ECN Capital Corp
TSX:ECN
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ECN Capital Corp
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Thank you for standing by. This is the conference operator. Welcome to the ECN Capital Fourth Quarter 2020 Results Conference Call. [Operator Instructions]I would now like to turn the meeting over to Mr. John Wimsatt. Please go ahead, Mr. Wimsatt.
Thank you, operator. Good afternoon, everyone. Thank you for participating in our conference call to discuss ECN Capital's fourth quarter and year-end 2020 results announced earlier today. Joining us are Steve Hudson, Chief Executive Officer; and Michael Lepore, Chief Financial Officer. The news release summarizing these results was issued this afternoon and the financial statements and MD&A for the 3-month period ended December 31, 2020, have been filed with SEDAR. These documents are available on our website at www.ecncapitalcorp.com. Presentation slides to be referenced during this call are accessible in the website as well as -- under the Presentations section in the website. Before we begin, I want to remind our listeners that some of the information we are sharing with you today includes forward-looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties. I'll refer you to the cautionary statement section of the MD&A for a description of such risks, uncertainties and assumptions. Although management believes that the expectations reflected in these statements are reasonable, we can obviously give no assurance that the expectations of any forward-looking statements will prove to be correct. You should note that the company's earnings release, financial statements, MD&A in today's call include references to a number of non-IFRS measures, which we believe help to present the company and its operations in ways that are useful to investors. A reconciliation of these non-IFRS measures to IFRS measures can be found in our MD&A. With these introductory remarks complete, I will now turn the call over to Steven Hudson, Chief Executive Officer.
Thanks, John, and good afternoon. Before I start, we've been dealing with rolling blackouts from friendly provider Comcast in South Florida today. So if you hear a pause, we haven't gone away, we'll just be switching to our backup cellular network. On Slide 7. As we announced at our Investor Day, management retention and extension programs have now been implemented through 2024, which ensures that the existing management team and the operational heads, more importantly, are in place and executing on their strategies. Happy to report strong results in the fourth quarter. Adjusted net income of $0.08 a share and solid operating results across each of our businesses. We're reiterating our 2021 guidance given to you at Investor Day of $0.46 to $0.51. As well, we're reiterating our initial guidance for 2022 at $0.55 to $0.64, which will be updated midyear based upon the success of '21 -- updated to the upside. Service Finance had an exceptionally strong fourth quarter with an expanded product platform. The originated -- originations were up 34% year-over-year, as well as managed portfolios up at the same percentage. Service Finances' all-in-one platform is now complete and operational. This is a one-stop shop for all of our dealers and consumers. This represents a significant strategic step, which was not discussed at Investor Day, but will be reviewed this afternoon. Fully funded through '21 and into '22 at full margins. Triad as well had a strong fourth quarter with 37% originations, 39% in our core business. Our expanded land home product is on track for its $150 million to $200 million of forecasted '21 originations. I'd like to point out that we did $45 million of land home approvals in January, which is twice the monthly rate of the fourth quarter. Also 14 new funding partners in '20, 23 (sic) [ 3 ] new partners added in the first 2 months. We're feeling very confident about our $1 billion origination target for Triad. KG had a strong fourth quarter with marketing services beginning to rebound. Its fourth quarter was in line with management's expectations. EBITDA margin of 56%. We have a strong pipeline across partnership, marketing and transactional services driving our 2021 results. We're also seeing growth in new marketing and products, which we'll speak about in a second. BaaS stands for banking services, which we'll discuss in the KG section. Turning to Page 8. As I mentioned just a moment ago, we're reaffirming our '21 adjusted EPS guidance of $0.46 to $0.51. Turning to Service Finance on Page 10. Happy to report operating income before tax in the fourth quarter of $22 million, 34% growth in both originated and managed portfolios -- originations and managed portfolios during the quarter. We did record a $2.4 million or $1.8 million after-tax provision for eliminating a California solar dealer in an advance in the quarter. California reentered a lockdown post our Q3 calls, and the lack of project activity caused a full write-down. I did comment on the Q3 call that I did not anticipate additional write-downs. So clearly, I got this wrong. I didn't anticipate a further lockdown. We do expect recoveries on this account in the -- in 2021. But given the uncertainty driven by COVID, we decided to mark this account to 0. And then finally, our January dealer growth grew 64%, which is -- 64% above our 5-year monthly averaging, continuing our -- evidencing our -- continue to take share. On Page 11, I thought it was a chance to take a moment. This is the third anniversary of our investment in Service Finance, and I wanted to step back if I can with you and make 4 observations, which I think are important. The first is in the upper right-hand box on Slide 11 shows you the origination growth over that period, which is significant and consistent. The second part is the matched growth in the servicing portfolio over that same period. The third observation I make for you is the dealer base growing at an annual compounded rate of 23% and since our investment. And the final observation I make for you is a substantially increased and diverse funding base of the Service Finance business, which gives us the basis for our '21, '22 fully funded originations. Turning to Slide 12. As I mentioned in my introductory comments, we are pleased to announce this afternoon with you our all-in-one platform. This represents an evolution of our MLP, our multi-lender platform, which has allowed us to offer other products, other loans to our customer base on a referral basis. And there's a lot to digest on Slide 12, but let me just take a moment and step back, if I can, and just tell you what -- from my view, what's happened here. It's the key business driver to our dealers and their customers. It's a one-stop shop which offers all types of credit and all types