% improvement over the earnings per share in the third quarter.

We believe we've made significant progress addressing our many challenges, particularly in the credit area, and in positioning our Company for improved future earnings performance as the economy expands.

We know that 2010 will bring with it a new set of challenges. We believe also it will bring increased opportunities for growth and improved earnings.

A few things characterized the year and the quarter just completed. One that resonated for most of 2009 was our deposit growth. After slower growth in the first quarter, we ended the year very strong. The economy helped us to some extent, as customers reduced their equity investments and debt, while also spending less and saving more. As a result, core deposits grew nicely, enabling us to reduce our overall funding costs and our wholesale funding.

With ample funding and strong liquidity, we stand ready to assist creditworthy borrowers with their credit needs as increased confidence in the economy translates into a more robust consumer spending and business expansion. Although our core deposit momentum remains good as we begin the new year, we believe competitive pressure for deposits will increase in 2010, along with renewed customer interest in improving equity markets.

If the latter is true, however, we should receive some benefit as our wealth management group, Fulton Financial Advisors, should see some increased activity.

A significant portion of our lower-cost deposit growth came from the small business sector as a result of our placing greater emphasis on that segment from a relationship banking and promotional standpoint. It is also a segment that could help us grow in earning assets this year as the economy expands.

As a result of strong core deposit trends, we showed a healthy increase in our net interest margin linked-quarter. While we do not expect upward pressure on deposit costs in the short term, we will adjust deposit rates if there is a competitive pressure to do so, particularly in markets where we have recently opened new branches.

Before leaving the topic of deposits, I would like to share how pleased we are with our most recent FDIC market share data. As of June 30, we increased our market share in 70% of the counties which we serve across our five state footprint.

A second key theme throughout 2009 was the growth in our noninterest income, largely due to the strength of our residential mortgage operation and corresponding sales gains. These gains held up well on a linked-quarter basis, helped by the federal first-time home buyer incentives. In the last few weeks, applications have slowed somewhat as 30-year fixed rates are now above 5%. Our current flow of applications is now trending more toward home purchase rather than refinancing of existing mortgages.

We experienced a decline in cash management fees due to the low rate environment, as well as a reduction in merchant card revenue. Revenues from debit card activity were up. As you know, the industry is developing strategies and responses to the opt-in provisions of the new overdraft guidelines that could impact noninterest income growth in the second half of 2010. We have projected the revenue we believe is potentially at risk as a result of these guidelines, and in response, we have developed a comprehensive customer communications plan.

We believe that by presenting customers with clear information regarding other alternatives to overdraft protection, we will enable them to make informed choices and also keep the impact of these new guidelines manageable.

Another key theme was our ability to effectively manage our expenses. In difficult times, expense control becomes even more critical as we position ourselves for the future. I think we managed expenses effectively in 2009 and linked-quarter, our expenses were flat.

Controlling costs is a core competency that has and continues to characterize our Company.

As you know, one of our toughest challenges over the last two years has been credit quality. In the second quarter of 2009, we began to see stabilization in our credit quality metrics and saw the continuation of that stability in the third and fourth quarters. We are cautiously optimistic that we will see improvement in 2010.

We did not feel it was necessary to increase the provision third to fourth quarter based on the performance of the portfolio and in light of current level of reserves. Phil will provide all the credit details in just a moment.

Before closing, I want to share some additional thoughts about where we are today, as well as our thoughts on 2010. For some time, I've said that despite our challenges, we were working to position the Company for future earnings growth, and when the economy rebounds. I believe we have done that.

However, the pace of that recovery will have a significant bearing on the pace of our future earnings improvement. Today, from our standpoint, customers are not yet showing a great deal of confidence in the economy, as reflected in our loan growth results.

Our capital position has and remains strong. In anticipation of one of your questions, you should know that it is our desire to repay the $376.5 million in capital purchase program funds when we can do so in as friendly shareholder -- as friendly a shareholder manner as possible.

As I said the last time, we know the strong financial performance that our people in this Company are capable of producing. I have no doubt we will do so again in the years ahead. We believe that 2009 could mark the beginning of our return to consistent year-over-year earnings growth that shareholders expect.

