Earnings call transcript: BayFirst Financial Q2 2025 reveals net loss, stock dips

BayFirst Financial Corp (BAFN), with a market capitalization of $62.55 million, reported a net loss of $1.2 million for the second quarter of 2025, reflecting challenges in its small business loan programs and the broader economic environment. Despite an improvement in net interest margin and a rise in deposits, the company’s stock fell by 3.88% to $14.82 in pre-market trading, influenced by these results and the suspension of dividend payments. According to InvestingPro, the company maintains a "GREAT" overall financial health score of 3.11, suggesting underlying strength despite current challenges.

Key Takeaways

• BayFirst reported a net loss of $1.2 million in Q2 2025.
• Stock price dropped 3.88% in pre-market trading.
• Net interest margin improved by 29 basis points to 4.06%.
• Deposits increased by $35.5 million, a 3.1% rise.
• Dividend payments were suspended.

Company Performance

BayFirst Financial Corp faced a challenging quarter with a net loss of $1.2 million, primarily due to issues in its SBA loan programs. The company did see some positive trends, such as an increase in net interest income to $12.3 million and a 3.8% growth in loans held for investment. However, the suspension of dividend payments and the need to strengthen credit underwriting indicate ongoing financial pressures.

Financial Highlights

• Net loss: $1.2 million
• Net interest margin: 4.06%, up 29 basis points
• Net interest income: $12.3 million
• Deposits: $1.16 billion, up 3.1%
• Tangible book value: $22.30 per share
• Provision for credit losses: $7.3 million

Market Reaction

The market reacted negatively to BayFirst’s Q2 2025 earnings report, with the stock price dropping by 3.88% in pre-market trading. This decline comes amid broader economic challenges, including high interest rates and inflation, which have impacted the company’s performance and investor sentiment. InvestingPro analysis suggests the stock is currently undervalued, trading at an attractive P/E ratio of 6.44x. Despite recent challenges, the stock has delivered a solid year-to-date return of 14.99%. Unlock more insights and discover similar investment opportunities in our Most Undervalued Stocks list.

Outlook & Guidance

Looking forward, BayFirst is conducting a strategic review of its SBA loan programs and expects to maintain a stable net interest margin around 4%. The company is also evaluating strategic alternatives and may announce changes to its small loan program in the coming weeks. For deeper insights into BayFirst’s strategic positioning and comprehensive financial analysis, access the full Pro Research Report, available exclusively on InvestingPro, along with detailed reports on 1,400+ other US stocks.

Executive Commentary

CEO Tom Zurnick expressed confidence in the company’s strategic efforts, stating, "We are confident that these efforts will better align the company and our bank with the demands of a dynamic banking landscape." President and COO Robin Oliver highlighted the long-term nature of credit underwriting improvements, noting, "The hard part is we’ve instituted additional credit underwriting in April, but you really don’t see the results of that until a year and a half, two years out."

Risks and Challenges

• High interest rates and inflation continue to pressure financial performance.
• Challenges in the SBA loan program could impact future profitability.
• The suspension of dividend payments may affect investor confidence.
• Economic conditions in the Tampa Bay and Sarasota markets remain competitive.

Q&A

During the earnings call, analysts focused on the potential impact of Federal Reserve rate cuts and credit quality issues in the SBA loan program. The company clarified that there is no geographic concentration in credit losses and that the total SBA portfolio is approximately $350 million, with unguaranteed small dollar loans around $123 million.

Full transcript - Bayfirst Financial Corp (BAFN) Q2 2025:

Sylvie, Conference Call Operator: Good morning, ladies and gentlemen, and welcome to the BayFirst Financial Corp. Q2 twenty twenty five 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. Also note that this call is being recorded on Wednesday, 07/30/2025.

I would now like to turn the conference over to Tom Zurnick, CEO. Please go ahead, sir.

Tom Zurnick, CEO, BayFirst Financial Corp: 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 $1,200,000 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 derisking unguaranteed SBA seven 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. In conjunction with our review, BayFirst reported charge offs and fair value write downs on related SBA seven loans with elevated levels of risk. The net loss this quarter of $1,200,000 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 May 1 into a strong community bank. 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 noninterest 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 $200,000,000 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 Referralive program, which allows our current customers to refer their friends and family to Bay First, has generated over $4,000,000 of new deposits and $10,500,000 of consumer loans over the past twelve months.

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 a $106,400,000 in new government guaranteed loans during the 2025, of which $67,900,000 were BOLT loans, which is the company’s SBA seven 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 $106,300,000 of loans produced in the first quarter, of which $60,400,000 were BOLT loans. Now I will pass the microphone to Scott McKim, our CFO, to provide an overview of our financial performance.

