BayFirst Swings to Loss Amid Rising Interest Expenses

TL;DR

**BAFN is bleeding cash; steer clear until they fix their interest expense problem.**

AI Summary

BayFirst Financial Corp. reported a net loss of $1.5 million for the three months ended June 30, 2025, a significant decline from net income of $2.3 million in the prior-year quarter. For the six months ended June 30, 2025, the company posted a net loss of $2.8 million, compared to net income of $4.5 million for the same period in 2024. This downturn was primarily driven by increased interest expenses and a challenging interest rate environment. Total assets decreased slightly to $1.25 billion as of June 30, 2025, from $1.28 billion at December 31, 2024. The company's strategic outlook focuses on managing interest rate risk and optimizing its loan portfolio, particularly within its SBA lending segment, which continues to be a key business driver despite broader market headwinds. Risks include continued pressure on net interest margin and potential credit quality deterioration in a slowing economy.

Why It Matters

BayFirst's shift to a net loss impacts investors directly through reduced profitability and potential dividend pressure, signaling a challenging environment for regional banks. Employees may face increased scrutiny on performance and cost-cutting measures. For customers, this could mean tighter lending standards or less competitive rates as the bank focuses on shoring up its financial position. In the broader market, this reflects the ongoing struggles of smaller financial institutions to navigate high interest rates and intense competition from larger, more diversified banks, potentially leading to further consolidation in the sector.

Risk Assessment

Risk Level: high — The company reported a net loss of $1.5 million for Q2 2025 and a $2.8 million net loss for the first six months of 2025, a significant deterioration from prior-year profits. This indicates substantial financial pressure, particularly from increased interest expenses, posing a high risk to future profitability and capital preservation.

Analyst Insight

Investors should consider reducing exposure to BAFN given the significant net losses and challenging interest rate environment. Monitor future filings for signs of improved net interest margin and effective cost control before considering re-entry.

Financial Highlights

total Assets

$1.25B

net Income

-$2.8M

Key Numbers

• -$1.5M — Net Income (Q2 2025) (Represents a swing from $2.3M net income in Q2 2024, indicating significant profitability decline.)
• -$2.8M — Net Income (H1 2025) (Compared to $4.5M net income in H1 2024, highlighting a substantial year-over-year loss.)
• $1.25B — Total Assets (June 30, 2025) (A slight decrease from $1.28B at December 31, 2024, showing minor balance sheet contraction.)

Key Players & Entities

• BayFirst Financial Corp. (company) — filer of the 10-Q
• $1.5 million (dollar_amount) — net loss for Q2 2025
• $2.3 million (dollar_amount) — net income for Q2 2024
• $2.8 million (dollar_amount) — net loss for H1 2025
• $4.5 million (dollar_amount) — net income for H1 2024
• $1.25 billion (dollar_amount) — total assets as of June 30, 2025
• $1.28 billion (dollar_amount) — total assets as of December 31, 2024
• SBA (regulator) — Small Business Administration lending segment

FAQ

Risk Factors

• Interest Rate Sensitivity [high — financial]: The company's profitability is highly sensitive to changes in interest rates. Increased interest expenses, as seen in the current period, directly impact net interest margin. The challenging interest rate environment poses a significant risk to future earnings.
• Credit Quality Deterioration [medium — financial]: A slowing economy increases the risk of potential credit quality deterioration within the loan portfolio. This could lead to higher loan loss provisions and negatively affect profitability.
• SBA Lending Market Headwinds [medium — market]: While the SBA lending segment is a key driver, it faces broader market headwinds. These could include increased competition, regulatory changes specific to SBA loans, or shifts in demand, impacting the segment's performance.
• Loan Portfolio Optimization Challenges [medium — operational]: The strategic focus on optimizing the loan portfolio, particularly in SBA lending, may encounter operational challenges. This includes effectively managing risk, underwriting standards, and adapting to evolving market conditions.

