Western Alliance Bancorporation
Q4 2008 Earnings Call Transcript

Published: 30 Jan 2009

[Operator:]

Good day everyone. Welcome to the earnings call for Western Alliance Bancorporation for the fourth quarter of 2008. Our speakers today are Robert Sarver, Chairman, President, Chief Executive Officer and Dale Gibbons, Chief Financial Officer. Today's call is being recorded and there will be a replay available after 2

[Robert G. Sarver:]

Thank you. Thank for joining us on this conference call. Obviously this quarter was marked by significant write-offs in goodwill as we continue to have to write-off some goodwill. Previously we wrote-off all the goodwill of our Bank in Reno and this quarter we wrote-off some goodwill in Las Vegas. This is an accounting adjustment based upon looking at our accounts, looking at our current market price and comparing that to our book value and our tangible book value. We also had significant write-offs in our investment portfolio as we took a rather conservative position in charging up essentially all of our CDO portfolio. Dale will get into a few comments on that going forward, and increased loan loss provisions. All in all it was not a pretty year. I was looking back six years ago when I got involved and made an initial investment of $20 million in the Western Alliance, and thinking of all the things we've accomplished over the last six years and the growth of the company, and the people, and the customers, and the franchise; and at the end of the day the stock is at the same place it is today as it was six years ago when I originally invested. So, it's a little frustrating not only for you folks as investors but for me and ourselves to see that we worked so hard over the last six years and really don't have much to show for it in terms of stock price. However, I will say that we are here, and we are here in a much stronger position than most of our competitor. And, in a lousy industry, the weak tend to drop out and the survivors tend to get a bigger market share and that's where we are headed right now. Peter Lynch once said in a book Beating The Street back in 1993 something to the effect of that

[Dale Gibbons:]

