Writer: Joshua Andino
2 min read May 2023— The banking sector’s volatility has reached Tampa Bay, as BayFirst Financial files a complaint against the now-defunct Signature Bank over a canceled loan sale.
With Signature Bank now held in receivership by the FDIC, BayFirst Financial Inc. has filed a complaint with the regulatory body looking to recoup losses. While the loans were eventually sold, Anthony Leo, CEO of BayFirst Financial, explained in a press release that the bank was forced to take a loss as a result of unfavorable market conditions and limited liquidity.
“The re-trade of these loans resulted in $1.6 million in reduced income on the sale.” He added that “The FDIC has taken the position that all contracts of Signature Bank would be honored, and we are in the process of submitting a claim for breach of contract to the FDIC as receiver for the gain differential.” The bank’s net income for the first quarter of this year was $739,000, down from the $1.3 million at the end of Q4 2022. The loss taken on the loan sale, as well as increased costs on deposits, credit losses and compensation costs were the primary factors driving the bank’s reduced profitability.
BayFirst Financial was the top SBA 7(a) lender in the five-county Tampa Bay region for the 2022 SBA fiscal year, and more recently the third-largest 7(a) lender by units originated and sixth by dollar volume through the second quarter of FY23.
The move to recoup losses heralds a shift away from SBA loans, noted Thomas Zernick, president of BayFirst. “The disruption caused by the Signature Bank failure highlights a central theme of our strategic plan to grow recurring revenue through net interest income, thereby resulting in less reliance on the gain on sale from SBA loans.” Zernick is set to succeed Leo by the end of this year.
Interest rates have climbed to their highest point in recent years as a result of the Federal Reserve’s goal to rein in high inflation. Raising interest rates have provided more breathing room for banks to profit from the interest gained on more typical lending products, even as deposit costs rise, as opposed to relying on potentially more volatile offerings or less lucrative, in the case of government-backed loans.
“As such, we are in a position to continue to expand our lending services and take advantage of opportunities that arise as our competitors pull back in the current environment. We serve individuals, families and small businesses, with a focus on checking and savings accounts which are not only less rate sensitive, but also are far less volatile in times of economic disruptions,” said Zernick.
St.Petersburg-based BayFirst Financial’s attempt to recoup its losses from the FDIC demonstrates a more local impact to the volatility that the banking industry currently faces. The rapid collapse of Silicon Valley Bank and Signature Bank were the second and third largest bank failures in U.S. history, and were quickly succeeded by the failure of Fourth Republic Bank, which was sold to J.P. Morgan earlier today.
Despite the troubles nationally, the ongoing tumult did not impact BayFirst’s decision to provide a dividend for shareholders, marking the 28th quarterly dividend the bank has paid since 2016, when it began offering.
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