Q3 2024 BayFirst Financial Corp Earnings Call

Yeah.

Operator: Good morning, ladies and gentlemen, and welcome to the BayFirst Financial Corp Q3 2004 conference call and webinar. At this time, all lines are in listen-only mode.

Speaker Change: Good morning, ladies and gentlemen, and welcome to the debate first financial Corp, Q3, 2004 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 require immediate assistance, please press star followed by zero for the option.

Speaker Change: Following the presentation, we will conduct a question and answer session. If at any time. During this call you require immediate assistance. Please press star followed by zero Hardy operator.

Operator: This call is recorded on Friday, October 25, 2021.

Speaker Change: This call is recorded on Friday October 25, 2024, I would now like to turn the conference over to Toms already CEO. Please go ahead.

Thomas Zernick: I would now like to turn the conference over to Tom Zernick, CEO, please go ahead.

Thomas Zernick: Thanks, Dion. Good morning, and thank you for participating on our call today. I have with me Robin Oliver, our President and Chief Operating Officer, and our CFO, Scott McKim.

Toms Already: Thanks, Dion I've good morning, and thank you for participating on our call today.

Toms Already: With me, Rob Oliver, our President and Chief operating Officer, and our CFO Scott Mckim.

Thomas Zernick: 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.

Toms Already: 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.

Thomas Zernick: The past month has provided an unprecedented level of challenges for our Tampa Bay community, our customers, and our team members. After two very destructive hurricanes over a two-week period, our bank demonstrated a very high level of resiliency built on solid planning and preparation. Our people and facilities were tested by severe flooding, extreme wind, and over 20 inches of rainfall. Even with those impacts, our full branch network was up and running within two business days after each hurricane. We continued to fund loans and our heart of the house operations teams never stopped working. Today, we are actively engaged with our customers to support their immediate needs.

Toms Already: The past month has provided an unprecedented level of challenges for our Tampa Bay community, our customers and our team members. After two very destructive hurricanes over a two week period, our bank demonstrated a very high level of resiliency built on solid planning and preparation.

Toms Already: Our people and facilities were tested by severe flooding extreme wind and over 20 inches of rainfall.

Toms Already: Even with those impacts our full branch network was up and running within two business days after each hurricane.

Toms Already: We continued to fund loans in our heart of the house operations teams never stopped working today.

Toms Already: Today, we are actively engaged with our customers to support their immediate needs.

Thomas Zernick: I want to personally thank all of our employees, many of whom lost their homes, belongings or vehicles, who have maintained the level of service and commitment, which makes BayFirst the premier community bank of Tampa Bay.

Toms Already: I want to personally thank all of our employees many of whom lost their homes belongings our vehicles, who have maintained the level of service and commitment, which makes <unk> the premier community Bank in Tampa Bay.

Thomas Zernick: During the third quarter, we produced net income of $1.1 million. This represents a 31% increase over Q2'24 with earnings of $900,000. Net income increased due to higher net interest income and higher revenue from servicing income and gains on sales of a half a million dollars quarter over quarter.

Speaker Change: During the third quarter, we produced net income of $1 1 million.

Speaker Change: This represents a 31% increase over Q2 'twenty four with earnings of 900000.

Speaker Change: Net income increased due to higher net interest income and higher revenue from servicing income and gains on sales of a half a million dollars quarter over quarter.

Thomas Zernick: Let me now share some highlights from around BayFirst. Our convenient and attractive network of 12 banking centers grew deposit balances 13% and net new accounts 11% year-to-date, ending the quarter at $1.11 billion. BayFirst has maintained a granular deposit base and continues to benefit from 78% of deposits being insured on September 30, 2024. In fact, our total number of households exceeds 24,500.

Let me now share some highlights from around base first.

Speaker Change: Our convenient and attractive network of 12 banking centers grew deposit balances, 13% and net new accounts, 11% year to date ending the quarter at 1.11 billion.

Speaker Change: <unk> has maintained a granular deposit base and continues to benefit from 78% of deposits being insured on September 30th 2024 in fact, our total number of households exceeds 24500.

Thomas Zernick: On the lending side, BayFirst continues to enjoy minimal commercial exposure in the CRE space with non-owner-occupied CRE representing only 6.3% of our loans held for investment at the end of the quarter. Loans held for investment increased by $34 million or 3% during the third quarter of 2024 to $1.04 billion. The company's government-guaranteed loan origination platform originated $94.4 million in new government-guaranteed loans during the third quarter of 2024, a slight decrease from $98.7 million of loans produced in the previous quarter and a 39% decrease from $155.9 million of loans produced during the third quarter of 2023.

