Q4 2024 BayFirst Financial Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the base first Financial Corporation Q4, 2024 conference call and webcast. At this time all participants are in a listen only mode. Following the presentation. We will conduct a question and answer session and if at any time during this call you'll be quiet, but do you do this.
Speaker Change: Mr. <unk>. Please press star zero for the operator also note that this call is being recorded on Friday January 31st 2025, and I would like to turn the conference over to Mr. Thomas <unk> Chief Executive Officer. Please go ahead Sir.
Thomas: Thank you Sylvia good morning, and thank you for participating on our call today I have with me Robin Oliver our President and Chief operating officer, and our CFO Scott Mckim.
Thomas: Today's call will include forward looking statements and non-GAAP financial measures.
Thomas: Please refer to our cautionary statement on forward looking statements contained on page two of the investor deck.
Thomas: It was a busy quarter for <unk> as our business returned to normal after the bottom hurricanes.
Thomas: We also completed some initiatives to position the bank to success in 2025 and continue to grow earnings and improve performance.
Thomas: We completed a sale leaseback transaction with two of our banking offices, which generated a gain and improvement in the bake bank's capital position, which we leverage for future growth of loans and also deploy with a share repurchase program with more details on that shortly.
Thomas: Let me now share some highlights from around base first.
Thomas: Fourth quarter net income was $9 8 million.
Thomas: Excluding the gain from the sale lease back earnings were $1 1 million essentially flat to the third quarter of this year.
Thomas: Our net interest margin improved 26 basis points to three 6% in the fourth quarter.
Thomas: We also suspended the practice of measuring newly originated government guaranteed loans at fair value. Instead, we will measure loans held for investment at amortized cost, which will align gain on sale timing origination costs and provision expense to when the loan is originated installed.
Thomas: While this resulted in lower net income during the fourth quarter due to timing.
Thomas: We took the opportunity from the gain from a sale leaseback to adjust our strategy and our financial reporting will be more consistent with the industry going forward.
Thomas: Our convenient and attractive network of 12 banking centers across Tampa Bay grew deposit balances 16, 5% and net new accounts, 9% year to date, ending the fourth quarter at 1.14 billion.
Thomas: They first is maintain a granular deposit base and continues to benefit from 74% of deposits being insured on December 31 2024.
Thomas: On the lending side, we deployed a major upgrade to our power L. O S commercial loan operating system with significant user interface improvements and faster application decisioning.
Thomas: <unk> continues to enjoy minimal commercial exposure in the CRE space with non owner occupied CRE, representing only 6% of our loans held for investment at the end of the quarter.
Thomas: Loans held for investment increased by $24 1 million or two 3% during the fourth quarter of 2024 to 1.07 billion.
Thomas: The company's government guaranteed loan origination platform originated 107 8 million in new government guaranteed loans during the fourth quarter of 2024, an increase from $94 4 million of loans produced in the previous quarter and a decrease from $144 nine.
Thomas: Million of loans produced during the fourth quarter of 2023.
Thomas: The company's bolt loan program, which is an SBA seven loan product designed to expeditiously provide working capital loans of $150000 or less for businesses throughout the country.
Thomas: Since the launch in 2022. The company has originated 5726 bolt loans totaling $741 5 million of which 495 bolt loans totaling $64 8 million were originated during the fourth quarter.
Thomas: In total the company originated $158 7 million of loans and sold $94 5 million of government guaranteed loan balances during the quarter.
Thomas: For the full year the company originated $431 5 million of government guaranteed loans and our <unk>.
Thomas: You know your bank originated $276 5 million of conventional owner occupied CRE C&I home equity lines and loans consumer loan term loans and first mortgage loans.
Thomas: Net of sold government guaranteed loan balances total loan balances grew $158 million or 16, 5%.
Thomas: Our commitment to building the Premier community Bank of Tampa Bay is reinforced by the recent hiring of our business banking team, who will focus on the banking needs, including deposits and Treasury management for small businesses across our retail footprint.
Thomas: This follows the creation of our healthcare platform earlier in the year.
Thomas: These added production machines solidify based <unk> for success in 2025.
Thomas: Finally, I want to remind everyone that our bank was ranked the top bank in Florida by Forbes magazine for 2024, I'm very proud of our team for this accomplishment and want to thank all of our customers who voted for this.
Thomas: Recognition.
