Zions Bancorporation, National Association (ZION) Q1 2008 Earnings Report, Transcript and Summary

Good day, ladies and gentleman, and welcome to the Zions Bancorp First Quarter 2008 Earnings Conference Call. My name is Emisia, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. [Operator Instructions]. I will now like to turn the presentation over to your host for today's call Mr. Clark Hinckley, Director of Investor Relations. Please proceed, sir.

Good afternoon, and thank you for joining us for this quarterly conference call on April 17, 2008. During this call we will reference several pages from our earnings press release, if you do not have a copy of the earnings release you can download it from our website in PDF format at www.zionsbanccorporation.com. A link to the release is near the top of the page. During today's call, we will discuss the expected performance of the company. Such statements constitute forward-looking information within the meaning of the Private Securities Litigation Act. Actual results may differ materially from the projections provided in this call since such projections involve significant risks and uncertainties. A complete disclaimer is included in the press release and is incorporated into this call. We are not responsible for transcripts of this call made by independent third parties. I will now turn the time over to our Chairman and CEO, Harris Simmons. Harris?

Thank you very much Clark, and we welcome all of you to our call this afternoon. You have seen we had earnings of $0.98 for fully diluted shares, which was about 27.9% decrease from the first quarter of last year, that it is in environment that remains challenging. The... there is nonetheless lot of good news, I think underlying some of these numbers, the... as Doyle will talk about in lot of detail. We have the much larger provision... $92.3 million provision this year which was up over 900% over last year's... first quarter of last year. And some continued impairment and valuation losses on securities of $46.0 million. If you look under the core performance however, there are couple of very interesting stories to tell. We have really a tale of two different sets of banks here. We have some banks that are experiencing some real challenges down in the Southwestern United States in Arizona, Nevada and California. Where loan growth has been flat actually slightly down over the past year, as deposit growth revenues were actually half about 7% versus last year, and net income is down 44.3%. But if you look at the bulk of the franchise in Utah, Texas, Colorado, West and the Pacific Northwest, pre-tax... preprovision income is actually up 38.5% and even if you exclude this Visa related gains this quarter up over 25% against last year. We have very strong loan growth, good expense control, etcetera. So the quarter of the franchise remains very healthy and that combined with continuing stable margin gives us a lot to be reasonably sanguine about. I am going to ask Doyle to go through this in detail and we will answer any questions you have on the other end.

