Bayfirst Financial Corp.
03/27/2026 | Press release | Distributed by Public on 03/27/2026 11:42
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is an analysis of the results of operations for the year ended December 31, 2025 and December 31, 2024 and financial condition as of December 31, 2025 and December 31, 2024. This discussion and analysis should be read in conjunction with the consolidated financial statements and related notes.
In addition to the historical information contained herein, this Form 10-K includes "forward-looking statements" within the meaning of such term in the Private Securities Litigation Reform Act of 1995. These statements are subject to many risks and uncertainties, including, but not limited to, the effects of health crises, global military hostilities, weather events, or climate changes, including its effects on the economic environment, its customers and its operations, as well as any changes to federal, state or local government laws, regulations or orders in connection with them; the ability of the Company to implement its strategy and expand its banking operations; changes in interest rates and other general economic, business and political conditions, including changes in the financial markets, credit quality or global military hostilities; changes in business plans as circumstances warrant; risks related to mergers and acquisitions; changes in benchmark interest rates used to price loans and deposits, changes in tax laws, regulations and guidance; enforcement actions initiated by our regulators and their impact on our operations; the impact of data breaches or other cybersecurity incidents; enforcement actions initiated by our regulators and their impact on our operations; and other risks detailed from time to time in filings made by the Company with the SEC. Readers should note that the forward-looking statements included herein are not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking statements.
Forward-looking statements generally can be identified by the use of forward-looking terminology such as "will," "propose," "may," "plan," "seek," "expect," "intend," "estimate," "anticipate," "believe," "continue," or similar terminology. Any forward-looking statements presented herein are made only as of the date of this document, and the Company does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.
Selected Financial Data - Unaudited
| As of and for the Three Months Ended |
As of and for the Year Ended
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| (Dollars in thousands, except for share data) | 12/31/2025 | 9/30/2025 | 12/31/2024 | 12/31/2025 | 12/31/2024 | ||||||||||||||||||||||||
| Income Statement Data: | |||||||||||||||||||||||||||||
| Net interest income | $ | 11,158 | $ | 11,280 | $ | 10,653 | $ | 45,785 | $ | 38,026 | |||||||||||||||||||
| Provision for credit losses | 2,007 | 10,915 | 4,546 | 24,586 | 14,726 | ||||||||||||||||||||||||
| Noninterest income | (104) | (1,046) | 22,276 | 18,396 | 60,469 | ||||||||||||||||||||||||
| Noninterest expense | 11,869 | 25,215 | 15,335 | 70,425 | 66,782 | ||||||||||||||||||||||||
| Income tax expense (benefit) | (359) | (6,994) | 3,272 | (7,893) | 4,315 | ||||||||||||||||||||||||
| As of and for the Three Months Ended |
As of and for the Year Ended
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| (Dollars in thousands, except for share data) | 12/31/2025 | 9/30/2025 | 12/31/2024 | 12/31/2025 | 12/31/2024 | ||||||||||||||||||||||||
| Net income (loss) from continuing operations | (2,463) | (18,902) | 9,776 | (22,937) | 12,672 | ||||||||||||||||||||||||
| Net loss from discontinued operations | - | - | - | - | (69) | ||||||||||||||||||||||||
| Net income (loss) | (2,463) | (18,902) | 9,776 | (22,937) | 12,603 | ||||||||||||||||||||||||
| Preferred stock dividends | 385 | 385 | 385 | 1,541 | 1,541 | ||||||||||||||||||||||||
| Net income available to (loss attributable to) common shareholders | $ | (2,848) | $ | (19,287) | $ | 9,391 | $ | (24,478) | $ | 11,062 | |||||||||||||||||||
| Balance Sheet Data: | |||||||||||||||||||||||||||||
| Average loans HFI | $ | 997,710 | $ | 1,134,911 | $ | 1,077,504 | $ | 1,085,260 | $ | 1,009,353 | |||||||||||||||||||
| Average loans HFI at amortized cost | 939,281 | 1,060,520 | 1,003,867 | 1,018,913 | 928,814 | ||||||||||||||||||||||||
| Average total assets | 1,334,912 | 1,345,553 | 1,273,296 | 1,323,321 | 1,201,820 | ||||||||||||||||||||||||
| Average common shareholders' equity | 73,470 | 92,734 | 87,961 | 89,184 | 86,174 | ||||||||||||||||||||||||
| Government guaranteed loans HFS | - | 94,052 | - | - | - | ||||||||||||||||||||||||
| Total loans HFI | 963,894 | 998,683 | 1,066,559 | 963,894 | 1,066,559 | ||||||||||||||||||||||||
| Total loans HFI, excluding government guaranteed loan balances | 893,765 | 923,390 | 917,075 | 893,765 | 917,075 | ||||||||||||||||||||||||
| Allowance for credit losses on loans | 21,996 | 24,485 | 15,512 | 21,996 | 15,512 | ||||||||||||||||||||||||
| Total assets | 1,300,258 | 1,345,978 | 1,288,297 | 1,300,258 | 1,288,297 | ||||||||||||||||||||||||
| Total deposits | 1,183,938 | 1,171,457 | 1,143,229 | 1,183,938 | 985,138 | ||||||||||||||||||||||||
| Common shareholders' equity | 70,747 | 73,677 | 94,869 | 70,747 | 94,869 | ||||||||||||||||||||||||
| Per Share Data: | |||||||||||||||||||||||||||||
| Basic earnings (loss) per common share | $ | (0.69) | $ | (4.66) | $ | 2.27 | $ | (5.93) | $ | 2.68 | |||||||||||||||||||
| Diluted earnings (loss) per common share | $ | (0.69) | $ | (4.66) | $ | 2.11 | $ | (5.93) | $ | 2.62 | |||||||||||||||||||
| Dividends per common share | $ | - | $ | - | $ | 0.08 | $ | 0.16 | $ | 0.24 | |||||||||||||||||||
| Book value per common share | $ | 17.22 | $ | 17.90 | $ | 22.95 | $ | 17.22 | $ | 22.95 | |||||||||||||||||||
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Tangible book value per common share(1)
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$ | 17.22 | $ | 17.90 | $ | 22.95 | $ | 17.22 | $ | 22.95 | |||||||||||||||||||
| Performance Ratios: | |||||||||||||||||||||||||||||
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Return on average assets(2)
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(0.74) | % | (5.62) | % | 3.07 | % | (1.73) | % | 1.05 | % | |||||||||||||||||||
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Return on average common equity(2)
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(15.51) | % | (83.19) | % | 42.71 | % | (27.45) | % | 12.84 | % | |||||||||||||||||||
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Net interest margin(2)
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3.58 | % | 3.61 | % | 3.60 | % | 3.75 | % | 3.45 | % | |||||||||||||||||||
| Asset Quality Data: | |||||||||||||||||||||||||||||
| Net charge-offs | $ | 4,558 | $ | 3,294 | $ | 3,369 | $ | 17,952 | $ | 13,039 | |||||||||||||||||||
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Net charge-offs/average loans HFI at amortized cost(2)
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1.94 | % | 1.24 | % | 1.34 | % | 1.76 | % | 1.40 | % | |||||||||||||||||||
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Nonperforming loans(3)
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$ | 24,343 | $ | 24,687 | $ | 17,607 | $ | 24,343 | $ | 17,607 | |||||||||||||||||||
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Nonperforming loans (excluding government guaranteed balance)(3)
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$ | 16,271 | $ | 15,822 | $ | 13,570 | $ | 16,271 | $ | 13,570 | |||||||||||||||||||
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Nonperforming loans/total loans HFI(3)
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2.68 | % | 2.63 | % | 1.75 | % | 2.68 | % | 1.75 | % | |||||||||||||||||||
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Nonperforming loans (excluding gov't guaranteed balance)/total loans HFI(3)
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1.79 | % | 1.69 | % | 1.35 | % | 1.79 | % | 1.35 | % | |||||||||||||||||||
| ACL/Total loans HFI at amortized cost | 2.42 | % | 2.61 | % | 1.54 | % | 2.42 | % | 1.54 | % | |||||||||||||||||||
| Other Data: | |||||||||||||||||||||||||||||
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Full-time equivalent employees
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144 | 237 | 299 | 144 | 299 | ||||||||||||||||||||||||
| As of and for the Three Months Ended |
As of and for the Year Ended
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| (Dollars in thousands, except for share data) | 12/31/2025 | 9/30/2025 | 12/31/2024 | 12/31/2025 | 12/31/2024 | ||||||||||||||||||||||||
| Banking centers | 12 | 12 | 12 | 12 | 12 | ||||||||||||||||||||||||
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(1) See section entitled "GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures" below for a reconciliation to most comparable GAAP equivalent.
