BayFirst Financial (NASDAQ:BAFN) reported a second-quarter net loss of $32.7 million as the company completed an asset resolution plan focused largely on legacy unguaranteed SBA 7(a) loans, restated prior financial statements and continued a broader restructuring of its banking operations.
The loss compared with a restated net loss of $5.9 million in the first quarter. Chief Financial Officer Scott McKim said the company recorded $43.8 million of pre-tax charges tied to the asset resolution plan and other one-time items, compared with a total pre-tax loss of $44 million for the quarter. Excluding those items, McKim said the company’s recurring operating loss was about $200,000.
Asset Resolution Plan Drives Quarterly Loss
McKim said the plan involved an analysis of more than 7,000 individual SBA loans, resulting in full or partial charge-offs, specific allowances on six loans, increased reserves for unguaranteed SBA loan categories and fair-value adjustments on certain loans. The overall adjustment totaled $38.4 million.
- Provision expense was $29.7 million during the second quarter.
- Total allowance for credit losses was $45.1 million as of June 30.
- The company recorded a $1.5 million impairment on a non-marketable equity investment tied to a former SBA 7(a) lending partner.
- BayFirst also wrote down unamortized premiums on purchased, fully guaranteed USDA loans that face default or early-prepayment risk.
McKim said the total impact of the asset resolution plan was $41.5 million. The company also identified $2.2 million in additional one-time charges, including write-offs of vendor contracts that will no longer be used and an accrued change-in-control payment to prior management.
The bank’s unguaranteed SBA 7(a) loan balances declined to $142 million at June 30 from $159.3 million at the end of the first quarter. McKim said part of that decline reflected the asset resolution plan and that the quarter’s reduction was faster than what he considered a typical run rate.
Prior Financial Statements Restated
BayFirst restated financial statements for the years ended Dec. 31, 2024 and Dec. 31, 2025, as well as the quarter ended March 31, 2026. Rogers said the company filed amended annual and quarterly reports during the week of the earnings call.
McKim said the company identified $2.8 million of deferred origination costs and $2.1 million of accrued interest as of March 31 that were associated with loans that had defaulted or entered non-accrual status in prior periods. The errors had resulted in an understatement of provision expense and an overstatement of net interest income in affected periods.
The company subsequently identified another $3.4 million of deferred origination costs that should have been netted against gains on sales of government-guaranteed loans, leading to a material overstatement of those gains in 2024 and 2025. McKim said the errors also occurred in periods before 2024, though they were not material in those years.
Management is continuing operational remediation work and plans to provide updates in future Securities and Exchange Commission filings. McKim said the errors will not recur through the SBA 7(a) lending business because BayFirst has exited that business.
Capital, Liquidity and Credit Metrics
Shareholders’ equity totaled $115.9 million at the end of the quarter, up $40.3 million from the first quarter, reflecting the capital raise net of the asset resolution plan’s impact. Tangible book value per share declined to $4.82 from $14.22 at March 31.
The bank’s Tier 1 leverage ratio improved to 8.3% at June 30 from 5.89% at the end of the first quarter. Its total capital-to-risk-weighted-assets ratio rose to 12.77% from 9% over the same period.
Deposits declined 9% during the quarter to $989 million, primarily because BayFirst reduced high-rate promotional deposits held by non-relationship customers and lowered brokered deposits. McKim said 80% of deposits were FDIC insured at quarter-end, the on-balance-sheet liquidity ratio was 14.95%, and the bank had no wholesale borrowings.
Loans held for investment fell 4% during the quarter to $882.8 million and were down 21% from a year earlier, largely reflecting loan sales and the company’s exit from SBA 7(a) lending in the fourth quarter of 2025.
Net interest income was $9.4 million, virtually unchanged from the first quarter but down $2.7 million from a year earlier. Net interest margin increased four basis points sequentially to 3.48%. On a normalized basis excluding one-time asset-resolution impacts, McKim said the margin was 4.07%, aided by a 24-basis-point sequential decline in cost of funds to 2.66%.
Robin Oliver, Chief Operating Officer, said the allowance for credit losses as a percentage of loans held for investment, excluding government-guaranteed balances, increased to 5.82% at June 30 from 2.55% at the end of the first quarter. The SBA Bolt portfolio carried a 32.8% reserve against unguaranteed balances, while the SBA FlashCap portfolio carried a 25% reserve.
Nonperforming loans excluding government-guaranteed balances declined to $14.4 million from $15.9 million in the first quarter. Oliver noted that $3.1 million of those nonperforming balances were current and paying as agreed and could be evaluated for a potential return to accrual status.
Banking Expansion and Rights Offering Plans
Rogers said BayFirst is shifting its focus toward relationship-based commercial and consumer lending in its markets, along with core deposits and treasury-management services. The company said its loan pipeline is strong and that it sees opportunities across its footprint, though it remains focused on managing legacy SBA-related payoffs and charge-offs.
The company appointed Trey Korhn as chief banking officer to lead retail and commercial banking. Adam Curtis will remain chief lending officer and report to Korhn, while Samantha Hill became director of retail banking.
BayFirst submitted an application to open a South Tampa retail location, which is expected to open in September and would bring its branch network back to 12 locations after the closure of a Sarasota office in the prior quarter. Rogers said the bank had already begun opening accounts in the South Tampa market and expects the leased location to reach stability in less than two years.
The company also said it expects to launch its previously announced rights offering in August after completing its restated financial filings. At a July 14 special shareholder meeting, investors approved an increase in authorized common shares to 100 million from 15 million and approved the conversion of Series D and Series E preferred shares into 22.856 million common shares. BayFirst also redeemed its Series A and Series B preferred shares in July.
About BayFirst Financial (NASDAQ:BAFN)
BayFirst Financial Corp (NASDAQ: BAFN) is the bank holding company for BayFirst National Bank, which operates as a Florida-chartered community bank. The company provides a range of commercial banking services, catering to both business and individual customers in the Tampa Bay region. BayFirst Financial emphasizes relationship-driven banking, offering personalized solutions tailored to the needs of local clients.
The company’s product suite includes deposit accounts such as checking, savings, money market accounts and certificates of deposit.
