Glacier Bancorp Inc (GBCI) 2009 Q2 法說會逐字稿

Good day and welcome to today's Glacier Bancorp second quarter earnings call.

All participants are in a listen-only mode. Management will be taking a few questions during our question and answer session following today's presentation.

It is now my pleasure to turn the call over to Mr. Mick Blodnick. Please go ahead, sir.

Welcome, everyone, and thank you for joining us this morning. With me this morning is Ron Copher, our Chief Financial Officer, our Barry Johnston, Chief Credit Administrator, and Angela Dosey, our Senior Staff Accountant.

Last night we reported earnings for the second quarter of 2009. Earnings for the quarter were $10,652,000. That's down 42% from last year's quarter. Once again, the quarter was straight forward and absent any non-recurring income items, but did, of course, have the FDIC special assessment as a large non-recurring expense item. The assessment impacted the quarterly earnings by $0.03 per share.

We continued to generate good core earnings momentum with pre-tax pre-provision earnings up 17% over last year's second quarter. Diluted earnings per share for the quarter were $0.17, a decrease of 50% over the prior year's quarter. However, we did increase the number of shares outstanding on average by 14% over last year's second quarter so we did with the addition of the capital raise in November, we do have about 14% more shares outstanding.

Although our core revenues continued to set all time records, we are not satisfied with the level of net earnings we delivered. Going forward we need, and I believe we will once again achieve, a higher level of performance. However, in this current environment we still have a number of headwinds that are going to continue to challenge us.

Over the last year and a half, we've demonstrated an ability to meet these challenges and still prosper during these tough times, and right now I think we feel that we will be able to do the same through the rest of this year. Our return on average assets for the quarter was 0.77%. That's down from 151% last year. And our return on average equity was 6.18%, also down from 13.51% in the same quarter last year. Now, again, our capital is consistently -- is considerably higher as we increase the capital within the company and hopefully we'll continued to so until such time we feel the worse of this credit crisis is over. This past quarter has proven how valuable capital is.

Today, as bank's across the country, this last quarter especially, attempted to at that point the capital markets and build their own individual capital basis. Fortunately, we have built a very large capital base over the past three years that continues to give us a significant advantage during these uncertain times.

Our stockholder equity ended the quarter at 12.23%. That compares to 10.93% in last year's quarter, so we saw a pretty significant uptick in our stockholder equity over the last year.

Our tangible common equity ratio increased both during the quarter and year. Tangible common equity ended the quarter at a very strong 9.71%. That compares to 9.65% the previous quarter, and 8.14% for the same quarter last year.

Right now, we are content to let our capital continue to build. We feel there will be a time and a place with plenty of great opportunities available to us down the road. But at the current time, keeping our powder dry appears to be a prudent thing to do from a capital perspective.

Asset quality, and we'll spend more time during the question and answer session on asset quality, but asset quality continues to be a constant challenge. Just in the second quarter we saw another increase in our NPAs and at the end of the quarter, NPAs stood at 3.06% of assets as a couple of large credits were moved to OREO and nonaccrual status. This compares to NPAs last quarter of 1.97% and 0.58% last year. So we've seen a significant increase in NPAs over the last year. We expect further increases in NPAs but hopefully not at the magnitude we've seen in the last two quarters.

NCOs for the quarter was the highest we've ever experienced at 28 basis points, or 112 basis points annualized. Even though we experienced, for us, historically high charge-offs in the second quarter, we still grew our loan loss reserve to 2.36 at the end of the quarter. That's up from 2.01 in the prior quarter and 1.59 in last year's first quarter. And we are still shooting for and believe we can achieve something closer to a 3% loan loss reserve by the ends of the year.

During the quarter, we provisioned $25.1 million. That's up from $15.7 million in the first quarter. So we increased our provision this last quarter by just about $10 million. And last year, in the same quarter we had a loan loss provision of $5 million. So, we were five times greater loan loss provision this past quarter than we were in the same quarter last year.

During the quarter, we covered our net charge-offs, 2.2 times, and during the quarter we did see a reduction in our thirty to eighty-nine day delinquencies from $66.5 million to $62.6 million. However, it's too early to tell whether this trends is going to continue.