Thanks, Harris. Good afternoon, everybody. As Harris indicated my walk through the numbers will be somewhat lengthy, I want to try to anticipate a number of questions and cover them for everyone benefits as we go along. So bare with me and we will stick around for all the questions that you have that we'll give answer afterwards. As Harris said earnings per share for the quarter were $0.98 fully diluted, which is up shortly from last quarter, but as he indicated down from the same quarter a year ago. The $0.98 did include $0.27 of drag related to impairment and valuation losses on securities, and benefited about $0.10 per diluted share from our portion of the Visa IPO gain and reversal of some of the litigation accruals related to Visa that we made in the fourth quarter. Highlights of the major components are... as we indicated last quarter we were going to try to manage loan growth down from the $1.5 billion gross level in the fourth quarter. We said that we keep it under $1 billion, probably between $700 million and $1 billion for this quarter. Our actual growth was $821 million which consisted of a little over $500 million of organic growth and $283 million of securitize loans that were purchased from Lockhart during the quarter. The whole point of constraining the loan growth was to manage the balance sheet stress and the capital stress associated with growth, and to make sure that we had plenty of room to accommodate anything that we had to do with regard to Lockhart, and we think we achieved what we wanted to there. Our core deposit growth remains different with difficult, but we did see average core deposit growth of about $300 million during the quarter and consistent with Harris as said tale of two banks that was growth in some places and not in others. The largest count type components were in Internet and in money market accounts. The net interest margin was a bit better than we had expected. It was at 4.23%. It was down only 4 basis points from the last quarter, and if you would simply factor in the additional Lockhart related or Lockhart issued commercial paper purchased by our banks during the quarter, i.e., the increase in the first quarter versus fourth quarter of last year that alone had a five basis point drag on the margin. So the core margin if you will actually strengthened by about 1 basis point. We are seeing somewhat better marginal loan spreads that is spreads on newly originated or renewed loans during the quarter, and we did see some greater responsiveness of deposit rates to fed rate cuts during the quarter. Credit particularly residential land and construction loans are continued to weaken during the quarter. It didn't surprise us. I don't think it surprises you. The magnitude, the deterioration in some markets was a little bit higher than we expected and therefore the provision as we continued to build reserves was a little bit higher than our guidance form last quarter. Non-performing assets increased to $150 million to $434 million during the quarter. Net charge-offs were just shy of $51 million in the provision was $92.3 million, which is $41.5 million in excess of charge-offs and we continue to build the ratio of allowances and reserves for credit losses in relation to total loans, and we will go through those numbers later. Two non-operating items, impacted net earnings as I mentioned. We did recognize $46 million pre-tax or $0.27 per diluted share of impairment and valuation losses on securities. Most of this was related to the REIT CDOs that we discussed last time and the rest was related to securities purchased from Lockhart. We also recognized a net VISA IPO gain, at litigation accrual reversals of $18 million, pre-tax or $0.10 per diluted share. The pre-tax gain component of that was $12.4 million which represented about 39% of our banks equity interest in Visa. So we have about $21 million of additional unrealized Visa related, which per SEC guidance are not recorded anywhere, and will not be recognized unless and until the lock up of those shares is removes us, I think it's three years out in the future. Of the $8.1 million of litigation reserve that we recognized in the fourth quarter, we reversed $5.6 million of that, in this quarter, again related to the IPO, and Visa assumption of those obligations, and so the net swing in that expense line is $13.7 million I'll point that out later. The efficiency ratio if you adjusted just to exclude the impact of the impairment and valuation losses, as well as the Visa related pick-up was 55.8% essentially unchanged from the fourth quarter. In summary, loan growth was well managed. The net interest spread improve significantly. The net interest margin was stable. Operating costs were well controlled. The capital ratio was actually improved slightly. Credit costs increased largely driven by the weakness in residential acquisition development and construction in the Southwest, and we did take action... continued action to build reserves. The 60% of the franchise located outside the three Southwestern States performed very well. Our some economic slowing is beginning to be evident in some of those markets as well. And the net earnings were also adversely impacted by the additional securities related losses although significantly lesser levels than in the fourth quarter. Okay, turning page by page to a few other details, and I apologize from the tickle in my throat, so try to get through this without too much coughing. If you want to turn with me the page 11 our financial highlights, page numbers in the upper left. Last two lines on the page we've already cover this, but just to point out, the actual efficiency margin for the quarter was 58% adjusted for those two items I mentioned it was 55.8. The comparable numbers last quarter were 75.9 and then 55.3 respectively, again if you just adjust for those similar items. So essentially for number of quarters now the efficiency ratios has been in the 55% to 56% range and very stable. Net interest margin 4.23% down 4 basis points. We think still trending downward a bit, but perhaps a little bit slower rate and what we are seeing for the prior few quarters. Turning to page 12, near the bottom of the page in that very last section the fourth line up from the bottom tangible equity ratio 6.20% that's up 3 basis points from the prior quarter it still a little bit below the range of 6 in the quarter to 6.5% that is out long-term target, but we are pleased that there was no additional deterioration on that number, and in fact it improved a bit and the improvement came in spite of close to $200 million of marks... fair value marks taken through other comprehensive income on the rest of the securities portfolio during the quarter. So we had $200 million pre-tax drag there and still improve the capital ratio with the balance sheet management that we've talked about earlier, and note that the dividend payout ratio even at a somewhat lower level of earnings and were custom to was at 44% this quarter. So we retain 56% of earnings again to build capital, and as you know there were no share buybacks during the quarter. Turning to the consolidated balance sheet on page 13, first I'll note the second line of numbers from the top interest bearing deposits in commercial paper increased $518 million that reflects the increased level of purchases of lock of commercial paper issued by Lockhart and purchased by our various banks during the quarter. The average on the day-to-day basis now the Lockhart related paper that we have on our balance sheet is running around $1.2 billion, kind of 1.15 to 1.25 depending upon the day and it's been fairly stable at that point for at least couple of three weeks at this point. The next line I'll call your attention to is four lines below that the available for sale securities at fair value decreased $875 million. We sold $260 million of securities during the quarter for a smaller gain just about $1 million, I mean very small. The AFS balance was also reduced by the impairment charges, and this is fair value of $56 million. It was further reduced by the increase in the mark to the fair value of those securities as that were reflected in OCI of about $200 million and they were partially offset, these reductions were partially offset by purchase of securities from Lockhart funding with a fair value of about $75 million. During the quarter our three additional securities were deemed to be other than temporarily impaired, these were REIT CDO securities, and impairment charge of $33 million was recognized on these securities. Most of this loss have been previously recognized in OCI, but not through the income statement. So for those there was not a big impact on capital took at that of OCI ran through the income statement. As you recall at the end of the last quarter we had 12 REIT CDOs that we've discussed with an original face value of about $231 million. Eight of these securities had been deemed OTTI in the first quarter... fourth quarter, excuse me, and were carried at a fair value of $33 million at year end. Further impairment of $7.8 million was recognized on seven of these securities in the first quarter. Two more of the original 12 were deemed OTTI in the first quarter and we adopt fair value accounting FAS 159 on a third. So at this point should all 12 of these CDOs become worthless, which we don't expect, the maximum impact on our income would be $58 million pre-tax, that's the amount of fair value... remaining fair value in those securities that has not been run through our income statement. A portion of that 58 is already reflected in OCI, so the affect on capital would be less than that and of course those are pre-tax numbers, they were also be tax affected. Going out onto gross loans, $40 billion at the end of the quarter compared to 39.25 prior quarter, so our gross basis were up $812 million, $283 million of that increase resulted from the purchase of Lockhart securities that were essentially securitize loans that we had originally... whether we had original created the securities. When they came back on our balance sheet in effect the securities were unwrapped and they come back on our balance sheet as loans. If you net out the $283 million you had I think $529 million of organic loan growth during the quarter. Net all that out together and you get $461 million of total asset growth. Going down to the liability section, non-interest bearing DDA, decline from $9.6 billion to $9.5 billion during the quarter on an average basis there declines was a bit more than that, and you can see a couple lines down then money market and Internet money markets accounts grow. I will also just point it out the other two big changes there are federal funds purchased went down, 650 odd million, actually 647 and that was offset by increased Federal Home Loan Bank borrowings of $708 million. We have remaining borrowing capacity at the Federal Home Loan Bank and institute the various fed facilities in excess of $11 billion, so bank liquidity is not a particular issue. Turning to page 14, as noted earlier we had loan growth, balance sheet growth, and we had reasonably stable margin the result of which was a slight increase in net interest income before provision of about $8 million. The non-interest income section we have made a couple of changes in the presentation this quarter, after adopting FAS 159 just make it a little bit clear where the parts are. We have added a line... created a line called capital markets and foreign exchange. These are kind of real businesses if you will, and then we have carved those out of other service commissions and fees and then we have a line called... let me find it here, fair value and non hedged derivative income. This is where we are taking all of the... we put the four FAS 159 securities that we described in the 10-K at the end of the year and as well as continuing to book the non hedge derivative income or loss there. Talking about some particulars lines. Loan sales and servicing no longer will include any impairment charges or adjustments on value on retained interest as we adopted and previously disclosed the adoption of FAS 159 on these retained interest, there are three of them. So they are now going through that fair value line and as a reminder, the fourth quarter number on the loan sales and servicing income did include the $3.3 million impairment charge. We have done no securitizations of small business loans for over two years now and don't expect to in the future and therefore we do expect that line will continue to slowly decline as existing and amortize or as previously securitized loans may be purchased from Lockhart and come back on the balance sheet as loans. The income from the securities conduit was up slightly in the fourth quarter in spite of reductions. This increase was partly explained by improved spread and Lockhart Funding. I'll talk a bit more about Lockhart in a bit. Fair value non hedged derivative income loss in puts fair value adjustments resulting from the company's adoption of FAS 159 as well as non hedged derivative income that was previously included in trading and non hedged derivative. You can see the fluctuations in this line. The losses in the prior two quarters were primarily due to the prime LIBOR spread abnormalities that we previously discussed and there is some of that came back not to normal, but there was some improvement [audio interruption] And then the next line equity securities gains includes, as mentioned $12.4 million of these IPO gain offset by a couple of small losses. And then finally the next and the last line in that section you can see the $46 million of impairment losses which is $112 million improvement over the prior quarter. For those who want the details, I'll go through it. There are four components of the $46 million. On the securities purchased for Lockhart... from Lockhart for liquidity reasons; of which there were not 275 million. The fair value mark on that was $4.4 million pretax. We purchased one additional security of $5 million from Lockhart as a result of a downgrade below AA minus. The mark on that security was $0.8 million. The fair value mark on the two reach CDOs and one other small CDO held in the FAS deem during the quarter DOTTI was $33 million and then fair value marks additional write downs on seven of the eight CDOs previously deemed were $7.8 million. Total is $46 million. Non-interest expense, I'm only going to comment about two lines specifically salary and employee benefit expense increased about $18 million quarter-over-quarter, but recall in the fourth quarter we mentioned that we have reversed about $13 million of accruals for various incentive and bonus plans