Speaker Change: Now I will pass the microphone to Scott Mckim, our CFO to provide an overview of our financial performance.
Speaker Change: Good morning, everyone as Tom mentioned, our net income from continuing operations was $9 $8 million in the fourth quarter, excluding the sale leaseback gain fourth quarter net income was $1 $1 million for the full year total net income was $12 6 million and $4 4.0 million.
Speaker Change: The sale leaseback gain.
Speaker Change: During the fourth quarter balances of loans held for investment grew $24 $1 million or two 3% during the quarter and overall total assets grew $43 $2 million to end at 1.29 million or three 5% during the quarter that at the end of 2023.
Speaker Change: It'll assets have increased $170 5 million or 15, 3%.
Speaker Change: Total deposits increased $31 million or two 8% during the fourth quarter of this year and increased $158 $1 million at December 31, 2023 total deposits ended the year at 1.14 billion.
Speaker Change: Shareholders' equity at quarter end was $110 $9 million and a $10 2 million higher than the end of 2023.
Speaker Change: Accumulated other comprehensive loss increased slightly by $644000 during the quarter ending the year at just under $3 million. This is flat to our measurement at December 31 2023.
Speaker Change: <unk> book value increased this quarter to $22 95 per share from $20 86 per share at the end of the third quarter.
Speaker Change: Also as Tom mentioned, our net interest margin improved 26 basis points to 360% in the fourth quarter net interest income was Kevin $10 7 million in the fourth quarter up $1 2 million or 13% compared to the third quarter and up $1.8 million from the year ago quarter much of this.
Speaker Change: Improvement is due to lower interest expense on deposits of $900000 in the fourth quarter compared to the third quarter.
Speaker Change: This was generated by the migration of promotional price Cds, which matured during the quarter and migrated to lower rate Cds and money market accounts.
Speaker Change: Non interest income, excluding the $11 $6 million gain from the sale leaseback was $10 $6 million for the fourth quarter of 2024 that was down $1 6 million from the prior quarter.
Speaker Change: So as Tom noted, we suspended the use of fair value measurements and newly originated government guaranteed loans during the quarter by comparison the use of fair value accounting provided $3 $5 million in game revenue in the third quarter. This change is a timing variance wont will not occur in future periods.
Speaker Change: Compared to the third quarter of 2023 gain on sale of government guaranteed loans was $1 million higher and government guaranteed loan servicing rate gains were $734000 higher than the fourth quarter.
Speaker Change: For the full year and excluding the sale leaseback gain non interest income was $883000 lower than 2023.
Speaker Change: The variance is related to overall lower gains from the sale of government guaranteed loans in 2024 versus 2023, notably in 2023. The company sold $451 6 million of government guaranteed loan balances versus $385 3 million in 2024.
Speaker Change: Sure.
Speaker Change: Noninterest expense decreased by $1 $9 million in the fourth quarter and $900000 of this decrease is from $0 of third party non deferrable origination expense compared to the third quarter. This is also related to suspending the fair value measurements.
Speaker Change: Lower compensation costs and incentives reflect lower loan originations in the fourth quarter combined.
Speaker Change: With more as more origination costs were deferred versus cost recognized on loans measured at fair value during the third quarter.
Speaker Change: Also marketing recruiting and development and collection costs were also lower in the fourth quarter compared to the third quarter of 2024.
Speaker Change: For the full year of 2024 total noninterest expense was $1 $2 million lower than 2023 commissions incentives and bonus expenses were $1 3 million lower marketing expenses were $1 $3 million lower and third party non deferrable origination expenses were $1 $6 million lower.
Offsetting all of these lower expenses were higher data processing costs of $1 $1 million, reflecting our investment in technology to support loan originations as well as higher collection costs of $600000 and then other expenses of $400000.
Speaker Change: Provision for credit losses was $4 $5 million in the fourth quarter compared to $3 1 million in the third quarter and $2 $7 million in the fourth quarter of 2023.
Speaker Change: Net charge offs increased by zero point $8 million, primarily from higher charge offs and guaranteed SBA seven loan balances for the year total provision for credit losses was $14 $7 million, which was $4 3 million higher than it was in 2023.
Speaker Change: Total net charge offs in 2024 or $13 million.
Speaker Change: Which whereas the provision expense was $1 7 million higher at $14 $7 million.
