Q1 2020 Earnings Call
Greetings and welcome to Marlin business services Corp.'s first quarter 2020 results conference call.
At this time, all participants are in listen only mode.
It brief question and 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 reported.
It is now my pleasure to introduce your host lots of glass and managing director of Investor Relations. Thank you Sir you may begin.
Good morning, and thank you for joining a staple Marlin business services Corp.'s 2021st quarter results Conference call.
On the call today, it's dropped <unk>, President and Chief Executive Officer.
As long as senior Vice President and Chief Risk Officer, and Michael Gaskins, Senior Vice President and Chief Financial Officer.
Before beginning today's call, let me remind you that some of the statements made today will be for looking at our made under the private Securities Litigation Reform Act marching on five.
Such forward looking statements represent only the companys current beliefs regarding future events and are not guarantees or performance results.
Actual results.
Performance may differ materially from those projected or implied you're not in such forward looking statements due to a variety of factors, including but not limited to the factors described under the heading.
Forward looking statements and risk doctors and Marlins periodic reports filed with the United States Securities and Exchange Commission.
Including the most recent annual report on form 10-K, and quarterly reports on form 10-Q, which are available in the investor section of the company's website.
Investors are cautioned not to place undue reliance on such forward looking statements.
In this call Marlin may discuss various non-GAAP financial measures, including adjusted earnings per share and adjusted operating efficiency ratio.
Please refer to our earnings release for a description of these and other non-GAAP financial measures as well as a reconciliation of such measures to their respectively. Most directly comparable GAAP financial measure.
With that it's now my pleasure turn the call over to Marlins, President and CEO, Jeff filter Josh.
Thank you also.
As the cold at 19 pandemic continues to significantly impact People's lives across the country.
It goes without saying that we're now operating in a very different environment that one I last spoke to you in late January.
Given the unprecedented nature of the environment. We are now again my comments today will focus on the key steps, we're taking as a company to mitigate the adverse effect of this crisis on our employees customers and partners. While at the same time, maintaining a strong financial profile and continuing to build more wins for the future.
No massive all our chief risk officer will comment on portfolio performance and Mike began ski our Chief Financial Officer will follow with details on our first quarter financial results.
As the Colby 19 crisis began to escalate in early March we began to execute a series of measures to protect our employees from the effects of the pandemic. We quickly implemented our business continuity plan designed to allow the company to continue operating is normally as possible under extraordinary circumstances since Friday March.
Its twentyth Marlins entire workforce has been working remotely and all business related employee travel expenses funded.
Through the successful execution of our business continuity plan, we have not experienced any significant interruption of our normal business operations and have continued to land and support our partners and customers, although at much lower levels of activity.
We did receive some very good news late last month from the Federal deposit Insurance Corporation. When we were notified that they had terminated the capital maintenance and liquidity agreement with Marlin business back and rescinded certain nonstandard conditions in the original order ramping federal deposit insurance to the back.
As a result of a termination of disagreement our consolidated capital maintenance requirements has been reduced going forward to the standard regulatory thresholds.
We have been pursuing the termination of this agreement for quite a long time. So this is a very important timely event because it releases capital within the banks that we were holding to meet the capital requirements, which can now be used to help us better support our partners and customers.
As of the ended the quarter, our risk based capital ratio was approximately 20%, which is almost double the standard for a well capitalize back.
In addition to a very strong capital position. We also took advantage of our access to the wholesale deposit market to substantially increase our liquidity during the quarter.
The wholesale deposit market, there's remain open and very functional during the crisis and we were able to almost double our liquidity position during the quarter at a very low cost.
As a result of these capital and liquidity actions our balance sheet is now very strong and our financial position is stable.
As you would expect given the current situation our portfolio did experience higher delinquencies and credit losses. During the quarter. This was consistent with pre crisis delinquency trends that were exacerbated by the Colgate crisis.
We have shifted significant human resources to our servicing platform and continue to closely monitor the portfolio and proactively manage credit performance.
We will provide additional details about the portfolio in his remarks, and Mike will discuss the financial impact that the current environment is having on expected future credit losses in his remarks.
With respect to our current business activity, we're processing about half of the equipment finance application volume as compared to pre crisis levels and working capital loan applications have slowed to a trickle as we have significantly reduce so solicitation activity for this product.