due to the poor... weaker performance of the year. So the fourth quarter impressible [ph] run rate by that reversal, two times the first quarter of each year is always a bit higher due to the fact that all employees are back paying... repaying FICO and all of that those kinds of things on all employees again until people hit their various limits on payroll taxes and you could see if you go back a year from the first quarter of last year there was a decline of $7 million in that line item mostly due to payroll taxes. Other non-interest expense the last line in that section declined in almost all of that decline is reflects the Visa litigation accruals, we accrued $8.8 million... $8.1 million in the fourth quarter. So that number was higher than normal and then we reversed $5.6 million of it this quarter, so the net swing was $13.7 million, quarter-on-quarter and the rest of the line items are particularly kind of normal. I will talk about the unfunded lending commitment line next of last line a bit later. Okay, let's see. I will just mention on page 15, with a page I don't know normally call out this is changes in... this is basically other comprehensive income. If you look in the third column from the right, the third number down net realized and unrealized holding losses on investment leading interest $130 million that's the after tax impact on capital of the roughly $200 million pretax number. The fair value march through OCI on securities that I mentioned earlier. Turning to page 16 credit quality, there was continued deterioration in credit quality, non-performing assets increased by about $150 million to 1.09% of net loans and leases. As you might expect the increase was concentrated in Nevada, Arizona followed by Colorado and those three states are the... probably two-thirds to three quarters maybe more like three quarters of the increase are coming out of those states and it's mostly again residential land acquisition development and lot loans related. Accruing loans past 90 days also saw a slight increase. Net charge-offs was 50.8 million or 0.52% of annualized average loan again driven mostly by declining collateral values on residential acquisition development construction loans in the south... in the south west and while it is high for us historically I will point out that 0.52% is below the fourth quarter average of all banks over $10 billion what was 0.67%. So while were we are watching this closely, I know there are issues with we think on a relative basis our performance is still reflects our strong underwriting ethic and in culture around here. In this uncertain environment, we still continue to build reserves. The provision for losses was $92.3 million and exceeded net charge-offs by $41.5 million and you can see we also provided... pre-tax [indiscernible] million of additional reserve for unfunded lending commitments and bringing the ratio... the total ratio... ratio of the total allowance and reserve credit losses to 1.32% which is up another 9 basis point. The prior quarter and we do expect to continue to cut that ratio will continue to increase for at least few more quarters. The couple more comments on loan quality trans residential ADC loans in this California, Arizona and Nevada remain the most troubled segment of the portfolio. We do see some weakness in Utah and Idaho as a housing market there has slowed. We've have seen an up tick in commercial and industrial loan delinquencies although they're still not as high as they were as recently as 2003. We looked there doesn't appear to be any particularly geography, or sick code concentration in those delinquencies, but they are drifting upward. Within the consumer portfolio, home equity credit lines, home equity loans in credit card delinquencies have remained very low and stable. In fact home equity credit line delinquencies are actually less, may decrease slightly from new already very low levels at year end. And the only noticeable up tick in consumer delinquency issues again, as I mentioned is related to consumer lot loans primarily and Arizona, which is about a $465 million portfolio and it's clearly related to the overall housing issues in that state. Page seventeen going to go through loans portfolio growth by type. You'll note in commercial lending group by commercial industrial loan by $200 million... $220 million is organic. The owner occupied line grew $365 million. Of that $213 million of that growth was related to the securitized loans repurchased from Lockhart leading 150 million of organic growth in that component. Construction and land development was relatively flat. Growth and Energy Bank of Texas was largely offset by declines in the south Western states, so the portfolios continue to be worked out and payoff. The Term Loans grew by $234 million, $63 million of that Lockhart related, i.e. loans repurchased from Lockhart, leaving $171 million of organic growth and then consumer loans declined slightly during the quarter. The Loan growth was concentrated primarily in Zion's Bank, Amegy Bank and Vectra Bank in Colorado, the Banks in the Pacific North west also grew very strongly on percentage terms but in dollar amounts contributed less to the totals, and then total loans at CB&T, California Bank & Trust that is was flat, and National Bank of Arizona and Nevada State Bank, showed over all declines in Loan balances. On page 18, I will just point out at the bottom of the page, the last 2 loans the net interest spread actually increased from 3.45 % to 3.61%, that reflects both the greater responsiveness of deposit rates to short term interest rate cuts as well as improved pricing on the newly originated or renewed loans. The margin declined only 4 basis points. The big difference between the two, a very strong improvement in the spread in the slight decline in the net interest margin is primarily due to the fact the DVA balances in a lower interest rate environment are less or contribute less to the margin then they do to a higher rate environment. So that explains the difference in the performance in the two numbers. But on a net basis we think we are roughly asset neutral at this point. Interest rate yeah the first asset sensitive liability senses and we think were approximately neutral for all intensive purposes and as I mentioned earlier the other... additional Lockhart commercial paper had a five basis point negative impact on a margin during the quarter. Just some brief summary about what happened with Lockhart during the quarter. At year end, Lockhart had $2.1 billion of total assets. At the end of quarter... the fair value that was $22 million less than book... book value. At the end of this quarter it had total assets of $1.75 billion, that's down $2.1 billion. In the fair value mark which is not recorded. It's just... we're disclosing what it is. It was $48.4 million. So fair value is $48.4 million less than the $1.75 billion of assets. The reason that mark is relatively small... I know you are probably used to seeing bigger marks is that 95% of these securities are rated AAA with by all the agencies rating number and 100% rated double layer higher by both rating agencies that rate them. So these are again very high quality assets. They include US governments and agencies around securities small business along AAA rated transits in AAA bank and insurance trust preffered pools make up the bulk of the portfolio. During the quarter one security owned by Lockhart was downgraded below double A minus by a rating agency and was purchased by Zions Bank under the terms of the liquidity agreement. The security as I said had a book value of $5 million, which was written down and booked by us at a fair value of $4.2 million and the 800,000 impairment loss ran through our income statement. In addition during the quarter we purchased, $275 million of securities from Lockhart due to the inability of Lockhart to issue a sufficient amount of commercial papers to fund its assets. Again they were purchased from Lockhart at book value, written down to a fair value of $270.6 million resulting in a pre tax loss of $4.4 million that went through our income statement. About $200 million of these were securities for small business loan securitizations created by Zion's bank and upon purchase the securitized trusts were dissolved and the assets including $83 million of related securities, retained by the parent, our parent company, Zion Bankcorp were recorded as loans on the balance sheet and Joe and as I mentioned at quarter end we held 1.23 billion of commercial paper issued by Lockhart which was included in money market investments in commercial on the companies balance sheet and that again that kind of 1.2 billion of number is sort of been a run rate here for the last few weeks. As we have noted in the past and just to remind you, Lockhart is a QSPE not a sale and we don't have discretionary control over this off balance sheet entity which means that we can't arbitrarily decide to dissolve it or anything like that. We follow the rules under of it's creation and the liquidity agreement, but I do want to know... want you to note that it should advance transpire that would result and bringing all the assets Lockhart on to our balance sheet. The net impact from our funding in capital prospective would be to add net, net approximately $520 million of assets to our balance sheet. That's the difference between the $1.75 billion of assets and Lockhart in the $1.2 billion of commercial paper issued by Lockhart that we are. So at $500 million would be have a relatively modest impact on our funding and capital. So that concludes my review of the quarter guidance for in the next few quarter it's a difficult and environment and wish to give you a guidance, but we will try to do the best we can the... this is subject to lot of uncertainty about of the future course of the economy. With regard to loan growth, we do... our plan to continue the proactively managed balance sheet growth over the next few quarters or being very selective on under writing and conservative on loan pricing and with the objective of keeping the long growth two are good, but manageable rate from our funding and capital and unless kind of perspectives. We think loan growth will continue to come more from the commercial portfolio than the CRE portfolio and will continue to be concentrated in Texas, the Mountain states in the Pacific Northwest with relatively flat or declining portfolios in California, Arizona, and Nevada, and we expect residential construction development balances to continue to decline in those states although it may be some of that decline, it may be offset by growth elsewhere. Deposit growth, we expect the slowing economy and sharply lower market interest rates, will over the next few quarters improve both deposit pricing and balances. This has been true in previous interest rate cycles, but the timing and the amount of this improvement is difficult to predict. If we turn to the margin, we think the general pressure is still downward, but we are encouraged by the fact that we are seeing some improvement and spreads on new loans and the market has become more responsive on deposit pricing to recent interest rate cuts. So, we think that best guess is it would be may be down to relatively stable over the short term, but could begin to improve a bit later in the year. Credit quality remains the number one issue for most of the industry as it is for us and during the first quarter we saw continued declines in residential land values and general softening of the economy. In many if not most of our geographies, we think conditions will likely continue to soften in the residential land and home prices will continue to decline somewhat over the next few quarters. But the deterioration may not be as rapid as we saw on some markets during the last couple of quarters. NPAs are likely to continue to increase, net charge-offs and provision are likely to remain near the levels experienced in this first quarter. We think general economic conditions are likely to slow in the normal west and Pacific Northwest perhaps even a bit in Texas, but we think these states will continue to perform better then most of the nation. And if there is widespread weakening further in the economy that could result in weaker recognitions and higher credit costs, but we again we think most economic indicators indicate our markets would perform better than the company as a whole... the nation as a whole. Thank you. And again, we have these kind of the tale of two banks, we've got about 40% of the franchise in California and Nevada and Arizona that are kind of continue to be stressed by the very hard hit residential markets. And 60% is in markets that are performing better than those banks are performing, better and we expect them to continue to generate relatively strong earnings. I think the efficiency ratio will be stable over the year, one with regard to the tax rate, tax rate has been affected the last couple of quarters by lot of special items. For those of you who go to the models, we think that over the course of this year our average number is slightly higher than the first quarter. We would suggest that you might want to look at a 33% to 33.5% average tax, effective tax rate as the number to years. We finally, our... we think our capital remains strong and stable. We plan to continue to actively manage the balance sheet to conserve capital and use it judiciously, fundamental earnings remain strong even the current provisions levels, we do not intent to repurchase stock in the near term and we will as I said, manage asset growth kind of within the confines of the capital base and so forth. We have successful capped the senior debt markets during the first quarter a couple of times of funding, you've probably seen our press releases to that effect. We issued our 67 million of senior debt back in February, another 66 then 87 this week. We do not seem CME raise any form of common capital including convertible, our dividend payout ratio has always been relatively modest and we don't anticipate a need to restrict our dividends. So in conclusion, the quarter was marked by additional reserve building in the face of increased charge-offs, driven mostly by decline in residential land values in Arizona and Nevada and California as it has been. An additional market related impairment cost on securities, managed loan growth, a stable margin, well controlled operating expenses and stable capital. With that, it's probably enough of a soliloquy, it's been a unusually long one, I thank you for your patience and we will be happy to try to address your questions. Hello, is anybody there? Question And Answer