of financings, loans, leases, rentals. The 2 components, which are underpinning the all-in-one platform, first component begins with technology, which evolved from our MLP, where we had a credit app for each lender with a separate credit pull and adjudication for each individual lender. That has now evolved into a streamlined and seamless process where we have one application and one credit pull for all lenders for all credit types and for all forms of financing. Second component is the funding partners, which have had great portfolio performance with us, have been attracted to this expanded platform, and we're happy to announce 4 new funders are funding this expansion of the platform. Third point, clearly, this platform is without an industry peer. No one in the industry has an instantaneous, seamless funding menu that drives from the kitchen table and drives not only additional growth, but opportunities like our big box, which is advancing quite nicely. And we'll have information to report to you shortly on that. And just finally, in summary, this is an expanded funding platform, which remains nonrecourse just like our core business, referral fees in the 2% to 3% range and is largely incremental to the forecast that we gave you at our 2021 Investor Day. Turning to Page 13. Just an update on the fourth quarter. A little color on the origination growth. HVAC up 48%. Lennox up 41%. Windows & Doors up at 63%. You also see the momentum going into '21, with '21 year-to-date originations up 31% year-over-year, and we haven't even hit the season for home improvement. We're feeling very good about '21 for service and, in fact, all of our businesses. Turning to Page 14. The backlog is significant. The January backlog in this business, which are deals awaiting completion, were approved and is up 80% year-over-year across all our business lines. John has provided segmentation on fourth, HVAC, window, roofing and remodeling. Backlog alone equates into more than $220 million in originations for the first part of '21, in addition to our regular flow. Turning to Page 15. We continue to have exceptionally strong credit performance of the managed portfolios on behalf of our institutional partners. Deferment stand at 0.2%, 30% -- 30-plus delinquencies are well within historical range and loan losses have remained consistent with expectation. This performance results -- these portfolio performance results during a pandemic is what's driving strong additional demand for our credit product as well as for our all-in-one platform. Turning to Page 16. Assets held for trading decreased from $93 million -- to $93 million from $128 million in Q3. We executed 2 portfolio sales, and we'll have additional sales in Q1. It's also important to note that the one-stop or the all-in one platform will now transition what were portfolio sales to a flow business and will have far less lumpiness moving forward. 17 are originations, which I think speak for themselves. 18 is the guidance, which remains unchanged from Investor Day, and we're reaffirming. 19. Turning to Triad. Operating income before tax is up 36% year-over-year. Originations up 37%. We've been able to add 14 new partners in '20, including Fannie and Freddie and our first insurance company. We're fully funded in '21 at full origination and full servicing margins just like service finance. Page 20 on program update. Our high-margin core approvals are up 38% year-over-year in Q4. With respect to land home, which I mentioned earlier, in Q4, we were averaging about $22 million a month in approvals. And the first month of January, we're at 45 months -- $45 million for just that month. So we're up 2x, and that has continued into February. The backlog of fully completed loans awaiting completion for homes has increased to $80 million from $50 million a year before. 21 demonstrates what this backlog, we call it docs out, because the documents have been executed, deposits have been made, so we have a 99% close rate in this business. Suffice to say, it's large and growing, and it increases our confidence in our $1 billion target for 2021. Turning to 22. Similar to Service Finance, we've had exceptionally strong credit performance on behalf of our institutional partners. Deferments are at 0, 30-day delinquencies are within expected operating ranges and we've had no change in our loan loss trends. Originations on 23, I believe, speak for themselves. And finally, on 24, unchanged from our Investor Day is our reaffirmed 2021 guidance. Turning to KG on Slide 25. Adjusted operating income in the quarter of $9.2 million. Credit card investment management is performing as expected. And as we mentioned in Q3, a first transaction on a portfolio origination syndication without a capital investment on behalf of ECN. Marketing services and revenue, I'm happy to report, has returned to growth in '21. And although transaction services were deferred into '21, we also see that return to growth this year. I think we'll just take for a second and chat about Slide 26. Our partnership revenue, which includes both our partnership accounts and our credit card investment management business performed quite strongly during 2020. As noted on the right-hand side of the slide, increased approximately 20% year-over-year. And I think that's a function of the partnership accounts side where we're providing important advisory services, whether it's strategic, business development, portfolio management for our partners. And on the credit card investment management side, what was historically a bank-to-bank transfer for credit card portfolios has now become bank to institutional investors as another way. And we believe we had a big role in introducing institutional investors into the space. Page 27, I'm happy to announce on behalf of KG that they've been able to launch 2 new products, which are very important. The first is banking-as-a-service. I referred to it earlier as BaaS. What the heck does that mean? We have a small credit union, that's a client of ours, where we have now structured their credit card offering. We're marketing their credit card offering, structured the marketing. We set the adjudication standards for the credit card business and we're now managing the credit card portfolio. So we now have a product that goes from beginning to end on behalf of these smaller institutions. We think is an important evolution of this business. Also on our risk and portfolio management side, we have a product [ Credit Tech ], which is our own proprietary system for managing credit results, which has produced strong and better outcomes, and that's been evidenced in our credit card investment management business. We've now begun to market that to third parties. Turning to Page 28. Again, the guidance is unchanged from our Investor Day and reaffirmed. Over to you, Michael.