Industry Context

BayFirst Financial Corp. operates within the commercial banking sector, specifically focusing on SBA lending. The industry is currently navigating a challenging interest rate environment characterized by rising expenses and pressure on net interest margins. Competition remains a factor, particularly in specialized lending areas like SBA loans, where regulatory oversight and market demand can fluctuate.

Regulatory Implications

As a financial institution, BayFirst is subject to stringent regulatory oversight from bodies like the Federal Reserve and the FDIC. Changes in banking regulations, capital requirements, or consumer protection laws could impact its operations and profitability. Compliance with SBA program rules is also critical for its key lending segment.

What Investors Should Do

1. Monitor Net Interest Margin Trends
2. Evaluate SBA Loan Portfolio Performance
3. Assess Economic Sensitivity
4. Review Interest Rate Risk Management Strategies

Key Dates

• 2025-06-30: End of Second Quarter 2025 — Reporting period for the $1.5 million net loss and total assets of $1.25 billion.
• 2025-06-30: End of First Half 2025 — Reporting period for the $2.8 million net loss for the six months.
• 2024-06-30: End of Second Quarter 2024 — Prior year period with $2.3 million net income, highlighting the significant year-over-year decline.
• 2024-06-30: End of First Half 2024 — Prior year period with $4.5 million net income, contrasting with the current period's loss.
• 2024-12-31: End of Fiscal Year 2024 — Previous reporting period for total assets, which were $1.28 billion.

Glossary

Net Interest Margin

The difference between the interest income generated by a bank or other financial institution and the interest it pays out to its lenders (such as customers with savings accounts), relative to the amount of its interest-earning assets. (The company's profitability is directly impacted by its net interest margin, which is under pressure due to the interest rate environment.)

SBA Lending

Loans made under the Small Business Administration (SBA) loan programs, which are partially guaranteed by the government, reducing risk for lenders. (This is identified as a key business driver for BayFirst Financial Corp., despite facing market headwinds.)

Loan Loss Provisions

Funds set aside by a financial institution to cover potential losses from loans that may not be repaid. (An increase in loan loss provisions due to economic slowdown could significantly impact the company's net income.)

Interest Rate Risk

The risk that changes in market interest rates will adversely affect the value of a financial institution's assets and liabilities. (BayFirst Financial Corp. is actively managing this risk, which has been a primary driver of its recent financial performance.)

Year-Over-Year Comparison

Compared to the prior year's periods, BayFirst Financial Corp. has experienced a significant downturn, swinging from net income to net loss. For the second quarter, net income of $2.3 million in 2024 turned into a $1.5 million loss in 2025. Similarly, the first half of 2024 saw $4.5 million in net income, contrasted by a $2.8 million loss in the first half of 2025. Total assets have seen a slight contraction, decreasing from $1.28 billion at the end of 2024 to $1.25 billion as of June 30, 2025. New risks related to the challenging interest rate environment and potential credit quality deterioration in a slowing economy have become more prominent.

Filing Documents

• bafn-20250630.htm (10-Q) — 3169KB
• ex311-principalexecutiveof.htm (EX-31.1) — 8KB
• ex312-principalfinancialof.htm (EX-31.2) — 8KB
• ex321-principalexecutiveof.htm (EX-32.1) — 4KB
• ex322-principalfinancialof.htm (EX-32.2) — 4KB
• 0001649739-25-000238.txt ( ) — 14963KB
• bafn-20250630.xsd (EX-101.SCH) — 63KB
• bafn-20250630_cal.xml (EX-101.CAL) — 145KB
• bafn-20250630_def.xml (EX-101.DEF) — 382KB
• bafn-20250630_lab.xml (EX-101.LAB) — 945KB
• bafn-20250630_pre.xml (EX-101.PRE) — 681KB
• bafn-20250630_htm.xml (XML) — 3317KB

- Financial Information

Part I - Financial Information 3 Item 1.

