Q3 2024 The Bancorp Inc Earnings Call
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Speaker Change: Good day and welcome to the Bancorp, Inc. Third quarter 2024 earnings Conference call.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: Following the prepared remarks, we will open the floor for questions. If you would like to ask a question at that time. Please press star one on your telephone keypad. Please.
Speaker Change: Please note today's call will be recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the call over to Andre Spirit. Please go ahead.
Andre Spirit: Thank you operator, good morning, and thank you for joining us today for the Bancorp's third quarter 2024 financial results conference call on the call with me today are David cause landscape, Chief Executive Officer, and Paul Frankel, Our Chief Financial Officer.
Andre Spirit: Today's call is being webcast on our website at www dot the bancorp dotcom there'll be a replay of the call.
Andre Spirit: Via webcast on our website beginning at approximately 12 P. M. Eastern time today the island for the replay is one 880 391162 before I turn the call over to Damian I would like to remind everyone that our comments and responses to questions reflects management's view.
Speaker Change: As of today October 25th 2024 yesterday, we issued our third quarter earnings release and updated Investor presentation. Both are available on our Investor Relations website.
We will make certain forward looking statements on this call. These statements are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions we mentioned today.
Factors and uncertainties are discussed in our reports.
Speaker Change: And filings with the Securities and Exchange Commission. In addition, we will be referring to certain non-GAAP financial measures. During this call additional details and reconciliations of GAAP to adjusted non-GAAP financial measures.
Earnings release in the Investor presentation. Please note that the Bancorp undertakes no obligation to publicly release the results of any revisions to forward looking statements, which may be made to reflect events or circumstances. After the date hereof or to reflect their current unanticipated events I would like to turn the call over to the Bancorp's Chief Executive Officer, Damian Kozlowski Damian.
Damian Kozlowski: Thank you Andres good morning, everyone. The Bancorp earned a dollar for share in the third quarter revenue growth was led by our Fintech solutions group GDP growth was 15%, while total fee growth from Fintech payments fees and credit sponsorship fees was 22%.
Damian Kozlowski: We continue to grow total credits sponsorship balances, which were $200 million 288 million at quarter end compared to $70 million at the end of the second quarter. We are excited about the prospects for newly added in perspective payments clients and expect our noninterest income to reflect their impact in 2025 on the lending side.
Damian Kozlowski: Our sub standard multifamily loan assets continue to be elevated we believe we are at or close to peak in sub standard assets and are employing multiple strategies to reduce that number without incurring losses. We also had the portfolio reviewed by an independent third party to validate our internal ratings and sub standard assets continue to be centered in our 'twenty.
Damian Kozlowski: One in 'twenty, two vintage that was impacted by supply delays and a sharp rise in rates. We continue to believe that we will have little to no losses on this portfolio due to the conservative leverage of below <unk>.
Damian Kozlowski: Anticipated rate decreases should also aid in reducing the amount of substandard assets. In addition, the Aubrey proper property in Houston continues to be on track for the December 2000, and foreclose with our deposit on the property growing from 125000 to 375000 currently the other lending lines were led by our small business lending with.
Damian Kozlowski: 14% year over year growth.
Damian Kozlowski: All of our institutional business continues to stabilize in quarter end balances were essentially flat to prior quarter and.
Damian Kozlowski: In other matters due to the potential repayment of outstanding senior secured debt of $96 million planned buybacks we.
Damian Kozlowski: We will be reduced to $150 million in 2025, or $37 5 million a quarter from a total of $250 million in 'twenty four or 'twenty four buybacks included a $50 million special buyback in the second quarter, depending on prevailing rates, we may re issued debt of 100 million or more.
Damian Kozlowski: To replace existing senior debt.
Damian Kozlowski: In that event, we would likely use all or most of the proceeds to increase our stock buyback.
Damian Kozlowski: So in our financial reporting we will be breaking out more detail business segment profitability for the first time.
Damian Kozlowski: As you will see the majority of our economics originates from the noninterest income as deposit funding generated by our payments ecosystem. The methodology. We used was simple we charged.
Damian Kozlowski: Interest expense to the lending businesses using a three year average market rate, while our fintech payments business received the resulting interest income those allocations are shown in the interest allocation line. The actual customer deposits was charged to our fintech solutions business as their interest expense.
