Yet Another Value Podcast - Colarion Partners' Sam Haskell on the financial sector and banks

Episode Date: July 10, 2023

Sam Haskell, CIO of Colarion Partners and Editor of the 5 Points newsletter on Substack, is today's guest on the Yet Another Value Podcast. In the last few months, we've been covering all aspects of the financial sector, banks in particular, so we had Sam on today to get his thoughts on wide array of topics in this space, and what he's focused on in these current market conditions. For more information about Colarion Partners, please visit: https://colarionpartners.com/ You can subscribe to Sam Haskell's Substack "5 Points", here: https://fivepoint.substack.com/ Chapters: [0:00] Introduction + Episode sponsor: Stream by Alphasense [1:45] Sam Haskell's thoughts on the financial space, in general [4:20] Generic banks - what Sam is focusing on these days in the current environment [6:52] Hawaiian banks $BOH [11:08] Puerto Rican banks [14:46] Risk of banks that have a lot of held-to-maturity loans [18:03] Customers Bank $CUBI [19:35] Commercial real estate [29:04] What would Sam like to see banks do with their excess capital [34:01] Capital One $COF [36:40] US Commercial REITs [39:35] Future banking vs Private credit lending [43:35] Conversions [48:30] Community banks and M&A [50:10] ECIP banks [53:21] $PCB [57:12] SBA Lending Today's episode is sponsored by: Stream by Alphasense Are traditional expert calls in the investment world becoming obsolete? According to Stream, they are, and you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts, powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced buy-side analyst conduct the calls for you. But that's not all. Stream also provides the ability to engage with experts 1-on-1 and get your calls transcribed free-of-charge—all for 40% less than you would pay for 20 calls in a traditional expert network model. So, if you're looking to optimize your research process and increase ROI on investment research spend, Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening, and we'll catch you next time. For more information: https://www.streamrg.com/

Are traditional expert calls in the investment world becoming obsolete? According to Stream, they are, and you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced by-side analysts conduct the calls for you.

But that's not all. Stream also provides the ability to engage with experts one-on-one and get your calls transcribed free of charge, all for 40% less than you would pay for 20 calls in a traditional expert network model. So if you're looking to optimize your research process and increase ROI on investment research spend, Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening, and we'll catch you next time. All right, hello, and welcome to the yet another value podcast.

I'm the host, Andrew Walker. If you like this podcast, we mean a lot if you could follow. rate, subscribe, review it wherever you're watching or listening to it. With me today, I'm happy to have on. Sam Haskell. Sam is the CIO. Let's see if I get it right this time. Colerone? Calerian. Colerian. Colerian Partners. Sam, how's it going? Doing well. Thank you, Andrew. Thanks for coming on. Let me start this podcast the way to do every podcast. Just a quick disclaimer. Remind everybody, nothing on this podcast is investing advice. That's always true, but I think we're going to be talking broadly about the financials and banking sector today.

So people should keep just keep in mind. That means a couple extra names probably get mentioned. You know, please do your own work. Consult a financial advisor. Nothing on this podcast is ever financial advice. And, you know, I always say when you talk about extra names, that means extra risk. And with the financial sector today, that certainly is true. So anyway, Sam, wanted to have you on because you write, you know, over the past few months,

I've been super interested in the financials and banking space in general. I found the five point substack, which I'll include a link to in the show notes. If everybody wants to go check that out. But I've really been interested in it. And your subsec has just done such a great job of talking about all the different things going on the financial space. So I wanted to have you on. I guess I'll just pause there. You know, you focus on financials.

How are you thinking about the financial space in general these days? A lot of different aspects of that. From insurance, which is seeing a lot of strength in pricing, you know, we see that. And a lot of it is interconnected, right? you have multifamily loans and then they're upset about insurance and then you have alts which feel like they have a great opportunity to grow loans whereas you have banks that have retrenched but i say alts i'm referring to alternative credit and you know private private debt private equity folks raising funds so i tend to spend the most most of my time focused on the bank sector

within the group but a lot of attention paid to all the ancillary um elements of the sector right so that includes credit, it includes loan demand, it includes, you know, a lot of different parts between real estate and the CNI, which is commercial and industrial credit. So putting it all together, we are in a very slow-moving, stressed situation where we have a massive amount of what you would call legacy liquidity, which is something like $4 trillion of liquidity that was pumped in in just a couple of months in 2020. And that's in this just really small. slow runoff phase. So that's why you don't have 2008-style disruption and defaults and contagion. But you have very slowly rising delinquencies, whether you're looking at different elements of commercial real estate or you're looking at consumer credit.

It's in an almost mesmerizingly slow pattern or development, I should say. So it's a little bit tricky in that you have to be patient and let it all play out because there's going to be a lot of movements. You know, today people are concerned about the jobs number. Last week, folks were a little bit more excited about the soft landing idea. This back and forth is going to go on for a while, but we're probably headed towards an ultimate destination that's going to challenge a number of different business models in the financial sector. When you're looking, a lot of places I want to go there, but I just get, when you're looking at a generic bank these days, right? What is the thing you're focused on? Because, you know, so many people, I'm looking at tangible value.

I'm looking at capital ratios. But then you'll hear people come, oh, I'm really worried about margin compression. I want banks with feeing. And I understand the answer is probably yes, all of the above. But what are the things you're really focused on in the current environment? Right. So every environment it changes. I remember in 2008, we used to create a burned down.

tangible book value model, but right now, and this is really the only time I've ever done this, but I use S&P a lot and sealed S&L, but you go in and you go to the data source, and there's a component of it that tells you yield on earning assets and then cost of funds, right? And so how is that moving? And a lot of people are looking at this, but not, I mean, over time, there are fewer and fewer people are actually looking at the funds. the middle of the sector more and more just play it through an ETF or whatever. But there's specific banks, you know, CVB financial, for example, in California, ticker CVB or Glacier, GBCI is another one. They've just been favorites of long-term investors for years. I think

