Q3 2020 Earnings Call
Ladies and gentlemen, thank you for standing bar.
Our presentation will begin momentarily, ladies and gentlemen, thank you for standing by our presentation well begin momentarily. Thank.
Thank you for your patience.
[music].
Greetings.
And welcome to the Axis financial third quarter 2020 earnings results Conference call.
At this time all participants are in a listen only mode. A question answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. Johnny line, Vice President of corporate development and Investor Relations. Please go ahead Sir.
Thank you and good afternoon, everyone.
Thanks for joining us for Astros financial Inc.'s third quarter financial results Conference call with me today are the company's President and Chief Executive Officer, Greg Air, France, and Executive Vice President and Chief Financial Officer, Andy Nicoletti, Greg do you always even comment on our financial and operational results for the third quarter and they will be available to answer your question.
After the prepared remarks.
Before we begin I would like to remain mindless <unk> prepared remarks made on this call may contain forward looking statements that are subject to risks and uncertainties that management may make additional <unk> response to your questions.
Therefore, the company claims the protection from the Safe Harbor for forward looking statements contained in the private Securities Litigation Reform Act 1995, [laughter] forward looking statements related to the business access financial Inc. and its subsidiaries can be identified by common use for liking terminology no statements involve risks uncertainties.
Including all business related risks that are.
More detailed in the company's filings on form 10-K.
10-Q, an 8-K, what do you have teaching.
This call is being webcast and they'll be an audio replay available for 30 days in the Investor Relations section of the company's website located at Www actually was financial Dot com.
All did you tell us up its call were provided on the conference call announcement and in the press release today.
This time I like to turn the call over to Greg.
We will provide opening remarks.
Thank you Johnny Good afternoon, everyone and thank you for joining us I'd like to welcome everyone to access financials conference call for the third quarter fiscal 2020 ended March 31st 2020. Thank you for your interest in access Fastenal and access back.
Well, that's one quarter with annualized double digit loan growth stable net interest margins strong fee income and very low credit losses.
I don't go through the typical run down over the quarter I will focus my discussion on three topics credit capital and near term business outlook.
We have a consistent track record of maintaining low credit losses through multiple economic cycles, given our conservative underwriting guidelines senior structures in our commercial lines that allows us to collateralize nature of our loan book.
During the great financial crisis, our peak annual net charge offs for loans, we originated was less than one basis point for single family in multifamily market does the vast majority of our credit losses incurred between 2008 2012 were for recreational vehicle loans that were just continued in 2000 so [noise].
We're confident that we'll be able to whether the current economic downturn for several reasons. The vast majority of our loan portfolio is collateralized by hard assets, a conservative attachment points.
Oh family mortgage multifamily and commercial real estate markets, just have low loan to values, let alone. The costs are located in markets with historically strong demand.
The vast majority of our larger real estate exposures are structurally protected by relationships with large funds that are structurally subordinated to us.
Our direct exposure to unsecured consumer loans represents approximately 50 basis points of our loan portfolio.
We have no exposure to credit cards, and approximately $3 million of home equity lines.
Although some of our asset that facilities and a real estate loan or two are technically classified as shared national credits because of the nature of the syndication which were apart we do not have exposure to cash flow base shared national credits.
We lend exclusively to prime and Super Prime borrowers across each of our consumer lending categories auto single family mortgages on personal unsecured lending.
We have minimal credit exposure to airlines malls casinos retailers theme parks hotels oil and gas restaurants, and small businesses [noise].
We do not have mezzanine or subordinated Chaucer, so securities and our portfolio.
We do not have collateralized loans in our portfolio that are junior and rights to other loans other than the previously mentioned $3 million at home equity lines. If we take additional collateral in the second position. It isn't an abundance of caution and supported by a first lien on other collateral.
The only 95% of our loans outstanding at March 31st 2020 were collateralized by hard assets with a loan to value ratio in the fifties, including 9.1 billion of real estate assets.
787 million, primarily consumer receivables.
Single family mortgage is representing 40% of our total loan portfolio had a weighted average loan to value ratio of 57% at the end of March 31st 2020 quarter, 60% of our single family mortgage loans have loan to value ratios at or below 60%, 33% have loan to value ratios between 61 70 per se.
6% have loan to value ratios between 71 of the 80 and less than two basis points or 860000 of combine balances have greater than 80% loan to values.
We haven't established track record a strong credit performance and our jumbo single family mortgage lending book with lifetime credit losses of originated single family loans with less than three basis points of loans originated.
Well, we did not foresee a sharp decline at home prices nationwide on par with levels. We experienced a 2007 in 2008 National crisis, we believe that any potential losses on our single family real estate secured loan book will be manageable, even on a sharp economic and housing downturn, given the desirability and low attachment points.
Our underlying collateral.
Multifamily loans, representing 21% of our total loan portfolio at 331 2020.
How did the average loan to value ratio of 51%.
Lifetime credit losses on our originated multifamily portfolio are less than one basis point of loans originated.
Over the 18 years, we have originated multifamily lots.
At the end of March 31st 2020 corridor, 44% of our multi family mortgages have loan to value ratios at or below 55% loan to value, 35% have loved to die ratios between 50, 665, 20% have loan to value ratios between 66, and 75 and less than one person greater than 70.
Five London.
The average debt service cover ratio of our multifamily loans was 150 was 1.5 at 331 20 Twond.
Our small balance commercial real estate long portfolio 410 million, representing approximately 4% of our total loans at 331, 2020 had a weighted average loan to value ratio of 52%.
Under the March 2020 quarter, 49% of our small balance commercial real estate loans have loan to value ratios at or below 50%, 23% have loved to valuations between 50, 160%, 23% have loan to value ratios between 60, 170%, 4% have loan to value ratios between 71 and stuff.
When you, 5% at around 1% between 76 and 80% loan to value.
Those higher loan to value loans.
Our uniquely positioned one of the largest loan to values. What is the largest lives a secured by a state level guarantee under a special program at all loans at that level have strong personal guarantors in our small balance commercial real estate portfolio, we had approximately 80% $80 million applause to hotel.
Sales and resorts, representing less than 1% of our total outstanding wells, we have an active dialogue with each of our she or he borrowers and the weighted average loan to value of this book is approximately 52%, including 49% loan to value for the hotel exposures. The average debt service coverage of our small balance commercial.
Real estate loan book is 1.69 at 331 2020.
Our mortgage warehouse loan book.
With March 31st balances, a 380 million is secured by single family mortgages that can be sold it if the borrowers on able to turn the book, we temporarily suspended accepting non agency mortgages other than those that we intend to fund as collateral for our mortgage warehouse facilities in mid March due to dislocations or not.
Secondary market for non agency mortgages [noise].
As of April 28, 2020, we had approximately 88 million an outstanding non agency exposure on our mortgage warehouse book or 19% of total current balances of six up 462 million.
Our initial advance rate on non agency loans varied between 19, 95% of the note amount and we typically curtail an additional 15% on day 45.
