Good morning, and welcome to the Principal Financial Group’s Third Quarter 2020 Financial Results Conference Call. There will be a question-and-answer period after the speakers have completed their prepared remarks. [Operator Instructions] I would now like to turn the call over to John Egan, Vice President of Investor Relations.

Thank you and good morning. Welcome to Principal Financial Group’s third quarter 2020 conference call. As always, materials related to today’s call are available on our website at principal.com/investor. Similar to last quarter, we posted an additional slide deck on our website with details of our U.S. investment portfolio. Following the reading of the Safe Harbor provision, CEO, Dan Houston; and CFO, Deanna Strable, will deliver some prepared remarks. Then we will open up the call for questions. Others available for the Q&A session include Renee Schaaf, Retirement and Income Solutions; Tim Dunbar, Global Asset Management; Luis Valdés, Principal International; and Amy Friedrich, U.S. Insurance Solutions. Some of the comments made during this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. The company does not revise or update them to reflect new information, subsequent events or changes in strategy. Risks and uncertainties that could cause actual results to differ materially from those expressed or implied are discussed in the company’s most recent annual report on Form 10-K filed by the company with the U.S. Securities and Exchange Commission. Additionally, some of the comments made during this conference call may refer to non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures may be found in our earnings release, financial supplement and slide presentation. We would like to make you aware of two upcoming investor events. We're changing the timing of our outlook call from December to February 25th. Additionally, we plan to host our 2021 Investor Day on June 15th next year. More details of both events will be shared in the future. Dan?

Thanks, John, and welcome to everyone on the call. I hope you and your family are staying healthy and well. This morning I'll provide an update on how Principal continues to respond to COVID-19 and its impact on our business. I'll discuss key performance highlights for the third quarter, our continued strong financial position and how we are well-positioned for long-term growth with the right strategies in place. Deanna will follow with our third quarter financial results, including the financial impacts from our annual actuarial assumption review and COVID, details of our capital and liquidity position, and an update on our investment portfolio. Safety of our employees and customers remains a top priority. While most of our employees continue to effectively work remotely, we're gradually welcoming some back into our offices around the world. We're extremely pleased on how effective and flexible our employees have been in this remote work environment, while maintaining excellent customer service. Our investments in technology, digital solutions over the last several years continues to pay off and allow for a seamless transition. COVID has had an impact on the retirement and group benefits landscape with both employers and employees recognizing the need for benefits that protect the health and well-being of both individuals and their families. This has magnified the role employer benefits play in attracting and retaining top talent, especially within small to medium sized business community. Last quarter, I mentioned that the impact COVID is having on our customers was less about the size of the business and more about the industry they operate in. This continues to be true. We remain well-diversified by geography and industry, and we're less exposed to industries most impacted. The pandemic has certainly created some unique opportunities and challenges for Principal. Our integrated and diversified business model…

Thanks, Dan. Good morning to everyone on the call. This morning, I'll discuss the key contributors to our financial performance for the quarter, including details of our actuarial assumption review, impacts from COVID, our current financial position and details of our investment portfolio. COVID continues to impact where and how we do business, and we've included additional details of the impacts in our conference call presentation again this quarter. While uncertainty remains on how the impacts play out over the next year or so, many of the metrics we're tracking continue to trend better than we expected at the onset of the pandemic. Third quarter net income attributable to Principal of $236 million included net realized capital gains of $2 million with manageable credit losses of $17 million. Reported net income reflects a negative $187 million impact from the assumption review and other significant variances. We reported $235 million of non-GAAP operating earnings in the third quarter or $0.85 per diluted share. Excluding the impacts of the assumption review and other significant variances, non-GAAP operating earnings of $417 million or $1.51 per diluted share increased 10% and 12%, respectively, compared to the third quarter of 2019. As shown on Slide 4, we had several significant variances during the third quarter. These had a net negative impact to reported non-GAAP operating earnings of $233 million pre-tax, $182 million after-tax and $0.66 per diluted share. Pre-tax impacts included a net negative $142 million impact as a result of the assumption review, primarily due to lowering our interest rate assumptions; a net negative $48 million impact from COVID-related claims and other impacts in our RIS and USIS businesses; a negative $17 million impact in RIS-Fee from IRT integration costs; a negative $14 million impact from lower-than-expected variable investment income in Specialty Benefits, Individual…

[Operator Instructions]. The first question will come from Humphrey Lee with Dowling & Partners. Please go ahead.