Each of our 3950 team members have faced challenge after challenge, and yet their competitive spirit remains stronger than ever as they've embraced our customer promise to care, listen, understand and deliver a superior customer experience to every customer, every day. I am proud of and grateful to each and every one of them.

In closing, it is important to note that according to the fourth-quarter 2009 stock changes that we have compiled, the value of Fulton Financial's stock increased almost 18% in the quarter, placing us second in the 23-member peer group. While we all know the past performance is not indicative of future results, I assure you that all of us are committed to working hard so this trend can continue.

Thank you for your attention. At this time, Phil will discuss credit. Phil?

Thank you, Scott. Credit quality stabilization that began in the second quarter continued through the fourth quarter. As you know from past calls, we have committed significant resources to loan review, workout and remediation. We are now seeing the results of this commitment.

This economy remains fragile, and economic uncertainty is still an issue. While there seems to be more optimism about 2010, we continue to watch loan customers and seasonal businesses closely for any signs of deterioration so we can take prompt remedial action as necessary.

Unless I indicate otherwise, my remarks will focus on our linked-quarter results. Total loans net of unearned income were flat, a reflection of economic conditions and a lean pipeline across the portfolio. The only category showing modest growth was commercial mortgages. This was also the loan category that showed the most rapid growth for the entire year, up $275 million or 7%.

One of our management priorities for 2009 was to reduce our construction loan exposure. Including the linked-quarter decline of $51 million, we dropped a total of $291 million in 2009. With the low level of new and existing development activity, we would expect to see a continued decline within this category.

Today, as we look across all lending categories and take into consideration the current level of economic uncertainty, we cannot be certain how strong our loan growth in earning assets will be in 2010. Nor do we know what effect a potentially rising rate environment could have on our residential mortgage activity.

From a commercial loan perspective, there are still excellent market opportunities for loan growth and relationship expansion that we can continue to pursue through our new business development efforts.

At the end of the year, our allowance to net loans came in at 2.15%. That is up from 2.02% at the end of third quarter and up from 1.5% at year-end 2008. Our allowance coverage to nonperforming loans increased from 86% to 91% linked-quarter. We kept a provision of $45 million linked-quarter; since charge-offs were $29 million, our coverage ratio did improve.

Nonperforming loans were essentially unchanged, after seeing increases of $21 million and $14 million in the second and third quarters of 2009, respectively.

Of our $29 million in loan charge-offs for the fourth quarter, 29% came from Maryland, 26% from New Jersey, 21% from Fulton Bank's Virginia division, 22% from Pennsylvania, and 2% from Delaware.

Looking at total net charge-offs this quarter by category, we charged off $11 million in construction, $10 million in C&I, $4 million in consumer loans and leases, $2 million in residential mortgages and $2 million in commercial mortgages.

The geographic distribution of our loan portfolio has changed little since last quarter. At year-end, 55% were domiciled in Pennsylvania, 21% in New Jersey, 12% in Maryland, 9% in Virginia and 3% in Delaware.

Total nonperforming assets stood at $305 million at year-end, up $4 million linked-quarter. This increase was due exclusively to an increase in ORE from $19 million to $23 million.

Within our $305 million of nonperforming assets at year-end, approximately $91 million, or 30%, are in our Pennsylvania banks; $82 million, or 27%, are in our New Jersey banks; $65 million, or 22%, are in Fulton Bank's Virginia division; $59 million, or 19%, are in our now combined Maryland affiliate; and $8 million, or 2%, are in Delaware.

We reported a 10-basis-point uptick in total delinquency linked-quarter, from 3.32% at September 30 to 3.42% at year-end. 30-day delinquencies increased slightly, from 68 basis points to 69 basis points, and 60-day from 31 to 39 basis points, and 90-day from 232 to 234 basis points.

More specifically, commercial loan delinquencies increased linked-quarter from 226 to 251 basis points; construction loan delinquency decreased 124 basis points; commercial mortgage delinquency increased 49 basis points. We continue to watch our C&I, commercial real estate and construction portfolios very carefully for any further signs of deterioration. These delinquency rates do continue to compare favorably to industry benchmarks.