Glacier, if you bought in in 77 or something, you'd be up like 50,000 percent. They just so happen to have earning asset yields, which are depressed. right, somewhere in the range of 3.7, 38, 3.8%. So it doesn't, you know, you don't have to need to know linear algebra to understand that if the going rate on deposits is somewhere between 4% and 5%, and your earning assets are stuck below 4 as of the first quarter, you know, you've got some work to do as a management team. Now, we can get into the details of all this, but that's why guys like me are like, okay, well, you know, Hawaii is another place where this is really prevalent. Well, how sensitive are

depositors to rate in Hawaii? How sensitive are depositors to rate in upstate New York? And so that becomes the game. That's what's very important right now. We'll learn a lot in the second quarter. It's going to be somewhat difficult. I would suggest that 2024 will be a little bit better period for banks just because rate stability is very helpful for the sector. But to give you the short answer to your question, earning asset yields are what's very important right now. You know, I'm glad you mentioned, so Hawaii, I mean, the two ones there are Bank of Hawaii. The ticker there is B-O-H. And then there's, I think it's first Hawaiian bank. The ticker there is FHB. And a lot of people have mentioned these, right? Like I think especially Bank of Hawaii,

B-O-H has, they've got a lot of kind of the, I don't want to say Silicon Valley, but Silicon Valley-esque, like really low-rate loans, lots of low-fix rate, health and maturity stuff. And I think a lot of people have looked at them and said, hey, why is this not the next one to go? tangible book value is about $30. But if you mark to market everything, I think they would have negative tangible book value. If you mark to market everything, I'm trying to quickly look at my notes. But a lot of the Bank of Hawaii Bulls would push back and say, hey, this is Hawaii, right? There are five banks with branches there. Bank of Hawaii is there. They actually do have 50 year long relationships. Like JP Morgan's not there. If you're an operating business, you're not just going to

say, oh my gosh, negative book value. I need to pull out because there's nowhere else to go there. So how would you think about kind of the Hawaii banks right now? So it is a little bit tricky. You know, they, we'll just stick with Bank of Hawaii, right? There's first Hawaiian bank, there's territorial, there's American savings, and there's a bunch of credit unions. And, you know, there's a couple others beyond that. But Bank of Hawaii said, okay, our margin, and I'm just going off the top of my head,

it was down in the low twos. they thought it might fall another 10 or 20, 0.1, 0.2%, and get to the low twos and then start to rebound. That's how a lot of manager teams are thinking about the world in the end of the, you know, in the April timeframe, mid-April when they were reporting. I think right now, if you were to take another look at it, you'd be slightly more pessimistic. And part of the reason for that is just a number of different banks have said that, you know, the need to up liquidity and the need to pay up for deposits has sustained and perhaps intensified in many areas and many geographies. Now, what about Hawaii, right? You can't just go to JPMorgan

if you're in Hawaii. And that's part of the reason I do all this is to go out to Twitter to ask people. And, you know, for example, one situation, there is a CFO who said, well, I bank in Hawaii and I move my money to Brex and, you know, my bank didn't even really care. you look at American savings, which is a private Hawaiian bank, they will advertise CD rates in the 4% range. And then, you know, their rate sheet for money market is like five basis points. So there is, maybe they're trying to conceal the panic, but if you desperately needed liquidity, you would just go out there like Pack West and pay five and a half percent.

So I think that they are in a situation where it's a very, like it is slower than the overall mainland. And by the way, guys like me, you know, we will poke holes at Hawaii because Hawaiian banks bought a lot of agency securities, which are kind of these waning securities where not only is the rate, you know, 2%, but they, it's based off everybody's mortgage, right? So everybody locked into 3% mortgage and you as this onholder, you know, then there's a scrape to the servicer. So you end up getting like 2.5%. And you think, well, that's fine. People will move. And this will only be out for four or five years. Well, people will stop moving. Maybe it's going to be out for nine or ten years. So you're stuck with this trash bond for almost a decade. So Hawaii has this

substantial amount of these agency securities that are on bank balance sheets. And it's just going to be a ball in chain. I mean, that's the term that I used in my note. But you look over, there's another island. It's Puerto Rico. Well, these banks, they make auto loans that are variable rate and they make consumer loans and mortgages and things of that nature. And their earning asset yield is not three and a half the way to Hawaii. It's five or six. And so guys like me love Puerto Rico, right? And we just assume that deposit rates are going to stay low. And, you know, we'll see. I think that in both islands, they will, they will inch off. It's just going to take longer than it does on the main manager. Is, what is it, Bank Popular? I looked at that years and years ago. I haven't

looks at it. Is Bank Popular are the play there or are there other Puerto Rican banks you're looking at? We have been involved from time to time in Oriental. I think Oriental, the CEO's name is Jose Rafael Fernandez. I think he's relatively dynamic. That's not to take anything away from First Bank and Popular, but the beyond just management flexibility in Puerto Rico, you have, when I first started looking at Puerto Rico, there were about seven or eight banks. they're now three. And that doesn't count. That doesn't count. There might be a, there's a crypto bank or a few small players, but it's really three banks. Yep. And the whole island. So not only that, there's a possibility you get government stimulus, although that's very much

in flux. You have a lot of wealthy people. I say a lot. It's hundreds, maybe a couple thousand a year. Wealthy people avoiding taxes. The economy has actually done quite well in Puerto Rico. I laugh when you say a lot of wealthy people avoiding taxes because a few of my friends, and have pitched me and every now and then I'll pitch my wife and they're like, hey, man, you move to Puerto Rico, like all those taxes out the window. I know there are a few hedge fund managers who have made that trade. You go to Puerto Rico, you get all those taxes out the window and they've got the little app and they're like, hey, I'm in Puerto Rico 183 days of the year and I can be anywhere else

and I save all my time. It's not a joke. You pay 4%. You go to Dorado. You get behind high gates and you hang out at the beach with your friends if that's what suits you. But I think, you know, it's a particular type of person. wants to do that. But the point being that those banks have high margins are doing really well,

which really, you know, if you want to ask about banks, you almost can use Puerto Rico and Hawaii as a microcosm of the broader sector, right? You have the banks that are earning three to four percent and bought a bunch of bonds and are stuck. And you have the banks that are variable variable rate lenders and are earning five, six, you know, like, Okay, employment was high. You know, the Fed is really hawkish. You want to do another 25. Maybe they want to do another 50.

You know, bring it on, right? I mean, it's going to put some stress on our borrowers, but our margin is going to hold up. We have capital. Maybe we're going to buy back. The capital point, by the way, is pretty important because it's an additional element of you bought these bonds. Now they mark the bonds against your capital, right?

because those bonds are not as valuable. So now you don't have as much capital to go make loans, to go expand your balance sheet, to grow out of your legacy issue. So it's really a case of the haves and the have-nots across the sector. And now, a quick word from our sponsor. Are traditional expert calls in the investment world becoming obsolete? According to Stream, they are.

