BayFirst Financial Corp. (BAFN) Q4 2025 Earnings Call Transcript
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Overview
The earnings call indicates mixed results: a decrease in net loss and noninterest expense, but challenges with high classified loans and regulatory costs. Deposit growth is positive, but net interest margin remains stable. The Q&A reveals management's unclear responses about deposit breakdown, raising concerns. Despite improvements, the lack of strong positive catalysts or new partnerships and the absence of guidance adjustments suggest a neutral sentiment. Market reaction is likely to remain within the -2% to 2% range over the next two weeks.
Key Financial Performance
Net Loss $2.5 million in Q4 2025, compared to $18.9 million in Q3 2025. The Q3 loss included a $7.3 million restructuring charge and $8.1 million additional provision expense.
Loans Held for Investment Decreased by $34.8 million (3.5%) in Q4 2025 to $963.9 million. Over the past year, it decreased by $102.7 million (9.6%).
Deposits Increased by $12.5 million (1.1%) in Q4 2025 and $40.7 million (3.6%) over the past year to $1.18 billion. The increase was driven by time deposits (+$26.4 million) and interest-bearing transaction deposits (+$20.9 million), partially offset by decreases in noninterest-bearing accounts (-$10.2 million) and money market/savings accounts (-$24.6 million).
Net Interest Margin Stable at 3.58% in Q4 2025, down 3 basis points from Q3 2025.
Net Interest Income $11.2 million in Q4 2025, down $100,000 from Q3 2025 but up $0.5 million from Q4 2024.
Noninterest Income Negative $104,000 in Q4 2025, an improvement of $900,000 from Q3 2025 but a decrease from $22.3 million in Q4 2024. The year-over-year decrease is primarily due to reduced gains from the sale of SBA 7(a) loans.
Noninterest Expense $11.9 million in Q4 2025, a decrease of $13.3 million from Q3 2025. The decrease includes a $7.3 million restructuring charge and reductions in compensation (-$2.9 million), data processing (-$350,000), and loan servicing/origination expenses (-$2.2 million).
Provision for Credit Losses $2 million in Q4 2025, compared to $10.9 million in Q3 2025 and $4.5 million in Q4 2024.
Net Charge-Offs $4.6 million in Q4 2025, up $1.3 million from Q3 2025 ($3.3 million) and up from $4.1 million in Q4 2024. Unguaranteed SBA 7(a) loans accounted for $4.1 million of the Q4 2025 charge-offs.
Allowance for Credit Losses 2.43% of total loans held for investment at amortized cost as of December 31, 2025, compared to 2.61% as of September 30, 2025, and 1.54% as of December 31, 2024.
Nonperforming Loans $16.9 million at the end of Q4 2025, relatively flat compared to $16.5 million at the end of Q3 2025. The percentage of nonperforming loans to total loans held for investment was 1.80% at the end of 2025, up 11 basis points from Q3 2025 and 45 basis points from Q4 2024.
Treasury Management Revenues Increased by 69% in Q4 2025 compared to Q4 2024.
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Operating Highlights
Community Banking Focus: The company is focusing on becoming the premier community bank in the Tampa Bay and Sarasota markets. They have grown deposits by $12.5 million in Q4 2025, with 85% of deposits insured.
Treasury and Merchant Services: Significant growth in treasury and merchant services revenue was reported, with plans to continue expanding these services.
Exit from SBA 7(a) Lending Business: The company exited the SBA 7(a) lending business, sold a substantial amount of 7(a) loan balances, and reduced headcount and expenses.
Credit Risk Management: Efforts to strengthen credit administration practices have been implemented, including aggressive management of problem credits and classified assets.
Cost Reductions: Noninterest expenses decreased significantly in Q4 2025, driven by reductions in compensation, data processing, and loan servicing expenses.
Strategic Plan for 2026: The company has a strategic plan focused on fortifying the balance sheet and maintaining disciplined risk management to drive sustainable revenue growth.
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Risk or Challenges
Exit from SBA 7(a) lending business: The company faces ongoing risks from the legacy SBA 7(a) loan portfolio, including elevated net charge-offs and potential additional charge-offs in the future. This could continue to impact financial performance.
Credit risk management: Nonperforming loans, excluding government-guaranteed balances, remain significant at $16.9 million, with a percentage increase in nonperforming loans compared to total loans held for investment. This poses a challenge to asset quality and financial stability.
Provision for credit losses: The provision for credit losses was $2 million in Q4 2025, with net charge-offs increasing to $4.6 million. The unguaranteed SBA 7(a) loans accounted for a substantial portion of these charge-offs, indicating ongoing credit risk.
Reduction in loans held for investment: Loans held for investment decreased by $34.8 million in Q4 2025 and $102.7 million over the past year, reflecting challenges in maintaining loan growth and portfolio size.
