KeyCorp (KEY) 2008 Q2 法說會逐字稿

Good morning everyone and welcome to KeyCorp's second quarter 2008 earnings results conference call.

The call is being recorded.

At this time I'd like to turn the call over to the Chairman and Chief Executive Officer Mr.

Henry Meyer.

Mr.

Meyer please go ahead sir.

Thank you operator.

Good morning and welcome to KeyCorps second quarter earnings conference call.

Joining me for today's presentation is our CFO Jeff Weeden.

Also joining me for the Q&A portion of our call are Vice Chairs Tom Bunn and Beth Mooney and our Chief Risk Office Chuck Hyle.

I'd like to turn your attention to slide number 2, which is our forward-looking disclosure statement, it covers both our presentation and the Q&A portion that will follow.

Now if you turn to slide 3.

Before Jeff goes over the numbers in detail, I want to make just a few comments on several issues that are always important for banks, but are particularly noteworthy in the current environment.

Number one our costs are well-controlled as you know if you've followed us for any length of time, one of our top objectives has been to control expenses and improve our cost ratios on a continuing basis consistent with our growth strategy and conditions in the marketplace.

I believe you can see that that objective continuing to be reflected in today's results.

Our fee revenue is strong.

We experienced strong results in several of our fee revenue areas, including trust and investment services, investment banking, and loans syndication fees.

These areas built on continuing relationships with our clients.

With the actions we took in the first quarter to reduce risk in our held for sale books, we also saw strong rebound in gains for loans in this current quarter.

Our reserves are strong.

In spite of the continued deterioration in the market conditions during the second quarter and putting aside for just a moment the adverse impact of the federal tax court ruling on certain of our leased financing transactions, our cautious and conservative reserving philosophy gives us significant balance sheet strength for credit uncertainty in the coming quarters.

Returning to the tax court decision, I want to call special attention to our decision to vigorously appeal the decision.

We have come to the conclusion that the confidence we had in the original position, taken by our leasing and tax experts, was well-placed and that an appeal will be in the best interest of our shareholders.

We remain well-capitalized.

I'm sure many of you have seen Moody's report that was distributed to Moody's subscribers last week and is available on Key.com.

This was a timely single to the investment community and to our clients and employees that Key is fortified against further deterioration in this credit environment.

It's also important to note that our capital ratios are at a comfortable margin above regulatory standards, so that we continue to be considered well-capitalized.

While our professional and institutional investors have a good understanding that Key is in a safe and sound condition, industry's headlines have generated environment of some indiscriminate concern in the general population.

I have great confidence when I tell Key depositors that we are a sound financial institution with a strong balance sheet.

There have been many, many economic cycles throughout our history and Key has always been a safe place for our clients.

We pledge to keep it that way.

Now, I'll turn the call over to Jeff for a review of our financial results.

Jeff?

Thank you, Henry.

I'll begin with a financial summary shown on slide 4.

My comments today will be with respect to Key's results from continuing operations, and I will focus on those results excluding the leverage lease impact.

These results are identified as adjusted figures and are more representative of Key's performance during the second quarter.

In some cases I'll comment on comparisons to both the second quarter of 2007 and the first quarter of 2008.

As addressed in our earnings release, the second quarter was not only impacted by the leverage lease adjustment but also by the continuation of the credit cycle.

We did experience a number of positives during the second quarter.

However, they were overshadowed by the lease adjustment and higher credit cost.

For the second quarter of 2008, we reported a loss of $2.70 per share from continuing operations, compared to the income of $0.85 per share for the same period one year ago.

On an adjusted basis, excluding the impact of the contested leverage lease transactions, Key incurred a loss of $0.28 per share as a result of higher credit cost.

Slide 5 identifies the impact of the leverage lease adjustment on specific line items of the income statement.

The two areas that are impacted by the adjustment are net interest income and the tax provision.

Approximately two-thirds of the[Fas[ 13-2 lease accounting adjustment, which is the $838 million of net interest income less the tax of $302 million on the leverage lease income, for a net amount of $536 million will reverse back into income over the remaining lives of the impacted leases.

Some of these leases go out as far as additional 20 to 30 years.

Based on these contractual maturities, the company does not expect the reversal of income to be material in any given year.

The remaining adjustment on the this schedule is the $475 million after tax interest accrual for all of our leverage leases impacted by the adverse court ruling.

