BayFirst Q4 2025 BayFirst Financial Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 BayFirst Financial Corp Earnings Call
Operator: Good morning, ladies and gentlemen, and welcome to the BayFirst Financial Corp. Q4 2025 Conference Call and Webcast. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, 30 January 2026. I would now like to turn the conference over to Tom Zernick, CEO of BayFirst. Please go ahead.
Speaker #1: Good morning , ladies gentlemen , and welcome to the BayFirst Financial Corp. Q4 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 require immediate assistance , please press star zero .
Speaker #1: For the operator . This call is being on recorded Friday , January 30th , 2026 . I would like to turn now the conference over to Thomas Zernick , CEO of Bay Please go first .
Tom Zernick: Thank you, Vanessa. Good morning, and thank you for joining our call today. Once again, with me is Robin Oliver, our President and Chief Operating Officer, 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 statement on forward-looking statements contained on page 2 of the investor presentation. The end of 2025 marks the completion of several significant milestones. We have executed and completed a number of strategic initiatives, including the exit from the SBA Seven A lending business, the sale of a substantial amount of Seven A loan balances, a significant reduction in headcount and expenses, and a complete focus on our community bank. The results of these efforts are lower risk, more efficient operations, and a better position for sustainable growth and enhanced shareholder value.
Tom Zernick: Thank you, Vanessa. Good morning, and thank you for joining our call today. Once again, with me is Robin Oliver, our President and Chief Operating Officer, 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 statement on forward-looking statements contained on page 2 of the investor presentation. The end of 2025 marks the completion of several significant milestones. We have executed and completed a number of strategic initiatives, including the exit from the SBA Seven A lending business, the sale of a substantial amount of Seven A loan balances, a significant reduction in headcount and expenses, and a complete focus on our community bank. The results of these efforts are lower risk, more efficient operations, and a better position for sustainable growth and enhanced shareholder value.
Speaker #2: Thank you . Vanessa . and thank Good morning 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 statement on forward looking statements contained on page two of the Investor presentation .
Speaker #2: The end of 2025 marks the completion of several significant milestones we have executed and completed a number of strategic initiatives , including the exit from the SBA seven , a lending business , the substantial amount of a loan balances a significant reduction in headcount and expenses , and a complete focus on our community results of these efforts are lower risk , more efficient operations and a position better for sustainable and enhanced shareholder value .
Tom Zernick: We are also pleased to report that we closed the year well-capitalized, providing a strong foundation as we move forward. You have heard me talk about our community banking mission of delivering excellent service to our customers across the Tampa Bay and Sarasota markets. The next chapter for BayFirst is our focus on what matters most, being the premier community bank in Tampa Bay. To that end, the bank organically grew deposits $12.5 million in Q4, and 85% of our deposits are insured. Our net interest margin was stable at 3.58%. Treasury management revenues continue to grow, showing a 69% improvement as compared to Q4 2024.
We are also pleased to report that we closed the year well-capitalized, providing a strong foundation as we move forward. You have heard me talk about our community banking mission of delivering excellent service to our customers across the Tampa Bay and Sarasota markets. The next chapter for BayFirst is our focus on what matters most, being the premier community bank in Tampa Bay. To that end, the bank organically grew deposits $12.5 million in Q4, and 85% of our deposits are insured. Our net interest margin was stable at 3.58%. Treasury management revenues continue to grow, showing a 69% improvement as compared to Q4 2024.
Speaker #2: We are also pleased to report that we closed the year well capitalized, providing a strong foundation as we move forward. You have heard me talk about our community banking mission of delivering excellent service to our customers across the Tampa Bay and Sarasota markets.
Speaker #2: The next chapter for Bay first is our focus on what matters most , being the premier community bank in Bay . To that end , the bank organically grew deposits 12.5 million in the fourth quarter and 85% of our deposits are insured .
Speaker #2: net Our interest margin was stable at 3.58% . Treasury management revenues continue to grow , showing a 69% improvement as compared to the fourth quarter of 2020 .
Tom Zernick: As we previously reported, we recorded additional provision expense in Q3 in connection with our exit of the SBA 7(a) lending business, specifically allocated to our small loan program, SBA Loans. In Q4, net charge-offs from unguaranteed SBA 7(a) loans were elevated, and this additional allowance for credit losses covered a substantial portion of those charge-offs. Our provision expense for Q4 was $2 million, and we acknowledge the risk in this legacy portfolio. But our efforts around credit administration are designed to make an impact to manage future risk. Although the SBA 7(a) portfolio is winding down and efforts to sell additional unguaranteed balances are ongoing, I will note that additional charge-offs are likely to continue into this year, but we expect a lessening impact over time.
As we previously reported, we recorded additional provision expense in Q3 in connection with our exit of the SBA 7(a) lending business, specifically allocated to our small loan program, SBA Loans. In Q4, net charge-offs from unguaranteed SBA 7(a) loans were elevated, and this additional allowance for credit losses covered a substantial portion of those charge-offs. Our provision expense for Q4 was $2 million, and we acknowledge the risk in this legacy portfolio. But our efforts around credit administration are designed to make an impact to manage future risk. Although the SBA 7(a) portfolio is winding down and efforts to sell additional unguaranteed balances are ongoing, I will note that additional charge-offs are likely to continue into this year, but we expect a lessening impact over time.
Speaker #2: For as we previously recorded provision additional expense in the third quarter in connection with our exit of the SBA . Seven lending business allocated to our small loan program .
Speaker #2: SBA loans in the fourth quarter , net charge offs from Unguaranteed , SBA seven loans were elevated , and this additional allowance for credit losses covers substantial portion of those charge offs .
Speaker #2: Our provision expense for the fourth quarter was $2 million , and we acknowledged the risk in this legacy portfolio . But our efforts around credit administration are designed to an impact , to manage future risk .
Speaker #2: Although the SBA seven portfolio is winding down and efforts to sell additional Unguaranteed balances are ongoing , I will note that additional charge offs are likely to continue into this year , but we expect a lessening impact over time as CEO and on behalf of the entire leadership team .
