Q2 2020 Midland States Bancorp Inc Earnings Call
[laughter].
Good morning, ladies and gentlemen, and welcome to the Q2 2020, Medellin States Bancorp earnings Conference call.
Hi, all the participants are in they listen only mode. Later, we'll conduct a question in that so session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then zero on your Touchtone telephone as a reminder, this conference call this being recorded.
I wouldn't like to turn the conference over to your host Tony Rossy from financial profile.
Thank you Whitney good morning, everyone and thank you for joining us today for the Midland seems Bancorp second quarter 2020 earnings call joining us for Midlands management team or Jeff what rig President and Chief Executive Officer, NERC Lemke, Chief Financial Officer.
We will be using a slide presentation as part of our discussion. This morning, if you've not done so already please visit the webcasts and presentations page a bit Lynn's investor relations website to download a copy of the presentation.
Before we begin I'd like to remind you that this conference call contains forward looking statements with respect to the future performance and financial condition of Midland seems bancorp and involve risks and uncertainties, including those related to the impact of the cobot 19 pandemic.
Various factors could cause actual results to be materially different from any future results expressed or implied by such forward looking statements.
These factors are discussed in the company's FCC filings, which are available on the company's website. The company disclaims any obligation to update any forward looking statements made during the call.
Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures with that I'd like turn the call over to Jeff Jeff.
Good morning, everyone welcome to the Midland States earnings call as we always do on these calls I'm going to start on page three but I want to go somewhat out of order for a minute because of the heightened focus on asset quality and loan loss reserves. During this pandemic. The good news is not for now we're just not seeing the tie.
Asset quality deterioration that some might have expected and our diversified revenue helped maintain total revenue.
The bad news of course is that we're not fully through the pandemic and sitting here today. It is hard to know if things are going to get better or worse in the coming month also given that some states are now delaying or canceling. The re opening plan. We believe it is prudent to taking more cautious view of our seasonal modeling in broad terms.
And now appears that the a slow recovery is far more likely than a quick V shape return to more normalized economic activity.
Principally based on that more cautious view, we've increased our reserves by 22 basis points to 1.21% of total loans, excluding loans with government guarantees or other credit enhancements such as our Greens Guy portfolio. We will address these topics in greater detail as we go through that.
Including providing a good look at our loan portfolio.
Getting back to the beginning on slide three in the highlights the second quarter. Our team has been able to execute well under challenging conditions and is doing an excellent job of servicing our clients capitalizing on new business development opportunities and maintaining disciplined expense control.
As a result, we saw positive trends in the number of key areas, including significant balance sheet growth, increasing revenue and lower expense level. These trends combined to produce a strong quarter earnings as we generated $12.6 million or 53 cents per diluted share.
During the second quarter most of our loan production focused on helping clients access funding through the paycheck protection program. Our PPP production efforts drove strong growth in both total loans and deposits.
Within our existing portfolio, we continue to implement the heightened loan monitoring program to get regular updates on financial performance of our borrowers overall credit quality is holding up well with just a slight increase in nonperforming loans in the quarter, while a great deal of uncertainty remains regarding the duration of the pandemic.
We're seeing some encouraging signs across our markets and customers and we continue to see strong pipelines across our business units and with improved performance in the markets. We saw a strong increase and assets under management in our wealth management business.
Commercial lenders have reached out to more than 75% of borrowers who have cobot related deferrals between 60 and 65% of the loans that we granted deferrals on in April and May.
Have either resume making payments or expected to do so.
In the pockets of the economy, where we are seeing solid loan demand. We're doing a good job of capitalizing on the new business development opportunities, which led to strong quarters from a number of our different business lines.
Our equipment Finance group had a $122 million of loan and lease originations, which represents the largest quarter of loan production. Since we expanded this group in 2018.
Driving this increase was an uptick in our core market of construction and manufacturing.
Our commercial up A.J. group had a $135 million and rate locks with rate modifications accounting for about half the rate locks in the quarter.
