BAFN 10-K & 10-Q changes, risk factors and insider trading
BayFirst Financial Corp. · Nasdaq · State Commercial Banks · CIK 1649739 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
Removed heading “We may be unable to continue to produce the volume of loans necessary to support our SBA and other government guaranteed lending business.”
Removed heading “We depend on the sale of both the guaranteed and unguaranteed portions of our government guaranteed loans, but also face risks relating to the retained portions of unguaranteed loans.”
Removed heading “Our loan origination processes present heightened opportunities for borrower or referral fraud.”
Removed heading “Our loan referral sources operate independently from us and may take actions for which we may be held responsible.”
Removed heading “We rely heavily on technology partners and other referral sources in our government guaranteed loan origination process.”
Removed heading “Our operations are growing at a rapid pace and our training programs and operational protocols may lag behind our growth.”
Removed heading “We have expanded into new markets with which we have less familiarity with than our historic markets.”
Largest changes
“Our referral sources for SBA and other government guaranteed loans operate independently from us and have the initial interactions with many loan applicants and borrowers. As part of those interactions, our referral sources may take actions which violate laws, regulations, or our policies. These may include, among other things, charging impermissible fees, failing to provide or properly complete required documentation or disclosures, making false or misleading statements, or encouraging an applicant to make misrepresentations. …”see in full comparison
“We depend on the sale of both the guaranteed and unguaranteed portions of our government guaranteed loans, but also face risks relating to the retained portions of unguaranteed loans.”see in full comparison
“We may be unable to continue to produce the volume of loans necessary to support our SBA and other government guaranteed lending business.”see in full comparison
“We rely heavily on technology partners and other referral sources in our government guaranteed loan origination process.”see in full comparison
“Our operations are growing at a rapid pace and our training programs and operational protocols may lag behind our growth.”see in full comparison
“Our loan referral sources operate independently from us and may take actions for which we may be held responsible.”see in full comparison
Full comparison: every changed paragraph (26)
•Our ability to grow the size and geographic scope of our loan generation,portfolio, loan sale, and depositdeposits gathering business, and the infrastructure needed to support it;
We may need to obtain additional debt or equity financing to meet our capital needs, absorb losses, fund future growth, or meet the requirements of our regulators. Our ability to maintain capital at required levels depends on many factors, including our financial performance, asset quality, loan growth, dividend policy, and the overall condition of the capital markets. We cannot guarantee that any needed financing will be available to us on acceptable terms or at all. If our financial performance is unsatisfactory, if financial market participants have an unfavorable view of the Company and its performance, or if negative economic events or disruptions in the capital markets occur, it may not be possible for us to find sources of sufficient capital for our business operations. If we are unable to obtain future financing, we may become subject to regulatory enforcement actions, not be able to resume paying dividends or repurchasing stock, not be able to grow, and experience other adverse effects to our business, financial condition, and results of operations.
We may be unable to continue to produce the volume of loans necessary to support our SBA and other government guaranteed lending business.
Our business strategy places a significant emphasis on SBA and other government guaranteed lending. In order to successfully implement this strategy, we must originate and fund a substantial dollar amount of loans. To do so, we must identify qualified and interested borrowers and have sufficient capital and liquidity to support and fund such loans. If we are not successful in implementing this strategy, our income and results of operations may be adversely affected.
We depend on the sale of both the guaranteed and unguaranteed portions of our government guaranteed loans, but also face risks relating to the retained portions of unguaranteed loans.
Our strategy historically has been, and may continue to be, to sell both the guaranteed balances of SBA and other government guaranteed loans, as well as a percentage of the unguaranteed portions of such loans, within legally allowable limits. A material portion of our net income and profitability depended, and may continue to depend, on gains on sales of the guaranteed portions of the government guaranteed loans that we originate. We also from time to time pursue the sales of unguaranteed portions of such loans, which provide us with additional liquidity and capital capacity to permit us to make additional loans. Our ability to sell both the guaranteed and unguaranteed portions of these loans is dependent upon our ability to identify purchasers with the demand and capacity to buy them, the attractiveness of the loans, our underwriting quality, and other factors. Our ability to continue to make new loans and hold them in our loan portfolio will be limited by our current capital and liquidity positions. To the extent we retain the unguaranteed portion of these loans in our portfolio, we may be required to make significant provisions to our ACL.
Our loan origination processes present heightened opportunities for borrower or referral fraud.
The loans we originate through our technology partners and referral sources are obtained primarily through an online application process. We do not generally meet with the borrowers in person. Our referral sources also are involved in assisting the borrowers with completing their loan applications. Therefore, it is difficult for us to definitively ascertain or confirm a borrower’s identity, structure, creditworthiness, or veracity in completing the loan application process. If a borrower or a referral source intentionally, or unintentionally, provides us with incorrect information that we rely on in underwriting a loan, we could be subject to increased credit risk for that loan. Such increased risk could result in increased loan losses or heightened provisions to our ACL, either of which would adversely affect our credit quality and net income. We may also become subject to heightened regulatory scrutiny for making loans to such borrowers and may be required to dedicate time and other resources to addressing regulatory concerns.
Our loan referral sources operate independently from us and may take actions for which we may be held responsible.
Our referral sources for SBA and other government guaranteed loans operate independently from us and have the initial interactions with many loan applicants and borrowers. As part of those interactions, our referral sources may take actions which violate laws, regulations, or our policies. These may include, among other things, charging impermissible fees, failing to provide or properly complete required documentation or disclosures, making false or misleading statements, or encouraging an applicant to make misrepresentations. In certain instances, the Bank may be held responsible by an applicant or a government agency for such actions. If that were to happen, the Bank may be required to pay restitution or fines, be subject to regulatory enforcement actions, or lose certain statuses with the SBA or other government agencies.
We rely heavily on technology partners and other referral sources in our government guaranteed loan origination process.
As part of our government guaranteed lending strategy, we use the services of technology partners and other referral sources. These arrangements allow us to originate loans throughout the U.S. via the internet. We do not have an exclusivity arrangement with any referral source. Therefore, we cannot be assured that we will be able to originate and close or maintain any specific level of government guaranteed loans through such sources in the future. In addition, our technology partners are subject to online commerce risks generally, including hacking and use of the site by persons using fraudulent credentials. Should we not continue to generate a substantial volume of loan business through our use of referral sources, or if they experience operational interruptions, or direct loans to other lenders, our government guaranteed lending may be materially reduced, which could reduce our net income and our asset growth.
Our operations are growing at a rapid pace and our training programs and operational protocols may lag behind our growth.
Our branch network and government guaranteed lending operations are expanding at a rapid pace. As a result, we may not be able to provide comprehensive or timely training to staff.
We may also not develop appropriate operational protocols as we expand our products and services. If we fail to do so, our employees may not have a set of standards and expectations pursuant to which they perform their assigned duties. If we are not able to fully and promptly provide training to our employees, or develop appropriate protocols, our employees may be susceptible to mistakes, fail to recognize fraud or other weaknesses in our operations, or fail to recognize or mitigate other risks.
A shutdown of the Federal government would likely result in us being temporarily unable to make SBA and otherUSDA government guaranteed loans.
If the Federal government experiences a shutdown, it is likely that the SBA,USDA, and other agencies which guaranty some of the loans we make, will be unable to process those loans and sell those loans. As a result, our ability to make those loans would be delayed. During such a delay, it is possible that prospective borrowers could obtain financing from other sources or elect not to borrow. Any delay in closing these types of loans, or losing the opportunity to originate or sell them, could result in decreased fee and interest income, which would adversely affect our financial performance.
Changes in the laws or regulations governing our SBA and otherUSDA government guaranteed lending activities and our mortgage lending business may adversely affect our ability to operate them profitably.
