BayFirst (BAFN) Q1 2026 Earnings Transcript

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DATE

Friday, May 1, 2026 at 9 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer and President — Al Rogers
• Chief Financial Officer — Scott McKim
• Chief Operating Officer — Robin Oliver
• Chairman — Anthony Cervanos

TAKEAWAYS

• Capital Raise -- $80 million of new capital was secured through a private investment in public equity (PIPE), involving convertible preferred stock priced at $3.50 per share, pending shareholder and regulatory approvals.
• Net Loss -- Reported net loss was $5.7 million, widening from a $2.8 million net loss in the previous quarter.
• Loan Portfolio -- Loans held for investment declined by $33.5 million, or 3%, in the quarter to $930.4 million, and by $154.4 million, or 14%, year over year, mainly due to loan sales and the SBA 7(a) exit.
• Deposit Decline -- Deposits decreased by $98 million, or 8%, during the quarter, driven primarily by reductions in high-rate promotional and brokered deposits among non-relationship customers.
• FDIC Insurance Coverage -- 83% of deposits were FDIC-insured as of March 31, 2026.
• Liquidity and Cash -- The liquidity ratio was 13.85% on March 31, 2026, with approximately $130 million in liquidity, exclusive of the new capital raise.
• Net Interest Margin -- Net interest margin fell 16 basis points sequentially to 3.42%.
• Net Interest Income -- Net interest income was $9.4 million, declining $1.7 million sequentially and $1.5 million year over year, mainly due to the prior $97 million loan portfolio sale.
• Noninterest Income -- $884,000 in noninterest income represented a $1 million sequential improvement but a $7.9 million reduction year over year, with SBA 7(a) loan sale gains no longer contributing post-exit.
• Noninterest Expense -- Noninterest expense increased by $3 million sequentially to $14.9 million, with $2.3 million attributed to legacy SBA 7(a) servicing costs and $700,000 to higher compensation.
• Credit Losses and Charge-Offs -- Provision for credit losses was $3.1 million, while net charge-offs totaled $4.4 million, with $3.4 million from unguaranteed SBA 7(a) loans.
• Unguaranteed SBA 7(a) Loan Portfolio -- This portfolio stood at $159.3 million, down $12.3 million from year-end; about $100 million (the Bolt and FlashCap components) are reserved at nearly 13% per management, with most of these loans being unsecured.
• Allowance for Credit Losses (ACL) -- The ACL ratio on loans held for investment at amortized cost was 2.35%, down from 2.42% at year-end, but up from 1.61% a year earlier.
• Capital Ratios (Pro Forma) -- Tier one leverage ratio was 6.54% at quarter end, with a pro forma improvement to 10.02% after a $42 million capital contribution; total capital to risk-weighted assets increases pro forma to 14.4% as of April 30, 2026.
• Dividend Policy -- The board decided to resume dividend payments to preferred shareholders and redeem Series A shares.
• Rights Offering and Governance Changes -- A rights offering for existing shareholders is scheduled, with a special shareholder meeting set for July 14, and new board appointments contingent upon regulatory non-objection.
• Strategic Growth Focus -- Management emphasized renewed focus on the Tampa Bay and Sarasota markets, with no plans to launch new lending programs beyond these regions.

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RISKS

• The bank continues to face elevated net charge-offs and problem loans, particularly in the unguaranteed SBA 7(a) Bolt and FlashCap portfolios, which management characterized as "more like a small business credit card" with high default risk and limited collateral.
• Deposit levels decreased substantially as high-rate non-relationship and brokered deposits exited, potentially impacting funding stability during ongoing operational shifts.
• CEO Rogers said regarding portfolio challenges, "It is hard for me to say at this point, having just arrived, what we are going to need to shore up the current loan book," indicating residual uncertainty about portfolio risk resolution.
• CFO McKim noted that although current reserves are "adequate" by CECL standards, "the future is not as clear as we would like it to be" for the high-default loan segments.

