WSFS Financial Corp (WSFS) 2008 Q4 法說會逐字稿

Good afternoon and welcome to the WSFS earnings release fourth quarter of 2008 conference call. With us on the call are Mark Turner, President and CEO; Steve Fowle, Chief Financial Officer, and Rodger Levenson, Head of Lending. All participants will be in listen-only mode. To make the best use of everyone's time, we will take questions from analysts and investors. If media or others have questions, we invite you to call our media public relations number at 302-571-5259, Stephanie Heist, and we would be happy to talk with you. (Operator Instructions).

Please note this call is being recorded. Now I would like to turn the conference over to Steve Fowle. Please go ahead.

Thank you, Andrea, and thank you to everyone participating on this call. Before Mark begins with his opening remarks, I would like to read our Safe Harbor statement.

The following discussion may contain statements which are not historical facts and are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, which are based on various assumptions, some of which may be beyond the Company's control, are subject to risks and uncertainties and other factors which could cause actual results to differ materially from those currently anticipated. Such risks and uncertainties include, but are not limited to, those related to the economic environment, particularly in the market areas in which the Company operates; the volatility of the financial and securities markets, including changes with respect to the market value of our financial assets; changes in government regulation affecting financial institutions and potential expenses associated therewith; changes resulting from our participation in the CPP, including additional conditions that may be imposed in the future on participating companies and the costs associated with resolving any problem loans and other risks and uncertainties discussed in documents filed by WSFS Financial Corporation with the Securities and Exchange Commission from time to time. The Corporation does not undertake to update any forward-looking statements whether written or oral that may be made from time to time by or on behalf of the Corporation.

With that, I will turn the discussion over to Mark Turner, WSFS's President and Chief Executive Officer.

Thank you, Steve, and thank you all for your time and interest. I and my fellow associates will take some time today to add some additional color and context to 2008 results and the future prospects reported yesterday, which we assume you have seen and read. After about 10 minutes of prepared comments, we will open it up for questions.

There was clearly some good news to report in 2008. Deposit growth was strong, growing $228 million or 15% during the year, $173 million of that coming in the fourth quarter. $95 million of that came from our successful acquisition of six end market branches in October. We consolidated those six branches into four, and still deposits with those customers have since grown from $95 million to $99 million. Even without that acquisition, deposit growth rate in the fourth quarter was 20% on an annualized basis. Total loan growth was also good, increasing $210 million for the year or 9%, including $114 million growth in the fourth quarter. Most of this growth was in C&I loans, a sector that continues to hold up relatively well.

Despite an active origination platform, in total first mortgage and consumer loan exposure was relatively flat over the year as demand was lower, paydowns were higher and many of our first mortgage loans we originated were sold off, thus reducing our overall exposure to existing consumer credit.

Importantly, construction and land development loan exposure, perhaps the hardest hit loan sector today, was actually reduced over the course of the quarter and year. Starting in 2005 we took steps to limit our construction exposure.

At year-end 2008 total construction loans were $229 million or only 9.2% of total loans. A component of that, residential construction and land development loans for residential CLD were $142 million or only 5.7% of total loans at December 31.

In addition, our residential CLD exposure is diversified with an average loan size of $1.4 million and only eight projects greater than $5 million. And during the quarter, total commercial loan delinquency actually improved from 1.74% to 1.3% December 31.

Overall in deposits and loans where we were taking pains to exercise appropriate underwriting in the current climate, we clearly are seeing the accelerating positive effects of our business model and the reintermediation to us from financial institutions that are no longer in business or are otherwise distracted or disrupted.

There is also other relatively good news to report. Despite a very challenging environment in the fourth -- and a fourth-quarter loss of $3.3 million, we reported full-year profit of $16 million and a return on assets of 50 basis points and a return on equity of 7.3%.

Worth repeating total residential construction and total mortgage and consumer loan exposure was reduced and is relatively low compared to some of our peers. Despite some one-time and non-core items, expenses were managed well, even with franchise growth.

