Executives
Abram G. Koser - Vice President, 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
Avi Barak - Sandler O'Neill & Partners L.P.
David Darst - FTN Midwest Securities Corp.
John T. Boland - Maple Capital Management
Mac Hodgson - SunTrust Robinson Humphrey
Stephen Moss - Janney Montgomery Scott LLC
Thomas Alonso - Foxx-Pitt Kelton
Susquehanna Bancshares, Inc. (SUSQ) Q1 2009 Earnings Call April 23, 2009 11:00 AM ET
Operator
Good morning and welcome to the Susquehanna Bancshares' First Quarter 2009 Earnings Conference Call. Today's call is being recorded. At this time all 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).
At this time, I will turn it over to Mr. Koser. Please go ahead.
Abram G. Koser
Thank you. Good morning and welcome. I am Abe Koser, Vice President, Investor Relations at Susquehanna Bancshares. By now, you should all have received a copy of the press release about our first quarter 2009 financial results, which we made available yesterday.
If anyone still needs a copy, please call us at 717-625-6311 and we'll 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 maybe considered to be forward-looking statements, in particular certain statements made on this call may include forward-looking statements, relating to our financial goals for 2009 and our goals with respect to changes in our quarterly dividend. 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, and the adequacy of our loan loss reserves, 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 economy generally and in particular, adverse changes in relating 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 risks involved in the foregoing.
Forward-looking statements 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 review of first quarter results for 2009. 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.
As we begin, I'd like to recap the financial results we released yesterday.
Net income available to common shareholders for the first quarter was $1.9 million or $0.02 per diluted share, compared to $28 million for the first quarter of 2008 or $0.33 per diluted share.
Our results were impacted by a number of factors that we will discuss this morning, including the industry wide increased FDIC insurance payments, a decrease in net interest margin and an increase in our provision for loan losses.
Net loans and leases were $9.8 billion, an increase of 10% when compared to March 31, 2008. This included increases across the board in our loan portfolio, including commercial loans, commercial real estate and residential real estate lending. Looking at just the first quarter of 2009, we saw a more modest pace of growth.
However, total net loans and leases grew 1% from December 31, 2008. Total deposits were 9.1 billion, an increase of 3% compared to March 31, 2008, with non-interest bearing demand deposits increasing 1% during the period.
In just the first quarter of 2009, total deposits increased 1%, from December 31, 2008. However, core deposits, such as demand, interest bearing demand and savings increased 3%, 10% and 5% respectively.
Higher cost time deposits and jumbo time deposits including brokered CDs decreased 2% 12% respectively. Net interest margin for the quarter was 3.4%, a decrease of 31 basis points from first quarter, 2008 and a 12 basis points from the fourth quarter of 2008.
In light of the current interest rate environment, we have initiated a focused effort to increase our net interest margin while enhancing key customer relationships. Where necessary, we're making use of lower cost borrowing options and maintaining funding levels for loan growth.
In addition, we have seen some increase in balances and traditional products such as money market accounts as customers seek safety and security while maintaining ready access to their funds.
Higher deposit pricing initiative helped us to generate a 12 basis point reduction in our cost of funds during the first quarter.
As the economic recession continue to place pressure on some of our customers, we saw deterioration in credit volume. Net charge offs, as a percent of average loans and leases for the first quarter, were 70 basis points compared to 25 basis points in the first quarter of 2008 and 60 basis points in the fourth quarter of 2008.
Non performing assets, as a percent of loans, leases and other real estate owned, were 1.73% compared to 1.03% for first quarter of 2008 and 1.22% in the fourth last year.
I'd like to provide some more detail about credit quality with our loan portfolio. We had $48.2 million increase in non-accruing loans during the quarter. This included $22.1 million in construction land and acquisitioned (ph) loans, $13.2 million in commercial real estate and $7.8 million in C&I loans, as well as $5.1 million in loans in other categories.