Our equipment financer pool raises running between 40% and 45%, which is down from our pre crisis level of approximately 60%.
This reduction is due to tightened underwriting standards that we implemented early in the crisis and include limiting origination activities, which within certain highly impacted industries and with certain high risk borrowers.
First quarter origination volume of 157.4 billion decreased 24.5% year over year, driven entirely by lower equipment finance volume.
Origination volume for both equipment finance and working capital loans declined significantly throughout March as the crisis escalated and the combination of reduced demand for equipment and the lower approval rate has caused our current origination volume to fall to approximately one third of pre crisis levels.
Also although we have benefited over the past year from exceptionally strong capital markets execution first quarter asset sales of 22.9 billion were considerably lower than recent prior quarters as an investor demand diminish significantly due to the crisis.
As a result of these reduced origination and capital markets activities, our net investment and leases along stood at 970 million at the end of the quarter and our total managed assets stood at more than 1.3 billion, an increase of 6.8% from the first quarter last year.
[noise] given the reduced level of business activity, particularly towards the end of the quarter. We did take action to reduce our expenses in order to minimize any negative impact on our capital and liquidity positions.
On April nice, we announced the implementation of an employee furlough plan that impacted approximately 120 of our colleagues.
We believe this furlough is necessary to temporarily adjust our expense base to keep the company operating efficiently during the crisis.
The furlough period began on April 13th and we currently expect it to continue through the end of May.
We also implemented certain reductions in executive compensation at directors fees during a parallel periods.
And finally with respect to our partners and customers. We continue to look for ways to provide support to help them whether this crisis to date, we have received in our processing over 6000 request for payment deferrals. In addition through Marlin business Bank, we are participating lender in the second tranche of funding under the federal governments paycheck.
Protection programs through our deferral actions and our participation in the pay check protection program. Our intention is to worked proactively with our customers to help them survived this crisis.
As we navigate this evolving and uncertain environment, we remain focused on the task at hand, supporting our employees valued customers and partners, while ensuring business continuity and financial stability.
This has been a particular always stressful time for our employees and I want to thank all of my colleagues for their deep commitment to our company and our customers during this unprecedented experience.
We look forward to serving our customers in communities. During this time of need and emerging from the crisis as a stronger company.
With that I'd like to now turn the call over to loom as low our chief risk officer to discuss the performance of our portfolio in more detail Lou.
Thank you Jeff good morning, everyone.
Looking at the key asset quality metrics equipment finance on book receivables over 30 days delinquent were 1.82% up 42 basis point from the prior quarter end up 70 basis points from the first quarter of 2019.
Looking at finance receivables over 60 days delinquent were 1.05% up 19 basis points from the prior quarter and up 38 basis points from the first quarter of 2019.
[noise] following modest seasonal increases in January and February we experienced a spike in March delinquency. Following the onset of the Cobot 19 crisis for the 22 basis points increase in the 30 days delinquent pocket from February.
There were two primary drivers behind the increase delinquency quarter over quarter and year over year.
First and consistent with the observation shared into Q4 earnings call.
It was a disproportionate delinquency increase in the lower credit quality borrowers in our portfolio.
Secondly industries that we have classified is highly impacted due to the cobot 19 crisis showed a larger increase especially year over year.
I will discuss more about how we have segmented our portfolio into into the stream risk tears later in my prepared remarks.
Aggregate total finance receivables net charge offs increased in the first quarter, two or 3.11% of average finance receivables on an annualized basis as compared with 3% in the prior quarter and 1.83% in the first quarter of 2019.
[noise] equipment finance net charge offs increased by seven basis points quarter over quarter, and 115 basis points year over year to 2.79%.
Increased charge offs were observed across every part of our portfolio and all industry segments.
Transitioning out to discuss working capital loans first quarter 15, plus day delinquency increased 80 basis points from the prior quarter to 2.55%, while 30, plus day delinquency increased by 28 basis points to 1.14%.
The significant increase in 15, plus delinquency is attributed in part to the beginning of the corporate banking crisis.
[noise] working capital loan net charge offs into first quarter increased to 8.13% of average working capital loans on an annualized basis from 7.95% into fourth quarter and 6.72% into first quarter 2019.
Working capital loan charge offs were elevated across industry segments, but they remain the concentration in the transportation industry.
