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Banner Corporation (NASDAQ:BANR)

Q4 2008 Earnings Call

January 29, 2009 10:00 AM ET

Executives

D. Michael Jones - President and Chief Executive Officer

Albert H. Marshall - Secretary

Lloyd W. Baker - Executive Vice President and Chief Financial Officer

Analysts

Timothy Coffey - Fig Partners

Jeffrey Rulis - D.A. Davidson

Kipling Peterson - Columbia Ventures Corp

Operator

Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Banner Corporation's 4Q 2008 Conference Call. During today's presentation all participants will be in a listen-only mode. And following the presentation the conference will be open for questions. (Operator Instructions)

This conference is being recorded today Thursday, January 29th of 2009. At this time I'd like to turn the conference over to Mr. Mike Jones, Chief Executive Officer. Please go ahead sir.

D. Michael Jones

Thanks Vince. And I want to express my appreciation to all of you for dialing in to listen to our fourth quarter conference call. It's not a great story to tell but nevertheless we'll get to it.

So before I start with that sitting with me is Al Marshall who is the Secretary of the Corporation and Lloyd Baker, who is the Chief Financial Officer of the Corporation. And we need to start off with the opening paragraph. Al if you'll read it now, please.

Albert H. Marshall

Good morning. Our presentation today discusses Banner's business outlook and will include forward-looking statements. Those statements include descriptions of management's plans, objectives or goals for future operations, products or services, forecasts of financial or other performance measures, and statements about Banner's general outlook for economic and other conditions. We also may make other forward-looking statements in the question and answer period following management's discussion. These forward-looking statements are subject to a number of risks and uncertainties and actual results may differ materially from those discussed today.

Information on the risk factors that could cause actual results to differ are available from the earnings press release that was released yesterday and recently filed Form 10-Q for the quarter ended September 30, 2008. Forward-looking statements are effective only as of the date they are made and Banner assumes no obligation to update information concerning its expectations.

D. Michael Jones

Thanks Al. What I'd like to do next is have Lloyd Baker go through the quarterly earnings release and probably embellish s with some thoughts along the way and then I'll come in and finish up after he completes his presentation. So, Lloyd go ahead.

Lloyd W. Baker

Okay. Thanks Mike. And good morning everyone. As Mike has already indicated that there is not a lot of good news in this morning news release, press release, earnings.

There are... in the first paragraph three is very large numbers that I think I want to deal with before we get into the sort of the core operations.

The first one is as we noted, we did record a $71 million charge to write-off the remaining balance of goodwill that we had, the goodwill as you recall is a result of, not only the three acquisitions that we did last year but some acquisitions dating all the way back to 1996. The accounting treatment of goodwill is a difficult and complex subject for most people to understand and it really has very little economic consequence beyond the date of the transitions that creates the goodwill.

But clearly the standard requires that we take a look at if the markets indication of the value of the company is reflected in stock prices, it's no secret to anyone listening to this call that the stock prices have been very weak. When we compare that price to the book value of the company which includes the goodwill and that triggers an analysis that causes us to fair value all our assets and liabilities.

In that process, goodwill then falls out as the remaining asset. The market capitalization of the company clearly has fallen, do we think that that market capitalization is reflective of true intrinsic value of the company? No. But it's clearly that the market has applied very different valuation standards to not only Banner but to bank stocks in general.

So, when we look at that and go through the analysis that I indicated, it just becomes fairly obvious that goodwill is not being given any value in the market today and so we decided that it was appropriate to write it off.

The good news of course is that the regulators, banks and regulators came to the same conclusion years ago when they decided to exclude goodwill from regulatory capital calculations. And so while it results in a large reported loss it does have no impact on either our liquidity or operations or our regulatory capital ratios going-forward.

The second large number in this morning's release is a little more fundamental and that's of course the provision for loan loss as we've noted. We did provide for $33 million of loan losses in the fourth quarter. It has brought our total loan loss for the full year up to $62.5 million.

As the quarter progressed -- the fourth quarter progressed, it became more and more evident that weak housing markets and fallen home prices were taking a real toll on many of our borrowers. Non-performing loans increased. Short sales increased. Net charge-offs increased and evaluations declined as I indicated.

As a result, we did record the $33 million provision for loan loss and our methodology not only that we did report about $17 million in charge-offs for the quarter. So $33 million provision was double the amount of charge-offs that our methodology for addressing the adequacy allowance, factors recent history and charge-offs experience and very heavily when we determine the amount of allowance necessary for currently performing loans as well as smaller non-performing loans that aren't subject to individual impairment analysis.