Our residential mortgage banking group had its most productive quarter in three years as it capitalize on an increase in demand for refinancing, which represented approximately 65% of total residential loan production in the quarter.
Regarding our strategic initiatives before the pandemic hit we had laid out a number of issues that we would be focused on this year to some extent the environment created by the pandemic has helped our progress in a number of these areas.
We've been able to continue to improve our deposit mix has all the deposit growth. We have seen has come in our lower cost categories.
And the expense discipline, we have maintained combined with our positive trends in revenue generation produced strong improvement in our efficiency ratio to 58.5% in the second quarter.
While our primary focus remains on helping our clients and communities manage through the impact of the pandemic.
We're very pleased that we've been able to make solid progress on the long term initiatives that we have in place to enhance our returns and drive shareholder value.
Moving to slide four I wanted to review our efforts in the PPP program.
Through the end of June we have originated more than 2300, PPP loans for $313 million to companies that employed an aggregate workforce of more than 20000 people.
Some clients return their PPP funds, so our balance at the ended the quarter was down in $276 million.
We have collected 9.7 million in fees with our average fee being 3.5%.
The PPP program had a significant impact on our financial results in the quarter. So on the slide we've provided a summary of the effects that had both positively and negatively on various line items and metrics.
Turning to slide five will provide some additional information on our loan deferrals, we had just under $900 million in deferred loans, which represented 18.6% of total loans.
57% of these loans were commercial real estate, 33% were commercial loans, and 7% where consumer loans.
We had just under 800 million in deferred commercial and commercial real estate loans as of June Thirtyth.
Which represented 22.7% of our total commercial and commercial real estate loans.
By industry, the largest area of deferrals have been in the hotel motel and real estate rental and leasing sectors with no wonder no other industry accounting for more than 10% of total deferrals.
As I mentioned earlier between 60, and 65% of our deferred commercial loans have either resumed making payments or expected to do so.
And in preparation for the evaluation of deferral extension requests, we're gathering current financial data and cash flow forecasts from our borrowers.
Based upon our analysis of the data we have collected at this point, we estimate that approximately $299 million of loans will need a second deferral. So it's possible that we will show a substantial reduction in loan deferrals. When we report our third quarter results.
Second round of deferrals as needed we estimate that more than half will be in the hotels and motels and transit in ground transportation business.
As those borrowers continue to see revenue and occupancy use trends below normalized levels.
At this point am I turn the call over to Eric to provide some additional detail around our second quarter performance, Eric Thanks, Jeff and again good morning, everyone. Before I begin I would like to mentioned that we have updated the data for a number of slides that we provided in the earnings deck last quarter, but.
We've included them in the appendix this time since that information hasn't changed a great deal.
Today's call will focus primarily on the second quarter trends and some new disclosures that we have provided starting on slide six will take a look at our loan portfolio, our total loans increased $463 million or 10.6% from the end of the prior quarter.
The PPP loans contributed $276 million to our loan growth outside of the PPP program. The primary drivers of loan growth, we're equipment finance loans and leases.
Consumer loans, and 104 million dollar increase in the utilization of our credit line that we extend to an originator of commercial FHLB loans.
On slide seven we have provided some additional data about our equipment finance portfolio through this business, we provide financing solutions on a national basis to equipment vendors and end users. We had total outstandings of $751 million at June Thirtyth with away.
Weighted average interest rate of 4.84%.
The average loan or at least sizes, just about $130000 and the largest credit in the portfolio is 1.6 million.
It's a well diversified portfolio across industries with trucking and manufacturing being our two largest concentrations at about 20% each.
At June Thirtyth, we had $233 million of deferrals in that portfolio, which represented about 32%.
These deferrals are weighted towards borrowers in the transit and ground transportation trucking manufacturing and healthcare industries.
And from a geographic perspective, the two states with the most deferrals were California, and Florida, comprising 16% and 14% of the deferrals, respectively with no other states accounting for more than 10%.
In the first round of equipment financing deferrals, we generally granted each borrowers request of it seem clear their business was likely to be hurt by the pandemic for any second deferrals, we plan to do additional analysis for each request.
