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Executives

Chris Spencer – SVP and CFO

Patrick Dee – EVP, COO and Bank President

Analysts

Bain Slack – KBW

First State Bancorporation (OTC:FSNM) Q3 2009 Earnings Call Transcript November 2, 2009 5:00 PM ET

Operator

Thank you for standing by and welcome to the First State Bancorporation third quarter results conference call. At this time, all participants are in listen-only mode. (Operator instructions) Today’s conference is being recorded. If you have any objections you may disconnect at this time. I would now like to turn today’s conference over to Mr. Chris Spencer, Chief Financial Officer. Sir, you may begin.

Chris Spencer

Thank you and welcome everyone to First State Bancorporation’s third quarter conference call. First State Bancorporation will provide an online simulcast to this call on our website at fcbnm.com and an online replay will follow immediately after the call and continue for 10 days. There will also be a replay of this call for 10 days at the toll free number 800-756-1859.

Your host and conference leaders for this call are myself, Christopher C. Spencer, Senior Vice President and Chief Financial Officer; Michael R. Stanford, President and Chief Executive Officer; H. Patrick Dee, Executive Vice President and Chief Operating Officer; and Jed Fanning, Chief Credit Officer, First State Bancorporation.

The Board of Directors of First State Bancorporation have adopted a policy that the Company will comply with Securities & Exchange Commission Regulation FD in all respects. Consequently, this conference call will proceed under an agenda, which I will announce momentarily. Matters outside the agenda will not be discussed.

The subject matter of this conference call will include forward-looking statements. These statements are not historical facts and involve risks and uncertainties that could cause First State’s results to differ materially from those contained in such statements.

Our agenda this afternoon, Pat Dee will open with some opening remarks. I will then go through the financial slide deck that is posted on our website, if you have that available. Pat will give some summary comments and then we will open up the lines to questions from the analysts.

So with that, I’ll turn it over to Pat.

Patrick Dee

Thank you, Chris. The third quarter was a very challenging one from an asset quality standpoint as we recorded a high level of charge-offs and an increased provision for loan losses. During this call, we will try and provide as much a perspective as possible on the actions that we have taken this quarter.

For the third quarter, our total charge-offs were $47.1 million. We have taken more aggressive stands on charging down loans where we have established a specific reserve under FAS 114. The accounting literature doesn’t give a lot of guidance on exactly when specific reserves should be charged off other than when a foreclosure process takes place or when it’s clear that those amounts have very little, if any, chance of being collected.

The regulators, however, have a more stringent recommended approach in their examination manual and it requires that any loan subject to FAS 114 has a specific reserve and that is essentially collateral depended should have this specific reserve charged off. In order to comply with this regulatory approach, we charged off approximately $33 million in specific reserves this quarter that we wouldn’t have necessarily charged off according to our approach in previous quarters.

Despite our aggressive charge-off approach, we still have an allowance of 50% of our non-accrual loans. The charge-offs and reserves that we have built are based almost entirely on very recent, or at least very current appraisals with further allowances for the cost of disposition of the collateral. In some cases where appraisals are not totally up to date, we have taken recent appraisals and discounted them further in any many instances for estimated market deterioration.

We have done this FAS 114 analysis on all but a very small portion of our non-accrual loans and believe that we have properly and somewhat aggressively accounted for these loans. One important figure to recognize is that over $96 million of our allowance for loan losses is based either on purely subjective reserves or on a calculated loss estimate based on prior history. And none of that $96 million represents identified loss exposure in the existing loan portfolio.

Under the methodology that we use for determining our allowance for loan losses, charging off those specific reserves has a significant secondary effect on the required allowance level. That is caused, in large part, because our historical loss percentages are affected to a larger degree by the charge-offs in the most recent three quarters on the theory that the most recent trends are perhaps a better predictor of future losses.

Due to the higher level losses in the third quarter of 2009, the historical loss allocation in our allowance for loan loss calculation increased by over $19 million from its level at June 30th, 2009. The level of this historical loss component of the allowance calculation will need to be maintained going forward only if the charge-offs recorded in future quarters remain at a high enough level to support the same amount in the allowance calculation.

It’s far from certain, but we believe that it is likely that the historical loss portion of our allowance calculation should be reduced in future quarters. As of September 30th, 2009, this historical loss component of the allowance is just under $49 million.

Another portion of our allowance calculation is based on various subjective criteria under FAS 5. We’ve also increased the amount of these subjective allocations during 2009, which are based on certain characteristics of our loan portfolio. As of September 30th, 2009, the FAS 5 portion of our allowance is approximately $47 million.