Our weighted average exposure on a loan to value basis on an 87 million a non agency loan balances outstanding distributed among the different warehouse clients was 58% our borrowers have been actively reducing their non agency exposure and we have ongoing discussions to sell their remaining non agency loans and reduce their draw.
On our lives we did not currently project losses from any non agency exposure on our warehouse lending book, particularly given that the current market execution of trades is higher than our adjusted in curtailed advance rates.
Our warehouse clients are benefiting from elevated levels of refinancing activity and higher margins across the industry due to capacity constraints.
Our commercial loan book, including lender finance and commercial specialty real estate is comprised of loans and lines of credit secured by single family multifamily commercial real estate planning consumer receivables.
The lender finance book is comprised of real estate and non real estate transactions.
The weighted average advance rate on the real estate lender Finance book is 27.2% wouldn't know transaction with an advance rate greater than 50%.
The non real estate lender finance book back primarily by consumer loans is approximately $732 million with an average advance rate at 27% of the outstanding receivable balances. These structures generally require rapid pay downs any event, if any significant collateral deterioration in the receivables.
I also pay down rapidly in the event originations declined.
We have so all in absolute discretion to approve or deny draws on all of our real estate secured lender finance and mortgage warehouse lines.
The weighted average loan to cost on our commercial specialty real estate portfolio is 44% with strong junior partner supporting the capital structure, we hold the senior position in all of our lender finance a commercial specialty real estate loans and every deal has significant capital support from borrowers endorse sponsors we model.
The performance of the underlying collateral housing the bankruptcy remote special purpose vehicle, allowing us to identify credit deterioration and takes what swift action to protect our principal and interest.
In our commercial Brechin construction portfolios, we work with experienced developers and well capitalized sponsors such areas fortress.
Madison and Blackstone the projects are located and the gateway cities, such as Los Angeles, New York, San Diego on debt.
The average loan size is approximately $18 million. The average remaining term is 14 month and the average loan to cost is 44%.
Yeah, no direct credit exposure the airlines casinos theme parks oil and gas exploration companies retailers are movie theaters.
Our equipment leasing portfolio represents our entire exposure to the oil and gas aircraft in restaurants factor I.
In our equipment leasing portfolio, we had approximately $28 million of leases to for borrowers who provide services to the oil and gas and mining industries, a 13 million dollar leased to the largest provider of emergency medical transportation services in the United States backed by a fleet of helicopters and $5 million of leases to.
Large fast casual restaurant, operator that finances countertop kiosks, the average debt service coverage ratio for the six equipment leases mentioned above was 2.87 times at the end of the third quarter all of the above mentioned credits from current as of March 31st 2020, although some of our leases to companies.
Have cash flow based leverage on their balance sheet, we have no cash flow based leverage loans.
We had approximately 263 million of hotel at 97 million of retail mess next to use exposure in our commercial specialty real estate loan portfolio.
Spending, 2.5% unless and 1% of our total loans outstanding at March 31st 2020, respectively.
The vast majority of hotel loans or a b notes that we hold the senior position and with strong funds when a strong funded a junior possession, the only to direct hotel deals we have a one in Manhattan at a 55% loan to value at origination with 97% ownership by the son of a Saudi billionaire.
Yeah. There is a also in the New York area for $12.5 million with a full guarantee from an individual that net worth of over $50 million.
Tell properties are completed and all the tells her current and their loan payments the average loan to value of the hotel in retail commercial specialty real estate loans were 48%.
Our non real estate consumer lending is comprised of approximately 312 million of auto loans 55 million of personal unsecured loans at 56 million innovation, our block refund advance slots, we saw auto loans, primarily from dealers located in 10 states and lender Prime borrowers with an average FICO score of seven seven.
The two we fully underwrite in service every auto loan we hold on our balance sheet and the portfolio continues to perform in line with expectations. We have managed to credit risk of our personal unsecured loan book by focusing on prime borrowers with an average FICO score of 765 at an average loan size the $20000.
Given the rapid deterioration in the economy and the rising unemployment nationwide, we have temporarily suspended originations of new personal unsecured loans. We originated approximately 1.36 billion a refund advance loans this quarter up 17% from the 1.16 billion and the three months ended March 31st 20.
Hey.
We have received payments for all but 56 million of the principal balances for our is as of March 31st 2020, a pacing that as far ahead of the disclose pacing of others in the industry.
Given the 90 day extension in the federal tax filing deadline by the IRS, we anticipate a more extended repayment timeframe for already this year compared to the prior year.
Cannot guarantee this extended pace will result in no incremental credit losses.
And our securities business, we ended the quarter with approximately 159 million of margin loans down 67 million from December 31st 2019.
Despite record price volatility in the stock market over the past few months, we successfully managed our markets a lot more margin lending business with no incurred losses.
Our overall credit risk management approach is to engage in frequent communications with individual borrowers and lending partners and determine the optimal set of actions by each individual credit based on borrower sponsor project cash flow and liquidity.
Business unit leaders have been working with our Chief credit officer, and his underwriting and portfolio management teams to evaluate monitor clients that have requested forbearance and or become delinquent in their loan payments.
We have maintained an elevated cadence of communications with clients through email from another channels over the past several weeks and the tenor of the conversations have been productive.
Other than as directed by Fannie and Freddie with respect to agency mortgages that we service and whole no. Other economic interest we have not and will not make extended blanket loan forbearances or modifications on real estate loans, but we'll work with borrowers on a case by case basis on deferral requests, while we help them manage through the negative impact from Kogan 19.
We believe this approach is more appropriate for our borrowers given the unique circumstance and uncertainties surrounding the near to intermediate term outlook on the economy and various government restrictions have been implemented.
For single and multifamily real estate loans, we have not yet granted any deferrals or long term modifications, but rather provided one or two months forbearances to allow us to more time to review individual circumstances.
With respect to borrowers who does not make their payment for April 1st which would have been laid on April 15th meaning that they would be currently about two weeks later in the single family multifamily and small balance commercial real estate groups.
The number of those borrowers who have requested assistance that have greater than 65% loan to value ratios at origination represents 2.6% of the total single family portfolio and 76 basis points of the combined multi family and small balance commercial real estate portfolios. Since many borrowers have been told by some banks had a simple phone call.
Close enough to obtain relatively long term deferrals their customers, who are calling expecting to be granted long term assistance for no legitimate reasons.
With respect to the auto lending side deferral requests for granted for 8.7% of the portfolio and the unsecured lending side about 4.7% of the book Everquest Deferrals. These are currently short term deferrals with 90% no more than two months in around 10% receiving three month to froze.
I still developing how we will formulate our policies for each asset class in that regard given each asset class has its own dynamic for example, given the level of protective equity as was the high default rate on our notes, an 18% and our multifamily and small balance real estate book, we believe our loans will be saleable quickly to opportunities.
