Q1 2020 Earnings Call
Good morning, and welcome to the Silver Good Capital Corporation first quarter 2020 earnings Conference call.
During today's presentation, all parties will be listen only mode. Following the presentation. The corporate side will be open for questions when instructions to follow at that time as a reminder, this conference call is being recorded Oh, no. It's really pull over to Sharon Divine Investor Relations for Silver Gate Shannon. Please go ahead.
Thank you operator, and good morning, everyone. We appreciate your participation in our first quarter 2020 earnings call.
With me here today.
Our president and Chief Executive Officer.
You know, our chief financial officer embedded rentals.
And so <unk> bank director of corporate development.
As a reminder, a telephonic replay of this call will be available through 11, 59 PM Eastern time.
13 2020.
Actually it's a replay is also available on the Investor Relations section of our website. Additionally, I fly to complement today's discussion is available on the IR section of our website.
Before we begin let me remind everyone that this call may contain certain statements.
Constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These include remarks about management future expectations.
I do my plans and prospects.
Such statements are subject to a variety of risks uncertainties and other factors, including the cobot Nike pandemic that could cause actual results to differ materially from those indicated or implied by such statements.
Such risks and other factors.
And our periodic and current reports filed with Securities Exchange Commission.
We do not undertake any duty to update such forward looking statements.
Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe are useful in evaluating our performance.
Presentation of this additional information should not be considered an isolation or as a substitute for results prepared in accordance with U.S. GAAP.
Conciliation of these non-GAAP measures to the most comparable GAAP measures can be found in our earnings release.
At this point I'll turn the call over to Alan.
Thank you Shannon and good morning, everyone.
On today's call I'll provide an update on our operations and the steps we've taken to ensure the safety of our employees and uninterrupted service to our customers given the rapid spread of the code at 19 pandemic.
I will then review our first quarter results and the success that we continue to achieve growing the silver get exchange network, our global payments platform known around the world as the center.
Tony will provide a more detailed review of our financial results and then we'll open the call for your questions.
Ben Rentals is also with us today for the Q and a portion of our call.
I'd like to start by thanking all of our employees for their hard work and efforts during a truly challenging time as the co bit 19 pandemic has greatly changed how we work in live.
Our first priority has been the safety of our employees and I am grateful that silver gate maintains a robust business continuity plan with periodic tests to ensure the plants effectiveness.
Our most recent test of the pandemic portion of our business continuity plan was in September of last year.
Which positioned our team to quickly move a majority of our employees to a remote working environment, while seamlessly maintaining our operations.
We also remain committed to supporting our customers and local communities during this challenging period.
As a result, we have initiated payment relief for borrowers who have been impacted by covert 19 and established referral relationships for those seeking assistance under the S.P.A. Paycheck protection program.
We remain committed to partnering with our customers through this difficult time and doing our part to help move the economy forward.
Well the duration of the pandemic and its impact on the economy are uncertain.
We have been taking the necessary steps to prepare silver gate for potential economic downturn for some time.
More than a year ago, we began taking measured steps to protect the company against declining interest rates, while maintaining our strict underwriting standards and the conservative balance sheet.
Core tenet of our culture is our disciplined underwriting and lending approach with procedures in place to ensure we maintain the overall credit quality of our loan portfolio.
Our conservative approach is evident in our commercial and multifamily real estate portfolios, where the weighted average loan to value was 53%.
And in our single family residential real estate portfolio, where the weighted average loan to value was 54%.
Both as of March 30, Onest 2020.
We also benefit from a strong capital and liquidity position, which provides us with real confidence in the face of such an uncertain environment.
Quarter end.
So brigade had a total risk based capital ratio of 26.05%.
And had balance sheet liquidity of $1.1 billion in cash cash equivalents and investment securities held for sale at fair market value, which represented 49% of our total assets.
While we have positioned our balance sheet foreign economic downturn, we have also position silver gate to succeed in a digital world as we have become the leading provider of innovative financial infrastructure solutions and services to participants in the digital currency industry.