The first question for Deanna. You mentioned about you plan to resume share repurchase either in the fourth quarter of this year or first quarter of next year. I guess, like what factors do you need to see before you decide to do this in the fourth quarter, into the first quarter?

Yes. Thanks, Humphrey, for the question. As you mentioned, we did say in the prepared remarks that we continue to be in a very strong capital position. And we have, every quarter, gotten increased clarity on the range of potential path forward with reduced expected impacts from drift and impairments. As you said, we mentioned that we'll either restart share buybacks in the fourth quarter or first quarter. I'd say based on what we know today, I think there is definitely a path to additional capital deployment in fourth quarter. But I also think you can agree that uncertainty exists, whether that be uncertainty around market volatility. Obviously, what we saw yesterday showed some pretty significant pressure, uncertainty around the stimulus package and how that may impact some of our businesses as well as uncertainty around COVID impacts and how those could play out. And we want to be prudent and not ignore some of that volatility that is out there. But I think, bottom-line, we have a strong capital position and all deployment options are currently on the table.

Humphrey, do you have a follow-up?

Yes. So clearly, for the third quarter, expense was a good story with expenses efficiency, it continues very strong. But I think there's some amount of that may not recur. And even for the fourth quarter, there seems to be a little bit less benefits than the third quarter. Just can you talk about like what level of the expense savings would be sustainable? And then especially how we think about -- as you kind of emerge from the pandemic and what are the efficiency could be retained going forward as opposed to some maybe coming back, given just some of the expenses being suspended expenses?

Humphrey, I'll throw this to Deanna quickly, but I just want to be on the record to remind you, we have had a history of aligning our expenses with revenues consistently. I think the fact that we could identify $250 million this year was exemplary and a good indication that the team is really on board doing the right thing. Having said that, we are going to work. And we've made good investments. Our digital transformation is still very much intact. We're transitioning the IRT business over. And so we fully intend to have a similar approach to 2021. But I'll throw it to Deanna to provide some more detail.

Yes, Humphrey, what probably would help is if I give you a little bit of color on the 2020 expense actions, and then view into fourth quarter as well as 2021. So again, we continue to reiterate, as we did last quarter, that we expect about $250 million from what we anticipated coming into the year, and we've experienced probably about $200 million of that materialize through the end of the third quarter. That does ignore any adjustments to variable expenses that naturally flow with revenue changes, such as investment management fees, bonus pools and alike. We think about half of that reduction is what we would call staff-related expenses, so that can come from lower incentive comp, lower benefits, reduced hiring, as well as salary actions that we took earlier in the year. And the remainder is non-staff related. So that's where your travel, your contracting, consulting spend, advertising spend would come in. If you take the -- we had $200 million year-to-date, $250 million. You're correct that some of that, third quarter, we think will be the high point of that expense management. But we actually do still see that some of this persists in the fourth quarter as well as into 2021. Just a reminder that we do have seasonality that always causes fourth quarter expenses to be higher and we do think that will be somewhat muted, but we still expect that to be -- show that seasonality as we go into fourth quarter. As we think about 2021 and I think about what is causing and leading to the expense management picture that we have, you're correct, some things will reset. Probably the perfect examples of those is incentive compensation and salary levels. But other items like staffing and travel will increase, but at a lower level than what we would have anticipated pre-crisis. And so if I kind of do the exercise, the same way I calculated the $250 million, which is how do we think 2021 expenses will look relative to what we would have thought pre-pandemic? they're about down about $100 million from what we would have expected. So that implies that about 40% of that $250 million remains as we go into 2021 and that some items will reset at the beginning of the year, and others will trend up as we go throughout the year. This is an early look at expenses for 2021. And obviously, we've had a lot of volatility in revenue over the last 6 months. So we'll continue to evaluate, we'll continue to refine. And our ultimate aim is to align expenses with revenue and ultimately generate the targeted margins that we've shared with you and the investors.