Tom Zernick: As BayFirst CEO, and on behalf of the entire leadership team, I want you to know that we take full ownership of these results. They fall short of our expectations, but we understand the responsibility we have to our shareholders to address these challenges and deliver better results. As I have already noted, outside of the legacy SBA 7(a) business, community bank metrics look strong. Furthermore, I want to highlight that the company's liquidity ratio was over 18% at year-end. As we work through our deposit pricing strategy, this additional liquidity will support efforts to reduce high-cost deposits and improve the bank's cost of funds to levels more in line with peers in our market. These actions are expected to drive improvements in profitability and competitive loan pricing while enhancing the bank's net interest margin.
As BayFirst CEO, and on behalf of the entire leadership team, I want you to know that we take full ownership of these results. They fall short of our expectations, but we understand the responsibility we have to our shareholders to address these challenges and deliver better results. As I have already noted, outside of the legacy SBA 7(a) business, community bank metrics look strong. Furthermore, I want to highlight that the company's liquidity ratio was over 18% at year-end. As we work through our deposit pricing strategy, this additional liquidity will support efforts to reduce high-cost deposits and improve the bank's cost of funds to levels more in line with peers in our market. These actions are expected to drive improvements in profitability and competitive loan pricing while enhancing the bank's net interest margin.
Speaker #2: I want you to know that we take full ownership of these results . They fall short of our expectations , but we understand the responsibility we have to our shareholders to address these challenges and deliver better results .
Speaker #2: As I have already noted , outside of the legacy SBA seven , a business community , bank metrics look strong . Furthermore , I want to highlight that the company's liquidity ratio over 18% at year end .
Speaker #2: As we work through our deposit pricing this strategy, additional liquidity support will efforts to reduce high-cost deposits and improve the bank's cost of funds to levels more in line with peers in our market.
Speaker #2: These actions are expected to drive improvements in profitability and competitive loan pricing . While enhancing the bank's net interest margin . Now , I will pass the our to Scott McKim , microphone 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.
Now I will pass the microphone to Scott McKim, our CFO, to provide an overview of our financial performance.
Scott McKim: Thank you, Tom. Good morning, everyone. Today, we are reporting a net loss of $2.5 million in Q4. This compares to the net loss of $18.9 million we reported in Q3, which also included a restructuring charge of $7.3 million and additional provision expense of $8.1 million, as Tom had already explained. Loans held for investment decreased by $34.8 million, or 3.5%, during Q4 of 2025, to end at $963.9 million, and total loans held for investment decreased $102.7 million or 9.6% over the past year. During the quarter, loans held for sale decreased by $94.1 million, reflecting the Banesco USA transaction.
Scott McKim: Thank you, Tom. Good morning, everyone. Today, we are reporting a net loss of $2.5 million in Q4. This compares to the net loss of $18.9 million we reported in Q3, which also included a restructuring charge of $7.3 million and additional provision expense of $8.1 million, as Tom had already explained. Loans held for investment decreased by $34.8 million, or 3.5%, during Q4 of 2025, to end at $963.9 million, and total loans held for investment decreased $102.7 million or 9.6% over the past year. During the quarter, loans held for sale decreased by $94.1 million, reflecting the Banesco USA transaction.
Speaker #2: Thank you . Tom . Good morning everyone . Today we are reporting a net loss of $2.5 million in the fourth quarter . This compares to the net loss of $18.9 million .
Speaker #2: We reported in the third quarter , which also included a restructuring charge of $7.3 million in additional provision expense of $8.1 million . As Tom had already explained , loans held for investment decreased by $34.8 million , or 3.5% , during the fourth quarter of 2025 , to end at $963.9 million and total loans held for investment decreased $102.7 million , or 9.6% , over the past year .
Speaker #2: During the quarter , loans held for sale decreased by reflecting the Banesco USA transaction . Deposits increased $12.5 million , or 1.1% , during the fourth quarter of 2025 .
Scott McKim: Deposits increased $12.5 million, or 1.1%, during Q4 2025, and increased $40.7 million or 3.6% over the past year to end at $1.18 billion. The increase in deposits during the quarter were primarily due to an increase in time deposits of $26.4 million and an increase in interest-bearing transaction deposits of $20.9 million. This partially offset decreases in non-interest-bearing account balances of $10.2 million and in money market and savings accounts, lower balances of $24.6 million. Furthermore, as Tom already mentioned, 85% of the bank's deposits were insured by the FDIC on 31 December 2025.
Deposits increased $12.5 million, or 1.1%, during Q4 2025, and increased $40.7 million or 3.6% over the past year to end at $1.18 billion. The increase in deposits during the quarter were primarily due to an increase in time deposits of $26.4 million and an increase in interest-bearing transaction deposits of $20.9 million. This partially offset decreases in non-interest-bearing account balances of $10.2 million and in money market and savings accounts, lower balances of $24.6 million. Furthermore, as Tom already mentioned, 85% of the bank's deposits were insured by the FDIC on 31 December 2025.
Speaker #2: An increased $40.7 million , or 3.6% , over the past year , to end at $1.18 billion . The increase in deposits during the quarter were primarily due to an increase in time deposits of $26.4 million and an increase in interest bearing transaction deposits of $20.9 million .
Speaker #2: This partially offset decreases and non-interest bearing account balances of $10.2 million , and in money market and savings accounts . Lower balances of $24.6 million .
Speaker #2: Furthermore , as Tom already mentioned , 85% of the bank's deposits were insured by the FDIC . On December 31st , 2025 . Shareholders equity at quarter end was $87.6 million , which is $23.4 million lower than the end 2024 .
Scott McKim: Shareholders' equity at quarter end was $87.6 million, which is $23.4 million lower than the end of 2024. Net accumulated other comprehensive loss decreased by $109,000, ending the quarter at $2 million. Our tangible book value decreased this quarter to $17.22 per share, from $17.90 per share at the end of Q3. Our net interest margin was 3.58%. This was down 3 basis points from Q3. Net interest income was $11.2 million in Q4, which is down about $100,000 compared to Q3, yet it was up a half a million dollars from the year-ago quarter.
