VanEck China Bond ETF
Q3 2008 Earnings Call Transcript

Published: 28 Oct 2008

[Operator:]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Community Bancorp's third quarter earnings conference call. During today’s presentations, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator instructions) I would now like to turn the conference over to Patrick Hartman, Chief Financial Officer. Please go ahead, sir.

[Patrick Hartman:]

Thank you, Mitch. Good morning. Thank you for joining us today. During this call, we discuss Community Bancorp’s third 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 Commission, including the Form 10-Q for the period ended September 30, 2008. It will be filed no later than November 10, 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 third 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 the Community Bank of Nevada is also present. Now I will turn the call over to Ed Jamison.

[Ed Jamison:]

Thanks, Patrick. Good morning and thanks for taking your time to learn more information about Community Bancorp. As shown in our release yesterday, the third quarter results continue to be impacted by the economic conditions and the deterioration of the real estate market in Las Vegas and in the Phoenix area. Both Nevada and Arizona have and will continue to experience challenges in real estate values, continuing foreclosures in the residential market, along with general weakness in the other real estate sectors as well. While there are encouraging signs in the residential sector in Las Vegas with residential re-sales continuing to show stronger sales from a year-ago period, the reduction in standing inventory and property values declines have lessened and are good indicators of some improvement. 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 has been significantly slowed. The United States unemployment figures for September was 6.1, while unemployment were 7.4 in Clark County and 7.3 for the State of Nevada. Likewise the State of Arizona showed unemployment of 5.3. Though as we see the $26 billion in construction on the Las Vegas strip completed, the employment numbers should begin to improve dramatically in the next few months. The Wynn’s new resort Encore, which is scheduled to open in December of this year, has announced opening for 3,500 new jobs. Aliante, another property of Station Casinos, will be open in a few months with several thousand new job applicants available. Likewise, we see City Center -- a huge project, the Fontainebleau, M Resort, Caesars Palace, and Planet Hollywood expansions, along with 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 the property openings will provide substantial employment opportunities and therefore reduce the unemployment rate and add to the overall economic improvement in 2009. Much has been said about the resale and residential market in Las Vegas and the Phoenix market, but I’ll focus a little bit more on Las Vegas. Residential resale inventory while elevated showed some encouraging signs of improvement. Today’s inventory of resale homes stands at 22,000, which is a decrease from 28,000 in September of 2007. But 12,268 or 56.6% of the inventory of resale homes are currently vacant. We believe these homes were primarily speculators and investor owned properties are now believed to be owned by banks through foreclosure. Since the beginning of the year, we have seen a tremendous increase in sales for these properties. Since June, we have had more than 7,000 homes classified as having pended or contingent sales, which leads into closed transactions. This trend could lead you to believe that there is a heightening demand for these properties since the beginning of the year. Currently, there is resale inventory of about six to nine months based on 2007 absorption. It appears that the inventory absorption will, over time, bring inventory numbers back into a more normalized range. The median price of both new and resale homes have decreased from a high median price for new homes in 2006 of $339,000. Today's median price is $251,000. Resale homes median price in 2006 was $286,500 with September median price at $189,000, becoming much more affordable. The price reduction has assisted in the decrease of both new and resale home inventory and moved the whole pricing index and affordability indeed more in line. It is estimated there is only a 45-day standing inventory on new homes, and we’ve seen a modest increase in residential permits [ph] for the new home inventory since the beginning of the year. It should be noted that a majority of resale homes are sold on a short-sale basis. Other sectors of the real estate market have experienced decreases in value such as residential lot and land in outlying areas of Southern Nevada and areas outside the Phoenix Metro. Office building vacancies are at 17% or higher in certain areas. Likewise, we see higher vacancy in retail from 3% year-end to 6% to 9% currently depending on the area of the community. Industrial vacancy has increased to about 6% to 10%, again depending on the areas. Overall vacancy at least in Southern Nevada has increased, whereas Maricopa County has seen even higher vacancy numbers for office, retail, and industrial space. The information given has been primarily based on Southern Nevada data. While we have a presence in Arizona, the majority of our lending activity has been in the Southern Nevada market and it 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 property and sales. While we have no subprime mortgages or Alt-A loans, we have been impacted by the continued decline of residential property values in the overall mortgage market. Additionally, the lack of available credit has hindered a number of our lending relationships’ ability to obtain alternative financing and term debt. While we see opportunity to lend, we also as with most lenders in our market have limited or eliminated certain lending activities such as certain types of land loans, speculative office and retail space due to the economic conditions, and the vacancy rates in these sectors. Generally, local economies have slowed with hotel occupancy, while remained relatively high, room rates have declined, as well as visitor volume decreasing slightly year-over-year; gaming revenue is off year-over-year, which has been influenced by the sluggish economy nationally; higher-than-normal unemployment rate, coupled with prices of gas and increase in air fare, all have affected the communities in which we operate. With that said, we believe with the anticipated opening in numbered new resort hotels with almost 17,000 rooms could and should ease the unemployment and create new jobs both at the hotels and our communities. While we can’t forecast events that may impede our economy’s growth, we believe there are factors such as the new hotel rooms, convention space, new retail venues, continuing population growth, and