Net interest margin and income: The net interest margin decreased slightly to 3.58%, and net interest income declined by $100,000 compared to the previous quarter. This indicates pressure on profitability.
Noninterest income: Noninterest income was negative $104,000 in Q4 2025, reflecting a significant decline from the prior year due to the exit from the SBA 7(a) lending business and reduced gains from loan sales.
Classified and nonperforming assets: Classified loans remain high, with 64% of classified loans being current but still posing risks. The bank is working to reduce these balances, but they remain a challenge.
Regulatory assessments: Higher regulatory assessments, which increased by $700,000, add to the bank's operational costs and financial pressures.
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Guidance & Outlook
Future charge-offs from SBA 7(a) loans: Additional charge-offs from unguaranteed SBA 7(a) loans are expected to continue into 2026, but with a lessening impact over time.
Deposit pricing strategy: The company plans to optimize deposit pricing to reduce high-cost deposits, improve cost of funds, and enhance net interest margin.
Asset quality improvement: The wind-down of the SBA loan portfolio, potential sales of additional unguaranteed SBA balances, and resolution of problem loans are expected to improve asset quality in the coming quarters without significant additional provision for credit losses.
Treasury and merchant services revenue: The company aims to continue growing treasury and merchant services revenue, building on significant growth achieved in the past year.
Strategic plan for 2026: The company is focused on fortifying the balance sheet and maintaining disciplined risk management as central pillars of its 2026 strategic plan, aiming for sustainable revenue growth and long-term success.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Could you focus on the $171 million of unguaranteed government loans portion? What is the specific allowance against that? And what's been your recent default experience on that category?
A:The $171.6 million represents all of the SBA 7(a) unguaranteed balances as of December 31. This portfolio is in runoff and will shrink further with successful sales. About 13% of the balances are within the allowance for credit losses, and the default rate is much lower than that.
Q:I thought a good portion of that had gone away with the loan sale. What is that number peak at?
A:The unguaranteed portion was about $50.5 million higher at the end of the third quarter.
Q:Could you talk about the deposits, where the growth is coming from, and the reduction in deposit costs? Are these coming from local customer relationships or the treasury management platform?
A:The growth in deposits is attributed to the efforts of the retail and operations teams, branch managers, and frontline staff who are nurturing customer relationships. The reduction in deposit costs, down by 13 basis points sequentially, is due to disciplined management, rate changes, and customer engagement. The treasury team is also actively partnering with market executives and banking center managers to bring in deposits and reduce reliance on broker deposits.
Q:From a big picture perspective, how does the deposit franchise break down roughly between commercial deposits and retail?
A:The deposit portfolio is very granular, with many individual family-type relationships treating the bank as their preferred financial institution. The bank is focused on growing business relationships and ensuring compensating deposits from lending relationships, but there is no specific breakdown provided between commercial and retail deposits.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct breakdown of the deposit franchise between commercial and retail deposits, instead describing it as 'granular' without specific details.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Banesco USA
Banking mission
Bay end
BayFirst CEO
BayFirst focus
BayFirst today
CEO BayFirst
CEO behalf
Club Trendsetter
Club program
Community Banking
Conference Webcast
Deposits increase
Kids Club
Loan servicing
SBA community
Today loss
Treasury revenue
Trendsetter Club
USA transaction
Unguaranteed SBA
Webcast Instructions
ability
balance loan
deposit bank
end bank
government balance
liquidity
loan charge
loan government
merchant service
nonperforming asset
pricing
processing
provision expense
resolution
servicing origination
treasury merchant
BAFN Transcript
BayFirst Financial Corp. (BAFN) Q4 2025 Earnings Call Transcript
Unknown1-30
The earnings call indicates mixed results: a decrease in net loss and noninterest expense, but challenges with high classified loans and regulatory costs. Deposit growth is positive, but net interest margin remains stable. The Q&A reveals management's unclear responses about deposit breakdown, raising concerns. Despite improvements, the lack of strong positive catalysts or new partnerships and the absence of guidance adjustments suggest a neutral sentiment. Market reaction is likely to remain within the -2% to 2% range over the next two weeks.
BayFirst Financial Corp. (BAFN) Q3 2025 Earnings Call Transcript
Unknown10-31
The earnings report reveals several concerning trends: a significant decline in loans held for investment, a decrease in net interest margin and income, a substantial rise in noninterest expense due to restructuring charges, and an increase in nonperforming assets. The Q&A session further highlights uncertainty, particularly with the exit from SBA loans and unclear management responses. Despite some positive elements, like increased deposits, the overall sentiment is negative, driven by financial performance and strategic uncertainties.
BAFN Slides
BAFN Report
Frequently Asked Questions
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