We believe that Silverglade as the first bank in the world to bring the legacy financial system, which historically only operates during normal business hours five days a week into the 24, seven 365 digital currency market, which never sleeps.
This is particularly relevant today given the dislocation that has occurred not only in traditional banking operations, but also across all major asset classes, which have experienced extreme volatility.
Importantly, the San provides our institutional clients a critical advantage as it enables them to move us dollars between digital currency exchanges in near real time, providing capital efficiency and the ability to trade the asset class 24 hours a day seven days a week.
Our hedge funds customers, who use the sad have a competitive advantage over other hedge funds that arc on the fed.
Since our customers can move money at times that non customers can't and as a result, our customers capital is more efficient.
These are no cost to book transfers between current silver get customers and because you have to be a silver gate deposit customer to use. The said these deposits don't leave silver gate when they are transferred from customer to customer.
As shown on slide five our digital currency platform continues its impressive expansion in the first quarter.
We grew our net digital currency customers, 38% year over year to 850, while our pipeline of new digital currency customers remained very strong with over 200 customers in the sales pipeline and going through our onboarding process.
The value of the send to our institutional clients as well as the platforms competitive advantage and network effect, our substantiated by San transfer volumes.
Of $17.4 billion and over 31007 transactions completed during the first quarter alone.
Both of these metrics reflect over 100% growth since the fourth quarter of 2019.
While our growth in new digital currency customers contributed to the strength in the quarter. We also believe that customers preference to transact digitally versus manually also drove share gain for the sand at silver gates transaction volume increased 118% versus overall bitcoin volume growth of 75.
5% over the previous quarter.
Digital currency fee income rose, 92% to $1.7 million as compared to the first quarter in 2019.
As demand for our cash management solutions foreign currency exchange services and deposit solutions drove more transaction activity from our digital currency customers.
You may recall that Silverglade upgraded its cash management platform to fund Astra during 2019, so that we could provide our customers with a P.I. enabled wire management solutions and at the same time scale operations without adding headcount.
We've seen more customers adopt that platform during the quarter and a corresponding growth in fee income.
Additionally, demand for FX services was robust during the quarter and we believe we are still in the early stages of building out that product suite.
As we continue to grow the number of institutional clients, we believe that the network effect and competitive advantage of us and we'll continue to grow stronger and enable silver gate to successfully develop new product offerings to meet our customers' needs.
To that point I'm very excited by our launch of sand leverage which will allow bank customers to obtain U.S. dollar loans collateralized by bitcoin.
The product uses the send to find loans and process repayments in real time 24 hours per day seven days per week.
We are applying the same rigorous underwriting standards that have served us well over the years to this new lending initiative.
And through the first quarter approved 12.5 million in bitcoin collateralized loans.
I would highlight that we are currently still in the pilot phase with expectations of more fully rolling out the product in the second half of 2020.
Importantly, this further demonstrates silver gate innovative culture and focus on serving our customers needs.
Over time, we see sand leverage as a strong growth driver.
In addition, we will continue to invest in new product development as we work to enhance both the value of the fan and its competitive advantage.
With that I would now like to turn the call over to Tony for a more detailed review of our financial results.
Thank you Alan and good morning, everyone.
This morning, Silver Kate reported first quarter net income of $4.4 million.
23 cents per diluted share.
Up from $3.6 million.19 per diluted share reported in the fourth quarter of 2019.
Our tangible book value per share increased to $13, an 11 cents at the end of the quarter up 16% compared to a year ago.
Turning to slide six in the first quarter.
Was it increased $188.3 million or 10.4%.
$2 billion us compared to the fourth quarter of 2019.
Noninterest bearing deposits totaled $1.7 billion, representing 87.1% of our total deposits at March 31 2020.
The increase in total deposits from the prior quarter reflects changes in deposit levels of our digital currency customers.
The increase in total deposits from March 31, 2019 reflects a net increase $141.3 million in callable brokered certificates of deposit associated with our hedging strategy.
As well as changes in deposit levels of our digital currency customers.
