BayFirst Financial Q2 2026 Earnings Call Transcript

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Provided by Quartr
August 14, 2026

Key Takeaways

  • Negative Sentiment: BayFirst reported a $32.7 million Q2 net loss, driven primarily by a $41.5 million asset resolution plan impact and $2.2 million of additional one-time charges. The company also restated financial results for 2024, 2025, and Q1 2026 after identifying accounting errors in deferred origination costs and accrued interest.
  • Positive Sentiment: The bank’s capital position improved substantially following its $80 million capital raise: the Tier 1 leverage ratio rose to 8.3% from 5.89% in Q1, while total risk-based capital increased to 12.77% from 9.0%. Preferred-stock conversions and redemptions are also simplifying the capital structure, although the rights offering will create additional shares.
  • Positive Sentiment: Management said the asset resolution plan addressed legacy credit issues and increased reserves significantly, with allowance coverage reaching 5.37% of total loans and 5.82% excluding government-guaranteed balances. Non-performing loans excluding government-guaranteed balances declined to $14.4 million from $15.9 million in Q1, though the legacy unguaranteed SBA portfolio remains a material risk.
  • Positive Sentiment: BayFirst is pivoting away from SBA 7 lending toward traditional commercial and consumer lending, relationship-based deposits, and treasury services. Management cited a strong loan pipeline, a 24-basis-point sequential decline in funding costs, and 75% year-over-year growth in treasury fee revenue during 2025.
  • Neutral Sentiment: Deposits fell 9% sequentially and 15% year over year to $989 million as high-rate promotional and brokered deposits ran off, but management characterized the remaining franchise as predominantly local and relationship-based. The bank also plans to open a South Tampa branch in September, returning its retail network to 12 locations.
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Earnings Conference Call
BayFirst Financial Q2 2026
00:00 / 00:00

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Operator

Hello, everyone. Thank you for joining us, and welcome to the BayFirst Financial Corp Q2 2026 conference call and webcast. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Al Rogers, President and CEO. Al, please go ahead.

Al Rogers
Al Rogers
President and CEO at BayFirst Financial

Thank you, Marina. Good morning, and thank you for joining our call today. With me is Scott McKim, our CFO and Robin Oliver, our COO. Please remember, 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. My first full quarter as CEO at BayFirst has been very busy. We set to work on a number of initiatives, both short and longer term. The substantial $80 million capital raise at the end of April was the first and was certainly the biggest step for the future of our bank. We completed and deployed our asset resolution plan to address the bank's legacy credit issues, predominantly related to unguaranteed balances of the SBA 7 loans. During the process of completing the asset resolution plan, our team also identified some material misstatements from prior periods.

Al Rogers
Al Rogers
President and CEO at BayFirst Financial

We have restated financial statements for the years ended December 31st, 2024, December 31st, 2025, and the quarter ended March 31st, 2026. The amended 10-K and 10-Q have been filed this week. Scott will elaborate on both in a few minutes. We held a special meeting of shareholders on July 14th, where the company obtained shareholder approval to amend BayFirst Financial Corporation's articles of incorporation to increase the number of authorized shares of common stock from 15 million-100 million, and exchanged all 4,000 outstanding shares of mandatorily convertible cumulative perpetual preferred stock Series D and all 4,000 outstanding shares of mandatorily convertible cumulative perpetual preferred stock Series E for a total of 22,856,000 shares of common stock. Upon conversion, all shares of Series D and Series E preferred stock were retired. The company's Series A and Series B preferred shares were redeemed in July as well.

Al Rogers
Al Rogers
President and CEO at BayFirst Financial

Management also noted a mid-August launch as the date for the rights offering we announced back in April. Beyond these shareholder actions, we've also moved decisively to strengthen our operating structure and leadership team. Most notably, Trey Korhn has joined as BayFirst Chief Banking Officer. Trey has been a career banker in Tampa for over 22 years and will lead our retail and commercial banking teams. As a lifelong Tampa resident with deep roots and involvement in several real estate, industry, and community organizations, Trey brings the local market insight, relationship orientation, and proven leadership needed to help us sharpen execution and accelerate growth across our franchise. Adam Curtis will continue to lead commercial lending with the organization as Chief Lending Officer. He will report to Trey.

