Q3 2024 NewtekOne Inc Earnings Call
[music].
Speaker Change: Good day and thank you for standing by welcome to the New Tack One Inc. Third quarter 2024 earnings Conference call.
Good day and thank you for standing by. Welcome to the New Tech 1 Inc. 3rd Quarter 2024 Earnings Conference Call.
Speaker Change: At this time all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session.
Speaker Change: Ask a question during this session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today, Barry Sloane CEO and President. Please go ahead.
Barry Sloane: Thanks, very much Gerald and good morning, and welcome to our third quarter.
Speaker Change: Unconventional approach leads to a little bit of unconventional numbers on conventional analysis. So we're going to focus a lot about things you don't necessarily want to hear and I will try to stay away from competing with things that are obvious in our press release. Some of the things that are obvious was recorded in one of the notes from our analysts this morning.
We reported 45 cents.
Speaker Change: Earnings per share for the quarter I do want to point out that we actually had.
Speaker Change: Our tax charge for deferred tax liability without that would have knocked it up to 47 actually and Scott will talk about this in the MD&A without that.
Speaker Change: Tax charge would probably would have had to say it's better than.
Speaker Change: The Street consensus was about 43.
Speaker Change: I'll also point out that our return on average assets.
<unk> will focus on the bank as well to 8%.
With recent quarters, almost three times the peer median.
2025 guidance, which we gave $2 2025 midpoint of $2 12, and a half cents Street consensus is currently choice habits were extremely appreciative I also want to point out one other item, which is important and this is something that we will spend a lot of time tackling the provision was higher than expected.
Speaker Change: $6 9 million of provisions, but were going to talk about this and so we spend a lot of time on risk adjusted returns, which is most important typically this industry does not really focus on risk adjusted returns. We do it's been in our DNA for over 20 years, it's really what matters people work in this industry typically invest in very low <unk>.
Speaker Change: Margin low charge off assets.
Speaker Change: Intend on working hard to continue to get.
Industry participants more comfortable with what our financial numbers actually mean.
Speaker Change: Hello, Jim following along in the presentation you can go to our website you take one dot Com Investor Relations section, we have a powerpoint.
Speaker Change: Presentation I'd like to suggest.
Speaker Change: The body that we fast forward to slide number three.
Speaker Change: Significant events in Q3, we talked about the earnings.
Speaker Change: B, we didn't want to go to core noncore, which is leaving at 45 transport basic diluted remind you about a 527000 deferred tax charge.
Yes.
Speaker Change: Based on the I'll talk.
Speaker Change: Merger with MTS, which is a divestiture, which we'll talk about that would have added about two cents to that number.
Speaker Change: We confirmed our guidance.
Speaker Change: <unk> 85 to $5 95 that we think you should focus on we'd like to think we can gravitate more towards the upper end of that range, but that will remain to be seen run an extremely volatile market. We wanted to give ourselves cushion and that's it.
Speaker Change: Current stock price, we think there is tremendous value based upon these types of numbers.
Speaker Change: <unk> deposit growth, 12% at the bank loan growth, 17% at the bank net interest margin at the bank by two 9%.
Speaker Change: Loan loss reserve coverage 500 basis points.
Speaker Change: You don't see these types of metrics in this industry it doesn't exist.
Speaker Change: We understand you're uncomfortable with these metrics I'm going to spend a lot of time going through it we're making a lot of progress.
Speaker Change: Visiting with investors visiting with analysts and getting them to better understand our model and we will keep our head down and do that.
Speaker Change: The term loan program picked up traction that's a very important accelerator to us being able to get our EPS in the future higher into the twos at one point. Many of you remind me frequently that we actually had a $3 number out there and that's based upon our ability to grow faster, which we throttled back after the 2023.
Speaker Change: Banking I'll call it banking crisis with Silicon Valley Bank signature Bank.
Speaker Change: Gait et cetera, et cetera, we'll talk about it a little bit more in this call important to note the efficiency ratio 39%.
Speaker Change: I mean, if I would go to a bank executive or bank holding company executive and I would talk to them about these ratios Intel on 65% to 70% of rate for noninterest bearing validate it.
Speaker Change: They would trade secret IC all day long.
Speaker Change: Our job is to get people comfortable with the model.
Speaker Change: People are comfortable with the risk adjusted returns and that these are going to continue to happen have happened for <unk>.
Speaker Change: 477 quarters, we're going to continue to track we feel good about this we're not new to this rodeo we've been doing this for over 20 years, and we feel really good about where we are.
Speaker Change: Last item on slide number three we completed a registered public offering of $75 million of bonds.
Speaker Change: And AWS C H.
Speaker Change: Are these coupons are listed on the NASDAQ here will be plus by Egan Jones with a positive outlook.
Speaker Change: Slide number four.
