8-K: BayFirst Reports Q2 Loss, Suspends Dividends

BayFirst Financial Corp. reported a net loss of $1.2 million for Q2 2025, driven by higher provision expense and loan write-downs, leading to a suspension of common and preferred stock dividends.

Summary

• Reported a net loss of $1.2 million from continuing operations for the second quarter of 2025, compared to a $335 thousand net loss in the first quarter of this year.
• The net loss was driven by a notably higher provision for credit losses of $7.3 million and $1.0 million in write-downs on loans measured at fair value.
• Net charge-offs, primarily unguaranteed SBA 7(a) balances, were $6.8 million in the quarter, an increase of $3.5 million compared to the first quarter.
• Annualized net charge-offs as a percentage of loans held for investment at amortized costs were 2.6% for Q2 2025, up from 1.28% in Q1 2025.
• The Board of Directors voted to suspend common and preferred stock dividend payments and Board of Director fees to offset the impact of these charges.
• Net interest margin (NIM) improved by 29 basis points to 4.06% in the second quarter.
• Loans held for investment increased by $41 million, or 3.8%, during Q2 2025 to $1.13 billion.
• Deposits increased by $35.5 million, or 3.1%, during Q2 2025 to $1.16 billion.
• Government guaranteed loan origination platform originated $106.4 million in new government guaranteed loans during Q2 2025, of which $67.9 million were Bolt loans.
• Noninterest income was $11.4 million in Q2 2025, an increase from $8.8 million in Q1 2025.
• Gains on loans booked and measured at fair value were $3.4 million in Q2 2025, an increase of $3.0 million from Q1 2025.
• Tangible book value decreased slightly to $22.30 per share, down from $22.77 per share at the end of Q1 2025.
• Nonperforming assets were 1.79% of total assets as of June 30, 2025, down from 2.08% as of March 31, 2025.
• The total SBA portfolio was around $350 million as of June 30, with the Bolt loan component at about $160 million, and unguaranteed small dollar loans (including Flash cap) at about $123 million.

Sentiment

Score: 3

Explanation: The company reported a net loss, significantly increased charge-offs, and suspended dividends, indicating severe financial stress. While there are positives like NIM improvement and deposit growth, these are overshadowed by asset quality deterioration in the key SBA loan portfolio. The ongoing strategic review and potential capital raise suggest a challenging period ahead.

Positives

• Net interest margin improved impressively by 29 basis points to 4.06% in the second quarter.
• Net interest income was $12.3 million in Q2 2025, an increase of $1.3 million compared to Q1 2025 and a $3.2 million increase from the year-ago quarter.
• The Bank's deposit cost decreased from 3.78% in Q4 2024 down to 3.33% in Q2 2025, a 45 basis point decrease.
• Loans held for investment increased by $41 million (3.8%) during Q2 2025 to $1.13 billion.
• Deposits increased by $35.5 million (3.1%) during Q2 2025 to $1.16 billion.
• The Trendsetter deposit portfolio has over 2,100 accounts and represents more than $200 million of balances, adding 60 more households year-to-date.
• The Cash Kids Club program has over 1,300 accounts and has grown by 11% this year.
• The ReferLive program generated over $4.0 million of new deposits and $10.5 million of consumer loans over the past 12 months.
• The conventional commercial loan portfolio increased by $31.9 million (16%) since June 2024 and continues to demonstrate strong asset quality metrics.
• Conventional consumer and residential loan balances increased by $78.9 million (20%) since June 2024.
• Nonperforming assets decreased to 1.79% of total assets as of June 30, 2025, from 2.08% as of March 31, 2025.
• Total noninterest expense overall is $1.2 million lower in 2025 compared to the same period in the first half of 2024.

Negatives

• Reported a net loss of $1.2 million for Q2 2025, worsening from a $335 thousand net loss in Q1 2025.
• Provision for credit losses increased significantly to $7.3 million in Q2 2025, up from $4.4 million in Q1 2025 and $3.0 million in Q2 2024.
• Net charge-offs, primarily unguaranteed SBA 7(a) balances, were $6.8 million in Q2 2025, an increase of $3.5 million compared to Q1 2025.
• Annualized net charge-offs as a percentage of loans held for investment at amortized costs increased to 2.6% for Q2 2025, up from 1.28% in Q1 2025 and 1.45% in Q2 2024.
• The Board voted to suspend common and preferred stock dividend payments and Board of Director fees.
• Tangible book value decreased slightly to $22.30 per share from $22.77 per share at the end of Q1 2025.
• Gains on the sale of government guaranteed loans were $1.2 million lower in Q2 2025 compared to Q1 2025 due to slightly lower production of saleable loans and longer processing times for small dollar loans.
• Nonperforming assets, excluding government guaranteed loan balances, increased slightly to 1.12% of total assets as of June 30, 2025, from 0.82% on June 30, 2024.

Risks

• Asset quality trends, primarily in the SBA 7(a) small loan program product, continue to decline in the current economic environment.
• Losses in both Bolt loans and earlier vintages of small balance loans originated prior to 2022 continue to worsen due to the recent historic rise in interest rates, high inflation, and tariff uncertainty.
• The small loan program loans are identified as the riskiest loan program within the SBA.
• The company has a higher concentration of small loan program loans compared to its peers that do SBA lending, which contributes to elevated credit risk.
• A potential 25 basis point decrease in Fed Funds rate could lead to a temporary compression in the net interest margin.