In a difficult loan yield and deposit cost environment and excluding a $1 million reduction in our usually volatile reverse mortgage interest income, net interest income was up, and the margin held up at a pro forma 3.2%. And when a nearly $550 million book of investments after extensive evaluation and testing of the bonds in using independent models, we recorded a write-down through income of only $1.4 million or about one quarter of 1% of that portfolio, and there were no other than temporary impairment losses to report.

While we cannot guarantee the future, that is not by accident as we built our investment portfolio to seek to avoid credit risk and to primarily help us manage liquidity and interest rate risk while providing some marginal income. I refer you to the press release where we provide quite a bit of detail on the quality of our investment portfolio.

As evidence of this low credit risk philosophy and practice in our investments, we currently have no exposure to Fannie and Freddie preferreds, no exposure to bank trust preferreds, no exposure to public bank or thrift equity securities nor any securities of underlying subprime assets. And the $1.4 million write-down we did take was due to generally widening market spreads as applied to a $12.4 million BBB-rated security we have owned since we sold reverse mortgage into that securitization in 2002. The securitization is well seasoned, cash flowing and over 150% collateralized. We expect any owner would recover 100% of the principal and interest due on this BBB security.

As an organization and as an organization that has grown primarily through organic means, we have very few intangibles on our balance sheet. We analyzed all of these at 12/31 and have no goodwill or other intangible impairments to report.

However, in this environment there are clearly areas that we're watching very closely. The local economy, as with the national economy, has rapidly deteriorated over the last four months. Job losses mount. Delaware's unemployment rate is about 1% better than the national average over the last year but is trending in the same direction at a similar rate. And real estate activity has slowed meaningfully, and prices have declined accordingly. This deterioration resulted in us taking a very hard look at the end of the year at our at-risk loans which are 8, 9 and 10 graded loans in our loan grading system. Risk migration in general, trends in delinquency, trends in charge-offs, appraised value on problem properties, cost to dispose of the properties in a soft market and then recording $14.9 million loan loss provision in the fourth quarter, as well as a $700,000 write-down in REO. Confronting this economic reality led us to taking a $3.3 million loss in the fourth quarter.

On another topic, as you know, we purchased a majority stake in 1st Reverse in April for about $3.4 million total investment. 1st Reverse is a startup platform for originating and selling reverse mortgages, a product that we like, originate locally from our retail network and with which we have 15 years of experience. While 1st Reverse continues to improve in originations and pipeline, it is not yet showing a profit. The correspondent and secondary reverse mortgage environment has not been hospitable over the last nine months, and we continue to work very closely with management of the joint venture to make appropriate adjustments to their business model and to reduce expenses to get to lower breakeven levels of loan originations.

To sum up, sticking to lending exposure in our market, which we know well, our flat exposure to total first mortgage and consumer loans, which includes minimal unsecured or subprime lending, only about $30 million in total or less than 1% of total assets. Our relatively small declining and diversified exposure to residential construction loans, our relatively good mortgage loan delinquency versus national and surrounding state averages, and our higher quality investments all puts us in a good place to weather this recession and act as a local bank respond to local credit and deposit needs as others are retrenching.

However, as we enter 2009, we have made appropriate adjustments to our underwriting, pricing and loan structuring. The current climate demands it, and the market has allowed it. We have also made adjustments to and sacrifices in our expenses to be sensitive to an environment where there will be less overall economic activity. And 2009 will be a very challenging and dynamic year, one that we will have to manage through closely and make continuing adjustments as the economy may get better or worse.

Lastly, we recently closed on $52.6 million in capital for the United States Treasury's Capital Purchase Program, a decision we did not take lightly but one that will give us additional capital to guard against a tough economy, serve our markets and seize opportunities as they arise.

Thank you for listening. I would like to open it up to questions for Rodger, Steve and myself.