job creation, will be part of the emergence of our economy to a more normalized range. Results of the company’s operation for the quarter were strongly influenced by credit issues, with increased loan reserves and non-performing loans having a major effect on earnings for the period. The deposit environment has been impacted because of national and local concern with the banking community as a whole. Impact of bank failures have been felt by all banks in our market and changed the deposit mix over the short-term. We have narrowed the loss in the quarter and are optimistic moving forward with our earnings prospect in the near-term. We have taken aggressive collection management approach to identifying potential non-performing loans and credits that have then or are moving towards higher risk rates. These relationships have been identified many months ago, and we have had open dialogue with the borrowers to notice them of our concerns and plan for their maturity. This collection strategy has contributed to the increased non-performing loans as well as the higher level of foreclosures. We believe that, prior to default, the borrowers had adequate time to plan how they are going to repay their obligation with us. Upon default and without a clear plan or ability to repay in the near-term, we have initiated all available remedies of collection, including foreclosure and finalization [ph] against the guarantors of these credits. Each loan has been regarded to a higher risk level or had been reclassified as impaired, has been analyzed, and with few exceptions new appraisals completed on collateral security obligation, as well as review of the guarantor’s ability to perform under the guarantees. Where we found an impairment under FASB 114, we have assigned an adequate reserve pursuant to pronouncement. That impairment today stands at $18 million at the end of the quarter. Although last year we had a number of conversations regarding our loan portfolio and its segments, and on our second quarter release, we provided two schedules titled "Detail Composite of Loan Portfolio” to assisting your understanding of our loan mix and give more clarity as to where the trouble credits are and those that can be still found at pages 13 and 14 in the current release. We believe this information may be helpful in understanding our loan mix. As may know, in the release we’ve stated that 80% of our non-performing loans or $147 million were concentrated in 13 relationships. Let me give you some further information on those relationships, so I’ll give you a little bit more clarity of that. I’ll begin by listing them just as note 1 through 13. Note 1 is the $32,333,000 loan on 45 acres that is zoned residential and commercial, which we have an appraisal of $38 million. We are set to go to sail on that property through trustees in January of ’09. Note 2, the amount is $26,138,000, 24 acres zoned retail with an appraisal of $47 million. And the sale date is pending because the applicant and the borrowers filed bankruptcy. Note 3, $15,250,000, which is an 18-hole golf course, zones as other, and we have an adequate appraisal and that sale date is scheduled for December of ’08. Note 4, $17,538,000, a 36-unit apartment complex with 110 other lots available for further development of multi-family. And appraisal, we have $15.8 million within a reserve on that one of about $3.3 million, set for sale this month. Note 5, $11,294,000, 9.43 acres, zoned retail, with an appraisal of 25 million, set for sale in January of ’09. Note 6, $7,210,000 with an allowance of 450,000, it is four single-family homes, 96 lots on 11 acres, zoned residential, set for sale in December of ’08. Note 7, $6,857,000, 46 single-family lots on 13 acres, zoned residential, set for sale in January of ’09. Note 8, $6 million loan, 97 acres, zoned residential, set for sale in January of ’09. Note 9, $5.4 million, 84 acres, zoned residential, set for sale in January of ’09. Note 10, $5,502,000, one single-family resident and eight single-family lots, residential zone, set for sale in October -- this month. Note 11, $4,666,000, 19 single-family homes with 51 single-family lot loans, zoned residential, set for sale in November. Note 12, $4,589,000, 28 acres, zoned residential, set for sale in November of ’08. Note 13 is $4,164,000, eight single-family homes, 76 single-family lots, residential, which we are a participant in this credit on, and set for sale this month. As you can see, the abundance of problems – credits that we have here today are focusing on land, both residential and a few multi-family and a little retail. Likewise, we only have 32 standing inventory of homes. These homes are primarily completed because of the paralysis in the mortgage market, they were unable to sell before we processed our default. Give you a little clarity as far as the amount of 147, the valuation reserves we have set aside are $13 million for that group, which is 8.85% reserve on those loans. We believe that we have maybe an appropriate analysis as far as the impairment, and we have an appropriate reserve for that. As we see moving forward in our process of foreclosure on some of these properties, the majority of these loans are – half of them would be done before year-end and the other half would be done in the early part of the second quarter – first quarter of ’09. We believe that these relationships are the portfolio’s problems, not saying that there may be other minor credit issues, which will be based on today’s economic environment should we expect it. We believe by aggressive collection, we’ll be able to return non-performing assets to earning assets by moving quickly to assess the problems and to move quickly to foreclose and resale the collateral as quickly as possible. We do anticipate a number of payoffs of these non-performing loans. Over $5 million of these non-performing loans will be paid off this month or refinanced under new terms and conditions this month. We continue to receive expressions of interesting properties that are in foreclosure and believe that we’ll liquidity properties after the legal process is concluded. One indicator for us in the potential loan problems is delinquency. Our 30 to 59-day delinquency stands at 13 basis points or $2 million, or 60 to 89 days is 2%, which is primarily made up of two relationships that constitute 67% or $20 million. One is a participation that has never been late and has matured and awaiting refinance from the lead lender. The other is a loan we have in the foreclosure that is in the process of being refinanced and should be off our delinquency this month. While we have had these challenging times and credit has deteriorated, we still believe strongly in our market and that we have been able to identify and develop strategies for returning these non-performing assets to earning assets in the near-term. With that, we’d open it up to questions.

