BayFirst Financial Corp. Common Stock 2026 Q3 Earnings Call

Good morning, and thank you for joining our call today. With me is Scott McKim, our Chief Financial Officer, and Robin Oliver, our Chief Operating Officer. 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. I'm excited to share the progress we've made over the past three months. BayFirst is being transformed into the strong community bank that I've spoken about. Here are some key accomplishments. Community bank loans grew 25% during the quarter. That's an increase of $41 million. Total loans held for investment increased by $20 million, or 2.3%. Total deposits increased by $25.3 million, or 2.6%. I want to point out that deposit growth outpaced net loan growth for the quarter. Our net interest margin for the quarter improved to 4.07%.

We held a special meeting of shareholders on July 14th, where the company obtained shareholder approval to amend the BayFirst Financial Corporation articles of incorporation. This meeting increased the number of authorized common stock from 15 million shares to 100 million shares and exchanged all 4,000 outstanding Mandatorily Convertible Cumulative Perpetual Preferred Stock, Series D and all 4,000 outstanding shares of Mandatorily Convertible Cumulative Perpetual Preferred Stock, Series E, for a total of 22,856,000 shares of common stock. Upon conversion, all Series D and E preferred stock were retired. The company's Series A and Series B preferred shares were fully redeemed during the quarter as well. The rights offering was completed on September 30th and raised over $14 million of incremental capital as well. Scott will be discussing all of these accomplishments here in a few minutes.

Our Asset Resolution Plan contributed to significant improvements in the credit quality during the quarter. We've had meaningful improvements in all credit metrics, including an immaterial provision expense, lower net charge-offs, a reduction in nonperforming loans. Robin is going to provide additional details later in the call as it relates to our asset quality. During the quarter, we opened a new temporary branch in South Tampa on Dale Mabry Highway and purchased what will be a permanent branch less than a mile away. This branch opened on September 9th, 2026, and has exceeded the 2026 expectations for deposit growth in their first month. I am pleased with our operational performance to date. While we still have work to do to deliver positive earnings in the short term, these accomplishments set the stage for that success.

The earnings loss we report for the quarter is not indicative of what we will do going forward. I want to turn the call over to Scott to provide some comments on our financial performance for the quarter.

Scott? Thank you, Al. Good morning, everyone.

We are reporting a net loss of $677,000 for the third quarter. This compares to the net loss of $32.7 million that we reported in the second quarter. Other key results include loans held for investment increased by $20.1 million, or 2.3%, during the third quarter of 2026 to $903 million in total. This is also a decrease of $90.1 million, or 9.1%, over the past 12 months. Most of this decrease year-over-year reflects the sale of loans and the exit from SBA 7 lending, which we completed in the fourth quarter of 2025. Total deposits increased $25.3 million, or 2.6%, during the third quarter of 2026, and also decreased $157.3 million, or 13%, over the past year to $1.01 billion.

79% of the bank's deposits were insured by the FDIC on September 30, 2026, and the bank's on-balance sheet liquidity ratio as of September 30, 2026, was 13.5%. The bank did not have any wholesale borrowings. Shareholders' equity at quarter end was $104.5 million, which is $11.4 million lower than it was at the end of Q2. The decrease is primarily from the redemption of the company's Series A and Series B preferred shares, which Al already mentioned. Net accumulated other comprehensive loss increased by $600,000 during the quarter, ending at $2.7 million in total. Tangible book value per share decreased to $3.64 per share, down from $4.82 per share at the end of the second quarter. Our net interest margin, as Alex stated, is 4.07%.

That's a 59 basis point increase from the reported number in the second quarter. Net interest income was $10.6 million in the third quarter, an increase of $1.2 million from the quarter prior, and down $700,000 from the year-ago quarter. Also, please recall, as I mentioned last quarter, the normalized net interest margin for Q2, excluding one-time impacts related to the Asset Resolution Plan, was also 4.70%. As I noted, net loan growth for the quarter was up $20.1 million. Many of the new loans that we originated during the quarter were booked in September, and our average loan balances in the third quarter are actually down $17 million from the second quarter.

I mention this as the higher loan balances at the end of the quarter, combined with our strong net interest margin, will provide higher net interest income in future periods, also contributing to better earnings as we go forward. Non-interest income was $1.1 million in the third quarter of 2026, which is $7.9 million better than what we reported in the second quarter, and an increase of $2.2 million from the third quarter of 2025. Please recall that the second quarter non-interest income included $8 million of one-time negative impacts related to the board-approved Asset Resolution Plan. Additionally, the year-over-year decrease was heavily impacted by our exit from the SBA 7(a) lending business, and no additional gains on sale of government guaranteed loans is being booked. Non-interest expense was $12.8 million, a decrease of $4.8 million compared to the second quarter.

$2.8 million of this decrease is related to, once again, one-time charges driven by the Asset Resolution Plan. The remaining decrease is from lower salaries and benefits, data processing, and loan servicing expenses as well. Provision for credit losses was negative $69,000 in the third quarter, compared to $29 million in the second quarter, and $11.2 million in the third quarter of 2025. Both of the prior periods had elevated provision expense to address risk in the unguaranteed 7(a) portfolio, including the amount quantified for the Asset Resolution Plan that we announced last quarter. Net charge-offs in the quarter were $3.2 million, down $1.3 million compared to last quarter. Total unguaranteed SBA 7(a) loan balances ended the quarter at $132.4 million as of the end of September.

In comparison, the bank had $142 million of unguaranteed SBA 7(a) loan balances on June 30th, and $171.6 million on December 31st, 2025. Total annualized net charge-offs as a percentage of average loans held for investment at amortized cost were 1.52% in the third quarter. That is down from 2.08% in the second quarter, and 2.14% in the first quarter of this year. The ratio of allowance for credit losses on loans to total loans held for investment at amortized cost was 4.85% at September 30th, 5.37% as of the end of the second quarter, and 2.36% as of the third quarter of last year. The ratio of allowance for credit losses to total loans held for investment at amortized cost, excluding government-guaranteed loan balances, was 5.2% as of September 30th, 2026, 5.82% at June 30th, 2026, and 2.55% as of September 30th, 2025.

The bank's Tier 1 leverage ratio was 8.79% at the end of the third quarter, compared to 8.30% at the end of the second quarter, and 6.14% as of the end of the third quarter of last year. Total capital to risk-weighted assets ratio was 12.44% as of the end of the third quarter. That compares to 12.77% at the end of the second quarter, and 9.08% at the end of the third quarter of last year. Finally, I want to note that the no-call period on the company's Series C preferred shares will expire in the fourth quarter of this year. The board has voted to redeem the class, and notification has been sent to those holders.

These preferred shares have a conversion option, priced at the company's last reported tangible book value per share, and we do expect many of those holders to select the conversion option versus taking redemption. Now, I will turn the call over to Robin Oliver to talk about some other impacts from credit, as well as the business.