Enterprise Financial Services Corp' (EFSC) CEO Peter Benoist on Q1 2016 Results - Earnings Call Transcript

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Enterprise Financial Services Corp (NASDAQ:EFSC) Q1 2016 Results Earnings Conference Call April 28, 2016 3:30 PM ET


Peter Benoist - President & CEO

Scott Goodman - President, Enterprise Bank & Trust

Keene Turner - Executive Vice President & CFO


Jeff Rulis - D.A. Davidson & Co.

Michael Perito - Keefe, Bruyette & Woods

Andrew Liesch - Sandler O'Neill & Partners

Brian Martin - FIG Partners


Good day and welcome to the Enterprise Financial Services Corporation's earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Peter Benoist. Please go ahead, sir.

Peter Benoist

Thank you, Liz, and welcome to everybody on our first quarter earnings call. I have joining me today Scott Goodman, the President of our bank; and Keene Turner, our Chief Financial Officer.

I'd like to remind everybody that a copy of the release and the accompanying presentation can be found on our website. The presentation and earnings release were furnished on SEC Form 8-K earlier today. Please refer to slide 2 of the presentation titled Forward Looking Statement and our most recent 10-K and 10-Q for reasons why actual results may vary from any forward-looking statements we may make today.

Our first quarter results showed continued momentum over record performance in the fourth quarter and full year of 2015. Core net interest income increased 13% linked quarter annualized and 16% year over year, driven by continued strong loan growth, improving loan yields and widening net interest margins. Specialty lending areas, particularly tax credit leveraged loans and enterprise value lending, our senior debt offering, contributed to annualized linked quarter loan growth of 12% and a year over year growth rate of 16%.

While asset quality metrics remained very solid with non-performing loans totaling a modest 34 basis points and net recoveries at 1 basis point, we were able to increase core portfolio loan yields by 3 basis points in the quarter and 4 basis points over the prior year period.

At the same time, our continued focus on funding strategies resulted in an increase in core deposits, excluding certificates of deposit, of 17% over the prior year while interest-bearing deposit costs declined 2 basis points in the quarter and 8 basis points year over year. Core margins improved 8 basis points to 3.54% from the first quarter of last year.

Continued focus on executing at a high level on our core fundamentals delivered a 17.4% increase year over year in diluted earnings per share and a 1.22% return on average assets and a 13.7% return on tangible common equity. Over this same period, we produced a double digit increase in tangible book value per share of 11.5%. We're pleased with the results for the quarter and we believe that our momentum will continue.

While overall performance is solid, we believe that over time, we can improve our fee income generation with a particular focus on card services, our mortgage division, and continued investment in our treasury management and private banking capabilities.

Renewed leadership in mortgage, the recent in-sourcing of our card services division, and talent additions to private banking through our wealth management area, coupled with already improving cross-sell efforts are all aimed at driving stronger fee income generation over time.

I'd like now to turn it over to Scott Goodman to speak to our overall performance in more detail by area and by market. Scott?

Scott Goodman

Thank you, Peter. Focusing our attention first on slide number 4, as Peter mentioned our momentum in the loan portfolio from a record 2015 carried through the first quarter with $82 million of net funding, resulting in 16% growth year over year.

Origination volumes overall are up significantly from the same quarter a year ago. And most major sectors of the portfolio showed growth. Intentional focus on improving our management of the sales process has continued to produce elevated selling activity, helping to both bolster pipelines and offset some of the seasonal softness historically experienced in several of the niche lines of business.

As illustrated on slide 5, C&I represents the largest portion of our growth, up $61 million for the quarter and 23% from the similar quarter last year. Breaking this down a bit further, slide 6 examines the portfolio by segment. The largest increase was in the general C&I category.

Contributing to Q1 growth in this area was the addition of $30 million in new aircraft loans. As I detailed last quarter, we acquired a portfolio of loans associated with the lift up of an aircraft finance team to focus on the private aircraft niche. It is a team that we know well through a 13-year banking relationship and a niche which fits nicely alongside our other specialty lending offerings, complementing the core geographic markets. This team has hit the ground running with continued originations to long-term clients.

The tax credit sector also experienced strong growth for the quarter, as it began to leverage the $65 million in new markets tax credit allocation awarded to us last year. These fundings include several new relationships attracted to our institution through creative use of these tax credits.