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(2)Annualized
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(3)Excludes loans measured at fair value
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Reconciliation and Management Explanation of Non-GAAP Financial Measures
Some of the financial measures included in this report are not measures of financial condition or performance recognized by GAAP. These non-GAAP financial measures include tangible common shareholders' equity and tangible book value per common share. The management team uses these non-GAAP financial measures in its analysis of its performance, and they believe that providing this information to financial analysts and investors allows them to evaluate capital adequacy.
The following presents the calculation of the non-GAAP financial measures:
| Tangible Common Shareholders' Equity and Tangible Book Value Per Common Share (Unaudited) | ||||||||||||||||||||
| As of | ||||||||||||||||||||
| (Dollars in thousands, except for share data) | December 31, 2025 | September 30, 2025 | December 31, 2024 | |||||||||||||||||
| Total shareholders' equity | $ | 87,569 | $ | 89,728 | $ | 110,920 | ||||||||||||||
| Less: Preferred stock liquidation preference | (16,822) | (16,051) | (16,051) | |||||||||||||||||
| Total equity available to common shareholders | 70,747 | 73,677 | 94,869 | |||||||||||||||||
| Less: Goodwill | - | - | - | |||||||||||||||||
| Tangible common shareholders' equity | $ | 70,747 | $ | 73,677 | $ | 94,869 | ||||||||||||||
| Common shares outstanding | 4,108,069 | 4,116,913 | 4,132,986 | |||||||||||||||||
| Tangible book value per common share | $ | 17.22 | $ | 17.90 | $ | 22.95 | ||||||||||||||
Application of Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in accordance with GAAP requires the Company to make estimates and judgments that affect reported amounts of assets, liabilities, income and expenses and related disclosure of contingent assets and liabilities. The Company bases those estimates on historical experience and on various other assumptions that are believed to be reasonable under current circumstances, results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. Estimates are evaluated on an ongoing basis. Actual results may differ from these estimates.
Accounting policies, as described in detail in the notes to the Company's consolidated financial statements, are an integral part of the Company's consolidated financial statements. A thorough understanding of these accounting policies is essential when reviewing the Company's reported results of operations and financial position. Management believes that the critical accounting policies and estimates listed below require the Company to make difficult, subjective or complex judgments about matters that are inherently uncertain. At December 31, 2025, the most critical of these significant accounting policies in understanding the estimates and assumptions involved in preparing the consolidated financial statements were the policies related to the ACL, fair value measurement of government guaranteed loan servicing rights and government guaranteed loans HFI at fair value, which are discussed more fully below.
Allowance for Credit Losses
The ACL is calculated with the objective of maintaining a reserve sufficient to absorb estimated losses. Management's determination of the appropriateness of the allowance is based on periodic evaluations of the loan portfolio, lending-related commitments, and other relevant factors. This evaluation is inherently subjective as it requires numerous estimates, including collateral values, and the amounts and timing of expected future cash flows. The Company's ACL on loans is estimated using relevant information, from internal and external sources,
relating to past events, current conditions, and reasonable and supportable forecasts. In addition, management may include qualitative adjustments intended to capture the impact of other uncertainties in the lending environment such as underwriting standards, current economic and political conditions, and other factors affecting the credit quality. Changes to one or more of the estimates used could result in a different estimated ACL.
Fair Value Measurements - Government Guaranteed Loan Servicing Rights
The fair value of servicing assets is based on market prices for comparable servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as adequate compensation for servicing, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. The fair value of servicing rights is highly sensitive to changes in underlying assumptions. Changes in prepayment speed and discount rate assumptions typically have the most significant impacts on the fair value of servicing rights. Generally, as interest rates decrease on variable rate loans, loan prepayments increase due to an increase in refinance activity, which results in a decrease in the fair value of servicing assets. The discount rate used in the estimation process is tied to a benchmark risk-free rate with a risk premium added using a build-up method. Measurement of fair value is limited to the conditions existing and the assumptions used as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different time.
Fair Value Measurements - Government Guaranteed Loans HFI
Certain government guaranteed loans HFI are recorded at fair value on a recurring basis. Fair value is an estimate of the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (i.e., not a forced transaction, such as a liquidation or distressed sale) between market participants at the measurement date and is based on the assumptions market participants would use when pricing an asset or liability. The fair value for government guaranteed loans HFI is calculated based on the present value of estimated future payments. The valuation model uses interest rate, prepayment speed, and default rate assumptions that market participants would use in estimating future payments. Whenever available, the present value is validated against available market data. Fair value measurement and disclosure guidance establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. Valuations generated from model-based techniques that use at least one significant assumption not observable in the market are considered Level 3 and reflect estimates of assumptions market participants would use in pricing the asset or liability.
Changes in these estimates that are likely to occur from period to period, or the use of different estimates that the Company could have reasonably used in the current period, could have a material impact on the Company's financial position or results of operation.
Further, the Company is an emerging growth company. The JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected to take advantage of this extended transition period. This means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies do so. This may make the Company's financial statements not comparable with those of public companies which are neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period because of the potential differences in accounting standards used.
Overview
The following discussion and analysis presents the financial condition and results of operations on a consolidated basis. However, because the Company conducts all of its material business operations through the Bank, the discussion and analysis relates to activities primarily conducted at the subsidiary level. The following discussion should be read in conjunction with the consolidated financial statements.
As a one-bank holding company, the Company generates most of its revenue from interest on loans and noninterest income.The primary sources of funding for its loans are loan payments, deposits, and borrowings. The Company is dependent on noninterest income, which is derived from net gain on the sales of the guaranteed portion of government
guaranteed loans and service fee income. The largest expenses are interest on those deposits and borrowings, professional fees, loan servicing and origination expenses, and salaries and commissions plus related employee benefits. The Company measures its performance through its net interest income after provision for credit losses, return on average assets, and return on average common equity, while maintaining appropriate regulatory leverage and risk-based capital ratios.
In the third quarter of 2025, the Company signed a definitive agreement to sell a portion of its SBA 7(a) loan portfolio which closed in the fourth quarter 2025. In conjunction with the agreement and as a result of the comprehensive strategic review aimed at reducing expenses and derisking the Bank's balance sheet, BayFirst exited the SBA 7(a) lending business. Banesco USA assumed servicing of loans included in the sale and has been engaged as subservicer on the remaining SBA 7(a) loans retained by BayFirst. In addition, the Company reduced staff by 52% over the calendar year.
Results of Operations
BayFirst's operating results depend on its net interest income, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities, consisting primarily of deposits. Net interest income is determined by the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities ("interest rate spread") and the relative amounts of interest-earning assets and interest-bearing liabilities. The interest rate spread is affected by regulatory, economic, and competitive factors which influence interest rates, loan demand, and deposit flows. In addition, the Company's operating results can be affected by the level of nonperforming assets, as well as the level of the noninterest income and the noninterest expenses, such as compensation , loan servicing and origination expenses, and income taxes.
Historically, the Company has been dependent on noninterest income, derived primarily from net gain on the sales of the guaranteed portion of government guaranteed loans and service fee income, as well as fair value adjustments for certain loans which management has elected the fair value option. While the Company retains some of its government guaranteed loans on the balance sheet, the Company may sell both the guaranteed balance of its government guaranteed loans, as well as a percentage of the unguaranteed portions of such loans.
In the second quarter of 2022, the Bank discontinued its primary consumer direct residential mortgage business line. In the third quarter of 2022, management decided to discontinue the nationwide residential lending business. As a result of the discontinuance, the nationwide residential mortgage line of business was reclassified as a discontinued operation and reported in the financial statements as such.