Damian Kozlowski: Corporate segment includes our bond portfolio and was charged the actual customer deposits as interest expense expenses for each business are driven by both direct expenses incurred and allocated expenses based on estimated usage.
Damian Kozlowski: This methodology better explained how our best in class returns are generated and the central role.
Of the Bank course, fintech payments franchise to our profitability.
Damian Kozlowski: A schedule summarizing this view of our business appears at the end of the press release.
Damian Kozlowski: Lastly, we are issuing 25 were eliminated guidance of $5 25, a share super.
Damian Kozlowski: Courted by our continued double digit growth in Fintech visa credit sponsorship.
Damian Kozlowski: 25 guidance does not include the impact of planned stock buybacks of $150 million that I previously mentioned I'll now turn the call over to Paul Frankel for more color on the third quarter Paul.
Paul Frankel: Thank you Damian while the federal reserve began to reduce rates in September the purchase of the $900 million of long term fixed rate U S. Government sponsored agency Securities in April 2024.
Paul Frankel: <unk> reduced exposure to batteries there are rate decreases.
Paul Frankel: Additionally, an emphasis on fixed rate loans continues and the company's efforts to optimize its margins.
Paul Frankel: Majority of the increase in loans compared to June 32024 was comprised of consumer Fintech loans.
We are proceeding prudently in our Fintech credit strategies and currently are generating balances with lower potential loss exposure. We believe we will be able to originate loans with higher yields and rfps in the future.
Paul Frankel: Third quarter net interest margin of 478% compared to $4, 97% for second quarter, 2024, and reflected $1 $6 million or $1 $2 million after tax of prior period interest reversals on <unk> alone.
Transfer it to non accrual or related to loan modifications, reflecting those wrap up prior year.
Paul Frankel: Prior period interest reversal net interest income increased 5% in Q3 2024 compared to Q3 2023.
Paul Frankel: As noted in our last press release company examined the sensitivity of its allowance for credit losses to increases or decreases in its rebel loans classified as either special mention or substandard.
Paul Frankel: As a result of new seasonal factor resulted in a $2 million increase in the quarterly provision or $1 $5 million after tax.
Paul Frankel: At September 32024.
Paul Frankel: Rob loans classified as special mention and substandard, respectively amounted to $84 4 million and $155 4 million compared to $96 million and $80 4 million at June 32024.
Paul Frankel: Notwithstanding the increase this quarter in loan so classified the respective weighted average as is and as stabilized loan to values of 77% and <unk>.
Paul Frankel: 68% based on appraisals performed within the past 12 months.
To provide significant protection against law.
These classified loan was evaluated for potential increase in the allowance for credit losses on the basis of the aforementioned third party appraisals or apartment building collateral and again, which was which was updated and performed in the past 12 months.
Speaker Change: Average Fintech solutions grew up deposits for the quarter increased 11% to $6 64 billion from six point over $1 billion in third quarter 2023.
The provision for credit losses was $3 5 million in Q3 2024 compared to $1 8 million in Q3 2023. In addition to the aforementioned impact of the new rebel factor the provision for credit losses in Q3, 2024 reflected the impact of $1 $3 million of leasing.
Sorry, Josh.
Speaker Change: Charge offs $600000 resulted from transportation and trucking.
Total outstandings amount to $34 million.
Speaker Change: While the macroeconomic environment has challenged the multifamily bridge space the stability of the Bancorp's rehabilitation bridge loan portfolio is evidenced by the estimated value of the underlying collateral.
Speaker Change: The $2 2 billion of apartment bridge lending portfolio has a weighted average origination date L. T. As is LTV of 70% based on third party appraisals.
Speaker Change: The weighted average origination date as stabilized LTV, which measures the estimated value of the apartments. After the rehabilitation is complete may provide even greater protection for losses.
Speaker Change: Noninterest income for Q3, 2024 was $32 1 million, which was 20% higher than Q3, 2023 prepaid debit card and other payment fees increased 16% accounting for the majority of the increase.
Speaker Change: Those increases reflected both higher rapid funds transfer income and higher prepaid and debit debit program sponsorship income driven by both new client relationships, achieving scale and year over year.
Speaker Change: The continued organic growth of long standing client relationships.
Speaker Change: But the consumer Fintech loan noted previously the income statement reflects the new income statement line item consumer credit Fintech, Steve, which generated $1 6 million of quarterly fees.
