VanEck China Bond ETF
Q2 2008 Earnings Call Transcript

Published: 25 Sep 2008

[Operator:]

Welcome to the Community Bancorp’s second quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the conference over to Mr. Patrick Hartman, Chief Financial Officer; please go ahead sir.

[Patrick Hartman:]

Good morning and thank you for joining us today. During this call we discuss Community Bancorp’s second quarter performance. 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 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 June 30. It will be filed no later than August 11, 2008. Community Bancorp undertakes no obligation to publicly update or revise these forward-looking statements. This call is planned to be one hour in duration. First our Chairman, President and Chief Executive Officer, Ed Jamison will discuss the second quarter. Following his comments we will open this call for a question-and-answer discussion. Larry Scott, Executive Vice President and Chief Operation Officer of the company and President of Community Bank of Nevada is also present. Now I will turn the call over to Ed for his comments.

[Ed Jamison:]

Thanks Patrick, good morning and thanks for taking the time, out of I’m sure a busy schedule to learn a little bit more about Community Bancorp and our results. As shown in our release yesterday the second quarter results were outside the normal performance level of the company. The results were driven by the changing economies in which we operate. Both Nevada and Arizona have a will continue to experience decreases in real estate values, continuing foreclosures in the residential market, along with weakness in our real estate sectors. The primary drivers of the economies of each of our markets have been historically benefited from strong population growth, strong job creation numbers and low unemployment. Today while population growth continues the job creation numbers are only eight basis points in Clark County and a negative five basis points overall in Maricopa County, Arizona year-to-date. The United States unemployment figures are a 5.5 whereas we’re seeing unemployment figures in Clark County at 6.4 and Maricopa County at 4.8. As we see the $24 billion in construction on the Las Vegas strip completed the employment numbers will continually and dramatically improve. The Wynn, new resort Encore, which is scheduled to open in December of this year, announced this week 3,500 new job openings and the opening of their expanded employment centers to process the many thousands of applicants for those choice positions. Likewise we’ll see City Center, the Fountain Bleu and the Grand Hyatt and other smaller projects will establish employment centers to process their employment needs over the next six to nine months. It is anticipated that property openings will provide substantial employment opportunities and therefore reduce the unemployment rate and add to the overall economic improvement in our market. Residential resale inventory while elevated showed some encouraging signs of improvement recently. Today’s inventory of resale homes stands at about 22,000 homes which is a decrease from 28,000 in September of 2007. But 11,000 of these homes are currently vacant, which we are primarily speculator and investor owned properties are now believed to be owned by the banks. Of the investor properties more than 4,000 have pending sales or other contingent contracts which is a substantial increase in the number of potential sales that we have seen. Currently there is a resale inventory of about nine months absorption based on 2007 numbers. The number of recorded resale properties in 2005 was 58,000, in 2006 42,800, and in 2007 24,800. It appears that the inventory absorption will over time bring inventory numbers back into more normalized range. The medium price of both new and resale homes has decreased from a high medium price for new homes in 2006 of $339,000 with today’s medium price at $269,000. The resale homes resale price in 2006 was $286,000 whereas in June of this year medium price is at $218,000. The price reduction has assisted in the decrease of both new and resale homes inventory and moved the home pricing index and the affordability index more in line. It is estimated that there is only a 45 days standing inventory of new homes and we have seen a modest increase in residential permits to build new home inventory. It should be noted that a large percentage of resale homes are sold as short sales in the market. Other sectors of the real estate market have experienced decreases in values such as residential lots and land in outlying areas of Southern Nevada and areas outside of the Phoenix metro area. Office buildings have elevated vacancy rate of 14% or higher in certain areas. Likewise we see higher vacancy in retail from 3% at year end to 6% currently in certain areas. Industrial vacancy has also increased to about 6.7% depending on the areas in which it is located. Overall vacancy at least in Southern Nevada has increased whereas Maricopa County has had even higher vacancy numbers for office and other sectors. The information given has been primarily based on Southern Nevada data which we have a presence in Arizona but the majority of our lending activity is concentrated in Southern Nevada and is more relevant to the full view of our company. I have provided an overview of what we see in our local markets for a reference as to the current conditions and projected conditions of the market in which we operate. Much has been said about residential properties and sales. While we have no subprime mortgages or Alt-A loans and limited exposure to the residential sector, the decline in residential values coupled with the heightened publicity of foreclosure numbers in Nevada and Arizona highlights a need to provide a little clarity as to what we are seeing occurring even with our limited exposure. Generally the local economies have slowed with hotel vacancies as well as visitor volume decreasing slightly year-over-year. Gaming revenue is off year-over-year which may or may not be influenced by the sluggish economy but coupled with prices of gas, airfare and other factors that are going on in our economy. With that said we believe that with the anticipated opening of a number of new resort hotels that will ease the unemployment numbers and create new jobs both at the hotels in the communities we participate, we anticipate a positive change in our economy over the next several quarters. While we can’t forecast events that may impede or economy growth we believe that there are factors such as new hotel rooms, new retail venues, continuing population growth and job creation will all impart of the emergence of the economy to a more normalized pace. Results of the company’s operation for the quarter were strongly influenced by credit issues and the increased loan reserves. We have taken a more proactive approach to identify non-performing loans and those that would be graded impaired and working towards satisfactory resolutions as soon as possible. In other words we are being proactive and really moving our portfolio to a conclusion rather then wait. Likewise we allocated specific reserve for loan impairment that we believe to be adequate at this time. With the increase in non-accrual loans we have adjusted the interest income accordingly which along with the changing mix of deposits reduced our net interest margin materially for the period. A few of the loans listed as non-accrual are now current and in the near-term will return to accrual status which will allow recognition of additional interest income moving forward. Core deposit mix while we have a slight improvement will continue to be a focus for NIM improvement. Loan loss allowance impacted our performance during