Q1 2025 BayFirst Financial Corp Earnings Call
Once again with me as Robyn Oliver, our President and Chief operating Officer, and Scott and the Kim our Chief Financial Officer.
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 $335000 driven by a couple of challenges, most notably higher provision expense and higher write downs on our portfolio of loans measured at fair value.
Businesses are experiencing slowing demand for products and services, along with the sustained higher interest rate environment, and rising inflation, which has created stress cash flows for many small businesses.
In addition, past and present macroeconomic conditions are feeling uncertainty and concern among business owners across the nation, which resulted in lower loan demand than expected during the first quarter.
We will elaborate more on this in a few minutes, but first I want to talk about some areas that are performing well in the first quarter and activities that set the stage for future growth.
Our net interest margin improved again in the first quarter, an increase of 17 basis points to 377%.
Fueling this improvement was growth in interest bearing and noninterest bearing checking account balances during the quarter, while we allowed some runoff in high rate Cds and promotional priced money market balances.
Our business banking health care banking and Treasury management teams are fully staffed and are gaining traction which will help to continue growing lower rate transactional deposits.
In fact, the total number of checking accounts increased 2% during the first quarter and 12% over the past year.
On the lending side <unk> continues to enjoy minimal commercial exposure in the CRE space with non owner occupied CRE, representing all the time.
4% of our loans held for investment at the end of the quarter.
Loans held for investment increased by $18 million or 2% during the first quarter.
The bank has continued to see consistent growth in community bank loans and core deposits.
This growth will continue to position <unk> as the Premier community Bank of Tampa Bay.
The company is government guaranteed loan origination platform originated 106 $3 million in new loans. During the first quarter of 2025 of which 65 million were bolt loans, which is the companys SBA seven loan product designed to expeditiously.
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The origination volume was relatively stable from the prior quarter down slightly from $107 8 million of loans produced in Q4, 2024 of which $64 9 million were bulk loans.
Although origination volume was relatively unchanged the production totals fell below our targeted expectations contributing negatively to our results for the quarter.
As I mentioned previously there continues to be stressed among small businesses based on the economic environment over the past three years and as a result, many of our small business borrowers, particularly those in the SBA small loan program has struggled to make payments.
As we've reported previously this led to our express modification program launching in Q2 of 24, which has been offered a 581 borrowers.
While this program has helped many small businesses with their debt burden, we are still experiencing higher than historical loan loss rates.
Although there is great momentum and opportunity for many of our products and services based on the aforementioned challenges leadership and the board is initiating a comprehensive strategic review aimed at Derisking, the balance sheet and positioning the company for long term growth and enhanced shareholder value.
Scott: Now I will pass the microphone to Scott <unk>, our CFO to provide an overview of our financial performance.
Speaker Change: Thank you Tom Good morning, everyone. As Tom mentioned, we are reporting a net loss of $335000 from continuing operations in the first quarter. This compares to net income of $9 $8 million in the fourth quarter last year as a reminder, excluding the gain from our sale.
Speaker Change: Leaseback fourth quarter net income was $1 $1 million.
Speaker Change: During the first quarter balances of loans held for investment grew $18 3 million or one 7% during the quarter and overall total assets increased $3 7 million to $129 billion.
Speaker Change: Or 0.3% during the quarter since March 31, 2024, total assets have increased $147 8 million or 12, 9%.
Speaker Change: While total deposits to deposits decreased $15 million or one 3% during the first quarter of this year. We did have increases of four five and $4 3 million and noninterest bearing deposit accounts and lower rate interest bearing transaction accounts, respectively. Total deposits ended the quarter at one point.
Speaker Change: One $3 billion.
Shareholders' equity at quarter end was $110 1 million and is $9 $5 million higher than the end of the first quarter of 2024.
Speaker Change: Net accumulated other comprehensive loss decreased by $578000 during the quarter ending at $2 $4 million, our tangible book value decreased slightly this quarter to $22 77 per share from $22 95 per share at the end of the fourth quarter.
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Speaker Change: As Tom mentioned, our net interest margin improved 17 basis points to 377% in the first quarter net interest income was $11 million in the first quarter, which was up zero point $3 million compared to the fourth quarter and up $2 $3 million from the year ago quarter, our focus on checking accounts and say.
These accounts versus promotional rate money market and Cds continue to provide margin expansion.
Speaker Change: Noninterest income was $8 $8 million for the first quarter of 2025, which is a decrease from $22 $3 million in the fourth quarter of 2024, and a decrease from $14 $3 million in the first quarter of 2020 for.
Speaker Change: The decrease compared to the fourth quarter was primarily the result of the pre tax gain on the sale of two branch office properties of $11 $6 million as part of the sale lease back transaction I previously mentioned.
Speaker Change: This real estate was sold did add additional rent expense to our income statement as I will mention shortly.
Speaker Change: Gains on the sale of government guaranteed loans were also $1 $1 million lower than the first quarter compared to the fourth quarter due to lower production of saleable government guaranteed loans.
Speaker Change: The bank sold $72 $5 million of government guaranteed loan balances in the first quarter compared to $94 $5 million sold in the fourth quarter.
Speaker Change: Notably there is a $755000 loss on government guaranteed loans measured at fair value during the quarter.
Speaker Change: This includes $1 $2 million of fair value markdowns on retained earnings.