We have continued to lower the cost associated with are callable brokered certificates of deposit by calling and reissuing a portion of these deposits at lower rates, while extending their duration.
As of March 31, 2020.
Our balance of color callable brokered certificates of deposit.
How to face value of $142.6 million.
With an all in cost of 1.92%.
And our remaining duration of 60 months.
This compares to a balance of $325 million with an all in cost of 2.29% and remaining duration of 56 months as of December 31 2019.
On an overall basis, our weighted average cost of deposits for the quarter was 87 basis points.
With a total of 81 basis points related to the colder brokered Cds.
Out of the total 81 basis points 46 basis points was related to the $2.1 million premium expense for calling a portion of the Cds with the remaining 35 basis points, resulting from the underlying all in cost of carrying the Cds throughout the quarter.
This compares to a weighted average cost of deposits of 84 basis points in the fourth quarter of 2019.
Of which 78 basis points were related to the interest in premium expense related to the bulk Recallable Cds.
This also compares to a weighted average cost of deposits of eight basis points in the first quarter of 2019, when we did not have any callable brokered Cds.
Turning to slide seven our net interest margin was 2.86% for the first quarter compared to 2.97% in the fourth quarter and 4.1% for the first quarter of 2019.
The first quarter decrease was driven by both the federal funds rate reductions over the last three quarters as well as $2.1 million, a premium expense or approximately a 39 basis point reduction in the first quarter.
Resulting from calling and reissuing brokered Cds.
Our cost of funds was flat at 94 basis points as compared to the prior quarter.
As an increase in brokered CD call premium was offset by lower brokered CD interest expense.
Both on rate and volume basis, and a favorable mix from an additional $100.9 million in average noninterest bearing deposits.
During the first quarter of 2020.
We sold $200 million in notional amount of interest rate floors, which resulted in a net gain of $8.4 million to be recognized over the weighted average remaining term of 4.1 years.
He's interest rate course, how to strike price of 2.5% versus one in three month LIBOR and were sold at an imputed weighted average LIBOR breakeven level of 94 basis points, thus locking in a positive yields for the duration of the original remaining term.
We continue to hold another $200 million in notional amount of interest rate floors, which have a 2.25% strike price versus one month LIBOR tend to remaining duration of 9.3 years.
Now onto noninterest income on slide eight.
Noninterest income for the first quarter of 2020 was $4.9 million, an increase of $1.8 million compared to $3.1 million in the fourth quarter of 2019.
And at 2.9 million dollar decrease compared to $7.9 million in the first quarter of 2019.
The primary driver of the linked quarter increase was a 1.2 million dollar gain on sale of securities and a 925000 dollar gain on the extinguishment of debt related to the termination of a 64 million dollar FHLB five year term advance, which was both issued and repaid within the quarter.
Excluding the pre tax gain on sale of $5.5 million for San Marcos branch and business loan portfolio that was completed in March of 2019, noninterest income increased $2.6 million or hundred 9% when compared to the year ago comparable quarter.
This increase was primarily due to the gain on sale securities and a gain on extinguishment of debt discussed earlier and by a 779000 dollar or 79% increase in deposit related fees, partially offset by 689000 dollar decrease in service fees related to off that.
Once she deposit sweeps.
Turning to slide nine noninterest expense for the first quarter of 2020 was $13.9 million, which compares to $13.7 million in the fourth quarter of 2019.
And $13.5 million in the first quarter of 2019.
The linked quarter increase of $182000 was primarily due to increases in salaries and employee benefits communications and data processing offset by a decrease in professional services.
On to slide 10, our securities portfolio totaled $964 million with a yield of 2.7% for the first quarter.
Up $67 million from a balance of $898 million at the end of 2019.
With a corresponding yield of 2.68% during the fourth quarter of 2019.
Our securities portfolio, when combined with our balance of cash and cash equivalents represented 49% of total assets as of end of the first quarter with a combined balance of 1.1 billion.
During the first quarter, we purchased $85.8 million in highly rated tax exempt municipal bonds.
