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01/10 16:34
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights strong financial performance with a significant increase in income and yield on assets. Positive developments include a decrease in delinquencies, proactive loan management, and optimistic credit outlook. The company's strategic focus on higher-yielding opportunities and share buyback plans further boost sentiment. However, increased credit loss allowances and nonperforming loans are concerns. Overall, the positive financial metrics, strategic initiatives, and shareholder return plans suggest a positive stock price movement.
Adjusted Total Revenues $43.5 million, an increase of 30% over the second quarter. Revenue growth was driven by a significant increase in the gain on sale of SBA guaranteed loan balances.
Net Interest Income Increased over 8% compared to the linked quarter and was up 40% compared to the third quarter of 2024, driven by higher earning asset yields and lower deposit costs.
Net Interest Margin Increased 8 basis points from the second quarter to 2.12% on a fully tax equivalent basis.
Provision for Credit Losses $34.8 million, which included $21 million of net charge-offs, additional specific reserves, and a significant increase to the allowance for credit losses related to small business lending. This was to address credit issues in the small business lending and franchise finance portfolios.
Total Delinquencies 35 basis points as of September 30th, down from 62 basis points in the second quarter and 77 basis points in the first quarter. This reflects improvement in the portfolio's credit quality.
Commercial Loan Balances Up $115 million or 3.2%, excluding the impact of the loan sale.
Total Loan Balances Up $105 million or 2.4%, excluding the impact of the loan sale.
Gain on Sale of SBA Loans $10.6 million in gain on sale revenue, rebounding strongly in the third quarter following process improvements.
Fintech Initiatives Revenue Up 14% compared to the second quarter and up 130% from the third quarter of 2024, driven by interest income and program and transaction fees.
Net Loss $41.6 million or $0.0476 per diluted share. Excluding the pretax loss on the loan sale of $37.8 million, adjusted net loss for the quarter was $12.5 million or $1.43 per diluted share.
Adjusted Pretax Pre-Provision Income $18.1 million, an increase of over 50% from the second quarter and almost 65% from the third quarter of 2024.
Yield on Average Interest-Earning Assets Rose to 5.68% from 5.65%, driven primarily by an 11 basis point increase in loan yields.
Cost of Interest-Bearing Liabilities Declined to 3.90% from 3.96%, driven mainly by a 5 basis point decrease in interest-bearing deposit costs and a 7 basis point decrease in the cost of other borrowings.
Allowance for Credit Losses (ACL) Increased to $59.9 million in the third quarter, up $13.4 million or almost 30% from the second quarter, primarily driven by updated inputs to the CECL model and higher SBA loan default rates.
SBA and BaaS businesses: Contributed meaningful growth to noninterest income, with SBA loan sales generating $10.6 million in gain on sale revenue.
AI technology in SBA processes: Invested in AI technology for document collection and verification to streamline borrower experience and improve credit insights.
Loan originations: Commercial loan balances increased by $115 million (3.2%), and total loan balances rose by $105 million (2.4%).
Fintech partnerships: Generated 14% growth in revenue compared to the second quarter and 130% growth compared to the third quarter of 2024.
Net interest income: Achieved eighth consecutive quarter of growth, increasing by 8% from the linked quarter and 40% from the third quarter of 2024.
Loan sale of $837 million: Enhanced interest rate risk profile, strengthened capital ratios, and improved net interest margin.
Credit quality improvements: Delinquencies reduced to 35 basis points from 62 basis points in the second quarter.
Process improvements in SBA lending: Refined credit standards and introduced predictive analytics for better credit outcomes.
Balance sheet optimization: Moved over $700 million of fintech deposits off balance sheet to optimize size and flexibility.
Credit Issues in Small Business Lending and Franchise Finance Portfolios: The company recognized a $34.8 million provision for credit losses, including $21 million of net charge-offs. Credit issues are isolated to small business lending and franchise finance portfolios, with delinquencies in these areas significantly impacting financial performance.
