Bayfirst Financial Corp's Q3 2025: Contradictions Emerge on SBA Loan Strategy, Portfolio Reviews, and Strategic Direction

Date of Call: October 31, 2025

Financials Results

• Revenue: Net interest income $11.3M, down $1.0M QoQ and up $9.4M YoY; Noninterest income negative $1.0M, down from $10.8M in Q2 and $11.7M in Q3 2024 (primarily loss of SBA gains-on-sale)

Guidance:

• Expect to return to profitability with a targeted positive return on assets of 40–70 bps in 2026.
• Net interest margin expected to be closer to a 4% target after onetime items normalize and deposit costs decline.
• Anticipate lower net charge-offs following reduction of unguaranteed SBA 7(a) loans and ongoing resolution of nonperforming loans.
• Will operate as a community bank post-close, focusing on Tampa Bay C&I, consumer and residential lending and enhanced treasury services.

Business Commentary:

* Restructuring and SBA 7(a) Exit: - BayFirst Financial Corp reported a net loss of $18.9 million in Q3 2025, following a restructuring charge of $7.3 million and the sale of a significant portion of its SBA 7(a) portfolio to Banesco USA at a 3% discount. - The sale was necessitated by the SBA 7(a) business outgrowing the community bank model and bringing material risk that led to operating losses.

• Deposit and Loan Balance Trends:
• Total deposit balances increased by $7.7 million or 0.7% during Q3 2025, with over 84% of deposits insured by FDIC.

• Loans held for investment decreased by $127.1 million or 11.3% during the same quarter, primarily due to $97 million of loans transferred to held for sale.

• Credit Quality and Asset Quality Initiatives:

• Nonperforming assets increased to 1.97% of total assets by the end of Q3, with nonperforming assets excluding government-guaranteed loans at 1.21%.

• BayFirst is focusing on improving asset quality through aggressive workout of problem loans, resulting in a decrease in net charge-offs and a decline in annualized net charge-offs from 2.6% in Q2 to 1.24% in Q3.

• Leadership Changes and Strategic Focus:

• BayFirst announced leadership changes, with Tom Qualley retiring, succeeded by Samantha Hill, and Adam Curtis assuming the role of Chief Lending Officer and Tampa market leader.
• The company is focusing on transitioning to a true community bank, originating Tampa Bay-based commercial C&I loans and enhancing deposit services.

Sentiment Analysis:

Overall Tone: Neutral

• Management reported a Q3 net loss of $18.9M and a $7.3M restructuring charge but stated: "we expect to return to profitability with the goal of positive return on assets of 40 to 70 basis points in 2026" and "we remain optimistic about the road ahead," while noting reduced future SBA-related revenue.

Q&A:

• Question from Ross Haberman (Rlh Investments, LLC): I have 2 quick questions. You said you did not sell all of the SBA. How much did you hold back? How are you servicing them? And why don't you sell the whole thing?
  Response: Post-close the bank expects to retain ~ $167M of unguaranteed SBA 7(a) balances; Banesco will service the loans being sold, many SBA staff will transfer, and BayFirst will continue marketing remaining balances for sale.

• Question from Ross Haberman (Rlh Investments, LLC): What -- refresh my memory, what kind of reserve or allowance did you sell the bulk of -- or cents on the dollar, did you sell the bulk of the SBAs for? And will you have to take a bigger reserve or allowance for this last $167 million?
  Response: The announced portfolio sale was at a 3% discount (97%); the ACL increase reflects retained unguaranteed balances, but management does not anticipate adding additional ACL for the remaining balances at year-end or in the near future.

• Question from Julienne Cassarino (Sycamore Analytics): Are you still originating SBA loans, even though they're not this kind of 7(a) or is SBA still going to be a big part of the business model moving forward?
  Response: BayFirst is exiting SBA 7(a); it will continue originating SBA up until the Banesco close, then transition to a pure community bank focus (Tampa Bay C&I, consumer, residential mortgage, deposits).

• Question from Julienne Cassarino (Sycamore Analytics): Can you talk about the treasury management product? You mentioned it started in February... describe the products and if you have any off-balance sheet deposits?
  Response: Bank upgraded treasury capabilities (Jack Henry Treasury, lockbox), expanded treasury team from 1 to ~4, onboarded mid-market clients and expects continued growth; there are no off-balance-sheet sweep deposits.

• Question from Julienne Cassarino (Sycamore Analytics): I was wondering about the loan portfolio review that was done in the third quarter that you were describing. What percent of total loans were reviewed in that?
  Response: Third-party review covered about $70M and targeted additional segments via consultants; overall the review covered roughly 8%–10% of the portfolio, focused on watch-list and higher-risk loans.

• Question from Julienne Cassarino (Sycamore Analytics): Is the Board getting paid now? I remember last quarter, you said the Board was -- had halted their compensation. Has that changed?
  Response: No change — the Board compensation pause remains in effect.