SUMMARY

New capital commitments totaling $80 million from a PIPE and planned rights offering represent a material recapitalization initiative, with potential for further governance changes pending regulatory review. Pro forma capital ratios show substantial improvement, contingent on holding company cash contributions and PIPE share conversion. Management disclosed higher net losses, persistent credit issues in legacy unguaranteed SBA 7(a) portfolios, and ongoing deposit runoff, with clear intent to concentrate lending and operational efforts within the Tampa Bay and Sarasota regions.

• Board-level moves include the addition of Kenneth R. Lehman and leadership transitions, with Al Rogers' permanent appointment as CEO and President of the bank already approved by regulators.
• Dividend reinstatement applies to preferred shareholders, while Series A shares are set for formal redemption.
• The bank's servicing operation on sold SBA 7(a) loans continues to generate recurring noninterest income through a servicing strip, offset by amortization charges.
• Management highlighted a "unique nature" of the Bolt and FlashCap loans, noting a lack of direct market comparables for loss modeling and signaling an ongoing focus on asset resolution and containment of portfolio downside risk.

INDUSTRY GLOSSARY

• PIPE (Private Investment in Public Equity): A transaction in which investors purchase shares directly from a public company, often at a discount, typically involving preferred or common stock convertible at a set price.
• SBA 7(a) Lending: A federal loan program providing government-guaranteed financing to small businesses, where banks can originate, sell, or service the loans and retain or transfer default risk on the unguaranteed portions.
• CECL (Current Expected Credit Loss): An accounting standard requiring banks to estimate expected lifetime credit losses for loans and record related reserves upon origination or acquisition.
• Servicing Strip: The retained income stream from fees received for servicing previously sold loans, after deducting servicing right amortization.
• Bolt/FlashCap Portfolio: Proprietary labels for particular segments of unguaranteed SBA 7(a) loans, characterized by higher default rates and limited collateral, compared by management to small business credit cards.

Full Conference Call Transcript

Anthony Cervanos: Good morning, and thank you for joining our call today. With me are 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. We are announcing some exciting news regarding the future of BayFirst Financial Corp. First, we have raised $80 million 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 22.9 million 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. This has been a lengthy process over the past several quarters following the bank's exit from SBA 7a lending. I am extremely pleased to have Al join Robin, Scott, and all the BayFirst Financial Corp. 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 has 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 has 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 non-objection. Ken Lehman’s appointment to the board of directors of the holding company and the bank is also contingent upon receipt of regulatory non-objections. Finally, the board of directors has made the decision to resume dividend payments to our preferred shareholders and will formally redeem the Series A shares.

I will now turn the call over to Scott, who will discuss the earnings report for the quarter and the impact of the capital raise.

Scott McKim: 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 $5.7 million in the first quarter. This compares to a net loss of $2.8 million we reported for the fourth quarter of last year. Loans held for investment decreased by $33.5 million, or 3%, during the first quarter of 2026, down to $930.4 million, and decreased $154.4 million, or 14%, over the past year.

Most of this year-over-year decrease reflects the sale of loans as well as our exit from SBA 7a lending that we had mentioned in previous quarters. Deposits decreased $98 million, or 8%, during the first quarter of 2026, and decreased $42.4 million, or 4%, over the past year to [inaudible]. 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. Eighty-three percent of the bank’s deposits were insured by the FDIC on 03/31/2026. The bank 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 [inaudible], which is $5.7 million lower than the end of 2025. Net accumulated other comprehensive loss increased slightly by $94,000 during the quarter and ended at $2.1 million. Tangible book value decreased this quarter to [inaudible] per share from $17.22 per share at the end of the fourth quarter. Our net interest margin was 3.42%, down 16 basis points from fourth quarter. Net interest income was $9.4 million in the first quarter, down $1.7 million compared to the fourth quarter and down $1.5 million from the year-ago quarter. This reduction reflects the sale of a portfolio of loans that we announced and fulfilled back in December 2025 of approximately $97 million.

