Q2 2025 BayFirst Financial Corp Earnings Call
Speaker #3: Good morning, ladies and gentlemen, and welcome to the BayFirst Financial Corp. Q2 2025 conference call and webcast. At this time, note that all participant lines are in the listen-only mode.
Sylvie: Good morning, ladies and gentlemen, and welcome to the BayFirst Financial Corp. Q2 2025 conference call and webcast. At this time, note that all participant lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. And if at any time during this call you require immediate assistance, please press star zero for the operator. Also note that this call is being recorded on Wednesday, July 30th, 2025. I would now like to turn the conference over to Tom Zernick, CEO. Please go ahead, sir.
Speaker #3: 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 zero for the operator.
Speaker #3: Also recorded on Wednesday, July 30th, 2025. I would now like to turn the conference over to Thomas Zernick, CEO. Please go ahead, sir.
Speaker #4: Thank you, Sylvie. Good morning and thank you for participating on our call today. Once again, with me is Robin Oliver, our president and chief operating officer.
Speaker #4: Thank you, Sylvie. Good morning and thank you for participating on our call today. Once again, with me is Robin Oliver,
Tom Zernick: Thank you, Sylvie. Good morning, and thank you for participating on our call today. Once again, with me is Robin Oliver, our President and Chief Operating Officer, and Scott McKim, our CFO. 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. We reported a net loss this quarter of $1.2 million, driven by notably higher provision expense and higher write-downs on our portfolio of loans measured at fair value. As we announced last quarter, management and the board initiated a comprehensive strategic review aimed at de-risking unguaranteed SBA 7(a) balances on the balance sheet and positioning the company for long-term growth and enhanced shareholder value. Much progress is being made, and we expect to have additional information on our plans and the expected results in the coming weeks.
Speaker #4: McKim, our te that this call is being CFO. 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.
Speaker #4: We reported a net loss this quarter of $1.2 million, driven by notably higher provision expense and higher write-downs on our portfolio of loans measured at fair value.
Speaker #4: As we announced last quarter, management and the board initiated a comprehensive strategic review aimed at de-risking unguaranteed SBA 7(a) balances on the balance sheet and positioning the company for long-term growth and enhanced shareholder value.
Speaker #4: Much progress is being made, and we expect to have additional information on our plans and the expected results in the coming weeks. In conjunction with our review, BayFirst reported charge-offs and fair value write-downs on related SBA 7(a) loans with elevated levels of risk.
Tom Zernick: In conjunction with our review, BayFirst reported charge-offs and fair value write-downs on related SBA 7(a) loans with elevated levels of risk. The net loss this quarter of $1.2 million is driven by these additional charge-offs and fair value write-downs. This will provide for a stronger balance sheet to take advantage of community banking opportunities. Furthermore, to offset the impact of these charges, the board has voted to suspend common and preferred stock dividend payments and board of director fees. Now I want to talk about some areas that are performing well in the first half of the year and activities that set the stage for continuing transitioning BayFirst into a strong community bank. Our net interest margin improved again in the second quarter, an increase of 29 basis points to 4.06%.
Speaker #4: The net loss this quarter of $1.2 million is driven by these additional charge-offs and fair value write-downs. This will provide for a stronger balance sheet to take advantage of community banking opportunities.
Speaker #4: Furthermore, to offset the impact of these charges, the board has voted to suspend common and preferred stock dividend payments and board of director fees.
Speaker #4: Now, want to talk about some areas that are performing well in the first half of the year and activities that set the stage for continuing transitioning BayFirst into a strong community bank.
Speaker #4: Our net interest margin improved again in the second quarter. An increase of 29 basis points to 4.06%. Fueling this improvement were increases in non-interest-bearing account balances savings and money market account balances and time deposits.
Tom Zernick: Fueling this improvement were increases in non-interest-bearing account balances, savings and money market account balances, and time deposits, partially offset by a decrease in interest-bearing transaction account balances. Our trendsetter deposit portfolio of 50 or better senior club has over 2,100 accounts and represents more than $200 million of balances. Year to date, we added 60 more households through this program. Plus, our Cash Kids Club program has over 1,300 accounts and has grown by 11% this year. These programs are important sources of core deposits and demonstrate our commitment to building household relationships across Tampa Bay and Sarasota. I also want to point out that our Refer Live program, which allows our current customers to refer their friends and family to BayFirst, has generated over $4 million of new deposits and 10.5 million of consumer loans over the past 12 months.
Speaker #4: Partially offset by a decrease in interest-bearing transaction account balances. Our trendsetter deposit portfolio of 50 or better senior club has over 2,100 accounts and represents more than $200 million of balances.
Speaker #4: Year to date, we added 60 more households through this program. Plus, our cash kids' club program has over 1,300 accounts and has grown by 11% this year.
Speaker #4: These programs are important sources of core deposits and demonstrate our commitment to building household relationships across Tampa Bay and Sarasota. I also want to point out that our refer live program, which allows our current customers to refer their friends and family to BayFirst has generated over $4 million of new deposits and $10.5 million of consumer loans over the past 12 months.
Speaker #4: The bank has continued to see consistent growth in community bank loans and core deposits. This growth will continue to position BayFirst as the premier community bank of Tampa Bay.
Tom Zernick: The bank has continued to see consistent growth in community bank loans and core deposits. This growth will continue to position BayFirst as the premier community bank of Tampa Bay. The company's government-guaranteed loan origination platform originated $106.4 million in new government-guaranteed loans during the second quarter of 2025, of which 67.9 million were bulk loans, which is the company's SBA 7(a) loan program designed to expeditiously provide working capital of $150,000 or less. The origination volume was relatively stable from the prior quarter, up slightly from 106.3 million of loans produced in the first quarter, of which 60.4 million were bulk loans. Now I will pass the microphone to Scott McKim, our CFO, to provide an overview of our financial performance.
Speaker #4: The company's government-guaranteed loan origination platform originated 106.4 million dollars in new government-guaranteed loans during the second quarter of 2025. Of which, 67.9 million were bulk loans, which is the company's SBA 7(a) loan program designed to expeditiously provide working capital of $150,000 or less.
Speaker #4: The origination volume was relatively stable from the prior quarter, up slightly from 106.3 million of loans produced in the first quarter. Of which, 60.4 million were bulk loans.
Speaker #4: Now, I will pass the microphone to Scott McKim, our CFO, to provide an overview of our financial performance.
Speaker #5: Thank you, Tom. Good morning, everyone. As Tom mentioned, we are reporting a net loss of $1.2 million from continuing operations in the second quarter.
Scott McKim: Thank you, Tom. Good morning, everyone. As Tom mentioned, we are reporting a net loss of $1.2 million from continuing operations in the second quarter. This compares to $335,000 net loss reported in the first quarter of this year. Loans held for investment increased by $41 million or 3.8% during the second quarter of 2025 to end at $1.13 billion and increased $117.5 million or 11.7% over the past year. During the quarter, the company originated $157 million of loans and sold $66.8 million of government-guaranteed loan balances. Deposits increased $35.5 million or 3.1% during the second quarter of 2025 and increased $121.4 million or 11.6% over the past year to $1.16 billion. The increase in deposits during the quarter was primarily due to increases in non-interest-bearing account balances, savings and money market account balances, and time deposits partially offset by a decrease in interest-bearing transaction account balances.
