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Zions Bancorp (NASDAQ:ZION)

Q3 2007 Earnings Call

October 18, 2007 5:30 pm ET

Executives

Clark Hinckley - Directorof IR

Harris Simmons - Chairman, President and CEO

Doyle Arnold - VC and CFO

Jerry Dent - CCO

Analysts

StevenAlexopoulos - J.P. Morgan

JenniferDemba - SunTrust

James Abbott - FBR Capital Markets

Tony Davis - Stifel Nicolaus

Manuel Ramirez - KBW

Eric Wasserstrom - UBS

Ken Usdin - Banc of America Securities

Todd Hagerman - Credit Suisse

Heather Wolf - Merrill Lynch

Joe Morford - RBC Capital Markets

Operator

Good day ladies and gentlemen and welcome to the ThirdQuarter 2007 Zions Bancorp Earnings Call. My name is Audria, and I will be yourcoordinator for today. At this time all participants are in a listen-only mode.We will conduct a question-and-answer session towards the end of thisconference. (Operator instructions).

I would now like to turn the call over to your host fortoday Mr. Clark Hinckley, Director of Investor Relations. Please proceed sir.

Clark Hinckley

Good afternoon and thank you for joining us for our thirdquarter 2007 earnings conference call. If any of you do not yet have a copy ofthe earnings release it can be downloaded from our website in pdf format atzionsbancorporation.com. The link to the release is found near the top of thepage.

During this afternoons call we will discuss the expectedperformance of the company. As you know such statements constituteforward-looking information within the meaning of the Private SecuritiesLitigation Act. Actual results may differ materially from the projectionsprovided in this call, since such projections involve significant risks anduncertainties. A complete disclaimer is included in the press release and isincorporated into this call. We're not responsible for transcripts of this callmade by independent third parties.

I would now like to turn the time over to our Chairman andCEO, Mr. Harris Simmons.

Harris Simmons

Thank you very much Clark.Thank you for joining us all. This has obviously been an extraordinary quarterin terms of credit market conditions, and the demise of much of the capacityand product availability in the mortgage markets. And the impact of theseconditions on the residential real estate sector, and you are seeing all ofthis reflected to some extent in our financial results, in terms of higherprovisions and non-performing assets, primarily related to the residentialconstruction sector. And in the tighter spreads on our qualified specialpurpose entity, the evaluation of a basis swap, all of which negativelyimpacted income during the quarter.

It also continues to be a challenging environment in termsof deposit, generation and margins. But there are also some great strengthsthat underlie it all. We saw some very strong loan growth during the quarter.Losses, actual net charge-offs remain reasonably moderate and the fundamentalbusiness is still, we think quite sound and growing.

So, we're both cautious I think with respect to theresidential sector, but reasonably optimistic in other areas. We had a questionor two about the sort of the dual pre-announcements that we made during thequarter, and I would like to take just a moment to comment on those.

I spoke at an Investor Conference on September 12th, andDoyle Arnold spoke at the summer conference on September 26th. We felt itimportant to convey the fact that we are seeing the need for higherprovisioning as we were meeting with investors at those conferences, I did soqualitatively on the 12th as we had more information, we were more specific onthe 26th and filed an 8-K with slide for Doyle’s presentation with the bestinformation we had at that time. But it was information at a point in time andwe have not yet concluded our process of determining the required level of reservesfor the quarter.

As we finished up that process, it became very good forprovisions and should probably certainly be somewhat higher than we hadestimated, and since we had given a target range for the provision back on the26th, we felt that we are to release the timelines we could update that withwhat appeared to be the final number, which you now see in our release with asecond filing that we made a week ago.

So, I want you all to know, we are committed to trying tokeep you informed as we have information we think is material to the evaluationof our prospects and stock price, and that’s what we try to do during thequarter, and we think we do it all again if given the opportunity. We think wasthe right thing to do. With that, I am going to turn the time over to Doyle andhe’ll take us through the numbers.

Doyle Arnold

Thank you, Harris and good afternoon and good eveningeverybody. With everything that occurred in the quarter, my prepared remarkswill be probably a bit more lengthy than usual. I want to try to walk youthrough both the ordinary things, as well as some of the unusual things thatimpacted the quarter and give you good flavor for how to build -- as best wecan but how to build your models going forward.

First of all a summary; earnings per share was $1.22consistent with the pre-announcement that we made ten days or so ago. Thisincludes as best we can estimate it the total impact of the disruption in thefinancial markets as opposed to credit conditions, impacted those earnings byabout $0.08 a share including $0.015 to $0.02 of earnings from our securitiesconduit, Lockhart and about $0.06 negative impact from non-hedged derivatives,both of which I will talk about further as we go through the financials.

Loan growth was $1 billion or 11.2% annualized from the endof the second quarter compared to $843 million in the second quarter over firstand $547 million of organic growth in the first quarter. This, as we suggestedin some investor discussions, towards the end of the quarter it looked likelong road was strengthening and it certainly did as the quarter went on.

Deposit growth, however did lag loan growth significantly.Average core deposits only increased about $195 million and average DDAdeclined by $187 million. I'll comment further on that later as well. The NIM,net interest margin decreased 9 basis points to 4.44% for the quarter. I willbreak apart the nine basis point decline for you as well, later.

As we announced earlier, net charge-offs were about $18million or about 19 basis points annualized of average loan, higher than lastquarter, but still a very respectable level.

Also, as earlier disclosed, provision for losses was about$55 million this quarter. The increase was driven in part by the strong loangrowth, but also clearly by the deterioration in credit quality including thatin the residential construction and development sectors in Arizona,Southern California and Nevada.The efficiency ratio adjusted to exclude minority interest was about 56.6%, upjust slightly from the previous quarter.

So in summary, the loan growth was very strong, but depositgrowth is expected, remains challenging. Our credit costs increasedsignificantly driven by the deteriorating conditions in the Southwesternstates. And expenses remained well controlled and like many banks, we did seesome impact, probably not as severe as some others from the disruptions infinancial markets.

Turning to some of specifics now, if you want to follow meto page 11 of the financial tables. Weighted average, common shares declined$1.2 million to $107.9 million, reflecting both repurchases of stock during thequarter and also the impact of lower stock price on the treasury method ofaccounting for stock options.

Tangible equity ratio down, fourth line from the bottom ofthe page, ended the quarter at 6.40%, down a bit from the prior couple ofquarters, both reflecting the stock buybacks as well as the very strong assetgrowth but well within our target range for tangible equity of 6.25% to 6.5%.