Speaker Change: On the lending side <unk> continues to enjoy minimal commercial exposure in the CRE space with non owner occupied CRE, representing only six 3% of our loans held for investment at the end of the quarter.

Loans held for investment increased by $34 million or 3% during the third quarter of 2024 to 1.14 billion.

The Companys government guaranteed loan origination platform originated $94 4 million in new government guaranteed loans during the third quarter of 2024.

Speaker Change: Slight decrease from $98 7 million of loans produced in the previous quarter and a 39% decrease from $155 9 million of loans produced during the third quarter of 2023.

Thomas Zernick: The company's Bolt Loan Program is an SBA 7A loan product designed to expeditiously provide working capital loans of $150,000 or less to businesses throughout the country. Since the launch of this product in 2022, the company has originated 5,231 Bolt loans, totaling $676.6 million, of which 502 Bolt loans, totaling $65.2 million, were originated during the third quarter. During the quarter, the company originated $160 million of loans and sold $84 million of government-guaranteed loan balance.

Speaker Change: The company's bolt loan program is an SBA seven loan product designed to expeditiously provide working capital loans of $150000 or less to businesses throughout the country.

Speaker Change: Since the launch of this product in 2022. The company has originated 5231 bolt loans totaling $676 6 million.

Which 502 bolt loans totaling $65 2 million were originated during the third quarter.

Speaker Change: During the quarter the company originated $160 million of loans.

Speaker Change: And sold 84 million of government guaranteed loan balances.

Thomas Zernick: I'm also pleased to announce that BayFirst finished the SBA fiscal year as the number five lender by units in the United States by approving 3,187 loans for $508 million. Our commitment to building a strong community bank continues to be reinforced by the recent hiring of a Director of Business Banking who will focus on the banking needs, including deposits and treasury management services for small businesses across our Tampa Bay footprint. Furthermore, we added another dedicated commercial lender during Q3 to manage the lending needs of these small businesses.

Speaker Change: I'm also pleased to announce that <unk> finished the SBA fiscal year as the number five lender by units in the United States by approving 3187 loans for $508 million.

Speaker Change: Our commitment to building a strong community bank continues to be reinforced by the recent hiring of a director of business banking, who will focus on the banking needs, including deposits and Treasury management services for small businesses across our Tampa Bay footprint.

Speaker Change: Furthermore, we added another dedicated commercial lender during Q3 to manage the lending needs of these small businesses.

Thomas Zernick: Finally, I am excited to share that our bank was ranked the top bank in Florida by Forbes Magazine for 2024. This is a humbling achievement and I am very proud of our team for this accomplishment and want to thank all of our customers who voted for this recognition.

Speaker Change: Finally, I am excited to share that our bank was ranked the top bank in Florida by Forbes magazine for 2024. This is a humbling achievement and I am very proud of our team for this accomplishment and want to thank all of our customers who voted for this recognition.

Scott McKim: Now I will pass the microphone to Scott McKim, our CFO, to provide an overview of our financial performance.

Now I will pass the microphone to Scott Mckim, our CFO to provide an overview of our financial performance.

Scott McKim: Thank you, Tom.

Scott McKim: Thank you Tom good morning, everyone.

Scott McKim: Good morning, everyone. As Tom mentioned, our net income was $1.1 million in the third quarter, and balances of loans held for investment grew $34 million, or 3% during the quarter, and overall total assets increased $27 million to $1.25 billion, or 2% during the quarter. Year over year, total assets have increased by $111 million, or 10%. Total deposits increased by $69.8 million or 7% during the third quarter of this year and increased by $94 million from the third quarter of 2023. Total deposits ended the quarter at $1.1 billion. Shareholders' equity at the end of the quarter was $102.3 million and is $8.1 million higher than the end of the third quarter of 2023.

Scott McKim: Mentioned, our net income was $1 $1 million in the third quarter and balances of loans held for investment grew $34 million or 3% during the quarter and overall total assets increased $27 million to $1, two 5 billion or 2% during the quarter year over year total assets have increased.

Scott McKim: By $111 million or 10%.