At this point based on our customer surveys were expecting about $77 million of the equipment finance portfolio or approximately 10%, we'll need a second deferral and will be weighted heavily to the transit and ground transportation sector.
On slide eight we've provided an overview of our hotel motel portfolio.
Including both the commercial real estate and commercial loans in this industry, we had $173 million of loans outstanding as of June Thirtyth.
We have 57 loans in this portfolio with an average loan size of $3 million the largest loan in the portfolio is $11 million and that loan has an LTV or a loan to value of 56%.
Overall, it is a very conservatively underwritten portfolio with an average well LTV of 54%.
And more than 90% of the properties are national chains.
We extended deferrals on $146 million of these loans and given that business and leisure travel remained below a normalized level at this point, we estimate that approximately 124 million of these loans will require a second deferral.
Looking at slide nine we've provided some information on the consumer loan portfolio that we have through our relationship with Green Sky.
Most of these credits are low dollar installment loans use for home improvement projects.
At June Thirtyth, we had $681 million outstanding in this portfolio with an average loan size of just under $2300. The average FICO score these borrowers in 746.
The portfolio has proven to be a very strong performer throughout the pandemic as the delinquency rate has declined every month this year and stood at just 34 basis points at June Thirtyth.
The structure of our agreement with Green Sky provides for very strong credit enhancements in this portfolio. The first enhancement is a cash flow waterfall structure under which the cash flow from the overall portfolio is applied to loan servicing fees credit losses, and an agreed upon target margin for all loan originator.
Buttons.
Only any excess cash flow is payable to green sky as an incentive fee and due to the strong performance of the portfolio Green Sky has earned incentive fees in 17 of the past 18 months, including every month this year.
The second enhancement is the escrow funds held by Medlen, which are available to cover any deficiency in mid ones principal core target margin. These escrow funds or increased or decreased monthly based on the originations and pay offs and typically range in the 4% to 4.5% range of total Green Skywest.
Owns held by Midland at June Thirtyth. This escrow account stood at $29.5 million, which represents 4.3% of the total loans in the portfolio.
This has been a very successful program for Midland as we have experienced no charge offs in this portfolio in the nine years that we've been partnering with Green Scott.
Turning to slide 10 will take a look at our deposits total deposits increased $292 million or 6.3% from the prior quarter. The growth was entirely attributable to increases in core deposits, primarily from commercial customers with a portion of that being PPP funds that were deposit.
The that the bank.
The growth in our core deposits continued the positive trend in the re mixing of our deposit portfolio as we use core deposits to replace 76 million of higher cost Cds that ran off during the quarter.
We've also had a significant decrease in the cost of funds.
Following the feds lowering of rates in March we continued to aggressively reprice deposits into the second quarter and between Cds that matured and rolled over into lower price Cds or other transaction accounts and other deposits that repriced lower we've we've brought our cost of funds down from 74 base.
Basis points to 45 basis points.
Looking at Slide 11 will walk through the trends in our net interest income and margin.
Our net increase interest income increased 5% from the prior quarter, mostly as a result of higher average loan balances and the reduction in interest expense, excluding the impact of accretion income our net interest margin declined 12 basis points.
This was primarily due to excess liquidity that was invested in lower yielding earning assets. The addition of low interest PPP loans and the repricing of our variable rate loans.
This was partially offset by a 29 basis point decline in our cost of deposits due to reductions in our deposit rates in the improved mix of deposits.
Approximately a 193 million of Cds with a weighted average rate of 2.14% matured during the course of the quarter approximately 60% of these Cds renewed at lower rates and the remaining funds flowing into other transaction deposit accounts.
And finally on an accounting note we are amortizing the PPP loan fees over the 24 month term of these wells.
Turning to slide 12, I'd like to provide some information on some of the factors that will impact our margin going forward. We also have another a number of other opportunities to lower funding costs than the third quarter, we have $107 million and time deposits with a weighted average rate of 1.36%.
That are scheduled to mature over the course of the quarter.