The third component of the allowance is the allocation for specific reserves that are associated with certain non-performing loans calculated under FAS 114. These specific reserves totaled just under $19 million as of this quarter-end.

Another important factor is that $87 million of our allowance of loan losses is currently not included in our capital ratios.

Due to the size of our provision for the quarter, the capital level for our subsidiary bank, First Community Bank, has returned to the adequately capitalized level, and for our parent company, First State Bancorporation, we are adequately capitalized on two of the three measures, but are now under capitalized on the Tier 1 leverage ration just of the parent company.

The Bank’s capital level is far more important from a regulatory standpoint. I want to stress that it remains adequately capitalized. At the holding company level, only a portion of the Trust preferred securities qualify as Tier 1 capital, which makes both of the Tier 1 ratios lower for the holding company than the Bank.

Although we would certainly like to have higher capital ratios across the board, the Bank’s ratios are still adequate and our primary focus will be towards doing everything we can to maintain an eventually improve those ratios. As a result, for the immediate future, we will not be able to renew any brokered deposits. There are approximately $66 million in such deposits that either matured in late October or that will mature during the remainder of the year and that we will not be able to renew.

Our liquidity remains adequate and expected to future loan run-off should help absorb most of the decrease in the brokered deposits. In addition, we’ve maintained a high level of over night investments in excess of $100 million to absorb any short term liquidity needs.

There are actually a few bits of good news in our asset quality numbers despite the large charge-off and provision numbers for the quarter. One, is that our total exposure to some of the more troublesome sector is declining. In the third quarter, the totals of our residential related loans declined by about $77 million and our problem loans in that broad category declined by $28 million, albeit with some significant charge-offs. It does appear that the rate of deterioration of residential-related credit has slowed and we are being successful in getting some of the non-accrual loans paid off and some of the OREOs sold.

We have also seen off late agreements to purchase lots in certain areas at prices that are above the bulk sale values reflected in recent appraisals. A major issue for us is the level of non-performing (inaudible) lot development loans, so that’s an important factor for us.

We anticipate that there will still be some disappointments as we move forward, but there are certainly some positive signs out there as well.

Commercial real estate loan portfolios of banks around the country are a major source of concern. Our asset quality in commercial real estate is much better than in our residential construction and land portfolios, and it’s showing only minor negative trends. We continue to watch it very closely, but our total CRE portfolio is just under $1.1 billion, and we currently have about 18% of that identified as problem loans or potential problem loans, up from just under 17% as of June 30th of this year.

We attribute to this to the relatively healthy economy in New Mexico where the majority of this portfolio resides. Our problem loan percentage in this category in New Mexico alone was just under 13% as of the end of the quarter.

Overall, the economy in our markets continues to fare batter than the nation as a whole as evidenced by the unemployment rate with the national rate at 9.8%, New Mexico is only 7.7%, and Arizona even with all its troubles is 9.1%. One factor that could help us in the coming months will be the passage by the U.S. Congress of an extended NOL carryback period. Based on our understanding of what is being proposed and its current form if it is enacted, it would give us an immediate tax credit of approximately $10 million. We will be watching the proposed legislation closely to see if it is passed and then determine the exact effect of the final rules. This could be especially helpful in improving our capital ratios as a tax benefit of $10 million would increase our risk based ratios by about 45 basis points.

As an update to our August announcement that we are working with KBW to evaluate our capital position and pursue alternative, we continue to work with them in exploring opportunities to improve the value of our stock for our existing shareholders. At this time, we have no concrete plans that we can report on, but we will keep pushing forward on that front.

Now, Chris will run through some of detail on our results for the quarter and then I will come back and summarize a few thoughts.

Chris Spencer

Thanks, Pat. The total assets declined by $106 million in the third quarter, ending at $2.9 billion with the decrease being driven primarily by the reduction in the loan portfolio.

Total loans at September 30th, 2009 were $2.1 billion, down $120 million from June 30. We continue to focus on reducing the overall loan portfolio to strengthen liquidity and capital. With only minimal new origination activity, the loan portfolio has been running off at a net rate of about $20 million to $25 million per month.

The third quarter decrease was further influenced by $47 million in net charge-offs in the quarter and the $6 million reduction in residential mortgage loans held-for-sale. The reduction in the mortgage loans held-for-sale is largely due to the closure of our Colorado mortgage lending division in June in conjunction with the sale of the Colorado branches.

