Equibles

10-Q

BayFirst Financial Corp. (BAFN)

10-Q 2024-05-13 For: 2024-03-31
View Original
Added on April 06, 2026

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal period ended March 31, 2024
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 001-41068

BAYFIRST FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

Florida 59-3665079
(State or other jurisdiction of<br><br>incorporation or organization) (I.R.S. Employer<br><br>Identification No.)
700 Central Avenue<br><br>St. Petersburg, Florida 33701
(Address of Principal Executive Offices) (Zip Code)

(727) 440-6848

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock BAFN The Nasdaq Stock Market LLC Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
---
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      Yes  x   No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer o Accelerated filer o
--- --- --- ---
Non-accelerated filer x Smaller reporting company x
Emerging growth company x If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
---
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes  o   No ☒
The registrant had outstanding 4,134,459 shares of common stock as of May 7, 2024.

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BayFirst Financial Corp.

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Page
Part I - Financial Information 3
Item 1. Financial Statements 3
Consolidated Balance Sheets atMarch31, 2024(Unaudited) and December 31, 2023 3
Consolidated Statements of Income (Unaudited) for the threemonths endedMarch31, 2024and 2023 5
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the threemonths endedMarch31, 2024and 2023 7
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) for the threemonths endedMarch31, 2024and 2023 8
Consolidated Statements of Cash Flows (Unaudited) for thethreemonths endedMarch31, 2024and 2023 9
Notes to the Consolidated Financial Statements (Unaudited) 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 35
Item 3. Quantitative and Qualitative Disclosures About Market Risk 53
Item 4. Controls and Procedures 54
Part II - Other Information 54
Item 1. Legal Proceedings 55
Item 1A. Risk Factors 55
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 55
Item 3. Defaults Upon Senior Securities 55
Item 4. Mine Safety Disclosures 55
Item 5. Other Information 55
Item 6. Exhibits 56
Signatures 57

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Glossary of Acronyms and Abbreviations

The acronyms and abbreviations identified below may be used throughout this Quarterly Report on Form 10-Q or in our other SEC filings. You may find it helpful to refer back to this page while reading this report.

ACL: Allowance for Credit Losses FFIEC: Federal Financial Institutions Examination Council
AFS: Available for Sale FHLB: Federal Home Loan Bank
AIO: Architecture, Infrastructure, and Operations FNBB: First National Bankers Bank
ALCO: Asset-Liability Committee FOMC: Federal Open Market Committee
AOCI: Accumulated Other Comprehensive Income FRB: Federal Reserve Bank
ASC: FASB Accounting Standards Codification FVO: Fair Value Option
ASU: FASB Accounting Standards Update GAAP: Generally Accepted Accounting Principles
BHCA: Bank Holding Company Act of 1956, as amended HFI: Held for Investment
BOLI: Bank Owned Life Insurance HTM: Held to Maturity
BSA: Bank Secrecy Act of 1970 IRA: Individual Retirement Account
CARES Act: Coronavirus Aid, Relief, and Economic Security Act ISO: Information Security Officer
CBLR: Community Bank Leverage Ratio IT: Information Technology
CDARS: Certificate of Deposit Account Registry Services JOBS Act: Jumpstart Our Business Startups Act of 2012
CECL: Current Expected Credit Losses LGD: Loss Given Default
CEO: Chief Executive Officer LHFS: Loans Held for Sale
CET1: Common Equity Tier 1 Capital MMDA: Money Market Deposit Account
CFPB: Consumer Financial Protection Bureau NOW: Negotiable Order of Withdrawal
C&I: Commercial and Industrial NSPP: Non-Qualified Stock Purchase Plan
CRO: Chief Risk Officer OCC: Office of the Comptroller of the Currency
CTO: Chief Technology Officer OREO: Other Real Estate Owned
DEI: Diversity, Equity, and Inclusion OTTI: Other-Than-Temporary Impairment
Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 PCAOB: Public Company Accounting Oversight Board
DRIP: Dividend Reinvestment Plan PD: Probability of Default
EGC: Emerging Growth Company PPP: Paycheck Protection Program
EPS: Earnings per Share PPPLF: Paycheck Protection Program Liquidity Facility
Equity Plan: The Amended and Restated 2017 Equity Incentive Plan ROU: Right of Use
ESG: Environmental, Social, and Governance SBA: Small Business Administration
ESOP: Employee Stock Ownership Plan SEC: U.S. Securities and Exchange Commission
ESPP: Employee Stock Purchase Plan SOFR: Secured Overnight Financing Rate
Exchange Act: Securities Exchange Act of 1934 U.S.: United States
FASB: Financial Accounting Standards Board USDA: United States Department of Agriculture
FBCA: Florida Business Corporation Act USDA B&I: United States Department of Agriculture Business and Industry
FDIA: Federal Deposit Insurance Act WARM: Weighted Average Remaining Life
FDIC: Federal Deposit Insurance Corporation

