This article first appeared on GuruFocus.
Release Date: October 30, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Community bank loans grew 25% ($41 million) during the quarter, signaling a successful strategic shift.
Net interest margin improved to 4.07%, up 59 basis points from the prior quarter.
Deposit growth of $25.3 million (2.6%) outpaced net loan growth, strengthening the funding base.
Credit quality improved significantly: provision expense was negative $69,000, net charge-offs declined, and non-performing loans decreased.
Capital position strengthened with a $14 million rights offering, redemption of preferred shares, and Tier 1 leverage ratio rising to 8.79%.
Negative Points
BayFirst Financial Corp (NASDAQ:BAFN) reported a net loss of $677,000 for the third quarter, indicating ongoing profitability challenges.
Total deposits decreased $157.3 million (13%) year-over-year, reflecting a decline in the deposit base.
Tangible book value per share fell to $3.64 from $4.82 in the prior quarter, primarily due to preferred stock redemptions.
Net charge-offs remained elevated at $3.2 million, with $2.9 million tied to the unguaranteed SBA 7 loan portfolio.
Total loans held for investment declined 9.1% year-over-year, partly due to the exit from SBA 7 lending, which may impact future revenue.
Q & A Highlights
Q: Could you address how much in the quarter was non-recurring, either income or expenses? A: Scott McKim, CFO, stated that in the third quarter, there was nothing that was non-recurring. This signals a cleaner earnings base compared with prior quarters that were distorted by one-time items tied to the asset resolution plan.
Q: In terms of the unguaranteed portion of the loans, you said it was $132 million. Did I understand that $10 million was paid down in the quarter, and do you expect that trend to continue? A: Scott McKim, CFO, confirmed the unguaranteed SBA 7 loan balance declined about $10 million in the quarter, to $132.4 million from $142 million at June 30. He said the runoff has stabilized over the past six months and expects the trend to continue, implying roughly $40 million of annual runoff.
Q: You talked about $2.9 million of charge-offs. Was that strictly related to the unguaranteed portion, and do you see that rate continuing quarterly? A: Scott McKim, CFO, said the $2.9 million of net charge-offs related only to unguaranteed SBA 7A loans. He hopes the trend moderates as the portfolio rolls down and as borrowers, now more seasoned after weathering high rates, inflation and fuel costs, continue to perform better.
Q: Against the $132 million of unguaranteed loans, what was your total allowance or reserve today? A: Scott McKim, CFO, said total allowance for credit losses was just over $41.5 million at quarter end, with more than $30 million of that against the unguaranteed portfolio. That implies a reserve of roughly 22% to 23% against the $132 million of unguaranteed SBA 7 loans.
Q: What drove the sharp improvement in credit quality and the near-zero provision this quarter? A: Robin Oliver, COO, said the $3.2 million of net charge-offs were absorbed within the asset resolution plan, while the change in loan portfolio mix accounted for the remaining negative provision expense. She noted improvement across all loan types, with non-performing loans excluding government-guaranteed balances down to $13.4 million from $14.4 million.
Q: How is the shift to a pure community banking model progressing? A: Al Rogers, CEO, said community bank loans grew 25%, or $41 million, during the quarter, and deposits rose $25.3 million, outpacing net loan growth. He emphasized relationship banking sourced by bankers inside the footprint rather than brokers, and said the new South Tampa branch exceeded its first-year deposit expectations in its first month.
Q: What is the outlook for net interest income given the quarter-end loan growth? A: Scott McKim, CFO, noted that many new loans were booked in September, so average loan balances were actually down $17 million in the quarter even as period-end balances rose $20.1 million. He said higher period-end balances combined with the 4.07% net interest margin should produce higher net interest income in future periods.
Q: How did the capital actions affect shareholders’ equity and book value? A: Scott McKim, CFO, said shareholders’ equity fell $11.4 million to $104.5 million, primarily from redemption of the Series A and B preferred shares. Tangible book value per share declined to $3.64 from $4.82, while the rights offering completed September 30 raised over $14 million of incremental capital and the Tier 1 leverage ratio improved to 8.79%.
Q: What is happening with the Series C preferred shares? A: Scott McKim, CFO, said the no-call period on the Series C preferred shares expires in the fourth quarter of 2026, the Board has voted to redeem the class, and holders have been notified. Because the conversion option is priced at the last reported tangible book value per share, he expects many holders to convert rather than seek redemption.
Q: What are the priorities for expense control and staffing as the bank grows? A: Robin Oliver, COO, said the bank is adding retail and commercial banking talent, with additional commercial bankers critical given strong loan demand. Al Rogers, CEO, added that the bank is evaluating technology investments and process improvements and looking at other areas to reduce expenses and improve profitability, noting six of 12 banking centers have been open five years or less.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
