- Key insight: A community bank that recently ended a program offering SBA loans of up to $150,000 is facing scrutiny from the Office of the Comptroller of the Currency.
- Expert quote: "We take our regulatory obligations very seriously and are fully committed to meeting the highest operational standards," said BayFirst Financial CEO Thomas Zernick.
- Supporting data: BayFirst's nonperforming assets comprised 1.97% of its total assets at the end of the third quarter, compared with 1.79% three months ago and 1.38% on Sept. 30, 2024.
A Florida community bank that recently shuttered a problematic Small Business Administration lending program says it will likely get hit with regulatory actions in connection with its credit administration, strategic planning and capital preservation.
Back in August, after its charge-offs soared, St. Petersburg, Florida-based BayFirst Financial
Then last month, BayFirst said it was selling $103 million of SBA loan balances to Banesco USA, and also exiting the federal agency's flagship 7(a) program altogether.
On Thursday, BayFirst CEO Thomas Zernick said that during the fourth quarter of this year, the bank expects to reach an agreement with the Office of the Comptroller of the Currency on certain unspecified actions.
"We take our regulatory obligations very seriously and are fully committed to meeting the highest operational standards," Zernick said in the company's third-quarter earrings release. "Management has already taken significant steps to address credit quality issues, and we are dedicating substantial resources to strengthen our credit administration. This is our top priority and our team is committed to addressing the concerns outlined as soon as possible."
BayFirst, which has $1.35 billion of assets, reported its third consecutive quarterly loss on Thursday.
The bank attributed the $18.9 million loss between July and September to higher provision expenses and $12.4 million in one-time charges. The one-time charges were connected to the company's moves to exit SBA lending and sell most of its existing SBA portfolio.
"I want to emphasize that though profitability has not met expectations, we are building a stronger, more resilient organization. Once restructuring is complete, we expect to return to profitability," Zernick told analysts on Friday.
He said the bank has a goal to reach a return on assets of 40-70 basis points next year. "Additionally, we will continue resolving nonperforming loans and improving credit quality," Zernick added.
In March, the SBA announced that
"To safeguard taxpayer-backed capital and small business formation, the SBA is taking immediate action to reverse these policies, starting with the restoration of lender fees to protect the future of the program," SBA administrator Kelly Loeffler said in a March press release.
On Thursday, BayFirst reported a $10.9 quarterly provision for credit losses, up from $7.3 million in the prior quarter and $3.1 million during the third quarter of 2024.
Net charge-offs for the most recent quarter totaled $3.3 million, which was down from $6.8 million in the previous quarter, but up from $2.8 million in the year-earlier period.
Nonperforming assets totaled 1.97% of total assets on Sept. 30, compared with 1.79% on June 30 and 1.38% a year earlier.
BayFirst Chief Operating Officer Robin Oliver told analysts that the bank's management team has been working this year to tighten credit underwriting across its loan portfolio.
"As we move forward into 2026, the goal will be the continual reduction of nonperforming and classified credits to bring these balances closer in line with peers," Oliver said.
BayFirst executives have said in recent months that they are pivoting to focus on a community banking model. They've also said that they would weigh "strategic alternatives," though they haven't elaborated and didn't provide an update on Friday.