Speaker Change: The things, we kind of hammered on I'm going to dust over them because you've seen them.
Speaker Change: Looking at third.
Speaker Change: Third quarter 2024.
Speaker Change: Six three <unk>, 49% efficiency ratio of $39. Four these are sort of unheard of.
Speaker Change: $5, three 9% yield on loans $11 one too.
Speaker Change: And that does not include the gain on sale income that we get from selling the <unk> business.
Speaker Change: The government guarantee participation as we've done for 20 years. So people don't like gain on sale I can understand if gain on sale is an anomaly because rates move up and down as spreads change yeah, but this is a business.
Speaker Change: This is what's going to continue.
Speaker Change: And it's a cash gain.
Speaker Change: While the government guaranteed piece, we get cash rents great capital by the way.
Speaker Change: Average rate on finding nurses is interesting where high here, but you could see as we're gaining speed in business.
Speaker Change: <unk> accounts that number will start to come down that's an execution thing we have to get the people to software the process in place we're tracking.
Speaker Change: The third quarter was the first quarter I would say we are all in the Wilmington offices set up under our Chief operating officer for the digital Bank of America.
Speaker Change: But about 25 people in addition to other people in the bank, we're going to talk about staffing.
Speaker Change: As an organization that.
Speaker Change: Perhaps first ask questions later, we are poised for growth and I do want to point out.
Speaker Change: I'm reading from a report when growth is the problem I'm sorry growth is never the problem.
Speaker Change: Growth is good it's being able to manage the growth and manage their risk and we have a star studded management team and look if we had issues.
Speaker Change: We would be scaling back our growth we'd be scaling back our projection otherwise I'd be doing the wrong thing here on this call growth is not the <unk>.
Speaker Change: That is an oxymoron I'm reading directly report.
Speaker Change: Let's go to slide number five now this is at the Holdco.
Speaker Change: Lot of our competitors in the space that were being managed against and I might suggest we might be better off.
Speaker Change: Technology segment and in this segment, but no.
Speaker Change: Another time.
Speaker Change: It can be used to pay off debt. If we used to fund LP, we have $280 million of equity that is sitting in NSP, New Tech small business finance people don't think about it but is this is.
Speaker Change: Burning down or self liquidating.
Speaker Change: And I've heard somebody described it I'm reading a report.
Speaker Change: <unk>.
Speaker Change: And old legacy investment that old legacy portfolio at $280 million of cash.
Speaker Change: Excuse me equity in it.
Speaker Change: Well I don't know I'm not sure I would call it a legacy portfolio and downplayed I think it is.
Speaker Change: As it pays down its an attractive asset now it's also the least attractive component.
Speaker Change: Making SBA loans of which get a gain on sale upfront you get a servicing asset no police attractive coupon on those assets are currently 11 and a quarter. They are financed with expensive securitization debt that activity going forward is going to be done in the bank at lower cost very important item to think about let's go to slide number 13.
Speaker Change: We'd like to get some credit for the fact that we've been in the banking business now for seven quarters.
Speaker Change: And we've got a book value per common share going from 865% of its Kevin and.
Speaker Change: And a tangible book going from 735 50, that's nice growth and once again does not include anything.
Speaker Change: Obviously from the payment.
Speaker Change: <unk> area four.
Speaker Change: 114 insurance agency, which is currently.
Speaker Change: In one of the segments and its not broken out.
Speaker Change: This is something you may look at breaking out next year, but I think it's important to note net active policy. Since we became a bank grew by 14 829 units or 37% now.
Speaker Change: This is illustrating the benefit of having everything at a business on his fingertips.
Speaker Change: And being able to provide TMA in life and other insurance to people are taking out loans look you can see we do a lot of things I wish we could do all these things simultaneously at the same time, we can.
Speaker Change: We have to continue to make our numbers quarter by quarter, we have a lot of initiatives, we prioritized them with that said.
Speaker Change: The insurance agency business, a reoccurring fee based business is very well positioned in these vantage and as part of the new Tech one ecosystem.
Speaker Change: We now have the capability to provide.
Speaker Change: Key man life on every business loan, which we're doing with the policy pre assigned to the loan. So its pledged all done automatically in a period of seven to 10 minutes without a medical exam.
Speaker Change: Automation the insurance agency with its automation is going to be able to provide these policies to a variety of customers not just lending in the verdict. Let's go to slide number 15. Many of you are familiar with the fact that we have to divest of our technology unit.
Speaker Change: Basically as we transition to a financial holding company. The company made a commitment to the board of governors of the fed to divest or terminate the activities of MTS. So we're there.
Speaker Change: We have signed an agreement it's public we're merging it into an existing public company currently known as powerful stock symbol <unk>.
Speaker Change: It gets a little confusing, but I want to make a couple of comments.
Speaker Change: <unk> will have to divest.
Speaker Change: All of the business.
