VanEck China Bond ETF
Q1 2008 Earnings Call Transcript

Published: 22 Apr 2008

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Community Bancorp’s first quarter 2008 earnings conference. During today’s presentation all parties will be in a listen only mode. Following the presentation the conference will be open for questions. (Operator Instructions) This conference is being recorded today, April 22, 2008. I would now like to turn the conference over to Mr. Patrick Hartman, Chief Financial Officer. Please go ahead sir.

[Patrick Hartman:]

Thank you Nicole. Good morning and thank you for joining us today. During this call we’ll be addressing the first quarter 2008 earnings release. Before we begin please recognize that certain statements will be made during this call that may not be historical facts. They may be deemed therefore to be forward-looking statements under the Private Securities Litigation Reform Act of 1995. Many important factors may cause the company’s actual results to differ materially from those discussed and/or implied by such forward looking statements. These risks and uncertainties will be described in further detail on the company’s filings with the Securities and Exchange Commissions including the form 10-Q for the period ended March 31st, 2008, which will be filed no later than May 12th, 2008. Community Bancorp undertakes no obligation to publicly update or revise these forward-looking statements. This call will be approximately one hour in duration. First our Chairman and Chief Executive Officer, Ed Jamison will discuss highlights for the first quarter. Following his comments we will open this call for questions and answers. Larry Scott, President of Community Bank of Nevada and Chief Operating Officer of Community Bancorp and I are also available to address your questions. With that I’d like to turn the call over to Ed.

[Ed Jamison:]