Thanks. As you've read, we had a net operating loss of $12.2 million for the fourth quarter, $0.32. That includes a reserve build of $18 million with a provision of 32 million in excess of charge-offs of 14.5 million. PartnersFirst losses were another $0.07 in the fourth quarter. That operating income number excludes the goodwill charge that Robert eluded to you. That was at our Bank of Nevada affiliate where we essentially wrote-off half of the goodwill at Bank of Nevada. And none of the other banks have any goodwill left now that we have eliminated the goodwill in the third quarter at First Independent and Reno. It also excludes our securities impairments which totaled 75 million after tax during the quarter, including a virtual write-off over our entire portfolio of CDOs. The original par value there was a 121 million. It's been written down to 1% of that amount. And in addition, we also we impaired Zions adjusted rate preferred stock. In Morgan Stanley we have 10 million par of Zions which we've written down to about four. In Morgan Stanley we have 5 million in par which is written down to about two. Both of those securities are performing and in fact on the CDO portfolio as of 12/31, 77 million of that portfolio was performing as well. However 10 million has given us notice that they expect to go into deferral sometime in the next six months. Including these charges, the loss was $148 million for the quarter, 3.79 per share. And for 2008, our operating loss again excluding non-recurring, was $2.1 million. That includes the sizeable reserve build of 25 million and PartnersFirst losses after tax is of 8.2 million for 2008. In terms of what's remaining in our portfolio, as Robert mentioned, I think we've taken a lot of the credit risk out there. We still have $39 million of par and book amounts of Bank of America adjusted rate preferred stock. The market value for that is today approximately a third of the par. We have 4 million in Zions which is a written down amount, and it approximates the current market value, 2 million of Morgan Stanley. And then the, and then we have $30 million of par of J.P. Morgan trust preferred. That has a market value of about $15 million today. And we have $2 million of states three trust preferred which has a market value of just under a million. In terms of the, on the income statement, starting the revenue, fourth quarter revenue was $56.3 million, that was down a million from the third quarter. And margin came in at 4.3% compared to 4.36 in the third quarter. While we clearly have...pricing powers clearly shifted to providers of credit rather than borrowers. We've had a couple of counter-availing trends to this. One is our higher non-performing asset level; the other is that we have as a member bank stock in the Federal Home Loan Bank of San Francisco and they have suspended dividends. And in addition to that, our recognition of income on the CDOs as a result of the write-offs has been more muted as we've gone through somewhat of a cash basis as well as applying some of those repeats that we obtained against the principle balance. In terms of our loan pricing, 40% of our loans are fixed-rate and another 28% have floors. So two thirds of our loans are fixed-rate in this environment and can just give it a some strength in terms of reporting our interest margin as our cost has dropped considerably with the monitory actions of the Government. For the quarter, loan growth was $149 million. 26 million of that was in Nevada, 30 million at Bank of Nevada, a small contraction in our Reno operation. 56 million growth in Arizona, and our San Diego operation continues to just perform well on the growth side as well as the income savings. 46 million in loan growth in Torrey Pines, and 17 million in our Oakland operation. Our customer funds growth was $177 million for the quarter. It was in part benefited from our Wall Street program. Our Wall Street program is a method whereby we provide our customer five times the FDIC insurance limit from any one bank and this would be applied for money market deposit accounts in CDs, unlike DDA which is now unlimited. Whereby we can ... we offer our customers access to each of their accounts at all of our banks on one screen and they can manage their monies to obtain $1.25 million of insured deposits. Including these deposits we were up $20 million in Nevada for the fourth quarter; about 14 million in bank of Nevada, 6 million in Reno, up $46 million in Arizona and up $111 in California, almost all of it at our Torrey Pines affiliate. Fourth quarter non-interest income was down $1.3 million to 6.1 million from the third quarter. Our total assets under management decreased 300 million. I think it really is a direct result of what's happened in the equity valuations, and that has trimmed our revenue by $400,000. In addition to that, we had a loss on other real estate of $900,000, most due to combined that other than that it would have been flat. But however, we think the asset management interest revenue contraction we experienced in the fourth quarter is likely to continue in 2009. Non-interest expense was up $3 million to 43.6 million from the third quarter. That includes certain non-recurring costs related to our startup operation in Los Angeles. We also had some one time legal expenses that show up in other non-interest expense. However, perceptively the savings we are going to get from these non-recurring items is not been repeated in 2009 is going to be largely offset by higher deposit insurance premiums that commenced in January. Our efficiency ratio was 77% for the fourth quarter, without PartnersFirst it was 70. FTE was up three from 930 to 1,020 people and that includes 11 at our Los Angeles operations and net of that we would have been down slightly. Non-performing loans increased plus that the real estate increased to 32 million to 73 million, 1.39% of total assets; past due increased to $12 million. Again those are, I believe, well secured and in the process of collection and then loans past due 30 to 89 days on accrual increased as well to 45 million. With the provision expense of 32 million as Robert mentioned, the allowance is 1.83% of loans and it's also 128% of non performing loans. Our tangible common equity ratio contracted as a result of the provision expense, the CDO write-downs, to 5% of assets. Tangible equity including our TARP plans of 140 million with 7.7% of tangible assets and total capital ratio was 12.2%. We have a charges-off these $77 million of performing CDOs. Although my for those is do be it, certainly I've been...it'd be the banking company in the country right now that has more in charge-offs performing securities that it has and non-performing assets. That said that has affected our capital ratio. The after tax effect of the 77 million in charge-offs has to cut our capital ratio, total capital and our tangible by 1% but we were still well capitalized 12.2 and 5% on tangible. Now I would like to turn the time back to Robert.

[Robert G. Sarver:]

Okay, why don't we just open it up for questions and get started with Q&A.

[Operator:]

Thank you. (Operator Instructions). We have a question from Joe Morford of RBC Capital. Please go ahead.

[Joseph Morford:]

Thanks. Good morning, everyone.

[Robert Sarver:]

Good morning.

[Joseph Morford:]

I guess Robert, are any of your banks shown any material signs of stress in the term, CRE or commercial construction portfolios? And after this general, what's your expectation about what the industry's loss experience would be in CRE this cycle?

