BAFN

BayFirst Financial Corp. 10-Q Summary (Period Ended June 30, 2026)

Business Context and Reporting Period

This Quarterly Report on Form 10-Q covers the fiscal period ended June 30, 2026. BayFirst Financial Corp. is a one-bank holding company operating BayFirst National Bank, primarily serving Florida. The Company is classified as a smaller reporting company and an emerging growth company. The financial statements for the current and prior periods have been restated to correct material accounting errors related to deferred origination costs, accrued interest on defaulted SBA 7(a) loans, and the calculation of gains on loan sales.

Key Financial Metrics

Material Changes and Drivers

• Asset Resolution Plan: The significant increase in net loss and provision for credit losses is primarily driven by a $41.5 million expense related to an asset resolution plan. This included provisions for over 7,000 unguaranteed SBA 7(a) loans, write-downs on loans measured at fair value, and impairment of nonmarketable equity securities ($1.5 million).
• Restatement Impact: Prior period results were restated to reflect the correction of cumulative misstatements totaling $2.8 million in deferred origination costs and $2.1 million in accrued interest, which had previously understated credit loss provisions and overstated net interest income.
• Capital Raise: In April 2026, the Company issued Series D and Series E preferred stock, raising net proceeds of $74.5 million. This significantly increased total shareholders' equity to $115.9 million from $81.6 million at year-end 2025, despite the current period net loss.
• Deposit Outflow: Total deposits decreased by $195.1 million (16.5%) compared to the prior year, driven by a reduction in interest-bearing transaction accounts and time deposits.
• Noninterest Income: Total noninterest income turned negative at $(5.9) million for the six-month period, largely due to a $7.0 million fair value loss on government guaranteed loans and a $1.5 million loss on nonmarketable equity securities.

Outlook, Risks, and Contingencies

• Material Weakness in Internal Controls: Management identified a material weakness in internal control over financial reporting related to the monitoring of loan nonaccrual status, charge-offs, and the recognition of origination costs. A remediation plan is underway, with implementation expected in the third quarter of 2026.
• Dividend Suspension: The Company has temporarily suspended common and preferred stock dividends. Accrued preferred dividends of $1.5 million were paid in July 2026.
• Subsequent Events: In July 2026, the Company obtained shareholder approval to convert Series D and Series E preferred stock into 22.9 million shares of common stock. Additionally, Series A and Series B preferred shares were formally redeemed in August 2026.
• Liquidity: The Company maintains a liquidity ratio of 14.95% and has access to borrowing capacity of approximately $183.5 million from the FHLB and $34.0 million from the Federal Reserve Bank.

Investor Verification Checklist

• Restatement Details: Review the specific adjustments made to the 2024, 2025, and Q1 2026 financial statements to understand the full historical impact of the accounting errors.
• Asset Resolution Plan: Verify the specific loan segments and collateral values associated with the $41.5 million provision expense to assess future credit risk exposure.
• Capital Structure Changes: Confirm the final terms and dilution impact of the conversion of Series D and E preferred stock into common stock.
• Internal Control Remediation: Monitor the progress of the remediation plan for the material weakness in internal controls, particularly regarding loan accounting and charge-off procedures.
• Deposit Trends: Analyze the sustainability of the 16.5% deposit outflow and the Company's strategy to replace these funds.