BAYFIRST FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

Part I - Financial Information

Item 8. Financial Statements

March 31, 2024 December 31, 2023 (1)
ASSETS (Unaudited)
Cash and due from banks $ 4,425 $ 4,099
Interest-bearing deposits in banks 53,080 54,286
Cash and cash equivalents 57,505 58,385
Time deposits in banks 3,000 4,646
Investment securities available for sale, at fair value (amortized cost: $46,816 and $43,597 at March 31, 2024 and December 31, 2023, respectively) 42,514 39,575
Investment securities held to maturity, at amortized cost, net of allowance for credit losses of $14 and $17 (fair value: $2,352 and $2,263 at March 31, 2024 and December 31, 2023, respectively) 2,487 2,484
Nonmarketable equity securities 5,228 4,770
Government guaranteed loans held for sale 2,226 —
Government guaranteed loans HFI, at fair value 77,769 91,508
Loans HFI, at amortized cost, net of allowance for credit losses of $13,906 and $13,497 at March 31, 2024 and December 31, 2023, respectively 843,193 810,721
Accrued interest receivable 7,625 7,130
Premises and equipment, net 39,327 38,874
Loan servicing rights 15,742 14,959
Right-of-use operating lease assets 2,499 2,416
Bank owned life insurance 25,974 25,800
Other assets 18,805 16,150
Assets from discontinued operations 300 348
Total assets $ 1,144,194 $ 1,117,766
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Noninterest-bearing deposits $ 96,977 $ 93,708
Interest-bearing transaction accounts 250,478 259,422
Savings and money market deposits 391,915 373,000
Time deposits 267,945 259,008
Total deposits 1,007,315 985,138
FHLB borrowings 15,000 10,000
Subordinated debentures 5,950 5,949
Notes payable 2,276 2,389
Accrued interest payable 1,598 882
Operating lease liabilities 2,673 2,619
Deferred income tax liabilities 728 482
Accrued expenses and other liabilities 7,496 8,980
Liabilities from discontinued operations 529 620
Total liabilities 1,043,565 1,017,059

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BAYFIRST FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS CONTINUED

(Dollars in thousands, except per share data)

March 31, 2024 December 31, 2023 (1)
Shareholders’ equity: (Unaudited)
Preferred stock, Series A; no par value, 10,000 shares authorized, 6,395 shares issued and outstanding at March 31, 2024 and December 31, 2023; aggregate liquidation preference of $6,395 6,161 6,161
Preferred stock, Series B; no par value, 20,000 shares authorized, 3,210 shares issued and outstanding at March 31, 2024 and December 31, 2023; aggregate liquidation preference of $3,210 3,123 3,123
Preferred stock, Series C; no par value, 10,000 shares authorized, 6,446 shares issued and outstanding at March 31, 2024 and December 31, 2023; aggregate liquidation preference of $6,446 6,446 6,446
Common stock and additional paid-in capital; no par value, 15,000,000 shares authorized, 4,134,914 and 4,110,470 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively 54,776 54,521
Accumulated other comprehensive loss, net (3,188) (2,981)
Unearned compensation (1,192) (958)
Retained earnings 34,503 34,395
Total shareholders’ equity 100,629 100,707
Total liabilities and shareholders’ equity $ 1,144,194 $ 1,117,766

(1) Derived from audited consolidated financial statements

See accompanying notes.

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BAYFIRST FINANCIAL CORP.<br><br>CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)<br><br>(Dollars in thousands, except per share data)
Three Months Ended March 31,
--- --- --- --- ---
2024 2023
Interest income:
Loans, including fees $ 18,228 $ 13,071
Interest-bearing deposits in banks and other 959 1,180
Total interest income 19,187 14,251
Interest expense:
Deposits 10,215 4,923
Borrowings 230 275
Total interest expense 10,445 5,198
Net interest income 8,742 9,053
Provision for credit losses 4,058 1,942
Net interest income after provision for credit losses 4,684 7,111
Noninterest income:
Loan servicing income, net 795 740
Gain on sale of government guaranteed loans, net 8,089 4,409
Service charges and fees 444 379
Government guaranteed loans fair value gain 3,305 3,574
Other noninterest income 1,635 346
Total noninterest income 14,268 9,448
Noninterest expense:
Salaries and benefits 8,005 7,835
Bonus, commissions, and incentives 1,571 804
Occupancy and equipment 1,110 1,163
Data processing 1,560 1,347
Marketing and business development 588 665
Professional services 1,349 897
Loan origination and collection 1,719 1,495
Employee recruiting and development 597 568
Regulatory assessments 282 99
Other noninterest expense 992 539
Total noninterest expense 17,773 15,412
Income from continuing operations before income taxes 1,179 1,147
Income tax expense from continuing operations 296 280
Net income from continuing operations 883 867
Loss from discontinued operations before income taxes (78) (170)
Income tax benefit from discontinued operations (19) (42)
Net loss from discontinued operations (59) (128)
Net income 824 739
Preferred stock dividends 385 208
Net income available to common shareholders $ 439 $ 531

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BAYFIRST FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF INCOME CONTINUED (UNAUDITED)

(Dollars in thousands, except per share data)

Three Months Ended March 31,
2024 2023
Basic earnings (loss) per common share:
Continuing operations $ 0.12 $ 0.16
Discontinued operations (0.01) (0.03)
Total basic earnings per common share $ 0.11 $ 0.13
Diluted earnings (loss) per common share:
Continuing operations $ 0.12 $ 0.16
Discontinued operations (0.01) (0.03)
Total diluted earnings per common share $ 0.11 $ 0.13

See accompanying notes.