[Operator Instructions]. Your first question comes from the line of Mr. Steven Alexopoulos with J.P. Morgan.

Hi everyone.

Hi Steve.

I am curious, we have had a couple of quarters now where provision expense was above the upper end of the expectations and I know if you guys probably seen this for most thing. Would the decline in home prices now in your expectations, what really needs to happen for us to get to the point where you provide it for the bulk of problems and we start to see provision levels start to come down?

I think at this point, it's hard to call that turn still because we are still seeing declines in home starts and home permits, but at the lower level... lower rate of decline. So we are still seeing, we are still seeing... for us it's not so much home prices as it is just stress on home builders and developers. And until you hit a stable bottom I think in the level of starts, and have a full adjustment to that level in that part of their operating expense, we may continue to see a bias upward in some of these stresses. We are... we may be at some micro markets around our territory we may have already provided the bulk of what we are going to need to provide, but not to have the whole at this point. I think we are probably at least still a couple of quarters away from knowing exactly where that bottom is. Harris, Gerry you want to --

Well I think that, we... we are just reacting to the news, it's developing and on the one hand I think the real story is going to be in following the charge-off activity and we are continuing to build reserves not only against home building situation, but against an economy that is slowing. And so I think charge-offs were somewhat higher than I think we would have expected three months ago and probably there is just not as much visibility out beyond the couple of months right now as there may be had been a year ago. And as we see problems we are trying to deal with them pretty aggressively, but I'd agree with Doyle, I think it's going to take another couple of quarters before we are likely... to see a likely little more stability in the number.

Just a follow-up, we have heard several banks this quarter talk about the problems with land appraisal, [indiscernible] last saying that some of their landlords in California are being re-appraised almost zero. Can you talk about what your experience was in the quarter in some of your more challenged markets with the appraisals on land?

We are seeing an outlying, the more distant areas in Arizona, step farther from the core of Phoenix, Tucson we are seeing over the last six months appraised values coming down 60% or more. That's for all for something like that probably true in the parts of California that East West might have talked about. I think they are mostly in Inland Empire bank. We have much smaller relative exposure in the Inland Empire more of our expert... we talked about that at late in our analyst day, but we have do some there in the Central Valle. I would think well, I don't have it in front of me, our number would be comparable. I don't know that we are getting. We have raw land, it's not... we don't have raw land being appraised at zero, but the values down a lot over the last six months. Comment Gerry?

