Ross Haberman

Ross Haberman from RLH Investments asked CEO and Chairman Mark Mordell whether Avidbank Holdings, Inc. is adjusting the size of loans it originates following the new capital infusion from the IPO, and if the bank is engaging in loan participations.

Answer

CEO and Chairman Mark Mordell explained that while the new capital increases Avidbank's legal lending limit, the bank primarily continues to focus on loans of $25 million and under to manage overall credit risk, only considering larger deals for long-standing clients with well-understood credit profiles. He confirmed that Avidbank does engage in loan participations, particularly on the fund finance side, with approximately $70 million currently in syndications, viewing them as a means to achieve good yields with low risk and solidify relationships in the venture community.

Ross Haberman from RLH Investments asked about the potential accretive impact on Norwood Financial's margin or spread from an additional quarter-point rate drop. He also questioned where the company is experiencing the strongest loan growth and demand, and if this trend is expected to continue into the fourth quarter, considering the impact of lower rate expectations.

Answer

John McCaffrey, CFO, indicated that a rate drop would be accretive to deposit costs but hesitated to provide a specific dollar or basis point amount due to portfolio dynamics and timing. James Donnelly, CEO, stated that loan growth has been broad-based across categories, with no single major growth factor, noting a slight decrease in the agricultural portfolio percentage.

Ross Haberman from RLH Investments asked about the potential accretive impact on Norwood Financial's margin or spread from an additional quarter-point rate drop. He also questioned where the company is experiencing the strongest loan growth and demand, and if this trend is expected to continue into the fourth quarter, considering the impact of lower rate expectations.

Answer

John McCaffrey, CFO, indicated that a rate drop would be accretive to deposit costs but hesitated to provide a specific dollar or basis point amount due to portfolio dynamics and timing. James Donnelly, CEO, stated that loan growth has been broad-based across categories, with no single major growth factor, noting a slight decrease in the agricultural portfolio percentage.

Ross Haberman from RLH Investments asked for clarification on administrative expenses, questioning if they would continue to grow, and inquired about the company's exposure to California wildfires, including any new allowances or impact from recent events.

Answer

CEO Joseph Brown stated that administrative expenses would likely only see a significant increase if the company closes on an M&A transaction. Regarding wildfires, he confirmed that the reserves established in Q1 for previous fires have held firm with minimal movement and that the company has not seen any significant exposure from the newest fires in California.

Ross Haberman inquired about the timeline for GBLI's expense ratio to decrease below 40% and asked for an explanation regarding the issuance of approximately 500,000 new A2 shares.

Answer

CFO Brian Riley stated that the long-term expense ratio target of 37% is likely a 2026 or 2027 event, with 2025 expected to be in the 39-40% range. CEO Joseph Brown explained that 550,000 A2 shares were issued to Fox Paine as a fee for their advisory role in implementing 'Project Manifest'. He clarified that these shares have voting and dividend rights similar to A shares but only accrue value if the company's value increases beyond the book value at the time of issuance, making them a hybrid of restricted stock and an option.

Ross Haberman of Haberman Management Corporation inquired about the runoff timeline for discontinued business lines, the company's strategy for adding new lines, and any share repurchase activity in the quarter.

Answer

CEO Joseph Brown stated that less than $5 million in earned premium from discontinued lines remains to run off through the end of 2025. He explained that while GBLI is constantly looking for new opportunities, the focus will shift to adding new products in 2025 and 2026 after a two-year period of stabilizing the core business. Brown also confirmed that no shares were repurchased during the quarter.

Ross Haberman of RLH Investments sought clarification on why it will take one to two years to bring the expense ratio back in line and whether accelerating expense cuts would risk losing business.

Answer

CFO Brian Riley explained that the company consciously maintained staffing levels to ensure high customer service despite a premium drop, leading to a higher expense ratio. He detailed that the current ratio of approximately 39% includes 13 points of fixed costs, which needs to decline to 11 points to hit the target of 37%. This improvement is expected to come from a combination of double-digit premium growth and modest inflationary increases in dollar-based expenses.

Ross Haberman from RLH Investments questioned the total size of the BOLT loan portfolio on the balance sheet, requesting a breakdown of the unguaranteed portion where credit issues are concentrated. He also asked for more details regarding the company's mention of evaluating "strategic alternatives" and whether an investment banker has been retained.

Answer

Executive VP & CFO Scott McKim provided approximate figures, stating the total SBA portfolio is around $350 million, with the BOLT loan component at about $160 million. He specified that the unguaranteed, stressed portion of small-dollar loans was approximately $123 million as of June 30, which is the largest component of the allowance for credit losses. Regarding strategic alternatives, President & COO Robin Oliver stated that while the company is evaluating all possibilities for a successful path forward, they could not comment on whether an investment banker has been hired, as the evaluation is ongoing.

Ross Haberman inquired about BayFirst's financial exposure to the recent hurricanes in the Tampa Bay area and whether the bank had quantified the potential impact.

Answer

Executive Tom Zernick, CFO Scott McKim, and President and COO Robin Oliver addressed the question. They confirmed proactive outreach to affected customers with deferral offers. McKim stated it was too early to assign a specific dollar figure to the exposure but noted many customers were prepared. Oliver added that properties securing loans in flood zones have adequate insurance, and the bank expects a rapid recovery for the area, mitigating long-term impacts.