Thank you, Patrick. Good morning everyone. The results of our first quarter while not in line with previous quarters, is a result of our changing economic environment in both Nevada and Arizona. Earnings at 26 cents a share were impacted by the net increase of 2.3 million or 15 cents per share for low loss provision after charge offs of 1.4 million. Additionally, a non-cashed mark-to-market loss of 449,000 or 3 cents a share for interest rate swaps were recorded during the quarter. Additionally, NIM was impacted by these factors as well as and in part by the normal increases in other non-interest expense and the slight increase in non-accrual loans at quarter end. With a 200 basis point reduction the Fed funds rate during the quarter and corresponding reduction of prime rate during the quarter applied pressure on our operating interest in common deposit rate reduction, decreased NIM slightly by 13 basis points for the period. Total average interest earning asset yields at year-end was 8.48% and decreased to 7.89% at the end of the quarter, a reduction of 62 basis points with a corresponding reduction in average interest bearing liabilities from 4.62% to 3.96%, a reduction of 66 basis points. We have been generally successful in managing interest rate reductions in our interest sensitive liabilities over the period primarily due to our liability sensitivity of our balance sheet at this time. We’ve had a modest organic loan growth of 14% annualized compared to of course a much higher restored growth rate in our lending. We continue to develop long-term relationships with small to medium-sized businesses and professionals within our market. The commercial and the industrial loan segment had a strong growth during the quarter and annualized of about 46% and continues to grow. That segment will continue to provide opportunities for core deposits much better then we have seen in the real estate lending area. The majority of our loan portfolio is variable tied to an index, normally prime rate or LIBOR. Forty-seven percent of the variable rate loans are embedded with floor rates with almost all of these types of loans at the floor rate today. Continued downward rate pressure may cause borrowers to revisit their individual floor rates and request modifications. As of yet that has not occurred to any great extent. Likewise, deposit rates can only go so far before there is less room for further reduction. Additional rate reduction at some point will have diminishing impact on NIM expansion. Rates may reach a natural low, therefore be less manageable in respect to NIM. Core deposits continue to be a prime area of focus for the company. We have a very slight increase in non-interest bearing deposits for the period, a larger increase in interest bearing demand deposit category as well. Both of those are encouraging as we move forward. Additional net income can be generated by changing the mix of deposits with an emphasis on core deposits and a reduction of the wholesale dependency with incremental expansion of NIM and profits for the company. Management is emphasizing a core deposit driven culture with core deposit growth as important strategically as good quality loans. Good quality loans and good quality deposits is our direction. During the quarter we acquired our first OREO property. One is a participation loan in which we are not the lead lender and the other two are small residential lots in Arizona. As we booked the OREO we took evaluation charts to the participating loan in the amount of $1 million to bring the loan balance in line with current market conditions and values. Additional we charged off a few small commercial and industrial loans, consumer loans and unguaranteed portions of SBA loans during the quarter resulting in gross charge off of 1.5 million with recoveries of 100 million or $100,000 recoveries for the period. Additionally we added the 2.3 million to reserve which increases our reserve from 1.2 million at year-end to 1.35. Non-performing loans increased slightly by about a 1.6 million while total non-performing loans including the OREO stood at 16 million five. Eighty-six percent of the non-accrual loans are concentrated in five loans consisting of a land loan of 1.4 million, an office building of 4 million, a loan for a proposed auto center for 911,000, a loan secured by two car washes for 1.6 million and a single family residence valued at 3.7 million. Potentially there may be some loss from this portfolio after completion of the foreclosure and as part of the disposition of the assets to others. Non-accrual and non-performing continue to be at manageable levels while it is likely that non-accrual and non-performing loans will likely increase as we move through this current cycle. While we monitor all credit on an ongoing and a regular basis we have taken active measures to identify areas of heightened attention for more detailed review and analysis by management. The general real estate loan portfolio continues to perform with identified weaknesses in certain sectors such as the residential segment of the portfolio. We have segregated these credits for more intense oversight and direct management. Loans for office buildings in spite of increasing vacancy rates, slowing absorption and flat lease rates, our office product has generally remained current performing. Fortunately there is little of this space coming online and therefore absorption will continue to fill in available space. Both industrial and retail at this time are continuing to be the best sector of the real estate market with marginally increasing pricing and low vacancy. Again our portfolio of this product type is generally current performing. My comments are primarily focused on the Nevada market portfolio, more specifically the Las Vegas area. The Arizona market, since our presence is very small, we see this as a potential growth market for the company. We have spent time to organize a good quality team of bankers who have local experience, contacts and positive reputations who can direct the bank to quality customers in the small- to medium-sized professional segment for deposits and lending relationships. It appears that many banks which are experiencing some pressure due to asset quality issues are on the sidelines as to new credit and therefore opens opportunity for us as we are not burdened with a lot of non-performing loans in that market. We are able to seek out opportunities in this economic cycle while others may be focused in on other issues. Both Nevada and Arizona are experiencing economic pressure brought about by the rapid decline of the residential sector in both markets. The spill over into our direct and indirect business and industries is more pronounced as time has passed. We are seeing a reduction in residential values that are in some areas moving the affordability down to a point the more people can qualify and therefore open the market to qualified individuals who are in the market for a home. Likewise with rates low and hopefully near the bottom of the rate cycle more stability will stimulate buyers that may be time for them to buy. Inventory of residential properties has moved slightly and needs to be reduced further. Affordability is an important factor in the reduction of the residential inventory and as values adjust affordability becomes more in line. We believe that both of our markets in which we operate will rebound much sooner than most driven by the stronger economic metrics that other markets may not have such as potential jobs, educated work force and an expanding population base. But the compelling economic drive to move these markets forward will be the job opportunities; the job creation which we believe will begin to have effect in the Nevada market in the latter part of this year and into 2009 as projects currently under construction prepare to come online. While the market conditions will continue to be challenging with potential reinstate values decreasing. Price pressured both from a deposit and loan perspective, credit risk, loss management, loan reserve building and profitability will be the focus. The company has a strong balance sheet. The strong and growing capital base and experienced management with a focus on credit quality and risk management will provide the direction and the leadership as we move through this economic cycle. Thank you.

[Patrick Hartman:]

Thank you, Ed. This call is planned for one hour so we invite you to present a couple questions at a time. As time permits we’ll adjust any follow up questions. Nicole, would you please explain the technical elements of the Q&A session?

[Operator:]

Yes sir, thank you. (Operator Instructions) Our first question comes from the line of Brent Christ from Fox-Pitt. Please go ahead.

[Brent Christ:]

Good morning guys.

[Patrick Hartman:]

Hi Brent.

[Ed Jamison:]

Hi Brent.

[Brent Christ:]

It was good to see kind of a measured increase in the non-performers this quarter and a loan loss reserve build. But could you give us a sense of maybe some of the early stage kind of credit trends, whether it be 30 to 89 day delinquencies or classified assets in terms of how those have kind of tracked over the past quarter or two?

