Detailed narrative
Asset Resolution and Financial Restatement
The company undertook a comprehensive asset resolution plan in Q2 FY26, resulting in a $41.5 million pretax impact from charge-offs, increased allowance for credit losses on SBA 7(a) loans, impairment of an equity investment, and write-down of unamortized premiums. Concurrently, material misstatements from prior periods (2024, 2025, Q1 2026) were identified and corrected, leading to restated financials and amended SEC filings. Management emphasized that exiting the SBA 7(a) lending business will prevent recurrence of these errors.
Capital Strengthening and Shareholder Actions
BayFirst completed an $80 million capital raise in April. Shareholders approved an increase in authorized common stock from 15 million to 100 million, facilitating the conversion and retirement of Series D and E preferred stock into 22,856,000 common shares. Series A and B preferred shares were also redeemed in July. A rights offering for existing shareholders, delayed due to the restatement, is now scheduled to launch in August, with communications to be mailed next week.
Strategic Reorientation and Leadership Changes
The bank is exiting the SBA 7(a) lending business and refocusing on traditional commercial and consumer lending within its market. New leadership appointments include Trey Korhn as Chief Banking Officer and Samantha Hill as Director of Retail Banking, aimed at sharpening execution and accelerating growth in core relationship banking. Adam Curtis continues to lead commercial lending as Chief Lending Officer, reporting to Trey.
Deposit and Funding Strategy
Deposits decreased by $97 million (9%) QoQ to $989 million, primarily due to the intentional reduction of high-rate promotional deposits from non-relationship customers and broker deposits. The bank is focused on improving its deposit mix towards lower-cost, relationship-based accounts and reducing its cost of funds, which decreased 24 bps QoQ to 2.66% and 49 bps YTD. 80% of deposits were FDIC insured at quarter-end.
Loan Portfolio and Credit Quality
Loans held for investment decreased by $41.4 million (4%) QoQ to $882.8 million. The asset resolution plan significantly increased the allowance for credit losses to 5.37% of total loans (5.82% excluding government-guaranteed loans). Nonperforming loans (excluding government-guaranteed) decreased to $14.4 million from $15.9 million QoQ, with 68% of classified loans being current and performing.
Operational Efficiency and Growth Initiatives
The company is investing in technology and process improvements to enhance efficiency and customer experience. A new retail branch is scheduled to open in South Tampa in September, expanding the bank's presence in the Tampa Bay market and supporting its strategy of growing core relationships and disciplined lending. The treasury fee revenue grew 75% YoY in FY25 and is on track to continue increasing this year, supported by existing systems and planned team expansion.