In Q4 of 2019, we discontinued offering working capital to new transportation customers as well as owner operators and significantly tightened criteria for existing transportation customers.
As I noted on on the earnings call last quarter, we made underwriting adjustments in response to deteriorating portfolio performance since August of 2019.
As a result of the covert 19 pandemic, we made significant additional underwriting changes in the early days of the crisis and have continued to integrate those changes based upon developments and data.
Although pandemic has adversely impacted virtually all small businesses as a class unto itself. It has had a particularly severe impact on small businesses in certain industries.
As a first step we segmented our portfolio into low moderate and highly impacted industries utilizing internal and third party data.
Businesses in a highly impacted industries, where in most cases deemed non essential by state governments and we're therefore subject to mandatory shutdown due to social distancing requirements.
Given the broad diversification of our portfolio. There are only for highly impacted equipment finance industry groupings that exceed 5% up our portfolio by net investment consisting of miscellaneous services at 12% retail at 8% restaurants at 8% and medical at 6%.
For working capital the industry groupings exceeding 5% concentration our retail at 11% miscellaneous services at 8% and restaurants at 8%.
Miscellaneous services as an amalgamation of service related businesses, the largest four digit sic code components of which are business services repair services and equipment rental and leasing.
The underwriting changes, we made both last quarter and in response to probing 19 have had the desired attractive improving booked new business credit quality by significantly reducing.
Approval rates, especially in a highly impacted industry segment, which declined from 53% in February to 32% in April for equipment Finance.
Applications in highly impacted industry segments have averaged approximately 60% of total applications since February.
As Jeff mentioned earlier, we've reallocated resources to support our collections effort and to assist with a processing of restructure requests through April 24th we have received 5670 equipment finance payment deferral requests totaling $133 million and 515 working capital.
But deferrals totaling $21 million on our owned portfolio.
We are supporting our customers by proving their restructure request provided they are current under their existing obligations and can demonstrate that their ability to repay has been impacted by the cobot 19 prices.
I'm pleased to note that the number of daily restructure request peaked in early April and have been declining since that.
It is worth noting that approximately 78% of restructures that we have book today come from customers in a highly impacted industry segment.
In accordance with the inter agency statement on loan modifications by financial institutions, working with customers affected by the Corona virus the contracts being restructured by Marlin will not be classified as troubled debt restructurings.
As of January 1st 2020, Marlin adopted the new allowance for credit losses methodology, commonly referred to as Cecil or current expected credit losses.
The adoption of the Cecil methodology and impact of the covert 19 crisis led to an increase in Marlins loss allowance from 2.15% as of December 31st% to 5.09% of total finance receivables at the end of Q1.
Mike will provide additional details in his remarks, including the impact of C.. So on Marlins financial results.
We believe that we've taken steps necessary to mitigate the impact of the covert 19 pandemic on our portfolio to the maximum extent possible.
We will continue to closely monitor developments by industry and geographic region, and we'll take further action as deemed appropriate.
With that I'll turn the call over to our CFO, Mike the Gansky for more detailed discussion of our first quarter financial performance Mike.
Thank you Liz and good morning, everyone.
First quarter net loss was 11.8 million or one dollar per diluted share compared with net income of 5.1 million or 41 cents per diluted share for the first quarter last year.
Net loss on an adjusted basis was 10 million or 84 cents per diluted share compared with net income on an adjusted basis, a 5 million or 40 cents per diluted share a year ago.
Our first quarter's results reflect a number of notable items, resulting from the impact of the cobot 19 pandemic, including a substantial increase in our provision for credit losses as we implemented the forward looking seasonal model.
Goodwill impairment charge, resulting from an interim impairment assessment due to the deteriorating macroeconomic conditions in the latter part of the first quarter.
In a tax benefit resulting from the federal stimulus package.
I will discuss each of these separately today.
As we mentioned we adopted seasonal on January Onest, 2020, which resulted in an 11.9 million increase to the beginning balance of the allowance for credit losses.
Since the seasonal methodology introduces forward looking economic forecasting into the termination of the allowance for credit losses.
Loss provisions were significantly impacted by the economic effects of the coded banking and debt.
During the quarter, our expectations for future cash flows on the portfolio changed as we expect cobot 19 to considerably impacts the credit environment and economic conditions.
This in turn increased our estimated lifetime credit losses under the new Cecil standard.
