Q1 2020 Velocity Financial Inc Earnings Call
Good afternoon, and welcome to the velocity Financial's first quarter 2020, <unk> earnings Conference call.
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To withdraw your question. Please press Star then Q. Please note. This event is being recorded I would now like turn the conference over to Crystal Meth Chief Accounting Officer. Please go ahead.
Thank you I like.
Hello, everyone and thank you for joining velocity financial Inc. first quarter 2020 earnings call.
Joining remotely today, our Chris Ferrara, Velocys, President and Chief Executive Officer, and marks Aniak philosophy as Chief Financial Officer.
This morning, we released our first quarter 2020 press release, and an accompanying earnings presentation, which are available on our Investor Relations website.
I'd like to remind everybody that today's call may include forward looking statement, which are uncertain and outside of the company's control and actual results may differ materially.
For discussion of some of the risks that could affect results. Please see the risk factor section of our most recent 10-K report.
Also note.
At the content of this conference call contains time sensitive information that is accurate only as of today and we do not undertake any duty to update forward looking statements.
We will also refer to certain non-GAAP measures on this call for reconciliations of these non-GAAP measures you should refer to the press release and earnings presentation on our Investor Relations website.
Finally, today's call is being recorded and will be available on the company's website later today.
I'll now turn the call over to Chris Ferrara for opening remarks.
Thanks, Chris I appreciate the intro. Thank you all for joining the call.
And I hope that you and your families are all doing well.
Before we go through some of the quarterly results.
Outline our strategy for managing the business over the next few quarters explain how we're we're dealing with the current environment and our positioning the company for a post covert environment.
Our plan is guided by three main objectives, one protect our employees and our shareholders to help our small business owners and investors manage through the crisis.
Three carefully manage capital and liquidity to ensure a long term success.
In terms of the first call, we're still working remotely and will slowly returned to our physical locations.
Everyone agrees, it's safe for our team members to do so.
For our shareholders. We are laser focused on preserving book value by managing our portfolio and funding sources.
We're very proud of the fact that we haven't [noise].
Not sold any assets at a discount or recognize any material impairments to book value.
We think this speaks to the strength of our business model and our asset quality Secondly, our special servicing team has done a great job of quickly rolling out a forbearance program for customers that are impacted by the epidemic.
We're working very closely with these borrowers to give them the best chance to continue to own and utilize their real estate.
Although we're not obligated to do this we think it's the right thing to do both morally and economically [noise].
Turning to the portfolio and how we manage going forward.
It's important to emphasize that approximately 75% of our portfolio hasn't residential component.
And we believe these properties will hold up well as they entered the current downturn with strong fundamentals.
Unlike the crisis in 2008 lending over the past five plus years, it's been very sound and we believe the real estate values in our segment.
Main relatively stable.
Our prudent underwriting and low LTV have resulted in a positive earnings impact from delinquent loan resolutions and that continued to be the case in the first quarter.
Over the next few quarters, we expect delinquencies will increase and we saw that happened in this quarter as well.
Some of that increase was the result of normal seasoning as well as the impacts of the cobot 19.
That makes.
It's important to note that although delinquency will be a drag on interest income for a few quarters.
We do not expect to recognize I'm, sorry, we do expect to recognize that income in later quarters through continued positive resolutions so essentially shifting income.
Additionally, it's important to emphasize that our primary servicers are required to advance monthly payments of principal and interest for delinquent loans in our securitization trusts.
Obviously this is a significant helped to velocities cash flow.
[noise] [noise] [noise] excuse me I'm sorry.
Lastly, we've raised new equity capital, which allowed us the time to develop several sound alternatives to permanently financed the 400 million in loans pledged to our warehouse lines.
We believe these steps will ensure that we are positioned to resume our growth again when the time presents itself.
By protecting stakeholders, helping borrowers and preserving liquidity our team is very confident in our ability to manage through this process and we plan on exiting this pandemic stronger and better than ever.
That will turn over to the presentation materials and walk you through some of those slides.
