Q2 2024 BayFirst Financial Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the Bayfirst Financial Corporation's Q2 2024 conference call and webcast.
Operator: to 2024 conference call and webcast. At this time, all lines are notes in only mode.
Operator: 2024 conference call and webcast. At this time, all lines are in a listen-only mode.
Operator: Following the presentation, we will conduct a question and answer session. If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Friday, July 26, 2024. I would now like to turn the conference over to Robin Oliver. Please go ahead.
Operator: Following the presentation, we will conduct a question-and-answer session. If at any time during this call, you need assistance, please press star zero for the operator.
Speaker Change: At this time, all lines are in listen-only mode.
Speaker Change: Following the presentation, we will conduct a question and answer session. If at any time during this call you need assistance, please press star zero for the operator. This call has been recorded on Friday, July 26, 2024. I would now like to turn the conference over to Robin Oliver. Please go ahead.
Operator: This call has been recorded on Friday, July 26, 2024.
Julienne Cassarino: I would now like to turn the conference over to Robin Oliver. Please go ahead.
Robin Oliver: Thank you, Julienne.
Robin Oliver: Thank you, Joanna. Good morning, everyone, and thank you for participating in our call today. I have with me our CFO, Scott McKim. Tom Zernick, our CEO, is not with us this morning due to a family emergency.
Robin Oliver: Good morning, everyone. And thank you for participating on our call today. I have with me our CFO, Scott McKim.
Robin Oliver: Thank you, Joanna. Good morning, everyone, and thank you for participating on our call today. I have with me our CFO , Scott McKim. Tom Zernick, our CEO , is not with us this morning due to a family emergency.
Robin Oliver: Tom Zernick, our CEO, is not with us this morning due to a family emergency.
Robin Oliver: Today's call will include forward-looking statements and non-GAAP financial measures. Please refer to our cautionary statement on forward-looking statements contained on page two of the investor presentation. During the second quarter, we produce net income of 0.9 million, which represents a 5.1 percent increase over Q-124 earnings of 0.8 million. Net income increased primarily due to lower provision for credit losses of 1 million and lower non-interest expense of 1.2 million, offset by lower revenue from sourcing income and gains on loan sales of 2.6 million quarter over quarter, as SBA-7A loan production was weaker than projected.
Robin Oliver: Today's call will include forward-looking statements and non-GAAP financial measures. Please refer to our cautionary statement on forward-looking statements contained on page 2 of the investor presentation. During the second quarter, we produced net income of $0.9 million, which represents a 5.1% increase over Q1-24 earnings of $0.8 million. Net income increased primarily due to lower provision for credit losses of $1 million and lower non-interest expense of $1.2 million, offset by lower revenue from servicing income and gains on loan sales of $2.6 million quarter over quarter as SBA 7A loan production was weaker than projected.
Speaker Change: Today's call will include forward-looking statements and non-GAAP financial measures. Please refer to our cautionary statement on forward-looking statements contained on page 2 of the investor presentation.
Scott McKim: During the second quarter, we produced net income of $0.9 million, which represents a 5.1% increase over the previous quarter.
Speaker Change: Q1 2024 earnings of $0.8 million.
Speaker Change: Net income increased primarily due to lower provision for credit losses of $1 million and lower non-interest expense of $1.2 million.
Speaker Change: offset by lower revenue from servicing income and gains on loan sales of $2.6 million quarter-over-quarter as SBA 7A loan production was weaker than projected.
Robin Oliver: While we made progress with lowering our provision for credit losses and non-interest expense in the quarter, we are not content with our second quarter results. We continue to see pressure on our SBA-7A production in the current interest rate and credit environment, and as such, we missed our earnings goal due to lower bulk and core SBA-7A production during the quarter. We did, however, take several actions this quarter as we work to improve our overall profitability, many of which will not fully produce improved results until the last half of this year. Some of those actions included right-sizing our staffing and incentive compensation, renegotiating key vendor contracts, launching a modification program for our SBA-7A borrowers who are struggling to make payments in a higher rate environment, with the goal of reducing charge-offs and reducing other expenses while working to leverage our investments in technology.
Robin Oliver: While we made progress with lowering our provision for credit losses and non-interest expense in the quarter, we are not content with our second quarter results. We continue to see pressure on our SBA 7A production in the current interest rate and credit environment, and as such, we missed our earnings goal due to lower BOLT and CORE SBA 7A production during the quarter. We did, however, take several actions this quarter as we worked to improve our overall profitability, many of which will not fully produce improved results until the last half of this year.
Speaker Change: While we made progress with lowering our provision for credit losses and non-interest expense in the quarter, we are not content with our second quarter results.
Speaker Change: We continue to see pressure on our SBA 7A production in the current interest rate and credit environment, and as such, we missed our earnings goal due to lower bolt and core SBA 7A production during the quarter.
Speaker Change: We did, however, take several actions this quarter as we work to improve our overall profitability, many of which will not fully produce improved results until the last half of this year.
Robin Oliver: Some of those actions included right-sizing our staffing and incentive compensation, renegotiating key vendor contracts, and launching a modification program for our FBA 7A borrowers who are struggling to make payments in a higher-rate environment with the goal of reducing charge-offs and reducing other expenses while working to leverage our investments in technology. I want to assure our investors that our management's focus every day is to elevate all areas of our business under a more efficient platform to deliver improved earnings on a consistent basis. Now, I would like to share some highlights from around BayFirst.
Speaker Change: Some of those actions included rightsizing our staffing and incentive compensation, renegotiating key vendor contracts,
Speaker Change: Launching a modification program for our SBA 7A borrowers who are struggling to make payments in a higher rate environment with the goal of reducing charge-offs and reducing other expenses while working to leverage our investments in technology.
Robin Oliver: I want to assure our investors that our management's focus every day is to elevate all areas of our business under a more efficient platform to deliver improved earnings on a consistent basis.
Speaker Change: I want to assure our investors that our management's focus every day is to elevate all areas of our business under a more efficient platform to deliver improved earnings on a consistent basis.