[Patrick Hartman:]

Mitch, would you please explain the technical elements of the Q&A session.

[Operator:]

Yes, sir. (Operator instructions) And our first question comes from Todd Hagerman with Credit Suisse. Go ahead please.

[Todd Hagerman:]

Good morning, everybody.

[Ed Jamison:]

Hi, Todd.

[Todd Hagerman:]

Hi, Ed. I was just wondering if you could just talk a little bit more about the deposit strategies and just kind of the outflow that we saw this quarter? And specifically what I was looking for, just how you guys are measuring your liquidity position, how the regulators are measuring that liquidity position? And what is the – is there more of a mix shift? Are the customers going out the door, a little bit more detail would be helpful.

[Ed Jamison:]

Let me – I’ll address some of that question and then I’ll turn some of it over for clarity to Patrick. But Todd, what we saw is a convergence of national news. Of the national news, at least in our local media, talks about failing banks whereas mostly they were talking about Lehman Brothers and investment banks. But the Main Street doesn’t differentiate Wall Street to Main Street or your commercial bank. So that noise is going on, as you will know. And then we had Silver State, another large business bank in our community, to fail as well. So the convergence of those things caused some apprehension and anxiety in the customers. We have not lost number of customers. In fact, over the last 30 to 45 days we’ve gained a number of customers, but they did reallocate their resources, and candidly, as we see, we're no different than any other bank. And there was movement from our bank to banks that are termed too big to fail, if you understand. And so we have seen that. We have lots of relationships that are still there, and we’re seeing some movement back. So there has been a shifting of that. We were concerned about the one institution in our market that was having the struggles. So we've built up over the quarter a tremendous amount of liquidity anticipating that. And so we were well prepared for that, but it did change the mix, as I mentioned before, of what our deposits are. Patrick, do you want to give a little more?