Scott McKim: Total deposits increased by $69 $8 million or 7% during the third quarter of this year and increased by $94 million from the third quarter of 2023.

Scott McKim: Total deposits ended the quarter at $1 $1 billion.

Shareholders' equity at the quarter was $102 3 million and an $8 $1 million higher than the end of the third quarter of 2023.

Scott McKim: We also had a sizable decrease and accumulated other comprehensive losses of $801,000 during the quarter. And our tangible book value increased to $20.86 per share from $20.54 per share at the end of the second quarter. Net interest income was $9.4 million in the third quarter, up $300,000, or 3%, compared to the second quarter, and up $1.1 million from the year-ago quarter. Net Interest Margin decreased 9 basis points from the second quarter, however this decrease is mostly from a one-time recognition of unamortized premium on a purchased USDA Government Guaranteed Loan which prepaid during the quarter. Excluding this one-time event, the net interest margin would have decreased by only one basis point in the third quarter.

Scott McKim: We also had a sizable decrease in accumulated other comprehensive losses of $801000 during the quarter and our tangible book value increased to $20 86 per share from $20 64 per share at the end of the second quarter.

Scott McKim: Net interest income was $9 $4 million in the third quarter of $300000 or 3% compared to the second quarter and up $1 $1 million from the year ago quarter net.

Net interest margin decreased 90 basis points from the second quarter. However, this decrease is mostly from a one time recognition of unamortized premium on our purchased USDA government guaranteed loans, which prepaid during the quarter. Excluding this onetime event. The net interest margin would have decreased by only one basis point.

Scott McKim: In the third quarter.

Scott McKim: Non-interest income was $12.3 million for the third quarter of 2024, up $570,000, reflecting higher gains on sale of government-guaranteed loans. compared to the third quarter of 2023. Non-interest income was down $2.4 million, reflecting lower gain on sale proceeds as the bank's saleable SBA 7A loan volume was down 39% compared to the third quarter of last year, as Thomas. Non-interest expense increased slightly by $400,000 in the third quarter due to an increase in bonus, commissions, and incentive compensation. Compared to the third quarter of 2023, non-interest expense is $400,000 lower, driven by lower marketing expenses and non-deferrable loan origination costs, as well as bonus commission and other incentive compensation, all of which are offset by higher loan origination and collection costs during the quarter.

Scott McKim: Noninterest income was $12 $3 million for the third quarter of 2024 of $570000, reflecting higher gains on sale of government guaranteed loans.

Scott McKim: Compared to the third quarter of 2023.

Speaker Change: Non interest income was down $2 $4 million, reflecting lower gain on sale proceeds as the bank saleable SBA <unk> loan volume was down 39% compared to the third quarter of last year as Tom had mentioned.

Speaker Change: Noninterest expense increased slightly by $400000 in the third quarter due to an increase in bonus commissions and incentive compensation.

Speaker Change: Impaired in the third quarter of 2023, noninterest expenses $400000, lower driven by lower marketing expenses, and non deferrable loan origination costs as well as bonus commissions and other incentive compensation all of which are offset by higher loan origination and collection costs during the quarter.

Scott McKim: Our provision for credit losses was $3.1 million in the third quarter, compared to $3.3 million in the second quarter, and also $3 million in the third quarter of 2023. Net charge-offs decreased by $500,000, primarily from lower charge-offs on unguaranteed SBA 7A loan balance. The ratio of allowance for credit losses to total loans held for investment at amortized costs was relatively flat this quarter compared to last quarter, sitting at 1.48% as of September 30, and 1.50% at June 30, 2024, and 1.68% as of September 30, 2023.

Speaker Change: Our provision for credit losses was $3 $1 million in the third quarter compared to three point.

Speaker Change: $3 million in the second quarter and also a $3 million in the third quarter 2023.

Speaker Change: Net charge offs decreased by $500000, primarily from lower charge off on.

Speaker Change: Guaranteed SBA <unk> loan balances the.

Speaker Change: The ratio of allowance for credit losses to total loans held for investment at amortized cost was relatively flat this quarter compared to last quarter sitting at 148% as of September 30th.

Speaker Change: 150% at June 32024% to 168% as of September 32023, Rob.