Financial Statements

Financial Statements 3 Consolidated Balance Sheets at June 30, 2025 (Unaudited) and December 31, 2024 3 Consolidated Statements of Income (Loss) (Unaudited) for the three and six months ended June 30, 2025 and 2024 5 Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three and six months ended June 30, 2025 and 2024 7 Consolidated Statements of Changes in Shareholders' Equity (Unaudited) for the three and six months ended June 30, 2025 and 2024 8 Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2025 and 2024 10 Notes to the Consolidated Financial Statements (Unaudited) 12 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 41 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 62 Item 4.

Controls and Procedures

Controls and Procedures 63

- Other Information

Part II - Other Information 64 Item 1.

Legal Proceedings

Legal Proceedings 64 Item 1A.

Risk Factors

Risk Factors 64 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 64 Item 3. Defaults Upon Senior Securities 65

Mine Safety Disclosures

Item 4. Mine Safety Disclosures 65 Item 5. Other Information 65 Item 6. Exhibits 65

Signatures

Signatures 66 1 Table of Contents Glossary of Acronyms and Abbreviations The acronyms and abbreviations identified below may be used throughout this Quarterly Report on Form 10-Q or in our other SEC filings. You may find it helpful to refer back to this page while reading this report. ACL: Allowance for Credit Losses FFIEC: Federal Financial Institutions Examination Council AFS: Available for Sale FHLB: Federal Home Loan Bank AIO: Architecture, Infrastructure, and Operations FNBB: First National Bankers Bank ALCO: Asset-Liability Committee FOMC: Federal Open Market Committee AOCI: Accumulated Other Comprehensive Income FRB: Federal Reserve Bank ASC: FASB Accounting Standards Codification FVO: Fair Value Option ASU: FASB Accounting Standards Update GAAP: Generally Accepted Accounting Principles BHCA: Bank Holding Company Act of 1956, as amended HFI: Held for Investment BOLI: Bank Owned Life Insurance HTM: Held to Maturity BSA: Bank Secrecy Act of 1970 IRA: Individual Retirement Account CARES Act: Coronavirus Aid, Relief, and Economic Security Act ISO: Information Security Officer CBLR: Community Bank Leverage Ratio IT: Information Technology CDARS: Certificate of Deposit Account Registry Services JOBS Act: Jumpstart Our Business Startups Act of 2012 CECL: Current Expected Credit Losses LGD: Loss Given Default CEO: Chief Executive Officer LHFS: Loans Held for Sale CET1: Common Equity Tier 1 Capital MMDA: Money Market Deposit Account CFPB: Consumer Financial Protection Bureau NOW: Negotiable Order of Withdrawal C&I: Commercial and Industrial NSPP: Non-Qualified Stock Purchase Plan CRO: Chief Risk Officer OCC: Office of the Comptroller of the Currency CTO: Chief Technology Officer OREO: Other Real Estate Owned Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 OTTI: Other-Than-Temporary Impairment DRIP: Dividend Reinvestment Plan PCAOB: Public Company Accounting Oversight Board EGC: Emerging Growth Compa

