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BayFirst Financial Corp. (BAFN)·Q3 2025 Earnings Summary

Executive Summary

  • BAFN reported a net loss of $18.9M (–$4.66 diluted EPS) on sharply lower noninterest income and elevated credit costs; results included $12.4M of one-time items (restructuring charge $7.3M) tied to exiting SBA 7(a) and marking loans for sale, plus a $10.9M provision for credit losses .
  • Strategic pivot: definitive agreement to sell a portion of the SBA 7(a) portfolio to Banesco USA at 97% of balances (approx. $5.1M loss); transaction expected to close in Q4 2025, contingent on federal government reopening; management is exiting SBA 7(a) lending entirely .
  • Net interest margin fell 45 bps QoQ to 3.61% due to one-time interest reversals ($0.6M) and a $0.4M USDA premium write-off; management reiterated a ~4% NIM goal as one-offs abate .
  • Balance sheet/liquidity stable: deposits +$7.7M QoQ to $1.17B, ~84% insured; on-balance sheet liquidity ratio improved to 11.31% vs. 9.17% at YE’24; however, capital ratios declined (Tier 1 leverage 6.64%) given losses and ACL build .
  • Near-term stock catalysts: closing and final scope of the SBA 7(a) portfolio sale, clarity on anticipated OCC actions in Q4, capital trajectory, and progress reducing nonperformers; management targets a return to profitability with 40–70 bps ROA in 2026 .

What Went Well and What Went Wrong

What Went Well

  • Deposit base resilience and funding quality: deposits rose $7.7M QoQ to $1.17B with ~84% insured, supporting stable funding as the bank pivots to core community banking .
  • Liquidity improved: on-balance sheet liquidity ratio reached 11.31% vs. 9.17% at 12/31/24; FHLB borrowings were $50.0M (no FRB/other facilities) at quarter-end .
  • Credit cost run-rate showed early improvement: annualized net charge-offs fell to 1.24% (from 2.60% in Q2), aided by the reduction of unguaranteed SBA 7(a) balances; management expects lower NCOs as SBA exposure declines .

Management quotes:

  • “Once restructuring is complete, we expect to return to profitability with a goal of positive return on assets of 40-70 basis points in 2026” — CEO Thomas Zernick .
  • “More than 84% of our deposits are insured” — CEO Thomas Zernick .
  • “We expect lower net charge-offs following the reduction of unguaranteed SBA 7(a) loans on the balance sheet” — CEO Thomas Zernick .

What Went Wrong

  • Noninterest income turned negative (–$1.0M) on a $5.1M unfavorable fair value adjustment for loans held for sale and lower gain-on-sale/fair value gains; exit from SBA 7(a) eliminates a historic earnings contributor .
  • Credit costs spiked: provision rose to $10.9M (from $7.3M in Q2), ACL/loans increased to 2.61% (excl. gov’t guaranteed 2.78%), reflecting higher NPAs and uncertainty .
  • Capital ratios deteriorated: Tier 1 leverage 6.64% (from 8.11% in Q2), CET1 8.44%, Total Risk-Based 9.71%; TBV/share fell to $17.90 (from $22.30) .

Financial Results

Note: “Total Revenue” defined as Net Interest Income + Noninterest Income (bank-specific presentation).

MetricQ3 2024Q2 2025Q3 2025
Total Revenue ($USD Millions)$21.72 $23.14 $10.23
Net Interest Income ($USD Millions)$9.45 $12.35 $11.28
Noninterest Income ($USD Millions)$12.27 $10.80 $(1.05)
Provision for Credit Losses ($USD Millions)$3.12 $7.26 $10.92
Diluted EPS ($)$0.18 $(0.39) $(4.66)
Net Interest Margin (%)3.34% 4.06% 3.61%
Book Value per Share ($)$20.86 $22.30 $17.90

Drivers and cross-references:

  • NIM decline driven by one-time reversal of accrued interest (~$0.6M) and $0.4M USDA loan premium write-off .
  • Noninterest income decline includes $(5.1)M fair value adjustment tied to the planned sale of SBA 7(a) loans (priced at 97%) .

KPIs and Balance Sheet/Capital

KPIQ3 2024Q2 2025Q3 2025
Loans HFI (Total, $USD Billions)$1.04 $1.13 $1.00
Deposits ($USD Billions)$1.11 $1.16 $1.17
Brokered Deposits ($USD Millions)$76.9 $186.7 $235.9
Insured Deposits (% of total)—~80% ~84%
Net Charge-offs ($USD Millions)$2.76 $6.80 $3.29
NCOs / Avg Loans (annualized)1.16% 2.60% 1.24%
ACL / Loans (Total)1.48% 1.65% 2.61%
NPAs / Assets1.38% 1.79% 1.97%
Tier 1 Leverage8.41% 8.11% 6.64%
CET110.14% 9.98% 8.44%
Total Risk-Based Capital11.39% 11.23% 9.71%

Guidance Changes

Metric/TopicPeriodPrevious GuidanceCurrent Guidance/UpdateChange
Exit SBA 7(a); portfolio sale to Banesco USA at 97% (≈$5.1M loss)Q4 2025 close expected (subject to gov’t reopening)N/ASigned definitive agreement; exit SBA 7(a) entirely New action
Profitability target (ROA)FY 2026N/ATarget positive ROA of 40–70 bps in 2026 New target
Net interest marginForward~4% previously discussedReiterated aim to be “closer to 4%” as one-offs lapse Maintained
Anticipated OCC actionsQ4 2025N/AExpect additional actions focused on credit admin, strategic planning, capital preservation New disclosure
Share repurchase program2025Authorized up to $2.0M (adopted Jan 28, 2025) Board terminated repurchase program on Oct 28, 2025 Terminated
Dividends2025Board suspended common and preferred dividends (Q2) No change disclosed in Q3 Maintained suspension