Speaker Change: As previously noted we believe we will be able to originate loans with higher yields <unk> fees in the future.
Speaker Change: Noninterest expense for Q3, 2024 was $53 3 million, which was 12% higher than Q3 2023. The increase included an 11% increase in salaries and benefits.
Speaker Change: 892000 after tax loss mentioned earlier by Damian and increased other real estate owned expense.
Speaker Change: Book value per share at quarter end increased 18% to $16 90.
Speaker Change: <unk> to $14 36, a year earlier.
Speaker Change: That reflected the impact of retained earnings and also the impact of the unrealized gains on our securities portfolio, primarily as a result of the 2020 for securities purchases.
In summary, the.
The <unk> balance sheet has a risk profile.
Speaker Change: Enhanced by the special nature of the collateral supporting its loan niches and related underwriting those loans niches have contributed to increased earnings levels, even during periods in which markets have experienced various economic stresses real estate bridge lending is comprised of workforce housing, which we believe and.
Speaker Change: <unk> to be working class a apartments at more affordable interest rates in selected states, we believe that our underwriting requirements provide significant protection against loss.
Speaker Change: Objectively supported by LTV ratios based on third party appraisals further that's blocking eyeblack loans are respectively collateralized by marketable securities in the cash value of life insurance, while SBA loans are either SBA seven loans that come with significant government related guarantees for SBA five O.
Speaker Change: For loans that are made at 50% to 60% Ltvs.
Speaker Change: Additional details regarding our loan portfolio are included in the related tables in our press release as are the earnings contribution of our payments businesses, which further enhances our risk profile the risk profile inherent in the <unk>.
Speaker Change: Company loan portfolios payments funding sources and earnings levels may present opportunities to further increase stockholder value.
Speaker Change: Still prudently maintaining capital levels such opportunities include stock repurchases, which are planned to be continued for the remainder of the year with additional repurchases in 2025, I will now turn the call back to Damien.
Damian Kozlowski: Thank you Paul operator could you. Please open the lines for questions.
Damian Kozlowski: Yes.
Speaker Change: Yes at this time the floor is open for your questions. If you would like to ask a question at this time. Please press star one on your telephone keypad.
Speaker Change: You may remove yourself at any time by pressing star two.
Speaker Change: Once again, if you would like to ask a question. Please press star one.
Speaker Change: Our first question will come from Frank Schiraldi with Piper Sandler. Please go ahead.
Speaker Change: Good morning.
Speaker Change: Good morning, Frank.
Frank Schiraldi: Just wanted to start with.
Frank Schiraldi: And then just I believe I heard you mentioned a new partnership.
Frank Schiraldi: On the Fintech side.
Speaker Change: The partner I don't know if that's by design or this is just the previous previously announced but can you just give a little more color and if it is a new partner or any guardrails around a potential bottom line impact.
Frank Schiraldi: Yeah.
So our pipeline is.
Frank Schiraldi: Extremely strong right now even more than I have said in the past.
And we're seeing it and theres been a lot of implementations over the last year, which is <unk>.
Frank Schiraldi: Continuing to show momentum and our GDP even.
Frank Schiraldi: And this month in October.
Frank Schiraldi: So nothing to announce however, we're continuing to expand our long term relationships with new product sets.
Frank Schiraldi: Including credit sponsorship Theres, a lot going on there.
Frank Schiraldi: And we're in discussions with new partners that want to move to our platform. So it's extremely robust at this time, but nothing to announce.
Speaker Change: Okay and then.
Just thinking about 2025 guide and.
Speaker Change: And we used to talk about.
Speaker Change: Perhaps 15% GDP growth being a historic sort of growth level, and maybe being able to exceed that and then the pick up on fees would be something a little less than that.
This quarter, you put up 15% GDP growth and 20% plus a fee growth. So just kind of if you could just.
Your updated thoughts there around just given how strong the pipeline is.
Are we still thinking 15% plus GDP growth and any color on.
Speaker Change: What that translates to in terms of our fees.
Speaker Change: So I can give you a couple of insights are.
Speaker Change: These programs take a long time to implement.
Speaker Change: And sometimes they kind of pay.
Speaker Change: Pay off all at once so if youre looking at our GDP and where we're saying we're going to be above.
Speaker Change: Above trend. This year now. This is this is an estimate and this moves around a lot, but we're experiencing above 20% now GDP growth in the month of October and we think that you just don't know how that's going to play out, but our transactions tend to be based transactions like payments.