Al Rogers
Al Rogers
President and CEO at BayFirst Financial

The commercial relationship managers and portfolio managers will report to Adam, as that team focuses on growing and serving our commercial business customers across our footprint. Adam's steady leadership, strong customer relationships, and strong lending expertise remain critical to our ability to serve commercial clients and grow this important line of business with quality and consistency. Samantha Hill has transitioned to Director of Retail Banking, with responsibility for production, growth, and execution across our retail banking centers. She will also report to Trey. All banking center managers now report to Sam, giving us clearer accountability and a more focused retail strategy. Sam brings a strong record of team development, customer experience, and branch execution, and her leadership will be important as we expand core relationships across our banking center network. Additionally, we have submitted an application to open a new retail location in South Tampa.

Al Rogers
Al Rogers
President and CEO at BayFirst Financial

This office will bring our total retail branch network back to 12, having closed an office in Sarasota last quarter. With that operational foundation in place, I will now turn the call over to Scott, who will discuss the quarter's earnings, including the impact of the asset resolution plan and restatement. Scott?

Scott McKim
Scott McKim
CFO at BayFirst Financial

Thank you, Al. Good morning, everyone. We are reporting a net loss $32.7 million in the second quarter. This compares to the restated net loss of $5.9 million we reported for the first quarter. As Al mentioned, the asset resolution plan was deployed during the second quarter, and therefore has dominated the earnings results that we will talk about today. The plan was a thorough review of the bank's legacy, unguaranteed SBA 7 portfolio, as well as our other portfolios. We conducted an analysis which provided adjustments to the net amount expected to be collected on over 7,000 individual SBA loans, which resulted in the full or partial charge-off on several of those loans.

Scott McKim
Scott McKim
CFO at BayFirst Financial

We established a specific allowance for credit losses on six loans, increased the overall allowance on unguaranteed SBA 7 loan categories, and also adjustments to the fair market values on our portfolio of loans that we have measured at fair value. In total, the adjustment amounted to $38.4 million. Provision expense for the quarter was $29.7 million, and the company's total allowance for credit losses on June 30, 2026, was $45.1 million. Additionally, the company booked an impairment of $1.5 million on a non-marketable equity investment in a firm who was a partner of the company's former SBA 7 lending business. Finally, the company wrote down the unamortized premiums on the bank's portfolio of purchased, fully guaranteed USDA loans, which are at risk of default or early prepayment. I want to be clear, this adjustment is not credit specific. In total, the asset resolution plan impact was $41.5 million.

Scott McKim
Scott McKim
CFO at BayFirst Financial

As our new management team has assessed the existing business and started to make updates to the strategic plan, we identified some additional one-time charges during the quarter, which amount to $2.2 million and reflect the write-off of vendor contracts, which will no longer be used, and also the accrual of a change in control payment to prior management. All of these adjustments together equal $43.8 million of the company's pre-tax $44 million loss for the quarter.

Scott McKim
Scott McKim
CFO at BayFirst Financial

We announced on July 15th that we identified $2.8 million of deferred origination costs and $2.1 million of accrued interest as of March 31st, 2026, related to loans which had defaulted or was placed into non-accrual status in prior periods, which resulted in a material understatement of provision expense and overstatement of net interest income during the affected quarterly periods in which the errors were accumulated in 2024, 2025, and the first quarter of 2026. Subsequent to that announcement, we further identified another $3.4 million of deferred origination costs, which should have been netted against net gain on sale of government-guaranteed loans and resulted in a material overstatement of those net gain on sale of government-guaranteed loans during the affected quarterly periods in which the error accumulated, specifically in the years of 2024 and 2025.

Scott McKim
Scott McKim
CFO at BayFirst Financial

These errors occurred in periods prior to 2024 as well, but were not material during those periods. Our restatement efforts have correctly restated the company's earnings to date, and we have amended our 2025 10-K and our first quarter 10-Q. Management and the board of directors take our obligation to provide accurate and transparent financial reporting seriously. We moved quickly to investigate what happened and to correct it and to notify our shareholders. We continue to work through internal operational remediation activities and will report in future SEC filings on our progress towards resolution and strengthening our internal controls over financial reporting. It is important to note that by exiting the SBA 7 lending business, these errors will not reoccur. Nonetheless, we will ensure that our internal operations are compliant. Please note, as I continue, our prior period metrics, which I will mention, are the restated metrics.