Thanks, Steve. Turning to Page 30 and the Q4 consolidated operating results. Total originations for Service Finance and Triad Financial Services of $727.8 million in Q4 2020, were up over 34% compared to Q4 2019 and drove strong operating results for the quarter. Q4 adjusted net income applicable to common shareholders was $19.7 million or $0.08 per share. This includes the impact of onetime costs to rebalance our foreign currency hedge positions of approximately $3.3 million after tax, following the Q3 C dollar debenture issuance and a change in our legacy C dollar asset balances. As at December 31, our balance sheet exposure is effectively hedged. Q4 adjusted net income and adjusted EPS also includes the $1.8 million after-tax charge to fully write-off our California solar dealer exposure that Steve referenced earlier. We do not adjust for these onetime items and we are committed to improving the quality and transparency of our earnings. Finally, as discussed at Investor Day, we recorded a provision of $22.7 million after tax, attributable to our legacy aircraft and aircraft-related investments. Turning to Page 31 on the balance sheet. Key highlights on the balance sheet are not as forecast in the previous quarter, total assets and total debt were both down, with total assets down about $87 million and total debt down by approximately $42.5 million compared to the prior quarter. The decrease in total assets and total debt was primarily driven by the decrease in held-for-trading asset at Service Finance. Managed and advisory assets are now approximately $33 billion, comprised of $3.4 billion in servicing assets at Service Finance, $2.6 billion in managed loans at Triad and managed and advisory assets of $27.1 billion at KG. Turning to Page 32 of the income statement. Q4 2020 adjusted EBITDA was $34.6 million compared to $33.1 million in Q4 2019. The increase was primarily driven by the growth of Service Finance and Triad, partially offset by lower revenues at KG and the FX hedge rebalancing costs referenced earlier. Q4 2020 adjusted EPS was $0.08 per share and $0.31 per share for the full year, in line with our previous guidance range despite the impact of these onetime charges. And in Q4, our effective income tax rate was 17.4% compared to 19% in Q4 2019. For the full year, our effective tax rate was 18.5%, in line with the Q3 announced range of 18% to 20% due to the tax structuring completed in 2020. Turning to Page 33 and operating expenses. Key highlights are the higher business segment operating expenses, primarily driven by the growth in originations and managed assets at Service Finance and Triad, and are partially offset by lower operating costs at KG. Corporate operating expenses of $5.4 million reflect a return to normal activity levels for business development, professional services and travel expenses. As announced that in Investor Day, we expect corporate expenses to be in the range of $22 million to $23 million in 2021. Finally, turning to discontinued operations on Page 34. First, we will be eliminating the discontinued operations segment in Q1 2021. Second point I'll make is that the provision taken in Q4, which we talked about earlier, will help accelerate the exit from our aviation business. The provision is largely driven by the impacts on the aviation industry associated with the COVID-19 pandemic. Aviation industry has been very hard hit and there's no foreseeable recovery in asset values. However, ECN will continue to pursue litigation and other recovery efforts. Finally, the elimination of the disc op segment in 2021 will improve the quality of earnings as the difference between our reported and adjusted earnings will be materially reduced. With that, I'll pass it back to Steve.
Thanks, Michael. Slide 36. To summarize, we've successfully extended management retention through 2024. We delivered strong earnings of $0.08 per share this afternoon, and totaling 2020 adjusted earnings of $0.31. ROE will increase to 16.5% to 18.5% in '21 and 20% thereafter. Service finance originations were up 34% in Q4. More importantly, is the all-in-one platform is going to drive both significant incremental growth in the form of strategic and material take-share opportunities and new opportunities like the big box retailer that we're working on. We're fully funded for Service into '21 and '22 at full margins, as well as Triad. Triad's core approvals are up 39% with home track -- sorry, pardon me, with land home successfully launched. KG is in line, with strong partnership business continues with a deep pipeline. And we've launched new services from KG, leveraging our core competency. With respect to capital management, the Board approved a quarterly dividend increase this afternoon, up 20% to $0.03 or $0.12 annually. We closed a $75 million senior unsecured debenture due in '25 third quarter. And we are active in NCIB purchasing both preferred and common stock. John?