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BAYFIRST FINANCIAL CORP.<br><br>CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)<br><br>(Dollars in thousands)
Three Months Ended March 31,
--- --- --- --- ---
2024 2023
Net income $ 824 $ 739
Net unrealized gains (losses) on investment securities available for sale (274) 732
Deferred income tax (expense) benefit 67 (190)
Other comprehensive income (loss), net (207) 542
Comprehensive income $ 617 $ 1,281

See accompanying notes.

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BAYFIRST FINANCIAL CORP.<br><br>CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)<br><br>(Dollars in thousands, except per share data)
Preferred<br>Stock, Series A Preferred<br>Stock, Series B Preferred<br>Stock, Series C Common Stock<br>and Additional<br>Paid-in Capital Accumulated<br>Other<br>Comprehensive<br>Income (Loss) Retained<br>Earnings Total
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Balance at January 1, 2023 $ 6,161 $ 3,123 $ — $ 52,845 $ (3,724) $ 33,479 $ 91,884
Net loss — — — — — 739 739
Impact of ASC 326 Adoption — — — — — (2,508) (2,508)
Issuance of common stock under:
Non-qualified stock purchase plan — — — 83 — — 83
Dividend reinvestment plan — — — 84 — — 84
Exercise of stock options, net — — — (34) — — (34)
Stock-based awards - common stock:
Restricted stock expense, net of tax impact — — — 51 — — 51
Stock option expense — — — 34 — — 34
Other comprehensive income, net — — — — 542 — 542
Dividends declared on:
Preferred stock — — — — — (208) (208)
Common stock ($0.08 per share) — — — — — (328) (328)
Balance at March 31, 2023 $ 6,161 $ 3,123 $ — $ 53,063 $ (3,182) $ 31,174 $ 90,339
Balance at January 1, 2024 $ 6,161 $ 3,123 $ 6,446 $ 53,563 $ (2,981) $ 34,395 $ 100,707
Net income — — — — — 824 824
Unearned ESOP shares allocation — — — (44) — — (44)
Stock-based awards - common stock:
Restricted stock expense, net of tax impact — — — 52 — — 52
Stock option expense — — — 13 — — 13
Other comprehensive loss, net — — — — (207) — (207)
Dividends declared on: —
Preferred stock — — — — — (385) (385)
Common stock ($0.08 per share) — — — — — (331) (331)
Balance at March 31, 2024 $ 6,161 $ 3,123 $ 6,446 $ 53,584 $ (3,188) $ 34,503 $ 100,629

See accompanying notes.

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BAYFIRST FINANCIAL CORP.<br><br>CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)<br><br>(Dollars in thousands)
Three Months Ended March 31,
--- --- --- --- ---
2024 2023
Cash flows from operating activities:
Net income from continuing operations $ 883 $ 867
Net loss from discontinued operations (59) (128)
Net income 824 739
Adjustments to reconcile net income to net cash from operating activities:
Depreciation of fixed assets 551 533
Net securities premium amortization 30 20
Amortization of debt issuance costs 1 2
Amortization of premium on loans purchased, net 232 42
Provision for credit losses 4,058 1,942
Accretion of discount on unguaranteed loans (590) (481)
Deferred tax expense 288 283
Origination of government guaranteed loans held for sale (2,226) (1,174)
Proceeds from sales of government guaranteed loans held for sale 134,029 76,882
Net gains on sales of government guaranteed loans (8,089) (4,409)
Change in fair value of government guaranteed loans HFI, at fair value (3,305) (3,574)
Amortization of loan servicing rights 1,395 878
Non-qualified stock purchase plan expense 7 7
Stock based compensation expense 65 85
Income from bank owned life insurance (174) (154)
Changes in:
Accrued interest receivable (495) (1,095)
Other assets (2,309) (581)
Accrued interest payable 716 156
Other liabilities (1,430) (5,009)
Net cash provided by operating activities of continuing operations 123,637 65,220
Net cash used in operating activities of discontinued operations (102) (13)
Net cash provided by operating activities 123,535 65,207
Cash flows from investing activities:
Purchase of investment securities available for sale (4,458) —
Principal payments on investment securities available for sale 1,215 608
Principal payments on investment securities held to maturity — 2,518
Net purchase of nonmarketable equity securities (458) (1,078)
Maturity of time deposits in banks 1,646 —
Purchase of government guaranteed and consumer loans (629) (35,640)
Loan (originations) and payments, net (147,024) (100,429)
Purchase of premises and equipment (1,004) (2,873)
Net cash used in investing activities (150,712) (136,894)