The decrease in loans was fairly stable over all four states with the largest percentage declines coming from Colorado and Utah as we continue to work toward winding down those portfolios entirely. We have been exploring avenues to bulk sale blocks of the remaining loans in Colorado and Utah, but have not met with any success to-date in that arena.

Total deposits at September 30th, 2009, were $2.2 billion, down $46 million from June 30th. The decrease in the quarter was primarily due to a reduction of $16 million in brokered deposits and approximately $45 million in deposits of public entities, including various county governments and school districts much of which is seasonal. Excluding the brokered deposits and public funds activity, we experienced a $15 million increase in our retail deposits.

With the return of the Bank to the adequately capitalized category for regulatory purposes, we will be restricted, as Pat indicated, from renewing brokered deposits including the CDARS reciprocal product. As Pat mentioned earlier, we have approximately $66 million in brokered deposits that will mature in the fourth quarter.

$34 million of the brokered deposits have been gathered from outside our markets and will definitely leave the Bank, while the remaining $32 million is related toe CDARS reciprocal deposits from end-market customers of the Bank, and, therefore, may remain with the Bank in whole or in part after maturity.

Drilling down to the state level to give some additional color to the overall change in deposits for the quarter, deposits in New Mexico decreased by $33 million, primarily due to the decrease in public entity deposits, substantially all of which are in our New Mexico markets. New Mexico benefited most from the increase in our retail deposits, which helped to offset the reduction in public funds.

Colorado experienced a $19 million drop, which is due almost entirely to the run off in CDARS reciprocal deposits, which were not transferred with the sale of the Colorado branches in June. All but $2.8 million of the Colorado at quarter-end are CDARS accounts, which are anticipated to leave the Bank as they mature.

Although the Arizona deposits are still a small component of the overall deposits totals, that market increased roughly 5% during the quarter and has a shown a growth trend for most of the year.

The majority of the Utah deposits remaining are certificates of deposit, which are expected to leave the Bank as they mature.

Non-interest bearing deposits remained fairly stable in the third quarter subsequent to the sale of the Colorado branches at roughly 18% of total deposits. The change in non-interest bearing deposits by state was very similar to the change in total deposits with the majority of the decrease concentrated in New Mexico, yet with a nice increase in the Arizona market.

As reflected in the June 30, 2009 market share data published by the FDIC by county, we continue to hold the number three spot in New Mexico, behind only Wells Fargo and Bank of America, with 8.19% of total state-wide deposits. During the 12-month period from June 30th, 2008, to June 30th, 2009, in which the FDIC measures market share, we increased our ranking in five of the 11 counties we serve in New Mexico, while losing ground in only one.

We are reporting the net loss for the third quarter of $51.5 million or $2.49 per share driven primarily by a provision for loan losses of $52.5 million. Unusual items during the quarter include $4.2 million from the gain on sale of investment securities – excuse me, let me get the slides advanced here – there we go.

Unusual items during the quarter include $4.2 million from the gain on sale of investment securities as repositioned various U.S. agency mortgage backed and municipal securities into Ginnie Mae mortgage pools, which are backed by the full faith and credit of the U.S. government, and therefore has a zero risk rating for capital purposes. We’ve continued this strategy into the fourth quarter, but anticipate that the gains will be closer to $1 million in total.

Non-interest expenses include $1.5 million in consulting fees related to a staffing model and two revenue enhancement projects that were prepared in connection with our continued efforts to control non-interest expenses and increase other non-interest income.

During the third quarter, we also surrendered approximately $35 million of our $46 million in Bank-owned life insurance to enhance capital and liquidity, which resulted in a penalty of $896,000, which is included in other non-interest expense. We also recorded income tax expense for the third quarter of $546,000 due to the limitation of our loss carrybacks against alternative minimum taxable income in those carryback years.

The net interest margin declined in the quarter to 2.53% from 2.96% in the second quarter due primarily to the reversal of approximately $1.5 million in interest accrued on two Colorado metropolitan municipal district bonds. The bond agreements allow the districts to defer interest payments in the case where available funds from the development of district are not sufficient to cover the debt service. Due to the status of the underlying developments and related uncertainty off the cash flows, we reversed the accrued interest on those bonds.

The margin was also impacted by loans that went on to non-accrual status during the quarter and the current overall level of non-performing loans. Absent a significant increase in non-performing loans or other unusual events, we currently anticipate that our margin for the fourth quarter would increase back up close to the 2.60% level.