As we continue to work through our credit problems, loan demand has also slowed. Loans decreased during the quarter by $32 million and are basically flat from the beginning of the year. Now, some of those loans moved to OREO, so that's somewhat offsetting the loan growth, but still the basic idea there is the loan growth really has slowed down. And although we had already cut way back on our loan growth projections, we are now not expecting any significant growth in loans this year. Although credit quality continues to be a significant issue, there continues to be a number of positive developments taking place within the company.

Our net interest margin, although down slightly from the prior quarter, is still at levels we have not seen in years. Sequentially our net interest margin decreased 5 basis points in the second quarter to 4.87% but is up from 4.75% in last year's quarter. The loans that we added to nonaccrual status thus this quarter lowered our net interest margin by 10 basis points, which basically accounted for all the slippage in this year's or this quarter's net interest margin. Excluding the loans moved to nonaccrual, I have to give credit to the banks for the work they did controlling their funding cost during the quarter.

Interest expense decreased 8% sequentially during the quarter where we only gave up 1% in interest income. We've stated over the past several quarters, it would be difficult to further expand our net interest margin, however, hopefully we will continue to maintain the net interest margin within a reasonable range and not experience any significant reduction over the next few quarters. Non-interest income of $21.3 million increased 23% on a linked quarter basis and also 23% from last year's quarter. Much of the increase can be directly attributed to the gain on sale of loans and higher levels of service fee income, the gain on sale of loans basically coming from a lot of re-fi and purchase volume. In fact, mortgage origination volume during the quarter was very strong and the majority of our banks.

Deposit growth was very good during the quarter, non-interest bearing deposits grew at 1.5% just during the quarter and interest bearing deposits grew by 3% during the quarter. And if you annualize those, which we usually don't annualize deposit growth, but I think you'd be looking at something around 6% for non-interest bearing and 12% for interest bearing deposit growth. It was encouraging to see this type of growth, since this has been an area where growth has been tough to come by at reasonable interest rates over the last year, year and a half.

Another area that we were pleased with was the efficiency ratio. Considering the increases this year to the FDIC premium assessment as well as much higher legal and OREO expend the ratio ended the quarter at 52.5%, which was only slightly above last year's 52%. The banks continued to a stellar job of controlling expenses both operational as well as funding. In addition, the gains we saw in non-interest income over the last year also allowed our efficiency ratio to stay in check. In summation, it's a difficult operating environment.

You've all heard that hundreds of times by now for banks all across the country, and the economy still faces some very difficult hurdles. None the less, we are fortunate to be producing record strong operating revenue. The economies we operate within are still some of the best in the country and there is little doubt that credit quality will continue to be a concern and one we'll have to continue to grind through over the next couple of quarters at a minimum. However, based on all the stress testing we have done this past quarter, we are confident our strong and growing capital base is adequate to withstand the most difficult of scenarios. Through the first six months of the year, we have produced just short of a 1% return on assets.

In better times that would have been extremely disappointing to us. However, in today's environment we cannot be displeased with how we performed to date.

With that I will open the lines up for questions, and we will take questions now regarding the second quarter earnings.

Thank you, sir. We will now begin today's question and answer session for today's conference. Please note that we may not have the opportunity to answer all questions submitted during the session today. We will take questions in the order that they are submitted. (Operator Instructions). Our first question today is going to come from the site of Brett Rabatin.

Good morning, Mick. Wanted first get the detail on the construction book. Can you give us the particulars on the segments from a balance perspective?

You mean on, just on the vertical construction or the land and development or both?

Yes, if you wouldn't mind just going through the construction portfolio and give the balances for each segment.

Okay. Brett, this is Barry.

Hi, Barry.

Good morning, how are you doing?

Good.

Good. To just kind of give me the overall categories, one to four-family residential construction loans ended at $272 million.

Okay.

Which is down $27 million from the prior quarter. Within that category, spec and pre-sold is at $184 million. And custom all in one is at $88 million.

Okay.

Okay? And then in the other construction, land and lots and land development, ended up at $763 million.

Okay.

Okay? And within that category raw land is $124 million.

Okay.

Land development is $289 million.

Okay.

Consumer lots, $178 million.

All right.

Developed lots for builders is $52 million.

Okay.

Commercial lots, $33 million.

All right.

And commercial construction, and other, is $96 million.

