Susquehanna Bancshares Q4 2008 Earnings Call Transcript

Susquehanna Bancshares, Inc. (SUSQ)

Q4 2008 Earnings Call

January 29, 2009 11:00 AM ET

Executives

Abe Koser - Vice President and Investor Relations

William J. Reuter - Chairman and Chief Executive Officer

Drew K. Hostetter - Executive Vice President and Chief Financial Officer

Michael M. Quick - Executive Vice President and Chief Corporate Credit Officer

Analysts

Matthew Clark - KBW

David Darst - FTN Midwest Securities

Mac Hodgson - SunTrust Robinson Humphrey

Stephen Moss - Janney Montgomery Scott LLC

Thomas Alonso - Fox-Pitt Kelton

Collyn Bement Gilbert - Stifel Nicolaus & Company

Gerard Cassidy - RBC Capital Markets

David West - Davenport and Company

Presentation

Operator

Please standby. Good morning and welcome to the Susquehanna Bancshares Forth Quarter and Full Year 2008 Earnings Conference Call. Today's call is being recorded. At this time participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator instructions]. Thank you.

Mr. Koser, you may begin your conference call.

Abe Koser

Thank you. Good morning and welcome. I am Abe Koser, Vice President, Investor Relations at Susquehanna Bancshares. By now, you should have all received a copy of the press release about our fourth quarter and year-end 2008 financial results which we made available yesterday. If anyone still needs a copy, please call us at 717-625-6311 and we will fax it to you. Our financial releases are also posted in the Investor Relations section of our website at www.susquehanna.net.

Certain statements made during this conference call may be considered to be forward-looking statements. In particular, certain statements made on this call may include forward-looking statements relating to our ability to manage credit quality, our forecast regarding pre-tax income for our auto leasing subsidiary, our financial goals for 2009, and our strategic focus for 2009. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties.

The factors that may affect these statements and our financial performance include but are not limited to continued levels of our loan and lease quality and origination volume, changes in consumer confidence, spending and saving habits, continued relationships with major customers, compliance with applicable laws and regulations, competition from other financial institutions and originating loans and attracting deposits, the ability to hedge certain risk economically, adverse changes in the automobile industry, adverse changes in the economy generally and in particular adverse changes related to the risks set forth in our SEC filings including our most recent annual report on Form 10-K and our success in managing the risk involved in the foregoing.

Forward-looking statements may speak only as of the date they are made. We do not intend to update publicly any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of any unanticipated events except as required by law.

I will now turn the meeting over to your host, William J. Reuter, Chairman and Chief Executive Officer.

William J. Reuter

Thank you, Abe and good morning everyone. Thank you for joining us for our overview of fourth quarter and year-end results for 2008.

Also participating in today's call will be Drew K. Hostetter, Executive Vice President and Chief Financial Officer, and Michael M. Quick, Executive Vice President and Chief Corporate Credit Officer.

I'd like to begin with a look at the financial results we released yesterday.

Net income available to common shareholders for 2008 was $81.8 million or $0.95 per diluted share compared to 69.1 million or $1.23 per diluted share earned in 2007. Net income available to common shareholders for the fourth quarter of 2008 was 18.2 million or $0.21 per diluted share compared to 18.7 million or $0.27 per diluted share in the fourth quarter of 2007. Net loans and leases grew 10% from December 31st, 2007. In particular, we saw a strong growth in commercial loans, which were up 22%. Commercial real estate loans increased 8% and residential real state loans were up 7%.

I'd like to provide a little more detail about our mortgage lending activity in 2008. At a time when a number of mortgage lenders have been exited the market or are reporting a drop in volume, our mortgage division actually showed strong results.

With the addition of Community Banks' mortgage operation, which we acquired in November 2007, we had more than 1800 loans settled in 2008. This translated into lending of more than 335 million, up 68% from the prior year, which did not include Community Banks volume.

In reviewing our 2008 mortgage loans, 33% were due to refinancing and 67% were due to purchase and new construction. Of our mortgage volume last year, we retained 40% in our portfolio and sold 60% in the secondary market.

Fourth quarter mortgage lending volume was still strong, with 445 settlements for a total of more than 84 million during that period. In the fourth quarter, 26% of loans were refinances, compared to 74% for purchase or new construction.

We believe these results illustrate the resilience of many of the geographical markets where we operate, even in these challenging economic times.

Our deposit results reflect a competitive market and pricing pressures that all banks are facing. Total deposits increased 1.4% from December 31st, 2007, while non-interest bearing demand deposits decreased 7%.

Net interest margin for the year decreased 5 basis points to 3.62%. For the fourth quarter, net interest margin decreased 17 basis points to 3.52%, compared to 3.69% for the fourth quarter of 2007.

The deterioration in economic condition has impacted our credit quality, as reflected by our results reported yesterday. Net charge-offs as a percent of average loans and leases for 2008 were 42 basis points, compared to 25 basis points for 2007.

For the fourth quarter, net charge-offs were 60 basis points, compared to 26 basis points during the same period in 2007. Non-performing assets, as a percent of loans, leases and other real estate owned were 1.22% for 2008, compared to 81 basis points for 2007 and up 7 basis points from the third quarter.

Given the pressures facing our customers and loan portfolio, we increased our provision for loan and lease losses to 63.8 million for the year, compared to 21.8 million for 2007. The credit quality will continue to be a primary focus of Susquehanna in 2009.

Although, our individual research indicates that the Mid-Atlantic States have experienced less depreciation in real estate values than in other parts of the country, it is apparent from our numbers that we are continuing to experience ratios that are higher than our previous experiences in a recession.

Our major concern within our present footprint is the I-95 corridor from Dover, Delaware to Washington D.C. Approximately 35% and 28% respectively of our non-accruals and delinquencies are centered in this corridor.

It should also be noted that these numbers represent only three-tenths of percent and five-tenths of percent respectively, of total sitting balances of our loan portfolio.

LAD lending represents about approximately 52% and 36% respectively, of total non-accruals and delinquencies.

We've devoted a considerable time in 2008 to prepare our company to recognize and result from credits by doing the following.

First, all credits with aggregate exposure of $5 million and loans of 2.5 million or greater in the categories of commercial real estate, commercial construction real estate, and the residential real estate, are reviewed in the third month of each quarter, to determine the status of their global cash flow. This review includes a stress test for an increase of 100 basis points in interest rates.

Second, during the second month of each quarter we hold credit quality meeting for all criticized and classified loans that include a review of global cash flow and stress testing for an increase of 100 basis points in interest rate.