In addition to the 11.9 million increase to the allowance at adoption during the first quarter, we recorded a 25.1 million provision for credit losses.
We utilized unemployment rates and business bankruptcy forecasts as key economic inputs into our seasonal model, which have both significantly increase since the end of 2019 as a result of the impacts from the pandemic.
In the coming quarters, we will continue to evaluate the economic environment refine our outlook and update our loss reserves accordingly.
Turning to first quarter yields the yield on total originations was 12.4 or 5% up two basis points from the prior quarter and down 31 basis points from the first quarter of 2019.
The low interest rate environment continued to put pressure on yields during the first quarter at the yield on working capital loans was down 235 basis points from the fourth quarter and equipment finance yields were relatively stable up a modest four basis points.
For the quarter net interest margin or NIM was 9.34% down 10 basis points from the prior quarter and down 25 basis points from the first quarter of 2019.
Sequential quarter decrease was driven primarily by lower fee income offset by lower interest expense and a slight increase in new origination loan and these yields.
In 2019 in prior years, the company had previously recognized residual income and seeing.
The adoption of seasonal results in residual income being captured as a component of the activity and the allowance for credit losses, because the companys estimate of credit losses under Cecil takes into consideration all cash flow is expected to be received from the underlying loans and leases.
During the first quarter of 2019, approximately 1 million of residual income was recognized in fee income, whereas this activity is reflected in the allowance for credit losses in the first quarter of 2012.
The company's interest expense as a percent of average finance receivables decreased to 2.25% compared with 2.36% for the previous quarter and 2.39% for the first quarter of 2019.
Due primarily to a decrease in deposit costs and lower interest rates as well as an effect of the repayment of the securitize portfolio.
Noninterest income was 12.2 million for the first quarter of 2020, compared with 13.5 million for the prior quarter and 12.9 million in the prior year period.
The sequential and year over year decrease in noninterest income is primarily due to a decrease in gains from the sale of assets.
As Jeff noted, our first quarter asset sales were significantly down from prior quarters due to disruptions in the secondary market, resulting from Covidien team.
As we sold 22.9 million of assets during the first quarter of 2020.
Compared with 52.9 million in the first quarter 2019.
Despite the decline in asset sales, we were able to achieve strong gain on sale margins due to the interest rate environment prior to the economic disruption caused by the pandemic.
Moving to expenses.
First quarter non interest expenses were 29.9.
Compared to 16.4 million in the prior quarter and 24.8 million in the first quarter last year.
Non interest expenses for the first quarter of 2020, including 6.7 million charge related to the impairment of goodwill due to the significant decline in Marlins market value in March as the co. Good 19 pandemic escalated and the impacts are felt across the financial services sector.
Since we have one reporting unit for the assessment of goodwill impairment charge was driven by the fact that the market value of the company was below book value for a sustained period of time.
As Jeff mentioned, we proactively and aggressively managed our expenses to meet the demands of our operating reality.
In April we announced in police Carlo and certain compensation changes. It resulted in an annualized run rate fixed cost savings of approximately 9 million.
We will continue to proactively managed the operations at the impact from the pandemic continues to evolves.
Moving on to income taxes for the quarter, we did receive a tax benefit resulting from the care Zack enacted in March.
He cares act reinstated the net operating loss carry back provisions that existed in the tax code prior to the tax cuts in jobs Act of 2017.
As a result, we are able to carry back our net operating losses two years prior to 2018, where the federal tax rate was 35% as opposed to the current 21%.
This resulted in a 3.3 million dollar tax benefit as we revalued NLL deferred tax assets.
Despite the challenges we experienced during the first quarter, our capital and liquidity position remains strong.
We were able to raise FDIC insured deposits at attractive pricing in March and we ended the first quarter with a total risk based capital ratio of 19.94%.
We expect that the loan and lease portfolio continued to be stressed in the short term.
The impacts of cobot 19 or felt across the small business community, but we believe that we are in strong position to endure this environment.
During the first quarter of 2020, we repurchased approximately 264000 shares of Marlim common stock at an average price of $16 a nine cents per share.
As of March 31st we had approximately 4.7 million of remaining authorization available under the stock repurchase program that was announced in August of 2019.
We will continue to closely evaluate our capital and liquidity position relative to the capital deployment opportunity that our share repurchase program provides.