These bonds were all fixed rate with the rating of single a plus or better.
Our loans at March 31, 2021 point $1.1 billion, a 7% increase compared to the linked quarter and a 32% increase compared to the first quarter of 2019.
The increase from the fourth quarter of 2019 was driven by an increase in our mortgage warehouse lending and single family correspondent loan originations over.
Overall, the credit quality of our loan portfolio is strong as our nonperforming assets totaled $5.1 million were 22 basis points of total assets.
March 31 2020.
That is a decrease of $783000 from the $5.9 million in nonperforming assets or 28 basis points of total assets that we had at December 31 2019.
On Slide 11, you can see a breakdown of the loan to value ratios for the majority of our loans held for investment.
As Alan mentioned earlier, we manage the loan to value ratios on our real estate loans relatively low levels, providing significant collateral protection from losses in the event of default.
Our collateral level has helped contribute to our historically low charge off levels and is one of the key elements supporting our current level of our allowance for loan losses.
On slide 12, we've provided a further breakdown of our commercial real estate loan portfolio based on collateral type.
Our total exposure for loans collateralized by hospitality and retail was $108 million positive quarter end with a weighted average loan to value of 40.2% for hospitality and 50.2% for retail.
During the first quarter, we recorded a provision for loan losses of $367000, which compares to no provision recorded in 2019 fourth quarter.
The level of our first quarter provision was based on modest increases in loan portfolio balances are historically strong credit quality and minimal loan charge offs and was largely influenced by the low to moderate loan to value margins in our commercial and multifamily real estate and single family residential real estate loans.
As evidenced by weighted average loan to value ratios in the low to mid 50% range.
Although there are significant uncertainty in the current environment due to the impact of the covert 19 pandemic. We believe that are relatively low loan to value ratios along with only modest exposure to the retail in hospitality sectors provides lower probability of loss in the event of defaults in our portfolio.
We've been working very closely with our borrowers to provide necessary support under the current circumstances.
As of April 24th 2020, we provided payment deferrals to 22 of our commercial and multifamily residential borrowers five of our single family borrowers and two of our commercial and industrial borrowers were presenting an aggregate loan value of 109.1 million.
Okay.
Turning to slide 13.
Our tier one leverage ratio was 10.98% at total company level and 10.33% at the bank level with the bank ratio well in excess of the 5% minimum ratio to be considered well capitalized under federal banking regulations.
Our total risk based capital ratio at 26.05% reflects the fact that a large proportion of our deposits are helping cash and high grade and highly liquid securities.
Our loan to deposit ratio was 55.64% at the end of the quarter, a decrease of 2% compared to the 2019 year end as deposit growth of 10% exceeded loan growth of 7% during the quarter.
With that I'd like to turn the call back to Alan for closing remarks.
Thank you Tony.
I want to take a moment to reiterate that we remain committed to partnering with our customers through this difficult time and doing our part to help move the economy forward.
We are grateful to our employees and inspired by our customers who continue to demonstrate their resilience and ability to build businesses. Despite the challenges in front of them.
The expansion, we experienced in our digital currency platform. During the first quarter was unprecedented but we also believe our growth will continue to be non linear.
The average daily price of Bitcoin during the first quarter was nearly flat compared to the fourth quarter.
While the volume of Bitcoin transactions was up roughly 75% during the same time period.
We also saw market dislocation in the price of bitcoin during the middle of March which caused positions in the broader digital currency market to be unwound and institutional investors to hold more cash at the end of the quarter.
As such it's difficult for us to estimate digital currency activity, Andrew related deposit balances in the second quarter and beyond.
Nevertheless, as the digital currency markets grow we expect our customers to continue allocating capital to the asset class.
In closing we will continue to remain focused on building our business and expanding our platform focusing on the things we have control over.
Thank you again for your time today.
With that I'd like to ask the operator to open up the lines for any questions operator.
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One moment, please well we pull for questions.
First question today is coming from Joseph Vafi from Canaccord. Your line is alive.
Hey, guys. Good morning, Thanks for hosting the call taking my questions.