Enterprise Value Lending, or EVL, also grew $10 million for the quarter on the heels of a robust Q4. As the M&A markets catch their breath in the first quarter, this has historically resulted in lower activity. However, our continued expansion and diversification of markets and sponsor relationships in this niche continue to produce more deal flow, resulting in several new closings for the quarter.

Commercial real estate growth represents a mixture of owner-occupied property associated with new relationships, purchase activity for investor clients and increased funding on construction loans and life insurance premium growth through the combination of new clients and some funding of premium on existing loans.

Regional performance is highlighted on slide 7. Specialized lending, which includes the niches of EVL, life insurance premium finance, and aircraft finance, grew $47 million for the quarter, continuing its strong momentum of 49% growth year over year.

Origination activity was strong in St. Louis, highlighted by a steady flow of new opportunities, including several significant new relationships in the manufacturing, consumer products and professional services industries. Kansas City activity was solid with a mix of CRE opportunities for existing clients and both new and expanded C&I relationships. Net growth in Kansas City was muted by several larger real estate loan payoffs related to sale transactions, cash reduction and refinancing.

Arizona activity was a bit slower in Q1, coming off of several strong quarters, which produced 35% year over year growth. We did lose two RMs in Arizona in the quarter, which contributed to the leveling of activity. However, the pipeline looks good and our ongoing recruiting process in this market has enabled us to fill the bench almost immediately with an experienced 20-plus year local banker.

Moving on to slide 8, total deposits grew by $147 million in the quarter. In addition to time deposits used to help fund the robust loan growth, core deposits also grew by 7% on an annualized basis, continuing a pattern of steady growth which has produced a 17% increase in core deposits since Q1 last year.

We remain focused on elevating core funding as a priority within our sales process and we have implemented a number of strategic initiatives designed specifically to attract low-cost deposits, which have begun to take hold. These strategies include targeted calling programs on several deposit-rich business sectors such as financial services and municipalities, elevating the positioning of deposits within our incentive programs and our transfer pricing systems, and concerted efforts to move new relationships or consolidate existing ones in the commercial and business banking sectors.

Our view of the competitive landscape remains relatively consistent with the prior quarter's comments. Overall, we see steady and intense competition in CRE and middle market general C&I. The specialty businesses of EVL, life insurance, and tax credit lending and now aircraft finance continue to benefit from fewer direct competitors complemented by some level of pricing premium. The EVL space is attracting increased competition from unitranche lenders and larger regional banks. Structure in this space is also under pressure with M&A sponsors looking for increased cash flow flexibility, particularly on extended amortization periods.

On a core basis, fee revenue is consistent with the prior quarter. Service charges have grown by 10% over the prior year quarter, reflecting our success in landing new commercial C&I and EVL relationships. This offsets the impact of a seasonal decline in the quarter in state tax credit sales and a slight reduction in wealth management revenue associated with reductions in market value of assets under management.

Asset quality remains sound with a stable level of non-performing loans, representing 34 basis points of the total portfolio. There were just two unrelated additions to the category for the quarter and we experienced net recoveries in the period.

Now, I'd like to turn the call over to Keene Turner for a financial commentary.

Keene Turner

Thank you, Scott. Our first quarter results reflect the leverage we've built in our business model, both in terms of driving strong revenue gains as well as discipline and managing expenses.

Turning to slide 9, we've reconciled reported earnings per share of $0.54 for the first quarter to $0.47 of core EPS in the quarter. As you can see, we earned back the FDIC loss share termination expense within the quarter.

I'll point out that although the write off was accounting related, the earn back was principally economic resulting from actual cash collected from recoveries and early repayments relative to the carrying value of the underlying assets. We believe that we traded expenses waiting to happen for cash and economic returns and obviously we're quite pleased with the early indication.

Slide 10 depicts the slight decline in core EPS from the fourth quarter, the components of which I'll summarize briefly. Our earnings improved $0.03 per share from growth in net interest income and is reflective of the continued success in growing high-quality portfolio loans. Asset quality continues to be favorable; however, strong recoveries in the fourth quarter resulted in a sequential reduction of $0.01 in the first quarter. Non-interest income was seasonably lower by $0.03 due to tax credit sales, which are strongest in the fourth quarter. And non-interest expenses increased slightly by $0.01 per share and is largely related to employer payroll taxes.

On the next slide, we depict our continued progress in growing our core earnings power. Over the last two years, core EPS has expanded by 30% annually and we've demonstrated stable and increasing core earnings, which totaled $0.47 per share for the first quarter. Our core return on average assets was 1.04%, reflecting a 16 basis point improvement from just a year ago. Our core ROA has been above 1% for the last three quarters and we continue to work diligently to build on those returns.