Additionally, our board of directors declared a regular quarterly dividend of 14 cents per share payable on may 21st 2022 shareholders of record as it may 11 2012.
Now turning to our business outlook for the year, given a significant economic impact and market volatility surrounded the cobi 19 pandemic, we have withdrawn our forward looking financial guidance for the full year ending December 31st 2020.
The operating environment is rapidly evolving.
And given the high degree of uncertainty surrounding the severity and duration of the pandemic at this time, we cannot accurately assess the financial impact of Cobot 19 on our business.
We are continuing to monitor the situation closely and we will provide an update on our second quarter earnings conference call in August.
In the meantime, we're intently focused on doing what we tend to support our employees customers and partners as they deal with this difficult situation.
I believe that we will manage through this difficult period, just as we get persevered through difficult periods in the past.
That concludes our prepared remarks, and with that let's open up the call for questions operator.
Thank you Jim will now be conducting a question and answer session.
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One moment, please while we pull for questions.
[noise]. This include mass low while we're polling for questions I did want to point out that I misspoke, when I was referring to the movement in quarter over quarter delinquency 30, plus delinquencies for working capital I stated that we.
The delinquency for 30, plus had increased by 28 basis points. When in fact, it had decreased by 28 basis points to 1.14%.
Thank you our first question come through line of Chris York with JMP Securities. Please proceed with your question.
Hi, guys good morning.
Morning, Kris Kris.
So a lot to discuss their or multiple developments this quarter I want to start on the positive as we highlighted Marlin business Bank received capital relief and you have about 10% of excess capital.
It's certainly a good time to habits. The fact that path a capital so how how should investors expect you to use this additional capital flexibility today and maybe longer term.
Well I think right now Chris that that excess capital still resides in Marlin business Bank and we're we're required.
To file a financial plan with the Federal reserve within 90 days to talk about what are what our capital strategy is going forward. So we're we're working on that as we speak.
So at the moment in the bank, it's gonna stay in the bank.
Until we do the financial plan and hopefully by the time to financial plan is done and its submitted you know will have a better sense.
As to exactly what.
Colgate impact on our portfolio will be we'll be able to then make sort of longer term decisions about about what to do with that that excess capital.
Of course recall, but it always our intention always wants to ultimately.
Either utilize it to support growth or to a return it.
We try to investors and you know I think.
When we're on the other side of this that that intention probably won't change.
Okay fair enough.
Second question is what was the monthly total finance origination volume in the quarter.
January February March and then in April as well.
[noise] [noise] [noise], Mike I don't have those figures with me.
Ah yes.
Yes, so as as Jeff mentioned for April we reduce the origination volumes were reduced.
To about a third so we're looking at equal origination volume of around $20 million.
And.
I don't have the monthly figures handy with me right now.
So [noise].
Another way to ask it is so wasn't marched down to a third as well, presumably there wasn't a third decline in January and February.
So just trying to understand the a decline in March.
The decline hardly silly.
I've got.
No I was just going to say, though.
When we talked about the competitive environment during the fourth quarter, Chris on our last call. You know we were we talked about the fact that there'd been increasing price competition during that quarter and.
Environment continue.
And you already in February, but obviously the.
The impact from cold it Didnt really.
Didnt really impact the the origination volume until really the last.
Two weeks in March.
And then obviously in April as well.
So okay. That's an interesting development. So then the decline in the first quarter could be characterized as more competition related.
As opposed to covert related yes, it's it's both it's a combination of the too.
Okay.
And then I, we know that you've invested in your digital infrastructure over the last couple of years, but I'm curious what you think the approximate percentage of your operation the platform exists today from employees, either working from home and those for load it versus maybe here.
Platform capacity in January said, another way I mean, if you were operating 100% production capacity in January to meet demand what percentage of your platform.
Operating today.
Good I'm digital part of the platform, Chris or just the platform in total platform in total.
Yeah, So so where we said we've got the the application.
Unit application volume is running at about.
55, or 60% of pre recall at levels that combined with the reduced approval rate gets us to about a third of origination volume. So oh are so the business activity is down significantly which is one of the reasons why why we did approval was to was to basically right size the production capacity.
The business to the current reality.
Okay, I understand really kicking that but so this question do you need from Mike and if here I know you provided in your life $9 million, though compensation reduction is that roughly about 1 million 0.2 for the second quarter.