Speaker #5: This compares to $335,000 net loss reported in first quarter of this year. Loans held for investment increased by $41 million or $3.8% during the second quarter of 2025, to end at $1.13 billion and increased $117.5 million or $11.7% over the past year.
Speaker #5: During the quarter, the company originated $157 million of loans and sold $66.8 million of government-guaranteed loan balances. Deposits increased 35.5 million or $3.1% during the second quarter 2025, and increased $121.4 million or $11.6% over the past year to $1.16 billion.
Speaker #5: The increase in deposits during the quarter was primarily due to increases in non-interest-bearing account balances savings and money market account balances and time deposits partially offset by a decrease in interest-bearing transaction account balances.
Speaker #5: Shareholders' equity at the end of the quarter was $109.7 million and is $9.7 million higher than at the end of the second quarter of 2024.
Scott McKim: Shareholders' equity at the end of the quarter was $109.7 million and is $9.7 million higher than the end of the second quarter of 2024. Net accumulated other comprehensive loss decreased by $10,000 during the quarter, ending at $2.4 million. Our tangible book value decreased slightly this quarter to $22.30 per share, down from $22.77 per share at the end of the first quarter. As Tom mentioned, our net interest margin improved impressively by 29 basis points to 4.06% in the second quarter. Net interest income was $12.3 million in the second quarter, which was an increase of $1.3 million compared to the first quarter, and it was a $3.2 million increase from the year-ago quarter. Our focus on checking accounts and savings accounts versus promotional rate, money market, and CDs has contributed to the margin improvement that we are reporting this year.
Speaker #5: Net accumulated other comprehensive loss decreased by $10,000 during the quarter ending at $2.4 million. Our tangible book value decreased slightly this quarter to $22.30 per share, down from $22.77 per share at the end the first quarter.
Speaker #5: As Tom mentioned, our net interest margin improved impressively by 29 basis points to 4.06% in the second quarter. Net interest income was 12.3 million in the second quarter, which was an increase of 1.3 million compared to the first quarter, and it was a 3.2 million increase from the year ago quarter.
Speaker #5: Our focus on checking accounts and savings accounts versus promotional rate money market and CDs has contributed to the margin improvement that we are reporting this year.
Speaker #5: Importantly, the bank's deposit cost has decreased from 3.78% in the fourth quarter last year down to 3.33% in the second quarter now. This 45 basis point decrease is clearly much higher than the six basis point decrease on interest-earning assets.
Scott McKim: Importantly, the bank's deposit cost has decreased from 3.78% in the fourth quarter of last year down to 3.33% in the second quarter now. This 45 basis point decrease is clearly much higher than the six basis point decrease on interest-earning assets. I should point out that the Fed rate change that occurred in December is fully into all of these numbers. Non-interest income was $11.4 million in the second quarter of 2025, which is an increase from $8.8 million in the first quarter of 2025 and a small decrease from $11.7 million in the second quarter of 2024. Gains on the sale of government-guaranteed loans were also $1.2 million lower in the second quarter compared to the first quarter due to slightly lower production of available government-guaranteed loans and were available to be sold.
Speaker #5: I should point out that the Fed rate change that occurred in December is fully reflected in all of these numbers. Non-interest income was $11.4 million in the second quarter of 2025, which is an increase from $8.8 million in the first quarter of 2025 and a small decrease from $11.7 million in the second quarter of 2024.
Speaker #5: Gains on the sale of government-guaranteed loans were also 1.2 million lower in the second quarter compared the first quarter due to slightly lower production of saleable government-guaranteed loans and were available to be sold.
Speaker #5: Changes in the SBA standard operating procedures introduced additional steps and requirements to process small dollar loans during the quarter, which resulted in longer processing times, especially in the last month of the quarter.
Scott McKim: Changes in the SBA standard operating procedures introduced additional steps and requirements to process small dollar loans during the quarter, which resulted in longer processing times, especially in the last month of the quarter. This meant there were fewer guaranteed loan balances available to be sold through June, and we elected to book these loans measured at fair value to match that revenue in the period where the loans were originated. The bank sold $66.8 million of government-guaranteed loan balances during the second quarter compared to $72.5 million in the first quarter. Gains on loans booked and measured at fair value during the quarter were $3.4 million, an increase of $3 million for the first quarter where we had only booked a single loan at fair value. Offsetting the gains is $1 million in write-downs on loans previously booked at fair value.
Speaker #5: This meant the reviewer guaranteed loan balances available to be sold through June, and we elected to book these loans measured at fair value to match that revenue in the period when the loans were originated.
Speaker #5: The bank sold 66.8 million of government-guaranteed loan balances during the second quarter compared to 17.5 million in the first quarter. Gains on loans booked and measured at fair value during the quarter were 3.4 million, an increase of $3 million for the first quarter where we had only booked a single loan at fair value.
Speaker #5: Offsetting the gains is $1 million in write-downs on loans previously booked at fair value. I will note that these fair value markdowns are not charge-offs according to GAAP rules.
Scott McKim: I will note that these fair value markdowns are not charge-offs according to GAAP rules; however, they are very similar nonetheless, and this number is inclusive of what Tom mentioned at the beginning of the call. Our non-interest expense increased by $1.7 million in the second quarter. Most of this increase for $1.2 million represents the non-deferrable loan origination expenses incurred related to loans booked at fair value during the second quarter. This is an increase of $1 million from the first quarter. An increase in commission costs of $200,000 and an increase of other expenses of $100,000 represent increases as well in non-interest expense. Our commitment to manage controllable expenses is also evident with a $1.1 million decrease in year-to-date non-interest expense, including the impact of loan originations and non-deferrable origination expenses.
Speaker #5: However, they are very similar nonetheless. This number is inclusive of what Tom mentioned at the beginning of the call. Our non-interest expense increased by $1.7 million in the second quarter.
Speaker #5: Most of this increase, or 1.2 million, represents the non-deferable loan origination expenses incurred related to loans booked at fair value during the second quarter.
Speaker #5: This is an increase of $1 million from the first quarter. An increase in submission costs of $200,000 and an increase of other expense of $100,000 represent increases as well in non-interest expense.
Speaker #5: Our commitment to manage controllable expenses is also evident with a 1.1 million decrease in year-to-date non-interest expense including the impact of loan originations and non-deferable origination expenses.
Speaker #5: In fact, total non-interest expense overall is $1.2 million lower in 2025 compared to the same period in the first half of 2024. Provision for credit losses was $7.3 million in the second quarter compared to $4.4 million in the first quarter and $3 million in the second quarter of 2024.
Scott McKim: In fact, total non-interest expense overall is $1.2 million lower in 2025 compared to the same period in the first half of 2024. Provision for credit losses was $7.3 million in the second quarter compared to $4.4 million in the first quarter and $3 million from the second quarter of 2024. Net charge-offs, primarily unguaranteed SBA 7(a) balances, were $6.8 million in the quarter. That was an increase of $3.5 million compared to the first quarter, which was $3.3 million. These additional net charge-offs are the increase as well that Tom had mentioned. Annualized net charge-offs as a percentage of loans held for investment at amortized cost were 2.6% for the second quarter. That is up from 1.28% in the first quarter, as well as being up from 1.45% in the second quarter of 2024. Non-performing assets were 1.79% of total assets as of June 30th, 2025.