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BAYFIRST FINANCIAL CORP.<br><br>CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED (UNAUDITED)<br><br>(Dollars in thousands)
Three Months Ended March 31,
--- --- --- --- ---
2024 2023
Cash flows from financing activities:
Net change in deposits 22,177 137,831
Net increase in short-term borrowings 5,000 —
Payments on notes payable (113) (113)
Proceeds from issuance of common stock for benefit plans, net (7) 126
Unearned ESOP shares (44) —
Dividends paid on common stock (331) (328)
Dividends paid on preferred stock (385) (208)
Net cash provided by financing activities 26,297 137,308
Net change in cash and cash equivalents (880) 65,621
Cash and cash equivalents, beginning of period 58,385 66,046
Cash and cash equivalents, end of period $ 57,505 $ 131,667
Supplemental cash flow information
Interest paid $ 9,729 $ 5,042
Income taxes paid 9 2
Supplemental noncash disclosures
Impact to retained earnings from adoption of ASC 326, net of tax — 2,508
Net change in unrealized holding gains (losses) on investment securities available for sale, net of tax effect (207) 542
Transfer of government guaranteed loans HFI to loans HFS 128,118 74,070
Transfer of loans HFI to OREO 404 —
Recognition of right of use asset and operating lease liability 263 —

See accompanying notes.

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include BayFirst Financial Corp. and its wholly owned subsidiary, BayFirst National Bank, together referred to as “the Company”.

These unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles followed within the financial services industry for interim financial information and Article 8 of Regulation S-X. Accordingly, they do not include all of the information or notes required for complete financial statements. The consolidated balance sheet as of December 31, 2023 has been derived from the audited consolidated financial statements of BayFirst Financial Corp. for that period.

The Company currently operates one business segment. In the third quarter of 2022, the Company discontinued the Bank’s nationwide residential mortgage loan segment. The operations of this segment are reported as discontinued operations.

In the opinion of management, all adjustments, consisting of normal and recurring items, considered necessary for a fair presentation of the consolidated financial statements for the interim periods have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain amounts reported in prior periods have been reclassified to conform to current year presentation. These reclassifications did not have a material effect on previously reported net income, shareholders’ equity, or cash flows.

Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2023.

The Company’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements for the year ended December 31, 2023 in the Company’s Annual Report filed on Form 10-K. For interim reporting purposes, the Company follows the same basic accounting policies and considers each interim period as an integral part of an annual period.

Use of Estimates: To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. The most significant estimates relate to the ACL, government guaranteed loan servicing rights, and fair value of government guaranteed loans HFI.

Emerging Growth Company Status: The Company is expected to remain an "emerging growth company," as defined in the JOBS Act, through December 31, 2026. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period when complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has elected to take advantage of this extended transition period, which means these financial statements, as well as financial statements they file in the future for as long as the Company remains an emerging growth company, will be subject to all new or revised accounting standards generally applicable to private companies.

Contingencies: Due to the nature of their activities, the Company and its subsidiary are at times engaged in various legal proceedings that arise in the course of normal business, some of which were outstanding as of March 31, 2024. Although the ultimate outcome of all claims and lawsuits outstanding as of March 31, 2024 cannot be ascertained at this time, it is the opinion of management that these matters, when resolved, will not have a material adverse effect on the Company’s results of operations or financial condition.

NOTE 2 – DISCONTINUED OPERATIONS

During the third quarter of 2022, the Company discontinued the Bank’s nationwide residential mortgage loan production operations. The decision was based on a number of strategic priorities and other factors, including the precipitous decline in mortgage volumes and the uncertain outlook for mortgage lending over future periods. As a result of these actions, the Company classified the operations of the residential mortgage lending division as discontinued under ASC 205-20. The Consolidated Balance Sheets, Consolidated Statements of Income, and Consolidated Statements of Cash Flows present discontinued operations for the current periods and retrospectively for prior periods.

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

The following is a summary of the assets and liabilities of the discontinued operations of the residential mortgage lending division at March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023
Assets
Right-of-use operating lease asset $ 300 $ 348
Total assets $ 300 $ 348
Liabilities
Operating lease liability $ 529 $ 620
Total liabilities $ 529 $ 620

The following presents operating results of the discontinued operations of the residential mortgage lending division for the three months ended March 31, 2024 and March 31, 2023:

Three Months Ended March 31,
2024 2023
Interest income $ — $ 1
Noninterest expense 78 171
Loss from discontinued operations before income taxes (78) (170)
Income tax benefit (19) (42)
Net loss from discontinued operations $ (59) $ (128)

NOTE 3 – INVESTMENT SECURITIES

The amortized costs, gross unrealized gains and losses, and estimated fair values of investment securities available for sale and investment securities held to maturity at March 31, 2024 and December 31, 2023 as well as the ACL for investment securities held to maturity at March 31, 2024 and December 31, 2023 are summarized as follows:

March 31, 2024 Amortized<br>Cost Gross<br>Unrealized<br>Gains Gross<br>Unrealized<br>Losses Fair<br>Value
Investment securities available for sale:
Asset-backed securities $ 7,263 $ — $ (55) $ 7,208
Mortgage-backed securities:
U.S. Government-sponsored enterprises 8,139 — (643) 7,496
Collateralized mortgage obligations:
U.S. Government-sponsored enterprises 20,084 — (3,667) 16,417
Corporate bonds 11,330 63 — 11,393
Total investment securities available for sale $ 46,816 $ 63 $ (4,365) $ 42,514 March 31, 2024 Amortized<br>Cost Gross<br>Unrealized<br>Gains Gross<br>Unrealized<br>Losses Fair<br>Value ACL
--- --- --- --- --- --- --- --- --- --- ---
Investment securities held to maturity:
Mortgage-backed securities:
U.S. Government-sponsored enterprises $ 1 $ — $ — $ 1 $ —
Corporate bonds 2,500 — (149) 2,351 14
Total investment securities held to maturity $ 2,501 $ — $ (149) $ 2,352 $ 14