Scott McKim
Scott McKim
CFO at BayFirst Financial

Other financial results include loans held for investment decreased by $41.4 million or 4% during the second quarter of 2026 to $882.8 million and decreased $237.7 million or 21% over the past year. Most of this decrease year-over-year reflects the sale of loans and the exit of the SBA 7 lending in the fourth quarter of 2025. Deposits decreased $97 million or 9% during the second quarter of 2026 and decreased $175 million or 15% over the past year to $989 million. The decrease in deposits during the quarter was primarily due to reductions in high rate promotional deposits held with non-relationship customers and also a decrease in broker deposits. 80% of the bank's deposits were insured by FDIC on June 30th, 2026, and the bank's on-balance sheet liquidity ratio as of June 30th, 2026, was 14.95%, and the bank did not have any wholesale borrowings.

Scott McKim
Scott McKim
CFO at BayFirst Financial

Shareholders' equity at the end of the quarter was $115.9 million, which is $40.3 million higher than it was at the end of first quarter. The increase is from the capital raise net of the asset resolution plan. Net accumulated other comprehensive loss increased slightly by $57,000 during the quarter, ending at $2.1 million. Tangible book value per share decreased this quarter to $4.82 per share from $14.22 per share at the end of the first quarter. Our net interest margin was 3.48%, up four basis points from first quarter. Net interest income was $9.4 million in the second quarter, virtually unchanged from the first quarter and down $2.7 million from the year ago quarter.

Scott McKim
Scott McKim
CFO at BayFirst Financial

On a normalized basis, the net interest margin for the second quarter, excluding the one-time impact that I mentioned as part of the asset resolution plan, was 4.07%, which was driven by positive trends and cost of funds, which decreased 24 basis points from the prior quarter to 2.66%. The bank's cost of funds is now down 49 basis points year-to-date, reflecting our efforts to exit promotional rate balances and broker deposit balances. Non-interest income was negative $6.8 million in the second quarter of 2026, which is $7.7 million worse than the first quarter and a decrease of $17.3 million from the second quarter of 2025. Current quarter net interest income includes an $8 million in one-time impacts related to the board-approved asset resolution plan.

Scott McKim
Scott McKim
CFO at BayFirst Financial

Additionally, the year-over-year decrease is exasperated by exiting the SBA 7 lending business, as no additional gains on sales of government-guaranteed loans will be booked. Non-interest expense was $17.7 million, an increase of $2.9 million compared to the first quarter. Essentially, all of this increase is related to one-time charges that were driven by our actions under the asset resolution plan and the one-time items that I have mentioned. In total, approximately $2.5 million. Compensation costs were about $600,000 higher, driven largely by an accrued change in control payment that I mentioned. Also, as I mentioned, our provision for credit losses was $29 million in the second quarter, compared to $3.4 million in the first quarter and $7.6 million in the second quarter of 2025. Net charge-offs were $4.5 million, down $200,000 compared to the first quarter, which was $4.7 million.

Scott McKim
Scott McKim
CFO at BayFirst Financial

Total unguaranteed SBA 7 loan balances were $142 million on June 30th. In comparison, the bank had $159.3 million of unguaranteed SBA 7 loan balances at the end of the first quarter. Total annualized charge-offs as a percentage of average loans held for investment at amortized cost were 2.08% for the second quarter, a decrease from 2.14% in the first quarter of the year. The ratio of allowance for credit losses on loans to total loans held for investment at amortized cost was 5.37% on June 30th, compared to 2.36% on March 31st, 2026 and 2.43% as of the end of 2025. The ratio of allowance for credit losses to total loans held for investment at amortized cost and excluding government guaranteed loan balances was 5.82% on June 30th, 2026, 2.55% at the end of the first quarter and 2.60% at the end of 2025.

Scott McKim
Scott McKim
CFO at BayFirst Financial

The bank's Tier 1 leverage ratio was 8.3% as of June 30, 2026 compared to 5.89% at March 31, 2026 and 7.73% as of June 30, 2025. The total capital to risk-rated assets ratio was 12.77% as of June 30, 2026 compared to 9% on March 31, 2026 and 10.77% as of June 30, 2025. I will now turn the call over to Robin to make some operational and credit comments. Robin?

