Q3 2025 BayFirst Financial Corp Earnings Call

Speaker #1: Good morning, ladies and gentlemen, and welcome to the BayFirst Financial Corp. Q3 2025 conference call and webcast. At this time, all lines are in a listen-only mode.

Speaker #1: Following the presentation, we will conduct a question and answer session. If at any time during this call you need assistance, please press star zero for the operator.

Speaker #1: This call is being recorded on a Friday, October 31st, 2025. I would now like to turn the conference over to CEO Tom Zernick. Please go ahead.

Speaker #2: Thank you, Joanna. Good morning, and thank you for joining our call today. Once again, with me is Robin Oliver, our President and Chief Operating Officer.

Speaker #2: And Scott McKim, our chief financial officer. Today's call will include forward-looking statements and non-GAAP financial measures. Please refer to our cautionary clause on forward-looking statements contained on page two of the investor presentation.

Speaker #2: At the start of the year, management and the board initiated a comprehensive strategic review of the bank's business model to chart a new path forward that holds true to our mission as a community bank.

Tom Zernick: At the start of the year, management and the board initiated a comprehensive strategic review of the bank's business model to chart a new path forward that holds true to our mission as a community bank. Today, we are reporting on the culmination of our work to de-risk the balance sheet and position our community bank for long-term sustainable growth and enhanced shareholder value. For over a decade, the bank's SBA 7(a) business has provided revenue to help build our 12-branch network, which drives tremendous franchise value. At the same time, this line of business outgrew our community bank model, and as reflected in this year's results, brought material risk that led to operating losses. In September, we reported BayFirst would exit SBA 7(a) lending and that we had signed a definitive agreement to sell a large portion of our SBA 7(a) portfolio to Banesco USA.

Speaker #2: Today, we are reporting on the culmination of our work to de-risk the balance sheet and position our community bank for long-term sustainable growth and enhanced shareholder value.

Speaker #2: For over a decade, the bank's SBA 7(a) business has provided revenue to help build our 12-branch network, which drives tremendous franchise value. At the same time, this line of business outgrew our community bank model and, as reflected in this year's results, brought material risk that led to operating losses.

Speaker #2: In September, we reported BayFirst would exit SBA 7A lending and that we had signed a definitive agreement to sell a large portion of our SBA 7A portfolio to Benesco USA.

Speaker #2: Furthermore, the majority of our SBA 7(a) staff would be offered positions with Benesco USA's SBA lending team. I should note that we expect to close this transaction later in the quarter. However, the current federal government shutdown has generated some delays.

Tom Zernick: Furthermore, the majority of our SBA 7(a) staff would be offered positions with Banesco USA's SBA lending team. I should note that we expect to close this transaction later in the quarter. However, the current federal government shutdown has generated some delays. While managing this transition, the BayFirst team continues to prioritize our community banking mission by delivering excellent service to our customers across the Tampa Bay and Sarasota markets. Our focus remains firmly on what matters most. Being the premier community bank in Tampa Bay. That means building real relationships with local individuals, families, and small businesses through reliable checking and savings accounts. These connections give us a solid, stable funding foundation while strengthening our footprint throughout Tampa Bay's dynamic market. Today, more than 84% of our deposits are insured.

Speaker #2: While managing this transition, the BayFirst team continues to prioritize our community banking mission by delivering excellent service to our customers across the Tampa Bay and Sarasota markets.

Speaker #2: Our focus remains firmly on what matters most, being the premier community bank in Tampa Bay. That means building real relationships with local individuals' families, and small businesses through reliable checking and savings accounts.

Speaker #2: These connections give us a solid, stable funding foundation while strengthening our footprint throughout Tampa Bay's dynamic market. And today, more than 84% of our deposits are insured.

Speaker #2: This relationship-driven strategy helps us to deliver sustainable growth while maintaining the disciplined risk management and operational efficiency central to our long-term value creation. Scott will elaborate on the restructuring charge and the accounting impacts related to the portfolio sale to Benesco USA and Robin will discuss changes to our senior leadership, which align with the focus I have previously shared.