(Operator Instructions). Andy Stapp, B. Riley & Co.

In the residential and construction charge-offs, was any of that -- were any of those projects the one you mentioned last quarter in Southern Delaware?

I will have Rodger Levenson, who is our Head of Lending, respond to that question.

Yes, one of those projects was that project that we referred to in the past.

Okay. And I think you mentioned that you have eight large residential projects. Have you taken charges on all eight of these projects?

No, we have not, not at this point. We have only taken charges on the ones where we felt it was appropriate based on the methodology that Mark had alluded to in his prior comments.

Okay. Do you have any other (inaudible) course projects that you are financing question?

None that are under construction.

Okay. In your level 30 to 89 delinquencies, how did they compare quarter to quarter?

Total delinquencies, as we mentioned, went down. We are going to have to take a quick look and find the answer on the 30 to 89.

Okay.

Andy, commercial loan delinquencies improved from 1.74% in September to 1.30% at December.

Okay.

Andy, we will get back to you with a specific answer on your bucket question.

Okay. And I had some questions regarding the private-label mortgage-backed securities. Just to make sure I understand correct first of all, all but four are AAA rated, is that correct?

That is correct.

And what are the ratings on the four?

The four, they were all purchased as AAAs. They are all rated by two agencies. Three of the four -- sorry, two of the four are still rated AAA by at least one of the agencies. Sorry, three of the four are rated AAA by at least one of the agencies. And the fourth is rated AAA by Moody's and BB by S&P.

And, Andy, on these securities in particular, they total $11.2 million of the total investment. We ran all four of them to two separate independent models and stress tested them in the current case and in a severe case for losses, ultimate losses of principal and interest, and we don't think that it is probable that based on the results of those models that there will be losses of principal and interest on the securities.

Okay. Are these four or are they Alt-A mortgages?

I do not have that detail.

Okay.

Only a small percentage of our securities have Alt-A in underlying loans, and we will have to get back to you whether there's any in these securities.

Okay. And the $293 million balance on these non-agencies mortgage-backs, that is the fair value, correct?

That is the fair value. That is correct.

Do you have the amortized cost of those?

Our investment was $320 million. We did not buy these all at originations, so I'm not sure how much they pay down overall from issuance.

Okay. All right. I have some other questions, but I will let some other folks get on.

[Sandra Osborne], KBW.

I was wondering if you could just give us an update or any more thoughts on your 1st Reverse stake, specifically just about the outlook for reverse mortgages in general? And also, what your expectations are from the investment? I think you had originally said you expected about a year or so of startup losses. I'm just curious if that has been pushed out any with the restructuring.

When we purchased that majority stake in that startup business back in April, the business model that existed at the time in a much better environment had breakeven origination volumes at about 250 loans per month. And then over the course of the summer, there was a change in law which originated one of their channels, their broker originated channels, of how they originate loans. And then the secondary market for jumbo product, which they also have, part of their business model went away. And then generally with declining equity values, there are less reverse mortgage equity retaps by seniors.

So it was clear by the end of the summer into the early fall, that the business, that business model was not going to get to breakeven in the near-term. So we worked with management very closely to adjust the business model that is much more retail-oriented, commission-based with a high variable cost structure, and reduced quite a bit of the fixed expenses so that their breakeven origination volumes at this point are about 100 loans per month.

They are originating about 50 loans per month right now but with a pipeline that is building. The last pipeline I saw had about 180 loans in it. It is our hope and expectation that it would take a couple of months to get to 100 loans. That will put them at about the year level in terms of since when we purchased them, but it is by far a foregone conclusion that they will reach 100 loans per month in the next two months. But that is what we're working towards.

Okay. That is helpful. And what about just the outlook in general for the business, for reverse mortgages?

The long-term outlook is very good. Reverse mortgages with the senior population growing, savings rates having declined over the last generation and higher costs to live, it is clear that the reverse mortgage product will be a product that seniors have to tap to live in their homes comfortably in retirement, and that is something that a lot of seniors want to do. And overall the reverse mortgage market has grown quite substantially over the last 10 years.