The next question will come from John Barnidge with Piper Sandler. Please go ahead.

Sales volume year-over-year in Specialty Benefits actually got worse sequentially. Can you provide any color on that? Is it small business related, social distancing related? And how do you think of it going forward?

Yes, great question. And in the midst of a global pandemic, we've certainly seen sales across our small and medium-sized business get impacted, both RIS as well as SBD. But Amy has got some additional insights and thoughts maybe about the future. Amy?

Sure. John, good to get the question from you. I think the way to think about it is less about sort of how we -- how our sales process works and more about just overall people's decision-making, about employers putting in new benefits. So what I would say is, when I look at that sales volume moving down, people are interested. What we're hearing from small employers and midsized and large alike is they're interested in protection coverages. Just to do the work to set up a new plan, though, they've kind of held on that a little bit. Now what I would say is we're seeing the pipeline begin to grow, back up on that. And it's particularly relevant for some of the protection based coverages like life and disability. We're actually seeing some interest emerge first in our voluntary coverages. And the piece, I guess, I would always put that provides really nice balance on that is persistency. Our persistency numbers, which I would argue, are already really strong, got even stronger. So when I look at the things that are happening with sales and I balance that out with the persistency activity, I feel really good about what we're seeing in terms of overall premium levels for the business.

And Amy -- and before John gets to a second question, maybe a little bit of thought. I mean, we've seen life insurance sales actually go the other direction. And again, the sentiment of the marketplace. So maybe just touch on that before we go to the next one.

Yes. I think when we think about the life business, term life interest, and Dan, you noted this in your comments, has been incredibly strong. I think there's both in understanding that people need protection, maybe more than they were understanding that before. And also, I think it's a nod to the fact of the investments we've made in our straight-through processing are really paying off. So when we look at our term life business and we look at the experience that you can have on that term life business, that is industry leading. The place where we're seeing a little bit of holding in terms of making sales decisions is probably more aligned with our executive variable UL business, which is really aligned with our NQ business. So we're seeing the same pattern of some employers saying they kind of held off on making some decisions second and third quarter, and we're seeing that pipeline begin to pick up as well.

John, do you have a follow-up?

Yes, thanks. The decline in the AUA in RIS, I know there was a low fee legacy client that was exiting. How much of that decline is from that and how much remains?

Yes, it's a great question and one that Renee can address head on. Renee?

Yes. Thank you for the question, John. When you look at the AUA, as you noted, when we acquired the block of business, we understood that there was a large legacy client, a trust and custody client that was slated to leave. And so we have recognized probably 80% of the withdrawals from that client with the rest slated to go out over future quarters. But the other thing to note, we were aware of this at the time of the transaction and the revenue impact of this particular client was small.

Yes. Well, the persistency, John, on the block, is about what we expected from the initial pricing, adjusting for this large withdrawal. The other thing noteworthy, although, we didn't break it out, we've actually added a fairly large well-known Fortune 50 company where they awarded us business in that same period of time. So we're open for business as it relates to that trust and custody business. So we feel good about it. Thanks for the question.

The next question will come from Ryan Krueger with KBW. Please go ahead.

When you originally announced the Wells IRT deal, you talked about a 28% to 32% margin, I think, by the end of 2022. With the additional expense saves you're expecting and then the lower interest rate outlook, I guess, do you still think you can get to that level? And do you have a sense of when you may get there now?

Yes. Great question. And all very relevant as you think about it. I mean we are transitioning a massive block of business over in the midst of a pandemic, and interest rates have moved the wrong way. And I again applaud the team for the synergies they've been able to realize thus far and process the necessary work. Renee, do you want to frame what you think, best thinking right now as it relates to long-term profitability on margin and growth?