Tom Zernick: This relationship-driven strategy helps us to deliver sustainable growth while maintaining the disciplined risk management and operational efficiency central to our long-term value creation. Scott will elaborate on the restructuring charge and the accounting impacts related to the portfolio sale to Banesco USA, and Robin will discuss changes to our senior leadership, which align with the focus I have previously shared. First, I want to emphasize that though profitability has not met expectations, we are building a stronger, more resilient organization. Once restructuring is complete, we expect to return to profitability with a goal of positive return on assets of 40 to 70 basis points in 2026, with continued improvement in later years. Additionally, we will continue resolving non-performing loans and improving credit quality. With strong market opportunities and operational capabilities, we remain focused on executing our strategy and delivering long-term shareholder value.

Speaker #2: But first, I want to emphasize that though profitability has not met expectations, we are building a stronger, more resilient organization. Once restructuring is complete, we expect to return to profitability with a goal of positive return on assets of 40 to 70 basis points in 2026, with continued improvement in later years.

Speaker #2: Additionally, we will continue resolving non-performing loans and improving credit quality. With strong market opportunities and operational capabilities, we remain focused on executing our strategy and delivering long-term shareholder value.

Speaker #2: To that end, we have made some important but difficult decisions regarding staff levels, span of control, and legacy costs related to our SBA 7A lending business and technology platform.

Tom Zernick: To that end, we have made some important but difficult decisions regarding staff levels, span of control, and legacy costs related to our SBA 7(a) lending business and technology platform. I am confident our actions will allow us to create a stronger, more stable BayFirst. I also want to share some encouraging metrics, all of which will be sustainable as we move away from relying on gain-on-sale revenue, which has historically contributed to most of our earnings. We expect lower net charge-offs following the reduction of unguaranteed SBA 7(a) loans on the balance sheet. While our net interest margin dipped this quarter, the decrease was related to one-time items. We will be closer to the 4% target, which we mentioned previously, which is achieved through lower deposit costs and appropriately priced consumer and commercial loans originated across the Tampa Bay market.

Speaker #2: I am confident our actions will allow us to create a stronger, more stable BayFirst. I also want to share some encouraging metrics. All of which will be sustainable as we move away from relying on gain-on-sale revenue which has historically contributed to most of our earnings.

Speaker #2: We expect lower net charge-offs following the reduction of unguaranteed SBA 7A loans on the balance sheet. While our net interest margin dipped this quarter, the decrease was related to one-time items.

Speaker #2: We will be closer to the 4% target that we mentioned previously, which is achieved through lower deposit costs and appropriately priced consumer and commercial loans originated across the Tampa Bay market.

Speaker #2: Now, I will pass the microphone to Scott McKim, our CFO, to provide an overview of our financial performance.

Tom Zernick: Now I will pass the microphone to Scott McKim, our CFO, to provide an overview of our financial performance. Thank you, Tom. Good morning, everyone. We are reporting a net loss of $18.9 million in the third quarter. This compares to the net loss of $1.2 million reported in the second quarter. During the third quarter, we recorded a restructuring charge of $7.3 million, plus the lower-of-cost or market adjustment on the loan portfolio being sold to Banesco USA, an increase to our allowance for credit losses, and a handful of other extraordinary items. The restructuring charge includes $2.9 million to write off assets and prepaid expenses related to the SBA 7(a) lending business. Also, $3.9 million in personnel-specific costs, including the termination of the company's ESOP plan, and about half a million dollars of conversion and deal costs. We previously reported that the portfolio sale was priced at 97%.

Speaker #3: Thank you, Tom. Good morning, everyone. We are reporting a net loss of $18.9 million in the third quarter. This compares to the net loss of $1.2 million reported in the second quarter.

Speaker #3: During the third quarter, we recorded a restructuring charge of 7.3 million dollars plus the lower of cost or market adjustment on the loan portfolio being sold to Benesco USA and increased to our allowance for credit losses and a handful of other extraordinary items.

Speaker #3: The restructuring charge includes 2.9 million dollars to write off assets and prepaid expenses related to the SBA 7A lending business. Also, 3.9 million dollars in personnel-specific costs including the termination of the company's ESOP plan, and about a half a million dollars of conversion in deal costs.

Speaker #3: We previously reported that the portfolio sale was priced at 97%. The discount on the final portfolio is 5.1 million dollars including fair value adjustments, recognition of deferred costs, and premium discounts.

