BayFirst Financial Corp. (BAFN) Q3 2026 earnings review
BayFirst grows loans and deposits again, but dilution cuts book value
BayFirst Financial, a community bank in Florida's Tampa Bay and Sarasota region, grew its loan book and deposits again while narrowing its net loss to nearly break-even. Total loans rose 2% from last quarter to $903 million and deposits increased 3% to $1.01 billion, reversing three straight quarters of contraction after the bank exited its national small-business lending unit. Net interest margin — the spread between loan interest collected and deposit interest paid — expanded to 4.07%, and second-quarter loan reserves absorbed this quarter's write-offs without new credit provisions.
| Net interest margin | 4.07% +0.59 percentage points from last quarter |
|---|---|
| Total loans held for investment | $903.0M +2.3% from last quarter |
| Net loss to common shareholders | -$1.0M -$0.04 per share, vs -$33.1M last quarter |
| Tangible book value per share | $3.64 -24% from last quarter after share conversion |
⚖️ Verdict: 🟢 Bullish
The story got better because chief executive Alfred Rogers halted the slide in loans and deposits while keeping deposit costs steady. However, two cautions remain: converting rescue preferred stock into 23 million common shares cut tangible book value per share by 24% to $3.64, and operating expenses still exceeded revenue, leaving a $1 million pre-tax loss even with zero credit provision expense.
The question now is whether BayFirst can grow net interest income fast enough to cover its branch and staff costs while its old $131 million unguaranteed small-business loan book winds down. Either new local commercial loans lift quarterly revenue above the $13 million expense base, or rising early-stage delinquencies force fresh credit provisions and keep the bank in the red. Fourth-quarter pre-tax earnings and past-due loan ratios will show which path holds.
🐂 Bull Case
Community Lending Reversal Ends the Balance-Sheet Shrinkage
BayFirst exited its national small-business lending program last year to focus on local borrowers in Tampa Bay and Sarasota. After three straight quarters where total loans shrank by $35 million to $41 million a quarter, the balance sheet grew again. Chief executive Alfred Rogers said "Total community bank loans, excluding the government guaranteed portfolio, grew $41.9 million over the prior quarter, or 25% annualized".
- New community bank loan production: $89.6 million, up from $7.5 million across the entire first half of 2026
- Commercial and industrial community loans: $59.3 million, up $35.4 million from last quarter
- Total loans held for investment: $903.0 million, up $20.1 million or 2.3% from last quarter
- New South Tampa branch: opened in September and held $30.1 million in deposits at quarter-end
The rebound matters because a shrinking loan book was cutting interest income every quarter, but one quarter of growth does not yet prove steady local demand. Nearly all of the new volume came from a single jump in commercial and industrial loans, while residential mortgages still slipped 1%.
What to watch: fourth-quarter community loan originations and net loan growth. Another quarter above $50 million in new production would show the new banking team is winning recurring local business rather than booking a one-time batch of deals.
Cleaner Loan Yields and Cheaper Deposits Lift Margins
Net interest margin — the spread a bank earns between the interest it collects on loans and what it pays on deposits — rose 0.59 percentage points from last quarter to 4.07%. Rogers noted that "for the first time in nearly three years, deposit growth outpaced loan growth, a clear sign that our relationship-focused approach is strengthening our funding base".
Two forces drove the improvement. First, average loan yields rebounded 0.57 percentage points to 7.10% because last quarter's $1.6 million write-down on government-guaranteed loan premiums did not repeat. Second, total deposits rose $25.3 million to $1.01 billion as checking, savings, and money market accounts grew, allowing the bank to trim higher-cost time deposits by $8.7 million and hold its overall funding cost at 3.00%.
What to watch: fourth-quarter net interest margin and deposit costs. Holding the margin above 4.00% while growing local deposits would confirm the bank can fund new loans without bringing back expensive promotional rates.
Second-Quarter Loan Reserves Absorbed Third-Quarter Charge-Offs
Last quarter BayFirst took $30.5 million in credit-loss provisions under its asset resolution plan to cover bad loans left over from its discontinued small-business lending unit. Rogers said "In the second quarter we took deliberate steps under our asset resolution plan to strengthen our balance sheet, and this quarter’s results show those actions are beginning to pay off".
In the third quarter, the bank booked a slight credit provision benefit of $69 thousand, down from a $29.0 million expense in the second quarter. Net charge-offs — loans written off as uncollectible — fell to $3.2 million from $4.5 million last quarter and drew down the existing reserve rather than hitting current earnings. Even after those write-offs, the allowance for credit losses stands at 5.20% of unguaranteed loans.
What to watch: quarterly net charge-offs and credit provisions over the next two quarters. If write-offs continue to run near $3 million without requiring new provisions, the second-quarter reserve build was large enough to wall off the old loan book.
🐻 Bear Case
Preferred Stock Conversion and Rights Offering Dilute Shareholders
To repair its capital ratios earlier this year, BayFirst raised $80 million in preferred stock that carried mandatory conversion terms into common shares at $3.50 each. This quarter, that rescue financing hit the common share count while also rebuilding the bank's equity cushion.