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)
December 31, 2023 Amortized<br>Cost Gross<br>Unrealized<br>Gains Gross<br>Unrealized<br>Losses Fair<br>Value
--- --- --- --- --- --- --- --- ---
Investment securities available for sale:
Asset-backed securities $ 8,041 $ 6 $ (114) $ 7,933
Mortgage-backed securities:
U.S. Government-sponsored enterprises 3,842 — (606) 3,236
Collateralized mortgage obligations:
U.S. Government-sponsored enterprises 20,382 — (3,284) 17,098
Corporate bonds 11,332 — (24) 11,308
Total investment securities available for sale $ 43,597 $ 6 $ (4,028) $ 39,575
December 31, 2023 Amortized<br>Cost Gross<br>Unrealized<br>Gains Gross<br>Unrealized<br>Losses Fair<br>Value ACL
--- --- --- --- --- --- --- --- --- --- ---
Investment securities held to maturity:
Mortgage-backed securities:
U.S. Government-sponsored enterprises $ 1 $ — $ — $ 1 $ —
Corporate bonds 2,500 — (238) 2,262 17
Total investment securities held to maturity $ 2,501 $ — $ (238) $ 2,263 $ 17

`

The amortized cost and fair value of investment securities as of March 31, 2024 are shown in the table below by contractual maturity. Actual timing may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

Available for Sale Held to Maturity
Amortized<br>Cost Fair<br>Value Amortized<br>Cost Fair<br>Value
One to five years $ 11,330 $ 11,393 $ 1,500 $ 1,444
Five to ten years 4,458 4,458 1,000 907
Beyond ten years 31,028 26,663 1 1
Total $ 46,816 $ 42,514 $ 2,501 $ 2,352

No ACL for investment securities AFS was needed at March 31, 2024 or December 31, 2023. Declines in the fair value of the AFS investment portfolio are believed by management to be temporary in nature. When evaluating an investment for credit loss, management considers, among other things, the length of time and the extent to which the fair value has been in a loss position; the financial condition of the issuer through the review of credit ratings and, if necessary, corporate financial statements; adverse conditions specifically related to the security such as past due principal or interest; underlying assets that collateralize the debt security; other economic conditions and demographics; and the intent and ability of the Company to hold the investment until the loss position is recovered. Any unrealized losses were largely due to increases in market interest rates over the yields available at the time of purchase. The fair value is expected to recover as the bonds approach their maturity date or market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. At March 31, 2024, the Company did not intend to sell and believed it was not likely to be required to sell the available for sale securities that were in a loss position prior to full recovery.

As of March 31, 2024, there were no past due principal and interest payments associated with the HTM securities. The Company monitors the credit quality of debt securities held to maturity quarterly through the use of credit ratings. However, the corporate bonds that are held to maturity have no credit rating and the corporate bonds in an unrealized loss position at March 31, 2024 are not material to the financial statements. There was an ACL of $14 and $17 on corporate bonds HTM at March 31, 2024 and December 31, 2023, respectively, which was calculated based on applying the long-term historical credit loss rate for similarly rated securities.

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

The following table presents the activity in the ACL for investment securities HTM by major security type for the three months ended March 31, 2024 and March 31, 2023:

For the Three Months Ended For the Three Months Ended
Corporate Bonds March 31, 2024 March 31, 2023
Balance at beginning of period $ 17 $ —
Impact of adopting ASC 326 — 18
Provision for credit losses (3) —
Investment securities charge-offs/recoveries — —
Investment securities recoveries — —
Balance at end of period $ 14 $ 18

The following table summarizes investment securities with unrealized losses at March 31, 2024 aggregated by security type and length of time in a continuous unrealized loss position:

Less than 12 Months 12 Months or Longer Total
March 31, 2024 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Number of Securities
Investment securities available for sale:
Asset-backed securities $ 1,817 $ (9) $ 5,391 $ (46) $ 7,208 $ (55) 3
Mortgage-backed securities:
U.S. Government-sponsored enterprises — — 3,038 (643) 3,038 (643) 2
Collateralized mortgage obligations:
U.S. Government-sponsored enterprises — — 16,417 (3,667) 16,417 (3,667) 7
Total investment securities available for sale $ 1,817 $ (9) $ 24,846 $ (4,356) $ 26,663 $ (4,365) 12
Investment securities held to maturity:
Corporate bonds $ — $ — $ 1,852 $ (149) $ 1,852 $ (149) 2
Total investment securities held to maturity $ — $ — $ 1,852 $ (149) $ 1,852 $ (149) 2

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

The following table summarizes investment securities with unrealized losses at December 31, 2023 aggregated by security type and length of time in a continuous unrealized loss position:

Less than 12 Months 12 Months or Longer Total
December 31, 2023 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Number of Securities
Investment securities available for sale:
Asset-backed securities $ — $ — $ 5,967 $ (114) $ 5,967 $ (114) 2
Mortgage-backed securities:
U.S. Government-sponsored enterprises — — 3,236 (606) 3,236 (606) 2
Collateralized mortgage obligations:
U.S. Government-sponsored enterprises — — 17,098 (3,284) 17,098 (3,284) 7
Corporate bonds 11,308 (24) — — 11,308 (24) 5
Total investment securities available for sale $ 11,308 $ (24) $ 26,301 $ (4,004) $ 37,609 $ (4,028) 16
Investment securities held to maturity:
Corporate bonds $ — $ — $ 2,262 $ (238) $ 2,262 $ (238) 3
Total investment securities held to maturity $ — $ — $ 2,262 $ (238) $ 2,262 $ (238) 3

No investment securities were pledged as of March 31, 2024 or December 31, 2023, and there were no sales of investment securities during the three months ended March 31, 2024 and the year ended December 31, 2023.

NOTE 4 – LOANS

Loans HFI, at amortized cost, at March 31, 2024 and December 31, 2023 were as follows:

March 31,<br>2024 December 31,<br>2023
Real estate:
Residential $ 285,214 $ 264,126
Commercial 273,227 293,595
Construction and land 36,764 26,272
Commercial and industrial 182,264 177,566
Commercial and industrial - PPP 2,965 3,202
Consumer and other 63,854 47,287
Loans HFI, at amortized cost, gross 844,288 812,048
Deferred loan costs, net 16,233 14,707
Discount on government guaranteed loans sold(1) (7,674) (7,040)
Premium on loans purchased, net 4,252 4,503
Allowance for credit losses (13,906) (13,497)
Loans HFI, at amortized cost $ 843,193 $ 810,721

(1) The Company allocates the retained portion of loans sold based on relative fair value of the retained portion and the sold portion, which results in a discount on the retained portion.

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

NOTE 5 - ALLOWANCE FOR CREDIT LOSSES

The following schedules present the activity in the ACL by loan segment for the three months ended March 31, 2024 and March 31, 2023:

Three Months Ended Real Estate - Residential Real Estate - Commercial Real Estate - Construction and Land Commercial and Industrial Consumer and Other Unallocated Total
March 31, 2024
Beginning Balance $ 1,987 $ 1,818 $ 519 $ 6,579 $ 2,594 $ — $ 13,497
Charge-offs — — — (2,924) (978) — (3,902)
Recoveries — 2 — 130 118 — 250
Provision 199 (62) 144 3,055 725 — 4,061
Ending Balance $ 2,186 $ 1,758 $ 663 $ 6,840 $ 2,459 $ — $ 13,906
March 31, 2023
Beginning Balance $ 731 $ 956 $ 28 $ 6,182 $ 1,090 $ 59 $ 9,046
Impact of adopting ASC 326 1,479 613 281 1,116 (323) (59) 3,107
Charge-offs — — — (1,408) (665) — (2,073)
Recoveries — 2 — 117 67 — 186
Provision 148 124 (55) 1,209 516 — 1,942
Ending Balance $ 2,358 $ 1,695 $ 254 $ 7,216 $ 685 $ — $ 12,208

CECL significantly changed the credit losses estimation model for loans. The ACL represents management’s best estimate of future lifetime expected losses on its HFI loan portfolio. The Company calculates its ACL by estimating expected credit losses on a collective basis for loans that share similar risk characteristics. Loans that do not share similar risk characteristics with other loans are evaluated for credit losses on an individual basis. The Company uses a combination of modeled and non-modeled approaches that incorporates current and future economic conditions to estimate lifetime expected losses on a collective basis. Individually evaluated loans are evaluated for impairment and a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the rate implicit in the original loan agreement or at the fair value of collateral adjusted for selling costs as appropriate if repayment is expected solely from the collateral.

The Company uses reasonable and supportable forecasts that are updated quarterly utilizing data from the FOMC’s median forecasts of change in national GDP and of national unemployment. The FOMC’s forecast of GDP and unemployment for the next calendar year is used in conjunction with the most recent 4 quarters of historical data from FRED (Federal Reserve Economic Data) to determine changes in certain qualitative factors used in calculating loss rates.

See Note 1 and Note 5 of the Notes to Consolidated Financial Statements for further discussion of the Company’s ACL methodology in the December 31, 2023 Form 10-K.

The Company maintains a separate ACL for its off-balance sheet unfunded loan commitments. The ACL on unfunded loan commitments is based on estimates of probability that these commitments will be drawn upon according to historical utilization experience, expected loss severity and loss rates as determined for pooled funded loans. As of March 31, 2024 and December 31, 2023, the ACL for unfunded commitments recorded in other liabilities was $839.