In the third quarter of 2025, the Company signed a definitive agreement to sell a portion of its SBA 7(a) loan portfolio which closed in the fourth quarter 2025. In conjunction with the agreement and as a result of the comprehensive strategic review aimed at reducing expenses and derisking the Bank's balance sheet, BayFirst exited the SBA 7(a) lending business. Banesco USA assumed servicing of loans included in the sale and has been engaged as subservicer on the remaining SBA 7(a) loans retained by BayFirst.
Net Income
For the year ended December 31, 2025, the Company had a net loss of $22.9 million, or $5.93 per common shareand diluted common share, a decrease from net income of $12.6 million, or $2.68 per common share and diluted common share, for the year ended December 31, 2024. The decrease was primarily due to an increase in provision for credit losses of $9.9 million, a decrease in noninterest income of $42.1 million, and an increase in noninterest expense of $3.6 million. This was partially offset by an increase in net interest income of $7.8 million and a decrease in income tax expense of $12.2 million. The increase in noninterest expense was primarily the result of the 2025 restructure charges of $7.3 million related to the discontinuance of the SBA 7(a) lending business.
Net Interest Income
Net interest income from continuing operations was $45.8 million for the year ended December 31, 2025, an increase from $38.0 million for the year ended December 31, 2024. The increase was mainly due to an increase in loan interest income, including fees, of $2.4 million and a decrease in interest expense of $4.8 million.
Net interest margin increased to 3.75% for the year ended December 31, 2025, compared to 3.45% for the year ended December 31, 2024.
Average Balance Sheet and Analysis of Net Interest Income
The following table sets forth, for the periods indicated, information regarding: (i) the total dollar amount of interest and dividend income of BayFirst from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest rate spread; (v) net interest margin; and (vi) ratio of average interest-earning assets to average interest-bearing liabilities. Loans in nonaccrual status, for the purposes of the following computations, are included in the average loan balances. FRB,
FHLB, and FNBB restricted equity holdings are included in other interest-earning assets. The Company did not have a significant amount of tax-exempt assets.
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For the Year Ended December 31,
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| 2025 | 2024 | ||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | Average Balance | Interest | Yield | Average Balance | Interest | Yield | |||||||||||||||||||||||||||||
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Interest-earning assets:
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Investment securities
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$ | 34,992 | $ | 1,363 | 3.90 | % | $ | 41,509 | $ | 1,659 | 4.00 | % | |||||||||||||||||||||||
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Loans(1)
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1,102,457 | 81,244 | 7.37 | 1,009,353 | 78,831 | 7.81 | |||||||||||||||||||||||||||||
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Other
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82,210 | 3,187 | 3.88 | 51,760 | 2,320 | 4.48 | |||||||||||||||||||||||||||||
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Total interest-earning assets
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1,219,659 | 85,794 | 7.03 | 1,102,622 | 82,810 | 7.51 | |||||||||||||||||||||||||||||
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Noninterest-earning assets
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103,662 | 99,198 | |||||||||||||||||||||||||||||||||
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Total assets
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$ | 1,323,321 | $ | 1,201,820 | |||||||||||||||||||||||||||||||
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Interest-bearing liabilities:
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NOW, MMDA and savings
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$ | 707,938 | $ | 23,704 | 3.35 | $ | 669,941 | $ | 27,934 | 4.17 | |||||||||||||||||||||||||
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Time deposits
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333,012 | 14,036 | 4.21 | 285,957 | 14,938 | 5.22 | |||||||||||||||||||||||||||||
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Other borrowings
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48,579 | 2,269 | 4.67 | 35,728 | 1,912 | 5.35 | |||||||||||||||||||||||||||||
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Total interest-bearing liabilities
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1,089,529 | 40,009 | 3.67 | 991,626 | 44,784 | 4.52 | |||||||||||||||||||||||||||||
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Demand deposits
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104,628 | 95,507 | |||||||||||||||||||||||||||||||||
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Noninterest-bearing liabilities
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23,698 | 12,462 | |||||||||||||||||||||||||||||||||
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Shareholders' equity
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105,466 | 102,225 | |||||||||||||||||||||||||||||||||
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Total liabilities and shareholders' equity
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$ | 1,323,321 | $ | 1,201,820 | |||||||||||||||||||||||||||||||
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Net interest income
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$ | 45,785 | $ | 38,026 | |||||||||||||||||||||||||||||||
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Interest rate spread
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3.36 | 2.99 | |||||||||||||||||||||||||||||||||
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Net interest margin(2)
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3.75 | 3.45 | |||||||||||||||||||||||||||||||||
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Ratio of average interest-earning assets to average interest-bearing liabilities
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111.94 | % | 111.19 | % | |||||||||||||||||||||||||||||||
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(1) Includes nonaccrual loans.
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(2)Net interest margin represents annualized net interest income divided by average total interest-earning assets.
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Rate/Volume Analysis
The table below presents the effects of volume and rate changes on interest income and expense for the periods indicated. Changes in volume are changes in the average balance multiplied by the previous period's average rate. Changes in rate are changes in the average rate multiplied by the average balance from the previous period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate. Loans in nonaccrual status, for the purpose of the following computations, are included in the average loan balances. FRB, FHLB, and FNBB restricted equity holdings are included in other interest-earning assets. The Company did not have a significant amount of tax-exempt assets.
| (Dollars in thousands) | Rate | Volume | Total | ||||||||||||||
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Year Ended December 31, 2025 vs. December 31, 2024:
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Interest-earning assets:
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| Investment securities | $ | (41) | $ | (255) | $ | (296) | |||||||||||
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Loans
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(4,604) | 7,017 | 2,413 | ||||||||||||||
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Other interest-earning assets
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(348) | 1,215 | 867 | ||||||||||||||
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Total interest-earning assets
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(4,993) | 7,977 | 2,984 | ||||||||||||||
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Interest-bearing liabilities:
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NOW, MMDA, and savings
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(5,745) | 1,515 | (4,230) | ||||||||||||||
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Time deposits
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(3,142) | 2,240 | (902) | ||||||||||||||
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Other borrowings
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(266) | 623 | 357 | ||||||||||||||
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Total interest-bearing liabilities
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(9,153) | 4,378 | (4,775) | ||||||||||||||
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Net change in net interest income
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$ | 4,160 | $ | 3,599 | $ | 7,759 | |||||||||||
Provision for Credit Losses
The provision for credit losses is charged to operations to adjust the ACL to a level deemed appropriate by management and is based upon the volume and type of lending the Bank conducts, industry standards, the amount of nonperforming loans, general economic conditions, particularly as they relate to its market area, economic forecasts, and other factors that may affect the ability to collect on the loans in its portfolio.
The Company recorded a provision for credit losses for the year ended December 31, 2025 of $24.6 million compared to a $14.7 million provision for the year ended December 31, 2024. Forthe year ended December 31, 2025, net loan charge offs totaled $18.0 million compared to $13.0 million for the year ended December 31, 2024. The increase of $9.9 million in the provision for credit losses expense was primarily due to higher than expected charge-offs primarily in the SBA 7(a) portfolio, increases in nonperforming loans, and continued economic uncertainty.
The ACL was $22.0 million at December 31, 2025 and $15.5 million at December 31, 2024.
Noninterest Income
The following table presents noninterest income from continuing operations for the year ended December 31, 2025 and December 31, 2024.
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For the Year Ended December 31,
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| (Dollars in thousands) | 2025 | 2024 | |||||||||
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Noninterest income:
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Loan servicing income, net
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2,769 | 3,100 | |||||||||
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Gain on sale of SBA and PPP loans, net
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11,720 | 28,252 | |||||||||
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Service charges and fees
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1,867 | 1,794 | |||||||||
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SBA loan fair value gain (loss)
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(1,075) | 9,843 | |||||||||
| Government guaranteed loan packaging fees | 1,768 | 4,105 | |||||||||
| Gain on sale of premises and equipment | - | 11,649 | |||||||||
|
Other non-interest income
|
1,347 | 1,726 | |||||||||
|
Total noninterest income
|
18,396 | 60,469 | |||||||||
Noninterest income from continuing operations was $18.4 million for the year ended December 31, 2025, a decreasefrom $60.5 million for the year ended December 31, 2024. The decrease was primarily the result of the gain on sale of two branch office properties of $11.6 million in the fourth quarter of 2024, a decrease in gain on sale of government guaranteed loans of $16.5 million, a decrease in government guaranteed loan fair value gains of $10.9 million, and a decrease in government guaranteed loan packaging fees of $2.3 million. In the fourth quarter 2025, the Bank sold $96.6 million of government guaranteed loans at a discount of 3% as part of the Bank's discontinuance of SBA 7(a) lending.