Shareholders' equity at quarter end was $87.6 million, which is $23.4 million lower than the end of 2024. Net accumulated other comprehensive loss decreased by $109,000, ending the quarter at $2 million. Our tangible book value decreased this quarter to $17.22 per share, from $17.90 per share at the end of Q3. Our net interest margin was 3.58%. This was down 3 basis points from Q3. Net interest income was $11.2 million in Q4, which is down about $100,000 compared to Q3, yet it was up a half a million dollars from the year-ago quarter.
Speaker #2: of other accumulated Net comprehensive loss decreased by $109,000 , ending the quarter at $2 million . Our tangible book value decreased this quarter to $17.22 per share , from $17.90 per share at the end of the third quarter .
Speaker #2: Our net interest margin was 3.58%. This was down three basis points from the third quarter. Net interest income was $11.2 million in the fourth quarter, which is down about $100,000 compared to the third quarter.
Speaker #2: Yet it was up a half million dollars from the quarter a year ago. During this quarter, the bank wrote off about $160,000 of unamortized premiums related to a single USDA guaranteed loan, which was liquidated during the quarter.
Scott McKim: During this quarter, the bank wrote off about $160,000 of unamortized premiums related to a single USDA-guaranteed loan, which was liquidated during the quarter. Non-interest income was a negative $104,000 for Q4 2025, which is $900,000 better than Q3 2024, which included the impact of the loan sale, and a decrease from $22.3 million in Q4 2024. I should note that Q4 2024 also included an $11 million gain from our sale-leaseback transaction that we closed during that quarter. The year-over-year decrease is primarily, however, from the decrease in gains from the sale of SBA 7(a) government-guaranteed loans.
During this quarter, the bank wrote off about $160,000 of unamortized premiums related to a single USDA-guaranteed loan, which was liquidated during the quarter. Non-interest income was a negative $104,000 for Q4 2025, which is $900,000 better than Q3 2024, which included the impact of the loan sale, and a decrease from $22.3 million in Q4 2024. I should note that Q4 2024 also included an $11 million gain from our sale-leaseback transaction that we closed during that quarter. The year-over-year decrease is primarily, however, from the decrease in gains from the sale of SBA 7(a) government-guaranteed loans.
Speaker #2: Non-interest income was a -$104,000 for the fourth quarter of 2025 , which is $900,000 better than the third of quarter 2020 , which included the impact of the loan sale and a decrease from $22.3 million in the fourth quarter of 2020 .
Speaker #2: I should note that the fourth quarter of 2024 also included an $11 million gain from our sale-leaseback transaction that we closed during that quarter.
Speaker #2: The year over year decrease is primarily , however , from the decrease in gains from the sale of seven a SBA , seven , a government guaranteed loans .
Scott McKim: As I mentioned when we spoke last, with the exit of the SBA 7(a) lending business, revenue from gains on the sale of government-guaranteed loans will no longer impact non-interest income as it has in prior periods. Turning now to non-interest expense, which was $11.9 million in the quarter, which is a decrease of $13.3 million compared to the third quarter. Most of this decrease, $7.3 million, represents the restructuring charge. Additionally, compensation expense was $2.9 million lower. Data processing was $350,000 lower. Loan servicing and origination expense was $2.2 million lower, slightly offset by an increase in professional services of $200,000. On a full year basis, non-interest expense was $3.6 million higher.
As I mentioned when we spoke last, with the exit of the SBA 7(a) lending business, revenue from gains on the sale of government-guaranteed loans will no longer impact non-interest income as it has in prior periods. Turning now to non-interest expense, which was $11.9 million in the quarter, which is a decrease of $13.3 million compared to the third quarter. Most of this decrease, $7.3 million, represents the restructuring charge. Additionally, compensation expense was $2.9 million lower. Data processing was $350,000 lower. Loan servicing and origination expense was $2.2 million lower, slightly offset by an increase in professional services of $200,000. On a full year basis, non-interest expense was $3.6 million higher.
Speaker #2: As I mentioned , when we spoke last . With the exit of the SBA seven lending business , revenue from gains on the sale of government guaranteed loans will no longer impact non-interest income as it has in prior periods .
Speaker #2: Turning now to non-interest expense, which was $11.9 million in the quarter, this was a decrease of $13.3 million compared to the third quarter.
Speaker #2: Most of this decrease , 7.3 million , represents the restructuring charge . Additionally , compensation expense was $2.9 million . Lower data processing was $350,000 .
Speaker #2: Lower loan servicing and origination expense was $2.2 million , lower , slightly offset by an increase in professional services of $200,000 . On a full year basis .
Speaker #2: Non-interest expense was $3.6 million higher . However , excluding the third quarter restructuring charge , non-interest expense was $3.7 million lower year over year .
Scott McKim: However, excluding the Q3 Restructuring Charge, non-interest expense was actually $3.7 million lower year-over-year. Notable reductions this year include reductions in compensation of $2.6 million, bonus and commission expense was lower by $3.6 million, marketing was lower by $500,000, and these were offset by higher occupancy costs, primarily the rent expense from the sale-leaseback and $1.2 million. Data processing was $1.2 million higher, and loan servicing and origination expenses were higher by $1.6 million. Finally, higher regulatory assessments were $700,000. The provision for credit losses was $2 million in Q4, compared to $10.9 million in Q3 and $4.5 million in Q4 of 2024.
However, excluding the Q3 Restructuring Charge, non-interest expense was actually $3.7 million lower year-over-year. Notable reductions this year include reductions in compensation of $2.6 million, bonus and commission expense was lower by $3.6 million, marketing was lower by $500,000, and these were offset by higher occupancy costs, primarily the rent expense from the sale-leaseback and $1.2 million. Data processing was $1.2 million higher, and loan servicing and origination expenses were higher by $1.6 million. Finally, higher regulatory assessments were $700,000. The provision for credit losses was $2 million in Q4, compared to $10.9 million in Q3 and $4.5 million in Q4 of 2024.