Speaker Change: The ratio of allowance to credit losses to total loans held for investment at amortized cost was relatively flat this quarter compared to last quarter at 154% on December 31, 2024 that compares to $1 four 8% as of September 32024, and 164% as of December 30.
Speaker Change: <unk> 2023.
Speaker Change: Our portfolio of unsecured consumer loans purchased from a third party generated over $395000 of net charge offs during the quarter, which is comparable to Q3.
Speaker Change: At this time I will turn the call over to Robyn to make some additional comments.
Speaker Change: Scott Good morning, everyone I would like to further delve into credit quality as it is a key focus for us, particularly given the nature of our SBA portfolio. The vast majority of our SBA loans are tied to prime adjusting quarterly and as such many of our borrowers have seen significant increases in their payments over.
Speaker Change: The past two to three years at the same time. They are also dealing with high inflation to try to help these small businesses survive and mitigate loan losses.
Speaker Change: We've mentioned previously that the bank developed and expressed modification program for SBA seven loans at the end of Q2 to help borrowers who are struggling to make payments to date approximately 500, SBA seven eight loans have been modified to lower their payments by extending their maturity date with over half.
Speaker Change: Are these lines continuing to perform knowing that not all will be saved.
That being said the pace of new modifications have slowed considerably and is expected to represent a lesser emphasis in 2025 with rates stabilizing.
Speaker Change: In addition, although select commercial and consumer borrowers received some payment relief. After the recent hurricanes affecting our area all collateral with properly insured and we have had no losses as a result of these natural disasters to date.
Speaker Change: Although loans past due 30 to 89 days showed improvement declining slightly quarter over quarter nonperforming assets to total assets increased to one 5% as of December 31, 2024. This compares to 138% at the end of the third quarter and zero point, 92%.
Speaker Change: As of December 31, 2023, with the increased this quarter largely being driven by three larger well collateralized loans.
Speaker Change: Annualized net charge offs as a percentage of average loans held for investment at amortized costs were $1 three 4% for the first quarter of 2024.
Speaker Change: From 1.16% in the third quarter and up from one point to 7% in the fourth quarter of last year.
Speaker Change: In 2025 portfolio monitoring and collection, we will continue to be a focus with enhanced processes and new technology being implemented to better connect with borrowers additional staffing hired to support volume and continued efforts to modify loans for qualified borrowers I'm also pleased to announce.
Speaker Change: The addition of a new Chief Credit Officer. This month as our prior Chief credit officer moves to a consulting role in anticipation of retirement.
Speaker Change: Finally, I'd also like to briefly cover some operational updates driving improved efficiency for our company as a key initiative in 2024 help lay the groundwork for anticipated future improvements.
Speaker Change: In addition to the power L. O S loan origination platform enhancements, Tom already mentioned, we rolled out a lockbox Treasury management solution in the fourth quarter that will better allow us to serve health care companies and homeowners associations.
Speaker Change: Another. Notable example is the launch of a new workflow automation tool that will assist us in automating manual processes that have historically been done by email or other means this new two tool also has AI functionality that can instantaneously answer questions for employees on policies procedures and.
Speaker Change: Frequently asked questions as well as automating the process for information technology request as we move forward in 2025, we have several other use cases for this software and several other projects coming to fruition that will further streamline processes and increase efficiency and lower costs.
Tom: At this time I'll turn it back to Tom for his final thoughts.
Tom: Thank you Robin as I start my second year as CEO of <unk>.
Tom: I'm very excited about our future and I look forward to sharing our continued successes with all of you in 2025.
Tom: Thanks, again for joining our call today, and I would like to now open it up for questions.
Speaker Change: Thank you Sir.
Ladies and gentlemen, if you do have any questions. Please press star followed by one on you touched on the phone you will then hear a prompt that your hand hasn't been raised and should you wish to decline from the polling process. Please press star followed by two and if youre using a speakerphone, so I'll need to lift the handset.
Speaker Change: Before pressing any keys. Please go ahead and press Star one now if you do have any questions.
Speaker Change: First we will hear from Julienne Cassarino Sycamore analytics. Please go ahead.
Speaker Change: Hi, good morning.
Speaker Change: Good morning.
Speaker Change: Okay, Great wanted to make sure you can hear me and that was a great gain on the branches I was just curious how old were those branches when did they go on the books.
Speaker Change: And and then I was wondering if that lease cost was fixed for 15 years, it's pretty long term leased I was just wondering if that was fixed or variable.