Tom Zernick: The discount on the final portfolio is $5.1 million, including fair value adjustments, recognition of deferred costs and premium discounts, and, of course, the 3% stated discount. This impact is seen in non-interest income for this quarter. I will also note that our allowance for credit losses was reduced by $800,000 in recognizing that these loans are being moved to held for sale. While it is not part of the restructuring charge, we also recorded and accrued $1.9 million of disallowed interest overpayments from the SBA during the quarter. Loans held for investment, therefore, did decrease by $127.1 million, or 11.3%, during the third quarter of 2025 to end at $998.7 million, and decreased $43.8 million or 4.2% over the past year. During the quarter, $97 million of loans were transferred to held for sale and subsequently marked the lower-of-cost or market, as I noted a moment ago.

Speaker #3: And, of course, the 3% stated discount. This impact is seen in non-interest income for this quarter. I will also note that our allowance for credit losses was reduced by $800,000 in recognizing that these loans are being moved to held for sale.

Speaker #3: While it is not part of the restructuring charge, we also recorded and accrued 1.9 million dollars of disallowed interest overpayments from the SBA during the quarter.

Speaker #3: Loans held for investment, therefore, did decrease by 127.1 million dollars or 11.3% during the third quarter of 2025 to end at 998.7 million dollars.

Speaker #3: And decreased 43.8 million dollars or 4.2% over the past year. During the quarter, 97 million dollars of loans were transferred to health for sale and subsequently marked the lower of cost or market as I noted a moment ago.

Speaker #3: Total deposit balances increased 7.7 million dollars or 0.7% during the third quarter of 2025 and increased by 59.3 million dollars or 5.3% over the past year to 1.17 billion dollars.

Tom Zernick: Total deposit balances increased $7.7 million or 0.7% during the third quarter of 2025 and increased by $59.3 million or 5.3% over the past year to $1.17 billion. The increase in deposits during the quarter was primarily due to an increase in time deposits of $53 million, and is partially offset by decreases in non-interest-bearing accounts of $3.8 million, interest-bearing transaction account balances of $27.9 million, and savings and money market account balances of $13.7 million. Furthermore, as Tom mentioned, more than 84% of the bank's deposits were insured by FDIC on September 30, 2025. Shareholders' equity at quarter end was $89.7 million and is $12.6 million lower than the end of the second quarter or the third quarter of 2024. Net accumulated other comprehensive loss decreased by $300,000 during the quarter, ending at $2.1 million.

Speaker #3: The increase in deposits during the quarter was primarily due to an increase in time deposits of 53 million dollars and is partially offset by decreases in non-interest-bearing accounts, of 3.8 million, interest-bearing transaction account balances of 27.9 million, and savings and money market account balances of 13.7 million dollars.

Speaker #3: Furthermore, as Tom mentioned, more than 84% of the bank's deposits were insured by FDIC on September 30th, 2025. Shareholders' equity, a quarter in, was 89.7 million dollars and is 12.6 million dollars lower than the end of the second quarter or the third quarter of 2024.

Speaker #3: Net accumulated other comprehensive loss decreased by 300,000 dollars during the quarter ending at 2.1 million dollars. Changeable book value decreased this quarter to 17 dollars and 90 cents per share from 22 dollars and 30 cents per share at the end of the second quarter.

Tom Zernick: Tangible book value decreased this quarter to $17.90 per share from $22.30 per share at the end of the second quarter. As Tom Zernick mentioned, our net interest margin was down 45 basis points to 3.61% in the third quarter. Net interest income was $11.3 million in the third quarter, down $1 million compared to the second quarter and up $9.4 million from the year-ago quarter. During this quarter, the bank wrote off $400,000 of unamortized premium related to one USDA guaranteed loan, which was liquidated during the quarter. Furthermore, $600,000 of interest was reversed for loans moved to non-accrual status during the quarter. Outside of these one-time adjustments, net interest income would have been flat to the second quarter number.

Speaker #3: As Tom mentioned, our net interest margin was down 45 basis points to 3.61% in the third quarter. Net interest income was 11.3 million dollars in the third quarter down 1 million dollars compared to the second quarter and up 9.4 million dollars from the year-ago quarter.

Speaker #3: During this quarter, the bank wrote off 400,000 dollars of unamortized premiums related to one USDA guaranteed loan which was liquidated during the quarter. Furthermore, 600,000 dollars of interest was reversed for loans moved to non-accrual status during the quarter.