Third, a 15 month rolling projection of potential non-accruals, charge-offs, other real estate owned properties, non-A loans to accruing, total delinquencies, troubled debt restructure loans, specific reserves, and recoveries over 500,000 are completed in the third month of every quarter, and reviewed in this trust by executive management.

Fourth, we hold monthly meeting for all workout officers to review their portfolio with strategy to either upgrade or exit particular credits.

During the fourth quarter, we were successful in removing about 11 million in non-accruals due to the efforts of find buyers for these credits.

Five, our consumer lending area has instituted an ongoing review of HELOPs (ph) to determine property values and refresh FICO scores. We have a curtailment process in place for those credits which have been affected to reduce our risks.

Sixth, risk based pricing has been established to reflect the cost of classified to criticized loans.

Finally, we completed a review of all charges offs, migration of credit costs and any other costs were troubled credits by officer. This has been distributed to all manager to review with our staff and ensure that activities are modified accordingly.

Now the provision for the fourth quarter was $22.5 million due to charge-offs of $14.4 million. Real estate comprised 39% of that charge-off amount and C&I was 35%, with the balance due to migration of credit and new loans.

We believe that 2009 will be a challenging year, with the affect of recession and rising unemployment negatively affecting the economy. However, we also believe we have the proper monitoring systems in place to recognize issues in an appropriate timeframe and to minimize the effects on our earnings.

Now turning to our Wealth Management business; our assets under management administration decreased 10% to 5.4 billion at year-end 2008, compared to 6 billion at the end of the prior year.

However, wealth management fee income increased 26% for the year, rising to 40.6 million from 32.1 million during 2007. For the fourth quarter, wealth management fee income was up 12% to 9.6 million compared to 8.6 million during the fourth quarter of 2007.

I'll now turn the call over to Drew for a review of our results on a quarter-to-quarter basis.

Drew K. Hostetter

Thank you, Bill. In my presentation, I want to focus on fourth quarter results for 2008 and our 2009 financial goals.

Net interest income decreased $1.5 million or 1% from the third quarter due primarily to a decline in our net interest margin of 8 basis points. The decline in margin resulted from our slightly asset sensitive position on our balance sheet, in a declining interest rate environment.

Non-interest income increased $18.9 million or 105% from the third quarter due primarily to the $17.5 million impairment charge recorded in the third quarter.

Non-interest expense decreased $6.6 million or 7% from the third quarter, due primarily to small reductions in various expenses as well as special charges in the third quarter of $4.6 million related to consolidations of the banks and the prime reserve money market funds. Our auto leasing business was budgeted to have a pre-tax profit of $4.5 million in 2008.

This business realized a $1.6 million pre-tax profit in 2008 as back end costs were higher then expected due to a higher turn in ratio.

For 2009, we are forecasting pre-tax income to be breakeven as back end costs are expected to rise.

Next, I want to present our financial goals for 2009. FTE margin, 3.70%; loan growth, 8%; deposit growth, 1%; non-interest income growth, 6%; non-interest expense growth, minus 1%; tax-rate, 32% and the preferred dividend, $16.7 million. These financial goals include no securitization activity in 2009.

I will now turn the conference call back to Bill for his closing remarks.

William J. Reuter

Thank you Drew. As we discussed in a number of our calls last year, the economic turmoil has created a challenging operating environment for banks. Our management has identified a series of strategic focus areas for 2009 that are geared to help us manage the ongoing challenges as well as take advantage of opportunities that will arise.

First and foremost, we will continue our diligent management of credit quality, as I discussed earlier in our presentation. This is vital for a number of reasons.

In a competitive market, deposits become a scarce commodity and we'll work to deploy our resources through standalone underwriting.

We certainly have a legacy of making responsible manageable loans to customers and markets that we know. And now more than ever, we intend to follow our philosophy, maintaining a high degree of credit quality will also provide a level of assurance for customers about the soundness and safety of Susquehanna Bank.

We believe that in the current environment, trust and customer confidence are among most of vital commodities for bank.

A second strategic focus area is managing capital liquidity. And one source that we tapped to further strengthen our world capitalized status, was U.S. Treasury Department's capital purchase program.

We applied for and received 300 million for the program and the government's purchase of preferred share was completed on December 12, 2008.

This initiative raised our capital ratio to the following level as of year-end 2008. Leverage ratio, 9.92%, Tier-1 risk based capital, 11.17%; total risk based capital, 13.52%.

To put it another way, given risk based capital ratios at year-end, we would have excess capital of 391 million before falling bellow any benchmark necessary to be ranked as well capitalized.

I'd also like to point out at year-end 2008, our holding company, Susquehanna Bancshares had $406 million of liquidity with no debt coming due in the next three years.

Participating in the capital purchase program is in the best interest of our shareholders, customers and communities we serve. This funding gives us a foundation and generate additional lending to our customers and then also build our capital reserves for additional security against the uncertain nature of economy.

In return for the capital infusion, the U.S. Treasury received 300 million of preferred shares with initial annual dividend rate of 5%. In addition to treasury received warrants to purchase approximately 3 million shares of Susquehanna common stock at an exercise price of $14.86 per share.

This capital infusion brings with it a responsibility to make credit available to our local communities. And we have every intention of continuing our record of strong loan growth.

We will seek out opportunities to make sound loans in order to be an active participant in the economic stability and growth of our markets.

I'd like to mention a few highlights of our work in this area during 2008. For example, we make 48 community development loans last year for a total of $88 million.

We also did 30 million in SPA lending during the year.

Though Susquehanna Bank's, Home Start Mortgage Loan program, we provided 350 mortgages to low... to moderate income first time buyers worth total of about $37 million. We also provide additional mortgages to low moderate income buyers through more traditional products such as FHA and VA programs.

These results point to the strong track record we have in making loans to advance responsible home ownership and economic growth in our communities.

We plan to build on this foundation going in to 2009 with overall loan growth projected at 8% as Drew noted in his presentation.

We believe this level of loan growth is achievable and responsible in the current climate which requires us to carefully balance our support at economic growth with the need to manage credit quality in our portfolio.

Another area of focus in 2009 is the funding necessary to support lending. We anticipate that this year will continue the trend of competitive deposit generation and pricing. We believe there is some potential in a few targeted market segments where we'll concentrate our efforts including seniors, small business, private banking clients, workplace banking program and non-profit organizations.

Our efforts at retaining and growing deposits will be enhanced with new customer relationship management tools that should improve frontline capability to identify gaps in relationships and cross-selling opportunities.

Our final focus area in 2009 is to continue to build recognition and value for the Susquehanna brand. As you know, last fall we consolidated our three banking subsidiaries into a single Susquehanna Bank and established a standard set products.