[Ed Jamison:]

Well let me address a little bit, let me talk about delinquency. Delinquency has trended upward a little bit from our historic lows. Classified credit let me tell you we’re taking a more proactive and probably a more aggressive greeting than we have in the past simply because recognizing where we are. I think what we’re going to see through this cycle is regulatory agencies are going to look for more aggressive greeting than we’ve seen in the past. So I think both those areas, rated credits have increased and marginally the delinquency has moved up somewhat. So yes, both those areas from year-end to quarter end have had a movement upward.

[Brent Christ:]

Okay. So is there any numbers you could put around either one of those buckets?

[Ed Jamison:]

Let me tell you the delinquency is about somewhere in the one and a half versus about 70 basis points year-end.

[Brent Christ:]

Got you.

[Ed Jamison:]

There has been some movement up.

[Brent Christ:]

Okay. And then it also looks like the margin held up pretty well this quarter in light of the pace of the recent Fed cuts and you mentioned that at least at this point you’re not getting a lot of pressure from borrowers to modify some of the floors you have. But as you think about the most recent 75 basis cut as well as maybe some potential cuts here in the near future, does it become more difficult to pass along these cuts than maybe the prior couple? Kind of how do you think about that in terms of the margin dynamic?

[Ed Jamison:]

Well let me talk about the NIM. The NIM 13 point basis drop from year-end to now with the 200 basis point movement in the Fed funds rate I think speaks well of our balance sheet management and the sensitivity of our liability side to those movements. Even though the yield as I explained in my comments, the yields went down, we’ve been able to maintain that. Now any further reduction is going to put pressure on of course the floors and that’ll be a selective issue for us. We’ve in the cycles I’ve seen this happen before where it comes down to the floor, you go through a period of time where a lot of people have that interest and then it sort of fades. Alternatively they do not have a lot of other places to go borrow the money they pay us off either. So there is that issue. I think we’re going to see the deposit side as I mentioned reach a natural low. What point and how far down can you push the interest rates you pay before you do not get the full effect and benefit? Assuming that there’s a 25 basis point at the next meeting, are we going to be able to pass that fully on? I think so. But after that then that becomes more and more in question. But what point does people say well I’ve got to get some interest ratings off that money. We’d love to get to the point where we say well you’re going to have to pay us and keep your money but that does not play well. Even when we sell the environment down at the 1% Fed funds rate it was always an issue.

[Brent Christ:]

Sure. And then a last quick question, it looked like the share account was pretty stable this quarter. I’m assuming right now you’re kind of in capital preservation mode as opposed to buying back any stock over the near term.

[Ed Jamison:]

That’s correct. We initiated that buyback last summer. We did buy some back but we have put a hold on that. Capitally it’s not premium. And with the markets closing out opportunities to go for additional secondary offerings or other forms of capital sort of drying up we felt that it would be best to preserve the capital. Let our earnings continue to grow on a capital base.

[Brent Christ:]

Sure. Okay, thanks a lot guys.

[Ed Jamison:]

Thank you.

[Operator:]

Thank you. Our next question is from the line of Todd Hagerman with Credit Suisse. Please go ahead.

[Todd Hagerman:]

Good morning everybody.

[Ed Jamison:]

Hi Todd.

[Todd Hagerman:]

Just a couple questions for you. First just in terms of the reserve build that you made this quarter, Ed, could you give me a better sense just in terms of – you mentioned before – just in terms of the credit grading that you’re now kind of deploying if you will? Just trying to get a sense of how much of the reserve was more specific in terms of individual credits in terms of the reserve increase versus how much has been allocated, how much you would attribute to more specific rating downgrades if you will.

[Ed Jamison:]

Todd I think in the general terms I think the majority of the increase was for general economic conditions, not necessarily specific losses. Even though as we look through our impaired there was some specific reserves allocated as part of the reserve to those. But I would say it’s general market conditions. That 1.2 as we ended the year at last year we just felt that as things move forward through the system that increasing that reserve was for general economic conditions, it was more prudent. Now you get of course the accounts trying to justify the reserve I think we can do that. I was sitting at a conference with the chairman of the FDIC and she says she did not care what the accountant said. The banks should be building reserves. So I took that to heart in some respects. Now I have the accountant over here just eating me alive so we believe that we have justification for the increase in our reserve.

[Todd Hagerman:]

Okay, terrific. And then just second question. Can you give us an update or a sense in terms of your loan production versus the payout loan payoff activity? Kind of how that’s been trending of late in the outlook there?