Noninterest Expense
The following table presents noninterest expense from continuing operations for the year ended December 31, 2025 and December 31, 2024.
|
For the Year Ended December 31,
|
|||||||||||
| (Dollars in thousands) | 2025 | 2024 | |||||||||
|
Noninterest expense:
|
|||||||||||
|
Salaries and benefits
|
$ | 28,429 | $ | 31,063 | |||||||
|
Bonus, commissions, and incentives
|
855 | 4,445 | |||||||||
|
Occupancy and equipment
|
6,068 | 4,848 | |||||||||
|
Data processing
|
7,859 | 6,745 | |||||||||
|
Marketing and business development
|
1,433 | 2,050 | |||||||||
|
Professional services
|
3,456 | 3,882 | |||||||||
|
Loan servicing and origination expense
|
8,001 | 6,391 | |||||||||
|
Employee recruiting and development
|
1,653 | 2,186 | |||||||||
|
Regulatory assessments
|
1,869 | 1,249 | |||||||||
| Restructure charges | 7,283 | - | |||||||||
| Director compensation | 526 | 427 | |||||||||
| Liability and fidelity bond insurance | 643 | 431 | |||||||||
| ATM and interchange | 482 | 432 | |||||||||
| Telecommunication | 341 | 354 | |||||||||
|
Other noninterest expense
|
1,527 | 2,279 | |||||||||
|
Total noninterest expense
|
$ | 70,425 | $ | 66,782 | |||||||
Noninterest expense was $70.4 million for the year ended December 31, 2025, an increase from $66.8 million for the year ended December 31, 2024. The increase was primarily the result of the 2025 restructure charges of $7.3 million, an increase in data processing expense of $1.1 million, and an increase in loan servicing and origination expense of $1.6 million, partially offset by a decrease in compensation expense of $6.2 million. The restructure charges were the result of the discontinues of the SBA 7(a) lending business.
Income Taxes
Income tax benefit from continuing operations was $7.9 millionfor the year ended December 31, 2025, a decrease from income tax expense of $4.3 millionfor the year ended December 31, 2024. The change was attributed to a net loss from continuing operations for the current year compared to net income from continuing operations in the prior year.
At December 31, 2025, the Company had $11.1 million federal net operating loss carryforward and $10.6 million of state net operating loss carryforward. At December 31, 2024, the Company had no of federal net operating loss carryforward and $16 thousand of state net operating loss carryforward. The Company expects to fully utilize the net operating losses.
The effective income tax rate was 25.60% for the year ended December 31, 2025 and 25.40% for the year ended December 31, 2024.
Financial Condition
Investment Securities
The following table presents the fair value of the Company's investment securities portfolio classified as available for sale as of December 31, 2025 and December 31, 2024.
| (Dollars in thousands) | December 31, 2025 | December 31, 2024 | |||||||||
| Investment securities available for sale: | |||||||||||
|
Asset-backed securities
|
$ | 2,822 | $ | 4,990 | |||||||
|
Mortgage-backed securities:
|
|||||||||||
|
U.S. Government-sponsored enterprises
|
4,899 | 7,130 | |||||||||
|
Collateralized mortgage obligations:
|
|||||||||||
|
U.S. Government-sponsored enterprises
|
17,768 | 15,286 | |||||||||
|
Corporate bonds
|
3,874 | 8,885 | |||||||||
|
Total investment securities available for sale
|
$ | 29,363 | $ | 36,291 | |||||||
The net unrealized loss on the investment securities AFS at December 31, 2025 and December 31, 2024, was $2.6 million and $4.0 million, respectively.
The following table presents the amortized cost of the Company's investment securities portfolio classified as held to maturity as of December 31, 2025 and December 31, 2024.
| (Dollars in thousands) | December 31, 2025 | December 31, 2024 | |||||||||
| Investment securities held to maturity: | |||||||||||
|
Corporate bonds
|
$ | 2,500 | $ | 2,500 | |||||||
|
Total investment securities held to maturity
|
$ | 2,500 | $ | 2,500 | |||||||
There was a $7 thousand ACL on the corporate bonds HTM as of December 31, 2025 and $12 thousand at December 31, 2024. The net unrealized loss on the investment securities HTM at December 31, 2025, was $116 thousand compared with a net unrealized loss on investment securities HTM of $154 thousand at December 31, 2024.
No investment securities were pledged as of December 31, 2025 or December 31, 2024, and there were no sales of investment securities for the year ended December 31, 2025 or the year ended December 31, 2024.
The investment securities available for sale presented in the following tables are reported at amortized cost and by contractual maturity as of December 31, 2025 and December 31, 2024. Actual timing may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Additionally, residential mortgage-backed securities and collateralized mortgage obligations receive monthly principal payments, which are not reflected below.
| December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| One year or less | One to five years | Five to ten years | After ten years | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) |
Amortized Cost |
Average Yield |
Amortized Cost |
Average Yield |
Amortized Cost |
Average Yield |
Amortized Cost |
Average Yield | |||||||||||||||||||||||||||||||||||||||
|
Asset-backed securities
|
$ | - | - | % | $ | - | - | % | $ | - | - | % | $ | 2,827 | 2.96 | % | |||||||||||||||||||||||||||||||
|
Mortgage-backed securities:
|
|||||||||||||||||||||||||||||||||||||||||||||||
|
U.S. Government-sponsored enterprises
|
- | - | - | - | - | - | 5,264 | 2.99 | |||||||||||||||||||||||||||||||||||||||
|
Collateralized mortgage obligations:
|
|||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Government-sponsored enterprises | - | - | - | - | - | - | 20,040 | 2.32 | |||||||||||||||||||||||||||||||||||||||
|
Corporate bonds
|
- | - | 3,843 | 5.04 | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
|
Total investment securities available for sale
|
$ | - | - | % | $ | 3,843 | 5.04 | % | $ | - | - | % | $ | 28,131 | 2.51 | % | |||||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
| One year or less | One to five years | Five to ten years | After ten years | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) |
Amortized Cost |
Average Yield |
Amortized Cost |
Average Yield |
Amortized Cost |
Average Yield |
Amortized Cost |
Average Yield | |||||||||||||||||||||||||||||||||||||||
|
Asset-backed securities
|
$ | - | - | % | $ | - | - | % | $ | 1,804 | 5.10 | % | $ | 3,225 | 5.72 | % | |||||||||||||||||||||||||||||||
|
Mortgage-backed securities:
|
|||||||||||||||||||||||||||||||||||||||||||||||
|
U.S. Government-sponsored enterprises
|
- | - | - | - | 4,463 | 4.63 | 3,328 | 1.25 | |||||||||||||||||||||||||||||||||||||||
|
Collateralized mortgage obligations:
|
|||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Government-sponsored enterprises | - | - | - | - | - | - | 18,627 | 1.82 | |||||||||||||||||||||||||||||||||||||||
|
Corporate bonds
|
- | - | 8,832 | 5.58 | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
|
Total investment securities available for sale
|
$ | - | - | % | $ | 8,832 | 5.58 | % | $ | 6,267 | 4.76 | % | $ | 25,180 | 2.25 | % | |||||||||||||||||||||||||||||||
The investment securities held to maturity presented in the following tables are reported at amortized cost and by contractual maturity as of December 31, 2025 and December 31, 2024. Actual timing may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Additionally, residential mortgage-backed securities receive monthly principal payments, which are not reflected below.