[Robert Sarver:]

I do think in general, commercial real estate values are going to come down. If you look at kind of the reed stocks and you can kind of get, I think a little view into what...where some of the values are of real estate and where they're headed. I think CAP rates are going up. We are seeing that in a number of different products. It varies a little bit from market-to-market. For example, apartments are relatively stable still in California, in Nevada, but in Arizona the CAP rates are moving up pretty quickly Arizona has lost about 300,000 illegal immigrates that have left town because some of the harsher laws and our progressive share. But it kind of varies from market to market. But in general, I think CAP rates are going up. We have not seeing much stress in our commercial real estate portfolio. Some of the issues we've had and a few buildings were taken back have actually been more owner-occupied which is little different than usual. Business have just failed or I know it can release all that space but I do think the market will see some stress in that area. There is a lot of re-financings coming due. The conduit markets are pretty well shut down. There is not a lot of liquidity in that market and I think you are going to see some CAP rates. And we've said that for years on the CAP rates, one of the reasons we've kind of gone in its some lower loan to values and this has been because we thought these five and 6% CAP rates were kind of nonsense. So I think you're can see some stress there.

[Dale Gibbons:]

Right.

[Joseph Morford:]

Okay, when you are considering acquisition obtained through assisted transactions and now are you really just looking within footprint or are you considering other states at this point?

[Robert Sarver:]

Right now we are primarily looking within footprints where we can leverage our expertise with the people. So that would be our primary focus in terms of assisted deals. Now if we are able to... if we would be opposed to do a deal with a bank that's in good condition that, has its existing management all that is another market although that's not at the top of our list right now. But in terms of assisted deals and turnaround deals, we are only looking at markets that we have people on expertise.

[Joseph Morford:]

Okay. And then lastly Robert, I just... can you may be expand a little bit about your, your comments about doing a partner for PartnersFirst to share some investment and loss burden there and just how that would kind of work in the plans?

[Robert Sarver:]

Yeah. The credit card business is like any other lending business. It's great to be able to make loans today and it's also great to not have this huge portfolio you're dealing with. So, the future and the opportunities for us at PartnersFirst are pretty good because we got this wonderful platform that's state of the art. Partners love it. We give referrals, smaller partners we signed some new, we just signed it, I think its first or second largest union in the country SEIU, yesterday. And so, there is lot of opportunity. Our main competitors in that market are further contracting their employee base, their services all that. But it takes a lot of capital. And so kind of, the viewpoint today is just doing what we're doing doesn't really makes a lot of sense because we are not really able to grow it large enough, so we can really start making some money with it. But we could if we brought in a partner. So the idea is that instead of owning a 100% or some kind of small we'd rather own, say 25% of something kind of big. And so we are looking to bring in a partner that can bring in some significant money and therefore we'd be a smaller owner and something with a lot more capital and some larger.

[Joseph Morford:]

Okay, that's helpful. Thanks so much.

[Operator:]

Thank you. Our next question is from Brad Milsaps of Sandler O'Neill. Please go ahead.

[Brad Milsaps:]

Hey, good morning.

[Robert Sarver:]

Good morning.

[Brad Milsaps:]

Robert, I was... you touched a little bit on your provisioning going forward and talked that that you expect it to be elevated or remain elevated. Would that be from this quarter's level or come looking at your third quarter? And second, I just wanted to see if you could comment on kind of what were the factors, the primary factors that drove the larger provision this quarter?

[Robert Sarver:]

Well, in terms of the factors, I mean one factor is that our number of non-performing loans is increasing. And then to be honest with you, the other factor is you got a lot of people looking at your books, including accountants and they just want more. If you look at the market, everyone wants more and more and more. So, you just got to put more in. I mean that's just the environment we are in. and in terms of the levels I was looking at, what I was saying is that we are more likely to see the levels that we are seeing in the fourth quarter to continue into 2009.