Julian: Hi, Julian good morning, Thanks for the question so.
Julian: So the two branches that we sold where our our country side branch and you can kind of see this in our slide deck as well, which opened in 2018 and then also our seminal branch, which was the original branch when the bank started and that was back in 1999. So.
Julian: It doesn't reflect.
Julian: The oldest ones obviously, our original branches included and.
Speaker Change: Yeah, we're pretty pleased with the gain as well as far as the lease arrangements go the the.
Speaker Change: The rent the rent component associated with the lease is not stable. It does go up each year.
Speaker Change: So 1% to 2% as I recall.
Speaker Change: So you know the details are out there we filed that with our 8-K.
Speaker Change: Kind of see all the bits and pieces.
Speaker Change: Hopefully that answers your question.
Speaker Change: Yes, and how many other branches I think you have 10 other how many other ones do you own.
Speaker Change: So at this point, we own eight of our other 12 branches.
Speaker Change: Oh in eight out of the remaining 10 right 12, but you saw too so let's say you own all your franchise okay.
Except for two and.
Speaker Change: And I was curious about the buybacks, which is great and again it's.
Speaker Change: Great to see.
Speaker Change: But you you pay a stock dividend and so if you look historically at the shares outstanding they don't change much right, even though you've had.
Speaker Change: Buyback authorization and I guess I was gonna even this at 2 million. It's it's double your past one, but I think it's still only around 3% of the outstanding. So I was just wondering if I you know I was curious why not kind of double that you know make it over 5% you know, it's it's 2 million out of the almost nine.
Speaker Change: After tax gain.
Speaker Change: And you don't have any kind of CRE concentration cap issues, you don't have ample capital and.
Speaker Change: And with the stock trading where it is.
Speaker Change: 67% I think of tangible book now just wondering why not buyback more and actually take the share count down.
Speaker Change: Yes, that's a very good question and the short answer is we are a loan production machine here at <unk>, we've put on over $700 million in new originations across the company last year, we need to have adequate capital to continues to be <unk>.
Speaker Change: <unk> these loans that will grow our earning assets on our balance sheet. We also took this opportunity with the gain to eliminate the fair value accounting treatment something that was very important to us as we move forward.
And the remaining dollars, we did want to show the confidence in our stock and we did get authorization for a $2 million buyback and we will be evaluating that position as our earnings continue.
Speaker Change: Okay, what's the 1 million authorization a couple of years ago was that finished.
Speaker Change: And that was only open for one year. Yeah. That's that was authorized it was it had a one year term that one index for December one 2023 Julien.
Speaker Change: Okay, Okay got not really replacing edits that we've kind of been out of the market for last year end.
Speaker Change: Pick it back up.
Speaker Change: Alright, well.
Speaker Change: Buybacks are accretive buybacks are accretive buybacks right now, but I was just thinking it might be a great to see the share count actually go down but it's it is accretive if it's great.
Speaker Change: Counting change I thought it was a big deal I you know, that's a big accounting change.
Speaker Change: And I was just curious about the timing how long are those held for sale loans on the books for about how long.
Speaker Change: Yes, they're not held for sale loans I mean, we basically book all of our loans held for investment and if you're referring to the portfolio of loans that were initially booked at fair value I will tell you that the bulk of those loans are our SBA seven a bulk program and the term.
Speaker Change: On those loans are 10 years and.
Speaker Change: As far as the average life of those I would estimate that the portfolio is going to be around here for a while.
Speaker Change: The benefit for us more than anything else and this is coming from the person that has to do to financial reporting is that.
Speaker Change: More and more and more going to look like other institutions that are in this space and lending.
Speaker Change: Fair value accounting certainly provides a.
Speaker Change: It's it's an option that we can leverage but it also makes us look different and in some of the conversations that I've had with that.
Speaker Change: Other investors quite simply it's like what are you guys love dividend, a little bit difficult to kind of follow our may comparison. So this is a great step for us to get back in line.
Speaker Change: Yeah, Yeah, well sort of along those lines what what is the what is the current S. P. A.
Speaker Change: Gain on sale margin and and how has that been trending over the past six to 12 months.
Speaker Change: I'd say over the past six to 12 months, it's been stable.
Speaker Change: And the margin really is is kind of variable if if I just kind of.
Speaker Change: Look at only but both loans.