Due to the significant loss recorded in the third quarter, the total risk based capital ratio at the Bank fell back below the well capitalized level of 9.21%, which puts the Bank in the adequately capitalized category.

Risk weighted assets fell $200 million during the quarter. We expect the risk weighted assets to continue to drop for the next several quarters as we continue to deleverage the balance sheet to help improve the capital ratios.

The parent company total risk based capital also fell to the adequately capitalized level although the Tier 1 leverage ratio at the parent company is now in the under capitalized category.

The efficiency ratio improved in the third quarter compared to the second quarter adjusted for the gain on the sale of the Colorado branches, but still at historically high levels due to the significant margin pressure and the impact of selling the Colorado operations.

Non-performing assets increased $48.5 million during the third quarter, including a $12.4 million increase in OREO and an $18.8 million increase related to two municipal district bonds mentioned earlier, which have been placed on non-accrual status. These bonds are supported by residential developments, with debt service coming from a combination of utility tapping [ph] facility fees as well as property taxes. Although these bonds have been placed on non-accrual status, we have commissioned and obtained third-party feasibility studies, which indicate that we can reasonably expect to recover all principal and interest from the district over the term of the bonds.

The non-performing loans in OREO properties continue to be dominated by single family related construction and land loans, and, as Pat mentioned, it does appear that the rate of deterioration in the residential related credits has slowed and we are having some success in getting non-accrual loans paid off and some OREO properties sold.

Non-performing loans increased $17.3 million from June 30, 2009, significantly less than the $45.4 million and $47.7 million increases in the first and second quarters of the year, respectively. However, this is net of the large charge-offs during the current quarter.

Although non-performing loans increased during the quarter, we did see a decrease in our potential problem loans, which are the precursor to non-performing status in our loans with identified weaknesses, and in some cases one or two payments delinquent, but still on accrual status. Potential problem loans decreased to $206 million from $259 million at June 30, 2009.

By state, non-performing loans in Arizona increased by $17 million. While New Mexico increased $5 million, Utah decreased $5 million, and Colorado was flat. By type of loan, there has been a slight shift with the percentage related to real estate construction declining from 70% at June 30th to 58% at September 30th and the percentage related to real estate commercial increasing from 17% to 26%.

Drilling down to the construction portfolio, the construction portfolio continues to decline, having dropped $113 million in the third quarter with decreases experienced in all four states, including sizable reductions in all three of the largest categories, one-to-four family vertical, one-to-four family lots and lot development, and commercial non-owner occupied.

The exposure by states remains relatively unchanged from the second quarter with 52% of the total in New Mexico, 20% Colorado, 19% Utah, and 7% Arizona.

Delinquencies declined in the third quarter by $7.2 million to 2.46% of total loans and continue to be concentrated in construction related loans. Delinquencies declined significantly in New Mexico, dropping 49.3 million. Colorado also saw a decline while Arizona and Utah experienced increases. New Mexico continues to have the lowest delinquency rate at 1.1% of loans.

The allowance for loan losses ended the quarter at $114.6 million, an increase of $5.5 million and represents 5.41 % of loans held for investment and also provides, as Pat mentioned, the 50% coverage to our non-performing loan totals. To also reiterate some of Pat’s introductory comments, our allowance calculation incorporates three components. The first component is for specifically identified losses based on the fair value of the underlying collateral under FAS 114 analyses.

The other two components are estimates of potential losses and include an amount based on a 12-quarter historical loss rate and an amount based on purely subjective factors such as levels and trends and delinquencies in impaired loans, national and local economic trends, and changes in credit concentration to name just a few. The allowance at September 30 is comprised of approximately $19 million of specifically identified potential loss, $49 million based on historical loss rates, and $47 million based on truly subjective factors. Again, this $96 million based on historical loss rates and subjective factors represent 84% of the over allowance at September 30th compared to 68% at December 2008.

Net charge-offs for the third quarter totaled $47.1 million, and as Pat indicated, $33 million of these charge-offs were due to a change in the timing of when specific reserves are charged off to comply with the regulator’s approach and therefore is not necessarily indicative of a trend that will continue in future periods. Charge-offs continue to be primarily related to construction and vacant land loans.

Annualized net charge-offs bases on actual charge-offs through September were 3.92%. This is up from 2.03% annualized through the second quarter. However, this is heavily skewed by the change in timing of charge-offs in the third quarter and we would anticipate that the actual charge-off rate for the year will be lower than the 3.93%.