This allowed us to develop a consistent customer experience throughout our network of more than 230 branches, increasing efficiency and streamlining our marketing and sales efforts.

We believe that further development of the consistent Susquehanna brand identify our experience and will make us an even stronger competitor.

In conclusion, during 2008, we put in place a structure that we believe will enable Susquehanna to navigate the economic turbulence and build on our role as one of the nation's top retail financial service companies.

Our focus in 2009 will be on the successful management of our loan portfolio, probable deployment of deposits through sound lending, diligent management of liquidity and capital and delivering superior customer service to increase market share and cost selling of additional financial products and services.

Each of our 3400 team members are focused on these initiatives. I look forward to the results that we can achieve together.

Winston Churchill once said, A pessimist sees the difficulty in every opportunity, an optimist sees the opportunity in every difficulty. At Susquehanna, we are optimist about America's future and our own.

At this point I'd like to open the call for your questions and comments.

Question-and-Answer Session

Operator

Thank you. The question and answer session will be conducted electronically. (Operator Instructions). And we'll go first to Matthew Clark of KBW.

Matthew Clark - KBW

Hey, good morning guys.

William Reuter

Hi, Matt.

Drew Hostetter

Good morning, Matt.

Matthew Clark - KBW

Can you first just touch on tangible capital here now or I guess down to 463 and I think you guys targeted about 6%. Just what your thoughts are... obviously rebuild and I guess your appetite possibly to look at the dividend as well.

Drew Hostetter

We do target 6% but we do the calculation different than how you are doing it. The first difference in math is that some of our goodwill on our book is related to Asset Management purchases which were done 338 H10 election or purchase of asset for tax purposes, any impairment of that goodwill or loss of that goodwill adds up on the tax benefit of 35%.

So, if you would end up writing off any of the goodwill associated with those 338 external actions, you will get immediate 35% tax benefit to your income statements. Therefore, you're only reducing your tangible common equity by 65%, not by the full 100%. When you take that into consideration, your intangible common equity calculation that puts $54 million back in tangible common equity or increased the ratio to 5.05%.

Okay. Second thing we look at differently is the OCI that we have is all related to securities which is temporary in nature because if it was other than temporary we'd have to take the charge to the income statement. So, when we look at our intangible common equity, we look at it before OCI. If we had OCI back there, we're at 573.

So, we are trying to get back up to the target of 6%, based upon how we look at, we will not take it below 5%. But our target is 6.

Matthew Clark - KBW

Okay, great.

William Reuter

Now, this is Bill Reuter. I'll mention just a couple of things to try to answer your question, Matt. Our dividend on the table every time we go into a Board meeting, we had a length of discussion about dividend just last week. So I had to pay the full dividend.

So we do look at dividend as a potential way to increase tangible common equity if needed to. Obviously other ways that we will do it would be to go out and raise money in the market. We don't think the markets can do something right now without a reason.

The other two ways would be to caution by the capital rich or to go to the market with a specific spot in mind about somebody we wouldn't want to acquire, maybe on assisted basis whatever the case might be. So tangible common equity ratios when we look at along with the, obviously look at three regulatory ratios very hard. We look to tangible common equity also.

Matthew Clark - KBW

Okay. And then along those lines, in terms of OCI can you update us on what you are carrying and what you're seeing I guess in your pool of trust preferreds, your CDOs, which I think are nominal now. But more importantly the private label piece in the CMBS?

Drew Hostetter

We have $25 million of pool trust preferreds. We bought... when we acquired these they were AA, okay senior tranche and they are still double AA senior tranche if you look at it (ph).

Okay. And when you do your cash flow analysis, we have in the worse case of 30% cushion. Okay, before we have any concern about a loss of principal or interest in our tranche, okay?

The next piece is as you talked about the CDOs, we've written those down significantly, it's only $2.5 million left on our books. They're written down already to $0.12 from the dollar.

The next piece is the non-agency mortgage-backed, we have about 200 million on our books. And once again, we bought the AAA super senior tranche, and all except for two of those securities which are now BBB they're still AAA. And there is plenty of credit support in front all those securities. The average FICO score on those, I've got that right here. The average FICO scores on our non-agency mortgage-backeds is 758 and the average LTV is about 65%.

Our commercial mortgage-backeds we have about 200 million in commercial mortgage-backeds as well. Once again, we bought all of the super senior AAA tranche, all of those are still rated AAA. We have over 30% credit support in front of us on all those securities and the average LTV there is 65%.

So, as of today we're pretty comfortable with the portfolio. That doesn't mean that in the future negative things could happen that could affect these. But as of today, we feel pretty comfortable with the portfolio.

Matthew Clark - KBW

Okay, that's great. Thank you. And then lastly, your guidance on loan and deposit growth and some improvement in the margin, just wondering there I guess, how much of that or do you plan on, and maybe just update us on your plans to maybe shorten up on the borrowings side, given how low rates have gotten there?

Drew Hostetter

Right, there is three components basically to that increase in margin. We're 352 in the fourth quarter, we're 370 we gave you for '09. The first piece is the TARP. Okay, the income we will earn from the 300 million in the TARP goes up into net interest income. The expense goes into preferred dividends, below net income, but not below net income for promo. That will pick up 12 basis points, okay.

Two other things that will happen in 2009 that will help to improve the margins is that on several of our money market now on savings products, we had a floor of 1% in December. We have... we'll be notifying those customers that more will drop to 25 basis points in the first quarter.

And the third thing is, we have a over $0.5 billion worth of promotional CDs that'll come off in 2009 that are single sourced customers that we will probably move into overnight funds at 25 basis points. So the combination of those three is where that improvement in the margin is coming from.

Matthew Clark - KBW

And then previous promo rate was?

Drew Hostetter

In the 3s and 4s.

Matthew Clark - KBW

It's helpful. Thanks so much.

Operator

And our next question comes from John Pancari with J.P. Morgan.

Unidentified Analyst

Hi, this is actually Polly Samberg (ph) on behalf of John. Just wondering if you could just give us additional color on loan growth this quarter?

Drew Hostetter

The loan growth this quarter ended up to be I think the leases, because we're keeping all the leases currently on our balance sheet. And that will continue into 2009, because we're not going to be doing the securitization. Construction has stayed flat, but we still see improvement in our commercial and industrial and our commercial real estate loans.

Unidentified Analyst

Now the growth that you're seeing in C&I, would you actually feel a lot of that to sort of share gain opportunities?