[Patrick Hartman:]

Yes. Probably the most significant thing that we did in preparation for this was to bring a considerable amount of liquidity on our balance sheet. In the past we have sought to minimize the excess liquidity and focus on NIM. Because of the liquidity risk presented by the Wall Street experience and the closure of a couple of banks in our marketplace, we thought it would be prudent to accept some compression of NIM and make sure that we had enough liquidity to deal with whatever came our way. We brought liquidity on the balance sheet. We paid off any lines of credit we had with the FHLB and positioned the bank to be compared to whether any issues that came up. We do track this constantly. And as Ed said, the activities of depositors to seek safety of something they perceive to be too big to fail has slowed down and is beginning to reverse now.

[Ed Jamison:]

We are seeing, Todd, some encouraging – very encouraging signs. The actions of the FDIC raising the limits to 250 was a positive. Likewise, the unlimit [ph] on non-interest bearing is giving calm and peace to many customers. And so there have been some marked changes over the last really three weeks. And so we are encouraged by that. We are seeing some positive signs that the mix will change.

[Todd Hagerman:]

Okay. And then just secondarily, just in terms of the impaired loans, if you can speak a little bit more in terms of the confidence in the clearing values and the specific reserves that you’ve established there, I mean, just on the surface it looks a bit thin, if you will, averaging between, I don’t know, 9% to 14% or so. Do you have – I mean, under firm contracts in place, what gives you this outside of the appraisal process and the rigor that you go through, what gives you that confidence that those numbers are appropriate in terms of clearing values and just the pressure that you’re seeing in the market? Are there firm contracts in place?

[Ed Jamison:]

Firm contracts for sale?

[Todd Hagerman:]

Yes.

[Ed Jamison:]

Firm contracts – but the other thing is you’ve got to understand we are in the beginning parts of due process of a defaulted loan. These people have legal rights for remedies to pay off. We do not own these properties. We are being proactive in trying to sell. But understand, we don't own thee properties. And we couldn’t enter into a contract or sale of something that we don’t own. So the process is ongoing. We believe through expression of interest by others that the values are holding up very well, and that once we receive a trustee’s deed, we will be able to move through these properties. But until we have that, we’re just going through the process. Now, the appraisal process and how we come up with the impairment is quite a process that we have been doing, ongoing. And I’d say, personally, this quarter I did every one myself. I said that and I reviewed every loan that’s impaired, and went through the analysis. And in some cases, we changed those figures downward. But we take the appraisal as a basis and then we take into consideration market condition, market timing, cost of sale, and any other factor we believe that was going to be an expense to liquidate the property. All those things considered, you come with the bottom line, the difference between what the collateral value is today -- now I’m talking about current – versus what we come with the expenses comes up with is there an impairment. And if so, we have to put an impairment reserve allocated. Those are the numbers that we’ve come up with through that long process. It’s the best we can do. Part of it is you got to understand, Todd, we went in with such low, low device on these land loans to begin with. We are not starting from the basis of 75% loan to value. Most of these loans, especially the land, were 60% at the most, 50% at the norm, loan to value going in. So, whatever compression we've seen in value was absorbed by going in with good solid underwriting to begin with, not taking an aggressive approach on these loans. And so that’s what has helped us out tremendously as these loans were underwritten properly, conservative loan to values. And therefore what we’re seeing is evidence of that benefit when we come under stress. Do we still have adequate equity to protect our loans? Yes.

[Todd Hagerman:]

But is there any possibility in terms of just exploring a note sale as opposed to actually taking title to the property?

[Ed Jamison:]

Todd, I’m sure that there is cases where we have had that discussion, but they're normally ones and twos. We’ll sell one. Yet we are not taking discounts on them. We just don’t believe that that value is there now. Given that said, we hear about the vulture funds coming in and offering $0.20 to $0.30 on the dollar. We cannot show evidence that that would be the appropriate thing for our bank, shareholders, or in good conscience, feel that was the appropriate action to take because it’s not necessary.

[Todd Hagerman:]

Okay, thanks very much, Ed.

[Ed Jamison:]

Thanks, Todd.

[Operator:]

Okay. Thank you. (Operator instructions) And our next question comes from Brian Hagler with Kennedy Capital Management. Go ahead please.

[Ed Jamison:]

Hi, Brian.