On Page 37, I just want to take a second to remind everyone of ECN's management and the Board of Directors' commitment to improving ESG policy impact and the disclosure of these issues to our stakeholders. In 2020, we have formally established an ESG management committee to address ECN's ESG impacts and disclosure. This committee reports directly to the Board of Directors, and we've already had several meetings discussing our 2021 approach. We've engaged numerous stakeholders to better understand and plan our ESG disclosure. For those who haven't had a chance to see it, we put out an initial report on ECN's ESG commitment at our Investor Day, and it's available on our website at the following link. A couple of quick highlights. ECN businesses have attractive end markets with positive ESG tailwinds. We discussed quite a bit about how home improvement and manufactured housing are really reducing the energy consumption and costs for consumers. In addition to that, we largely use ENERGY STAR-rated equipment. It's really improving that efficiency. ECN disclosure now complies with SASB standards, which we're very happy about. And lastly, I just wanted to remind people that ECN is a founding member of the Canadian chapter of the 30% Club, and we're proud to have 30% of our Board of Directors represented with female board members. With that, we'll move to questions. Thanks.
[Operator Instructions] Our first question comes from Nick Priebe with CIBC Capital Markets.
Yes. Okay. I just had a few questions on a couple of items that stood out to me in the quarter. At Service Finance, it looked like servicing revenue came back faster than anticipated in the fourth quarter. Can you just comment on that and clarify whether that now reflects a return to normal? Or should we be expecting another small step-up as we enter Q1? Just some color on that would be helpful.
Sure. Nick, so if you look at -- as we discussed throughout the year last year, we expected a number of the concessions to sort of run off in the fourth quarter and to be fully gone by year-end. As you noticed, the servicing fee has come back to almost sort of a full servicing fee. We're happy about that. And as we go into next year, we expect it to continue.
Got it. Okay. And then looking at Triad, originations were flat on a sequential basis, but origination revenue was up 20%. Just directionally, I would have expected the opposite relationship as the mix starts to gradually shift toward kind of the lower-margin land home product, and HFT assets were flat quarter-over-quarter. Can you just comment on that as well? Anything that's abnormal in the quarter would have accounted for that?
No, nothing abnormal, Nick. Triad, remember, you have some seasonality. The fourth quarter is typically going to be a bit slower than the third quarter. The land home originations really wouldn't have been coming through in the fourth quarter, that's something that will start in the first quarter. Remember, we launched that business in August of last year, and the backlogs are anywhere between 3 and 6 months. So we really didn't have much from an origination perspective on the land home business in the fourth quarter.
No, I would add 2 things. One, the land home. It's really been an approval book. So there aren't meaningful amount of originations in that number. I would say that on the chattel side, we're able to expand some of the pricing. So you're seeing a bit of a larger gain on the chattel business during that quarter. We didn't -- hopefully, that holds going into '21, but we didn't forecast that increased gain on the chattel business for '21.
Yes. And if you remember, last quarter, Nick, we had a little bit -- Jaeme, I think, brought it up on the call last time about -- we had a little bit lower gain on sale margin in the quarter that was a result of we retained more loans on the balance sheet in the quarter, like we talked about. Remember, we were retaining loans for bulk sales to new parties. So we were able to sell some of those portfolios in the quarter, which would result in some of those gains. And if you look at the blended mix on the gain on sale, it improved, obviously, in the fourth quarter over the third.
Yes. Okay. Okay. Fair enough. Last one from me. It looks like corporate expenses have kind of ticked back up to pre-COVID levels. Is the inference from the commentary that that's kind of the new baseline? Or should we expect some more gradual growth as the economy continues to reopen?
No. I think the Q4 is basically a new baseline for 2021 as well. As we reiterated in our Investor Day, it's going to be around that $20 million to $23 million range.
Our next question comes from Geoff Kwan with RBC Capital Markets.
I was just wondering on Service Finance, the new big box retailer. It sounds like you can't say who that is yet, is that correct? And then on the commercial side, is this the vendor that you're now doing small business? And just tied into all of this, would any of these new additions be included in your 2021 and 2022 guidance?
Geoff, the big box retailer we're close, but not there. We're very close. And we can't -- there'll be a press release surrounding that, and it's not included in the guidance. But again, I anchor you back into the all-in-one platform. The all-in-one platform, the vast majority is not in the guidance. So the 2 -- it's the all-of-one, it's the ability to offer a consumer all form of financing is an important driver. And you had a third part of the question there, which I forgot, I apologize.
Yes, sorry. It was on the commercial side, is the vendor -- is the new relationship with the vendor that you're doing the small business?
No. So it's -- we're going to -- we have launched commercial, both with Beacon and with Lennox who are existing clients for consumer programs. And the partner buying those loans is someone who's an existing bank partner on the consumer side. As you know, we've been testing that for some time, probably 1.5 years, and we're happy to get it launched. If you think about Lennox, Lennox truck does a call at your home and we can finance. Then it goes down the street and it goes to John Wimsatt's bike shop, we couldn't have financed that before because that was a small business loan. So that's the change with this new program.
Okay. So that's the commercial you're talking to, it's not a new vendor?
Right. Yes, it's just an expansion. As you know, with Lennox, we're exclusive on the consumer side. We've had the ability to expand into the small business side. You can assume we're doing that this afternoon as well as with Beacon, those are the 2 we're launching with. And we'll report those results as we go through the year.
Okay. And then I know it was brief, but just the impacts that we saw this quarter from the winter storms in the U.S. Just wondering if there's any insight you have right now in terms of the impact on -- might it have any sort of negative impacts on origination? Or even on the reverse side, potentially boost some demand for either HVAC or other housing-related items given the damages?