Speaker #3: Outside of these one-time adjustments, net interest income would have been flat to the second quarter number. Non-interest income was a negative $1 million for the third quarter of 2025, which is a decrease from $10.8 million in the second quarter and a decrease from $11.7 million in the third quarter of 2024.

Tom Zernick: Non-interest income was a negative $1 million for the third quarter of 2025, which is a decrease from $10.8 million in the second quarter and a decrease from $11.7 million in the third quarter of 2024. The third quarter decrease is primarily from the decrease of gains on the sale of SBA 7(a) government-guaranteed loans. Notably, with the exit of the SBA 7(a) lending business, revenue from the gains on sale of government-guaranteed loans will no longer impact non-interest income as it has in prior periods. Tom Zernick alluded to this earlier. Non-interest expense was $25.2 million, an increase of $7.7 million compared to the second quarter. Nearly all of this increase is related to the $7.3 million, which is the restructuring charge that I spoke about a moment ago.

Speaker #3: The third quarter decrease is primarily from the decrease of gains on the sale of SBA 7A government guaranteed loans. Notably, with the exit of the SBA 7A lending business, revenue from the gains on sale of government guaranteed loans will no longer impact non-interest income as it has in prior periods.

Speaker #3: Tom alluded to this earlier. Non-interest expense was 25.2 million dollars an increase of 7.7 million dollars compared to the second quarter. Nearly all of this increase is related to the 7.3 million dollars which is the restructuring charge that I spoke about a moment ago.

Speaker #3: Loan origination and collection expense was also 700,000 dollars higher in the third quarter and that was offset by lower salaries and benefits including commissions and incentives.

Tom Zernick: Loan origination and collection expense was also $700,000 higher in the third quarter, and that was offset by lower salaries and benefits, including commissions and incentives. Provision for credit losses was $10.9 million in the third quarter compared to $7.3 million in the second quarter and $3.1 million in the year-ago quarter. Net charge-offs, primarily from unguaranteed SBA 7(a) balances, were $3.3 million, which was down $3.5 million compared to the second quarter. Excluding the $800,000 reduction in the ACL for the loans that was transferred to held for sale, the remaining increase in provision is primarily for retained unguaranteed SBA 7(a) balances. Annualized net charge-offs, as a percentage of average loans held for investment at amortized cost, were 1.24% in the third quarter. That was down from 2.6% in the second quarter and up just slightly from 1.16% in the third quarter of 2024.

Speaker #3: Provision for credit losses was $10.9 million in the third quarter, compared to $7.3 million in the second quarter and $3.1 million in the year-ago quarter.

Speaker #3: Net charge-offs primarily from unguaranteed SBA 7A balances were 3.3 million dollars which was down 3.3 and a half million dollars compared to the second quarter.

Speaker #3: Excluding the 800,000 dollar reduction in the ACL for the loans that was transferred to health for sale the remaining increase in provision is primarily for retained unguaranteed SBA 7 balances.

Tom Zernick: Non-performing assets were 1.97% of total assets on September 30, compared to 1.79% at June 30, 2025, and 1.38% at September 30 last year. Non-performing assets, excluding government-guaranteed loan balances, were 1.21% of total assets as of September 30, 2025, compared to 1.12% as of June 30, 2025, and 0.88% on September 30, 2024. The ratio of allowance to credit losses to total loans held for investment at amortized cost was 2.61% at September 30, 2025. That compares to 1.65% as of June 30, 2025, and 1.7% on September 30 of last year. The ratio of ACL to total loans held for investment at amortized cost, excluding government-guaranteed loan balances, was 2.78% September 30 of this year, 1.85% in June of this year, and 1.70% on September 30 of last year. At this time, I'll turn the call over to Robin to make some additional comments about staffing changes.

Tom Zernick: Thank you, Scott. First, I'd like to comment a bit more on our efforts around asset quality. Throughout this year, we have worked to strengthen credit administration practices to ensure the timely identification of problem credits, as well as ensuring those same problem credits are resolved as quickly as possible. Management has worked to tighten credit underwriting in all areas of the loan portfolio, and in an effort to ensure all loans are properly risk-rated and accounted for, management hired consultants and other third parties in the third quarter to assist in reviewing the portfolio to take an aggressive stance on recognizing all potential problem loans. This effort did increase our non-performing and classified loans, as well as our allowance for credit losses, as Scott reported.