Until these contested liabilities are ultimately resolved, Key will continue to accrue an additional tax provision for interest on these balances in addition to the normal tax provision on income before taxes.

We currently estimate this quarterly amount to be in the range of $32 million to $34 million for the third and fourth quarters of 2008.

Turning to slide number 6, the company's adjusted tax equivalent net interest income for the second quarter of 2008 was $738 million, up $32 million from the same period one year ago.

For the second quarter of 2008, our adjusted net income margin was 3.32%, down from 3.46% we reported in the same period one year ago and up from the adjusted 3.29% we reported for the first quarter of 2008.

Our expectation for net interest margin is for it to decline approximately 10 to 15 basis points from the current level for the balance of the year as a result of the lease adjustment and the continuing competitive pricing pressure for deposits which is offsetting better yields on new asset generation by the company.

Slide 7, highlights the changes in noninterest income between the quarters shown.

We continue to experience strong growth in trust and investment services income driven by both victory capital management on the institutional side and brokerage in the community banking operations.

Deposit service charges increased as a result of increased activity charges from analyzed commercial deposit accounts.

And investment banking and capital markets revenue increased from both the first quarter of this year as well as from the same period last year as a result of improved execution, market conditions, and the measures we took in the first quarter of this year to reduce further risk in our trading activities.

The first quarter measures taken to reduce risk also show benefits in the loan securitization and sales line item which bounced back to a net gain in the second quarter of 2008.

Turning to slide 8, total non-interest expense remain well-controlled.

We continue to monitor our expenses as we work through the challenging times in the credit markets.

We did experience higher professional fees expense as a result of increased collection efforts on loans.

Turning to slide 9.

Average loans from continuing operations increased approximately $10.4 billion or 15.7% from the same period last year.

And we are up $4 billion compared to the first quarter of 2008.

Impacting average balance comparisons to the same period last year and the first quarter of 2008 was the transfer of $3.3 billion of student loans at the end of the first quarter from held for sale to the portfolio loans.

Adjusting for these balances, average total loans increased approximately 4% annualized from the first quarter of 2008.

As of January 1, 2008, the company also added approximately $1.5 billion of loans from the acquisition of Union State Bank.

Adjusting for these balances and the student loan transfer, average total loan balances increased approximately 8% from the same period one year ago.

Our outlook for average total loan growth on a linked-quarter basis for the balance of 2008 is to be down slightly to relatively flat as we continue to work on reducing outstandings in our residential property segment of the construction loan portfolio and in other portfolios where the risk reward opportunities appears inadequate given market conditions.

Turning to slide number 10.

Average quarter deposit balances are up $1.7 billion or 3.4% compared to the same period one year ago.

And we're relatively flat compared to the first quarter of 2008.

Included in this year's balances are approximately $1.7 billion of core deposits associated with the Union State Bank acquisition.

Competition for deposits in our marketplace remains strong.

We did experience growth in personal DDA balances within the community bank during the second quarter compared to both the same period last year and the first quarter of this year.

Corporate DDA balances are down slightly compared to both the last year and the first quarter.

However, activity charges as reflected in our second quarter deposit service charges, increased as customers paid for these services through fees rather than balances as rates declined.

Our expectation for quarter deposit growth remains in the low single digit range for 2008 as we expect competition to remain high for deposits given the elevated funding cost for banks in general in the capital market.

Slide 11 shows our asset quality summary.

Net charge-offs in the quarter were $524 million or 2.75% of average loans on an annualized basis compared to $121 million or 67 basis points in the first quarter of 2008.

Nonperforming loans at June 30, 2008 totaled $814 million and represented 1.07% of total loans.

Total nonperforming assets at June 30, 2008, were $1.210 billion or 1.59% of total loans other real estate owned and other nonperforming assets.

Nonperforming assets include $342 million of commercial real estate loans that were charged down in the second quarter and placed in a held for sale status.

Since the end of June, we have closed a number of sales with respect to these loans and expect to close on the sale of the majority of these loans during the third quarter of 2008.

Our total reserve for loan losses rose to $1.421 billion and represented 175% of nonperforming loans at June 30, 2008.

On the next three slides we provide some additional information with respect to asset quality statistics for the second quarter of 2008.

Slide 12 provides additional information on credit quality by portfolio for the second quarter.

We continue to see migration of credit in the second quarter with loans tied to exposure to residential construction.

This impacted the C&I portfolio within the real estate capital line of business and leasing.

These portfolios experienced both an increase in net charge-offs and nonperforming assets.