I thought maybe we just jump in on on the on the big coin side of the business first.
Obviously, the coins shown a lot of resilience and I think that's a positive for your business model Alan I I think you just.
Provided a little bit of insight on on the strength of bitcoin and what you're seeing so far in Q2 I was wondering if you could perhaps just go through some of the.
The positives on perhaps some some of the negatives of that fit coined a surge in price here as it relates to.
Your initiatives and what you're working on.
Sure. Thanks, Joe Greg talk to you. This morning, I think since Tony and I have been doing a lot of talking here already I'll.
Let Ben weigh in on on that first question Ben Xome.
Yes so.
I guess it probably is worse seeding out of the out of the gate here that if silver he doesn't hold any any bitcoin itself or or any other digital currencies.
As you know Joe we facilitate the transfer of the U.S. dollar. So it doesn't have any sort of immediate balance sheet or income impacted if you will.
That said you.
It's it's important to our business that the asset class is.
It is strong and maturing.
And I think that we've seen that.
Here in 2020.
Alan touched on some.
Some of the events that happened in the first quarter around.
The volume and the volatility and we certainly saw the trading volumes.
And our strong market position lead to strong usage of the sand.
But the decline trading volumes were up 75% and our transaction volumes were up 118%.
So that really shows the customers are.
Using our platform.
More than ever.
What weve, what we found and Alan mentioned this as well is that it is difficult to estimate or correlate.
The price of digital currencies to our deposits because we do have such a broad ecosystem of both exchanges and institutional investors many of which are executing a different trading strategies within the asset class.
So as the volatility picked up in March.
We did see a fairly significant increase in deposits in the quarter of a 447 million.
On a go forward basis.
We believe that that our clients will.
Allocate cash to the asset class.
In a very rational way and so overall.
And so that's sort of our view going forward.
The last thing I would say on this point is that as what we've seen is that as the price increases.
That provides more interest from investors segments that might not be.
Might not have an allocation to digital assets and so you know generally in the time of price expansion. You also see institutional expansion in terms of the number of folks that are coming into the space and we think that we're well positioned for that as well.
Okay.
That's helpful. Just and then as a follow up on the on the Sun leverage product, it's nice to see some progress there.
How does how is the volatility that we've seen in India and.
In the pricing Bitcoin now asking a lot better has that changed the road map or the the roll out here on on this on leverage product at all plan for this year.
Yes, Joe This is Alan again, let me weigh in on that and then we'll see a fan has any follow up comments one of the things that we were eager to to test in the pilot was the you know was the mechanisms by which we are we monitor the price of the bitcoin collateral.
And then.
Also make the quote unquote margin calls or are you know, our whether our customers are covering collateral shortfalls and or whether we have to liquidate big coin collateral.
In order to really tests that you need to see some volatility in the in the asset class and.
As Ben was just sharing we saw quite a bit of volatility during the first quarter and I'm happy to say that that are monitoring.
Worked well and and so from our perspective, we believe that we have we approve then the concept and now it's just a matter of.
Continuing with our measured.
Steady rollout.
Being being aware of the risks et cetera, but we don't see any immediate change in the roadmap.
And did you have anything to add yeah, I mean it.
When you think about our institutional investor clients.
One of the lasting they want to have done is their position liquidated and when you think about the product one of the key features to it is the sand and the ability for our clients to bring move collateral around.
24, seven during turbulent times.
Importantly, as it relates to send leverage we've been able to capability to make loan draws and repayments over the pie.
24 hours a day seven days a week and so you know we really think that that feature is key to a time like March because our our clients can ultimately cheap capital efficiency and liquidity.
Positions potentially.
In other places in order to make it make those margin calls and so.
As Alan said, we've been very pleased with with how it performed in the first quarter.
Great and then maybe just one quick final one I know you're not really providing.
Guidance outlook at this point, but so I was wondering if you have any high level thoughts on where you see net interest margin.
For the rest of 2020, thanks a lot.