We haven't seen -- certainly last week in approvals and there was a dip last week, a significant dip in Texas, but that's only one part of the U.S. we serve. It came roaring back this week.
I mean we're up -- approvals are up over 50% month-to-date in Texas in February at Service Finance.
I think the one area will see impacted, Geoff, but I think we're going to have more than enough improvement elsewhere is that you could see some delay in manufactured homes being delivered to site. So you may see that doc out number grow. But I don't see -- it will not impact our earnings, we have enough elsewhere to compensate for that.
Okay. And just my last question was the retention plans for senior management. I know you've got the OpEx guidance at the corporate level. But just wondering what was the incremental financial impact on compensation expense versus what it would have been beforehand? Just because I think some of these comp stuff would be at the consolidated level and some of it would be at the subsidiary level?
Yes. Thanks. The -- for the retention agreements with the business unit heads, those are all share-based awards. So we saw that -- the increase in share-based comp in Q3 and Q4, and those are related to those retention agreements. So that was more than half of our share-based comp expense are related to retention agreements to the business unit heads.
And the other part I'd add, Geoff, is that with -- under IFRS, although these are 5-year programs for retention, and they invest over 5 years based upon performance and time, under IFRS, you're required to expense 50%. 2.5 years of that comp gets expensed in the first year, which is the reason that 2020 share-based comp was elevated and the reason why it will be down in '21.
Yes. And remember, it is actually for the full year, but because we announced those in the third and fourth quarter, we actually had to take the full year's expense in 2 quarters. So just keep that in mind as well.
The next question comes from Tom MacKinnon with BMO Capital.
Just a question about maybe interest rates. We're all watching these interest rates go up substantially every day here. And maybe just give us the impact on maybe the propensity of your customers to take installment loans or to take manufacture home loans? Or what is the impact on your funding partners? Just as a result of the rates going up there, I mean, is it a concern? And when do you get nervous? And what has to happen to rates or spreads before you would be worried?
Tom, take you back to Slide 11 for a second and go back a little bit in history. If you look from the fourth quarter '17 to the fourth quarter of '18 and into '19, you saw 5-year treasuries run from 1.75% to almost 3%. And I think that's a good example of, one, we had the ability to price that in. And two, there's no decrease. Again, there is no decrease in demand for our product. As you know, a lot of our programs, the manufacturers are dealer sponsored or manufacturer sponsored, and they're able to buy down the rate. So don't think of -- it didn't impact us on the funding side and it didn't impact us on the demand side.
Yes. And Tom, just to add to that. Tom, remember, Service Finance average ticket size is around $10,000. We're amortizing -- the typical product amortizes that over 5 years plus. If you think about 100 basis point change in rates, you're still talking about a very small change in the monthly payment. Like 100 basis points from this level might change your monthly payment only by $15 to $30. So if someone has a broken HVAC and they're trying to get that fixed, it's typically not going to change customer behavior. So in order for us to see real behavior changes, I think you'd have to see something like the Russian ruble crisis, for example, some very major spike in rates very, very quickly.
And what would change the behavior of your funding partners? Would it be -- have to be spreads blowing out? Maybe just help us understand what would you...
Well, we thin what would change the behavior, Tom, is the ROA on the portfolios that they buy from us. But our portfolios have an average ROA of about 3.25%. On average, mortgage portfolio today is 1 2 to 1 4. We're twice that. And we've been committing through hell or high water funding arrangements, our funders, through '22. So it would have to be 300, 400 basis point change in interest rates, and it would impact '23 funding impact then. So I just -- I don't see either one of those happening, Tom.
Okay.
And the -- yes. Go ahead, sorry.
And -- so a follow-up is on the all-in-one platform. I do sense your excitement here in its ability to sort of increase approvals. Are you taking on any additional credit risk? I mean what are the comments from funders with respect to the all-in-one plan?
Yes, good question, Tom. This is all -- our core business on a nonrecourse basis, we get paid a referral fee. We've been originating -- Service Finance has been originating 5% of nonprime paper for several years. So we have a lot of data on how it performs, we're just not in that marketplace. So given the performance of our paper and that 5% and the ability to do this seamlessly at the kitchen table, it's the combination of the technology advancement, i.e., all our learnings from the multi-lender platform and the demand from investors that's allowed us to launch this product. We've also been able, Tom, to launch it for a lease product. We obviously have RICs, i.e., loans. But we're able to launch a lease product now because we have a lessor that's approached us who wants that paper. But nonrecourse referral fees, I've given you a range on it, this would be largely incremental to the forecast for '21, vast majority of it. And we'll report the results back on a quarter-by-quarter basis as we go forward. It's a big evolution. We're now -- there are -- we're now are able to -- and in the past, we had about a 40% approval rate for our dealers, this will materially change that.
And the cost to build this program out, is there any increase in OpEx? Or can you remind us -- you funded this already?
Already done, Tom. It was the build-out costs for the MLP platform over the last year, 1.5 years all expense through.