[Ed Jamison:]

As you know we gained about $48 million in outstanding for the period which was we felt pretty good. I’ve got some information here that – the majority of it, the gain was in the C&I category, over $31 million. The rest of it was in the real estate category but it was more in the 60 to 70 million with a net gain of about 48 million. Now that is system wide. That is also Arizona’s loan production as well.

[Todd Hagerman:]

Okay. And I’m sorry, what were kind of the payoffs in the quarter?

[Ed Jamison:]

Well we gained about, we did about 70 million in loans and we netted out about 48 million in gain.

[Todd Hagerman:]

Got you. Okay. And then just lastly, you had referenced before in terms of the charge offs in the quarter just some very, very small C&I related credits. Is there anything that you’re seeing in your markets whether it’s in Nevada or Arizona for that matter just as it relates to C&I that you somewhat attribute it to say the housing downturn? I mean those couple of credits that you mentioned, is that something that’s related to housing indirectly or is it something completely removed?

[Larry Scott:]

Todd, Larry Scott. I can answer that for you. There’s no doubt about it that as Ed mentioned in his introductory statements that as this housing market condition protracts that it begins to impact every industry that we’re dealing with. So we’re seeing a general slight trend in cash flow of going concerns. It has not been a material impact to the deterioration really of classified loans or an increase in delinquency. But make no mistake about it that every single industry is impacted by what’s happening with the housing market.

[Todd Hagerman:]

Okay, terrific. Thanks very much.

[Larry Scott:]

Sure.

[Operator:]

Thank you. Our next question’s from the line of Brian Klock with KBW. You can go ahead.

[Brian Klock:]

Good morning guys.

[Ed Jamison:]

Hi Brian.

[Patrick Hartman:]

Hi Brian.

[Brian Klock:]

Ed, I guess you did not mention the strong C&I growth in the quarter. Do you have the balances – or Patrick – do you have the balances of within real estate how much construction balances are versus CRE at the end of the first quarter? Or do you have the growth? Because it looks like half the growth then came from the real estate portfolio.

[Ed Jamison:]

The real estate portfolio did grow marginally. I do not have that right here at my fingertips. Let me see. I’ll try to find that for you to answer that question.

[Brian Klock:]

And then maybe in the meantime I guess the – what I was surprised to see too was some really solid growth in money market demand deposit accounts.

[Ed Jamison:]

That’s correct.

[Brian Klock:]

If you could talk about what you’re seeing there, is that related to the strong commercial growth or what’s the – what’s driving that?

[Ed Jamison:]

Some of that is incremental increase in the wholesale money markets. So they would not be all but most of the majority of them are local customers. Local customers also are moving their – because of the interest rate environment – moving deposits from EDA to money market to get some incremental increase in their deposits. I will – Brett, I have that here. It’s just a matter of finding that information.

[Brian Klock:]

Okay. And I guess the last question I have is the first ORE property that you guys referenced, is that in the Las Vegas area, that property?

[Ed Jamison:]

It is. It’s a Las Vegas property. It’s in the process of being sold. We just felt that the value based on what we knew and reassessment that we had at least evaluation reserve charge down to a point we booked it on that it really is an accurate reflection of the value of that asset.

[Brian Klock:]

Okay. And Ed, can you give us some color on how much I guess entitlement has happened on that property? Is there any vertical on that or is it just it’s been developed?

[Ed Jamison:]

Larry can speak to that.

[Larry Scott:]

Yes, the property has 75 condominium units and which are part of three buildings. And then there are pads for an additional 40 – 84 condo units. So it’s a half completed 10 acre project with 75 completed units.

[Brian Klock:]

Okay. And I guess do you happen to have, Larry, what the original LPV was on that loan?

[Larry Scott:]

I do. It originally was 75%.

[Brian Klock:]

Okay.

[Larry Scott:]

It was not – it was a participation loan which another local bank is the lead on it and we actually acquired our portion through an acquisition in 2006.

[Brian Klock:]

Alright, okay.

[Ed Jamison:]

As to the question about the construction, in fact the construction portfolio as far as construction declined, those loans were probably owner occupied buildup type credit rather than construction. Our outstanding construction loans really went down for the period.

[Brian Klock:]

Okay. So then it really looks like the permanent mortgage of the commercial real estate portfolio looks like that had some solid growth for the quarter then.

[Ed Jamison:]

Right, rather than going in the construction phase we’ve got some increases in the permanent.

[Brian Klock:]

Okay.

[Ed Jamison:]

Now when we say permanent, permanent to us is three to five years.