the quarter as well as year-to-date results. With the addition of $18 million to the allowance during the first half versus less than $1 million in the first half of [2000] it was a material impact on earnings for the period. We anticipate that the review of the allowance will be an ongoing and additions made as warranted by the changing dynamics of our loan portfolio. Over the last year we have had many conversations regarding our loan portfolio and its segments. In an effort to provide more information we have developed two new schedules shown as pages 13 and 14 on the press release that we believe will be helpful in understanding our loan mix better. For those that do not have a copy of that, you can please refer to that, but I would like to spend a little bit of time walking through those pages and those new pieces of information that we have provided to the market. If we were to refer to that it really does breakdown our portfolio to give hopefully some clarity to the market as for where our loans are, what type of loans they are, and where the identified impairments and non-accruals are existing. As you can see here on page 13 it is detailed composition of loan portfolio which outlines each one of the categories of construction lending, commercial, residential and commercial industrial and consumer loans as well as information regarding the allowance for loan loss. Likewise on the right hand side, we show the loans that are impaired and those that are non-performing or non-accrual at this time. Understand that our major portion of our portfolio is the $823 million that we have in real estate construction, that portfolio itself is of short duration between 12 and 18 months, at the offside, that’s 24 months as we see these projects move through the construction cycle. Likewise the next page, on page 14 gives you a little bit even more clarity into the construction portfolio which constitutes the majority of our portfolio. Again giving it the breakdown in construction, acquisition and development, development land and raw land and again providing specific reserve information but also those loans that are in an impaired status whether they’re non-performing or still accruing interest at the time. I’d like to spend a few minutes just walking through this as we see it and maybe it will help you get some clarity as you look through this and analyze it further, but for example, single family residence we show a balance outstanding on the left hand side of $25,420 million. We have a specific reserve of $443,000. Of that particular segment $6,424 million is non-performing or non-accrual. Condominiums likewise and nothing in that sector, multi family, retail, $139,000, but we really only have in the construction phase [$1.362] million non-performing. Likewise if you follow that down through acquisition and development, single family residential acquisition and development loans that typically in this type of phase it’s a low percentage, 70% loan to cost. Normally we’ve went into the loan on the land at 50% of value, with the high at 60% loan to value. That is, some of these properties were appraised in 2005, 2006 and 2007 as we went through the process. So we have a pretty current idea of value on many of these properties as we’ve got on our books but you see then going down to developed land single family, $31 million, $4.8 million in non-performing. Raw land, what we’ve seen in the raw land category of our markets, is a stability and a slight decrease but not anything dramatic in raw land at this point. Likewise if we went back to page 13, moving down to the next area, commercial we have $117 million of owner occupied real estate loans. We have $2.7 million that are non-performing category. Non-owner occupied with small amount, $43 million, we have nothing in that category non-performing. Likewise retail, you see there we have a pretty strong retail presence with very little in impaired and non-accrual. Coming back up though into the construction phase, where it says retail, we show impaired of $32 million in that category. One loan which is for $26 million is the more than the majority of that particular credit. It is on non-accrual. We took a proactive approach to that particular credit knowing that technically it was still within the 90 day timeframe. It could have been classified as accruing for the end of the quarter but we felt in the best interest of the company and really the fairness to the market we would put that in non-accrual. That cost us about $900,000 in interest we backed out because of that affect alone. But what we’re trying to do here is to provide the market with enough information and understanding of the portfolio of our market of where we are. Likewise if you look at the non-performing loans that you see in the construction phase of $56 million, $26 million of itself is imbedded into that one particular loan so even though our non-accruals and non-performings did go up, we had one credit that was an aberration that really did increase our numbers that have been shown. What we see here in our construction portfolio is still matching draws to values. We still see retail segment being increase in leasing. We see a phenomena though, the increase in retail vacancy I think is brought about in part by we’re seeing a lot of the older centers in the core part of Las Vegas experiencing a higher vacancy factor as some of these businesses move and shift to where the new demographics are and business opportunities and since we are doing new centers, we’re seeing a little bit more activity in leasing as those previous tenants of an older center are moving out to where the population has expanded to and a stronger demographic. So we are seeing the benefit from that. Again the office market is still soft. We have not really done a lot as you’ll see there. Little office building for us during this period. Its probably come off 20% or 30% from what our previous exposure has been to the office market due in part from about a year ago making a decision that we would move out of that sector because of the potential weakness in vacancy. I think we’ve been pretty good at that. Likewise we see a lot of these things going through the construction cycle and when they come out, the question is now what’s going to happen? Historically our construction portfolio has been rapid. It has good velocity and has been moved down and paid off by normally the conduit lenders, insurance companies and other large banks that are taking these into term loans. What we’re seeing though is a shift in the market as you all know. The conduit market is non-existent almost but we believe this is an opportunity for us to bring some of these loans into a term. For us we thought there was many attractive opportunities for us to get term loans to diversify our portfolio but we could never compete as interest and terms and conditions of the conduits. With them on the sidelines, we believe we’ll have opportunities for some very good opportunities for term loans, likewise these would be opportunities for us to exercise our swaps that we have an provide not only good earning assets but we can mitigate the interest rate risk by providing a swap to the customer and to us. So these things we think are opportunities for us in the near-term as these things become mature and we start looking towards terming them out. I hope that this information we have provided is helpful. We’d be happy to answer I guess more and more questions about that. Our general portfolio is pretty representative here and we continue to see small growth in loans. Candidly our growth, some of it is brought about by construction draws that bring the loans up as these properties are completed. So with that I would be happy to answer any of your questions.