Speaker #2: Notable reductions this year include reductions in compensation of $2.6 million, bonus and commission expense was lower by $3.6 million, and marketing was lower by $500,000.
Speaker #2: And these were offset by higher occupancy costs, primarily the rent expense from the sale leaseback, and $1.2 million in data processing. $1.2 million was higher, and loan servicing and origination expenses were higher by $1.6 million.
Speaker #2: Finally , higher regulatory assessments were $700,000 . The provision for credit losses was $2 million . In the fourth quarter , compared to $10.9 million in the third quarter and $4.5 million in the fourth quarter of 2020 .
Scott McKim: Net charge-offs were $4.6 million, which was up $1.3 million compared to Q3, which came in at $3.3 million. Unguaranteed SBA 7(a) loans account for $4.1 million of the $4.6 million of net charge-offs during Q4. Our on-balance sheet, unguaranteed SBA 7(a) loans accounted for $3 million of the $3.3 million of net charge-offs, which were reported in Q3. To highlight the basis for this risk, the bank had $171.6 million of unguaranteed SBA 7(a) loan balances on 31 December 2025. This is down $50.4 million from 30 September 2025, and also $51.4 million lower than it was at the end of 2024.
Net charge-offs were $4.6 million, which was up $1.3 million compared to Q3, which came in at $3.3 million. Unguaranteed SBA 7(a) loans account for $4.1 million of the $4.6 million of net charge-offs during Q4. Our on-balance sheet, unguaranteed SBA 7(a) loans accounted for $3 million of the $3.3 million of net charge-offs, which were reported in Q3. To highlight the basis for this risk, the bank had $171.6 million of unguaranteed SBA 7(a) loan balances on 31 December 2025. This is down $50.4 million from 30 September 2025, and also $51.4 million lower than it was at the end of 2024.
Speaker #2: For . Net charge offs were 4.6 million , which up was 1.3 million compared to the third quarter , which came in at $3.3 million .
Speaker #2: Unguaranteed SBA loans account for 4.1 million of the $4.6 million of net charge offs during the fourth quarter . Our on balance sheet Unguaranteed SBA loans accounted for 3 million of the $3.3 million of net charge offs , which were reported in the third quarter .
Speaker #2: To highlight the basis for this risk, the bank had $171.6 million of unguaranteed SBA 7(a) loan balances on December 31, 2025.
Speaker #2: This is down $50.4 million from September 30th , 2025 , and also $51.4 million lower than it was at the end of 2024 .
Scott McKim: Total annualized Net Charge-offs as a percentage of average loans held for investment at amortized cost were 1.95% for Q4, which was up from 1.24% in Q3 and also up from 1.34% in Q4 2024. The ratio of Allowance for Credit Losses to total loans held for investment at amortized cost was 2.43% on 31 December 2025, 2.61% as of 30 September 2025, and 1.54% as of 31 December 2024. The ratio of Allowance for Credit Losses to total loans held for investment at amortized cost, excluding government-guaranteed loan balances, was 2.59% at 31 December 2025.
Total annualized Net Charge-offs as a percentage of average loans held for investment at amortized cost were 1.95% for Q4, which was up from 1.24% in Q3 and also up from 1.34% in Q4 2024. The ratio of Allowance for Credit Losses to total loans held for investment at amortized cost was 2.43% on 31 December 2025, 2.61% as of 30 September 2025, and 1.54% as of 31 December 2024. The ratio of Allowance for Credit Losses to total loans held for investment at amortized cost, excluding government-guaranteed loan balances, was 2.59% at 31 December 2025.
Speaker #2: Total net annualized charge offs as a percentage of average loans held for investment at amortized costs were 1.95% for the fourth quarter , which was up from 1.24% in the third quarter and also up from 1.34% in the fourth quarter of 2020 .
Speaker #2: For the ratio allowance for credit of losses to total loans held for investment amortized cost was 2.43% on December 31st , 2025 , 2.61% as of September 30th , 2025 , and 1.54% as of December 31st , 2024 .
Speaker #2: The ratio of allowance for credit losses to total loans held for investment at amortized cost, excluding government loan guaranteed balances, was 2.59% at December 31, 2025.
Scott McKim: It was 2.78% at 30 September 2025, and 1.79% as of 31 December 2024. At this time, I'm going to turn the call over to Robin to continue with our discussion.
It was 2.78% at 30 September 2025, and 1.79% as of 31 December 2024. At this time, I'm going to turn the call over to Robin to continue with our discussion.
Speaker #2: It was 2.78% at September 30th , 2025 and 1.79% as of December 31st , 2024 . At this time , I'm going to turn the call over to Robin to continue with our discussion .
Robin Oliver: Thank you, Scott. Good morning, everyone. I want to further follow up on credit risk management as it is a major focus for organization. First off, total nonperforming loans, excluding government guaranteed balances, were $16.9 million at the end of Q4, relatively flat to $16.5 million at the end of Q3. The percentage of nonperforming loans, excluding government guaranteed balances, compared to total loans held for investments, was 1.80% at the end of the year, up 11 basis points from 30 September 2025, and up 45 basis points from 31 December 2024.
Robin Oliver: Thank you, Scott. Good morning, everyone. I want to further follow up on credit risk management as it is a major focus for organization. First off, total nonperforming loans, excluding government guaranteed balances, were $16.9 million at the end of Q4, relatively flat to $16.5 million at the end of Q3. The percentage of nonperforming loans, excluding government guaranteed balances, compared to total loans held for investments, was 1.80% at the end of the year, up 11 basis points from 30 September 2025, and up 45 basis points from 31 December 2024.
Speaker #3: Thank you, Scott. Good morning, everyone. I want to further follow up on credit risk management, as it is a major focus for the organization.
Speaker #3: First off , total nonperforming loans , excluding government guaranteed balances were 16.9 million at the end of the fourth quarter , relatively flat to 16.5 million of the at the end third quarter .
Speaker #3: The percentage of nonperforming loans excluding government guaranteed balances compared to total loans held for investments , was 1.80% at the end of the year , up 11 basis from September 30th , 2025 and up 45 basis points from December 31st , 2024 .