We had 16.6 million in net charge offs. Of this total, construction land development loans accounted for $7.1 million; C&I loans, $3.3 million; commercial leases, $3 million and residential mortgage loans $2 million. We also had $1.2 million in charge offs in other loan categories.
Our provision for loan and lease losses increased to $35 million in the first quarter of 2009 compared to $9.8 million in the same period last year and $22.5 million in the fourth quarter of 2008.
Finally, as we know, the FDIC has increased its insurance assessment rates for banks throughout the country to help maintain and replenish the deposit insurance fund.
The FDIC insurance premiums increased from $247,000 for the first quarter of 2008 to $6 million for the first quarter of 2009. While the increase is a dramatic one, we recognize the value of deposit insurance fund and the confidence it provides to our own depositors and those throughout the country. Given the importance of safety in sound (ph) with our customer base, we view this is as a good investment.
I'll now turn the call over to Drew for his review.
Drew K. Hostetter
Thank you, Bill. In my presentation, I want to focus on first quarter results for 2009 and our 2009 financial targets.
Net interest income decreased $4.5 billion or 5% from the fourth quarter of 2008 due primarily, to a decline in our net interest margin of 12 basis points. This reduction in margin was due primarily, to an increase in non-accrual loans of $48 million and our slightly asset sensitive position on our balance sheet in a declining interest rate environment.
Non-interest income increased $5.4 million or 15% from the fourth quarter of 2008 due primarily to a $6.9 million gain on the sale of our merchant processing business, offset by a $1.9 million decline in deposit fees due to fewer overdrafts. Non interest expense increased $5.7 million or 6% from the fourth quarter of 2008 due primarily to an increase in FDIC insurance of $5.3 million.
Our updated financial target for 2009 are as follows: FTE margin, 3.50%; loan growth, 5%; deposit growth, 1%; non-interest income growth, 1%; non-interest expense growth, 4%; tax rate, 24%; preferred dividend, $16.7 million. These financial goals include no securitization activity in 2009.
The 20 basis point decline in FTE margin from our previous target was primarily due to lower projected loan growth, the mix in interest bearing liabilities and the increase in projected non-accrual loans.
The 5% decline in non-interest income growth from our previous target was primarily due to a $6 million decrease in projected deposit fees, and a $2 million drop in projected asset management fees due to market declines.
The 5% increase in non-interest expense growth from our previous target was primarily due to a $16 million increase in projected FDIC insurance and a $4 million increase in projected credit related costs, such as formula (ph) expense and legal and workout expenses.
I will now turn the conference call back to Bill, for his closing remarks.
William J. Reuter
Thank you Drew. I'd like to review a couple of factors that have received significant attention in our industry during the current recession. First, there is been a focus on banks' capital levels and the risk posed by increased potential for loan losses. At the end of the first quarter, Susquehanna's leverage ratio was 9.76%. Our Tier 1 risk based capital ratio was 11.13%, and total risk based capital ratio was 13.65%.
Each of these ratios is well in excess of bank regulatories benchmarks to be ranked as well capitalized. In addition, liquidity at the holding company is in excess of $400 million with no public debt coming due in the next three years. Naturally, as part of our current view process, we evaluate our portfolio to assess how to perform in a deteriorating economy.
Our analysis is consistent with that recently discussed by other banks and that we expect to see continued stress in credit markets for the foreseeable future. Given this environment, it's important that we maintain and strengthen that capital cushion.
Therefore as we know, our Board recently voted to reduce our quarterly dividend from the previous $0.26 rate in the first quarter to $0.05 per common share in the second quarter.
This action will allow us to retain an additional $18 million capital quarterly, and up fund loan growth and to further strengthen our capital cushion.
We are keenly aware of the importance of the dividend income to many of our investors. As indicated by the fact that we increased the dividend annually during the first 25 years in the holding company through 2007.
However, we also recognize the need to manage the company to protect shareholders' investment for the long-term. Our Board will continue to review the dividend with the expectation that it can return to more -- a more normalized rate when economic conditions and company earnings improve.