Robin Oliver: Now, I would like to share some highlights from around May 1st. Earlier this year, we opened our 12th Banking Center, concluding our current branch development program with a focus in the near term on leveraging the investments we've already made. At the heart of our franchise values, the Banking Center's degree deposit balances 5.8%, and that new account, 8.3%, year-to-date, ending the second quarter at 1.04 billion. Bayfers continues to maintain a granular deposit base, with 81% of deposits being ensured at June 30th. As the banking industry competes for deposits, we are focused on various ways to grow more low-cost, sticky deposits.
Speaker Change: Now I would like to share some highlights from Around Bay First.
Robin Oliver: Earlier this year, we opened our 12th banking center, concluding our current branch development program with a focus in the near term on leveraging the investments we've already made. At the heart of our franchise value, these banking centers grew deposit balances 5.8% and net new accounts 8.3% year-to-date, ending the second quarter at $1.04 billion. Bayfirst continues to maintain a granular deposit base, with 81% of deposits being insured as of June 30.
Speaker Change: Earlier this year, we opened our 12th banking center, concluding our current branch development program with a focus in the near term on leveraging the investments we've already made.
Speaker Change: At the heart of our franchise value, the banking centers grew deposit balances 5.8% and net new accounts 8.3% year-to-date, ending the second quarter at $1.04 billion.
Speaker Change: VAFRS continues to maintain a granular deposit base with 81% of deposits being insured at June 30th.
Robin Oliver: As the banking industry competes for deposits, we are focused on various ways to grow more low-cost sticky deposits. During the second quarter, the bank launched its customer referral program called Refer a Friend and has already seen success in bringing in many new customers from this program. We also added technology called Branch Anywhere, which allows our Banking Center teams to open accounts and serve customers using an iPad when they are out of the branch.
Speaker Change: As the banking industry competes for deposits, we are focused on various ways to grow more low-cost sticky deposits.
Robin Oliver: During the second quarter, the bank launched its customer referral program called Referra Friend, and has already seen success in bringing in many new customers from this program. We also added technology called Branch Anywhere, which allows our banking center teams to open accounts and serve customers using an iPad when out of the branch. This further is our commitment to meet customers on their terms. I'd also like to highlight that we continue to go grow customers and brand awareness through our Cash Kids Club and TrinCetter program. We make these programs more impactful and attract new customers.
Speaker Change: During the second quarter, the bank launched its customer referral program called Refer-a-Friend and has already seen success in bringing in many new customers from this program.
Speaker Change: We also added technology called Branch Anywhere, which allows our Banking Center teams to open accounts and serve customers using an iPad when out of the branch. This furthers our commitment to meet customers on their terms.
Robin Oliver: This furthers our commitment to meet customers on their terms. I'd also like to highlight that we continue to grow customers and brand awareness through our Cash Kids Club and Trendsetter program; these programs are more impactful and attract new customers.
Speaker Change: I'd also like to highlight that we continue to grow customers and brand awareness through our Cash Kids Club and Trendsetter program.
Speaker Change: make these programs more impactful and attract new customers.
Robin Oliver: On the landing side, BayFirst continues to enjoy minimal commercial exposure in the CRE space, with non-owner-occupied commercial real estate representing only 6% of our loans held for investment at the end of the quarter. Loans held for investment increased by 74 million or 8% during the second quarter of 2024 to 1.01 billion, primarily due to an increase in conventional community bank loans, which increased 172 million or 20.5% over the past year. During the second quarter, we also added an experienced commercial lender to our team in Sarasota, as well as a director of health care lending who has been tasked with overseeing the financial products and services geared towards the medical industry.
Robin Oliver: On the lending side, Bayfirst continues to enjoy minimal commercial exposure in the CRE space, with non-owner-occupied commercial real estate representing only 6% of our loans held for investment at the end of the quarter. Loans held for investment increased by $74 million, or 8 percent, during the second quarter of 2024 to $1.01 billion. This was primarily due to an increase in conventional community bank loans, which increased $172 million, or 20.5 percent, over the past year.
Speaker Change: On the lending side, Bayfirst continues to enjoy minimal commercial exposure in the CRE space with non-owner-occupied commercial real estate representing only 6% of our loans held for investment at the end of the quarter.
Speaker Change: Loans held for investment increased by $74 million, or 8 percent, during the second quarter of 2024 to $1.01 billion, primarily due to an increase in conventional community bank loans, which increased $172 million, or 20.5 percent, over the past year.
Robin Oliver: During the second quarter, we also added an experienced commercial lender to our team in Sarasota, as well as a Director of Healthcare Lending who is tasked with overseeing the financial products and services geared towards the medical industry. With thousands of healthcare companies in Tampa Bay and a relatively low risk profile, we believe this is an industry focus that will serve us well.
Speaker Change: During the second quarter, we also added an experienced commercial lender to our team in Sarasota, as well as a Director of Healthcare Lending who is tasked with overseeing the financial products and services geared towards the medical industry.
Robin Oliver: With thousands of health care companies in Tampa Bay and a relatively low risk profile, we believe this is an industry focus that will serve us well. The company's government guaranteed loan origination platform, Credit Bench, originated 99 million in new government guaranteed loans during the quarter, a decrease of 24% from 131 million of loans produced in the previous quarter, and a 21% decrease from 126 million of loans produced during the second quarter of 2023. The company's Bolt loan program, an SBA-7A loan product designed to expeditiously provide working capital loans of 150,000 or less to businesses throughout the country, saw reduced production in the second quarter, primarily as the bank tightened credit standards at the end of Q1 to ensure future credit quality.
Speaker Change: With thousands of healthcare companies in Tampa Bay and a relatively low risk profile, we believe this is an industry focus that will serve us well.
Robin Oliver: The company's government-guaranteed loan origination platform, CreditBench, originated $99 million in new government-guaranteed loans during the quarter, a decrease of 24 percent from $131 million of loans produced in the previous quarter and a 21 percent decrease from $126 million of loans produced during the second quarter of 2023. The company's Bolt Loan Program, an SBA 7A loan product designed to expeditiously provide working capital loans of $150,000 or less to businesses throughout the country, saw reduced production in the second quarter, primarily as the bank tightened credit standards at the end of Q1 to ensure future credit quality.
Speaker Change: The company's government-guaranteed loan origination platform, CreditBench.
Speaker Change: originated $99 million in new government-guaranteed loans during the quarter, a decrease of 24% from $131 million of loans produced in the previous quarter, and a 21% decrease from $126 million of loans produced during the second quarter of 2023.