Yeah. Thanks, Joe. Thanks. Thanks for the question I think Thats, a great time for confirming ask Tony to weigh in Tony.
Yes sure Joe.
So with with net interest margin. Firstly, you know it was I want to make a comment there was impacted by the brokered CD call premium as as I indicated so we incurred premium 2.1 million.
To call and reissued part of our brokerage Cds that that was part of our hedging strategy callable free chair, we continued to lower the cost so that that had about a 39 basis point impact. So if you exclude that impact our NIM on a normalized basis.
It was right around 3.25% which was.
Pretty consistent to the fourth quarter and.
And there are several decisive actions that we undertook as as rates.
Came down in March.
Which.
Which which we highlighted.
In the press release, so we know firstly, we sold $200 million of our of our floors that's half of our.
Total interest rate cores, and and we locked in a benefit.
About half a million dollars a quarter.
Going forward for the duration.
The remaining left for those floors.
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We've we also we reduced the balance of our.
Incurred Cds from what was 325 million at the end of the year to 143 million.
At the end of the corridor and lowering the funding costs.
192 basis points so.
And then lastly, we started yeah very late in the quarter last week had no real impact on the quarterly.
NIM, but we started.
Investing in some high quality municipal bonds, we added about 85 million sort of portfolio right at year end.
<unk> and that was done you know partly to to.
[music].
A bit of a divestiture, but also to supplement the NIM. So.
The aggregate impact of these items, although we typically don't like to give some guidance given so many moving parts impacting NIM.
I'd say these these factors give us an entry point.
Around.
Three 315 basis points going into the quarter, plus or minus five and that assumes we don't call brokered Cds further because we always do keep that flexibility. So.
So in summary, as as we've done in the past, we've got multiple leavers to manage the NIM and you know we yeah, we won't hesitate to use those leavers.
See opportunities present themselves.
[noise], thanks very much.
Welcome.
Thanks for the next question today is coming from Eugene placement from Barclays. Your line is not alone.
Good morning, and thank you for taking my question.
Clearly you have pretty strong volume and visual currency.
Related deposit growth in the first quarter can you give us any incremental color on the the positive trends and listen transaction volume so far in the second quarter through April have you seen the same kind of.
Trends or.
Has that.
Subdued.
Sure Eugene This is Alan good morning, Thanks for joining and thanks for the question.
Well as Tony Jeff mentioned, we typically don't provide guidance.
On a on a forward looking basis, a couple of comments that we can make on the first quarter.
Which which will provide some insight.
From a deposit level standpoint, if you dig in and look at like the average balance of the of the deposits versus the period and you can see that are you know the average bet you. The average deposits only grew by about $100 million, while while the period end number was up as Ben mentioned.
Almost 450 million.
So that gives you some inside the in into the late quarter surge.
We we have.
Seen a portion of those deposits.
You know leave the bank, we are we're still up over.
You know over year end, but part of the reason that that we in fact characterize this as institutional investors holding more cash at at quarter end was because of what we did see in terms of the surge in March and the end and that a little bit of outflow.
Now here in the first month of the second quarter.
You know and then the other part of your question as it relates to send transaction volumes.
We we typically don't don't share like monthly information, but what I can tell you is in the first quarter every month was higher than the previous month and so you know it would not be a correct read into to look at it and and assume that all of that growth.
Happened in the month of March it was essentially each month of the quarter, we were setting a new monthly record.
Ben did you have anything to add that I think the yep.
Cool nothing to add.
Thank you that's a very helpful.
Can you talk to the clients reception over years, some leverage product.
Have they have the clients and reset them in terms of.
The pricing and.
The.
Other dynamics around it.
Yeah, I'll add Ben Ben.
Addressed that I'll, just say upfront that because we are in the pilot we have a very limited sample size.
But I've been do you want to try and any color yeah, I mean, I think as you look.
As you look across the industry.
You know theres a number of of companies out there that are providing leveraged its.
Slightly different than than what we're doing but their reports are you know are showing that demand is strong in and you know we know that.
Historically speaking.
