Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Bob Napoli – Piper Jaffray
Bob Napoli – Piper Jaffray
On the write down of deferred tax asset I think you actually wrote down more then what your 10-Q said you had. Is there anything left in deferred tax and what changed given that you’re closer to your inflection point? I heard your comment but what changed from last quarter to this quarter to cause the write off?
Don Cole
I think as we mentioned the last quarter, the way we reserve for these in the second quarter is after we de-read it we created several tax lend fees. Some of the tax lends had these trailing 12 quarter loss at the end of 6/30 and we reserved for those at that point in time. One of the other ones, which was our subsidiary that had a lot of our real estate business, was not reserved for because it had cumulative earnings. With the increase in reserves the charge-offs focused on real estate. That entity moved closer to this cumulative loss position or would be there in the short future. Based on that accounting literature we reserved for the rest of that.
The reason why the total increase is more then what we said we had at the 10-Q at last quarter is because of the loss we had this period increases the overall deferred tax asset and therefore the reserve is bigger. If you think about it, $100 million of losses would create, I’m just using rough number, another $40 million of deferred tax assets at a 40% tax rate and then you reserve for that amount. Basically that’s why that number is larger.
In terms of any left over deferred tax assets we have one sub that has about $40 million of deferred tax assets that are unreserved for as of September 30.
Bob Napoli – Piper Jaffray
You expect that to fourth quarter, first quarter probably be reserved for.
Don Cole
In our current forecast with that entity it’s actually one of our securitizations that has low op ex and a very low cost of funds. We expect that deferred tax asset not to require a reserve.
John Delaney
It’s somewhat mechanical is another way to think about it. When you hit a trigger it happens.
Bob Napoli – Piper Jaffray
Based upon this chart you only have, according to your analysis, the worst case scenario is another $440 million of provisions against the legacy portfolio. Would you expect that to be pretty front end loaded if you look at that over four quarters you would expect the biggest chunks of that in fourth and first quarter of next year?
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