Question-and-Answer Session
Operator
(Operator Instructions). And from KBW, we’ll go to Sameer Gokhale.
Sameer Gokhale - KBW
Hi. Thank you. Three questions. The first one was, on the net interest margin the sequential increase I think you’ve given some explanation for the -- for half of the growth, but I noticed that the Company had a higher liquidity portfolio as well, I think at the end of this quarter compared to last quarter, so that should have put downward pressure on the NIMs. I’m wondering if there was anything else that was flowing through there that might have resulted in the benefit of the net interest margin during the quarter.
The second question I had was, as it relates to maybe some changes in FAS 140, and maybe having to bring the receivables on balance sheet. How does that affect you as a Company from a capital perspective? I would love to get your thoughts there? And then, lastly, on the residual interest, I know, you were up by $4 million and I was wondering what specifically you changed? It seems like the charge-off assumption only went up. So was it the yield assumption that you also increased resulting in the increase in the residual interest? Thank you.
Phil Browne
Good morning, Sameer. It’s Phil. How are you? First of all, I’ll just take these in order. The net interest margin sequentially was up about 130 basis points, and we called out that some of that benefit was for cost of funds and the rest was on the yield side. The liquidity portfolio certainly has a dampening impact, but we have the run-off of prior balance transfer promotional pricing on the portfolio that we’ve talked about for a number of years having an impact on the net interest margin and just pricing for the risk of the portfolio appropriately impacting in a positive way the net interest margin. So there are the principal moving parts there, and it’s consistent with the moving parts we’ve talked about before, your point on liquidity position being well taken and appropriate.
On FAS 140, we’re keeping very close to what’s going on there. As you know, there isn’t an exposure draft outstanding yet. We’re going to have to take a look at what ultimately the accounting rules come out to, what proposed changes, what actually happens, and then there is other moving parts. What will capital requirements at the banks do? You may know that we’re not really subject to risk-based capital or other capital ratios at the parent company, so there are a lot of moving parts including how it would impact reserves. So I think we’ll have to wait and see more there what’s going to happen, but I wouldn’t say there is any definite impact on capital structure at this point based on what we know.
- To read the full transcript on Seeking Alpha, click here »