Next, I'd like to talk for a moment or two about lending. As Drew mentioned, we did revise our projections for loan growth in 2009. We now project net loan growth of 5%, down from our initial 8% estimate. With economic conditions continuing to deteriorate during the first quarter, there is a reduced demand for loans among creditworthy borrowers.
As we indicated in our last call, we need to carefully balance our support of economic growth with the need to manage credit quality. Our experience in recent months indicates that many customers emphasis in our markets are proceeding cautiously in this economy.
In some cases they are delaying or changing plans for taking on additional debt. Nevertheless, we were able to generate net loan growth of more than a $112 million in the first quarter. On a year-over-year basis, our loan portfolio showed net growth of $879 million compared to March 31, 2008.
We're also pleased to report a strong quarter in mortgage lending. Our bank's mortgage division had 1,085 originations for total volume of more than $215 million in the quarter.
There were 726 settlements in the quarter, totaling 147 million. By comparison, this is more than double the settlement volume in the first quarter of 2008.
While refinance has certainly helped to boost these results, our purchase loans also nearly doubled compared with the same period last year. We continue to see steady growth and gain market share as other mortgage providers consolidate with some cases to cease operations.
During the first quarter, we helped hundreds of home owners to either buy a home or refinance to reduce their payments. From the bank's perspective, our production in the first quarter generated more than $2.5 million in interest, loan fees and gain on sale.
While our markets in the mid-Atlantic region are certainly not immune from real estate price declines, the impact in most of our markets has been less severe than in other parts of the country.
In the most recently quarterly data from the Office of Federal Housing Enterprise Oversight, the decline in home prices in our major markets from fourth quarter of 2007 to fourth quarter of 2008 was well below the national average.
The change in home prices in our markets last year range from depreciation of 8.02% Hagerstown, Maryland and market for West Virginia to market appreciation of 1.64%, in Lancaster, MSA where our headquarters is located.
One factor that has helped facilitate our loan growth is the funds provided through the U.S. Treasury's Capital Purchase Program.
The purpose of this program was to help make credit available to consumers and businesses. As you know, Susquehanna received $300 million in December of 2008. Since beginning of December, Susquehanna has originated over $600 million in loans and leases, more than twice the amount received from the Capital Purchase Program.
This demonstrates how we continue to serve as a source of vital credit to home owners, families, entrepreneurs and business owners and our local communities.
During the quarter, Susquehanna allotted $4.2 million for the dividend that we paid at the U.S. Treasury as well as accretion related to the Capital Purchase Program investment.
Before we close, I'd also like to note that amidst of all of negative news surrounding our industry, during the first quarter, we received positive attention from some of our lending efforts.
U.S. Representative Rob Andrews in New Jersey held a press conference recognizing our role in a bridge loan that helped a group of investors to finance repurchase of Boscov's. The department store chain employs thousands of people in the mid-Atlantic region.
In addition, one of our customers who operate restaurants in Philadelphia, acknowledged Susquehanna Bank at a White House press conference for its small business lending. We're proud of these loans and the others we have made to allow us to help retain jobs and expand local businesses.
At this point, I'd like to open the call for your questions and comments.
Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, the question-and-answer session will be conducted electronically. (Operator Instructions). Our first question will come from Avi Barak with Sandler O'Neill.
Avi Barak - Sandler O'Neill & Partners L.P.
Good morning, guys.
Company Speaker
Hi, Avi.
Drew Hostetter
Good morning, Avi.
Avi Barak - Sandler O'Neill & Partners L.P.
Three quick questions for you. Firstly, on the new margin guidance, what is your assumption for rates for the rest of this year, long and short?
Drew Hostetter
We believe that the short end will stay where it is and the long end, it will just go up slightly.
Avi Barak - Sandler O'Neill & Partners L.P.
Okay. Secondly, in terms of the deterioration in asset quality this quarter, I was hoping if you could give us some color whether that deterioration accelerated through the quarter or if it started out kind of difficult in the beginning of the quarter and then stabilized towards the end; and if so, which asset classes show the acceleration and which of your geographies did show the same acceleration?