The next question comes from Vincent Caintic with Stephens.
First one, wanted to go into detail on that all-in-one platform, which sounds really interesting. Maybe if you can remind us what the volume of opportunity is there that you're declining. And then talk about maybe some more detail on the participants and how they make -- so like how much volume would the participants make or take currently? And then maybe the pipeline of incremental participants who are looking at also contributing to the program.
So if we use '20 as a guideline, Vincent, where we originated -- we originated -- funded $2.1 billion. In '20, we rejected that same amount roughly. Make my math easy late on a lazy afternoon. We ejected probably $2.1 billion. It might be closer to $2.3 million, but call it $2.1 billion in '20 rejected credit. This opening up the box, if you will, will probably capture half of that. We'll probably pick up an incremental $750 billion to $1.250 billion of paper that would have hit the floor in the past. Newly launched in January, so we're watching it. We're watching it grow in approval rates. As I mentioned earlier to Tom, this is on nonrecourse. We're getting referral fees of approximately 2% to 3% on this block of business. The investors are institutional based to -- who have an appetite and lots of history in the near prime space and very much want this paper. And we've been able to show them the performance of the 5% we've originated in the past. I think we could add additional investors. Right now, we haven't got the flow for them. We are fully committed on this all-in-one platform, that paper as spoken for, for '21. But happy to talk to people who might have an interest in this paper.
I just want to add as well, Vincent, as Steve said in his remarks earlier about this, this is a new product for the industry. This is something that if you had to ask folks in the industry, I would say that they were -- have been looking for something like this for quite a while. I think it really will create some dealer loyalty, could over time push more applications from our existing base through to us and ultimately drive more dealer growth, because this is going to be the only place you're going to be able to get this product. So like Steve said, we had about $2-plus billion worth of turndowns last year. That number should be somewhere between $2.5 billion and $3 billion this year at least. So we think there's a good opportunity here. And obviously, we're not building that into the origination guidance at this point because we'll have to see how it ramps.
Okay. So a quick follow-up on that. It's really helpful. So thinking about potentially $750 million to $1.25 billion, so -- and then you're getting 2% to 3% fee. So simply taking that and -- so you could be making $30 million of incremental annual fees, no recourse or no credit, just -- it's just fee. So I wanted to kind of confirm that math. And then two, so you mentioned that you could add incremental investors, but you don't have the flow for them. So the 4 investors you have today could absorb that $750 million to $1.25 billion? Just wanted to confirm that, too.
So the 4 investors can -- have committed to that flow. Now Vincent, your math is right, but it's going to be on an annualized basis, right. Launched in January, we'll track it for and report it to you. But once it's up and going, those will be the annualized numbers.
And like any other program, Vincent, there's a process to ramp this, right? Like so we're going to -- you're going to have to roll this out dealer by dealer. You're going to have to train all the different folks on these products. You're going to have to make sure that people understand sort of what they're doing and they can go out and sell with this tool. Ultimately, we think it's going to be a big contributor for us. Like we said, we'll wait and see here, at least for a couple of quarters, to see how it ramps.
The product is out there active and live with our major dealers, and it's working quite well. We've had some significant take share in January and February away from other competitors. There's no real need to stay with a credit card provider now that we have this product. So the share is just not from installment based providers, it's also from revolving credit providers and home improvement. So your math is right, but it's going to fully rolled out. But it's -- in the first 2 months, it's performed very well.
Okay. That's really helpful. I wanted to switch over to the banking as a service new product and kind of similar questions. If you can talk about this -- so the credit union that you signed up with, maybe if you could talk about the fees, the volume potential that the credit union has signed up for. And when -- so you have this one credit union, is this something where you can add -- you have so many other credit union relationships from Service Finance and from Triad, so just kind of curious about the pipeline of interest [ for this ].
Sure. Thanks, Vincent. So this is effectively the same program. We called it turnkey at Investor Day. We -- it's a really interesting product for us. If you think about it over time, Kessler has developed some very significant capabilities. Those capabilities were put [ to use first ] in this partnership business and elsewhere. What they've been able to do with this product is basically take that skill set and core competency and bring it down to, what I would call smaller institutions. Take our launch client, it's a $4 billion-ish size credit union that has a couple of hundred million dollar credit card portfolio, has interest in doing more with that credit card portfolio than they've been able to do on their own. We mentioned at Investor Day that in year 1, we thought there'd be about $1.5 million of revenues from that company. I mean you can go back and check that chart, expect it to grow to sort of $3 million plus maybe in year 2, and it will continue to grow with the size of the relationship. Why we think that is interesting is -- I think Scott and the team thinks they can add 5 to 10 of these kind of customers annually over the next couple of years and it could become a sizable business. What we like about it is really redirected a lot of those core competencies of Kessler to this product. And it's really a banking as a service product that we're rolling out here across -- really across the country.
The next question comes from Cihan Tuncay with Stifel.
Just wondering with respect to the retail program. Could you walk us through the process of how that's going to work? A contractor goes into the big box store, who does the credit sit with? And how does it fit into your all-in-one program, which I think is tailored to the kitchen table process? So maybe just if you can walk us through the mechanics of how that program is intended to work, please.