Speaker #5: Net charge-offs primarily unguaranteed SBA 7(a) balances were 6.8 million in the quarter. That was an increase of 3.5 million compared to the first quarter, which was 3.3 million.
Speaker #5: These additional net charge-offs are the increase as well that Tom had mentioned. Annualized net charge-offs as a percentage of loans held for investment at amortized cost were 2.6% for the second quarter.
Speaker #5: That is up from 1.28% in the first quarter as well as being up from 1.45% in the second quarter 2024. Non-performing assets were 1.79% of total assets as of June 30th, 2025.
Speaker #5: This is down compared 2.08% as of March 31st, 2025. And compared to 1.28% on June 30th, 2024. Non-performing assets excluding government-guaranteed loan balances were 1.12% of total assets as of June 30th, 2025.
Scott McKim: This is down compared to 2.08% as of March 31st, 2025, and compared to 1.28% on June 30th, 2024. Non-performing assets, excluding government-guaranteed loan balances, were 1.12% of total assets as of June 30th, 2025. That was also a decrease from 1.22% as of March 31st, 2025, and up slightly from 0.82% on June 30th, 2024. The ratio of allowance for credit losses to total loans held for investment at amortized cost was 1.65% at June 30th, 2025, which is up slightly from 1.61% as of March 31st, 2025, and 1.5% on June 30th, 2024. The ratio of ACL to total loans held for investment at amortized cost, excluding government-guaranteed loan balances, was 1.85% at June 30th, 2025, and that was consistent with a 1.84% at March 31st of this year and then 1.73% of June of last year.
Speaker #5: That was also a decrease from 1.22% as of March 31st, 2025, and up slightly from 0.82% on June 30th, 2024. The ratio of allowance for credit losses to total loans held for investment at amortized cost was 1.65% at June 30th, 2025, which is up slightly from 1.61% as of March 31st, 2025, and 1.5% on June 30th, 2024.
Speaker #5: The ratio of ACL to total loans held for investment at amortized cost excluding government-guaranteed loan balances was 1.85% at June 30th, 2025, and that consistent with a 1.84% at March 31st of this year and a 1.73% of June of last year.
Speaker #5: At this time, I'll turn the call over to Robin for some additional comments.
Scott McKim: At this time, I'll turn the call over to Robin for some additional comments.
Speaker #6: Thank you, Scott. As Tom and Scott have detailed, asset quality trends primarily in our SBA 7(a) small loan program product continue to decline in the current economic environment.
Sylvie: Thank you, Scott. As Tom and Scott have detailed, asset quality trends, primarily in our SBA 7(a) small loan program product, continue to decline in the current economic environment. Although we have strengthened credit underwriting parameters and reduced volume from the height of the bulk loan program, the losses in both bulk loans and our earlier vintages of small balance loans originated prior to 2022 continue to worsen, given the recent historic rise in interest rates, high inflation, and now tariff uncertainty. Management has significantly increased collections and portfolio management staff over the past year to ensure we are proactively collecting payments or modifying loans as prudent for as many borrowers as possible. Our Chief Credit Officer and Director of Credit Administration, both hired in the first quarter of this year, are working diligently, supported by all of management, to ensure strong oversight is provided to reduce losses wherever possible.
Speaker #6: Although we have strengthened credit underwriting parameters and reduced volumes from the height of the bulk loan program, the losses in both bulk loans and our earlier vintages of small balance loans originated prior to 2022 continue to worsen, given the recent historic rise in interest rates, high inflation, and now tariff uncertainty.
Speaker #6: Management has significantly increased collections and portfolio management staff over the past year to ensure we are proactively collecting payments or modifying loans if prudent for as many borrowers as possible.
Speaker #6: Our chief credit officer and director of credit and administration, both hired in first quarter of this year, are working diligently supported by all of management to ensure strong oversight is provided to reduce losses wherever possible.
Speaker #6: As part of our review of strategic alternatives, the evaluation of the small loan program product and related underwriting is underway, with further announcements forthcoming. I also want to point out that, although there have been some credit deterioration in our more traditional SBA 7(a) loan product that we call Core, the historical credit quality of this portfolio has been significantly better than the small loan program, with strengthened underwriting, more collateral, and deeper relationships with the bank.
Sylvie: As part of our review of strategic alternatives, evaluation of the small loan program product and related underwriting is underway, with further announcements forthcoming. I also want to point out that although there have been some credit deterioration in our more traditional SBA 7(a) loan product that we call core, the historical credit quality of this portfolio has been significantly better than the small loan program, with strengthened underwriting, more collateral, and deeper relationships with the bank. Outside of SBA lending, our conventional commercial loan portfolio continues to demonstrate strong asset quality metrics and provide solid yields, as we have grown this portfolio at a steady pace over the past year, with conventional commercial loan balances increasing by $31.9 million, or 16% since June of last year.
Speaker #6: Outside of SBA lending, our conventional commercial loan portfolio continues to demonstrate strong asset quality metrics and provide solid yields as we have grown this portfolio at a steady pace over the past year with conventional commercial loan balances increasing by 31.9 million or 16% since June of last year.
Speaker #6: The conventional consumer and residential portfolios have also increased steadily over the past year with demand for HELOCs continuing on in this economic environment. Since June of 2024, consumer and residential loan balances have increased by 78.9 million or 20%.
Sylvie: The conventional consumer and residential portfolios have also increased steadily over the past year, with demand for HELOCs continuing on in this economic environment. Since June of 2024, consumer and residential loan balances have increased by $78.9 million, or 20%. So even with the headwinds we described in credit quality that we are currently managing through, our future is anchored by an outstanding community bank in one of the most desirable markets in the country. As we've stated previously, we serve a broad community of small businesses, individuals, and families, and have become a notable presence in our Tampa Bay and Sarasota communities with outstanding customer service and community partnerships, demonstrating our commitment to innovative solutions with a personal touch. At this time, I will turn it back to Tom for his final thoughts.
Speaker #6: So even with the headwinds we described in credit quality that we are currently managing through, our future is anchored by an outstanding community bank in one of the most desirable markets in the country.
Speaker #6: As we've ated previously, we serve broad community of small businesses, individuals, and families and have become a notable presence in our Tampa Bay and Sarasota communities.
Speaker #6: Without standing customer service and community partnerships, demonstrating our commitment to innovative solutions with a personal touch. At this time, I will turn it back to Tom for his final thoughts.
Speaker #4: Our board of directors and leadership team are committed to driving resilience and innovation as we position the company for long-term success and enhanced shareholder value.
Tom Zernick: Our board of directors and leadership team are committed to driving resilience and innovation as we position the company for long-term success and enhanced shareholder value. We are confident that these efforts will better align the company and our bank with the demands of a dynamic banking landscape. Thank you all for joining us this morning.
Speaker #4: We are confident that these efforts will better align the company and our bank with the demands of a dynamic banking landscape. Thank you all for joining us this morning.