It would be well the it would be the 9 billion annualized so it would be a little bit more than that you know about two and a half.
Good point too.
Okay.
I calculated about 48 days from April 13th to May 31st Okay.
No, but what we wanted to provide there Chris was the annualized number of the total actions that you could correlate that with the duration and severity of the crisis.
Okay.
Like I talked a little bit about near historical investment in the digital infrastructure does this environment caused me to delay any capex or investment spend.
No no.
That significantly I think what we're discovering through this experience is exactly how robust our existing.
Digital capabilities are because.
By definition working virtually.
You know the businesses being forced rely much more on its automation tools and its and its and its digital tools at least still wants it could or outward facing who our customers. So I think I think one of the positive impacts of this is that is forcing the platform to operate in a different way and to take full advantage of.
The digital capabilities that we've already bill.
And I would say office as well as we look forward, which you know the senior teams perspective sort of pivoted from creating a stable or financial profile and business operations to begin looking more forward about two weeks ago in it.
And part of that looking forward is determining how we actually potentially accelerate the digitization of the platform the complete digitization of the platform.
Okay.
Moving away from operations as I see that your participant in the second round up the PPP, but you weren't first participant in the first round. So why did why didn't you participate in the first show.
Well, we have Oh, we havent SP license with bank and but we've never operationalize. The SK license. So were you know we needed to to actually stand up the operational platform up to be able to to participate and so it took us about three weeks.
To figure out how to do that can do it appropriately.
And do it in a way that was that would that we were originating consistent with the rules, which were changing a lot during that three week period.
And so we were counting on the fact that there was going to be a second.
A second part to the PPP program, so even though the initial allocation went quickly.
We continue to stand up that you know our platform to be able take advantage that program under the belief that it would there be a second piece to it which there is and that's what we're originating in now.
Make sense and then.
How does your deferral program work the monthly interest deferral simply due at the end of the 30 or 60 day period or are you, adding the interest at the principal.
Yeah were calculated the restructure recalculate the payments so that the yield the original yield is maintained.
Okay.
What and then just another question on April what is the percentage and maybe this was provided by lower Mike, but what does the percentage of payment to probably been in April.
[noise]. So we're still processing I think I mentioned in my remarks, Chris the number of.
Applications that we're processing I don't have an exact number at the moment as to how many we've done.
But were there there's still a significant number of restructurings in the Q.
There were a that we've approved it's just a matter of documenting and booking.
Okay.
And then last question on the PPP program here is you know I know fraud risk.
Been reported for those in first trial into the program and Youve occasionally had some some <unk> broad your business recently, so how should we get comfortable that you'll be able to mitigate progress from your participation in the PPP.
[laughter], so I'll take that one so when it first of all I think it's important to note that we're focusing this product offering on our existing customers. So we benefit from the fact that we have an existing relationship.
And we leverage the data that we have with the customer by doing certain things like verifying.
The payment instructions that we're getting from the customer with the account that they're using to make payments to us on a monthly basis.
And we're embedding verifying the authenticity of the person that we're interacting with also make sure that to their same person we worked with our existing transaction. So I have to say I think we given our approach where soup substantially mitigating.
The risk a certainly from an identity standpoint, and then we're taking a very robust approach towards reviewing the documentation that they're required to provide.
And for Us to do the good faith review of their payroll information, which is the driver of the loan them out. So I think we put in a very robust process should largely mitigate we must come from.
Yes, good color. Thank the clarification on providing PPP loans to existing customers, it's important to us.
Moving a credit I appreciate the portfolio data that you did disclose on the industry exposure and there are a lot of moving parts obviously.
But how much of the provision.
This quarter was due to economic changes versus maybe portfolio downgrade you started to see in March.
Yeah, So yeah I think.
Oh my.
Got it.
I was going to say.
We're not talking about feel out here, we're talking about charge offs is that because at the question.
Allowance for the previous all out essentially that the alone Phil.
Oh, Okay, I'll, then I'll pass it Tonight.
So Chris.
We do as you'll see when we file our 10-Q, we do provide a fair amount of detail in the seasonal disclosures, but if you split it between the equipment finance.
Transportation and working capital portfolios.
We had an economic adjustment and equipment finance of 10.8 million.