They buyers if we have borrowers who simply wish to utilize loan deferrals as a temporary liquidity buffer rather than ensuring they prioritize their payment on their first mortgage.
Provisions for loan losses were approximately $28.5 million in the corner ended March 31st 20, 29.5 million compared to the same period a year ago.
Excluding loan loss provisions for HR block related loans in both periods. Our loan loss provision was 10.8 million or 8 million crop or up 8 million from 2.8 million in the prior quarter. The 69.4 million of loan loss reserves XR raised for the quarter ended March 31st 2020 representative products.
Only a 105.7% of total nonperforming assets and 22.3 times, our annualized net charge offs.
Proximately 4.2 million of a $10.8 million loan loss provision XR raise in the quarter ended March 31st 2020 was attributable to loan growth and 6.6 million was attributed to the rapid and sharp deterioration in the economy.
Our provisions for the March quarter, we're not impacted by Cecil because our Cecil adoption will occur by June 1st 2020.
Andy will provide more detail with respect to how we're thinking about the seasonal impact in his prepared remarks, one of the benefits of later implementation for Cecil is that we'll be able to incorporate more updated information in our projections.
We are encouraged by the speed and size of various fiscal and monetary actions taken by the Federal Reserve Treasury and other government agencies and believe that some of these actions will help mitigate a negative ramifications of cobot 19 on our borrowers.
We participated in the Sps Paycheck protection program originating approximately 85 million of loans for 149 existing and new clients. Even though we were an approved sta lender. We had not previously been an originator of Sta seven eight loans.
Technology credit then deposit team work quickly to stand up along portal and streamline a set of prophecies to quickly open deposit accounts and underwrite and fund.
PPP loans in addition to providing much needed capital for a subset of our borrowers participation in the and the and the P.P. program also helped generate incremental relationships and deposits for our small business in commercial banking groups.
Our credit quality remains good annualized net charge offs to average loans and leases was three basis points this quarter compared to four basis points in the corresponding period last year.
Non performing assets. The total asset ratio was 54 basis points for the quarter ended March 31st 2020 flat from December 31st 29 team.
You already have our nonperforming assets are comprised of single family and multifamily loans with low loan to values, we remain well reserve with our allowance for loan loss, representing 150.7% coverage of our nonperforming loans and leases at March 31st 2020.
We continue to generate strong returns, let's return on average common shareholders' equity of 18.65% and 15.34% in a three month and nine months ended March 31st 2020, respectively.
Our efficiency ratio for the banking business segment was 33.2% for the quarter ended March 31st 2020 data over 200 basis points from 35.26% in a year ago.
Our capital ratios remained strong at 8.72% at the bank at 8.55% at the holding company. Despite a higher provision for loan loss reserves and buying back approximately $39 million of common stock at an average price of $19.74 per share this quarter, our tangible common equity to total asset ratio remains healthy at.
0.66% at March 31st 2020.
Given that we believe there'll be tighter credit standards coming out of these times, our top priority for capital will be to fund growth in our existing businesses. Although we had discussed in previous calls starting to pay a modest dividend given the uncertainty surrounding the economy. The global pandemic an impact on various government actions on consumer on corporate behavior, We've decided.
Not to pay a dividend until we get better clarity on the depth and duration of economic and business disruptions, we have a healthy liquidity position and diverse set of funding.
Our balance sheet deposits increased by 10.5% year over year, what checking and savings deposits increasing by 16.4%.
Our commercial Cas and Treasury management small business banking specialty deposits continued to show positive growth.
Average noninterest bearing deposits increased by almost 1 billion year over year.
Fire axles fishery services group.
Client cash deposits from Fs and access Securities currently held the other banks was approximately 455 million at 331 2020.
We have the ability to bring back a good portion of our off balance sheet deposits. If it's economically advantageous to do so.
We also have access to 3.8 billion of FHLB borrowing 3 billion, an excess of the 771 million we had outstanding at the end of the third quarter. Furthermore, we have 1.4 billion of liquidity available at the federal reserve discount window as of March 31st 2020.
With many banks and centex, reducing rates on their consumer online savings and money market deposit products, we have more flexibility to raise consumer online deposits at relatively lower all in costs compared to three and six months ago.
We have a relatively stable outlook with respect to loan growth net interest margin and jumbo single family mortgage as many banks and non banks have pulled back on the aggressive lending terms and conditions. They offered in the prior 12 18 months pricing on new Jumbo mortgages has tightened due to dislocation in the secondary market or non agency mortgages and liquidity can.
Strains for most non bank lenders the purchase market is weekend due to the government stay at home and forbearance measures, we have tightened our credit underwriting standards with respect to all of our lending products. We continue to see demand for our lending products at our tightened credit standards.
A multifamily and small balance your economics vary by geographic market and property type.
Grant payments and our primary markets, where we land held up relatively well in March and April the stimulus checks forbearance programs federal subsidies on unemployment insurance and the SPD Paycheck protection program should provide short term cash flow for renters and bars are unable to work voluntarily or involuntarily.
Supply constraints on housing.
Relatively diverse nature of local economies on the west coast make multifamily and commercial real estate Mark as attractive in the medium to long term.
Quickly economies are able to resume normal levels or production on productivity will dictate the short term dynamics and these two loan categories. Also we did not know whether governmental intervention in rent collection eviction foreclosure processes will impact our willingness to continue the land or impact our ability to manage our loan book.
And our two largest cnine lending categories lender finance and commercial specialty real estate, we continue to evaluate new opportunities, but are pivoting to leverage real estate assets. It even more conservative advance rates than previous given the current environment, we will be able to deploy capital senior to our funding partners, where we can obtain better economics.
Sounds and obtaining higher margins of safety and better structures.
In respect to auto on personal unsecured lending we have temporarily suspended originations for all the prime borrowers with a minimum five 720 and significantly tightened credit standards until we have more information about when employees will be allowed to go back to work and what restrictions on commerce and travel may remain in place.
Before we love to grow either of these consumer lending portfolios.
We're actively originating a funding PPP loans for existing and new access customers. These forgivable loans, which are 100% guaranteed by the S.P.A. and carriers are a percent risk weighting will remain on our books until we sell them back to the SP under utilized the federal reserve as funding facility through April 27th we have originated and funded approximately 85 million of ERP.
Lawns and have a backlog of 38 million.
Various stages of processing.
We will receive a onetime processing fee between one of 5% of the principal amount of PPP loans. We originated based on the size of each loan we're delighted to be able to help small businesses nationwide stay open and pay their employees Chinese challenging times.
We continue to maintain stable net interest margins despite significant flattening of the yield curve and is shifting competitive dynamics across various lending and deposit categories.
Including the impact from HR block related loans and deposits our net interest margin for the banking business was 3.85% compared to 3.87% in the prior quarter and 3.9% in the third quarter 29 team.
On the asset side, approximately 61% of out loans are five one arm. So single family in multifamily market just as the underlying collateral.