Slide 12 demonstrates 16% growth in net interest income since the prior year quarter and was $29.6 million for the first quarter of 2016. Our continued focus on revenue growth, mainly net interest income and other banking activities has been the primary driver of our core performance trends.

In recent quarters, our net interest income growth has accelerated due to continued meaningful loan asset generation and the cumulative impact of success we have had in defending and expanding core net interest margin. Core net interest income expanded by nearly $1 million in the linked quarter, despite fewer days, significant reductions to PCI loan balances, and some incremental premium amortization on recently purchased portfolios. Core net interest margin expanded 4 basis points in the linked quarter to 3.54% due to improved yields on portfolio loan and reduced funding costs.

Our mix of funding and deposits remain favorable relative to our asset mix and we're building confidence in our ability to grow core deposits. Despite the successful net interest margin management, we continue to be focused on growing net interest income dollars first and foremost. In doing so, we've maintained our modestly asset-sensitive interest rate risk profile and our variable rate loans remain at 62% of total loans.

The loan to deposit ratio was 99% at March 31, as we utilized the combination of core deposit growth and brokered CDs to fund the first quarter asset growth. Despite the increase from year end, the brokered CD balance is a smaller portion of our deposit balances than they were a year ago. Nonetheless, we remain highly focused on core deposit gathering and maintaining strong liquidity in support of future growth.

We're also extremely pleased to begin the year with strong loan growth and we reaffirm our outlook for loan growth for the year at or above 10%, combined with some continued optimism for modest expansion of core net interest margins.

Credit metrics on slide 13 remain favorable and support our current and ongoing profitability. As I noted, we experienced net recoveries of 1 basis point in the current quarter, but that was an unfavorable comparison to 10 basis points in net recoveries in the fourth.

Because of strong loan growth, we recorded $0.8 million of provision for loan losses on portfolio loans. We believe we continue to prudently provide for credit losses that may be inherent in the portfolio and the allowance to total loans was 1.21% at March 31. Coverages of non-performing assets and loans are still strong and we remain vigilant with respect to the quality of our earnings and allowance levels.

On slide 14, operating expense trends remain well controlled, despite modest growth in recent quarters. They totaled $20.4 million for the first quarter compared to $20 million for the fourth. The chart depicts the stability of occupancy and other expenses over the last five quarters. Thus the expense increases have been from employee compensation and benefits as we've continued to invest in professionals and teams in support of sustained revenue growth.

For some perspective, during the past year, we hired more than 15 additional customer development and revenue-producing positions and promoted approximately 10 associates into higher level positions to better serve our customers. This has contributed to our successful expansion of revenue at a faster pace than expenses and has translated to a core efficiency ratio of 57% to start the year. We expect to continue similar expense trends throughout 2016 while we maintain our target for total quarterly expenses to be between $19 million and $21 million.

Slide 15 demonstrates our financial scorecard as we look back one year from the current quarter. We've grown core EPS by 34% with 16% growth in net interest income through continued portfolio loan growth, net interest margin defense, and stellar asset quality. We had funded the balance sheet successfully with strong deposit growth, maintaining a high proportion of DDA and managing costs down by 6 basis points.

Additionally, our expense discipline has helped translate our success into core EPS growth. Our core efficiency ratio has been in the mid 50% range for the last couple of quarters and we continue to pursue revenue growth while gaining further expense leverage.

We're pleased with our performance trends and we remain increasingly intent on driving further growth in our return. We believe that we're better positioned than ever to build upon our success and continue to expand shareholder returns and value through earnings performance and appropriate capital management.

We've demonstrated our business model and our teams compete well and serve customers in a superior way. And we further believe that we have managed our company to translate both to value for shareholders.

We appreciate your interest in our company and thank you for joining us today. At this time, we'll open the line for any questions.

Question-and-Answer Session


[Operator Instructions] And our first question comes from Jeff Rulis of D.A. Davidson.

Jeff Rulis

Question on the, maybe for Scott, on just the consumer portion of the loan book, you had a pretty big quarter in Q4 and then flat in Q1. I guess anything other than seasonality impacting that balance?

Scott Goodman

No, just trying to think back on Q4, we had acquired a small portfolio of specialized loans, which fell under that consumer category and I think that bolstered the Q4 growth number. We didn't repeat that in Q1. Most of what we're looking at on the consumer side is portfolio mortgage and there hasn't been really any changes there.