Speaker Change: The company's Bolt Loan Program, an SBA 7A loan product designed to expeditiously provide working capital loans of $150,000 or less to businesses throughout the country, saw reduced production in the second quarter.
Speaker Change: primarily as the bank tightened credit standards at the end of Q1 to ensure future credit quality.
Robin Oliver: Since the launch of Bolt in 2022, the company has originated over 4,700 Bolt loans, totaling 611 million, of which 561 Bolt loans, totaling 72 million, were originated this quarter. The company originated 179 million of loans in total this quarter and sold 79 million of government guaranteed loan balances. In addition to SBA lending, we also originate USDA loans, and during the second quarter, we added two USDA lenders, bringing us to a total of three lenders in this space and diversifying our sources of revenue.
Robin Oliver: Since the launch of Bolt in 2022, the company has originated over 4,700 Bolt loans totaling $611 million, of which 561 Bolt loans totaling $72 million were originated this quarter. The company originated $179 million of loans in total this quarter and sold $79 million of government-guaranteed loan balance.
Speaker Change: Since the launch of Bolt in 2022, the company has originated over 4,700 Bolt loans totaling $611 million, of which 561 Bolt loans totaling $72 million were originated this quarter.
Speaker Change: The company originated $179 million of loans in total this quarter and sold $79 million of government-guaranteed loan balances.
Robin Oliver: In addition to SBA lending, we also originate USDA loans, and during the second quarter, we added two USDA lenders, bringing us to a total of three lenders in this space and diversifying our sources of revenue. I also want to share some exciting milestones regarding PowerLOS, our commercial loan origination platform, which is currently used by the Credit Bench team for all Bolt loans and is in the process of being implemented for all other commercial loan products. In the second quarter, we processed the 10,000th application, and the system automatically processed its 100,000th due diligence check.
Speaker Change: In addition to SBA lending, we also originate USDA loans, and during the second quarter, we added two USDA lenders, bringing us to a total of three lenders in this space and diversifying our sources of revenue.
Robin Oliver: I also want to share some exciting milestones regarding Power LOS, our commercial loan origination platform, which is currently used by the credit bench team for all Bolt loans and is in process of being implemented for all other commercial loan products. In the second quarter, we process the 10,000th application, and the system automatically process process is 100,000 due diligence check. We are excited by the system scalability and efficiency to help us reduce labor and processing costs as we move forward. As I mentioned earlier, midway through the second quarter, we added additional options to assist small business borrowers in their battle with high inflation and interest rates.
Speaker Change: I also want to share some exciting milestones regarding PowerLOS, our commercial loan origination platform, which is currently used by the Credit Bench team for all Bolt loans and is in process of being implemented for all other commercial loan products.
Speaker Change: In the second quarter, we processed the 10,000th application and the system automatically processed its 100,000th due diligence check.
Robin Oliver: We are excited by the system's scalability and efficiency to help us reduce labor and processing costs as we move forward. As I mentioned earlier, midway through the second quarter, we added additional options to assist small business borrowers in their battle with high inflation and interest rates. As the SBA rules allow for, this involved modifying loan terms to extend the maturity date to make payments more manageable for businesses whose loans are performing, and we expect them to continue to perform.
Speaker Change: We are excited by the system's scalability and efficiency to help us reduce labor and processing costs as we move forward.
Speaker Change: As I mentioned earlier, midway through the second quarter, we added additional options to assist small business borrowers in their battle with high inflation and interest rates.
Robin Oliver: As the SBA rules allow for, this involved modifying loan terms to extend the maturity date to make payments more manageable for businesses whose loans are performing and we expect to continue to perform. As a result of our continued focus on collection efforts, along with this modification program, our underlying credit metrics improved, and our net charge-offs were lower during the quarter. We believe this will also assist in reducing potential charge-offs in the future.
Speaker Change: As the SBA rules allow for, this involved modifying loan terms to extend the maturity date to make payments more manageable for businesses whose loans are performing and we expect to continue to perform.
Robin Oliver: As a result of our continued focus on collection efforts along with this modification program, our underlying credit metrics improved, and our net charge-offs were lower during the quarter. We believe this will also assist in reducing potential charge-offs in the future. At this time, I will pass the microphone to Scott McKim, our CFO, to provide an additional overview of our financial performance and credit metrics. Thank you, Rana.
Speaker Change: As a result of our continued focus on collection efforts along with this modification program, our underlying credit metrics improved and our net charge-offs were lower during the quarter. We believe this will also assist in reducing potential charge-offs in the future.
Scott McKim: At this time, I will pass the microphone to Scott McKim, our CFO, to provide additional overview of our financial performance and credit metrics.
Scott McKim: At this time, I will pass the microphone to Scott McKim, our CFO , to provide additional overview of our financial performance and credit metrics.
Scott McKim: Thank you, Robin. Good morning, everyone.
Scott McKim: Thank you, Robin.
Scott McKim: Good morning, everyone. As Robin mentioned, our net income from continuing operations was $0.9 million in the second quarter. Balances of loans held for investment grew to 73.4 million, or 7.9 percent during the quarter. Overall, total assets increased 73.7 million to $1.22 billion, or 6.4 percent growth during the quarter. Year-over-year total assets have increased 130.5 million, or 12 percent. Total deposits increased 35 million or 3.5 percent during the second quarter of this year, and increased by 97.6 million from the second quarter of 2023. Total deposits ended the quarter at $1.04 billion. Shareholders' equity at quarter-end is $101 million, and is $9.9 million higher than the end of the second quarter of 2023.
Scott McKim: Thank you, Robin. Good morning, everyone.
Scott McKim: As Robin mentioned, our net income from continuing operations was $0.9 million in the second quarter.
Scott McKim: As Robin mentioned, our net income from continuing operations was $0.9 million in the second quarter. Balances of loans held for investment grew $73.4 million, or 7.9% during the quarter, and overall total assets increased $73.7 million to $1.22 billion, or 6.4% growth during the quarter. Year-over-year, total assets have increased $130.5 million, or 12%. Total deposits increased $35 million, or 3.5%, during the second quarter of this year and are expected to increase by $97.6 million from the second quarter of 2023. Total deposits ended the quarter at $1.04 billion.