When we drop those charge-off numbers into our formulas for calculating the appropriate level of allowance, as I noted that it results in a fairly large charge, the $33 million, which is double the amount of charge-offs. And for the year, our provision was about two times the amount of charge-off as well, again reflecting that in recent history and Management's evaluation of what's going on in the market today.

With the $33 million provision, our allowance grew to $75 million, that's 190 million basis points on the total outstanding home portfolio, significant increase from we where. And obviously, that level of provisioning had a very significant on earnings for the quarter.

The third big number, our estimate that's in that first paragraph in the quarterly results that has a material effect on the quarter, the valuation of financial assets and liabilities that we record at fair value. And more particularly, the large numbers there, related to the fair valuing of trust preferred securities both the debt that we have issues, which shows up on our balance sheet as junior subordinated debentures, as well as certain investment securities that we hold.

We had concluded in September that disruptions in the market has created an environment where we just didn't feel comfortable valuing those assets and liabilities as to anything other than what we had in June. As the fourth quarter progressed, it became more and more difficult not to find some reasonable estimate of value there. We did and the numbers are quite large. The net gain and interestingly that valuation results in a gain for us. The net gain was $13.7 million, but that net is actually a function of a very large write-down in the liabilities and in a significantly large write-down in some assets as well, netting out to that number.

Aside from those three sort of ticklish valuation estimates of large numbers that are reflected in the quarter, the core operations of the company in fourth quarter were consistent with trends that have been with us throughout the year. Those trends obviously were increasing levels of non-performing assets and the effects not only on the margin, not only on the provision that also on the margin. And the effects of a very significantly low interest rate environment on the net interest margin of the company.

So, when we look at the operating results, the net interest margin continues to compress. It was down to 323 for the fourth quarter. As we noted early in the quarter in particular, we saw and really in the end of the third quarter is where we saw significant pressure on deposit pricing as banks were... throughout the system were wrestling with liquidity concerns and competitive pricing was very challenging. Then as the quarter progressed, those pressures abated particularly in December. We had the affects of declining interest rates on asset yield, particularly on loans as the Federal Reserve moved Fed Funds rate and therefore the prime interest rate down by another 175 basis points during the quarter.

That decline in the margin of course caused our net interest income to decline by about $2 million compared to the prior quarter and it resulted... primarily was the result of a declining revenue stream for the quarter which revenues were down about $2.8 million by comparison to the prior quarter.

Now, generally throughout this year one of the things which has been a very positive has been depositary revenues and other than non-interest revenues, in the current quarter we did see some further evidence of the current economic decline in terms of lower amount of activity fees on deposits and merchants processing credit card transactions and the like. And so revenues as I noted were down for the quarter as both net interest income and some of the non-interest income items were softer.

On the expense side, as we've noted controllable expenses were generally pretty managed, we continue to have a very well, a very flat, I guess that's the way I'll describe it, compensation expense, some of the operating expenses for instance information services expenses that had increased as a result of our acquisitions are now... we are now achieving the efficiency that we expected out of those acquisitions.

Those costs are very much under control, while we did have a significantly larger branch distribution network this year by comparison to a year ago. Most of those controllable costs were down as well.

Unfortunately as we've noted for some time, collection costs in the form of legal expenses, charges on sales of REO were elevated and likely will continue to be for some time. And deposit insurance expense was much higher than normal and while part of that was a result of us correcting an accounting error, it also was reflective of increases that are occurring in the deposit insurance arena.

The goods news is that improved deposit insurance pasture (ph) as I noted earlier, had a calming effect on customer activity and going-forward we think will be a positive contributor to deposit growth, not withstanding the fact that it is going to be a little bit more expensive.

One other area that bearers note (ph) is our mortgage banking activity, mortgage banking activity was reasonably flat for the quarter, but importantly we did see a significant pick up in rate lock activity and production in December inline with the declining interest rates in particularly as the Federal Reserves program to move mortgage rates lower began to have an impact and which is probably a good place for me to make a lot of segue to as you all know and the other thing that we reported during the quarter was the addition of the $124 million of funding from the TARP in the form of preferred stock. There has been a significant amount of concern and interest in some part of the public for some time now as to how that money is being spent?

we step back and take a look at new loan originations subsequent to our receiving the TARP funds on November 21st and have concluded that our origination activity has resulted in us extending $224 million worth of credit over that, just over 60 day period.