[noise] [noise].
If we go to the first page.
First quarter update.
[noise] excuse me sorry.
On a GAAP EPS basis, 13 cents a share a core earnings 29 cents a share.
Book value to just over 250 million at the end of the quarter.
Only from the IPO proceeds and retained earnings obviously important as I already mentioned no distressed loan sales are significant impairment to any of our loans.
From that from a portfolio perspective, just over $2 billion, we were having a record quarter in terms of production had to spend that in March.
And so ended up finishing the quarter at 248 million in new originations.
And net interest income 21.7 million, a 28% increase from the previous here so.
In terms of portfolio doing well there.
And financing in capital you folks are well aware that we issued.
New equity in the amount of $45 million.
Helped stabilize our warehouse repurchase agreements and and manage going forward.
Fortunately for US we did complete a securitization in February of 249 million got very good terms on that transaction and then last week as you know we used IPO proceeds to pay down our corporate debt.
So that's just the high level points out on Q1, and I'll turn it over to Mark to handle the rest of the slides.
Thanks, Chris and I'd like to.
To reiterate what Chris said, thank you for basic being on the call and again, hoping that you and your families are staying very healthy and say.
On slide four page 40 earnings deck, Chris had mentioned about the.
[noise] 13 cents, a share gaps es and core EPS of 29 second to walk through they've done a reconciliation to answer the GAAP earnings per share of 13 cents a share.
It gets item for us in Q1 was the one time debt amortization.
As Chris mentioned, we had our IPO in January we raised 100 plus million in IPO proceeds will use 75 billion that proceeds to pay down. It was previously about $153 million its corporate debt that we had the books at the end of 19, So we pay down 75 million or that corporate debt that was our highest cost.
The debt.
That was prudent thing to do to pay down half that so that we could improve and lower our debt costs on a go forward basis net debt at the time and put the debt on the books, we had a little brought southern half million dollars deferred deal costs you under GAAP, we had the deal costs on new debt.
That's it upfront you'd have to different and amortize. It has a yield adjustment overtime, but then when you pay down a chunk of that you then have to pro rata write off part of that for deal costs. So we took a 3.5 million dollar write off almost half of that $70.6 million deal cost in Q1, we pay down that debt pay down the debt.
You can honestly the right thing to do to lowers our debt costs and go forward basis.
It's about $300000 a prepayment fees, so let's call it $3.8 million of onetime hit to pre tax earnings in Q1.
Net debt pay down.
And the other three basis, a three cents a share is due to cold that 19 will get into another slide their loan loss reserve, we implemented Cecil as one one at the end of the first quarters at 331, we had to say what would I reserve. The for the ended the quarter by then coking coal that had kind of hit the scene was out there. So we had run some very strong.
Forecast scenarios for cold, but as a 331 and their loan loss reserve.
We thought was prudent to so we booked about another 900000 dollar increase to the reserve as result of these cold that stress scenarios. So that was another three cents a share what you consider more unusual item, it's not something would normally be a run rate. If you take the depth and be in the cobot scenario kind of exclude that.
On a run rate basis with more than 29 cents a share we call core adjusted earnings per share.
On the bottom right at that same pace, just really shows a progression or that the book value per share, we're ending up a year quarter end I should say about 12, 47, and you can kind of see that 13 cents Oh and the three cents a share in there from those unusual items that we just talked about and then also you can see that the new IPO offering in there as well.
On the next page on page five it's been a little more detail on the loan loss reserve. So another big item that happened in Q1 was the implementation of Cecil Laci financial did adopt the seasonal reserve methodology effective one one.
While the shareholders on here remember that we did the road show and the 10-K, we disclosed in there that we felt that the implementation Cecil would be immaterial for velocity of financial I think you'd see that I know the actual cecil adjustment for implementing Cecil was $137000. So we ended last year to $2.2 million.
Because the C. So we took it up a little over 2.3. So it wasn't very immaterial adjustment and then you can see 888000, yet, but I said about $900000 or that was the 331 addition to the reserve as a result, runny nose cold that stress scenarios in our macro economic forecast model.