Speaker #6: We will now turn it back for questions.
Sylvie: We will now turn it back for questions.
Speaker #1: Thank you. Ladies and gentlemen, if you do have any questions at this time, please press star, followed by one on your ouchstone phone. You will then hear a prompt that your hand has been raised.
Operator: Thank you. Ladies and gentlemen, if you do have any questions at this time, please press star followed by one on your touch-tone phone. You will then hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press star followed by two. And if using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star one now if you do have any questions. Once again, ladies and gentlemen, if you do have any questions, please press star followed by one on your touch-tone phone. And your first question will be from Ian Green at Pentagon Capital. Please go ahead, Ian.
Speaker #1: And should you wish to decline from the polling process, please press star, followed by two. And if using a speakerphone, you will need to lift the handset first before pressing any keys.
Speaker #1: Please go head and press star one now if you do have any questions. Once again, ladies and gentlemen, if you do have any questions, please press star, followed by one on your touchstone phone.
Speaker #1: And your first question will be from Ian Green at Pentagon Capital. Please go head, Ian.
Speaker #7: Hi. Hi. Good morning. I just.
Ian Green: Hi. Hi, good morning. I just.
Speaker #8: Morning.
Speaker #7: How would a 25 basis point cut in Fed funds impact the market? It seems like the market is kind of trying to price that in.
Sylvie: Morning, Ian.
Ian Green: How would a 25 basis point cut in Fed funds? It seems like the market is kind of trying to price that in. How would that flow through to your NIM? And I guess, do you benefit on the asset side? The second part to that question is, for your repricing of your assets, do you have old vintages? I know some of that's been problematic, right, going to higher rates. But you know, in general, you benefit as some of these older vintages roll off.
Speaker #7: How would that flow through to our NIM? And I guess, do you benefit on that on the asset side? The second part to that question is, for your repricing of your assets, do you have old vintages?
Speaker #7: I know some of that’s been problematic, right? Going to higher rates. But, you know, in general, you benefit as some of these older vintages roll off.
Speaker #4: Ian, this is Scott. I'll take that question. when, I, I want to be real clear that when we talk about the balance sheet and as we said it in the past, it's, we are asset sensitive.
Scott McKim: Ian, this is Scott. I'll take that question. I want to be real clear that when we talk about the balance sheet, and as we've said it in the past, we are asset-sensitive. And that typically is kind of the overarching answer to your question. But I think if we drill down just one level with it, I also want to point out the fact that the older vintages of loans really are still prime bait. And so therefore, they're going to reprice even with the newer vintages. And accordingly, it's our liability side, or really the deposit book, also is variably priced almost to the same degree. So we're pretty well matched. If there is, I don't expect the Fed to move today, but if they were and there was a 25 basis point decrease, I would say that we will probably have a few basis point temporary compression.
Speaker #4: And, that typically is, is kind of the overarching answer to your question. But think if we drill down just one level with it, I also want to point out the fact that the older vintages of loans really are still prime bait and so therefore they're going to reprice even with the newer vintages.
Speaker #4: And accordingly, it's, our, our liability side or really the deposit book also is variably priced almost to the same degree. So we're pretty well matched.
Speaker #4: If there is, I don't expect the Fed to move today, but if, they were and there was a 25 basis point decrease, I would say that we will probably have a few basis point temporary compression, but really by the end of the next quarter that would work its way through.
Scott McKim: But really, by the end of the next quarter, that would work its way through. So the margin itself should be relatively stable. We wouldn't expect any other expansion from a rate decrease or really a rate increase otherwise.
Speaker #4: So the margin itself should be relatively stable. we wouldn't expect any other expansion from a rate decrease or really a rate increase otherwise.
Speaker #7: Okay. Gotcha. And I guess if I could just follow up, I mean, how you, I mean, in general, you're feeling about capital? I mean, is, do you see a scenario or a abilities of having to raise additional capital here?
Ian Green: Okay. Gotcha. And I guess if I could just follow up, I mean, how are you, I mean, in general, your feeling about capital? I mean, do you see a scenario or probabilities of having to raise additional capital here?
Speaker #4: I, that, that's a good question. And, we do talk about it frequently and are engaged with the board of directors. And, and we, we typically look at different options and the bank is well capitalized right now.
Scott McKim: That's a good question. And we do talk about it frequently and are engaged with the board of directors. And we typically look at different options. And the bank is well-capitalized right now. And we don't like, obviously, we don't like reporting losses and how it tends to dilute things and reduce the overall capital. But we do have some options. We have not made any decisions on any imminent actions at this point in time. But as Tom mentioned, we continue to go through a lot of strategic development work here. And if we do move down that course, certainly, we'll let everyone know in a press release in 8K.
Speaker #4: And, we don't like, obviously, we don't like reporting losses and how it, tends to dilute things and reduce overall capital. but we do have some options.
Speaker #4: We have not made any decisions on any imminent actions at this point in time, but as Tom mentioned, we continue to go through a lot of strategic development work here.
Speaker #4: And, if we do move down that course, certainly we'll let everyone know in a press release and 8K.
Speaker #7: All right. Of course. Okay. Thank ou.
Ian Green: Right. Of course. Okay. Thank you.
Speaker #4: Sure.
Speaker #1: Next question will be from Julien Cassarino at Sycamore. Please go head, Julien.
Operator: Next question will be from Julian Casarino at Sycamore. Please go ahead, Julian.
Speaker #9: Hello.
Robin Oliver: Hello.
Speaker #4: Hi, Julien.
Scott McKim: Hi, Julian.
Speaker #7: Hey, Julien.
Ian Green: Hey, Julian.
Speaker #9: Hi. Hi. So I apologize. I missed Ian's questions because I had to change my phone handset. So I hope I don't ask questions yet.
Robin Oliver: Hi. Hi. So I apologize. I missed Ian's questions because I had to change my phone handset. So I hope I don't ask questions again. But I just caught the word stable net interest margin or stable margin. So I wanted to ask also, the NIM was great. Is there anything one-time in that? It sounds like no, right?
Speaker #9: But I, I just caught, the word stable net interest margin or stable margin. So, I wanted to ask also the NIM was great. Is there anything one-time in that?
Speaker #9: It sounds like no, right?
Speaker #4: No. It's, and, and Julien, if you kind of recall our prior announcements and even the conversations that you've had with us directly, we've been working really hard to manage our deposit costs and make sure that as we grow deposits, we're doing it at rates that are consistent with what our peers are doing in the market.
Scott McKim: No. And Julian, if you kind of recall our prior announcements and kind of even the conversations that you've asked us directly, we've been working really hard to manage our deposit cost and make sure that as we grow deposits, we're doing it at rates that are consistent with what our peers are doing in the market. You know, the marketplace here is very dynamic. It's high growth. There's lots of opportunity, which in addition to the institutions that are based here, we have a lot of out-of-town institutions that come in. They offer promotional rate programs that we compete with and have competed with over the years. That's not to say that we don't do some of that, but we're trying to manage the books in a way that allows us to have lower overall deposit costs and lower all funding costs.
Speaker #4: you know, the marketplace here is, is very dynamic. It's high growth. There's lots of opportunity. Which, in addition to the institutions that are based here, we have a lot of out-of-town, institutions that come in.