With a slowdown in prepay activity instability in new jumbo mortgage and multifamily loan yields we expect to maintain overall yields on our jumbo single family mortgage loan book at our multifamily loan book the majority of our small balance commercial real estate portfolio, which represents another 4% of our loan balances at 330 on 2020, our term loans with fixed interest rates.
Staggered prepayment penalties through the first five years with a lot.
Approximately 5% of our multifamily MCR, along CRB loan portfolios currently above their floor rates with competitors pulling back from small balance CRD, we see opportunities to improve all loan yield while maintaining low loan to values and high debt service coverage.
I see an island book, our asset base lender finance commercial specialty real estate portfolios have rates that adjusts to the index of the 3.3 billion of lender finance commercial specialty real estate loans, approximately 70% are at their floor rates, our equipment lending leasing portfolio, which account for the remaining a 162 million.
Sienna alone outstanding is comprised of fixed rate loans and leases.
On the funding side, we are well positioned given the diversity of our consumer and commercial businesses and the Optionality of our security based deposits consumer deposits, representing approximately 55% of our total deposits. At 331 2020 is comprised of consumer direct checking savings money market and noninterest bearing prepaid.
Accounts, excluding consumer timed deposits, our consumer checking savings and money market deposit balances increased by 960 million from 12, 31, 2019 with strong growth in our noninterest bearing prepaid and other interest bearing demand deposit balances.
We reduced our high yield savings in money market deposit rates in March following the feds actions, we prepaid 200 million or brokered Cds with an average cost of funds the to 71, and we issued a similar amount at 1.78 in the third quarter.
Average noninterest bearing deposits was 2.6 billion on a quarter ended March 31st 2020 by almost 1 billion compared to the same period a year ago, we're making good progress in our specialty commercial and Treasury management businesses and our involvement with the FDA ERP program will provide additional momentum for small business and commercial deposits access.
As clearing benefited from a flight to safety this quarter with ending deposits increasing by approximately 16% linked quarter to 413 million. These client deposits held in approximately 90000 individual brokerage accounts provide a stable low cost source of funding we have chosen to keep the majority of the 413 million another banks, earning interesting.
For the Securities business, we have the ability to bring these deposits back to our bank on relatively short notice to fund our loan growth with the impact of consolidation in this industry. We continue to be bullish on the clearing company as long term outlook overall, we feel good about our ability to maintain an annual net interest margin towards the lower end of our 3.8 to 4.0 target.
With a long growth likely to be slowing in the short term and some additional downward pricing flexibility on some of our deposit categories. We look to hold margins relatively stable.
Now I'll turn the call over to Andy will provide additional details on our results.
Thanks, Greg.
First I wanted to note that in addition to our press release, our 10-Q was filed with the FCC data is available online through Edgar worked through our website and access financial Dot com.
Second I will provide brief comments on several topics. Please refer to our press release or 10-Q four additional details.
So this net income for the third quarter ended March 31 20.
20 was 56.
1 million up 44.4% year over year and up 35.7 per cent compared to our last quarter ended December 31 2019.
The increase in net income this quarter compared to the last quarter ended December 31, 2018 is primarily due to growth in the loan portfolio of 2.3% and additional income from seasonal income tax products, partially offset by her at higher gold wants.
Provisions and higher operating expenses.
Growth in net income year over year is primarily due to loan portfolio growth of 14%.
<unk> increased mortgage banking revenue and lower operating expenses.
Operating expenses for Q3 of 2019 includes a one time charge at 15.3 million for uncollected receivables in our securities business.
Increased quarterly net income was the result of operating expense efficiency improvement both year over year and on a linked quarter basis. The efficiency ratio was 39.85% for the quarter ended March 31, 2020, and an improvement year over year of 200.
92 basis points, when compared to the 42.77% efficiency ratio calculate without the 15.3 million onetime charge recognized in expense last year.
For the quarter ended December 31, 2019 deficiency ratio was 51.66% improving at 39.85% for the quarter ended March 31, 2020, primarily due to income from seasonal tax products.
Mortgage banking income for the quarter ended March 31, 2020 was $3 million from 0.4 million last year and up from 2.2 million for the last quarter ended December 31, 2019th.
The 3 million dollar mortgage banking income for this quarter was net of a write down of the fair value of our mortgage servicing rights of 1.7 million generally due to decline in long term us treasury interest rates.
I will feature declines it long term us treasury rates are possible given the low level of interest rates today additional Lord large declines in the value of our mortgage servicing rights are not likely.
For the third quarter fiscal 2020, non interest expense was 71.8 million up 4.8 million compared to our last quarter ended December 31 2018.
Salaries and related costs increased 2.3 million prime primarily due to increased payroll taxes for one k. matching at a small staffing increase.
FDIC and regulatory fees increased 1 million due to a small bake assessment credit that had been received.
From the FDIC in the prior quarter.
Also general and administrative expenses increased 2 million of which 1.5 million of that increase related to processing costs associated with the seasonal tax products.
As Greg noted earlier, we did not adopt Cecil this quarter ended March 31, 2020, and therefore, we recorded our loan loss provisions this quarter using the incurred loss Smith.
The fans fees original timetable for adoption for public companies with accounting year ends at June 30 was on or before so why first its 2020.
We currently expect to meet that deadline, rather then extend the the adoption date as recently permitted in the cares Act in response to cope with 19.
To prepare for Cecil implementation, we accreted life of loan loss models based upon our portfolio characteristics using industry forecasted macroeconomic data. These models produce low level profit the probabilities of default and loss given default.
Estimate loss over the entire life of the low.
We are currently making modifications to these models based upon recommendations of our third party consultants.
Upon the adoption of C., so we expecting materially increase in our allowance for credit losses, and likely increases in future loss provisions the amount of the increase will depend in part on changes to forecasted and macroeconomic inputs, resulting from Covidien 18.
Pandemic and its future impact upon the economy.
For regulatory capital purposes, when we adopt Cecil we expect to elect the two year delay and the five year total transition period to minimize the impact of the increase in our allowance for credit losses on our capital ratios with that I'll turn the.
The call back over to John Eli.
Thanks, Andy.
Operator, we're ready to take question.
Thank you.
At this time.
I'd be question and answer session. If you like asking questions. Please press star one on telephone keypad.
Confirmation code you indicate your line is into question Q, you made progress dark if you'd like to remove your question from Q report just use the speaker equipment. It may be necessary to pick up your handset before pressing the star Keith one moment, please while we poll for questions.
Your first question comes from line of Michael Perito with KBW. Please proceed with your question.
Hey, good afternoon, guys I'm glad to hear it seems like everyone.
Well under the circumstances, thanks for taking my question.
I wanted.
Online.
The kind of the poultry.
Spot that you guys laid out in your prepared remarks.
Sure.
It seems like you walked through the quarter and based on the numbers you laid out.
There was much deferral activity and I know you guys said, you're kind of working through with your it sounds like <unk> in the near term but.