And you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts, powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced by-side analysts conduct the calls for you. But that's not all. Stream also provides the ability to engage with experts one-on-one and get your calls transcribed free of charge, all for 40% less than you would pay for 20 calls in a traditional expert network model.

So if you're looking to optimize your research process and increase ROI on investment research spend, stream has the solution for you. Head over to their website at streamrrg.com to learn more. Thanks for listening and we'll catch you next time. There's so much I want to talk about. Every time you talk, there's another area I want to go on there. But let me just say, so, you know, the thing that brought First Republic down was not the health and maturity bonds.

It was they had a lot of health and maturity loans, basically, right? Like they had lent rich people mortgaged at 2%, which doesn't matter when interest rates are at 3, but then interest rates go up to 7. they've got the mortgages on their book at face value, but obviously they're worth way, way less than face value. And I think one thing like just me as a generalist or a lot of people have looked at a lot of these banks, when you look at them, they don't have the health and maturity issues. But, you know, half their book value will be made up of loans that are fair value of four that are held to maturity at four billion. But if you look at the fair value, they're three billion, right? And there are these loans that were made low interest rates.

They're permanent. They've got to hold them. And you look at these. I guess you're hitting that when you're talking about, hey, the asset yields. everything. But how do you think about banks that have those big, those big loans asset issues? Like, do you look at them on tangible book? Do you think, hey, they probably need to lose money for the next year? How do you kind of think about those types of banks? Every bank is different. I have a few banks or may I should say I had a few banks in the portfolio where I would,

one was the circumstance where they're going to end up merging with another bank that has very low-cost rural deposits and that's going to help give them time to work out of the issue. But really your question is, are these banks going to be able to work out of the issue? And again, every bank is different, but let's just take the banks that everybody knows. Bank of America decided to go out and buy $500 billion of agency and mortgage-backed securities. Yep. Ball in chain. Wells Fargo, J.P. Morgan, going to be in relatively. I mean, that was a question everybody kept asking. JPMorgan, like, when are you going to put this money to work? Because there was a flood of deposits. And they said, we don't see any problem with just being patient. Well, now they're able to really

do what they want to do. Maybe they want to take market share from Bank of America. Well, Bank of America is sitting on 420 or 430 asset yields. So it's going to take Bank of America longer. Going to take JPM and Morgan, not very much time at all. And there are a couple of banks that are kind of in the vanguard, one of which has been very unpopular for a long time customer's bank, but customer's bank is, it's, you know, I write about this because it's a rare circumstance where the son has a bunch of great ideas and is able to bring the bank ahead of where the father put it. But through different technology initiatives, recruitment efforts, deposit verticals, he's running around and talking about bringing in two billion or transaction deposits over

the next year or two. And the market is saying, you know, I buy. Right, because he's going to have margin expansion. He's got a really good treasurer. His asset yields are north of 6%. They had their funding costs blew out, but then he's pushing them back down and paying off wholesale borrowings and broker CDs. So there are banks that will probably end the year up 20 or 30% because of the flexibility that they put together on their balance sheet. But I laugh when you say customers bank, the ticker is CUBI because in the depths of March and April, I was just trying to ramp up on banks. And that was one that caught my eye.

And I asked like three financial specialists who I know. And all of them said the exact same thing that you had in your note. Maybe we were talking to the same people, but they're like, look, yes, statistically it looks cheap. But there's like other things outside the spreadsheet. And you just can't trust this management team. And they did something where the, I think it was the CEO's daughter ran a SPAC and took assets out of the bank for the SPAC. they were on the boards and stuff. So I could totally get how they could say, hey, there's some extracurriculars.

Maybe you just don't want to step in there. But on a, you know, when you just, as you said, you look at the Excel, you look at the book value, you look at the asset yields, and you're like, oh, that, that looks really darn cheap. You know, it's kind of, it's, it's an interesting process trying to speak to Sam about because the, the management board understand this at this point. And so that's why the son is the public facing, he's the face of the company in front the investment community. But nonetheless, at some point, you know, it's hard to prove the negative. It's hard to prove that your governance is improved after, you know, you spent so many

years like taking large salaries or giving these mega bonuses for, you know, ROA sub 1% and things like that. But, you know, over time, the record is starting to speak for itself. But, you know, we'll see. That's at five times earnings and 75% of tangible. So they haven't exactly completely worn off the discount. Commercial real estate has been very much in the crux, in the crosshares, right? Like every time you mentioned banks to someone's people will say, oh, you had three banks fail and you didn't even have the recession. Wait till those commercial loans really come to when they start to have to roll. And, you know, there was the park hotels handed over two hotels in San Francisco. And there was Brookfield handed over the mall. And everybody knows that

office space in San Francisco, New York's bad. So I guess there's two areas we could attack that from, right? One, we could talk about what do you think about commercial real estate for banks going forward? Or there's a second area where I'm just looking at your, I think this is your post from late June, the July figuring out in 2024, and you lead it off by talking about the commercial real estate reeds, which I think are really interesting as well. So I'll just kind of toss all of that over to you and let you go with it where you want to. Okay. So we're going to go back to this extremely slow-motion, I don't know what I call it a slow-motion train wreck. Some bankers you speak to, I spoke to a banker in L.A. who would say it's a disaster.

I'm here in Birmingham. We wouldn't necessarily call it a disaster because it's a different market. It's a Sunbelt market. It's not a CNVES for Lant. But, man, you know, commercial real estate is a massive topic. So let's, if you bring up the last note I put out, It was just a very simple trend of delinquencies by subcategory of commercial real estate, right? And so obviously office leads the way. I think office is maybe 2% delinquent a year ago, and now it's 7%. Hospitality, I think partially because of certain towns, San Francisco, Chicago, whatever, towns where you don't have as much convention business, that's starting to pick up on the delinquency side.

Although hospitality across the country is actually quite strong. It's really just the certain self-sabotage. towns that, you know, went overboard. I mean, shoot, I, I, I, you're in New Orleans. I went to a conference in New Orleans and in 2022, they wanted me to show my Vax card to get into the hotel. So like, that's something that you're going to have to get around. Unfortunately, I think noise is coming back, but like your cell phone traffic I noticed the other day is still like 45% of what it was in 2019. So, and just think about Seattle, right, where there was a, they were trying to create an autonomous zone downtown. So you could be in a much, a much more difficult circumstance.