Robin Oliver: I want to note that of the $16.9 million in nonperforming loans, $3.4 million of these balances were current and paying as agreed, and one loan with an unguaranteed balance of $815,000 was paid in full in early January. As I have mentioned previously, throughout this past year, we worked to strengthen credit administration practices to ensure the timely identification of problem credits, as well as ensuring those same problem credits are resolved timely. Management has significantly increased its focus and resources to ensure all loans are properly risk-graded and accounted for. As I mentioned last quarter, management scrubbed a significant portion of the portfolio to take an aggressive and conservative stance on problem credits. While that increased nonperforming and classified assets in the short term, management is focused on reducing nonperforming and classified assets expeditiously.
I want to note that of the $16.9 million in nonperforming loans, $3.4 million of these balances were current and paying as agreed, and one loan with an unguaranteed balance of $815,000 was paid in full in early January. As I have mentioned previously, throughout this past year, we worked to strengthen credit administration practices to ensure the timely identification of problem credits, as well as ensuring those same problem credits are resolved timely. Management has significantly increased its focus and resources to ensure all loans are properly risk-graded and accounted for. As I mentioned last quarter, management scrubbed a significant portion of the portfolio to take an aggressive and conservative stance on problem credits. While that increased nonperforming and classified assets in the short term, management is focused on reducing nonperforming and classified assets expeditiously.
Speaker #3: I want to note that of the 16.9 million in nonperforming loans , 3.4 million of these balances were current and paying as agreed , and one loan with an unguaranteed balance of 815,000 was paid in full in early January .
Speaker #3: As I mentioned previously , this throughout past year we worked to strengthen credit administration practices to ensure the timely identification of problem credits , as well as ensuring those same problem credits are resolved timely management has significantly increased its focus and resources to ensure all loans are properly risk and accounted for .
Speaker #3: And as I mentioned last quarter , management scrubbed a significant portion of the portfolio to take an aggressive and conservative stance on problem credits .
Speaker #3: While that increased nonperforming and classified assets in the short term, management is focused on reducing nonperforming, non-performing, and classified assets expeditiously.
Robin Oliver: I want to point out that as we manage classified assets going forward, more and more we are seeing classified loans paying current, paying off, and nearing resolution altogether. As of year-end, 64% of the bank's classified loans were current performing loans, whereby we are working with the borrowers towards resolution. As we move forward into 2026, the goal will be the continual reduction of nonperforming and classified credits to bring these balances more in line with peer. The overall wind down of the SBA loan portfolio, the potential sales of additional SBA unguaranteed balances, and the continued workout of problem loans is expected to improve asset quality in the coming quarters without significant additional provision for credit losses being necessary.
I want to point out that as we manage classified assets going forward, more and more we are seeing classified loans paying current, paying off, and nearing resolution altogether. As of year-end, 64% of the bank's classified loans were current performing loans, whereby we are working with the borrowers towards resolution. As we move forward into 2026, the goal will be the continual reduction of nonperforming and classified credits to bring these balances more in line with peer. The overall wind down of the SBA loan portfolio, the potential sales of additional SBA unguaranteed balances, and the continued workout of problem loans is expected to improve asset quality in the coming quarters without significant additional provision for credit losses being necessary.
Speaker #3: I want to point out that as we manage classified assets going forward , more and more we are seeing classified loans paying current , paying off and nearing resolution altogether as of year end , 64% of the bank's classified loans were current performing loans , whereby whereby we are working with borrowers towards resolution move forward as we the goal into 2026 , will be the continual reduction of nonperforming and classified credits bring these in line with peer wind down of the SBA loan portfolio , the potential sales of additional SBA unguaranteed balances , and the continued workout of problem loans is expected expected to improve asset quality in the coming quarters without significant additional provision for credit losses being necessary .
Robin Oliver: Switching gears, outside of our focus on credit, the retail and commercial banking teams are actively engaged in our community and working to attract deposits to the bank, with a focus on small businesses where we can serve as their primary financial institution and offer an array of treasury and merchant services. We saw significant growth in treasury and merchant services revenue this past year, and our team is dedicated to continuing to expand on that success. In addition, we are continuing to promote our Kids Club and Trendsetter Club programs, which have proven to be catalysts for deposit gathering and customer referrals. I want to end by being clear that our full-service community bank is poised to thrive in our fantastic Tampa Bay market. And at this time, I'll turn it back to Tom for his final thoughts.
Switching gears, outside of our focus on credit, the retail and commercial banking teams are actively engaged in our community and working to attract deposits to the bank, with a focus on small businesses where we can serve as their primary financial institution and offer an array of treasury and merchant services. We saw significant growth in treasury and merchant services revenue this past year, and our team is dedicated to continuing to expand on that success. In addition, we are continuing to promote our Kids Club and Trendsetter Club programs, which have proven to be catalysts for deposit gathering and customer referrals. I want to end by being clear that our full-service community bank is poised to thrive in our fantastic Tampa Bay market. And at this time, I'll turn it back to Tom for his final thoughts.
Speaker #3: Switching gears outside of our focus on credit , the retail and commercial banking teams are actively engaged in our community and working to attract deposits to the bank with a focus on small businesses where we can serve as their primary financial institution and offer an array of treasury and merchant services .
Speaker #3: We saw significant growth in treasury and merchant services revenue this past year, and our team is dedicated to continuing to expand on that success.
Speaker #3: In addition , we are continuing to promote our Trendsetter Club programs , which kids have be catalysts for deposit gathering and customer referrals .
Speaker #3: I want to begin and end by saying that our full, clear-service community bank is poised to thrive in our fantastic Tampa Bay market. At this time, I'll turn it back to Tom for his final thoughts.
Scott McKim: Our board of directors and leadership team remain fully committed to driving resilience and innovation as we position the company for long-term success and enhanced shareholder value.