We also have $183 million in money market accounts that have teaser rates of 1.6%.
That are scheduled to reprice this quarter.
Also as we mentioned last quarter in June we had $30 million of sub debt become callable, which we did not call and those notes have now moved to their specified floating rate structure, which will reduce the interest rate by approximately one third 130 basis points.
As an offset we plan to continue building liquidity on the balance sheet, while we manage through the impact of the pandemic, which will continue to put pressure on our net interest margin.
But when we start to see PPP loans for being forgiven, we will accelerate the recognition of the loan fees, which will benefit our margin.
Turning to slide 13, we'll look at trends in our wealth management business. Our total assets under administration increased $286 million from the end of the prior quarter, primarily due to improved market performance. Our total revenue was up slightly from the prior quarter due to the increase in total assets.
It was partially offset by lower trust fees. Following the larger amount, we recognized last quarter related to tax preparation.
On slide 14, we'll take a look at noninterest income.
We had an increase of 125.6% this quarter. Following the 8.5 million dollar impairment of commercial mortgage servicing rights that reduced our noninterest income in the prior quarter, excluding the impairment the increase of 13.5% was primarily due to the strong performance.
Most of our commercial FHLB and residential mortgage banking groups that Jeff previously discussed.
Turning to slide 15 will review our non interest expense, we had a couple of minor adjustments this quarter to Backout noncore expense items for a small loss on residential mortgage servicing rights held for sale and integration and acquisition expenses after backing out the adjustments for each quarter, our noninterest expense declined by us.
Approximately $600000 from the prior quarter.
The decrease was primarily due to lower salaries and employee benefits expense, resulting from the full quarter impact of the staffing level adjustments that we made during the first quarter.
With the strong revenue generation, we had this quarter and the decline in expense levels, our efficiency ratio improved to 58.5% than the second quarter.
Turning to slide 16, we'll look at our asset quality trends as Jeff mentioned, we continue to see relatively stable trends. Despite the impact of the pandemic, our nonperforming loans increased by approximately $2 million during the quarter due to two loans totaling $7 million being moved to non performing.
Offset by transfers to other real estate owned.
But as a percentage of total loans, our nonperforming loans declined to 1.25% from 1.33% at the end of the prior quarter.
We had 3.1 million of net charge offs or 26 basis points of average loans.
We recorded a provision for loan losses of $11.6 million as we continue to build our level of reserves in light of the pandemic.
At June 30th approximately 96% of our allowance for credit losses was allocated to general reserves.
On slide 17, we show the components of the change in our Hcl from the end of the prior quarter.
Well increased by 8.6 million and strengthened our reserve to 97 basis points of total loans from 88 basis points at the end of the prior quarter approximately 5.4 million at this increase was attributable to changes in our portfolio largely resulting from new loans down.
Grades to risk ratings and loan deferrals.
The other major driver of the build was $2.9 million added as a result of a downgrade in the economic forecast.
On slide 18, we show our Hcl broken out by portfolio.
Relative to last quarter. The most significant reserve builds occurred in our owner occupied and non owner occupied CRM portfolios, which now have allowances of 1.27% and 1.37% held against them respectively.
In addition, as previously mentioned by Jeff at the beginning of the call when excluding load loan portfolios with certain credit enhancements or government guarantees, including the PPP portfolio, our green Sky loans and a commercial FHLB warehouse line, our Hcl increased a 1.21 per.
Or set of total loans compared to 0.99% of total loans at the end of the prior quarter.
And with that I'll turn the call back over to Jeff, Jeff Alright, Thanks, Eric.
I will wrap up with a few comments on our near term outlook and priorities first and foremost we will continue to operate with a conservative approach, while a pandemic continues and maintained strong capital and liquidity positions in a high level of reserves.
And we will continue to support our clients with our loan deferral programs and by helping them apply for forgiveness on PPP loans.
All the pandemic is ongoing there are many things outside our control such as loan demand, which makes it difficult to provide any projections about what sort of loan growth we might see over the second half the year.