During the quarter we did spend $90 million of repurchasingshares, about 1.2 million shares in total, but we did suspend internally thestock buyback after August 16 when the financial markets clearly becomedisrupted and we were concerned about the need to possibly bring some or all ofLockhart Funding assets back on to our balance sheet. At the end of the quarterand today we have $56 million of remaining authority under the existing stockbuyback authorization.

Turning to page 12, we’ll now see the specifics of somethings that we did talk about. You will notice the second line of numbers,interest-bearing deposits and commercial paper increased sharply to $513million that was up $474 million. Essentially all of this increase reflects thefact that we and a number of our affiliated banks or subsidiary banks purchasedcommercial paper issued by Lockhart Funding in varying amounts during, onvarying days, during the quarter when Lockhart Funding was unable to sell intothe market sufficient paper to meet its needs.

At the end of the quarter as stated in the release about$500 million of commercial paper was still on our books. As of today that isdown to about $160 million and we continue to be able to replace the paper thatwe are holding as it matures now with paper issued into the market as theasset-backed commercial paper market. At least for us it appears to be slowly,incrementally returning to something more approaching normal. I will comment alittle further on that later as well.

Note that loans increased $1 billion to about $38 billion,before provision, our loan losses reserve. In the deposit section you can notethat the period end to period end, and DDA was down $535 million, average wasdown $187 million. And I will comment on that, it appears that this has beenparticularly impacted by deposit balances from commercial and commercial realestate customers and others related to the residential development in the homesale business in the Southwest.

We have seen some title company balances continue todecline, we have also seen development customers reduce cash to pay down debtand complete projects. And we think that that explains a significant portion ofthe decline. DDA balances were more flattish in the number of the other marketsoutside of those that I just mentioned.

The interest rate bearing deposits, if you exclude jumbotime, it actually increased $472 million during the quarter. We did pay downsome jumbo time deposits and you'll note further down the page Federal homeloan bank advances, and other borrowings grew $1.37 billion during the quarter.And that is essentially how we funded most of the loan growth this quarter.

The core deposit growth was, I would not characterize isstrong anywhere, but on balance it was better in Amegy Bank, Zions bank, Vectrabank, Colorado and the specific North West banks. But again weakest in Arizona, California, andNevada all ofwhich saw a decline in core deposits.

Page 13; the consolidated statement of income, net interestincome before provision was $477 million. That was actually a slight increaseof $7.3 million driving that was this very strong loan growth. But mitigatingthat or offsetting it was the lower net interest margin. Again, we will comeback to that in a moment.

The non-interest income section, nothing worthy of note onservice charges and fees, they continue to grow kind of in-line with trend.Loan sales and servicing income increased this quarter from $9 million to $11.6million. That is driven by the fact that, unlike prior quarter and the onebefore, there was no impairment charge taken this quarter that impacted thatline item. There was a $5.1 million impairment charge, as you recall in thesecond quarter and a $4.2 million charge in the first quarter. And again, therewas none this quarter.

Going to turn now to income from securities conduit, this isthe fee income that we derive from Lockhart Funding, and since it rises andfalls based on the spread between the earning assets in Lockhart and the costof the commercial paper that we used to fund those assets and it comes back tous in the form of fee income on the liquidity agreement and servicing agreementthat we provide.

You’ll notice that that number declined from $6 million to$3.2 million reflecting the fact that commercial paper became very, veryexpensive during this quarter. The spread over LIBOR compared to normalconditions, probably widened at its peak to 75 to 80 basis points over what wewould normally expect. So, you may want take note of the numbers I am going tojust quote.

During July before commercial paper rates for these kinds ofassets began to rise sharply, in July we earned $2 million from the conduit, inAugust, we earned $1 million, in September we earned $0.3 million and thatdecline reflects the fact that more and more of the old commercial papermatured and was replaced with more expensive commercial paper as the quarterwent on.

In recent weeks we have seen those spreads begin to comeback down towards a more normal level, but they are still probably 25 to 30basis points above historical norms. So, while we do expect to see just thisline item return to something more like its historical trend, it may not allhappen this quarter. It may be flattish this fourth quarter and come back asagain there is the role of commercial paper, and that creates some lag and howquickly it adjusts both on the as -- commercial paper rates increased and willcreate a lag as they decrease again.

The dividends and other investment income was up about $3.4million driven primarily by strong performance in investments, use accountingfor under the equity method, nothing particularly unusual. The next line itemdoes have some unusual aspects to it. Trading in non-hedge derivative incomeswung from $5.2 million plus to $5.2 million negative. Most of this decline, ofthat 10 million, was caused by the decreasing spread between prime and LIBORduring the quarter, which again is directly related to the disruption in thefinancial markets that resulted in LIBOR rates moving upward significantlyversus prime. This reduction impacts earnings by about $0.06 per diluted commonshare after tax.

And let me explain this briefly. As a part of our interestrate risk hedging program wherein we swap pools of variable rate loans for receivedfixed contracts, we have retained the LIBOR prime basis risks rather than forceor pay Wall Street to take it, which we think would be rather expensive.

Normally this makes money, and is not particularly volatile,and we don’t think adds to the net risk that the company is taking, but notthis quarter. Clearly the disruption in the prime LIBOR spread this quartercaused this thing to swing more than we have seen in the last six years. Thesehedges or this basis hedge does not qualify for hedge accounting under FAS 133and it all goes through the income statement. Over time assuming that the LIBORprime spread returns to normal, which it has not fully done yet, there is stillsome premium pricing in LIBOR, it appears. But overtime, this line should revertto normal, but again it may not happen all in one quarter. It may take a while.It's purely dependent on how quickly concerns about financial system fullysettle down.

And then finally I'll comment on equity gains. You'll noticethere's an $11 million gain, but also note that there was minority interest to$7.5 million. That was -- this is a gain that arose from a sale of a companyand a portfolio company in one of our venture capital funds. The gain wasshared with minority investors in the funds. So net of minority interest andincome tax, the favorable impact here was about $1.9 million after tax or $0.02a share.

Now, I'd like to talk about a non-interest expense on thesalary and benefits was up $6 million, compared to the second quarter, butstill slightly below the first quarter levels. Total non-interest expense wethink remains pretty well contained and the efficiency ratio was for allintents and purposes flat.