[Operator:]

(Operator Instructions) Your first question comes from the line of Todd Hagerman – Credit Suisse

[Todd Hagerman:]

Obviously unfortunately the first loss in the company’s history here this quarter, as I think about your comments with respect to the non-accrual loans, some of them returning to accrual status and the pressure on the margin as well as expectations for reserve build going forward, what’s your outlook in terms of profitability returning to profitability in the second half of the year, in terms of near-term? It looks like to be a tough challenge.

[Ed Jamison:]

We’ve not done or provided any kind of forward but your assessment is probably pretty close. We see some issues coming on but that’s not saying that profitability is possible. There could be events that occur that would provide that opportunity to move us back into a profitable situation. Even marginally. So we wouldn’t say that we are not going to make profitable, we’re not going to say we are. So we think that there’s factors and things in place that could bring us back into profitability in the near-term.

[Todd Hagerman:]

On the reserve, if I strip out the specific allowance and the impaired loans if you will, the reserve coverage at the end of the day still looks to be fairly thin at just over 1%, can you talk a bit about your reserve methodology assumptions specifically in terms of how you’re accounting for both the very strong loan growth as well as the risk rating migration and the economic factors that you talked about?

[Ed Jamison:]

We’ve done an analysis on that as well and we understand that if you were to take all of those things into consideration and the allowance for gross loans under FAS B5 and FAS B114, we come up with where our allowance is. We believe that it still is adequate for what we see in our portfolio. We would add more reserves if we felt it was an appropriate move but we believe based on what we see today that’s the proper reserve for us.