William Reuter
Well, I'll be able to answer on that. Avi this is Bill. I'll ask Mike Quick to address that first.
Avi Barak - Sandler O'Neill & Partners L.P.
Sure.
Michael Quick
It was pretty much evenly throughout the quarter. I can tell you that, if you want to know where some of the non-accrual came from, about $14 million came out of the New Jersey division which covers Eastern Pennsylvania. About $18 million came out of Maryland division which covers all of Maryland and parts of lower Central Pennsylvania and in the PA divisions which covers everything from Berks, Chester to Rudith 81 (ph), we had approximately $11million particularly in that area.
Now, to now give you more insight, commercial C&I lending was approximately $8 million, LAD construction was approximately $22 million and real estate commercial was approximately $13 million.
William Reuter
Avi, I'll just put in a different way. The -- I think we indicated perhaps even in the last conference call, the sector where we're seeing or geographic area where we're seeing the most deterioration is along the I-95 corner that ranges from Delaware line running down through the Maryland DC line. And the second area I would say, that we are seeing deterioration is the ID-1 (ph) from the Hagerstown marketplace up to Cornwall and to Harrisburg.
Avi Barak - Sandler O'Neill & Partners L.P.
Alright, that's helpful. Thank you. And then thirdly, just on a separate issue, if you could let us know your thought process right now considering repayment of TARP or maybe just holding onto it for the first year and where we are in that regard?
Drew Hostetter
The TARP repayment Avi where we want to see the light at the end of the tunnel. So, our game plan with regard to TARP is, until we can see where there is a turn around and where the bottom is to this market, we're going to continue to hold on to it, at the point where we start seeing the light and there's a turn around and we feel that we're pass the bottom of the market, then we'll be looking to try to repay it as soon as possible.
Avi Barak - Sandler O'Neill & Partners L.P.
Thank you very much.
William Reuter
Avi, let me also go back to one of your questions about when you talked about market deterioration, because I should have said something on positive side also.
One of our biggest core markets is where we're headquartered and which is the Lancaster market, the Europe market. Those markets are held-on (ph) relatively well throughout this process.
Avi Barak - Sandler O'Neill & Partners L.P.
Okay. Thank you.
Operator
Next question will come from David Darst with FTN Equity.
David Darst - FTN Midwest Securities Corp.
Good morning.
Drew Hostetter
Good morning, David.
Company Speaker
Good morning, David.
David Darst - FTN Midwest Securities Corp.
You've got a little over $800 million of real estate construction that matures this year, as of year-end from the K. Another bank that's actually OCC charted and their real estate exam, the OCC indicated they wanted them to revise their payment plans when their loans come up for renewal or maturity and they've got to begin amortizing those. Have you thought about how or could you walk us through the process that you'll be handling as these loans mature this year, if there are not favorably paid off?
Michael Quick
This is Mike Quick. We are constantly reviewing our construction loans and we are looking at maturities well and advance and having discussions with the clients well and advance. In some cases, we have been given additional collateral by the customers and in some cases that collateral is income producing to support the interest reserve that's needed to carry going forward.
We do look it their projection for absorption, if it's a helpless case then we will move to exit that credit either through their finding additional funding or sources or us finding people to purchase that particular credit or through the normal liquidation that we would do in those particular situations.
But our first effort will always be to work with customer and to analyze his ability to stay through the next 24 months, and work with him on plans to do that. And so far we've had pretty good success with our customers as loans have come due.
In some cases, they've brought in net income (ph) financing and other cases, they've brought in partners to help them out. And in some cases they've stepped in the line with additional collateral, some of which is income producing, which has enabled us to go forward with them.
William Reuter
I think from my perspective. This is Billion Reuter speaking, each and every credits and individual credit with its own amount of art that we create with it. So, I don't think we'd be playing out a consistent way of saying amortization has to occur.
David Darst - FTN Midwest Securities Corp.