So we ended the quarter about three and a half billion dollars reserve. That's an increase from the 2.2 as of yearend. So 2.2 represented about 12 basis points on outstanding you PB at the ended the quarter were 18 basis points. So effectively we increased our reserve by 50% in the quarter.
Hey, six that's going to kind of get that because it's just the business update Chris is already has given us an idea the business update going to page seven our loan portfolio bottom left has really shows a portfolio say very very consistent about 80, 990% of personal loan portfolio.
Is our held for investment product, that's the longer term 30 year.
Contractual maturity product and then 10% to 11% as a quarter end was more color held for sale portfolio. That's the shorter term 24 month or less product.
And keep in mind that held for sale piece. That's the piece, we talked about the road show we had in planning to accumulate there weren't selling it because we were looking into potentially securitization Oh that held for sale short term profits and then hold that he had that securitization market kind of a dislocated. So that's why we've got the 10, 11% at the end of the core.
The right hand side shows the loan portfolio a waterfall just shows where we ended up at the end of 2019 little over 2 billion and we grew the portfolio during quarter, one my $68 million ending up little bit over 2.1 billion I think the keeping their to show is our loan originations for the quarter were.
Hundred $48 million.
That was higher than our original forecast for the first quarter. So we slightly exceeded our forecast for Q1, even though we suspended loan operations towards the end of March. So March was not a four month for us and yet we still exceeded loan originations for the quarter based on original forecast.
On page eight net interest margin net interest margin look at the lower left hand Sharks net interest margin from Q4, Q4 2018 year out into Q1 did you climbed 14 basis points went from 432 debts to 418 back so 14 basis point decrease.
The majority that is due to an increase in non accrual loans and we'll see that in the next slide.
I think the main thing to look at other right hand side, you can see them, what will yield as well the debt costs and they see the loan yield kind of going down the talked about that student increase amount accrual, but also look at the debt costs.
<unk> cost from Q4, Nineteena Q1, 20 dropped 16 basis points and if you look into compared to Q1 of last year Q1 of 19 overall debt costs dropped 44 basis points and I think if the shows recall on the road show. The 10-K, we had said that we expected our average debt cost decreased because of our security.
And structure earlier.
Wonderful securitization structures were more extensive as a de levered they became more expensive, but the structures they've been doing since 2017. The pro rata structure is much more cost effective cost consistent overtime and as we saw the pro rata structured grow and the sequential structures pay down we expected to see.
The reduction in our overall debt costs and you'd see that is occurring but down now to an average of or eat or on the debt side for Q1 20 Twond.
On the next slide so for the loan portfolio performance.
And here you can see here's the nonperforming some overlap you see our nonperforming did go up from 66.88 percents to 8.17%. So nonperforming did ratchet up in Q1.
And it's Chris had mentioned earlier in his overview part of that was expected. Yeah. We had mentioned again on the road show and all that a lot of our portfolio is very new portfolio originations are really grown over say the last three years. So as that portfolio seasons, we expect certain amount of nonperforming growth as little as well as seasons. So some of that.
Portfolio nonperforming growth you would expect and then again another part of it is due to the cold that starting to hit in Q1.
Now as of the end of April is at the end of April nonperforming is at 9.9%. So to so and then they probably not that my follow up 817 to 9.9.
Mainly as a factor of cold there with the non accruals going up.
What our focus is though resolutions or what we really focus on not to nonperforming, who said that before our nonperformings will normally run higher than maybe say a bank or whatever but it's the resolutions. It's how we resolved nonperformings in in the 10-K, we've had charts and disclosures that's been saying over the last seven eight years over.
Sense of our nonperforming loans are resolved by either paying off.
We're paying current.
Which means we receive all of our contractual principal interest and in many cases and receive additional default interest and prepayment fees such that we've made actually made gains on our nonperforming loans over the last seven seven plus years.