Turning to some, a page I am sure you are interested in ourcommentary on page 16. We talked about credit quality. As you may have expectedfrom our previous disclosures, first of all let me note that non-accrual loansare up significantly to $174 million and non-performing assets are up aboutdouble to $196.5 million. I'll also note that accruing loans past due 90 dayswith mortgage still accruing were up just under $17 million to $16.5 million.

I would also like to note that non-accruing loans that arefully current, as to principle and interest constitute 44% of the non-accrualloans. So accruing loans that are past due, but where we're still accruinginterest are up, but non-accruing loans were recurred as to interest, but notbooking it, are also up. And that 44% of non-accrual loans that are current outof this total compares to 30% last quarter.

I'm just trying to give you a flavor for this to suggestthat couple of things; one, we are trying to be proactive in identifyingissues. Two, there is judgment involved as when and where to place a loan here,where we have clearly parsed borrowers that we think are likely in some degreeor stress even though they are still current, and parsing them from otherborrowers who may behind, but we think are not fundamentally under stress thatwill preclude repayment of the loan.

As already noted charge-offs net were $18 million, about0.19% of annualized annual loans, still a relatively low level and for examplebelow the 0.21% in the fourth quarter of 2006. Provision for losses was $54.5million, about $37 million more than net charge-offs. This reflects not justthe strong loan growth, but as we've discussed, some significant softening incredit quality outlook, particularly in relation to residential landdevelopment and construction activity in the south west, with Arizona being most severely impacted.

Ratio of total allowances, including the allowance fromfunded commitments to total loans increased to 1.16%. And as you can see,because of the change in non-performing assets, the allowance compared tonon-performing loans was down.

Turning to loan growth, page 17. Loan growth was very strongas previously mentioned. The largest part of that $586 million was incommercial lending. The next biggest piece was $329 million in CRE loans. Thelargest growth there was in Amegy Bank, Texas.But some of the other banks also saw a loan growth in this category. Primarilyas a result of draw downs of previously extended commitments on CRE projects.

The consumer loans increased to $113 million, concentratedin Zions First National Bank, here in Utah andIdaho.

Page 18, the net interest margin, first let me note thatwe've changed the format of this page. We’re showing you the third quartercompared to the three months of the second quarter, the previous quarter. Weused to do, in previous format, we would have third quarter this year comparedto third quarter of last year. We thought it might be more useful to you toshow it this way. So, you can clearly see the quarter-to-quarter change inpricing, and spreads, and things like that. We are open to comments, if youthink the other was more useful to us. You all know how to reach Clark and we will take your feedback. But we thought thiswould be more useful.

Now, turning to the substance of the page. The net interestspread, near the bottom of the page declined, as you can see the 3.55%, the NIMdecreased 9 basis points to 4.44%. And let me try to parse the 9 basis pointsin to some major components for you.

For DDA, we had no impact on the NIM it would have to growroughly in-line with balance sheet growth, so that the portion of our fundingremained constant. It would have grown roughly $200 million, for to have aneutral impact on the NIM. Not only did it not grow $200 million, but on anaverage it shrank just under $200 million. That had a 4 basis point negativeimpact on the net interest margin.

The net interest margin was also negatively impacted by thepurchase of commercial paper by our banks and by the Bancorp that was issued byLockhart Funding. We kept some of the spread by doing those purchase that was a[statutory] impact. But basically the incremental spread was narrower and thepurchases inflated the balance sheet and this had a negative impact of about1.5 basis points on the margin.

The strong loan growth which had to be funded with market rateliabilities essentially in its entirety had about a 2 basis points impact, andthe final two basis points was primarily within the interest bearing depositcategory, most of the growth occurred in the higher rate categories, theInternet money market, Internet savings accounts, money market, mutual fundsetcetera. So that's the source of, as I've said a couple of times with investorconferences lately, it was going to be very hard to call the NIM this quarterbecause there were so many moving parts. They were all the moving parts that wecould identify for you.

As noted in the release, we do not believe that thereduction in the Fed's target -- Fed Fund rates had any measurable impact onthe margin during the third quarter. However, it is likely to have a negativeimpact in the fourth quarter as yields on variable rate loans decrease, but themarket remains very competitive for deposits, and I will comment on that in theguidance section of my comments.

Just an update on Lockhart Funding, as most of you areaware, that was under some stress as we are all conduits and QSPEs thisquarter. I was concerned about whether we could keep all or part of it off ofour balance sheet, whether it could successfully sell its commercial paper andremain viable etcetera.

We did not, at any point in time, triggered the liquidityagreement, but back-up liquidity agreement, that Zions' first national bank haswith Lockhart under which we would have actually started to purchase assets outof Lockhart Funding and bringing them back on to our balance sheet.

However, we did purchase commercial paper issued by Lockhartduring the quarter. On average they reported they own $232 million of Lockhartcommercial paper. At period end we owned about $500 million. Yesterday we had$174. Today we ended with $160, so you can see the trend is back toward sellingit all into the market. The term and cost of the funds remains above normal,but both of those are slowly improving as well, and barring some furtherdisruption in the market we think Lockhart will continue to be able to funditself, and do not anticipate triggering a liquidity agreement for bringingLockhart back onto our balance sheet. And in the normal course of events wehave pay downs and run offs. The assets in Lockhart have reduced from about$3.4 billion in the last quarter to about $3.1 billion at the end of thisquarter.

Just a couple of other update; One, we mentioned lastquarter we had an agreement to sell 11 branches that have been part of TheStockmen’s acquisition; these are owned in California, will includeapproximately $171 million of loans and 209 in deposits. We expect thattransaction will close during this quarter.

So, summary and a little bit of go-forward guidance; Firstof all, let me comment that clearly things are changing out in the market. Soit is difficult to give guidance that will be spot on, more so than usual, itis never easy, but we will do the best if we can. We continue to see prettystrong organic loan growth and I am not sure we will continue to strengthenfrom here, but then again I didn’t think it would strengthen to this point.We've seen continued very strong loan growth in the first, whatever -- what isit now about two and half weeks of this quarter, so somewhere between secondand third quarter, but not sure. Time will tell.

We do expect that the growth will come more from thecommercial loan portfolio than in the CRE portfolio, that it will be drivenprimarily by Texas and the Intermountainstates and Colorado, with continued flat to decliningportfolios in California, Arizonaand Nevada.

The decline in residential construction in thoseSouthwestern markets, we think is likely to persist for some time and that loantotals in those, our banks in those areas are going to continue to be weak andmay continue to shrink.

