BayFirst Financial Q3 2025 slides show $18.9M loss as bank restructures operations

Introduction & Market Context

BayFirst Financial Corp (NASDAQ:BAFN) released its third quarter 2025 financial results presentation on October 31, showing a significant net loss of $18.9 million as the company continues its strategic restructuring efforts. The Tampa Bay-based community bank, which ranks second in deposit market share among banks with less than $10 billion in assets in the Tampa Bay-Sarasota region, is transitioning away from its SBA 7(a) lending business toward a traditional community banking model.

Despite reporting total assets of $1.35 billion and deposit growth of $59.3 million over the past year, BayFirst’s financial performance deteriorated substantially compared to both the previous quarter’s $1.2 million loss and the $1.1 million profit recorded in the same quarter last year.

Quarterly Performance Highlights

BayFirst reported a dramatic increase in quarterly losses, with net income falling to -$18.9 million in Q3 2025 compared to -$1.2 million in Q2 2025 and a positive $1.1 million in Q3 2024. This resulted in a return on average assets of -5.62% and a return on average common equity of -83.19% for the quarter.

As shown in the company’s quarterly earnings summary:

The significant loss was driven by several factors, including a substantial $10.9 million provision for credit losses (up from $7.3 million in Q2) and a $7.3 million restructuring charge related to the company’s strategic shift. Non-interest income turned negative at -$1.0 million, compared to $10.8 million in the previous quarter, while non-interest expenses increased to $25.2 million from $17.5 million in Q2 2025.

The company’s key performance metrics reflect this challenging quarter:

Detailed Financial Analysis

BayFirst’s net interest margin declined to 3.61% in Q3 2025 from 4.06% in the previous quarter, though it remained above the 3.34% recorded in Q3 2024. The cost of funds showed modest improvement, decreasing to 3.71% from 4.68% a year earlier.

The following chart illustrates the quarterly trend in net interest margin and cost of funds:

Total deposits increased slightly to $1.17 billion, up $8 million for the quarter and $59 million year-over-year. The deposit portfolio remained relatively stable with 84% of deposits insured as of September 30, 2025. Short-term brokered deposits stood at $236 million.

The company’s deposit composition shows a balanced mix of funding sources:

On the asset side, BayFirst’s loan portfolio decreased to $999 million in Q3 2025 from $1.13 billion in the previous quarter, reflecting the company’s strategic decision to exit the SBA lending business. The loan portfolio remains diversified across various categories, with construction and development loans representing the largest segment at 24.9%.

The loan portfolio composition is illustrated in the following chart:

Asset quality metrics showed deterioration, with nonperforming loans to total loans held for investment increasing to 1.69% from 1.37% in the previous quarter and 1.15% a year earlier. The allowance for credit losses to total loans ratio jumped significantly to 2.61% from 1.65% in Q2 2025, reflecting increased concerns about credit quality.

Strategic Initiatives

BayFirst is undergoing a significant strategic transformation, pivoting from its previous focus on SBA lending to a community banking model centered on the Tampa Bay-Sarasota region. The company operates 12 banking centers across the region and is working to enhance its treasury management services.

As shown in the company’s strategic growth chart, while assets and deposits have grown, tangible common equity has declined significantly in the most recent quarter:

The company has expanded its treasury management services through a new platform and additional treasury management associates, aiming to service small and medium-sized businesses as well as large businesses through two online platforms. Treasury management fee income has shown consistent growth, increasing from $20,000 in 2022 to $69,000 year-to-date in 2025.

BayFirst’s community banking operations produced $27.9 million in new loans during the quarter, though total loans decreased by $33.1 million quarter-over-quarter as the company reduces its SBA portfolio. Deposit balances increased by $7.7 million in the same period, with the number of deposit accounts growing by 1.8%.

Forward-Looking Statements

BayFirst’s management expects to complete its restructuring efforts in the current quarter, including finalizing the sale of its SBA portfolio. The company aims to return to profitability once the restructuring is complete, targeting a return on assets of 40-70 basis points for 2026.

According to the earnings call transcript, CEO Thomas Zernick expressed optimism about the company’s future, stating, "Once restructuring is complete, we expect to return to profitability." The company is focusing on building a stronger, more resilient organization through improved credit administration practices and enhanced treasury management capabilities.

However, the transition faces several challenges, including execution risks in shifting from SBA-focused lending to community banking, potential for further short-term financial volatility, and intense competition in the Tampa Bay and Sarasota markets. The ongoing review of the loan portfolio may also reveal additional credit quality issues.

Despite these challenges, BayFirst maintains a solid capital position with a total capital to risk-weighted assets ratio of 9.71% and tier 1 capital to total assets of 6.64% as of September 30, 2025. The company also reports multiple liquidity sources, including $120 million in cash and due from other banks, $30 million in available-for-sale securities, and various off-balance sheet funding options.

As BayFirst continues its strategic transformation, investors will be watching closely to see if management can successfully execute the pivot to community banking and return the company to profitability in the coming quarters.

Full presentation:

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