So we are a long-term believer in the product. As I mentioned, we originated locally from our branches in addition to that 1st Reverse investment. We are just working like heck in the current environment to get that business unit up to breakeven origination volumes since they had essentially retooled their entire business model since we purchased them.

Okay. And now on the commercial loan growth, 7% sequentially is pretty robust. Is this reflective of your being able to capitalize on dislocation from other competitors? And if so, how does the pipeline look from here?

Generally the answer to your question is yes. For some specifics I will turn that over to Rodger Levenson on what we're seeing and some of the deals that we have seen over the last quarter.

I would say that quite candidly we have as many opportunities in front of us as we could deal with. This market is just presenting a great deal of opportunities. It is primarily coming from, as Mark indicated, a dislocation at some of our major competitors where there has been significant people disruption and other corporate distraction.

A good example is a large multi-family loan which we closed in December, which was very well underwritten and very well priced, who had a relationship with one of our large national competitors. The loan was about to mature. Our borrower had no reason to believe that it wouldn't be rolled over, but quite candidly, could not get ahold of anybody to get any real assurance on what the future of that loan was. And then through a mutual connection reached out to us, and we were able to close that loan and bring that over there -- bring that over here. That is very indicative of the kinds of opportunities that we are facing, and so we would expect those opportunities to continue.

Okay. I'm also curious if the compensation structure for your commercial lenders has any kind of incentive to prevent bringing over potentially risky relationships just for the sake of growth? I think that kind of robust growth can raise a few eyebrows among some cautious investors. I was just curious.

Sure. It is an excellent question, and we do have an incentive compensation system, which factors in very strongly asset quality as one of the key measures on how we evaluate the funding of our pool and then also individual awards.

All right. That is helpful. Maybe if we could just get an update on any expansion plans in the current environment? Should we expect any more branch purchases or de novo branches or maybe some federally assisted transactions?

As mentioned in the release, we have -- our capital position is very strong right now. We're seeing a lot of growth opportunities, and we see this as an especially good market to grow deposits. As you know, we have a loan to deposit ratio that is greater than 100 long-term. We would like that to get to be more self-sufficient in our funding. We have seen a lot of reenter mediation from larger competitors to us on the deposit end as we pointed out in the growth in the fourth quarter, and to continue to capitalize on that, we're going to add two new branch -- we plan to add two new branches this year, renovate two -- or relocate two, excuse me, and renovate one this year. We think this is a particularly good market to pick up deposit market share, which is strategically something that is important to us.

In terms of transactions, if we see a transaction, a small transaction in market, assisted or otherwise, that we believe is low risk and very well priced, we will be opportunistic.

That is really helpful. I will let someone else have the line now.

Brian Hagler, Kennedy Capital.

I just had a couple of questions. First of all, I guess I don't cover a whole lot of banks that have a reverse mortgage presence, so I'm wondering how are you looking at the net interest margin kind of base or the run-rate, if you will, going into the first quarter? Are you using the 320, or could there be additional kind of charges related to this, and I should use like a 307 for modeling purposes?

I will make some comments, and then I will ask Steve to augment those. I think the 320 is more reflective of our base. The $1 million write-down we took effectively takes that portfolio to zero. There is the possibility that it could go lower than zero because we have cash flow, cash outflow requirements at the reverse mortgage holders, but our risk in that is pretty small. So I would use the 320 as a base. And then I will have Steve talk about the other dynamics in our balance sheet that might influence our margin going forward.

Sure. I would agree with Mark on the reverse mortgages. The timing and size of the impact from that portfolio is very difficult to predict as it is all the result of a net present value calculation on a [bluff] of 21 loans. Typically more volatile in the fourth quarter because we appraised the properties at that point.