Our SBA and otherUSDA government lending programs and our mortgage lending activities are subject to laws and regulations administered by government agencies such as the SBA, the United States Department of Housing and Urban Development,Development and the United States Department of Agriculture. If any of these laws or regulations change, or the policies and practices of these agencies change, such changes may impact our ability to offer such products in a profitable manner, or at all. If we are unable to profitably offer these products, our net income will likely decrease and our financial condition and performance will likely deteriorate.
As market interest rates increase, the unrealized losses on the Bank’s investment portfolio also increase. As market interest rates decrease, the unrealized losses on the Bank’s investment portfolio also decrease. The increase or decrease in unrealized losses is reflected in Accumulated Other Comprehensive Income (“AOCI”) on the balance sheet and increases or reduces book capital, and therefore, the tangible common equity ratio. Unrealized losses do not affect regulatory capital ratios.
We have expanded into new markets with which we have less familiarity with than our historic markets.
We intend to continue to expand the location and number of our Florida banking centers and the national scope of our SBA and USDA loan origination efforts when we identify attractive opportunities. Our senior management and Board of Directors have less familiarity with out of state markets and may not fully understand the nuances of our new Florida markets. We are dependent on the expertise and actions of the bankers we have hired to be successful in these markets.
We may need to obtain additional debt or equity financing to fund future growth and meet our capital needs. We cannot guarantee that such financing will be available to us on acceptable terms or at all. If our financial performance is unsatisfactory or if negative economic events or disruptions in the capital markets occur, it may not be possible for us to find sources of sufficient capital for our business operations. If we are unable to obtain future financing, we may not have the resources available to fund our planned growth.
We have 1,000,000 shares of authorized preferred stock, no par value. Of those, shares in three classes are issued and outstanding. The terms of those shares currentlyentitle requirethe usholders to pay quarterly dividends of $385 thousand (subject to increase if we do not timely redeem them) and prohibit us from paying common stock dividends if we are delinquent in payment of preferred stock dividends. Additionally, our Articles of Incorporation provide that our Board of Directors may authorize additional series of preferred stock without shareholder approval. Accordingly, the issuance of new shares of preferred stock may adversely affect the rights of the holders of shares of our common stock. Since July 1, 2025, the Board of Directors has not declared preferred dividends for payment.
BayFirst has outstanding debt and either BayFirst or the Bank may incur additional debt. At December 31, 2024,2025, BayFirst had a $1.93$1.59 million term loan and $5.96 million in subordinated debt.notes. BayFirst’s obligation to make payments on its debt will reduce the amount of cash available to BayFirst to pay dividends on its common stock. Either or both of BayFirst or the Bank may issue additional debt. Payments due on such debt will further reduce the amount of money available to BayFirst to pay dividends on its common stock.
Holders of shares of our capital stock are only entitled to receive such dividends as our Board may declare out of funds legally available for such payments. AlthoughHistorically, wethe haveBoard recentlyof Directors has declared cash dividends on our common stock,dividends, we are not required to do so and may reduce or eliminate our common stock dividend in the future. This could adversely affect the market price of our common stock. Furthermore, the terms of our subordinated debtnotes and the preferred stock will prohibit us from declaring or paying any dividends on any junior series of our capital stock, including our common stock, or from repurchasing, redeeming or acquiring such junior stock, unless we have declared and paid full dividends on our outstanding preferred stock for the most recently completed dividend period. The holders of our outstanding Series A Preferred Stock are entitled to receive quarterly cash dividends at 9% per annum (subject to increase to 11% if we have not redeemed the shares by the tenth anniversary of their issuance in 2019), the holders of our Series B Convertible Preferred Stock are entitled to receive quarterly cash dividends at 8% per annum (subject to increase to 9% if we have not redeemed the shares by the tenth anniversary of their issuance in 2020 and 2021), and the holders of our Series C Cumulative Convertible Preferred Stock are entitled to receive quarterly cash dividends at 11% per annum (subject to increase to 12% if we have not redeemed the shares by the tenth anniversary of their issuance in 2023). Additionally, our Articles of Incorporation provide that our Board of Directors may authorize and issue additional series of preferred stock without shareholder approval. Any preferred shares issued in the future may further restrict our ability to declare or pay dividends on any junior stock, including the common stock. Since July of 2025, the Board of Directors has not declared dividends for common shareholders and preferred shareholders and has no plans to resume the declaration or payment of dividends.
Management's Discussion & Analysis (MD&A)
Removed heading “CONSOLIDATED BALANCE SHEETS”
Removed heading “CONSOLIDATED BALANCE SHEETS”
Removed heading “Recent Developments”
Largest changes
In addition to the historical information contained herein, this Form 10-K includes "forward-looking statements" within the meaning of such term in the Private Securities Litigation Reform Act of 1995. These statements are subject to many risks and uncertainties, including, but not limited to, the effects of health crises, global military hostilities, weather events, or climate changes, including its effects on the economic environment, its customers and its operations, as well as any changes to federal, state or local government laws, regulations or orders in connection with them; the ability of the Company to implement its strategy and expand its banking operations; changes in interest rates and other general economic, business and political conditions, including changes in the financialsee in full comparisonmarketsmarkets, credit quality or global military hostilities; changes in business plans as circumstances warrant; risks related to mergers and acquisitions; changes in benchmark interest rates used to price loans and deposits, changes in tax laws, regulations and guidance; enforcement actions initiated by our regulators and their impact on our operations; the impact of data breaches or other cybersecurity incidents; enforcement actions initiated by our regulators and their impact on our operations; and other risks detailed from time to time in filings made by the Company with the SEC. Readers should note that the forward-looking statements included herein are not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking statements.
The Company has a term note with quarterly principal and interest payments with interest at Prime (see in full comparison7.50%6.75% at December 31,20242025). The note matures on March 10, 2029 and the balance of the note was$1.9$1.6 million and$2.4$1.9 million at December 31,20242025 and December 31,2023,2024, respectively. The note is secured by 100% of the stock of the Company and requires the Company to comply with certain loan covenants during the term of the note.As ofOn December31,30,2024,2025, theCompanylenderwasagreedinthatcompliancethewithBankallmayfinancialdeferdebtthecovenants.quarterly interest payment due December 10, 2025 on its term loan until March 10, 2026.
“The Bank developed an express modification program for SBA 7(a) borrowers to help those borrowers who are challenged with larger payments in the higher interest rate environment compared to interest rates at the time the loans were originated. Through December 31, 2024, approximately 400 SBA 7(a) borrowers have been offered loan modification options. These efforts have helped and are expected to continue to help reduce risk of loss.”see in full comparison
Full comparison: every changed paragraph (59)
In addition to the historical information contained herein, this Form 10-K includes "forward-looking statements" within the meaning of such term in the Private Securities Litigation Reform Act of 1995. These statements are subject to many risks and uncertainties, including, but not limited to, the effects of health crises, global military hostilities, weather events, or climate changes, including its effects on the economic environment, its customers and its operations, as well as any changes to federal, state or local government laws, regulations or orders in connection with them; the ability of the Company to implement its strategy and expand its banking operations; changes in interest rates and other general economic, business and political conditions, including changes in the financial marketsmarkets, credit quality or global military hostilities; changes in business plans as circumstances warrant; risks related to mergers and acquisitions; changes in benchmark interest rates used to price loans and deposits, changes in tax laws, regulations and guidance; enforcement actions initiated by our regulators and their impact on our operations; the impact of data breaches or other cybersecurity incidents; enforcement actions initiated by our regulators and their impact on our operations; and other risks detailed from time to time in filings made by the Company with the SEC. Readers should note that the forward-looking statements included herein are not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking statements.
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
.
`GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures
The following presents thesethe calculation of the non-GAAP financial measures calculated in accordance with GAAP:
As a one-bank holding company, the Company generates most of its revenue from interest on loans and gainnoninterest on sale income derived from the sale of government guaranteed loans into the secondary market.income. The primary sources of funding for its loans are loan sales, loan payments, deposits, and borrowings. The Company is dependent on noninterest income, which is derived primarily from net gain on the sales of the guaranteed portion of government guaranteed loans.loans and service fee income. The largest expenses are interest on those deposits and borrowings, professional fees, loan servicing and origination expenses, and salaries and commissions plus related employee benefits. The Company measures its performance through its net interest income after provision for credit losses, return on average assets, and return on average common equity, while maintaining appropriate regulatory leverage and risk-based capital ratios.
In the third quarter of 2025, the Company signed a definitive agreement to sell a portion of its SBA 7(a) loan portfolio which closed in the fourth quarter 2025. In conjunction with the agreement and as a result of the comprehensive strategic review aimed at reducing expenses and derisking the Bank's balance sheet, BayFirst exited the SBA 7(a) lending business. Banesco USA assumed servicing of loans included in the sale and has been engaged as subservicer on the remaining SBA 7(a) loans retained by BayFirst. In addition, the Company reduced staff by 52% over the calendar year.
Recent Developments
Share Repurchase Program. The Company announced that its Board of Directors adopted a share repurchase program. Under the repurchase program, the Company may repurchase up to $2.0 million of the Company’s outstanding shares, over a period beginning on January 28, 2025, and continuing until the earlier of the completion of the repurchase, or December 31, 2025, or termination of the program by the Board of Directors.
First Quarter Common Stock Dividend. On January 28, 2025, BayFirst’s Board of Directors declared a first quarter 2025 cash dividend of $0.08 per common share, payable March 15, 2025 to common shareholders of record as of March 1, 2025. The Company has continuously paid quarterly common stock cash dividends since 2016.
First Quarter Preferred Series A Stock Dividend. BayFirst’s Board of Directors declared a quarterly cash dividend of $22.50 on the Series A Preferred Stock. The dividend will be payable April 1, 2025 to shareholders of record as of January 15, 2025. The amount and timing of the dividend is in accordance with the terms of the Series A Preferred Stock.
First Quarter Preferred Series B Stock Dividend. BayFirst’s Board of Directors declared a quarterly cash dividend of $20.00 on the Series B Convertible Preferred Stock. The dividend will be payable April 1, 2025 to shareholders of record as of January 15, 2025. The amount and timing of the dividend is in accordance with the terms of the Series B Convertible Preferred Stock.
First Quarter Preferred Series C Stock Dividend. BayFirst’s Board of Directors declared a quarterly cash dividend of $27.50 on the Series C Cumulative Convertible Preferred Stock. The dividend will be payable April 1, 2025 to shareholders of record as of January 15, 2025. The amount and timing of the dividend is in accordance with the terms of the Series C Cumulative Convertible Preferred Stock.
BayFirst’s operating results depend on its net interest income, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities, consisting primarily of deposits. Net interest income is determined by the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities (“interest rate spread”) and the relative amounts of interest-earning assets and interest-bearing liabilities. The interest rate spread is affected by regulatory, economic, and competitive factors which influence interest rates, loan demand, and deposit flows. In addition, the Company’s operating results can be affected by the level of nonperforming assets, as well as the level of the noninterest income and the noninterest expenses, such as salariescompensation , loan servicing and employeeorigination benefits, occupancyexpenses, and equipment costs, and loan origination expenses as well as income taxes.
TheHistorically, the Company ishas been dependent on noninterest income, which is derived primarily from net gain on the sales of the guaranteed portion of government guaranteed loans,loans and service fee income, as well as fair value adjustments for certain loans which management has elected the fair value option. While the Company retains some of its government guaranteed loans on the balance sheet, the Company may sell both the guaranteed balance of its government guaranteed loans, as well as a percentage of the unguaranteed portions of such loans.
In the third quarter of 2025, the Company signed a definitive agreement to sell a portion of its SBA 7(a) loan portfolio which closed in the fourth quarter 2025. In conjunction with the agreement and as a result of the comprehensive strategic review aimed at reducing expenses and derisking the Bank's balance sheet, BayFirst exited the SBA 7(a) lending business. Banesco USA assumed servicing of loans included in the sale and has been engaged as subservicer on the remaining SBA 7(a) loans retained by BayFirst.
For the year ended December 31, 2025, the Company had a net loss of $22.9 million, or $5.93 per common share and diluted common share, a decrease from net income of $12.6 million, or $2.68 per common share and diluted common share, for the year ended December 31, 2024. The decrease was primarily due to an increase in provision for credit losses of $9.9 million, a decrease in noninterest income of $42.1 million, and an increase in noninterest expense of $3.6 million. This was partially offset by an increase in net interest income of $7.8 million and a decrease in income tax expense of $12.2 million. The increase in noninterest expense was primarily the result of the 2025 restructure charges of $7.3 million related to the discontinuance of the SBA 7(a) lending business.
For the year ended December 31, 2024, net income was $12.6 million, or $2.68 per common share, or $2.62 per diluted common share, an increase from net income of $5.7 million, or $1.16 per common share, or $1.12 per diluted common share, for the year ended December 31, 2023. The change was primarily due to the pre-tax gain on sale of two branch office properties of $11.6 million, which was part of a sale-leaseback transaction, an increase in net interest income of $1.6 million, higher gain on sale of government guaranteed loans of $3.7 million, and lower noninterest expense of $0.9 million. This was partially offset by higher provision for credit losses of $4.3 million, a decrease in government guaranteed fair value gains of $5.9 million and higher income tax expense on continuing operations of $2.2 million. The decrease in fair value gains on government guaranteed loans was partially due to not electing the fair value option on newly originated government guaranteed loans in the fourth quarter of 2024..
Net interest income from continuing operations was $45.8 million for the year ended December 31, 2025, an increase from $38.0 million for the year ended December 31, 2024, an increase from $36.4 million for the year ended December 31, 2023.2024. The increase was mainly due to an increase in loan interest income, including fees, of $15.6 million, partially offset by an increase in interest expense on deposits of $12.1$2.4 million and a decrease in interest income on interest-bearing deposit from banksexpense of $1.3$4.8 million.
Net interest margin decreasedincreased to 3.75% for the year ended December 31, 2025, compared to 3.45% for the year ended December 31, 2024, compared to 3.78% for the year ended December 31, 2023.2024.
The provision for credit losses is charged to operations to adjust the total allowanceACL to a level deemed appropriate by management and is based upon the volume and type of lending the Bank conducts, industry standards, the amount of nonperforming loans, general economic conditions, particularly as they relate to its market area, economic forecasts, and other factors that may affect the ability to collect on the loans in its portfolio.
The Company recorded a provision for credit losses for the year ended December 31, 20242025 of $14.7$24.6 million compared to a $10.4$14.7 million provision for the year ended December 31, 2023.2024. For the year ended December 31, 2025, net loan charge offs totaled $18.0 million compared to $13.0 million for the year ended December 31, 2024. The increase of $4.3$9.9 million in the provision for credit losses expense was primarily due to higher than expected charge-offs resultingprimarily in higher provision expense based on ACL model output. For the yearSBA ended7(a) Decemberportfolio, 31,increases 2024,in netnonperforming loanloans, chargeand offscontinued totaledeconomic $13.0 million compared to $9.0 million for the year ended December 31, 2023.uncertainty.
The Bank developed an express modification program for SBA 7(a) borrowers to help those borrowers who are challenged with larger payments in the higher interest rate environment compared to interest rates at the time the loans were originated. Through December 31, 2024, approximately 400 SBA 7(a) borrowers have been offered loan modification options. These efforts have helped and are expected to continue to help reduce risk of loss.