Scott McKim: Robin will talk about how our efforts to actively manage our SBA 7A portfolio have positively impacted net charge loss over the past two quarters. Our portfolio of unsecured consumer loans purchased from a third party generated $305,000 worth of net charge-offs during the quarter, and that is down $300,000 from second quarter, a very positive impact on this portfolio. As we have previously mentioned, the unsecured consumer loan exposure continues to pay down, and as expected, its impact on net charge-offs continues to dissipate.

Speaker Change: Robin will talk about how our efforts to actively manage our SBA seven eight portfolio a positively impacted net charge offs over the past few quarters.

Robin: Our portfolio of unsecured consumer loans purchased from a third party generated $305000 worth of net charge offs during the quarter and that is down $300000 from second quarter, a very positive impact on this portfolio as we have previously mentioned the unsecured consumer loan exposure continues to pay down.

Robin: As expected its impact on net charge offs continued to dissipate.

Robin Oliver: At this time, I'll turn things over to Robin for more.

Speaker Change: At this time I will turn things over to Robyn for more discussion.

Robin Oliver: Thank you, Scott. I will further delve into credit quality, as it is a key focus for us, particularly given the nature of our SBA portfolio. The vast majority of our SBA loans are tied to prime, adjusting quarterly, and as such, many of our borrowers have seen significant increases in their payments over the past two years, at the same time they are dealing with higher inflation.

Robyn: Thank you Scott.

Robyn: I will further delve into credit quality as it is a key focus for us, particularly given the nature of our SBA portfolio. The vast majority of our SBA loans are tied to prime adjusting quarterly and as such many of our borrowers have seen significant increases in their payments over the past two years at the same time.

Robyn: They are dealing with higher inflation.

Robin Oliver: To try to help these small businesses survive and mitigate loan losses, as we disclosed last quarter, the bank developed an express modification program for SBA 7A borrowers at the end of Q2 to help borrowers who are struggling to make their payments. To date, 400 SBA 7A loans have been modified to lower their payments by extending their maturity dates. These continued efforts helped reduce net charge-offs during the quarter and provided welcome relief to these small businesses. Annualized net charge-offs as a percentage of average loans held for investment at amortized costs were 1.16% for the third quarter of 2024, down from 1.45% in the second quarter and up slightly from 1.13% in the third quarter of 2023.

Robyn: To try to help these small businesses survive and mitigate loan losses as we disclosed last quarter. The bank developed an express modification program for SBA seven eight borrowers at the end of Q2 to help borrowers who are struggling to make their payments to date 400, SBA seven loans have been modified.

Robyn: To lower their payments by extending their maturity dates. These continued efforts helped reduce net charge offs during the quarter and provided welcome relief to these small businesses.

Robyn: Annualized net charge offs as a percentage of average loans held for investment at amortized cost or 116% for the third quarter of 2024 down from 145% in the second quarter and up slightly from $1 one 3% in the third quarter of 2003.

Robin Oliver: Non-performing assets to total assets were 1.38% as of September 30, 2024, compared to 1.28% as of June 30 and up from 0.88% as of September 30, 2023, with the increase this quarter largely being driven by two larger loans. We will continue to monitor our portfolio closely and actively work with struggling borrowers to help them get back on track. And we believe a decline in interest rates in the near term will be a benefit to our credit quality as well as a boost to production.

Robyn: Nonperforming assets to total assets were 138% as of September $30 24, compared to $1 two 8% as of June 30, and up from 0.88% as of September 32023, with the increase this quarter largely being driven by two larger.

Robyn: <unk>.

Robyn: We will continue to monitor our portfolio closely and actively work with struggling borrowers to help them get back on track and we believe a decline in interest rates in the near term will be a benefit to our credit quality as well as the base to production.

Robin Oliver: Switching gears, I'd also like to comment briefly on some key operational initiatives. As we've discussed in prior quarters, our Loan Origination Platform, called PowerLOS, is a key tool for BayFirst and is currently used to originate our high-volume BOLT loan product. PowerLOS is continually being enhanced with new functionality to make the loan origination process faster and more efficient, as well as a better experience for our borrowers and referral partners. Just this week, we upgraded the customer-facing part of this platform with a better and more efficient enhancement that will allow us to scale our process even further.

Robyn: Switching gears I'd also like to comment briefly on some key operational initiatives as we've discussed in prior quarters, our loan origination platform called power L. O. S is a key tool for <unk> and its currently used to originate our high volume bulk loan product.