Robin Oliver
Robin Oliver
COO at BayFirst Financial

Thank you, Scott. Good morning, everyone. First, I want to provide some further details around the asset resolution plan and the related impacts. As Scott mentioned, the asset resolution plan identified and provided resolution for troubled loans, but it also provides protection from future charge-offs. Also, as Scott mentioned, our allowance for credit losses divided by total loans held for investment at amortized cost, excluding government guaranteed loans, increased to 5.82% at the end of June. That is up from 1.86% a year ago. Further, the SBA Bolt loan portfolio now has 32.8% reserved against unguaranteed balances and the SBA FlashCap portfolio now has a 25% reserve. These two small loan portfolios represent $83 million of unguaranteed SBA balances.

Robin Oliver
Robin Oliver
COO at BayFirst Financial

As these loans season, we continue to learn how they perform, but we believe the actions taken under the asset resolution plan have adequately positioned the bank to manage future charge-offs. That being said, we know we must remain diligent in collecting and resolving problem assets. To that end, progress is being made, and at the end of the second quarter, total non-performing loans, excluding government guaranteed balances, were $14.4 million, down from $15.9 million at the end of the first quarter. The percentage of non-performing loans, excluding government guaranteed balances compared to total loans held for investment, was also down to 1.72%, which was a 10 basis points drop from March 31, 2026. Although that's up from a year ago, we are still making clear progress.

Robin Oliver
Robin Oliver
COO at BayFirst Financial

I should also note that of the $14.4 million in non-performing loans, $3.1 million of these balances were current and paying as agreed. We will be evaluating those for potential return to approval status as time continues. In addition, as I noted last quarter, although our classified loans are elevated at the moment, 68% of our classified loans were current and performing loans whereby we are working with the borrowers towards resolution. Switching gears from credit, as we look toward the future growth of the bank and work towards a return to profitability, we are also focused on becoming as efficient as possible in our processes while ensuring we provide an excellent experience for our customers to make banking easy with a high level of personal touch.

Robin Oliver
Robin Oliver
COO at BayFirst Financial

Our focus over the last two years has been on growing business deposits and treasury services, but the infusion of capital this past quarter really allows us to get back to lending, which will help the bank grow both loans and deposits to add stable net interest income and fee income instead of transactional earnings. Without adding significant headcount, we've also added leadership and talent in various areas of the bank, which we believe will position us for growth, including Trey the Chief Banking Officer that Al mentioned a Chief Data Officer, and retail personnel, including the retail individuals to support our new South Tampa location that is scheduled to open in September. We are excited about further expanding in Hillsborough County as we seek to round out our presence in the Tampa Bay market.

Robin Oliver
Robin Oliver
COO at BayFirst Financial

At this time, I will turn the call over to Al to make some final comments.

Al Rogers
Al Rogers
President and CEO at BayFirst Financial

Thank you, Robin. As I complete my first few months at BayFirst, what I've seen only reinforces my belief that we have a significant opportunity ahead. I've spent time with our employees, customers, shareholders, and community leaders, and one thing is clear. BayFirst has the people, relationships, and market position to become the leading community bank in the Tampa Bay region. Our focus is simple. We're building a high-performing community bank centered on relationship banking, disciplined execution, sound credit practices, and exceptional service. We believe local businesses and consumers are best served when decisions are made close to home by bankers who know the market, understand their customers, and are invested in the success of the communities in which they serve. That community banking model starts with strong customer relationships. Our deposit mix and cost of funds remain a top priority.

Al Rogers
Al Rogers
President and CEO at BayFirst Financial

We're working to deepen existing relationships and improve the mix from higher-cost transactional accounts to relationships that value service, responsiveness, and long-term partnerships. On the lending side, loan growth has already begun. While we continue to manage payoffs and charge-offs associated with the legacy SBA portfolio, our focus has shifted toward growing traditional commercial and consumer lending with borrowers located in the markets we serve. Our loan pipeline is strong, and we are seeing encouraging opportunities across our footprint. We're also investing in technology and process improvements that enhance efficiency, improve customer experience, and position us to scale responsibly as we grow. The capital we raised earlier this year provides us with strength and flexibility as we execute this strategy. We intend to deploy that capital thoughtfully, focusing on opportunities that strengthen the franchise, improve profitability, and support sustainable growth.

