FHBI - BayFirst Financial Corp. Reports Earnings of $1.28 Million or $0.26 Per Diluted Share in 3Q21; Results Highlighted by Strong Loan Production and Book Value per Share Increasing 46% to $21.30 YOY

ST. PETERSBURG, Fla., Oct. 28, 2021 (GLOBE NEWSWIRE) -- BayFirst Financial Corp. (f/k/a First Home Bancorp, Inc.) (OTCQX: FHBI) (“BayFirst” or the “Company”), parent company of First Home Bank (“First Home” or the “Bank”) reported earnings for the third quarter of 2021 of $1.28 million, or $0.26 per diluted common share, compared to $13.02 million, or $2.98 per diluted common share, in the second quarter of 2021, and $5.25 million, or $1.37 per diluted common share, in the third quarter of 2020. The variability in financial metrics for the third quarter of 2021 compared to prior periods is a direct reflection of the Bank’s participation in the SBA’s Paycheck Protection Program (PPP) over the course of the last 18 months. Compared to the previous quarter, third quarter of 2021 net income declined by $4.58 million from lower recognition of PPP origination fee income and $13.80 million due to recognition of gains on PPP loan sales in the previous quarter. These line items were partially offset by a negative provision for loan losses of $3.00 million during the quarter and a decrease in noninterest expense of $2.44 million. Third quarter’s earnings increased tangible book value to $21.30 per common share, from $14.57 in the third quarter a year ago. All per share data has been adjusted to reflect the 3-for-2 stock split effective May 10, 2021.

Net income for the first nine months of 2021 more than tripled to $21.81 million, compared to $7.10 million in the first nine months of 2020. Earnings per share increased to $5.13 per diluted share in the first nine months of 2021, compared to $1.78 per diluted share in the same period one year earlier. Increases in PPP origination fees earned contributed to the increase in net income during the first nine months of 2021 compared to the same period in 2020.

“The third quarter represented a transition for the Company, as we continue to wind down from the extraordinary events of the pandemic, and shift our focus to more normalized banking activities,” stated Anthony N. Leo, Chief Executive Officer. “We booked a credit to our provision for loan losses during the quarter as we move towards a more moderate allowance for loan losses from the higher allowance levels held during the early days of the pandemic. We utilized our strong earnings year to date to focus on improving our balance sheet loan mix by building up a significant amount of SBA guaranteed loan balances to complement our SBA nonguaranteed loan balances. While we will return to selling guaranteed portions in future quarters, similar to how we conducted business before the pandemic, we anticipate keeping the mix on our balance sheet more evenly distributed in the future.”

“The highly successful PPP lending program sponsored by the SBA has helped thousands of businesses in the Tampa Bay region, which is our home market. We are proud to have been active participants in PPP, and our lending team clearly responded to the needs of businesses in our marketplace and throughout the country, with over $1.2 billion in PPP loans originated over the course of the program. While the significant contributions to net income and loan portfolio growth are unlikely to be repeated in future quarters, the opportunities to serve new clients and deepen relationships with existing customers positions the Company well for the future. Even without the PPP loans contribution, we had another strong quarter with residential, commercial, SBA and consumer lending, due to the hard work and continued efforts of our lending team bringing new customers into the Bank. The success of our lending services is fueling profitability and providing new market opportunities, and is reflected in our balance sheet growth with total deposits increasing 32.32% in the past year, while total loans held for investment, ex. PPP, grew by 29.28% in that period.”

Third Quarter 2021 Highlights:

• The Residential Mortgage Division originated $506.67 million in loans during the third quarter of 2021 compared to $522.10 million during the second quarter of 2021 and $598.39 million of loans produced during the third quarter of 2020.
• Loans held for investment, excluding PPP loans, increased by 7.56% or $35.18 million during the third quarter of 2021 and by 29.28% or $113.40 million over the past year to $500.65 million, due to increases in both conventional community bank loans and SBA loans.
• During the prior quarter, BayFirst sold $326.3 million in PPP loans originated in 2021 to a third party. No PPP loans were sold during the third quarter of 2021. However, the Company sold $5.03 million in nonguaranteed SBA loans during the quarter at a net 9% discount, representing the first time since Q2 2019 that the Company successfully sold nonguaranteed loans. The Company expects to resume guaranteed SBA loan sales depending on market conditions, and it will continue efforts to shed nonguaranteed loans if the pricing of such loans remains favorable.
• Deposits increased by 6.75% or $42.71 million during the third quarter of 2021, and by 32.32% or $164.89 million during the past year, to $675.03 million at September 30, 2021, with the majority of the 12-month increase coming from increases in transaction accounts and savings deposits, partially offset by declines in time deposit balances.
• Tangible book value per common share increased to $21.30 at the end of the third quarter from $21.14 at the end of the preceding quarter and $14.57 a year ago.
• The Company paid a quarterly cash dividend of seven cents per common share, on September 15, 2021, to shareholders of record as of August 15, 2021. The cash dividend marked the 21 ^st consecutive quarter in which BayFirst paid a cash dividend.