Robyn: L O S is continuously being enhanced with new functionality to make the loan origination process faster and more efficient as well as a better experience for our borrowers and referral partners. Just this week, we upgraded the customer facing part of this platform with a better and more efficient enhancement that will allow us to see.

Robyn: Our process even further.

Robin Oliver: In addition, we are working to get all other commercial loan products into this Origination platform before the end of the year to further maximize our teams and reduce processing costs. Besides PowerLRS, there are several other initiatives that are in progress that are designed to increase our efficiency, lower costs, and maximize the investments we've already made in technology and in our banking centers. As we've said in the past, we are actively working to make continual progress to improve our earnings and our efficiency ratio. While we are pleased with the progress this quarter, we are excited for many of these initiatives to come to fruition to further boost our results and keep our progress moving up and to the right.

Robyn: In addition, we are working to get all other commercial loan products into this origination platform before the end of the year to further maximize our teams and reduce processing costs.

Robyn: Besides power LR as there are several other initiatives that are in progress that are designed to increase our efficiency lower cost and maximize the investments we've already made in technology and in our banking centers.

Robyn: As we've said in the past we are actively working to make continual progress to improve our earnings and our efficiency ratio. While we are pleased with the progress this quarter.

Robyn: We are excited for many of these initiatives to come to fruition to further boost our results and keep our progress moving up into the right. At this time I will turn it back to Tom for any final comments.

Thomas Zernick: At this time, I will turn it back to Tom for any final comments.

Thomas Zernick: Hey, thank you, Robin. And thanks again to all of you for joining our call this morning. And management looks forward to continuing to build the strongest community bank franchise in Tampa Bay.

Tom: Thank you Robin and thanks again to all of you for joining our call. This morning, and management looks forward to continuing to build the strongest community Bank franchise, and Tampa Bay have a great day.

Operator: Have a great day. And at this time, I will open it up for questions. Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchstone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number. If you are using a speakerphone, please leave the handset before pressing any button. One moment, please, for your first question. Your first question comes from.

Tom: And at this time I will open it up for questions.

Tom: Okay.

Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the number one on your Touchtone phone you will hear a prompt that your hand hasn't been raised should you wish to decline from the polling process. Please press the star.

Followed by the number two if you are using a speaker phone. Please.

Speaker Change: The sleep the handset before pressing any keys.

Speaker Change: Okay.

Speaker Change: Yeah.

One moment. Please for your first question.

Speaker Change: Your first question comes from.

Ross Haberman: Ross Haberman of RLH in Good morning. I'm sorry I got on a bit late. Could you address, if you had, and I apologize, your exposure to the recent storms? And what is your exposure, if you had much? Thank you.

Speaker Change: Ross Haberman of R. L H investments.

Ross Haberman: Good morning, I'm, sorry, I got on a bit late.

Ross Haberman: Could you address if you had and I apologize.

Ross Haberman: Your exposure to the recent storms.

Ross Haberman: And and what is your exposure if you had much.

Ross Haberman: Thank you.

Thomas Zernick: Good morning, Ross. This is Tom Zernick. Obviously, we have a significant consumer loan base here in the Tampa Bay market, as well as a number of SBA and conventional clients. We have had a chance to do outreach to all of them, offering them deferrals, et cetera, if they need them. So we've been very proactive on it, and we expect to be able to support them in any way we can. And I think giving them a much-needed deferral at this point, if their businesses were impacted or their house was impacted, we will continue to work with both the consumer product line, as well as our business loan product.

Ross Haberman: Hey, Good morning, Ross This is Tom <unk>.

Tom: Obviously, we have a <unk>.

Tom: Significant consumer loan base here in the Tampa Bay market as well as a number of SBA and conventional clients. We have had a chance to do outreach to all of them offering them deferrals.

If they need them. So we've been very proactive on it.

Tom: And we expect to be able to support them in any way, we can and I think giving us a much needed deferral at this point if their businesses were impacted or their house was impacted we will continue to work with both the consumer product line as well as our business loan product.

Thomas Zernick: Have you put a dollar amount on what your total exposure is? Ross, I would tell you, at this point, I don't really have a number to put on it. As Tom mentioned, we've been pretty proactive as far as working with people, and there are requests for, hey, I need a little bit of relief, but there's also a lot of people saying, I was prepared, and going forward, we're going to be, we'll be okay.

Speaker Change: Have you put a dollar amount on what your total exposure.