Speaker Change: Gross premiums that we're seeing on those are our 12% to 14%.
Speaker Change: That really is kind of in the same almost I'd say almost until the end of 2023, and we haven't sold anything or done any sales. So far in 2025, So I can't really comment on if that's still the case, but.
Speaker Change: It's.
Speaker Change: Our product has been well accepted it performs in a in a very predictable manner. So my hope is that it's going to continue at that level into 2025.
Speaker Change: Okay, great well. Thank you. Thank you.
Speaker Change: Thank you.
Speaker Change: A reminder, ladies and gentlemen, please press star one should you have any questions.
Speaker Change: Next we will hear from Ian Green Dragon Capital. Please go ahead Ian.
Ian: Hi, good morning, Thank you.
Ian: Two questions I guess, what I wanted to ask first about you can hear me okay. Yes.
Ian: Yeah.
Ian: Great.
Ian: Your C&I repricing.
Ian: And your consumer loan pricing.
Ian: Do you see.
Ian: With your maturity profiles there got it.
Ian: There'll be a significant.
Bump up again.
Ian: Our interest rates.
Ian: On the on those on that portfolio of C&I and I guess the other question on the consumers that all that almost entirely floating based on prime.
Ian: So this is rob any and good morning, So C&I for the C&I portfolio. Let me first start with our balance sheet is very asset sensitive and the vast majority of our loan portfolio is variable rate.
Ian: And a good portion of that is because of the SBA seven lending that we do so the vast much so almost all of our C&I loans that are SBA are adjustable.
Ian: Quarterly with and are tied to prime.
Ian: So certainly we have some other conventional C&I business or other owner occupied CRE that has not but it's a much smaller portion of the existing balance sheet and then on the consumer side.
Ian: Yes, there is a fair amount of home equity lines and those are also.
Ian: Variable rate adjusting and as soon as prime rate changes as well. So we are not like most other banks that may be worried about their commercial portfolio and rates adjusting you know at this time.
Ian: And causing some credit issues from that standpoint, our borrowers have already seen the rate increases, which is frankly, why our credit losses are higher.
Ian: On the small loan space for I'm guaranteed SBA seven eight.
Speaker Change: And I assume your U you underwrite those yes, it's funny because some banks are actually seeing a real pop in net interest margin because they have a quite a few good rolling off and.
Ian: Yes, they are underwritten it hopefully that.
Ian: The borrowers can handle the rate increase so I'm assuming your stress.
Ian: Stress test that and then when you.
Ian: [noise] originate the loan.
Ian: You have this big cushion of what the ability to pay it back.
Ian: Yes, we do certainly.
Ian: Now the other question I had just sort of on the disaster insurance.
Ian: And how that all works I mean do you have any do you have a sense of like the.
Ian: The loan value or the principle amount that's impacted because it's impacted by.
Ian:
Ian: Hurricane damage and all that sort of stuff.
Ian: Hmm.
Ian: With that.
Ian: Insurance.
Ian: How does all that work are you getting cash flows in from the insurance companies or is that all just going to the borrower.
Ian:
Ian: It just it just helps them I guess to keep repaying alone.
Ian: Yeah.
Ian: Yeah, So it's really pretty immaterial for us I mean, we have a handful.
Ian: I can count them on both hands of commercial borrowers who were impacted in some way, but if they're in flood zones. They are required to have flood insurance at the time that we make the loan and throughout the long period. So you know we're not aware of any properties that were.
Ian: We have a shortfall, it's just a matter of time right. So a lot of times that we've just given three month deferrals for example, while <unk>.
Ian: Different property has got themselves cleaned up to reopen so.
Ian: If there are large dollar amounts of insurance premiums and then certainly we do monitor that.
Ian: With the borrower and.
Ian: Hold it in an escrow and make sure that the proper improvements are being made.
Ian: So and then we have some smaller consumer loans that are in our in the same boat, but again, it's relatively immaterial to the portfolio.
Ian: And same with residential.
Ian: So I'm just wondering with residents yes exactly.
Ian: Great well, thank you very much I appreciate it.
Ian Green: Thanks Ian.
Speaker Change: And currently we have no other questions registered ladies and gentlemen. This does conclude today's conference call. Once again. Thank you for attending and at this time, we ask that you. Please disconnect your lines have a good weekend.
Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yes.
No.
Speaker Change:
Speaker Change: Yes.
Yeah.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: [music].