[Brian Klock:]

Right, right.

[Ed Jamison:]

There’s a difference between our permanent and other permanents.

[Brian Klock:]

Got it. Great. Thank you.

[Larry Scott:]

There’s certainly a heightened interest by the borrowers, particularly on the owner occupied side at this time with rates as low as they are to either refinance or to purchase buildings for their business operations. So that’s a big opportunity for us now. And it also heightens the opportunity for us to be able to secure commercial industrial loans with those same relationships.

[Brian Klock:]

Okay. Alright, that’s good color. Thanks. Thanks Ed, thanks Larry.

[Ed Jamison:]

Thank you.

[Operator:]

Thank you. (Operator Instructions) Our next question is from the line of Hugh Miller with Sidoti & Company. Please go ahead.

[Hugh Miller:]

I was wondering if we could get an update on the loan to value for the construction commercial real estate portfolios as of the end of the first quarter.

[Ed Jamison:]

Well I can give you some general category as loan to values for certain segments we have available here. Retail – and I use as the average loan to value on a retail is 57%. The highest percentage on the largest loan is 59%. Okay? Industrial the average loan to value is 54%. The highest loan to value is 72% on the largest percentage we took in that. Office, the average loan to value is 53%. Again with the largest around 79% which is well below the 80% there. And then the residential portfolio varies from 40 to 52 as the average loan to values with the highs up into the 70%.

[Hugh Miller:]

Okay.

[Ed Jamison:]

There’s your range on that. I think it’s probably diminished a little bit because we’ve taken a little more conservative posture. But on the land loans it’s typically been 50%.

[Hugh Miller:]

Okay. And I guess looking at the vacancy rates that you guys had mentioned regarding the retail construction concerning C&I substantial portion of the portfolio, what are you guys seeing there now for those rates?

[Ed Jamison:]

Let me – the vacancy rate – let me give this sort of figures that we have for year-end that we can give you some estimates at end of quarter. The industrial market still seems to be one of the strongest. Year end it was at 6% but it’s been as low as last year, it was 3.5%. And that’s as it absorbs we believe that it’s somewhere six or below at this point because it just absorbed that. Pricing stays about flat at about 76 cents a square. We look into the office market. The office market has had somewhat of a decline in its price per square foot. And year-end it was at 12.4 and we’ve seen it expand to about 13 and a half end of quarter. As to the retail, the retail has continued to have some pricing expansion by year-end we believe that is more flattened out. And the vacancy in retail year-end was at 3.2 and if anything it’s just went up moderately since that point in time.

[Hugh Miller:]

Okay, thank you for the color there. And can you talk a little bit about the swap position loss that was taken and the potential for any other mark-to-market losses, your expectations going forward?

[Ed Jamison:]

Patrick.

[Patrick Hartman:]

We have two swaps related to two specific loans. They’re just being driven by the shape of the curve and the position of the curve. They can certainly continue to experience negative mark-to-markets as we go forward.

[Hugh Miller:]

Okay. And also I guess just talk a little bit about your expectations for the time lag between – obviously you saw some substantial C&I growth during the quarter but when you would anticipate you would then see the benefit from an increase in quarter pauses from those relationships.

[Ed Jamison:]

Well I would like to see it the day before we made the loan but the reality is it comes in over time. It’s quarter by quarter. We’re going to see hopefully some movement in that.

[Hugh Miller:]

Is it likely though that you’ll probably start to see a benefit in the second half of this year or is it more likely that the lag will be sometime into the beginning of 2009?

[Ed Jamison:]

Well hopefully it’ll be the latter part of this year.

[Hugh Miller:]

Alright. Thank you very much.

[Operator:]

Thank you. Our next question is from the line of Brent Christ of Fox-Pitt. Please go ahead.

[Brent Christ:]

Good morning again guys. There’s been several large projects, residential construction projects in the Vegas market that have been in the news as being problematic over the last couple of months. And I know you guys have managed to avoid those. But I’m just curious in terms of any pressure that you’re seeing on land values as a result of that right now that there’s been a little bit more time that’s passed since those projects have become problematic. And I’m just curious how much that’s pressuring values in the region.

[Ed Jamison:]

Brent, you’re speaking about raw land values?

[Brent Christ:]

Yes, that’s correct.