So, that money certainly is having a positive effect on our ability to deal with communities and customers in our service area. The balance sheet items that are laid out in the press release, the only... I just have a couple of observation. Obviously, loan production not withstanding... not withstanding a good amount of long production, loan balances declined during the quarter. That decline was driven largely, in fact entirely by a decline in our one-to-four family construction loans. That is a continuation of the trend that has been in place now for about six quarters and those loans were down $62 million for the quarter, and I believe the numbers are $193 million for the entire year.

If we remove that drop off in construction, and land development lending for the year, loans of all other types were actually up 13% year-over-year. But in the third... the fourth quarter, excuse me, that growth pattern did slow and those loan totals were up about 3%.

Deposits year-over-year increased 4%, but as you can see, in the fourth quarter deposits were down just a small amount, and a significant part of that related to some public funds deposits that we allowed to mature. But to be honest another part of that is sort of a continuation of real estate related customers having lower balances in their deposit accounts, and some residual effects from the competitive pricing situation that I mentioned earlier.

So, those are sort of the highlights in the income statement, with a little tip to the balance sheet, Mike I will let you embellish and then we'll look forward to some questions.

D. Michael Jones

I don't know if I would call those highlights Lloyd, but mostly they were lowlights, but nevertheless nice job. Thank you very much.

I wanted to talk just a little bit about the provisioning that had took place at the 33 million in the fourth quarter. And that number that we had in our... actually closed the books with a number much smaller than that. But activity that has taken place in January of this year including some appraisals we received and some conversations we've had with some borrowers, led us to change substantially the level of non-performing assets and increase some write-offs that were taking place and putting those in, not in January, but putting them into the December numbers. It also caused us then to take a hard look at where the reserve was and so that reserve grew dramatically in the third and fourth week of January based on the activity that took place during January.

I'll talk a little bit about staffing levels in the company. As Lloyd indicated to you, during the last year we've have been getting and right sizing some operations through the acquisitions that we had. And frankly I've taken a look at some things that we do in our organization determine if they really are appropriate. And so during the course of '08 we had about approximately a 5% staff reduction that took place and we frankly think that number will carry forward at above that levels as we go into '09.

'09 operating expenses for us, even with the increase in the FDIC insurance, we currently project to be somewhat below the level we had in '08 from an operating expense standpoint. So, we were hopeful that that number should improve a bit as we go forward.

In the last... kind of focusing now on the non-performing assets. There are really two areas that those are in in our company and to a little less extent maybe a third one. And in the three weeks, it has cleared to us that we've seen some progress in our projects in the Portland marketplace. We've actually seen some home sales taking place during this period of time that have been helpful to some of our builders and we're feeling a bit better about Portland today than we were when we talked with you last at the end of October.

Having said that however, and you've heard me over the years, those of you that listen in on a frequent basis, say that the economy or Puget Sound is going to be very strong and is going to be very resistant to the national trends. Well I have a little egg on my face, because the fact of the matter is that's proving not to be correct. The announcements by Boeing, one of which was this morning and it actually maybe from yesterday, of a reduction of force of about 10,000 people. The fact that Microsoft for the first time in their history is going to have a reduction in force of about 5000 of their employees will have a clear impact on the Puget Sound economy on a go forward basis. We frankly saw parts of that start to take place in the August, September timeframe in the run up and during the course of the Boeing Machinists strike that was there. It got a little bit better in the October, early November timeframe as those issues got resolved. But clearly in late November and December the activity levels really slowed down in the Puget Sound areas for us at least.

At the same time, a much smaller market to us is the Boise marketplace and that as a general view in our view is getting better. And we actually expect starting in the spring of this year that our builders would begin to build more homes in that particular market as they've kind of gone through the inventory that's there, for a market that still has a in growing population growth. So, we're not as concerned about Boise, and to be fair about it, we don't have that much there compared to these other two markets.

So, with those additional comments, what I would like to do now is give you all an opportunity to ask the questions that are of interest to you. So, Vince if you wouldn't mind starting the question session.

Question-and-Answer Session

Operator

Thank you sir. (Operator Instructions) And our first question is from the line of Tim Coffey with Fig Partners. Please go ahead.

Timothy Coffey - Fig Partners

Good morning gentlemen. How are you doing?

D. Michael Jones

Not well, but thank you Tim.

Timothy Coffey - Fig Partners

Good. Since the following up on your recently released last couple of comments there about NPAs and provision in the last quarter, and you get some feeling that you've taken care of NPAs for a big part of 1Q or do you think there is something more to come?