Noninterest income from continuing operations was $18.4 million for the year ended December 31, 2025, a decrease from $60.5 million for the year ended December 31, 2024, an increase from $49.8 million for the year ended December 31, 2023.2024. The increasedecrease was primarily the result of the pre-tax gain on sale of two branch office properties of $11.6 million,million whichin wasthe fourth quarter of 2024, a result of a sale-leaseback transaction, and an increasedecrease in gain on sale of government guaranteed loans of $3.7$16.5 million, partially offset by a decrease in government guaranteed loan fair value gains onof $10.9 million, and a decrease in government guaranteed loan packaging fees of $2.3 million. In the fourth quarter 2025, the Bank sold $96.6 million of government guaranteed loans at a discount of $5.93% million.as Thepart decrease in fair value gains on government guaranteed loans was partially due to not electingof the fairBank’s value option on newly originated government guaranteed loans in the fourth quarterdiscontinuance of 2024.SBA 7(a) lending.
Noninterest expense was $70.4 million for the year ended December 31, 2025, an increase from $66.8 million for the year ended December 31, 2024. The increase was primarily the result of the 2025 restructure charges of $7.3 million, an increase in data processing expense of $1.1 million, and an increase in loan servicing and origination expense of $1.6 million, partially offset by a decrease in compensation expense of $6.2 million. The restructure charges were the result of the discontinues of the SBA 7(a) lending business.
Noninterest expense was $66.8 million for the year ended December 31, 2024, a decrease from $67.7 million for the year ended December 31, 2023. The decrease was the result of decreases in compensation expenses of $1.2 million, loan origination and collection expense of $1.0 million, and marketing and business development expenses of $1.3 million. The decreases were partially offset by increases in data processing expenses of $1.1 million, regulatory assessments of $0.4 million, and other noninterest expense of $0.6 million.
Income tax benefit from continuing operations was $7.9 million for the year ended December 31, 2025, a decrease from income tax expense of $4.3 million for the year ended December 31, 2024. The change was attributed to a net loss from continuing operations for the current year compared to net income from continuing operations in the prior year.
Income tax expense from continuing operations was $4.3 million for the year ended December 31, 2024, an increase from income tax expense of $2.1 million for the year ended December 31, 2023. The increase was primarily due to the increase in pre-tax earnings from continuing operations. Income tax benefit from discontinued operations was $23 thousand for the year ended December 31, 2024, from income tax benefit of $70 thousand for the year ended December 31, 2023.
At December 31, 2025, the Company had $11.1 million federal net operating loss carryforward and $10.6 million of state net operating loss carryforward. At December 31, 2024, the Company had no of federal net operating loss carryforward and $16 thousand of state net operating loss carryforward. At December 31, 2023, theThe Company hadexpects $1.8to millionfully ofutilize federalthe net operating loss carryforward and $0.4 million of state net operating loss carryforward. The net operating loss carryforwards do not expire.losses.
The net unrealized loss on the investment securities AFS at December 31, 20242025 and December 31, 2023,2024, was $2.6 million and $4.0 million.million, respectively.
There was a $12$7 thousand ACL on the corporate bonds HTM as of December 31, 20242025 and a $17$12 thousand ACL on the corporate bonds HTM as ofat December 31, 2023.2024. The net unrealized loss on the investment securities HTM at December 31, 2024,2025, was $154$116 thousand compared with a net unrealized loss on investment securities HTM of $238$154 thousand at December 31, 2023.2024.
No investment securities were pledged as of December 31, 20242025 or December 31, 2023,2024, and there were no sales of investment securities for the year ended December 31, 20242025 or the year ended December 31, 2023.2024.
The Company offers a variety of products designed to meet the credit needs of our borrowers. Our lending activities primarily consist of government guaranteed, commercial real estate, commercial business, residential mortgage, and consumer loans. Senior management and loan officers have continued to develop new sources of loan referrals, particularly among centers of local influence and real estate professionals, and have also enjoyed repeat business from loyal customers in the markets the Bank serves. The Bank has no concentration of credit in any industry that represents 10% or more of its loan portfolio. Additionally, the loan portfolio is well-diversified across major loan types with a low concentration of non owner-occupied commercial real estate loans which makes up 7%9% of the total portfolio. The following table sets forth the composition of its HFI loan portfolio.
For the year ended December 31, 2024,2025, the Bank originated $269.8$137.4 million in loans through conventional lending channels and $431.4$278.3 million in loans through its government guaranteed lending function. In addition, the Bank sold guaranteed loan balances of $385.3$199.0 million.million through its secondary loan sale process. In addition, the Bank sold $96.6 million of government guaranteed loans as part of the Bank’s discontinuance of SBA 7(a) lending.
Allowance for Credit Losses. In accordance with changes in generally accepted accounting principles, the Company adopted the new credit loss accounting standard known as CECL on January 1, 2023. At the time of adoption, the reserves for loans increased by $3.1 million to 1.73% of loans, the reserve on unfunded commitments increased $213 thousand, and an $18 thousand reserve was established for held to maturity investment securities. These one-time increases resulted in an after tax decrease to capital of $2.5 million, with no impact to earnings. Under CECL, the ACL is based on expected credit losses rather than on incurred losses.
Allowance for Credit Losses. The Bank must maintain an adequate ACL based on a comprehensive methodology that assesses the probable losses inherent in its loan portfolio. The Bank maintains an ACL based on a number of quantitative and qualitative factors, including levels and trends of past due and nonaccrual loans, asset classifications, change in volume and mix of loans, collateral value, historical loss experience, size and complexity of individual credits, and economic conditions. In addition to this, the Company uses reasonable and supportable forecasts that are developed with internal and external data. These are updated quarterly by management and utilize data from the FOMC’s median forecasts of change in national GDP and of national unemployment. Provisions for credit losses are provided on both a specific and general basis. Specific allowances are provided for individual loans that do not share similar risk characteristics with instruments evaluated using a collective (pooled) basis. General valuation allowances are determined by loan pools with a further evaluation of various quantitative and qualitative factors noted above.
In 2025, in response to continued elevated charge-offs, increases in nonperforming loans and continued economic uncertainty, Management assessed and strengthened the Bank’s problem loan administration processes to ensure they were sufficiently identifying and timely risk-rating problem loans. The scope and frequency of the Bank’s independent, external loan review program were also expanded. Management believes that the updated processes around problem loan administration are adequate and that loan risk ratings are accurate.
Nonperforming Assets. At December 31, 2025, the Company had $18.1 million in nonperforming assets, excluding government guaranteed loan balances. The ACL represented 2.42% of total loans HFI at amortized cost. At December 31, 2024, the Company had $15.2 million in nonperforming assets, excluding government guaranteed loan balances,balances. and theThe ACL represented 1.54% of total loans HFI at amortized cost. At December 31, 2023, the Company had $8.9 million in nonperforming assets, excluding government guaranteed loan balances, and the ACL represented 1.64% of total loans HFI at amortized cost. The increase in nonperforming assets was partially the result of a nonaccrual loan for $2.7$2.6 million that is fully secured and there washas no ACL allocated. Total loans HFI at December 31, 20242025 and December 31, 20232024 included government guaranteed loansbalances and loans measured at fair value, which had no reserves allocated to them. ACL as a percentage of loans HFI at amortized cost, not including government guaranteed loan balances, was 2.58% at December 31, 2025, compared to 1.79% at December 31, 2024, compared to 2.03% at December 31, 2023.2024.
The increase in commercial and industrial loan net charge-offs was the result of macro economic conditions including rapidly rising interest and inflation rates, as well as natural disasters including wildfires and hurricanes.
The following table sets forth, for the periods indicated, information regarding the SBA and other government guaranteed lending activity, excluding PPP loans. In addition to the Bank’s routine loan sale activity, the Bank sold $96.6 million of government guaranteed loans to Banesco USA as part of the Bank’s discontinuance of SBA 7(a) lending.
