BayFirst Financial Corp. Q3 FY2026 earnings call

• Financial Turnaround: Reported a net loss of $677,000 for Q3 2026, a significant improvement from the $32.7 million loss in Q2 2026.
• Balance Sheet Growth: Community bank loans grew by 25% ($41 million) and total deposits increased by $25.3 million (2.6%). Net interest margin improved to 4.07%, up 59 basis points from Q2.
• Capital Structure Optimization: Completed a rights offering raising over $14 million. Converted all Series D and E preferred shares into common stock (22.86 million shares) and fully redeemed Series A and B preferred shares.
• Asset Quality Improvement: Asset resolution plan contributed to lower charge-offs and reduced non-performing loans. Unguaranteed SBA 7A loan balances decreased to $132.4 million from $142 million in Q2.
• Operational Expansion: Opened a new permanent branch in South Tampa on September 9, 2026, which exceeded deposit growth expectations in its first month.
• Strategic Focus: Transitioning to a pure community banking model focused on relationship banking, local decision-making, and disciplined credit practices. Adding talent in retail and commercial banking to support strong loan demand.

The transcript does not provide a breakdown of financial performance by specific product segments or their revenue contribution percentages. The company operates as a unified community bank entity.

• Earnings Outlook: Management stated that the Q3 earnings loss is not indicative of future performance and expressed optimism about delivering positive earnings in the short term due to improving momentum.
• Net Interest Income: Anticipated higher net interest income in future periods driven by higher loan balances at quarter-end and a strong net interest margin of 4.07%.
• Loan Portfolio Runoff: Expected the runoff of unguaranteed SBA 7 loans to continue at a rate of approximately $40 million per year, with stability expected in the portfolio's predictive components.
• Charge-off Trends: Hoped that charge-off rates would moderate further as the seasoned borrower base weathered previous economic stresses.

• Credit Risk in Unguaranteed SBA Loans: The unguaranteed SBA 7A portfolio remains a key risk area, though it has improved. Total unguaranteed SBA 7A balances were $132.4 million, with $2.9 million of Q3 net charge-offs attributed to this segment.
• Historical Provision Expense: Previous quarters had elevated provision expenses ($29 million in Q2, $11.2 million in Q3 2025) to address risks in the unguaranteed portfolio; while Q3 saw negative provision, the legacy risk persists.
• Deposit Stability: While deposits grew in Q3, they decreased 13% over the past year to $1.01 billion. Maintaining and growing low-cost deposits remains a priority.
• Preferred Share Redemption: The no-call period for Series C preferred shares expires in Q4 2026, requiring board redemption and potential conversion decisions by holders.

Q: Ross Haberman asked for clarification on non-recurring items in the income statement and the trajectory of the unguaranteed loan portfolio runoff. He also inquired if the $2.9 million in charge-offs were strictly from unguaranteed loans and if the runoff trend would continue.

A: CFO Scott McKim confirmed there were no non-recurring items in Q3. He affirmed that the runoff of unguaranteed loans is stabilizing at a pace of roughly $40 million annually. He clarified that the $2.9 million charge-offs were exclusively from unguaranteed SBA 7A loans and expressed hope that these trends will moderate as the portfolio ages and borrowers withstand economic pressures.

Q: Mr. Haberman followed up by asking for the total allowance for credit losses (ACL) specifically against the $132 million in unguaranteed loans.

A: McKim disclosed that the total ACL on the books was just over $41.5 million, with more than $30 million of that reserve allocated specifically to the unguaranteed portfolios. This highlights the significant capital buffer maintained against this specific risk segment despite the reduction in loan balances.