Scott McKim: balances of loans held for investment grew 73.4 million, or 7.9% during the quarter, and overall total assets increased 73.7 million to $1.22 billion, or 6.4% growth during the quarter.
Scott McKim: Year-over-year, total assets have increased $130.5 million, or 12%.
Speaker Change: Total deposits increased $35 million, or 3.5% during the second quarter of this year, and increased by $97.6 million from the second quarter of 2023. Total deposits ended the quarter at $1.04 billion.
Scott McKim: Shareholders' equity at quarter end was $101 million, and it was $9.9 million higher than the end of the second quarter of 2023. There was also a slight decrease in accumulated other comprehensive losses of $75,000 during the quarter. Tangible book value increased this quarter to $20.54 per share, up $0.09 from $20.45 per share at the end of the first quarter.
Speaker Change: Shareholders' equity at quarter end is $101 million and is $9.9 million higher than the end of the second quarter of 2023. There was also a slight decrease in accumulated other comprehensive loss of $75,000 during the quarter.
Scott McKim: There was also a slight decrease in accumulated other comprehensive loss of $75,000 during the quarter. Tangible book value increased this quarter to $20.54 per share, up 9 cents from $20.45 per share at the end of the first quarter. Net interest income was $9.2 million in the second quarter, up $400,000 or 5 percent compared to the first quarter, and down $100,000 from the year-ago quarter. Net interest margin increased by one basis point from Q1, reflecting increases in both interest earned on loans and interest paid on deposits. Non-interest income was $11.7 million in the second quarter of 2024.
Speaker Change: Tangible book value increased this quarter to $20.54 per share, up $0.09 from $20.45 per share at the end of the first quarter.
Scott McKim: Net interest income was $9.2 million in the second quarter, up $400,000 or 5% compared to the first quarter, and down $100,000 from the year-ago quarter. Net interest margin increased by one basis point from Q1, reflecting increases in both interest earned on loans and interest paid on deposits. Non-interest income was $11.7 million in the second quarter of 2024, down $2.6 million, reflecting lower gains on sales of government-guaranteed loans. Compared to the second quarter of 2023, non-interest income was up $700,000, reflecting higher fair value gains on sales of loans.
Speaker Change: Net interest income was $9.2 million in the second quarter, up $400,000 or 5% compared to the first quarter, and down $900,000 from the year-ago quarter.
Speaker Change: Net interest margin increased by one basis point from Q1, reflecting increases in both interest earned on loans and interest paid on deposits.
Speaker Change: Non-interest income was $11.7 million in the second quarter of 2024, down $2.6 million, reflecting lower gains on sales of government-guaranteed loans.
Scott McKim: Down $2.6 million, reflecting lower gains on sales of government-guaranteed loans. Compared to the second quarter of 2023, non-interest income is up 700,000, reflecting higher fair value gains on sale of loans. Non-interest expense decreased by $1.2 million in the second quarter, notably due to a decrease of $1.1 million of compensation costs and a half million of professional services costs. Compared to the first quarter of 2023, non-interest expense is $0.2 million higher, driven by data processing costs offset by lower commissions and incentive costs as loan production was down, as Robin already mentioned, from the first quarter. Provision for credit losses was $3 million in the second quarter compared to $4.1 million in the second quarter of 2023.
Speaker Change: Compared to the second quarter of 2023, non-interest income is up $700,000, reflecting higher fair value gains on sale of loans.
Scott McKim: Non-interest expense decreased by $1.2 million in the second quarter, notably due to a decrease of $1.1 million of compensation costs and $500,000 of professional services costs. Compared to the first quarter of 2023, non-interest expense is $0.2 million higher, driven by data processing costs offset by lower commission and incentive costs, as loan production was down, as Robin already mentioned. Provision for credit losses was $3 million in the second quarter, compared to $4.1 million in the first quarter and $2.8 million in the second quarter of 2023.
Speaker Change: Non-interest expense decreased by $1.2 million in the second quarter, notably due to a decrease of $1.1 million of compensation costs and $0.5 million of professional services costs.
Robin Oliver: Compared to the first quarter of 2023, non-interest expense is $0.2 million higher, driven by data processing costs offset by lower commission and incentive costs, as loan production was down, as Robin already mentioned, from the first quarter.
Speaker Change: Provision for credit losses was $3 million in the second quarter compared to $4.1 million in the first quarter and $2.8 million in the second quarter of 2023. Net charge-offs decreased by $0.4 million primarily from lower charge-offs on unguaranteed SBA 7A loan balances.
Scott McKim: Net charge-offs decreased by $0.4 million, primarily from lower charge-offs on the unguaranteed SBA 7A loan balance. As Robin noted, our efforts to actively manage our SBA 7A portfolio have positively impacted net charge-offs during the quarter. Our portfolio of unsecured consumer loans purchased from a third party generated over $600,000 of net charge-offs during the second quarter.
Scott McKim: Net charge-offs decreased by $0.4 million, primarily from lower charge-offs on unguaranteed SBA-7(a) loan balances. As Robin noted, our efforts to actively manage our SBA-7A portfolio have positively impacted net charge-offs during the quarter. Our portfolio of unsecured consumer loans purchased from the third party generated over $600,000 of net charge-offs during the second quarter; that was down by $260,000 from Q1. As we have previously mentioned, the unsecured consumer loan exposure continues to pay down, and we expect this impact on net charge-offs to continue to dissipate throughout this year. As far as charge-offs go, annualized net charge-off as a percentage of average loans held for investment and amortized cost will 1.45% in the second quarter of 2024, that the decrease from 1.71% in the first quarter to 1.15% in the second quarter of 2023.
Speaker Change: As Robin noted, our efforts to actively manage our SBA 7A portfolio have positively impacted net charge-offs during the quarter.
Robin Oliver: Our portfolio of unsecured consumer loans purchased from a third party generated over $600,000 of net charge-offs during the second quarter. That was down by $260,000 from Q1.
Scott McKim: That was down by $260,000 from Q1. As we have previously mentioned, the unsecured consumer loan exposure continues to decline, and we expect this impact on net charge-offs to continue to dissipate throughout this year. As far as charge-offs go, annualized net charge-offs, as a percentage of average loans held for investment at amortized costs, were 1.45 percent in the second quarter of 2024. That's a decrease from 1.71 percent in the first quarter and 1.15 percent in the second quarter of 2023.
