Question-and-Answer Session
Operator
(Operator Instructions). Your first question comes from the line of Ken Zerbe with Morgan Stanley.
Ken Zerbe – Morgan Stanley
On your NIM, I was hoping you could address the near-term outlook or your philosophy here. Obviously you have been shifting a little bit of the excess capital into the agency MBS. Is that something you’d want to do or would consider doing more of, and if you did, could you also pull that out in a timely manner if you found an acquisition, or does that preclude you?
Philip Sherringham
The answer is probably not. We’ve done a little bit of it, and we’re probably not willing at this point to do much more of it, for the reasons you outlined. We want to preserve flexibility, and also candidly given the rate environment, we don’t really think it’s very smart to load up on 4% or 3% longer term assets
Ken Zerbe – Morgan Stanley
Is there anything that would negatively impact your NIM going into the second quarter from here, on the security side or the excess capital side?
Philip Sherringham
Well, we think that the loan portfolio has taken most of the hit already, so candidly not a lot more.
Paul Burner
I’d say we are at or near bottom with regard to our NIM.
Ken Zerbe – Morgan Stanley
With the big rise in the resi mortgage NPLs in the quarter, was this an unusual item or is this something where it’s more ongoing? I live up in Connecticut. Housing values are falling, so we could see further and steady increase in NPLs and potentially credit losses in that portfolio.
Philip Sherringham
As we pointed out in our comments, I think the rise in NPLs is due to the unemployment situation basically. Housing values throughout our franchises have been reasonably stable particularly in the northern part of the franchise. Housing prices in Vermont, for instance, have been basically flat. You’re right of course in Connecticut particularly Fairfield County they have been declining, and you see is just the logical implication of the fact that we’re not on an island. That’s all I can. The reason we’re not uncomfortable with that at all as we pointed out is that of those $42 million of NPLs, 75-80% of them have current LTVs below 90%, so we’re not going to lose any money there, and on the other $10 million or so, take your pick. If we lost $3 million or so, I’d be surprised, so overall again, the loss content on that is minimal. Candidly until the economy recovers, I would expect NPLs as opposed to loss contents to keep increasing in that portfolio.
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