BayFirst Financial Q4 Earnings Call Highlights

BayFirst Financial (NASDAQ:BAFN) executives used the company’s fourth-quarter 2025 earnings call to underscore a strategic reset that management said is intended to lower risk and sharpen focus on its core community banking franchise in the Tampa Bay and Sarasota markets.

Chief Executive Officer Tom Zernick said the end of 2025 marked the completion of several major milestones, including the company’s exit from the SBA 7(a) lending business, the sale of a substantial amount of 7(a) loan balances, and a significant reduction in headcount and expenses. Zernick said these moves are aimed at creating “lower risk, more efficient operations” and positioning the company for sustainable growth and enhanced shareholder value. He also noted BayFirst finished the year “well-capitalized,” with a year-end liquidity ratio above 18%.

Fourth-quarter results and balance sheet trends

Chief Financial Officer Scott McKim reported a net loss of $2.5 million for the fourth quarter, an improvement from the net loss of $18.9 million in the third quarter. McKim said the third quarter included a $7.3 million restructuring charge and $8.1 million in additional provision expense tied to the SBA 7(a) exit.

Loan balances continued to decline. Loans held for investment fell $34.8 million, or 3.5%, during the quarter to $963.9 million, and were down $102.7 million, or 9.6%, year-over-year. Loans held for sale dropped $94.1 million in the quarter, which McKim attributed to the Banesco USA transaction.

Deposits increased $12.5 million, or 1.1%, in the quarter, and were up $40.7 million, or 3.6%, over the past year to $1.18 billion. The quarterly increase was driven primarily by higher time deposits (up $26.4 million) and interest-bearing transaction deposits (up $20.9 million), partially offset by declines in non-interest-bearing deposits (down $10.2 million) and savings and money market balances (down $24.6 million). Management reiterated that 85% of deposits were FDIC-insured as of Dec. 31, 2025.

Shareholders’ equity ended the quarter at $87.6 million, down $23.4 million from the end of 2024. Tangible book value per share declined to $17.22 from $17.90 at the end of the third quarter.

Net interest margin stable; non-interest income reflects SBA exit

The company’s net interest margin was 3.58%, down 3 basis points sequentially. Net interest income totaled $11.2 million, roughly $100,000 lower than the third quarter but $500,000 higher than the year-ago quarter. McKim also noted the bank wrote off about $160,000 of unamortized premiums related to a single USDA-guaranteed loan that was liquidated during the quarter.

Non-interest income was negative $104,000 for the quarter. McKim said that result was $900,000 better than the third quarter of 2024, but down sharply from $22.3 million in the fourth quarter of 2024, which included an $11 million gain from a sale-leaseback transaction completed in that period. He emphasized that the year-over-year decline was primarily due to reduced gains from the sale of government-guaranteed SBA 7(a) loans, and that with BayFirst’s exit from the SBA 7(a) business, those gains will no longer contribute to non-interest income as they had historically.

Expense reductions and restructuring impacts

Non-interest expense was $11.9 million in the fourth quarter, down $13.3 million from the third quarter. McKim attributed much of the quarter-over-quarter decline to the absence of the $7.3 million restructuring charge recorded in the third quarter, along with lower compensation expense (down $2.9 million), lower data processing costs (down $350,000), and reduced loan servicing and origination expenses (down $2.2 million). Professional services increased by $200,000.

For the full year, non-interest expense increased $3.6 million, but McKim said that excluding the third-quarter restructuring charge, non-interest expense was down $3.7 million year-over-year. He cited lower compensation, bonus and commission, and marketing expenses as key reductions, partially offset by higher occupancy costs (including $1.2 million of rent expense related to the sale-leaseback), higher data processing expense, higher loan servicing and origination expenses, and higher regulatory assessments.

Credit costs driven by legacy unguaranteed SBA 7(a) portfolio

Management repeatedly pointed to the legacy SBA 7(a) portfolio as a major driver of recent credit costs. Zernick said BayFirst recorded additional provision expense in the third quarter connected to the SBA exit, particularly related to its small loan program. In the fourth quarter, he said net charge-offs from unguaranteed SBA 7(a) loans were elevated, and that the additional allowance established previously covered a substantial portion of those charge-offs.

