Barry Sloane: It’s a tough industry. I am just going to be frank with you. And this is from somebody that just got into it. So, I always try to answer honestly and transparently. It’s an industry currently that right now it’s feasted on low-cost deposits. And it’s far easier to move money today from bank to bank and doing it on your phone. And even corporate treasurers are realizing, gee, I only need to keep a couple of bucks in my checking account and I can move the rest of it into a money market account. I can just get the money back and forth. So, the deposit side is where banks have made money, not on the asset side. And what happened in ‘08, ‘09 is the regulators in the banking industry said, okay, we have just got to really tighten up on the risk profile for credit.
So, everyone is piled into this small bucket of car loans, residential mortgage loans, CRE loans, C&I loans that don’t have a lot of margin. So, I think I am talking about an industry I just got into, it’s not going to be an easy industry to make a lot of money in.
Christopher Nolan: I was thinking more along lines forward of where do you see the healthy industry in terms of asset quality and so forth. There are a lot of concerns about our commercial real estate in general.
Barry Sloane: I think that the industry will be able to get its capital. I do not believe short rates are going to remain here for that much longer, and that’s going to reduce the pressure on CRE assets, which is really where. Right now there is the two problems with the industry relative to health and that would be CRE and that’s very much rate driven. And the other aspect of it is obviously asset liability management because as long as bills are yielding 5%, there is going to be more pressure to migrate money into money – government guaranteed money market funds for some bank accounts.
Christopher Nolan: Good. That’s it for me. Thank you.
Barry Sloane: Thank you.
Operator: [Operator Instructions] Our next question comes from the line of Steve Moss of Raymond James. Your line is now open.
Steve Moss: Good morning.
Barry Sloane: Good morning, Steve.
Steve Moss: Good morning. Barry, you mentioned, or maybe it might have been Scott, that with regard to SBA originations here, that you were kind of like, I guess worked to the fact of driving efficiencies. Given your guidance here, holding it steady after a strong quarter in my mind on the SBA origination front, just kind of curious if maybe internally are you at capacity in the short to intermediate-term for your SBA originations? Just kind of curious as to why that number isn’t being revised higher, let’s put it that way.
Barry Sloane: Yes. No, Steve, I am looking for the loan pipeline for 7(a). And it’s up on pre-qual 15% and underwriting 54%. Now, the approved pending closing is pretty flat. That’s because we are becoming more efficient and we are getting the loans in and out quickly. But no, we are not at capacity. We have got more alliance partners that are realizing we could help put them in the business, help them make loans either for their license or ours. And the business model of us using alliance relationships and getting referrals continues to grow and outperform the BDO broker and banker model.
Scott Price: The only thing I would tack onto that, Steve, and it’s a good question. Where we are in terms of soft landing, no soft landing, what’s going to happen, it feels a little bit early to increase our production for the year in light of that uncertainty. So, we decided that that was the most prudent course of action. Could there be upside, sure. But depending on where the economy, it could easily go the other way. So, that was the thought process.
Steve Moss: Okay. Great. Appreciate that color there. And then in terms of just circling back to the seizing of the portfolio, I hear you guys in terms of the 8% lost content discounted back. Maybe just kind of thinking about it, delinquencies, if I look at them here on a trailing 12-month basis from loan balances, around roughly 9% call it, curious how we think about as things season and you hit, whether it’s the 18-month to 40-month time range, what is kind of like that pink peak delinquency number you guys expect, kind of the peak non-performing type number in terms of the origination portfolio?
Barry Sloane: I mean you could see what I will call the currency rate on that portion of the portfolio. Now, by the way, that’s going to be blended in with the AAA quality loans that banks normally do that have got low margins, etcetera. But I mean you could see the currency rate at 90 plus or minus. We hope it doesn’t get there, but that’s not inconceivable.
Steve Moss: Got it. Okay.
Barry Sloane: But that’s over time, and I would tell you for doing this for 20 years, on lower volumes and earlier phases of our life we have seen it, that doesn’t mean that you are going to have extraordinary charge-offs. I think it’s just trying to say that if you do see it, you don’t need to head for the balcony or the windows, because the loans are personally guaranteed, there is collateral behind it and it’s within the realm of what these charges, or the other thing too Steve is, when you are looking at the charge-offs, these are spread out. It’s a big number, right. But these are spread out. These are not bank loans that are due in 2 years, 3 years, or 5 years. These are spread out over fairly lengthy periods of time, and we are actually putting new business on and old business on.
Once again, we have got all the models after 20 years of doing this to be able to really analyze the static pool to make sure that we have got the right reserves against these loans.
Steve Moss: Right. Okay. I appreciate that color there. And then just one more question on the business checking and business money market you guys are rolling out here. Just kind of curious if you share any thoughts on internal targets you may have for those products or how you are thinking about that performance over the next 12 months.
Barry Sloane: Scott, do you want to share some of those numbers if you have them?
Scott Price: Yes, Steve. So, we expect to roll out in earnest. We have run a pilot with some select customers. We have got $20 million of balances, I believe as of quarter end. We believe that we can generate $150 million of business deposits and that could be on the low side. The high side could be $300 million is not inconceivable. What I would say the real question that we are going to be grappling with as we get to know how this product performs with our customer base is what kind of retention we have on those funds. And that’s something that we are going to be learning as we go along, we have certainly put our best foot forward and estimating how much a typical customer will retain in our bank. But we believe that that is our key to profitability improvement going forward.
To Barry’s point, offering products and services to small businesses is what we do. We invest in America. And we are confident that the innovation of the American business percent is going to continue. And we don’t want to offer products and services to enable them as much as possible to succeed. We will have features with our – with this product that we believe will be competitive, particularly on price. Certainly, we don’t have the same budget as some of the big guys do with slip apps and interfaces, etcetera. But we believe price is where we can compete and we can make – we can give business owners opportunities to work in their business instead of on their business. So, that’s what we believe we are going to offer with this product.
Like I have said, anywhere from $150 million to $300 million, plus or minus. And so we are going to see how it plays out, and we will be updating the market as we move forward.
Steve Moss: Great. Thank you very much. I appreciate all the color.
Barry Sloane: Steve, thanks for hanging in there with us. Thank you.
Operator: I apologize. Thank you for your question. This does now conclude our question-and-answer period. I would like to pass it back over to Barry Sloane for closing remarks.
Barry Sloane: Well, we certainly appreciate everyone’s attendance, the thoroughness of the questions. We have obviously tried to work hard to condense it, but there is a lot of information that obviously the marketplace wants. We want to make sure that you have that. And feel free to e-mail or call with any other questions you might have. But once again, thank you for your attention and your thoughtful questions. We appreciate it. Thank you very much.
Operator: Thank you. This does conclude today’s presentation. You may now disconnect.