Okay. A little movement in some of the segments but not a lot other than the one to four [inaudible] it looks like. I was curious, Mick, I'm assuming these two larger projects were in the land development portfolio.

They were, Brett.

Can you talk about those two loans and just -- were those the bulk of the charge-offs this quarter and what the resolution or what the prospects for those two in particular are?

Well, first of all they were both in the land development section or a big part of them were. Neither one of them were part of the charge-offs, though, and Barry will get into a little bit more detail on both those credits in a second. But on the one, West Rim, that was -- and let me preface all this by -- we've been telling the investment community for the last three to six months now that we had identified at least $100 million to $110 million worth of problem assets within the land development component.

And as of the first quarter, we had only had about $45 million showing up in NPAs and we fully expected that over the next couple of quarters that we would see a good share of this, the additional $100 million to $110 million end up in that NPA status. Both of these credits were two that we had been monitoring and tracking for some time. One of them went straight into OREO.

That was the West Rim project down in southeast Idaho, right along the west side of the Teton Mountains. And $18 million of that $22 million credit was in land development. There is some vertical construction and commercial building down there, but that went directly to OREO.

The other one, the other credit, obviously, is in NPA status. It's about $13 million. And, I'm going to just let Barry talk a little bit more about valuations since he's been obviously on top of both of these projects for months now.

Yeah, the first credit is West Rim. Actually, that was -- went into OREO just the last day of the quarter. The borrowers had been self-funding all the interest reserves until June 2 of this year at which point they just flat ran out of cash and rather than continue to try to support the project and delay any resolution, we, through various negotiations, took a deed in lieu.

That's just a little description on the project itself. The entire project was 5,400 acres. It was originally a wheat and potato ranch. It overlook the Teton River, a major portion of the property, close to 1,300 acres covers the Teton River. It faces primarily fading southeast towards Jackson Hole and the Teton Range. The Division I was 900 acres. It was comprised of 56 lots and 20 cabin sites. All 56 lots sold and 11 of the cabin sites remain to be sold. So, they also built a sales office which is a farmhouse and barn and an overlook lodge in that Division I.

It's very successful. Sold out in six to nine months. And with that the project commenced on to Division II, which is comprised of 4,500 acres. Phase I of that project is just under 1,500 acres. It's comprised of a fully developed and platted 158, the total Phase I is 158 lots and 151 chalet lots. It also has a partially completed 18 whole golf course on it, and that's when things started slowing down in that phase, as you can well imagine. What we have -- what we have there now is fully platted 43 lots and 107. Of those lots, 43 lots have sold and 107 chalet lots have sold. So there actually has been some activity in that division.

We also have eight commercial lots, commercial sales office and, of course, the and, of course, the golf course that has to be completed. Given all of that what we are looking at as far as value and, again, value is kind of a nebulous number any more, but probably rather than going through full appraisal methodology and everything I'll just give you the full.

We do have an appraisal coming here any day.

Actually we were hoping to have it prior to this conference call. It was due on the 21st, but we have not received it yet. But putting everything through perspective, discounting the retail lots by 20% to 30% depending on the type of lot, and valuing the remaining 3,300 acres that are left at just agriculture farm prices at $4,000 an acre, and that's the best estimate we have, this is all sprinkler, irrigated farmland, total retail value including the commercial office building, the one vertical single-family residence, and the lodge, we come up with a total retail value of $69 million versus our debt of about $22.

So, even if you discounted the retail off 60% we feel that we are still adequately covered as far as collateral value goes. And the reason for the default, it wasn't an equity issue, it was just cash issue primarily. Total cost of the project was $65 million. And of that, the borrowers put in about $40 some million and we put in $22 million. So our loan to cost is at the 30% range.

Okay. And it's my understanding this is one of two total projects that are to have some golf course related type piece in your total portfolio, correct. One of them is on nonaccrual, OREO essentially and nonaccrual.

Yes, the second project is only on nonaccrual. Due to privacy concerns I can't mention names. I will just give you a general outline of that approach much it's located in northwestern Montana. It's 545 acres. It includes a full completed golf course. It's -- actually I looked at the project a couple of weeks ago. The, of the 545 acres, it's fully platted for 318 lots, of which 110 lots have been fully platted with final platt. And, 24 have sold to date. And within that project we feel that the total retail value of the remaining lots is about $33 million.