Al Rogers
Al Rogers
President and CEO at BayFirst Financial

While there is still work to do, I am encouraged by the progress we have made and the momentum we are building. Our priorities are clear. Grow core relationships, strengthen performance, expand our presence in Tampa Bay, and deliver consistent long-term value for our shareholders. I want to thank our employees for their dedication, our customers for their trust, and our shareholders for their continued support. I am optimistic about our future and excited about what lies ahead. Marina, I will turn the call back over to you for some questions. Thank you.

Operator

We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ross Haberman with RLH Investments. Your line is open. Please go ahead.

Ross Haberman
Analyst at RLH Investments

Morning. Thank you for taking my call. Just two or three quick questions. Al, could you talk about this new branch you are going to open? How big could it be, and how quickly do you think you will hit a break even on it? How long will that take?

Al Rogers
Al Rogers
President and CEO at BayFirst Financial

Location is in South Tampa. A very, In the market that we do not have a significant location. We do have an office that is four miles away, but in a significantly different demographic and market. We have already started opening accounts in this area, and we expect that stability would come quickly as this is initially a leased location in that market.

Ross Haberman
Analyst at RLH Investments

Will it be a two year break even, or hopefully something less than that, or what is your guess?

Al Rogers
Al Rogers
President and CEO at BayFirst Financial

I would say given our investment, it would be sooner than that.

Ross Haberman
Analyst at RLH Investments

Just a question or two for Scott. Scott, the $142 million of unguaranteed SBA loans, I think you broke that out into a piece of $82 million and then another $60 million. Could you go over the reserves on each of those parts? How quickly do you think they will be paid down? I think you said in the last quarter they paid down a total of $17 million. Is that correct?

Scott McKim
Scott McKim
CFO at BayFirst Financial

Hi, Ross. Yeah, we went from $159 down to $142. That's a pretty quick drop. But also keep in mind, some part of that was also related to the asset resolution plan. It was a little bit higher than what I would consider to be a true run rate for it. I will tell you that I'll start to break the pieces down as far as what's in the portfolio for you. The Bolt portfolio is the largest part of Ross, I'm getting a little feedback in your phone there. If you can mute me real quick, that'd be great.

Ross Haberman
Analyst at RLH Investments

Sorry, is that better?

Scott McKim
Scott McKim
CFO at BayFirst Financial

That's all right. Okay, here we go. The Bolt portfolio, and this is all of the loans that are booked at amortized cost. This excludes the fair value portfolio. We ended the quarter with $60 million in the Bolt, and that has a 33% reserve against that. That's a little over almost $9.1 million. The FlashCap portfolio, and this is the one that really is just amortizing a little bit quicker, that had $29 million in balances and has a 25% reserve against it, which is $3.2 million. And then the core, what we call a core C&I, so this is some of the larger loans that have collateral other than real estate, have $45 million in balances in it, and that has a 23% reserve against it, or $1.5 million. Now, there's another component of the SBA portfolio that is all real estate backed.

Scott McKim
Scott McKim
CFO at BayFirst Financial

It has $53 million in balances, and there's a relatively small reserve of about 1% against that. That part of the portfolio performs as expected. It is not a big loss driver for us. You roll all those bits and pieces together, and on the riskier parts of the portfolio, we're reserved in the high 20%.

Ross Haberman
Analyst at RLH Investments

Thank you. Just one final question. Could you be a little more specific on the timing of the rights offering? You said mid-August. We're basically here. Is it going to be this week or next week? What's your timing on the execution of the rights offering for the shareholders?

Scott McKim
Scott McKim
CFO at BayFirst Financial

Ross, thanks for asking that question. I was kind of expecting that one this morning. Just for you and everybody else that's listening, the rights offering is coming. Because of the restatement, we wanted to make sure that we had updated reliable financials in all prior periods and current periods available to all investors so that you had a complete package of information for consideration before we launch the rights offering. Obviously, that's pushed the timing out on that a little bit. But now that we have everything filed, or we'll have the second quarter 10-Q will be filed later today, that kind of frees us up to move on to the rights offering component.