Speaker Change: And the business of MTS will basically become powerful so Paul talk book gain sustained too.
Speaker Change: Intelligence protective management systems stock symbol is anticipated to be IPM.
Speaker Change: He is 17000 customers. It provides it provides with the market is thirsting for the.
Speaker Change: The market needs.
Speaker Change: Been doing this for over two decades, we've done it through OE dollars. We've done it through the pandemic. We are good risk managers I would say that in a way to nine we stopped lending for a period of time that was a smart thing to do during the pandemic, we stopped making SBA loans for almost four months because we didn't think was prudent to do and people.
Speaker Change: We're told to go on their own or we didn't know what the effects of the pandemic was going to be and we switched the PPP that turned out to be.
Speaker Change: Immensely profitable for the company at Georgia, Nimble, we were a small company compete against the Giants, we did our $2 billion of PPP loans with 26500 customers now like us because we provided them with those funds.
Speaker Change: Go back to the adjusting for credit losses.
Speaker Change: Slide number seven when you look at those yields again, the banking yields for $1 billion to $5 billion banks $5 53, 565 versus <unk> 96 or 892.
Speaker Change: After the anticipated charge offs, we've got 20 years worth of experience in high rate and low rates and slow economy.
Speaker Change: Quick economies, we understand the concept of risk adjusted spread in addition loan loss reserves of 5% we.
Speaker Change: We've already taken the pain, we've done it upfront we monitor this quarter to quarter. Please understand this is different.
Speaker Change: Typical I'll call it investor in this space looks at deposits, which were high on that that'll be coming down with a growth of the business accounts and they look at credit which were also higher but they're now looking at the other half of the business looking at a bodybuilder thats grateful away stuff, it's got skinny little legs.
Speaker Change: That's not our business model you got to look at the entire prior body, we reject the notion that although it is totally appropriate to consider a small and medium sized business loans based on regulatory standards, a higher level of risk on a risk adjusted basis, our 20 years of experience in the category gives us.
Speaker Change: The confidence that we continue to manage this risk and get higher rates of a threat I am much more comfortable doing this.
Speaker Change: Betting on the fact that the deposits are going to disappear in the middle of the night because there is no duration on a checking account there is nate.
Speaker Change: You're betting on the stickiness you're betting on the brand look for the top four banks in United States, It's great, but for everybody else I don't know and its way too easy to move your money today on a phone.
Speaker Change: It.
Speaker Change: This is the single most important slide in the deck. When you look at our capital when you look at our provisions for loan loss reserves and when you look at our coupon.
Speaker Change: The math is showing over seven quarters, and it's going to continue.
Speaker Change: Some of you are alarmed that the ramp up we had a pretty heavy ramp up in Q1 from Q2.
Speaker Change: Less of a ramp up in two to three we think this trend is going to continue because we're through the what we consider the belly of the default curve.
Speaker Change: Can't see you out on the Crystal ball tell you where the economy is but we've been we're going to go but we've been doing this for a long period of time and I would say we're very good at it slide number 17. This is all about.
Speaker Change: and I would say we are very good at it. Slide number 17, this is all about
Speaker Change: Scale.
Speaker Change: 360 employees at New Tech Bank, the Holdco has got $571 $7 billion of assets.
scale
Speaker Change: 360 employees at New Tech Bank. The whole coast got 570. 1.7 billion dollars of assets.
Speaker Change: From a report new Tech one is an uneasy amalgamation of a legacy portfolio of securitized 71, joint ventures, which were going to talk about and non controlled investments that toward its depository satisfactorily not correct.
Speaker Change: I want to read from a report, NewTek One is an uneasy amalgamation of a legacy portfolio of Securitize 7A loans, joint ventures, which we're going to talk about, and non-controlled investments that dwarf its depository. That is factually not correct.
Speaker Change: First of all I don't like the word dwarf secondly.
Speaker Change: First of all, I don't like the word dwarf. Secondly, the bank's got 900 million of assets and a billion and seven. I don't know, I don't know about an 800 million dollar dwarf. Okay, that's not a dwarf. Matter of fact, it looks pretty even to me. That's GAP.
Speaker Change: <unk> got $900 million of assets and $1 seven I don't know I don't know about an $800 million. Okay. That's not a dwarf matter of fact, it looks pretty even to me that's putting that aside we're going to talk about the holding company and whats in there and as we're moving from joint ventures, the on balance sheet funding of LP, which we'll talk.
Speaker Change: Putting that aside, we're going to talk about the holding company and what's in there. And as we're moving from joint ventures to on-balance-sheet funding of ALP, which we'll talk about. By the way, nobody asked me that question. Why don't you do more on-balance-sheet? It's all about capital allocation.