The provision for the quarter again was $52.5 million which restores our allowance to 50% of non-performing loans in light of the $47.1 million in charge-offs recorded and was again the main driver of our loss for the quarter.

And with that I will turn to back to Pat for some summary comments.

Patrick Dee

Thank you, Chris. This continues to be a challenging time for our Bank and for many of our customers. We are focusing more of our resources on working through our problem loans and trying to find the resolution that minimizes our losses and our risk going forward. We realize that we must improve our capital position in the quarters ahead and we will attempt to do that by trying to manage the level of our non-performing assets to stabilize and eventually reduce those totals. We will continue to steadily reduce our loan portfolio through scheduled repayments and loan sales that make economic sense for us.

We are certainly disappointed in the performance of our Company and our stock and are working very hard to restore the confidence of our shareholder.

With that, we’ll open it up for questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from Bain Slack with KBW. Your line is open, sir.

Bain Slack – KBW

Hi, good afternoon.

Chris Spencer

Hi, Bain.

Patrick Dee

Hi, Bain.

Bain Slack – KBW

Hey. I guess quickly just kind of touch on some issues in the – you took some gains in the security portfolio this quarter. Any – what are the opportunities going into the next few quarters for that – for to continuing to harvesting the gains, do you see currently?

Chris Spencer

Bain, this is Chris. It’s not real significant. We have already taken some gains in October. As I had indicated, it’s currently about the $1 million level and past that I don’t see a whole lot of opportunity.

Bain Slack – KBW

Okay. And I guess you know obviously the – as you said in the conclusion, the concentration seems to be getting the capital levels back to – I would assume first up getting back to the well capitalized level. And I guess the conversation is regular, obviously you have an agreement to go to even higher levels, but how are the discussions given where you are today and then getting to that well capitalized level and to the higher level, I mean what’s their – if they have any sort of timing and urgency with regards to those requirements?

Patrick Dee

Well, Bain, under the formal written agreement that we entered into in July, there is no specified time table for getting our capital levels up nor is there a specified level. Clearly, regulators would like to thrust (inaudible) to have them to significantly higher levels and we are going to work at that over a period of time. At this point, there is no immediate pressure for us to do anything, but we do have a – certainly a sense of urgency about that to try to manage those capital levels in the right direction. So, even absent any hard and fast requirement, we certainly want to do everything we can to get it moving in the right direction.

Bain Slack – KBW

Okay. And I guess from also what I heard it sounds like the main driver to get you there is going to be a drop in the loan portfolio, I guess one run off and – or maybe another way to look at it is the risk weighted assets coming down. What – I guess what’s the pace that you guys see over the next especially I guess one-to-four quarters of that coming in on a dollar basis?

Patrick Dee

Well, the normal non-repayment cycle for us is reducing our loan totals, as Chris mentioned, by about $20 million to $25 million per month. And we think that’s going to continue–

Bain Slack – KBW

Okay.

Patrick Dee

We are working real hard on top of that to get some of these non-performing reduced and so some of those to the extent we can move them through either reduction in non-performing loans and sales of OERO. Those will be in addition to that loan run off. I think the real key for us is to get the non-accrual loan, first of all, stable, completely stabilized and then reducing them over a period of time so that we can get back to a fairly nominal level of loan loss provision. We do still have some pre-tax pre-provision earnings each quarter. Those have been affected the last couple of quarters and third quarter, in particular, by some unusual items, but it’s certainly a challenging situation for us. But we are determined to manage as many of those factors as we can.

We are also continuing to look at alternatives with the KBW investment banking group for potential capital sources and potentially even a sale of the Company and, as I said, we don’t have anything concrete to report there, but we are gong to manage as many of these things as we can and not rely strictly, necessarily on just reducing our loan totals to get those capital ratios in line.

Bain Slack – KBW

Okay. And I guess since you mentioned the pre-tax, pre-provision earnings – at the expenses I thing I you had a – you kind of walked through some of the non-recurring items, which I think total out to about $2.4 million roughly. If we back that out of this number, kind of gets us to $2.5 million on a quarterly basis. Is that – going forward, I guess given what you’ve done, does that look like the normal run rate or are there some things that we should see – a line that may be you’d even come in a little lower going forward.

Patrick Dee

Bain, make sure you take out the gains in investment securities as well in the third quarter.

Bain Slack – KBW

Yes, I am – I guess I am focusing more the expense side.

Patrick Dee

Okay.