| December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| One year or less | One to five years | Five to ten years | After ten years | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) |
Amortized Cost |
Average Yield |
Amortized Cost |
Average Yield |
Amortized Cost |
Average Yield |
Amortized Cost |
Average Yield | |||||||||||||||||||||||||||||||||||||||
|
Corporate bonds
|
$ | - | - | % | $ | 1,500 | 4.38 | % | $ | 1,000 | 4.38 | % | $ | - | - | % | |||||||||||||||||||||||||||||||
|
Total investment securities held to maturity
|
$ | - | - | % | $ | 1,500 | 4.38 | % | $ | 1,000 | 4.38 | % | $ | - | - | % | |||||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
| One year or less | One to five years | Five to ten years | After ten years | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) |
Amortized Cost |
Average Yield |
Amortized Cost |
Average Yield |
Amortized Cost |
Average Yield |
Amortized Cost |
Average Yield | |||||||||||||||||||||||||||||||||||||||
|
Corporate bonds
|
$ | - | - | % | $ | 1,500 | 4.38 | % | $ | 1,000 | 4.38 | % | $ | - | - | % | |||||||||||||||||||||||||||||||
|
Total investment securities held to maturity
|
$ | - | - | % | $ | 1,500 | 4.38 | % | $ | 1,000 | 4.38 | % | $ | - | - | % | |||||||||||||||||||||||||||||||
Loan Portfolio Composition
The Company offers a variety of products designed to meet the credit needs of our borrowers. Our lending activities primarily consist of government guaranteed, commercial real estate, commercial business, residential mortgage, and consumer loans. Senior management and loan officers have continued to develop new sources of loan referrals, particularly among centers of local influence and real estate professionals, and have also enjoyed repeat business from loyal customers in the markets the Bank serves. The Bank has no concentration of credit in any industry that represents 10% or more of its loan portfolio. Additionally, the loan portfolio is well-diversified across major loan types with a low concentration of non owner-occupied commercial real estate loanswhich makes up 9% of the total portfolio. The following table sets forth the composition of its HFI loan portfolio.
| December 31, 2025 | December 31, 2024 | ||||||||||||||||||||||
| (Dollars in thousands) | Amount | % of Total | Amount | % of Total | |||||||||||||||||||
| Loans HFI: | |||||||||||||||||||||||
| Government guaranteed loans HFI, at fair value | $ | 54,076 | $ | 60,833 | |||||||||||||||||||
|
Loans HFI, at amortized cost:
|
|||||||||||||||||||||||
|
Residential real estate
|
365,427 | 40.7 | % | 330,870 | 33.3 | % | |||||||||||||||||
|
Commercial real estate
|
215,771 | 24.0 | 305,721 | 30.9 | |||||||||||||||||||
|
Construction and land
|
48,397 | 5.4 | 32,914 | 3.3 | |||||||||||||||||||
|
Commercial and industrial
|
181,566 | 20.2 | 226,522 | 22.9 | |||||||||||||||||||
|
Commercial and industrial - PPP
|
6 | - | 941 | 0.1 | |||||||||||||||||||
|
Consumer and other
|
86,441 | 9.7 | 93,826 | 9.5 | |||||||||||||||||||
|
Loans HFI, at amortized cost, gross
|
897,608 | 100.0 | % | 990,794 | 100.0 | % | |||||||||||||||||
| Discount on government guaranteed loans | (6,811) | (8,306) | |||||||||||||||||||||
|
Premium on loans purchased, net
|
2,650 | 3,739 | |||||||||||||||||||||
|
Deferred loan costs, net
|
16,371 | 19,499 | |||||||||||||||||||||
|
Allowance for credit losses
|
(21,996) | (15,512) | |||||||||||||||||||||
|
Loans HFI, at amortized cost, net
|
887,822 | 990,214 | |||||||||||||||||||||
|
Total loans HFI, net
|
$ | 941,898 | $ | 1,051,047 | |||||||||||||||||||
For the year ended December 31, 2025, the Bank originated $137.4 million in loans through conventional lending channels and $278.3 million in loans through its government guaranteed lending function. In addition, the Bank sold guaranteed loan balances of $199.0 million through its secondary loan sale process. In addition, the Bank sold $96.6 million of government guaranteed loans as part of the Bank's discontinuance of SBA 7(a) lending.
Loan Maturity/Rate Sensitivity
The following table shows the contractual maturities of our loans at December 31, 2025. Loan balances in this table include loans HFI at fair value, loans HFI at amortized cost, discount on retained balances of loans sold, premium and discount on loans purchased, and deferred loan costs, net.
| (Dollars in thousands) |
Due in One Year or Less |
Due After One Year to Five Years |
Due After Five Years to 15 Years |
Due After 15 Years |
Total | ||||||||||||||||||||||||
|
Real estate:
|
|||||||||||||||||||||||||||||
|
Residential
|
$ | 1,691 | $ | 640 | $ | 16,191 | $ | 347,395 | $ | 365,917 | |||||||||||||||||||
|
Commercial
|
2,898 | 5,270 | 49,153 | 171,746 | 229,067 | ||||||||||||||||||||||||
|
Construction and land
|
4,546 | - | 10,322 | 33,529 | 48,397 | ||||||||||||||||||||||||
|
Commercial and industrial
|
10,812 | 25,402 | 186,521 | 8,115 | 230,850 | ||||||||||||||||||||||||
|
Commercial and industrial - PPP
|
6 | - | - | - | 6 | ||||||||||||||||||||||||
|
Consumer and other
|
2,675 | 20,465 | 19,980 | 46,537 | 89,657 | ||||||||||||||||||||||||
|
Total loans HFI
|
$ | 22,628 | $ | 51,777 | $ | 282,167 | $ | 607,322 | $ | 963,894 | |||||||||||||||||||
The following table shows the loans with contractual maturities of greater than one year that have fixed or adjustable interest rates at December 31, 2025.
| (Dollars in thousands) |
Fixed
Interest Rate
|
Adjustable
Interest Rate
|
|||||||||
|
Real estate:
|
|||||||||||
|
Residential
|
$ | 71,342 | $ | 292,884 | |||||||
|
Commercial
|
4,176 | 221,993 | |||||||||
|
Construction and land
|
145 | 43,706 | |||||||||
|
Commercial and industrial
|
15,743 | 204,295 | |||||||||
|
Consumer and other
|
80,392 | 6,590 | |||||||||
|
Total loans HFI
|
$ | 171,798 | $ | 769,468 | |||||||
Credit Risk
The Bank's primary business is making commercial, consumer, and real estate loans. This activity inevitably has risks for potential credit losses, the magnitude of which depends on a variety of economic factors affecting borrowers, which are beyond its control. The Bank has developed policies and procedures for evaluating the overall quality of its credit portfolio and the timely identification of potential problem loans. Management's judgment as to the adequacy of the allowance is based upon a number of assumptions about the economic environment that it believes impacts credit quality as of the balance sheet date that it believes to be reasonable, but which may or may not prove accurate. Thus, there can be no assurance that charge-offs in future periods will not exceed the ACL, or that additional increases in the ACL will not be required.
Allowance for Credit Losses.The Bank must maintain an adequate ACL based on a comprehensive methodology that assesses the probable losses inherent in its loan portfolio. The Bank maintains an ACL based on a number of quantitative and qualitative factors, including levels and trends of past due and nonaccrual loans, asset classifications, change in volume and mix of loans, collateral value, historical loss experience, size and complexity of individual credits, and economic conditions. In addition to this, the Company uses reasonable and supportable forecasts that are developed with internal and external data. These are updated quarterly by management and utilize data fromthe FOMC's median forecasts of change in national GDP and of national unemployment. Provisions for credit losses are provided on both a specific and general basis. Specific allowances are provided for individual loans that do not share similar risk characteristics with instruments evaluated using a collective (pooled) basis. General valuation allowances are determined by loan pools with a further evaluation of various quantitative and qualitative factors noted above.
The Bank periodically reviews the assumptions and formulates methodologies by which changes are made to the specific and general valuation ACL in an effort to refine such allowances in light of the current status of the factors described above.
All nonaccrual loans and modifications to loans for borrowers experiencing financial difficulty are reviewed to determine if the loans share the same risk characteristics as the pooled loans. If the loan does not share the same risk characteristics, the loan is evaluated individually for credit losses. Specific allocation of reserves for individually evaluated loans considers the value of the collateral, the financial condition of the borrower, and industry and current economic trends. The Bank reviews the collateral value, cash flow, and other support on each individually evaluated credit. Any deficiency outlined by a real estate collateral evaluation analysis, or cash flow shortfall, is accounted for through a specific allocation for the loan.