Well, my only in addition to that is that further out it is from the core of the metropolitan area in almost no matter what markets you are in, the more it is and it reaches the 60% numbers at doors according and for the in-field properties and those are the better located. It hasn't been that much.

Thanks guys.

Thanks.

Your next question comes from the line of James Abbott with FBR. Please proceed.

Hi James. James Abbott - Friedman Billings Ramsey & Co.: Hi good evening.

Hi. James Abbott - Friedman Billings Ramsey & Co.: A couple of questions and actually probably more for Gerry than any one, but was there any loans that were... any non-performing asset that were sold this quarter and I think you gave a statistics a while back may be last quarter's conference call that you are receiving a 10% haircut to what you've already charged to them, which is pretty minor haircut, any update on that number

I don't really remember making that quote because nether last quarter nor this quarter have we really sold any loans. James Abbott - Friedman Billings Ramsey & Co.: Okay,

There may be some little feature there, we are not aware of it and basically no we haven t sold any. James Abbott - Friedman Billings Ramsey & Co.: Haven't sold any non-performing assets.

Nothing of any substance.

I think we have been taken out a couple of non-performing loans by other lenders.

That's true.

But that's different from I think the question you're asking which is have we basically sold these loans at a heavy discount? James Abbott - Friedman Billings Ramsey & Co.: Yes. Okay. And another statistic I think you gave was non-performing assets that are still technically performing, but you've chosen because of appraisal values to put them on non-performing status, is that... that sound familiar to you?

We talked about that in a couple of quarter ago. I think may be what you're alluding to is I think in third quarter we mentioned that 40% plus of our non-performing loans were still current asset principle and interest, is that may be what you are kind of -- James Abbott - Friedman Billings Ramsey & Co.: That's what I'm getting at yes. Gerry, do you want to comment on the kind of where it stands out of the much larger number this quarter $387 million, $388 million of loans are non-accrual.

The percentage of those that are current would not be quite that higher, but there are still... there is still large percentage of those loans that we placed on non-accrual that are actually paying current. And one reason that we do that is based on a analysis and anticipation that the barrower is not going to be able to keep them current in loan and so we put him on non-accrual even though they might still be paying current today.

But we don't have that percentage? It's lower than 44, but I think was the number earlier but --

I would say it is lower than 40%, but I don't have the exact number.

Not substantial. James Abbott - Friedman Billings Ramsey & Co.: Okay. All right thank you very much, I appreciate it.

Okay.

Your next question comes from the line of Mr. Tony Davis of Stifel Nicolaus. Please proceed.

Good afternoon, gentlemen. Just one of the things, measures that we are looking for I think at some point if an update was the LTV for the commercial real estate portfolio. And I wondered if you have anything more recent than the June numbers may be year end or something or will we be getting that you think very soon?

I can't promise, but I mean this has been a challenge for us as we historically had these LTVs and local databases on each bank in getting them into a common database or enterprise data warehouse on a current basis, so we can roll that stuff up contemporaneously and automated. It's been tedious and disappointingly slow to us and I am sure to you. Our next Reg FD form is in about the third week of May and I hope to have some better... an update of that chart through the end of the quarter at least in time for that presentation, about a month from now. I can't promise it, but we're going to push everybody really hard to get that done because I know you are very interested.

Continuing on in search for specifics here Gerry, I wondered if you would share with us the percent of loans right now that are classified and kind of where that has been the last several quarters and also if you could give us any color on the degree of deterioration in credit metrics that you are seeing outside of the construction land area you mentioned you are seeing some seepage I guess, in business perhaps and small business perhaps that any color you can give us on 38 days or anything like that?

I... because grading criteria are not consistent across companies, I don't think we want to give you the classified...

Okay

Numbers. I will tell you because we always weigh this as the 30... because this number out in the thirty day commercial loan delinquency number is a bit under, it's look like it's... I am looking at a chart, probably about 1.4% that's 30-day delinquent not 89 day delinquent and that's up from about 1%, well under 1% prior quarters so there has been an uptick there. The... I've already said the deferrals and tackles are as low as they were. Previously, the only uptick in consumer loans is in that loan program in Arizona, nearly the percentage is pretty high, it's about 8% and everything else is remarkably low. Bank card is again just over 1.5% and mortgages and total write about 1%, again well under the industry averages.

Final question Gerry, on your efforts at re-margining. Can you give us any color on I guess the success rate or however you define it, the frequency which you are planning yourself able to get that done?

By and large, we do not have the re-margining capability in our documentation on every commercial real estate loan. But for those that we have had in there and have called on our borrowers to re-margin, we have been fairly successful. I would say, probably 70%, 80% of the time, these borrowers have been able to re-margin and then we even had customers where it's not included in the documentation as a requirement that we had called upon them to re-margin and the percentage would not be as high there, but probably about 40% to 50% of the time they have been able to re-margin.

Okay.

Then generally when we call in a customer to re-margin, their advance rate so to speak, we are looking at their financial statements and determining whether or not they have the capacity and capability to do so. And in order to do that you really need to look at their global debt commitment to determine whether or not they have a capacity.

The final question, you have felt that California was a bit farther long I guess towards stabilization and Arizona at least up there; that was the impression we have last quarter. Is that still your read of the markets you are in that the Arizona still is the weakest right now, as you see it?

I would say that still the case, probably about the same assessment that we gave you last quarter.

Okay, thanks.

Your next question comes from the line of Mr. David Campbell with Owl Creek. Please proceed.

Hi, thanks for taking my question.

Sure.

We... I was just looking at the ratio of allowance to non-performers, which was about 4.5 times in the first quarter of 2007 and it declined to about 1.2 times in the first quarter of '08?

Right

At a high level were you dramatically over reserved then or are you under reserved now?

No, I would say it this way; it would have been very difficult to convince my auditor to go any higher in my reserve back earlier the timeframe you're citing. Until we saw deterioration or change in the economic environment, it was very difficult to push that reserve number much higher and above what we were doing in that environment was roughly speaking had a provision equal to losses with a little bit for lot there are very strong loan growth that we have. It's clearly a very different environment now and we are continuing to provide significantly in excess of current losses based on current in probable future continued deterioration impacting the credits that we have. We have a reserve methodology that gives us a range kind of where within which the reserve should be, it is throughout the time period you cited, in the upper half of that range and we have been pushing it higher. It's still within the range, but it's moving higher within the range and I would expect to likely will continue to do so.

No, I mean on an absolute basis, just looking at the acceleration of charge-offs, I mean as a percentage of loans in one quarter that the charge offs as a percent of loans increased by 85%.

Right.

I guess it's appropriate to multiply that 85% by 4 to get an annualized rate of --

I would caution you against that.