If you wanted to trade the asset class you had to have both us dollars and digital currencies on platform on exchange and so if you were using you know if you were trading at five different exchanges, that's quite a bit of capital that you have to have.
Spread across five five different exchanges and so.
And if in talking with exchanges, we know that they they have a lot of demand for their customers that are looking for leverage and capital efficiency and so.
If you think about you know there's a few a few firms that are are starting to come into the prime brokerage space, but there really isn't that that large institutional.
Player, that's that's doing that and so.
And so demand has been has been strong as Alan mentioned you know it is it is a pilot and so.
Renewing to do market research and understand.
What what are the key factors that are that our clients or are looking for their.
But but overall.
And in interest has been very high.
Thank you.
Thank you. My next question today is coming from Michael Shimon from KBW. Your line is now live.
Hi, guys. Thanks for taking my question.
You bet.
Can you guys, please share or how much of the deposit build was related to new customers in the quarter.
Yeah. Michael This is Alan we typically don't breakout that level of detail.
We do share the both the number of customers and the deposit levels by by type.
Break that down into.
And into exchanges institutional investors and then all other and so you can see a little bit that way, but typically what what we find is that as we onboard new customers. It takes a little while for for them to actually get get the deposits moved over and so.
What we see on a on a kind of a rolling quarter basis is that we'll see some growth some some very modest growth from new customers.
Plus growth from customers that had maybe onboarded the prior quarter.
And then the rest of it is just fluctuations amongst individual accounts based on you know in large part on some of the volatility that we were talking about earlier.
Okay. Thanks, that's that's helpful.
And on credit.
What are some of the qualitative assumption that you guys made to drive the increase in the reserves and.
How comfortable you are with credit outlook today.
Yes, that's a great question and I think I think I'll turn that want to over to Tony Tony.
Sure. Thanks, Thanks Alan.
So Michael you see on on credit certainly.
Certainly.
The cobot impact is it kind of in everyone's frame.
In terms of our provision.
When when we go back and look at our allowance for loan losses.
Where our provision is at 96 basis points, its up modestly versus year end.
The biggest doctor in in determining our allowance is really the expectation of loss given default.
And.
As you know all all of.
The majority of our loan substantially all of them are collateralized by real estate and Weve traditionally maintained very conservative lending standards and low LTV.
Which provides extra coverage in the United default. So yes to answer your question directly the driver of the increase I'm really is is more of the of the loan volume we do we already given our.
So low.
Diminimus.
Loss history over the last several years most of our reserve is already driven by qualitative factors.
So the move this quarter I'm not really impacted by dot.
Were you know again, given our our loan to value ratios.
And when you look at the sector a lot of the significant increases are really driven by the unsecured portfolios. So we feel pretty good about where our provision is.
Okay. Thank you.
And you guys have any updated thoughts on fee growth opportunities from the Soviets change that work and as a follow up are there any new products or services. You guys are considering that we should consider as future growth opportunities.
Sure Michael This is Alan as as far as as fee income goes.
As we shared in the earnings release.
Fee income was was up I'm happy to say that it was essentially.
You know either flat or up in every individual categories. The way, we you know the way we split out the.
The fee income components between.
Send participation fees and transactional fees for using the on the broader bank cash management services wire transfers aviation etcetera.
As well as foreign currency exchange and so all categories were up.
And and or flat I should say on but we didnt have any category that was down in the first quarter.
And then as far as new products, we've been talking a while about.
Providing custody and settlement services for digital assets that is still an ongoing project. We don't have any product announcements to make at this time, we are very focused on continuing to too.
Complete the pilot for San leverage and eager to get that you know.
More broadly distributed in the second half of this year and then.
But the custody and settlement project is coming right behind it. So while we don't expect to have any impact from that product.
Offering this year, we certainly are thinking about.
You know the potential benefits of providing that service for our customers as as we move through the end of this year and into 2021.
Great. That's all for me, thanks, Ken and stay on that.
Thanks, Michael Thank you.
Thank you next question today is coming from Ryan Todd from a block research your line is alive.