The Bank makes government guaranteed loans throughout the United States. The following table sets forth, at the dates indicated, information regarding the geographic disbursement of gross principal balances of its government guaranteed loan portfolio. The “All Other” category includes states with less than 5% in any period presented.
General. In addition to deposits, sources of funds available for lending and for other purposes include loan repayments and historically proceeds from the sales of loans. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are influenced significantly by general interest rates and market conditions. Borrowings, as well as available lines of credit, may be used on a short-term basis to compensate for reductions in other sources, such as deposits at less than projected levels.
The Bank emphasizes commercial banking relationships in an effort to increase demand deposits as a percentage of total deposits. Deposit interest rates are set by management at least monthly or more often if conditions require it,require, based on a review of loan demand, recentprojected cash flows and a survey of rates among competitors.
Deposits increased $158.1$40.7 million or 16.05%3.56% for the year ended December 31, 2024,2025, with growthincreases in noninterest-bearing deposit accounts,account balances, savings and money market accounts,deposit savingsaccount accounts,balances, and time deposits,deposit balances, partially offset by a slight decrease in interest-bearing transaction accounts.account balances.
At December 31, 2025 and December 31, 2024, the Company had no borrowings outstanding from the FHLB or FRB.
At December 31, 2024, the Company had no borrowings from the FHLB or FRB. There was $10.0 million of borrowings at 5.57% from the FHLB and no borrowings from the FRB at December 31, 2023.
The Company has $6.0 million of Subordinated DebenturesNotes (the “DebenturesNotes”) that mature June 30, 2031 and are redeemable after 5 years which is June 30, 2026. The DebenturesNotes carry interest at a fixed rate of 4.50% per annum for the initial 5 years of term and carry interest at a floating rate for the final 5 years of term after June 30, 2026. Under the debtnote agreements, the floating rates are based on a SOFR benchmark plus 3.78% per annum. The balance of Subordinated Debentures outstanding at the Company, net of offering costs, amounted to $6.0 million and $5.9 million at December 31, 2024 and December 31, 2023, respectively.
On December 29, 2025, the Company and the holders of the Company’s Notes entered into an Amendment to the Notes (the “Amendment”), effective as of December 26, 2025. Pursuant to the Amendment, instead of the Company paying interest on the Notes, the outstanding principal of the Notes shall be increased by the amount of interest due as of the date of the Amendment and that becomes due through and including June 30, 2026. In addition, if the Company does not pay all amounts due on the Notes by June 30, 2026, at the Company’s option, (i) it shall pay the holders 3.00% of the outstanding principal of the Notes, or (ii) the principal of the Notes shall be increased by 3.00%.
The balance of Subordinated Notes outstanding at the Company, net of offering costs, amounted to $6.0 million at December 31, 2025 and December 31, 2024.
The Company has a term note with quarterly principal and interest payments with interest at Prime (7.50%6.75% at December 31, 20242025). The note matures on March 10, 2029 and the balance of the note was $1.9$1.6 million and $2.4$1.9 million at December 31, 20242025 and December 31, 2023,2024, respectively. The note is secured by 100% of the stock of the Company and requires the Company to comply with certain loan covenants during the term of the note. As ofOn December 31,30, 2024,2025, the Companylender wasagreed inthat compliancethe withBank allmay financialdefer debtthe covenants.quarterly interest payment due December 10, 2025 on its term loan until March 10, 2026.
Shareholders' equity was $87.6 million at December 31, 2025 as compared to $110.9 million at December 31, 2024 as compared to $100.7 million at December 31, 2023.2024. The increasedecrease was primarily due to net incomeloss of $12.6 million, partially offset by common stock dividends of $1.3 million and preferred stock dividends of $1.5$22.9 million.
At December 31, 2024 and December 31, 2023,2025, the Bank's capital ratios were in excess of the requirement to be "well capitalized" under the regulatory guidelines.
As of the dates indicated, the Bank met all capital adequacy requirements to which it is subject. The Bank’s actual capital amounts and percentages were as shown in the table below:
Standby letters-of-credit are conditional lending commitments that the Bank issues to guarantee the performance of a customer to a third party and to support private borrowing arrangements. Essentially, letters of credit have expiration dates within one year of the issue date. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending credit. The Bank may hold collateral supporting those commitments.
In the ordinary course of its operations, the Company enters into certain contractual obligations. Total contractual obligations at December 31, 20242025 were $341.7$431.4 million, an increase from $280.7$341.7 million at December 31, 2023.2024. The increase was primarily due to increasesan increase in operating lease obligations of $20.1 million and time deposits of $51.3 million, partially offset by a decrease in short-term borrowings of $10.0$92.1 million.
For the year ended 2024,December 31, 2025, the Bank paid dividends of $3.80$3.3 million to BayFirstits parent company in order to meet liquidity needs to make interest payments on its debt obligations, dividends on shares of its preferred stock and common stock, and payment of operating expenses. As of December 31, 2024,2025, BayFirst Financial Corp. held $479$769 thousand in cash and cash equivalents.
The Company expects that all the liquidity needs, including the contractual commitmentscommitments, can be met by currently available liquid assets and cash flows. In the event any unforeseen demand or commitments were to occur, the Company could access the borrowing capacity with the FHLB or FRB, or lines of credit with other financial institutions. The Company does not rely on investment securities as the main source of liquidity and does not foresee the need to sell investment securities for cash flow purposes. In addition, the Company has the ability to obtain non-brokered wholesale deposits as another source of liquidity. The Company expects that the currently available liquid assets and the ability to borrow from the FHLB, FRB, and other financial institutions would be sufficient to satisfy the liquidity needs without any material adverse effect on the Company’s liquidity.
A description of BayFirst’s and the Bank’s debt obligations is set forth above under the heading “Other Borrowings.”
What changed in the latest 10-Q
Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed under "Part I--Item 1A--Risk Factors" in the Company's Form 10-K/A for the year ended December 31, 2025. There have been no material changes from those risk factors previously disclosed. These factors could materially and adversely affect the Company's business, financial condition, liquidity, results of operations and capital position, and could cause its actual results to differ materially from its historical results or the results contemplated by the forward-looking statements contained in this report.
Full comparison: every changed paragraph (1)
In addition to the other information set forth in this report, you should carefully consider the factors discussed under "Part I--Item 1A--Risk Factors" in the Company's Form 10-K/A for the year ended December 31, 2025. There have been no material changes from those risk factors previously disclosed. These factors could materially and adversely affect the Company's business, financial condition, liquidity, results of operations and capital position, and could cause its actual results to differ materially from its historical results or the results contemplated by the forward-looking statements contained in this report.
