BayFirst's $41.5M cleanup shows what a bad lending niche costs to exit

BayFirst Financial reported a second-quarter loss of $32.7 million, its sixth consecutive quarterly operating loss, and told analysts on Friday that it will begin banking larger businesses than it has in the past ^[1][2][3]. The size of the loss matters less than what it is made of: the cost of exiting a lending niche the St. Petersburg, Florida, company entered in 2022 and stopped originating in August 2025 after problem credits spiked ^[4][5].

Almost all of the quarter's damage traces to that small-dollar Small Business Administration program, including a $29 million provision for credit losses ^[1][6]. Add an impairment on a nonmarketable investment in a third-party firm that provided SBA-lending-related services, plus a writedown on sale premiums on a portfolio of USDA-guaranteed loans, and the total negative impact of what the bank calls its asset resolution plan reaches $41.5 million ^[7].

Set that against the $80 million BayFirst raised in a stock offering this year, after continued deterioration in the SBA loans still on its books and the departure of CEO Thomas Zernick ^[8][9]. One quarter of cleanup absorbed roughly 52 percent of the new equity ^[10].

The restatements are the more instructive part. A review of the loan portfolio turned up material understatements of provision expense and an overstatement of both net interest income and gain-on-sale income, forcing downward adjustments across three reporting periods ^[11]. Full-year 2024 profit went from $12.6 million to $11.4 million ^[12]. The 2025 operating loss widened by $1.5 million to $24.2 million ^[13]. The first-quarter 2026 loss went from $5.7 million to $5.9 million ^[14]. That is about $2.9 million of restated earnings ^[15], small next to the provision, but it means the reported numbers on a book already being wound down were wrong. "We moved quickly to investigate what happened, correct it and notify our shareholders," Chief Financial Officer Scott McKim said on the call ^[16].

Stacked up, the restated 2025 operating loss, the restated first quarter and Friday's second quarter come to $62.8 million of losses ^[17]. That is the price of a program that ran roughly three years before originations were halted ^[18].

The pivot itself has early evidence behind it. Treasury management fee income and noninterest deposits are trending upward, and CEO Al Rogers said the commercial focus has brought in an influx of lower-cost demand deposits from corporate customers ^[19][20]. Chief Operating Officer Robin Oliver said the provision, restatements and other adjustments were meant to close the books on the SBA losses and provide protection from future chargeoffs ^[21], and McKim said the charges represent most, if not all, of the heavy lifting needed to return to profitability ^[22].

Worth noting what is absent: BayFirst has not released a postmortem detailing where the small-dollar effort went off the rails, according to American Banker ^[23]. It is also not the only lender revising recent figures. Blue Ridge Bancshares, the $2.3 billion-asset Richmond, Virginia, company, amended its second-quarter results this week after learning a commercial client had ceased operations, restating a $200,000 loss to $1.3 million ^[24].

Watch three things. Whether treasury management fees and noninterest-bearing deposits grow fast enough to matter against a loss run rate of this size. Whether chargeoffs stay inside the reserve the asset resolution plan built, which is the claim the whole return-to-profitability case rests on ^[21][22]. And whether the third quarter is actually profitable, because six quarters of losses is the record and the forward guidance is management's own ^[2].