There have been articles in the national press regarding a significant rise in 60-day delinquency on prime residential mortgages across the country. While we saw a modest increase in that category of about $500,000, our 30- and 90-day delinquencies both fell linked-quarter.

We saw a 4% decline in our consumer loan portfolio linked-quarter, as consumers continued to deleverage. Our consumer delinquency has consistently remained under 2%.

I want to provide additional color on our $4.3 billion commercial real estate portfolio. The CRE portfolio is well-diversified. The average loan size for commercial real estate investment purposes is just under $500,000. In addition, approximately 40% of our $4.3 billion in commercial real estate loans are owner-occupied, which we believe further mitigates our risk.

We feel that we have managed and continue to manage the commercial real estate book effectively, given the economic challenges surrounding this sector.

Anecdotal information from lenders across our footprint suggests that there was little change in business conditions from third to fourth quarter. Our new loan pipeline is lean, but steady. Business expansion remains limited because the current economic uncertainties make business clients, like consumers, reluctant to move ahead with capital expenditures.

On a market-by-market basis of the five states we serve, some believe that Maryland and Virginia will rebound more rapidly than Pennsylvania, New Jersey and Delaware, but we have not seen any strong trends to validate that belief.

As the economy rebounds, we will increase our new business development activity, continue to book new, high-quality credits as those opportunities become available, continue to further diversify our loan portfolio, proactively address distressed credits and work to further reduce our construction exposure.

In summary, while credit challenges remain, if the consensus view of some economists for improving economic conditions hold true, we would anticipate improvement in our credit quality metrics as the year 2010 progresses.

Thank you. I would like to turn the call over to our CFO, Charlie Nugent.

Thank you, Phil. Good morning, everyone. Thank you for joining us today. Unless otherwise noted, comparisons are this quarter's results to the third quarter.

As Scott mentioned, we reported net income available to common shareholders of $19.3 million, or $0.11 per share, in the fourth quarter, compared to $0.10 in the third quarter. We are pleased by this improvement and the positive items impacting our earnings.

These items included a 2.5% improvement in net interest income, stable asset quality and well-controlled operating expenses. The $3.3 million or 2.5% improvement in our net interest income was the result of the continuing increase in the net interest margin. Our net interest margin increased 12 basis points this quarter, from 3.55% in the third quarter to 3.67% in the fourth quarter. Consistent with the trends we saw last quarter, the improvement was due to the decline in time deposit costs, which were 2.61% in the third quarter and decreased to 2.3% in the fourth quarter.

Yields on earning assets declined only three basis points. There are a significant amount of time deposits and Federal Home Loan Bank advances maturing in the first quarter of 2010, which should have a positive affect on our net interest margin. $1.3 billion of time deposits mature at a weighted average rate of 2.16%, and $150 million of Federal Home Loan Bank advances mature at a weighted average rate of 3.61%.

Total average earning assets decreased slightly. Average loans grew $76 million, or 0.6%, while average investments declined $160 million, or 5%.

We have chosen not to reinvest all of our portfolio cash flows in the current interest rate environment. While this decision has resulted in lower net interest income in 2009, we feel that it is prudent.

On the funding side, total deposits increased $232 million or 2%, with most of that growth in demand and savings accounts, which grew $371 million or 6%. Non-interest-bearing demand deposits increased $69 million or 4%, with the growth occurring primarily in business accounts. Interest-bearing demand deposits grew $87 million or 5%, with growth across all categories.

In the savings category, we saw $216 million, or 8% growth. $73 million of this growth was in personal accounts, $37 million in state and municipal accounts and $106 million in business accounts.

The growth in non-personal accounts was impacted by businesses having to keep more balances on hand to offset service fees, as well as a movement from our cash management products due to the current low rate environment.

Time deposits decreased $139 million or 2.5%. Brokered certificates of deposit declined $15 million. Jumbo certificates of deposit declined $25 million. And retail certificates of deposit decreased $99 million. We are, however seeing growth in maturity categories of over one year.