We think that the deposit market remains very competitiveand we think core deposit growth will continue to be modest. Demand depositshave been somewhat volatile, we have seen pay down reductions in demanddeposits coming from the things associated with residential development andconstruction.

Earnings credit rate on commercial checking accounts hasbeen lowered in conjunction with the decrease in short-term interest rates.This may have a positive impact on commercial demand balances in the next fewmonths, but fundamentally we and for commercial, some commercial customers lookat commercial paper as an alternative to buying CDs and the commercial paperhas been a very attractive investment from some of these people.

And we have some financial institutions in the West thathave been public about liquidity pressures and we think that there are a wholebunch of reasons why deposit costs are going to remain high. We have not done,nor have we seen and our competitors do much in the way of lowering interestrates in response to the Feds rate cut and we don't see that happening in thenear-term, may drift down over time, but it hasn't happened yet, more than, saymay be, 15% to 25% of the rate cut has been passed on in administered rateaccounts at this point.

So with loan growth and excessive deposit growth in a verycompetitive deposit market, there is likely to be continued pressure on themargin in the near-term, as was the case this quarter and will be next as DDAbalances go to some degree, so goes the margin that remains a very significantfactor. Our best estimate is that NIM will likely compress a bit in thenear-term.

Credit Quality. We are in a part of the cycle where it isvery difficult to predict. Our expectation is that, this is going to be fairlylong cycle with regard to residential construction development. We've not seenthat spread appreciably to other sectors of our activity. Our best estimate isthat we will see a further up tick in non-performing assets this quarter, maybe not proportionately as severe as this quarter, but it probably will go up.

Losses may go up slightly, but we don't think at this pointthat the provision is going to go up from here in the near term or will even beas high, as it was this quarter. Probably somewhere between the second and thethird quarter numbers for the provision would be a best estimate at this point.But that’s going to be totally driven by continued developments in themarketplaces unfolds.

The efficiency ratio, we think will relatively stable orperhaps improve modestly. We did complete during the quarter the CaliforniaBank & Trust systems conversion on to our common platform. That conversionwent very well. On a net basis, we should begin to see going forward about $6million to $7 million annual expenses saves as a result.

Also like to remind, kind of partially offsetting that isthat, FDIC premiums will add about $2.6 million of expense in the fourthquarter as we started to burn through the credits, that we had in some of ourbanks. And we'll add about 11; I think we previously discussed this about $11.5million pre-tax in 2008.

Finally we're going to remain for a time somewhat cautiouswith regard to our capital levels and probably limit share repurchases in thenear term to little or none this quarter. Just want to watch, make sure of it,we see how the market unfolds before we get too aggressive about stockbuybacks. Longer term we do remain committed to returning excess capital to theshareholders and not holding it.

So in sum, the quarter was marked by the impact of turbulentfinancial markets. We've tried to quantify that impact for you. Decrease incredit quality, driven by the conditions in the Southwestern markets. Butstrong loan growth in other geographies, and somewhat week deposit growth. Andwell controlled expenses, so with that I will pause and will look forward toyour questions.

Question-and-Answer Session

Operator

(Operator Instructions) The firstquestion comes from the line of Steven Alexopoulos with J.P. Morgan. Pleaseprecede sir.

Steven Alexopoulos - J.P. Morgan

Hi. Good afternoon guys.

Clark Hinckley

Hello, Steven.

Steven Alexopoulos - J P. Morgan

Couple of questions on thenon-performers [by now the] surprise. Can you first talk about what’s the workout strategy here with the residential construction loans? Are you going toplan out restructuring them? Are you working towards foreclosure? Trying tosell them what are you thinking here?

Harris Simmons

Jerry do you want to comment, areyou still with us. Our Chief Credit Officer, Jerry Dent is in another city, youwant to comment or?

Jerry Dent

I would be glad to. It reallydepends on the particular circumstances of the credit. There are those that wewould try work with the borrower first of all. See if we can get them into aposition where they can handle the debt load and work through it. But ifnecessary, we would take steps to foreclose on it. But that’s generally a laststep that we would go forward with, because it's better to keep the property inthe market in the name of the borrower when it is at all possible.

Doyle Arnold

And in some cases we will somenote sales as well and the markets are better developed than they were the lastcycle to accommodate that as well. So, --

Steven Alexopoulos - J.P. Morgan

Did you guys sell anynon-performers during the third quarter?

Harris Simmons

No.

Jerry Dent

Nothing material during thequarter.

Steven Alexopoulos - J.P. Morgan

Okay. And maybe just one finalquestion; In terms of the markets where you are seeing the most pressure on theresidential construction, are there any signs at this point of a broaderspillover into other areas of the commercial real estate book?

Harris Simmons

I don’t think so, not at thispoint.

Steven Alexopoulos - J.P. Morgan

We’re not really noticing that inthe other segments of our commercial waste paper portfolio at the present.

Harris Simmons

We’re seeing some, and I caveatthat with, I mean we are seeing some, for example, the Orange County,California office markets is recently soft. We have very little exposure there.And as you look around you will be able to see couple of things like that, butnothing that’s really systemic.

Steven Alexopoulos - J.P. Morgan

Okay. Great. Thanks guys.

Operator

Your next question comes from theline of Jennifer Demba with SunTrust. Please proceed.

Jennifer Demba - SunTrust

Thank you.Good evening.

Harris Simmons

Hi, Jennifer.

Jennifer Demba - SunTrust

Hi. How muchof our new non-performing assets came from Arizonaversus Nevada versus California?

Doyle Arnold

Newnon-performing, let me just -- I think I have that here. Let’s see, I havenon-accruals, of the large non-accruals as of that’s $0.5 million and above. Welump all this we don’t break, I don’t have a breakout by geography of thesmaller things. About $26 million came from Arizonaof the increase, about $20 million from Nevada,and about $27-ish million from California.So, a big chunk of it.

Jennifer Demba - SunTrust

Okay. And the net charge-offsthat you had in the third quarter, can give us a flavor of what you saw therein terms of residential construction credits?

Doyle Arnold

I don’t have any, Jerry do youanything that would you like to comment on that? I don’t know if there is any?

Jerry Dent

I can tell you, just let me…

Doyle Arnold

In total, excuse me, Gerald. Itwould probably, well it just to indicate, over $1 million we had twocharge-offs. The largest one of that $6.6 million was a residentialconstruction charge-off. The other one was a commercial loan of about $2.5million.

