BAFN — Q2 2026 Financial Report Analysis

BayFirst loses $32.7 million in Q2 as it writes down its old SBA loan book and recapitalizes

BayFirst Financial, the parent of St. Petersburg, Florida's BayFirst National Bank, lost $32.7 million, or $8.05 per share, in the second quarter of 2026. A year earlier it lost $1.9 million, or $0.54 per share; that figure is restated, as explained below. Nearly all of the loss traces to one decision. As part of an $80 million capital raise signed on April 28, 2026, management adopted an "asset resolution plan" to mark down the small-business loans left over from its SBA 7(a) lending business, which it exited in late 2025. The filing puts the plan's cost at $41.5 million. That covers $38.4 million of lower expected collections on specific government-guaranteed loans and on more than 7,000 small SBA 7(a) loans, a $1.5 million impairment of an equity stake in a former SBA lending partner, and a $1.6 million write-down of premiums paid for purchased USDA loans.

The quarter also came with a restatement. BayFirst found that it had been booking too much interest income and too much gain on loan sales on SBA loans that had defaulted. It has restated 2024, 2025 and Q1 2026, and it reports a material weakness in its internal controls. All year-ago and prior-quarter figures below are the restated numbers.

At a glance

• Total revenue of $2.6 million, down 88.5% from $22.7 million. Net interest income was $9.4 million, but fee and other income was negative $6.8 million. Gains from selling SBA loans fell to zero, and the bank took $6.5 million of fair-value losses on SBA loans it carries at market value.
• Loss provision of $29.0 million, against $4.5 million of actual net charge-offs. The provision is the amount a bank sets aside for loans it expects to go bad. BayFirst set aside about six and a half times what it actually wrote off this quarter, so the loan-loss allowance jumped to 5.37% of loans from 1.65% a year ago.
• Common equity per share fell to $4.83 from $14.22 in one quarter. The $80 million of new money came in as preferred stock that converts into common at $3.50 a share. On July 14 shareholders approved converting it into 22.86 million new common shares, about 5.6 times the 4.1 million shares that were already outstanding.

Key figures

n/m = not meaningful (a loss compared against a smaller loss). Return on average common equity was -195.5% annualized. BayFirst does not report a return on tangible common equity or an efficiency ratio. With negative fee income, an efficiency ratio would not mean much anyway.

What drove the quarter

The SBA business is gone, and so is its income. For years BayFirst made SBA 7(a) loans, sold the government-guaranteed part to investors at a premium and booked that premium as "gain on sale." In Q2 2025 that brought in $5.9 million, more than half of the $10.5 million in fee income. After the exit in Q4 2025 the line was zero in Q2 2026 and slightly negative ($-0.1 million) for the half-year. Loan packaging fees, which were $0.6 million a year ago, also went to zero. This is why BayFirst's revenue used to swing so much: a large share came from loan sales that depended on how many loans it made and sold each quarter, not from steady interest income. That source is now closed. What remains is a conventional Tampa Bay community bank, and it is smaller. Full-time staff fell from 300 to 148, and branches from 12 to 11.

Net interest income fell 22%. Net interest income is the interest a bank earns on loans minus the interest it pays depositors. According to the filing, loan interest income fell $6.4 million, $3.6 million of it from lower loan balances and $2.8 million from lower rates. Paying less on deposits saved $2.4 million. The $1.6 million USDA premium write-down is part of that loan-income decline. Net interest margin is net interest income as a share of the bank's interest-earning assets. It was 3.48%, down from 4.01%. Management says that excluding the write-downs the margin would have been 4.07%, which would be roughly flat against a year ago. The underlying spread has held up. The bank is simply earning it on a smaller balance sheet.

The provision is a reset, not this quarter's losses. Net charge-offs, the loans actually written off after recoveries, were $4.5 million, or 2.08% of average loans annualized. That is lower than Q2 2025 ($7.1 million, 2.74%) and Q1 2026 (2.14%). The $29.0 million provision instead reflects management's new estimate of what the remaining SBA loans will eventually return. The allowance rose to $45.1 million from $20.6 million at March 31, and it is now about 2.4 times nonperforming loans ($18.5 million).