Speaker Change: That are.
Speaker Change: That happened continually for the customers of the applications the program managers.
Speaker Change: It seems once we have a bump up in that volume it doesn't it doesn't go back down again, so we're experiencing that now I would think that 15% number plus is also a good number for next year.
Speaker Change: It could be a bit higher more towards the 20% range, but we'll have to see it can be very volatile.
Speaker Change: Okay.
Speaker Change: And then just on the on the rebel book given that.
Speaker Change: Just just in the quarter, obviously rates fell.
Speaker Change: They fell significantly in the middle part of the curve kind of bounce back a bit, but but I'm just curious given where rates were what sort of trends you saw in the quarter in terms of balances.
Speaker Change: Moving to permanent financing moving off the balance sheet off your balance sheet and any any did that accelerate any numbers you can put behind that.
Speaker Change: I don't we really haven't it has not been enough yet I think it's clearly that there is.
Speaker Change: Building liquidity.
Speaker Change: In this niche with.
Speaker Change: The forward look on rates. So the market was a bit stalled for a while with new deals and that's starting now to unclog a bit. So there is forming tools of capital. So when we're looking to.
Speaker Change: Whether it was the <unk> or with certain loan modifications, we've done on the rebel but theyre just more capital available. They can market conditions have been have definitely improved.
Speaker Change: As well as.
Speaker Change: New investors coming in.
Speaker Change: Or existing investors, who look to add to their portfolio.
The environment that we had in 'twenty one 'twenty two is kind of on the <unk>.
Speaker Change: That is something that's been repaired a lot in the marketplace people have a much.
Speaker Change: Better perspective on rent growth and cap rates all the things that you want in a good market and thats.
Unclog the market a bit.
Speaker Change: Okay, and then just lastly on that front you talked in the in the release about the expectation I think the wording was nearing peak in terms of criticized balances and.
Speaker Change: I'm just trying to think through timing there I mean, if its late 2021 early 2022 vintage these things come up.
Three year initial term, which seem to me that maybe early 2025 would be a point you could.
Speaker Change: Spec.
Maybe a peek in criticized or is it that or is it that the rates coming down here in the near term.
Speaker Change: How are you feeling about better about maybe peak earlier than that just trying to think through that thanks, yes.
Speaker Change: Yes, so we really believe were at or near peak and that's why I would had a.
Speaker Change: Third party come in to validate.
Speaker Change: And look at all the loans and ensure that we were being too aggressive and downgrades and that it was right where it should be at the standards of the market.
Speaker Change: We have a plan in place.
We believe that we can reduce it in the next two quarters. So we have identified properties working with the sponsors.
Speaker Change: We've modified certain loans and we look to we're looking to offload or have those loans financed so we're hoping to make.
Speaker Change: First of all we think we're at the peak near the peak.
Speaker Change: Think there won't be a lot more and we think we can reduce that that balance number on the substandard criticized and classified assets over the next two quarters.
Speaker Change: If you look.
To the full.
Speaker Change: Resolution of that group of loans that will take a little bit longer, but but that'll be throughout 'twenty five and by the end of 'twenty five we should have all or most of those.
Speaker Change: Loans refinanced.
Speaker Change: Great. Okay, alright, thanks for the color.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question will come from David Feaster with Raymond James. Please go ahead.
David Feaster: Hi, good morning, everybody.
David Feaster: Yeah.
David Feaster: Hey, guys.
David Feaster: I wanted to get a sense I want.
David Feaster: Especially on the credit sponsorship right I mean, that's clearly gained some traction I am curious how that rollout has gone and youre since your initial sense as you're starting to ramp that up of the infrastructure that you've built and then just what's the pipeline like the.
David Feaster: The growth outlook, you're thinking and could you remind us of the yields on that production as well.
Speaker Change: Okay. So.
David Feaster: <unk>.
David Feaster: Right now.
David Feaster: We're working with multiple partners too.
David Feaster: Implement new new programs.
David Feaster: I would say there are three that are well known providers.
David Feaster: A better looking too.
David Feaster: Implement their programs at the Bancorp.
David Feaster: The ramp up is primarily with chime now in four product areas.
David Feaster: And it will probably be $400 million ish, we're thinking.
David Feaster: By the end of the year and footings now.
David Feaster: The velocity of those loans is very high so we've had about a $1 6 billion.