Speaker Change: By the way nobody asking a question why don't you do more on balance sheet. It's all about capital allocation, we might go back and forth, we're going to do what's in the best interest of our shareholders. We are good risk managers, we've proven that over two decades and at the end of the day I have to be honest with you don't want to invest in our management team.
Speaker Change: We might go back and forth. We're gonna do what's in the best interest of our shareholders. We are good risk managers We've proven that over two decades and at the end of the day, if you don't want to invest in the management team
Speaker Change: You're on a local.
Speaker Change: You got to have some level of comfort, we're going to be a year, where I keep doing this we're going to give you. The correct, we're going to be extremely nobody can say, we're not transparent besides a buy deck.
You're on the wrong call.
Okay, you got to have some level of comfort
Speaker Change: We're going to be here. We're going to keep doing this. We're going to give you the comfort. We're going to be extremely... Nobody can say we're not transparent. The size of my deck says we are extremely transparent. Our financials say we're transparent. We go to all these conferences which we talk about.
Speaker Change: We are extremely transparent our financial state we're transparent we got all these conferences, which we'll talk about important to note.
Speaker Change: Some market participants a question can we manage the risk.
Speaker Change: Important to note, some of market participants have questioned, can they manage the risk?
Speaker Change: 24 months, we've got a chief strategy Officer, We've got a chief Technology Officer, we have promoted Dan Enzo the Chief Information Officer, we have a chief risk officer, we have a chief financial Officer I mean, we've got so many chiefs theres a lot of cheap going on here.
Speaker Change: 24 months, we've got a chief strategy officer, we've got a chief technology officer.
Speaker Change: We have promoted Dan Enzel, the chief information officer. We have a chief risk officer. We have a chief financial officer. I mean, we've got so many chiefs. There's a lot of chiefs going on here. This is a stacked company that can manage multiples of the asset size.
Speaker Change: This is a stacked company.
Speaker Change: Manage multiples of the asset side, we step first we ask questions later, because thats extremely important in the level of sophistication. It's been said Gee, you're doing this business with BDC tail, well I don't mean to insult Peter Downs before he spent 21 years here you ran the SBA business at Citibank.
Speaker Change: We step first, we ask questions later. I think that's extremely important. And the level of sophistication...
Speaker Change: It's been said, gee, you're doing this business with BDC talent. Well, I don't mean to insult Peter Downs, but before he spent 21 years here, he ran the SBA business at Citibank and had a 15-year career in the banking space. Okay? We have career bankers here. Nick Young, Scott Bright.
Speaker Change: 15 year career in the banking space, Okay, we have career bankers here, Nick Scott right.
Speaker Change: Frankly, Maria Taylor Quip, it's in the Appendix go look at the talent, we're putting in this organization.
Speaker Change: Frankie Maria, Taylor Quinn. It's in the appendix. Go look at the talent we're putting in this organization.
Speaker Change: These are career bankers with exemplary track record this is not.
Speaker Change: These are career bankers with exemplary track records. This is not.
Speaker Change: A small little company.
A small, little company.
Speaker Change: Very scalable.
Speaker Change: Let's go to slide number 18 alternatives.
Speaker Change: very scalable. Let's go to slide number 18, Alternative Loan Funding Court. So we have begun
Speaker Change: Alternative loan funding Corp. So we have gone.
Speaker Change: To start to put the loans on our balance sheet versus in joint ventures.
Speaker Change: to start to put the loans on a balance sheet versus in joint ventures.
Speaker Change: Some people say why you're doing that well look first of all it's a bit of a capital allocation issue operationally, it's easier to do.
Speaker Change: Some people say, well, why are you doing this? Well, look, first of all, it's a bit of a capital allocation issue. Operationally, it's easier to do.
Speaker Change: And.
Speaker Change: We always want to do better with our joint venture partners whoever that might be and we have.
Speaker Change: We always want to do better with our joint venture partners, whoever that might be.
Speaker Change: Quite a bit of that we're talking to right now in the queue.
Speaker Change: Quite a bit of them we're talking to right now in the queue. Scott Price, I, Dave Leon, Director of Capital Markets.
Speaker Change: Scott <unk> director of capital markets.
Speaker Change: Two days that ABS East, Miami, where 26 meetings.
Speaker Change: Spent two days at ABS East in Miami. We had 26 meetings.
Speaker Change: Very interesting and.
Speaker Change: We are out in the market talking to the biggest and the brightest and they know that in this space of lending and once again I want to very much focused on the core credit.
Speaker Change: Some people look at the things, we do as lender of last resort bad credits now that's wrong I'd say, it's well I'm not saying he's a AAA credits.
Speaker Change: I am saying is the borrowers appreciate a 10% to 25 year average or below.
Speaker Change: That Ams schedule changes the debt service coverage would take alone that wouldn't fit of the bank.
Speaker Change: And make it eligible for debt service now you said well Gee, you're not getting your principal back end up reducing your risk.