But we are focusing on those things that are within our control, which are consistent with strategic the strategic initiatives, we outlined at the beginning of the year before the pandemic kit.
Namely leveraging technology investments to improve customer experience.
Reduce expenses and increased operational efficiencies.
We've been very productive in this area over the first half of 2020, while enabling much of our staff to work from home.
Some of the notable technology initiatives, we have completed include.
Launching a new online residential mortgage application portal, which has improved our efficiencies and profitability in this business during a time of increased activity.
Making improvements to our online and mobile banking platforms, including enabling retail customers to process wire transfers.
And implementing a new customer experience tool that we are using to accumulate and evaluate customer survey data.
Creating in launching an online portal for PPP applications in a very short period of time as well.
And we have additional projects planned for the second half of the year, including launching a new online account opening feature for retail customers.
Collectively the progress progress, we're making and leveraging our technology investments is resulting in significant improvements in our operations that we believe will pay dividends for years to calm and enhance our ability to offer customers a superior banking experience.
Aside from the technology initiatives that produce cost savings. We also continue to evaluate all areas of our operations to identify other opportunities to reduce expenses.
We have already been able to reduce expenses for certain portions of our infrastructure spending including data and communications.
And now with the pandemic accelerating the utilization of digital banking tools by our customers and more of our back office support staff working from home.
We believe we will have additional opportunities to evaluate our real estate needs going forward over.
Over the long term, we believe this could provide further opportunities to realize additional efficiencies in our operations.
Increase our earnings power and improve our overall level of profitability.
With that we'll be happy to answer any questions you might have operator, please open the line.
Ladies and gentlemen, if you have a question at this time. Please press the star and then the number one on your touched all telephone if your question has been answered.
So from the Q. Please press the pound Keith.
Your first question is from the line of Terry Mcevoy with Stephen.
Hi, guys. Good morning, good morning, Terry.
First off thanks for all the extra slides some really good data in here. So I appreciate that.
Maybe start with the outlook for the net interest margin result that seems like a lot of opportunities on slide 12 here to reduce the deposits, but then Eric you mentioned kind of the buildup of excess liquidity, so kind of any thoughts on the net interest margin either winds and with or without the impact of ERP over the near term.
Yeah.
Yes ill take a shot tearing and Eric.
Okay, maybe add to it but I think we're we're hopeful that we're margin is today, we can sort of hold with the.
We have will have liquidity build but where we also have some opportunity on the on the deposit side as we laid out in that slide.
So I think we're we're we're thinking that margin because sort of hold for with where we're at right now that's excluding.
The forgiveness of PPP that obviously will help the margin going forward.
Our from one dollar perspective dollar margin, we think that could we have good good shot at holding dollars in the third quarter, excluding PPP as well.
Okay and then.
A follow up fee income any thoughts on kind of third and fourth quarter trends.
Within some of the retail fees were down other areas kind of had some strength and kind of for the full year I believe in the past you've talked about feature a commercial and some sort of range on a full year basis and any thoughts on on the on that business line.
Yes, I would I think we continue to think thats sort of a $3 million to $5 million quarter range with of sort of the $12 million to $20 million annual range.
And I think that we still sort of think think of the business that way.
Residential mortgage were seeing a nice uptick, but we've done a lot of work in that business over last year to sort of physician at four.
Actually a time like this and so we're seeing those results on on the fee side residential fee side or the retail fee side and we aren't we did see a nice we had a nice quarter in interchange which was good to see.
And I think on the service charges and NSS NSF fees that was sort of down I think primarily because of a stimulus payments coming into a lot of retail accounts and increasing.
Balances so.
I'm not sure we're not quite sure where that.
I mean that line item is going to go.
But yes, we're encouraged on on all the other line items wealth management at a really good quarter.
Given the market volatility that we've seen over the last six months so.
We're happy with how our fees came in the in the quarter and have fairly optimistic on the rest of the year.
And then just one last quick question within leasing could you just run through transit in ground passenger kind of stands out here on the the second deferrals being at 71%, what specifically is well within that portfolio.