David Feaster: Actually learnt through even though the balances are not very high it's the repayment and recycling of those loans, that's very quick and Thats why those fees grew so quickly. So the end of next year.
David Feaster: Depending on the time of implementation, we expect the balances to be.
David Feaster: Around $900 billion to $1 billion by the end of next year and it does look like the growth after that could be substantial we're not putting a number on it but.
David Feaster: We're talking about a doubling of those balances we think at a minimum by the end of 'twenty five so that obviously would generate.
David Feaster: A lot of spread and fee revenue because of the velocity of the loans. So it's.
Speaker Change: That's a good example to show that our guidance if you look at our guidance.
Speaker Change: For this year right. There is a lot of momentum in that business that will that we think will be able to meet.
Speaker Change: Our full year guidance with our fourth quarter, even though our run rate right now.
Speaker Change: Even though you take out those one time items. We mentioned is more like 111. So we do we definitely have a $1 million to $2 million opportunity just in that bucket and the credit sponsorship in the fourth quarter are we haven't we just finished our full implementation of something we mentioned before which is the <unk>.
Speaker Change: <unk> funds transfer balances RFT balances.
Speaker Change: Block that.
Speaker Change: We've mentioned in the past that is a $1 million to $2 million opportunity and our GDP as I mentioned below before it is significantly above trend, though this all of this is volatile. So these are just estimates and that is the $1 million to $2 million opportunity. So you you have a situation where if you look at that 111.
Speaker Change: It's about <unk>, so youre already at.
Speaker Change: 118.
Speaker Change: For the fourth quarter, but then because our deposit balances are much higher than expected.
Speaker Change: We're able to fund our bond purchases without any borrowings right now. So that's that's that's another $1 million to $2 million opportunity. That's how we so so this area of the Fintech space is showing rapid.
Rapid above trend growth with new fee sources and its very encouraging.
Speaker Change: Okay. That's helpful and maybe to some of the points you just made I mean, you've been active managing rate sensitivity ahead of potential cuts, obviously theres prospects is more on the horizon I'm curious how do you think about the margin trajectory looking forward assuming the forward curve comes to fruition.
Speaker Change: Contemplating better yields from credit sponsorship and just what rate outlooks, you betted into your 2025 guide.
Speaker Change: So.
Speaker Change: Our asset sensitivity has continued to decline we moved it from eight to under two with the bond purchases and putting on fixed rate exposure.
Speaker Change: Our our NIM for.
Speaker Change: 2025 should be very stable. So you have to add back some of the reversals we had.
Speaker Change: In the third quarter, so the NIM should be in the high fours, probably in the $4 90 to $5 range for 'twenty five.
Speaker Change: And depending on we don't we don't think it's the Goldman forecast of three to 325, we still think the fed will be around the 4% range on fed funds. If that's if that happens and we continue to grow our deposit sources and.
Speaker Change: And the other fee income.
Speaker Change: It's fairly easy to get to that 525 number we put on the table for 25.
Okay.
Speaker Change: And then last one.
Speaker Change: So from.
Speaker Change: From the chip to actually processing delay I was just hoping you could touch on on what drove that.
Speaker Change: Just curious what it was then.
Speaker Change: Yes, there was an application.
Speaker Change: A glitch.
Speaker Change: We're in those situations, we have to rename files intuit manually and because of the naming convention and a whole bunch of certain dip is serendipitous things that we've all put in multiple controls to prevent we had a loss on returns like non sufficient fund files four of them.
And so they got delayed.
Speaker Change: And to avoid confusion working with our partner, we decided to share the cost and not submit the files late which might've caused consumer.
Speaker Change: Confusion. So this is we believe a one time event.
Speaker Change: Vary a whole list of of <unk>.
Speaker Change: Serendipitous.
Speaker Change: Events happened and we've closed those gaps.
And we've even changed the naming convention.
Speaker Change: To ensure that can't happen again, if there is another application failure. So this is this hasn't happened before I've been here eight years.
Speaker Change: It significantly improved the platform. It's one of those it's one of those things and.
Speaker Change: And we don't it's not systemic.
Speaker Change: Okay. That's helpful. Thank you.
Speaker Change: Thank you. Our next question will come from Tim Switzer with K B W. Please go ahead.
Speaker Change: Hey, good morning, guys. Thank you for taking my questions.