Tom Zernick: Our board of directors and leadership team remain fully committed to driving resilience and innovation as we position the company for long-term success and enhanced shareholder value. With our 2026 strategic plan firmly in place, we are focused on its two central pillars, fortifying the balance sheet and focusing on maintaining a culture of disciplined risk management. We are confident in this plan and in our ability to execute it, and these priorities will enable us to flourish as a community bank and drive sustainable revenue growth. We trust that these efforts will position both the company and our bank to thrive in a dynamic banking landscape. Thank you for joining our call.
Speaker #2: Our Board of Directors and leadership team . remain fully committed driving to resilience and innovation as we position the company for long term success and enhanced shareholder value with our 2026 strategic plan firmly in we place , are focused on its two central pillars fortifying the balance sheet and focusing on maintaining a culture of disciplined risk management .
Tom Zernick: ...With our 2026 strategic plan firmly in place, we are focused on its two central pillars, fortifying the balance sheet and focusing on maintaining a culture of disciplined risk management. We are confident in this plan and in our ability to execute it, and these priorities will enable us to flourish as a community bank and drive sustainable revenue growth. We trust that these efforts will position both the company and our bank to thrive in a dynamic banking landscape. Thank you for joining our call.
Speaker #2: We are confident in this plan and in our ability to execute it , and these priorities will enable us to flourish as a community bank and drive sustainable revenue growth .
Speaker #2: We trust that these efforts will position both the company and the bank to thrive in our dynamic banking landscape. Thank you for joining our call.
Robin Oliver: At this time, we'd like to turn it over for questions.
Robin Oliver: At this time, we'd like to turn it over for questions.
Speaker #3: At this time, I'd like to turn it over for questions.
Operator: And thank you. Ladies and gentlemen, we will now begin our question-and-answer session. Should you have a question, please press star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you're using a speakerphone, please lift the handset first before pressing any keys. And it seems we have our first question from Ross Haberman with RLH Investments. Please go ahead.
Operator: And thank you. Ladies and gentlemen, we will now begin our question-and-answer session. Should you have a question, please press star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you're using a speakerphone, please lift the handset first before pressing any keys. And it seems we have our first question from Ross Haberman with RLH Investments. Please go ahead.
Speaker #1: And thank you , ladies and gentlemen . We will now begin our question and answer session . Should you have a question , please press star followed by the one on your touch tone phone .
Speaker #1: You will hear a prompt that your hand has been raised should you wish to decline from the polling process , please press star followed by using a speakerphone , please lift the handset first before pressing any keys .
Speaker #1: it And seems we have our first question from Ross Haberman with RH investments . Please go . ahead
Ross Haberman: Good morning, thank you for the discussion. Could you, could you focus on the, I think you said it was $171 million of unguaranteed government loans proportion. What is the specific allowance against that? And what's been your recent default experience on, on that, category? Thank you.
Ross Haberman: Good morning, thank you for the discussion. Could you, could you focus on the, I think you said it was $171 million of unguaranteed government loans proportion. What is the specific allowance against that? And what's been your recent default experience on, on that, category? Thank you.
Speaker #4: Okay .
Speaker #5: Good morning . Thank you for the discussion . Could you could you focus on the I think you said it was 171 million of Unguaranteed government loans .
Speaker #5: The portion what is the specific allowance against that ? And what's been your recent experience default on on that . Category ? Thank you .
Scott McKim: Hey, Ross, this is Scott. I'll, I'll tackle that one for you. So the $171.6 million represents all of our SBA 7(a) unguaranteed balances that we had on December 31. So that portfolio is going to run off and will continue to shrink as we go forward. Plus, it, when we are successful with selling portions of it, that will help it run off a lot quicker. Today, that portfolio has against it, about 13% of the balances are within our allowance for credit losses, so the default rate is much lower than that. Obviously, within the CECLA world, we try to estimate what the life of loan losses are in the portfolio.
Scott McKim: Hey, Ross, this is Scott. I'll, I'll tackle that one for you. So the $171.6 million represents all of our SBA 7(a) unguaranteed balances that we had on December 31. So that portfolio is going to run off and will continue to shrink as we go forward. Plus, it, when we are successful with selling portions of it, that will help it run off a lot quicker. Today, that portfolio has against it, about 13% of the balances are within our allowance for credit losses, so the default rate is much lower than that. Obviously, within the CECLA world, we try to estimate what the life of loan losses are in the portfolio.
Speaker #2: Hey , Ross , this is Scott . I'll tackle that one for you . So the the 171.6 million represents all of our SBA 70 Unguaranteed balances that we had on December 31st .
Speaker #2: So that portfolio is in a runoff . And we'll continue to shrink as , as we go forward . Plus when we are successful with selling portions of it , that will help it run off a lot quicker today , that portfolio has against it about 13% of the balances are within our allowance for credit losses .
Speaker #2: So the default rate is much than that . lower Obviously , within the seasonal world , we try to estimate what the life of loan losses are on the portfolio .
Ross Haberman: I thought a good portion of that had gone away with the loan sale. What was that number? What did that peak at, I suppose?
Ross Haberman: I thought a good portion of that had gone away with the loan sale. What was that number? What did that peak at, I suppose?
Speaker #5: I , thought a I good portion of that had gone a long gone away with the with the sale loan . What did that what was that number .
Speaker #5: What did that featured I suppose .
Scott McKim: Ross, you faded out there at the end. Would you ask that again, please?
Scott McKim: Ross, you faded out there at the end. Would you ask that again, please?
Speaker #2: Ross , you faded out there at the end . Would you ask that again , please ?
Ross Haberman: Sorry. I thought a good portion of that went away with your loan sale. What did that number peak at?
Ross Haberman: Sorry. I thought a good portion of that went away with your loan sale. What did that number peak at?
Speaker #5: Sorry , I thought a good portion of that went away with your loan sale . What did that number peak at ?
Scott McKim: Which number?
Scott McKim: Which number?
Robin Oliver: The unguaranteed.
Robin Oliver: The unguaranteed.
Scott McKim: The unguaranteed?
Scott McKim: The unguaranteed?
Ross Haberman: The unguaranteed portion.
Ross Haberman: The unguaranteed portion.
Speaker #2: number . guaranteed the Which Unguaranteed . ?
