Question-and-Answer Session
Operator
Your first question comes from Brett Rabatin - FTN Midwest.
Brett Rabatin - FTN Midwest
Good morning. Bob, I asked last quarter about the ?suspicious? activity in the two-step portfolio and you weren’t ready to address that. You’ve obviously looked at the portfolio and identified some level, but you said it wasn’t material. Can you not give us some sense of a dollar amount or what your investigation uncovered there?
Robert Sznewajs
We are still in the process of doing it and I really need to limit my comments to what I previously said. But as I mentioned, what we have uncovered so far does not have any material impact on the provision that we have for the quarter.
Brett Rabatin - FTN Midwest
Does not have a material impact?
Robert Sznewajs
Does not.
Brett Rabatin - FTN Midwest
I want make sure I understood, in part of the prepared comments and the press release you guys indicated other than the two-step portfolio you weren’t really seeing any stress in the loan portfolio. I’m struggling; it sounds like the C&I portfolio is responsible for the increase in the classified or watch list loans and so I’m not sure if I understand what you are seeing in terms of the stress in the portfolio aside from two-step?
Hadley Robbins
The increase in the watch category is split about 50% between C&I and residential/commercial development. The level overall we believe is still low relative to historic levels. There is an increase, however, relative to the scale and our history it is within a comfortable range for us.
Brett Rabatin - FTN Midwest
I know it’s still hard to figure out but I’m curious in hearing about the process of the $30 million being an appropriate provision for the fourth quarter, given what you know today. It seems to me that given the two-step average size loan of $280,000 and the level of FICO scores there, there is obviously a lot more to that portfolio then some people can’t get a jumbo loan. I mean those loans aren’t big enough, so to speak, for that being the material issue. I mean obviously there is a lot of other stuff going on in that portfolio. I’m struggling with why we might not see a huge provision in the first quarter as well given continued deterioration in the housing market.
Robert Sznewajs
The approach we took, as I referenced in my comments, was to take a look at the trajectory of the payment patterns against the portfolio, watching the delinquency trends, looking at the NPA trends, and getting a sense of what we believe the default patterns may be for the portfolio at that point in time.
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