Speaker #4: They, they offer promotional rate programs that, that we compete with and have competed with over the years. that's not to say that we don't do some of that, but we're ying to manage the book in a way that allows us to, to have lower overall deposit costs and lower all funding costs.
Speaker #4: Our team really has done a terrific job with that, that narrative and, you know, certainly it's, it's hard for most institutions to really grow deposits in a meaningful way.
Scott McKim: Our team really has done a terrific job with that narrative. And you know, certainly, it's hard for most institutions to really grow deposits in a meaningful way. But we've been very purposeful. And we believe that where the margin is at now is a fairly stable level. It certainly was our goal to get to 4% this year. And I'm pleased that in the second quarter, we were able to do that. Ian's question was around if there was a Fed rate change, say, of a quarter point, what would that mean to the margin? And the short answer to that is that if it happens, we would expect to see a small depression. But as both sides of the balance sheet reprice throughout the quarter, it would generally kind of recover back to the same level that it's at now.
Speaker #4: But, we've been very purposeful. And we believe that where the margin is at now is a fairly stable level. It's certainly our, was our goal to, to get to 4% this year.
Speaker #4: And I'm sweet as that in second quarter we were able to do that. Ian's estion was around if there was a Fed rate change, say of a quarter point, what would that mean to the margin?
Speaker #4: And the short answer to that is that, if it happens, we would expect to see a small compression, but as both sides of the balance sheet repriced throughout the quarter, it would generally kind , you know, recover back to the same level that it's at now.
Speaker #9: Okay. So for, four handles should, should be le to stick.
Robin Oliver: Okay. So four handles should be able to stick.
Speaker #4: I, I, that is, that is my belief. Like I said, we've worked really hard to get where we're at, and there's always more work to do.
Scott McKim: That is my belief. Like I said, we've worked really hard to get where we're at. And there's always more work to do. But again, it's I compliment the team and for the efforts that they've done.
Speaker #4: But again, it's, I compliment the team and, for the efforts that they've e.
Speaker #9: Yes. Definitely. And likewise, the loan and deposit growth were good. Is that there's othing one-time or seasonal or, you know, is that, is that a good, run rate or is there anything you ow that's non-recurring nature?
Robin Oliver: Yes, definitely. And likewise, the loan and deposit growth, we're good. Is that there's nothing one-time or seasonal? Or you know, is that a good run rate? Or is there anything, you know, that's non-recurring in nature?
Speaker #4: No. I, I would say that that's, that's pretty, that's pretty stable. I, I think, you ow, even if you go back and look in second quarter of last year, we, we did pretty darn well as far as growth in our conventional and our, our retail, loan deliveries.
Scott McKim: No, I would say that that's pretty stable. I think, you know, even if you go back and look in the second quarter of last year, we did pretty darn well as far as growth in our conventional and our retail loan deliveries. I suppose you could call that seasonal. Second quarter seems to be one of our best ones in terms of growth. Robin, anything you want to add to that?
Speaker #4: I suppose you could call that seasonal. The second quarter seems to be one of our best ones in terms of growth. Robin, anything you want to add to that?
Speaker #6: Yeah. No. I think, you know, that's a pretty typical run rate for us at this point. So, you know, we really are seeing a lot of consumer demand still.
Robin Oliver: Yeah. No, I think, you know, that's a pretty typical run rate for us at this point. So, you know, we really are seeing a lot of consumer demand still. And sometimes the product mix shifts on that as to what's in demand. For example, residential is really not in favor right now, but the HELOCs are. And you know, things can turn around as the rate environment changes. But you know, so far, this is probably a pretty steady rate for us. Right. Right. You don't have a lot of HELOCs. Oh, you do, actually. I'm sorry. You do. Yeah, we do. Yeah. And. We do. Yeah. Okay. Okay. And the credit issues, I just want to, is it ring-fed? Like, is it concentrated only in that one loan category, the SBA loans?
Speaker #6: and sometimes the product mix shifts on that as what's in demand. For example, residential is, is really not, in favor right now, but the HELOCs are.
Speaker #6: And, you know, things can turn around as the rate environment changes. But, you know, so far this is probably a pretty steady rate for us.
Speaker #9: Right. Right. You don't have a lot of HELOCs. Oh, you do, actually. I'm ry. Yeah.
Speaker #6: Yeah. We do.
Speaker #9: Yeah. And,
Speaker #6: We do.
Speaker #9: Yeah. Okay. Okay. and, the, the, the, the credit issues I, I just wanted, it, it, is it ring-fed? Like, is it concentrated only in that one loan category, the SBA loans?
Speaker #6: I, I would say by and large historically, you know, the, the vast majority, 99%, well, maybe that's high, but over 90% of our credit losses have been, you know, SBA loans, period, in what, whether they're larger loans or, or smaller loans.
Robin Oliver: I would say, by and large, historically, you know, the vast majority, 99%, well, maybe that's high, but over 90% of our credit losses have been, you know, SBA loans, period, in whether they're larger loans or smaller loans. And by far, of those SBA losses, the vast majority is in our small loan program loan, which historically has been, you know, 70 to 80 percent of our volume, too, keep in mind. You know, strangely enough, the larger loans actually perform better. I think you have, you know, different types of borrowers, more sophistication in the financial statements and things of that nature with some of those larger borrowers. And we have more collateral, you know, on a lot of those as well. So those have performed better.
Speaker #6: and, and by far of those SBA losses, the vast majority is in our small loan program loans, which historically have been, you ow, 70 to 80 percent of our volume too, keep in mind.
Speaker #6: you ow, strangely enough, the larger loans actually perform better. I think you have, you know, different types borrowers, more, you know, sophistication in the financial statements and, and things of that nature with some of those, those larger borrowers.
Speaker #6: And we have more collateral. You know, on a lot of those as well. So, those have performed better. But, you know, the small loan program loans, no matter whether it's our bank or any others, are the riskiest loan program within, you know, the SBA.
Robin Oliver: But the small loan program loans, no matter whether it's our bank or any others, are the riskiest loan program within, you know, the SBA, which is why we're, you know, pricing them at prime plus 475 is our bulk loan pricing. So, you know, that really is where a lot of the losses are concentrated. You know, if you go back to pre-pandemic, we had a lot of those small loan program loans. And you know, they probably got in priced at 6%. And now they're paying, you know, significantly higher than that. And some of their payments have doubled. So, but even the bulk loans that are more recent, you know, we're still seeing stress in that portfolio, which is why we are really closely looking at that program and how best, you know, to move forward.
Speaker #6: which is why we're, you ow, pricing them at prime plus 4.75. is our, is our bulk loan pricing. So, you know, that, that really is where a lot of the losses are concentrated.
Speaker #6: you know, if you go back to pre-pandemic, we had a lot of those small loan program loans. And, you know, they probably got in priced at 6%.
Speaker #6: And now they're paying, you ow, significantly higher than that. And some of their, their payments have doubled. so, but even the bulk loans that are more recent, ou know, we're, we're still seeing stress in that portfolio, which is why we, we are really closely looking at that program.