Robin Oliver: As we have previously mentioned, the unsecured consumer loan exposure continues to pay down and we expect this impact on net charge-offs to continue to dissipate throughout this year.
Robin Oliver: As far as charge-offs go, annualized net charge-offs as a percentage of average loans held for investment at amortized cost were 1.45 percent in the second quarter of 2024. That's a decrease from 1.71 percent in the first quarter and 1.15 percent in the second quarter of 2023.
Scott McKim: Non-performing assets to total assets was 1.28% as of June 30, 2024, compared to 0.97% as of March 31, 2024, and 0.79% as of June 30, 2023. Non-performing assets excluding government guaranteed loans to total assets was 0.82% as of June 30, 2024, compared to 0.70% as of March 31, 2024, and 0.61% as of the end of the second quarter last year. Pass due and non-accrual loans to total loans held for investment at amortized cost will 1.8% at June 30, 2024, that's up slightly from 1.76% at the end of the first quarter and up from 1.56% in the same quarter of last year.
Scott McKim: Non-performing assets to total assets was 1.28 percent as of June 30, 2024, compared to 0.97 percent as of March 31, 2024, and 0.79 percent as of June 30, 2023. Non-performing assets excluding government-guaranteed loans to total assets was 0.82% as of June 30, 2024, compared to 0.70% as of March 31, 2024, and 0.61% as of the end of the second quarter last year. Past due and non-accrual loans to total loans held for investment at amortized cost were 1.8% of total loans held for investment at June 3, 2024.
Robin Oliver: Non-performing assets to total assets was 1.28% as of June 30, 2024, compared to 0.97% as of March 31, 2024, and 0.79% as of June 30, 2023.
Robin Oliver: Non-performing assets excluding government guaranteed loans to total assets was 0.82% as of June 30, 2024, compared to 0.70% as of March 31, 2024, and 0.61% as of the end of second quarter last year.
Robin Oliver: Past due and non-accrual loans to total loans held for investment at amortized cost were 1.8% at June 3, 2024. That's up slightly from 1.76% at the end of the first quarter and up from 1.56% in the same quarter of last year.
Scott McKim: That's up slightly from 1.76% at the end of the first quarter and up from 1.56% in the same quarter of last year. The ratio of allowance for credit losses to total loans held for investment at amortized cost was 1.50% at June 30, 2024. 1.62 percent as of March 31st, 2024, and 1.61 percent as of June 30th, 2023. The ratio of allowance for credit losses to total loans held for investment at amortized cost, this time excluding government-guaranteed loans, was 1.73 percent at June 30th, 2024, down from 1.88 percent as of March 31st, 2024, and 2.03 percent as of June 30th, 2023. We believe the elastic credit loss is reasonable for all our loan portfolios and their forecasted performance. At this time, I'll turn it back over to Robin for any final comments.
Scott McKim: The ratio of allowance for credit losses to total loans held for investment at amortized cost was 1.50% at June 30, 2024, 1.62% as of March 31, 2024, and 1.61% as of June 30, 2023. The ratio of allowance for credit losses to total loans held for investment at amortized cost, this time excluding government guaranteed loans, was 1.73% at June 30, 2024, down from 1.88% as of March 31, 2024, and 2.03% as of June 30, 2023.
Robin Oliver: The ratio of allowance for credit losses to total loans held for investment at amortized costs was 1.50% at June 30, 2024.
Robin Oliver: 1.62% as of March 31st, 2024, and 1.61% as of June 30th, 2023.
Robin Oliver: The ratio of allowance for credit losses to total loans held for investment at amortized cost
Robin Oliver: This time excluding government guaranteed loans was 1.73% at June 30th, 2024, down from 1.88% as of March 31st, 2024, and 2.03% as of June 30th, 2023.
Scott McKim: We believe the allowance for credit loss is reasonable for all our loan portfolios and their forecasted performance.
Robin Oliver: We believe the elastic credit loss is reasonable for all our loan portfolios and their forecasted performance.
Robin Oliver: At this time, I'll turn it back over to Robin for any final comments. Thank you, Scott. I appreciate your comments and appreciate everyone joining, and at this time, I would like to open it up for any questions. Thank you.
Robin Oliver: At this time, I'll turn it back over to Robin for any final comments.
Robin Oliver: Thank you, Scott. I appreciate your comments and appreciate everyone joining us. And at this time, I would like to open it up for any questions. Thank you.
Robin Oliver: Thank you, Scott. Appreciate your comments and appreciate everyone joining and at this time I would like to open it up for any questions.
Operator: Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. And if you are using a speaker phone, please flip the handset before pressing any keys.
Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the 1 on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by 2. And if you are using a speakerphone, please lift the handset before pressing any key.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised.
Speaker Change: Should you wish to decline from the polling process, please press star followed by 2. And if you are using a speakerphone, please lift the handset before pressing any keys.
Julienne Cassarino: Your first question comes from Juliane Castarino at Sycamore Analytics. Please go ahead.
Operator: Your first question comes from Julianne Casarino at Sycamore Analytics.
Speaker Change: Your first question comes from Julianne Casarino at Sycamore Analytics. Please go ahead.
Julienne Cassarino: Hi, good morning. Good morning, Juliane. Good morning.
Julianne Casarino: Good morning, Julianne. Good morning. Hi. Can you talk a little bit more about your new health care banking initiative, like specifically what kind of health care providers are you targeting? What kind of loans, like if they're, what kind of collateral for the loans, if they're real estate or equipment-backed, and if those are all in Florida or if those are East Coast?
Robin Oliver: Hi, can you talk a little bit more about your new healthcare banking initiative? Like specifically what kind of healthcare providers are you targeting, what kind of loans, like if they're, if they're, what kind of collateral for the loans? If they're real estate or equipment backed. And if those are all in Florida or if those are east coast. or throughout the country just gets more information.
Speaker Change: Hi, good morning.
Julianne: Good morning, Julianne. Good morning. Hi. Can you talk a little bit more about your new health care banking initiative, like specifically what kind of health care providers are you targeting, what kind of loans, like if they're
Speaker Change: and what kind of collateral for the loans, if they're real estate or equipment-backed, and if those are all in Florida or if those are East Coast or throughout the country, just as Trace gets more.