Tom Zernick: As we move forward into 2026, the goal will be the continual reduction of non-performing and classified credits to bring these balances closer in line to peer. The overall wind down of the SBA loan portfolio, the potential sales of additional SBA unguaranteed balances, and the continued aggressive workout of problem loans is expected to improve asset quality in the coming quarters without significant additional provision for credit losses being necessary. As Tom mentioned, I also want to touch on some leadership changes. First, Tom Qualley has served as the bank's Sarasota market leader for the past several years. Tom is a veteran banker with over 40 years of experience, and he will be retiring in December. Succeeding Tom is Samantha Hill. Sam, as she likes to be called, joined BayFirst over a year ago and brings a wealth of knowledge in the commercial and community banking space.

As Tom mentioned, I also want to touch on some leadership changes.

First, Tom Quali has served as the Bank Sarasota Market Leader for the past several years. Tom is a veteran banker with over 40 years of experience, and he will be retiring in December.

Tom Zernick: Tom and Sam have been working together and will complete their transition plan over the coming weeks. I also want to announce that Adam Curtis, who has been serving as our Pinellas County market leader, has assumed the leadership role in Tampa as well. Adam has added the two Tampa branches to his team and will also take over as Chief Lending Officer upon Tom Qualley's retirement. Adam is well known throughout both markets and has a great team of branch managers and business bankers. Finally, I want to note that Brandy Javers' title is now Chief Administrative Officer. Previously, Brandy was focused on loan production operations, and with our restructuring efforts, she will now manage a few operational areas and, importantly, the Banesco USA transition project. Brandy's historical knowledge of our SBA 7(a) lending business makes her the perfect leader for this important project.

Succeeding. Tom is Samantha Hill Sam, as she likes to be called. She joined BayFirst over a year ago and brings a wealth of knowledge in the commercial and community banking space.

Tom and Sam have been working together and will complete their transition plan over the coming weeks.

I also want to announce that Adam Curtis, who has been serving as our panelist County Market Leader, has assumed the leadership role in Tampa as well.

Adam has added the 2 2 Tampa branches to his team and will also take over as Chief lending officer upon Tom quality's retirement. Atom is well known throughout both markets and has a great team of branch managers and business bankers.

Finally, I want to note that Brandy Jabber's title is now Chief Administrative Officer. Previously, Brandy was focused on Loan Production Operations, and with our restructuring efforts, she will now manage a few operational areas and, importantly, the Banesco USA transition project. Brandy's historical knowledge of our SBA 7(a) lending business makes her the perfect leader for this important project.

Tom Zernick: That concludes the comments I have, and I will turn it back to Tom for his final thoughts. Hey, thank you, Robin. 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. We are confident that these efforts will better align the company and our bank with the demands of a dynamic banking landscape. We remain optimistic about the road ahead. Thank you. At this time, we'd like to turn it over for questions. Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touchtone phone. 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.

And that concludes the comments I have. I will turn it back to Tom for his final thoughts. Hey, thank you, Robin.

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.

We are confident that these efforts will better. Align the company and our bank with the demands of a dynamic banking landscape.

We remain optimistic about the road ahead. Thank you.

Thank you, ladies and gentlemen, we will now begin the question and answer session.

Should you have a question, please press the star followed by the 1 on your touchtone phone. You will hear a prompt that your hand has been raised.

Tom Zernick: If you are using a speakerphone, please flip the handset before pressing any keys. The first question comes from Ross Haberman at RLH Investments. Please go ahead. Good morning. Thank you for taking my call. I have two quick questions. You said you did not sell all of the SBA. How much did you hold back? How are you servicing them, and why didn't you sell the whole thing? Hey, Ross, good morning. I can answer that quickly for you. Our anticipation is, and I stress this is a forecast, is that on the end of December, so this would be post-closing the transaction, the bank would still have about $167 million of unguaranteed SBA 7(a) loan balances. We are still working on selling the remainder of that portfolio. The transaction that we announced previously, that was the amount of balances that Banesco USA wished to buy.

If you wish to decline from the polling process, please press star followed by the 2.

And if you are using a speaker-phone, please lift the handset, before pressing any keys.

The first question comes from Ross Herman at RLH Investments. Please go ahead.

Good morning. Um uh, thank you for taking my call. I have 2. Quick questions. You said you did not sell all of the SBA. How much did did you hold back? How are you servicing them? And, and and why don't you sell the whole thing?