Yes, Terry this is there a good good questions. So sometimes internally we call that are especially vehicle industry as well. So there are charter buses.
In that group there are lumos in that group their hotel shovels in that group.
That industry as you know it's been hit incredibly hard by this pandemic and Thats where were seeing the bulk of those deferrals.
I suppose there is a possibility for additional stimulus in that industry over the course of the next month or so, but it's hard to know if that will happen or not.
But but thats the group charter buses and limos.
Perfect. Thanks, everyone.
Thanks, Eric.
Your next question is from Nathan Piper Sandler.
Hi, guys good morning.
Good morning, good morning.
Hoping to start.
Slide 17, just looking at the reserve.
Increase and the drivers there.
Just curious if you guys can kind of run through the changes and.
Chris as classified in the quarter and how that impacted the.
Hi.
Bill this quarter.
Yeah. Nathan this is Eric I'd be happy too so.
As we process deferrals and as we did three option in our various loan portfolios that had additional risks such as hotels.
We had several downgrades during the course of the quarter. So if you look at our problem credits or special mentioned credits they were up about $120 million over the course of the quarter.
And when you look at our Hcl modeling, we're using probability of default loss given default metrics in that portfolio, which increase upon those downgrades.
So we saw quite a few downgrade to that special mentioned category. We saw some additional downgrades to sub standard, but that was less than about $20 million or so.
Okay got it sounds like the hotel portfolio drove a lot of that I guess within that context. Just curious if you guys have be specific reserve against the hotel portfolio during the second quarter.
Yes, I don't think I have that in front of military.
We have not put a lot of those on any sort of impaired list at this point because there are within that co bid deferral period that we have in the say back. Those are included primarily in our non owner occupied group in the.
Portfolio.
Okay understood and then maybe just changing gears on capital.
C. One I was looking down the quarter with the share repurchases in the quarter just curious.
On the uptake to continue on the.
With share buybacks at this point, just given that declining capital sequentially.
Yes.
Yes, I think as I look at it look at our risk based capital ratios in the sort of held in in the quarter, both at the bank and and if the holding company.
We had balance sheet growth in the quarter of $437 million. It all came in in zero risk weighted assets. So I think that.
We like that so we're earning.
Margin dollars on on on assets that don't have a lot of risk in terms of so thats. Good are our program. Our buyback program is still open and we will still continue to evaluate it each and everyday in each and every quarter as we move forward. So.
Okay.
Helpful. I appreciate guys.
And the questions. Thank you.
Thanks, David.
Your next question is from Michael Perito with KBW.
Hi, good morning, I check in our thanks for taking questions morning, good morning.
I wanted to follow up on maintenance last question that little bit can you maybe provide a little bit more color cap on kind of like.
The appetite for share repurchases in the prior quarter was it was it simply just price just because it doesn't seem.
With the comments about the uncertainty and trying to be conservative.
It's quite if there were some loan growth.
Dividend to share purchases quite a bit of capital deployment going on at a time when a lot of your peer you're trying to preserve capital. Just curious if you can maybe expand on that supports thought process. They are little bit more if you don't mind.
Yes, I mean, I think again the other it our risk weighted capital ratios were flat. So the balance sheet growth more than came from zero risk weighted assets. So we're not taking more risk with growth on the balance sheet. So I think thats, that's an important part and.
Price, where our stock as I think we bought shares back in the quarter at 81 cents to tangible book So.
I think be between those those two things.
And our appetite is not a big appetite, but.
We have our programming we're going to continue to sort of look at look at our capital I'll look at our credit book and look at the price of our stock and make decisions.
Okay. Thanks, Thanks to the extent out there and then on on the expense side, you alluded to a few things kind of a two part question I guess, one just near term here you know how are you guys thinking about the quarterly expense run rate given some of the stuff that you've already gone and then second because when you talk about kind of the real estate.
Costs that meets that.
Branches or are there back office things you are considering or can you, maybe just expand a little bit more about what's being looked at on the cost side as we kind of move forward in this low rate environment.