D. Michael Jones

Tim I need to tell you, first, because I've made this statement twice in the past, once in the first quarter of '08, and once in October of this year that I felt NPAs were peaking or would peak in the fourth quarter, or the first quarter of this year, and I don't think I should be predicting those things, because that's clearly wrong in both those cases. I'm serious in what I just said to you about what and how appears to happen in the Puget Sound economy. We maybe a bit more fortunate just because of where our real estate is in that area, which is more concentrated in the King County area by a lot than it is down in the Pierce County and/or up in the (inaudible) County, but nevertheless that County is going to get clearly get weaker with these job reductions that are taking place.

I actually think we have peaked in the Portland marketplace in Boise in terms of the number of NPAs, but a little bit of that is the activity of moving through the NPAs, we have control of selling them out as some others will come in, but the absolute total I believe probably have peaked. I don't think that's true in Puget Sound.

Timothy Coffey - Fig Partners

Okay. I kind of feeling from comments from the press release, particularly the comments about the slowdown in the back half of the quarter. So, I'm wondering, has this -- has this kind of slowdown will finally switch (ph) into January, given you because, any thoughts about a different approach to underlying on our lending in this environment?

D. Michael Jones

We're not making too many than the one before or wherever and land area at this point at all.

Timothy Coffey - Fig Partners

Sure

D. Michael Jones

We are -- the funny part of it is, it really slowed down for us in the second half of November and into December. And to be fair about it, in those two markets, those of you who don't live in the Pacific Northwest, those were two very ugly months weather wise in this part of the world. So that had a little bit of impact on it, but in January we've actually seen some activities in the forms of sales taking place particularly in the Portland marketplace and our projects. I can't speak for everybody else, but in our projects we've seen a bit of a pick up. We have seen just take that kind of a whole steady level of activity in the Puget Sound.

Timothy Coffey - Fig Partners

Okay, alright. Those were my questions. Thanks a lot.

D. Michael Jones

Thanks Tim.

Operator

Thank you once again ladies and gentlemen. (Operator Instructions). And our next question is from the line of Louis Feldman with Wells (ph) Capital Management. Please go ahead.

Unidentified Analyst

Did you bring your yak tracks along Mike? In terms of mortgage operations, you made the comment that some of your builders were starting to sell houses in Portland and Boise?

D. Michael Jones

I don't want to over state that Lou but that's true.

Unidentified Analyst

On the rare occasion, I mean you weren't down here, we got to know two days ago and slipping, family again slip sliding the way down the road again? To what extent, have you guys looked to originate the mortgages on those houses or are you letting other people do that ?

D. Michael Jones

It's about 50-50, wouldn't you say.

Lloyd Baker

I think that...

D. Michael Jones

We have a very active mortgage department that does these loans but there are some people out in the market offering some amazing rates on 30 year fixed real loans the lower we want to go. So if they are doing that we let them go that way with pretty great ease.

Unidentified Analyst

Okay. Second, can you talk about certainly for, Puget Sound area, can you talk about say LC activity, letters of credits, your... what your international debts have been up to?

D. Michael Jones

Well the international area is one of the areas for our banks we kind of face that dramatically during the course of '08. So, we really don't have a lot of activity in that area right now.

Unidentified Analyst

Alright, and so that's something that you are looking to move away from?

D. Michael Jones

Well I actually think the world has changed. The LC activities used to take place years ago in the last decade has now been much more done directly now. And so we just didn't see that much business from a book of customers that I have known for years, had some conversations with those people and kind of determined that we were using old world technology in the LC world. At least for a bank our size with our customer base, so we just have decided to deemphasize that and we did that starting last summer.

Unidentified Analyst

Okay, great. Thank you very much.

D. Michael Jones

Thanks Tim.

Operator

Thank you. Our next question is from the like of Jeff Rulis with D. A. Davidson. Please go ahead.

Jeffrey Rulis - D.A. Davidson

Good morning.

D. Michael Jones

Hi Jeff.

Jeffrey Rulis - D.A. Davidson

You guys pulled private label mortgage backed securities and if you could give us what is that amount, not agency?

Lloyd Baker

I'd like to save we were smart Jeff, but we may have been as much lucky smart. We sold all of our private labels securities. The dates are going to escape me now. But it was nine months ago, twelve months ago something like that. We did acquire about $7 million worth in the month of December, at much lower prices obviously than what we sold them at a long time ago. So, we have very little exposure.

Jeffrey Rulis - D.A. Davidson

And what are your thoughts on FHLB stock currently just sort of...

Lloyd Baker

Are you trying to start a fight around here?