Hey Ross, good morning. Um, I can answer that uh quickly for you. Our anticipation is and And I stress, this is a forecast, is that on the end of December? So this would be post-closing in the transaction. The bank would still have about 167 million of Ungar, SBA 7A loan, balances.

so the, you know,

Tom Zernick: We continue to look for other parties to continue to try to market and sell that portfolio down. As far as servicing it, ultimately, Banesco will be operating as the servicer for all of the loans that are in our SBA portfolio for us. At that point, the best part of that is that a good chunk of our people who have been servicing that portfolio on our behalf will move over, and there really should be a good level of continuity between the two. Refresh my memory. What kind of reserve or allowance did you sell the bulk of, or cents on the dollar did you sell the bulk of the SBAs for, and will you have to take a bigger reserve or allowance for this last 167? The portfolio sale that we previously announced was at a 3% discount, so 97%.

To continue to try to market and sell that portfolio down.

As far as servicing it, uh, ultimately banesco will be operating at the serer 4, all of the loans that are in our SBA portfolio for us and, uh, at that point really it's it's the best part of that. Is that a good chunk of our people who have been servicing that portfolio on our behalf will move over and so there really should be a good level of continuity between the 2.

Um, what kind of refresh my memory? What kind of of of Reserve or allowance to to sell the bulk of or or cents on the dollar? Did you sell the bulk of the sba's 4? And we have to take a bigger Reserve or allowance for this last 167

Tom Zernick: The increase in our allowance for credit loss that we are talking about today reflects an increase really primarily related to the unguaranteed balances going forward. We're not anticipating adding additional ACL to the ACL for those remaining balances at the end of this year or in the future. Thank you very much. Thanks, Ross. Thank you. Ladies and gentlemen, as a reminder, if you have any questions, please press star one. The next question comes from Julianne Casarino at Sycamore Analytics. Please go ahead. Hi. Good morning. Hi, Joanna. Good morning. Good morning. Yes. Eventful quarter. You do what has to be done. I applaud you on the definitive actions in the quarter. I was just wondering, are you still, Tom, your background is in SBA loans.

um, the portfolio sale that we previously announced was at a 3% discount, so 97%

The increase in our allowance for credit loss that we are talking about today. Reflects, an increase of really primarily related to the UN, guaranteed, balances going forward. We're not anticipating adding additional ecl to the ACL for those remaining balances at the end of this year or in the future.

Okay, thank you very much.

Thanks Ross.

Thank you. Ladies and gentlemen, as a reminder, if you have any questions, please press *1.

The next question comes from Julianne cassarino at Sycamore analytics, please go ahead.

Hi, good morning.

Tom Zernick: Are you still originating SBA loans, even though they're not this kind of 7(a) or is SBA still going to be a big part of the business model moving forward? Yeah. First of all, I'm certainly a commercial banker. I do have a lot of expertise in SBA, but we are actually exiting SBA. We will continue to originate up until our close with Banesco USA. Beyond the closing date, we will be a true community bank, and we will make Tampa Bay-based commercial C&I loans. We will continue to focus on some consumer lending, residential mortgage lending, all in Tampa Bay. We will continue to offer a great deposit suite. We've enhanced our treasury management services significantly and will continue to do all the right things as a real community bank now. SBA really is a complete exit. Can you talk about the treasury management product?

Good morning, good morning, yes. Eventful quarter, you know, you do, what, what has to be done. Um, so I applaud you on the, um, you know, definitive, um, definitive actions in the quarter. Um, I was just wondering, are you? Are you still, you know, uh Tom your background is in SBA loan. Um are you still originating SBA Loans even though they're not this you know kind of 7A or there's still are is SBA still going to be a big part of the business model moving forward. Yeah.

Yeah, we are, uh, first of all, I'm, I'm certainly a commercial Banker. I do have a lot of expertise in usba, but we are actually exiting SBA. We will continue to originate up until our our clothes with banesco USA, um, beyond the closing date. Uh, we will be a true Community Bank and we will make, uh, Tampa Bay based commercial C and I loans, uh, we will continue to focus on some consumer lending residential mortgage lending, all in Tampa Bay and uh, we will continue to offer a great deposit Suite. Uh, We've enhanced our treasure

Management Services significantly and will continue to do all the right things as a real Community Bank. Now

Tom Zernick: You mentioned it started in February, I believe, of this year, so it really seems to have gained traction. Can you just describe the products, and if you have any off-balance sheet deposits? Hi, this is Robin, Julian. Thanks for your question. We have always had treasury in our portfolio, but what we've tried to really do is beef up the software and the services that we have to make sure we are competitive in the marketplace. For example, towards the end of last year, we added lockbox services, which we did not have before, which, if we're going to serve the health care industry or the homeowners associations that we've talked about, that was something that they demand. In addition, earlier, I think what you're speaking about in February, we did roll out a new software product from Jack Henry, Jack Henry Treasury.