Good morning, Thanks for taking my call hope everyone staying safe there.
I'm wondering if you can speak a bit to the companys outlook on stable claims. So it's my understanding that segregate works with the majority if not all the core U.S. several finishers, but I'm wondering if there are other opportunities out there to capture share better service that market.
A quick follow up to that also curious with the latest changes to the LIBOR White paper, if theres any interest from surrogate and working without initiative going forward. Thanks.
Yeah. Good morning, Ryan Thanks for joining and thanks. Thanks for the question Yeah. We obviously follow the stable coin market very closely and as you mentioned, we do provide banking services for for the stable coin issuers in the United States that are deregulate.
Good.
Stable coin platforms, and you know as far as how we view that we are thinking about.
You know whether or not.
Silver gates should be playing a more direct or active role beyond just providing the banking services.
For other issuers.
How that evolves in the future is probably in the same category as I, just put the custody and settlement.
Product offering it if it's something that that we're watching very closely and I'm going ask Dan. If he has any additional thoughts and then maybe Ben can also address the second part of your question as it relates to Libra.
Yes, so when you think about silver date, as an infrastructure provider to the digital currency industry.
One of the services that we provide our around cash management solutions. So these are.
These are wire and hgh transactions and so if you think about it at least in that initially in the shorter term or short to medium term.
People still need to get there will need to get their fee.
Into into stable coins, if they if they take off and so one of the areas, where we have a lot of conversations with our clients is around providing those cash management solutions to allow people to quickly get between FY odd and stable coin and that's one of the things that that said has solved as well.
But just did it through our proprietary technology.
As it relates to Libra.
As Alan said, we're very interested in all of the projects that are out there and have had a number of conversations with with folks. It's a very it's a very dynamic it's a very dynamic space.
And something that I think it's probably fair to characterize it as were.
We're investigating it.
And we're keeping all of our own options open in terms of working with various stable coin participants and folks that are looking to launch stable coins.
Really helpful color. Thanks, a one final follow up if I may.
Just around enabling FX exchange capabilities for your customer base going forward I'm wondering if there's any incremental color there on how that's been used this past quarter just given the recent trends at the dollar.
Yes.
Sure of anyway, Okay, yes, yes. So so when you think about when you think about the Silverglade exchange network really what we have is is on one side of the network, we have exchanges and on the other side of the network. We have institutional investors and these changes are looking for liquidity on their platforms in the institutional investors are looking for capital efficiency.
We know and it's it's fairly well documented that.
That clients in this space are somewhat underserved and so that's part of our our desire to go into custody and settlement and create that that capital efficiency is as Allen was was talking about.
The same is true for foreign exchange services and so.
Theres a lot of friction.
You know between moving between dollars in euros or dollars and yen because usually those transactions are done with corresponded banks that that may or may not be friendly to crypto and so it ends up.
More than anything the friction ends up you know it ends up taking time.
And so we've been working for the last.
18 months or so on creating a more fulsome FX offering and.
We're continuing to see a growth in that offering and growth in the fee income associated with it so.
We think that it's a we think that it's a great opportunity and we're continuing to build in that area as well.
Great offer me thanks.
Thanks rank you. Thank you we reshaped our question answer session now, let's turn the floor back over to Alan Fleming further of closing comments.
Great. Thank you operator.
Well thank everybody for joining this morning. During this period of uncertainty will continued to work to maintain the safety and health of our employees and we hope that everyone on this call stay safe as well.
While the outlook for the economy remains uncertain, our first quarter results clearly demonstrates the significant steps that we have taken to prepare for a digital world as well as the competitive positioning and market acceptance of the center.
We're excited by the many opportunities that lie ahead to expand the sense product offerings and further build the competitive advantage of our global payments network highlighted by the successful launch of the fend levers pilot.
We look forward to updating you again on our second quarter call in July.
Thanks again, everybody for your time today have a great day.
Thank you that does conclude today's teleconference. You may disconnect. Your lines. This time and have a wonderful day, we thank you for your participation today.