Jennifer Demba - SunTrust

Thanks a lot.

Harris Simmons

Yep.

Operator

The next question comes from theline of James Abbott with FBR Capital Markets. Please proceed.

James Abbott - FBR Capital Markets

Yeah hi. My question is sort ofrelated to Jennifer’s there on the net charge-off composition. What I’m lookingfor is, how much, if any, of the charge-offs were related to home equity orother types of consumer loans or was it primarily on the construction front?So, I’ll ask that one and then I have a follow-up.

Doyle Arnold

Very little on the home equityfront. Our charge-offs historically on home equity credit lines are veryminimal, and we’re not seeing any kind of a movement upward there. Those thatwere related to residential housing were primarily residential constructionrelated.

James Abbott - FBR Capital Markets

Okay. And so the rest of thecharge-offs were commercial and industrial in nature?

Doyle Arnold

Primarily, yes.

Harris Simmons

Well, and just small consumer, wehave got a small bank card portfolio etcetera, so there are odds and ends, andwe have this sort of a baseline of small consumer charge-offs that you wouldsee kind of quarter-in and quarter-out that make up most of the rest of it.

Jerry Dent

And that’s really not changingmuch each quarter.

Doyle Arnold

You know, further to what thequestion may be behind your question, if you go back and look at I think inHarris's presentation at the conference in early September, we actually gaveyou the FICO scores on our consumer loans and origination and most recent andyou will find that they're quiet high and we're not really subprime lender it'sonly first or seconds.

James Abbott - FBR Capital Markets

If I recall, I think they wentup, and refresh was now right?

Doyle Arnold

That’s correct, if they were upslightly.

James Abbott - FBR Capital Markets

That’s unusual, but that's greatto hear.

Harris Simmons

We concur.

James Abbott - FBR Capital Markets

Can you also, can you give us asense of the non-accrual increase? You gave us the geographies. Was itprimarily construction that was driving that? Do you have a breakdown ofconstruction?

Doyle Arnold

I don’t have an exact breakdownbut the bulk of -- by far the largest component would be residential landdevelopment and construction.

James Abbott - FBR Capital Markets

Okay.

Harris Simmons

You have any color to add Jerry?

Jerry Dent

No that's exactly right, that'sexactly right.

James Abbott - FBR Capital Markets

And can you tell us, I guess Iwas a little bit surprised that the provision wasn't larger given the increasein non-accrual there. I was not expecting that much of an increase innon-performing assets, given the provision number that was pretty down. Whatcan you tell us about loan to values and those kind of things because we'veheard all kind of stories about values deteriorating rapidly in some of thosemarkets and so what can you tell us and I assume that’s the reason why youdidn't provide more?

Doyle Arnold

Firstly, in our methodology,Jerry jump in here at anytime he wants, but a land value decline isn't thetrigger per se, its our belief if the project there the borrowers areexperiencing stress as we go back and we review at in, that's what may triggerit downgrade in the credit and possibly putting it on non-accrual statusetcetera. When we do that we then typically would go out and get a reappraisalon the property and we're seeing significant declines in value in land when thosereappraisal are coming in kind of 30% and 40% driven primarily not as much asprobably some of this, not as so much by declines in value of the individuallots to say, but the fact that the lots are taking in much longer time to selland that the appraisers are applying a much higher discount rates. So you havegot to cash flows stretched out way into the future and a heavier discount ratebeing applied to them. It gets you to a significant decline in net presentvalue today. Do you want to say anything different or add to that Jerry.

Jerry Dent

One of the things we’re findingis that the appraisers in today's market and in those areas such as SouthernCalifornia and Phoenix and Nevada are having a very difficult time coming upwith what is really a realistic value, because we are right at the point intime were the sales are being so deeply discounted, that everybody is of theopinion that, yes that's what happening today, but in reality the propertiesare worth more than that and when things correct a little bit the values willcome back up. So they're having a difficult time coming up what they would termas a realistic appraisal.

James Abbott - FBR Capital Markets

In terms of comp sales are youseeing that much of a decline? If a parcel of land was purchased a year ago andthen sold again today would it be a 30% decline?

Jerry Dent

Those are actually transacting inthe 20% plus decline, but there is not very many transacting because thediscount needed to be taken is so low.

James Abbott - FBR Capital Markets

Okay, thank you.

Harris Simmons

I would also just comment withrespect to the provisioning, I mean, particularly on land development. We startwith recently conservative loan to value ratios going into the deal. So, theyare generally structured to withstand a fair amount of decline, because youwould expect that when you go through this kind of a cycle. I mean, everybodyknows coming into it. But land is going to see the steepest declines -- thatfinished product which is available to be sold, should hold up better. So, thatis a fact for provisioning. So, you are not going to see the same kind ofprovisions across the board for every asset because it's uneconomical.

Operator

Your next question comes from theline of Tony Davis with Stifel Nicolaus. Please proceed.

Tony Davis - Stifel Nicolaus

Hi, Harris and Doyle and Jerry. Alittle bit more I guess, drilling in the same topic here. As I recall, well, Iwonder if you could be a bit more specific with respect to your weakest MSAs.And the question would be, your best guess is on two points. How much of landvalues in those particular markets has fallen from the peak and if you had topick on the inning. What inning is it in the game?

Doyle Arnold

That's another good question.

Harris Simmons

Question is; is it going to goextra innings?

Doyle Arnold

I would guess that in terms ofthe weakest MSAs where we have significant exposure would be the Phoenix area and the Tucsonarea. And they would probably be followed in terms of where we have the mostsignificant exposure by the Inland Empire. Butthe exposure is much, much less there for us.

Harris Simmons

I would actually say San Diego County would be third

Tony Davis - Stifel Nicolaus

Would be third.

Harris Simmons

Okay.

Doyle Arnold

And then, there are other marketsthat are very weak. Las Vegas and the CentralValley part of California stocked in Sacramento area. Butagain proportionate to who we are they are not quite as important.

Tony Davis - Stifel Nicolaus

And you'll now take a stab atthat’s rank.

Doyle Arnold

I'll just make the comment. Ifyou look at the last cycle it was about a five year cycle from the deep to thetrough in terms of the -- if you look at new housing starts, which went fromkind of about ‘96 to the peak for 2001 kind of the trough. I think we’reprobably a couple of years into this, I think generally we would expect, we areprobably a couple of years away from this bottoming out. Two maybe three interms of really seeing some pickup

Tony Davis - Stifel Nicolaus

Jerry, the last number I rememberhearing from you was that I think this was again back in the first quarter. ButI believe the classified loans, the percentage of loan before that wasclassified at that point was an all time low. Somewhere around 2%?