Okay. So so, um, so SBA really is a complete exit and, um, can you talk about the treasury management? Product you, you, you mentioned it started in February. I believe of this year. So, um, it's really seems to have gained traction. Can you just describe, um, the products or product, uh, products. And if you have any off-balance sheet, deposits,

Tom Zernick: We've always had Bano Business for our business customers, but the new Jack Henry Treasury is really designed for more mid-market-type businesses that want more complex permissions and functionality in order to serve that market. It's not something that all of our customers would be on, but we've worked to transition some of our larger business clients to that platform, and now we can offer that as we work to enhance and improve our business services. A little over two years ago, we had one treasury officer, to give you an idea, and we have now beefed our team up to really four folks serving treasury, and we will likely continue to increase that in 2026 because we have onboarded a lot of new treasury customers this year and are seeing a lot of success in that space. Hopefully, that gives you a little flavor of what we're doing there.

Uh, hi. This is Robin, Julian. Thanks for your question. Um, we have always uh, had treasury in in our portfolio. Uh, but what we've tried to really do is beef up the, uh, the software and the services that we have to make sure we are, uh, competitive in the marketplace. So, um, for example, uh, towards the end of last year, we added lockbox Services which we did not have before. Um, which if we're going to serve healthcare industry or the homeowners associations, that we've talked about, you know, that was something that that they, uh demand. Um, in addition it earlier, I think what you're speaking about in February, we did roll out um a new software product uh from Jack Henry. It's Jack, Henry treasury. Um and it is we we've always had Bono business with for our business customers, but the new Jack Henry treasury is really designed.

6, because we have on-boarded a lot of new treasury customers this year and are seeing a lot of success in that space. So, hopefully that gives you a little flavor of what we're doing there.

Tom Zernick: Yeah, sounds great. There's no off-balance sheet? You don't do sweep deposits? Oh, no. We do not have any off-balance sheet activity. Sorry, I forgot to answer that part of your question. Okay. No, I just wanted to make sure. Yeah, it sounds really good. I was just wondering about the loan portfolio review that was done in the third quarter that you were describing. What % of total loans were reviewed in that? We reviewed around $70 million of the portfolio, but it was from a third party. We also had another individual that we hired as a consultant that was reviewing a large number of units but smaller dollars because that has been where some of our credit concerns have been. It was a targeted review focused on specific criteria that might indicate that there was a credit weakness in that particular credit.

Yeah, sounds great there, and there's no off value. We don't do sweep deposits. Oh no, we didn't. We do not have any off-balance sheet activities. Sorry, I forgot to answer that part of your question. Okay, no. I just want to make sure. Um, yeah, it sounds really good. I was just wondering about the loan portfolio review that was done in the third quarter that you were describing. What percent of total loans were reviewed in that?

Tom Zernick: We looked at different components of our data tape, our watchlist loans, things of that nature to try to pinpoint those that could be problems that weren't recognized yet as needing a downgrade and to just make sure that we had our arms around the entire portfolio and that any problem loan possible was identified clearly here by the end of Q3. A bit of a targeted review there. Is it fair to say $70 million loans were reviewed by a third party, external third party, and the rest of all the loans were internally reviewed by a new hire, it sounds like? Is that—well, yeah, a contractor. Not all other loans, right? We focused on our SBA watchlist loans, our conventional commercial watchlist loans, our smaller BOLT and Flash Cap loans that had had prior express modifications and might still be having some struggle, things of that nature.