Robin Oliver: Sure, yeah, happy to expand on that. We will be focusing here in Tampa Bay. The gentleman that we hired, we put a press release out about it earlier this week, is a long time, you know, Tampa native and it's been in this market. This is part of our conventional community bank platform, which is focused right here in Tampa Bay. And we really just wanted to capitalize on a lot of the smaller healthcare practices that are out there.
Robin Oliver: Sure, yeah, happy to expand on that. We will be focusing here in Tampa Bay. The gentleman that we hired, and we put a press release out about it earlier this week, is a long-time Tampa native and has been in this market. And this is part of our conventional community bank platform, which is focused right here in Tampa Bay. And we really just wanted to capitalize on a lot of the smaller healthcare practices that are out there.
Speaker Change: information.
Speaker Change: Sure, yeah, happy to expand on that. We will be focusing here in Tampa Bay. The gentleman that we hired, we put a press release out about it earlier this week.
Speaker Change: is a long time Tampa native and has been in this market and this is part of our
Speaker Change: community bank platform, which is focused right here in Tampa Bay. And we really just wanted to...
Robin Oliver: We'd be primarily looking at, say, $8 million to $10 million in revenue-type healthcare companies and less. And we think there's a great market for us to get into there. We know it's a tough market, but we think our personalized service, our product set, and our go-to-market strategy will be attractive. And we are going to be focusing on both loans and deposits. We want both sides of the equation as we work to bank these businesses.
Speaker Change: capitalize on a lot of the smaller health care practices that are out there. We'd be primarily looking at, you know, say eight to ten million in revenue type health care companies and less.
Robin Oliver: We'd be primarily looking at, you know, say, 8 to 10 million in revenue type healthcare companies and less. And we think there's a great market for us to get into there. We know it's a tough market, but we think our personalized service, our products that in our go-to-market strategy, will be attractive, and we are going to be focusing on both loans and deposits. We want both sides of the equation as we work to bank these businesses.
Speaker Change: And we think there's a great market for us to.
Speaker Change: get into there. We know it's a tough market, but we think our personalized service, our products set, and our go-to-market strategy will be attractive, and we are going to be focusing on both loans and deposits. We want both sides of the equation as we work to bank these businesses. I would say we are going to be focused more on C&I, but we could be doing CRE as well. We have both products that would be available, so
Robin Oliver: I would say we are going to be focused more on CNI, but we could be doing CRE as well. We have both products that would be available. So that is just a little bit more about it.
Robin Oliver: I would say we are going to be focused more on C&I, but we could be doing CRE as well. We have both products that would be available. So that is just a little bit more about it. We're excited for Phil Russo, our Director of Healthcare Lending, to get started and bring on more team members and grow us into the future.
Robin Oliver: We're excited for Phil Russo, our Director of Healthcare Lending, to get started and bring on more team members and grow us into the future.
Phil Russo: That is just a little bit more about it. We're excited for Phil Russo, our Director of Healthcare Lending, to get started and bring on more team members and grow us into the future.
Julienne Cassarino: Okay. Great. Is he coming with a portfolio? Is he bringing over a portfolio?
Julianne Casarino: Okay, great. Is he coming with a portfolio? Will he bring over his portfolio?
Speaker Change: Okay, great. Is he coming with a portfolio? Is he bringing over a portfolio?
Robin Oliver: He is not bringing over an existing portfolio, but he certainly already has a lot of contacts and leads.
Robin Oliver: He is not bringing over an existing portfolio, but he certainly already has a lot of contacts and leads. Right.
Speaker Change: He is not bringing over an existing portfolio, but he certainly already has a lot of contacts and leads.
Julianne Casarino: Right, good. Well, that sounds good. And the modification program that you talked about that you started, is that, do you, are those modified loans going to be in the call report anywhere, like as a restructured loan, anything like that?
Julienne Cassarino: Good. That sounds good.
Julienne Cassarino: And the modification program that you talked about, he started, is that?
Speaker Change: Right, good. Well, it sounds good. And the modification program that you talked about that you started, is that, do you, are those modified loans going to be in the call report anywhere, like as a restructured loan, anything like that?
Robin Oliver: Are those modified loans going to be in the call report anywhere, like as a restructured loan, anything like that?
Robin Oliver: They will not be. And we've certainly, you know, looked at that carefully and explored with our auditors, but this is an SBA-allowed type program to extend the maturity. It's very hard to reduce the rate on these SBA loans once they're sold into the secondary market. It's not really possible. But what we can do is extend maturity by, say, five or up to 10 years to reduce payments for those borrowers. And there's no prepayment penalties. So they can, you know, if rates go down, you know, or their circumstances change, they can always, you know, prepay. So it's not to have, you know, that long of a loan.
Robin Oliver: They will not be. And we've certainly, you know, looked at that carefully and discussed it with our auditors. But this is an SBA-allowed-type program to extend the maturity of loans. It's very hard to reduce rates on these SBA loans once they're sold into the secondary market. It's not really possible, but what we can do is extend maturities by, say, five or up to ten years to reduce payments for those borrowers. And there's no prepayment penalty, so they can, you know, if rates go down, you know, or their circumstances change, they can always prepay so as not to have that long of a loan.
Speaker Change: They will not be. And we've certainly
Speaker Change: You know, looked at that carefully and explored with our auditors, but this is an SBA.
Speaker Change: allowed type program to extend the maturity. It's very hard to reduce rates.
Speaker Change: on these SBA loans once they're sold into the secondary market. It's not really possible, but what we can do is extend maturities by, say, 5 or up to 10 years.
Speaker Change: to reduce payments for those borrowers. And there's no prepayment penalty, so they can, you know, if rates go down, you know, or their circumstances change, they can always, you know, prepay so as not to have...
Robin Oliver: But, you know, we have had a great response since we started it in early June. And, you know, we have a lot of borrowers that are very happy and thanking us for, you know, being proactive and reaching out to them and offering them this option. Because many are struggling. We have a lot of borrowers where we did SBA loans pre-pandemic, pre-rate increases, and, you know, they've seen five-and-a-quarter rate increases over the last couple years.
Robin Oliver: But, you know, we have had a great response in that we started at early June. And, you know, we have a lot of borrowers that are very happy in thinking us for, you know, being proactive and reaching out to them and offering them this option. Because there are many are struggling, either we have a lot of borrowers where we did SBA loans, pre-pandemic, free rate increases. And, you know, they've seen five and a quarter rate increases, you know, over the last couple of years. And so it's made it quite tough for many of these small businesses.
