Bayfirst Financial (NASDAQ:BAFN) Q1 2026 Earnings Call

7:10 Good morning, ladies and gentlemen, and welcome to BayFirst Financial Corp. First Quarter twenty twenty six Conference Call and Webcast. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Friday, 05/01/2026. I would now like to turn the conference over to the Chairman of the Board, Anthony Saravanos. Please go ahead. Thank you, Joanna. Good morning, and thank you for joining our call today. With me is Scott McKim, our CFO Robin Oliver, our COO and I would like to introduce Al Rogers as the new Chief Executive Officer and President of BayFirst National Bank.

7:57 We are announcing some exciting news regarding the future of BayFirst. First, we have raised $80,000,000 of capital from investors through a private investment in a public equity offering. The company issued shares of convertible preferred stock in this pipe, which subject to shareholder and regulatory approvals will convert to or be exchanged for approximately 22,900,000 shares of common stock at an effective purchase price of $3.50 per share. We are announcing a rights offering for our existing shareholders to participate in this capital raise and are scheduling a special shareholder meeting on July 14. This successful capital raise reflects the trust our investors place in our institution and our long term strategic direction.

8:51 This has been a lengthy process over the past several quarters following the bank's exit from SBA seven lending. I am extremely pleased to have Al join Robin, Scott and all the BayFirst team members to lead the company back to profitability and growth as a premier financial institution of Tampa Bay. We will hear more from Al in a few minutes. The Board of Directors have made additional decisions, including the appointment of Kenneth R. Lehman as a member of both boards. Al's appointment to the Board of Directors of the Bank and as Chief Executive Officer have received all necessary regulatory approvals. The appointment of Al as CEO and President of the holding company as well as a Director is contingent upon receipt of regulatory nonobjection.

9:46 Ken Lehman's appointment to the Board of Directors of the holding company and the bank are also contingent upon receipt of regulatory nonobjections. Finally, the Board of Directors have made the decision to resume dividend payments to our preferred shareholders and will formally redeem the Series A shares. Now I'm going to turn the call over to Scott, who who will discuss the earnings report for the quarter and the impact of the capital raise. Thank you, Anthony. Good morning, everyone. Please remember 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 are reporting a net loss of $5,700,000 in the first quarter.

10:34 This compares to a net loss of $2,800,000 we reported for the fourth quarter of last year. Loans held for investment decreased by $33,500,000 or 3% during the first quarter of twenty twenty six, down to $930,400,000 and decreased $154,400,000 or 14% over the past year. Most of this decrease year over year reflects the sale of loans as well as our exit from SBA seven lending that we had mentioned in previous quarters. Deposits decreased $98,000,000 or 8% during the first quarter of twenty twenty six and decreased $42,400,000 or 4% over the past year to $1,090,000,000 The decrease in deposits during the quarter was primarily due to reductions in high rate promotional deposits held with non relationship customers and also a decrease in brokered deposits.

11:34 83% of the bank's deposits were insured by FDIC on 03/31/2026. And the bank's balance sheet liquidity ratio as of 03/31/2026 was 13.85% and the bank did not have any wholesale borrowings. Shareholders' equity at quarter end was $81,900,000 which is $5,700,000 lower than the end of twenty twenty five. Net accumulated other comprehensive loss increased slightly by $94,000 during the quarter and ended at $2,100,000 Tangible book value decreased this quarter to $15.74 a share from $17.22 per share at the end of the fourth quarter.

12:20 Our net interest margin was 3.42, down 16 basis points from fourth quarter. Net interest income was $9,400,000 in the first quarter, down $1,700,000 compared to the fourth quarter and down $1,500,000 in the year ago quarter. This reduction reflects the sale of portfolio sale of loans that we announced and fulfilled back in December 2025 of approximately $97,000,000 Notably, the bank's cost of funds was also 27 basis points lower than the fourth quarter, reflecting efforts to exit promotional rate balances on deposits and broker deposit balances. Noninterest income was $884,000 in the first quarter of twenty twenty six, which is a $1,000,000 improvement for the fourth quarter of twenty twenty five and a decrease of $7,900,000 from the year ago quarter.

