BayFirst Financial Corp.

In the presentation, we will conduct a question and answer session. And if at any time during this call you require immediate assistance, please press star zero for the operator. Also note that this call is being recorded on Wednesday, July 30th, 2025. I would now like to turn the conference over to Tom Zernick, CEO. Please go ahead, sir.

Thank you, Sylvie. Good morning and thank you for participating on our call today. Once again with me is Robin Oliver, our President and Chief Operating Officer, and Scott McKim, our CFO. Today's call will include forward-looking statements and non-GAAP financial measures. Please refer to our cautionary statement on forward-looking statements contained on page two of the investor presentation. We reported a net loss this quarter of $1.2 million, driven by notably higher provision expense and higher write-downs on our portfolio of loans measured at fair value. As we announced last quarter, management and the board initiated a comprehensive strategic review aimed at de-risking unguaranteed SBA 7A balances on the balance sheet and positioning the company for long-term growth and enhanced shareholder value. Much progress is being made and we expect to have additional information on our plans and the expected results in the coming weeks. In conjunction with our review, they first reported charge-offs and fair value write-downs on related SBA 7A loans with elevated levels of risk. The net loss this quarter of $1.2 million is driven by these additional charge-offs and fair value write-downs. This will provide for a stronger balance sheet to take advantage of community banking opportunities. Furthermore, to offset the impact of these charges, the board has voted to suspend common and preferred stock dividend payments and board of director fees. Now I want to talk about some areas that are performing well in the first half of the year in activities that set the stage for continuing transitioning Bay First into a strong community bank. Our net interest margin improved again in the second quarter, an increase of 29 basis points to 4.06%. Viewing this improvement were increases in -interest-bearing account balances, savings and money market account balances, and time deposits, partially offset by a decrease in interest-bearing transaction account balances. Our trendsetter deposit portfolio, a 50 or better senior club, has over 2,100 accounts and represents more than $200 million of balances. Year to date, we added 60 more households through this program. Plus, our cash kids club program has over 1,300 accounts and has grown by 11% this year. These programs are important sources of core deposits and demonstrate our commitment to building household relationships across Tampa Bay and Sarasota. I also want to point out that our Refer Live program, which allows our current customers to refer their friends and family to Bay First, has generated over $4 million of new deposits and 10.5 million of consumer loans over the past 12 months. The bank has continued to see consistent growth in community bank loans and core deposits. This growth will continue to position Bay First as the premier community bank of Tampa Bay. The company's government-guaranteed loan origination platform originated $106.4 million in new government-guaranteed loans during the second quarter of 2025, of which 67.9 million were bold loans, which is the company's SBA 7A loan program designed to expeditiously provide working capital of $150,000 or less. The origination volume was relatively stable from the prior quarter, up slightly from 106.3 million of loans produced in the first quarter, of which 60.4 million were bold loans. Now I will pass the microphone to Scott McKim, our CFO, to provide an overview of our financial performance.

Thank you, Tom. Good morning, everyone. As Tom mentioned, we are reporting a net loss of $1.2 million from continuing operations in the second quarter. This compares to $335,000 net loss reported in the first quarter of this year. Loans held for investment increased by $41 million, or .8% during the second quarter of 2025, to end at $1.13 billion and increased $117.5 million, or .7% over the past year. During the quarter, the company originated $157 million of loans and sold $66.8 million of government-guaranteed loan balances. Deposits increased $35.5 million, or .1% during the second quarter of 2025, and increased $121.4 million, or .6% over the past year, to $1.16 billion. The increase in deposits during the quarter was primarily due to increases in non-interest bearing account balances, savings and money market account balances, and time deposits partially offset by a decrease in interest bearing transaction account balances. Shareholders' equity at the end of the quarter was $109.7 million, and is $9.7 million higher than the end of the second quarter of 2024. Nets accumulated other comprehensive loss decreased by $10,000 during the quarter, ending at $2.4 million. Our tangible book value decreased slightly this quarter to $22.30 per share, down from $22.77 per share at the end of the first quarter. As Tom mentioned, our net interest margin improved impressively by 29 basis points to 406% in the second quarter. Net interest income was $12.3 million in the second quarter, which was an increase of $1.3 million compared to the first quarter, and it was a $3.2 million increase from the year ago quarter. Our focus on checking accounts and savings accounts versus promotional rate, money market, and CDs has contributed to the margin improvement that we are reporting this year. Importantly, the bank's deposit cost has decreased from .78% in the fourth quarter of last year down to .33% in the second quarter now. This 45 basis point decrease is clearly much higher than the six basis point decrease on interest earning assets. I should point out that the Fed rate change that occurred in December is fully into all of these numbers. Non-interest income was $11.4 million in the second quarter of 2025, which is an increase from $8.8 million in the first quarter of 2025, and a small decrease from $11.7 million in the second quarter of 2024. Gains on the sale of government guaranteed loans were also $1.2 million lower in the second quarter compared to the first quarter due to slightly lower production of saleable government guaranteed loans and were available to be sold. Changes in the SBA standard operating procedures introduced additional steps and requirements to process small dollar loans during the quarter, which resulted in longer processing times, especially in the last month of the quarter. This meant there were fewer guaranteed loan balances available to be sold through June, and we elected to book these loans measured at their value to match that revenue in the period where the loans were originated. The bank sold $66.8 million of government guaranteed loan balances during the second quarter compared to $72.5 million in the first quarter. Gains on loans booked and measured at fair value during the quarter were $3.4 million, an increase of $3 million for the first quarter where we had only booked a single loan at fair value. Offsetting the gains is $1 million in write-downs on loans previously booked at fair values. I will note that these fair value markdowns are not charged off according to GAAP rules. However, they are very similar nonetheless, and this number is inclusive of what Tom mentioned at the beginning of the call. Our noninterest expense increased by $1.7 million in the second quarter. Most of this increase, or $1.2 million, represents the non-deferrable loan origination expenses incurred related to loans booked at fair value during the second quarter. This is an increase of $1 million from the first quarter. An increase in commission costs of $200,000 and an increase of other expenses of $100,000 represent increases as well in noninterest expense. Our commitment to manage controllable expenses is also evident with a $1.1 million decrease in -to-date noninterest expense, including the impact of loan origination and non-deferrable origination expenses. In fact, total noninterest expense overall is $1.2 million lower in 2025 compared to the same period in the first half of 2024. Proficient for credit losses was $7.3 million in the second quarter compared to $4.4 million in the first quarter and $3 million from the second quarter of 2024. Net charge-off, primarily, unguaranteed SBA 7A balances were $6.8 million in the quarter. That was an increase of $3.5 million compared to the first quarter, which was $3.3 million.