William Reuter

I would say, I would basically say a lot of that growth is coming in the small... our small business sector. That we put into place a small business credit solution product several years ago that we rolled out at the whole organization that allows a lot of our best franchises and lot of our small business lenders to be a lot more effective, and how they approach lending from a streamlined standpoint, because it's supported by credit scoring, automotive documentation, so forth and so on.

So, we're seeing a fair amount of pickup... and seeing a lot of fair amount of pickup... literally in the small business category. And that pickup we'll continue to see this year, because of the momentum we created in the 2007 and 2008.

Now I'm not trying to figure and tell you I think that loan growth on the small business shall be as robust as it was in '07 and even '08 I think. And so far this year we're starting to see some a little bit of a tail-off in the small business loan request. But the point is we have more people on the street, and we're talking to more customers, and we are seeing some end-market opportunities at the same time.

Unidentified Analyst

Okay. Now on a separate note, can you give us your expectations for origination volume at Hann, what it was this quarter and where do you see that trending in '09?

Drew Hostetter

Sure. Yes, the origination volume for... and typically, our fourth quarter is the lowest quarter at Hann just because the cyclical nature of the business. But our fourth quarter production was 1,996 units for a total $43 million in the fourth quarter. For '08 that ended up to be a total of 10,498 units, with a total of $257 million in production in '08.

'09 we are projecting 10,490 units or approximately the same units, with dollar volume of 261 million. So just a slight increase in the dollar volume, a little more higher weight towards the more expensive cars but not much.

William Reuter

And in '08 I think Hann's volume in '08 was principally about the same as it was in '07.

Drew Hostetter

Right, 256 million in '07.

Unidentified Analyst

Okay. Very helpful. Now, just last housekeeping type of question, the income from Valley this quarter went down by about $1.5 million. Was there any markdowns related to that in that line item?

Drew Hostetter

No. But what happens is our crediting rate is based upon total return. Okay. So obviously, any investments in '08 when you look at total return, market values have declined significantly, okay. So that has affected our crediting rate. And in fact, I think if you look at our run rate for 2009 is probably about $1 million a quarter, unless there is some recovery in market values in 2009.

Unidentified Analyst

Okay. That's all the questions I have. Thank you.

William Reuter

Thank you.

Operator

And our next question comes from David Darst with FTN Midwest.

David Darst - FTN Midwest Securities

Good morning.

William Reuter

Hey David.

Unidentified Analyst

Good morning, David.

David Darst - FTN Midwest Securities

Drew, just off on your previous statement, you said that you expect the Valley to be $4 million for the full year.

Drew Hostetter

Yes.

David Darst - FTN Midwest Securities

Okay. And then, so where would be the opportunities for you to actually to grow fee income? I mean, it looks like you would have a lot of headwinds.

Drew Hostetter

Well, remember we had... last year's number, had $17.5 million impairment charge and also $6.5 million swap loss.

David Darst - FTN Midwest Securities

Okay. So you're looking in it, isn't that?

Drew Hostetter

Yes, I'm looking at it. What we reported, like they had 6% improvement. I'm looking at what we reported for '08 versus what we think we're going to be in '09.

David Darst - FTN Midwest Securities

Okay, got it. And then, Bill could you maybe elaborate on your comments that you made regarding where the areas of weakness are? And you said Dover, Delaware and I-95 corridor?

William Reuter

I'd say, Dover Delaware, starting in I-95, I-95 Dover Delaware write-down... I-95 right basically outside DC.

David Darst - FTN Midwest Securities

Okay.

William Reuter

Now that... if you run down that includes Johnson County that goes through Cecil County, Harford County,, Baltimore County, parts of Baltimore City, the Interim (ph) County, PG County, and the DC proper.

David Darst - FTN Midwest Securities

Could you give us a sense of the level of write-downs that you've taken on the properties there?

William Reuter

Mike. Mike Quick?

Michael Quick

Yeah, we've taken approximately in write-downs, I would... we've taken probably about a half, 5 million in write-downs for the year, in that particular area. Some of those were negotiated deals where we were able to move out of them, because we're taking a position that if we can get out of it now, we'll probably be keeping for us in the long run. That we get out of it a year from now.

David Darst - FTN Midwest Securities

Okay. And how does that a block of percentage of each loan are roughly, that's not performing?

Michael Quick

I would say it's probably in about 25%.

David Darst - FTN Midwest Securities

Okay. And then, could you give us a little information on how you would fund the balance sheet this year, whether through securities or through borrowings or fund longer that balance sheet?

Michael Quick

It will be mostly through borrowings. Right now, we have 1.1 billion excess capacity as Federal Home Loan Bank. We have closed to 0.5 billion capacity at the discount window and right now our Fed fund position, I mean... our overnight Fed fund position is 100 million, and we got 1.5 billion worth of line.

David Darst - FTN Midwest Securities

Okay. Thank you.

Operator

Our next question comes from Mac Hodgson with SunTrust.

Mac Hodgson - SunTrust Robinson Humphrey

Hey, good morning.

William Reuter

Hi Mac.

Mac Hodgson - SunTrust Robinson Humphrey

I just had one other question on kind of that I-95 corridor, how much of your loan portfolio is in that area? And then on top of that is kind of the residential land acquisition and development?

William Reuter

Just if we can get somewhere close to the right number here, Michael.

Mac Hodgson - SunTrust Robinson Humphrey

And while you are looking for it, just kind of curious the 8% loan growth seemed kind of strong for me. This is my opinion, thinking about the economy, weakening, so I'm just... wanted to get a little more detail about the demand that you are seeing and where?

Michael Quick

Yes, remember Mac, 3% of that's coming out of Hann because remember Hann leases for three years and since we can't do securitization, this will be the third year in a cycle. That's 3% of your loan growth there. So, the rest of it's 5.

Drew Hostetter

I'll answer your question in the land, LAD and one to four family.

William Reuter

It's tougher for us to break down, just I-95... because we tend to look at Maryland, Pennsylvania and New Jersey and when we talk Maryland, Maryland's also West Virginia and also Western Maryland which is nowhere near 1-95. So (inaudible) close to your 40.

Drew Hostetter

If you look at land LAD and residential construction, we have about $246 million outstanding in that particular area. And I would say about 35% of it is in Maryland in general and that would include West Virginia and parts of Northern Virginia.

William Reuter

When I said Dover down to Washington DC, don't get too hung up on those two markets. We don't do that much lending in Dover and DC, a little bit. Most of it's in on the Maryland side of the Maryland corridor of I-95.

Mac Hodgson - SunTrust Robinson Humphrey

Maybe back on the loan growth again. Where is most of the loan growth coming from, from a geographic standpoint?