• Question from Julienne Cassarino (Sycamore Analytics): Repurchases halted and now all of this news is out, I'm guessing insiders are not restricted, right, from buying if they want?
  Response: Insiders remain subject to the usual trading window timing; management indicated the insider window typically reopens two full trading days after earnings but gave no immediate expectation for purchases.

• Question from Fred Earl (GTF Capital Management): My question is why is the best decision anything other than to go to the Home Depot and get one of those signs that goes in the windshield for sale [ till now].
  Response: Management did not provide a substantive response; the CEO requested clarification and no further answer was given before the call concluded.

Contradiction Point 1

SBA Loan Strategy and Sales

It highlights a change in the company's strategy regarding SBA loans, which could impact future financial performance and business focus.

Are you still originating SBA loans (excluding 7(a)), and will SBA remain part of the business model going forward? - Unknown Analyst

2025Q3: The company is exiting SBA loans and will continue focusing on Tampa Bay-based commercial C&I loans, consumer lending, residential mortgage lending, and deposit services. - Thomas Zernick(CEO)

Are you still making SBA loans, and is the loan-sale pipeline active? - Ian Green (Pendragon Capital)

2025Q2: We are moving towards core SBA 7(a) loans. There is a steady flow of premiums for these loans. The small loan program's future evaluation is ongoing. - Robin Oliver(COO)

Contradiction Point 2

SBA Loan Future Focus and Strategy

It involves the strategic direction of the company regarding SBA loans and its focus on future business operations, which can impact investor expectations and operational plans.

Are you still originating 7(a) SBA loans, and will SBA remain part of the business model moving forward? - Unknown Analyst

2025Q3: The company is exiting SBA loans and will continue focusing on Tampa Bay-based commercial C&I loans, consumer lending, residential mortgage lending, and deposit services. - Thomas Zernick(CEO & Director)

What efforts are being made to improve the credit quality of SBA 7(a) small loans? - Robin Oliver

2025Q1: The company has a long history of originating SBA loans. It has been a strong presence in the SBA community for over 30 years, and we stepped up our production in the last 2 years, originating over $500 million in new SBA loans. [...] Our SBA division serves more than 1,000 clients and holds over $375 million in SBA 7(a) balances. - Robin Oliver(President, COO & Director)

Contradiction Point 3

Loan Portfolio Review and Scope

It involves the extent of the loan portfolio review and the reasons behind it, which may impact the bank's risk management and financial stability.

What percent of total loans were reviewed? - Unknown Analyst

2025Q3: A targeted review of around $70 million of loans was done by a third party, focusing on specific criteria for credit weaknesses. This review covered approximately 8-10% of the total portfolio. - Robin Oliver(COO)

What is the size of SBA loans on your balance sheet and can you break them down by size? - Ross Haberman (HLS Investments)

2025Q2: The total SBA portfolio is approximately $350 million, with the Bolt loan component at $160 million. The stress area is within the $123 million of non-guaranteed loans. - Scott McKim(CFO)

Contradiction Point 4

Strategic Review and Bank's Future

It reflects differing perspectives on the company's strategic direction and the purpose of the strategic review, which can influence investor confidence and decision-making.

Why not sell the entire company? - Ross Haberman (RLH Investments, LLC)

2025Q3: The company is still working on selling the remaining portfolio. Banesco will operate as the servicer, providing continuity with many team members moving over. The primary reason for not selling the entire portfolio is likely due to the strategic decision to focus on being a true community bank post-transaction. - Thomas Zernick(CEO & Director)

Can you elaborate on the strategic review to reduce balance sheet risk? - Thomas Zernick

2025Q1: During the past year, the company made meaningful progress in strengthening its balance sheet by reducing risk, enhancing credit quality, improving funding stability, expanding its relationship lending platform and growing its deposit base. This progress has positioned the company to execute its strategic growth initiatives. - Thomas Zernick(CEO)

Contradiction Point 5

SBA Loan Sales Strategy

It involves the strategic decision-making around the sale of SBA loans, which impacts the bank's financial portfolio and future strategic direction.

How much of the SBA loans did you retain, and how are you servicing them? Also, why not sell the entire portfolio? - Ross Haberman( RLH Investments, LLC)

2025Q3: The company is still working on selling the remaining portfolio. Banesco will operate as the servicer, providing continuity with many team members moving over. The primary reason for not selling the entire portfolio is likely due to the strategic decision to focus on being a true community bank post-transaction. - Thomas Zernick(CEO)

How long are the held-for-sale loans on the books? - Julienne Cassarino(Sycamore Analytics)

2024Q4: The strategic plan for the SBA 7(a) portfolio is to continue to originate SBA 7(a) loans under a long-term business model change to align with industry peers. - Thomas Zernick(CEO)