[Brian Hagler:]

Good morning, guys. How are you?

[Ed Jamison:]

I’m fine.

[Brian Hagler:]

I was just wondering to get your thoughts on few things. One, maybe if Larry is there, I think – or Patrick – you’ve been talking that a year or so ago, you identified this pool of loans that you thought were going to be problematic and you were forward looking. And I'm assuming the 13 loans that we kind of went through or were in that bucket, but I guess what I’m trying to figure is once you kind of work your way through these credits and hopefully the sales go through as planned, kind of how far are we through that bucket? I mean, this would be the kind of 80% done with that, or is there still more to go there?

[Ed Jamison:]

Brian, this is Ed. Let me make my comment and Larry can follow up. I believe this is more than 80%. We believe that there are others. But as we’ve talked to the market over the last year, we’ve been following these credits. This is not something that we haven’t had an identification and an aggressive monitoring place for. So we believe, at least in my view, this is the absolute bulk we see. Now, given that said, there is always going to be changes, there is always going to be something that’s unexpected. This isn’t just 13 that we’re looking at. We have looked at absolutely hundreds of our credit relationships and looked at grades, looked at performance, looked at perspective performance going forward, looked at collateral values and all of that. So this is what we believe was the bulk of our issues in the portfolio as a whole. Now I’ll let Larry have his comments as well. He's been intimately familiar with -- I've been doing the review, and he's been doing the actual on-the-ground work. So, Larry?

[Larry Scott:]

Yes. Hi, Brian. I think there are a couple of important notes to make from the 13 loans that Ed identified there. They clearly -- these have been in part of this pool that we have been working with. Without a doubt, the most difficult portion has been the residential cycle loans, those that were either in the A&D or in the construction side. That is although it’s a fairly sizable dollar amount that we have 11 originations in the A&D side, 10 originations on the construction side, and of course nothing in the mortgage side of things. On the commercial side, of the loans that Ed identified today, there were two properties that were identified as retail. They are both land. The good news is in the portfolio that we are experiencing today is that in spite of rising rates that are occurring in both retail and in office space. Industrial seems to be visibly stable. We have not experienced any large measure of default in any of those commercial properties. And when I’m saying that, I’m speaking about the actual income producing properties. So the only two non-residential pieces that we have are – or actually it would be, would be two retail land loans, and those values have held quite well, and one special use property which is a golf course. So the residential piece, we not only have our arms around it, we had our arms around it for some time, and we are advancing forward to eventually either being paid off or taking these into OREO. We have a couple of retail land pieces. The single golf course loan and then – and Ed brought up the delinquency. Our delinquency numbers or past due numbers are still very, very good. So in spite of the deterioration in vacancy levels that are occurring in retail and in office space, we have not been impacted by it at this point in time. And again, if there is anything that I would point to is that there was good underwriting going in. That acquisition and development piece that we have on the residential side, the average loan-to-values was 46%. That has deteriorated to about 74% now with the decline in value of the properties. But we still have room in that group. So I would tell you, Brian, that nobody knows where the economy continues to go for sure, but there is no surprises that we have with this portfolio right now. We know what they all are.

[Brian Hagler:]

And I guess my next question is, how are you guys analyzing kind of the sale of these properties? Obviously it sounds like you expect to get I guess titles on most of these over the next three to six months? How are you analyzing sales through -- I guess the third party versus potential use in the government program that we’re still kind of awaiting details on?

[Ed Jamison:]

Brian, the details are – we’re not going to wait for the government. We're not going to wait for that pronouncement or clarity there. We’re aggressively trying to market the property. Now, none of the OREOs that we have taken back and sold have we financed. Part of the reason that the paralysis is here -- we’re probably in some of these to the point of foreclosure is because they could not get financing elsewhere to pay us off. But we have not financed anything of the OREOs, but if we find any qualified applicant, we will put the adequate amount of down payment on this. We can structure the loans so that it doesn't become a structured loan and it’s in compliance and qualified loan. We’ll be the lender. The other thing is that some of these people would love to go out and be able to borrow somewhere else to pay us off. But because of the market conditions are being as such, so for us, let’s get us a new borrower on unfortunately, that’s the process, and put adequate down payment down in cash and negotiate a sale, finance them over a short period of time, and move forward (inaudible) credits getting earned again. These are not bad credits. These are not bad loans. But they have no alternative financing. As we see and saw probably nationwide the impact on the credit, things are not done. We’re just not – we’re not entertaining a lot of land loans, but if it’s properly structured with a good borrower, we would work. We would finance it. And no one is better to finance something that we're going to sell ourselves. So --

[Brian Hagler:]

And maybe lastly for Patrick, I just wanted to get you thoughts on the conversations you’ve had with regulators regarding the capital portion of the TARP and kind of how that process may --?