Hey, when the right shows that Q1 of 2020 that rentals resolutions are still holding true to form we had resolutions of almost $18 million with a well you can see the category here between paid in full paid current areal, so and then respective gains and losses of each all categories. So 16 old 16, and a half million of that say 18 million.
Was paid in full or pay correct. That's 93%. So we're still getting over 90% of nonperforming is resolved without any losses at all in most cases again. So overall gain was about $660000 for the quarter, which based on the U.P. be resolved is about a 3.7% gain.
Q1 unresolved nonperforming loans. So that's what we're focused on and we're doing everything we have special servicing team and Chris will talk about forbearance program to make sure. This type of resolution rates continues.
Thanks, Arclight and I'm, sorry, Chris sounds like you on slide 10, So you can kind of walk through the coal that 19 release initiatives. Yeah. Thank you appreciate it.
So on 10.
Laying out here, how color covert relief plan as that's kind of played out.
[noise].
I think from.
Proxy you could we feel like we're kind of tracking what you're seeing in residential land in terms of a number of modifications are forbearance or.
Numbers.
So we see kind of similar performance there.
Roughly 7%.
Portfolio had some kind of forbearance plan.
As of the into the March.
We'll have more to work on the numbers are coming down in requests are going down. So we feel like we've hit the peak.
I think we'll end up.
You know somewhere in that kind of 12% to 15% range eventually.
Importantly, I think.
We want to just highlight how our former <unk> merits plan works vis-a-vis other folks it's not audit automatically mandatory Tory forbearance. So we're actually underwriting every request. So we have the borrower fill out an application explain their situation.
It goes to our our special servicing credit underwriting team to evaluate each request and you can see in the bottom right hand side.
Of the 477 approvals roughly half.
Full forbearance, so what that means just borrow would not have to make a payment for 90 days.
Below that you'll see a partial forbearance and that means that the borrowers, making not full amount of their payment, but some portion summer, 50% summer, 30% summer, 15% over 70%, but anyway. There's there's a there's a spectrum there are folks that are making less than a full payment and then.
Lastly, there was almost 100, where we'd be denied the request for forbearance, we didnt see that it was either covered related or that there was a.
Oh warranted reason to to grant that extension so.
We're taking a very granular approach and evaluating each request us to come in.
In terms of the forbearance, it's important to explain kind of how our program works. So the borrower all the borrowers that are approved tool.
Be granted a 90 day forbearance period.
Whether either making no to some payment at the end of that 90 day period. All of these borrowers will be required to resume their regularly scheduled payments.
So that what was is what we're kind of calling phase two in in phase two if they make three consecutive payments under that new arrangement.
At the end of that second 90 day period, So 180 days and.
Then they will be eligible for a permanent modification they'll have to again.
Apply with us an update their financial statements and materials.
And our team will either.
Oh.
Approve or deny that request and most likely approve when that request is approved we have a full range of options. We can do partial payments to catch them up we can spread the difference over a one or two year period, we could even go as far as to just tacking on the into alone.
We don't expect will be forgiving any principal or interest in any of these programs are essentially just giving them.
Short term relief to try to [noise].
It over the hump and they get back on track. So that's how the program works.
And then just turning to slide 11, just kinda wrapping up kinda hits on all of the same themes that that I spoke about at the beginning.
We've got some good options right now too.
We think most likely finance all of the whole loans that are are sitting on our warehouse lines. So we don't expect to take any impairments there.
We have to sell anything at a discount we think we'll just be able to term.
Those assets out.
I mentioned the capital liquidity and.
I will start to establish some new effect financing arrangements going forward not on a non mark to market basis. So we can get back into originating.
I think we've made it pretty clear how we're working in terms of of the forbearance into special servicing and it's really important for us to to emphasize that we're really trying to help our borrowers navigate the crisis.
And then lastly, we do have you know some folks that have approached us about managing external pools of capital and being opportunistic we will continue to look and see if there are.