Yes, absolutely. So when I step back and when we look at this acquisition, we remain very pleased with how the business is performing and how the integration is going. And of course, it starts with that great strategic fit. This reinforces our standing as a top 3 retirement provider. It positions us for future growth, a really strong cultural fit as was noted in the prepared remarks. And the other thing that we can see is that expense synergies and the financial fit continues to remain a very good picture. So when we look at the expense synergies, in particular, right after we closed on this block of business, we made a very important strategic decision, and that was to migrate to a single IT platform as quickly as we could. And to combine the best applications from WySTAR with the Principal applications so that we could introduce enhanced capabilities across the board, both to IRT customers as well as to Principal customers. What this meant, though, was that we delayed the transition of the clients over from IRT to Principal. What it allows for, though, is that client retention is right on track. And we know that we can create a very smooth and seamless transition for our clients. And that was demonstrated in the first wave migration that occurred a couple of weeks ago. It was incredibly smooth and very seamless for both plan sponsors and for participants alike. But as we go through this migration, and the migration for the retirement side will be completed in June of next year, we can see that the expense synergies that we had originally modeled, we believe we can exceed those by about 50%. We'll begin to see expense synergies emerge in the summer -- next summer, and we'll continue to increase throughout the latter part -- portion of next year. And we'll continue to drive towards a mature synergy, expense synergy run rate throughout '22 being realized in '23. So the good news is, is that the critical decisions that we made early on are paying off. They're delayed, but we can see that the expense synergies will be greater.

So Renee, just to hit it specifically on Ryan's question, the 28 to 32. If you think about the offset of the IOER with the improved synergies, it's probably well -- it's within that range. We wouldn't adjust the range at this point.

No, that would be -- the range remains intact.

Okay. Ryan, does that help?

It does. And then I just had 1 quick follow-up. Are you seeing dental utilization, I guess, normalize now? I mean are you expecting it to be more typical in the fourth quarter?

Well, it couldn't get any more untypical than the last 2 quarters. But yes, we think that on a trailing 12-month basis, it's going to come in line. Amy, any closing comments there?

Yes. No, I think we're seeing it begin to normalize. Keep in mind that fourth quarter, we would have seen people moving through their benefits. So fourth quarter typically had a really low seasonal utilization. I would say we're going to go back to normal, but it might feel more like mid-year normal in terms of normalization. So we're seeing it normalize. Some of the pent-up demand has been exhausted and we would expect fourth quarter to be more of a normal pattern of dental utilization.

The next question will come from Suneet Kamath with Citi. Please go ahead.

Deanna, I just wanted to start with the assumption review. If we go back to last year's review, I think you changed the grade up period from 10 years to 7 years. And I believe, this quarter, you're kind of going back to 7 years. So I'm curious why that changed. And if you didn't change it back to 7 years, would the charge or the ongoing impact -- those disclosures that you gave us earlier in the call, would those have changed dramatically?

Yes, Suneet, thanks for the question. So yes, you're correct. So last year's review, we would have hit a 4% Treasury in 2029. And at this year's review, we are seeing 3.25% in 2027. So it's a 2-year change in that cycle. What I'd say is that it's not an exact science. There are many inputs that we look at. We talk to our economists. We look at peer perspectives as well as other external perspectives. And I think the fact that we're getting to a lower ending point made us comfortable that getting there in 2027 made sense. To get to your second question, when we look at the total impact from interest rates, which was about $85 million of the $114 million after-tax impact, we think about two-thirds of that is from the reduction in the starting point. So again, when we did last year's review, 10-year treasuries were around 2%. When we struck it for this year's review, it was closer to 65 basis points. And so given that two-thirds was a starting point, I don't think having that be extended beyond 7 years would have had a significant impact on the numbers.