Excluding security gains, our Other income was flat at $41.2 million. An increase in mortgage sale gains was offset by declines in other fee areas. Total gains on the sale of mortgage loans were $3.9 million in the fourth quarter compared to $2.8 million in the third quarter, even though loans sold decreased to $350 million from $580 million.

Service charges on deposit accounts were down slightly as a result of continued pressure on our cash management business in this current low rate environment.

Other service charges and fees decreased 6%, with declines in merchant, letter of credit and ATM fees.

Investment management and trust service income was down slightly, primarily representing lower brokerage revenue.

Operating expenses increased [$560,000] or 0.6%. Marketing costs increased significantly due to the timing of promotions. Salaries and benefits were down $463,000 or 1%. Staff reductions at The Columbia Bank due to our third-quarter systems conversion contributed approximately $370,000 to this reduction.

Okay, 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. A question, I guess with respect to the construction loans. They decreased about -- I think you said $51 million, and charge-offs were about $9 million or $10 million. So that is like $40 million. Were these $40 million paid off, or were they moved into, I guess, another loan category?

The large majority of them were paid off.

Large majority. All right. And I'm assuming there is just not much new construction loan lending activity going on right now.

That is correct.

Okay. Hey, Scott, one of the things too that we are kind of struggling with is what are -- the regulators have in mind in terms of capital requirements? And I'm wondering if you or Charlie have any insight into that, as you are part of the Fed advisory committee. Do you think higher capital standards are coming down the road? And if so, will you be able to meet them or would you think that you may have to raise capital?

Well, that's the question, I think, of the year for all of us, Rick. I think the regulators are struggling with that whole issue. My understanding is that there are proposed guidelines being developed that are going out for comment, that would be implemented year-end. So this doesn't give us a whole lot of clarification on what is what right now.

But I think it is fair to say that the capital requirements for the industry are going to be higher than they were prior to this last couple of years that we've gone through. But that is part of the difficulty with looking out and managing the capital position of the Company, is it is very -- it is unclear what requirements will be and whether they will be uniform across all banks or whether there will be some variation depending on the strength of the balance sheet.

Okay, thanks. I didn't mean to paint you in the corner. I don't know how banks are going forward with their business plans for this year. But thank you very much.

You're welcome.

Matthew Clark, KBW.

Good morning. Would you happen to be able to give us the TDRs that you had that were not included in nonaccrual at the end of the quarter?

Matt, I can give you information on TDRs. At the end of the third quarter, we had a total of $42 million of TDRs, 31 of which were not included, which were not past due or in nonaccrual.

At year-end, that $42 million increased to $54 million, but I do not yet have the breakout for you on what is accruing loan and what is delinquent and nonaccruing. And we will get that out as soon as we can.

Okay.

I believe that the percentage will be similar, but I do not have the exact numbers at this time.

All right. And on the CRE front -- thanks for the additional color within that portfolio -- would you also happen to be able to break down that book with retail and office and industrial, lodging, and so forth?

At the end of the third quarter, $16 million was commercial, and $37 million -- I'm sorry -- $26 million was residential. And at the end of the fourth quarter, $16 million remains commercial, and $37 million is on the residential side.

Okay, thank you for that. But also, on the overall CRE book, the $4.3 billion, would you guys be able to offer some granularity there in terms of what portion of that book might be retail related, office related, industrial, hotel/motel and maybe apartment? Even if it is a non-owner-occupied case.

Yes, I believe I can give you that in a second.

Sure.

(Inaudible) You know, Matt, the report I have in front of me breaks them out as a percent of total assets, not as a percent of the CRE portfolio.

That's all right.

So I don't know if you want those numbers or if you would like us to get back.

I can do the calculation. I'll take them.

Okay. Real estate rental and leasing is the highest at 2.8%. And then the next highest is Ag at 2%. We have a couple at 1.45%; one is an Other category; and the other would be -- next would be 1.24%, healthcare. 1.37% retail. 0.38%, wholesale trade. 0.74% Manufacturing. 1.02%, accommodation and food services. 0.6%, construction. 0.52%, arts, entertainment and recreation.