Within our consumer portfolio, we experienced an increase in charge-offs in the educational lending portfolio tied to a group of loans related primarily to trade schools or nontitle4 institutions.

This portfolio stood at approximately $780 million at June 30, 2008.

Losses on this portfolio were exceptionally high in the second quarter as we put in place new collection routines to bring down delinquencies.

I would also note that this is a portfolio where we stopped originating new credit back in 2006.

Within this portfolio, we expect credit losses to remain elevated.

However, below the levels we experienced in the second quarter as we were changing collections routines.

Our home equity loan portfolio within community banking continued to perform well and as expected during the second quarter with little change in overall credit statistics from the first quarter of this year.

We have a further break down of this portfolio in the appendix of today's material for your review.

Turning to slide 13.

We have put together a summary of our commercial real estate portfolio by property type, by geographic location.

The residential properties category of this portfolio accounted for much of the higher level of net charge-offs we experienced in the second quarter.

Turning to slide 14 we provide additional details on this category.

Our residential commercial real estate balances continued to decline in the second quarter versus the first quarter as a result of moving $719 million or $384 million net of the respected charge-offs of these loans to a held for sale category during the second quarter and also payments that were received on other loans.

As we have discussed over the past several quarters, Southern California and Florida have been the most difficult markets for us with respect to residential properties.

These have been the markets where we have focused much of our attention over the past four quarters.

This is also where we saw the biggest decline in outstanding balances during the second quarter as a result of our planned sale of loans.

Looking at slide 15, the company's capital ratios are all in the upper half of our targeted ranges for the respected ratios as noted on this slide.

Our tangible capital to tangible asset ratio was 6.98% and our tier one capital ratio was 8.49% at June 30, 2008.

I would also note that on July 11 we closed on an additional $90 million of capital from the underwriters exercise of the overall option.

Had this capital existed as of June 30, 2008, it would have added approximately 9 basis points to these ratios.

As Henry said in his remarks, our capital accounts are in good shape, well-above regulatory requirements for being well-capitalized, and they provide us with the necessary strength and flexibility to serve our clients.

Slide 16 is a summary of our updated outlook for selected items for the second half of 2008.

Now before I turn things over to the operator for questions, I wanted to let you know that Vern Patterson, head of Investor Relations at Key, is going to be out of the bank for a period of four to six weeks due to illness.

We wish Vern and his family the very best and look forward to his return to work.

That concludes our remarks, and now I'll turn the call back over to the operator to provide instructions for the Q&A segment of our call.

Operator?

Thank you very much.

(OPERATOR INSTRUCTIONS) our first question of the morning goes to Brent Erensel at Portales Partners.

Please go ahead.

Good morning.

Question on the commercial real estate portfolio.

You have the sale of $700 million plus and then you have payments and yet the decline in the owner occupied -- I'm sorry, nonowner occupied portfolio is less than that.

Can you explain that and what do you think the loss content is in that remaining portfolio?

I think in terms -- this is Jeff Weeden.

When we look at the portfolio, we also have commitments that are outstanding and of course the projects that are continuing.

So you'll have draws on some of the commitments that are existing on projects.

We had payments that did come in on various projects.

The $719 million that we transferred on out during the course of the quarter, of course came-- primarily are going to come from the residential property segment.

So we have continuation in the total nonowner occupied in the income properties area of the portfolio.

I think where we saw the largest decline, it went down approximately $900 million in the residential property's section between the first quarter of 2008 and the second quarter of 2008.

So that's primarily where I would concentrate.

We're still doing business in the other areas of commercial real estate.

And real quickly, if you just back out the losses on the reserve bill, you get some sort of operating range of earnings between $0.16 and $0.30 per quarter.

Do you have any comment on that?

No.

Our comments are related to the specific line items that are given in the back of the -- on slide 16 of our presentation.

Okay.

Thank you.

(OPERATOR INSTRUCTIONS).

We'll go next to Gerard Cassidy at RBC Capital Markets.

Please go ahead.

Thank you and good morning.

I apologize if you've addressed this, I had to jump off the call for a minute.

In the loan sale that you had of $44 million in the commercial real estate area, what was the book value of those loans where you received $44 million in proceeds from?

Well, I think what we were talking about is in total we included in that 44, $719 million, if you look at the fact that we moved $384 million, it would equate to approximately a 53% realization factor on the portfolio.

So with respect to those that have actually closed, I don't have that specific information.