You have -- we have 135 excess acres, we value those at about $10,000 an acre, that's on the low side, about $1.3 million. We have the lodge. There's a lodge overlooking a 60-acre lake within the project. That's worth, worth just under $2 million then we have a temporary Clubhouse for about $1 million, $1.2 million. Total retail value is about $37 million, again, our loan is $13. If we discounted at 60% again we would be right in the ballpark. Total cost into the project is $39 million. And again we are at about 33% loan to cost into the project.

And we have ordered an appraisal on this property, too, and it's due some time in the middle of August. So, but our two appraisals that we have on both projects are only about six months old, six to eight months old so we feel, even given, if there is some more decline in values we still feel that we are adequately covered collateral-wise.

You mentioned the problem at loans earlier that number is one you have been mentioning. I'm curious to know what the ones that you don't have -- it sounds like the land and all portfolios, obviously, where all the stuff is coming from. I guess I'm curious to hear on the loans that aren't on problem status in that portfolio that have been performing well and partially maybe a function of just strong cash reserves, liquidity, whatever, what the performance has been this past quarter and then have you seen any deterioration in any of the other construction segments?

You know, that's a great question, Brett. I wish I could give you an absolute definitive answer. We spent a lot of time looking at what now is about a $280, $290, it's come down a little bit but land development a still close to $300 million. And we've said for months or quarters now that there was definitely $100 million to $110 million that we knew was stressed. There is still, we were talking about this, this morning.

If you take into consideration that of that $100 million or so and there was $45 million, as I mentioned earlier, that was already identified and sitting in NPA at the end of the first quarter, just these two loans alone, in fact I think Barry and myself added that up, and we figured that there was right around $38 million, or was it about $38 million, that came into NPA status this quarter? $22 million from West Rim and $13 million from the development in northwestern Montana and a few smaller developments that have come in.

Right now, our NPAs and past dues, nonaccrual is just shy of $128 million. Of that, about $57 million is land lot and other construction; one- to four-family residential makes up another largest component, then $23 million, and one of the, to kind of direct your question.

You said non-perform, but you meant nonaccrual.

Yes, nonaccrual and past due.

Doesn't include the OREO.

Does not include OREO, and then single-family residential, which $24 million is a large component of that. So we are seeing some of the -- deterioration in the other portfolios. But nothing to the extent that we are seeing in the land and land development arena.

And getting back to your question, Brad, of that, if we've done, and again, West Rim, of the $22 million, $18 million of that was land development. There was $4 million that was actually in vertical construction. So, it wasn't the entire $22 million didn't come out of land development. But the bulk of it did. Coupled with the $13 million like Barry said a couple of other once that were added this quarter. There was just about $38 million, I think, is what we added. So, there could be another from what we identified initially there is still another $22 million to $25 million worth of land development loans that could hit NPAs, and we would almost expect them to.

We've been looking at that $100 million to $110 million figure. Hopefully, like Barry just went through on these two, we are not saying that every project is that our loan to the value of the project or even our loan to cost is as low as it is on these two large ones. We've really got a feel that we've done a good job of underwriting these things. We've got, we have a lot of equity going into these projects from the borrowers. And that that will carry the day. There is going to be some losses, but historically, our losses have been pretty reasonable. In fact, they've been -- historically, our losses have been very, very low compared to the industry. They are starting to get more to peer averages, now, but again we don't see a huge amount of loss in some of these larger projects. Would you concur with that, Barry?

Right, so far, especially in these two projects one of them, one of the basic underwriting principles that we pretty much held through to is that we never financed national construction of golf courses and in both of these two projects that we realized when we got into them we would do the infrastructure work and the some of the land acquisition.

But we ensure that the borrowers come in and put the equity into that side of the project and so far it's paid dividends for us at least as far as collateral values have gone. Okay.

One quick one and I will let someone else jump in. On an OREO perspective, I know a lot of the projects like this West Rim project you can say, "hey, look, there's definitely some real equity in there." I know some of the loans you have out are to good properties and I know you talk about you should hold them if just the value isn't there, liquidity isn't there, have you guys considered doing kind of a real estate, held for investment type portfolio that would be a subset of the RE piece?