[Brad Milsaps:]

Okay. And you touched on your break-down of your charge-offs a little bit. Are you surprised that the number of C&I charge-offs you had in '08 kind of versus construction development lending?

[Robert Sarver:]

Yes and no. We do a lot of business lending. We loan a lot of ...businesses is our main focus and with the gaming industry down, a lot of businesses in Nevada feed-off that industry, and that's where you tend to get your losses. The other thing is if a business is having trouble that loss, it's recognized much sooner because it's not this protracted for closure and all that kind of stuff. Not really, I mean, I am not that surprised there.

[Brad Milsaps:]

Okay. And then a follow up question, I just wanted to see if you could comment generally on the growth in construction and development lending, I know the last couple of quarters you said you are finding some tremendous opportunities out there, so I'm just kind of curious on the churn within that portfolio kind of what would be sort of new loan originated at very low LTVs versus kind of older stuff that maybe you should be amortizing off or going more into permanent type financing?

[Robert Sarver:]

Where do you get the permanence finances there?

[Brad Milsaps:]

From you guys, right? You guys said that you are the only guys dealing in lending in town.

[Robert Sarver:]

No, yeah, I mean the older stuff amortizes down, pays down, charge-offs down, whatever it's coming down. But the newer stuff is just I mean different ... one of the bigger loans we made four or 5 million recently in those numbers will be a construction loan for a veterinary clinic in Tucson, Arizona. People are still spending a lot of money on their pets including me. So it's a pretty select basis. I mean we got our eyes open, loan to value is structured very low. Good borrowers and the stuff we're booking now is pretty damn good.

[Brad Milsaps:]

Okay, great. Thank you.

[Operator:]

Our next question is from Terry Mcevoy of Oppenheimer & Company. Please go ahead.

[Terry Mcevoy:]

Thanks, good morning.

[Robert Sarver:]

Good morning.

[Terry Mcevoy:]

Just curious, any of the increase in delinquencies in the fourth quarter, any of that related to just administrative matters, longer response time to get updated appraisals or is that simply it is what it is?

[Robert Sarver:]

Probably a little bit above. There is some on the administrative side. Obviously, we tried to limit that as much as possible and it incurred the lenders to really be looking out ahead and making sure they are getting those updated appraisals but I would say three quarters of it is what it is.

[Terry Mcevoy:]

Okay. And then Dale, just a question on interest income from the securities that were written down; going forward, is that classified in a different way? And I think in your prepared comments, you did make some reference to that in the fourth quarter. So you just help in '09, whether we're going to notice anything different because of the write-downs.

[Dale Gibbons:]

Yeah, you are going to, at least going through the first quarter, there is going to be a little bit of pressure on the margins related to... what we've been on a cash basis or the Federal Home Loan Bank for example and so the suspension of dividends there would cost us about a nickel. We have a somewhat similar effect on the CDOs where we did have some recognition ...revenue recognition in the fourth quarter on those, when we have a modest balance left and majority of those are still performing but much of that income is going to be directed towards getting rid or writing against the remaining balance of those securities. If they continue to perform throughout 2009, then we'll see income recognition step up again because we will have a zero basis in those securities. But out of the gate here, you are going to see a little compression there as well.

[Terry Mcevoy:]

Okay, that's it. Thank you.

[Operator:]

Thank you, our next question is from Brian Klock of KBW. Please go ahead.

[Brian Klock:]

Good morning. Robert, a quick question, I guess obviously the impairment charges have hurt the tangible common equity ratio, just dropping below 5%. Maybe you can kind of comment of what you think of how much lower you'd see that tangible common equity ratio go? Obviously the TARP is augmented your regulatory capital ratio, so maybe just give us your thoughts on the tangible common equity ratio.

[Robert Sarver:]

Dale you want to respond to that.

