Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Steven Alexopoulos – JP Morgan
Steven Alexopoulos – JP Morgan
Could we start with your outlook for calling for a modest improvement in charge-off levels in the fourth quarter? If we break that into two areas; one being real estate construction loans, and two being C&I loans, is this outlook solely driven by expected improvement in the construction side and what is the outlook for the C&I book?
Dale Greene
Part of it clearly is related to the fact that the construction loan portfolio continues to perform fairly well as you could see by some of our slides. We’ve worked the resi way down as you can also see. If you look at the composition of the non-resi construction portfolio again the non-accruals and charge-offs there really its all resi. The income producing side continues to look fairly good. If you turn to C&I while as we said we think we’re going to continue to be challenged on the C&I front, particularly in Michigan and middle market, I think the stability we’ve seen there is likely to continue. Frankly, unless there are some significant economic issues I would expect that that would continue to be the case.
Steven Alexopoulos – JP Morgan
Is the bulk of the decline in the balance sheet now done? What’s your best guess in terms of the timeline it’ll take to realize the 284 Nim without the excess liquidity?
Beth Acton
Our expectation is that margin will improve in the fourth quarter because of a dissipation of a lot of the excess liquidity. I think I mentioned in the slides that we had $2.2 billion at September 30 on deposit with the Fed that was down from the average level of $3.5 billion during the quarter. We do have $1.8 billion of retail brokered CDs that mature in the fourth quarter that carry a 3.45% yield on them. We will soak up some of the excess liquidity with maturities in the quarter.
Part of it will be a function of how deposits go through the quarter as well as loans. Loan demand I think will continue to be weak. Our expectation is a lot of the excess liquidity will dissipate in the fourth quarter and you’ll see a nice bounce back in the margin.
Steven Alexopoulos – JP Morgan
That would take the balance sheet down by another $2 billion or so?
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