Speaker Change: The SBA <unk> balances, which are then offset by $458000 of a fair value gain related to a single USDA loan, which was booked in measured at fair value during the first quarter.
Speaker Change: I will note that these fair value markdowns are not charge offs. According to GAAP rules, but they are very similar nonetheless.
Speaker Change: Furthermore, I will remind you the bank does not plan to measure SBA loans at fair value going forward, as we announced and discussed last quarter.
Speaker Change: Noninterest expense increased by <unk> $5 million in the first quarter higher compensation costs offset by lower incentives, reflecting lower loan originations in the quarter as I previously mentioned as well.
Speaker Change: Higher occupancy and equipment costs reflects the maintenance and repair costs as well as the rent expense on the two branches that we sold in the fourth quarter marketing recruiting and development and collection costs were also lower than the fourth quarter of 2024.
Speaker Change: Provision for credit losses was $4 4 million in the first quarter compared to $4 5 million in the fourth quarter and 4 million in the first quarter of 2024 net charge offs, primarily from and guaranteed SBA, 7% balances were flat compared to the fourth quarter at $3 $3 million.
Speaker Change: Annualized net charge offs as a percentage of loans held for investment at amortized cost were $1 two 8% in the first quarter down from 134% in the fourth quarter and down from $1, 71% in the first quarter of 2024.
Speaker Change: Loans past due 30 to 89 days increased quarter over quarter nonperforming assets to total assets increased to 194% as of March 31, 2025 that compares to 147% as of December 31, 2024, and zero point, 98% as of March.
Speaker Change: <unk> 31, 2024 with the increase this quarter largely being driven by larger very well collateralized loans.
Speaker Change: The allowance the ratio of allowance to credit losses to total loans held for investment at amortized cost was also higher at the end of the first quarter.
Speaker Change: Compared to last quarter at 161% on March 31, 2025, compared to 154% as of December 31, 2024, and 162% as of March 31 2024.
Speaker Change: Our portfolio of unsecured consumer loans purchased from a third party generated $285000 of net charge offs during the quarter, which was down about $100000 from the fourth from the fourth quarter.
At this time I will turn the call over to Robyn for some additional comments. Thank you Scott good morning, everyone.
Robyn: To elaborate further on how we are working to improve the credit quality of our SBA 708 small loans.
Robyn: As a reminder, for many of our SBA borrowers whose loans were originated prior to the historic rise in interest rates, which began in 2022 their payments have almost doubled since the loans are variable rate adjusting quarterly most of those loans have 10 year terms and are now becoming more seasoned and wherever.
Robyn: <unk>, we have granted a modification for those borrowers who are struggling to extend their maturity and lower their payment.
Robyn: There are bolt loan product, which launched in June of 2022. Many of those loans were originated in a higher interest rate environment and throughout the program. We have continually revise the credit underwriting parameters to ensure we are prudent in our credit decisions. For example, we enhanced credit parameters in March 2020.
Sure and have thus far seen a much lower early default rate for loans originated after that date as compared to prior vintages of loans. In addition, we further strengthened our analysis of bank statements. Starting this month based on additional data analysis, we've collected over the life of the program now that the portfolio.
Robyn: With seasoning all of these steps are designed to improve credit quality, while still serving the needs of borrowers who otherwise would not have access to credit.
Robyn: In addition, we are continuing to build a robust team of credit administration and portfolio management in January 2025, We announced the addition of a new Chief Credit Officer, and I am pleased to announce that a director of credit administration was also added to the team in February 2025, we are focused on enhanced.
Our credit risk management and oversight to ensure we have the right resources to manage our growing portfolio.
Robyn: Outside of SBA lending, our conventional loan portfolio continues to have strong asset quality metrics and yields as we continue to grow both our commercial and consumer portfolios at a steady pace with the new nice, we announced last year and healthcare lending.
Robyn: Since March 31, 2024, a year ago, the conventional loan portfolio has grown by $140 million or 26% and represents $686 million of our loan portfolio at quarter end.
Robyn: Also beginning in the first quarter, we expanded our treasury product set to include Lockbox services not only for health care companies, but also for homeowners associations, which are plentiful in Tampa Bay Association banking is another niche industry, where we believe we can grow and expand both core.
Robyn: <unk> and lung.
Tom: Ultimately, we serve a broad community of small businesses individuals and families and as proven by being named Forbes 2024, Best Bank in Florida as voted on by customers. We have built an outstanding community and customer focused organization at this time I will turn it back to Tom for his final thoughts.
Tom: Thanks Robyn.
Tom: Our board of directors and leadership team are committed to driving resilience and innovation as we position the company for long term success and enhance shareholder value.
Tom: We are confident that these efforts will better align the company and our bank with the demands of a dynamic banking landscape.
Tom: At this time, we'd like to.
Tom: Entertain questions.
Tom: Thank you ladies and gentlemen, if you do have any questions. At this time. Please press star followed by one on your Touchtone phone you will then hear Inc. Prompts that your hand has been raised and should you wish to decline from the polling process. Please press star followed by two.
Tom: Using a speakerphone you will need to lift the handset first before pressing any keys. Please go ahead and breast star one now if you do have any questions.
Tom: And at this time it appears we have no questions, which will conclude our conference call for today. Once again, we would like to thank you for attending and ask that you. Please disconnect your lines have a good weekend.
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