Jerry Dent

It was actually less than 2%.

Tony Davis - Stifel Nicolaus

Okay. Can you update us on thatnumber?

Jerry Dent

It's currently just over 3%.

Tony Davis - Stifel Nicolaus

Okay. And since you have beenthere, what has been the highest you recall?

Jerry Dent

14.96%.

Tony Davis - Stifel Nicolaus

When was that Jerry?

Harris Simmons

Maybe it’s a pain.

Jerry Dent

That was March of ‘89.

Tony Davis - Stifel Nicolaus

Okay. Thank you very much.

Operator

The next question comes from theline of Manuel Ramirez with KBW. Please proceed sir.

Harris Simmons

Hi, Manny.

Manuel Ramirez - KBW

Hi, good afternoon. Thank you foryour kind heart, as always. Kind of, conceptually I am trying to get a sense ofhow you are looking and assessing the strength of portfolio at this point basedon your experience and I guess specifically referring to Jerry with the lastdown cycle 15-16 years ago. How would you try to stay ahead of the market asopposed to behind the market, and I know it’s hard to do that from anaccounting standpoint, but obviously there is a lot of judgment involved. Andthen the second question along this line for Doyle was, what portion of yourprovision this quarter was related specifically to the increase in non-accrualsversus, I assume qualitatively, higher loss factors on the remaining portfoliothat’s performing? Thanks.

Jerry Dent

I see you are associating quite abit different position going into this than they do back in the late 80s, early90s. Our processes are able give us much better information with respect towhat’s happening with our credits. Our procedures are just so much betterimproved that we -- I think we can see faster what’s really happening withthose particular credits, and the culture that we have tried to establish iswhen we see a problem coming in, let’s call it and I think that’s happeningmore today than it happened at this stage in a cycle, 15 plus years ago. So,when I look at this, I think we're on it much faster. We are going to be ableto deal with it lot better, and I think that’s probably what's showing up thispast quarter.

Manuel Ramirez - KBW

Is it the case, and I don't wantto put words into your mouth, but it does seem like a lot changed in a month. Iknow you are incrementally more cautious on what you are seeing in the market,but it maybe between early September and mid-October, we are talking here todaybased on the conversations, I think a lot more concern on residentialconstruction. If the processes are better, is that the case that the market ischanging faster?

Harris Simmons

Let me ask, let me take a stab atthat by saying that I think one of the things that we have been really tryingto do is, we really are trying to burrow into at a very granular level,particularly the residential exposure we have, construction A&D, and inparticular in some of these markets that we think are going to be harder hit.And that's in recognition of the fact that we saw that this whole sub-primeprices, I mean, it started to kind of percolate back in about February and inmiddle of August, sort of the roof blew off the house and you suddenly sawscores of mortgage companies, for example fold up tent, file chapter 11. And Ithink one of the things that we believe, we are trying to be in a spirited candlewish, we're saying and I believe that you have this that something that wehaven't seen in a cycle before is the withdrawal of a lot of capacity andmachinery, if you will, for repackaging mortgage debt and providing credit toboth the lower end of the spectrum and on the higher end it's become moreexpensive because it's more of its coming on the bank balance sheet. And so tothe extent that residential real estate is fundamentally driven by theavailability of financing for buyers, which is certainly true. I think you haveto be more cautious about this cycle and that is what we are trying to do.

And the other thing I would sayis that as we look at our own customers, we are looking at their numbers butthe impairment testing that they are doing and particularly for the largerbuilders, as they look at their own communities they are building out. They aregoing to have to re-look at that every quarter and its not like you have alatitude to take up sort of a big bath kind of approach to these things you its-- it could go on for a while, as Doyle said earlier I don't think its going tobe -- you are going to see the same level of provisions that you saw in thisquarter. But I don't think either that this is sort of a one-time event then itall goes away in a quarter. I think that we are going to continue to see somestrain in the sector for while.

Manuel Ramirez - KBW

Okay. Thanks and then thedivision if we can parse provision between what's specific to the non-accrualsand then everything else?

Doyle Arnold

Well its non-accruals themselvesdon't drive, it's really the provision, its really our internal classificationin the loan volumes in our process classification, which mostly drives aformula reserve but with some cases we'll look at it and come off with aspecific reserve. That's the bulk of it. Clearly, hopefully and that's why it'strue, most of the $1 billion loan growth are not classified loans. They aregood quality loans so they attract some, but relatively modest reserve and sothe bulk of the increase was due to changes in internal classifications ofloans.

As a result of those re-gradingsome of those loans got put on non-accrual. There is really the classification.Within that range I think our sentiment is that we certainly won't be droppinglower in the range. We are, I'll just say above the midpoint of that range andI think to the extent we apply judgment to what comes out of all thequantitative stuff that’s leaning out toward a little more conservatives ofthese days.

Manuel Ramirez - KBW

Okay. And finally one last thingto Harris probably, have you thought through kind of a worse case scenario forwhat the lost content of your entire residential construction work in thesethree markets might be?

Harris Simmons

Well we do some stress testing Isaid. Yeah, I mean we do model through what we think, higher level of defaultsand charge offs. It might look like and I think one of the things that we havebeen trying to point out is that the severity of the ultimate loss is mitigatedhugely by the what we believe is better structure and is coming into thiscycle, in terms of more specifically in terms of equity and deals. I think itsone of the reason you are seeing at least so far at this stage. We are notseeing a whole lot of lost content even though we are showing some loss. Someof that's -- there is a possibility of recovery down the road. So, I guess itwould surprise me if we saw the same kind of experience that we had, talkinggoing back to Jerry’s point about 1989 and a couple of years preceding it.

Doyle Arnold

None of our stress testing showsus getting anywhere close to that, where Jerry entered the picture.

Manuel Ramirez - KBW

Great. Well thank you so much foryour time.

Doyle Arnold

Yup.

Operator

Your next question comes from theline of Eric Wasserstrom with UBS. Please proceed.

Doyle Arnold

Hello Eric.

Eric Wasserstrom - UBS

Hi. How are you?

Doyle Arnold

Okay.