And then we had qualitative adjustments for the transportation and working capital portfolios of 2.9 million and 5.5 million respectively. So of that it's about $19 million that is due to the changing economic conditions in the first quarter.
Great color and then I recall, a net charge off ratio target up maybe 300 basis points on equipment finance 600 basis points on funding stream using your models. So I'm looking to see if you have any changes in your lifetime credit loss expected expectations on your.
And you know this now unprecedented condition.
Okay.
Yes.
I've just described.
Yeah, Okay, Yeah that's.
Go ahead.
I was just asked her clarification on the question could you give us.
Through that long lead time, Chris.
Yeah. So I recall historically you had a.
Net charge off ratio target of about 300 basis points.
On equipment finance and 600 basis points on funding stream.
So I'm looking to see it in your lifetime credit loss expectations in your model I think if this condition has changed those expectations.
Okay.
Well first of all I would say it yeah, I think what we've talked about in the past versus 600 basis points for working capital was on an annualized basis and.
Ranging 180 to 200 basis points for equipment finance on an annualized basis and a good economy.
So both those are in a good because the economy situation.
Of course.
Yes, the the whole situation has changed now and it's it's very difficult to anticipate given the nature of this crisis, what is going to look like.
No equipment finance.
And the great recession.
In the downturn peering were averaging in the mid fours.
So, but it's really hard to say if that's going to be similar this time I mean, there there are some similarities and there are some significant differences in terms of the number of industries that had been impacted.
You know there's a lot of speculation you know the question is this going to be a you Werent V.
There's a feeling that it's going to be severe in a short term because so many business since were shut down.
But that is the economy opens up there's going to be a faster come back and we experienced the great recession. So you know we're modeling to the to the best extent that we can but there is there's a lot of unknowns. We said, we don't have with respect to working capital we don't have the.
For instance, the downturn like we had with equipment finance other we've said in the past.
That we could expect it to you know b three to four X. Oh of what it could be in a in a downturn, if we compare no metrics and great recession, but you know that's it's really right now it's just too soon to say how big an impact. This is going to have on the performance, especially in light of all the.
Government support all of the encouragement for restructures.
I mean, if you look there's a fair number of our restructures that are two other medical community like Dennis you know, there's a lot of good businesses out there that have requested restructures that we think our businesses that are going to survive and it's just a matter of getting through this this period. So it's a long way to say, there's a lot of unknowns.
But you know what we'll just have to wait and see a little bit.
What develops over the next few months.
Alright fair enough Blue color is very helpful. Last question no I've had multiple here.
Going to Haga Q is on competition I sent him capital, which I tend to think was one of your most direct competitors with recently acquired that regions and February from Warburg Pincus. It back that so they're typically had been a lag effect from increased competition when an independent but so far is acquired by a bank. So how do you.
Expected centene with the new parents to impact your business, especially given the fact that you just said Q1 and key or January and February.
Origination volume was impacted by competition.
Yeah, I think that so so that acquisition just closed two or three weeks ago.
And you know I expect that sent the M is going to become a you know even a bigger competitor now that they'll have access to retail deposit costs.
Then they have in the past so I think it's just the continuing trend of seeing these kinds of platforms become in parts of banks.
And in marrying the product expertise in the market access with the with what is proven to be extremely low cost of funds. So you know that debt that is an important structural change in the market Chris.
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Okay, and I mean, given all those either you just described as the do those reason and then maybe a sentence acquisition or even the economic backdrop change your perception about operating as an independent publicly traded financial company.
Oh, Yeah, we've we've talked about this in the past you know I think that you know.
Marlin is always evaluating sort of capital structure, and its ownership and and and where it can.
Be the most competitive and.
Certainly I think as we see as we see this segment of the commercial finance space, you know being acquired by banks that that definitely is something that is having an influence on the way we think about that.
Great. That's it for me no, it's an unprecedented time, but multiple.
Hi high level of uncertainty so I appreciate your cantor.
Chris I did want to follow up.
On the equipment Finance Restructures, we are now added about 1700 that a good process in total.
Again, there's still.
Dozens in acute.
Okay. Thank you.
Thank you we have reached the end of the question answer session I would now like to turn the floor back over to management for closing comments.
Thank you for your support and for joining us on todays call. We look forward to speaking with you again, when we report our 2022nd quarter results in late July.
Thanks, again, and please stay safe and healthy.
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