Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Matt Olney – Stephens, Inc.
Matt Olney – Stephens, Inc.
I think your prepared remarks answered a lot of my questions but I had a few here I want to go over. As far as the securities portfolio, it looked like there was some movement in to the held to maturity out of the available for sale along with some minor securities gains. What was the strategy behind some of those movements?
J. Thomas May
If I recall, probably six months ago we were moving towards 75% in our AFS and 25% in the HTM, that’s where we’ve been moving the last three or four years. What we have done is that we have decided with the interest rates as low as they are and certainly with the expectations that interest rates will move up over the next two years and looking at our high levels of liquidity that we don’t need those dollars in AFS and we know when the interest rates go up that that’s going to have a mark-to-market issue and if we’re all looking at capital growth or capital preservations it was just a strategic decision relative to that.
The liquidity actually makes that all possible. Like I said, we have been relatively successful in making those moves because we have, as you well know, a high level of short term maturities as well as a high level of cost.
Matt Olney – Stephens, Inc.
As far as the credit, it looked very good in Q2, the reserve rate shows it was relatively flat. I think you said in the past you don’t target the reserve to loans you look at reserve to NPLs. I think the bogie that you talked about before has been 150 on reserves to NPLs and we’re about there in 2Q. Is that still a fair bogie that you guys look at? And if so, what’s the outlook for the reserves going forward?
J. Thomas May
I think probably we’re running about a 126 or 127 right now and as our denominator has grown somewhat with the credit card operation then a lower level is more acceptable. But even more so, with this big increase in our student loan portfolio which is carrying about $70 million more than normal and that being a government guarantee then obviously we don’t think we would need that same ratio. As those loans are sold off in September, you’ll see a little bit more of a movement in that particular direction.
- To read the full transcript on Seeking Alpha, click here »