So the big box program, I think Scott -- I'm sorry, I think Mark talked about it quite a bit in the Q&A session at Investor Day. Hopefully, you were able to hear what he had to say about that. But it's a program they've been working on for a while. It's interesting because it actually creates some new revenue streams for Service Finance because Mark and his team will actually manage the leads and the jobs that come through the big box retailer, both in the store, at the kiosk and online through the digital offering. So there'll be a revenue stream from a lead management part of the program as well as potential financings, which, obviously, Service Finance will get a first look at. So we're really excited about it. I think beyond that, we'll be ready to update more about that in the second quarter as we can just talk about it more fully as the program gets rolled out.
One of the impediments you can imagine in launching a big box retail on any retail platform has been when you have a 40% to 50% rejection rate. It's kind of an impediment to the customer experience, if not a showstopper. The all-in-one was underpinning these conversations, but it also will drive now additional take share from traditional dealer and distributor originations.
Like you said, I mean, the all-in-one is designed for the kitchen table, but it's also we're going to get the first look on all financing. So to the extent that customers that come through the big box retailer need financing, it will run through the similar process at Service Finance, so you'll have the opportunity to take advantage of the all-in one platform.
Appreciate the color there. Maybe just a quick follow-up. With respect to -- how did it turn out with respect to average ticket size with the big box program? Is your retailer, if you can say it or not, I don't know, but are they focused on any one kind of product like floors versus HVAC or something like that? Could you give us any color on the end product? Or is it a diversified mix?
Yes. Like I said, I think we're going to wait on that until we have a formal launch where we can talk more fully about the relationship and all those things. But as you can imagine, the ticket size for home improvement, it's a similar type of home improvement that we're financing today. So I would suspect that the ticket size would be roughly similar to the $10,000, $11,000 average ticket that we generally book.
Okay. I appreciate that. And maybe just an update on the funding platform. I know you guys are fully funded for your plans in this year, 2021. But how are the conversations progressing for 2022 and beyond? Are you talking to more partners, less partners, new partners? Just an update on the appetite and the depth and breadth of the funding pipeline, please?
Yes. No, really good question. Our funding for service is now [ well until ] '22 on a committed basis. Every single funding relationship is now documented as a hell or high water obligation. The addition of Canada Pension Investment Board as a funder really has opened up new interest from -- as you know, we mentioned 3 years ago, we acquired -- invested in service that -- Mark had built a great company, we wanted to help him diversify funders and we've been able to -- he's been able to do that with the likes of insurers have joined and now sovereign wealth. So I think you can assume that you'll see expanded mix of -- continued expanded mix of funders. And we're going to be facing the same challenge in the latter part of '22 that we are faced today, which is we don't have enough product. But at the end of the day, I think the hallmark for all of these businesses is the credit performance of the credit assets that we manage on behalf of our customers. Our banks, our life insurer, our pension plan pay us for originating, managing and advising. And I would say they are all happy with the relationship. They're a little bit unhappy that we can't meet all of their requirements, but we'll find a way to allocate.
The next question comes from Jaeme Gloyn with National Bank Financial.
Yes. First question is on the land home originations with Fannie and Freddie, the apps are looking fantastic but still no origination disclosure. Can you give us a little bit of color on originations at this point and approval rates, at least for the loans that were approved in back in September?
Yes, we've got flow of about $5 million to $10 million a month coming off the book. It's a long time because you have to -- referencing January and February with the origination numbers, the funded numbers, it takes some time here because this is an approval for a brand-new build. So you approved and I think gets built, so there is a delay. But we are -- the fundings are now rolling through. On the approval list, we're -- from approval to funding, this book has a higher, what we call, pull-through rate of approximately 60%. Our traditional chattel business has about a 40% pull-through rate from approval to funding. So we're highly confident once it's approved, it's going to get funded. When you approve it and you satisfy the conditions, you are cutting a check to us for the committed land home financing and you're signing the documents. So we feel good about the flow.
Yes. I mean we just launched this business, again, in August, right? And we discussed previously that the backlogs just across the industry have extended. And so we never really anticipated having a lot of actual originations in this product until we got into 2021. I think, like Steve said, we're running about maybe $5 million to $10 million a month. Today. I think we've actually originated about $20 million so far off this program in total.
Okay. That's helpful. Going back to the all-in one platform. And correct me if I'm wrong, but I feel like the $750 billion to $1.25 billion number is quite a bit larger than maybe what was discussed at the Investor Day, which I think was something more like $150 million, $200 million. So what changed specifically that would allow that to increase, if I got that right? Or just comment...
Yes. Well, you got it 100% right. I mean at Investor Day, we're talking about MLP and this is the next evolution of MLP. As you know, MLP is every lender that comes on MLP, you have to get a new credit application and you got to pull credit data again. So it's a bit of a chunky process. This wipes it all out. It's been in development for 6 months. Now you have one credit app on behalf of all the letters on one credit pull. And the early reception in January and February has been very strong. We -- whether it's $750 million or $1 billion, I can't tell you, but it's going to be a significant increase of what we gave you. But again, let it roll out fully and we'll report through the data to you. It was really driven by the conversation with Big Box retailer where they want to see a higher acceptance rate. And the only way that we can accept more of the product is by having the right referral partners because we're not in this business. So Mark and his team came through once again and built the technology. Jointly, we brought some investors to the table, and now we formally launched it.