Speaker Change: Ross I would say at this point.

Ross Haberman: Don't really have a number to put on it as Tom mentioned, we've been pretty proactive as far as working with people in.

There is there are requests for hey, I need a little bit of relief, but theres also a lot of people, saying I was prepared and going forward, we're going to be will be okay. So we are about.

Thomas Zernick: So, you know, we are about, gosh, maybe close to three weeks from hurricane number two, and, you know, there's, the cleanup efforts are underway, and, you know, I think we'll have a better read on that going forward, but right now it's a little bit difficult just to put a dollar figure around it. I would add that our products are, you know, if it's a home equity loan, for example, in a flood zone, I mean, there is adequate insurance on our businesses and our consumer products inside any of these flood zones, so, you know, and businesses are getting back up and running more quickly than you might imagine on some of these barrier islands.

Ross Haberman: Gosh.

Ross Haberman: Maybe close to three weeks from Hurricane number two and.

There is the cleanup efforts are underway and.

Ross Haberman: I think we'll have a better read on that going forward, but right now, it's a little bit difficult to put a dollar figure around it.

Okay. Thank you, Brian I would add that our products are if it's a home equity loan for example in our flagstone I mean, there is adequate insurance on our businesses and our consumer products inside any of these flat down so.

Ross Haberman: And businesses are getting back up and running more quickly than you might imagine on some of these barrier islands.

Thomas Zernick: So, you know, I think hopefully there's more of just a short-term stopgap that we may need to provide certain, you know, individuals or businesses, but we do expect this area to come back quickly and, you know, we are very diligent in making sure that we have the proper insurances on all of the properties that secure any of our loans.

Ross Haberman: So I.

I think hopefully there's more of just a short term.

Stop gap that we may need to provide certain individuals or businesses, but we do expect this area to come back quickly.

Ross Haberman: We are very diligent in making sure that we have the proper insurances on all of that all of the properties securing our loans.

Operator: Thank you very much. Once again, please press star 1 if you have questions.

Ross Haberman: Thank you very much.

Ross Haberman: Okay.

Ross Haberman: Okay.

Speaker Change: Once again, please press star one if you have questions.

Ian Green: Our next question comes from Ian Green of Pan Dragon Capital. Hi, good morning. Morning.

Speaker Change: Our next question comes from Ian Green of sand drag on capital.

Ian Green: Hi, good morning.

Ian Green: Good morning.

Scott McKim: I'm somewhat new to understanding your bank, but I was wondering if you could talk a little bit about your preferred stock that's out there. Is that able to be redeemed early and would it make sense? It seems like it's kind of somewhat high cost. It's not a huge piece of your capital structure, but I was wondering if it's something that could be cleaned up or you have an idea of cleaning it up.

Ian Green: I'm somewhat new to the to your to your understanding your bank.

Ian Green: I was wondering if you could talk a little bit about your preferred stock that's out there.

Ian Green: Is that able to be redeemed early and would it makes sense. It seems like it's kind of somewhat.

Ian Green: Somewhat high cost, it's not a huge piece of your capital structure, but I was wondering if it's just.

Ian Green: If it's something that could be cleaned up or you have an idea of cleaning it up.

Scott McKim: Ian, this is Scott. Let me try to answer those questions for you. So, the preferred A is something that we could redeem at this point. The other two preferred series had a three-year no-call attached to it. So, the bank cannot initiate or would not initiate any sort of redemption around those two options. The redemption process redeems them at what the current book value of the stock is. So although the holder has that opportunity, for them, they need to make their own decision as to whether or not economically it makes sense for them to do it.

Ian This is Scott I'll, let me try to answer those questions for you. So.

The preferred is something that we could redeem at this point.

Ian Green: The other two preferred series had a three year no call attached to it so the bank cannot initiate or would not initiate any sort of redemption around those.

Ian Green: Those two those two.

Ian Green: Those two preferreds.

The redemption process.

And then at what the <unk>.

Ian Green: Current.

Speaker Change: Tangible book value of the stock is so although the holder has that opportunity for them they need to make their own decision as to whether or not economically it makes sense for them to do it but as I mentioned, it's the bank does not have any immediate plans on the first series to begin redeeming them.

Scott McKim: But as I mentioned, the bank does not have any immediate plans on the first series to begin redeeming them. Your question's a right one. And I think that ultimately trying to manage that capital stack is something that we're looking at both in the short term and in the long term.