Because you've got the higher level in the last half of last year. So you are starting off of a very small base a year ago this quarter.

I am just talking about Q4. It was 28 basis points and then it's 52 basis points in the first quarter.

That is correct. But in effect what you are doing is you are drawing a straight line through that and expecting that increase to... you are extrapolating it three more quarters and I am not sure I would do that. In fact, that's not within our current expectations.

What's the... when is the next Camel's assessment?

Well banks are constantly assessed. We have a... we are big enough to be in the resident program.

Got it.

Sowe have various of our banks being examined at various times and I think it's fair to say that all of them have been examined in the past probably six months.

Nine months for sure.

Nine months for sure.

Can I just ask you a general question about the adequacy of the reserves. From an economic perspective, putting aside the policies and the ranges that have been appropriate on a backward looking basis, do you believe that your reserves are adequate to cover your best guess of expected losses on the loan portfolio?

Aaron, in the portfolio at the end of the first quarter, yes.

I would note that... I would just note that at the current... even at the current rate of charge-offs, if you simply extrapolated, multiplied the $50 million say by 4, that's $200 million. There is $500 million in the reserve. That's 2.5 years of current charge-offs.

But the 52 basis points has been accelerating. Do you think it's going to level off at 52 basis points?

No, not necessarily. But I can't give you a forecast of where it will go. But I don't think it's going to be a straight line upward.

Okay.

But we are... it's going to be determined by market... economic conditions.

Just seems to me... I mean if I were a regulator, I would be concerned about dividends until we receive more information and we get a few quarters down the road.

I told you exactly what I am going to tell you that our expectation is that we will not be cutting the dividend or raising capital that dilutes common.

Can we go on to the next question?

Your next question comes from the line of Mr. Todd Hagerman with Credit Suisse. Please proceed.

Good afternoon everybody.

Hi.

Doyle, I think you mentioned before. I just want to make sure I understood this correctly, is roughly three quarters the increase in non-performers included Colorado as well as Nevada and Arizona. Southern California was not mentioned, I don't believe.

If I said that, I am sorry; I meant California.

Okay.I thought we had a new entry into the mix there.

If my Colorado CEO is listening, I apologize for your heart attack.

Okay. I was wondering then perhaps if you could just expand on then the comments that you made just in terms of you were seeing or starting to see at least some initial signs of weakness in terms of you mentioned Utah, Idaho and you have talked a little bit about the delinquency trend. Just wondering if you could give a little bit more color in terms of exactly what you are seeing in terms of that weakness. And then secondarily to that, just to kind to follow on the reserve issue, how you are thinking about reserve coverage, particularly outside of real estate, if you will.

Well I will start on the... with the Utah, Idaho and then maybe turn it over to Gerry to elaborate on that and talk about reserve coverage if he wants. In where... what we have seen in a lot of markets including Utah and Idaho and even in the Northwest is a significant slowdown in home sales, a flattening of prices. We have not begun to see price declines, but wouldn't be surprised if there were some to come. Those markets did not inflate at anything like the level that Arizona and Nevada did for so long. So any price adjustment is probably going to be more modest, but the marked slowdown in home sales has led to a marked slowdown in home starts which is putting some stress on builders in the Inner Mountain West markets as well. And we are reflecting some of that stress in increased provisions and downgrades and so forth in Utah. Anecdotally, they are seeing a little bit of commercial deterioration in trades and businesses that are sort of related to that market like plumbers, electricians and so forth. But that's what is going on in some of the non-Southwestern markets, a little bit of stress related to slowdown. You want elaborate on that, Gerry?

It would be pretty hard to elaborate on. You covered it pretty well. But I would just emphasize the fact that we really didn't see the inflation in residential home prices in these markets and therefore don't expect to see near the depth that we have experienced in the three markets, California, Arizona and Nevada.

We also didn't see the big supply come on to the market of new products. So I mean it's --

Right, and we didn't see the investors coming into the market and they are the quantity that we saw in the three South Western states. With respect to the building of the reserve, I think, as you can see, our provisions are substantially higher than even our increased level of losses. And there is really two reasons: one is... one reason would be the anticipated potential for further deterioration in the real estate market. But the other reason is because we anticipate that it is going to spill over as we are starting to see it to a small degree spilling over into the commercial and industrial type portion of our portfolio.

That's helpful. And Gerry, just a follow up on that. I believe we covered this at the Investor Day, but again, if you could just maybe just remind us. In terms of your outstanding portfolio, about roughly what percentage would represent kind of the trade businesses or the related businesses, if you will? In terms of the plumbers, if you look at the supply chain there.

I really can't give you an exact percentage, but it's a pretty small percentage of our C&I portfolio.

Is it more than 5%, would you say?

It might be around 5, but it certainly wouldn't be more than 10%.

Great. That's helpful. Thank you.

Beyond that, I mean the ultimate part of your question is you are asking me to forecast the bottom of a recession in terms of how long could this reserve build last. And I simply can't do that. We are going to continue to provide and build a reserve I think until we are clearly start to see it turn or a leveling off there in the economy and can see the upside. And best guess is that's going to last another couple, three quarters any way, but beyond that I can't forecast any better than you can.

Your next question comes from the line of Brain Klock with KBW. Please proceed.

Hello Brain. Brian Klock - Keefe, Bruyette & Woods, Inc.: Hey, good afternoon guys.

Welcome to the coverage. Brian Klock - Keefe, Bruyette & Woods, Inc.: Well, thanks. I guess I don't want to keep you too much longer. We have already been on the call for a while. But just a couple of quick questions. All of my questions have been answered already. With the loan growth, you had talked about the C&I loan growth was pretty solid this quarter. Did you say what geographies that came out of? I was jumping on another call, so was it Texas driving a lot of that or maybe...

Texas, Utah and Colorado and Pacific Northwest, although that's a small piece, but they had strong growth. Brian Klock - Keefe, Bruyette & Woods, Inc.: Okay. Okay. And I am not sure if you have broken this out or if we wait for the Q, but within the non-accrual, the $388 million, do you have that by category how much of that is construction versus C&I et cetera?

No, but I can tell you that the majority of it is the construction versus C&I.

Yes, it's... I think it's well over a majority would be residential land, acquisition, development, construction, credits, not commercial industrial and not other CRE. Brian Klock - Keefe, Bruyette & Woods, Inc.: Okay. Okay. And I guess maybe same question on the charge-off, the $53.8 million, how much of that was the residential land versus...

Again, the significant majority I believe. We are going to...

One C&I deal in Texas that had $5 million.