Anyhow, subsectors, office leads, hospitality is kind of following in certain cities. And then multifamily, to my mind, it's only a matter of time for multifamily. Again, very much city by city, state by state because of rent growth. But the supply of multifamily, just the amount of capital that is available that is no longer available is going to create problems. And so that goes into the second part of the discussion, which is what happens when you have hundreds of billions of dollars available to finance a sector and then you don't, right? You have, you know, how much, like if you were to aggregate the amount that's available to just lend against commercial real estate across commercial mortgage rates, CMBS or capital markets, banks, you're going to do that in 2022. And you were to do it today, like, how big would the bucket be then versus now? I think that the amount that's available is probably going down by, you know, transactions.

If you just do it by transaction volume, I think you're almost 75%, but just the pool available. You really got to dig in, find family offices, find private equity or private deck providers who have that what's become very valuable dry powder, and then you're going to have to operate under their terms. or you can be an existing customer of a bank that that bank really wants to take care of just in the sense of that bank doesn't want an outperforming asset. So what we're all getting at is this, I hate to use the cliche of the coyote just sort of hovering in the air, but the point is it's folks just waiting and not transacting. And because of that, there's no choice but for the valuations to continue to settle, right?

the owners of the assets know that they have a call option that maybe they can wait it out and rates will fall at some point and they'll make it through the call it survived to 25 that's that's the term across a lot of the commercial real estate subsectors but uh let me just know it's going to hurt and now we can get into how it hurts the CNBS versus the banks if you want to but go ahead let me just jump in and ask a question so this is more on the bank side than on the commercial reeds or anything side but every bank that I follow in Q1 I I I I think the disclosures got a lot better in Q1, right? Like, obviously, every bank started coming out with their insured deposit disclosures and breakdowns of deposit ratio. But I think on the commercial real estate side, everybody got better, right? And to a man, any bank under $150 billion in assets, they would come out, and I'm just using rough numbers, but they'd come out with a slide that said, hey, look, you know, most of our loans are in CNI, not commercial real estate.

Most of them said that. Or they'd say, hey, our loans are in commercial real estate, but let me break down my commercial real estate for you, right? And they'd say, hey, here's my commercial real estate. And look, most of it is related to hospitals or all this. And they knew that the buzzword was office, right? So all of them would come out and somehow magically all of them said, hey, only five to 10% of our loan book is in office.

And then they would do another little pie chart. And they said, of the office, you know, none of it is downtown New York. None of it is downtown San Francisco. 66% of it is owners who are kind of occupying their own office. Only 33% is investable office. And by the way, all of those are like very small. So it's very diversified. And these are much different, right?

Every single bank come out. And then every single bank also came out and said, by the way, we've stressed it. It's 50% LTV. It's 60% LTV. You've got great equity cushion beneath it. And this is on updated numbers. So I guess my question is just like, you know, there's this old thing. It's not the issue that you see coming that kills banks.

It's really an issue that hits you suddenly. So these banks have had 18 months to prepare for 18 months, two years to prepare for the commercial real estate downturn. Everybody knew things weren't going to be great. Do you believe them when they say that their portfolios are this clean or do you think they're kind of playing games and we should be taking a much more like distrustful eye to these portfolios? Well, I don't believe any of the loan to values. That's number one. Number two, the best, the smartest management teams are going to be the ones that actually lend into this.

And that's going to sound crazy. But what I'm talking about is just take the flat iron building, for example, right? I don't know where the flat iron building was valued. Maybe it was $3 or $400 million. And then it got cleaned up at auctioned at $160. Somebody's going to make, on the reset valuation, somebody's going to find a guy who's got $50 to $100 million in liquidity and is going to provide recourse.

And they're going to make a 40 to 50% loan to value loan at like 8% plus. Yep. It might be a bank. It's probably not going to be a bank, right? But that's where the opportunity is. But first of all, and as far as like where the losses are going to come from, we already saw a sneak peak of this in the first quarter. PNC got asked and gave a lot of disclosure about their commercial real estate. So did M&T. I think they said that they were seven or eight percent reserved for office. Surely that reserve is going to end up going higher to 10, 15, 20 percent of the total book. The smaller the bank, generally speaking, it's going to be a little bit less of an issue because you end up with with, with, um, Like, why would you use a bank for commercial real estate, right? Usually, you would want to position it as to putting it into a conduit market.

You're flipping it to the idiots, Fannie, Freddie, maybe you're going to find a CNBS conduit that's going to be funded by an insurance company effectively. But that's, you use the bank because the bank is, you know, while you're getting the, you want to get the Tennessee up or some sort of a go-between or bridge to get to permanent financing market. or you just like that the bank is more flexible, and so you're willing to pay a percent or two more, and you're willing to accept a 55 to 60 percent loaned value instead of a 70 percent loaned value. So with that said, the most stressed sectors, the majority of the non-recourse stuff is going to be at the regionals, right?

It's the truest and the PNCs and the M&Ts and Wells Fargo and whatever, right? Like, Wells Faris going to, I guarantee you they'll have their fair share of charge offs through the cycle. When you get to the smaller banks, yeah, the ones that deal with developers, the one to have construction. There's one that comes to mind, or two that come to mind in the New Jersey area. Anything with more than 15% construction has to be looked at carefully because the recourse is not as valuable. But for the most part, I'm on the board of a bank that does a ton of commercial real estate and they're all rich guidelines. So, you know, the question is, well, some of them, the guarantor has too much exposure to the same real estate class. And so there can be a

domino effect and that will get you, right? And so if you blow through his recourse and you have a 2008 type situation, you're going to take a charge off. But we've never had anything. We're not even looking at being close to having anything. So it's going to take a while in the smaller banks and that's going to be very much helped by the recourse and the granularity. You mentioned PNC there. And I think that's an interesting transition because PNC is one I thought was really interesting there. C.O was at a conference like early June. And they were at, he was asked, hey, any lending verticals that you think are really interested. And he said exactly what you said. He said, look, the spreads we see in office right now, I'd love to be lending into office,

right? Because you could do a 50% LTV on like a supermarked down valuation and you could do it at really big spreads. But he said, I'm scared to do it because my shareholders would freak out just because office exposure is going up. But that transitions to something I did want to ask about. a note on, hey, the key to the rest of the year is going to be capital wins, right? And I do know of a lot of banks that have excess capital, you know, like set one, you probably you've probably got to run it at like 8 to 10 percent, but I know a lot of banks that have it well above that, 12, 14 percent. Some of the ECIP recipients are way above that.