Eric Wasserstrom - UBS

Just a couple of points ofclarification please, and I know that this is all on the same topic. But it'sjust a little unclear to me given that the drivers that you have spoken aboutin terms what's compelling the MPA's, are basically unchanged from period toperiod from here. Why wouldn’t that just a build in MPA’s, that’s just as bigas the one we have seen in the past quarter? In other words like the landvalues are still stressed, right they are not less stressed than they were afew months ago?

Harris Simmons

Well I think, we said, we expectwe would see higher MPA’s in the first quarter. I think Doyle suggested that,seeing the same kind of rate of increase. We don’t think it's likely.

Eric Wasserstrom - UBS

Yes, I guess that’s what I amtrying to get to why is that?

Doyle Arnold

Why are they not going to doubleagain? I guess I am not sure why they would. I mean that would imply, I guessan escalating set of problems in no ability to workout of them. And now I guesswe don’t see that at this point and we don’t. We do see continuing growth inproblems, but not at the same percentage rate, I mean they won’t double andthen double again, knock on wood I guess. So, I am kind of at loss as to whyyou might think that they would from here.

The other thing, as Harrycommented was that I would make is that, particularly in Arizonabut also in California.I think I have said this probably before, as the summer wore on, it becameclearer that the selling season for the builders was not penning out very wellat all.

And this did prompt us to, kindof starting in July and then August, start going systematically back throughthese portfolios and saying, okay, all these guys are current and paying and inmany cases not even criticized or classified loans at this point. But, clearlyif the sales drag out their ability to generate new cash to service debtbecomes more strained. So, even if they are making cash payments today, what istheir ability to continue to do that in the face of a longer cycle?

That did prompt quite a lot ofre-gradings, that sort of change in view prompted quite a lot of re-gradings ofcredit in July and particularly August and September, as those reviews werecompleted and the associated reappraisals came in.

So, there maybe some element ofcatch-up or getting ahead of the game or how you, but a one time reassessmentof the environment and applying that environmental reassessment to the creditsin the portfolio, and seeing what fell out. So, I think you are seeing some ofthat reflected in rather significant run up in provision and non-accruals thisquarter.

Eric Wasserstrom - UBS

Okay. So, to the extend that theenvironment would get worse, you would say that, that will bring on someincremental credit pressure.

Doyle Arnold

Even if he's says or saying thisis probably going to be incremental pressure on non-accruals and so forth thatI am not sure that its going to take -- I don’t in fact at this point we don’tthink it is going to take the same level of provisions. Certainly, more than wehave been seeing over the last few years, which is abnormally low, but at leastin the next quarter you may not be and probably won’t be as high as thisquarter.

Eric Wasserstrom -UBS

Great. Thanks very much.

Harris Simmons

Yes.

Operator

The next question comes from line of Ken Usdin with Banc ofAmerica Securities.

Please proceed.

Ken Usdin - Banc of AmericaSecurities

Thanks, good afternoon.

Harris Simmons

Hi, Ken.

Ken Usdin - Banc of AmericaSecurities

One more question on just the loss rates, I guess justconnected to comments about the prior cycle, you may not go back to 1%, 2% lossrates, but certainly from 19 basis points it seems like we could still be atthe beginning parts of deterioration here. So, I am just wondering if you haveany idea -- kind of this time around, do you have any guide as for what youthink either, normalize your peak losses or looking like over the next year orso as far as charge-offs are concerned?

Doyle Arnold

Probably not as precisely as you would like it, it’s justhard to have that kind of crystal ball. We do think they will be up somewhatfrom, in fourth quarter over third quarter. And they would drift up from there.We don’t see the same anything like the same, I mean for one thing the lastreal-estate that cleared [debacle] that Jerry talked about. I mean, Harris has alludedthe industry and this company went into that cycle with much higher LTVs, atthe starting point then we did today. That part of the cycle was not justresidential, it was everything. It was commercial, office, strip malls,residential, everything went bad. So far at least, this is largely with someexceptions, as Harris noted, confined to residential sectors as theconstruction development industry. So may get up to those kind of the levels wehad a few years ago, but we don't see anything yet at least to drive this fact,abnormally high levels of loss.

Ken Usdin - Banc of AmericaSecurities

Okay. My second question just relates to the recent loangrowth you're putting on. I guess, if you could just give me some color onwhere the new growth is coming in especially, in theory? Is any of it relatedto residential builders and if you are in fact adding new loans residentialbuilders, can you give us some color on the characteristics of that given thatwhat is deteriorating?

Doyle Arnold

I think, quite I would start by saying you can't. Yes, someof it is residential. It's not like housing stocks have gone to zero or thatyou don't have here and there a new house being built. You have some customhome construction. You have some developers that actually have smaller infieldprojects that are selling well here and there, and it's a portfolio that turns.Generally speaking residential construction is going to be shrinking. But, inthat shrink -- you have to almost talk about net growth, and net-net I don'tthink you are seeing any new record. We are continuing to extend credit tocreditworthy builders.

Jerry Dent

And you have stock markets as well?

Doyle Arnold

Yeah. There is more residential construction and developmentgrowth in Texas,than and clearly there is anywhere else and a lot of that -- lot of it issignificant. I don’t have the breakdown, but a significant part of the growthyou are seeing is in commercial construction and development as opposed toresidential construction and development.

Ken Usdin - Banc of AmericaSecurities

Okay. And I will ask a question on capital. I know youslowed down the buyback this quarter because of the concerns about Lockhart'sand bringing assets on the balance sheet, but did you plan to get back in themarket to kind of more of the rates you had been doing previously and have youstarted that already or are you still kind of conscious because of Lockhart oryour balance sheet size or whatever the constraint might be?

Doyle Arnold

I think the best outlook is we'll probably do little if anybuybacks this quarter. Maybe if things continue to totally settle down late inthe quarter, we may come back, we do have some remaining authority. I think aslong as we are in an era of, kind of a dichotomy between very high loan growthand earnings under some pressure, the level of buybacks is not likely to getback to the 100 million or 125 million a quarter level, but may be more likehalf that next year is a best guess projection and may be not very much at allthis particular quarter.

Ken Usdin - Banc of AmericaSecurities

Okay. Thank you

Operator

The next question comes from the line of Todd Hagerman withCredit Suisse. Please proceed.

Todd Hagerman -Credit Suisse

Good afternoon everybody.

Doyle Arnold

Hi Todd.

Todd Hagerman -Credit Suisse

Just a couple of quick questions; just if I understandcorrectly, Doyle the systematic review that you referenced before, has thatbeen completed? Have you touched each part of the portfolio? Is there stillmore work to be done in that regard?