I had good morning quick follow up.
Tim Switzer: I had a quick follow up on the NIM trajectory with the fed rate cuts.
Speaker Change: Your deposits kind of reprice immediately almost with the contractual beta basically that's your 60% so.
Speaker Change: Should we see maybe margin expansion initially.
Speaker Change: Before then the margin kind of I guess moderate it comes back down a little bit as we start to see pressure from the loan repricing.
Speaker Change: How should we think about that over the course of the year or is it just stable every quarter.
Speaker Change: Well, it's well it's hard to know because for example, where we had fixed rate exposure that we put on.
Speaker Change: During the pandemic for example in our activities like SBA, but leases that were done at.
Speaker Change: Beginning.
Speaker Change: The low interest rate or at the end of the low interest rate environment. So that's burning off so you are getting higher rates and some of our businesses and then I'd say in some new rebel loans that would actually be lower rates. So it's hard to tell I think I think it will be basically a wash the real game.
Speaker Change: Game changer is noninterest bearing deposits so as I said.
Speaker Change: The thing that we can't predict is our deposit levels, even though they are very they are well above where our estimates were.
Speaker Change: At the beginning of the year, so that's helping things like the funding of the bond purchases and then also <unk>.
Obviously.
Speaker Change: The amount of.
Speaker Change: Areas, where we don't pay that share.
Speaker Change: Our growing so I think it'll be basically a wash I don't think it will.
Speaker Change: I think youre going to stay in that $4 90 to $5 range I don't think theres going to be wild swings unless we have a one time event or like we had a reversal.
In the previous in the last quarter so.
Speaker Change: So it will be I think it'll be fairly stable. It is hard to predict it might move around a lot, but there's just there's ins and now it's basically so you can't really.
Speaker Change: Have a good estimate so we've estimated that is going to be fairly flat.
Speaker Change: Okay.
Speaker Change: That's helpful.
Speaker Change: And then I was looking at your regulatory ratios.
Speaker Change: Your TCE went up over 50 basis points with your regulatory ratios went down a little bit was there.
Speaker Change: A change in like the risk weighting of your assets and was that related to some of the credit migration or can you guys walk us through that.
Speaker Change: I'll give that to Paul Paul would you like to over time.
Paul: Yes, sure. So we do have a 100% like for instance, the consumer the $280 million of consumer loans, though goes those go in at a 100 and 100%. So there was some movement as you suggested.
Paul: But really the the changes the quarterly changes.
Paul: We're really kind of minimal.
Paul: We monitor the capital and we do those projections quarter to quarter.
Paul: And they won't they're not going to change meaningfully.
Paul: And because we're generating so much earnings like we have that scheduled out so that we'll maintain those ratios.
Paul: And that's taken into consideration.
Paul: Consideration when we estimate the guidance so it won't have any impact.
Okay. Okay.
Speaker Change: And I'm curious this is a question I've been getting from a few other investors, but why did you guys decide that now was the time to add to the rebel reserve if.
Paul: If we're nearing kind of peak.
Paul: Pete classified loans, what was the thinking and.
Paul: Maybe a little bit more explanation on what drove that.
Paul: That's exactly why because it's really theoretical.
Paul:
The current T cell stands for current expected credit credit losses. So we don't really expect any and that's based primarily.
On the Ltvs.
Paul: As is ltvs and stabilized ltvs.
Paul: And so we don't really expect any losses on our portfolio.
Paul: <unk>.
Paul: That kind of is difficult to reserve against when you don't really have any objective means of doing so but to the extent you do have an objective means which is the.
Paul: Which is the level of classified assets then theory would suggest you would add some.
Paul: Some level.
Paul: Of.
Our reserve so we're being disciplined we're staying with the theory.
Paul: But on the basis of the strength of the LTV, it's a modest increase which by the way as as the level of substandard loans.
And special mentioned loans goes down that actually gets.
Paul: You have to consider that that should get reversed.
Paul: But it really is a theoretical accounting.
Paul:
Paul: Requirement and we're staying disciplined to it.
Speaker Change: Okay. Okay.
Speaker Change: We appreciate all of the updated credit metrics you provided.
Speaker Change: The release is there any kind of update you can provide on the loans that have modifications and if you expect that to be peaking as well.
Speaker Change: It sounds like you expect a lot of them to be resolved over the course of 'twenty five yes, we do expect that yes, we do expect that the modifications are peaking we have multiple levels of.