William Reuter

I think it's pretty well balanced between Central Pennsylvania and parts of Maryland as well as New Jersey, Southern New Jersey. We also have seen a fair amount of activity in the greater suburban Philadelphia area. It's pretty well balanced not just in one place.

Mac Hodgson - SunTrust Robinson Humphrey

Okay. Thank you

Operator

And our next question comes from Steve Moss with Janney Montgomery.

Stephen Moss - Janney Montgomery Scott LLC

Good morning, guys.

William Reuter

Hi Steve.

Stephen Moss - Janney Montgomery Scott LLC

Want to start with the TARP and the warrants, what value do you assign to the warrants in equity?

Drew Hostetter

$14.86.

Stephen Moss - Janney Montgomery Scott LLC

: That's the strike price?

Drew Hostetter

Yes.

Stephen Moss - Janney Montgomery Scott LLC

Was there any fair value accounting that benefited equity this quarter?

Drew Hostetter

Yes, it's basically the difference between the 300 million and I think it's 290 that shows in our balance sheet. The balance I think is 297, so with 9,300, 000.

And that gets amortized back through the preferred dividends. So when I said $16.7 million in the preferred dividend, that's 15 million related to the 5% on the 300 million plus 1.7 million amortization to that number.

Stephen Moss - Janney Montgomery Scott LLC

Okay, that's helpful. And then on the other non-interest income line item has been down two quarters in a row, I was wondering if you give more color on that?

Drew Hostetter

Non- interest income?

Stephen Moss - Janney Montgomery Scott LLC

Yes.

Drew Hostetter

The fourth quarter was... non-interest income, other?

Stephen Moss - Janney Montgomery Scott LLC

Yes.

Drew Hostetter

Okay, hold on a second... were 9,300,000. And that gets amortized back through the preferred dividend. So when I said $16.7 million in the preferred dividend that's $15 million related to the 5% on the $300 million, plus $1.7 million amortization of that number.

Stephen Moss - Janney Montgomery Scott LLC

That's helpful and then on the other non-interest income line item has been down two quarters in a row, I was wondering just get a little more color on that, with again non-interested income.

Drew Hostetter

See, fourth quarter, the fourth quarter let's see non-interest income. I thought actually recover, but let me look here.

Stephen Moss - Janney Montgomery Scott LLC

Recovered from Q3, if you could do?

Drew Hostetter

Yeah, it's up $4.7 million from Q3, that's why I was curious about the question.

Stephen Moss - Janney Montgomery Scott LLC

From Q2 it down about $4 million to $5 million.

Drew Hostetter

It was like $11 million in the second quarter?

Stephen Moss - Janney Montgomery Scott LLC

Yes.

Drew Hostetter

So I think what special things would have been in the second quarter.

Unidentified Analyst

We have certain fourth quarter information with us, we don't have second quarter information.

Drew Hostetter

Yes. I can tell you that the $6 million, 736 is a pretty reasonable run rate. I just cant recall what was in the second quarter that was unusual, there has to be something usual in there.

Stephen Moss - Janney Montgomery Scott LLC

Okay. That's all for me. Thanks guys.

Operator

And our next question comes from Tom Alonso with Fox-Pitt Kelton.

Thomas Alonso - Fox-Pitt Kelton

Good morning guys.

William Reuter

Hi, Tom.

Thomas Alonso - Fox-Pitt Kelton

Most of my questions have been answered, but I was just wondering if you could give us some color on 30 to 89 day pass dues?

Drew Hostetter

30 to 89 days pass due was in the 30 to 59 days, it was 91,670,000 and in the 60 to 89 days it was 42,204,000 accruing of the loans accruing.

Thomas Alonso - Fox-Pitt Kelton

Okay, great. Thanks that's it for me guys. Thanks.

Operator

In our next question Collyn Gilbert with Stifel Nicolaus.

Collyn Bement Gilbert - Stifel Nicolaus & Company

Thanks, good morning guys.

William Reuter

Good morning, Collyn.

Collyn Bement Gilbert - Stifel Nicolaus & Company

Just a follow-up, during, in your initial comments obviously indicated 2009 is going to be a challenging year, but yet it seems to me that your targeted goals here, don't reflect challenge I mean we talked about loan growth, but in general to me that doesn't necessarily reflect a challenging year. Is it more than a on the credit side, because obviously you guys don't give guidance as to what you think the charge off provision are going be or even the reserve, is that what should we should assume?

William Reuter

Well let me try to understand your question. You are saying that the goals don't reflect a challenging a year.

Collyn Bement Gilbert - Stifel Nicolaus & Company

No, I mean I think those are, I mean they have loan growth of 8% in this environment, deposit growth is 6%, I mean it's just considerably stronger than what we're seeing from another institutions and to me I wouldn't look at those numbers and think oh, it's going to be a tough year for you guys, I mean, I think.

William Reuter

My comments related to a tough year of or mostly center credit quality.

Collyn Bement Gilbert - Stifel Nicolaus & Company

Okay.

William Reuter

And are centered around continued diligent monitoring of our invested portfolio. They weren't necessarily centered around loan generation or even of the income side. I think the biggest variables we going into this current year are going be credit quality.

Collyn Bement Gilbert - Stifel Nicolaus & Company

Okay.

William Reuter

So that was really my comment. And I, we are coming off our 10% loan growth here, as you indicated we are going to do eight, of the eight, three's going to come from Hann, that leaves us with five and we have some formula going in this year. So although I would be the first to admit that reports I get in the field when we take the month of January start relatively slow. January is typically sort of pretty slow.

Collyn Bement Gilbert - Stifel Nicolaus & Company

Yes.

William Reuter

And then similarly we spent a lot of time and effort money put in our small business credit solution product in place. That generate on a good solid, hopefully good solid loan to good solid deposit relationship at same time. So we're right in the way of couple of those things. And I also think that, there are some market dislocation opportunities for us, that's our proper work. And as there is some of the M&As and some of the acquisitions have taken place, there are a lot of money opportunities for us with people that we have tired to persuade for a long time. So, I think the, and maybe in the analysis, it is too aggressive, but we think the age of bottom of numbers that doesn't come up, down.

Collyn Bement Gilbert - Stifel Nicolaus & Company

Okay. Okay. And just, continuing on that side in Q, the expectation of Hann again, if either the assumption this the consumer hasn't already pulled, it's going to pull back in '09. I am surprised that you're expecting consistent volumes in Hann?

William Reuter

The rest players of the market.

Drew Hostetter

Yes that's the whole difference.

Collyn Bement Gilbert - Stifel Nicolaus & Company

Okay, all right so that's really a market share gain opportunity not that...okay, Okay.