Scott McKim: Yeah. So as I mentioned in my comments, that it was about $50.5 million higher at the end of Q3.
Scott McKim: Yeah. So as I mentioned in my comments, that it was about $50.5 million higher at the end of Q3.
Speaker #5: The Unguaranteed portion ?
Speaker #2: Yeah, so as I mentioned in my comments, it was about $50.5 million higher at the end of the third quarter.
Ross Haberman: Oh, okay. Okay. Thank you very much. Thank you for the help.
Ross Haberman: Oh, okay. Okay. Thank you very much. Thank you for the help.
Speaker #5: So . Okay , okay . Thank you very much . Thank you for the help .
Scott McKim: Sure. Thanks, Ross.
Scott McKim: Sure. Thanks, Ross.
Robin Oliver: Thanks, Ross.
Robin Oliver: Thanks, Ross.
Operator: And thank you. Our next question is from Julianne Casarino with Sycamore Analytics. Please go ahead.
Operator: And thank you. Our next question is from Julianne Casarino with Sycamore Analytics. Please go ahead.
Speaker #2: Sure . Thanks .
Speaker #3: Ross . Ross . .
Speaker #1: And thank you. Our next question is from Julianne Cascarino with Sycamore Analytics. Please go ahead.
Julianne Casarino: Hi, good morning.
Julienne Cassarino: Hi, good morning.
Scott McKim: Hi, Julianne.
Scott McKim: Hi, Julianne.
Speaker #6: Hi . Good morning .
Tom Zernick: Good morning.
Tom Zernick: Good morning.
Julianne Casarino: Hi, I was wondering if you could talk about the deposits. I was wondering if you could talk about where the growth is coming. And just doing some quick calculations, looks like your deposit costs came down nicely. So, you know, whatever the mix, it looks like it came down over 13 basis points or close to 13 basis points sequentially. And I was just wondering, it sounds like that's local customer relationships, and if those are coming in, in part, from the treasury management platform.
Julienne Cassarino: Hi, I was wondering if you could talk about the deposits. I was wondering if you could talk about where the growth is coming. And just doing some quick calculations, looks like your deposit costs came down nicely. So, you know, whatever the mix, it looks like it came down over 13 basis points or close to 13 basis points sequentially. And I was just wondering, it sounds like that's local customer relationships, and if those are coming in, in part, from the treasury management platform.
Speaker #2: Hi , Julianne . Good morning .
Speaker #7: Hi . Hi .
Speaker #6: wondering I was if you could talk about the deposits . I was wondering if you could talk about where the coming growth is and just doing some quick calculations .
Speaker #6: Looks like your deposit costs came down nicely , so , you know , whatever the mix , it looks like it came down over 13 basis points or close to 13 basis points sequentially .
Speaker #6: And I was just wondering, it sounds like that's local customer relationships. And if those are coming in, in part from the Treasury management platform.
Scott McKim: Thanks for the question, Julianne. Let me kind of, like, answer that quickly. First and foremost, I want to give credit to our retail and operations team people, our frontline people, our branch managers, and also everybody working in our branches. They are the ones that are working hard to address this organic deposit growth, and they are also very actively helping us reduce the overall cost of funds. And they're doing that by growing and nurturing relationships with their customers. Some are existing, some are new. And really, it's – we're just starting to see the positive impact of doing that.
Scott McKim: Thanks for the question, Julianne. Let me kind of, like, answer that quickly. First and foremost, I want to give credit to our retail and operations team people, our frontline people, our branch managers, and also everybody working in our branches. They are the ones that are working hard to address this organic deposit growth, and they are also very actively helping us reduce the overall cost of funds. And they're doing that by growing and nurturing relationships with their customers. Some are existing, some are new. And really, it's – we're just starting to see the positive impact of doing that.
Speaker #2: Thanks for the question , Julianne . Let me kind of answer that quickly . First and foremost , I want to give credit to our retail and operations team people , our frontline people , our branch managers and also everybody working in our in our branches .
Speaker #2: They're the ones that are working hard to address this organic deposit growth . And they are also very actively helping us reduce the overall cost of funds .
Speaker #2: And that by they're growing and nurturing doing relationships with their customers . Some are existing , some are new really and it's we're just starting to see the positive impact of doing that .
Scott McKim: I think, you know, if you recall, Tom's comments at the beginning of last year were that we really wanted to focus on this, and we wanted to really get our cost of funds better in line with our peers in the marketplace. Granted, they're higher. You can look at any number of different sources that support that, you know, BayFirst tends to pay a little bit more on deposits. As we move forward and exit out of the SBA 7(a) business, which typically brought a lot higher loan yields for us, and we could afford to pay promotional rates on deposits, we're being much more disciplined around it. So the growth that you see is appropriate for how the bank is growing its assets at the same time. Plus, you know, it, it's...
I think, you know, if you recall, Tom's comments at the beginning of last year were that we really wanted to focus on this, and we wanted to really get our cost of funds better in line with our peers in the marketplace. Granted, they're higher. You can look at any number of different sources that support that, you know, BayFirst tends to pay a little bit more on deposits. As we move forward and exit out of the SBA 7(a) business, which typically brought a lot higher loan yields for us, and we could afford to pay promotional rates on deposits, we're being much more disciplined around it. So the growth that you see is appropriate for how the bank is growing its assets at the same time. Plus, you know, it, it's...
Speaker #2: I think, you know, if you recall, Tom's comments at the beginning of last year were that we really wanted to focus on this, and we wanted to really get our cost of funds better in line with our peers in the marketplace.
Speaker #2: Granted , they're hiring . You can look at any number of different sources that support that . You know , Bay first tends to pay a little bit more on deposits as we move and forward exit out of the SBA .
Speaker #2: Seven eight business , which which typically brought a lot higher loan yields for us , and we could afford to pay promotional rates on deposits .
Speaker #2: We're being much more disciplined around it . So the growth that you see is appropriate for how the bank is , is growing .
Speaker #2: Its assets . At the same time . Plus , you know , it's I I'd be remiss if I didn't point out there was also a couple of rate changes during the quarter as well that assisted with some of that happening .