Speaker #6: And how best, you know, to move forward and, and I indicated some, some announcements will likely be coming soon on that. But, that's really where the stress is.
Robin Oliver: And I indicated some announcements will likely be coming soon on that. But that's really where the stress is. Not to say that there's not a consumer, you know, as the consumer volume grows, you know, you're always going to have some consumer charge-offs here and there. But it hasn't been overwhelming. And also, I just want to remind you, too, that on our HELOCs, yes, we have a decent amount of them. We also have an insured product for many of our HELOCs, which is an interesting program where anything over 80% loan to value, we won't do that unless it can fit in this insured product. And if it's with a separate insurance carrier and on a loan-by-loan basis, they will, you know, secure all of the balance of our HELOCs. So, and we have had claims that we've had to make there and have had those paid.
Speaker #6: Not to say that there's not a consumer, you know, as the consumer volume grows, you know, you're ways going to have some consumer, charge-offs here and there.
Speaker #6: but it hasn't been overwhelming. And, and also I just want to remind you too that on our HELOCs, yes, we have a, a decent amount of them.
Speaker #6: We also have an insured product for, for many of our HELOCs. which is an interesting program. where anything over 80% loan to value, we won't do that unless it can fit in this insured product.
Speaker #6: And, if it's with a separate insurance carrier, and on a loan-by-loan basis, they will, you know, secure all of the balance of our HELOCs.
Speaker #6: So, and we have had claims. That we've had to make there and have had those paid. Yeah.
Speaker #9: And have had them paid. Just real quick, the, in the HELOC book, about, do you, do you also own the first positions as well or not, not typically?
Robin Oliver: Yeah. And have had them paid. Just real quick, in the HELOC book, do you also own the first positions as well, or not typically? Not typically, although more than you might think of our HELOCs, our first mortgages. Right. Believe it or not, I mean, there's probably, I don't know what the number is today. I looked at it at March 31, and around 20% of the HELOCs or second liens in general, or the HELOCs, yeah, were first liens, not second liens. The loan-to-value ratio was generally low, and the credit profile was better, you know, than we expected when we really did a deep dive analysis. So, but there are some cases where we'll do a piggyback loan with a first and second at the same time. So we do have some of those, but it's not as typical. Yeah.
Speaker #6: Not typically, although, more than you might think of our HELOCs, our first mortgages, right, believe it or not, I mean, 's probably, I don't know at the number is today.
Speaker #6: I looked at it at March 31 and around 20% of the HELOCs or second liens in general or the HELOCs or, yeah, we're first liens, not second liens.
Speaker #6: the loan to value ratio was generally, low and the credit profile was, better. You know, than, than we expected when we really did a, did a deep dive analysis.
Speaker #6: So, but there are some cases where we'll do a piggyback loan with a first and second at the same time. so we do have some of those, but it's not as typical.
Speaker #9: Yeah. So even if they're in first position, they still in the call report have to go under revolver, revolving one to four?
Robin Oliver: So even if they're in first position, they still, in the call report, have to go under revolving one to four, even if it's first position, and that's because of the, they're not fixed rate or something, or? Yes. That is correct. Okay. All right. And so, yeah, just back to the bulk loans then. So, so you're not, so, but it seems like from the deck that you're growing the bulk loans despite the credit issues. Is that right? I think the bulk loan volume has been choppy, right? I would say it's pretty steady, you know, over this past or over year to date, at least, right? I mean, at the height of our bulk loan program, I would say we were up to 38, almost 40 million a month in volume.
Speaker #6: Yes.
Speaker #9: Even if it's first position and that's because of the, they're not fixed rate or something or?
Speaker #6: Yes. That is correct.
Speaker #9: Okay. All right. And so, yeah, just back to the bulk loans then. So, so it's, so you're , so but it, it seems like from the deck that ou're growing the bulk loans despite the credit issues.
Speaker #9: Is that? Right?
Speaker #6: I think the bulk loan volume has, has been choppy, right? I would say it's pretty steady. you know, over this, this past, or over year to date at least, right?
Speaker #6: I mean, they're at the height of our bulk loan program. I would say we were up to 38, almost 40 million a month in volume.
Speaker #6: And then we instituted some additional credit underwriting parameters and, and really, you know, pulled back on that volume. And then it's kind normal ebbs and flows from there with just seasonality and, and, what's going on in the marketplace.
Robin Oliver: And then we instituted some additional credit underwriting parameters and really, you know, pulled back on that volume. And then it's kind of normal ebbs and flows from there with just seasonality and what's going on in the marketplace. You know, the hard part is we've instituted additional credit underwriting in April of this year, but you really don't see the results of that until a year and a half, two years out, right? So you can't, there's, it's a relatively new product for us that started in June of 2022. So we're just now, you know, having some of those loans season. And I think some of the earlier vintages definitely showed more stress than likely what we're doing today. But you know, we're definitely not trying to increase volume in bulk. And we're looking at the whole program in its entirety as we speak. Okay.
Speaker #6: you know, the hard part is we've instituted additional credit underwriting in April of this year, but you, you really don't see the results of that until a year and a half, two years out, right?
Speaker #6: So you can't, there's, it's a relatively new product for us that started in June of 2022. so we're just now, you ow, having some of those loan season.
Speaker #6: And I, I think some of the earlier vintages definitely showed more stress than likely what 're doing today. but, you know, we're, we're itely not trying to increase volume in bulk.
Speaker #6: And we're looking at the whole program in its entirety as we speak.
Speaker #9: Okay. So it's not growing. So just a quick question to, characterize the, the SBA credit issues. It's been largely the smaller-sized loans. no geographic concentration, no geographic concentration for credit issues.
Robin Oliver: So it's not growing. So just a quick question to characterize the SBA credit issues. It's been largely the smaller-sized loans, no geographic concentration for credit issues. Is that accurate? It's been anywhere. That is correct. It's really broad. You know, and there's been some NAICS codes that don't perform as well. And we look at those every quarter. And when we see additional stress in those NAICS codes, for example, transportation is one that we cut off over a year ago. You know, so when we see those industries that are that are more stressed and causing more losses, we'll take action to, you know, stop doing those particular NAICS codes. But in general, our losses kind of mirror, you know, if you looked at the SBA as a whole, where their losses fall from an NAICS code standpoint and no geographic concentration. Okay.
Speaker #9: Is that accurate? It's been anywhere.
Speaker #6: That is, that is correct. It's really broad. you ow, in, in there's been some NAICS codes that don't perform as well. and we look at those every quarter.
Speaker #6: And when, when we see additional stress in those NAICS codes, for example, transportation, is one that we cut off over a year ago. you know, so when we see those industries that are, that are more stressed and, and causing more losses, we'll take action to, you know, stop doing those particular NAICS codes.
Speaker #6: But in general, our losses kind of mirror, you know, if you looked at the SBA as a whole, where their losses fall from a NAICS code standpoint.
Speaker #6: And no geographic concentration.
Speaker #9: Okay. And the smaller size and then also low rate, meaning ones that were originated, oh, sorry. It's much. Ones that were originated like in, 2020, '21.