However, with regard to the margins in general, we try to maintain relatively neutral interest rate sensitivity, and we reported a one year gap of only 0.33% as of 12/31. But what that statistic hides is the fact that as the Fed cuts rates, our veritable loans are the first thing to reprice before deposits will. I would expect the decreasing margin trends that occurred through the fourth quarter will continue to trend down slightly from the adjusted levels Mark referred to through the first quarter.

But I also like to point out that, as we are investing in the CPP funds we received in mortgage-backed securities and leveraging to get to earnings neutrality with that, so probably picking about 200 plus million of mortgage-backs with a target matched spread of about 1.5%. While that will help our net interest income dollars, it will also tend to bring down our margin percentage. So a wild-card on that is always what happens in the deposit market.

Okay. I appreciate the detail on that. You talked about doing a pretty comprehensive review of your 8, 9 and 10 rated loans this quarter. Can you just talk about what percent of, let's say, I believe it was $142 million of your residential construction loans you got recent or updated appraisals on?

I do not have this exact specific information on that. What I will tell you is in many of those projects we received updated appraisals, and in the situations where we did not, we took additional discounts to our evaluation of what the net realizabled value of those loans were to be reflective of the information that we have in the current environment. So we can get you the statistic, but I would say it is on a large number of those loans.

And then what was kind of the original or average loan to value on that portfolio at origination or loan to cost?

Yes, I would have to -- it is hard to make a general statement on that. I would have to come back to you and get you that information.

Only a small portion of that is land hold, I think about $35 million, and that would have been at by policy about 50% loan to value. And then generally the other would have been at origination somewhere between 70% and 80%. That is just a general background.

Okay. That is helpful. And then lastly, you talked about adjusting your underwriting and your expenses to the current environment. Can you just kind of talk about maybe what kind of run-rate of expenses you guys may hope to achieve or if you're just hoping to kind of keep them flat with this quarter?

In the core bank, we're trying to keep them flat. That is what we're planning for next year, and that is what we have put into the budget. But to the extent we have growth initiatives like wealth management or 1st Reverse, you are going to see growth there. But excluding those, our goal is to keep expenses flat, and that is what has been directed in the budget process.

Let me caveat that a little bit. As you remember, we did pick up branches in the fourth quarter, which will impact the base rate for expenses going forward. We do have some negative impact from increased FDIC insurance premiums which hit us. I think probably a good way to look at it is excluding 1st Reverse, that probably getting about -- 1% additional expense growth year-to-year.

Okay. And then did you guys have to make any adjustments or pension-related adjustments this quarter?

No, we don't have any defined benefit plans.

Okay. Thanks for your comments, guys.

(Operator Instructions). Andy Stapp, B. Riley & Co.

Do you have the dollar amount of FDIC? How much your FDIC insurance assessment will go up in 2009?

We do. Steve?

Yes, in 2008 we paid about $700,000. We're expecting about $2.9 million in 2009.

Okay. And also how much in dividends did you receive from the federal home loan bank in Pittsburgh in 2008?

In 2008 we received about $1.5 million, about $240,000 in the fourth quarter.

Okay.

That is obviously going away.

Yes. And what's your expectations regarding the effective tax rate in 2009?

If everything goes as planned, it is about 35%. Steve, is the right?

Probably a little lower. Probably it will be similar to the overall effective tax rate we saw for the entire 2008.

Andy, we have one very large permanent tax difference benefit. It is exclusion of interest on an ESOP loan. That lowers our effective tax rate from the statutory rates, and depending on how much money we make, it obviously can amplify that or lessen that reduction from the statutory rates.

Okay. And did you tighten your underwriting standards during the quarter?

I will let Rodger Levenson speak to that.

I think in recognition of the current economic environment, it is prudent to make sure that when we do our underwriting analysis, that the assumptions that we're making on collateral and cash flow are a realistic reflection of the current environment and that we really want to ensure that there is the appropriate cushions in our assumptions in case the economic environment was to deteriorate. So I would say generally we're using that filter to evaluate every new loan opportunity.