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

The following table presents the activity in the ACL for unfunded commitments for the three months ended March 31, 2024 and March 31, 2023:

For the Three Months Ended For the Three Months Ended
March 31, 2024 March 31, 2023
Balance at beginning of period $ 839 $ 511
Impact of adopting ASC 326 — 213
Provision for credit losses — 74
Unfunded commitments charge-offs — —
Unfunded commitments recoveries — —
Balance at end of period $ 839 $ 798

The following tables present the principal balance of nonaccrual loans and loans past due over 89 days still on accrual by loan segment at March 31, 2024 and December 31, 2023. In the following tables, the principal balance does not include the government guaranteed balance or loans measured at fair value.

March 31, 2024 Nonaccrual with no ACL(1) Nonaccrual with ACL(1) Loans Past Due Over<br><br>89 Days Still Accruing(1)
Real estate - residential $ — $ 5,181 $ 20
Real estate - commercial — 901 —
Commercial and industrial — 1,296 —
Consumer and other — — 170
Total $ — $ 7,378 $ 190 December 31, 2023 Nonaccrual with no ACL(1) Nonaccrual with ACL(1) Loans Past Due Over<br><br>89 Days Still Accruing(1)
--- --- --- --- --- --- ---
Real estate - residential $ — $ 4,654 $ 583
Real estate - commercial — $ 1,159 $ —
Commercial and industrial — 1,587 —
Consumer and other — — 282
Total $ — $ 7,400 $ 865

(1) Excludes loans measured at fair value. See Note 6. Fair Value for additional information.

A financial asset is considered collateral dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. Expected credit losses for collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraised value. As of March 31, 2024 there were no loans individually evaluated. The following table presents the principal balance of individually analyzed collateral dependent loans by loan portfolio segment as of December 31, 2023:

December 31, 2023 Type of Collateral ACL
Business Assets
Commercial and industrial $ 390 $ 255

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

The following table presents the aging of the principal balance of past due loans HFI at amortized cost at March 31, 2024 by loan segment:

Greater Than<br>89 Days<br>Past Due Total<br><br>Past Due Loans Not<br><br>Past Due (1) Total<br><br>Loans
Real estate - residential 1,704 $ 4,951 $ 6,655 $ 278,559 $ 285,214
Real estate - commercial 543 1,770 271,457 273,227
Real estate - construction and land — — 36,764 36,764
Commercial and industrial 1,130 5,025 177,239 182,264
Commercial and industrial - PPP — — 2,965 2,965
Consumer and other 170 957 62,897 63,854
Total 7,613 $ 6,794 $ 14,407 $ 829,881 $ 844,288
(1) 4,677 of balances 30-89 days past due and 2,057 of balances greater than 89 days past due are reported as Loans Not Past Due as a result of the government guarantee. Of those loans, 1,986 of commercial and industrial PPP loans were delinquent as of March 31, 2024.

All values are in US Dollars.

The following table presents the aging of the principal balance of past due loans HFI at amortized cost at December 31, 2023 by loan segment:

Greater Than<br>89 Days<br>Past Due Total<br><br>Past Due Loans Not<br><br>Past Due (1) Total<br><br>Loans
Real estate - residential 1,840 $ 5,184 $ 7,024 $ 257,102 $ 264,126
Real estate - commercial 791 3,661 289,934 293,595
Real estate - construction and land — — 26,272 26,272
Commercial and industrial 603 4,573 172,993 177,566
Commercial and industrial - PPP — — 3,202 3,202
Consumer and other 282 1,503 45,784 47,287
Total 9,901 $ 6,860 $ 16,761 $ 795,287 $ 812,048
(1) 1,469 of balances 30-89 days past due and 638 of balances greater than 89 days past due are reported as Loans Not Past Due as a result of the government guarantee. Of those loans 261 of commercial and industrial PPP loans were delinquent as of December 31, 2023.

All values are in US Dollars.

Modifications to Borrowers Experiencing Financial Difficulty

For the three months ended March 31, 2024 and the year ended December 31, 2023, there were no loan modifications to borrowers experiencing financial difficulty and no loan modifications that subsequently defaulted during the period.

Credit Quality Indicators

Internal risk-rating grades are assigned to loans by lending, credit administration or loan review personnel, based on an analysis of the financial and collateral strength and other credit attributes underlying each loan. Management analyzes the resulting ratings, as well as other statistics and factors such as delinquency, to track the migration performance of the portfolio balances. This analysis is performed at least annually. The Bank uses the following definitions for its risk ratings:

Pass – Loans properly approved, documented, collateralized, and performing which do not reflect an abnormal credit risk.

Special Mention – These credits have potential weaknesses that may, if not checked or corrected, weaken the asset, or inadequately protect the Company’s position at some future date. These assets pose elevated risk, but their weakness does not yet justify a “Substandard” classification.

Substandard – These loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful – These loans have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.