Drew Hostetter

Yeah there's going to be less leasing in 2009. You are absolutely right Collyn. We're just going to get a bigger piece of the market because the competitors have gone.

Collyn Bement Gilbert - Stifel Nicolaus & Company

Okay, okay that's helpful. And then just to go back a little bit to the credit discussion. I know this is a difficult to sort of assess where you think the provision could go or but can you give any guidance whatsoever or maybe kind of what... if you look at maybe the reserve to the NPAs what's the reasonable... is there any metric at all that you can kind of guide us to in terms of outlook for '09?

William Reuter

Only if you shoot me later. Not really.

Collyn Bement Gilbert - Stifel Nicolaus & Company

Well that would mean you would know something Bill. And that's a lot more than estimates. Okay so, all right. Okay one question too on you had said that as you guys are kind of going through your monitoring process, Bill you mentioned looking at risk based pricing.

William Reuter

Yes.

Collyn Bement Gilbert - Stifel Nicolaus & Company

What did you mean by that and what do you do with that?

William Reuter

I mean as loans are sliding down the loan grading scale, we are going to charge the customers who want to bank with us.

Collyn Bement Gilbert - Stifel Nicolaus & Company

Well that's okay... that's my question. So, you are giving... you are going to have flexibility to change the terms of the loan as you are seeing migration of credit levels?

William Reuter

As loans renew, yeah we really have... I think this market has taught us anything, it taught us that money is at a premium and we can demand better pricing at certain situations. We are active at putting floors almost all of our credits. We are active with... customers are going to start migrate down the classification categories. We are going to start to increase in prices. It doesn't mean if it's 7 or 8 we can increase the pricing realistically with respect to their money. But clearly when they go to watch, when they go to 5, when they go to six there is some opportunity to renegotiate prices. And we're kind of going to that, simple as that.

Collyn Bement Gilbert - Stifel Nicolaus & Company

Okay.

William Reuter

As a matter of fact we are already doing it.

Collyn Bement Gilbert - Stifel Nicolaus & Company

But you think the trend could be if they can't afford it at 6% rate, they're not going to be able to afford it in 8% rate and then you push it into default or?

William Reuter

I think every credit is kind of special. I think we look at every credit with a great amount of artistic creativity. And we have never been a bank to pull the plug to certain people. We will pull plug on here but the fact of the matter remains is this is the time where account officers are earning key composites that they're staying so close to the customer. And it's a negotiation process and it's also an education process. Some of our customers, the old LIBOR plus 125 it's not around anymore.

If anything to LIBOR is pushing more like 400, 350 to 400 now and so it's just a sign of the times, Collyn.

Collyn Bement Gilbert - Stifel Nicolaus & Company

Okay.

William Reuter

But it's not our intention duration about this rate to push it into default, that would not be our intention. But for customers that they can pay, do pay and will pay, I mean if we have to set... start set aside additional money to loan loss reserve because we're sliding somebody down the loan classification poll, then they're going to have pay us to do it.

Collyn Bement Gilbert - Stifel Nicolaus & Company

Okay.

Michael Quick

Collyn, some of these loans were priced at like fine which is 3.25% and 5.5 and that's when they were 4 or 3 and they slipped to 5 or 6, are going to 4.25 or 4.50 is not going to kill them. It just reflects the risks in the credit and we should be paid for it.

Collyn Bement Gilbert - Stifel Nicolaus & Company

Okay.

William Reuter

The other thing I'd say is our benchmark lending at prime is not really prime plus 1 because you know what at 3.5, we can't make money.

Collyn Bement Gilbert - Stifel Nicolaus & Company

Yeah, clearly. Okay and then just one final question, what... Bill you said that the Board talks about this every month, what went into the decision this month not to cut the dividend? What was the rational behind that?

Michael Quick

Several things, Collyn, our capital ratios were still strong, the liquidity at the peer is very strong. And just the... we're talking a lot of reputation risk too with all this TARP, there is concern out there in the market that bank has got TARP per week. And we're telling the community out there it's just the opposite of that. The strong bank's got the TARP. And if you look at our peer group, very few have cut the dividends who are in similar circumstances where we are. And so there's reputation... a lot of our... a good chunk of our base is retail base who are also very good customers of ours.

William Reuter

That does not mean that if we had to we wouldn't. But we look at it... we had a good one hour debate of our dividend but it was probably the most constructive debate I am looking for on a single topic. We have great debates on lot of issues.

But again, I would say the same thing that Jamie Diamond said, We're in a business to pay our customers a dividend, shareholders' dividend. But if we thought for one second, it hurt the core business or hurt financial stability of Susquehanna, or we cut at the heart beat.

Collyn Bement Gilbert - Stifel Nicolaus & Company

All right. So you're not bothered by this act. Clearly, considerably more than your earnings is going to be paid out in the dividend?

William Reuter

Not yet.

Drew Hostetter

Not yet. But, ...

Collyn Bement Gilbert - Stifel Nicolaus & Company

You are not bothered yet, or you don't see that...

William Reuter

I am not bothered yet.

Collyn Bement Gilbert - Stifel Nicolaus & Company

Okay, all right. That was all I had. Thanks.

Operator

And our next question comes from Gerard Cassidy with RBC Capital Markets.

Gerard Cassidy - RBC Capital Markets

Thank you, good morning.

William Reuter

Good morning.

Drew Hostetter

Good morning, Gerard.

Gerard Cassidy - RBC Capital Markets

To follow-up just on your last conversation about the dividend, do you think by accepting TARP, there will be added pressure from the regulators to cut the dividend?

Drew Hostetter

One of the process we did go through our initial process is we looked at everything excluding the TARP. And with regard to liquidity and capital, we're not using TARP money to make the dividend. If we would get to that point, we would not be able to pay the dividend.

William Reuter

But we haven't got any... I think really the answer of question that we have not felt any pressure from that.

Gerard Cassidy - RBC Capital Markets

Okay.

William Reuter

I mean that pressure's got to be self generated not... we'll be there for the reserve to get there.

Gerard Cassidy - RBC Capital Markets

I see, very good. One other question I had, and I know you've touched on this like in the beginning of the call, could you just review again please, the net interest margin forecast you expect of course, to go up this year? The reasons for that, and how do you get that CD money that you expect to rollover this year into the money market funds? How do you get it into the money market funds, and not have it leave the bank completely?

Drew Hostetter

I am sorry, if I missed, if you misinterpreted what I said. We do expect it to leave the bank.

Gerard Cassidy - RBC Capital Markets

Okay. I apologize.

Drew Hostetter

If single source customers...

William Reuter

The single service customer is never related to other than money renting situation.