Jeff Rulis

Scott, you mentioned some of the personnel rotation in the Arizona market. I guess on the loan side, significant loan officers, have there been any new hires on that front across all locations?

Scott Goodman

Yes, I think Keene had mentioned the significant additions to the front end of our business with our talent. In Arizona, in particular, I had mentioned we did lose two. They left together to start up a local office for another Midwestern bank. We've been very diligent about ongoing recruiting in all markets at all times. That has really helped us. We pretty much immediately filled the bench with a 20-year local CRE banker and the pipeline looks good in Arizona, so I'm not concerned there.

We've added other talent in addition to the team, the aircraft team I mentioned. We hired two business line leaders to elevate our performance in mortgage and in private banking and wealth in the quarter. We brought on an RM in St. Louis focused on the financial services niche, which is in line with our production and targeting of the deposit niche there.

We brought on two new business bankers in Arizona and we're building the business banking market there and also a private banker along with the business line leader for private banking in St. Louis. One of the large regions centralizing our private banking market, which is great for us because their service model strategy becomes a 1-800 strategy and ours is to go after those local private banking clients with a local team. So we continue to be focused on recruiting and we're really seeing some traction.

Jeff Rulis

Maybe one last one for maybe Peter on just the dividend increases have been pretty consistent. Do you have any thoughts on sort of payout limitations if you get to an earnings payout of 20, 25, 30, is that in the discussion or is it sort of a quarter by quarter basis with the board?

Peter Benoist

We have not set any benchmarks. Jeff, in that regard, it really is quarter by quarter.

Jeff Rulis

And then thoughts on the buyback or just stay active when you need to or is it – I guess the bigger question is kind of what you're seeing other uses of that capital and the M&A environment if you could color what you're seeing on that front?

Peter Benoist

I'll cover M&A in this sense. I think our first priority and we've indicated pretty consistently is to continue the momentum that we have now on a core basis. I think we feel very good about our positioning. We feel good about our momentum. We feel good about our results.

From an M&A perspective, if there's an opportunity that has a very strong strategic rationale as opposed to just a financial rationale, we would give it serious consideration. And we have asked Keene to take the lead in terms of really sort of focusing on opportunities on a go-forward basis over time with a mindset that basically says our current position is to continue to drive results on a core basis and to the extent there are opportunities that strategically make sense for us and can really advance our performance both strategically. We'd take a hard look at that.

We don't ever want to be in a position where we're relying on M&A as a tactic to try and accelerate or maintain performance. So will there be opportunities? Time will tell. I think we're going to be very selective in terms of the screens. But it doesn't mean we don't have some intentional focus on it. We do.


And our next question comes from Michael Perito of KBW.

Michael Perito

Maybe first question for Keene on the expenses, so you guys are reiterating the $19 million to $21 million kind of guidance range, but I mean if we're to take some of your other comments about maybe some of the opportunities in Arizona and then some of Peter's comments on some of the core fee income build out, are we starting to trend maybe to a more consistently higher end of that range versus maybe more in the midpoint previously?

Keene Turner

I'd say that's probably fair. We did say that expenses were a little bit seasonally higher in the first quarter. So that gives us some room as we move forward and we've made some leadership changes and I think we expect to gain some leverage in the business as well. But we'll revise that guidance as we move forward. But for right now, we feel pretty good $19 million to $21 million and you can kind of see where we're trending in the last several quarters.

Michael Perito

And then maybe just switching over to the fee income side, couple of quarters in a row now on the core fee income side, you guys have put up $6 million or better. I know some of the businesses you guys have some seasonal nature to them. But is this kind of a good run rate going forward, with all the initiatives you guys are doing that you guys can realistically achieve and build off of?

Keene Turner

Yes, I think we feel good, particularly in the deposit service charge range. We've really gotten, I think wealth management relatively stable. Markets didn't really cooperate early in the quarter, but we've added some new customers there.

The tax credit one is the one that remains volatile, but the components of other, as Scott mentioned with mortgage and car, I think we're optimistic there. That may be a little bit of timing, but we've definitely been focused more on it. I think we stabilized a lot of those lines and I think we see some upside there. But we're not – the one that we're really the most confident in is the deposit service charge is with treasury management, bolstering that growth.