Robin Oliver: And the smaller size and then also low rate, meaning ones that were originated, oh, sorry, it's so much, ones that were originated like in 2020, '21. Well, it's both. It really, yes, the older ones, vintages that started at lower rates definitely have had stress and are struggling to keep up with the payments. But even the bulk loans, many of them made in a higher rate environment, are also showing stress. I think it just speaks to the nature of, you know, what's going on with small businesses here in this economic environment. And I think the reality is we just have a higher concentration of small loan program loans compared to our peers that do SBA lending. And so that's why we're evaluating. We've been on a trajectory to try to do more larger loans and increase our loan size to improve credit quality. Okay. All right.
Speaker #6: Well, it's both. It really, yes, the, the older ones, vintages that started at lower rates, definitely have, have had stress and are struggling to keep up with the payments.
Speaker #6: But even the bulk loans, many of them made in a higher rate environment, are also showing stress. I think it just speaks to the nature of what's going on with small businesses here in this economic environment.
Speaker #6: I think the reality is we just have a higher concentration of small loan program loans compared to our peers that do SBA lending.
Speaker #6: and so that's why we're evaluating and we've been on a trajectory to try to do more larger loans and increase our loan size, to improve credit quality.
Speaker #9: Okay. All right. Great. Well, thank you. Thank you so much.
Robin Oliver: Great. Well, thank you. Thank you so much. Thank you. Thank you.
Speaker #6: Thank ou.
Speaker #9: Thank you.
Speaker #1: Again, a reminder to please press star one should you have any questions. Next, we will hear from Ross Haberman at HLS Investments. Please go ahead, Ross.
Operator: Again, a reminder to please press star one should you have any questions. Next, we will hear from Ross Haberman at HLS Investments. Please go ahead, Ross.
Speaker #10: Good morning. That, thanks for taking my call. I just have a, just two quick follow-ups from Julien's. Questions. How big are those bulk loans in total on your balance sheet today?
Ross Haberman: Good morning. Thanks for taking my call. I just have just two quick follow-ups from Julian's questions. How big are those bulk loans in total on your balance sheet today? And could you segregate them between, as you described them, the larger loan size and the smaller ones, which were you're having the more of the credit issues, it sounds like?
Speaker #10: And could you segregate them between as you described, as you described them, the larger loan size and the smaller ones, which where you're having the, the more of the credit issues, it sounds like?
Speaker #4: Yeah, Ross, these are going to be some round numbers for you. But the total SBA portfolio is around $350,000,000, or was as of June 30.
Scott McKim: Yeah, Ross, these are going to be some round numbers for you. But the total SBA portfolio is around 350 million or was as of June 30th. And the bulk loan component of that was about 160 million. And that includes both guaranteed and unguaranteed. And the stress component that Robin sort of elaborated on, on the small dollar loans that is unguaranteed, was about 123 million at the end of June. And you know that also includes kind of our historical flash-cap loans as well, which you know we'd also put in that bucket as far as demonstrating some of these characteristics.
Speaker #4: And the bulk loan component of that was about $160,000,000. And, that includes both guaranteed and unguaranteed. And the stress component that, that Robin sort of elaborated on, on the small dollar loans that is unguaranteed was about $123,000,000.
Speaker #4: At the end of June. And, you know, that, that also includes kind of our, our historical flashcap loans as well, which, which, you know, we, we'd also put in that bucket as far as demonstrating some of these characteristics.
Speaker #10: And is that where you took most of your reserves this quarter, in that $123 million of unguaranteed portion?
Ross Haberman: And is that where you took most of your reserves this quarter in that 123 of unguaranteed portion?
Speaker #4: Yeah. That, that is the largest component of our ACL.
Scott McKim: Yeah, that is the largest component of our ACL.
Speaker #10: and just one last question. You said something in your verbiage. you said you're going to evaluate strategical alternatives. if you hire an investment banker or something and, and could ou tell us a little more if anything about that?
Ross Haberman: And just one last question. You said something in your verbiage. You said you're going to evaluate strategical alternatives. Is your hire an investment banker or something? And could you tell us a little more, if anything, about that?
Speaker #6: We can't really speak to that, Ross, as you probably know. But I, obviously.
Robin Oliver: Well, we can't really speak to that, Ross, as you probably know. But obviously, we are looking at every possibility to make sure we have a successful path forward. And you know we haven't made any announcement yet because we're still evaluating in a lot of ways. And so we want to make sure we give that thoughtful consideration and model out all kinds of different scenarios to make the best decision to get us back on track in our earnings and going up and to the right.
Speaker #10: Okay.
Speaker #6: We are looking at every possibility to make sure we have a successful path forward. And, you know, we, we haven't made any announcement yet.
Speaker #6: because we're still evaluating. in a lot of ways. And so we want to make sure we, we give that thoughtful consideration and model out all kinds of different scenarios.
Speaker #6: To make, you know, the best decision to get us back on track in our earnings and, and going up into the right.
Speaker #10: Just one follow-up: can you tell me which investment bank you've hired to help you?
Ross Haberman: Can I say just one follow-up? Can you say which investment bank you've hired to help you?
Speaker #6: No. Sorry, Ross.
Robin Oliver: No. Sorry, Ross.
Speaker #10: Okay. Okay. That's fine. All right.
Ross Haberman: Okay. Okay. That's fine.
Speaker #6: Because that would imply we hired one. So, you ow.
Robin Oliver: That would imply we hired one. So, you know.
Speaker #10: Yeah. Ross, I, I.
Scott McKim: Ross, I think it's safe for us to say, you know, it's obviously we're seeking, you know, counsel and working very closely with the board of directors at the same time. So, you know, it's that work continues. And as Tom mentioned, we'll have more to come here in the coming weeks.
Speaker #4: Ross, I, I think it's safe to, to, for us to say, you know, it's, it's obviously we're seeking, you know, counsel on and working very closely with the board of directors at the same time.
Speaker #4: So, you know, it's, it's, that work continues and as, as Tom mentioned, we'll, we'll have more to come here in the coming weeks.
Speaker #10: Okay. I grade your, I grade the reciate your time today. thank you the help and the best of luck.
Ross Haberman: Okay. I greatly appreciate your time. Thank you for the help and the best of luck. Thank you again.
Speaker #4: Thank you again.
Speaker #6: Thank ou, Rob. Appreciate it.
Robin Oliver: Thank you, Ross. Appreciate it.
Speaker #4: Thanks, Ross.
Scott McKim: Thanks, Ross.
Speaker #1: Next is a follow-up from Ian Green at Pentagon Capital. Please go ahead, Ian.
Operator: Next is a follow-up from Ian Green at Pentagon Capital. Please go ahead, Ian.
Speaker #7: Oh, hi. Thanks. yes, I also appreciate your time. I just wanted clarify, are you're still making those, small SBA loans? And are you still making and what's the pipeline for the SBA products and, and sort of selling off, the piece for gain of sale?
Ian Green: Oh, hi. Thanks. Yes, I also appreciate your time. I just wanted to clarify, you're still making those small SBA loans? And are you still making, and what's the pipeline for the SBA products and sort of selling off the piece for gain of sale? Is that pipeline still active and working?
Speaker #7: Is that, is that pipeline still active and working?