Okay. And Drew, could you run through the change in the FDIC premium? I guess it will go down about $3 million or more than $3 million a quarter for the remainder of the year?
Drew Hostetter
Yeah, it will be little less than $4 million for the remainder of the year. We had -- the FDIC insurance, like you get the bill at the end of December that's actually for the third quarter, okay. So, at the end of each quarter, you got to make an estimate of what the next bill is going to be.
The $6 million we had this year was a catch up of two from the four, cost of (ph) estimate of four for the first. So we believe that that estimate is probably conservative. So, we're looking maybe in a high three for each of the quarters remaining in the -- remainder of the year. Plus in our estimates that we gave is a 10 basis point one time special assessment which would be another $9 million.
David Darst - FTN Midwest Securities Corp.
So you're assuming that will be paid in the second quarter --
Drew Hostetter
We're not sure. I believe it'll be either the second or the third.
David Darst - FTN Midwest Securities Corp.
Okay. But your guidance includes this, this amount (ph).
Drew Hostetter
Yes.
David Darst - FTN Midwest Securities Corp.
Okay. Thank you
Operator
Moving along, we'll hear from John Boland with Maple Capital Management.
John Boland - Maple Capital Management
Great, thank you very much. I was just wondering if you had any color on any initiatives you might have on the cost cutting front, anything we should be modeling in?
Company Speaker
We're in the process of once again looking at our organization and our overall cost, John. And we will be initiating something here in the second quarter. We have not finalized that yet but we will, that will be something occurring in the second quarter.
William Reuter
John, this is Bill Reuter speaking. We -- pre this year, we probably in third or fourth quarter of last year, we did about a $20 million cost reduction which we called Cameo 1 (ph) here and we have got $20 million in hard cost savings as a result of that initiative, and unfortunately that $20 million has been used pretty quickly to pay additional FDIC insurance costs, for starters as well as to use money to pay interest on the TARP, on the Capital Purchase Program.
So we have used that 20 million up pretty quickly, and $20 million we thought we'll have available for this year. While the initiative Drew talked about is just in its... its in its final stages of us rolling it out, but there won't be additional cost saves that will occur through the rest this year as a result of some additional, personnel reduction, as well as branch rationalization process.
John Boland - Maple Capital Management
Okay. And then on the leasing side, any talk or any discussion about utilizing the TARP program or any of the other federal programs to move some of the leases off the balance sheet?
Michael Quick
No, John and the reason is that, with the two rules with the discount window, our order lease is qualified more collateral with the discount window. So we can fund these leases at 25 basis points today. So that's a lot better financially for us than the TARP.
John Boland - Maple Capital Management
Okay, great. And if I could squeeze one more in any discussion on the big credits?
Company Speaker
I am sorry?
John Boland - Maple Capital Management
Do you have any inside on the big credits, normally you've given some updates on where some of the big distressed credits stand.
Michael Quick
This is Mike Quick again, we are continuing to work on those distressed credits and we've had some success this past quarter in working with those particular credits to find solutions to them. We are hopeful that going forward, we will continue to be able to do that with many of our distressed credits.
Michael Quick
Thank you.
Company Speaker
We are devoting a lot of -- we're devoting a lot of resources and obviously as you can tell on the credit side.
John Boland - Maple Capital Management
Okay. Thank you very much.
Company Speaker
You're welcome.
Operator
Next question will come from Mac Hodgson with SunTrust Robinson Humphrey.
Mac Hodgson - SunTrust Robinson Humphrey
Good morning.
Company Speaker
Good morning, Mac.
Mac Hodgson - SunTrust Robinson Humphrey
Mike, I wondered if you could give us a little bit more color on the commercial real estate deterioration in the quarter, the $13 million increase in non-accruals. What property type was that, was it office, retail and just your outlook for that segment going forward.
Michael Quick
Bear with me one second, Mac. To be quite candid with you, most of that decrease in the commercial real estate was done in the area of what we call our owner occupied small business where they run their own facility. We've seen a lot of stress in that particular area in credit, say, under $750,000. And that's the bulk of that particular, because we had -- if I look down the list of particular loans in the commercial side, there aren't that many that stick out as major loans. Most of them are in 500 to 1.05 million area.