[Dale Gibbons:]

Yeah I might comment a little. Actually there is a little bit of a tax benefit in there that you are not seeing Brian that would take their number up to just a little bit over five. But that's it. I don't want to ...I mean it is down considerably from where it was. We are very interested in maintaining our tangible common equity at these levels. That said, we do have the TARP running that does take our total capital ratio to 7.7. And so, I don't think we'd been interested in necessarily managing down from here. Might there be a scenario whereby we'd be willing to tolerate it dipping down based upon some type of maybe an assisted transaction that has a modest premium associated with it. With the idea being, we have a pan place in terms of how that's going to recover. But no, I don't think we are interested in running it on an ongoing basis that capital been than what we are presently showing.

[Brian Klock:]

Okay, so I mean I don't want to put words in your mouth but I guess if you talk about assisted transaction that mean you ... issue 100% capital or do a capital raise with the transaction, is that which you mean?

[Dale Gibbons:]

Well it kind of depends. I mean there is so many different ways to do one of these or to how this might look. But I'll give you an example; I mean if we did a transaction that was primarily liabilities and not assets, we could absorb that really without any growth in our balance sheet just by paying off wholesale funding sources.

[Brian Klock:]

Sure.

[Dale Gibbons:]

And the only tangible capital hit we would be stuck with would be whatever the premium would be and those who are in the gambit, but a lot of them are kind of in the low single-digit percentages as you know.

[Brian Klock:]

Sure.

[Dale Gibbons:]

From there to something else that does have some type of balance sheet growth. And I guess what I am saying is, is that we are very cognizant certainly of this level. We are not interested in running it down from here. That said, I don't want to say that we when engaged in something that might at least on a temporary basis kind of pull it down a little bit, but the plan would be not to run certainly in the lower area right now.

[Brian Klock:]

Okay. Dale just quick house keeping item; FDIC insurance premiums, how much do you expect those to go up in first quarter versus fourth quarter?

[Dale Gibbons:]

Well if you have... the base rates, they are doubling

[Brian Klock:]

Right. Go ahead.

[Dale Gibbons:]

And then there is attack on premiums for certain types of wholesale funding sources. We are below the threshold for the tack-on for broker deposits. But we are a little bit into that category for secured borrowing. So, a little more than that.

[Brian Klock:]

And what about the DDA piece as well.

[Dale Gibbons:]

The DDA piece is another ten best time and we have signed up for that guarantee through 2009.

[Brian Klock:]

Have you some idea in what dollar amount that would translate in to for the first quarter?

[Dale Gibbons:]

I'm looking at about a 5 million increase for 2009.

[Brian Klock:]

Okay. And Robert, I know you went through lot of the details on the credit already and the C&I, we have seen that weakening in ... it seems like most that's coming out of the Las Vegas market. Is that still true with the charge-offs that you are seeing in the fourth quarter? And I guess and are you seeing any contagion in to the commercial real estate, I know you answered questions earlier but?

[Robert Sarver:]

Not a lot, not a lot.

[Brian Klock:]

Okay. And is it still centered ... the C&I loss is still centered in the Vegas market?

[Robert Sarver:]

Yes.

[Brian Klock:]

I don't know I guess thinking that those are usually late stage asset classes, when you come through the cycle do you see that maybe bottoming soon than with those kinds of losses? Or that we've peaked I should say for those losses in C&I? Or do you still see that with the recession getting worse that we may?

[Robert Sarver:]

I don't know that it's peaked. I mean in general I think the worst is over.

[Brian Klock:]

Okay.

[Robert Sarver:]

But I won't say it's peaked. But I think maybe this year it will.

[Brian Klock:]

Okay. And last question, the early stage delinquencies, the 45.2 million, well what's the largest property that you've got in there or the largest loan that you've got in there?

[Robert Sarver:]

Largest loan? I don't know if we have that. You got that in front of you Dale?

[Dale Gibbons:]

Yes, but I am not. Let me get back to you on that.

[Brian Klock:]

Sure.

[Dale Gibbons:]

I am sure how to describe that in the ways that doesn't seem very confidentiality.