Government Shutdown Impact on SBA Loan Sales: The ongoing U.S. government shutdown has halted sales of SBA loans into the secondary market, potentially delaying revenue generation from these loans if the shutdown continues.
Loan Sale Losses: The sale of $837 million of single-tenant lease financing loans resulted in a net loss of $37.8 million, negatively impacting shareholders' equity and regulatory capital.
Increased Nonperforming Loans: Nonperforming loans increased to $53.3 million, up $9.7 million from the previous quarter, driven by franchise finance loans moved to nonaccrual status.
Higher SBA Loan Default Rates: SBA loan default rates across the industry are approximately 2.3 times higher in 2025 than in 2022, leading to a significant increase in the allowance for credit losses.
Regulatory Capital and Balance Sheet Challenges: The loan sale reduced shareholders' equity and regulatory capital, though the reduction in risk-weighted assets partially offset this impact.
Dependence on Federal Reserve Rate Cuts: A significant portion of deposits (27%) is indexed to the Fed funds rate, making the company sensitive to changes in interest rates.
Potential Decline in SBA Origination Volumes: Heightened credit standards for SBA lending are expected to reduce origination volumes in 2026, potentially impacting noninterest income.
Loan Balances: Loan balances are expected to increase at an unannualized rate of 4% to 6% in the fourth quarter of 2025, driven by consistent origination levels and a lower starting point after the sale of single-tenant lease financing loans.
Net Interest Margin (NIM): The net interest margin on a fully taxable equivalent basis is projected to increase to a range of 2.4% to 2.5% in the fourth quarter of 2025, supported by higher loan yields and lower funding costs.
Net Interest Income: Fully taxable equivalent net interest income is expected to range between $32.75 million and $33.5 million for the fourth quarter of 2025.
Noninterest Income: Noninterest income is projected to range between $10.5 million and $11.5 million for the fourth quarter of 2025, contingent on the resolution of the U.S. government shutdown to enable SBA loan sales.
Noninterest Expense: Noninterest expenses are expected to range between $26 million and $27 million for the fourth quarter of 2025.
2026 Noninterest Income: Noninterest income for 2026 is forecasted to be between $41.5 million and $44.5 million, reflecting a decline in SBA origination volumes due to heightened credit standards.
2026 Noninterest Expense: Noninterest expenses for 2026 are estimated to range between $106 million and $109 million, influenced by lower SBA origination volumes.
The selected topic was not discussed during the call.
The earnings call highlights strong financial performance with a significant increase in income and yield on assets. Positive developments include a decrease in delinquencies, proactive loan management, and optimistic credit outlook. The company's strategic focus on higher-yielding opportunities and share buyback plans further boost sentiment. However, increased credit loss allowances and nonperforming loans are concerns. Overall, the positive financial metrics, strategic initiatives, and shareholder return plans suggest a positive stock price movement.
The earnings call presents a mixed picture. Positives include improved loan metrics, strong net income growth, and promising fintech partnerships. However, noninterest income decline, cautious provision guidance, and unclear management responses on key issues like charge-offs and stock buybacks temper enthusiasm. The market may react neutrally due to these conflicting signals, with no significant partnerships or guidance changes to sway sentiment strongly.
The earnings call presents mixed signals: strong loan growth, increased net interest income, and fintech partnerships are positive, but significant noninterest income decline, franchise finance challenges, and elevated loan loss provisions are concerning. The Q&A reveals management's reluctance to provide clear guidance, which adds uncertainty. The share buyback intention could support the stock price, but economic uncertainties and operational challenges balance the outlook. Overall, the sentiment remains neutral.
The earnings call reveals increased losses, elevated net charge-offs, and operational challenges, which are concerning. The Q&A section highlights management's avoidance of direct answers on critical issues and economic uncertainties impacting SBA. Despite some positives like FinTech partnerships and improved NIM, the lack of a share repurchase program and increased credit losses weigh negatively. Without a market cap, the overall sentiment leans towards negative due to financial health concerns, overshadowing moderate growth in certain areas.
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