[Ed Jamison:]

Let me quote some information that we have available and this is provided by a combination of UNLV Business School, Nevada Development Authority and a consortium of others put together a packet of information they call Perspective of Las Vegas. Vacant land transactions that are non-resort sales beginning in 2005, now this is per acre, was 560,000 in 2005. In 2006 it was 700,000 and in 2007 non-resort sales showed at $780,000. So we had an expansion in the values of land. Part of that is availability. We look at Las Vegas as being in the desert with all this open land and space but that open land and space is primarily owned by the Bureau of Land Management and systematically puts that out for auction and bid. So land that may look very close in close proximity to development may be owned by the government and therefore is not in the public domain so therefore can not be developed. So there is some scarcity in some respect of land that can be developed until it’s put out for bid. So that kept – has kept the prices up a little bit.

[Larry Scott:]

And if I could, Brent, add a little color to that too, and I believe we communicated this very often, we did not have any of that, any lending relationship with that one large developer that has been attracting so much media attention as you know. And I will tell you that of the nearly $1 billion worth of loans that he has, whether it’s through hard money lenders or through banks, that those are all in various stages of negotiation of forbearance, foreclosure, et cetera. And there has not been any sales take place – and really it’s not anticipated that any time in the very near future that there will be any sales, distressed or otherwise about property. So those – that particular developer at this point in time has not had a real material impact on the value of be it vacant life land or finished lots. There’s other stress certainly in the marketplace that’s causing some pressure on prices but at this point in time that one’s fairly stable in it’s impact in the marketplace.

[Ed Jamison:]

And as observation, that particular developer and his associated developments is going to be on the sidelines for a period of time because there’s so much confusion. Even if the market was to turn around in ’09 I do not think he’d even been prepared to move forward. So the other land may be online and developed before he can sort through his issues that he’s got going. So it’s not impacting the values of land at this point.

[Brent Christ:]

Okay, great. Thanks a lot guys.

[Operator:]

Thank you. Our next question is from the line of Ross Haberman with Haberman Funds. You can go ahead.

[Ross Haberman:]

Good morning gentlemen, how are you?

[Ed Jamison:]

Good how are you?

[Ross Haberman:]

When is the last time you looked at the good will and your intangibles and should we – is that a quarterly event? Is that a yearly event and have there been any adjustments there?

[Ed Jamison:]

Patrick.

[Patrick Hartman:]

It’s a quarterly event. We did a formal study at the end of the year. We refreshed that study at the end of the quarter. We’ll continue to do that on a quarterly basis and at this point there seems to be no impairment in the intangible.

[Ross Haberman:]

One of the main elements in that calculation is – I would assume it’s the amount and the mix of deposits in terms of the companies you bought. Is that the major element?

[Patrick Hartman:]

That is a major element yes.

[Ross Haberman:]

Okay. Okay, thank you.

[Operator:]

Thank you. Our next question is from the line of James Abbott with FBR.

[James Abbott:]

Yes, hi. Good morning to you.

[Ed Jamison:]

Hi James.

[James Abbott:]

I just had a question on one of your competitors indicated that there was increase in the delinquencies on business loans and I was wondering if you’re seeing that at all. I think you mentioned that you feel fairly comfortable with it but is there a deterioration in the cash flows of the businesses at some level whether it’s retail or whatever? And is it just not hitting the non-performing assets yet? Or what kind of color can you give us there?

[Larry Scott:]

This is Larry Scott. No, as I mentioned earlier, it would certainly be incorrect to state that this is just isolated to the residential market. It has permeated throughout the entire community and there is some deterioration in the commercial and industrial loan portfolio. But at this point in time it has not been material. It has impacted some delinquency. It has impacted some classifieds. It has not had much impact at all at this point in time in our office portfolio, our retail portfolio or our industrial portfolio. We’ve had to little deterioration in those loan portfolios. But the smaller business operations, there is some level of cash flow that’s being impacted and it’s causing a minor impact on delinquency in classifieds. It has had very little impact on non-accrual.

[James Abbott:]

And maybe to put some numbers around it, what’s your 30 to 89 day delinquency or whatever delinquencies you’re referring to there, what did they do this quarter and the first quarter compared to the prior quarter on C&I? Do you have that?

[Ed Jamison:]

I do not have – we do not have it broken out as far as product type. We have it as the aggregate.

[James Abbott:]

Okay. Okay. So it’s a modest one. And I appreciate that. And then the other question I had is on the construction loans, what the average appraisal age is. You kind of eluded to it that you’re working through some of those issues and stuff like that but I was wondering if you have an estimate on the average age of your appraisal on construction.