Let me give us a little bit more kind of context around you know what the decision making process kind of looks like in where you ultimately expected the deferral rate to kinda.
I'll move to be called the applications like you've received thus far.
So as of the ended the quarter, there really wasn't much of anything.
At all.
Subsequent to that there have been requests coming and I gave the numbers for the for the auto and and unsecured lending book and those are current numbers.
With respect to the the real estate loan portfolio on the on the cross sell side with respect to the transactions we work with sponsors on essentially theres been no.
No requests that are simply deferral oriented our request.
With respect to things to the extent that someone wants to it in a normal course extend alone or that sort of thing they may be paying something down or working with us.
That's it to do that but nothing really substantive there either.
As a single and multifamily side.
There's been there's been I request a in the agency book that we are following government guidelines on and then for the remainder shares.
Of the loans with respect to this where I'm not really doing some very maybe very short term deferrals and then we're going to go back and creative process to really look at each underlying asset and decide exactly what to do so I think in most cases you know these are very desirable properties.
They're low loan to values, we expect people in general.
You know obviously the each one is kind of habits on dynamic, but we expect them to be working hard to to make their payments doesn't mean, we're not going to defer or grass some modifications or deferrals, we just haven't.
Really you know had a lot of time right now to to to assess the individual circumstances of the borrowers and so that's.
Well, we intend to do and the level that we actually do this assessment is gonna be.
Dependent upon.
The the type of requests that they have.
No. That's helpful. So I mean, it sounds like there is some expectation from you guys. I said, the deferral will will increase but it doesn't seem like you say anything really.
Very significant at this point I guess, just broad terms around that.
Yes look I think that.
It's it's certainly hard to tell because at times you get the the first well we did it first let's just say that we would grant somebody the ability to skip one payment and a lot of the folks just said why thought I was going to get six months for nothing and we told them know when they just paid so if its a.
Little bit difficult to tell because as you're kind of working through this it's really too early to tell because you don't know how much of this is simply opportunistic behavior and how much of it is a legitimate disruption from a business that will come back right. I mean, obviously that the intellectual framework for this is that.
Deferring some money was no chance of coming back is probably not that useful differing somebody who you want to maintain as a customer who is simply suffering from some temporary impact.
It makes more sense, so and assessment as required in order to understand how that works and as I said each individual asset class has its own dynamic and that dynamic might be influenced by the nature of government rules with respect to actually execution of remedies with respect to less.
Anders So for example, if you're out of Europe about multifamily borrower and you just decide to ask for a blanket set of of long term deferrals. There's a lot of people who want those properties and a lot of people are willing to buy notes that have 18% default interest so that might not be the right approach may be you all go.
Get a second lien on that property or something and you know will help facilitate that for you. So that you have you know someone that has an interest in that property and can help you through that but those are the type of things that are just it's just too early right now I mean really at what this is very recent as of March 30, Onest, there really wasn't much.
And then there has been there have been folks who have come and then and you know theres been a decent number of requests and weve than we've been working on what we're going to do to evaluate them.
Got it and then on the PPP I think it was 85 million.
I've got another 30 something in the pipeline.
And your remark.
Rain.
From 1% to 5%, but it seems like.
Peers are kind of.
Turning around that 3% market.
Nimble assumption for you guys involved is pointing on what you're seeing.
Yes, three to three and a half I, thanks, probably reasonable.
Okay.
A couple other.
<unk>.
Had a pretty productive quarter actually revenues were up but report advances were up rather as you guys mentioned, what I know, there's still some uncertainty about the duration and the status of that relationships or any update there that you got.
No at this time.
Oh.
And then lastly can you remind those.
That's it.
The probably Nike pandemic rather.
Material impact on small business can you just remind us.
A little bit about the.
Bankruptcy business and if there is an increase in bankruptcy in United States, how that necessarily would benefit that business as a result access financial.
Yes, certainly so that business has about 40%.
The U.S. bankruptcy trustee market that runs.
Through and that's a chapter seven side on a 40% of U.S. bankruptcy trustees, roughly give or take a couple of percent.
Our use our software.
We want to uses our software is required to hold their liquidity at access bank right now and so to the extent that chapter seven bankruptcy is increase and those bankruptcies have significant assets and those asset.
They are subject to a liquidations or other types of dispositions and then there's a timeframe often that is significant in which those distributions need to occur.
As part of that that entire bankruptcy process those deposits will be held at our institution.
That's that's the chapter seven part of the business now the non chapter seven part of the business.
Utilizes the software in all its services to deal with a variety of other issues.
And and types of clients FCC receivers other types of receiverships potentially other types of bankruptcies.
That don't have the more formulaic process of chapter seven bankruptcy and often those firms that deal to chapter seven side have other businesses that they're also working working through that are related to.
The types of things the types of activity, there would likely be expected to increase in the market. So.
Right now, it's obviously too early I know that everybody feels like each day is that each day is is that is a week now I mean after remember this is relatively short period of time into this so obviously, we do expect bankruptcy filings to increase but.
But that side, that's going to be something and that will lead to enhance Dod business. It's just you know we don't have a great visibility into that right now it really is still early.
Yeah, but it's fair to think about that business kind of Oh counter cyclical banking business that in a period of economic stress could theoretically give you guys. Some more liquidity and revenue opportunities that would be kind of contra to what traditional banking businesses would how they perform.
Yes, Thats correct I mean, what you know at 2010 the deposits were twice what they are now.
I would expect.
Thats I mean that and then look sometimes it's interesting right because sometimes you have a base you have a big bankruptcy and its put on the wheel, meaning who gets it it could be massive right. So there is but it definitely is a counter cyclical business I would be shocked if it didnt.
Bigger and we're preparing for the throughput that we think we'll have I think it's very difficult to see a situation where chapter seven bankruptcy is don't increase as a result of.
All of these side these lockdowns and various mitigating measures that have been taken.
Yeah great.
Great. Thank you got taking my questions and say well.
Thanks, Mike you.
Your next question comes from line of the March with B. Riley. Please proceed with your question.
Good afternoon.
I wanted to start with the.
Disruption in the mortgage market and in particular, just on the non QM and jumbo product that you guys offer just wondering you know even with heightened standards. Greg you mentioned that you still seeing demand kind of what did that demand these days and and how you're thinking about that.
Sure so.
As you know.
We previously had a robust growth business and jumbo mortgages and over the last call. It six quarters are almost two years.
That has had.
Disappointing grows as a result of the market sort of running away from us and what we felt was an improved manner.
And.
That has completely on totally reversed so all of those competitors are gone and not just a little gone all the way gone.
So.
We had not compromised our credit standards in order to meet does that competition. We lost a lot of business as a result of it that business is now all flowing back.
But the reality of it is we've tightened our credit standards across all products, including liquidity standards holding you know 12 months of reserve a six month. It just keeps rolling six months of reserves a bunch of other things tightened LTV standards.
So.