Got it. Okay. And then my second question, I guess, for Dan, just bigger picture. We are starting to see more insurance companies rationalize their business mixes, either selling businesses or taking blocks of business and reinsuring them. There's clearly a lot of capital available to do that. Just curious if that enters into your game plan at some point? I'm thinking specifically about fixed annuities or any spread-based blocks you may have, but also on the Individual Life side?

Yes. Absolutely, Suneet. So I think I'd put it into 2 different buckets. The first bucket is, are we committed to the fee spread and risk business? The answer is yes. Do we like the insurance business, this risk business? The answer is yes. We think it very much serves the needs of small to medium-sized employers. It provides us with a lot of flexibility. And then, frankly, it's a great way for us to serve the needs of our clients. The other half is financial transactions related to the in-force blocks of business. And I would tell you, our capital markets area looks very closely at this, looking at the long-term implications on capital, how it would be redeployed and the financial impact on those blocks of business. So it's very much top of mind for us. It gets a lot of consideration. We've not yet seen the right opportunity that we felt we wanted to move it forward. But certainly, in the categories you've identified, that is part of our consideration. Appreciate the question.

The next question will come from Erik Bass with Autonomous Research. Please go ahead.

Can you talk about your expectations for RIS-Fee flows as we move into 2021? Do you expect to get back to the 1% to 3% organic growth range as withdrawals normalize? Or could there be some ongoing impacts from a slowdown in recurring deposit growth?

Yes. I'll throw out to Renee quickly, but I would just say this. I'm absolutely somewhat shocked by the fact we could be in a global pandemic, and they've held up as well as they have. And there's a lot of variables that go into it. But certainly, these hardships were a big contributor, not only here in the U.S., but also, as you know, in some of the emerging market countries as well. Renee, maybe give us some insights and thoughts and components and where you think this might go in the future?

Yes, absolutely. So when we think about net cash flow, there are a few drivers of net cash flow that are really coming into play this quarter and that we have to think about as we look forward to 2021. So the first very important component and impact that we're seeing this quarter is the COVID-related withdrawals. And this has resulted in about $1 billion of withdrawals in third quarter, about 3% of our total participants. And we do see that's consistent with what we experienced in second quarter, and it's also very consistent with the activity that we continue to see in fourth quarter. So when we think about what could slow down that kind of withdrawal, there are a couple of things. First off, much relies on how the pandemic progresses and how the underlying economic and employment trends progress. The other wildcard is, the CARES Act has removed the penalty that was applied to hardship withdrawals. That sunsets at the end of this year. If there is a new stimulus bill that continues that waiver of the penalty, we could continue to see this go into '21. So we'll continue to watch it. But I think it's fair to say that COVID-related withdrawals will continue to pressure net cash flows likely into '21, certainly for the remainder of this year and likely into '21. The next very important lever is recurring deposits. And so if you look at the recurring deposits, we were running at about an 8% increase on a trailing 12-month basis. That's declined to a 3% increase in recurring deposits for third quarter '20 over third quarter '19. And this decrease, again, is attributable to a couple of things. First off is, the number of deferring participants decreased about 2% when you look at…

Erik, hopefully, that helped.

Yes. And then if I could just ask quickly on PGI margins, which were very strong this quarter, I think about 40%. Do you expect to be able to sustain a higher than target margin in the near term due to expense savings? Or do you expect that to come back down to more of the target range given either higher comp accruals or other adjustments given the recovery in revenues?

Well, given this is Tim Dunbar's last earnings call, he's handing this over. So I'll be curious to see when he -- how he answers this question, how he sets up path for the future. Tim, please.

Thanks, Erik, for the question. And I'm going to be nice to [Pat], I'm going to tell you, but I think we would guide you to our long-term guidance somewhere between 34% and 38% margins. And so while this quarter's margins were quite strong, as you mentioned, at 41%, we think that fourth quarter and beyond would be probably more in the trailing 12-month range, which right now stands at about 37%.

The next question will come from Tom Gallagher with Evercore. Please go ahead.