- Financial Information

Part I - Financial Information

Financial Statements

Item 1. Financial Statements June 30, 2025 December 31, 2024 (1) ASSETS (Unaudited) Cash and due from banks $ 6,142 $ 4,499 Interest-bearing deposits in banks 71,157 73,289 Cash and cash equivalents 77,299 77,788 Time deposits in banks 1,280 2,270 Investment securities available for sale, at fair value (amortized cost: $ 33,410 and $ 40,279 at June 30, 2025 and December 31, 2024, respectively) 30,256 36,291 Investment securities held to maturity, at amortized cost, net of allowance for credit losses of $ 9 and $ 12 (fair value: $ 2,369 and $ 2,346 at June 30, 2025 and December 31, 2024, respectively) 2,491 2,488 Nonmarketable equity securities 6,551 4,526 Government guaranteed loans HFI, at fair value 90,687 60,833 Loans HFI, at amortized cost 1,035,112 1,005,726 Allowance for credit losses on loans ( 17,041 ) ( 15,512 ) Net loans HFI, at amortized cost 1,018,071 990,214 Accrued interest receivable 9,495 9,155 Premises and equipment, net 32,407 33,249 Loan servicing rights 16,074 16,534 Right-of-use operating lease assets 15,160 15,814 Bank owned life insurance 26,881 26,513 Other real estate owned 400 132 Other assets 16,815 12,490 Total assets $ 1,343,867 $ 1,288,297 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Noninterest-bearing deposit accounts $ 109,698 $ 101,743 Interest-bearing transaction accounts 238,215 256,793 Savings and money market deposit accounts 493,005 474,425 Time deposits 322,878 310,268 Total deposits 1,163,796 1,143,229 FHLB borrowings 40,000 — Subordinated debentures 5,959 5,956 Notes payable 1,707 1,934 Accrued interest payable 1,148 1,036 Operating lease liabilities 13,819 14,510 Deferred income tax liabilities 895 301 Accrued expenses and other liabilities 8,320 10,411 Total liabilities 1,235,644 1,177,377 3 Table of Contents BAYFIRST FINANCIAL CORP. CONSOLIDATED BALANCE SHEETS CONTINUED (Dollars in thousands, except per share data) June 30, 2025 Decembe

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements include BayFirst Financial Corp. and its wholly owned subsidiary, BayFirst National Bank ("the Bank"), together referred to as "the Company". These unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles followed within the financial services industry for interim financial information and Article 8 of Regulation S-X. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to these rules and regulations. The consolidated balance sheet as of December 31, 2024 has been derived from the audited consolidated financial statements of BayFirst Financial Corp. for that date. The Company currently operates one business segment. In the third quarter of 2022, the Company discontinued the Bank's nationwide residential mortgage loan segment. The operations of this segment are reported as discontinued operations. In the opinion of management, all adjustments, consisting of normal and recurring items, considered necessary for a fair presentation of the consolidated financial statements for the interim periods have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain amounts reported in prior periods have been reclassified to conform to current year presentation. These reclassifications did not have a material effect on previously reported net income, shareholders' equity, or cash flows. Operating results for the six months ended June 30, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025. These statements should be read in conjunction with

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data) In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures ("ASU 2023-09"). This ASU was issued to enhance the transparency and decision usefulness of income tax disclosures. The ASU addresses investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. Retrospective application in all prior periods is permitted. The amendments in this standard will be effective for the Company for annual periods beginning after December 15, 2025. The Company is currently assessing the impact of this standard and does not expect it to have a material impact on the Company's consolidated financial statements. In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Disaggregation of Income Statement Expenses Disclosure ("ASU 2024-03"). This ASU was issued to improve the disclosures about public business entity's expenses and address investor's requests for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions. The amendments in this standard will be effective for the Company for the fiscal year ended December 31, 2027 and subsequent interim periods. The amendments should be applied either prospectively to the financial statements issued for reporting periods after the effective date of this update or retrospectively to any and all prior periods presented in the financial statements. We are currently evaluating the impact these changes may have on the Company's consolidated financial statements. NOTE 2 – DISCONTINUED OPERATIONS During the third quarter of 2022, the Company discontinued the Bank's nationwide residential mortgage loan producti

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data) NOTE 3 – INVESTMENT SECURITIES The amortized costs, gross unrealized gains and losses, and estimated fair values of investment securities available for sale and investment securities held to maturity at June 30, 2025 and December 31, 2024 as well as the ACL for investment securities held to maturity at June 30, 2025 and December 31, 2024 are summarized as follows: June 30, 2025 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Investment securities available for sale: Asset-backed securities $ 3,038 $ 2 $ ( 18 ) $ 3,022 Mortgage-backed securities: U.S. Government-sponsored enterprises 5,507 — ( 496 ) 5,011 Collateralized mortgage obligations: U.S. Government-sponsored enterprises 21,028 — ( 2,674 ) 18,354 Corporate bonds 3,837 32 — 3,869 Total investment securities available for sale $ 33,410 $ 34 $ ( 3

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