Acquisition opportunities or ways that we can put the platform to work to to buy assets from maybe someone who's a forced seller or or sorrow someone else that might be needing to liquidate some assets. So.
Those are all part of the strategy and all part of the.
Initiatives going forward to make sure that we come out in a better position.
So without that kinda wraps up our presentation and I'd like to turn it back to our or monitor to open it up for questions.
Well now begin the question and answer your question asked the question My Best Star then one on your Touchtone phone.
We are using speakerphone, please pick up your handset before passing the key.
To withdraw your question. Please press Star then too.
Our first question comes from R&D to Dan event with Citi.
Thanks. It I was just curious if you'd be implemented any of these forbearance type programs in the past for velocity in in what you experience has been.
If you have and then also I, how how's the accounting treatment going to be.
For the forbearance are these going to the flow through.
And it's kind of normal interest in a on those loans is there and forbearance.
Hi, Aaron its Chris I'll take the first part and let Mark covered the second [noise].
Yes in the past we've done forbearance plans like these.
We did in the last crisis as we.
A lot of folks, we just lowered their interest rate and getting them. So I'm kind of six to 12 months of relief. We feel like you know this as it did have a different environment and so we have this plan would be.
More effective and more Oh.
Addressing the problem in the short run so [noise].
Well, we'll see how how folks perform under this plan but.
After they come into phase two if they make their payments on time.
We could certainly offer some of those folks maybe a reduced interest rate or something to try to give them more relief if it's warranted. So.
Basically using all the tools in our chest that we use last time to just trying to keep people currently keep them.
In their properties.
And so mark you could maybe handle the accounting treatment enough. These forbearance loans.
Sure, Chris Hi, Eric Hagen.
And on the nonperforming loans, our policy or process has always been the once along those 90 days more pass do we put on nonaccrual status of therefore, we.
Reverse out the 90 days interesting we have accrued and then we spend or stop accruing interest on a go forward basis until such time. This loans paid hertz. That's the process. We've always use will continue using that same accounting process going forward. So again, it's now use more pass due and in the for parents, they're not making any payments.
No we will not be accruing any gap interesting kind of alludes to what Chris. It said in his overview that it will have an impact you know to interest income in terms of the timing you know in terms that we won't be booking it upfront because it'll be on non accrual, but again based on our resolution process in the forbearance program, we fully expect to collect yet.
Late arise to be look more like deferred.
So we would actually bringing its income at a later dates it will shut the timing.
Okay.
So we should we should think about the the number of loans that are entering into the whole brain once programs or will it take you know a quarter afford these actually show up so.
So I guess you know to for instance in to Q.
And these folks wouldn't be delinquent for 90 days.
This would be more of an impact for Threeq you need before Q.
Yeah, I mean, we're still going to follow on a 90 day basis. Your point, it's always asking for forbearance now, let's say, they're paid current you're growing 30 days past due but they're saying something happen, where where they can't actually standalone. You know he said when you consider spend that you probably accrue and until it goes to 90 day, we don't want to have kind of a hybrid policy with a regular policy.
<unk>.
Now after the close to 90 days, an extra said and then they pay for another 90 days after that it's gotten a regular regular payment that's where they have to take a different look at it because they'll start paying again, but then maybe not have caught up the 90 days work that they were able to forebear.
But we have to kind of see at the time, what will that modification be will be tacked on to the end of alone as Chris mentioned well the interest rate be change. So we're almost have to look at some of these loans on a case by case basis, depending on what the circumstances as well we accrue for him.
Yeah. The other thing I had mentioned there and just the obviously all of the borrowers that are making partial payments.
Those those are those amounts will.
Basically go to suspense accounts with the surface or until they are equal a full payment and then there will be applied so.
Even though there [noise].
Forbearance plan. They there number of borrowers that will probably never get to 90 days past due if they make those partial payments in a timely way.
Okay.
I guess the other question would be on the on the defaults rising I think he said, 9.9% at the end of April.
Those are separate from the forbearance either are ones that you essentially I guess denied for Barents for.
And then the other question for that is given.