[Ed Jamison:]

Good question. We have done some studies to look at the duration since the last appraisal and so we’ve instituted new appraisals on many of these projects and are just still in the process. You’ve got to understand as everybody’s re-evaluating the properties these appraisers are pretty busy. So it’s taken a little bit longer but I would say – this is sort of a generality – probably 14 months would be a good guess, Larry, about the average age of our appraisals. And I’m assuming that the average term is still 18 to 24 months. It’s hard to say.

[Larry Scott:]

Well every loan is appraised at the point of origination on a construction loan. So and our average tenor on our construction loans runs approximately 14 to 15 months. So from its point of origination to maturity at any given time it may be 14 to 15 months of age. But nothing, virtually nothing would be older than that in the construction portfolio.

[Ed Jamison:]

Likewise when we renew a credit – potentially new money if that was the case – it’s all reappraised. So we do have current values on many of them.

[James Abbott:]

That was going to be my follow-up question is what the amount of your construction loans are technically and an extension period beyond the initial term which those would obviously have new appraisals.

[Ed Jamison:]

I do not have the numbers because I do not think it’s the material.

[Larry Scott:]

No, it would not be. The construction portfolio, there has been virtually no extensions to that portfolio. Any extensions would have been relative to land loans. But the construction portfolio has not caused any demands to be able to extend them.

[Ed Jamison:]

With the exception that there may be a case where a retail center is waiting for the final leash to – and the maturity is upon us and so we renew it for a period of extent – short period of time to allow them to get the last tenant in and then they take it out either on the open market or conduit or we do a mini-perm on it. So that does happen. But we pretty well have an evaluation internally of what the value is each time we renew it.

[James Abbott:]

Okay. Thank you for your help.

[Ed Jamison:]

Thank you.

[Operator:]

(Operator Instructions) Our next question is from the line of Jim Bradshaw with D.A. Davidson. Please go ahead.

[Jim Bradshaw:]

Thank you. Good morning.

[Ed Jamison:]

Hi Jim.

[Jim Bradshaw:]

Excluding sort of the change in the mark-to-market on the swap operating costs were basically flat with Q4. Can you talk about what you’re – gosh that’s a great number – what you’re doing to keep it flat for the rest of the year? Or do you expect to see costs pick up here a little bit?

[Ed Jamison:]

Well I’m glad you said it was – you thought it was relatively flat. We thought it was expansive. So we’re continuing to work on that. Our efficiency ratio you may note went up a little bit. A lot of that is due to the buildup in Arizona bringing in more people, some higher quality people, to help us grow that franchise over there. So we’re constantly monitoring ways that we can reduce our expenses. And efficiency ratio is a good guide for us if we want to continue to have that downward pressure on that. But we understand that there’s times that we have to build up to gain the overall efficiencies going forward. So we are conscious about the expenses, no doubt.

[Jim Bradshaw:]

And then the second question I had or the last question was about the deposit pricing market. I heard your comments about the, you’ve got room to play with deposits. Are you bringing – are you able to bring deposit prices down in Nevada and Arizona in anticipation of another Fed move or will that be more reactive?

[Ed Jamison:]

It will be reactive.

[Patrick Hartman:]

What a swell idea.

[Jim Bradshaw:]

Yes I know. Some folks were able to get the rates down a little bit before the last wave but maybe these are not going to be as significant. And was your month of March margin pretty comparable to average for the quarter or was that a significantly different number?

[Patrick Hartman:]

It was nicely improved over the average for the quarter.

[Jim Bradshaw:]

Okay, great. Thanks Pat.

[Patrick Hartman:]

You bet.

[Operator:]

Thank you and gentlemen at this time we have no further questions. Please continue with any closing remarks.

[Patrick Hartman:]

Well thank you very much for listening to this call. We look forward to talking to you again next quarter.

[Ed Jamison:]

I have one comment. This is Ed Jamison. We appreciate your interest in our bank as we move through this cycle it’s a positive thing for us. As long as we continue to do the things that we’re doing, manage it appropriately we’re going to be a strong bank as we come out of this raising additional awareness of the quality of our bank. And we appreciate your interest.

[Operator:]

Thank you. Ladies and gentlemen this does conclude today’s conference. Thank you for your participation. You may now disconnect.