Yeah, I think one of the one of the important part of what we've gone through in the last four months from this send everybody home to work is do we need all the office real estate that we have so we're looking at we're looking at that we're also looking at.
Deferred branches as well so I think it's it's both of those made no decisions at this point, but we're looking and study and all those right now.
And in terms of the near term kind of view on expense the quarterly expense run rate.
Yeah, I think we the expense run rate, where it's at right now I think there's some opportunity to go a little down from here, but I think if you think about that going forward.
If you're going to model something modeling, what we did in the quarters not up about place to be.
Okay.
Helpful on Kepner. Thank you.
Well.
Yes. Thanks.
Again to ask your question. Please press Star then the number one on your telephone keypad.
Your next question is from David Conrado D.A. Davidson.
Hey, good morning.
Nice growth on the Green Skype portfolio I was a little little surprised me that given given really overall consumer debt came down in the industry with card stand and card balances.
Just curious if you had any color if you bought a.
Maybe a bigger.
Percentage of the available pool from Green Sky this quarter or is it affected green skies and outlier given their their focus on maybe home improvement stores at did did it get shut down.
During during the dependent.
Yes, so we are and we talk to Greece.
Fairly often so they're they're seeing they're seeing demand in home improvement and as I and I look around and and talk to folks.
People are traveling in there there are proven their home, they're putting entertainment systems. When they are putting index on the back of their house are doing lots of things.
So.
I think there is a good demand for home improvement in that sort of where green Sky really plays so were they are seeing demand the demand is coming our way as well it we're not buying loans from green Sky were we originate through Greens Guy. So that's an origination there.
And we are in the quarter, we had to we sort of set some targets every quarter in and we havent changed those targets probably in the at least six months. So.
The growth so to the to the balance at the end of this quarter was to get to sort of our.
Top end target.
So at this point, we unless we decide going forward to increase the the target balance if you will.
We wouldn't expect green kind of grow in the quarter not we might change that this quarter next quarter, but.
They are seeing a lot of demand and also and we disclosed in the slide we Didnt I don't think we've talked about in our comments, but we sold.
Two tranches of Green Sky.
Papered up to others at par and I think that also.
Sort of validates the fact that the credit enhancements in these portfolios allow you to sell consumer credit at par.
Okay.
Just a quick follow what is what is the yield to the portfolio.
Yeah, our target yield is be probably between four maybe four and 5% something like that maybe even neuron three 3.5% to 5% somewhere in there depending on where the credit is in its.
Cycle that we get paid a little less when it's in a promotional period when there when there's sort of interest zero interest payments in the what we call the promotional period.
And then it it's a little higher once it comes on the promotional period.
And do you have can you give us color on what the gross yield is I'm assuming than you have maybe 500 to show dips.
Protection.
From the waterfall.
With maybe I guess clusters.
Greece Guy had a nice they had a nice slide one of their decks I don't know if it was set at Investor Conference, but the example, they had is for example, let's say that the end consumer.
Interest rate is 12%.
You know Greens guys servicing fees come out first call that 1% than any charge offs in the portfolio would come out.
Called up 33%.
So now were down 8%, we get our bank margin.
And then the diff whatever's left to the waterfall is sort of performance feedback to green Sky, which the way I look at the performance fee is their ability to reduce credit losses allows them to get a bigger part of the incentive fee. So there are incentivized to tick to really one.
Make good credit, which we provide the credit box.
And to do a good job of servicing and collecting on the loans.
So I think in the quarter, while as we stated 17 and last 18 months. There was performance fees paid the Greens guys. So theres excess cash flow in the waterfall.
And this year, we havent eaten through that waterfall and so we've not even gotten to.
To the up to the escrow balances that come next.
And there's a fair there's a lot escrow balances that sit behind that.
Okay. Thank you yes.
Okay.
I'm showing no further questions at this time I would now like to turn the conference back to management for any closing remarks.
Alright, thanks, everybody for joining the call today, and we'll talk again next quarter.
Okay.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may disconnect.