Just had a follow-up to underlying persistency trends in your RIS-Fee business. Are you seeing any signs when you unpack the data that you're seeing pressure from -- particularly in the small business segment of companies going out of business? Are you seeing any real change in trend from bankruptcies and plans actually going away? Or are you not really think that emerge?

Yes. It's actually probably been one of the, I guess, solid outcomes that's come out of this. Although there are a lot of displaced employees in hospitality, and we know the airline industry and we -- restaurants, we know those have been impacted, many of those didn't have small employers anyway, didn't have a lot of these plans in place. We've seen some shrinkage of the participant base within those plans, but we've not seen an increase in lapse. And I think, although new case sales are down, new plan formation, I think we can all appreciate. If you didn't have one, are you going to do it in the midst of a pandemic? But Renee, do you want to provide any additional color to that thesis?

Yes, absolutely. So when we look at new plan formations, to Dan's point, that certainly has slowed. But when we look at plan terminations due to simply plans being dissolved, that is not emerging, at least in this quarter, as a threat. And I think some of the stimulus package actions that we're taking are helping the small employer, the small to medium-sized employers. So we may see that emerge in future quarters, but we're not seeing it emerge right now. I think the one thing that's been really interesting and also reaffirms having a very diverse block of business within RIS is that when we look at plan size and we look at the impact on net cash flow, our small to medium-sized business block has been really very resilient in terms of almost every measure, in terms of the in-plan participation, in terms of employer match and the employer match being continued for that block of business. And so we -- when we look at the net cash flow for the SMB business, we're actually seeing -- see it performing slightly better than the large plan business.

Tom, before you get to your next question, in case you're wondering, just another data point here at Principal, SBD would be -- group benefits should be quite comparable, where we've seen the participants within the existing plans fall. Amy, somewhere in that 2% to 3% range? And yet the plan lapses or terminations are not escalated. So I'd say SMBs for Principal, holding together nicely. Do you have a follow-up?

Yes, that is good to hear, Dan, in terms of the underlying experience. The -- yes, my follow-up is just on your credit loss expectation. It sounds like more getting pushed out to 2021. I guess the $400 million number, in a vacuum, sounds a bit higher than I would have guessed based on the way things are trending right now. Is that just out of an abundance of caution or are you seeing anything on the commercial real estate side that would cause you -- whether that's delinquencies that are not yet impacting you because the NAIC has that moratorium? Or can you unpack that a little bit why you still have, I would say, pretty high expected for next year?

Yes. Thanks again for that question. It's a timely one. And your term of abundance of caution is one that we use frequently around here because we want to make sure that we've got adequate capital. And I do think we've sized up the balance of the year nicely and by making that adjustment. But Tim, you want to sort of give your insights and perspective on the $400 million for next year?

Sure, Tom. And I’d just be remiss if I didn't mention that we talked often about the quality of the portfolio going into the pandemic, and I think that's across the board. So it would be, in our fixed income portfolio, certainly on our commercial mortgage loan portfolio, and on our alternatives portfolio. So we think we were coming at this pandemic from a position of strength. And our expectations were set generally by some high-level modeling that we've done based on the great financial crisis. And as we moved through 2020, we saw unprecedented Fed action. We saw government stepping in, and it really delayed a lot of our credit losses and a lot of the drift that we think could have taken place in 2020. And that's been a very positive story. And you've seen prices on bonds rebound. And actually, our commercial mortgage loan portfolio has maintained very high ratings. We've been through that portfolio. And we think it stands pretty strong. So as we look at 2021 and our projections there, yes, we're upping it a little bit. I would say the range for 2021 as we sit here today, is quite wide. It depends again a lot on Fed actions, on government support. And what we're seeing there is that we don't really have a lot of specific ideas about drift and credit losses, but we would expect, as COVID rears its head again and weighs on the economy that there's potential that we could have up to $400 million in losses in drift. Most of that, again, would be coming from the bond portfolio, probably only about a third coming from the commercial mortgage loan portfolio. So that's some of the color and some of the way we're looking at it. And obviously, we'll continue to go through the portfolios and refine these numbers as more information comes out.

