BayFirst Financial Corp Navigates Strategic Shift Amid Losses

BayFirst Financial Corp ((BAFN)) has held its Q3 earnings call. Read on for the main highlights of the call.

BayFirst Financial Corp’s recent earnings call painted a picture of a challenging quarter marked by significant net losses and restructuring charges. The company is navigating a strategic shift away from its SBA 7(a) lending business, which has historically contributed to operating losses. Despite some positive developments, such as an increase in deposit balances and a reduction in net charge-offs, the overall sentiment was overshadowed by more prominent lowlights, including a decreased net interest margin and higher nonperforming assets.

Strategic Transition to Community Banking

BayFirst Financial Corp. is making a strategic exit from the SBA 7(a) lending business, a move aimed at refocusing its efforts on becoming a premier community bank in the Tampa Bay area. This transition involves selling a significant portion of its SBA 7(a) portfolio to Banesco USA, which is expected to help mitigate operating losses associated with the lending business.

Increase in Deposit Balances

The company reported an increase in total deposit balances by $7.7 million, or 0.7%, during the third quarter of 2025. Over the past year, deposits have grown by $59.3 million, or 5.3%, reaching $1.17 billion, with more than 84% of these deposits insured by the FDIC, reflecting a stable and secure deposit base.

Net Charge-offs Reduction

BayFirst Financial Corp. achieved a reduction in net charge-offs, primarily from unguaranteed SBA 7(a) balances, which amounted to $3.3 million, down by $3.5 million compared to the previous quarter. This reduction indicates an improvement in managing credit quality within the company’s loan portfolio.

Significant Net Loss

The company reported a substantial net loss of $18.9 million for the third quarter, a sharp increase from the $1.2 million loss in the second quarter. This significant loss underscores the financial challenges the company is facing amid its strategic transition.

Restructuring Charges

BayFirst Financial Corp. recorded a restructuring charge of $7.3 million, which included $2.9 million to write off assets and prepaid expenses related to the SBA 7(a) lending business, and $3.9 million in personnel-specific costs. These charges are part of the company’s efforts to streamline operations and focus on core banking activities.

Decreased Net Interest Margin

The net interest margin decreased by 45 basis points to 3.61% in the third quarter, impacted by one-time adjustments. This decline in margin reflects the challenges in maintaining profitability in the current interest rate environment.

Noninterest Income Decline

Noninterest income saw a significant decline, registering a negative $1 million for the third quarter, down from $10.8 million in the second quarter. This decrease was primarily due to reduced gains on the sale of SBA 7(a) loans, highlighting the impact of the company’s strategic shift.

Higher Nonperforming Assets

Nonperforming assets increased to 1.97% of total assets as of September 30, 2025, up from 1.79% at the end of the previous quarter. This rise indicates ongoing challenges in asset quality management.

Forward-Looking Guidance

During the earnings call, CEO Tom Zernick outlined the company’s strategic shift and provided forward-looking guidance. The sale of a substantial portion of the SBA 7(a) portfolio to Banesco USA, priced at a 3% discount, is expected to close later in the quarter despite delays due to a federal government shutdown. The company aims to achieve a net interest margin target of 4% by reducing deposit costs and appropriately pricing loans. Additionally, BayFirst Financial Corp. is targeting a positive return on assets of 40 to 70 basis points in 2026, supported by efforts to resolve nonperforming loans and improve credit quality.

In conclusion, BayFirst Financial Corp’s earnings call highlighted a period of significant transition and financial challenges. While the company is making strategic moves to refocus on community banking, the quarter was marked by substantial net losses and restructuring charges. Despite these hurdles, the company is optimistic about its future, with plans to enhance profitability and asset quality in the coming years.