I've looked at it more in the aggregate in total and it will vary obviously property by property.

Okay, so essentially $0.53 on the dollar is a fair number?

That is a fair number for the portfolio that was identified for sale during the second quarter and moved to a held for sale category or loans actually closed on that portfolio in the second quarter.

That's correct.

Yes.

Correct.

And if I recall are most of those residential construction or are there some other construction in there as well?

Those were in the residential construction portfolio only.

Okay.

And then second, the margin obviously you guys reported a higher net interest margin in the quarter similar to your peers.

I see in your outlook page on page 16 that the margin forecast is actually lower for the second half of the year than the second quarter.

Can you give us some color on the -- why it's directionally going that way?

Gerard, it would relate to specifically to the accounting treatments surrounding the leveraged lease transactions that is putting pressure on it as those got reconstrued.

Going forward, the yield on them drops significantly.

If we pull that out, as I think you did on page 6, to give us a better flavor for the true net interest margin which is 3.32%, could you give us an estimate of what it would be without those leveraged lease, the impacts?

Yes it would be relatively flat.

We would still be around the 3.3 range.

Okay.

Great.

Thank you.

Our next question comes to Nancy Bush at NAB research, LLC.

Good morning.

If you can just clarify I'm sort of switching between calls.

You said $32 to $34 million per quarter.

Is that the impact of the leverage lease transactions?

That $32 to $34 million, Nancy, is the after tax cost of the interest accrual on the disputed balances with the IRS.

Okay.

And, Henry, you had mentioned sort of the indiscriminate panic, I guess, among the populus that at the time of the failure of IndyMac.

I assume that's what you are alluding to.

Have you had to raise your deposit cost at all given the particular challenges of your region and if you can just comment about the whole competitive environment there right now I would appreciate it.

Nancy, I made that comment because there are a lot of media stories about FDIC insurance and there's a lot more interest by our depositors but that reported that we actually grew our deposits last week.

So we are not seeing runs, walks or any concern, but our clients, and I think clients generally, which is what my comments were aimed at, are really trying to understand better what's insured, what FDIC insurance is all about, how you spread accounts, all that kind of -- all those kinds of issues.

The important thing is that last week our deposits actually grew.

To the other part of your question, Nancy, it is a very competitive marketplace out there, and it isn't like those deposits grew for free.

But we aren't paying -- we are not trying to buy the marketplace either.

Thank you.

Our next question goes to Matthew O'Connor at UBS.

Please go ahead.

Good morning.

Good morning.

Just to clarify the tax cost of 32 to 34 per quarter for the back half of the year.

Does that go away in 2009?

No, it does not.

That will continue on and of course it will vary depending upon interest rates that are charged on those particular accruals until those amounts are either resolved in the form of a deposit with the government or they are resolved in a different fashion where we prevail on appeal of our tax case.

Okay and just an aggregate what's the total amount if you have to deposit something?

We have not -- we have not disclosed, that but if you were to go back and look, there was the $1.7 billion of deferred taxes related to the leveraged lease transactions and then of course the interest on top of that.

So the $475 million was an after tax accrual, so you would have to gross that up and add that on top of the $1.7 billion.

Okay.

And then separately I think there was a lot of talk about consumers being very sensitive with their deposits in this kind of environment.

I'm wondering from a commercial side, we hear about lines being cut at some other banks.

I'm just wondering if that causes commercial customers to lose their deposits and if you are seeing any deposits up for grabs out there that you might be able to grab.

Beth, you want to comment on that?

Yes, Matt.

I will tell you that it is a highly competitive environment, and we do see and are staying very close to our clients and good prospects in our community and in our various markets and are opportunistically taking care of our clients as well as those in other institutions.

We have not in our books cut or reduced lines to any of our clients, and we will continue to call on our competitors' good prospects to try to garner more deposit and more relationships.

I don't know if there's a rule of thumb, but do we tend to see the credit relationship move first?Like one thing that we're seeing is some pretty good commercial loan growth out there and I wonder if the deposits will follow.

Matthew, I would follow up and say that it varies.

It depends on how you've been calling on companies and presenting the opportunities to do business, but oftentimes they do leave with a credit opportunity as a chance to build a relationship.

We do want the full relationship, and customers will get our better pricing if we get the full relationship.

So we are not interested in just credit only.

We want a total relationship.

That's our strategy, that's what it's built around.

Matthew, this is Tom Bunn.