Your question is the right, one and I think that.

Speaker Change: Ultimately trying to manage that capital stack is something that we're looking at both in the short term and the long term.

Ian Green: Okay, thanks. And a second question, if I could sneak one in, is the net interest margin. It seems to decline a little bit quarter over quarter. Again, are you seeing an inflection point, or can you...

Speaker Change: Okay. Thanks, and second question, if I could sneak one in is is the net interest margin.

Speaker Change: It seemed to decline a little bit quarter over quarter.

Speaker Change: Again.

Speaker Change: Or are you seeing an inflection point or do you can you.

Scott McKim: How is your balance sheet positioned given possibly, you know, we've already had 50 basis points of short-term reduction and possibly another 25 on the horizon next month. Do you see that they've hit an inflection yet or? Yeah, great question as well. Just to repeat, as far as the third quarter, the nine basis point reduction in our margin, eight basis points of that was related to a one-time recognition of a premium that we had to write off on a USDA loan that we sold. And that's not something that will occur again. And if you exclude that, the impact on the margin really was only down one basis point from the second quarter to the third quarter.

Speaker Change: How is your balance sheet positioned.

Speaker Change: Given possibly you know we've already had 50 basis points, it's short term reduction and possibly another 25 on the horizon next month.

Speaker Change: Do you see that you've hit an inflection yet or.

Speaker Change: Yes, great question as well.

Speaker Change: Just to repeat as far as the third quarter. The nine basis point reduction in our margin eight basis points of that was related to a onetime recognition of a premium that we had the write off on the USDA loans.

Speaker Change: And that's not something that we that will occur again, and if you exclude that the impact on the margin really was only down one basis point from the second quarter to the third quarter. So we're right around the $3 40 to $3 45 range as you look at it.

Scott McKim: So we're right around the 340 to 345 range as you look at it. The rate decrease that occurred in September and any future rate increases will impact both sides of our balance sheet. First and foremost, when a rate change occurs, our variable price consumer loans, for example, HELOCs, reprice the next day. The SBA loans that we carry on our balance sheet actually do not reprice until the first calendar day of the following quarter. So with that September change, the rate decrease didn't take it into account until October 1st. And any changes that we see in the fourth quarter will not be effective until January 1st.

Rate decrease that occurred in September and any future rate increases will impact both sides of our balance sheet.

First and foremost one rate change occurs our variable price consumer loans for example, HELOC repriced the next day.

Speaker Change: SBA loans that we carry on our balance sheet actually do not re price until the first calendar day or the following quarter. So with that September changed the rate decrease didn't take it into account until October one and any changes that we see in the fourth quarter will not be effective until January one.

Scott McKim: So what does that mean in terms of the overall net interest margin? Well, we have some ability to manage the pricing on our deposits on the other side of the balance sheet. And whereas I will not claim that we are discreetly match-funded, we are working to maintain that both sides of the balance sheet are going to reprice under similar characteristics. If anything, I'd expect us to have a very small short-term compression of the margin, which should probably, I don't know, take maybe 60 to 90 days to recover as we roll through the period.

Speaker Change: So what does that mean in terms of the overall net interest margin, while we have some ability to manage the pricing on our deposits on the other side of the balance sheet and whereas I will not claim that we are discretely match funded we are working to maintain that both sides of the balance sheet are going to reprice under similar character.

Speaker Change: Arista.

Speaker Change: If anything I'd expect us to have a very small short term compression of the margin, which should probably I don't know take maybe 60 to 90 days to recover as we roll through the period, but a lot of that is going to depend on how much and how quickly the fed decides to reduce interest rates and the good news is we just aren't exposed to.

Ian Green: But a lot of that's going to depend on how much and how quickly the Fed decides to reduce Thank you.

Speaker Change: Two large swings one way or the other.

Speaker Change: Got you. Thank you.

Scott McKim: You're welcome.

Speaker Change: Hello.

Speaker Change: Yeah.

Operator: This concludes the question and answer session and today's conference. Thank you for attending.

Speaker Change: This concludes the question and answer session and today's conference. Thank you for attending you may now disconnect your lines.

Operator: You may now disconnect your lines. Thanks, everyone.

Speaker Change: Thanks, everyone.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Thanks.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Okay.

Yes.

Yes.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.