Michael Perito

And maybe one more on your core NIM comments for the modest, it’s helpful, for the modest expansion. Can you maybe dig into a little bit more of what the drivers of that hope is? I mean are you guys assuming kind of a year budgeting process some additional hikes in interest rates or is it kind of more as the growth tilts more to some of the niche businesses you guys have and the yield being a bit better there?

Keene Turner

No, it's not interest rate movement dependent. It's definitely a little bit of a mix on the asset side with some of the niches and then a little bit on the funding side. It's bits and pieces here and there. We've seen strength in the portfolio loan yields over the last several quarters and now we've seen some expansion. So I think we're hopeful and optimistic that we'll get a couple basis points here in the near term.


Our next question comes from Andrew Liesch with Sandler O'Neill.

Andrew Liesch

Just curious if you can just make a couple comments on these two non-performing loans. And then also, just like what sort of industry they're in and size, any sort of workout plans you may have? And then also is there anything concerning you on the credit front beyond that?

Keene Turner

There's nothing special about the two loans. They're C&I. I think one's a service industry credit. I believe the other one is distribution. So I mean there's nothing out of the ordinary there. I think as we look at credit, we feel good about it. There's no trends. We dissect it by niche. We dissect it by industry.

There's no trends in particular that concern me. We've looked at energy exposure. That's not an issue for us. It's not an industry that's targeted or businesses that we've targeted. It's an insignificant part of the portfolio. So there's nothing right now in particular that concerns me.


And we’ll take our next question from Brian Martin with FIG Partners,

Brian Martin

You guys talked about kind of a quite a bit of hires there and I guess I'm – some of those seem like it was over the last year, some of it seemed like it was more in the recent quarter. Could you just run over one more time who you brought on in the recent quarter and then maybe just comment to the extent that those are in the comp line for this quarter or to the extent they're not?

Scott Goodman

I can go through the personnel again. Keene can maybe comment on how it impacts comp. But we're continually recruiting for people that can make a difference on the front end and help grow revenue. So the additions in the quarter, the aircraft finance team, which is two people which I've mentioned. The business line leaders for mortgage and private banking, wealth, looking to elevate our performance and continue to grow revenue in those lines.

And then we have two RMs, one in Arizona that helps fill the bench from the two that we lost there. He's a 20-plus year CRE professional, led real estate for another regional bank in Arizona. So it looks like he can bring pipeline and hit the ground running there. And then a 30-year experienced banker in the financial services niche, which is a niche that we've targeted for deposit development here in St. Louis. And then we've built out the business banking team or started to build it out in Arizona, hired two business bankers there. And then finally a private banker in St. Louis under the business line leader that we brought in.

Brian Martin

I guess were all those this quarter, Scott, or...

Scott Goodman

Those are all new additions in this current quarter.

Brian Martin

And then the impact on, Keene, was all that primarily reflected in the number this quarter or not necessarily?

Keene Turner

So I would say when you're looking at our comp number, I mean most of that's reflected in the quarter. Yes, there's also ins and outs and we were just trying to get some perspective when you look over the year what we've done with expense management. I think what we've said is we've invested in the business.

I know when we were talking about expense management over the last several quarters, there was concern that we were reducing or keeping expenses flat and not investing in production of revenue. So it was just an opportunity for us to look back and give you some perspective of where we have invested. We've also been able to leverage costs in other places so we're giving you the relevant pieces to give you confidence in the numbers that we're guiding to from loan deposit and fees as we've discussed.

Brian Martin

And then just one other thing, just on those broker deposits. I know they're still a low number. I mean do you guys kind of have a benchmark or a range of where you want to keep those below? I guess I assume you're obviously focused on the core side so it's not like brokered is going to be a significant piece but just do you have a kind of target as far as what you'd let that get to?

Scott Goodman

Yes, I mean obviously like every bank, we look at wholesale funding and we have targets and there's levels at which we want to maintain wholesale funding from a minimum and then there's obviously levels we want to stay below. Like I think what we've said in the past and we continue to express is that we've had concerns or questions from you Brian I think on loan to deposit. We've got plenty of room as it relates to funding and liquidity. So we're not close to a level yet where wholesale or broker deposits are a concern for us.

Brian Martin

Maybe just that last thing for you, Peter, just on M&A, I know you talked about you'd kind of given the same feedback on M&A as far as what you're looking at and how you think about it. But I guess if you look at the dialogue off late, I know you said you have a more intentional focus on it. Certainly it's not the primary, I understand that. But just as far as what you're seeing as far as opportunities go, have there been more, have there been less, has it been pretty stable? Any color you could give would be helpful.