We are getting obviously lots of calls the pipeline is very large I think the question is going to be obviously, we tried to screen that pipeline before it comes in but I would also expect that pipeline to have a larger fall out than it otherwise would as the market.
Just to the reality that.
These ones are going to be lower LTV is there's going to be adjustments to the appraisals as a result of the market circumstance, there's going to be a much more stringent liquidity requirements and standards.
There's gonna be.
Escrows for taxes and insurance and there is just going to be a bunch of things that are.
Appropriate for the environment that might we maybe heading into recognizing that you know we always plan for home values to go down by a lot and.
We're still.
Going to make sure that we're doing a loans that are that are safe and secure.
Okay. That's helpful and then in terms the.
Margin here just want to get some color on funding cost curious as to what you're seeing as of March 31st.
Were funding cost could go.
Over the next six months.
Yes. It is.
Theres couple of just general points I can give you, particularly when you look at.
Our RCD side.
We have approximately 300 million more in Cds that coal callable options on them, which means I can retire the end reprice them at a significantly lower rates typically at least 100 basis points lower.
For the same duration.
We had them on so that's that's a key opportunity when you look at reducing it.
And in fact I'm also in the CD costs for this quarter, there was $1.1 million.
Early amortization of brokered Cds premiums so when we call. The Cds, obviously any unamortized commission has to be recognized so just by taking that million dollars out this quarter that should reduce the cost by at least.
Bases points that you see.
In the rate volume table in the 10-Q, so I think we've got plenty of opportunities in the Cds to reprice. Obviously on just traditional deposits were were growing both consumer and business or rates are attractive. The PPP program is also.
Deposit accounts, because we are required requiring deposit accounts.
So all of that is being added at lower rates and we expect that they continue to drive our costs lower.
At the end I think grades guidance was we expect to continue to maintain our traditional non block rate of.
Between four and 3.8% owner NIM and it his guidance, we're a little bit closer to the lower end to that and we don't see why we can't continue to maintain that going forward.
Alright, Thank you very much.
Your next question comes from line of Andrew lies with Hypersound. Please proceed with your question.
Good afternoon guys.
Just one follow up question for me to start you covered restroom Oh.
On expenses and other been a lot of business development plan you guys have had in Oh spending initiatives out there like what's the outlook for that in this environment are you are there any plans to slow them.
And then just at a high level recognizing that there are some.
Some seasonal cost from tax business.
Should we expect to see operating costs, while below 69.
For the quarter.
Sure No I mean, I think the our increased this quarter on a linked quarter basis really came in a couple of ways. I think you as you noted theres one in a half million in other general and administrative costs that you can take out.
Further for next quarter since that's exclusively related to the tax season.
In our personnel costs the majority about half of the 2.3 million increase.
Was simply due to FICA. This is a brand new quarter for FICA expense for employees that the employer pace and that's about half the increase so that will continue.
But maybe 500000 of it was more one time associated with foreign when K. So you can you can probably look at salaries costs being similar to slightly lower for next quarter.
And everything else in there is fairly normalized we at this point aren't looking at it too many huge projects.
So I think but.
Well, we're always planning and that could change down the road, but in the end the 69 million you're using is pretty close.
Okay right.
Yeah, one one clarification as I said I said that the the lender finance plus Crisil book had around 70% of the floor is actually 63%. So and then with respect to.
Your your question Andrew I think you Andy how did exactly right. We basically have everyone that we need now too.
You do all the things that we need to do pretty pretty much with one or two other folks. So the the improvements in you'd you'd be are going well. We've got a lot of we've got a lot of opportunities to improve our operating efficiency with respect to a lot of different.
Tools that we've developed over time and those tools were really incredibly important in our ability to very seamlessly adapt to a the majority people work from home and all these other things. So there everything from ticketing systems throughout the organization robotic process automation the ability to have a large a team of develop.
Shippers, who can develop portals to communicate with borrowers to enhance our our abilities to wide too wide to be able to respond quickly to our customers and all those things and so there's a lot of really good good technology that we've put in and now I think a lot of its I really time to two what benefit.
I've from that and to try to start reaping some of the.
The fruits of that hard labor that's happened over the and investments that's happened over the last couple of years.
<unk>.
Great Yeah, I covered all my other question. Thanks.
Thanks.
Your next question comes from the line of David.
Green with Wedbush. Please proceed with your question.
Hi, Thanks, I wanted to.
Start with a quick question on credit seems most of your loan portfolio is very well secured beat I was curious what loan exposures do you consider the most at risk is that the refund advance loans hotel other unsc unsecured consumer just curious as to you know what.
You're considering the most at risk.
Right, so with respect to their a refund advance loans they did pay at a slower level than they have in the past now when we compare that to the other large players who publicly disclose that they were around was 7% ever 77% added were 4% out.
And they typically I think do a little bit worse than we do want to credit side, but they're basically in line. So from a pacing perspective were better but that doesn't mean that were both not gonna be worse right. So I think we put a little loan loss into that we're looking at that we have we when we look at it we and we dissect the date.
It appears to be that simply is just slower payments, but.
That but thats unknown, so thats out there.
There's a guarantee after our fee there's a guarantee formation our blocks that we never lose more than our fee, but obviously, we like we want to get paid for this we didn't do this freely on mansuri purposes. So we.
We can't lose more than what we earned.
On this but.
Well at least at the level that that now it's not a block guarantees that after after that amount up to a certain amount, which we will collect so so that's so that that piece of the fee could be at red, Although we don't think so.
This is a this is a this is something different from an unsecured perspective, it's interesting right now there's been a relatively low level of request for a deferrals. We've gone through the book and we've looked at where people work and we've looked at our exposure to individuals that work in restaurants and why.
Work and areas that we think could be negatively impacted or shut down that would you be it sort of the first line effective this and it didn't look too bad now.
Right. The impact of this is interesting, though I I've known I know some people in the medical profession here radiologist, you've been laid off because in San Diego there aren't really any covert 19 patients and so the hospitals are empty and so you know our our government has decided that elective surgeries are bad so we're laying off medical.
Professionals right. So those that type of folks that we went too because we looked at each individual alone and there was an actual underwriter, who made a decision about it based unemployment stability and things like that so depending upon how that works you don't expect medical professionals to they might need a deferral, but you don't.
Expect them to actually default over time, when they had prime credit scores so that is.
That is that's that's that book with respect to.
The single and multifamily side I think the exposure.
That is low but it will relate to the potential they'd government action on interferes into places first will be any ability to collect rats, where a lot of the folks that frankly are in our housing are going to get more money from unemployment than they would from work.
However, if if their neighbors not paying the bill and they look at the neighbor and they say Gee I can wait 12 months and I have a you know for a you know in a fiction moratorium then I may be opportunistic can take advantage of that that flows downhill.
The other would be if theres an attempt to have a state level interference with the ability to foreclose, thereby you know rendering the timeframe you after a whole loans longer now the reality of that is that our loan to value ratios out the default rates we haven't.