I guess there is a question, what would you like to see banks do with excess capital right now? Because I see the gamut, right? I see some banks that, some banks that sit and say, hey, now is not the time. time to be aggressive. We would generally like to run this bank at 10%. We're at 12 or 13% right now, and we're just going to keep building up that capital because we want to make sure we're safe. We don't know the regulations that are coming down to the horizon. You'll see other banks that say, hey, everybody's pulling back on lending. I want to go lend right now. There's great spreads. Or you'll see other banks that say, hey, our stock's trading below tangible book. We've built up

a lot of excess capital. Let's go buy, buy, buy, baby. Let's go buy our stock back. There might not be a right answer there, but kind of what do you think banks should be doing right now? if they do have excess capital. If they don't have access capital, they're probably in trouble. But if they do have excess capital? Yeah, look, every bank situation is different. We pick some of us on Twitter, pick on triumph because they're repurchasing their stock at North of twice tangible because they think that they're going to revolutionize the payments industry, right? Yeah, they have a really valuable payment subsidiary, and they're not repurching their preferred at wherever it is, 18 on a 25 par. So they would get, I believe they're preferred,

treated such that they would get a guaranteed or an immediate capital benefit by doing that, right? Like, that's what companies like a firm are doing. They'll have these converts, these busted converts way out of the money and trading it's 60 cents on the dollars. So they're just buying it in and creating capital for themselves. Why you wouldn't do that unless you have some liquidity requirements, you know, that would make a lot of sense for me to consider doing something like that.

It just depends. Like, if you're in a slow growth market, you don't necessarily need to be making loans. There is another bank I write about service first. Service first got themselves in a little bit of a jam because there's 63% fixed rate loans and their correspondent deposits were pitching and rolling them all over the place. And so they felt like they had to run off some loans or run off some customers. When you do that, it creates a lot of disruption and you should be able to take advantage of it. So again, kind of the answer to your question is all the above. Yes, you should be making loans as you should be repurching your shares, depending upon it's a creed of detangible,

obviously, repurchase your debt. You need to be making loans to some degree anyway so that you can reprice your balance sheet, right, so that you can grow out of these situations. And customers, going back to them, like, it actually makes sense. These guys are sitting on 6% TCE, and I think there's CET1 is 9 or 10%. Like, they wanted to build that back up again. I totally understand that. Regulators also have a say in what you're able to do. But there are so many good opportunities for banks to create value with this excess capital that for the bank that's sitting on 9, 10, 11, and just wanting to sit and wait it out, they're really missing. Because, like, we all see this. Like, you take the example of the office, the opportunities on the lending side.

Like, you don't have to go much further than to listen to Mark Rowan or whoever. at Apollo or these guys on the private equity side or the private debt side. And they'll all say the same thing. You know, it's like, it's like Blackstone is going to take out Blackstone on Blackstone's bad assets, right? They, the B-Reed is closed, but they just raised another 50 billion, or maybe it was 40 billion. Like the guys who are in the 50 billion, like you know why they're in there, right? It's because they want to make, they want to buy the distress. They want to buy the stuff that Pac-West is being forced to sell, right? It's not like, we don't, unless you believe that we're going to be in a severe protracted recession, there is a very good opportunity to be made, whether it's distressed

commercial real estate or see, you know, commercial restructuring, a lot of good lending verticals out there. You just have to be in a position to be with the right customers and to be able to make those loans. So I'm sorry I can't give you a more specific answer. No, no, that was fantastic. It helps maybe give a little bit of color as to why California. so valuable. Do you follow Capital One at all? Yeah, to some degree. Yeah, I just, I look at them and I'm doing this all for memory, but they always run a little bit higher on in terms of capital. And in part because they probably have to, right? They're a much more consumer focus book with credit cards and auto, which are riskier than a lot of the other thing. But I do know,

like, they've got great returns on equity. They're trading below, they're trading around tangible book right now. They've got a deposit franchise that I think is very much where the puck's going in terms of it's very online heavy, but you look at them and they say, hey, we're pulling back, right? They're pulling back from a lot of auto right now. They're not repurchasing shares. And I look at it and say, hey, are these guys like historically, I think Capital One has been very sophisticated. I look at that combo and say, have they lost it? Is there something else going on here? I don't know if you've got any thoughts on that. Well, actually, there are two types of banks. There's the banks where you speak to them and you're

teaching them or you're trying to convince them of what you consider to be a truth. And the other is the banks that are teaching you most any successful consumer lender particularly an unsecured consumer lender or a credit card provider they're going to have teams of data analysts right i mean you're talking about AI but they the number of people at capital one has managing data um and and running machines to try to parse the data better is in the hundreds so it's worth paying attention to what they're seeing because they're going to see the leading indicators uh maybe a little bit faster than you are. So I'm going to defer to their judgment relative in particular to maybe some fintechs that are trying to grow into what's happening now. Now, Richard Fairbank, one of the key

variables in all this is obviously as student repayment. Richard Fairbank was asked about that about three or four weeks ago and he gave a gobbly good garbled answer. But the Fed has an M.O. right now and that is to not directly but somewhat indirectly raise unemployment that's number one number two fiscal stimulus the student debt situation just being one example has you know we're on the tail end of that um it's it's gone from tailwind to headwind so if you're combining all of this like do you really want to be aggressive on unsecured consumer or auto um in the here and now so i i trust to some of the great Capital One's judgment in that regard. No, I totally agree with you.

I just, I look at what we were saying about aggressive and I look at Capital One. I say, okay, I get it, but they're running with a lot of excess capital and they're not buying back shares either. So I look at the two and I wonder, let me turn to a different area. You wrote in the, this was the late June piece, you talked about the U.S. commercial real estate trust. This is Blackstone Mortgage, Starwood Property, KKR real estate, all these sort of stuff. and they had a really interesting way, right? These guys are generally pretty levered. They had a really interesting way of trying to deal with the distress and the funding issues

and the current thing. They basically all stopped making loans in Q123, right? So that was just, hey, let's, let's agree the capital. How do you look at those guys? Because I do have a lot of people who look at them and say, hey, statistically, they look pretty cheap, but then I personally, I would kind of lean into the, yeah, but these are quite levered. And as you said, again, I'm looking at your Q1 piece, they've got a 1.3% reserve ratio for their loans.