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 brokered deposit balances. Noninterest income was $884,000 in the first quarter of 2026, which is a $1 million improvement over 2025, and a decrease of $7.9 million from the year-ago quarter. The year-over-year decrease is primarily from the decrease in gains on the sale of SBA 7a government-guaranteed loans. Please recall that with the exit of SBA 7a lending, revenue from gains on sale of government-guaranteed loans will no longer impact our noninterest income as it has in prior periods. Noninterest expense was $14.9 million, an increase of $3 million compared to the fourth quarter.

Most of this increase—$2.3 million—represents a full quarter of servicing cost on the bank’s legacy SBA 7a 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 noninterest income. Compensation costs were higher by $700,000, reflecting lower deferred personnel costs and higher commission and bonus expenses. Provision for credit losses was $3.1 million in the first quarter, compared to $2 million in the fourth quarter and $4.4 million in 2025.

Net charge-offs were $4.4 million, down $200,000 from the fourth quarter, which was $4.6 million, with unguaranteed SBA 7a loans accounting for $3.4 million of the $4.4 million in net charge-offs during the last quarter. By comparison, unguaranteed SBA 7a loans accounted for $4.4 million of the $4.6 million of net charge-offs we announced in the fourth quarter. The bank had $159.3 million of unguaranteed SBA 7a loan balances on 03/31/2026. This is a decrease of $12.3 million 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 2025.

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 1.61% as of 03/31/2025. The ratio of ACL to total loans held for investment at amortized cost, excluding government-guaranteed loan balances, was 2.53% at 03/31/2026, down very slightly 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 in nonperforming loans and continued economic stability impacting this portfolio. The addition of $80 million of additional cash will provide for growth and expansion of the community bank, with a focus on relationship growth through lending across the bank’s retail footprint.

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 the legacy unguaranteed SBA 7a 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 March 31, 2026, compared to 6.52% at 12/31/2025, and 8.56% at March 31, 2025. 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.

On a pro forma basis, giving effect to a $42 million capital contribution from the holding company to the bank, the Tier one leverage ratio improved to 10.02% as of 03/31/2026. The total capital to risk-weighted assets ratio improves to 14.4% as of 04/30/2026. At this time, I will hand the call over to Robin for some additional comments on credit and operations.

Robin Oliver: 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.

That being said, we have already taken proactive steps to resolve nonperforming and classified credits as quickly as possible and are continually working with our BayFirst Financial Corp. team as well as our lender service provider who services our SBA 7a 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 $15.9 million, down from $16.3 million 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. It should be noted that of the $15.9 million in nonperforming loans, $3.8 million 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.

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 Financial Corp. 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.

Al Rogers: Thank you, Robin, Anthony, and Scott. I am excited to begin my next chapter with the board and the bank’s leadership at BayFirst Financial Corp. While progress has been made with our focus on community banking, much work lies ahead for us. I have 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 Financial Corp. to become the community bank of choice in our market. I am looking forward to getting to know our talented people. I have 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 Financial Corp. has the same dedication to this community, and I am 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. We will be leveraging this network with more focus than in the past. We plan on expanding our presence specifically in the Tampa Metropolitan Area, providing more coverage beyond the two branches we currently have today.

I have spent the past few months working as a consultant for BayFirst Financial Corp., and in that capacity, I have 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. Operator, I will now turn the call back over to you so that we can take some questions.

Operator: Thank you. Ladies and gentlemen, we will now open the call for questions. Should you have a question, you will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. The first question comes from Ross Haberman at RLH Investments. Please go ahead.

Ross Haberman: Good morning, Al. Al, welcome on board. As you said, you are going to have some heavy lifting. Could you prioritize what your one, two, and three initiatives are going to be, and then, specifically, could you address the non-guaranteed portion, the roughly $160 million, how you view that, and your initial thoughts on what kind of plug you are going to need for that $160 million? Thank you.