Commercial lending book that can be a very profitable enterprise, but that's also not something that generally banks like to do just because it causes noise right and so I think there's obviously the opportunity to sell those nodes.
That ever came about as these are again. These are all hypothetical situations that aren't currently happening, but there, but they're there the other book the they get the Crystal book and those those elements are.
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Most of these sponsors.
Our our very embedded in these from any in these loans. So if you look at a typical alone and use it as an example, you have about whatever our capital stack is they've got about half above us maybe a little bit less and if they don't take care that property. They get wiped out on day, one that is a very very hot.
Harsh remedy and one that I don't believe that they're going to be interested in partaking in apps and dramatic reductions and values and property I know if there's if there is 50% long term reductions in property with little hope of recovery, then you might see people start to do things like that.
However, then what what is our default what is our loss rate going to be when we're at a 50% attachment point, we might lose a little money here or there, but probably not and the other element is each of these funds want to buy the others paper right. So they all want if you have one from another fund and they said wait if I get the opportunity to buy I know.
Where I can take advantage of this they want that no right. So so that market is very active and these are these are some of the world's big as funds. There I just do not foresee them deciding that they're going to take massive losses.
At that level so.
Whereas where does it come from it comes in and Drips and drabs in the.
In the areas, where you get a you get someone that you're trying to work through something and maybe there's a maintenance challenge or they are overwhelmed and there's some sort of issue with the property in the last crisis. We had one where we were in at a pretty good loan to value ratio.
But.
But there was that it was a a borrower how to maintenance challenge the the maintenance.
Person had an issue and there was significant property damage insurance was problematic with respect to how they wanted to pay and there was some some damage that that was problematic and then on there was some vandalism and I and there was we also made they didn't take a loss on that but it was close closer than I thought it would be so theres those.
Do you think Christie's you have to watch fraud, and these markets were watching.
The agency mortgages very carefully.
And then in the warehouse lending group that business is going very well and expanding but people are always you know when there is economic pressure. Other places you have to be careful with that.
I think it's really more about if you get some are rationality from governments or regulators then you can force.
Things to happen in ways that don't make any sense and you know the reality of things are is everybody's acting like they're going to be rational right now and that question is does that last over an extended period of time and I think that's really the question that you have to look at you have to be prepared.
Before.
That's very helpful. And then shifting gears I wanted to ask about I think the next milestone for the Universal Digital bank was to get it to allow a single integrated enrollment process and I was curious with everything that's happening with who bid work from home has the timeline Ben.
Packed did at all in terms of building out the next phase any disruption there.
In general not in any.
Material way the certainly the work from home element has has not impacted anything in fact.
I've been just being perfectly blunt I've been very clear with everyone and I hold myself with the standard. This is the time that everyone works harder.
This is not a time, where everyone works less so everyone is working harder now than they have for the right reasons to take care of the borrowers to make sure that we're adapting to make sure that we are.
You know living up to.
Our vision of being a truly digital first bank, that's a leader in technology.
I don't think that Thats changed I think with respect to the question of your categorization of the goal of Universal enrollment I would say that.
There there really are a variety of goals that that you'd be had I would I would say that that goal of universal enrollment is frankly, one I understand what you mean by it but what we've really been trying to focus most on as I would say universe.
So.
Integration and servicing meaning that well we're trying to do is ensure that all of the elements that the reasons why someone would contact us in banking are going through our portal. So from a servicing perspective, if theres, an insurance up update or need or individual wants to tell us.
About their travel their travel ex plans.
Maybe less so now, but they when they would like a temporary increase in there and managing their debit card in a in a more productive way. The goal is to take and create the self service environment that allows individuals to have a better experience not enough to go through a call center, even though it is available and to make that process more.
Fashion and so that's very important the other is to a two to integrate UTI be for small business. We have a second we have a small business platform right now that for for enterprises that are that are that have more than one owner and those don't go through <unk>.
Right now and that experience is nowhere near as good.
There is a very robust roadmap, we have we have put off a couple of long term goals to.
Intermittently to focus on building out the SBA ERP platform.
And a few other items that are unique to this environments, such as better communications with respect.
To a customer requests through you DB and the ability to upload documents and things like that but in general I think by October we still expect to have the universal digital bank experience available to our clearing clients.
And that we think is going to be nice because it's kind of enable us to get access to more than 100000 high net worth customers that we intend to sell banking products to NR clearing company clients are very excited about and then we will have online trading capacity.
Available and where I, we're testing that in but test accounts and those sorts of things and will be we'll be working on that as well. So it's a very robust.
Plan as very exciting I, you know gets overshadowed by obviously all the current circumstances and and I think it has a lot of long term benefits for for efficiency and for revenue over the intermediate term.
Great. Thanks very much.
Thank you.
Your next question comes from line of Mitch I know Barden with Shaker, but please proceed with your question.
Yep.
Hilger, but.
He just well one question for you is just with the seasonal inventory should.
The next quarter the year, we'll let the original provision would go through retained earnings.
<unk>.
Yes, so the so the way it works.
And that its coal generally day, one in day to Youre on the day you adopt it.
You make a.
Direct and assuming you're increasing your allowance.
You would apply a tax rate to that increase and then you'd churchey correctly, they get stockholders' equity on a GAAP basis. So it doesn't run through the income statement it goes straight into equity.
After that day one entry.
It becomes a lot you your provisions become normal I.E. all your provisions run through the income statement as the as they do today so.
The big difference is that for regulatory capital purposes. The rules were changed recently such that that.
They won charge 100% of it.
Is actually added back to your regulatory capital for a period of two years and then phased out for another three years.
So you have five years of.
Coal transition.
For it really impacts.
Your.
Your regulatory capital ratios.
Okay great.
And Greg one one more question just a you've always been very opportunistic about.
When opportunities present themselves.
In terms of blending you mentioned that the competition news.
Got going away.
The aggressive competition was going away or no.
First the jumbo mortgage or any other areas or do you think there might be some opportunities.
Yes, I think that a lot of real estate lender finance had moved away to these gestation lines at very high advance rates.
Some banks are stuck with now.
But we never did and.
Those are those loans, where sometimes they would do these 12 months gestation facilities with securitization exits.
Those are all gone.
A lot of it it's amazing what people put on repo facilities.
No it out.
Going into detail on it it would surprise you you wouldn't expect that you should put long term, let's say commercial real estate loans with incremental funding structure is on a repo facility yet it was done. So I think there's we have the same team we have the playbook, we know how to do this we know that.
And that in that crisis, what we took advantage of.
On all those what those loan structures are very well developed here.
They're very conservative.
I think that Theres, a little bit of equity gap in the market right now.
Funds can fill that equity gap, but if you had an advance rate you know our old advance rates were 45 cents on the dollar, let's say and people are interested in that again, which is great. The problem is if you had gotten 85 cents for a while you have a transition and that transition is a difficult one and that's why.
One that takes some time so there are opportunities.
In the market, but.