Speaker Change: you know, that long of a loan. But, you know, we have had a great response in that. We started it early June . And, you know, we have a lot of borrowers that are...
Speaker Change: I'm very happy and thanking us for being proactive and reaching out to them and offering them this option because many are struggling. We have a lot of borrowers where we did SBA loans.
Speaker Change: pre-pandemic free rate increases, and they've seen five and a quarter rate increases.
Speaker Change: you know, over the last couple of years. And so it's made it quite tough for many of these small businesses. And our goal is to keep the small businesses open, you know, and keep the charge-offs down. And hopefully this will help in doing that.
Robin Oliver: And so it's made it quite tough for many of these small businesses. And our goal is to keep these small businesses open, you know, and keep the charge-offs down. And hopefully, this will help in doing that.
Julienne Cassarino: And our goal is to keep the small businesses open, you know, and keep the charge off down. And hopefully this will help in doing that. Yes, sounds really good.
Julianne Casarino: Yeah, sounds really good yeah, so what's the economic environment like? I think of your area, Florida, as being pretty vibrant, but you said people are shy. Is this across the country, or is this more localized?
Julienne Cassarino: So what's the kind of the economic environment is, I think of your area, Florida's being very, pretty vibrant, but you said people are, is this across the country or is this local or localized? It's across the country. Yes, you're right, Tampa Bay is, it's flourishing, but we're a nationwide SBA lender, so these loans are, you know, all across the nation. Right, right. Okay, very good.
Speaker Change: Yeah, sounds really good. Yeah, so let's see.
Speaker Change: The kind of the economic environment is...
Speaker Change: I think of your area, Florida, as being pretty vibrant, but you said people are shy. Is this across the country or is this more localized?
Robin Oliver: It's across the country. Yes, you're right. Tampa Bay is flourishing, but we're a nationwide SBA lender. So these loans are, you know, all across the nation.
Speaker Change: It's across the country. Yes, you're right, Tampa Bay is flourishing, but we're a nationwide SBA lender, so these loans are all across the nation.
Julianne Casarino: Right, right. Okay, very good. Well, it sounds like a good program, and thank you. Thanks. Thank you.
Julienne Cassarino: Sounds like a good program, and thank you. Thanks.
Speaker Change: Right, right. Okay, very good. Well, sounds like a good program and thank you. Thanks.
Robin Oliver: Thank you. I appreciate your questions today.
Julienne Cassarino: Thank you.
Julienne Cassarino: Appreciate your questions today. Thank you.
Speaker Change: Thank you. Appreciate your questions today.
Operator: Thank you. Ladies and gentlemen, as a reminder, should you have any questions, please press star 1 now. The next question comes from Ian Green at Pentagon Capital. Please go ahead.
Ian Green: Ladies and gentlemen, as Ian Green at Pentagon Capitol, please go ahead. Hi, excuse me, hi, good morning.
Speaker Change: Thank you. Ladies and gentlemen, as a reminder, should you have any questions, please press star 1 now.
Speaker Change: Next question comes from Ian Green at
Ian Green: Hi, excuse me. Hi, good morning. Question, how can you, maybe it's a different environment, a difficult environment, but what would be your strategy, or what continues to be your strategy for getting non-interest-bearing deposits? Looks like that's an area where, you know, it would help build your overall franchise value if you could get that percentage up, you know, of total deposits.
Ian Green: Good morning. Question? How can you, maybe it's a different environment, a difficult environment, but you know, what would be your strategy or what continues to be a strategy for getting non-interesting deposits? It looks like, you know, that's an area where, you know, would help build your overall franchise value. If you could get that percentage up, you know, of total deposits.
Ian Green: Excuse me. Hi. Good morning.
Ian Green: Good morning. Question? How can you, maybe it's a different environment, a difficult environment, but what would be your strategy or what continues to be your strategy for getting non-interest bearing deposits? It looks like that's an area where...
Speaker Change: would help build your overall franchise value if you could get that percentage up.
Robin Oliver: Yeah, Ian, I'll go ahead and field that one. You're exactly right. I mean, being able to grow, I'll call, you know, low-cost deposits or even no-cost deposits are definitely at the core of the franchise value for the bank. And we've been, what I'll call, moderately successful as far as raising those deposits in a very granular way across the entire Tampa Bay footprint. And as we have kind of evolved the business a little bit and sort of broadened our focus beyond just individuals and families, small businesses that are located here have also started to come and join the bank.
Scott McKim: Yeah, Ian, I'll go ahead and feel that one. You're exactly right. I mean, it's being able to grow, I'll call, you know, low-cost deposits or even low-cost deposits are definitely at the core of the franchise value for the bank. And we've been what I'll call moderately successful as far as raising those deposits in a very green little way among the entire Tampa Bay footprint. And as we have kind of evolved the business a little bit and sort of drawn our focus beyond just individuals and families, the small businesses that are located here have also started to come and join the bank.
Speaker Change: you know, of total deposits.
Speaker Change: Yeah, Ian, I'll go ahead and field that one. You're exactly right. I mean, it's being able to grow, I'll call, you know, low-cost deposits or even no-cost deposits are definitely at the core of the franchise value for the bank and we've been
Speaker Change: What I'll call moderately successful as far as raising those deposits in a very granular way among the entire Tampa Bay footprint.
Speaker Change: and as we have kind of evolved the business a little bit and sort of broadened our focus beyond just individuals and families, the small businesses that are located here have also started to come and join the bank.
Robin Oliver: And the health care banking program that Robin already talked about is front and center, and being able to provide depository services and treasury management services to those businesses as part of that evolving strategy. So we're going to go a little bit deeper. We're going to start, I think you're going to start to see us grow that not just from the healthcare space but other businesses from existing clients. This is something that, whereas the SBA business is nationwide, this is heavily focused on the retail footprint where we exist.
Scott McKim: And the healthcare banking program that Robin already talked about is from the center to that. And being able to provide depository services, treasure management services to those businesses is part of that evolving strategy. So it's going to go a little bit deeper. We're going to start; I think you're going to start to see us grow that really not just from the healthcare space, but other businesses from existing clients. You know, this is something that, you know, whereas the FBA businesses nationwide, this is heavily focused in the retail footprint where we exist today. Yeah.