Speaker Change: Of review.
Speaker Change: We have.
Speaker Change: The department itself.
Just on his detailed knowledge of each loan has to send a quarterly certification to us the executive management and a whole host of controlled parties that.
Speaker Change: Identified all of the problem loans on top of that we have a layer of.
Speaker Change: Credit review loan review and as Damien mentioned earlier this quarter because we.
Speaker Change: We do have an elevated.
Amount of substandard loans, we called in a third yet a third party.
To to.
Speaker Change: To review all of it to be a very significant amount.
Speaker Change: Of the loans just to make sure that they had all been identified so that really is the basis.
Of why we think that the loans with issues have been identified and we think there are peaking.
Okay, and if I could ask one more please can you guys explain what sort of captured in that $1 $6 million of consumer credit and tax season.
Speaker Change: Interchange and then have you guys.
Speaker Change: Started selling any for gain on sale revenue at all or is that in your plan.
Speaker Change: It is we haven't sold any gain on sales. So this is all.
Speaker Change: On balance sheet and it's in this case, it's mostly fees for.
Speaker Change: For getting the money early.
Speaker Change: So.
Speaker Change: Believe it or not while we get.
Speaker Change: A spread on the loan.
Speaker Change: Our business partner is giving free advances of which the source of income is actually if somebody wants it even though they can get it in two days or so.
Speaker Change: Three days at the most they want it immediately and so they.
Speaker Change: Could be a $50 they want it and they pay a fee based on getting that money early.
And because it's.
Speaker Change: Once again this is a.
Speaker Change: Kind of a rapid loan.
Speaker Change: And they need the money at that point and so they are willing to pay a small fee in order to get that money and thats. The majority of those fees is that $1 6 million as the early.
Speaker Change: Basically getting the money a little bit early.
Speaker Change: And the client the customers willing to pay a small fee to get that.
We also happy to cure yet, yes, we also have secured credit cards.
Speaker Change: And while you don't see these.
Speaker Change: Income for that that that.
Speaker Change: Benefit to the bank is significantly reflected in greater deposits and lower cost of funds.
Speaker Change: Okay, and how do you guys see the composition of that revenue changing overtime.
Speaker Change: Well it will change because the.
Speaker Change: Partners that we or will there be an expansion of these type of pro with kind of four product types now.
Speaker Change: Kind of variations of credit like products.
Speaker Change: With one of our partners chime.
But our new.
Partners that we're implementing will need to or have the business model to distribute the loans, we will hold assets for 30 days.
Speaker Change: 3% to 30 days.
And then they will be distributed to investors now there will be also certain assets that we like or depending on the program we will hold.
Speaker Change: 5% or 10% of those assets longer term.
Speaker Change: And those are very high spread loans obviously.
Speaker Change: Compared to our traditional.
Speaker Change: Lending.
Speaker Change: So there'll be three types right secured on balance sheet heavy fees there'll be.
Speaker Change: Fully distributed $3 to 30 day underwriting risk, but once again there'll be small spread but a lot of fees a lot of velocity and then there'll be a small portion.
Speaker Change: Multiple different programs that will be on balance sheet there'll be very diversified our future look if we said to the market.
Speaker Change: In five years, but we think it's going to be sooner now.
Speaker Change: The balances we think there's there's just such a large pipeline and the programs that we've already implemented are going so well.
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15.
Speaker Change: <unk> 15, 20 programs that will look similar to our banking as a service time, but on the debit deposit side it'll be diversified with the three business models.
Speaker Change: That I've already.
Speaker Change: Detailed but in this case you also get all the payments activity too so.
Speaker Change: This activity is high velocity high fees and when we hold at higher rates off the back of our banking as a service debit infrastructure. So it's extremely profitable business.
Speaker Change: That's great I appreciate all the detail thanks for taking all my questions.
Speaker Change: Thank you at this time there are no further questions in queue I will turn the call back to Damian kozlowski for any additional or closing remarks.
Damian Kozlowski: Thank you everyone for joining us today.
Damian Kozlowski: Have a great day and operator could you. Please disconnect the call.
Damian Kozlowski: Okay.
Speaker Change: Yes. This does conclude the bank Corp third quarter.
Speaker Change: 2024 earnings Conference call. Please disconnect. Your line at this time and have a wonderful day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Hum.
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