[Ed Jamison:]

Brian, let me address that a little bit. We are continuing to look and evaluate the TARP program. And it has some encouraging and interesting components to it. But it’s really -- if you ask a regulator today in our discussions and dialogue, they don’t know much either. As you’ve probably recognized, they have put out a two-page application that’s very simplistic, but I’ve never known the government to be that simple about giving money. So we’re in the process of continuing to review and making a firm decision of what and how we’re going to proceed on that.

[Brian Hagler:]

Okay, great. Thanks.

[Operator:]

Okay. Thank you. And our next question comes from Brian Klock with KBW. Go ahead please.

[Brian Klock:]

Good morning. And thanks, Ed, for taking my call.

[Ed Jamison:]

Hi, Brian.

[Brian Klock:]

When is the – I think some other questions may have touched on this. And Patrick, what is the capacity you have to borrow with the FHLB now? I know you guys paid down some of those borrowings. What is the capacity that you have with the FHLB?

[Patrick Hartman:]

It would be in the neighborhood of $125 million.

[Brian Klock:]

Okay.

[Patrick Hartman:]

We also have a similar line with the Federal Reserve.

[Brian Klock:]

Okay. I know they are secured, right, even with the Federal Reserve?

[Patrick Hartman:]

They are both secured.

[Brian Klock:]

Okay. I guess with the OREO sales, Pat, during the first three quarters of 2008 – so I know in your release you talked about selling $4.5 million of OREO properties. Do you have sort of where you sold that off of the original note value I guess as far as after you took charge-offs and reserves against that, what was the final percentage of original note value that you got proceeds on?

[Ed Jamison:]

You mean what was the additional loss that we would have incurred on those –

[Patrick Hartman:]

How does the sales price compare to the note?

[Ed Jamison:]

The note price, fairly equal with the exception of one large home that it was well less than the original price what we’ve thought. And it was an unusual loan. And so we took a large write-down on that to get the sale. So we sold it for current appraisal. Of course, you know that, but it was off of what the original price was.

[Brian Klock:]

Okay. So I guess I mean – I guess what I’m trying to get is what was sort of the overall loss severity if you take in charge-offs, write-down to the OREO and then final loss on those – was it in the neighborhood of 10% --?

[Ed Jamison:]

Well, we’ve got – on the OREO, we have valuation of allowances of about $900,000 on the OREO.

[Brian Klock:]

Okay. Okay. And just last question, the impact of the non-accruals on the margin, what’s an outlook I guess for the Fed fund rate cuts and in the future they’re saying there could be 50 basis points more. Do we have any interest rate floors in your variable rate loan book, or how should we think about the margin going forward?

[Ed Jamison:]

The majority of our loans had floors. So they have been operating at floor level for probably two quarters. Two quarters?

[Patrick Hartman:]

Yes.

[Ed Jamison:]

So we don’t see any compression in that anyhow. And we don’t see any pressure to reduce that. So we believe at least we have capped the floor. Of course, the interest rate needs to change dramatically. That’s going to help us as well to improve the NIM. Getting non-accrual back to accrual is going to be another tremendous boost of our NIM. So all of those factors are going to be – Patrick?

[Patrick Hartman:]

If I can add something to that, Brian? In the third quarter, the interest reversals on loans going to non-accrual probably cost NIM 65 to 70 basis points.

[Brian Klock:]

Okay.

[Patrick Hartman:]

I’m expecting that the movement of loans to non-accrual will dramatically slow down as we go forward. So while we have to carry those non-earning assets, we do not need to make the interest reversals that we’ve been making in the last two quarters.