Bain Slack – KBW

Yes, I had taken the gains, I was just looking at the – I think the non-interest expense, if I am not mistake, even at $26.5 million this quarter and I guess really saying that if we took out the non-recurring issues, looked – it looks like kind of $2.5 million might be kind of a–

Patrick Dee

That’s probably a reasonable estimate at this point in time. We are continuing to manage a lot of our expenses down. Some of that will continue to take some time. So that expense number is going to come down in the quarters ahead, but that’s – the third quarter, you are right, absent the kind of unusual one-time items, that $23.5 million is a pretty good beginning run rate, but we are doing a variety of things to reduce our expenses to manage that number lower in the future quarters.

Bain Slack – KBW

Okay. And I guess just last question for you guys, I guess what would you guys need to see in the NPLs and it sounds like you’ve got just the problem loans coming down linked [ph] quarter and from what you are saying may be a peaking of the NPLs, at what point would we maybe start to eat into the reserve, in other words, the – maybe provision not being as much as the charge-offs given the high level of reserve coverage, reserve to loan ration that you have right now?

Patrick Dee

Well, it kind of depends entirely on the new non-performings coming in. We’ve got a pretty detailed schedule of our non-performing assets that we are working with borrowers to get some of those off of our books. Clearly, the amount going off is going to be just as important as any further additions that we have. I think the encouraging thing that we are seeing is that reduction in the potential problem loans. That’s the first time we’ve seen that kind of an indicator in quite a long time, probably going back at least a couple of year. One quarter doesn’t make a trend, but certainly it’s encouraging to see that, but literally at this point, recognizing there are going to be some charge-offs that pop up from time to time that we didn’t anticipate ahead of time. If we can get to at point where we are holding the non-performing loans even level. Under our current formulas we would need only to replace whatever charge-offs are coming through that we haven’t built into the previous specific reserves or the other formulas that we use. So, it’s really critical to get that non-performing number moving downward. We’ll probably going to have to get to a point where those non-performings are coming down by, let’s say, $5 million to $8 million per month, before we can think about having very little, if any, provision going forward.

And clearly the trends aren’t quite there yet, but we are working real hard to try to manage to that point. So, at this point, I think we see a little more provisioning in the fourth quarter, probably a reduction – the fourth quarter certainly is not – we wouldn’t expect it to be anywhere close to what we saw in the third quarter because of all the unusual factors we’ve talked about. So, we expect a much lower provision level in the fourth quarter–

Bain Slack – KBW

You just meant more than the charge-offs when you said that right, I assume?

Patrick Dee

Well, the –

Bain Slack – KBW

When you said – clearly, you said more. Yes, I realize I mean it’s more than the third quarter, but I assume what you meant was providing more than what the expected charge-off may be in the fourth quarter.

Patrick Dee

Yes. That’s true, it would be more than the expected charge-offs in the fourth quarter. Based on what we are seeing right now, we think it’s quite possible that in the first quarter then we could see a little bit further reduction. It’s all going to depend on how quickly we can get some of these problem loans off our books, but we would expect to see a gradually declining trend in the provision in the quarters ahead. How quickly it comes down, again, is going to depend entirely on the underlying trends there. But we think by the second half of 2010 it’s quite possible that we can go [ph] to a very nominal provision, if any, is even needed at that point. But, again, it’s all going to depend on what happens with those non-performing numbers.

Bain Slack – KBW

Great. Appreciate it. Thank you.

Operator

Currently, we have no additional questions at this time.

Patrick Dee

Well, if there are no additional questions, and we’ll give it another minute here in case somebody does want to ask one or two. Again, this has been a very challenging quarter for us. But clearly, we think some of the numbers are not indicative of things to come. Obviously, the charge-offs we’ve taken this quarter are extraordinary.

The regulatory approach on the allowance for loan loss, again, is a little bit different than what we’ve done historically under GAAP, but we’ve now adjusted for that. And we think there shouldn’t be any further impact from that going forward. Clearly, we’ve got some challenges in working through the problem assets that we’ve got, and hopefully we’ll be able to start to show some positive trends. It’s very difficult to predict that absolutely the worst is behind us, but we’re starting to get a sense of that from some of the indicators that we are seeing. So, we’ll look forward to reporting our fourth quarter results after the first of the year and hopefully we’ll have a much better picture to reflect at that point. So, if there are no other questions –

Operator

Yes, no other questions at this time.

Patrick Dee

Well again we appreciate your time and attention today and we’ll sign off and look forward to (inaudible) with you next quarter. Thank you.

Operator

This concludes today’s conference. Thank you for your participation. You may disconnect at this time.

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