No, we really haven't Brett, no. We really are not -- we are in a great position with our capital in that if one project out there was we felt really had value and holding on to it for a year or something like that was going to really do us some good things, we might look at that, but we are just not in the business, nor do we care to be in the business, of being a developer or getting into the real estate business to that degree.

And so I think what we've been doing is we've been saying, let's get these things, let's get, if we can get them into OREO, where we control them, and I think Barry and the banks have done a great job of working with some of these customers, and I think we are going to see a few more come into OREO. In fact, I know, we will see a couple more come in. Not anything of this size, but we are going to see some more loans come into OREO where we can deal with them ourselves and get them sold. I think that's our preference.

The big thing is that the West Rim development was our single largest real estate development loan in the organization. So if you want to put a positive sight on it they are all going to get smaller on it from here going forward. As our OREO says right now it's $37 million and $32 million sits in basically construction and land development and $13 million sits in single-family residential loan, so we know we can move the residential. That's just a matter of price points. The development side, of course, we can always sit and consider whether or not we sell and suffer or hold and hope. But in two or three of the developments that we do have, I think, our premise is that we are going to try to evaluate the best options given the cost to carry. And after that practice is done and again it's truly because of our business model, the banks have a lot of contacts within their marketplaces.

It's a little bit different than if you have a centralized credit administration or special asset group that is just trying to blow these assets up to make their numbers for year-end, but actually we hope to maximize our returns by having the banks handle their own properties, and usually liquidate them to individuals within those communities that have a leg up on the marketplace.

Okay. Great. Thanks for all the color.

You bet, Brett.

Our next question today is going to come from the site of Chris Stulpin. Please go ahead, your line is open.

You answered, basically, all my questions. You mentioned the West Rim project was the largest that Glacier Bancorp has out of the construction. What would be the next, I guess, few largest relationships within that portfolio and are they part of the $100 million of potential stressed loans that you're looking at?

Right. Actually the West Rim was our largest, the next largest is a development located right here in Flathead county. It's 600 acres. It's a $22 million relationship. But that project is very well capitalized.

Again, we have $22 million out, but there's about close to $46 million in cost to the project and the principals in that case that have continued to carry the project and have done so without a heart beat, and we fully documented the resource stability to carry that project on a very long-term basis and or amortize the $22 million out and pay it from outside resources. So and that was their plan originally. This was not a six-month or a one-year pay out. This was a ten-year, ten-year project. And they have the ability to carry it.

Unfortunately, the next largest project is the one up in northwest Montana that we just placed on nonaccrual and that's the third largest. We have one other development over $10 million that's located in northern Idaho. Now, that project is stressed and we fully anticipate if there isn't some resolution to that one here in the short term that project will come into the non-performing and/or OREO status. So that's basically it. After that the size and the depth of the projects go down pretty dramatically into the $5 million to $10 million range and go down from there.

Okay. Thank you very much, guys, appreciate it.

You bet, Chris. And even there, getting back to Chris' question, if the $5 million to $10 million, do we have any, you don't have that number, do you.

No, I don't. We can get that. We can sort them by size.

Our next question today is going to come from the line of Joe Gladue.

Hi, guys. Question on the balance sheet. I guess in the second quarter, no loan growth, but there was still some growth in total assets and most of that was growth was in some of the more liquid accounts, Fed funds and interest bearing deposits in other banks.

Just wondering if I guess you expect that trend to continue building up liquidity, and I guess,the second part of the question is implications of any of that asset shift to -- on the net interest margin.

Yes, I mean, that's a good question, Joe, won that we keep, we keep analyzing all the time. We are getting more liquid all the time. We had a good quarter for deposit growth, that coupled with not negative loan growth in the quarter and virtually no growth for the first six months. We are getting more liquid. Obviously we are looking at investments all the time to put some of that cash to work. But, yes, it is a concern that the net interest margin if loans don't pick up in, like I said earlier, I'm not seeing any real reason as to why we would expect over the next six months or the rest of this year, loan growth to do anything dramatically different than what it's done in the first six months.

We may end the year with a little bit of loan growth, but it's not going to be much. Not that we were expecting much loan growth in 2009, any way. But there is still a little bit of -- there is a little bit of room on the liability side at some of the banks to do some things, but it's going to be very difficult for us to think of growing the margin any further from here. We've been saying that.