Mac Hodgson - SunTrust Robinson Humphrey
How much exposure do you have in that, if you have that segment, it cannot (ph) be under occupied small business; is that a big group?
Drew Hostetter
Yes if you hold on, I'll give you that. The area occupied is $986 million.
Mac Hodgson - SunTrust Robinson Humphrey
Okay, great. And then, Mike, if you could give us any color on early stage delinquency trends 4Q to 1Q?
Michael Quick
I can do that. Total accruing loans in fourth quarter were approximately $156 million and in the first quarter they were approximately $158 million non-accruals as you know went from approximately $103 million up -- $105 million up to $154, $155 million.
Mac Hodgson - SunTrust Robinson Humphrey
Okay. The first numbers you gave were all past due loans?
Michael Quick
They were anywhere from 30 to over 90 days still accruing within that number.
Mac Hodgson - SunTrust Robinson Humphrey
Okay.
Michael Quick
In the 30 to59 days, it was $111 million and the 60 days 89 days was $20 million and the over 90 was $26 million, but there were two loans in there in the $7 and $3 million range which were just a factor that we didn't get them renewed in time with all the documents et cetera. So, we hope to see them cleared out in the next quarter.
Mac Hodgson - SunTrust Robinson Humphrey
And maybe just one last question. Drew, based on your margin guidance and where you were this quarter, I'm assuming you're expecting this quarter to be the low point for the margin and expansion, kind of evenly throughout the year?
Drew Hostetter
Yes, and there is four things great in that expansion, Mac. First of all, our indexed money market account which has about $800 million in balances had a floor of 1% in the middle of more accepted floor went through a 0.25% and we are still far through the middle of April, still maintaining those balances.
Secondly, we had a money market promotion account, a premium money market promotion account in the below 2% range. That promotion will be rolling off in the second quarter down to the more normal money market rates.
Third, is we have a fair amount of single source CDs coming due in the next nine months that we believe most of it were priced downed over light (ph) in 25 basis point bucket.
And four, all variable-rate loans that are being renewed this year, we're doing our best to put floors on them.
So the combination of all those fours is why we think there'll be a kind of a steady margin improvement throughout the rest of the year.
Mac Hodgson - SunTrust Robinson Humphrey
Okay, great. I appreciate it. Thanks.
Operator
(Operator Instructions). We will now move to Steve Moss with Janney Montgomery.
Stephen Moss - Janney Montgomery Scott LLC
Good morning, guys.
Company Speaker
Hi, Steve.
Company Speaker
Good morning, Steve.
Stephen Moss - Janney Montgomery Scott LLC
If I could get a little color with regard to the construction non-performers, what they were and in what geography?
Company Speaker
Bear with us one second.
Company Speaker
I'll go back over that. In the geography which would be the Greater Philadelphia, there is (inaudible) this is $10 million of increase and it was mainly in residential projects. The bulk of it was in residential projects.
In Maryland division, there was a $13 million increase and the bulk of that was in residential construction and in Pennsylvania, there was a $22 million increase. And the bulk of that was in residential constriction.
Stephen Moss - Janney Montgomery Scott LLC
Okay. And with regard to were there any larger MTAs or were they generally just smaller granular type?
Company Speaker
I do have that answer, just bear with me.
Stephen Moss - Janney Montgomery Scott LLC
Okay.
Company Speaker
In the LAD residential, there were two major ones over-- there were three major ones, one non-accrual, two were in the DB area in the $3 million and $6 million range. And there was one in the Maryland area in the almost $10 million range, and another one in the Maryland area in the almost $8 million range.
Stephen Moss - Janney Montgomery Scott LLC
And then with regard to investment securities portfolio, where was the market quarter end for CMBS.
Company Speaker
The market value, it fluctuates, its right about between 75 and 80.
Company Speaker
Okay. So still holding roughly steadily then.