Management's Discussion & Analysis (MD&A)
New heading “Restatement of Previously Issued Financial Statements”
New heading “Stock Purchase and Exchange Agreements and Rights Offering”
New heading “Asset Resolution Plan”
New heading “Redemption of Series A and Series B Preferred Shares”
Largest changes
“Restatement of Previously Issued Financial Statements”see in full comparison
“Furthermore, the Company will book an impairment of $1.5 million on a non-marketable equity investment in a firm who was a partner with the Company’s former SBA 7(a) lending business and will also write down by $1.6 million the unamortized premiums on the Company’s portfolio of purchased fully guaranteed USDA loans which are at risk of default or early prepayment.”see in full comparison
“The Company completed and quantified the impact of the asset resolution. The asset resolution plan included the identification of specific loans within the Company’s government guaranteed loan portfolio, as well as adjustments to the net amount expected to be collected on over 7,000 unguaranteed SBA 7(a) small balance loans. As a result, the Company recorded $41.5 million of provision expense, write-downs on loans measured at fair value, amortization of premiums paid on purchased government guaranteed loans, and impairment on nonmarketable securities during the quarter.”see in full comparison
“During this process, management identified $2.8 million, pretax, of deferred origination costs and $2.1 million, pretax, of accrued interest as of March 31, 2026, related to unguaranteed portions of SBA 7(a) loans which had defaulted or were placed into nonaccrual status in prior periods, which resulted in a material understatement of provision for credit losses expense and overstatement of net interest income during the effected quarterly periods in which the errors accumulated in 2024, 2025, and the first quarter of 2026. …”see in full comparison
Net interest income was $9.4 million for the three months endedsee in full comparisonMarchJune31,30, 2026,ana decrease from$11.0$12.1 million during the three months endedMarchJune31,30, 2025. The decrease in net interest income during thefirstsecond quarter of 2026, as compared to the year ago quarter, was mainly due to a decrease in loan interest income, including fees, of$3.8$6.4 million, partially offset byan increase in interest income on interest bearing deposits in banks and other of $0.6 million anda decrease in interest expense on deposits of$1.5$2.4 million. The decrease in loan interest income, including fees, was primarily related to the write down of $1.6 million of unamortized premiums on the Company’s portfolio of purchased fully guaranteed USDA loans which are at risk of default or early prepayment.
“The discussion of financial results presented are reflective of the restatement adjustments. Refer to Note 1 of the consolidated financial statements included in the 2025 Annual Report for more information on the restatement.”see in full comparison
Full comparison: every changed paragraph (74)
The following discussion is an analysis of the results of operations for the three and six months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 and financial condition as of MarchJune 31,30, 2026 and December 31, 2025. This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes.
In the fourth quarter 2025, The Company sold a portion of its SBA 7(a) loan portfolio. In conjunction with the sale and as a result of the comprehensive strategic review aimed at reducing expenses and derisking the Bank's balance sheet, BayFirst exited the SBA 7(a) lending business. Banesco USA assumed servicing of loans included in the sale and has been engaged as subservicer on the remaining SBA 7(a) loans retained by BayFirst. In addition, the Company reduced staff.
Accounting policies, as described in detail in the notes to the Company’s condensed consolidated financial statements, are an integral part of the Company’s condensed consolidated financial statements. A thorough understanding of these accounting policies is essential when reviewing the Company’s reported results of operations and financial position. Management believes that the critical accounting policies and estimates listed below require the Company to make difficult, subjective or complex judgments about matters that are inherently uncertain. At MarchJune 31,30, 2026, the most critical of these significant accounting policies in understanding the estimates and assumptions involved in preparing the condensed consolidated financial statements were the policies related to the ACL, fair value measurement of government guaranteed loan servicing rights and government guaranteed loans HFI at fair value, which are discussed more fully in the December 31, 2025 Form 10-K.
Restatement of Previously Issued Financial Statements
As previously disclosed in the Current Report on Form 8-K filed with the SEC on July 15, 2026, the Company is restating its previously issued financial statements as and for the years ended December 31, 2024, and December 31, 2025, and the quarter ended March 31, 2026.
During this process, management identified $2.8 million, pretax, of deferred origination costs and $2.1 million, pretax, of accrued interest as of March 31, 2026, related to unguaranteed portions of SBA 7(a) loans which had defaulted or were placed into nonaccrual status in prior periods, which resulted in a material understatement of provision for credit losses expense and overstatement of net interest income during the effected quarterly periods in which the errors accumulated in 2024, 2025, and the first quarter of 2026. Furthermore, management identified $3.4 million, pretax, of deferred origination costs which should have been netted against gain on sale of guaranteed SBA 7a loans which resulted in a material over statement of gain on sale of government guaranteed loans, during the affected quarterly periods in which the error accumulated in 2024 and 2025.
The discussion of financial results presented are reflective of the restatement adjustments. Refer to Note 1 of the consolidated financial statements included in the 2025 Annual Report for more information on the restatement.
Stock Purchase and Exchange Agreements and Rights Offering
On July 14, 2026, the Company obtained shareholder approval to amend the BayFirst Financial Corp. Articles of Incorporation to increase the number of authorized shares of the common stock from 15,000,000 to 100,000,000 and exchanged all 4,000 outstanding shares of Mandatorily Convertible Cumulative Perpetual Preferred Stock, Series D, and exchanged all 4,000 outstanding shares of Mandatorily Convertible Cumulative Perpetual Preferred Stock, Series E for a total of 22,856,000 shares of common stock. Upon conversion, all shares of Series D and Series E Preferred Stock were retired. Management also noted a Mid-August launch date for the rights offering, discussed in the Stock Purchase Agreement included with the Company’s Form 8-K and the exhibits dated April 28, 2026, and filed with the Securities and Exchange Commission on April 30, 2026.
Asset Resolution Plan
The Company has completed and quantified the impact of the asset resolution plan adopted in accordance with the transactions contemplated by the Stock Purchase Agreement dated April 28, 2026. The nature, scope, and potential impact of the asset resolution plan were discussed in the Company’s Form 8-K and the exhibits incorporated therein, filed with the Securities and Exchange Commission on April 30, 2026.
The asset resolution plan includes the identification of specific loans within the Company’s government guaranteed loan portfolio, as well as adjustments to the net amount expected to be collected on over 7,000 unguaranteed SBA 7(a) small balance loans. These adjustments impact loans measured at amortized cost in accordance with ASC 326 and loans measured at fair value in accordance with ASC 825. These adjustments amount to $38.4 million.
Furthermore, the Company will book an impairment of $1.5 million on a non-marketable equity investment in a firm who was a partner with the Company’s former SBA 7(a) lending business and will also write down by $1.6 million the unamortized premiums on the Company’s portfolio of purchased fully guaranteed USDA loans which are at risk of default or early prepayment.
Redemption of Series A and Series B Preferred Shares
On July 20, 2026, the Company sent notifications to holders of Series A and Series B Preferred Shares formally redeeming all outstanding. On August 10, 2026, payment in the amount of $6.5 million for Preferred Series A, including accrued dividends of $0.3 million, and payment in the amount of $3.2 million for Preferred Series B, including accrued dividends of $0.1 million.
On April 28, 2026, the Company raised $80 million of capital from investors in a private investment in public equity (“PIPE”) offering. The Company issued shares of Series D and Series E Preferred stock in the PIPE, which subject to shareholder and regulatory approvals, will convert to, or be exchanged for, approximately 22.9 million shares of common stock at an effective purchase price of $3.50 per share.The Company has also agreed to register the shares of common stock with the SEC following the conversion or exchange.
On April 28, 2026, the Company filed Articles of Amendment to its Articles of Incorporation with the Florida Division of Corporations creating and authorizing 4,000 shares of Series D Preferred Stock and 4,000 shares of Series E Preferred Stock.
On April 28, 2026, the Board elected Alfred Rogers as Chief Executive Officer and President of the Bank, in place of Tom Zernick who retired on May 1, 2026. Additionally, the Board appointed Kenneth R. Lehman as a member of the Boards of Directors. Mr. Rogers' appointment to the Board of Directors of the Bank and as Chief Executive Officer have received all necessary regulatory approvals and became effective upon the completion of the capital raise. The appointments of Mr. Rogers as CEO and President of the Company, as well as a director, is contingent upon receipt of regulatory non-objections. Mr. Lehman's appointment to the Boards of Directors of the Company and the Bank are contingent upon receipt of regulatory non-objections.
On April 30, 2026, the Company filed a registration statement on Form S-1 regarding the public offering of up to 4,108,072 shares of Common Stock at an offering price of $3.50 per share. The Company intends to exclusively market this offering to its shareholders of record on May 12, 2026.