Let see. Okay. Of the commercial, I will just take commercial lending charge-offs across the whole territory were $15.6 million during the quarter and that Harris mentioned there was one, about a $5 million one in Texas and that accounts for a third of that; the rest were all well under... all the other banks were well under $5 million. There was $30 million of commercial real estate. Almost all of that is residential and California and Nevada followed by Arizona were the three biggest sources of that charge off. And together they account for 19% of the commercial real estate charge-offs. Brian Klock - Keefe, Bruyette & Woods, Inc.: Okay, great, that's helpful. And I know that there were some other questions earlier about the reserve level, the NPLs et cetera. Do you guys... I guess when you do this, obviously, you look at each bank's level of reserve and then kind of as you roll those up instead of at a global consolidated level like we see here in the release. So I would imagine that as you are building that reserve, you are looking at the Texas bank versus the Nevada bank versus the California bank's reserve.

Yes,that is correct, right. Brian Klock - Keefe, Bruyette & Woods, Inc.: Do you happen to have that or should we wait for the Q as to what the level of reserves to NPLs at each individual bank.

I don't have that in front of me. What I can tell you is that I mentioned that we have this range. And the lowest coverage in any one bank...or the lowest position of any of the banks is about the 65th percentile of the range. And they range up to... and they go up to... one of the banks is at 100%, i.e. they are very top of its range. Brian Klock - Keefe, Bruyette & Woods, Inc.: Okay. And then last question, Doyle, and I am not sure... there has been a couple of banks that have reported this quarter that actually have taken a goodwill impairment. And they said their action was really prompted by the fact that their stock has been trading below their stated book value.

Yes. Brian Klock - Keefe, Bruyette & Woods, Inc.: And I guess I know you guys just did your impairment test in October. Now is that something you would have to... I don't know if you are getting pressured from an auditor or is that something that you would have to consider or do you have wait [ph].

It is something that we would have to consider. And you are correct in that we are trading at or slightly below book value. And that is one of the indices of impairment of goodwill. It is not totally depository of it, but it is something we would have to consider. And I would say a prolonged, significant price at less than book value would increase the indicy. But that's... our test is once a year and we'll see where we are this fall. Now if something happens that says there are other indices piling up, then we don't have... we shouldn't wait until this fall again. So it's not that we have a blind eye to it. I am not getting undue pressure from my auditor over that issue, but it's something he is aware of and I am aware of. Brian Klock - Keefe, Bruyette & Woods, Inc.: Okay. Okay, that's helpful because I know there are different auditors, different banks have different issues. But you are right. I think the other ones that have had an impairment have had a longer period of time I guess with a market capital that it has stated [ph]. I appreciate it. Thanks guys.

Okay.

Your next question comes from the line of Mr. Ken Usdin with Banc of America Securities. Please proceed.

Thanks. Good afternoon everybody. Just a question about again the NPA growth relative to provisions. I know that it's a much more complex model than I am going to try to ask about here. But I look at the fourth quarter where you provided... over provided by $40 something million and charge-offs... non-performers went up by about $90 million. This quarter you over provided again by 40 something million, but non-performers went up by $150 million. So the reserve did build, but it didn't seem to build as fast as the growth in NPA. So my question is just about can you just talk about your view on newer NPAs and severity levels I guess versus what was already on the book and being written off? So just trying to get an assessment of your forward look on severity on newer NPAs I guess versus your prior views in prior quarters.

Well a lot of that... I mean implicit in your question is kind of an assumption that a loan that goes NPA could result in a loss of the [ph] down to the loan. If you are matching... if the loan reserve build was matching the NPA build, or you thought it should, that's what you are implying. But again, as we've discussed, a significant amount of the new NPAs and a significant amount of the total NPAs are real estate related where you have collateral. And our practice is when there is a downgrade to... if the... you are going to charge down a loan if your appraised value is less than your loan balance with a haircut. So you are going to take... but there is also an assumption that your collateral value will cover a part of... or all of the loan. So the loss content in these real estate related loans is not 100% of the loan balance. And that's why the reserve coverage of NPAs doesn't have to stay the same as the NPA balance grows if most of the increase is coming from real estate collateralized loans and you are staying current on your appraisals and charging them down as you go. And that's what we do.

No, of course, I understand that you are not talking about dollar-for-dollar. So what I am... so right, so what I am trying to just assess is just your outlook on severity of loss against those I guess collateralized real estate positions versus what you might have been thinking. Like have you changed your modeling with regard to expected loss assumptions any differently than you had been in the past?

Well changing modeling, I would say no. But I think again as we I think discussed at our Analyst Day when we walked you through a couple of specific credits and how they evolved over time in this space. To be very simplistic, if you started off with a $10 million loan with $20 million of collateral, you have got a 50% loan to value. And as long as the loan is performing and the collateral value hasn't declined by more than 50%, you have a... and there is a very simplified example... you have not suffered a loss. But when you go from 50% decline to 60% decline, now you have suffered a $2 million... with the kind of collateral decline or value declines that we have seen in the Southwest, we are seeing an uptick in losses due to the lower collateral coverage of the loans. And that's one of the things I think that's driving these loss amounts up at a faster rate than non-performing assets are going up. But again, we think the reserve coverage, we're constantly adjusting for the sort of the new level of loss content on a loan-by-loan basis. And by pushing ourselves up in our reserve range, we are becoming incrementally more conservative as we do that.

Okay, got it. Thanks for that explanation. My second just quickly is just on the commercial side, C&I small business, I know you talked about a little bit of deterioration on the related to housing. But I was just wondering, can you just walk through the geography again and give any comments on, if you're just seeing, what signals are you seeing of any deterioration in just straight consumer that's not related, just kind of core businesses given that you do have a really good view into the small business environment?

I'm sorry, you said consumer and you said C&I or are you wanting --

I'm sorry, I meant commercial, sorry, C&I small business.

I mean we actually part of this call tried to look at whether there was any consistent pattern by geography or zip code of change in the C&I portfolio. And we couldn't discern one. It's just been a slight... net of... I mean there is some up, there is some down by code or zip code and net-net, it sort of... it's a bit of an uptick, not alarming but netted has drifted upwards in delinquencies.

Okay. Great. Thanks very much. Operator: Your next question comes from the line of Ms. Heather Wolf with Merrill Lynch. Please proceed.

Hi there. I hear somebody whispering just one question. So I'll ask just one question.

We are sensitive to the fact that it's getting little late, we got several in the queue, so.

I completely understand. I am just wondering if Gerry can give us any color on the probability of default and loss severity that you have currently experienced in your California, Arizona, and Nevada construction books?

I don't know where to start. The... no, we have seen a definite increase in the volume of credits that have gone into default and as Doyle talked about quite extensively a few minutes ago, it really depends on where the property is located as to the severity of the loss that we'd end up taking as a result of the declining property values. Those properties that are closer into the core of the population mass are... we are realizing a lower less of a depreciation in value and therefore less potential loss whereas those that are distant from and in the outlying areas, the probability of loss is higher.