Speaker Change: Our experience has showed us over 20 years, it's I'll take a personal guarantee.
Speaker Change: Joining several for a 20% owner or greater with lean on business and personalize It all day long.
Speaker Change: Over a short am and coverage.
Speaker Change: And we can absorb these losses and trade off versus the coupons you've got a group here that is in my opinion looking at this business and industry and the way it needs to be looked at for the next one five and 10 years the.
Speaker Change: The rest of the industry, 98% is a totally different model.
Speaker Change: And it is regulatory friendly regulatory compliance we provide funds to smbs all over the United States, 30% of them happen to be women and minority owned businesses and we take deposits all over the United States important to note.
Speaker Change: Blackrock TCP joint ventures on our books.
Speaker Change: It's mark to market fair value.
Speaker Change: Net of loss severity and frequency of approximately 12%.
Speaker Change: Same thing for the CSO joint venture, you'll see that we've got recent MLP.
Speaker Change: On our balance sheet, you'll see that going forward.
Speaker Change: From a pipeline perspective, six midnight on referrals today with <unk>.
Speaker Change: Less than 1%.
Speaker Change: We think we'll have $200 million of LP was by December 31, 2024.
Speaker Change: Prospectively gives us the opportunity to do a securitization, which we saw the last time it was slide on it very profitable probably in the first quarter.
Speaker Change: So we're going to go back and forth between balance sheet JV partnership diversification of capital joint ventures senior debt.
Speaker Change: Bank lines.
Speaker Change: Equity preferred we go back and forth.
Speaker Change: Slide number 19 important cumulative SBA 504 in LP loan origination volume since 2015. So people look at these nonperforming loans like Oh, My God what are they doing we.
Speaker Change: We see that there is a lot of charge offs. It scares the heck out of it.
Speaker Change: You gave me a set of criteria like a final four loan at 60% LTV against the real estate.
Speaker Change: After a second lien by the government, which Doug.
Speaker Change: Sit on our balance sheet when they take it out.
Speaker Change: It's pretty clean what do I do.
Speaker Change: And by that.
Speaker Change: We have never experienced unrealized and realized loss over the life of a 504 loan program.
Speaker Change: Similarly, 632 million slide 19.
Speaker Change: Zero.
Speaker Change: A L P J.
Speaker Change: <unk> $394 million cumulatively.
Speaker Change: We have experienced.
Speaker Change: 3 million of unrealized losses, we haven't resolved it yet.
Speaker Change: See if these were put into your matrix or whatever you do for the evaluations, which goes no I get it.
Speaker Change: I understand you have a way of looking at these businesses, we're good with that but we need you to consider that we're a good lender. We know we're doing slide number 20 alignment of interests.
Speaker Change: I put this out there look.
Speaker Change: We're aligned.
Speaker Change: We're very aligned I would tell you for myself with a big dividend paying stocks less dividend paying that was somewhat punitive from a cash flow perspective.
Speaker Change: Even if we're off by a lot, which I don't believe we are well.
Speaker Change: I don't believe it.
Speaker Change: Adam and C. I don't believe we are.
Speaker Change: So I feel very good about the macro picture are these numbers going to grow modestly probably do we have enough capital, yes, do we have enough.
Speaker Change: A reserves, yes are they going to get used and eaten up.
Speaker Change: I'm, telling you right now don't expect to have this five sitting there number one.
Speaker Change: To add more of the lower risk.
Speaker Change: Boring bank stuff to balance the portfolio.
Speaker Change: And then they're gonna be utilized so maybe Scott can add some color to the exact numbers Scott can you help on that.
Speaker Change: So experience Hey, Kristen.
Speaker Change: So the charge off ratio at on a consolidated basis was roughly 59 basis points. So youre looking at 59 versus 104, I'll remind you the accounting model that we have.
Speaker Change: Counting models plural.
Speaker Change: A holding company, we primarily have.
Speaker Change: Loan portfolios that are carried at fair value. So the charge offs are actually going through.
Speaker Change: The unrealized losses in the noninterest income line versus the traditional bank loans, where the those charge offs are running through the allowance. So it's the end of the day it still falls to the bottom line.
Speaker Change: It still impacts the overall level of reserves, but there's just two different accounting models that we're following.
Speaker Change: I'd say again that we started out during.
Speaker Change: We started out 2024 with minimal Npa's, most of which were traditional bank loans that we purchased and we are seeing an increase and this is.
Speaker Change: As expected we expected an increase during the year because the SBA portfolio is maturing.
Speaker Change: And Theyre moving along the default curves. So we're monitoring it we're not concerned we havent baked in our forecast and so we're kind of delivered to your guys results and you guys are going to evaluate them, but this is a trend that we expect to continue to various points. We expect modest increases we have the reserve.