[Todd Hagerman:]

Just in terms of the reserve build that you made this quarter, can you give us a better sense of how much was attributed to risk rating migration versus some of the impairment in the quarter?

[Ed Jamison:]

The impairment is separate. We really look at adding for unforeseen uneconomic conditions as well and I think that was probably what covered the impairment issues but it was really looking at general—we’re not saying that we have specifics but we have general concerns about the economy and reserve building was an appropriate move for us to do in the quarter.

[Operator:]

Your next question comes from the line of Brent Christ – Fox-Pitt

[Brent Christ:]

You mentioned the larger $26 million [inaudible] in credit; can you talk a bit about how you are thinking about moving towards a resolution of that credit and maybe some potential loss scenarios in terms of the outcome?

[Ed Jamison:]

Let me—and I think you’re aware that that particular credit has gotten a lot of publicity but it is in bankruptcy and we’re working through that through the courts and believe that there could be some resolution. Most recently the court is providing and allowing the creditors to file their notices of default and let the time start to begin on that, but will not permit a sale. Now that’s a process that’s going to take months but it does provide us simultaneously as they try to prepare a plan the time is ticking when we could foreclose at the conclusion of that time with the permission of the court. We see still no exposure as far as loss based on current data that we have, most recently the appraisal. I think it’s been mentioned so its more of a working through the process. We believe that we have the key piece that could be sold independent of his overall plan. That was always the intent is we need to make sure that when we made the loan the property wasn’t contingent upon the values or the development of surrounding property. So we feel pretty good about that still. Now going through the process of bankruptcy, working through that slugging that out is always an issue and the courts have their own way of thinking of things so. We’re [following] it very actively. Larry Scott, the President, was up in bankruptcy court in Reno this week, Monday, so we’re pursuing this. We’re moving it very fast forward. I think we’re probably the one that is motivated more to get out. We believe that if we have an attitude of proactive collection, we’re going to follow it with everybody.

[Brent Christ:]

And with respect, you mentioned that you could potentially sell your piece independently, is that contingent on the ruling of the court?

[Larry Scott:]

Yes, we are subject to the court’s order for sure. The borrower at this point in time has abandoned development plans and has agreed and is in final negotiations with an international operation to market the piece and so its going to have a very aggressive sales approach to it. The court has generally applied wisdom that the piece would attract a greater value in aggregate then it would as individual pieces. We’re not entirely in agreement with that. We believe that we could get out whole in either case. But at this point in time, the court has ordered it to be sold in bulk.

[Brent Christ:]

It sounds like you’re really expecting little to no loss content on that loan specifically but could you talk a bit about the type of severity or loss content you have experienced and maybe some of the other foreclosed assets that you’ve moved either recently or after the quarter?

[Ed Jamison:]

We have had some deterioration in values. Case in point here, first quarter we represented, we had a single family home and an appraisal at $5 million, now this is an unusually large property that went into OREO the last part of the first quarter. We sold and closed on that and we wrote down about $1 million in that sale. But we received the money and so closed escrow on that so what we’re seeing in the OREO speaking of that, that not only did that close but we have two in escrow and one pending so we believe in the third quarter we’ll see a significant reduction. Now with that said, is there potentially more coming into OREO, most likely. Sometimes that’s a proactive method way of collections and sometimes the only alternative we have and we will exercise that opportunity, bring them in, mark them to market and market them and move them through the system.

[Brent Christ:]

Appreciate the incremental disclosure on the loan portfolio and just looking within the construction book, it seems like the land categories seem to be fairing quite a bit better then the single family construction and A&D, can you talk a bit about the underlying drivers that you think is supporting the land loans versus some of the other in phase projects?

[Ed Jamison:]

Let me speak about the standing inventory of single family homes that we have loans on; we have 42 homes in two markets that are under construction for us. So its not a large exposure relative to our market. Most of those properties are being sold but that’s not a large exposure in the residential construction end. Land, it really is more, if its just raw land, it continues to maintain its value or a slight decrease and I’ve said this to many, this is simply because of the availability of land. Raw land has a clean slate. It can be developed and designed any way you want. Whereas if you have embedded lots that have the infrastructure, the dry and the wet on it, and ready for slab, that’s the way its got to be sold. So the land has maintained that. Interesting enough the things that we’re seeing in the commercial sector as far as real estate we’ve seen appreciation. If we did an appraisal in 2006 and we appraised it in 2008 we see slight appreciation in commercial real estate land. Again its certain key pieces that are only developable and assigned the zoning for land to be used for retail, office and other so its maintained its value. Those are the two issues.