[Brian Klock:]

Okay, great. Okay, great. I guess last question, Patrick, you talked about the movement in wholesale demand and brokered CDs from end of ’07 to the third quarter. Do you happen to have the second quarter balances for wholesale demand and for broker deposits?

[Patrick Hartman:]

Yes. Second quarter end of period wholesale demand was $365 million.

[Brian Klock:]

Okay.

[Patrick Hartman:]

And wholesale CDs was $97 million.

[Brian Klock:]

Great. I appreciate it guys.

[Patrick Hartman:]

Sure.

[Ed Jamison:]

Thanks, Brian.

[Operator:]

Okay, thank you. (Operator instructions) And our next question comes from Terry McEvoy with Oppenheimer & Company. Go ahead please.

[Terry McEvoy:]

Good morning.

[Ed Jamison:]

Hi, Terry.

[Patrick Hartman:]

Hi, Terry.

[Terry McEvoy:]

Your strategy for working through the problem credits has been to move quickly and then if all those sales proceed with what you call legal remedies, how do you balance maybe those aggressive actions with upsetting some of your longer standing customers who you want to have customers in the future? And are you a little bit more lenient on those that you think will be the customers of tomorrow and – or maybe the $185 million of non-performing loans are simply customers that you just don’t want coming back once the dust settles?

[Ed Jamison:]

Well, I think we have to balance the relationship somehow [ph]. And I want you to know that there is not a customer here that’s not aware of what we would do at the time of maturity and default. So it’s a relationship that we’ve developed. Candidly there have been cases where I’ve had a foreclosure on somebody and they come back and borrow from us in the future. We’re doing this in the most professional manner that we can. We’re not – and I know that some banks use – you know, playing a little soft on some. We’ve got a problem we’ve identified we need solutions, we need to get these back earning, and just to refinance a credit to postpone the inevitable didn't feel like the appropriate strategy for our institution. We’re concerned about the magnitude of other properties that may come on line. And we want to be able to be well ahead of the curve of other properties that may come on and sell our properties and move on cleaner than we were going into this. So it is a relationship concern. Some, it’s damaged, absolutely, but these are hard decisions you have to make based on protecting the assets of the bank and for shareholder and just prudent banking. So --

[Patrick Hartman:]

I would just add, Terry, I – this is Larry Scott. Of the 13 loans that Ed identified, I have personally met with every single one of the principals associated with these loans, and in most cases many, many times over. The relationships have been good in virtually all the case, with a few exceptions. But I would tell you that we are being very, very consistent about it. The communication is good. They know exactly where we are at. We know exactly where they are at. And they understand that ultimately we’ve got the capital invested that we need to be able to have returned and be redeployed. And so it’s been a very professional working relationship. And I think it would be a very flawed strategy to not taking any other approach other than that. We have important capital here that we need to have returned and redeployed, and that's been a consistent approach with every single deal.

[Ed Jamison:]

You’ve got to understand, with each one of these 13 and 99.9% of all of our credit is personally guaranteed by the borrowers. So, not only we’re pursuing the collateral, but pursuant to Nevada law, we're going after them personally so that we have the two-prong approach. They are well aware of it. So for us, it’s doing it professionally, but it’s also keeping in mind the end goal is to return [ph] this. Now, they want to step forward and pay us off the interest, we would welcome that. But their inability to do so is evidenced by where we are today, and that’s the analysis I think they come up with as well as us. So we’ve had to pursue this vigorously.

[Terry McEvoy:]

And then just a small question. What were the risk-weighted assets, the dollar amount at the end of the third quarter?

[Patrick Hartman:]

About $1.6 billion.

[Terry McEvoy:]

$1.6 billion. Okay. Great. Thank you.

[Ed Jamison:]

Thank you.

[Operator:]

Okay, thank you. And gentlemen, we have no more audio questions at this time. I’d like to turn the conference back over to Mr. Hartman for any closing statements.

[Patrick Hartman:]

Thank you very much, Mitch. And thank you for listening to our call. We certainly look forward to your participation in our conference call next quarter.

[Operator:]

Ladies and gentlemen, this concludes the Community Bancorp’s third quarter earnings conference call. You may now disconnect. And thank you for using AT&T Conferencing.