D. Michael Jones

We need to be an owner of FHLB stock because it is our secondary source of liquidity and borrowing from them and we have a substantial ability to borrow from them. You all have seen the news headlines about the Seattle FHLB and if that matters the Pittsburg and so forth and we know we are not going to get dividends for a period of time from them and we also have excess stock that we don't need and would like to sell back to them and they are precluded from buying it back right now, which is a source of great frustration for me.

But at the present time we have kept it add its value that's it at, and we've have kept it as an earning asset, until we learn more about what they are going to do. Lloyd you may want to say something therein.

Lloyd Baker

No, I think that's fairly well covered, we have a bunch of it, we wish it had paid us a dividend, it doesn't right now.

Jeffrey Rulis - D.A. Davidson

Okay. Switching gears a little bit to, I don't know of if you could just speak to the average value decline from origination within your construction portfolio broadly speaking; and I guess you could take it by segments?

D. Michael Jones

Well the value decline for and invertible construction in the Puget Sound market for us is in the plus or minus about 10 or 11% level, that's taken place. The value decline in the Portland marketplace is, I'm going to guess little bit higher, wouldn't you say, maybe in 12 to 15% range and the rest of it its kind of irrelevant, because in some of our other markets and has been no declines. Given example of that is the (inaudible).

Lloyd Baker

That's the vertical construction

D. Michael Jones

Yes

Lloyd Baker

Good, nice speaking to you and obviously the bigger value decline and concern, we all wrestle with and it seems to me right now, is what's happened to land values and lot values. And some peak levels, I would say the peak levels were probably in late half of 2006 believe it or not early 2007 the declines are very much driven by the location of the property, but they are much more significant than what Mike was...

D. Michael Jones

Especially that are marginally located on the edge of the bottom (ph).

Lloyd Baker

Exactly. So, and that's where most of our impairment charges have occurred and most of the concern is still going-forward.

Jeffrey Rulis - D.A. Davidson

So the range of what's your most severe drop to the most conservative drop, ballpark is what...?

Lloyd Baker

I would probably get in trouble here but I think it's anywhere from 25 to 40, 50% depending on the project.

Jeffrey Rulis - D.A. Davidson

Okay.

D. Michael Jones

Especially if you are going to try loan to sell the property.

Lloyd Baker

Lot sales right now and a lot evaluations, we are right trying to evaluate trust preferred securities or private label mortgage banks, the market data information is very sparse and the assumptions in as to absorption becomes very difficult to defend and appraisers and bond traders and the like are all very conservative right now, in terms of a number they want to put on valuing anything.

Jeffrey Rulis - D.A. Davidson

Okay, understandable, thanks guys.

Operator

Thank you. Our next question comes from the line of Jason Warner (ph) with (inaudible). Please go ahead.

Unidentified Analyst

Good morning.

D. Michael Jones

Good morning.

Unidentified Analyst

I had a question, I wanted to clarify, what you said about Boise, I thought you said that you expect builders to start building houses at some point in future, you saw inventories coming down. Can you quantify what inventories have done and is that beyond just your project, is that across the board other projects also?

D. Michael Jones

Yeah, I think... first of all Boise still has significant in migration taking place. And the second part is you've gone from an inventory level of 10 or 11 months inventory, you are moving down into the seven, eight months that level now and I expect that to hit the four to six month level. Some time at spring and when you get to that level with an in migration population, you are going to start building some houses.

Unidentified Analyst

Okay, so those are is sale beyond your projects?

D. Michael Jones

There is, there absolutely is in that marketplace.

Unidentified Analyst

Okay. And what you are talking about Portland, you would be more specific in terms of sales of your projects not necessarily across the Board?

D. Michael Jones

Yeah, I've had some conversations with some of our competitors, CEOs and so forth and as it relates to Portland, and we clearly have our problems in Portland but some others for some reason have more and we've been fortunate to be able to sell some of our real estate.

Unidentified Analyst

Okay. And then also wanted to ask you about margin, obviously margins are under pressure here, I was kind of curious what you guys thought going-forward obviously and like you said it doesn't have any problem going to lower rates. Would you see margin kind of slip a little bit in the first quarter or stabilize, or what's your thoughts?

Lloyd Baker

Yeah, actually that's just almost exactly my thoughts. As the fourth quarter progressed the margins got progressively worse., okay. But funding costs in particular became much better in December and to your point I don't think they are going to push prime down any further. I don't think, so asset yields look like maybe they have a chance to plateau here, and it looks like there could still be some opportunity to see lower funding costs.