[Operator:]

Your next question comes from the line of Terry McEvoy - Oppenheimer

[Terry McEvoy:]

In the press release it made the statement about unfavorable changes in funding liability mix slowed the decrease in your cost of funds, are you commenting on market conditions being a little more aggressive for deposits or was there something internally that contributed to that statement?

[Ed Jamison:]

No, that’s a market driven. We’re just reacting to the market, the market even though we saw the federal reserve reduce their guidance as far as interest rates you can’t pass that all on to the consumer because of market conditions. Likewise we see continued pressure on non-interest deposits as well as the interest rate we pay on the other segments of interest bearing and certificates of deposits. A very competitive market out here in the west. So we’re seeing that pressure. When we talk about the mix, of course our ideal mix is 90% non-interest bearing and 10% interest bearing so from that basis we’re way off the mark but we’re trying to increase that mix into the non-interest bearing or at least into the lowest cost deposit base we can get. That’s what we’re referring to.

[Terry McEvoy:]

What level of charge-offs have you taken against the $69 million of non-performing assets that you had at the end of the quarter?

[Ed Jamison:]

During the year—4.1.

[Terry McEvoy:]

In the second quarter the stock price did drift below tangible book value and I see you’ve done some acquisitions over the last few years where you have goodwill, did you evaluate goodwill in the second quarter or is that more of an annual event that would occur in another part of the year?

[Ed Jamison:]

Its primarily an annual but it will be addressed in the third quarter.

[Patrick Hartman:]

The change in the stock price to us is not a triggering event. We do annually review the value of our goodwill. At this point we see no impairment but we’ll be looking at that in the third or fourth quarter.

[Operator:]

Your next question comes from the line of [David Illers] – Las Vegas Investment Advisors

[[David Illers]:]

I see there was a slight increase in your shares outstanding in the year ending 2008 versus 2007, is that attributable to the drop in stock price? There was 10.488 million shares outstanding June 7 and there’s now 10.109 in shares.

[Ed Jamison:]

We did buy some stock back and so that would have been in the treasury so it wouldn’t be outstanding. During the fall of 2007 we instituted a stock buyback program thinking that that would help buoy up our stock, and we did reduce the number of outstanding shares by buying it back and its into treasury. I think that’s what you’d be referring to. We did that with a thought process the market was going to go through a correction and that we would protect the value of the shares. We wish now that we would have retained our money and done it now. We thought we could almost go private by buying it back now.

[[David Illers]:]

Do you have any exposure, as you know John Edwards has written about in the Review Journal about making Las Vegas—if you could tell us if you have any material exposure out there?

[Ed Jamison:]

No sir. Nor do we have anything with focus group. Those are the two hot points today and we have no exposure there.

[[David Illers]:]

This is really a judgment question, I’m sure you looked at the new housing bill, to be signed into law apparently tomorrow, I’m wondering if you have any opinion how this could affect community banks?

[Ed Jamison:]

Since we don’t do mortgages, subprime even A loans, we just don’t do the mortgage business. We’re not intimately involved with that sector but with that said, anything that can improve the housing market is going to be a benefit for all banks whether they’re community banks or national banks or the mega banks. So anything that can help out the consumer on retention of their homes is an improvement for us.

[[David Illers]:]

I notice there’s going to be an increase in the limit from I guess 433 up a couple of hundred thousand dollars in high retail residential markets, does that mean that you could take a house, if you’ve got a part of the mortgage that’s $450 or that’s a problem mortgage, does that mean that it qualifies for an FHA and would eliminate the potential liability or doesn’t it work that way?

[Ed Jamison:]

I’m not familiar with the mechanics and again that’s not what we do so its not a level of our expertise.

[Operator:]

Your next question comes from the line of Brian Klock – Keefe Bruyette & Woods

[Brian Klock:]

Just looking at the new table that breaks out the special allowance and the impaired loans, on the C&I portfolio, the $232.6 million in C&I loans, I notice there’s a $2.7 million specific allowance, $10.3 million in impaired and I’m not sure where that stood at the end of the first quarter so is there any sort of contagion you’re seeing rolling over into the C&I portfolio?