The total of that owner-occupied category comes out to 13.5%. Then the -- on just -- those percentages were all owner-occupied. And then on the investment, which totals 21%, were 6.4%, office, warehouse, industrial; 2.15%, recreation; 4.15% is a special purpose category -- I'm not sure; 3.1% retail. Is that satisfactory?

Yes, that's great. Thank you. Thank you. Okay, and then last question, I think fairly straightforward, is the CDs that are rolling off here in the first quarter, $1.3 billion, I think at 2.16%. I guess could you give us a sense for what those might -- what kind of rate offerings those might be rolling into?

Matt, based on the CD rates we are offering, I would say about 1 3/4. That is just a guess on where they are going to roll, but I would guess 1.75%. That's just a guess, and that is just based on the CD rates we are offering now.

Great. Okay, that's all. Thank you.

Collyn Gilbert, Stifel Nicolaus.

Scott, just a follow-up to the capital question. So putting the unknowns of where the regulators are going with capital, can you just give us a little color as to your specific capital management strategy, and I guess tying that to what metrics you are looking at and managing to, to have you come up with the decision of either maintaining the TARP or paying back the TARP? And also maybe giving a little bit more background as to your shareholder-friendly comment in terms of paying back TARP.

Well, what we've said all along is we feel like we have sufficient capital, but we understand that what defines sufficient is up to definition from the regulators as we go forward.

(multiple speakers) just on that point. So how do you -- when you say you have sufficient capital, to what metric are you looking at? Or where are you -- what levels indicate that you're comfortable?

Well, we look at the typical ratios, and now we are adding total common equity to all of that. And we are -- we have ongoing discussions with regulators about capital and their interpretation of what is appropriate.

We look at where -- we rank ourselves compared to other banks in our peer group, and that kind of gives us some sense of where we are and gives us some comfort that we have plenty of capital.

And of course, we look at our credit metrics, and, as we've talked about, they've stabilized over the last three quarters. So we feel like we are in good shape there.

But going forward, three things have to happen for a bank to pay back TARP. First, the bank has to be certain that the worst of this issue is behind them, and it no longer needs the insurance, if you will, of having that capital available. Second, the regulators have to agree to all of that. And then third, it has to work in terms of what -- and most importantly, what is good for the shareholders.

So a shareholder-friendly manner, what I'm trying to say there is that as the year progresses, and I think we will see more and more action in this TARP repayment; there was a flurry, a bit of a flurry at the end of the year. I know Geithner has made statements that the TARP is sort of all going to be repaid in 2010. I'm not sure if that is his goal or how --. But there appears to be some movement from the Treasury to want the money repaid. So I think all of us have to look at what is the situation going to be and how much capital will be required to replace that or not.

And then what the timing of that should be, based on the market, the stock price and things like that. So it is a fluid situation. We have ongoing discussions with all involved. And we will move when we think it is best for our shareholders, not --.

I mean, there are -- a lot of banks is still have the CPP money, and I don't think there is any, if you will, scarlet letter at this point in time about having it. There is some frustrations about the reporting and all of that, but that is just part of the deal and we work through that.

What we are concerned about is our shareholders and making sure that as we progress through this, if there is a decision to repay it, that we do it in a way and in a time that best helps our shareholders long-term.

So there is not necessarily -- would you have a philosophical opposition to be raising capital to pay it back? I mean, as you look at kind of the balance of dilution with both forms of capital, how do you see that?

Well, we've done the math on what the breakeven is on short-term dilution. The difference is the CPP money is short-term dilution and raising additional equity is long-term dilution.

So I think we have to see what our earnings do this year and get a better sense for where we need to be in terms of replacing the capital. I don't know that we need to build a significant amount of equity capital beyond what the new guidelines are going to be. But as I said earlier, I think they are going to be higher than they have been in the past. Whether they are higher than where we are, I think still remains to be seen.

Okay. That's helpful.

That's a vague answer, Collyn, but we are kind of groping through this to try to make sure that we take care of our shareholders. But there could be a requirement to issue equity. I mean, I don't think -- we all have to face that.

Sure.