And I think a 1.3% reserve is a sign of a much different environment, but they are cheapish. So how do you kind of look at all of them? Well, if you're not doing business, you're kind of running yourself out of business over time. And why would you be doing that? It's just because your opportunity set is not what you want it to be. And then you're talking about, you talked earlier about banks marking everything to market, right? So banks at least, and they don't, they don't give the implied value of their deposits. But if you were to mark their deposits to market, banks actually could have a fair amount more equity on their balance sheet than they're given credit for. This is something that Silicon

Valley. This is what Silicon Valley said or Zion loves to come out and say, hey, they make us take marks on all the loans, but they don't let us mark our zero cost deposit at a improved improvements as they go off. Silicon Valley was screaming into the wind. If they had time to actually make that point, maybe they could have bought themselves a little bit more time, but they didn't. So anyhow, that doesn't exist with REITs, right? There is a franchise value. So if you have a legacy, a book filled with legacy credits, 21 vintage, 22 vintage, when everybody else is making these loans and your funding is wholesale funding. Like, you really need to be careful. And I wrote, you know, with regards to Arbor, it's like you cannot take your funding for granted,

whether it's repo funding, whether it's CLOs, like that's open until it isn't. And if you start showing a bunch of delinquencies, your best bet is to have ample capital to support that. Now, the other problem with the reed is that you have to pay out 90% of your income. So these banks, excuse me, these reeds could be bolstering themselves, but they're just not really not allowed to. So the only lever they have is just to stop doing business. So if you want to jump in and get a 11% yield or whatever as a result of that, you know, you can be my guess. But like, I'll comfortably stay away from that. You know, one of the things on the heels of the crisis, especially I'd hear this a lot at the end of March or early

April, like right when the crisis was really ongoing, you'd hear people, and you still do it today, right? Like, hey, these are difficult to invest in because, A, you don't know what the regulations are going to look like coming down the line. But B, don't we have a better model, right? Like private credit. A lot of people talk about private credit. That's the future. You go, you raise capital that's dedicated lifespan. You can match up your liabilities with your loans. You don't have this issue. You know, I do think banks now have to be much more concerned about liquidity, runs, all that sort of stuff. You do private credit. You don't have to worry about any that because you've got it dedicated, you can pull on it and really match it up. What do you think about

like kind of the future of, I guess, banking versus private credit lending? Well, so when you look at business development companies and you look at private lenders, right, and it's grown dramatically, right? If you look over the last decade, it's something like $100 billion to over a trillion. And they'll say, well, we're making loans that five times EBITDA, six times EBITDA, well, you dummies in the bank side are trapped by regulators and you're doing it a two to three times EBITDA on these private equity and buyout loans. We found a better way. Well, if you have found a better way, then shoot, the banks should be grabbing that 10%. Because a lot of these loans are at SOFOR plus 500. The banks are sitting around at lower leverage

it's so poor plus 250 or 300. So really it's a function of how much stability do you want into a real downturn. If we have a, and this is again what I wrote, but like if it's a relatively shallow downturn, private credit is going to look great. And I think that's the bet that a lot of people are making. You know, you look at Aries stock. I think Aries is up from 70 to 90 in 2023, in part because of the perception that the growth of the sector will be unimpeded. So to some degree, it's a bet on the tenor of the recession. But what I would say is that also private credit can have certain pretty substantial advantages, right? So, for example, let's say a company runs into the ditch.

What are you going to do about it, right? No bank is going to say, well, all right, well, you ran this company in the ditch. So we're going to foreclose, restructure the credit, and put our guy in charge and create a lot of value. Right. So that's the number one, that's the benefit that you get from that sector. And number two, you go raise money, right? So Blackstone is the master of this. Be read, right? You're trapped. You, whatever. Every, every month, there's 10 billion of redemptions of only which like one billion is funded. So you would think that that would destroy the model. No, it doesn't. Again, it just whatever it was, $35, $40 billion fund that they just raised to $10. take advantage of the legacy bagholders. So that plus the benefits that you just mentioned, like for those reasons, alternative credit really needs to be taken seriously. Is it a better model than banking over time? Because you can't necessarily, you get non-recourse leverage, but you don't get the same leverage that banks have. I don't know. That remains to be seen.

I think that it is a pretty strong model. It is a model that needs some testing. I think it will be tested a little bit, second half of this year, beginning of 2024. And it's not going to be, you know, there's a situation where you just like, you do these middle market deals and you just roll them and you do fund one, fun two, fund three, fund four.

Well, fund four is going to be negative, fund five is going to be flat. You know, we're going to see how that all works. out. So it's, it's, the model has grown really quickly and now it needs some seasoning. Community banks. So you wrote about Needham in the, in your most recent post. I followed community banks for a long time. You know, I do think it is interesting because historically community banks and I guess, you know, most people who've done event in special situations know all about the demutualizations and everything. But obviously community banks go further than that. I look at these very small banks and

And a lot of them are trading, forget the demutualizations or include them, a lot of them are trading below book value. And I want to get bullish on them, but I do wonder like, hey, these sub five or 10 billion banks, are they just too small in the new regulatory environment where, you know, they don't have the same tech offerings as the giant people. Now we've seen, hey, there are issues with the FDIC if you're, I just, I wonder when you're talking about should people buy conversions? I guess should people buy conversions or just these really small community banks, is there really a case there or are they kind of going to get the worst of all trends? Well, so I think there are two parts of that question. Number one is, should you buy conversions? And number two is should you buy conversions? This is not investing advice.

We're just talking like historically, they've been a great place to look, a great place. We're not saying a specific one, but is it? I'll speak about some generic conversions that can be replicated in real life. I mean, I have about five or six different conversions in the portfolio. I've written a little bit about William Penn about, there's one in Louisiana that. Oh, I know that. It's CLST. That's so that, yeah, there's a, there's a handful. And, you know, T.C. down in South Georgia, CCBC. So anyhow, look, we talked about how capital is king or capital is very valuable going in the second half of 23 and 24.