[Brian Klock:]

Okay. All right, fair enough. Thanks for taking my questions.

[Robert Sarver:]

Again.

[Operator:]

Our next question comes from Bill Waite of SMC Capital. Please go ahead.

[Bill Waite:]

Actually my question has been answered. And that's much appreciated.

[Operator:]

Thank you, our next question comes from Jonathan Elmi of Fox-Pitt Kelton. Please go ahead.

[Jonathan Elmi:]

Hi, good morning guys. Just a quick question on the 38/98 delinquencies. I know you guys have given a lot of color on the non-performers already but any information on sort of the composition of those delinquencies?

[Robert Sarver:]

Composition, in terms of by product type or?

[Jonathan Elmi:]

Exactly. No, more about product types. Just have you seen any trends there?

[Robert Sarver:]

I mean I don't think it's much different than the trends we have in terms of non-accruals and charge-offs and stuff.

[Jonathan Elmi:]

Okay.

[Robert Sarver:]

A lot of it's real estate related and we are pretty aggressive in terms of trying to get additional collateral, re-margin is bad, this seems to take some time and sometimes it works and sometimes it don't. But we are ... our philosophy has been to try to work on this as soon and quick as possible and get to the table with the bars as soon as possible and be able to get as much of their liquidity and their resources to help re-margin our credit versus whatever other obligations they have. So, we are not real quick to want to just renew something or add on more interest and kind of we know those things

[Dale Gibbons:]

The largest loan in this category is a religious facility and a very good loan value on that.

[Jonathan Elmi:]

Oh in Reno?

[Dale Gibbons:]

Yes.

[Robert Sarver:]

So, I think the balance is 3 million on that one.

[Dale Gibbons:]

It is.

[Robert Sarver:]

Yes we previously...that was a workout six months ago. And one of the guarantors stepped up stroked it down 2 million. So that was $5 million credit that's now three. But I guess they are going to have to raise a little more money.

[Jonathan Elmi:]

Okay, great. That's definitely helpful. And then just one other quick follow-up, I guess more for Dale on the margin. Just curious if you know what portion of the decline was related to interest accrual versus on the NPAs?

[Dale Gibbons:]

You can explain about four basis points.

[Jonathan Elmi:]

4 basis points. Okay great. Okay, thanks guys you very much. I appreciate it.

[Operator:]

Thank you. Our next question is from Hugh Miller of Sidoti. Please go ahead.

[Hugh Miller:]

Hi, good morning.

[Robert Sarver:]

Good morning.

[Dale Gibbons:]

Good morning.

[Hugh Miller:]

Just most of my questions were asked, I had two quick ones; one with regards to the CRE portfolio, obviously you guys are saying that you are not seeing much stress there at all. I was hearing from some other counterparts in California where they was hearing and having clients or borrowers asking forbearances with some of their CRI loans, I was wondering what you guys might have to see in that market before you guys would start to feel some stress there and any comments on the CRI markets?

[Robert Sarver:]

Well, in terms of stress, I mean a lot of it I think has to do with how some of these deals are underwritten in terms of like CAP rates and values and payments and things like that, I mean... and when they are underwritten. California got some, CAP rates got pretty low. And so if you are doing a 5% CAP rate or something I mean you are going to have some stress right now, and different borrowers and their ability to manage their assets in terms of collecting payments. We have... I look at just our borrowers and they get different management techniques and some are real good. It gets down to people within getting collections. And some of the bigger companies, they don't do so well at it. They just kind of have the process and the process is a little bit dated. But we haven't had an issue with forbearances. As I said my general thought is that commercial real estate portfolio going to suffer some more and that certain assets, primarily hotels and office buildings, I think they are going to have some stress. But we...one of the things with us, we don't do a lot of really big investor deals. We just don't do it. Mostly the investor commercial real estate loans that we have, have guarantors with them. There's another sources of repayment. And we just...we're not out doing like $25 million office building loans. So, we haven't seen too much of that.