But we are not in a rush to do it. So we are not going to jump next week just because I'm tired of the aggravation of the reports. It is what is good for the shareholders.

Right, okay. Okay. And then just a question on the provision. Maybe if you could give a little guidance as to what you might expect on the provision line. I know you've spoken to stabilization of credit. But I am just curious how you are measuring that, because I guess if you look at the kind of NPA inflows, they were actually higher in the fourth quarter. So maybe sort of tie the stabilization of credit comments to what you might -- what we could expect maybe in the provision going forward.

Well, I think nonperforming loans were about even quarter to quarter. I think we had some increase in other real estate.

But when I use stabilization, when you look at the way things were deteriorating last year and into the beginning of -- in '08 and in the beginning of '09, and then look at what has happened second, third and fourth quarter, our numbers -- the real numbers haven't -- in aggregate, haven't deteriorated.

Right, so the rate of deterioration is (multiple speakers).

And then as I mentioned earlier, I think we are looking at the economy. If you look at the consensus of economists and at the Fed, there is an expectation the economy is going to pick up. And if that happens, then I think you can expect that to be -- impact our credit metrics to the -- or credit quality metrics to the positive side of things.

I think there is still some question in some people's minds that is going to be the case. I think we follow it carefully. But we think our reserves are right where they need to be right now.

Okay. Any specific guidance, perhaps, on the provision, and -- I mean, if that is -- I'll leave it at that.

We don't -- your crystal ball is as good as mine, Collyn. It just -- it depends on the economy.

Yes. Okay, and then just one final question. What is the LTV on your commercial real estate portfolio, the average LTVs?

Collyn, I don't believe that we have that number offhand. Our policy is 80% loan-to-value, and we make very few exceptions there. I would guess our average LTV at this point in time would probably be in the 60% range.

Okay, that's all I had. Thanks.

Frank Schiraldi, Sandler O'Neill.

Good morning. Just a couple of questions. On the margin, I just had a follow-up on the CD book repricing in the first quarter, $1.3 billion in 1Q. What was roughly the CD book rollover in the fourth quarter?

It was a little bit higher. It was a little bit higher than the $1.3 billion but not much, Frank.

Okay, and --.

The rates were slightly higher.

The rates were slightly higher. Okay. In terms of nonperformers, I wonder, Phil, if there is any color you can give just on the -- specifically, on the C&I bucket and the CRE bucket linked-quarter. What -- the new loans that you saw inflow into nonperformers, just some color on those.

Just one second. No, I have the information by state. I don't have particular industries, Frank. But --.

Can you give any -- I'm just wondering if there is any color in terms of particular loans flowing through, anything bulky, things like that.

It looks like the largest addition was about $5.6 million. And that was on the construction side.

On the C&I side, -- it's a lot of -- not a lot, but the largest is about $2.4 million. And one hotel, one Ag credit, age-restricted development. It is really a wide range and nothing real large.

So on the $5.6 million, I guess that would fall under -- in terms of if we are looking at the buckets, that would fall under the CRE bucket or --

No, that would be the construction.

Okay, so there was outflows in construction overall, but (multiple speakers) one of the inflows, okay.

And do you have any sort of color that you can give on that loan in particular, like LTV or what that construction loan entails sort of?

No, it was a development project that didn't sell, and the owner didn't have the liquidity to carry it.

So is it residential or --?

Yes.

Okay. And do you know of a loan-to-value on that or in terms of what you think your losses might be there or is that --?

Well, I can tell you that we did charge part of that off in our fourth-quarter charge-off numbers. And we think going forward -- to a 75% of the new loan-to-value. And we think any losses going forward would be fairly minimal.

Okay, thanks. And then just a follow-up. One of your comments earlier, Scott, on small business. Is SBA lending, is that sort of going to be one of the growth engines of the next year or so?

Well, small-business lending will be -- we don't use the SBA a lot. Some of our banks use it more than others, but we don't have a significant volume in SBA-backed guaranteed loans. We use it sparingly.

But we do book a lot -- that is our bread-and-butter, is small business, so we tend to portfolio them and do them direct.