- Common shares outstanding at September 30: 27.0 million, up more than sixfold from 4.1 million in June after converting Series D and E preferred stock
- October 8 rights offering: 4.1 million additional common shares issued at $3.50 for $14.4 million in gross proceeds, lifting total shares to 31.1 million
- Series A and B preferred redemption: $9.7 million paid in August to retire older preferred stock, including accrued dividends
- Tangible book value per share: $3.64, down 24% from $4.82 in June and down 78% from $16.50 a year ago
The recapitalization solved the bank's regulatory capital shortfall and lifted common shareholders' equity from $19.9 million to $98.1 million. However, issuing nearly 27 million new shares across the conversion and rights offering at $3.50 permanently spreads future earnings across more than seven times as many shares as existed a year ago.
What to watch: tangible book value per share in the fourth quarter, which will include the 4.1 million rights-offering shares at $3.50. Any further quarterly net losses will push book value below the $3.50 recapitalization price.
Operating Costs Still Exceed Revenue Despite Staff Cuts
Exiting the national small-business lending program removed BayFirst's largest source of fee income, leaving the bank dependent on net interest income to cover its branch network and staff. Prior management had once targeted a positive return on assets of 0.40% to 0.70% for 2026, a goal current leadership has not repeated.
Even with zero credit-loss provision expense and no one-time restructuring charges this quarter, BayFirst lost $1.0 million before taxes and $0.7 million after taxes, for an annualized return on assets of negative 0.24%. By our math, noninterest operating expenses of $12.8 million equaled 109% of the bank's $11.7 million in net revenue. Total employee compensation fell by 37 percentage points of net revenue from a year ago to 43% after staff cuts from 237 to 146 full-time employees, and data processing fell after the bank paid $2.3 million last quarter "to record a change in control payment and write-off vendor contracts related to national lending and digital account opening businesses". Yet loan servicing and origination costs remained high at $3.0 million, keeping total overhead above revenue.
What to watch: fourth-quarter pre-tax income and noninterest expense. Until quarterly operating expenses fall below $11.5 million or loan growth lifts net interest income by another $1 million, the bank cannot earn a profit even in quarters with zero credit provisions.
Past-Due Loans Rise While Legacy SBA Balances Remain
Management emphasized credit progress this quarter, with Rogers stating that nonperforming assets fell as a share of total assets and net charge-offs declined. Overall nonperforming assets did drop from 1.75% of assets in June to 1.29% in September, helped by the run-off and resolution of government-guaranteed balances.
However, the investor presentation shows an early-stage credit metric moving the other way. Past-due and nonaccrual loans — borrowers behind on payments or no longer accruing interest, excluding government-guaranteed balances — rose 0.41 percentage points from last quarter to 3.33% of amortized-cost loans. At the same time, BayFirst still holds $130.8 million of unguaranteed SBA 7(a) small-business loans, down $11.2 million from June by our math.
What to watch: the ratio of past-due and nonaccrual loans to total loans in the fourth quarter. A second straight increase above 3.33% would signal that newly delinquent borrowers are refilling the problem-loan pipeline faster than the bank resolves old ones.
Risks this quarter didn't answer
Three standing balance-sheet and governance questions could not be evaluated from the earnings release and investor presentation alone, awaiting the full quarterly filing.
- Deferred tax asset valuation allowance: the bank carries $21.8 million in deferred tax assets despite cumulative three-year losses; the quarterly filing's tax footnote will show if a valuation allowance was required.
- Internal control remediation: following July's restatement of 2024, 2025, and first-quarter 2026 results for loan accounting errors, the quarterly filing's controls section will update remediation progress.
- Holding company standalone cash: parent-level cash was $12.6 million in June before paying $9.7 million to redeem Series A and B preferred stock in August, though October's $14.4 million rights offering will replenish it.
💲 Other KPIs
The bank subsidiary's Tier 1 leverage ratio — core capital as a percentage of average assets — rose 0.49 percentage points from last quarter and 2.65 percentage points from a year ago. After falling below regulatory well-capitalized thresholds in the first quarter, capital injections from the second-quarter financing and a smaller asset base have restored the buffer.
On-balance sheet liquidity — cash and unpledged securities as a share of assets — edged down from 14.95% in June and 18.44% at the end of 2025 as the bank deployed $10.8 million of cash into new loans. Cash and equivalents ended the quarter at $128.3 million, with zero borrowings from the Federal Home Loan Bank.
Deferred tax assets — tax credits from past operating losses that can offset future tax bills — rose by $0.6 million from June and $14.8 million from a year ago. The balance now represents 22% of common shareholders' equity, meaning its value depends on BayFirst returning to sustained profitability.
❓ Key Questions
Why did past-due and nonaccrual loans rise in Q3?
While total nonperforming assets fell, past-due and nonaccrual unguaranteed loans rose 0.41 percentage points to 3.33% of amortized-cost loans. Investors need to know whether those delinquencies came from the remaining $130.8 million of unguaranteed SBA loans or from the community bank portfolio.
Will BayFirst issue formal financial targets for 2027?
BayFirst gives no quarterly or annual numerical outlook, and prior management's 2026 return-on-assets target of 0.40% to 0.70% has not been mentioned all year. Clear targets for expenses, loan growth, or return on assets would show when management expects to reach break-even.
How much of the $14.4 million rights offering stays at the parent?
The parent holding company spent $9.7 million in August to redeem Series A and B preferred stock out of $12.6 million in June cash. Management should disclose how much of October's $14.4 million offering stays at the parent to cover debt service versus going into the bank.
What drove the $35 million jump in commercial loans?
Community commercial and industrial loan balances more than doubled from $23.9 million in June to $59.3 million in September on $44.4 million of new production. Management should clarify whether these were local relationship originations or purchased loan participations.