Tom, thanks for the question.

The final question is from Josh Shanker with Bank of America. Please go ahead.

So I want to talk a little about the commercial mortgage portfolio, the 14 loans that have gone into a forbearance, can you talk a little bit about the process of the mortgagee in your relationship and how that process is set and whether or not we should expect more loans to go into forbearance over the next 12 months? What's sort of the process by which this occurs?

Tim, please?

Sure. So what really happens is that we get contacted from the borrower. The borrower gives us then some very specific information about the property, their situation, and generally makes a request of what they're asking for. And generally, when we say forbearance, that doesn't mean we're forgiving the loan payments for a period of time. It really means that we're working out an alternative schedule until we think the property can get back on its feet and start paying the mortgage payments again. Sometimes, it's an extension of the loan, but it's very dependent on the specifics of that situation. We have 14, as you suggested, those are all in good states. So they are living up to the loan agreement that we had set with them. And we've worked through the entire list of requests that we've had. Now what happens next depends a lot again on how the pandemic plays out, how the economy plays out. But we're watching and monitoring commercial mortgage loans very closely. But I expect to see some additional modification probably going into 2021 as we see how really the economy looks and what we're thinking is going to happen. But I'd be remiss if I didn't say that I think this portfolio is incredibly high quality. I don't really see a lot of losses coming through. Our loan to values, after going through every one of the properties in May, still stands at an average of 50% loan-to-value, and we still have good debt service coverage. So that's kind of how we're looking at the portfolio.

Thanks, Tim. Do you have a last follow-up?

Yes. I'll stick on this topic just to exhaust it. These 14 examples, do they have anything in common geographically or property type or anything we need to think about in relationship to the rest of the portfolio?

Yes. The one thing I'd say, generally speaking, these loans are coming from retail. The retail -- and we have a very small exposure to shopping malls, but a fair number of those are coming from shopping malls. And then we have some hotel properties. We have less than 1% of our commercial mortgage loan portfolio in hotels. But again, those have been modified. And then just a smattering of properties that I would say don't have much else in common. But just on the retail front, I want to emphasize that our portfolio is quite a lot less exposed to retail than it would be in the NCREIF Index, which is what we watch pretty closely. And in addition to that, it's heavily weighted toward grocery-anchored retail or single-store box retail. And those projects are holding up actually quite well.

Thanks, Tim. Yes, I appreciate the question, Josh.

We have reached the end of our Q&A session. Mr. Houston, your closing comments, please.

I'll be quick. We had a Board strategic retreat. We talk about strategy at every Board meeting. But once a year, we get together and interrogate our strategy. We get some third-party unaffiliated views about the strategy. And I would tell you, we exhausted it in terms of looking closely at the fee, the spread and the risk businesses, the countries that we're in, the portfolio that we have, and we really feel there's good long-term upside for investors in our current strategy adjusting on the margin. The second thing I'd take away from today's call, strong balance sheet, liquidity, significant scale and capabilities. We have good differentiators and the 5% dividend yield at today's price we still think is very strong to investors. And then I would say from a historical perspective and going into the future, we have a strong reputation for aligning our expenses with our revenues. We've deployed capital in a very thoughtful and balanced approach, and we'll continue to do that, both in the near and the long-term. And we are going to continue making investments in our future. I've seen too many businesses become irrelevant because they fail to make investments in their businesses. And I look at these digital investments. And frankly, whether it's international or domestic, we're seeing those payoff. So thank you for your interest in the company and look forward to talking to you on the road. Have a great day.

Thank you for participating in today's conference call. This call will be available for replay beginning at approximately 1:00 PM Eastern Time until end of day, November 3, 2020. 2198859 is the access code for the replay. The number to dial for the replay is 855-859-2056 U.S. and Canadian callers or 404-537-3406 international callers. Ladies and gentlemen, thank you for participating. You may all disconnect.