Drew Hostetter

Yes. We expect it to go down either into overnight money.

Gerard Cassidy - RBC Capital Markets

I see.

Drew Hostetter

It's hot money that's just got to move out of our CD special down into over night.

Gerard Cassidy - RBC Capital Markets

And when you say overnight, you mean those customers won't just leave the bank entirely, they are going to a different product within the company?

Drew Hostetter

No, no, no. These are customers that the only product they have with us is this CD.

Gerard Cassidy - RBC Capital Markets

Right.

Drew Hostetter

Okay. When that CD matures we're not going to have a special rate again. So they're going to leave, okay. And we're going to have to refinance that with Fed funds or the discount window.

Gerard Cassidy - RBC Capital Markets

Okay, I got you.

William Reuter

So, the pickup in spread is going to be obvious.

Gerard Cassidy - RBC Capital Markets

I see. And I am sorry, the other reason... were there other reasons as well that the...

Drew Hostetter

Yeah, the main reason is the TARP. The 300 million that we got at the end of December, okay that's the interest income associated with that money all sits up in net interest income. The expense related to it is in preferred dividend, below net income. That will pick up 12 basis points alone.

Gerard Cassidy - RBC Capital Markets

I see.

Drew Hostetter

Okay. The third piece is, we had floors on a number of our money market savings and NOW products at 1%. We're going to be lowering this more in the first quarter to 25 basis points.

Gerard Cassidy - RBC Capital Markets

Good.

Drew Hostetter

Good question.

Gerard Cassidy - RBC Capital Markets

The other question has to do with the asset management business. I think you guys pointed out that assets under management and administration at the end of the fourth quarter, totaled about $5 billion compared to 6.4 billion in the third quarter.

I have two questions. One, can you share with us how much was that due to the decline in the markets, contributing to the decline versus customers may be leaving the company? And then second, if you add back acquisition of Stratton, where was the peak assets under management? I thought I saw a $9 billion number at the beginning of '08 but I could be wrong on that.

Drew Hostetter

Basically, all the loss under our assets under management has been market. In fact, we've actually gained customers, because our performance has been outstanding at both Stratton and at Valley Forge. So the loss has been all for market value.

Gerard Cassidy - RBC Capital Markets

And, what was the peak amount when you add the Stratton from the acquisition what you did? What was the peak amount of the assets when you include that number?

Drew Hostetter

I think we were at about 6 of the peak without Stratton and Stratton was about 3.

Gerard Cassidy - RBC Capital Markets

So, is it fair to say that's gone up from 9 to 5 then?

Drew Hostetter

Yes, 8 to 5. Slightly 8 to 5.

Gerard Cassidy - RBC Capital Markets

Okay.

Drew Hostetter

That's fair.

William Reuter

But again I want to emphasize with what you said and that is we have lost very little on the way of customer base. We did lose one large account that was a large state account that decided they would start managing money in-house as opposed to outsourced. But that was the only piece of business to be precise...

Drew Hostetter

And that was back earlier in the year.

William Reuter

Yeah.

Gerard Cassidy - RBC Capital Markets

Okay. Circling back to the auto lease portfolio, regarding the residuals, did you have any write-downs of residuals in the quarter I guess? And number two, what's the recognition of write-downs, does it come when the leases expire, or do you do it during the leasing period?

Drew Hostetter

We have a full third party guarantee on the residuals. So, we pay a premium each year, and we get a full residual guarantee. So there is never any write-downs on the residuals.

Gerard Cassidy - RBC Capital Markets

Okay. And when does the guarantor have to recognize the right, or does it really not matter to you guys?

Drew Hostetter

Not matter to us.

Gerard Cassidy - RBC Capital Markets

I see. I know... is it an insurance company, or who is the guarantor?

Drew Hostetter

Auto lenders. It's the third party company in New Jersey.

Gerard Cassidy - RBC Capital Markets

Okay. Would you continue if they have an excess amount of residual write-downs in there business, not just necessarily you guys, but because of what's going on in the auto business in general. And they decide to pull out of the business, would you still write auto leases without a guarantor?

Drew Hostetter

We have a three year forward contract. So we know for lease for the next three years we have that guarantee.

Gerard Cassidy - RBC Capital Markets

And should they even after three years, would... have you ever sort thought about it that way or is that just not needed to be looked at that far out?

Drew Hostetter

Oh, yeah. I mean, if this third party would decide not to do it anymore, we'd have to find another source of residual guarantee. I mean, there's other parties out there, they're not the only one.

Gerard Cassidy - RBC Capital Markets

Right.

William Reuter

This third party, they're going (ph) to a new location as we speak.

Gerard Cassidy - RBC Capital Markets

I see. And the residuals are 100% guaranteed by the third party.

William Reuter

Yes.

Gerard Cassidy - RBC Capital Markets

Okay, very good.

Drew Hostetter

And I do want to follow-up to, Bill was right, it was little over $1 billion. So when you drop that 8 to 5, there was... the piece that went to the state took back... Pennsylvania took back from us. So, you are really looking at 7, market value 7 to 5.

Gerard Cassidy - RBC Capital Markets

Thank you.

William Reuter

Now, I'll also put a plug in the Valley Forge while we have you on the line. Today I just saw their performance numbers. And of course Valley Forge is their large cap connotation means that when markets are doing really well, they'll participate nicely, but when markets are going the way they've gone that they do a great job of minimizing the downside risk. Their numbers, I'm doing this by memory, out of 233 wide companies that manage our large cap core, they are number one. They are the best performing company in one month, three month, one year, three years, five years, number one. They've lost less money than everybody else lost.

Gerard Cassidy - RBC Capital Markets

Thank you.

Operator

(Operator Instructions). Our next question comes from David West with Davenport and Company.

David West - Davenport and Company

Good morning.

William Reuter

Hi good morning to you.

David West - Davenport and Company

I was wondering about your expense goal for this year, a decline of 1%. If you could give a little color on that relative to the headwind on FDIC premiums and what implications that might have in terms of branch expansion?

Drew Hostetter

We're not... we do have a couple of branches that are in process that are going to continue. We have no other new branches scheduled for '09. The headwind on the FDIC premium, we expect about $9 million in 2009. But remember, we consolidated our banks at the end of '08 and through that what we call CAMEO (ph) project, we're looking at $20 million worth of cost saves in '09.

David West - Davenport and Company

Okay. Thanks so much.

Operator

And we have a follow up question with Matthew Clark with KBW.

Matthew Clark - KBW

Hi. Couple of quick ones. On the insurance contract on the auto business, I assume you recently negotiated that... just curious whether or not that breakeven incorporates discounting back maybe a jump in the third year of that contract. Whether or not that's part of that guidance and what the cost of that new contract is over the three years?