Environment that we're in and you do you foresee Oreo just kind of being somewhat stagnant at a higher level for a while you since people can't go into property I mentioned it would be difficult the.
Actually sell them.
I'll take the second one person, let mark or the first <unk>. We have we did sell scenarios in April which kind of surprised me I thought.
Might not happened at all.
I think it will be a little bit slower, but we are still seeing decent activity in inquiries on the Oreo. So.
I think it it probably will to your point stay a little bit higher for a little bit longer, but we will we do expect to see resolutions and sales.
Let me cover that the first part on 9.9% for April does that include the the forbearance requests or not.
And any could I ask the answer your question Aaron.
The 9.9 is the nonperforming rights that is of the loans that are 90 days past due or more and that's just at the end of April.
On the Forbearance program you know, it's it's something happy where they didn't make the other January February March payment and they're saying it has to do with coal bed and again as Chris mentioned all these forbearance you saw there like almost 100 that were declined as well right and then like 400 out or is it are full forbearance a partial when when they look at the reuse Nancy.
They are across the forbearance, if they feel that really is cold weather related somehow or another may grant the forbearance it could be some of those loans as of the end of April already 90 days past due 'cause it occurred all of the first quarter than the first four months right because on days past due within those first four months.
Some of those loans could be loans that they're applying for cold every week and what our special servicing team looks at all the facts and circumstances for that loan they get say Yep. We're gonna grants you some type of a forbearance partial or full so some of those could also be on the forbearance. Some cannot remember they declined 90 eggs. So chunk of that increased since a 9.9 at the end of April could have been something.
Those 98 that when the team looked at it said this has nothing to do with cold that we don't feel its related or whatever we're not going to grant for parents it could be a combination of all.
Okay, I I would just put it in the request for a as you're putting this forward and we get more data around this to have.
Some of the separate it to your for us to kind of understand.
The nature of you know, who maybe have a cure themself and he's a true delinquency, that's not likely to be cured you know via the forbearance opportunity.
If the I'll stop there thinking sure no. Thank you. Thank you for the employer appreciate it.
Our next question comes from Steve Delaney with JMP Securities.
Great Hi, everybody. Thanks for taking the question like to ask about the furlough can you comment on what percent of your total staff Oh, we're furloughed.
And then do you have some estimate of what the monthly expense savings might be bothers staff is err on the sidelines. Thanks yeah.
Hi, Steve.
Yes, I mean I'm just so yeah. So roughly let's just go about 50% of a head count.
It was furloughed.
Okay, Yeah, and so I'm not that was a 60 day furlough just to give us enough time to take it back on track hopefully and be able to get back out originating.
And I.
I think it'd be better for us to pass you. The dollar savings separately I don't have it it might at the tip of my thing Okay.
I'll give you that.
I know although.
I've never worked in HR [laughter], you probably learned more about it then you didn't want to two Oh, but 60 days.
I assume it's the Companys option.
To extend that such that it is say, it's still classified as a furlough rather than a termination and is it your.
You I assume you did it this way because it your hope that conditions will be such that those associates can come back and joined the team in an active way is that that's why you you said it up do you have before the flexibility to extended a month or two and not lose your real kinship with those you know talented team.
Members Yeah.
Short answer is yes, you everything you said cash for who they're still considered employees, they're still receiving health care benefits health care I was just yet that yeah, yeah and are our sincere hope is that yes, all of 'em <unk> rejoining.
Most of them I've reached out one way or another and said they want to and are willing to so we just need to.
To get.
Capital markets to to help us a little bit and then we'll be there.
Yeah No question.
Like Okay, Mark if you can add something more but you know I don't wanna be overly optimistic but lets assume it goes for you know a full quarter or so were three or four months I did it you know, 50% I assume it's pretty meaningful in terms of the the impact on operating expenses, yes, yes, some idea yeah, well will [noise].
We'll show you the number with you, but yes, it's a it's a big portion of obviously are okay operating expense.
Okay.