Company Speaker
Yes, hold roughly steady, that's right.
Stephen Moss - Janney Montgomery Scott LLC
Okay. And with regard to last question on deposits, what were brokerage deposits balances at quarter end?
Company Speaker
Europe.
Stephen Moss - Janney Montgomery Scott LLC
Okay.
Company Speaker
We paid off rest of the brokerage depend on (inaudible).
Company Speaker
Alright. Thank you very much.
Operator
Next question will come from Tom Alonso with Foxx-Pitt Kelton.
Thomas Alonso - Foxx-Pitt Kelton
Good morning guys.
Company Speaker
Hi, Tom.
Company Speaker
Good morning, Tom.
Thomas Alonso - Foxx-Pitt Kelton
I kind of missed some of your commentary on FDIC stuff, as you may have mentioned well little distracted this morning. Can you kind of just run through those numbers, I think he said that you are looking for about a 16 million increase and that includes the potential for the one-time assessment?
Drew Hostetter
Yes, that includes the 8 million, I mean the $9 million in one-time assessment.
Thomas Alonso - Foxx-Pitt Kelton
Okay. So, it was -- you are accruing for that assessment throughout the year, is that how I should look at that or ...
Drew Hostetter
No it will be one time when you get into the quarter, which is actually approved by the FDIC.
Thomas Alonso - Foxx-Pitt Kelton
Okay. So then, okay, so then it's the 6 million and then you call it 4 million and the quarter gets to the 18 and then another 9, so its about 27 million in total.
Drew Hostetter
Right. Then we had about $11 million originally in our budget.
Thomas Alonso - Foxx-Pitt Kelton
Okay.
Company Speaker
That sounds to being different.
Thomas Alonso - Foxx-Pitt Kelton
Okay. Great. And then you are talking about the single source CDs rolling off, I assume when you say they got a 25 bps, you're going to replace them with short-term or over-night borrowings, is that -- or do you expect them to kind of roll to a different, to a cheaper deposit product?
Company Speaker
We think that most that would roll in to the overnight borrowings.
Thomas Alonso - Foxx-Pitt Kelton
Okay. Okay, great, thanks that's all I have.
Operator
(Operator Instructions). We will now take the next question from Travis Lane (ph) with Stifel Nicolaus.
Company Speaker
Hey, thanks. Could you guys talk about your thoughts on reserve levels with regards to non-performers?
Company Speaker
In what ratio you are talking about now the...
Company Speaker
So your allowance to NPAs is down to like 78%, which obviously your reserve to total loans has increased but...
Company Speaker
Right.
Company Speaker
Just kind of thinking how you guys are thinking about that?
Company Speaker
Yeah. Well, I mean, GAAP requires us to go through a specific calculative -- reserve calculation each quarter which is consistent from quarter-to-quarter. So, where that number comes out to be is the number that's going to link every quarter to the general ledger. So you can't really target a ratio like that and say, hey, this is what we're looking to try to get on a coverage ratio.
Company Speaker
Right.
Company Speaker
Obviously the regulators and the accounts look very closely and make sure that we're doing it exactly consistent with how we did in the past by applying the right factors to the reserves. So...
Company Speaker
Alright. Thanks for your help.
Company Speaker
Sure.
Company Speaker
Oh, obviously, we're comfortable with our reserve levels based on everything we knew today.
Company Speaker
Right.
Operator
And at this time we have no more questions in the queue. I will now turn it back over to Bill Reuter for any additional or closing remarks.
William Reuter
Well, thank you and I'd like to remind you that our Annual Meeting will be held on Friday May 8th at 10 A.M Eastern Time at Hershey, Pennsylvania and will be available via webcast on our website www.susquehanna.net.
Our conference call to review the second quarter of 2009 results will be held on Thursday, July 23, 2009, 11 AM Eastern Time.
Thank you for your time and for your continued interest in Susquehanna Bancshares.
Operator
Once again this does conclude today's conference call. Thank you for joining us and have a great day.
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