Speaker #6: So on our, SBA loans, you know, we, we are moving towards a, a focus on the core loans, our larger, more, more traditional SBA 7(a) loans that, that folks think of, not the small loan program.
Robin Oliver: So on our SBA loans, you know, we are moving towards a focus on the core loans, our larger, more traditional SBA 7(a) loans that folks think of, not the small loan program. And there is a steady market flow of good premiums on those loans. You know, obviously, through June 30th, we have continued to do small loan program loans. And those do enjoy a very healthy premium. You know, we have seen really outstanding premiums over the past year on those bulk loans when we sell into the secondary market. But you know, we've got to continue to evaluate the credit losses and the profitability of the program to make sure we're looking at that product and the health of it as we move forward.
Speaker #6: And there is a, a study market flow of, of good premiums on those loans. you know, obviously, through June 30th, we have continued to do, small loan program loans.
Speaker #6: And those do enjoy a very healthy premium. you know, we have seen really outstanding premiums over the past year. On those bulk loans, when we sell into the, the, secondary market, but, you ow, we've got to continue to evaluate the, the credit losses and the profitability of the program to, , you know, make sure we're, looking at that, that product and the, and the health of it as we move forward.
Speaker #7: So I, I'm a, a linked, you ow, quarter basis or so. It seemed ike it when, you know, you, you lowered the amount of gain, the gain on sale was down fairly significantly from the first quarter to the second.
Ian Green: So on a linked quarter basis or so, it seemed like it went, you know, you lowered the amount of gain, or the gain on sale was down fairly significantly from the first quarter to the second. Do you anticipate that the gain on sales will continue to decline for a period, or do you think there's some stability in that?
Speaker #7: Do you anticipate that the gain on sales will continue to decline for a period? Or do you think there's some stability in that?
Speaker #4: Yeah. Ross, I, I would, I would ask you to also include the fair value gain in that number. And when you combine those two, it's, it's not down a, a, a, a dramatic amount.
Scott McKim: Yeah, Ross, I would ask you to also include the fair value gain in that number. And when you combine those two, it's not down a dramatic amount. The difference is that because of the added time periods for processing loan applications that we noted in the second quarter, we weren't able to sell them. So we went ahead and booked the loans measured at fair value. And that way, we were able to recognize the gains that we'll pick up when we sell them in the future. As far as going forward, I think the premium percentages that we have earned will continue. The overall total gain impact will be dependent upon what the loan volume is.
Speaker #4: the difference is that the, because of the added time periods for processing loan applications that we noted in the second quarter, we weren't able to sell them.
Speaker #4: So we went ahead and, booked the loans measured at fair value. And that way we were able to recognize the, the gains that we'll pick up when we sell them in the future.
Speaker #4: As far as going forward, I think the premium percentages that we have earned will continue. The overall total gain impact will be dependent upon what the loan volume is.
Speaker #7: Mm-hmm. Okay. Great. All right. so and, and just so another question, but both of your preferred stock issues, are private placements? Or do, do any of yours?
Ian Green: Okay. Great. All right. Oh, and just another question. Both your preferred stock issues are private placements or do any actually trade?
Speaker #4: Yes.
Speaker #7: Sure.
Speaker #4: I'm sorry. Repeat that.
Scott McKim: I'm sorry. Repeat that.
Speaker #7: The preferred stock. So, are they both private placements, or is there a market in your preferred?
Ian Green: The preferred stocks. Are they both private placements, or is there a market in your preferred?
Speaker #4: No. No. No. They do not trade. There's not a market on any of the three of them.
Scott McKim: No, they do not trade. There's not a market on any of the three of them.
Speaker #7: Great. Okay. Well, thank you again for your time.
Ian Green: Great. Okay. Well, thank you again, your time.
Speaker #4: Certainly.
Speaker #1: Next is a follow-up from Julien Cassarino at Sycamore. Please go ahead, Julien.
Scott McKim: Certainly.
Operator: Next is a follow-up from Julian Casarino at Sycamore. Please go ahead, Julian.
Speaker #9: Hi. Real quick. The tangible book per share is 22.30. Does that include the preferred or no? Is that tangible common book per share or just tangible book per share?
Robin Oliver: Hi. Real quick, the tangible book per share, 2,230, does that include the preferred, or no? Is that tangible common book per share or just tangible book per share?
Speaker #4: Tangible book per share.
Scott McKim: Tangible book per share.
Speaker #9: So it includes that preferred amount.
Robin Oliver: So it includes that preferred amount.
Speaker #4: There's.
Speaker #9: The, the, I don't know. My, yeah. Okay. The, the, the loan sale gains, are you selling or just the loan sales? Are you selling the loans with recourse?
Scott McKim: There's.
Robin Oliver: The, I don't know. Yeah. Okay. The loan sale gains, are you selling, or just the loan sales, are you selling the loans with recourse?
Speaker #4: No.
Speaker #7: No.
Scott McKim: No.
Ian Green: No.
Speaker #9: No recourse. Okay. And then have the margin, the loan sale gains on these SBA loans, has that margin been, what is the margin and has it been changing, you know, any trending, any direction?
Robin Oliver: No recourse. Okay. And then has the margin, the loan sale gains on these SBA loans, has that margin been, what is the margin and has it been changing? You know, any trending in any direction?
Speaker #4: Let me characterize it this way, Julien. When the loans are offered in the market, investors will buy them, and they will purchase the loans at a premium.
Scott McKim: Let me characterize it this way, Julian. It's when the loans are offered in the market, investors will buy it, and they will purchase the loans at a premium. So I guess, you know, I'll use that term premium. I would say that what we have seen with the premiums that we are earning on, if they've been relatively stable, the SBA has reinstituted some guarantee fees across the board. And you know, those have depressed the overall gross premiums that we've earned by about by about 100 basis points. But we still get on the small dollar loans, as we sell them in the marketplace, it's still somewhere in the neighborhood of 13% or so. And then the core loans are a little bit less. They tend to be about 10%.
Speaker #4: So I guess, you know, I'll use that term premium. I would say that, that what we have seen with, the premium is we are earning on it.
Speaker #4: If they've been relatively stable, the SBA has reinstituted some guarantee fees across the board. And, you know, those have depressed the overall gross premiums that we've earned about, by about 100 basis points.
Speaker #4: But we still get, on the small dollar loans, as we saw them in the marketplace, it's still somewhere in the neighborhood of, you know, 13% or so.
Speaker #4: And then the core loans are, are a little bit less. They tend to be about 10%.
Speaker #9: Has that been changing any, any direction and changing at all?
Robin Oliver: Has that been changing any direction and changing at all?
Speaker #4: No. That's been fair; that's been fairly stable.
Scott McKim: No, that's been fairly stable.
Speaker #9: Okay. Okay. All right. Thank you.
Robin Oliver: Okay. Okay. All right. Thank you.
Speaker #4: Certainly.
Scott McKim: Certainly.
Speaker #1: Thank you. And at this time, we have no other questions registered. Which will conclude your conference call for today. We thank you for attending and at this time ask that you please disconnect your lines.
Operator: Thank you. And at this time, we have no other questions registered, which will conclude your conference call for today. We thank you for attending, and at this time, ask that you please disconnect your lines. Enjoy the rest of your day.