Okay, and we'll do that offline Thats fine we went into the year with our or initial models and based on past practice, we used a three year.
Average life basically kinda amortizing the portfolio.
One third of you're on the existing portfolio in our uptake model last week, we extended that to four years just to have a place holder should we want assume.
Like over the balance of 2020 that we're gonna see a lower loan repayment rate than you saw in 2019.
Yeah, I think Thats fair, yes, we would certainly expect that.
Okay, and just how many you something in the order yet what are you using internally for planning internally, we're using more like a four to five your life.
Most of the five most of the flows into five okay. Yeah, I think it had four and a half and third quarter or something okay. That's great feedback will will tweak, we'll tweak on that and just one final thing for me possible lumen acquisitions I know that's been in your and your background I'm before to these.
Now that you do those on your Nicole I mean, you mentioned, possibly doing something external which is really interesting, but let's say you you're using your capital.
For that do your existing facilities with Barclays and city, you'll obviously I assume you're buying those loans, but you're going to look to securitize them as opposed to just leaving them on on short term lines, but to your Barclays and city facilities allow you to place loans that you purchased and ball.
Okay.
They do they do okay, great permitted yeah. So okay. So your as you evaluate pools you don't have to worry about you know the backside about who's going to help you funded.
Yeah, I mean, I mean, we still would have to go to them and make sure that I'm sure a comfortable with it and everybody's onboard because obviously if things are.
Oh, and the air, but assuming that the buy something at the right price Yeah. All three of the facilities would allow for for those assets to be financed there.
Oh, Okay, great well. Thank you for the comments and you got to stay safe and be well I think Steve do you take care.
Our next question comes from Stephen lives with Raymond James.
Hi, good afternoon.
You know Chris following up on on some prepared remarks, and then and then the question. So so far kind of help trying to square.
The near term lower interest income with no potential operating you know the lower operating expenses given the furloughs just discussed.
No.
Well you can you help you don't put those two are relative to each other.
Either from an earnings are net interest income or operating income I know as a metric that you've got in your and your DAC, but can you can you give us a frame those two against each other as we look in the near term.
Yes, sure you know [noise].
From a from a earnings and more importantly, I think cash flow perspective, we expect.
To be positive. So we should we think going forward will have positive earnings.
And.
Even more so positive cash flow because of the way the servicing servicers advanced barware payments on delinquent loans, so even though.
Might not be accruing it in the income statement, where it was still still receiving the cash so.
If you net out the effects of delinquency versus.
Furlough and <unk>, we're going to end up in it and higher.
Position.
In terms of net income and interest income.
There's more of an offset from the savings in the furlough then there would be Terry deterioration in <unk>.
Delinquent assets or non accrual.
And then like I said cash flow.
Yeah, we think will even be better.
Great. That's that's helpful to have those two framed up on a net positive basis.
On the servicing expense side I believe there fix but just to be sure or is that contract with cooper of fixed rate contractors. It here it out where your cost increases delinquencies increase.
Yeah, It's just a fixed cost 30 bips so.
Great. So no no tied it delinquencies there.
No it and you know that most of the special servicing is done obviously from biasing house. So that you know that's that's how we're able to negotiate that contract.
Right great. Okay. Okay. Thank you for for clarifying that.
Let's see I think well on the the.
Sequential pay versus pro rata securitization is there.
Can you maybe talk a little bad about the dynamic going on what's left in the tales of the sequential pay.
Did those extend than we have a different blended mix as we think about cost of funds, but is they're gonna be any material difference in the repayment rates as we think about those isn't versus how we did that I know you said an extension I believe four to five years, but any specific differences between the two different types of securitizations.
Yeah. Good question I don't think you'll you'll see much different from a cost of funds perspective, I believed that the the newer more effective pro rata structures have have overwhelms the older structures and.
We're seeing paydowns across all feels.
So.
One interesting notice we saw far fewer requests for relief and some of our older Securitizations and [noise].
More requests for relief in the newer.
So.