Scott McKim
Scott McKim
CFO at BayFirst Financial

What we'll end up doing is preparing the communication that goes out to all of the shareholders of record as of May 12. Those communications we should have in hand or be ready to mail those next week. Coincidentally, we also have the full proxy, which will be going out. Our annual shareholder meeting is scheduled for September 22. Really, we're going to have a full population of all important documents in hand for investors to look at before they make a decision around the rights offer. It is coming. I know it's taking a little bit longer than what we had initially wanted to do, but we wanted to make sure that we were checking all the boxes for everyone.

Ross Haberman
Analyst at RLH Investments

You're saying it's going to be pushed off to September? Is that what you're implying?

Scott McKim
Scott McKim
CFO at BayFirst Financial

No. The rights offering, we will launch that in August. I just wanted to mention when the shareholder meeting was, and that is in September.

Ross Haberman
Analyst at RLH Investments

Got it. Thank you for your help, guys. Thank you very much.

Al Rogers
Al Rogers
President and CEO at BayFirst Financial

Sure. Thanks for the question, Ross.

Operator

Your next question comes from the line of Julienne Cassarino, Sycamore Analytics. Your line is open. Please go ahead.

Julienne Cassarino
Analyst at Sycamore Analytics

Hi, good morning.

Scott McKim
Scott McKim
CFO at BayFirst Financial

Hi, Julienne.

Robin Oliver
Robin Oliver
COO at BayFirst Financial

Morning.

Julienne Cassarino
Analyst at Sycamore Analytics

Hi. I'm just trying to cut through a lot of the noise in the quarter. On the call, you just said that of the $44 million pre-tax loss, $43.8 million came from the restructuring and non-recurring. So that implies still a loss for the quarter excluding all one time? Or what was the core earnings power in the quarter?

Scott McKim
Scott McKim
CFO at BayFirst Financial

I think if I understand your question, the one-time items and the asset resolution component was $43.8 million.

Julienne Cassarino
Analyst at Sycamore Analytics

Pre-tax

Scott McKim
Scott McKim
CFO at BayFirst Financial

The total loss was $44 million. The remaining operating loss to think about was about $200,000 for the quarter.

Julienne Cassarino
Analyst at Sycamore Analytics

That was just a regular recurring operating loss, right? Is that correct?

Scott McKim
Scott McKim
CFO at BayFirst Financial

Yeah, I think you can refer to that as being core, Julienne.

Julienne Cassarino
Analyst at Sycamore Analytics

Okay. The core earnings power that we're starting with is kind of zero right now, right? Or is there anything masking that? Is there any core earnings power on the non-resolution piece?

Scott McKim
Scott McKim
CFO at BayFirst Financial

I will tell you this. As we look forward, essentially the things that we talked about, if you recall, I mentioned on the net interest margin, really on a core basis, was 4.07%.

Scott McKim
Scott McKim
CFO at BayFirst Financial

There is a lot more in terms of overall earnings revenue that we are expecting going forward, plus all of the components that Al talked about in terms of growth in the balance sheet, combined with continued efforts to reduce the bank's overall cost of funds. I would like to think about it from the standpoint that core earnings in the second quarter was just below breakeven. But now that we have a clear path ahead a lot of strength, a lot of good focus as far as what is coming, the bank is positioned for profitable earnings going forward.

Julienne Cassarino
Analyst at Sycamore Analytics

Okay. With operating leverage and stuff. What about the tax rate? Is there a deferred tax? Is there a DTA valuation allowance that has been set up or no?

Scott McKim
Scott McKim
CFO at BayFirst Financial

No, there's no valuation allowance against the deferred tax asset. Truthfully, these are conversations that obviously we've had internally. The bank is positioned for profitable growth going forward. A new leadership team, a lot of strength is coming in. We believe that we will have no issues whatsoever in terms of reacquiring that asset in the future. So there is no valuation allowance at this time. Like I said, we continue to look at it, but at this time it is zero.

Julienne Cassarino
Analyst at Sycamore Analytics

Okay, so does that mean what tax rate to use going forward?

Scott McKim
Scott McKim
CFO at BayFirst Financial

Tax rate for the quarter is about 25%.

