Question-and-Answer Session
Operator
(Operator Instructions) Your first call comes from Sameer Gokhale – Keefe, Bruyette & Woods.
Sameer Gokhale – Keefe, Bruyette & Woods
I had a question on the reserve to NPA ratio. If one calculates that number it looks like it was 29% down from 40% last quarter. Now the loans ratio increased to 1.63% from 1.48%. So I'm trying to figure out how one should think about the reserve to NPA ratio, the reserve coverage ratio. It looks like charge offs were increasing. NPA's were increasing. So should we expect the reserve to NPA ratio to also increase going forward? Just some color on that would be helpful.
Paul Sinsheimer
Our reserve is, as with I believe all financial institutions is the result of a formula that takes into consideration all of the issues you've mentioned. I don't know how much more clarity I can give you other than to say that we try to be as conservative as the formula will permit.
Sameer Gokhale – Keefe, Bruyette & Woods
I understand that historically you've talked about your reserving methodology and you look at the charge offs and if one were to look at the reserve ratio in absolute terms of 1.6% relative to your charge off ratio, it does seem more than adequate, but then again, one looks at the reserve to NPA ratio, it seems like that is coming down. So I think in a nutshell if maybe this might be the way of thinking about it which is that you seem to think you have adequate reserves, maybe over-reserve so you don't think the reserve to NPA ratio should be going up. It's fair for it to be coming down and possibly could go even further down in the future. Is that a reasonable thing to expect?
Paul Sinsheimer
I'm not the judgment of expectations, but keep in mind the following. We are a secured lender. We have collateral that supports our net outstanding's, and when accounts are put on a non-performing basis, they are written down to what we believe the assets are to secure the loan even though we might be getting paid on it and not recognizing any income and therefore, reducing our net investment.
Unlike maybe other lenders you're thinking of where delinquencies and non-accrual status is a direct un-dotted line to charge offs, that is not the case in our business.
- To read the full transcript on Seeking Alpha, click here »