Provision for credit losses was $2 million in the fourth quarter, compared with $10.9 million in the third quarter and $4.5 million in the fourth quarter of 2024. Net charge-offs were $4.6 million, up from $3.3 million in the third quarter; unguaranteed SBA 7(a) loans accounted for $4.1 million of fourth-quarter net charge-offs. Total annualized net charge-offs were 1.95% of average loans held for investment at amortized cost, up from 1.24% in the third quarter and 1.34% in the year-ago quarter.

McKim reported that unguaranteed SBA 7(a) loan balances totaled $171.6 million at Dec. 31, 2025, down $50.4 million from Sept. 30, 2025, and down $51.4 million from year-end 2024. He said approximately 13% of those unguaranteed SBA balances were included within the allowance for credit losses, adding that the default rate was “much lower than that” and that the company’s CECL approach estimates life-of-loan losses.

President and Chief Operating Officer Robin Oliver said total non-performing loans, excluding government-guaranteed balances, were $16.9 million at quarter-end, roughly flat with $16.5 million at the end of the third quarter. Non-performing loans (excluding government-guaranteed balances) represented 1.80% of total loans held for investment at year-end, up 11 basis points from Sept. 30, 2025, and up 45 basis points from Dec. 31, 2024. Oliver said $3.4 million of those non-performing balances were current and paying as agreed, and that one loan with an unguaranteed balance of $815,000 was paid in full in early January.

Oliver said management has increased its focus and resources around risk grading and the timely identification and resolution of problem credits. He said the company “scrubbed” a significant portion of the portfolio to take what he described as an aggressive and conservative stance, which increased nonperforming and classified assets in the short term. As of year-end, Oliver said 64% of classified loans were current performing loans, and management’s goal for 2026 is to reduce nonperforming and classified credit balances to levels more in line with peers. He added that the wind-down of the SBA portfolio, potential additional sales of unguaranteed SBA balances, and continued workouts are expected to improve asset quality “without significant additional provision for credit losses being necessary.”

Deposits, pricing discipline, and community bank strategy for 2026

In the question-and-answer portion of the call, management addressed both the credit outlook and deposit trends. McKim said the unguaranteed SBA 7(a) portfolio will continue to shrink through runoff and potential additional sales, noting the balance was about $50.5 million higher at the end of the third quarter.

Asked about deposit growth and deposit costs, management credited branch teams and highlighted an effort to bring deposit pricing more in line with peers. McKim said that as the company exits the SBA 7(a) business—which historically carried higher loan yields and allowed the bank to pay promotional deposit rates—BayFirst is becoming more disciplined on deposit pricing. He also referenced rate changes during the quarter and emphasized the importance of customer outreach as pricing is adjusted, while balancing efforts to avoid unwanted deposit runoff.

Zernick added that the treasury team has been partnering with market executives and banking center managers to bring in deposits and demonstrate the bank’s treasury and merchant service capabilities for small- and mid-sized businesses. Management said reducing reliance on promotional rates and brokered deposits will remain a focus in 2026 as the company works to reduce its cost of funds and support improved profitability and competitive loan pricing.

Closing remarks emphasized a 2026 strategic plan centered on “fortifying the balance sheet” and maintaining a culture of disciplined risk management, with leadership expressing confidence in execution as BayFirst positions itself as a community bank focused on sustainable revenue growth.

About BayFirst Financial (NASDAQ:BAFN)

BayFirst Financial Corp (NASDAQ: BAFN) is the bank holding company for BayFirst National Bank, which operates as a Florida-chartered community bank. The company provides a range of commercial banking services, catering to both business and individual customers in the Tampa Bay region. BayFirst Financial emphasizes relationship-driven banking, offering personalized solutions tailored to the needs of local clients.

The company’s product suite includes deposit accounts such as checking, savings, money market accounts and certificates of deposit.