13:19 The year over year decrease is primarily from the decrease in gains on the sale of SBA seven government guaranteed loans. Please recall that with the exit of SBA seven lending, revenue from gains on sale of government guaranteed loans will no longer impact our non interest income as it has in prior periods. Non interest expense was $14,900,000 an increase of $3,000,000 compared to the fourth quarter. Most of this increase is $2,300,000 represents a full quarter of servicing costs on the bank's legacy SBA seven portfolio. The bank still receives a servicing strip on the guaranteed balances, which we had sold in prior periods, and the bank also is the holder of the related servicing rights on these loans. That revenue less the amortization of the servicing rights was $770,000 and is recorded as non interest income.

14:11 Compensation costs were higher by $700,000 reflecting lower deferred personnel costs and higher commission and bonus expenses. Provision for credit losses was $3,100,000 in the first quarter compared to $2,000,000 in the fourth quarter and $4,400,000 in the first quarter of twenty twenty five. Net charge offs were $4,400,000 down $200,000 from the fourth quarter, which was at $4,600,000 Unguaranteed SBA seven loans accounted for $3,400,000 of the $4,400,000 in net charge offs during the last quarter. By comparison, unguaranteed SBA seven loans accounted for $4,400,000 of the $4,600,000 of net charge offs we announced in the fourth quarter.

14:58 The bank had 159,300,000 of unguaranteed SBA seven loan balances on 03/31/2026. This is a decrease of $12,300,000 from 12/31/2025. Total annualized net charge offs as a percentage of average loans held for investment at amortized cost were 1.98% for the first quarter, up slightly from 1.94% in the fourth quarter of twenty twenty five. The ratio of allowance for credit losses on loans held for investment at amortized cost was 2.35 at 03/31/2026. That compares to 2.42% as of 12/31/2025 and one point six one percent as of 03/31/2025.

15:48 The ratio of ACL to total loans held for investment and amortized cost excluding government guaranteed loan balances was 2.53% at 03/31/2026, down very slightly from March from 2.58% as of 12/31/2025, and 1.84% as of 03/31/2025. The increase in ACL ratios from the prior year was a result of increases performing loans and continued economic stability impacting this portfolio. The addition of $80,000,000 of additional capital will provide for growth and expansion of the Community Bank with a focus being on relationship growth through lending across the bank's retail footprint.

16:34 The bank has no plans to deploy lending programs outside of the Tampa Bay and Sarasota markets. It also provides foundational support as the bank continues to manage portfolio, which continues to account for most of the bank's net charge offs and our allowance for credit losses. The bank's Tier one leverage ratio was 6.54% at the end of March compared to 6.52% at the end of twenty twenty five and eight point five six percent at the end of March of last year. Total capital to risk weighted assets ratio was 9.84% as of 03/31/2026. That compares to 10.18% as of 12/31/2025, and 11.73% as of 03/31/2025.

17:24 On a pro form a basis, giving effect to a $42,000,000 capital contribution from the holding company to the bank, the Tier one leverage ratio improved to 10.02% as of March 31. The total capital to risk weighted assets ratio improved to 14.40% as of 04/30/2026. At this time, I will hand the call over to Robin for some additional comments on credit and operations. Thank you, Scott. As we look forward to the future growth of the bank and work towards returning to profitability, we will simultaneously closely manage our credit risk and problem assets to reduce future losses. The additional capital will allow us to make different decisions on the resolution of problem assets than we otherwise could have.