Scott McKim: I'd be remiss if I didn't point out there was also a couple of rate changes during the quarter as well, that assisted with some of that happening. But, you know, you can't reduce rates on deposits without some form of customer outreach and engagement, helping them understand what's going on. You know, we still have, I think, you know, premium pricing on a number of our deposit products, but what you're seeing is the results of better managing that and building relationships. And Tom, Robin, I don't know if you guys want to add anything to that, but this is kind of our top priority, so.
I'd be remiss if I didn't point out there was also a couple of rate changes during the quarter as well, that assisted with some of that happening. But, you know, you can't reduce rates on deposits without some form of customer outreach and engagement, helping them understand what's going on. You know, we still have, I think, you know, premium pricing on a number of our deposit products, but what you're seeing is the results of better managing that and building relationships. And Tom, Robin, I don't know if you guys want to add anything to that, but this is kind of our top priority, so.
Speaker #2: But, you know, you can't reduce rates on deposits without some form of customer outreach and helping them engage and understand what's going on.
Speaker #2: You know , we still have I think , you know , premium pricing on a number of our deposit products . But what you're seeing is the results of better managing that and building relationships .
Speaker #2: And Tom, Robin, I don't know if you guys want to add anything to that, but this is kind of our top priority.
Robin Oliver: No, I would say Treasury, to your point, Julianne, our Treasury team was very busy and continues to be very busy. You know, they're really partnering with the market execs and the banking center managers, you know, to bring in those deposits and show people what BayFirst can do, and that we have all the products that these, you know, small to mid-sized businesses need. So, you know, it's really a group effort and then being very careful. We certainly don't want a lot of deposit runoff, so we're balancing, you know, reducing rates appropriately without creating any undue runoff that we don't want.
Robin Oliver: No, I would say Treasury, to your point, Julianne, our Treasury team was very busy and continues to be very busy. You know, they're really partnering with the market execs and the banking center managers, you know, to bring in those deposits and show people what BayFirst can do, and that we have all the products that these, you know, small to mid-sized businesses need. So, you know, it's really a group effort and then being very careful. We certainly don't want a lot of deposit runoff, so we're balancing, you know, reducing rates appropriately without creating any undue runoff that we don't want.
Speaker #3: So I would say Treasury , to your point , Julianne , our Treasury team was very busy and continues to be very busy .
Speaker #3: And , you know , they're really partnering with the market execs and the banking center managers . You know , to bring in those deposits and show people what they can do and that we the the have all products that these small to midsize businesses need .
Speaker #3: So , you know , it's really a group effort . And then being very careful , we certainly don't want a lot of deposit runoff .
Speaker #3: we're So balancing , you know , reducing rates appropriately without creating , you know , any undue runoff that we don't want . And I think so far we're striking that balance .
Robin Oliver: And I think so far we're striking that balance, but that's gonna be our continued focus in 2026, is to, you know, bring down any of those promotional rates, reduce any reliance on broker deposits, et cetera, to help reduce that cost of funds.
And I think so far we're striking that balance, but that's gonna be our continued focus in 2026, is to, you know, bring down any of those promotional rates, reduce any reliance on broker deposits, et cetera, to help reduce that cost of funds.
Speaker #3: But that's going to be our continued focus in 2026: to bring down any of those promotional rates, reduce any reliance on broker deposits, etc.
Julianne Casarino: But just, just from a big picture perspective, how does the deposit franchise break down roughly between commercial deposits and retail?
Julienne Cassarino: But just, just from a big picture perspective, how does the deposit franchise break down roughly between commercial deposits and retail?
Speaker #3: , to help reduce that cost of funds .
Speaker #6: Just just from a big picture perspective , how does the deposit franchise break down roughly between commercial deposits and retail ?
Scott McKim: I'm gonna answer the question this way, Julianne. It is a very granular portfolio, so we have a lot of what I'll call individuals, family type of relationships that, you know, they treat us as their preferred financial institution. As far as how much is from the business side of things, we're very focused on growing our business relationships and making sure that as we establish new lending relationships, that there's compensating deposits. We wanna make sure that we're the preferred financial institution for those businesses that get it, or that we write loans to, I should say. I think really it's to call it granular is the best definition versus just a breakdown between how much is commercial and how much is not commercial.
Scott McKim: I'm gonna answer the question this way, Julianne. It is a very granular portfolio, so we have a lot of what I'll call individuals, family type of relationships that, you know, they treat us as their preferred financial institution. As far as how much is from the business side of things, we're very focused on growing our business relationships and making sure that as we establish new lending relationships, that there's compensating deposits. We wanna make sure that we're the preferred financial institution for those businesses that get it, or that we write loans to, I should say. I think really it's to call it granular is the best definition versus just a breakdown between how much is commercial and how much is not commercial.
Speaker #2: I'm going to answer the question this way , Julianne . It is a very granular So we portfolio . have a lot of what I'll call individuals family type of relationships that that , you know , they have they're they treat us as their preferred financial institution as far as how much is from from the We're things .
Speaker #2: of very focused on growing our business relationships and making sure that that as we establish new lending that there's relationships , compensating deposits , we want to make sure that we're the preferred institution for those financial businesses that get it , that are that we write loans to , I should say , I think really it's the call it granular is the best definition versus just a breakdown between how much is commercial and how much is not commercial .
Julianne Casarino: Okay. Thank you.
Julienne Cassarino: Okay. Thank you.
Scott McKim: Sure.
Scott McKim: Sure.
Speaker #6: Okay . Thank you .
Speaker #2: Sure .
Operator: We have no further questions at this time. Ladies and gentlemen, this concludes the BayFirst Financial Corporation Q4 2025 conference call and webcast. Thank you for your participation. You may now disconnect.
Operator: We have no further questions at this time. Ladies and gentlemen, this concludes the BayFirst Financial Corporation Q4 2025 conference call and webcast. Thank you for your participation. You may now disconnect.
Speaker #1: And we have no further questions at this time . Ladies and gentlemen , this concludes the BayFirst Financial Corp. Q4 2025 conference Call and webcast .