I was finally right for the first time in about five or six quarters and we did see a small reduction in the margin this time, although it was almost entirely the result of the nonaccrual loans being reversed. But, yes, I think from the impact of the net interest margin, I really do think that we are going to see a flattening or maybe some compression. I just don't think right now from what I'm seeing out there interest rate-wise that we are going to see anything material one way or another.

Correct me if I'm wrong but I think you said that those two large loans we've been discussing were not the source of the net charge-offs during the quarter. Just wondering if you could,, I guess give us a little more detail on where the charge-offs in the quarter were coming from.

Sure, I can do that. Single-family residential of the, and I'm looking at gross numbers here, single-family residential was $3.2 million. Land, lot and other construction in the $3.2 million was primarily centered, $2.9 million was centered at our Mountain West Bank, so that's a residual of some that spec and pre-sold inventory primarily coming out of the Boise market.

The $5.3 million was in land, lot and other construction with the major component being centered in two banks. Glacier Bank we took back a couple of developments, charged down the balance both here and at Mountain West Bank and a couple developments over there. We had a small one- to four-family, $662,000, and first -- one- to four-family first lean, $1.1 million. Commercial one to four-family junior liens was $800,000 then a drop down to commercial real estate owner occupied, $108 million, and commercial and industrial $1.3 million.

And then the rest of it was consumer and other. So so far we've been fortunate we haven't seen huge losses in any of the portfolios but, again, we are running at that clip rate of about anywhere between $8t million to $10 million a quarter and we fully anticipate that would continue through the rest of the year.

And we've, I think we experienced net charge-offs of a little over $11 million, $11.2 million but gross charge-offs was about $12.2 million, about $900,000 to $1 million in recoveries during the second quarter, but as you can see by Barry's analysis here that still the bulk of those are coming in the vertical construction and land development area.

All right. Thank you.

You bet, Joe.

Our next question comes from the line of Brian Zabora; please go ahead.

A question on the strong gain on sale margins or results. How much of that was widening of spreads and how much of that was just pure volume?

I didn't get the first part of your question, Brian. I'm sorry, the gain on sale in the quarter as far as revenues, how much of the increase was based on pure volume or did you also see widening of spreads as far as on sales from the previous quarter? No, I think it was pretty much pure volume driven.

And then volume continuing over to the current quarter or should we expect a slow down.

No, it's really tough to say. I mean rates are pretty decent right now. I've been talking to the banks. Activity is good. Some of the banks have really benefited by bringing in some higher producing loan originators. After, with all the fallout we've seen, there are some good mortgage bankers looking at round and we've brought in some of those that are helping volumes move upward.

But if rates drop a little bit further from here, I think, if that 30-year drops below five and I just this morning I was talking at board meeting before the call that right now they are seeing five and an eighth to five and quarter 30-year rates, if that goes below five I think you will see another wave, but without that and saying if rates stay where they are at right now Brian, I would say that they wouldn't expect quite the level of volume that we saw in the second quarter. But I'm not seeing any huge drop off either.

Just a follow up on Joe's question, if deposit growth continues to remain strong. Where is your preference? Is it, has it been reduced borrowing sum or is it to go into some liquidity products?

Probably going to some liquidity products. I don't think we -- there is still nice spreads in some short term liquidity products.

We've got a very, very good funding base within our core deposit base, almost half of it is DDA's, Now Accounts and that gives us some real flexibility. And if we can hedge some of the borrowing costs and still do, still do fine as far as the spread perspective on investments we'll take a look at that. Clearly if that goes away we would just pay down borrowings.

Thank you very much.

You bet, Brian.

For our next question we will be going to the line of Timothy Coffey.

Good morning, guys.

Hi, Tim.

Getting back to the change in loans quarter-to-quarter, how much of that is a result of maybe tighter underwriting standards versus the slack demand?

I'll let Barry comment but just my take on it is, we haven't really changed our underwriting standards forever. We are underwriting loans right now the same way we did back then. Now, that's not to say, though, even though our underwriting standards are exactly the same, Tim, that we are going to do a land development loan.

We are not going to do a land development loan. We haven't done one for over a year now. And so it's really, in that respect, if you want to consider that part of the underwriting maybe that's it. Tim, do you have some background or something going on back there?

Yes, I do, sorry about that. Is that a little better?

I can't quite hear you. It was probably causing some static for everyone else. Any way, I really -- now I lost my train of thought.