Future Outlook

Management and the Board initiated a comprehensive strategic review aimed at derisking unguaranteed SBA 7(a) balances and positioning the company for long-term growth and enhanced shareholder value, with additional information expected in the coming weeks. The net interest margin is expected to remain relatively stable, even with potential Fed rate changes. The company anticipates continued consistent growth in community bank loans and core deposits, aiming to be the premier community bank in Tampa Bay. Efforts are focused on driving resilience and innovation for long-term success.

Management Comments

• "We reported a net loss this quarter of $1.2 million, driven by notably higher provision expense and higher write-downs on our portfolio of loans measured at fair value." Thomas G. Zernick, CEO
• "Much progress is being made, and we expect to have additional information on our plans and the expected results in the coming weeks." Thomas G. Zernick, CEO
• "This will provide for a stronger balance sheet to take advantage of community banking opportunities." Thomas G. Zernick, CEO
• "Our net interest margin improved again in the second quarter, an increase of 29 basis points to 4.06%." Thomas G. Zernick, CEO
• "The Bank has continued to see consistent growth in community bank loans and core deposits. This growth will continue to position BayFirst as the premier community bank of Tampa Bay." Thomas G. Zernick, CEO
• "Our focus on checking accounts and savings accounts versus promotional rate money market and CDs has contributed to the margin improvement that we are reporting this year." Scott J. McKim, CFO
• "The Bank is well capitalized right now. And we don't like, obviously, we don't like reporting losses and how it tends to dilute things and reduce overall capital. But we do have some options. We have not made any decisions on any imminent actions at this point in time." Scott J. McKim, CFO
• "Asset quality trends, primarily in our SBA 7(a) small loan program product continue to decline in the current economic environment." Robin L. Oliver, President, COO
• "The losses in both Bolt loans and our earlier vintages of small balance loans originated prior to 2022, continue to worsen given the recent historic rise in interest rates, high inflation, and now tariff uncertainty." Robin L. Oliver, President, COO
• "Management has significantly increased collections and portfolio management staff over the past year to ensure we are proactively collecting payments or modifying loans if prudent for as many borrowers as possible." Robin L. Oliver, President, COO
• "Our Chief Credit Officer and Director of Credit Administration, both hired in the first quarter this year, are working diligently supported by all of management to ensure strong oversight is provided to reduce losses wherever possible." Robin L. Oliver, President, COO
• "We are definitely not trying to increase volume in Bolt. And we're looking at the whole program in its entirety as we speak." Robin L. Oliver, President, COO
• "Our Board of Directors and leadership team are committed to driving resilience and innovation as we position the company for long term success and enhanced shareholder value." Thomas G. Zernick, CEO

Industry Context

The company operates in a dynamic, high-growth market (Tampa Bay and Sarasota) with significant competition from both local and out-of-town institutions offering promotional rate programs. The broader economic environment, characterized by historic rises in interest rates, high inflation, and tariff uncertainty, is impacting small businesses and contributing to credit deterioration, particularly in the riskiest loan segments like SBA small loan programs. The company is actively managing deposit costs in a competitive market to improve its net interest margin.

Comparison to Industry Standards

• The marketplace in Tampa Bay and Sarasota is very dynamic and high growth, attracting many out-of-town institutions that offer promotional rate programs, creating a competitive environment for deposits.
• It is noted that it is hard for most institutions to grow deposits in a meaningful way, but the company has been purposeful in its deposit growth strategy.
• The small loan program loans, regardless of the bank, are considered the riskiest loan program within the SBA.
• The company's losses in NAICS codes generally mirror where the SBA as a whole sees losses.
• The company has a higher concentration of small loan program loans compared to its peers that do SBA lending, which contributes to its elevated credit issues.

Management Changes

Corporate Governance

Stakeholder Impact

• Shareholders: Negative impact due to net loss, decrease in tangible book value per share, and suspension of common and preferred stock dividends. Potential dilution if a capital raise occurs.
• Employees: Management has significantly increased collections and portfolio management staff, indicating potential job growth in those areas.
• Customers: Continued focus on community banking, core deposits, and programs like Trendsetter and Cash Kids Club, suggesting ongoing commitment to customer relationships. However, changes in SBA loan programs might affect small business borrowers.
• Creditors: Higher provision for credit losses and increased charge-offs indicate deteriorating asset quality, which could be a concern for creditors, though the bank states it is well-capitalized.

Next Steps

• Further announcements are forthcoming regarding the evaluation of the small loan program product and related underwriting.
• Additional information on strategic review plans and expected results is anticipated in the coming weeks.
• Continue efforts to drive resilience and innovation to position the company for long-term success and enhanced shareholder value.

Key Dates

Recommendation

The company reported a net loss, a significant increase in credit loss provisions and net charge-offs, and a decline in tangible book value per share. The suspension of both common and preferred dividends is a strong negative signal, indicating severe financial stress and a need to conserve capital. While the net interest margin improved and deposits grew, these positives are overshadowed by the deteriorating asset quality, particularly within the high-risk SBA small loan portfolio, which management is actively reviewing for potential changes. The ongoing strategic review and potential for a future capital raise add uncertainty and risk of dilution. Given the current financial performance and the clear signals of distress, a seasoned investor would likely recommend selling or avoiding the stock until there is clear evidence of a turnaround in asset quality and sustained profitability.

Keywords

BayFirst Financial, BAFN, SEC filing, Q2 2025, earnings, financial results, net loss, SBA 7(a) loans, Bolt loans, charge-offs, dividends, net interest margin, deposits, loan growth, community banking, credit quality, strategic review, capital