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 and Q2 2025)Current Period (Q3 2025)Trend
Strategic pivot away from SBA 7(a)Exploring de-risking via portfolio sales; strengthening SBA underwriting Definitive exit; Banesco sale at 97% with ~$5.1M mark; majority of SBA staff to Banesco Acceleration of pivot
Credit quality/ACLElevated charge-offs; rising NPAs; building ACL (Q1–Q2) Provision $10.9M; ACL/loans to 2.61%; NCOs improved QoQ to 1.24% Higher reserves; improving NCO run-rate
NIM/earning asset yieldsNIM expanded 3.77%→4.06% (Q1→Q2) NIM 3.61% on one-offs ($0.6M interest reversal; $0.4M USDA premium) Temporary dip; target ~4% reiterated
Deposits/fundingCore deposit focus; insured deposits ~80% (Q2) Deposits +$7.7M QoQ; ~84% insured; higher brokered balances Stable base; increased brokered deposits
Treasury managementBuildout in 1H’25 to drive core banking Jack Henry Treasury roll-out gaining traction; treasury team expanded; no off-balance sweeps Execution progressing
Regulatory—Anticipate agreeing to OCC actions in Q4 Heightened oversight

Management Commentary

  • “Our third quarter results reflect a period of significant strategic transformation…decisive steps toward a stronger future” — CEO Thomas Zernick .
  • “Once restructuring is complete, we expect to return to profitability with a goal of positive return on assets of 40–70 basis points in 2026” — CEO Thomas Zernick .
  • “The discount on the final portfolio is $5.1 million…seen in non-interest income this quarter” — CFO Scott McKim .
  • “Restructuring charge of $7.3 million: $2.9M asset/prepaid write-offs; $3.9M personnel (incl. ESOP termination); ~$0.5M conversion/deal costs” — CFO Scott McKim .
  • “$600,000 of interest was reversed for loans moved to nonaccrual…$400,000 of unamortized premium written off on a USDA loan” — CFO Scott McKim .
  • “We are actually exiting SBA…beyond the closing date, we will be a true community bank” — Management on strategy .

Q&A Highlights

  • Remaining SBA exposure: forecast ~$167M unguaranteed SBA 7(a) balances post-closing; actively marketing further sales; Banesco to service SBA portfolio, aiding continuity .
  • Reserves outlook: sale priced at 97%; ACL increased primarily for retained unguaranteed balances; not anticipating additional ACL for remaining balances later this year .
  • Business model going forward: complete exit from SBA 7(a); focus on Tampa Bay C&I, consumer, residential; enhanced treasury management; no off-balance sheet sweep deposits .
  • Governance/capital actions: board fees remain halted (continuation from prior quarter); repurchase program terminated; insider trading window timing addressed cautiously .

Estimates Context

  • S&P Global consensus for Q3 2025 EPS and revenue was not available for BAFN; no statistically meaningful “beats/misses” vs. Street can be shown. Values retrieved from S&P Global.*
  • Implication: given the structural exit from SBA 7(a), negative noninterest income, and elevated provision, we expect sell-side models (where applicable) to reset lower on noninterest income run-rate, incorporate lower loan balances (HFI), and higher near-term capital sensitivity pending OCC actions .

Key Takeaways for Investors

  • De-risking pivot is real and front-loaded: portfolio sale at 97% and SBA 7(a) exit compress near-term earnings but should reduce loss volatility and credit risk going forward .
  • Watch closing execution and scope: final closing of the Banesco transaction and potential additional sales of unguaranteed balances (~$167M remaining) are critical to the 2026 ROA path .
  • Capital is the swing factor: capital ratios fell meaningfully; regulatory actions anticipated in Q4 increase the importance of capital preservation and risk-weighted asset management .
  • Core banking metrics need to stabilize: management targets ~4% NIM post one-offs; deposit mix quality (84% insured) and treasury progress are positives if sustained .
  • Credit normalization is key: NCOs improved QoQ; trajectory of NPAs and need for incremental provisioning on retained SBA balances will drive near-term earnings variability .
  • Liquidity adequate but funding cost mix bears watching: brokered deposits rose to $235.9M; improvement in core, low-cost deposits would be supportive for NIM and capital accretion .
  • Thesis hinge: successful transition to community banking model, regulatory clarity, and credit clean-up could support a re-rating; near-term headlines (closing/OCC) likely drive trading.

Sources:

  • Q3 2025 Press Release: results, detailed financials, balance sheet, capital, liquidity .
  • Q3 2025 Earnings Call Transcript: strategy, one-time items, NIM drivers, remaining SBA exposure, treasury, governance and corroborating versions .
  • 8-K Item 2.02 (furnished PR as Ex. 99.1; investor presentation as Ex. 99.2) .
  • Prior quarters for trend: Q2 2025 PR ; Q1 2025 PR .
  • Additional relevant PR: Bolt program discontinued (Aug 4, 2025) .

*Values retrieved from S&P Global.