Speaker Change: <unk>, we have the capital.
Speaker Change: Okay. Thank you I appreciate you taking my questions.
Speaker Change: Thanks Kristen.
Speaker Change: Thank you for your question.
Speaker Change: Just one brief moment please.
Speaker Change: Our next question comes from Tien Switzer from K VW the floor is yours.
Tien Switzer: Hey, good morning, guys. Thank you for taking my questions.
Tien Switzer: Thanks, Tim.
Tien Switzer: I have a quick follow up on the on the credit outlook here more and more specifically about the allowance I think you guys have.
Tien Switzer: Historically kind of said.
Speaker Change: Okay. Good.
Speaker Change: Level set level for the allowance would be around 350 basis points.
Speaker Change: When should we expect the allowance to start to sort of move back down towards that level and how quickly will it get there.
Speaker Change: Scott would you say, we might see that move in the fourth quarter, but not dramatically.
Speaker Change: It's hard to say it's.
Speaker Change: November seven.
Speaker Change: Yeah, I don't know do you think I mean, it's again, it's anyone's guess, but.
Speaker Change: Yes.
Speaker Change: I have no I have no idea, yes, I think we're look the level of allowance relative to the loans held for investment at the bank, which is the basis on which the allowance is calculated.
Speaker Change: Is.
Speaker Change: Youre going to be heavily influenced by the level of seven eight loans that we have on the balance sheet.
Speaker Change: Our reserves.
Speaker Change: 478 loans are north of 6%.
Speaker Change: And so as that concentration moves up youre going to see a higher shift ending allowance now that being said I'd remind you that while we preserve at north of 6% were getting leased.
Speaker Change: At least this quarter.
Speaker Change: 10.8% North of 10, 8% premium so the P&L of that covers it.
Speaker Change: You're going to see in the future at least what we expect or additional bank loans coming on the balance sheet that are going to be more of your traditional bread and butter bank loans that.
Speaker Change: Are you going to attract a much lower level of allowance.
Speaker Change: We have not performed as well as we saw it during the time when we started the year on bringing traditional bank loans onto the balance sheet, but we want to prudently manage our balance sheet, we want to bring on a diverse set of loans, so that where our risk is manageable. Our risks are diversified we're not in any one one.
Speaker Change: One product category.
Speaker Change: Where we're running more risk than we anticipate so to answer your question is 5% of peak.
Speaker Change: I think given our projections I think that.
Speaker Change: It very well could be but we've got to deliver on the bank bank loan production and so we expect to cover our charge offs were not going to be releasing reserves.
Speaker Change: Unless we see that and the macroeconomic factors and that'll be a function of our our modeling.
Graham: So okay Graham.
Speaker Change: Just to tack onto that.
Speaker Change: I think that we will get there we will start trick trickling down during the quarter.
Speaker Change: It's possible, but I would say I'd expect it more in a.
Speaker Change: More of a meaningful decline in 2025, and what Youll see in 2024.
Speaker Change: Gotcha Okay.
Speaker Change: And you guys had a pretty good quarter on gathering your commercial low cost business deposits.
Speaker Change: What kind of drove the inflection here and what are you expecting expectations going forward how quickly can you grow that book.
Speaker Change: So that's something that.
Speaker Change: We're very focused on and.
Speaker Change: It's really a matter of us.
Speaker Change: Getting the staff trained to be able to explain to clients.
Speaker Change: Why they should go through moving their account.
Speaker Change: From brand X to US there is a compelling reason to do so.
Speaker Change: Look at that calculator, youll see us versus the national average.
Speaker Change: You have a good idea of what you said there is a very compelling reason now.
Speaker Change: To get the staff to do it.
Speaker Change: The education to get on the phone now we're now stepped up to do it with Jennifer <unk>.
Speaker Change: <unk> group and Wilmington, and she got people all over the country.
Speaker Change: Being able to cable ICB, BSA and AML work, which we.
Speaker Change: Now you got the right people, we've got the right software and control processes in place.
Speaker Change: So I think that's a function of time and youre going to see us continuing to execute at an addition to that.
Speaker Change: Our payroll and payments unit.
Speaker Change: Needs to you can open up a payroll account without bank account you can.
Speaker Change: Can't open up scale without a bed count.
Speaker Change: And frankly, they don't even need to be the primary Kent will you just be a tertiary count.
Speaker Change: We've got to convince the customer that they would.
Speaker Change: Tremendous value in terms of the analytics transactional capability and data to use us to any advantage. It's one place. So there's going to be it's very hard for me to gauge I feel good about it I mean, I think we'll I think we'll continue to grow at nice dollar amounts obviously, you get nice big percentage increase of a low base, but.
Speaker Change: That youre going to see us continue to pick up.
Speaker Change: Business scales, particularly.
Speaker Change: And you'll probably put something out in the near future launching out.