In 2025, in response to continued elevated charge-offs, increases in nonperforming loans and continued economic uncertainty, Management assessed and strengthened the Bank's problem loan administration processes to ensure they were sufficiently identifying and timely risk-rating problem loans. The scope and frequency of the Bank's independent, external loan review program were also expanded. Management believes that the updated processes around problem loan administration are adequate and that loan risk ratings are accurate.
Nonperforming Assets. At December 31, 2025, the Company had $18.1 million in nonperforming assets, excluding government guaranteed loan balances. The ACL represented 2.42% of total loans HFI at amortized cost. At December 31, 2024, the Company had $15.2 million in nonperforming assets, excluding government guaranteed loan balances. The ACL represented 1.54% of total loans HFI at amortized cost. The increase in nonperforming assets was partially the result of a nonaccrual loan for $2.6 million that is fully secured and has no ACL allocated. Total loans HFI at December 31, 2025 and December 31, 2024included government guaranteed balances and loans measured at fair value, which had no reserves allocated to them. ACL as a percentage of loans HFI at amortized cost, not including government guaranteed loan balances, was 2.58% at December 31, 2025, compared to 1.79% at December 31, 2024.
The following table sets forth certain information on nonaccrual loans, loans 90 days or more past due, and foreclosed assets, the ratio of such loans and foreclosed assets to total assets as of the dates indicated, and certain other related information.
| (Dollars in thousands) |
December 31, 2025 |
December 31, 2024 |
|||||||||
|
Nonperforming loans (government guaranteed balances), at amortized cost, gross
|
$ | 8,072 | $ | 4,037 | |||||||
|
Nonperforming loans (unguaranteed balances), at amortized cost, gross
|
16,271 | 13,570 | |||||||||
|
Total nonperforming loans, at amortized cost, gross
|
24,343 | 17,607 | |||||||||
|
Nonperforming loans (government guaranteed balances), at fair value
|
83 | - | |||||||||
|
Nonperforming loans (unguaranteed balances), at fair value
|
1,453 | 1,490 | |||||||||
|
Total nonperforming loans, at fair value
|
1,536 | 1,490 | |||||||||
|
OREO
|
400 | 132 | |||||||||
| Repossessed assets | 263 | 36 | |||||||||
|
Total nonperforming assets, gross
|
$ | 26,542 | $ | 19,265 | |||||||
|
Nonperforming loans as a percentage of total loans HFI(1)
|
2.68 | % | 1.75 | % | |||||||
|
Nonperforming loans (excluding government guaranteed balances) to total loans HFI(1)
|
1.79 | % | 1.35 | % | |||||||
|
Nonperforming assets as a percentage of total assets
|
2.04 | % | 1.50 | % | |||||||
|
Nonperforming assets (excluding government guaranteed balances) to total assets
|
1.29 | % | 1.06 | % | |||||||
|
ACL to nonperforming loans(1)
|
90.35 | % | 88.10 | % | |||||||
|
ACL to nonperforming loans (excluding government guaranteed balances)(1)
|
135.18 | % | 114.31 | % | |||||||
(1) Excludes loans measured at fair value
The following table sets forth information with respect to activity in the ACL for loans for the periods shown:
| (Dollars in thousands) |
At and for the Year Ended December 31,
|
|||||||||||||
| 2025 | 2024 | |||||||||||||
|
Allowance at beginning of period
|
$ | 15,512 | $ | 13,497 | ||||||||||
|
Charge-offs:
|
||||||||||||||
|
Residential real estate
|
(983) | (20) | ||||||||||||
|
Commercial real estate
|
(450) | (60) | ||||||||||||
|
Commercial and industrial
|
(15,425) | (10,956) | ||||||||||||
|
Commercial and industrial - PPP
|
(1) | - | ||||||||||||
|
Consumer and other
|
(2,358) | (2,938) | ||||||||||||
|
Total charge-offs
|
(19,217) | (13,974) | ||||||||||||
|
Recoveries:
|
||||||||||||||
|
Residential real estate
|
27 | 1 | ||||||||||||
|
Commercial real estate
|
5 | 7 | ||||||||||||
|
Commercial and industrial
|
497 | 606 | ||||||||||||
|
Commercial and industrial - PPP
|
1 | - | ||||||||||||
|
Consumer and other
|
734 | 321 | ||||||||||||
|
Total recoveries
|
1,264 | 935 | ||||||||||||
|
Net charge-offs
|
(17,953) | (13,039) | ||||||||||||
|
Provision for credit losses on loans
|
24,436 | 15,054 | ||||||||||||
|
Allowance at end of period
|
$ | 21,995 | $ | 15,512 | ||||||||||
|
Net charge-offs to average loans HFI at amortized cost
|
1.76 | % | 1.40 | % | ||||||||||
|
Allowance as a percent of total loans HFI at amortized cost
|
2.42 | % | 1.54 | % | ||||||||||
|
Allowance as a percent of loans HFI at amortized cost, not including government guaranteed loans
|
2.58 | % | 1.79 | % | ||||||||||
|
Allowance as a percent of nonperforming loans at amortized cost, gross
|
90.35 | % | 88.10 | % | ||||||||||
|
Total loans HFI
|
$ | 963,894 | $ | 1,066,559 | ||||||||||
|
Average loans HFI at amortized cost
|
$ | 1,018,913 | $ | 928,814 | ||||||||||
|
Nonperforming loans (including government guaranteed balances) at amortized cost, gross
|
$ | 24,343 | $ | 17,607 | ||||||||||
|
Nonperforming loans (excluding government guaranteed balances) at amortized cost, gross
|
$ | 16,271 | $ | 13,570 | ||||||||||
|
Guaranteed balance of government guaranteed loans
|
$ | 70,129 | $ | 149,484 | ||||||||||
The following table details net charge-offs to average loans outstanding by loan category for the year ended December 31, 2025 and December 31, 2024.
| Year Ended December 31, 2025 | Year Ended December 31, 2024 | ||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | Net (Charge-off) Recovery | Average Loans HFI at amortized cost | Net (Charge-off) Recovery Ratio | Net (Charge-off) Recovery | Average Loans HFI at amortized cost | Net (Charge-off) Recovery Ratio | |||||||||||||||||||||||||||||
|
Residential real estate
|
$ | (956) | $ | 346,800 | (0.28) | % | $ | (19) | $ | 290,876 | (0.01) | % | |||||||||||||||||||||||
|
Commercial real estate
|
(445) | 350,015 | (0.13) | (53) | 348,295 | (0.02) | |||||||||||||||||||||||||||||
|
Commercial and industrial
|
(14,928) | 229,154 | (6.51) | (10,350) | 208,279 | (4.97) | |||||||||||||||||||||||||||||
|
Commercial and industrial - PPP
|
- | 269 | - | - | 2,326 | - | |||||||||||||||||||||||||||||
|
Consumer and other
|
(1,624) | 92,675 | (1.75) | (2,617) | 79,038 | (3.31) | |||||||||||||||||||||||||||||
|
Total loans HFI, at amortized cost
|
$ | (17,953) | $ | 1,018,913 | (1.76) | % | $ | (13,039) | $ | 928,814 | (1.40) | % | |||||||||||||||||||||||
SBA and Other Government Guaranteed Loans
The following table sets forth, for the periods indicated, information regarding the SBA and other government guaranteed lending activity, excluding PPP loans. In addition to the Bank's routine loan sale activity, the Bank sold $96.6 million of government guaranteed loans to Banesco USA as part of the Bank's discontinuance of SBA 7(a) lending.