[Ed Jamison:]

Let me address that for you, and it really does come down to a specific credit in the C&I. In the latter part of 2007 we had been banking a C&I customer for a number of years, the owner passed away so there was a lot of disruption in the company coupled with the economy. It was an $8 million relationship that is part of the $10 million. That has been resolved simply through dealing with the survivors and moving through that so we’re very pleased about that. That is current now and will be brought back into an accrual status once we have some duration on that. So it really does reduce the exposure and those numbers with just that one credit alone. The others would be—the other one is really not material because the total is $10, that’s one $8 as you see it there, $8.1 and $2.1 is probably a multitude of smaller transactions that accumulate to that. The majority is in one credit was non-accrual status and the problem become of a life event of the owner which—his life hasn’t been resolved but the loan has been resolved.

[Brian Klock:]

I guess you did mention on the net interest margin contraction, obviously there was some impact related to the increase non-accruals in there, I think from the information it looks like the more normalized number is still about $419, $420 for the quarter adjusting for the non-accruals, should we expect the impact on the asset depressing the asset yields to sort of from Fed re-pricing to have been fully reflected in this quarter and for the loan yields to level off here? What should we be thinking for the third quarter?

[Ed Jamison:]

As we said in the earnings release there’s 65% of our loans are variable rate but about 40% of them also are floored and three-quarters of those are now active so those—between the floored and the fixed loans they’re not responsive at all to the Fed’s actions which helps but the re-pricing takes place immediately on that so its—your $420 is probably a reasonable estimate if the other parts quit moving.

[Brian Klock:]

As you referred in your prepared remarks talking about there was loan growth, some of the loan growth from the construction portfolio was continue draws, so it sounds like those are residential or--?

[Ed Jamison:]

No those are retail center not residential necessarily. We know the loan originations of where they’ve been.

[Brian Klock:]

And then commercial real estate was up 17% in the quarter annualized, if you can talk about where you saw that growth would sort of loan types you are doing, is that owner occupied or is that more--?

[Ed Jamison:]

Primarily owner occupied. And I can be specific; I’ve got them on mind—let me give you an idea of what we just recently did. A group of individuals have a medical billing center. They’ve been leasing space in different spots. We provide them as an owner occupied facility, a new 10,000 square foot facility to consolidate their operations. This is a medical building service, women owned, and it was a substantial loan and those are the kind of things we’re doing. We’re being selective. I also did say we’re being very selective and adhering not only to our current underwriting standards but anything that would make it a loan better for us. There is opportunity still out there. We just don’t see the same opportunities in the size and some that we’re moving out of, office buildings, unless its owner occupied we’re moving away from. Industrial if its adequately tenanted likewise with the retail. What we’re seeing also is not a lot of opportunities. There is discipline in the market for a lot of the developers that are sort of standing on the sidelines waiting for the shift so the opportunities which we do see and we’ll take, but many opportunities that we would love to take or have the opportunity or know about are really on a standstill basis right now.

[Brian Klock:]

It looks like personal expense linked quarter down quite substantially, is there any reversals in there or is the $5.2 million a run rate to look at going forward?

[Ed Jamison:]

I think some of the in salary expense would be attributed through incentives. A lot of our lenders are incentive in their production. With production lagging, incentives and the return to them which is incrementally based on incentive to us is diminished. Our headcount went down a little bit and we’ll continue to evaluate that for cost savings. But primarily a lot of the reduction would be incentives for performance.

[Operator:]

Your next question comes from the line of Timothy Coffey – FIG Partners

[Timothy Coffey:]

Can you provide any color on classified loans?

[Ed Jamison:]

What would you like as far as--?

[Timothy Coffey:]

Best case would be breakdown down of watch list, special mention and substandard.

[Ed Jamison:]

We have not done that in the past and we just don’t feel that we’ve got that information to provide today.

[Timothy Coffey:]

How about loans 30 days past due?

[Ed Jamison:]

Loans 30 days past due, we’re talking about two plus percent. Let me preface that and I think that’s sort of a—we have maybe opportunities where we are in the process of—30 days is 30 days and so its pretty precise and that’s the numbers we’re reflecting but there may be an occasion where it spills over 30 days while we get new appraisals or new financial statements. Its not necessarily there’s a systemic problem with the credit, but there is past due. I think that would be a given with most institutions especially with the business bank where we do a lot of transactions.