You know, we we reviewed um, around 70 million dollars of the portfolio, but it was um, from a third party and then we also had another individual that we hired as a consultant that was reviewing a large number of units but smaller dollars, um, because that has been where some of our, our credit concerns have been. So we were really, it was a targeted review focused on, uh, specific criteria. Um, that might indicate that there was a credit weakness in that particular credit. So, um, you know, we we looked at at at different, uh, components of our data tape. Our watch list loans, things of that nature, uh, to try to pinpoint those. That could be problems. That weren't recognized yet, as a, you know, as as needing a downgrade. And to just make sure

Um, that we had our arms around the entire portfolio and that any problem loan possible was identified, uh, clearly here by the end of Q3. So bit of a targeted review, their

Tom Zernick: We probably hit about 8% to 10% of the total portfolio but focused in a targeted way. Oh, okay. So 8% to 10%. Okay. Is the board getting paid now? I remember last quarter you said the board had halted their compensation. Has that changed? No, that has not changed. The board is still not being paid. The repurchases have been halted, and now all of this news is out. I'm guessing insiders are not restricted, right, from buying if they want. I'll take that one, Julian. I'll answer it this way. These were some pretty substantial changes, and this is something that really has kept insiders out of the market. As far as when that window opens back up for us, that's to be determined. I wouldn't expect to see anybody jumping in today by any measure, but we'll take that one day at a time going forward.

So is it fair to say 70 million loans were reviewed by a third party, external third party? And the rest of all the loans were internally reviewed by a, a new uh, a new hire sounds like, is that well, yeah, a contractor. Um, and not all not all other loans, right? But we focused on our SBA watch lists loans. Our conventional commercial watch lists loans are smaller bolt and Flash cap loans. Um, that have had prior Express modifications and might, you know, still be having some struggle uh things of that nature. So you know, we probably hit um, about 10, you know, 8 to 10% of the the total portfolio but focused in a targeted way.

Oh, okay, so 8 to 10%. Okay, okay. And then, um, the is the, is the, um, the board getting paid. Now, I remember last quarter, you said the board was was, um, you know, had halted their compensation. If has that changed

No, that has not changed. Okay, so I've already still not being paid and, um, the the, the repurchases have been halted and now, all of this news is out, I'm guessing nobody insiders are not restricted right from

from buying if they want.

Um yeah I'll take that 1 Joule. It it's um

I'll answer it this way. It's these were some pretty substantial changes and this is something that really has kept insights out of the market as far as when that window is backed up for us. That's to be determined. I wouldn't expect to see anybody jumping in today by any measure, but uh, we'll take that 1 day at a time going forward.

Tom Zernick: Currently, insiders continue to be under a lockup, but we typically wait until two full trading days after we release earnings before we open that window. Right. Now there's no reason to not be under lockup, right? Because it's all out, right? There's nothing else really pending, right? Yeah. I appreciate the question, Julian. I'm not going to go into additional details. Sure. Okay. Great. Again, thank you. Thank you so much. Appreciate it. Thank you. Thank you. The next question comes from Fred Earl at DTF Capital Management. Please go ahead. Good morning. And happy Halloween. That earning release was. My question is, why is the best decision anything other than to go to the Home Depot and get one of those signs that goes in the windshield for sale? Call now. We're not exactly following your question. Okay. Looks like you hung up, Joanna.

So currently insiders are under uh currently insiders continue to be under a lock lock up, but well, we we typically wait until you know, 2 full trading days after we release earnings before, we open that window,

Right. But now there's no no reason to not be under lock up, right? Because there's

'Cause it's all out, right? The um,

There's nothing else really tending, right? Yeah, it it it's I I appreciate the questions Julian. I'm not going to go into additional details.

Sure. Sounds. Okay, great. Well again. Thank you. Thank you so much. Appreciate it.

Thank you.

Thank you. The next question comes from Fred Earl at gtf Capital Management. Please go ahead.

Good morning and happy Halloween.

That's earning release.

My question is, why is the best decision anything other than to go to the Home Depot and get 1 of those signs that goes in the windshield?

For sale.

Call now.

We're not exactly following your question.

Tom Zernick: Was there anyone else in the queue? Thank you. There are no further questions in the queue. That does indeed conclude today's conference call. We do thank everyone for participating, and at this time, you may disconnect your lines. Thank you. Thank you. Thank you. Thank you.

Okay, looks like he hung up, Joanne. Was there anyone else in the queue? Thank you. There are no further questions in the queue.

So that does indeed conclude today's conference call. We thank everyone for participating, and at this time, you may disconnect your lines. Thank you.

Thank you. Thank you. Thank you.