Al Rogers: Thank you, Ross. Really, getting an understanding of the portfolio is job one. As Robin mentioned, we have to work diligently at working our way out of that, so that is really number one. Returning to profitability is number two. And, of course, expanding, deepening, and growing relationships with local customers is our ultimate goal as we look to stabilize and grow the bank. It is hard for me to say at this point, having just arrived, what we are 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.

Scott McKim: Ross, this is Scott. I will talk a little bit more about it. Previously, we have had a conversation around how much is set aside in terms of reserves for the unguaranteed components of the portfolio. What I can share with you is that the Bolt and the FlashCap components of that portfolio, which represent about $100 million of the $159 million that is there, are collectively 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 million of the approximately $20 million that is out there.

The other components—the core real estate and the core C&I—are reserved at closer to 4%, and those particular groups of loans do not exhibit the same high default characteristics that the Bolt and the FlashCap portfolio do. We continuously are looking at this, and under GAAP and the CECL model, we are adequately reserved for that portfolio. That is not to say that we will not potentially take a look at it and make other changes that need to be made to reflect additional defaults. We do believe that there is an underlying component of this portfolio that performs well and has performed well, but the defaults have really been overshadowing that.

The portfolio continues to run off—about $12 million just in the first quarter alone—and will continue at that rate. Some component of that is charge-off, I do acknowledge that, but at the same time, it is also continuing to pay down. As we look forward, the question is going to be at what point will the defaults begin to subside, and I do not have a clear answer for you at this time. That is certainly something that leadership here is spending quite a bit of time on. We will spend time with Al and obviously look at it from an asset resolution point of view.

We want to put this in our rearview mirror, but we are going to do it smartly so our focus can continue to be on the payday bank.

Ross Haberman: Just one follow-up, if I may. The $100 million you are talking about, which you have reserved—I think you said 13%—does that have any sort of collateral, or, for generalizing, is that as good or bad as basically a credit card loan? Thank you. That is my last question.

Scott McKim: Ross, that is actually a pretty good comparison. I think we have talked about that before, that the Bolt and FlashCap components are more 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 are unsecured. I think it is safe to assume that it is 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.

That, combined with inflation, supply chain issues, and some of the other things that a lot of small business owners and managers are incurring, is really what is driving the defaults. This portfolio has a very unique nature to it. 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 the future is not as clear as we would like it to be, but we very much are prepared for what is going to come next with it.

Ross Haberman: Thank you very much. Best of luck.

Al Rogers: Thanks, Ross.

Operator: Thank you. Ladies and gentlemen, as a reminder, if you have any other questions, please press 1 now. Our next question comes from Duane Roberts at Charis. Please go ahead.

Duane Roberts: Good morning. I am sorry, I may have missed this, but can you please tell me what your cash position is now?

Scott McKim: Sure. The bank liquidity ratio was about 13.6% at the end of the first quarter. So on about $1 billion, you can do the math there—it is about $130 million.

Duane Roberts: Thank you.

Duane Roberts: I am sorry. Does that include the capital raise that was just done, or does it not?

Scott McKim: No, that is exclusive. That was as of 03/31. The capital raise was completed this week, so you could add those funds to it if you wanted a more real-time number.

Duane Roberts: Okay. Thank you.

Operator: Thank you. The next question comes from Sam Haskell from Clarion. Please go ahead.

Sam Haskell: Hey, thank you all. Scott, I just want to make sure I heard you correctly. Did you say that the 13% reserve on the roughly $100 million Flash loans—that you felt that was adequate per the reserve? Thank you.

Scott McKim: Yes. I will put it in this context: from a CECL compliance standpoint, it suggests that it is adequate. Most of my career was spent in historical loss modeling, and we do not get to operate under those rules today, but according to CECL, it is adequate.

Sam Haskell: Got it. Okay. Thank you.

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

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