BayFirst Financial Corp ((BAFN)) has held its Q1 earnings call. Read on for the main highlights of the call.
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BayFirst Financial Corp’s latest earnings call revealed a bank in active repair mode, pairing decisive capital and leadership moves with stubborn profitability and credit headwinds. Management highlighted an $80 million capital raise, stronger pro forma capital ratios, and solid liquidity, but also acknowledged wider losses, shrinking loans and deposits, and persistent stress in its legacy SBA portfolio.
Capital Raise Reshapes Balance Sheet and Share Base
BayFirst detailed an $80 million private investment in public equity through convertible preferred stock, which will convert into about 22.9 million common shares at an effective $3.50 per share, pending approvals. A concurrent rights offering aims to give existing investors a chance to participate, with a special shareholder meeting set for mid-July to clear the path.
Pro Forma Capital Ratios Move to Comfortable Levels
Including a planned $42 million downstream capital contribution to the bank, Tier 1 leverage is projected to jump from 6.54% to roughly 10.02% and total capital to risk-weighted assets to about 14.4%. Management framed these pro forma ratios as providing a solid buffer to resolve legacy credit issues and reorient the franchise toward traditional community banking.
New Leadership Targets Community-Bank Turnaround
The company has installed Al Rogers as CEO and president of the bank and added experienced investor Kenneth R. Lehman to its boards. The leadership team emphasized a pivot back to core community banking in the Tampa Bay market, focusing on steady growth and restored profitability rather than higher-risk national SBA lending.
Liquidity Strong with No Reliance on Wholesale Funding
BayFirst reported a bank-level liquidity ratio of roughly 13.6%–13.85%, equating to around $130 million of available liquidity on a balance sheet of about $1 billion. Notably, the bank has no wholesale borrowings, which management presented as evidence of a conservative funding profile and flexibility during the restructuring phase.
Funding Costs Easing After Deposit Mix Shift
The cost of funds declined by 27 basis points sequentially as the bank allowed high-cost promotional and brokered deposits to roll off. While this contributed to an overall decline in deposits, management argued that the improving funding mix reduces pressure on margins and sets up a healthier long-term liability structure.
Legacy SBA Portfolio Continues Orderly Runoff
Unguaranteed SBA 7(a) balances fell to $159.3 million at quarter-end, down $12.3 million from late 2025, continuing a roughly $12 million runoff pace in the period. The bank reiterated its strategic exit from this higher-risk unguaranteed segment, positioning future credit exposure more squarely within traditional community-banking lines.
Noninterest Income Ticks Up Year over Year
Noninterest income came in at $884,000 for the quarter, an improvement of about $1 million compared with the same period last year. However, results remain well below levels seen when SBA loan sale gains were a larger part of the business, underscoring the shift away from that volatile revenue stream.
Net Loss Widens as Restructuring Costs Hit Earnings
BayFirst posted a net loss of $5.7 million in the first quarter, more than double the $2.8 million loss in the prior quarter. Management linked the deeper red ink to margin compression, higher credit provisioning, and increased servicing costs tied to the legacy SBA portfolio as it works through problem assets.
Loan Portfolio Contracts as Bank De-Risks
Loans held for investment fell $33.5 million, or 3%, in the quarter to $930.4 million and are down $154.4 million, or 14%, year over year. The decline reflects loan sales and the exit from SBA 7(a) lending, with management framing the shrinkage as a deliberate de-risking step ahead of future, more targeted growth.
Deposit Base Down but Skews Toward Insured Balances
Total deposits dropped $98 million, or 8%, in the quarter and are down 4% year over year, largely due to reductions in high-rate promotional and brokered funding. Even with the decline, management highlighted that about 83% of deposits are FDIC insured, which it sees as a stabilizing factor for the core franchise.
Margin Compression Weighs on Core Earnings
Net interest margin slipped 16 basis points from the prior quarter to 3.42%, while net interest income fell to $9.4 million, down $1.7 million sequentially and $1.5 million from a year ago. The decline was influenced by the earlier sale of a $97 million loan portfolio and the ongoing transition away from higher-yielding but riskier assets.
Charge-Offs Elevated, Concentrated in SBA Book
Net charge-offs totaled $4.4 million in the quarter, only slightly lower than the previous period, with $3.4 million tied to unguaranteed SBA 7(a) loans. The provision for credit losses rose to $3.1 million from $2.0 million, reflecting continued caution around legacy SBA exposures as the bank works them down.
Credit Quality Mixed with High Classified but Performing Balances
Nonperforming loans excluding government guarantees stood at $15.9 million, roughly flat quarter over quarter, with the nonperforming ratio at 1.81%. Management noted that classified assets remain elevated overall, but about 68% of classified loans are still current on payments, offering some comfort about eventual resolution.
Operating Costs Rise on Legacy Servicing Burden
Noninterest expense climbed to $14.9 million, up $3.0 million from the prior quarter, driven by $2.3 million in higher servicing costs on the legacy SBA 7(a) portfolio and a $700,000 increase in compensation. Management acknowledged the pressure on efficiency but framed these costs as largely transitional as the bank exits noncore activities.
Pre-Raise Capital Ratios Under Pressure
Before the new capital, the Tier 1 leverage ratio had fallen to 6.54% from 8.56% a year earlier, and total capital to risk-weighted assets slipped to 9.84% from 11.73%. These trends underscored the urgency of the recent capital raise and bank-level infusion, which management says will restore a comfortable regulatory cushion.
Guidance Points to Capital-Fueled Pivot and Legacy Cleanup
Looking ahead, BayFirst plans to complete the rights offering and related shareholder approvals, resume preferred dividends, and redeem one preferred series as part of a capital structure reset. Management expects the fresh capital and stronger ratios to fund measured community-bank growth in Tampa Bay and Sarasota, while accelerating resolution of legacy SBA credits and gradually narrowing losses.
BayFirst’s earnings call painted a story of a bank deliberately trading short-term pain for long-term stability. The sizable capital raise, stronger pro forma capital, and new leadership should give it room to fix legacy issues, but investors will be watching closely to see whether credit costs, expenses, and shrinking balances can be brought under control quickly enough to restore sustainable profitability.