In the fourth quarter of 2025, the Company sold a portion of its SBA 7(a) loan portfolio. In conjunction with the sale and as a result of the comprehensive strategic review aimed at reducing expenses and derisking the Bank's balance sheet, BayFirst exited the SBA 7(a) lending business. BanescoA USAthird party assumed servicing of loans included in the sale and has been engaged as subservicer on the remaining SBA 7(a) loans retained by BayFirst.
The Company had a net loss for the three months ended MarchJune 31,30, 2026 of $5.7$32.7 million, or $1.48$8.05 per common share and diluted common share, compared to net income for the three months ended MarchJune 31,30, 2025 of $0.3$1.9 million, or $0.17$0.54 per common and diluted common share. The change from the firstsecond quarter of 2025 was dueprimarily the result of $41.5 million of expense related to athe decreaseasset inresolution net interest income of $1.6 million, a decrease in noninterest income of $7.9 million, partially offset by a decrease in provision for credit losses of $1.3 million, a decrease in noninterest expense of $0.9 million, and a decrease in income tax expenses of $1.8 million.plan.
For the six months ended June 30, 2026, the Company had a net loss of $38.6 million, or $9.58 per common share and diluted common share, a decrease from net loss of $2.8 million, or $0.86 per common share and diluted common share, for the six months ended June 30, 2025. The decrease was primarily was primarily the result of $41.5 million expense related to the asset resolution plan.
Net interest income was $9.4 million for the three months ended MarchJune 31,30, 2026, ana decrease from $11.0$12.1 million during the three months ended MarchJune 31,30, 2025. The decrease in net interest income during the firstsecond quarter of 2026, as compared to the year ago quarter, was mainly due to a decrease in loan interest income, including fees, of $3.8$6.4 million, partially offset by an increase in interest income on interest bearing deposits in banks and other of $0.6 million and a decrease in interest expense on deposits of $1.5$2.4 million. The decrease in loan interest income, including fees, was primarily related to the write down of $1.6 million of unamortized premiums on the Company’s portfolio of purchased fully guaranteed USDA loans which are at risk of default or early prepayment.
Net interest margin was 3.42%3.48% for the firstsecond quarter of 2026, which represented a decrease from 3.77%4.01% for the firstsecond quarter of 2025. Excluding the write-downs, the net interest margin for the second quarter was 4.07%.
Net interest income was $18.9 million for the six months ended June 30, 2026, a decrease from $22.7 million for the six months ended June 30, 2025. The decrease was mainly due to a decrease in loan interest income, including fees, of $9.9 million and a decrease in interest expense of $4.9 million.
Net interest margin increased to 3.46% for the six months ended June 30, 2026, compared to 3.83% for the six months ended June 30, 2025.
The Company recorded a provision for credit losses on loans for the three months ended MarchJune 31,30, 2026 of $3.1$29.0 million compared to a provision of $4.4$7.6 million for the three months ended MarchJune 31,30, 2025. The increase in provision was the result of provision expense booked during the quarter as determined by the asset resolution plan. During the three months ended MarchJune 31,30, 2026, $4.4$4.5 million of net charge offs were recorded compared to $3.3$7.1 million during the three months ended MarchJune 31,30, 2025.
The Company recorded a provision for credit losses for the six months ended June 30, 2026 of $32.4 million compared to a $12.2 million provision for the six months ended June 30, 2025. For the six months ended June 30, 2026, net loan charge offs totaled $9.2 million compared to $10.6 million for the six months ended June 30, 2025. The increase in provision was the result of provision expense booked during the second quarter as determined by the asset resolution plan.
The ACL was $45.1 million at June 30, 2026 and $17.0 million at June 30, 2025.
The following table presents noninterest income for the threesix months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025.
Noninterest income was $0.9$6.8 million during the three months ended MarchJune 31,30, 2026, a decrease from $8.8$10.5 million during the three months ended MarchJune 31,30, 2025. The decrease in the firstsecond quarter of 2026, as compared to the firstsecond quarter of 2025, was the result of a decrease in gain on sale of government guaranteed loans of $7.4$5.9 million and athe decreaseloss inon governmentnonmarketable guaranteedequity loan packaging feessecurities of $0.7$1.5 million.
Noninterest income was $5.9 million for the six months ended June 30, 2026, a decrease from $19.0 million for the six months ended June 30, 2025. The decrease was primarily the result of a decrease in gain on sale of government guaranteed loans of $13.0 million, a decrease in government guaranteed loan fair value gains of $8.7 million, a decrease in government guaranteed loan packaging fees of $1.3 million, and the loss on nonmarketable equity securities of $1.5 million.
The following table presents noninterest expense for the threesix months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025.
Noninterest expense was $14.9$17.7 million during the three months ended MarchJune 31,30, 2026, an decreaseincrease from $15.8$17.5 million during the three months ended MarchJune 31,30, 2025. The decreaseincrease in the firstsecond quarter of 2026, as compared to the firstsecond quarter of 2025, was primarily due to a decrease in compensation expense of $2.7 million and a decrease in data processing expenses of $0.6 million, partially offset by an increase in loan servicing and origination expense of $2.8$0.6 million.million, an increase in data processing expenses of $0.6 million of which $1.4 million was related to the asset resolution plan, and an increase in other expense of $1.4 million of which $1.7 million was related to the asset resolution plan. These increases were partially offset by a decrease in compensation expense of $2.3 million which included $0.8 million of expense related to the asset resolution plan.
Noninterest expense was $32.6 million for the six months ended June 30, 2026, a decrease from $33.3 million for the six months ended June 30, 2025. The decrease was was primarily the result of a decrease in compensation expense of $5.0 million, partially offset by an increase in loan servicing and origination expense of $3.4 million and an increase in other expense of $1.3 million.
Income tax benefit was $2.0$11.4 million for the three months ended MarchJune 31,30, 2026, a decrease from income tax benefit of $0.1$0.6 million for the three months ended MarchJune 31,30, 2025. The change was attributed to an increase in net loss.
Income tax benefit was $13.4 million for the six months ended June 30, 2026, a decrease from income tax expense of $1.0 million for the six ended June 30, 2025. The change was attributed to a higher net loss for the current year.
At MarchJune 31,30, 2026, the Company had $19.6$31.0 million federal net operating loss carryforward and $18.1$34.6 million of state net operating loss carryforward. At MarchJune 31,30, 2025, the Company had no of federal net operating loss carryforward and $16$21 thousand of state net operating loss carryforward. The Company expects to fully utilize the net operating losses.
The effective income tax rate was 25.57%25.79% for the threesix months ended MarchJune 31,30, 2026 and 27.65%25.59% for the threesix months ended MarchJune 31,30, 2025.
The following table presents the fair value of the Company's investment securities portfolio classified as available for sale as of MarchJune 31,30, 2026 and December 31, 2025.
The net unrealized loss on the investment securities AFS at MarchJune 31,30, 2026 and December 31, 2025, was $2.7$2.8 million and $2.6 million, respectively.
The following table presents the amortized cost of the Company's investment securities portfolio classified as held to maturity as of MarchJune 31,30, 2026 and December 31, 2025.
There was a $9$7 thousand ACL on the corporate bonds HTM as of MarchJune 31,30, 2026 and $7 thousand at December 31, 2025. The net unrealized loss on the investment securities HTM at MarchJune 31,30, 2026, was $122$129 thousand compared with a net unrealized loss on investment securities HTM of $116 thousand at December 31, 2025.
No investment securities were pledged as of MarchJune 31,30, 2026 or December 31, 2025, and there were no sales of investment securities for the threesix months ended MarchJune 31,30, 2026 or the threesix months ended MarchJune 31,30, 2025.
The investment securities available for sale presented in the following tables are reported at amortized cost and by contractual maturity as of MarchJune 31,30, 2026 and December 31, 2025. Actual timing may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Additionally, residential mortgage-backed securities and collateralized mortgage obligations receive monthly principal payments, which are not reflected below.
