BayFirst Financial NASDAQ: BAFN reported a third-quarter net loss of $677,000, a substantial improvement from its $32.7 million loss in the second quarter, as the company continued its transition toward a community banking-focused model and saw improvements in credit metrics tied to its Asset Resolution Plan.
President and CEO Al Rogers said the company made progress during the quarter in loan and deposit growth, asset quality and capital actions. Community bank loans increased 25%, or $41 million, during the period, while total loans held for investment rose $20 million, or 2.3%. Deposits grew $25.3 million, or 2.6%, exceeding net loan growth for the quarter.
“BayFirst is being transformed into the strong community bank that I've spoken about,” Rogers said. He added that the reported quarterly loss “is not indicative of what we will do going forward,” while acknowledging that the company still has work to do to return to positive earnings.
Net Interest Margin and Operating Results
Chief Financial Officer Scott McKim said net interest margin improved to 4.07% in the third quarter, up 59 basis points from the reported second-quarter level. Net interest income totaled $10.6 million, increasing $1.2 million sequentially but declining $700,000 from the year-earlier quarter.
Loans held for investment ended the quarter at $903 million. While balances increased during the third quarter, they were down $90.1 million, or 9.1%, from a year earlier. McKim said much of the year-over-year decline reflected loan sales and the company’s exit from SBA 7(a) lending, which was completed in the fourth quarter of 2025.
Total deposits were $1.01 billion at Sept. 30, down $157.3 million, or 13%, from the prior year. The bank reported that 79% of deposits were FDIC-insured, its on-balance-sheet liquidity ratio was 13.5%, and it had no wholesale borrowings.
Noninterest income was $1.1 million, improving by $7.9 million from the second quarter. The prior quarter included $8 million of one-time negative impacts from the board-approved Asset Resolution Plan. Noninterest expense declined $4.8 million sequentially to $12.8 million, including a $2.8 million reduction related to prior one-time Asset Resolution Plan charges, as well as lower salaries and benefits, data processing and loan servicing expenses.
During the question-and-answer session, McKim said there were no non-recurring income or expense items in the third-quarter results.
Credit Quality Improves Under Resolution Plan
BayFirst recorded a negative provision for credit losses of $69,000 in the third quarter, compared with provision expenses of $29 million in the second quarter and $11.2 million in the third quarter of 2025. McKim said the earlier periods included elevated provisions associated with risks in the unguaranteed SBA 7(a) portfolio and the Asset Resolution Plan.
Net charge-offs totaled $3.2 million, down $1.3 million from the second quarter. Chief Operating Officer Robin Oliver said $2.9 million of those charge-offs related to unguaranteed SBA 7(a) loans, while net charge-offs in non-SBA 7(a) categories declined to $286,000 from $580,000 in the prior quarter.
“While the plan is working to address the risks we discussed previously, we are seeing improvement across all loan types as we remain diligent in collecting and resolving problem assets,” Oliver said.
The unguaranteed SBA 7(a) portfolio declined to $132.4 million at quarter-end, from $142 million on June 30 and $171.6 million at the end of 2025. McKim told investors that roughly $10 million of the unguaranteed portfolio paid down during the quarter and said he expected the runoff trend to continue, describing the recent pace as approximately $40 million annually.
McKim said the company held more than $41.5 million in total allowance for credit losses at quarter-end, with more than $30 million allocated against the unguaranteed SBA 7(a) portfolio. That represented roughly 22% to 23% of the unguaranteed balance, according to the discussion.
Total nonperforming loans, excluding government-guaranteed balances, fell to $13.4 million from $14.4 million in the second quarter. The ratio of nonperforming loans excluding government-guaranteed balances to total loans held for investment was 1.56%, down 16 basis points from June 30. Oliver noted that $2.9 million of nonperforming balances were current and paying as agreed, while 68% of classified loans remained current and performing.
Capital Actions and Community Banking Expansion
During the quarter, shareholders approved an increase in authorized common shares to 100 million from 15 million. The company also converted and retired all Series D and Series E mandatorily convertible preferred shares in exchange for 22.856 million common shares. BayFirst fully redeemed its Series A and Series B preferred shares during the quarter.
The company completed a rights offering on Sept. 30 that raised more than $14 million in incremental capital. Shareholders’ equity was $104.5 million at quarter-end, down $11.4 million from the prior quarter primarily because of the Series A and Series B preferred-share redemptions.
BayFirst’s Tier 1 leverage ratio improved to 8.79% from 8.30% at the end of the second quarter and 6.14% a year earlier. Its total capital-to-risk-weighted-assets ratio was 12.44%.
McKim also said the board voted to redeem the company’s Series C preferred shares after their no-call period expires in the fourth quarter. He said holders have a conversion option based on the company’s last reported tangible book value per share and that management expects many holders to choose conversion rather than redemption.
Rogers said BayFirst opened a temporary South Tampa branch on Dale Mabry Highway and purchased a permanent location less than a mile away. The temporary branch opened Sept. 9 and exceeded the company’s 2026 deposit-growth expectations in its first month, he said.
The company is adding retail and commercial banking personnel, with particular emphasis on commercial lending. Oliver said six of BayFirst’s 12 banking centers have been open for five years or less, and the company plans to pursue deposit growth at those locations to support profitability.
Rogers said BayFirst remains focused on relationship banking, deposit mix and cost of funds, disciplined credit practices, operating efficiency and expansion across the Tampa Bay, Sarasota and Bradenton markets.
About BayFirst Financial (NASDAQ:BAFN)
BayFirst Financial Corp. is a bank holding company headquartered in St. Petersburg, Florida. Its primary subsidiary, BayFirst National Bank, provides banking and financial services to individuals, families, small businesses and commercial customers.
The bank offers deposit accounts, commercial and consumer lending, residential mortgage loans, business banking services and other related financial products. Its lending activities also include Small Business Administration financing and mortgage lending through specialized banking and lending teams.
BayFirst National Bank primarily serves communities in the Tampa Bay region and other areas of Florida, while its mortgage and specialty lending operations may serve customers in additional markets.
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