What the headline numbers hide

• The earlier profits were overstated. The restatement found $2.8 million of deferred loan costs and $2.1 million of accrued interest (as of March 31, 2026) still on the books for SBA loans that had already defaulted. That overstated net interest income and understated loss provisions. Another $3.4 million of deferred costs should have been netted against SBA sale gains in 2024–2025. The filing says controls over nonaccrual status, charge-offs and gain-on-sale accounting were not effective as of June 30, 2026. Until that is fixed, reported credit numbers deserve some extra caution.
• The tax benefit softened the loss. The pre-tax loss was about $44.0 million. An $11.4 million tax benefit brought it down to $32.7 million. The company now has $31.0 million of federal and $34.6 million of state net operating loss carryforwards (past losses it can deduct from future taxable profit), and it "expects to fully utilize" them. That benefit is only worth something if the smaller bank returns to steady profits.
• Cash flow did not follow the accounting loss. Operating cash flow for the half-year was -$2.8 million, against a net loss of $38.6 million. Most of the loss is non-cash: provisions and fair-value marks, not cash leaving the bank. The year-ago figure of +$139.3 million is not a useful comparison, because it included proceeds from selling SBA loans that had been held for sale.
• Some of the expenses are one-offs. Noninterest expense was $17.7 million, roughly flat against $17.5 million. Salaries fell $2.8 million because of the smaller staff. The filing ties $3.9 million of this quarter's expense (data processing, other expense and compensation) to the asset resolution plan. Without those items the cost base would be noticeably lower than a year ago.
• Deposits are shrinking, partly on purpose. Deposits fell $195.1 million (16.5%) in six months to $988.9 million, and $97.0 million of that came in Q2 alone. Most of the drop was in interest-bearing checking accounts (down $95.6 million) and certificates of deposit (down $88.8 million). Brokered deposits, money gathered through third-party brokers, fell to $163.8 million from $195.5 million. Noninterest-bearing deposits rose to $116.8 million from $95.7 million. Deposits above the FDIC insurance limit are about 20% of the total. The bank has no Federal Home Loan Bank or Federal Reserve borrowings and could borrow up to $183.5 million and $34.0 million from them.

Capital: the raise did its job, and existing shareholders paid for it

Common equity tier 1 (CET1) is a bank's highest-quality capital, mainly common equity, measured against its risk-weighted assets. Regulators want it above 6.5% for a bank to count as "well capitalized." At the bank level, CET1 rose to 11.47% from 8.22% at the end of 2025, and the leverage ratio rose to 8.30% from 5.98%. Without the $74.5 million of net proceeds, the Q2 losses would have pushed the bank well below those thresholds. Total shareholders' equity was $115.9 million. However, $96.1 million of that was preferred stock at its liquidation value, which left only $19.9 million for common shareholders.

After the quarter, BayFirst made these changes:

• On July 14 it exchanged the Series D and E preferred for 22.86 million common shares.
• On August 10 it redeemed its older Series A and B preferred for $9.7 million including dividends.
• On September 1 it opened a rights offering. Holders of record as of May 12 could buy up to 4.1 million more shares at the same $3.50 price.

Existing holders who don't take part in the rights offering will own about 15% of the company.

Takeaway: This quarter turned BayFirst into a different bank. It took $41.5 million of charges in one go to clear out its former SBA lending book, and investors buying in at $3.50 a share supplied the capital to absorb them. The core bank still earns about a 4% margin, and actual charge-offs are falling. But common shareholders' book value fell from $14.22 to $4.83 a share in three months, and their ownership is being diluted roughly six-fold.

What to watch next

BayFirst gave no earnings guidance. It has said it will report Q3 2026 results after the market close on October 29, 2026. Q3 is the first quarter with the converted share count. Things to check:

1. Whether the reset was big enough. If Q3 needs another large provision or fair-value loss on the leftover SBA loans, the $38.4 million estimate was too low. A provision close to net charge-offs would suggest the plan covered the problem.
2. What the bank earns without SBA income. Net interest income of roughly $9.4 million a quarter, plus about $1 million of service and servicing fees, has to cover an expense base that was $17.7 million this quarter. Even after removing the $3.9 million tied to the plan, costs are well above revenue. To show a path to profit, BayFirst needs much lower expenses, more lending or both.
3. Deposits and the rights offering. Watch whether deposits stabilize near $1 billion and how many shares the rights offering sells. Watch also whether the material weakness is reported as fixed.

Our view: the capital problem looks solved for now, with CET1 at 11.5% and no wholesale borrowings. The profit problem is not. A bank this size without its old fee engine has to cut costs further before the converted shares can earn a reasonable return.

Source: BayFirst Financial Corp. Form 10-Q for the quarter ended June 30, 2026, filed August 14, 2026. Year-ago and Q1 2026 figures are as restated in that filing. Earnings-date and rights-offering details are from the company's 8-K filings of September 1 and September 30, 2026.