18:13 That being said, we have already taken proactive steps to resolve non performing and classified credits as quickly as possible and are continually working with our BayFirst team as well as our lender service provider who services our SBA seven portfolio to enhance collection processes, collect updated financials from borrowers as quickly as possible and to evaluate loans for upgrade or return to accrual status whenever appropriate. At the end of the first quarter, total nonperforming loans, excluding government guaranteed balances, were $15,900,000 down from $16,300,000 at the end of the fourth quarter. The percentage of nonperforming loans excluding government guaranteed balances compared to total loans held for investment was up slightly by one basis point to 1.81% from the fourth quarter and up 34 basis points from the year ago quarter.

19:09 It should be noted that of the $15,900,000 in nonperforming loans, 3,800,000 of these balances were current and paying as agreed. In addition, classified loans remain relatively unchanged from last quarter, and as of quarter end, 68% of the bank's classified loans were current and performing loans whereby we are working with the borrowers towards resolution. While we acknowledge that problem loans and charge offs remain elevated, we want to assure you we are taking proactive measures to get the losses behind us as quickly as possible so we can focus on our bright future ahead. Our focus over the last two years on growing business deposits and treasury services while maintaining our fantastic set of consumer products should set us up to adapt quickly to serve a growing client base and add earnings to the bottom line.

20:02 We believe our current set of products, along with our technology and branch footprint, positions us well to support this future growth that is needed for BayFirst to thrive and return to profitability in our fantastic Tampa Bay market. At this time, I will turn the call over to Al to make some final comments. Thank you, Robin, Anthony and Scott. I'm excited to begin my next chapter with the Board and the Bank's leadership at BayFirst. While progress has been made with our focus on community banking, much work lies ahead for us. I've worked in the Tampa Bay market for most of my career and our terrific network of branches and dedicated people are the ideal foundation for BayFirst to become the community bank of choice in our market.

20:51 I'm looking forward to getting to know our talented people. I've been blessed to have had the opportunity to lead several community banks with each serving and helping to grow local businesses and retail customers. BayFirst has the same dedication to this community and I'm looking forward to rolling up my sleeves with the team to accomplish great things right here in our backyard. This means investing dollars back into our community to create opportunities, fund investments and expand businesses that generate jobs. I will be working with our marketplace leaders to expand our reach across the Tampa Bay area. Our branch network is well positioned for growth and we will be leveraging this network with more focus than in the past.

21:38 We plan on expanding our presence specifically in the Tampa Metropolitan Area, providing more coverage beyond the two branches we currently have today. I've spent the past few months working as a consultant for BayFirst and in that capacity, I've supported the capital raise to ensure that much of the investment in this capital raise came from local investors whom I have known and done business with for several years. I believe that local investors make the best partners for community banks. This also reinforces the bank's network of partners and will lead to deposit and loan growth opportunities. Finally, I already know many of our investors and look forward to meeting the rest of you. As we proceed with the rights offering Anthony mentioned, Robin, Scott and I are looking forward to speaking with each and every one of our existing investors should they have any additional questions.

22:37 Operator, I will now turn the call back over to you, so that we could take some questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. The first question comes from Ross Haberman at RLH Investments. Please go ahead. Morning, Al. Al, welcome on board. As you said, you're going to have some heavy lifting.

23:27 Could you just prioritize what your one, two and three initiatives are going to be? And then specifically, could you address the non guaranteed portion, the $160,000,000 and how you view that and your initial thoughts on what kind of plug you're going to need for that $160,000,000 Thank you. You. Goals, really get an understanding of the portfolio. As Robin mentioned, we have to work diligently at working our way out of that. So that's really number one. Returning to profitability is number two.

24:18 And of course expanding, deepening and growing relationships with local customers is our ultimate goal as we look to stabilize and grow the bank. Hard for me to say at this point, having just arrived as to what we're going to need to shore up the current loan book, but I can turn that over to one of my partners here should they want to expand on that. Ross, this is Scott. I'll kind of talk a little bit more about it. I think previously, we've had a conversation around how much is set aside in terms of review of reserves for the unguaranteed components of the portfolio.