Actually, Tim, I think it's truly a function of demand not unde writing standards.

Yes, it really is.

The only thing that we have changed basically in our underwriting standards is on, of course, land acquisition and development loans, we went from a retail valuation down to a bulk sale valuation. And that's about the only major components of our underwriting that we've changed.

There has been some of the banks have operated to lower loan to values on some of their hone equity lines of credit products, but they are doing that at a bank level and we have not opted to do that at the holding company level. And then we've also increased the appraisal requirements on some of our loans but that's essentially it, where we've made the changes, recognizing some of these projects are going to be a little stressed for the next few years.

I think even what we are seeing is even quality borrowers just are not borrowing. We've seen projects being pushed back. We've been seeing projects or expansions that just have decided to be tabled for six months or a year until the owners can get a better handle on maybe what direction this economy is going. So I think, it's more of that than it is anything that we've done underwriting-wise.

The only really change in the portfolio mix is other than decrease in the one- to four-family residential construction and then decrease in the other construction, is we've seen an increase in owner occupied commercial real estate of about $87 million the same time we've seen a decrease in nonowner occupied commercial real estate of about $54 million. So we are seeing the transition to a little more conservative portfolio on that segment of it.

Okay. Okay. I've heard of an executive that end market is similar to yours described his marketplace as isolated, but not immune to what's happening nationwide. Do you think that describes your markets?

Oh, absolutely. I mentioned in my opening comments, I still think the economies of most of the states that we operate within are still some of the best economies in the country, but we are absolutely not immune from what's taking place.

When people around Idaho, Montana, Wyoming, Utah, Colorado, they read the papers, they see what's going on and it probably impacts their behavior just as it does everyone else around the country. Maybe not to the same degree as what you are seeing in states like California or Washington or Oregon. But, still there is no doubt that we are hardly immune from what's going on.

Okay. Great. Well, thanks, those are my questions, appreciate it.

You bet, Tim.

We will go to our next question, this one is coming from the site of Jennifer Demba; please go ahead.

Good morning, Mick, how are you?

Hi, Jennifer

Just curious, can you give us a sense of what kind of loss severities you are seeing in your portfolio right now?

So of the credits that we have taken losses on; it's kind of all over the board. I wish I could say on, well, I guess you could calculate an average, but we've seen where we had a project down in Boise where when that thing was finally sold completely out, we were about 70% loss in that deal.

We've scene some that we've gotten back here recently up here in the Flathead where there was no loss at all. And then just about everything in between. So I guess you want to look at the guide posts, it's something between nothing and 70%, my guess would be 20% to 25%, Barry, do you have --

I would say if we were going to get real estate development back, just the our average run of the mill one, nothing of any size, because the larger credits we definitely were much more conservative when we went into those loan-to-cost just due to size considerations, but say on a $5 million development, what we've seen on two or three of the projects we've got back we are looking at 20% to 30% losses in those.

Okay. And a follow up, I came on the call late so if this has been covered, I'll go back and read the transcript. Just, but what are you seeing in terms of acquisition opportunities right now?

You know, it's, you are not seeing too much outside of the FDIC-assisted. I get a lot of phone calls, but I think the phone calls, well I can just tell you, I don't think, I know, the phone calls are from a lot of banks that are soon going to be probably FDIC-assisted, and we are just not probably going to spend much time looking at that, that type of a franchise right now. So it's, I think it's slowing, everybody knows it's slowed down dramatically.

I think, the few that have talked to us over the last six months or so that we are not FDIC assist deals, they just did not like the dollar price that we were willing to throw out on the table and I think that the regulatory environment has changed, too. So, all those three things collectively, Jennifer, I believe, have really slowed this M&A market down.

Thank you very much.

You bet. One other comment I guess there, too, and we continue to be nervous getting into something like that, anyway, because, as we've said for some time, you just really struggle to get your arms around every last component of a franchise. So to go out right now and get too aggressive there, it just doesn't make a lot of sense to us.

Okay.

We would like to thank you for your participation in this section of our call. We are now concluding the question and answer session, and I will turn the call back over to Mr. Mick Blodnick. Thank you and thank all of you for your attendance today on this conference call.

If any of you have any additional questions, you can notify either myself or Barry or Ron and with that this conference call has ended.