Okay. Yes. So the tech upgrade is the driver there. That's clear. In terms of the funding partners in the all-in one program, these are 4 unique partners that previously weren't Service Finance partners? And can you provide a little bit of color around what these partners look like? Are they national banks, regional banks, subprime specialists? What do they look like?
They are hundreds and hundreds of billions of institutional investors, large institutional investors with big asset management platforms. In their credit books, they would have literally hundreds of billions.
Okay. So asset management firms, not banks or credit unions like a typical Service Finance program?
Yes. We've got -- we have to clear. These are 4 new ones. We still have 2 traditional banks in MLP or buying the paper, Jaeme. These 4 are very large. They're on the level of a CPPIB, both in dollars and sophistication.
Okay. Go ahead.
Remember, there's a full credit spectrum across the board. So you could have different sets of lenders or buyers across the credit spectrum. We actually have some of our larger banks who are buying some of that up-rent stuff and some of our SFI type paper. We have really all the way down to some really small -- not small, but really specialty finance type companies that are looking at some of the really lower FICO paper. But it really is across the board. It's not just 4 entities, it could be a whole number of entities, and we continue to look at the opportunity to add more over time.
Right. Okay. Last one, just to be clear on the $30 million math that Vincent did. Margin profile roughly similar at 65%?
No, this is a referral business only. So depending upon which form of financing we're referring through, it's either a 2%, 2.5% or 3% referral fee. We'll give you the mix as we go forward.
You're asking what the margin is on those revenues?
Yes.
I mean, all things equal, this is incremental revenue coming through and it should be at a higher margin on average, but we'll have to wait and see what the mix looks like. I'm reluctant to go too deep on that discussion at this point. Let's wait and see how it rolls through over the next couple of quarters, and we'll have a better idea.
Okay. Great. Can I sneak one more in, just on the investments, but I don't know if they're called legacy or noncore, there was a write-down this quarter. What else is in this investment portfolio? What's the purpose? Is this something that we should expect going forward, further write-downs or other decisions on that portfolio?
It's gone, Jaeme, we've written this down to the many transactions that we have sold or agreements in place to sell it. So there's no further write-downs coming. I would anticipate recoveries being booked here, the remaining part of '21 and '22. It's all a function of recovery of the aviation industry.
Okay. And that's legacy and the investment portfolio that included [indiscernible], correct? Did I understand that correctly?
Correct. 100%.
The next question comes from Mario Mendonca with TD Securities.
Just a final point on the referral program. Just so we're clear, there are no service fees attached to this, it's just the 2% to 3%. Is that right?
Correct, Mario. The 2% to 3%, you'll be paying commissions out to the field or field reps who are field reps. But there's no other fees.
So do you expect to maybe disclose this somewhat separately from the core originations, so that we can model earnings a little better?
Yes, 100%, 100%. We'll show you the referral revenue and we'll show you the flows underlying and as we get it implemented across the platform.
Right. Because these won't be part of [indiscernible] or anything, so it'll be helpful to have it separate then.
Yes, 100%, Mario. We're not going to book it in the core business, if you will, and our EBITDA margins. We'll break it out separately for you.
One final thing. There were a lot of encouraging things about this quarter that really -- well, encouraging in so far as it's easy to see a period here where core earnings or adjusted earnings are not all that different from reported earnings. But before we sort of take -- make that leap, I think it's worthwhile highlighting that we really haven't seen book value growth, book value per share growth in 3 years for this company. And arguably, a lot of it in the first part of that 3-year period were the buyback. But even without the buybacks, there really hasn't been book value growth for this company in maybe in the last 1.5 years. Would it be your expectation that going forward, book value growth, we might actually start to see it on a per share basis? And the reason why I'm focusing on this is I'm kind of old school here. I think that book value per share growth is reflective of value-added business. So what's your outlook on book value?
Yes. So I do agree with your last comment about it's an appropriate way to look at financial institutions. I would comment as a background, Mario, that we -- as you know, we've divested off $5 billion of assets in 48 months. And where we had to take some haircuts we took it because I wanted to get my hands on the cash in order to rightsize the company, and then we bought back 40% of the stock. So there's no doubt that, that was a hit to book value as we bought -- as we sold off companies. But in return got our hands on the cash and drove contributed surplus. So more work to be done, to your point, and the proof will be in the results that we report, and we'll see growth in book value in '21. And we're cognizant of the feedback from our shareholders that they don't want to hear about below-the-line charges.
To be clear, when I say book value growth, I always think of it excluding things like big share repurchases, because I think that's all obviously value additive as well. So book value and the way I look at it, ex-ing out the effects of share repurchase. But in any event, I appreciate your comment.
Correct. Earnings less dividends, yes.
There are currently no more questions registered at this time. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a great day.