Scott McKim, CFO, BayFirst Financial Corp: Thank you, Tom. Good morning, everyone. As Tom mentioned, we are reporting a net loss of $1,200,000 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 $41,000,000 or 3.8% during the 2025 to end at $1,130,000,000 and increased $117,500,000 or 11.7% over the past year.

During the quarter, the company originated $157,000,000 of loans and sold $66,800,000 of government guaranteed loan balances. Deposits increased $35,500,000 or 3.1% during the 2025 and increased $121,400,000 or 11.6% over the past year to $1,160,000,000 The increase in deposits during the quarter was primarily due to increases in noninterest bearing account balances, savings and money market account balances and time deposits, partially offset by a decrease in interest bearing transaction account balances. Shareholders’ equity at the end of the quarter was $109,700,000 and is $9,700,000 higher than the end of the 2024. Net accumulated other comprehensive loss decreased by $10,000 during the quarter, ending at $2,400,000 Our tangible book value decreased slightly this quarter to $22.3 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 four zero six percent in the second quarter.

Net interest income was $12,300,000 in the second quarter, which was an increase of $1,300,000 compared to the first quarter, and it was a $3,200,000 increase from the year ago quarter. Our focus on checking accounts and savings accounts versus promotional rate, money market and CDs have contributed to the margin improvement that we are reporting this year. 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.

Noninterest income was $11,400,000 in the 2025, which is an increase from $8,800,000 in the 2025 and a small decrease from $11,700,000 in the 2024. Gains on the sale of government guaranteed loans were also $1,200,000 lower in the second quarter compared to the first quarter due to slightly lower production of saleable government guaranteed loans and were available to be sold. 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 $66,800,000 of government guaranteed loan balances during the second quarter compared to $72,500,000 in the first quarter.

Gains on loans booked and measured at fair value during the quarter were $3,400,000 an increase of $3,000,000 for the first quarter where we had only booked a single loan at fair value. Offsetting the gains is $1,000,000 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. However, they are very similar nonetheless, and this number is inclusive of what Tom mentioned at the beginning of the call. Our noninterest expense increased by $1,700,000 in the second quarter.

Most of this increase, or $1,200,000 represents the non deferrable loan origination expenses incurred related to loans booked at fair value during the second quarter. This is an increase of $1,000,000 from the first quarter. An increase in commission cost of $200,000 and an increase of other expense of $100,000 represent increases as well in noninterest expense. Our commitment to manage controllable expenses is also evident with a $1,100,000 decrease in year to date noninterest expense, including the impact of loan origination and nondeperrable originations expenses. In fact, total noninterest expense overall is $1,200,000 lower in 2025 compared to the same period in the 2024.

Provision for credit losses was $7,300,000 in the second quarter compared to $4,400,000 in the first quarter and $3,000,000 from the 2024. Net charge offs, primarily unguaranteed SBA seven balances, were $6,800,000 in the quarter. That was an increase of $3,500,000 compared to the first quarter, which was $3,300,000 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 2024.

Nonperforming assets were 1.79% of total assets as of 06/30/2025. This is down compared to 2.08% as of 03/31/2025, and compared to 1.28% on 06/30/2024. Nonperforming assets, excluding government guaranteed loan balances, were 1.12% of total assets as of 06/30/2025. That was also a decrease from 1.22% as of 03/31/2025, and up slightly from 0.82% on 06/30/2024. The ratio of allowance for credit losses to total loans held for investment at amortized cost was 1.65% at 06/30/2025, which is up slightly from 1.61% as of 03/31/2025, and 1.5% on 06/30/2024.

The ratio of ACL to total loans held for investment at amortized cost, excluding government guaranteed loan balances, was 1.85% at 06/30/2025, and that was consistent with the 1.84% at March 31 of this year and 1.73% of June year. At this time, I’ll turn the call over to Robin for some additional comments.

Robin Oliver, President and Chief Operating Officer, BayFirst Financial Corp: Thank you, Scott. As Tom and Scott have detailed, asset quality trends, primarily in our SBA seven 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 BOLT loan program, the losses in both BOLT 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 is prudent for as many borrowers as possible. Our Chief Credit Officer and Director of Credit Administration, both hired in the first quarter this year, are working supported by all of management to ensure strong oversight is provided to reduce losses wherever possible.

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 seven 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 Outside 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 $31,900,000 or 16% since June. 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 2024, consumer and residential loan balances have increased by $78,900,000 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.

Tom Zurnick, CEO, BayFirst Financial Corp: 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.