A lot of these conversions can repurchase something like, it just depends on the specific one, but 50 to 75% of the shares outstanding. So if you're in that situation, you really just need to figure out if there's anything crazy going on in the mind of the CEO. Are they going to do some dilute of acquisition? Does he have some monoline vertical where he wants to make a bunch of construction loans or what have you um you know william penn did a lot of the same stuff that bank in hawaii did doesn't matter uh so you know their capital got beaten down from 23 percent of assets to something like 19 percent of assets and they bought they probably bought 15 percent of the float outstanding you know through june catalyst the the one in latheat you were talking about they i'm trying to find

they're they're so overcapitalized because they just did it and my only question is they're buying back shares at a really aggressive rate i don't even know how they're buying back shares at such an aggressive rate because the stock never trades. I'm like, how are they doing this? Where are all these shares coming from? Yeah, you got to look at the volume. There's blocks from time to time. They just sort of show up. And, you know, in the bank sector, there are people who are forced sellers from time to time because their funds whined down, but they don't always own these conversions. So anyhow, like you talk about how do you benefit from capital? You hire producers, you repurchase stock, whatever. These guys just 10, I mean, they hire producers. They had a couple

guys, but it doesn't make too big of a difference. All that matters is that they're trading at 70 or 80% of tangible book, and they want to repurchase until they get to book value. And if you can find a CEO who's got a head on his shoulders and agrees with you, you just sort of set your watch. You might have to wait nine months. You might have to wait 18 months. But that's a relatively lower risk way to get a 20 or 30% while like everything else is going haywire in the sector. And the dream is, and I think there's statistics that show this is they do the demutualization, And hopefully they return a lot of capital aggressively to shareholders at really advantageous prices by buying back shares.

And then three to five years from the demusualization, I think like 75% of them sell, if I remember correctly. So you've got a really nice exit on the back end. It's just, again, Catalyst is one I've been following for a while. I just haven't been able to get a position. It's extremely liquid. I guess you've kind of got to get in on the demutualization itself. Yeah, to some degree.

But a bunch of guys flip. I mean, if you want to talk about Needham, look, it's going to come in a couple months and the guys, a bunch of guys have a deposit there and, you know, maybe it'll come at 10. And if it's 11 and a half or 12, these people aren't necessarily wanting to hold Needham for three years. They just want easy money. Also makes sense. You've got a deposit. If your deposit gives you access to, quote unquote, an IPO that you can flip for 15% in a day pretty quickly. Like, it makes sense, take that and let somebody else kind of play the three-year game.

Right. Yeah, they don't care if it's a 65 or 75. They just know that they just made a ton of money with no risk or very little risk in one day. What else should we talk about? You asked about community banks. So you want to talk about community banks and M&A or is there? Sure, sure. Go ahead.

Well, I guess this is the last, the point I would make on the second half of your question is community banks and M&A, MNA requires both sides of the balance sheet to be marked. People are asking, like, when is the M&A cycle going to start back up again? It's when you're able to mark the balance sheet to anywhere close to where it's being held on gap numbers. That's going to take time. It's very much company dependent. I've written about First Sunflower FSUN, which has a balance sheet that requires relatively little marking. It's very high quality deposits. It's in Colorado and Texas. It's heavily owned by private equity. if I were to want to, if I were to expect some merger activity to happen, that company would probably move faster than your average bank that's holding, you know, fixed rate mortgages at 4%, bonds at 3%, whatever. But even that is taking some time because again, like who's going to buy them? Prosperity down 30%, Zion's down 40%. So there's two sides to the equation. they've got to level back out. The marks on the target have got to improve. The stocks for the acquires have got to improve. It's going to take, you know, several quarters at least to really

get going again. So for the vanilla community bank that's really going nowhere fast, I wouldn't necessarily want to sit around just waiting for M&A. This is on the smaller side, but you said M&A and smaller side, I guess. Have you looked at the ECIP banks? Yes. What do you think of them? Because I've heard two different things. I can tell you my personal opinion, but I'll just some people say, so ECIP, for those who don't know, was a treasury program that was kind of free money. They gave a bunch of banks who do mainly minority focus lending, preferreds that come with like zero percent coupons for the first year to three, and then after that very low

coupons, if they lend the money to minorities. I know a lot of people look at it like, this is free money, this is manna from heaven. And then I know a lot of people who say, hey, anytime you've got a government program that's encouraging you to lend, you know, kind of on metrics other than just, just how good the loan is that tends to work out really poorly for people. Where do you kind of come out on the ECIP banks? So before it got to be sort of a popular thing, I, and there's somebody who I wrote about it, this other guy wrote about it. Tim Erickson, I bet was the other guy. I didn't realize you were the other one who wrote about, but Tim Erickson's the one who's really been pumping him, if I remember

correctly. Not pumping. He's really been talking about them. But this was in, like, late last year. Yep. And I sort of called around, I called security federal and called a bunch of management teams. And I was kind of interested to see who is actually going to make mortgages in distressed communities and who is going to sit and see what they do. It's a 0% preferred for the first two years. And if you don't use a large amount of it, it becomes 2%, which is in a rising rate environment,

still quite attractive. Right. And then you can also potentially convert it a big discount. So there's a bank in Atmore, UBAB, that I ended up thinking could be well positioned. That bank kind of makes a living off of government-related programs and subsidies. It makes a very good living off that. And if what you want to do is buy a bank that grows tangible book value faster than the other banks, you know, you can do a lot worse than UBAB.

the others you know BFCC they hit a few pet peeves the guys in Mississippi I kind of respect some of the things that they're doing and at some point they'll be a very good candidate to enter the Russell but I wasn't necessarily certain or comfortable of their acquisition strategy you hear this the guy from Alabama coming out pitching United Bank Corp of Alabama hating on the Mississippi banks I should have known it sorry no Mocha is a good friend so is Luke in any event And there are a couple of others that are, that screen well, right? But one of the things you have as far as owning these stocks and making money on them, you have a lot of value nerds like me who just sort of jump in because the numbers are so good. And then they become all dressed up with nowhere to go because the numbers, you know, yeah, these banks are going to make a little bit more money than they were before. But then now who do you sell your stock to now that everybody got into it? there's not necessarily an aggressive buyback.