We are not always able to solve those opportunities individually, but we do have partners that can assist more globally with that but obviously in certain cases, just need for equity. So I feel good about that it's it's it's early but there's been a lot of productive discussions and.
I think they'll be coming.
Coming out of this.
It should be the case that some of the competition, which essentially we had billion dollar loan books in certain categories that essentially went to zero and.
They'll be.
There will be opportunities in those loan categories again.
Great.
Thanks.
Thanks It.
Your next question comes from one of David Feaster with Raymond James. Please proceed with your question.
Oh good afternoon everybody.
I just.
I just wanted to start with security goodness, you know volatility like this off increase pretty pretty significant disrupted and I'm, just curious whether you've been able to add new broker dealers or investment advisors.
You know given all the disruption.
Yeah, we have we have a pipeline.
Candidly I like that pipeline to be bigger.
I think that it's coming for example.
This is in Omaha and TD.
As in Omaha, and so you're getting talent to Omaha.
Has become a lot easier now that obviously you have this merger on the horizon and that has really helped us and we've been able to pick off opportunistic talent. There's lots of good discussions with our eye is from a custody perspective, who are very worried often they they did.
I want to be at Schwab are they left show up for T.D. and now they're being pulled back in there's obviously, a you know folks who were part of some acquisitions at each trade.
Hey that are looking at at trying to figure out exactly how to be part of an organization, where they matter and where someone will return their calls other than through a call center. So I think there is a lot of opportunity there.
Yeah with respect to what we're doing on that business on the clearing side. We are we are trying to bring all the technology that we have into the operational environment to make sure that we can handle additional capacity. So the people there worked very hard they've done a.
Using job managing through this liquidity without losses, I mean, obviously, you've seen you know there's been interactive broker and other things have made that had some interesting disclosures that they've had to make a lot of companies had issues.
You know obviously, we had one.
I wish it was a one off last year, so I'm not Oh, you know I I. There's never you know there's never any Ras, but they did a great job this quarter and so we're working a lot on the operational efficiency side, they're making good progress.
They're learning.
To adopt a culture of execution that has a lot sharper than they've had before and I think there's really great long term opportunities because the disruption in this market. These markets are massive and we're just beginning to see are the result of that disruption. So on the on the clearing side I think we have a pretty.
Good platform and we have and we have we have interest we have to get more credibility with larger firms we've had some looks.
But it is a tough it's it it's a tough it's a tough thing to get somebody to switch and then on on the are a custody side. We're currently working with some hardy.
Folks who are bring us assets and frankly, helping us make sure that were working out the case with both the Onboarding and the platform overall, we have a new software that we're implementing that is going well.
And that platform will develop over time, it's not going to be immediate it's a it's a it's a longer term initiative, but I think it's you look at three to five years I think everybody is going to be very happy that we spent the time to do something unique.
Being you know a universal platform to the end client.
And bringing a great a great technology and servicing system to that business.
On the on the.
The Robo advisory the managed portfolio side is we're calling it.
We are.
Hi.
I've appreciated the no fee model that's been great for a while it's useful for acquisition I also frankly, you know I've told the team you know you've had some opportunities and now you're going to go make money. So we're going to be working on what that model looks like but they will be making money shortly they have an.
<unk> portfolio of assets and they provide a great service and so they're going to go make money on that pretty soon I'm I've had a bad because the clearing company makes money and the issue is the net loss that you see in the in the segment is from the managed portfolio side and that's going to end so.
You know we were they had a view that they wanted to try to grow the business with that with that model. You know I think you know we had we had a nice run at that had some growth, but we can grow it by adding value rather than actually being we may still be the lowest cost provider. We just don't have to be a lowest cost provided by that amount.
Got it.
And then just below where you can especially the are you said I mean I know you deal with premiered developers that are very well capitalized just curious your thoughts on this segment, what you're hearing grants and just your thoughts on that segment were Broadway.
Okay.
Yes, I think I think the.
I think that.
The the nature of that segment is going to be and its activity is going to be determined.
Bye.
Junior capital.
And so if you think about let's say a funding structure for a project in these obviously you are.
Or just rough numbers, but if you have a.
Situation well, it's a lot of mind our project equity was going to put in you know 20. The junior was going to put it 40, and we were going to put in 40, right. So and what our for our 40 is going to come after all that 60, and it's going to kind of then only after all that is already there and so.
That does a couple of things it obviously makes their hurdle rates with respect to the project higher because the junior capital is looking around saying Gee I I have a lot of interesting opportunities and theres a lot of current developments. So it'll be interesting to see how it goes I think there will be slightly projects to get off the ground.
And I think junior capital is working through what they want to do I think theres lots of discussions and lots of.
Asking for what term sheets would look like and not a lot of movement I think the market is really trying to figure out exactly where things are.
There clearly are good projects. There clearly are folks that have a lot invested and aren't going to deliver I think thats. Good it's going to be interesting, though to see.
You know, how how that develops and my inclination is that I think the junior capital is going out look for opportunities some of which they may find more attractive and existing assets and helping others through their their problems rather than going after new things.
Okay, but that's speculation it's still too early yeah.
Yeah that makes sense lots of need just just wanted to get your thoughts on on your capital priorities near term I mean, the dividend sounds like a bundle for now, but just thought bond repurchases or.
Any other opportunistic investments or even potential M&A, maybe in the fintech side, given the disruption and being able to pick up a complimentary business that you've been no I and for awhile.
Right, Yeah, I think with respect to the dividends side as I talked about that the share repurchase side I think look I think thats.
Thats something that we you know we've been we Havent, we did a little bit we never we were very thoughtful about our capital I'm not going to make any prophylactic rules on that but.
Or you don't make a make any statement of a you know absolute absolution in either way there but.
Clearly, there's a lot of opportunities in the market. We also have uncertainty with respect to what happens in the future and so you're winning all those those different elements clearly we want to have capital for for gross it's prudent when there we want to support our clients, where we have good opportunities I think there will.
I'll be good yielding opportunities at very good credit profiles here. So we want to make sure that were there for that.
And also make sure obviously that we're thoughtful about our capital so the with respect to the M&A side.
That depends upon what you're getting.
With the the.
The platform so I think unfortunately.
A lot of defend tax with respect to the platform, they're either going to work through it with respect to their existing assets and their debt levels or things like that where they're kind of kind of have to wind down for a while in and see where they go.
There may be one off opportunities like there were with respect to the guys that Robo advisory platform that we purchased where it comes with an asset base that is has no has no negative credit potential credit consequences or not but obviously I'd say.
I think we've we've tried very hard to be thoughtful about we will we put on the books and there were strong credit theses for each one so they'd have to be a very strong credit theses that would have to accompany anything that would involve taking on any credit risk in M&A right now.
Okay.
That's helpful. Thank you.
Thank you.
[noise] Alright, I guess, that's it so thank you very much.
Well thought to next quarter.
This concludes todays conference you may disconnect your lines at the time. Thank you for your participation.
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