BayFirst Incurs Loss in Q3, Exits SBA Lending Amid Shakeup

Core Insights - BayFirst Financial Corp. experienced a significant decline in share price, dropping 10.8% following a negative earnings report for Q3 2025, contrasting with a minor decline of 0.4% in the S&P 500 index during the same period [1] - The company reported a net loss of $4.66 per share for Q3 2025, a stark contrast to a net income of 18 cents per share in the same quarter the previous year, primarily due to increased provisions for credit losses and one-time charges related to exiting the SBA 7(a) lending operations [2][3] - Total revenues increased by 19.4% year-over-year to $11.3 million, up from $9.4 million, driven by net interest income [2] Financial Performance - The net interest margin (NIM) improved to 3.61%, an increase of 27 basis points from 3.34% in the same period last year [4] - Noninterest income turned negative at $1 million, down from $12.3 million in Q3 2024, largely due to a $5.1 million fair value adjustment on held-for-sale loans [4] - Noninterest expenses surged to $25.2 million from $17.1 million in the prior year's third quarter, influenced by a $7.3 million restructuring charge [5] Management Commentary - CEO Thomas Zernick characterized the quarter as a period of "significant strategic transformation," emphasizing the exit from the SBA 7(a) lending business as a key move to derisk the balance sheet and refocus on core community banking [6] - Management aims for a targeted return to profitability in 2026, with a projected return on assets of 40-70 basis points [6] Strategic Developments - The company incurred a $5.1 million loss on held-for-sale SBA loans sold to Banesco USA, representing 97% of their balances, with expectations to sell additional SBA loan balances in future quarters [7] - BayFirst is shifting its focus towards consumer and residential mortgage lending in the Tampa Bay region [7] Performance Influencers - The net loss was significantly impacted by a $7.3 million restructuring expense and a $10.9 million provision for credit losses, which was more than triple the $3.1 million recorded in Q3 2024 [8] - Asset quality metrics worsened, with nonperforming assets rising to 1.97% of total assets from 1.38% a year ago, and the allowance for credit losses to loans held for investment increasing to 2.61% from 1.48% [9] Future Guidance - Management reaffirmed its goal of returning to profitability post-restructuring, targeting a return on assets of 40-70 basis points by 2026 [10] - Plans to resolve outstanding regulatory issues and strengthen credit administration are in place, with a potential agreement with the OCC expected in Q4 [11] Other Developments - The strategic exit from the SBA 7(a) lending business was formalized with a definitive agreement to sell a substantial portion of its SBA loan portfolio to Banesco USA [12] - The company terminated a previously announced $2 million stock repurchase program and acknowledged workforce reductions, with full-time equivalent employees decreasing from 300 to 237 [13]