Speaker Change: and the healthcare banking program that Robin already talked about is front and center to that.
Robin Oliver: and being able to provide depository services, treasury management services to those businesses is part of that evolving strategy.
Speaker Change: So it's going to go a little bit deeper. We're going to start, I think you're going to start to see us grow that really not just from the healthcare space, but other businesses from existing clients.
Speaker Change: You know, this is something that, you know, whereas the SBA business is nationwide, this is heavily focused in the retail footprint where we exist today.
Ian Green: Yeah. Now, in terms of U.S. state, in your geography, I mean, it's.
Scott McKim: Now, in terms of real estate in your geography, I mean, there's the other question; the previous question had highlighted that the floor is pretty vibrant. Your area floor is very vibrant. How are you seeing the overall, you know, in different categories? and also some things that you would be exposed to. How is that all holding up on more of a macro level? I would say that, as you can imagine, we spend quite a bit of time looking at the real estate market from a number of different sources, and it is what all generally categorizes being stable.
Speaker Change: All right. Thanks.
Speaker Change: Yeah, now in terms of...
Speaker Change: real estate in Europe .
Speaker Change: In your geography, I mean, it's...
Ian Green: The other question, the previous question highlighted that Florida is pretty vibrant; your area of Florida is very vibrant. How are you seeing the overall picture that you would be exposed to? How is that all holding up on more of a macro level? Um, I would say that it is
Speaker Change: you know, in a different category.
Speaker Change: also some things that you would, you know, be exposed to. How is that all holding up on more of a macro level?
Robin Oliver: I would say that it's, you know, as you can imagine, we spend quite a bit of time looking at the real estate market from a number of different sources, and it is what I'll generally categorize as being stable. And, you know, where we're at, for example, there is still quite a bit of population growth. A lot of new homes are still being built, and obviously, businesses are being set up and flourishing and looking for their own real estate.
Speaker Change: I would say that it's, you know, as you can imagine, we spend quite a bit of time looking at the real estate market from a number of different sources, and it is.
Speaker Change: What I'll generally categorize as being stable and, you know, where we're at, for example, there is still quite a bit of population growth, a lot of a lot of new homes still being built.
Scott McKim: Where we're at, for example, there is still quite a bit of population growth, a lot of new homes still being built, and obviously businesses being set up and flourishing and looking for their own real estate. And as we look at the market, I would say that stability has kind of been in place now really for the past six to eight quarters. I would say that the values that kind of creeped up, perhaps 18 to 24 months ago, have stabilized. We're not seeing that sort of a moonshot like approaching more. And then furthermore, the lending that we're doing is being very focused around the fact that we want to make sure that the collateral is something that, if there is a shift in the marketplace, that we can absorb it, and that borrowers can absorb it without any sort of detrimental impact.
Speaker Change: and obviously businesses being set up and flourishing and looking for their own real estate. And as we look at the market, I would say that stability has kind of.
Robin Oliver: And as we look at the market, I would say that stability has kind of been in place now for the past six to eight quarters. I would say that the values that kind of creeped up perhaps 18 to 24 months ago have stabilized. We're not seeing that sort of moonshot type approach anymore.
Speaker Change: It's been in place now really for the past six to eight quarters. I would say that the values that kind of creeped up perhaps 18 to 24 months ago have stabilized. We're not seeing that sort of move-shot type approach anymore.
Robin Oliver: And then furthermore, the lending that we're doing is very focused around the fact that, you know, we want to make sure that the collateral is something that if there is a shift in the marketplace, we can absorb it, and that borrowers can absorb it without any sort of detrimental impact. Again, only about 6% of our loan portfolio is non-owner-occupied commercial real estate. The rest of it, the business owners are actually operating outside of or out of their own real estate.
Speaker Change: And then furthermore, the lending that we're doing is being very focused around the fact that, you know, we want to make sure that the collateral is something that if there is a shift in the marketplace that we can absorb it and that borrowers can absorb it without any sort of detrimental impact.
Scott McKim: Again, it's only about 6% of our loan portfolio that is non-owner-occupied commercial real estate. The rest of it, the business owners are actually operating outside of their own real estate, so we're not exposed to retail strip malls and some of the other higher risk type of ventures that are out there.
Speaker Change: Again, it's only about 6% of our loan portfolio is non-owner-occupied commercial real estate. The rest of it, the business owners are actually operating outside of or out of their own real estate. So, we're not exposed to retail strip malls and some of the other higher-risk type of businesses.
Robin Oliver: So we're not exposed to retail strip malls and some of the other higher-risk types of ventures that are out there. So, you know, unlike some of the other institutions I think that operate in this space, we just haven't gone down that path, and we have no intention to go down that path.
Operator: Thank you. We have no further questions. I will turn the call back over to Robyn Oliver.
Scott McKim: So, unlike some of the other institutions, I think that operating this space, we just haven't gone down that path and have no intent to go down that path.
Speaker Change: ventures that are out there. So, you know, unlike some of the other institutions, I think, that operate in this space, we just haven't gone down that path and have no intent to go down that path.
Ian Green: Great. Thank you.
Ian Green: Thanks, Ian. Thank you.
Speaker Change: Great. Thank you.
Operator: We have no further questions.
Ian Green: Thanks Ian.
Robin Oliver: I will turn the call back over to Robin Oliver. Excellent. Thank you, Joanna. And thanks everyone for joining us this morning for our call.
Speaker Change: Thank you. We have no further questions. I will turn the call back over to Robyn Oliver.
Robin Oliver: Excellent. Thank you, Joanna. And thanks, everyone, for joining us this morning on our call. Have a great day.
Robyn Oliver: Excellent. Thank you, Joanna, and thanks, everyone, for joining us this morning for our call. Have a great day.
Robin Oliver: Have a great day.
Operator: Ladies and gentlemen, this concludes your conference for today. We thank you for participating, and we ask that you please disconnect your lines. Thank you.
Operator: Ladies and gentlemen, this concludes your conference for today. We thank you for participating, and we ask that you please disconnect your lines.
Speaker Change: Ladies and gentlemen, this concludes your conference for today. We thank you for participating and we ask that you please disconnect your lines.