Okay. But specifically on SBA, there is no plans to increase that business line for you guys?

Not unless there is some significant change there, and there could be, if some stimulus money goes into that that makes it somehow more attractive.

But typically, the time lag and the servicing requirements, it is easier for our customers for us to do it direct, and we have the liquidity to do that, so that has been kind of our strategy there.

Okay. And then just finally, I'm just wondering in terms of the deposit fees, overdraft and NSF fees, what sort of percentage is that of the deposit fee line item? If you have it.

Yes, they're looking for that.

Is this for the quarter, Frank, or for the --?

Yes, just the quarter.

Okay. It was -- the total for the quarter is $9,390,000.

Okay. All right. Thank you very much.

Craig Siegenthaler, Credit Suisse.

Good morning. This is actually (inaudible) filling in for Craig. Just had a couple of questions. First on the margin, the expansion for the past few quarters has been a deposit repricing story, and it seems like that will be the case again in 1Q '10. I was just wondering if you could comment on when you think margin will become an asset repricing and kind of liquidity reduction story, and magnitude, if possible.

I'm sorry, could you repeat that please?

Sure. I'm just trying to think about when margin expansion will kind of become an asset repricing story, and when you think you are going to reduce your liquidity and kind of what leverage there is (multiple speakers).

That is going to depend on what happens with rates going forward, with the prime rates, fed funds. And I just can't -- I can't even guess with that.

Okay. And then just a housekeeping question. In the previous quarters, you disclosed kind of a reserve for unfunded commitment, which I believe was $7.2 million in third quarter. I was just wondering if you have a comparable number in the fourth quarter.

I don't think we do, sorry.

Okay, and then --.

It would not be much.

It would not? Okay. So there's no significant kind of increase in reserve for unfunded --?

And then if possible -- and I'm thinking that this number would be hard to estimate -- do you know what your redefault rate would be on your restructured loans?

I'm sorry, what?

Redefault rate on restructured loans.

For the most part on our -- this is Jim Shreiner speaking -- for the most part on our restructured loans, we have maintained pretty much the same interest rate as long as they are accruing. So there has been -- on the default rate, we are looking right now at about 22% delinquency on restructured residential mortgages.

But do you have kind of an overall number, or do you only restructure the resi market --?

We only have $16 million of restructured commercial loans. And to date, there have been no defaults.

Great. Thank you.

David West, Davenport & Company.

Good morning. I wondered, on page 3, you gave some detail relative to your net realized gains and other temporary impairment charges. Wonder if you could put a little color on that, particularly on the OTTI charges, as to what specific securities that was directed toward.

The OTTI charges on the bank stock portfolio were three bank stocks that we had, and they are about $1.2 million that we wrote them down. We wrote them down to current market value.

The whole bank stock portfolio now is, as of December 31, is $2.2 million, market value under book value. And if you look at that, we have gross losses of $4.7 million in there and gross gains of $2.5 million. That is the bank stock.

The other portion was related to trust pooled securities, and par value on that is $34 million, and it has been written down -- the book value has been written down to $20 million. And it is made up of 10 pooled securities composed of 517 banks. We go through each one of them and evaluate what we think the credit risk is there, and we write them down.

Very good. Very helpful.

We think we use a conservative approach, but time will tell.

And the gains, were those just on more traditional fixed income (multiple speakers)?

Yes, the gains in the portfolio are -- nearly all of our portfolio is agency-guaranteed mortgage-backeds and CMOs and high-grade municipals. And the net gain there, net gain, even backing out the trust pools and the bank stocks and all, the net gain in those is $18.8 million. And the mortgage-backeds and the CMOs, it is $57 million net gain.

Very good. And then lastly, Charlie, I guess for you as well, the quarter's tax rate was a little lower than I would have expected. Did you have any IRS settlements or anything that influenced that? And maybe could you comment on your outlook for the 2010 taxes?

I don't think so. I think the effective rate should stay about the same. And the effective rate will go back as our earnings go back, I would expect this year to be around 29% or 30%.

Very good. Thanks so much.

Matthew Schultheis, Boenning & Scattergood.