Ross Haberman from RLH Investments requested a market-by-market breakdown to identify any geographies experiencing softness in loan originations. He also asked about the financial impact of the new personnel, specifically if they would cause a significant expense increase and how quickly they are expected to become accretive to the bottom line.

Answer

Executive Scott Wylie provided a high-level overview, noting the Colorado Front Range remains healthy, resort communities show continued interest, and Bozeman is a hot market. He stated that expenses are expected to remain flat despite the new hires, as the company aims to generate operating leverage. Wylie expressed optimism that the new personnel will have a positive impact over the next 2-3 quarters.

Ross Haberman asked about the profitability of the newer offices in Arizona and Montana, any plans for expansion or acquisitions in those markets, and the status of the company's share buyback program.

Answer

CEO Scott Wylie, COO Julie Courkamp, and CFO David Weber confirmed that the Arizona offices are profitable, and the Bozeman, Montana office is roughly breakeven and trending positively. Scott Wylie stated they are investing in these growth markets but that M&A is difficult with the stock trading below tangible book value. He also confirmed the 10b5-1 share repurchase plan remains active, though only a small number of shares have been bought back to date.

Asked about the repricing of the loan portfolio, the potential for net interest margin expansion in a stable rate environment, the sustainability of the recent strong loan growth, and the company's hiring plans for new lenders. In a follow-up, he inquired about the profitability of the mortgage business, its expected volume in 2025, and potential for cost-cutting in that division.

Answer

Executives stated that while it's hard to predict rates, the loan portfolio should reprice higher with rising rates, and they are optimistic about margin expansion even in a stable environment due to other factors like investment portfolio restructuring. The strong Q4 loan growth may not be repeatable quarterly, but the pipeline is strong. The company is selectively hiring lenders. Regarding the mortgage business, they don't disclose segment profitability but noted it runs lean and provides cross-sell opportunities, and that all business lines are being evaluated for efficiency.

Ross Haberman inquired about the outlook for net interest margin if rates remain stable, the sustainability of the fourth quarter's strong loan growth, and the bank's plans for hiring new lenders. He also asked about the profitability of the mortgage business and its potential for cost reductions.

Answer

CEO Abigail Wendel, CFO Mark Herpich, and CCO Raymond McLanahan collectively addressed the questions. They indicated that even in a stable rate environment, they expect margin expansion, aided by deposit-side levers and a recent investment portfolio restructuring. Wendel noted that while Q4's 20% annualized loan growth might not be repeatable every quarter, the pipeline remains strong. She also confirmed recent lender hires and an ongoing recruiting effort. Regarding the mortgage business, Wendel stated that while segment profitability isn't disclosed, the unit runs lean and the bank is continuously evaluating all business lines for efficiency.

Asked about the future trend of expenses, particularly legal fees, other non-recurring items, the repricing dynamics of loans versus liabilities, the resolution of nonaccrual loans, concerns about delinquencies, and the significance of the mark-to-market footnote in the 10-K.

Answer

The executive stated that significant legal expenses related to the OCC investigation are largely finished. The bank plans to pay off a maturing FHLB advance rather than renew it. While about $200 million in loans reprice quarterly, rising deposit costs are expected to continue pressuring margins. The $9 million in nonaccrual loans are residential, not considered a major issue, and are expected to be resolved without significant loss. There are no major concerns in the delinquency or criticized loan buckets. The mark-to-market footnote is viewed as a reasonable data point for estimating embedded interest rate risk.

Asked about credit trends in the leasing portfolio, the specific allowance for those loans, and the metrics used for determining executive bonuses.

Answer

The executive responded that the leasing portfolio is stable, with the corporate segment performing very well, and noted the bank does not invest in residuals. The CFO specified that the allowance for the non-government/non-investment grade portion of the Equipment Finance portfolio is about 1%. For the question on executive bonuses, the executive referred the analyst to the company's Proxy statement.

Ross Haberman of RLH Investments questioned a related-party transaction where ships were bought from an affiliate and later spun off with a $9 million writedown. He suggested that the optics of such transactions might contribute to the stock's low valuation.

Answer

CEO Harry Vafias clarified that the vessels were acquired when the market was higher and the subsequent impairment charge from the spin-off is a non-cash item that provides protection against future losses. He defended the company's history of related-party transactions, noting that previous, highly profitable vessel purchases from affiliates did not draw criticism, and emphasized that while market predictions are not always perfect, the majority of their strategic moves have been successful.

Ross Haberman of RLH Investments questioned the optics of a related-party transaction where ships were purchased from an affiliate and later spun off, resulting in a $9 million writedown. He suggested such transactions might contribute to the stock's low valuation.

Answer

CEO Harry Vafias explained that the ships were acquired when the market was higher and the subsequent impairment is a non-cash item that provides accounting protection against future losses on a sale. He defended the company's track record, noting that previous profitable related-party transactions did not draw criticism and that market fluctuations are inherent to the shipping business.

Ross Haberman from RLH Investments questioned the specifics of a dry bulk transaction where ships were bought from an affiliated party and subsequently spun off a year later with a $9 million writedown. He suggested that such related-party transactions could be negatively impacting the stock's valuation.

Answer

CEO Harry Vafias clarified that the vessels were acquired when the market was higher and the spin-off necessitated a non-cash impairment charge, which does not affect cash flow and protects against future losses on a sale. Vafias defended the company's track record with related-party transactions, citing previous instances where vessels were bought from affiliates at low prices and later appreciated significantly, arguing that the majority of their strategic moves have been profitable.