So also have a lot to do with the sponsor of the deal and I think in California, I can think of some deals where we have some really strong sponsors, you've got Calpers [ph] or where they've continued to support their equity position in the project and I... gets back in those small measure to some of the re-margining that Gerry is talking about as well.

Heather, I would give you one other pieces of information, I don't have the exact numbers, but I will tell you that in... I'm pretty sure, Gerry and I look at each other, I'm pretty very sure that in Arizona and Nevada over 50% of our residential land acquisition and development portfolio is criticized or classify, which means there is an elevated level of reserve against very significant portion of the total. I think it's a little less than 50% in California, but it's still significant. So we've gone through this entire portfolio several times over the course of the last 8 or 9 months and I think we've taken a pretty hefty whack at it.

So it sounds like going forward what we're going to see is increase in loss severity assumptions rather than much higher probabilities of default?

Probably because you have less collateral cushion the further you get into this.

Okay, Okay thank you very much appreciated

Yeah. Operator: Your next question comes from the line of Norman Jaffe with Sunova Capital. Please proceed.

Hi thank you for taking my call.

Sure.

Regarding the available for sale portfolio?

Yes.

And I know you said that you are taking OCI marks on your bank and insurance trust preferred portfolio. What of that or how close are you to an event that was might trigger an OTTI occurrence?

Pretty far we think.

Pretty far, we have to see a lot of Insurance companies or lot of banks go overall.

But does the... how does the market value over the pools impact the potential impairment, even if they don't go broke, you just have the cool itself or the underlying individual securities trading at a deep discount to your sort of cost base. Does that impact what could trigger an OTTI event?

Well, if they were deep and it persisted, yes. But you know, you have got $200 million of pre-tax marks on $ 4.7 billion portfolio, that's not a heavy discount.

Well, it's only one indication I mean if the security is got a big mark on it that's one indication. You do have to look and underneath and say, you know is the collateral performing and do you expect it to continue to perform, how much coverage do you have, for example if you have got collateral, 100% in excess of what your tranche is, it is pretty hard to argue that that's other than temporary impaired.

Okay. Thank you, guys.

Yeah. Operator: Your next question comes from the line of Ms. Jennifer Demba with SunTrust Robinson Humphrey. Please proceed.

Hi Jennifer.

Hi. On the margin, it seem like you were expecting a little more compression in the January call and even at the investor day, can you just give us a flavor of what kind of change during the quarter that held the margin more stable?

Well, I think the biggest contributor was we saw a better deposit pricing as the quarter went on and as more rate cuts come through, the industry as a whole and which enabled us specifically that we are able to pass more of those rate cuts on. So that was the biggest contributor, probably the second biggest was the fact that we did month-by-month get to see on the loan originations and renewals better and increasingly better spreads. Now pushing the pricing on loan tier was one of the key levers that contributed to holding the balance sheet growth in check as well for managing any stresses on capital. The offset to that was probably the single offset to that was the decline in DDA balances, which had a little bit of negative impact, but we were not as I guess earlier in the quarter it didn't look like with the liquidity pressures and everybody was seeing the deposit pricing might be as responsive as it turned out to be.

Thank you, I appreciate it.

Your next question comes from the line of Shelly Davis with Finansbank [ph]. Please proceed.

Sorry, hello, if you did have to raise capital for any reason what sort of capital would it be, I suppose trust preferred to something like that and how much of that could you raise to bring your ratios up to say the middle of your range.

We think, Shelly [ph] that the capital markets are open to us. We've had a whole parade of investment bankers coming through here, offering to raise... trust preferred, hybrid trust preferred, DRD preferred, convertible preferred and more recently subordinated debt. But the only thing they tell us that they can't raise the senior debt and we've proven that we can raise it ourselves. There is no other... we are aware of any other A or BBB rated or lower bank holding company as raised any unsecured holding companies senior debt, since early last fall and we've done it three times now. What we... what is not attract... so the markets have loosened up there is availability of capital what is totally unattractive is the pricing in terms of those capital... that capital, that's why we are trying to proactively manage the company in a way so that we don't have get for ourselves in the hands of the vultures, and we determine to not do that.

I think we are helped by the fact that we have... I mean we historically had as we said before in the call a very low dividend payout ratio that's serving us really well right now, we try these buybacks sort of the swing method of getting capital back to shareholders and that's proven to be a good strategy I think, now the point is, it's going on cycle, so.

Right. Okay. So the level that are you talking charge-off was higher I think the many thought would be but, and it is taken enough as one person said not quite a percentage rated this path [ph] as a charge-off rate but, you explain why that would be, but do you think looking forward as that the provisioning will continue build at least for two more quarters at the sort of same rate or and tailwind from a widening of your net interest margin do you think they will help you to build that reserve?

I am not do... was your question, do we think did the provision will continue to increase at the rate?

Right

How do say, you were bit surprised ourselves by the fact that we've ended up providing a bit more than we have guided to and the losses were higher than we guided to. Best expectation right now is that losses may that they will be equal to or slightly higher than this quarter, and same with provision, but not markedly so. It's a... there are lot of moving parts out there.

Great. Okay.

And I'd point that in terms of capital build I've indicated there is a limited amount of additional probable or potential OTTI fair value marks. And therefore you know, that the drag on earnings and the drag of going capital to growing from that source probably is limited at this point. And therefore there is room within the kind of the current earnings level to increase the provision even further and therefore not drawdown capital any... I will point out again that during this quarter we have sort an additional $1.5 billion or more capability under more of actually closer three quarters and a billion or more securities and commercial paper from Lockhart. We have sort of $46 million of OTTI a larger reserve percentage and intangible equity ratio actually increase... $200 million of marks through OCI and tangible equity ratio increased not a lot, but it did increase.

Yeah, that was impressive. And so, okay, so that it gives you some potential possibility I supposed for instead of markdown or markups.

No we... as long as it's not OTTI yes, there is that potential and that is correct.

Okay. Thank you.

Yes, sir.

Thanks.

I'd now like to turn the call over to Doyle Arnold for closing remarks.

Well thank you all for your attention and your patience and your interest. I know it's been a long earnings season for you and a long call for us. Just to summarize, while there are still some weak spots in the franchise. There is also some strength and some things to be encouraged about. And we are somewhat encouraged by where we are right now. And we look forward to... and we are key... I will say just we are keenly aware of your interest and understanding updates on those LTVs and we are going to do the best we can to get you some reasonable realistic numbers there recognizing that's changing very rapidly. With that we again thank you so much for your interest in Zions, and we look forward to seeing you at conferences during the quarter and on the call again in July.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.