Julienne Cassarino
Analyst at Sycamore Analytics

Okay. The quarter, did that include the redemption payments of, I think, almost $10 million, right? The $9.7 million payments to redeem the, forgive me if I get the names wrong but basically the preferred holders. Is that $9.7 million included yet, that payment, and is that pre-tax or after tax? Should we be adjusting the TCE for that, or?

Scott McKim
Scott McKim
CFO at BayFirst Financial

The payout for the Series A and Series B, which I think you are referring to, actually concluded this week. That will actually be a Q3 event.

Julienne Cassarino
Analyst at Sycamore Analytics

That is a Q3. So that totaled $9.7 million, right? Is that pre-tax or after?

Scott McKim
Scott McKim
CFO at BayFirst Financial

It is a redemption. It is not really an income statement component. It is not an earnings hit.

Julienne Cassarino
Analyst at Sycamore Analytics

Oh. Does it come out of tangible common equity? Or no because it is just from one bucket to another.

Scott McKim
Scott McKim
CFO at BayFirst Financial

Yes.

Julienne Cassarino
Analyst at Sycamore Analytics

Okay. No impact on TCE from that. No impact on shares either, right? The share count.

Scott McKim
Scott McKim
CFO at BayFirst Financial

Correct.

Julienne Cassarino
Analyst at Sycamore Analytics

The redemption payment is kind of going from one bucket to another. Do not need to adjust for that. What about the exchange, too? Nothing to adjust for that? You mentioned 22.9 million shares from an exchange. But that is already, we do not have to adjust for that, or is that a third quarter adjustment that we should make?

Scott McKim
Scott McKim
CFO at BayFirst Financial

Yeah. It is a third quarter event, but that moves from preferred to common. And obviously,

Julienne Cassarino
Analyst at Sycamore Analytics

So it would go up.

Scott McKim
Scott McKim
CFO at BayFirst Financial

The share count's going to go up accordingly as well. Yes. So if you're asking, the tangible book value already has that dilution component baked into it.

Julienne Cassarino
Analyst at Sycamore Analytics

That's what I was asking. Okay. The only thing to adjust in the third quarter for tangible book per share is the rights offering. Is that correct?

Scott McKim
Scott McKim
CFO at BayFirst Financial

That is correct.

Julienne Cassarino
Analyst at Sycamore Analytics

Okay

Scott McKim
Scott McKim
CFO at BayFirst Financial

We would like to maximize that for shareholders. But we are not sure how much we will get. We will report that when it is done.

Julienne Cassarino
Analyst at Sycamore Analytics

Let us just assume everyone exercised, that everyone who could exercises at 350, I believe it is. What would be that impact on TCE and share count if everyone were to exercise? Is that something I can calculate or?

Scott McKim
Scott McKim
CFO at BayFirst Financial

Yeah. 350 at 4.1 million shares.

Julienne Cassarino
Analyst at Sycamore Analytics

4.1 million?

Scott McKim
Scott McKim
CFO at BayFirst Financial

Yes.

Julienne Cassarino
Analyst at Sycamore Analytics

Okay. All right. Very good. It was the 4.1 I think I needed to have. Okay, and then just to ask about the deposit franchise. You mentioned that you've gone through the loan book pretty completely by now. Now the deposit franchise, have you finished the review of depositor? You mentioned in the press release. I think, the earnings release, non-relationship customers. About what percent of the deposit franchise right now would you estimate is non-relationship customers, approximately?

Scott McKim
Scott McKim
CFO at BayFirst Financial

Julienne, it's very small.

Julienne Cassarino
Analyst at Sycamore Analytics

Okay.

Scott McKim
Scott McKim
CFO at BayFirst Financial

We are strictly focused on relationship-based I guess, depositors. When I say relationship, it's not just the deposit side. In a lot of cases, we also have lending relationships. That's something that we have really been focused on, and I think Al did a really nice job of explaining how we will go about that in the future.

Scott McKim
Scott McKim
CFO at BayFirst Financial

The key thing is in the past, we had some relatively large, what I will call, I will just say it. They were more of a place for entities to park money. We were paying them a very attractive rate to do it because it was funding business, funding loan growth around the SBA business. That is not what we are doing any longer. We had conversations with those people. We said, "Look, we are not going to pay these rates anymore. They are out of market." Most of that money has left and that was by design as well as the runoff of the broker deposits that we had, and that was also part of our strategy.