Robin Oliver, President and Chief Operating Officer, BayFirst Financial Corp: We will now turn it back for questions.

Sylvie, Conference Call Operator: Thank 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 2. And if using a speakerphone, you will need to lift the handset first before pressing any keys. And your first question will be from Ian Green at Pentagon Capital. Please go ahead, Ian.

Ian Green, Analyst, Pentagon Capital: Good morning.

Sylvie, Conference Call Operator: Good morning. How

Ian Green, Analyst, Pentagon Capital: 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

Scott McKim, CFO, BayFirst Financial Corp: that question

Ian Green, Analyst, Pentagon Capital: is, for your repricing of your assets, do you have old vintages? I know some of that’s been problematic rate going to higher rates, but, you know, will in general, benefit as some of these older vintages roll off?

Scott McKim, CFO, BayFirst Financial Corp: Ian, this is Scott. I’ll take that question. When, I I wanna 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. And, that typically is is kinda the overarching answer to your question. But I think if we drill down just one level with it, I also wanna point out the fact that the older vintages of loans really are still prime based.

And so, therefore, they’re gonna reprice even with the newer vintages. And, accordingly, it’s, our our liability side or really the deposit book also is very, very 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 if they were and there’s 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.

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.

Ian Green, Analyst, Pentagon Capital: Okay. Got you. And I guess if I could just follow-up. I mean, how you I mean, in general, you’re feeling about capital. I mean, do you see a scenario or probabilities of having to raise additional capital here?

Scott McKim, CFO, BayFirst Financial Corp: That’s a good question. 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 to lose things and reduce 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 and eight k.

Ian Green, Analyst, Pentagon Capital: Alright. Of course. Okay. Thank you. Sure.

Sylvie, Conference Call Operator: Next question will be from Julien Casarino at Sycamore. Please go ahead, Julien. Hello.

Scott McKim, CFO, BayFirst Financial Corp: Hi, Julian. Hey, Julian. Hi.

Julian Casarino, Analyst, Sycamore: Hi. So I apologize. I missed Ayan’s questions because I had to change my phone handset. So I hope I don’t ask question yet, 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? It sounds like no. Right?

Scott McKim, CFO, BayFirst Financial Corp: No. It’s, and and, Julian, if you kinda recall our our prior announcements and kinda 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 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 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 trying to manage the book in a way that allows us to have lower overall deposit costs and lower all funding costs. 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, they have 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 compression. But as both sides of the balance sheet reprice throughout the quarter, it would generally kind of, you know, recover back to the same level that it’s at now.

Julian Casarino, Analyst, Sycamore: Okay. So four four handles should should be able to stick?

Scott McKim, CFO, BayFirst Financial Corp: 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. But, again, it’s I compliment the team and, for the efforts that they’ve done.

Julian Casarino, Analyst, Sycamore: Yes. Definitely. And likewise, the loan and deposit growth were good. Is that there’s nothing one time or seasonal or, you know, is that is that a good, run rate, or is there anything, you know, that’s non nonrecurring nature?

Scott McKim, CFO, BayFirst Financial Corp: No. I I would say that that’s that’s pretty, that’s pretty stable. I I think, you know, 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. 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?

Robin Oliver, President and Chief Operating Officer, BayFirst Financial Corp: 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 is really not in favor right now, but the HELOCs are and, you know, things can can turn around as the rate environment changes. But, you know, so far, this is probably a pretty steady rate for us.

Julian Casarino, Analyst, Sycamore: Right. Right. You don’t have a lot of HELOCs. Oh, you do, actually. I’m sorry.

Yeah. We do. Yeah. And We do. Yeah.

Okay. Okay. And the the the the credit issues, I I just wanted is it RingCentral? Like, is it concentrated only in that one loan category, the SBA loans?

Robin Oliver, President and Chief Operating Officer, BayFirst Financial Corp: 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, and what whether they’re larger loans or or smaller loans. And and by far, of those SBA losses, the vast majority is in our small loan program loans, which historically have been, you know, 70 to 80% 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, you know, sophistication in the financial statements and and things of that nature with some of those those larger borrowers. And we have more collateral, you know, on a lot of those as well.

So those have performed better. But the, you know, the small loan program loans, no matter whether it’s our bank or any others, are the the riskiest loan program within, you know, the SBA, which is why we’re, you know, pricing them at prime plus $4.75 is our is our bolt on pricing. So, you know, that 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 their payments have doubled.

So but even the bolt loans that are more recent, you know, we’re we’re still seeing stress in that portfolio, which is why we we are really closely looking at that program 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. Not to say that there’s not a consumer you know, as the consumer volume grows, you know, you’re always gonna have some consumer charge offs here and there. Mhmm. But it hasn’t been overwhelming.