Unidentified Analyst

Okay, thank you.

Operator

Thank you. Our next question is from the line Kipling Peterson with Columbia Ventures Corp. Please go ahead.

Kipling Peterson - Columbia Ventures Corp

Good morning and I have a few questions. First one, did you folks have the opportunity to look at acquiring the deposits of the Vancouver Bank that was recently taken over?

D. Michael Jones

We did.

Kipling Peterson - Columbia Ventures Corp

And you passed or lost in auction or?

D. Michael Jones

We passed.

Kipling Peterson - Columbia Ventures Corp

Okay. And the next one, do you see your balance sheet in all probability shrinking this year?

D. Michael Jones

No, but we don't see it growing very much either. And the reason I say that to you is as we look at it now, we think we'll have another 300 million to monitor our one-to-four construction portfolio, the existing today's portfolio and we do not expect to replace that 300 million next year in that category. We do believe we'll have reasonable growth in our consumer and CNI portfolios going forward during that period of time. So, we'll have very modest long growth in the year 2009 as we currently see it.

Kipling Peterson - Columbia Ventures Corp

Okay. And as far as the REOs, are you taking the more aggressive posture and just biting the bullet to move those along more quickly?

D. Michael Jones

It's a little bit more difficult. We look at each individual project and we have some borrowers/builders that have other assets. And if its land and if its in an area where there is an excess amount of land, we're probably going to go get a judgment against that borrow and go against him also.

If on the other hand we see a project that we think we can turn and move fairly quickly, an example of that is one we have in the Renton area where we took here this last quarter. We're going to take it, because we think we can move it faster using some other builders, and so that's the process of what we've done. And it's a case-by-case basis, so I can't really generalize on that one.

Kipling Peterson - Columbia Ventures Corp

Okay and last one. In listening and reading some of your competitors, some of them say, we think we've done a better job than others as far as diversifying their assets. Some say, we think, we've done a better job as far as keeping our expense ratios low. Others say, we think we've done a good job as far as being more conservative underwriting. Is there anything that you can say as far as what your core proficiency has been or what you see as your competitive advantage or anything what you would say, this is what we stake our business on, that we've done a really good job doing x, y or z?

D. Michael Jones

Based on the report that we just gave you. It's pretty hard for me to say we did very well at anything. But the fact of the matter is I think we've had some improvements in several areas in the institution, in terms of our ability to gather deposits at a more reasonable cost. Lot of those in all of the branches we built over the last three or four years begin to mature into the market places they serve and not everything is going to be like the fourth quarter, first quarter maybe. But beyond that things may get a little bit better as we go forward. So I think the funding basis of this company is better.

For years I said, we deliberately aimed at being in Puget Sound, Portland, Boise and Spokane under the theory that we would get different economic drivers for those particular economies. We therefore had a lower risk profile than the others. While that may look good on paper we just absolutely did not have the chance to... the only market that's held up reasonably well of the four during this period of time is Spokane, and may be next behind is Boise as I see it on a go forward basis.

One area I think that we do have that I've been fortunate is, we have a lot of people that have worked in this company for a number of years and or have worked for me or other senior management people in other organizations that are very experienced, very knowledgeable about what they're doing and very focused on the efforts of what we're doing to do in collecting these various offsets and frankly growing the franchise. So, it's a very seasoned staff compared to perhaps some others. But based on what we just produced, I don't think we are going to say we're better than anybody.

Kipling Peterson - Columbia Ventures Corp

Thank you.

Operator

Thank you. Our next question comes from the line of Ross Haberman with Haberman Funds. Please go ahead. Mr. Haberman your line is now open. (Operator Instructions). Alright, it looks like we don't have Mr. Haberman on line. Gentlemen, there are no further questions at this time, I'll turn it back to you for any closing remarks.

D. Michael Jones

Vince, thank you very much. We do appreciate you all taking the time to listen to this sad tale of what I'll call (ph) our fourth quarter results. We do expect '09 to be better than this, even though in spite of some of the comments I made about what I think may happen during the first quarter of next year, and we actually expect to return the profitability during the year of '09. And I think the balance sheet will begin to grow as we go forward during that period. So, we look forward to taking to you with a better and a happier story on a go forward basis into '09. So, again thank you for listening.

Operator

Thank you, sir. Ladies and gentlemen if you would like to listen to a replay of today's conference, please dial 303-590-3000, using the access code of 11124363 followed by the pound key. We would like to thank you for your participation, you may now disconnect.

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