Harris Simmons

Well, listen, I'd say that it's an ongoing process. Jerry,and you may want to comment as well, but we have, as Doyle mentioned,specifically we are focused very carefully on residential, constructionportfolio and most notably in California and Arizona because those are the twolargest markets in which we have exposure now and the Nevada market is veryweak, but we have a reasonably little exposure there and we are looking at thatas well but its not likely to present the same kind of risk to us. And I thinkwe have been through that but it's something that continues, because it's not aone-time event. We are continuing to watch in real time what’s happening tothese larger costumers. Jerry anything you'd add to that?

Jerry Dent

The emphasis that I would like to place on your commentHarris is the fact that the review that Doyle was referring to is not aone-time event. It's an ongoing quarterly event that we do it as a deep dive soto speak into our large developers, both commercials as well as residential.And for example in the Arizona situation spend sometimes as much as two dayswith senior management going through their portfolio, loan-by-loan for thelarger builders and basically assessing how do we want to handle this buildergoing forward. Do we want to cut back? Do we want to exit the relationship ordo we want to build on the relationship? And in order to make that kind of adecision, we require the credit officers to go through a pretty extensiveanalysis to give us the information upon which those decisions could be made.

Harris Simmons

Specifically Todd though, to the extent that your questionwas, have we much to do half of the markets with [join this view] and we stillhave half of them to go and so is there another big shoe yet to drop? I thinkthe answer that question would be no, if that's really what you were reallydriving at.

Doyle Arnold

And I would agree with that.

Todd Hagerman -Credit Suisse

Okay that’s helpful and thenperhaps if you could share with us, have you recently had any kind of aregulatory exam?

Doyle Arnold

We always have regulatory exams.Every kind imaginable. But do you want to talk specifics?

Todd Hagerman - Credit Suisse

When was the last targeted examon your commercial real estate?

Harris Simmons

Well we've just finished up anexam in California.We've just finished up one in Colorado.We just finished up now lets see, Jerry I am trying to think here.

Jerry Dent

Actually Harris, the regulatorsare going through each of the banks, and I think the only bank that they havenot have been in within the last six months is Amegy. And in this case --

Arnold Doyle

No, I am just thinking about exitreviews or completed examination reports that I have seen kind of literally inthe last two weeks, so it is an on going process with the regulators as well.

Todd Hagerman - Credit Suisse

So you haven’t received the Arizona report yet?

Arnold Doyle

Jerry, do you recall when lastthe OCC was in there?

Harris Simmons

It's been in there in the lastsix months I believe.

Jerry Dent

Yes I have.

Todd Hagerman - Credit Suisse

Okay. And then just quickly, Imean just in terms of the non-performers that you recognize this quarter, canyou give us a sense if how much of this was originated by Zions? Was any ofthis part of any purchase portfolios by the way of either bank acquisition orotherwise? Or is any of it a portion related to any kind of participationeither local or national?

Harris Simmons

It really comes out of our core businesspretty much. I think this isn't out of any kind of acquired portfolio and it'snot an acquired portfolio, it's not a syndicated portfolio, it's probablypossible that there are one or two club deals in there, I don’t know thatspecifically.

Jerry Dent

There were a couple.

Harris Simmons

Okay. But it is our business.

Todd Hagerman - Credit Suisse

Okay. Pretty much going outalone.

Harris Simmons

Well or with one or at most twoother banks out in the West where we split deals, kind of each of us taking amajor piece of it.

Todd Hagerman - Credit Suisse

Yeah.

Harris Simmons

As opposed to a syndicate, wheresomebody takes the lead, takes all the juice and passes out the crumbs toeverybody else. This is where we are actively involved in originating andunderwriting the deal.

Jerry Dent

Most of these customers arecustomers that are in our market, we are dealing with them and at times ittakes two or three banks joining together to handle the project. So, we don'tget too much exposure to any one bank.

Todd Hagerman - Credit Suisse

Terrific. Thanks for thecomments.

Operator

Your next question comes from theline of Heather Wolf with Merrill Lynch. Please proceed.

Heather Wolf - Merrill Lynch

Hi, there. Just one quickquestion; Are you hearing anything from your regulators in terms of where theywould like to be or there's always a percentage of loan through to are theystarting to encourage you to the build that further than you already have?

Doyle Arnold

No. No to both.

Heather Wolf - Merrill Lynch

Okay, good. Thank you.

Operator

And your final question comesfrom the line of Joe Morford with RBC Capital Markets. Please proceed.

Joe Morford - RBC Capital Markets

Thanks. Good afternoon and prettymuch everything has been asked. I think the one last thing is, just end toperiod based investment portfolio was relatively flat this quarter. Have youbet down with the run-up, or there is still some room for that to come down andif so, at what pace?

Doyle Arnold

Yeah, that will continue toshrink. I mean we are not actually buying securities as you might guess withthe kind of loan growth that we have. So, we haven't actually been selling anysecurities, but as they pay down or they mature we have not been replacingthem.

Joe Morford - RBC Capital Markets

Okay.

Doyle Arnold

I think the only line there thatmay move materially is the money market, CP line which we hope will come backdown to under $100 million this quarter as we are able to replace in commercialpapers from Lockhart that we bought. So that line could shrink several $100million.

Joe Morford - RBC Capital Markets

Okay. That helps. Thanks Doyle.

Doyle Arnold

You bet.

Operator

At this time there are no furtherquestions. I would now like to turn the call back over to Mr. Doyle Arnold forclosing remarks.

Doyle Arnold

Well, thank you all for yourcareful attention to what clearly has been quarter of more than usual interest.Hopefully, we've clarified things for you. We think that we were cautious aboutsome things and optimistic about some others going forward, just to reiteratewe think loan growth is likely to remain pretty strong in the coming quarter asthe costs are likely not to come down as fast in response to the rate cut dueto external market conditions regardless of what the market growth looks like.There are some reasons to believe that the attrition in the DD&A mayattenuate as earnings credit rates come down and so forth.

Nonetheless, you are probably ata better pressure on the margin again this quarter, but again, there may besome picked up from a lower provision this quarter. And some of the purelyfinancial market stress related impacts, while it may not totally disappear,this quarter should begin to attenuate going forward.

So, with that, again I thank youall for your time and attention, and we will sign off and look forward totalking to you again at year-end.

Operator

Thank you for your participationin today’s conference. This concludes this presentation. You may nowdisconnect. Good day.

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