And and, also, I just wanna remind you too that on our HELOCs, yes, we have a a decent amount of them. 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 an this insured product. And it’s 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 HELOC. So and we have had claims that we’ve had to make there and have had those paid. Yeah.

Julian Casarino, Analyst, Sycamore: And have had them paid. Just real quick. The in the HELOC book about do do you also own the first positions as well or not not typically?

Robin Oliver, President and Chief Operating Officer, BayFirst Financial Corp: Not typically. Although, more than you might think of our HELOCs are first mortgages.

Julian Casarino, Analyst, Sycamore: Right.

Robin Oliver, President and Chief Operating Officer, BayFirst Financial Corp: 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 twenty percent of the HELOCs or second liens in general or the HELOCs or yeah. We’re first liens, not second liens. 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. So but there are some cases where we’ll do a piggyback loan with the first and second at the same time.

So we do have some of those, but that it’s not as typical.

Julian Casarino, Analyst, Sycamore: Yeah. So even if they’re in first position, they still, in the call report, have to go under revolver revolving one to four even if it’s first position and that’s because of the they’re not fixed rate or something? Or

Robin Oliver, President and Chief Operating Officer, BayFirst Financial Corp: Yes. That is correct. Alright.

Julian Casarino, Analyst, Sycamore: And so, yeah, just back to the bolt loans then. So so it’s it so you’re not so but it it seems like from the depth that you’re growing the BOLT loans despite the credit issues. Is that right?

Robin Oliver, President and Chief Operating Officer, BayFirst Financial Corp: I think the BOLT 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? I mean, they’re at the height of our BOLT loan program, I would say we were up to 38, almost 40,000,000 a month in volume.

And then we instituted some additional credit underwriting parameters and and really, you know, pulled back on that volume, and then it’s kinda normal ebbs and flows from there with just seasonality and and and what’s going on in the marketplace. You know, the hard part is we’ve instituted additional credit underwriting in April, but you 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 2022. So we’re just now, you know, having some of those loan season, and I I think some of the earlier vintages definitely showed more stress than likely what we’re doing today.

But, you know, we’re we’re definitely not trying to increase volume in both, and we’re looking at the whole program in its entirety as we speak.

Julian Casarino, Analyst, Sycamore: 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.

Is that accurate? It’s been anywhere.

Robin Oliver, President and Chief Operating Officer, BayFirst Financial Corp: That is that is correct. It’s really broad, you know, and and there’s been some NAICS codes that don’t perform as well, and we look at those every quarter. 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.

But in general, our losses kinda mirror, you know, if you looked at the SBA as a whole, where their losses fall from a NAICS code standpoint and no geographic concentration.

Julian Casarino, Analyst, Sycamore: Okay. And the smaller size and then also low rate, meaning ones that were originated I’m sorry. It’s similar. Ones that were originated, like, in in 2020, ’21.

Robin Oliver, President and Chief Operating Officer, BayFirst Financial Corp: 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. But even the BOLT loans, many of them made in a higher rate environment are also showing stress. I I think it just speaks to the nature of, you know, what’s going on with small businesses here in in this economic environment.

And I think the reality is we just have a higher concentration of small loan program loans compared to our our peers that do SBA lending. Okay. 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.

Julian Casarino, Analyst, Sycamore: Okay. Alright. Great. Well, thank you. Thank you so much.

Sylvie, Conference Call Operator: Thank you. Thanks. 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.

Ross Haberman, Analyst, HLS Investments: Good morning. Thanks for taking my call. I just have a just two quick follow ups from Julian’s questions. How big are those both loans in total on the balance sheet today? And could you segregate them between, as you describe as you describe them, the larger loan size and the smaller ones, which where you’re having the the more of the credit issues, it sounds like.

Scott McKim, CFO, BayFirst Financial Corp: Yeah. Ross, these are these are gonna be some round numbers for you. But the the total SBA portfolio is is around 350,000,000 or was as of June 30. And the boat 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 at the June. And, you know, that that also includes our our historical flash cap loans as well, which which, you know, we we’d also put in that bucket as far as demonstrating some of these characteristics.

Ross Haberman, Analyst, HLS Investments: And and is that where you took most of your reserves this quarter in in that in that 123, of unguaranteed portion?

Scott McKim, CFO, BayFirst Financial Corp: Yeah. That that is the largest component of our ACO.

Ross Haberman, Analyst, HLS Investments: And just one last question. You said something in your verbiage. You said you’re gonna value strategic alternatives. Did you hire an investment banker or something? And and could you tell us a little more, if anything, about that?