| (Dollars in thousands) |
At and for the Year Ended December 31,
|
|||||||||||||
| Government Guaranteed, Excluding PPP | 2025 | 2024 | ||||||||||||
|
Number of loans originated
|
1,388 | 2,508 | ||||||||||||
|
Amount of loans originated
|
$ | 278,334 | $ | 431,375 | ||||||||||
|
Average loan size originated
|
$ | 201 | $ | 172 | ||||||||||
|
Government guaranteed loan balances sold
|
$ | 198,996 | $ | 385,342 | ||||||||||
| Total government guaranteed loan balances: | ||||||||||||||
|
Guaranteed portion of government guaranteed loan balances HFI
|
$ | 70,123 | $ | 148,543 | ||||||||||
|
Unguaranteed portion of government guaranteed loan balances HFI
|
232,863 | 277,420 | ||||||||||||
|
Total government guaranteed loans HFI
|
302,986 | 425,963 | ||||||||||||
|
Government guaranteed loans serviced for others
|
$ | 885,505 | $ | 1,056,665 | ||||||||||
| Government guaranteed loans sold to Banesco USA | $ | 96,602 | $ | - | ||||||||||
The following table sets forth, at the dates indicated, the geographic disbursement of gross principal balances of its government guaranteed loan portfolio. The "All Other" category includes states with less than 5% in any period presented.
| December 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (Dollars in thousands) | Amount | % of Total | Amount | % of Total | |||||||||||||||||||
|
Florida
|
$ | 92,975 | 31 | % | $ | 142,711 | 34 | % | |||||||||||||||
|
California
|
26,730 | 9 | 48,464 | 11 | |||||||||||||||||||
| Tennessee | 21,550 | 7 | 28,926 | 7 | |||||||||||||||||||
|
Texas
|
24,765 | 8 | 30,238 | 7 | |||||||||||||||||||
|
All Other
|
136,966 | 45 | 175,624 | 41 | |||||||||||||||||||
|
Total government guaranteed loans, excluding PPP loans
|
$ | 302,986 | 100 | % | $ | 425,963 | 100 | % | |||||||||||||||
Deposits
General.In addition to deposits, sources of funds available for lending and for other purposes include loan repayments and historically proceeds from the sales of loans. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are influenced significantly by general interest rates and market conditions. Borrowings, as well as available lines of credit, may be used on a short-term basis to compensate for reductions in other sources, such as deposits at less than projected levels.
Deposits.Deposits are sourced principally from within its primary service area of Pinellas, Hillsborough, Manatee, Pasco, and Sarasota Counties, Florida. The Bank offers a wide selection of deposit instruments including demand deposit accounts, NOW accounts, money market accounts, regular savings accounts, time deposit accounts, and retirement savings plans (such as IRA accounts).
Time deposit rates are set to encourage longer maturities as cost and market conditions will allow. Deposit account terms vary, with the primary differences being the minimum balance required, the time period the funds must remain on deposit, and the interest rate.
The Bank emphasizes commercial banking relationships in an effort to increase demand deposits as a percentage of total deposits. Deposit interest rates are set by management at least monthly or more often if conditions require, based on a review of loan demand, projected cash flows and a survey of rates among competitors.
Brokered deposits. At times, the Bank has brokered time deposit and non-maturity deposit relationships available to diversify its funding sources. Brokered deposits offer several benefits relative to other funding sources, such as: maturity structures which cannot be duplicated in the current retail market, deposit gathering outside the market of the existing deposit base, the unsecured nature of these liabilities, andthe ability to quickly generate funds. The Bank's internal policy limits the use of brokered deposits as a funding source to no more than 20% of total assets. The Company's ability to accept or renew brokered depositsis contingent upon the Bank maintaining a capital level of "well capitalized." At December 31, 2025 and December 31, 2024, the Company had $195.5 million and $112.1 million, respectively, of brokered deposits.
The amount of each of the following categories of deposits, at the dates indicated, are as follows:
| (Dollars in thousands) | December 31, 2025 | December 31, 2024 | |||||||||||||||||||||
|
Noninterest-bearing deposit accounts
|
$ | 95,731 | 8.1 | % | $ | 101,743 | 8.9 | % | |||||||||||||||
|
Interest-bearing transaction accounts
|
231,227 | 19.5 | 256,793 | 22.5 | |||||||||||||||||||
|
Money market accounts
|
434,930 | 36.7 | 455,519 | 39.8 | |||||||||||||||||||
|
Savings accounts
|
19,709 | 1.7 | 18,906 | 1.7 | |||||||||||||||||||
|
Subtotal
|
781,597 | 66.0 | 832,961 | 72.9 | |||||||||||||||||||
|
Total time deposits
|
402,341 | 34.0 | 310,268 | 27.1 | |||||||||||||||||||
|
Total deposits
|
$ | 1,183,938 | 100.0 | % | $ | 1,143,229 | 100.0 | % | |||||||||||||||
At December 31, 2025, the Company held approximately $177.0 millionofdeposits that exceeded the FDIC insurance limit which was 15% of total deposits.
The following table provides information on the maturity distribution of the time deposits exceeding the FDIC insurance limit of $250 thousand as of December 31, 2025.
| (Dollars in thousands) | |||||
|
Three months or less
|
$ | 13,098 | |||
|
Over three months through six months
|
30,732 | ||||
|
Over six months through 12 months
|
28,042 | ||||
|
Over 12 months
|
40,025 | ||||
|
Total time deposits over $250
|
$ | 111,897 | |||
Deposits increased $40.7 millionor 3.56% for the year ended December 31, 2025, with increases in noninterest-bearing deposit account balances, savings and money market deposit account balances, and time deposit balances, partially offset by a decrease in interest-bearing transaction account balances.
Other Borrowings
At December 31, 2025 and December 31, 2024, the Company had no borrowings outstanding from the FHLB or FRB.
The Bank is a member of the FHLB of Atlanta, which provides short- and long-term funding collateralized by mortgage-related assets to its members. FHLB short-term borrowings bear interest at variable rates set by the FHLB. Any advances that the Bank were to obtain would be secured by a blanket lien on $383.7 millionof real estate-related loans as of December 31, 2025. Based on this collateral and the Bank's holdings of FHLB stock, the Bank was eligible to borrow up to $187.1 millionfrom the FHLB at December 31, 2025.
In addition, the Bank has a line of credit with the Federal Reserve Bank of Atlanta which was secured by $56.1 millionof commercial loans as of December 31, 2025. FRB short-term borrowings bear interest at variable rates basedon the FOMC's target range for the federal funds rate. Based on this collateral, the Bank was eligible to borrow up to $32.1 millionfrom the FRB at December 31, 2025.
The Company has $6.0 millionof Subordinated Notes (the "Notes") that mature June 30, 2031 and are redeemable after 5 years which is June 30, 2026. The Notes carry interest at a fixed rate of 4.50% per annum for the initial 5 years of term and carry interest at a floating rate for the final 5 years of term after June 30, 2026. Under the note agreements, the floating rates are based on a SOFR benchmark plus 3.78% per annum.
On December 29, 2025, the Company and the holders of the Company's Notes entered into an Amendment to the Notes (the "Amendment"), effective as of December 26, 2025. Pursuant to the Amendment, instead of the Company paying interest on the Notes, the outstanding principal of the Notes shall be increased by the amount of interest due as of the date of the Amendment and that becomes due through and including June 30, 2026. In addition, if the Company does not pay all amounts due on the Notes by June 30, 2026, at the Company's option, (i) it shall pay the holders 3.00% of the outstanding principal of the Notes, or (ii) the principal of the Notes shall be increased by 3.00%.
The balance of Subordinated Notes outstanding at the Company, net of offering costs, amounted to $6.0 millionat December 31, 2025 and December 31, 2024.
The Company has a term note with quarterly principal and interest payments with interest at Prime (6.75% at December 31, 2025). The note matures on March 10, 2029 and the balance of the note was $1.6 millionand $1.9 million at December 31, 2025 and December 31, 2024, respectively. The note is secured by 100% of the stock of the Company and requires the Company to comply with certain loan covenants during the term of the note. On December 30, 2025, the lender agreed that the Bank may defer the quarterly interest payment due December 10, 2025 on its term loan until March 10, 2026.
Capital Resources
Shareholders' equity is influenced primarily by earnings, dividends, the Company's sales and repurchases of its common and preferred stock, and changes in accumulated other comprehensive income caused primarily by fluctuations in unrealized gains or losses, net of taxes, on available for sale investment securities.
Shareholders' equity was$87.6 million at December 31, 2025 as compared to $110.9 million at December 31, 2024. The decreasewas primarily dueto net loss of $22.9 million.