Okay. Then, for example, in CRE loans, what type of loan to value ratios are you looking for?

I would tell you that generally we're seeing much lower loan to value ratios and better debt service coverage ratios on all of our transactions. We are seeing things at 75% and below as pretty typical in a lot of the commercial real estate transactions that we are seeing.

And the market is allowing us to do that, Andy. There are less lenders in the market whether they be banks or other lenders. And I would say on top of that we're being -- we're asking much more in terms of pricing, and the market is allowing for that as well, including floors and loan rates that we were not able to get before.

Okay. What I'm trying to do is just confirm that the robust loan growth that you realize during the quarter was with conservative underwritten.

I think everybody here in all of the government structures whether they be committee up through the executive committee is highly focused on the current economic climate and making sure that the loans that we're seeing that we're doing a good job of segregating between the desperate and the deserving and structuring it correctly and getting adequate pricing on it.

Okay. And in modeling the level of your loan loss reserve and provision, were you more forward-looking than you have been in the past with the disruption in the economy?

The general answer to that is yes. You cannot take a big number like we did in the fourth quarter, realize what is going on around you without having that influence what you expect in 2009, and we do expect 2009 will be a continuing challenging environment. To that, I would just ask Rodger to add some comments since he and the Chief Credit Officer are the ones that went through the process and the framework of thinking about 2009 from a provision perspective.

Yes, obviously the overriding assumption that we made in going through our methodology was a continued very difficult economic environment. And our model similar to other banks is primarily driven off of loss histories and an assessment of risk in the loan portfolios, particularly in the commercial loan portfolio. What we did was a loan by loan review of all of our large and significant existing and potential problem loans to make an assessment of where we thought there was potential loss in those loans and then do more of a portfolio look at the consumer loans and then do an overall risk assessment in the remainder of the portfolios.

After having gone through that when you compile all the data, our expectation is that we expect both charge-offs and provisions in 2009 to look similar to the full-year 2008 numbers. But I would underscore that is a very dynamic environment. That is our best estimate based upon our current information, and clearly it is subject to change based upon further economic events.

Okay. You talked about your residential construction portfolio. What about your land loans? What are you seeing there?

Well, as Mark said, we actually have a very small number of pure land loans. It actually was $44 million --

And that is a part of that 142 residential CLD.

That is correct. That is a subset of that. We are obviously watching those very closely because they are tied to future development. In many of those cases, we have very strong sponsors who have other sources of cash flow to help support those loans. But it is clearly one of our highest risk portfolios.

Right. So the $123 million in land loans that you showed on your thrift financial report at September 30, the difference between this and the $40 million just mentioned, that is commercial land loans?

We're going to have to get back to you on that. That $123 million is not ringing a bell with us. Our commercial land loans, as Rodger said -- I apologize if I said $35 million before -- it was only $44 million at the end of the year.

Okay. Can you touch on what you're seeing regarding trends in commercial real estate ex-CLD loans?

Generally the commercial real estate portfolio is holding up very nicely, particularly the office and sort of multipurpose use projects. There is a little bit of softness that we're starting to see in retail, although it really has not impacted our borrowers just yet. But the commercial to date has been holding up better than the residential.

Okay. Thank you.

Brian Rohman, Robeco Investment Management.

A bunch of questions here. Did I hear you correct when you said your expectation for credit quality for '09 is similar to the outcome for '08?

For all of '08, correct.

Right. So assuming you're going to maintain your provision reserve level similar to where you ended the year, you are going to be provisioning somewhere close to $20 million to $23 million?

That is correct with all the caveats that Rodger gave predicting the future.

Okay. Tangible common equity, do you have a goal for the ratio there?

Our capital policy says we would like to keep it around 6%. The addition of, frankly, the U.S. Treasury's program bolsters capital, and so we have not made an adjustment to that expectation yet. But with the additional capital from the capital purchase program, we feel we have plenty of capital at this point.