I would add to what Beth said in that, we've seen successes in our treasury management capabilities into Beth's world, from the community bank down to the business banking clients as well and that builds deposit as well.

So I think when you combine our relationship approach with our treasury management capabilities, and as Beth said, the whole approach of cross selling, I think you are seeing that as an opportunity in this market.

One other comment I would suggest is that again echoing what Beth said, but taking it across my world as well, clients that are exiting this bank tend to be clients that we want to exit this bank right now from a credit exposure standpoint.

We are not seeing any departure of clients that are good relationship clients that we're working to keep.

Okay.

Great.

Thank you.

We'll go next to Betty Graseck [sic] at Morgan Stanley.

Betsy Graseck, sorry.

No problem.

Hi.

Good morning.

A couple of questions.

One on the reserving.

When you are running your reserve analysis are you factoring any deterioration of home value from here in your numbers?

This is Chuck Hyle.

Yes, we are.

And in fact over the last four to six weeks I would say that our view of the residential home markets have deteriorated a little bit more.

More in terms of pushing at or recovery rather than anything else more dramatic than that.

And that is reflected in the way we look at our reserving market by market.

Can you give us a sense as to what you are anticipating from here that is built already into your reserves?

Well, I'm not quite sure how to put it into numbers for you because it really does -- it's determined on a case by case basis the type of loan it is, where it is located, the market itself we do an enormous amount of analysis individually, but clearly on some of the land only situations many of which we've sold in this portfolio we've just dealt with, the discounts can be fairly dramatic.

50% give or take.

If it's a completed project in a better location that will obviously vary.

But clearly we are pushing out our view in terms of when the housing market is going to bottom and that is reflected in our reserving.

And is there anything that you are doing to hedge your portfolio at all?

In terms of credit risk?

Yes.

Clearly we hedge on the CMBS side where we hedge credit risk in that portfolio.

We do use the credit derivative market in the corporate side of the business.

It's a little more difficult to do in pure real estate.

We have done some modest hedging through indices, but that's a fairly small number in our organization.

And against the [res-e] portfolio?

A little bit on indices but not really a lot.

Okay.

On the loan growth that you presented on your slide 8 or 9, the consumer group that you are getting, could you just indicate either what bucket set it's coming from if it's geographically based more than product based, that's fine?

Beth will comment a little bit on that.

We are seeing some growth with respect to our home equity portfolio, and I think more of the growth has been coming in the western market.

So it would be the Rockies and the Pacific Northwest is where we're seeing some of that on the consumer side of the equation.

The other consumer books, or course, are relatively flat.

So if you look at some of the indirect portfolios those are flat, and those are some of the portfolios that I talked about that our expectation would be flat to down slightly as it becomes more selective on the credit there.

Another area where we are becoming very selective on credit, of course, is just because of the spreads would be in the leasing portfolio.

You'd see that that's down slightly also and that is just a matter of a function of the marketplace of what we can get from return for that business.

Beth is there anything you want to talk about in geographic area?

Betsy, I would just underscore that we have had modest consumer loan growth in the community bank primarily through our growth in our equity portfolios, concentrated mainly in our western markets and as you can see in the appendix in our supplemental credit slides, that is largely half a first lien position portfolio as well as extremely high FICO scores and judicious use of loan to value.

So again we continue to monitor both the quality of our new offerings and our growth and would say that we have seen the best growth in our western markets.

Would you say that is more in new client acquisition or draw down of existing loans?

We have seen an increase in draw downs to some extent, but another trend that we've seen that is different than where we would have been last year is the rate of pay down on lines has slowed.

So more of our acquisition of clients and expansion of relationships is going to the balance sheet as a result.

Okay, just one last question on NIM.

How are you thinking about either your investments in securities at this stage?

Is there any interest in potentially moving up the NIM through use of the balance sheet?

Well, I'll have Joe Beta comment on that, but I would say that we have no intention of expanding our investment portfolio at this time.

As you know we manage our interest rate risk position through the use of off balance sheet swaps received fixed pay variable and with the slope in the yield curve obviously and the number of swap positions that we put on last year in anticipation of the declining rate environment that's actually benefiting the margin here in 2008 time period.

Joe, anything else you would like to add?

Only than we manage the investment portfolio as part of our overall liability management position, and it's not drawn as a rate of return portfolio.

So within the context of our overall AL management position, the preferred instrument of choice, as Jeff said, is interest rate swaps, to rebalance our rate sensitivity as necessary, and we do strive over a longer period of time to be very much neutral with a bias toward slightly liability sensitive.