Results of Operations

Net Income and Performance Ratios

Net income was $1.28 million for the third quarter of 2021 compared to $13.02 million in the second quarter of 2021, and $5.25 million in the third quarter of 2020. The decrease in net income for the third quarter of 2021 from the preceding quarter was primarily due to a $13.80 million gain on sale of PPP loans sold during the preceding quarter. In the first nine months of 2021, net income increased substantially to $21.81 million, from $7.10 million in the first nine months of 2020, reflecting higher PPP origination fee income and the gain on sale of PPP loans sold in the first nine months of 2021.

BayFirst’s return on average common equity and return on average assets returned to more realistic levels in the third quarter as the contributions from the PPP loan program tapered off. Return on average common equity was 5.12% for the third quarter of 2021, and return on average assets was 0.47%. In the first nine months of 2021, return on average common equity was 40.26% and return on average assets was 2.05%.

Net Interest Income and Net Interest Margin

Net interest income was $8.02 million in the third quarter of 2021, a decrease of $4.89 million or 37.88% from $12.90 million in the second quarter of 2021, and a decrease of $2.07 million or 20.51% from the third quarter of 2020. The decrease during the third quarter of 2021 as compared to the prior quarter and the year ago quarter was mainly due to the decrease in net PPP origination fee income. In the first nine months of 2021, net interest income increased $11.67 million, or 53.34%, to $33.55 million, compared to $21.88 million in the same period a year ago.

Net interest margin was 3.04% for the third quarter of 2021 compared to 3.46% for the second quarter of 2021 and 2.88% for the third quarter of 2020. The decrease in net interest margin in the third quarter of 2021 as compared to the prior quarter was largely due to the decrease in recognition of PPP origination fee income. In the first nine months of 2021, net interest margin increased 49 basis points to 3.26% from 2.77% in the first nine months of 2020.

Noninterest Income

Noninterest income was $21.99 million for the third quarter of 2021, a decrease of $16.22 million or 42.45% from $38.21 million in the second quarter of 2021, and a decrease of $10.20 million or 31.68% from $32.19 million in the third quarter of 2020. The decrease in the third quarter of 2021 as compared to the prior quarter and the year ago quarter was primarily the result of a decrease in residential loan fee income and gain on loan sale income as a result of the sale during the prior quarter of $326.3 million in PPP loans. In the first nine months of the year, noninterest income increased $27.05 million, or 40.78%, to $93.36 million, compared to $66.32 million in the first nine months of 2020. The increase over the same period in the prior year was due to higher residential loan fee income, and higher gain on sale of SBA loans during the current year.

Noninterest Expense

Noninterest expense was $31.23 million in the third quarter of 2021, which was a $2.44 million or 7.24% decrease from $33.67 million in the second quarter of 2021 and an increase of $3.02 million or 10.71% compared to the third quarter of 2020. The increase in the third quarter of 2021 as compared to the third quarter of 2020 was primarily due to increases in salaries and benefits as the Company built infrastructure in various functions to support the Company’s strategic initiatives and planned growth strategy. Year-to-date, noninterest expense was $98.62 million, compared to $68.00 million in the same period one year earlier, with the majority of the increase related to the above-mentioned items.

Balance Sheet

Assets

Total assets decreased by $254.49 million or 21.24% during the third quarter of 2021 to $943.74 million, mainly due to a decrease in PPP loan balances of $274.08 million due to the SBA’s forgiveness of PPP loans.

Loans

Loans held for investment, excluding PPP loans, increased by $35.18 million or 7.56% during the third quarter of 2021 and by $113.40 million or 29.29% over the past year to $500.65 million due to increases in both community bank loans and SBA loans. PPP loans, net of deferred origination fees, decreased by $274.08 million or 63.78% in the third quarter of 2021 to $155.65 million due to PPP forgiveness payments. Deferred PPP origination fees, net, which will be recognized over the remaining average life of the PPP loans totaled $1.11 million as of September 30, 2021.

Deposits

Deposits increased by $42.71 million or 6.75% during the third quarter of 2021 and increased by $164.89 million or 32.32% during the past year, ending the quarter at $675.03 million, with the majority of the quarterly and 12-month increase coming from increases in savings and money market accounts and transaction accounts, partially offset by declines in time deposit balances.

Asset Quality

BayFirst recorded a credit to the provision for loan losses of $3.00 million during the third quarter of 2021. This compared to no provision for loan losses in the second quarter of 2021, and a $7.00 million provision for loan losses in the third quarter of 2020. In the first nine months of 2021, BayFirst recorded a $1.00 million credit to the provision for loan losses, compared to a $11.90 million provision for loan losses in the first nine months of 2020. Throughout 2020, the qualitative factors in the allowance for loan loss calculation were increased due to the economic uncertainties caused by the COVID-19 pandemic which resulted in significant provision expense each quarter of 2020. Asset quality remained stable in the third quarter of 2021 even as much of the government support provided previously for the Company’s SBA loans ended during the third quarter. As a result, and combined with an improved economic outlook, the Company booked a credit to the provision for loan losses during the third quarter of 2021, as it moves towards a more moderate allowance for loan losses from the higher allowance levels held during the early days of the pandemic.