Speaker Change: True honest zero fee banking account per business business Bank.
Speaker Change: And if I could.
Speaker Change: If I could just back on to that Tim I was sitting close to our BSS folks that are selling the account and I mean, we're getting it's hand to hand combat we're getting the client on the phone we're getting on video.
Speaker Change: We're analyzing their statements from their other institutions and we're showing them what the value proposition is of switching to us. So we feel that it's compelling then you layer on top of that the new tech advantage and being able to bring everything into one view.
Speaker Change: We feel like it's there we're refining our sales processes and move forward and but it's hand to hand combat I mean, it's a grind and to Barry's point, we're getting the people trained we're getting them, we're getting their scripts refined.
Speaker Change: And we saw traction and where we feel like we're going to continue to see traction.
Speaker Change: Thanks for the color.
Speaker Change: Thank you for your questions.
Speaker Change: One brief moment please.
Speaker Change: Our next question comes from Steve Moss from Raymond James The line is yours.
Steve Moss: Good morning, guys.
Steve Moss: Good morning, maybe just starting here with the following up on the growth in demand deposits is the growth you are primarily just on the new originations.
Speaker Change: But you know.
Speaker Change: Our.
Speaker Change: Operational and Wilmington, and having better integration just kind of curious how to how we think about those dynamics.
Speaker Change: Steve.
Speaker Change: Excuse me.
Speaker Change: I think that.
Speaker Change: Wilmington.
Speaker Change: Is the source of.
Speaker Change: Compliance surveillance getting the accounts open door.
Speaker Change: And I would say that obviously.
Speaker Change: It's under our BSA officer sale homeowners, who are not in Wilmington, but she works very closely obviously with.
Speaker Change: Our compliance manager Julio Hernandez, President of the Bank Magellan and Jennifer So that's the back office, but.
Speaker Change: I think the way, we look at the business and the growth. It's how do you get the add backs how do you get the customer in the battery box to pay attention to say hey, you need to look at our accounts.
Speaker Change: Why you should have it with us primarily or secondarily versus them.
Speaker Change: That's not Wilmington does.
Speaker Change: Or the compliance team that is done by our team that booking and boarding.
Speaker Change: Merchant accounts payroll accounts and very importantly in lending so now in lending we are now requiring that.
Speaker Change: And then when the account is opened and we're funding loans.
Speaker Change: That money is using that again this is all new to us it sounds like it's easy.
Speaker Change: Financials I'd to unfortunately, I have to put my operating pads on but.
Speaker Change: You've got to train people to do is it does take time, so just that Gavin and team that handles the front end lending managing his team and that was what Scott was referring to getting people comfortable.
Speaker Change: On an automated basis, Steve when you apply.
Speaker Change: <unk> alone in our portal.
Speaker Change: The data ports over to be able to open up a bank account. So we don't have to ask the customer twice for two accounts.
Speaker Change: I don't think <unk> got that.
Speaker Change: I'm going to I've got my.
Speaker Change: Legal hat on it almost most of the banks in the United States. It is done automatically so I think what youre going to see from us is.
Speaker Change: Slowly steadily that toward is going to keep grinding it out.
Speaker Change: And we're going to get these customers and in addition.
Speaker Change: Merchant accounts payable accounts.
Speaker Change: So you're aligning accounts 80000 paying customers in the book.
Speaker Change: Now if the product is better which were fairly adamant. It is particularly when you go to that mortgage calculator.
Speaker Change: <unk>.
Speaker Change: It's going to happen, it's only a function of how fast how quick and wet.
Speaker Change: I'm very appreciative of the questions. We're getting from you Steve another ship because you're starting to focus on what is this why is new tech one in the bank going to win.
Speaker Change: It's because the way we put these things together.
Speaker Change: Customer wins, if the customer wins we.
Speaker Change: When shareholders win and.
Speaker Change: Now you can get a feel for we have this we don't our cost of customer acquisition. Just the way you look at the efficiency ratio is very low.
Speaker Change: We had six to 900 referrals a day.
Speaker Change: Banks would love that banks would love to get rid of all of our expense of their traditional bankers.
Speaker Change: And their branches.
Speaker Change: And we do it very differently. So that's I think one of the differences in the model.
Speaker Change: Okay, Great I appreciate all that and then in terms of the insurance business just kind of curious if you could quantify the revenue you're generating from.
Speaker Change: Insurance these days.
Speaker Change:
Speaker Change: Yeah.
Speaker Change: I don't know if we are.
Speaker Change: Don't know, if we give that out but I would say broadly.
Speaker Change: It's a $3 million to $4 million type revenue business quite comfortably.
Speaker Change: $3 4 million a year.
Speaker Change: Yes, Sir.
Speaker Change: Okay.
Speaker Change: I appreciate that.
Speaker Change: I would love to have that broken out.