Good morning, gentlemen. A couple quick questions for you. Could you talk about the impacts or whether there is an impact of interest rate floors, either embedded or purchased, on your asset side of the balance sheet? In other words, if rates go up 25 basis points, do you have enough assets that are currently priced under their floor that they are not going to reprice up anyway?

The floors are relatively -- some of the floors we've put in are 4%. We -- that would be in our modeling. But I couldn't tell you specifically.

Okay. I mean, do you have a ballpark dollar figure about how much of your earning assets have some sort of floor in place?

No, I don't.

Okay. And can you talk about --?

Should we disclose that in the future? We would have that, I just don't have it with me.

Okay. Can you talk about the construction portfolio with regard to interest reserve and any change with regard to that relationship over the past couple of quarters?

I would say there is no change. At this point in time, most of our developments, I believe, are customer-funded. And they are funding the reserves as they go forward.

Okay. And it looks like that's it for me. Thanks.

Gerard Cassidy, RBC Capital Markets.

Thank you and good morning. Can you guys share with us, in the commercial real estate loan growth this quarter and maybe throughout the year, what was the dollar amount, if any, of so-called mini perms -- you know, loans that -- construction loans that were finished, the projects were finished, but they couldn't find permanent financing and you guys gave them temporary commercial real estate mortgage financing?

I can tell you we did none this year, and our portfolio -- the entire portfolio of mini perms is extremely small. We do, I believe, have two loans that this year will mature, and both of them are performing very well.

Okay. On the fees for the service charges on deposit accounts, it looks like it came in at about $15.2 million. Can you share with us if there are any concerns should the legislation in Washington that has been proposed about reducing customer fees, how that might impact that line item? Do you guys offer a so-called free checking account, that I think the legislation is most focused on?

I think the legislation, for the most part -- first, I would say we are concerned about any legislation, whether it is on the fee side or any other side. But most of the proposed legislation to date, the impact on us would be on the overdraft side.

Yes.

And we are -- you know, the feds put out guidelines that we think we can manage under those guidelines. Additional legislation would cause us to take additional steps to offset whatever income we lose.

And on the insufficient funds charges, what type of impact could that have before you guys change maybe products, or are we talking 5% or 10% of total service charges or is it greater?

That's hard to estimate, because people can opt in, and we can continue to charge. And we have until July to get them to opt in. So it would be hard for us to give you a good estimate.

Gerard, this is a populist issue that gets a lot of press. We don't have any significant customer feedback that would indicate that the customers don't like the overdraft protection we provide. And our sense is if we can communicate appropriately with them, they will opt into it, because they just don't want to get told at the Target that their card isn't any good.

And there may be a quarter or two to digest that, but once they get told that at the Target that their card isn't any good, they are going to be in the branch the next day, saying, how can you fix this.

So our sense -- and because of our closeness to our customers, our sense is that while it might be disruptive for a quarter or two, that this is not something that customers are concerned about. It's something that people who like to talk about these things are concerned about.

Oh, I totally agree with you. What are the total -- when you look at your total fees, what dollar amount is for overdraft charges for revenue?

(multiple speakers) For the quarter, Gerard, it was $9,390,000. And for the year, it is about $35 million, $36 million.

Okay, so that is all overdraft charges then, the other service charges and fees?

Yes.

Okay. Getting back to that legislation, do you guys know if once you have a customer opt in and then they go use their debit card at Starbucks and they don't have enough money for the $4 latte, are they going to be asked at the point-of-sale terminal whether they want to take on the fee you will charge them for overdrawing their account, or is it only a one-time opt in at the beginning of the year, and they are not going to be asked every time that their bank account is going to be overdrawn?

As we understand, it is a one-time opt in.

Okay, thank you.

That does conclude the question-and-answer session. At this time, I would like to turn the conference back to Scott Smith for any additional or closing comments.

Well, I would like to end the call by thanking everyone for joining us today. We hope you will be able to be with us again for our first-quarter 2010 earnings conference call, which is scheduled for April 21 at 10 a.m. This concludes the call.

And again, that does conclude today's conference. We thank you for your participation.