So do you see an opportunity to improve the NIM at all in the next few quarters here?

Well our guidance that we provided on the NIM was really that it would be under some pressure as a result of the recharacterization of the leveraged lease transactions.

Excluding that it would be relatively flat and the primary reason for it being relatively flat is I think there's just a lot of competition for deposits and certainly the price of term financing is elevated for the industry as a whole.

Okay.

Thanks.

We'll go next to [Seriph Karenske] at Cambridge Place Investment Management.

Please go ahead.

Asked and answered.

Thank you.

Thank you.

And we'll go next to [David Pringle at Fells Point Research].

Please go ahead.

Good morning.

Could you talk a little bit about the dynamics with the 30 to 89 day past dues declining in the quarter please?

The decline in that portfolio was primarily related to the commercial real estate book of business.

So I guess we are encouraged, David, by the fact that we experienced a nice decline in that area, approximately $300 million.

That is where the decline came.

The other areas remained stable.

What is your outlook for that, Jeff?

I can let Chuck comment on that, but the outlook is really where we are continuing to remain focused on those near-term delinquencies and work with our clients and keep the payments coming in.

Yes.

David, I would just add that we've been very, very focused on this portfolio not just the residential/commercial real estate but across all portfolios, looking for sort of early warning signs of deterioration, and back to a comment made earlier by Jeff and also by Tom, we've been encouraging certain customers to move to other institutions, and I think we are beginning to see a little bit of that positive impact in the 30 to 89 day bucket.

Clearly the most impact is from the residential commercial real estate sale.

Thank you.

And we do have a follow-up question from Gerard Cassidy at RBC Capital Markets.

Please go ahead.

Thank you for taking the follow up.

Regarding the nonperforming assets in this current quarter, about $1.2 billion now, I noticed there was a sizable increase in the commercial, financial, and agricultural category to $259 million from the $147 million in the prior quarter and at the end of the year about $84 million.

Could you guys share share with us what you are seeing in that side of the business, not the real estate-related stuff which has been well-documented but now it looks more like a C&I issue that might be developing here.

This is Chuck.

Again let me try to take that one.

There are a couple of pieces to that question.

One is we are seeing a little bit of an uptick in leasing-related assets.

These are transactions that are booked as loans rather than as leases but they come through our leasing division, and that is a part of that.

The other piece is we do have a small portfolio of residential real estate-related exposure that by virtue of they're being unsecured when they are executed and also by virtue of the loans being to entities -- corporate entities rather than projects - are really residential real estate assets.

That total portfolio is about $300 million give or take.

So not a large portfolio, but it does show up on the C&I category.

So about $75 million of that increase about $112 million in the C&I category is related to that portfolio.

So it really is essentially an extension of our residential real estate book that just happens to show in C&I.

A lot of that exposure is to national home builder type names, but there are a few that are more project type, and not just a categorization issue.

So having said that I would say that our base C&I portfolios in the institutional side of the business and our middle market and business banking continued to perform quite well.

So that uptick is really not a reflection of those portfolios.

Okay.

Thank you.

Circling back to the leasing loans that you identified, is there any particular category within leasing that you noticed that is more problematic than other areas within leasing?

There are two.

One is which we referenced before-- the small ticket side of things, particularly, commercial vehicles and construction again relating to the residential side of things and you'll pick up the theme, and the other is actually small aircraft.

Generally purchased for individuals where we've seen some degradation in the borrowers.

Again many of these are individuals who were in the real estate business, developers, people of that type who purchased small aircraft two, three, four years ago during the boom.

So we are seeing some NPLs there, but the good news is that the recovery rates on those aircrafts continue to be very strong.

Prices have held up exceptionally well, and we don't see any indication that that's going to change.

So the NPLs are up, but the loss content we think is quite small.

Thank you.

And Mr.

Meyer with no other questions in the queue, I'd like to turn the call back to you for any closing comments, sir.

Thank you operator.

We thank you all for taking time from your schedule to participate in our call today.

If you have any follow-up questions on the items we've discussed this morning, please don't hesitate to call [John Schulman] and John's number is 216-689-3882 or [Chris Secora] who works with Vern and his number is 216-689-3133.

That concludes our remarks and again thank you for your participation.

That does conclude the call.

We do appreciate your participation.

At this time you may disconnect.

Thank you.