Speaker Change: Sooner than later and maybe something we break out next year, but.
Speaker Change: It's valuable it's reoccurring.
Speaker Change: Differentiator that fits in well with the business model and those businesses are very.
Speaker Change: Highly valued by the marketplace today.
Speaker Change: Okay, Great and then in terms of the share repurchase.
Speaker Change: Purchase authorization that was announced earlier this week.
Speaker Change: Kind of curious what are your thoughts and plans for using that and just any.
Speaker Change: Any color there.
Speaker Change: Yeah. That's a tough question I wanted to make sure people are aware of it.
Speaker Change: I think we have.
Speaker Change: Capital IQ, So thats calculated off the call report and as annualized.
Speaker Change: Okay, great. So, let's just say.
Speaker Change: Going forward given.
Speaker Change: How much discretion do you guys have in terms of the reserve ratio.
Speaker Change: Obviously the reserve is growing I'm, just trying to get an understanding in terms of is this all algorithm driven or is there a good part of it is part of your discussion.
Speaker Change: Yes, I'd say, Chris that it is.
Speaker Change: It's a mixed bag.
Speaker Change: We do have our calculations that we apply.
Speaker Change: But the biggest influence or that we have is the level of production across the portfolio and the concentrations I tried to I can't reiterate that enough that as we move through time, we do expect more traditional bank loans to come on the balance sheet that will cause that reserve to loans coverage ratio go down from.
Speaker Change: Here.
Speaker Change: So that's.
Speaker Change: Again I can't reiterate enough are we is the peak five maybe maybe not depending.
Speaker Change: Depending on our loan production for the quarter, but.
Speaker Change: We intend to diversify our loan production.
Speaker Change: It's been on our business plan.
Speaker Change: We present to our board, we're going to continue to operate with that business plan.
Speaker Change: In terms of the in terms of the algorithm there is a quantitative and qualitative quantitative as where we exercised judgment and we evaluate.
Speaker Change: Host of factors between economic projections.
Speaker Change: Trends et cetera. So.
Speaker Change: Yeah.
Speaker Change: I can't give you an exact answer but I can I can only answer it quantitatively that but it's mixed but and we do have some level of judgment great.
Speaker Change: Great and I guess this is a general question for management.
Speaker Change: Given you guys do operate a differentiated business model.
Speaker Change: We're about a year 18 months or if it's in Silicon Valley Bank and signatures from fourth went down.
Speaker Change: Are you seeing sort of more.
Speaker Change: More strict regimen from the bank supervisors.
Speaker Change: Banks in general or sort of business as usual I mean, I only asked this because.
Speaker Change: We have a commercial real estate bubble out there and it hasn't really gone through the banking system, yet I'm just trying to see.
Speaker Change: From your perspective, if youre seeing anything changing on the regulatory front.
Speaker Change: Yes, Chris.
Speaker Change: To answer that I want to go back a little bit to the thing on the reserves because I think it's been important addition here.
Speaker Change: When we make them alone that's a seven eight loans for example in the fourth quarter, we get hit with that seasonal charge upfront.
Speaker Change: There hasn't really been that much of a reckoning on.
Speaker Change: And that to date.
Speaker Change: We also don't don't have that issue.
Speaker Change: I think in our model.
Speaker Change: They look at a lot of the things that you guys are looking at and given how we manage the risk and have the reporting and have staffed first and ask questions later.
Speaker Change: And prepared for it with a lot of high quality people.
Speaker Change: I feel like we're in pretty good shape relative to the industry in general in the event that.
Speaker Change: I happened to be right and there is a tremendous.
Speaker Change: Movement as money starts to go for.
Speaker Change: <unk>.
Speaker Change: FDIC insured deposits more in the money market funds, which we've clearly seen.
Speaker Change: With sweep accounts in the investment banking World where.
Speaker Change: Sweeping money at 10 or 20 basis points into an account.
Speaker Change: Yeah.
Speaker Change: I think theres going to be more and more of a focus on it and.
Speaker Change: Giving depositors the ability to technologically and move their money easier into better bank accounts.
Speaker Change: Can happen automatically, but it's kind of happening on a scale basis. So you look at for example, the the rates that some organizations are charging which we do for consumer high yield savings.
Speaker Change: How they're supporting that because.
Speaker Change: They're not they're not earning it on the asset side, we are so even at these.
Speaker Change: Higher rates, which we believe will come down we think we're in a good spot, but from a regulatory environment. I think the regulators are focused on crypto banking as a service and they are very focused on the banks are obviously being able to.
Speaker Change: To fund themselves and that's why you have to have a lot of different levels levers to be able to do that.
Speaker Change: Okay. Thank you for taking my questions guys. Thank.
Speaker Change: Thank you.
Speaker Change: Thank you for your questions.
Speaker Change: Okay.