Signature Bank's collapse served as a painful reminder for a community bank in St. Petersburg, Florida, that no deal is done until the cash is in the seller's hand.
The $1 billion-asset BayFirst Financial reported Thursday that its first-quarter net income dipped 43% on a linked-quarter basis. The decline was due in large part to a $60 million loan sale that was "canceled without cause" when regulators closed New York-based Signature, BayFirst CEO Anthony Leo said Friday on a conference call with analysts.
BayFirst made a company-record $121 million in government-guaranteed loans during the three months ended March 31 — including $61 million in March — selling much of that production to Signature before the Federal Deposit Insurance Corp. placed it in receivership, Leo said.
Though BayFirst, the holding company for BayFirst National Bank, quickly found a buyer for the $60 million in Small Business Administration 7(a) loans it failed to sell to Signature, market conditions had turned markedly less favorable. That resulted in $1.6 million in reduced income.
BayFirst, which has emerged as one of the nation's most prolific SBA 7(a) lenders in recent years, is in the process of filing a breach-of-contract claim against the FDIC, according to Leo. "We have put the FDIC as receiver on notice of our claim for the differential in the gain," Leo said. "While we cannot assess the likelihood of our claim being fully honored, we have received no indication to doubt that it will be."
The FDIC declined to comment. As things stand, the agency expects Signature's failure to cost the Deposit Insurance Fund $2.5 billion.
The loss of Signature as a buyer for its 7(a) loans should have little impact on BayFirst's loan-sale prospects going forward, Chief Financial Officer Robin Oliver said on the conference call.
"We do bid our SBA-guaranteed loans to seven or eight investors each quarter, so there are multiple other players in the market we already have relationships with and sell to on a regular basis."
In the first quarter, BayFirst gained $4.4 million on the sale of its government-guaranteed loans, down from $5.8 million during the quarter ending Dec. 31.
BayFirst, which has originated more than $252 million in 7(a) loans since Oct. 1, the start of the agency's fiscal year, has no plans to scale back its SBA lending operation in the wake of the Signature loan-sale disruption. At the same time, the company intends to fund more commercial and consumer loans in the Tampa-area marketplace, boosting net interest income and lessening reliance on gain-on-sale, Leo said.
President Thomas Zernick said BayFirst originated $49 million of local consumer, mortgage and conventional business loans in the first quarter. BayFirst reported $933 million in deposits on March 31, up 17% since the end of 2022. Zernick is
BayFirst opened its ninth branch, in Tampa, in March and plans to open a tenth, in Sarasota, in June. "We are clearly in a growth mode," Leo said.
For now, BayFirst has no plans to add branches outside of the fast-growing Tampa region, which has surpassed 4 million in population, according to Leo. "Frankly, we've just scratched the surface there," he said. "We do not believe it would make sense for us to move outside the Tampa region, at least on an organic basis. …We've got a lot of work to do here, and we've got a lot of opportunity here."
But Leo did not rule out a "strategic transaction" or a "significant lift-out" of a banking team to expand BayFirst's presence in an adjacent or nearby market.