25:04 And what I can share with you is that the BOLT and the flash cap components of that portfolio, which represent about $100,000,000 of the $159,000,000 that's there. Those collectively are reserved at close to 13%. So that makes up the bulk of what is in the allowance for credit losses right now, approximately almost $12,000,000 of the 20,000,000 that's out there. The other components, the core real estate and the core C and I, those are reserved at closer to 4%. And those particular groups of loans don't exhibit the same high default characteristics that the bull of the flash cap portfolio do.

25:49 I think that we continuously are looking at this thing. And the allowance according to GAAP and the CECL model, we are adequately reserved for that portfolio. That's not to say that we won't potentially take a look at it and look at other potential changes that need to be made to reflect additional defaults. We do believe that there's an underlying component of this portfolio that performs well, has performed well, but the defaults have really been overshadowing that. The portfolio continues to grow off to run off about $12,000,000 just in the first quarter alone and will continue at that rate. Some component of that is charge off. I do acknowledge that.

26:34 But at the same time, it is also continuing to pay down. I think that as we look forward, the question is going to be at what point will the defaults begin to subside. And I don't have a clear answer for you at this time, but that's certainly something that leadership here is spending quite a bit of time on that we'll spend time with Al and obviously look at it from an asset resolution point of view. We talked a little bit about that in the past as well. We want to put this thing in our rearview mirror, but we're going to do it smartly. And that way, focus can continue to be on the community bank. Just one follow-up, if I may. The $100,000,000 you're talking about, which you have reserved, I think you said 13% on. Does that have any sort of collateral or is that excuse me for generalized and is that as good or bad as basically a credit card loan? Thank you.

27:29 That's my last question. Yes. Ross, that's actually a pretty good comparison. I think we've talked about that before that really the bullet flash cap components are more sort of like a small business credit card in terms of overall performance. Some of the loans do have collateral. However, for the most part, the nature of the portfolio is that these really unsecured. And I think that I think it's safe to assume that it's going to perform more like that versus less like that. Kind of like a credit card as interest rates went up, a lot of these borrowers saw their rates go up 500 plus basis points. And that combined with inflation, supply chain issues and some of the other things that a lot of small business owners and managers are incurring, really that's what's driving the defaults.

28:17 And that's the sort of thing that we look at. The difficult thing is this is a this portfolio has a very unique nature to it. It's hard to find to be honest with you, we have not found anything that is similar to it that we could use as a basis or a business case to support our modeling around it. So it's the future is not as clear as we would like it to be, but we very much are prepared for what's going to come next with it. Thank you very much. The best of luck. Thanks, Ross. Thank you. Our next question comes from Duane Roberts at Charis Industries.

29:18 Please go ahead. Good morning. I'm sorry, I may have missed this, but can you please tell me what your cash position is now? Sure. So the bank's liquidity ratio was about 13.6% at the end of the first quarter. So it's on $1,000,000,000 You can kind of do the math there. It's about $130,000,000 Thank you. I'm sorry, does that include the capital raise that was just done or does not? No. That's exclusive. That was as of threethirty one. The capital raise was completed this week. So that you could add those funds to it if you wanted a more real time number. Okay. Thank you.

30:07 Thank you. The next question comes from Sam Haskell from Clarion. Please go ahead. Hey, thank you all. Scott, I just want to make sure I heard you correctly. Did you say that the 13% reserve on the flash $100,000,000 of flash loans that you felt that, that was an adequate reserve? Thank you. Yes. Sam, the I'll put it in this context. From a CECL compliance standpoint, it suggests that it's adequate. Most of my career was spent in historical loss modeling, and we don't get to operate under those rules today. But according to CECL, it is adequate. Got it. Okay. Thank you. Sure.

30:56 Thank you. This does conclude our Q and A session. Ladies and gentlemen, concludes our conference call for today. We thank you for participating, and we ask that you please disconnect your lines.