Peter Benoist

My only comment in addition, Brian, would just be that as I've indicated in the past, there are a lot of opportunities just as it relates to targets. I think what we've tried to do here is get much more intentionally focused on the difference between strategic opportunities and just what I'll call M&A activity.

So in that regard, there are fewer opportunities clearly, but there are opportunities. In that context, when we're intentional in terms of how we're approaching them and how we're working with them. But that would really be the only refinement I'd put on my comments.


[Operator Instructions] We’ll go next to [Eric], bank investor.

Unidentified Analyst

A couple things. Just a follow-up on Brian Martin's M&A question. So you made it pretty clear that you're taking a very targeted, disciplined approach to what you might be looking at. But when you look at your franchise, what do you see as possibly missing or something you'd really like to have that maybe another bank or institution offers that you don't have that would make them attractive? Is there something there that in particular that you'd really like to find an acquisition?

Peter Benoist

Yes, I'd say this and I think we've indicated in the past as we think about it relative to opportunity, funding and better distribution as it relates to our funding is an area of focus for us. So in that regard, we are more – I think more specifically focused on funding opportunities relative to targets. The other and I alluded to it in our comments here in terms of what we're doing internally but I think externally it would apply as well is non-fund revenue opportunities.

Obviously, any of these would have to be consistent with sort of our core competencies, which we've already indicated in the past are real sort of caveats for us from a cultural perspective. So those two areas of focus, basically non-fund revenue and funding are areas that we spend a lot of time I think ascertaining whether or not there are good opportunities from an M&A perspective.

The other comment I would just reiterate is we don't look at M&A as a near-term opportunity to advance the ball dramatically. We look at it as a longer-term strategy to continue to add shareholder value, given our business model and our area of expertise. So one thing we don't want to do is disrupt momentum with a transaction that doesn't fit exceedingly well in terms of what we're trying to accomplish.

Unidentified Analyst

And then more micro question for you. You mentioned the two-person team that you picked up on the aircraft finance side, if I heard it correctly, I thought you said that was about a $30 million portfolio that came on in the quarter. Was that correct?

Keene Turner

The portfolio I think was slightly smaller and then they've continued to add to that since we acquired them. But I believe that the total in the quarter is $30 million.

Unidentified Analyst

So that was about half of your C&I growth then in the quarter in rough numbers?

Keene Turner

About a third, yes.

Unidentified Analyst

So the other question I had about that portfolio was this, can you just give me a little bit of just the nature of the type of aircraft, are you putting any kind of size limitation within the portfolio of how big it will get? Do those loans tend to be stickier than your typical C&I loan? If I look at your average yield of the portfolio, I guess it was what, 4.19 for the quarter? Does that type of finance, that type of loan tend to have a yield more or less than that or is net additive or is it the other way?

Scott Goodman

Let me see if I can get all those. So this is a team that we have had as a banking client for about 13 years. So we've really gotten to know them well and have actually provided financing to them. So they're playing at a notch below where the large banks would play. So they're going after pre-owned aircraft, generally private aircraft both fixed and rotor, jets and props.

These are aircraft that are not what I'll call hobby aircraft or high net worth individuals who own an aircraft as a toy. These are aircraft that are used by the operators, so charter operators, service operators, sky jump schools, government contractors. So it's a significant asset for the business. The limits, we look at it as an additive to the niche businesses that we currently have and the yields are certainly higher, coupons at 1% to 2% above what we would typically see and larger fees.

Unidentified Analyst

Do they tend to be like a longer duration type asset? Do they burn off in a similar way to just your general C&I loan or not?

Scott Goodman

You know it's 50/50. There is probably half of them that are three to five-year loans and the other half are going to be more floor planning type loans, which we get a large fee up front and then they would flip pretty quickly and then replace the asset.

Unidentified Analyst

So there's actually a floor planning element of this as well?

Scott Goodman

Not in the traditional sense, but these are generally charter operators and dealers, so they might take one in on trade. We'd finance it and they'd sell it. Not floor planning in the sense of an auto dealer.

Unidentified Analyst

That's I was wondering if you're financing some kind of inventory. But okay, no that's great color.


And it appears we have no further questions at this time.

Peter Benoist

Okay, I'd like to thank all of you for joining our call and as always thank you for your interest in our company. We look forward to talking to you next quarter. Thanks a lot.


This does conclude today's program. You may disconnect at this time. Thank you and have a great day.

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