Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Scott Valentin - Friedman, Billings, Ramsey & Co.
Scott Valentin - Friedman, Billings, Ramsey & Co.
You mentioned obviously the economy not cooperating, but how should we think about the level of loan loss reserves going forward? You mentioned about the percentages increasing because of the denominator effect and the seasoning of the portfolio, but yet the dollar amount could actually decrease. So I was curious, 6.8% is the reserve level today, in terms of projecting forward I would think maybe you see losses being higher than that going forward.
Daniel E. Berce
Obviously in our prepared remarks we indicated that we would see seasonally weaker performance in the December quarter and based on what we saw this quarter with weakness in economic conditions it would continue to pressure our consumer base, but again, the snapshot of the allowance is something we have to take every quarter based on the performance that quarter versus our expectations, what’s going on with the portfolio, what economic conditions have existed up to that point in time and so on.
Scott Valentin - Friedman, Billings, Ramsey & Co.
With regard to Arcadia, has there been any movement there in terms of them providing additional financial support?
Daniel E. Berce
No.
Operator
Your next question comes from Robert Napoli - Piper Jaffray.
Robert Napoli - Piper Jaffray
On the covenants regarding charge-off, it sounds like you’re going to be relatively close and you have this denominator effect in addition to weaker economic effects. Is there any allowance within those covenants for such items as a shrinking denominator?
Daniel E. Berce
The covenants, as written in the loan agreements, are fairly mechanical. There’s not exceptions for denominator effect, either way, growth or shrinkage.
Robert Napoli - Piper Jaffray
You are doing what you have to do. Essentially you are running the business in a semi-liquidation mode, just keeping the franchise as well positioned as you can, looking for some improvement in the economy and the capital markets. In that regard, what kind of conversations are you having regarding covenants, key covenants like that? You must be in contact, do you feel like you’re not going to hit those covenant, break those covenants at this point? It seems kind of risky.
Daniel E. Berce
We’re in discussions with our lenders literally every week because our major lenders are also the ones that monitor capital markets and securitization conditions for us. And we are totally transparent with our lenders in terms of where we stand and what our forecasts are. At this point, we don’t believe we are in any imminent danger of hitting that 8.5% covenant.
- To read the full transcript on Seeking Alpha, click here »