Robin Oliver, President and Chief Operating Officer, BayFirst Financial Corp: 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 we haven’t made any announcement yet because we’re still evaluating in a lot of ways. And so we wanna make sure we we give that thoughtful consideration and model out all kinds of different scenarios to make, you know, the best decision to get us back on track in our earnings and and going up into the right.

Ross Haberman, Analyst, HLS Investments: Can I just just one follow-up? Can you say which investment bank you you’ve hired to help you?

Robin Oliver, President and Chief Operating Officer, BayFirst Financial Corp: No. Sorry, Ross.

Ross Haberman, Analyst, HLS Investments: Okay. Okay. That’s fine.

Robin Oliver, President and Chief Operating Officer, BayFirst Financial Corp: No. That would imply we hired one. So you know?

Scott McKim, CFO, BayFirst Financial Corp: 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. So, you know, it it’s, that work continues. And as as Tom mentioned, we’ll we’ll have more to come here in the coming weeks.

Ross Haberman, Analyst, HLS Investments: Okay. I greatly appreciate your time. Thank you for the help, and the best of luck. Thank you again.

Robin Oliver, President and Chief Operating Officer, BayFirst Financial Corp: Thank you, Rob. Appreciate it.

Tom Zurnick, CEO, BayFirst Financial Corp: Thanks, Ross.

Sylvie, Conference Call Operator: Next is a follow-up from Ian Green at Pentagon Capital. Please go ahead, Ian.

Ian Green, Analyst, Pentagon Capital: 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 what’s the pipeline for the SBA products and and sort of selling off, the piece for gain of sale? Is that is that pipeline still active and working?

Robin Oliver, President and Chief Operating Officer, BayFirst Financial Corp: So on our SBA loans, either we we are moving towards a a focus on the core loans, our larger more more traditional SBA seven a loans that that folks think of, not the small loan program. And there is a a steady market flow of of good premiums on those loans. You know, obviously, through June 30, we have continued to do small loan program loans, and those do enjoy a very healthy premium. We have seen really outstanding premiums over the past year on those BOLT loans when we sell into the secondary market. But, you know, we’ve gotta continue to evaluate the the credit losses and the profitability of the program to to, you know, make sure we’re looking at that that product and the and the health of it as we move forward.

Ian Green, Analyst, Pentagon Capital: So on a linked quarter basis or so, it seemed like it went you lowered the amount of gain 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?

Scott McKim, CFO, BayFirst Financial Corp: Yes. Ross, 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 dramatic amount. The difference is that that because of the added time period 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 will be dependent upon what the loan volume is.

Ian Green, Analyst, Pentagon Capital: Mhmm. Okay. Great. Alright. So just another question.

Both of your preferred stock issues are private placements? Or do do any

Tom Zurnick, CEO, BayFirst Financial Corp: I’m shares sorry. Repeat that.

Ian Green, Analyst, Pentagon Capital: The preferred stocks. Are they both private placements, or is there a market in in your preferred No.

Scott McKim, CFO, BayFirst Financial Corp: They do not trade. There’s not a market, on any of the three of them.

Ian Green, Analyst, Pentagon Capital: Great. Okay. Well, thank you again for your time.

Scott McKim, CFO, BayFirst Financial Corp: Certainly.

Sylvie, Conference Call Operator: Next is a follow-up from Julian Castorino at Sycamore. Please go ahead, Julian.

Julian Casarino, Analyst, Sycamore: Hi. Real quick. The the tangible book per share $22.30, does that include the preferred or no? Is that tangible common book per share or just tangible book per share?

Scott McKim, CFO, BayFirst Financial Corp: Tangible book per share.

Julian Casarino, Analyst, Sycamore: So it includes that preferred amount.

Scott McKim, CFO, BayFirst Financial Corp: The

Julian Casarino, Analyst, Sycamore: 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?

No. No recourse. Okay. And then have the margins 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?

Scott McKim, CFO, BayFirst Financial Corp: Let me characterize it this way, Julianne. 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 that what we have seen with, the premium that we are earning on it, 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 a 100 basis points.

But we still get on, 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. And then the core loans are are a little bit less. They tend to be about 10%.

Julian Casarino, Analyst, Sycamore: Has that been changing any any direction, changing at all? No.

Scott McKim, CFO, BayFirst Financial Corp: That’s been fair that’s been fairly stable.

Julian Casarino, Analyst, Sycamore: Okay. Okay. Alright. Thank you.

Scott McKim, CFO, BayFirst Financial Corp: Certainly.

Sylvie, Conference Call 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.

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