[Timothy Coffey:]

How much of the portfolio has been reappraised this year?

[Ed Jamison:]

A large percentage, I don’t have that. Our credit administrator is not here. But let me tell you our discipline on appraisals. Anything that we get, as an aside, just to assist us to better understand appraisals and values, we hired an in-house appraiser within the last 60 days to assist to review appraisals, order appraisals, look at the ones from an internal perspective, develop a plan where we have a systematic system for reevaluating the values of property. Normally we see its an event that triggers a new appraisal. Now if we feel that there is a problem within the credit we’ll take a proactive approach and try to seek out the values whether through appraisal or other means. But typically anything that goes impaired, non-accrual has new appraisals. So what you’re seeing in that—those are new appraisals. And I’m saying new appraisals within the last 90 to 120 days. So we have a pretty good idea of where our values are. We have performed a shock on our portfolio and its appraisals looking at any weaknesses we may find. The biggest drop of course would be anything associated with lots or residential and we’ve shocked that and it still has maintained its integrity.

[Larry Scott:]

I might add, I think probably what is most critical in today’s marketplace is if you look at pages 13 and 14, the single family, those properties that fall into the single family residential construction or acquisition development or raw land, those properties have all been reappraised so that’s the real critical part of our portfolio and the part that is experiencing some change in values and those have all been reappraised this year.

[Ed Jamison:]

Let me add to that delinquency, its less then 2%, its 1.8% on the 30 days.

[Timothy Coffey:]

What is the total Tier 1 capital right now?

[Ed Jamison:]

It was disclosed in the release and that amount was, just before my final comments we provided the Tier 1, Tier 2 numbers. As of June 30, 2008, the company’s Tier 1 leverage capital Tier 1 risk based capital and risk based capital ratios were 11.27%, 10.98% and 12.24%. I don’t have the dollar amounts.

[Operator:]

Your next question is a follow-up from the line of Todd Hagerman – Credit Suisse

[Todd Hagerman:]

On the capital question, if you could just update us on your thoughts on capital, obviously well capitalized, but just given the pressure that you’re seeing just with respect to some of the real estate if you could just share your thoughts in terms of capital adequacy and again the recent Board approval on the stock authorization?

[Ed Jamison:]

As many of you know we had in our last Annual Shareholders Meeting a proposal to issue preferred stock which was passed at the May 26, 2008 meeting. That was just to allow us flexibility as an option. There was at the time a belief that we would be able to use that preferred stock if there would be a synergistic acquisition or something that would be a good tool to have in the event that we needed it. It was never intended to prepare ourselves for a capital raise. Now with that said, market shifting conditions, if we could get additional capital at a reasonable price irrespective of where we are today, of course it would be something that we would consider. We are not out in the market looking to raise capital. We have no offering proposed on the preferred. There’s no shelf offering. There’s no preparation of that. We believe and based on our projections that our capital level will still be well above well capitalized throughout this term.

[Larry Scott:]

Our Tier 1 capital is approximately $184 million. Our total risk based capital is $205 million.

[Operator:]

Your next question comes from the line of Analyst – Crescent Capital Management

[Analyst:]

Of the approximate $100 million in increased deposits, what percentage of those were brokered?

[Ed Jamison:]

Very little of it. Most of it was core deposit.

[Analyst:]

Do you or can you discuss or put some flavor to any fallout and/or opportunities that might be associated with the distressed condition of Silver State Bank and the Las Vegas market?

[Ed Jamison:]

It would be really difficult because we don’t know all the details so it would be hard and I don’t know if its an appropriate forum to publically—we don’t know. There’s rumors, innuendos, we don’t confirm. We just don’t know. It would be hard to say. I’d rather not make any comment on that. We know the people. We know the players over there. But I just don’t feel it would be in our best interest or theirs to say anything one way or the other.

[Operator:]

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

[Ed Jamison:]

Well before we hang up I want to express my appreciation for those that listened in and those that asked questions. We hope that the information that we provide you gives you a little bit better understanding of the portfolio that we have. We believe that the more information that we can provide you at this time to give you comfort of where our problems are and the issues and how we’re addressing them I think is going to be beneficial not only to us as we move forward, but hopefully to you in the market as you move forward as well. With that I’ll turn it over to Patrick.

[Patrick Hartman:]

Thank you very much for participating in our call. We certainly look forward to your participation on our future conference calls.