The investment securities held to maturity presented in the following tables are reported at amortized cost and by contractual maturity as of MarchJune 31,30, 2026 and December 31, 2025. Actual timing may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Additionally, residential mortgage-backed securities receive monthly principal payments, which are not reflected below.
For the threesix months ended MarchJune 31,30, 2026, the Bank originated $2.4$7.5 million in loans through conventional lending channels and $0.8 million in government guaranteed loans. In addition, the Bank sold $0.8 million of government guaranteed loans to Banescoa USAthird party as part of the Bank’s discontinuance of SBA 7(a) lending.
The following table shows the contractual maturities of our loans at MarchJune 31,30, 2026. Loan balances in this table include loans HFI at fair value, loans HFI at amortized cost, discount on retained balances of loans sold, premium and discount on loans purchased, and deferred loan costs, net.
The following table shows the loans with contractual maturities of greater than one year that have fixed or adjustable interest rates at MarchJune 31,30, 2026.
The Company completed and quantified the impact of the asset resolution. The asset resolution plan included the identification of specific loans within the Company’s government guaranteed loan portfolio, as well as adjustments to the net amount expected to be collected on over 7,000 unguaranteed SBA 7(a) small balance loans. As a result, the Company recorded $41.5 million of provision expense, write-downs on loans measured at fair value, amortization of premiums paid on purchased government guaranteed loans, and impairment on nonmarketable securities during the quarter.
In 2025, in response to continued elevated charge-offs, increases in nonperforming loans and continued economic uncertainty, Management assessed and strengthened the Bank’s problem loan administration processes to ensure they were sufficiently identifying and timely risk-rating problem loans. The scope and frequency of the Bank’s independent, external loan review program were also expanded. Management believes that the updated processes around problem loan administration are adequate and that loan risk ratings are accurate.
Nonperforming Assets. At MarchJune 31,30, 2026, the Company had $17.5$15.4 million in nonperforming assets, excluding government guaranteed loan balances. The ACL represented 2.35%5.37% of total loans HFI at amortized cost. At MarchJune 31,30, 2025, the Company had $16.6$16.0 million in nonperforming assets, excluding government guaranteed loan balances. The ACL represented 1.61%1.65% of total loans HFI at amortized cost. The increase in nonperforming assets was partially the result of a nonaccrual loan for $2.6$8.8 million that is fully secured and has no ACL allocated. Total loans HFI at MarchJune 31,30, 2026 and MarchJune 31,30, 2025 included government guaranteed balances and loans measured at fair value, which had no reserves allocated to them. ACL as a percentage of loans HFI at amortized cost, not including government guaranteed loan balances, was 2.53%5.82% at MarchJune 31,30, 2026, compared to 1.84%1.86% at MarchJune 31,30, 2025. The increase in ACL percentage was the result of provision expense booked during the quarter as determined by the asset resolution plan.
The following table details net charge-offs to average loans outstanding by loan category for the three months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025.
The following table details net charge-offs to average loans outstanding by loan category for the six months ended June 30, 2026 and June 30, 2025.
The following table sets forth, for the periods indicated, information regarding the SBA and other government guaranteed lending activity, excluding PPP loans. In addition to the Bank’s routine loan sale activity, the Bank sold $97.4 million of government guaranteed loans to Banescoa USAthird party as part of the Bank’s discontinuance of SBA 7(a) lending in the fourth quarter 2025 and first quarter of 2026..2026.
Brokered deposits. At times, the Bank has brokered time deposit and non-maturity deposit relationships available to diversify its funding sources. Brokered deposits offer several benefits relative to other funding sources, such as: maturity structures which cannot be duplicated in the current retail market, deposit gathering outside the market of the existing deposit base, the unsecured nature of these liabilities, and the ability to quickly generate funds. The Bank’s internal policy limits the use of brokered deposits as a funding source to no more than 20% of total assets. The Company's ability to accept or renew brokered deposits is contingent upon the Bank maintaining a capital level of "well capitalized." At MarchJune 31,30, 2026 and December 31, 2025, the Company had $183.9$163.8 million and $195.5 million, respectively, of brokered deposits.
At MarchJune 31,30, 2026, the Company held approximately $188.9$195.5 million of deposits that exceeded the FDIC insurance limit which was 17%20% of total deposits.
The following table provides information on the maturity distribution of the time deposits exceeding the FDIC insurance limit of $250 thousand as of MarchJune 31,30, 2026.
Deposits decreased $98.1$195.1 million or 8.28%16.48% for the threesix months ended MarchJune 31,30, 2026, with increases in noninterest-bearing deposit account balances, money market deposit account balances, and time deposit balances, partially offset by decreases in interest-bearing transaction account balances and savings account balances.
At MarchJune 31,30, 2026 and December 31, 2025, the Company had no borrowings outstanding from the FHLB or FRB.
BAFN insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 1 filing (1 insider, 1 trade date, 1,142,800 shares, about $0). Net open-market shares: -1,142,800 (purchases minus sales); net value about $0.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-09-04 | Mckim Scott Joseph |
Other | 48 | $6.31 | $300 |
| 2026-09-04 | Oliver Robin Leigh |
Other | 48 | $6.31 | $300 |
| 2026-07-14 | Rogers Alfred Tate Jr |
Open-market sale | 22,856 | — | — |
| 2026-07-14 | Rogers Alfred Tate Jr |
Open-market sale | 279,986 | — | — |
| 2026-07-14 | Rogers Alfred Tate Jr |
Open-market sale | 148,564 | — | — |
| 2026-07-14 | Rogers Alfred Tate Jr |
Open-market sale | 691,394 | — | — |
| 2026-05-15 | Leo Anthony N |
Shares withheld for tax | 138 | $6.49 | $896 |
| 2026-05-15 | Zipperian Barbara J |
Shares withheld for tax | 99 | $6.49 | $643 |
| 2026-05-15 | Berset Derek Steven |
Shares withheld for tax | 99 | $6.49 | $643 |
| 2026-05-15 | Spoor Bradly William |
Shares withheld for tax | 99 | $6.49 | $643 |
| 2026-05-15 | Politis Christos |
Shares withheld for tax | 99 | $6.49 | $643 |
| 2026-05-15 | Berset Mark S |
Shares withheld for tax | 99 | $6.49 | $643 |
| 2026-05-15 | Deloach Dennis Reppard Iii |
Shares withheld for tax | 99 | $6.49 | $643 |
| 2026-05-15 | Harris Alexander Octavius |
Shares withheld for tax | 99 | $6.49 | $643 |
| 2026-05-15 | Wudunn Sheryl |
Shares withheld for tax | 99 | $6.49 | $643 |
| 2026-05-15 | Saravanos Anthony |
Shares withheld for tax | 138 | $6.49 | $896 |
| 2026-05-07 | Mckim Scott Joseph |
Other | 45 | $6.61 | $300 |
| 2026-05-07 | Zernick Thomas Gerard |
Other | 227 | $6.61 | $1.5K |
| 2026-05-07 | Oliver Robin Leigh |
Other | 45 | $6.61 | $300 |
| 2026-02-19 | Leo Anthony N |
Other | 0 | $6.64 | $1 |
| 2026-02-19 | Mckim Scott Joseph |
Other | 1 | $6.64 | $6 |
| 2026-02-19 | Zernick Thomas Gerard |
Other | 0 | $6.64 | $1 |
| 2026-02-19 | Oliver Robin Leigh |
Other | 0 | $6.64 | $1 |
Well-known investors holding BAFN (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Renaissance Technologies | 2026-06-30 | 15,600 | $78.0K | 0.0% | New position |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 13,091 | $65.5K | 0.0% | Added 1% |