Overview

BayFirst is a one-bank holding company that generates most of its revenue from interest on loans and gains on the sale of government-guaranteed loans. Its primary sources of funding are loan sales, loan payments, deposits, and borrowings. The company is dependent on noninterest income, which comes mainly from net gains on the sale of government-guaranteed loans.

The company measures its performance through net interest income after provision for credit losses, return on average assets, and return on average common equity, while maintaining appropriate regulatory capital ratios. BayFirst is an emerging growth company, which means it can adopt new or revised accounting standards at the same time as private companies rather than public companies.

Recent Developments

BayFirst announced a $2 million share repurchase program that will run through the end of 2025. The company has also declared quarterly cash dividends on its common and preferred stock for the second quarter of 2025.

Financial Performance

For the first quarter of 2025, BayFirst reported a net loss of $0.3 million, or $0.17 per diluted common share, compared to net income of $0.8 million, or $0.11 per diluted common share, in the first quarter of 2024. The change was due to decreases in gain on sale of government-guaranteed loans, government-guaranteed loan fair value gains, and government-guaranteed loan packaging fees, partially offset by an increase in net interest income and a decrease in noninterest expense.

Net Interest Income

Net interest income from continuing operations was $11.0 million in the first quarter of 2025, up from $8.7 million in the first quarter of 2024. The increase was mainly due to a decrease in interest cost on deposits, partially offset by a decrease in loan interest income. Net interest margin was 3.77% in the first quarter of 2025, up from 3.42% in the first quarter of 2024.

Provision for Credit Losses

The company recorded a provision for credit losses on loans of $4.4 million in the first quarter of 2025, primarily due to net loan growth and higher than expected charge-offs, compared to $4.1 million in the first quarter of 2024. Net charge-offs were $3.3 million in the first quarter of 2025, down from $3.7 million in the first quarter of 2024.

Noninterest Income

Noninterest income from continuing operations was $8.8 million in the first quarter of 2025, down from $14.3 million in the first quarter of 2024. The decrease was due to lower gains on sale of government-guaranteed loans, fair value gains on government-guaranteed loans, and government-guaranteed loan packaging fees.

Noninterest Expense

Noninterest expense from continuing operations was $15.8 million in the first quarter of 2025, down from $17.8 million in the first quarter of 2024. The decrease was primarily due to lower compensation expense, professional fees, and loan origination and collection expenses, partially offset by higher occupancy and data processing expenses.

Financial Condition

As of March 31, 2025, BayFirst had total assets of $1.29 billion, up from $1.14 billion as of March 31, 2024. Total loans held for investment (HFI) were $1.08 billion, up from $934.9 million a year earlier. The allowance for credit losses (ACL) was $16.5 million, or 1.61% of total loans HFI at amortized cost, compared to $13.9 million, or 1.62%, a year earlier.

Nonperforming assets, excluding government-guaranteed loan balances, were $16.6 million, or 1.22% of total assets, as of March 31, 2025, up from $8.7 million, or 0.70%, a year earlier. The increase was partially due to a $2.7 million nonaccrual loan that is fully secured with no ACL allocated.

Total deposits were $1.13 billion as of March 31, 2025, up from $1.01 billion a year earlier. Noninterest-bearing deposits were $106.2 million, or 9.4% of total deposits, up from $101.7 million, or 8.9%, a year earlier.

Capital Resources

Shareholders’ equity was $110.1 million as of March 31, 2025, down from $110.9 million as of December 31, 2024, primarily due to the net loss, common stock dividends, and preferred stock dividends.

As of March 31, 2025, the Bank’s capital ratios exceeded the requirements to be considered “well capitalized” under regulatory guidelines. The Bank’s total capital ratio was 11.73%, its tier 1 capital ratio was 10.47%, and its common equity tier 1 capital ratio was 10.47%.

Liquidity

The Bank’s on-balance sheet liquidity ratio, which includes cash, interest-bearing deposits, and unencumbered investment securities, was 8.04% as of March 31, 2025, down from 9.17% as of December 31, 2024. The company expects its currently available liquid assets and borrowing capacity to be sufficient to meet its liquidity needs without any material adverse effects.

Market Risk and Interest Rate Sensitivity

The company actively monitors and manages its interest rate risk exposure. It relies primarily on its asset-liability structure to control interest rate risk, with a focus on originating adjustable-rate and variable-rate loans, maintaining a stable core deposit base, and holding a significant portion of liquid assets.

The company uses net interest income simulation models and economic value of equity sensitivity analysis to measure and monitor its interest rate risk position on a quarterly basis. These models rely on numerous assumptions about the potential impact of changes in interest rates on the value and prepayment speeds of its loan and investment portfolios, as well as other assets and liabilities.

Outlook

BayFirst’s financial performance in the first quarter of 2025 was mixed, with a net loss due to decreases in noninterest income, partially offset by an increase in net interest income and a decrease in noninterest expense. The company’s balance sheet remains strong, with solid capital ratios and liquidity.

Going forward, the company will need to closely monitor its credit quality, particularly in light of the increase in nonperforming assets, and manage its interest rate risk exposure as market conditions evolve. Maintaining a diversified revenue stream and controlling expenses will also be key priorities.

Overall, BayFirst appears to be navigating the current economic environment reasonably well, but will need to continue to adapt and execute its strategy to drive long-term profitability and shareholder value.