Over the past five years, the Company’s loan losses have been incurred primarily in its SBA unguaranteed loan portfolio, particularly loans originated under the SBA 7(a) Small Loan Program. The Small Loan Program represents loans of $350,000 or less and carry an SBA guaranty of 75% to 85% of the loan, depending on the original principal balance. The default rate on loans originated in the SBA 7(a) Small Loan Program has been higher than the Bank’s other SBA 7(a) loans, conventional commercial loans, or residential mortgage loans.

Net charge-offs for the third quarter of 2021 were $1.11 million, a $113,000 decrease from $1.22 million for the second quarter of 2021 and a $141,000 increase compared to $967,000 of net charge-offs in the third quarter of 2020. Annualized net charge-offs as a percentage of average loans, excluding PPP loans, were 0.79% for the third quarter of 2021, down from 0.83% in the second quarter of 2021 and 0.84% in the third quarter of 2020. Non-performing assets, excluding government guaranteed loans, to total assets was 0.40% as of September 30, 2021, compared to 0.30% as of June 30, 2021 and 0.27% as of September 30, 2020.

The ratio of the allowance for loan losses to total loans, excluding government guaranteed loans, residential loans held for sale, and loans carried at fair value, was 5.42% at September 30, 2021, 6.83% as of June 30, 2021, and 6.86% as of September 30, 2020.

In addition to the above metrics, the Company also began to experience past due PPP loans during the third quarter of 2021 as certain PPP loan customers did not apply for forgiveness nor make required payments. As such, as of September 30, 2021, the Company reported $22.28 million of PPP loans past due between 30 to 89 days, representing approximately 2.5% of PPP loans originated during 2020. Although customers may default on their PPP loans, PPP loans are 100% guaranteed by the SBA and the Company expects to receive all principal and accrued interest related to these loans upon repurchase of the loan by the SBA. Under SBA program rules, the Company is required to wait until a PPP loan is 60 days past due before submitting the loan to the SBA for purposes of honoring the SBA guarantee. Based on the timing of the PPP loan program and the requirements of the SBA liquidation process, the Company expects past due PPP loans to skew past due ratios over at least the next two quarters.

Capital Strength

The Bank’s Tier 1 leverage ratio increased to 12.64% as of September 30, 2021, from 12.06% as of June 30, 2021, and 10.85% at September 30, 2020. The Tier 1 leverage ratio increased due to strong earnings and additional capital raises during the past year with the majority of capital raised being contributed to the Bank. The CET 1 and Tier 1 capital ratio to risk-weighted assets remained relatively stable at 21.21% as of September 30, 2021 compared to 21.27% as of June 30, 2021, and showed a substantial increase over 15.33% as of September 30, 2020. The total capital to risk-weighted assets ratio was 22.50% as of September 30, 2021, a slight decrease from 22.57% as of June 30, 2021, and a substantial increase from 16.75% as of September 30, 2020.

During the third quarter of 2021, no shares of Series B Preferred Stock were issued, 270 shares of Series B Preferred Stock were converted to common shares, and $783,000 of common stock was issued under private placement and employee stock programs.

Recent Events

On May 3, 2021, the Company announced the name change from First Home Bancorp, Inc. to BayFirst Financial Corp. The name of the Company’s banking subsidiary, First Home Bank, and the ticker symbol “FHBI” remained unchanged.

On May 5, 2021, the Company announced a 3 for 2 common stock split, which took effect on May 10, 2021. Pursuant to the split, common shareholders received three common shares of the Company’s common stock for every two shares owned as of the record date.

On May 11, 2021, the Company filed a registration statement and on August 31, 2021 and October 1, 2021, the Company filed S-1 Amendments with the SEC.

About BayFirst Financial Corp.

BayFirst Financial Corp. (f/k/a First Home Bancorp, Inc.) is a registered bank holding company which commenced operations on September 1, 2000. Its primary source of income is from its wholly owned subsidiary, First Home Bank, which commenced business operations on February 12, 1999. First Home Bank is a Federal Reserve member and a state-chartered banking institution. The Bank operates six full-service office locations, 24 mortgage loan production offices, and is in the top 45 by dollar volume and top 20 by number of units, of nation-wide SBA lenders.

BayFirst Financial Corp., through the bank, offers a broad range of commercial and consumer banking services including various types of deposit accounts and loans for businesses and individuals. As of September 30, 2021, BayFirst Financial Corp. had $943.74 million in total assets.

Forward Looking Statements

This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “project,” “is confident that” and similar expressions are intended to identify these forward-looking statements. These forward-looking statements involve risk and uncertainty and a variety of factors could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in these forward-looking statements. BayFirst Financial Corp. does not have a policy of updating or revising forward-looking statements except as otherwise required by law, and silence by management over time should not be construed to mean that actual events are occurring as estimated in such forward-looking statements.