Could be interesting to see how that plays out, but all deals are paying down and de levering and.
I'll take that Theres anything that I wouldn't model from a financial perspective that would say.
Our our future cost of capital will be.
[noise] materially impacted by.
By what's going on.
Mostly the effect will be.
In the campaign, a cash flow level, but not from a from a gap.
Income sorry debt expense level.
Right.
And just quickly what do you guys expect to pile. The 10-Q I've got a number of minor questions at all either say per later be out to get more Q.
Yeah, Mark anywhere or.
It's our intent to file the Q tomorrow here right, Chris I appreciate that Dom hope, everyone as well and have a good evening. Thanks, Steve Thank you too.
Hi, there and I know if you'd like to ask your question. Please press Star then one.
Our next question comes from Don Vendetti with Wells Fargo.
Hi, I'm.
Assuming that the oreos pick up.
And you have a slower sale market how does it work in your Securitizations can repeat real estate then the Securitizations and is there any risk or are crossing triggers and things like that.
Hi, Don.
Chris Yes, good question.
Yeah. The oreos are fully financed in the securitization. So I'm no issue there, there's no triggers or anything.
Just remains.
As an outstanding balance until until the Oreo was sold so no impact there are trigger.
Okay, I guess your disclosure.
Hi, good cash flow or manner.
Right creates an issue.
Right, where effectively still paying bond interest on that asset it until until it liquidate.
Got it Okay and then in terms of the performance can you contrast, the single family your versus small balance commercial real estate <unk>, Oh nonperforming like what's the sort of trends on them in those areas yeah, absolutely [noise].
In terms of overall performance.
We're seeing that the one to force do.
Better than the small commercial assets.
Not massively different <unk> or <unk>.
You know magnitudes, but.
Definitely better performance from the one to four assets tend to small commercial.
And then in terms of even just covered relief to the forbearance program, we had a fewer requests on the on the one to four assets.
And fewer.
Actual forbearance has completed and on on the smaller commercial assets as you probably would expect.
Got it and then you know the held for sale Alaska.
Talk about the performance there and those are the assets or finance. Thank warehouse line or what you heard thing you know sentry Oh went there I think until August or Kurt I believe right.
Right what is there a scenario where performance deteriorated couldn't off that.
You never got holidays, not there because that's really.
We're not what's working short term liquidity questions yeah.
Good question Fortunately it when we renegotiated our agreements we were able to solve for that so no we have no performance risk.
Until August 3rd on those assets.
That was eliminated from the agreements.
Okay and have you seen a little more pressure there, they're not familiar a longer term core lending, we've we've actually seen.
Pretty similar level the interesting thing there as we have seen.
A number of a payoff so I'm still continuing to see.
Folks either sell their properties are refi out so.
I would say performances is pretty similar.
Okay and securitizing.
Loans at some point, obviously that would be the preferred situation and none of us really know when those markets. We'll open up I guess are you willing who are sort of.
Last thing and take you know higher cost of funding.
On those assets, where you can I just sort of.
Wait it out.
You know how are you thinking about that yeah. Good question. We we we don't really want to wait it out we want to.
So for that sooner rather than later so were.
We've got a number of things in the works right now one of them is the possibility of unrated securitization.
We've also had another good.
Bond investor come to us.
Central rated securitization, but a simpler structure more just like any be structure. So.
We we.
We think we're going to.
Have permanent financing in place for all those assets by the end of this quarter.
Right into quarter two.
And so.
Don't know exactly yet exactly what that's going to look like but I think if I you know, 90% sure that a it's gonna be some type of financing so it'll either be show.
Rated or unrated, but it will.
It'll be termed out financing that we won't have to.
Sorry about.
Okay. Thank you Omar Yep sure.
This concludes our question and answer SASSA I would like to hand, the call back over to Chris rock for any closing remark.
Oh, just want to say thanks to everybody for participating in the call. Appreciate your support and we will continue to work hard to to execute on our plan and feel free to reach out or call with any questions you might happen. Thanks again for your time.
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