Like PCB in Los Angeles will repurchase a little bit. So anyhow, I ended up deciding that I need to be particularly selective around it. I do think UVAB will be pretty active on the buyback. If the stock gets inexpensive. But it's very much, for me, it's a case-by-case basis. And Broadway looked like it could be interesting as well, BYFC. You mentioned PCB, so I'll just jump on that. I've done some work on these are, I call them the Korean

focus banks because they are Korean focus, PCB, Hope, some of them are Chinese focus, open, Hanami. I look at them and I always look and I'm kind of mystified by their valuation because historically, like, they've got pretty good loan trends. They do seem to have some deposit franchise where like these are banks where I live in New York City, so you go to Ktown and you see all these banks. But basically what these banks are is, look, they target Koreans or Chinese and they've all of their tellers and stuff speak two languages, right? They speak English and Korean. So I could see how that's a deposit franchise where, hey, you're not exactly going to pull your deposit from this bank that actually that literally speaks your language to go to

JPMorgan or Bank of America or something, right? So I look at them. They've got, I think there's franchise there. They've got better than you would expect loan trends. Like it all seems pretty interesting to me, but all of these tend to trade for pretty low valuations. And I've talked to a few people and they're like, I don't really get what's going on. Am I missing anything or kind of, I don't even know if you looked at them. I was just throwing them out because they've been an area of focus for me. so they will gain or lose a multiple based off number one the direction of commercial real estate because they tend to be very commercial real estate heavy and number two corporate governance corporate governance has always been erratic bank on a bank by bank basis within that sector

what is the one there's a rb i can't remember off the top of my head but there's one that literally you look at their 8ks and they're like hey we had a lot of issues last year we still have directors resigning. It was, I might have to do a post on it. Some of the, the best director resignations letters I've ever seen. But they've like, this time we think we've got it, you know, five of our seven directors resigned, but we think we've got all the cockroaches out the kitchen this time. That was RBB. That was funny. But yeah, so I guess, you know, that's another one. When I mentioned the commercial real estate earlier, that was one I was kind of focused where they, they come out and they say, hey, yeah, we've got a lot of commercial

real estate, but it's not giant towers. It tends to be like, you know, smaller business owner who rents their, who's leasing their restaurant building or, you know, their office space and that type of stuff. But their NPAs look great. They seem cheaper. And I could make a real argument for kind of franchise value there. Well, with regards to credit, really the only time that that sector has come into material credit shock is shortly after 08. And a lot of it had to do. It was SBA oriented, right? It was the risk piece of like a 7A loan. That 25% that's not guaranteed. That's where they ran into trouble, where it was maybe small business or some different type of commercial real estate. But for the most part, yes, it's just, you know, again, are they

going to repurchase the shares at the right time? Are they going to pay a substantial dividend? Is it going to be a prestige thing? Are they never going to sell? You have to dig in a little bit on the corporate governance side because it's very different bank by bank. And now, a quick word from our sponsor. Are traditional expert calls in the investment world becoming obsolete? According to Stream, they are. And you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions.

They offer a vast library of over 26,000 expert transcripts powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced byside analysts conduct the calls for you. But that's not all. Stream also provides the ability to engage with experts one-on-one and get your calls transcribed free of charge, all for 40% less than you would pay for 20 calls and a traditional expert network model. So if you're looking to optimize your research process and increase ROI on investment research spend, Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening, and we'll catch you next time. Last one, and this is why I do these podcasts, because a lot of times I can just be a

generalist and sector experts or company experts, my questions, a lot of the smaller banks that I've seen have really started leaning into the SBA lending, especially now. What do you think about the companies that are really leading to the SBA lending? Because when I've talked to them, like I get why you want to do SBA lending. I absolutely get why I'd want to do SBA lending, but I think that's a very competitive area. Like, how are you thinking about the companies that have started really trying to lean into that? The, yeah, Live Oak being the biggest one, actually, I think live oak uh well i won't get into their expense structure um look as again i write a little bit about this recently but sba lending i wouldn't say it's free money because again there's the risk

piece uh you got a staff up for it the staff up is the big piece right and the risk piece as you the staff up is the big piece and the risk piece as you said but staff plus and then nobody's going to pay you for it right so if you go to sell your bank and it's a big chunk of sba the acquire doesn't necessarily like sba but but that's said, probably the most valuable, one of the most valuable banks in the country, at least one of the highest performing banks in the country, just very sadly for me no longer exists as an independent entity because it was sold in 2020, is now a part of Enterprise Bank. It's called Seacoast Commerce. Those guys, Rick Sandborn was a CEO. He basically decided what

his ROE was going to be every quarter. And it usually decided he would be somewhere between 15 and 16%. Because he developed a handful of deposit verticals, homeowners association, property management, 1031 exchanges for escrow for real estate purchasers and sellers. And then he lent it into variable rate SBA, which comes with a substantial government guarantee. And depending upon, you know, who you want to lend it to, you can press and get a borrower with, you know, five million or more net worth, maybe $10 million net worth, pretty good guarantee. And maybe a pretty strong piece of real estate against it. He almost had through the years for about seven or eight years, including COVID before he sold. He just really had very little charge off experience.

So he had excellent credit. He had excellent margins. He had variable rate loans. Those loans would be eight, eight, nine percent right now. A lot of them are prime plus two. So there's different degrees in the SB universe. But the guy would be just absolutely printing money right now. He'd be having a 6 to 7% margin. He'd be making probably low 20s ROE. And now it's part of enterprise. Now, there are other entities like that. Rensselaer loves to talk about G-Bank, Live Oak, although Live Oak has some other considerations if you want to invest in them. And I wrote a little bit about an SBA lender in my note just now. But so anyhow, eight to 10% premiums is a good business. If nobody wants to buy those loans, you know, four or five percent premiums,

not quite as attractive. But right now it is an excellent way for banks to create income and to get variable rate loans on the books. Yep. Excellent way to create income. And yeah, and a lot of them, I guess you get a little fee income because you can sell off the government guaranteed part. And that's, it all works really well. We have, covered so much. Anything else? Again, it's 5point.substack.com if you want to follow it. I've really enjoyed it. I think it's one premium post a month and then one free post a month. I've, you know, I discovered because I started getting real into the banks, but I've really been enjoying it. I like how you see the world. I see financial sector the same way you do,

except much shaller because I'm just hopping into the financial sector. Anything else you think we should have kind of hit or people should be thinking about as they think about financials in general? No, look, people don't have three hours to go through every little detail of the sector. So I'll leave it there, but I do appreciate. I told you before we started recording, if you wanted to do a five-hour podcast, I was here for it. I do appreciate when people give feedback and give local color. So just always drop me a line or send me a DM or whatever you want to do. Because people, when you tell me about what's going on in your part of the world, that really helps me out.

And we share the wealth in that regard. Well, look, I'll include a link to the five-point substack in the show notes. And you can find Sam's Twitter and everything else from there and kind of go from there. But Sam, really appreciate you coming on and looking forward to the next. next one. My pleasure. Thank you, Andrew. A quick disclaimer. Nothing on this podcast should be considered investment advice. Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.