The Company strives to maintain an adequate capital base to support its activities in a safe and sound manner while at the same time maximizing shareholder value. Management assesses capital adequacy against the risk inherent in the balance sheet, recognizing that unexpected loss is the common denominator of risk and that common equity has the greatest capacity to absorb unexpected loss.
The Bank is subject to regulatory capital requirements imposed by various regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by banking regulators that, if undertaken, could have a direct material effect on BayFirst's and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.
At December 31, 2025, the Bank's capital ratios were in excess of the requirement to be "well capitalized" under the regulatory guidelines.
The Bank's actual capital amounts and percentages were as shown in the table below:
| Actual |
Minimum(1)
|
Well Capitalized(2)
|
|||||||||||||||||||||||||||||||||
| (Dollars in thousands) | Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||
|
As of December 31, 2025
|
|||||||||||||||||||||||||||||||||||
|
Total Capital (to risk-weighted assets)
|
$ | 98,560 | 10.18 | % | $ | 77,441 | 8.00 | % | $ | 96,802 | 10.00 | % | |||||||||||||||||||||||
|
Tier 1 Capital (to risk-weighted assets)
|
86,337 | 8.92 | 58,081 | 6.00 | 77,441 | 8.00 | |||||||||||||||||||||||||||||
|
Common Equity Tier 1 Capital (to risk-weighted assets)
|
86,337 | 8.92 | 43,561 | 4.50 | 62,921 | 6.50 | |||||||||||||||||||||||||||||
|
Tier 1 Capital (to total assets)
|
86,337 | 6.52 | 52,983 | 4.00 | 66,229 | 5.00 | |||||||||||||||||||||||||||||
|
As of December 31, 2024
|
|||||||||||||||||||||||||||||||||||
|
Total Capital (to risk-weighted assets)
|
124,420 | 12.14 | 81,985 | 8.00 | 102,482 | 10.00 | |||||||||||||||||||||||||||||
|
Tier 1 Capital (to risk-weighted assets)
|
111,586 | 10.89 | 61,489 | 6.00 | 81,985 | 8.00 | |||||||||||||||||||||||||||||
|
Common Equity Tier 1 Capital (to risk-weighted assets)
|
111,586 | 10.89 | 46,117 | 4.50 | 66,613 | 6.50 | |||||||||||||||||||||||||||||
|
Tier 1 Capital (to total assets)
|
111,586 | 8.82 | 50,579 | 4.00 | 63,224 | 5.00 | |||||||||||||||||||||||||||||
(1)Minimum to be considered "adequately capitalized" under Basel III Capital Adequacy.
(2)Minimum to be considered "well capitalized" under Prompt Corrective Actions Provisions.
Off-Balance Sheet Arrangements
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business. These financial instruments primarily include unfunded loan commitments, unfunded lines of credit, and standby letters of credit. The Bank uses these financial instruments to meet the financing needs of its customers. These financial instruments involve, to varying degrees, elements of credit, interest rate, and liquidity risk. These do not present unusual risks and management does not anticipate any accounting losses that would have a material effect on the Bank.
A summary of the amounts of the Bank's financial instruments, with off-balance sheet risk as of the dates indicated, was as follows:
| (Dollars in thousands) |
December 31, 2025 |
December 31, 2024 |
|||||||||
|
Unfunded loan commitments
|
$ | 1,257 | $ | 21,174 | |||||||
|
Unused lines of credit
|
207,665 | 199,411 | |||||||||
|
Standby letters of credit
|
1,161 | 276 | |||||||||
|
Total
|
$ | 210,083 | $ | 220,861 | |||||||
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Management evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based on management's credit evaluation of the customer.
Standby letters-of-credit are conditional lending commitments that the Bank issues to guarantee the performance of a customer to a third party and to support private borrowing arrangements. Essentially, letters of credit have expiration dates within one year of the issue date. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending credit.
In general, loan commitments and letters of credit are made on the same terms, including with respect to collateral, as outstanding loans. Each customer's creditworthiness and the collateral required are evaluated on a case-by-case basis.
The Company maintains an ACL for its off-balance sheet loan commitments which is calculated by loan type using estimated line utilization rates based on historical usage. Loss rates for outstanding loans is applied to the estimated
utilization rates to calculate the ACL for off-balance sheet loan commitments. At December 31, 2025 and December 31, 2024, ACL for off-balance sheet loan commitments totaled $671 thousand and $516 thousand, respectively.
Contractual Obligations
In the ordinary course of its operations, the Company enters into certain contractual obligations. Total contractual obligations at December 31, 2025 were $431.4 million, an increase from $341.7 million at December 31, 2024. The increase was primarily due to an increase in time deposits of $92.1 million.
The following tables present our contractual obligations as of December 31, 2025 and December 31, 2024.
|
Contractual Obligations as of December 31, 2025
|
|||||||||||||||||||||||||||||
| (Dollars in thousands) | Less than One Year | One to Three Years | Three to Five Years | Over Five Years | Total | ||||||||||||||||||||||||
| Operating lease obligations | $ | 2,119 | $ | 3,064 | $ | 2,706 | $ | 13,594 | $ | 21,483 | |||||||||||||||||||
| Long-term borrowings | 456 | 912 | 225 | - | 1,593 | ||||||||||||||||||||||||
| Subordinated notes | - | - | - | 5,962 | 5,962 | ||||||||||||||||||||||||
| Time deposits | 318,112 | 81,873 | 2,356 | - | 402,341 | ||||||||||||||||||||||||
| Total | $ | 320,687 | $ | 85,849 | $ | 5,287 | $ | 19,556 | $ | 431,379 | |||||||||||||||||||
|
Contractual Obligations as of December 31, 2024
|
|||||||||||||||||||||||||||||
| (Dollars in thousands) | Less than One Year | One to Three Years | Three to Five Years | Over Five Years | Total | ||||||||||||||||||||||||
| Operating lease obligations | $ | 2,032 | $ | 3,870 | $ | 2,653 | $ | 14,960 | $ | 23,515 | |||||||||||||||||||
| Long-term borrowings | 456 | 912 | 566 | - | 1,934 | ||||||||||||||||||||||||
| Subordinated notes | - | - | - | 5,956 | 5,956 | ||||||||||||||||||||||||
| Time deposits | 279,253 | 28,803 | 2,212 | - | 310,268 | ||||||||||||||||||||||||
| Total | $ | 281,741 | $ | 33,585 | $ | 5,431 | $ | 20,916 | $ | 341,673 | |||||||||||||||||||
Liquidity
Liquidity management is the process by which the Bank manages the flow of funds necessary to meet its financial commitments on a timely basis and at a reasonable cost to take advantage of earnings enhancement opportunities. These financial commitments include withdrawals by depositors, credit commitments to borrowers, expenses of the operations, and capital expenditures. The Bank generally maintains a minimum liquidity ratio of liquid assets to total assets of at least 7.0%. Liquid assets include cash and due from banks, federal funds sold, interest-bearing deposits with banks and unencumbered investment securities available for sale. The on-balance sheet liquidity ratio at December 31, 2025 was 18.35%, as compared to 9.17% at December 31, 2024.
For the year ended December 31, 2025, the Bank paid dividends of $3.3 million to its parent company in order to meet liquidity needs to make interest payments on its debt obligations, dividends on shares of its preferred stock and common stock, and payment of operating expenses. As of December 31, 2025, BayFirst Financial Corp. held $769 thousand in cash and cash equivalents.
The Company expects that all the liquidity needs, including the contractual commitments, can be met by currently available liquid assets and cash flows. In the event any unforeseen demand or commitments were to occur, the Company could access the borrowing capacity with the FHLB or FRB, or lines of credit with other financial institutions. The Company does not rely on investment securities as the main source of liquidity and does not foresee the need to sell investment securities for cash flow purposes. In addition, the Company has the ability to obtain non-brokered wholesale deposits as another source of liquidity. The Company expects that the currently available liquid assets and the ability to borrow from the FHLB, FRB, and other financial institutions would be sufficient to satisfy the liquidity needs without any material adverse effect on the Company's liquidity.
A description of BayFirst's debt obligations is set forth above under the heading "Other Borrowings."
Bayfirst Financial Corp. published this content on March 27, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on March 27, 2026 at 17:42 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]