Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from K.C. Ambrecht – Millennium Partners.
K.C. Ambrecht – Millennium Partners
While we applaud what management’s trying to do here and scrub the books, we still only get you getting about 35% of the way there, especially with the reserve to NPLs now under 80%. Can you speak to what the regulators are looking at your CRE book, whether they have been in there recently?
Following up on the coastal South Carolina market, it is our understanding that there’s been some condo projects that have been put on watch list but are not reflected in your NPAs and this is indicative of what our concerns are that you have $107 million residential condo book in Myrtle Beach, but you only have $3.7 million in NPAs. Seems like it’s off.
H. Lynn Harton
Well, first, to your first question, we’ve got a great relationship with our regulators. They’re well-informed. They view what we’ve done as being proactive and so I would say there are no issues at all on the regulatory side. In terms of watch loans being in non-performing, that would be normal. Watch loans are watch loans, non-performing are non-performing.
Hopefully the audience can see from our examples here that we are aggressive in putting loans on non-performing, as evidenced by the $77 million that arguably could have been left on performing, but again we knew the situation and we decided to record it the way it should be recorded.
K.C. Ambrecht – Millennium Partners
What percentage of CRE loans ex-completed income properties have some form of loan modification on it right now?
H. Lynn Harton
Well, that would be an impossible thing to come up with. Loan modifications are not necessarily negative in any way. We have built-in modifications. When projects perform, we may drop rates to show that performance. We may extend maturities to give additional time for stabilization of projects, which was part of the intended plan.
So, modifications would not be a negative in and of itself. Not to say that there couldn’t be some modifications in negative situations, but they are not correlated in the way that some people might think.
Operator
Your next question comes from Kevin Fitzsimmons - Sandler O’Neill.
Kevin Fitzsimmons - Sandler O’Neill
Lynn, I understand you can’t comment on specific loans, but can you give us a sense just on the in-flow to the watch list? Because it seems like a lot of these big problem loans were identified and they were on your watch list and then things deteriorated so quickly toward the end of the quarter that, obviously, you decided it was the right thing to do to move them to non-performing.
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