[Hugh Miller:]

Okay. And just as a quick follow-up then. How much more pricing pressure do you think we could probably see within your markets from CRE in 2009?

[Robert Sarver:]

in 2009 certainly we say the pricing.

[Hugh Miller:]

Just from where your current levels are right now, if we start to see an uptick in companies and banks they are foreclosing and trying to throw those properties on the market, what type of pricing pressure do you think we could possibly see in 2009 for your commercial real estate within your footprint?

[Robert Sarver:]

I mean, I can see CAP rates going up 100 basis points, 150 basis points.

[Hugh Miller:]

Okay. And Dale any comments you could give on the margin going forward with all the variables that are impacting things, that's one of the force you have in place, what are your thoughts and expectations for the margin as we look at 2009?

[Dale Gibbons:]

Out of the gate, as I mentioned, we've got the Federal Home Loan Bank situation, we have reduced recognition on CDO interest. I am not sure how the CDOs are going to be obviously going forward, but right now they're...most of them are still performing. I don't know what the Federal Housing Finance Agency is going to do with the capital levels. I can't imagine that they let these institutions, not just fail but substantially contract. I mean here's more than $1 trillion of liquidity given to the banking sector by the Federal Home Loan Bank system. And I think my guess is it's a lot cheaper to bailout that entire banking system than it would be to do a down payment on one of these two large banks that have these, that are been given very substantial life lines. I am optimistic that there is going to be something there. In fact I have heard that the FAS is announcing something as early as today but I haven't heard anything yet. Again their problem is the mark-to-market issue on private label, super senior CMOs. On the other side though, pricing power I can't remember ever being better in terms of from the lenders' point of view. It used to be that when you have force on loans with the negotiating tactic and something that brought the borrower in and if you arm wrestle a little bit now they stick. There's just so few entities now that are giving, that are providing capital to borrowers and the terms are such that even though rates are down substantially these floors kind of stick with it. So I'm not looking for really a decline in loan yields even though we are seeing maturities in our portfolio. Quite the contrary, anything anybody that had a loan they didn't have a floor that was prime plus one or something like that, well forget about it in terms of getting something like that renewed our extended on those types of terms. So the pricing power is with us. We have a little bit of short-term pressure from these other items. And then from there I think maybe it easened up a little bit.

[Hugh Miller:]

Great thank you so much for the color.

[Operator:]

Thank you. Our next question is from Jonathan Elmi of Fox-Pitt Kelton. Please go ahead.

[Jonathan Elmi:]

Hey guys thanks, just one more quick follow up question. In terms of the available rate loans, do you know about what percentage of available rate loans that have floors or actually at or close to the floors, roughly?

[Dale Gibbons:]

Most of them.

[Robert Sarver:]

It's going to be a large majority.

[Jonathan Elmi:]

Yeah, okay great thanks. That's it.

[Operator:]

Thank you. (Operator Instructions). We are showing no further questions at this time. Do you have any closing remarks for today?

[Robert Sarver:]

I'll throw one in there. And that's Robert. One of the old coaches of the Phoenix Suns, guy...great guy passed away a few years ago, Cotton Fitzsimmons. Once in a while when the team would come in and just really have a bad game, he just called it to flush, so he used to say, we got to just flush this win down the toilet and move forward. So, I guess I am going to call 2009 a flush... 2008 a flush and move forward to 2009 and think we've got ourselves positioned pretty well in terms of our balance sheet. And really in terms of the people we have and the people we recruited to go out and bring in some new business because part of it is a two pronged approach; one is, let's solve the problems that we have, lets deal with them as best we can which are primarily credit related in the cycle. But the other side of the attack is, hey let's go out and bring in some new business. And let's work on our margin by working on our loan yield. So, we are looking forward to start new in 2009 and hopefully in our next quarterly conference call we'll have a little more good news for everybody. But I appreciate you joining us on this conference call and following our company. Thank you.

[Operator:]

This conference is now concluded. Thank you for attending today's call. You may now disconnect.