Julienne Cassarino
Analyst at Sycamore Analytics

Right. So you would say this quarter's, or this quarter ends deposit franchise is what? There is no more transition to be done. Looking at the interest-free and the broker this is a good base to go forward. There is no more-

Scott McKim
Scott McKim
CFO at BayFirst Financial

Yeah, Excluding, there is still some brokered in there that is going to run off. But really what is there I am going to call core deposits, I suppose.

Julienne Cassarino
Analyst at Sycamore Analytics

Right. Is it all local? Is it 100% local? Or about how much would you say is out of market, just excluding the brokered? So excluding brokered, is it all predominantly local customers?

Scott McKim
Scott McKim
CFO at BayFirst Financial

It's local. Yes. Yeah. These are people we know.

Julienne Cassarino
Analyst at Sycamore Analytics

Okay

Scott McKim
Scott McKim
CFO at BayFirst Financial

That you can drive for about an hour to go visit them. Yep.

Julienne Cassarino
Analyst at Sycamore Analytics

Okay, great. Is any one customer 5%-10% or more of total deposits?

Scott McKim
Scott McKim
CFO at BayFirst Financial

No.

Julienne Cassarino
Analyst at Sycamore Analytics

Okay, great. Thank you so much. Thank you.

Scott McKim
Scott McKim
CFO at BayFirst Financial

You got it. Sure.

Operator

Your next question comes from the line of Ian Green with Pendragon Capital Management. Your line is open. Please go ahead.

Ian Green
Analyst at Pendragon Capital Management

Hi. Thank you. Lots of great questions here. I just wanted to come back a little bit to some of the new initiatives, like your treasury business and some other initiatives to grow fee income. Do you have the systems in place to do that? Is this going to require any significant capital expenditures in technology and so forth? I guess, it's a very crowded space, a lot of those businesses. Where do you think you have the edge to compete?

Robin Oliver
Robin Oliver
COO at BayFirst Financial

Yeah. Hi, Ian, this is Robin. I will take that one. We do already have the systems in place that we need. I think we have all the tools to be successful here. If you look at our growth in 2025 over 2024, our treasury fee revenue grew about 75% year-over-year, and we continue to be on track to continue that increase this year. I think really what it is we move upmarket a bit. We are now really targeting our commercial business customers, and we are going to be banking some larger businesses than we have in the past, and those customers have more sophisticated needs. Basically, if we are going to do their loan, we are going to get their operating account, and those operating accounts are just by the nature of the business going to come with treasury.

Robin Oliver
Robin Oliver
COO at BayFirst Financial

I really think there is a strong opportunity there. We have two different treasury platforms, one for very small businesses and another that is more sophisticated. I think we are well-positioned.

Al Rogers
Al Rogers
President and CEO at BayFirst Financial

Yeah, Ian, I will add to that.

Ian Green
Analyst at Pendragon Capital Management

Okay.

Al Rogers
Al Rogers
President and CEO at BayFirst Financial

This is Al. Talk about the edge. Our bankers know their customers. They are accessible. At 5:00, they do not turn their cell phones off. It is true relationships, solving problems, being accessible, being local, not outsourcing or offshoring customer support. Generally speaking, banking professional executives and small businesses and investors and companies, they generally have larger average balances, and their cost of funds is generally lower. That comes with our initiative to act as a commercial bank serving commercial customers in our community. It comes all together.

Ian Green
Analyst at Pendragon Capital Management

Okay. Thanks. In the end, we shouldn't see a significant.

Robin Oliver
Robin Oliver
COO at BayFirst Financial

There won't be a significant investment. We will need to continue to expand the treasury team. It's a small team today. They're a small but mighty team. Certainly, the opportunities that this will provide will need some additions to the team. We don't have investments in software or other things. Certainly, the revenue that we get from it should balance off the additional costs that we may have.

Operator

There are no more questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Executives
    • Al Rogers
      Al Rogers
      President and CEO
    • Scott McKim
      Scott McKim
      CFO
    • Robin Oliver
      Robin Oliver
      COO
Analysts
    • Ross Haberman
      Analyst at RLH Investments
    • Julienne Cassarino
      Analyst at Sycamore Analytics
    • Ian Green
      Analyst at Pendragon Capital Management
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