Drew Hostetter

What we actually did was, he gave us two quotes. We were $3 million for the next two years and we're going to be $8.4 million for, that would be '011, okay. He also gave the quote of taking $4.6 million a year, for three years. Okay, which ended up to being about $540,000 discount.

So in this environment the discount was a pretty good rate, so we took the discount. So what you are going to see in that increased back-end cost I talked about is our $3 million that we were paying last year is going to be $4.6 million this year.

Drew Hostetter

But Drew's comment about breakeven included that new number.

Drew Hostetter

Yes.

Matthew Clark - KBW

Okay, great. And then the other question relates to the securities you're buying with the TARP proceeds and I'm just curious as to the type and structure that you are adding these days whether or not they might be call agencies or what they might be, I'm just curious.

Drew Hostetter

We didn't add any securities. We paid down brokered CDs initially with it and with 8% loan growth and only 1% deposit growth, it's going to go out pretty quick in the loan portfolio.

Matthew Clark - KBW

Okay, great. Thank you.

Operator

And our next question comes from the Steve Moss with Janney Montgomery Scott.

Stephen Moss - Janney Montgomery Scott LLC

One more question going back to the OCI markets, what were the fair values on the non-agency mortgage-backeds and the commercial mortgage-backeds at period end?

Drew Hostetter

They're trading at a rate around $0.08 on $1.

Stephen Moss - Janney Montgomery Scott LLC

Okay. That's... and on the agency mortgage backeds, where are you valuing them today?

Drew Hostetter

OCI wise or book value wise?

Stephen Moss - Janney Montgomery Scott LLC

Book value wise.

Drew Hostetter

I understand there has been no permanent impairment charge.

Stephen Moss - Janney Montgomery Scott LLC

I am sorry in terms of in fair value, do you have a gain on that at quarter end?

Drew Hostetter

On what?

Stephen Moss - Janney Montgomery Scott LLC

On the agency mortgage backeds?

Drew Hostetter

I think it's pretty close to breakeven.

Stephen Moss - Janney Montgomery Scott LLC

Okay.

Drew Hostetter

And our agency securities, our whole securities are actually gaining them.

Stephen Moss - Janney Montgomery Scott LLC

Okay. Thanks Drew.

Operator

And our next question comes from Irene Whisky (ph) with Sandler O'Neill Asset Management.

Unidentified Analyst

Hi good afternoon.

William Reuter

Hi Irene.

Unidentified Analyst

Just a few quick questions. First, I'm not sure if I missed this but did you give the maturity schedule of the single customer CDs that will be maturing this year?

Drew Hostetter

No, it's throughout the year. It's pretty equal throughout the year.

Unidentified Analyst

Okay. And I know you mentioned that you used some of the TARP rents to pay down brokered CDs. Would you be able to give us that balance at the end of the year?

Drew Hostetter

The brokered CD balance?

Unidentified Analyst

Yes.

Drew Hostetter

115 million.

Unidentified Analyst

115 million?

Drew Hostetter

Right.

Unidentified Analyst

Okay. And lastly it looks like the consumer loan...

Drew Hostetter

That's what we have left. We had like 300 to 400 million, but now it's 115 and it's going to be down to zero by the end of March.

Unidentified Analyst

Okay. And then lastly on the consumer loan portfolio, looks like there was a quite a bit of drop there this quarter. Can you give any color on that?

Drew Hostetter

A lot of that is in the auto areas and those are things like that we'll do less of that lending.

Unidentified Analyst

Great. And actually just last thing if I could. The pool of trust preferreds did you give us what write-off securities were marked at the end of the quarter?

Drew Hostetter

No, it's... I think they're right around $0.20 on the dollar.

Unidentified Analyst

And do you have any single issuer trust preferred as well?

Drew Hostetter

No, we do not.

Unidentified Analyst

Okay, great. Thanks very much.

Operator

And our next question comes from Brian Ducheng (ph) with RiverSource.

Unidentified Analyst

Hi thanks for taking my call. Just a quick question, have you done the math on auto lender and what you think that private company's loss will be in 2009 and/or 2010 based on current residual values?

Drew Hostetter

Yes. We know exactly what it will be.

Unidentified Analyst

Can you share it?

Drew Hostetter

No, it's a private company.

Unidentified Analyst

Okay.

Drew Hostetter

So what we do, I can tell you what do is we have no guarantees from not only the company but the owner of the company. Okay. And we look at the worst loss year in the history of the company okay. And since we have a three-year contract, we take that loss and multiply by three. And he has net combination of the company and this guarantee has net worth well in excess of that number.

Unidentified Analyst

Net worth that's liquid.

Drew Hostetter

Yeah, that's liquid.

William Reuter

I can also tell you that since our first securitization back in 2000 and not a single person who hold that paper has ever walked depending on residual rates.

Drew Hostetter

Believe me the regulators and the accountants look at that very closely.

Unidentified Analyst

Okay. Great, thanks for taking my call.

William Reuter

Thank you for asking.

Operator

(Operator Instructions) We will go next to Collyn Gilbert with Stifel Nicolaus.

Collyn Bement Gilbert - Stifel Nicolaus & Company

Sorry guys. Just one quick last thing, why is the tax rate so much higher 32% versus what you had been paying last year?

Drew Hostetter

One of the reasons is reduction in the Valley income.

Collyn Bement Gilbert - Stifel Nicolaus & Company

Okay. Very good, thank you.

Operator

And we have a follow-up question with Gerard Cassidy with RBC Capital Markets.

Gerard Cassidy - RBC Capital Markets

Thank you. Regarding on the deposit growth this year, what do you see the interest bearing demand accounts and the DDA accounts? It looked like they were a little lower in the fourth quarter versus the third quarter, what do you guys foresee for '09?

Drew Hostetter

We are projecting that they will go up a couple of percent like 1 or 2%, so no significant growth.

William Reuter

Our number of accounts are actually up, just the average balances are down.

Gerard Cassidy - RBC Capital Markets

Thank you.

Operator

(Operator Instructions) And it doesn't look like we have any further questions at this time, Mr. Reuter, I would like turn the call back over to you for any additional or closing remarks.

William Reuter

Thank you. I want to... like to remind you that our conference call to review first quarter of 2009 results will be held on Thursday April 23, 2009 11:AM Eastern Time. And I want to thank you for your time today, the questions we got and for your continued interest in Susquehanna Bancshares. Thank you.

Operator

Ladies and gentlemen this does conclude today's conference. We thank you for your participation. Have a wonderful day. You may now disconnect.

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