Okay. Residential construction portfolio, what is the number in here, like 100 -- the CLD, 142. Charge-offs in the current quarter, in the quarter we just finished, I guess they are about what, $12 million or so? Correct me if that number is wrong.

Just under $12 million.

Yes, how much of that was related to the CLD portfolio?

Almost all of it.

Almost all.

There was probably close to $1 million in consumer -- in first mortgage and consumer loans, so almost all of it is correct.

So that 142 at this point is net of those charge-offs?

That is correct.

Okay. How fast is this portfolio running off?

Well, it has historically runoff very quickly. At this point because of the slowdown in new home sales, on many of our projects, the run-rate has slowdown dramatically. And so we are not expecting to see major runoff in that portfolio for the majority of 2009.

I mean these are construction loans. They probably have an average life in a more normal, and I use the word normal loosely, in a more normal environment of probably two and a half years or so, correct? Two to three years, whatever (inaudible). So you're saying that runoff has kind of ground to a halt?

It has slowed significantly on a number of our projects. That is correct.

Okay. Let's see here. Let me just find the passage in the -- here it is. Am I correct in reading that the $293 million of nonagency MBS, how did you get to a 42% average LTV? I have never seen anything quite that low. There was not an origination?, or that was not at purchase, was it? Are those new appraisals on that portfolio?

That was based on the originations -- let me quality this by saying, I may have to get back to you. This is my understanding. The guy that was running the models is not in the room, but that is based on a bond by bond evaluation of the underlying loan collateral, and I believe that was at origination.

Was there -- I'm not here to be nitpicky, but was that at origination, or was that at -- because I think you bought -- (multiple speakers) you bought season bonds?

That is correct. At purchase, I'm sorry, (multiple speakers) -- origination at our purchase.

Okay. So you bought them at a discount or no? I mean they were seasoned at the point in time that you bought them, so you're probably dealing with underlying properties that had appreciated?

Yes, that is probably the case seeing as most of those were 2005 and prior vintages.

Right, okay. Because I don't think everybody was originating stuff at 42% or even 50% LTVs even in that era. Okay.

The economy in Delaware, your tone is meaningfully changed from where it was six to nine months ago. Has it changed that much in the last couple of months?

I would say in the last four months that yes, it has changed, and it is consistent with what you're seeing in the national economy with unemployment going up quite significantly and with January announcements across the country of large job losses, and we are, as I said, Delaware has traditionally been about a percent better in unemployment, but our trend rates are almost exactly tracking the rise in unemployment rates in the US. So if unemployment was at 7.2% in the US ending December, which I think was the number, Delaware was at 6.2%. That went up 2.5% nationally in the last year. It went up about 2.5% nationally in Delaware in the last year.

It is tough in Delaware, like it is here in New York. The last question, and then I have got to run, net interest margin, what is the outlook? I think it was down a bit sequentially in the fourth quarter. What is your sense here?

Just to summarize for Steve, you take a base rate of 320, our assets reprice quicker than we're able to bring deposits down. And with the decline in Fed funds over the first quarter and prime rates, we did not see all of the impact of that in the first quarter. We will see it in the second quarter, so we should have a modestly declining margin in the second quarter. But over the course of six months to nine months, that usually bounces back and as deposits are able to be brought down, and Steve's point was that the wild-card is the competition for deposits in the local market and how much we were able to bring deposit rates down over the course of the next six months.

And Mark, did you mean to say fourth quarter to first quarter?

I'm not sure what I said. (multiple speakers) Thank you.

All right. Great, guys. You have been very generous with your time. Thank you.

That does conclude our question and answer session for today. Do you have any closing remarks?

I just want to thank everybody for their time and attention today as we embarked on our first quarterly conference call and appreciate everybody's interest. And if you have any follow-up questions, please feel free to give us a buzz.

Thank you for joining today's conference call. You may now disconnect your lines.