The table below sets forth principal balance for the commercial loan portfolio disaggregated by loan segment based on internally assigned risk ratings at March 31, 2024 and gross write offs for the three months ended March 31, 2024:

Revolving Revolving
Loans Loans
Term Loans Amortized Cost Basis by Origination Year Amortized Converted
2024 2023 2022 2021 Prior Cost Basis to Term Total
Real estate - commercial
Risk Rating
Pass $ 13,983 $ 72,956 $ 74,615 $ 49,125 $ 57,115 $ 2,408 $ — $ 270,202
Special mention 978 — 835 77 232 — — 2,122
Substandard — — 351 31 521 — — 903
Doubtful — — — — — — — —
Total real estate - commercial loans, at amortized cost, gross $ 14,961 $ 72,956 $ 75,801 $ 49,233 $ 57,868 $ 2,408 $ — $ 273,227
Gross write offs $ — $ — $ — $ — $ — $ — $ — $ —
Real estate - construction and land
Risk Rating
Pass $ 351 $ 20,525 $ 12,637 $ 3,251 $ — $ — $ — $ 36,764
Special mention — — — — — — — —
Substandard — — — — — — — —
Doubtful — — — — — — — —
Total real estate - construction and land loans, at amortized cost, gross $ 351 $ 20,525 $ 12,637 $ 3,251 $ — $ — $ — $ 36,764
Gross write offs $ — $ — $ — $ — $ — $ — $ — $ —
Commercial and industrial
Risk Rating
Pass $ 16,317 $ 49,985 $ 42,258 $ 13,201 $ 50,231 $ 6,747 $ — $ 178,739
Special mention — 281 614 129 1,111 — — 2,135
Substandard — — 558 14 818 — — 1,390
Doubtful — — — — — — — —
Total commercial and industrial loans, at amortized cost, gross $ 16,317 $ 50,266 $ 43,430 $ 13,344 $ 52,160 $ 6,747 $ — $ 182,264
Gross write offs $ — $ 431 $ 1,231 $ 203 $ 1,059 $ — $ — $ 2,924

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)
Revolving Revolving
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Loans Loans
Term Loans Amortized Cost Basis by Origination Year Amortized Converted
2024 2023 2022 2021 Prior Cost Basis to Term Total
Commercial and industrial - PPP
Risk Rating
Pass $ — $ — $ — $ 135 $ 2,830 $ — $ — $ 2,965
Special mention — — — — — — — —
Substandard — — — — — — — —
Doubtful — — — — — — — —
Total commercial and industrial - PPP loans, at amortized cost, gross $ — $ — $ — $ 135 $ 2,830 $ — $ — $ 2,965
Gross write offs $ — $ — $ — $ — $ — $ — $ — $ —

The table below sets forth principal balance for the commercial loan portfolio disaggregated by loan segment based on internally assigned risk ratings at December 31, 2023 and gross write offs for the year ended December 31, 2023:

Revolving Revolving
Loans Loans
Term Loans Amortized Cost Basis by Origination Year Amortized Converted
2023 2022 2021 Prior Cost Basis to Term Total
Real estate - commercial
Risk Rating
Pass $ 94,092 $ 79,712 $ 50,985 $ 64,648 $ 2,439 $ — $ 291,876
Special mention — 482 78 — — — 560
Substandard — 195 31 933 — — 1,159
Doubtful — — — — — — —
Total real estate - commercial loans, at amortized cost, gross $ 94,092 $ 80,389 $ 51,094 $ 65,581 $ 2,439 $ — $ 293,595
Gross write offs $ — $ 101 $ — $ 7 $ — $ — $ 108

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)
Revolving Revolving
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Loans Loans
Term Loans Amortized Cost Basis by Origination Year Amortized Converted
2023 2022 2021 Prior Cost Basis to Term Total
Real estate - construction and land
Risk Rating
Pass $ 11,366 $ 12,755 $ 2,151 $ — $ — $ — $ 26,272
Special mention — — — — — — —
Substandard — — — — — — —
Doubtful — — — — — — —
Total real estate - construction and land loans, at amortized cost, gross $ 11,366 $ 12,755 $ 2,151 $ — $ — $ — $ 26,272
Gross write offs $ — $ — $ — $ — $ — $ — $ —
Commercial and industrial
Risk Rating
Pass $ 51,212 $ 45,325 $ 13,807 $ 54,003 $ 10,750 $ — $ 175,097
Special mention — 150 43 671 — — 864
Substandard — 1,004 14 587 — — 1,605
Doubtful — — — — — — —
Total commercial and industrial loans, at amortized cost, gross $ 51,212 $ 46,479 $ 13,864 $ 55,261 $ 10,750 $ — $ 177,566
Gross write offs $ 325 $ 1,543 $ 259 $ 4,113 $ — $ — $ 6,240
Commercial and industrial - PPP
Risk Rating
Pass $ — $ — $ 135 $ 3,067 $ — $ — $ 3,202
Special mention — — — — — — —
Substandard — — — — — — —
Doubtful — — — — — — —
Total commercial and industrial - PPP loans, at amortized cost, gross $ — $ — $ 135 $ 3,067 $ — $ — $ 3,202
Gross write offs $ — $ — $ — $ 223 $ — $ — $ 223

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

The Company considers the performance of the loan portfolio to determine its impact on the ACL. For residential and consumer loan classes, the Company evaluates credit quality based on the aging status of the loan by payment activity. The following table presents the principal balance at March 31, 2024 in residential and consumer loans based on payment activity as well as gross write offs for the three months ended March 31, 2024.

Revolving Revolving
Loans Loans
Term Loans Amortized Cost Basis by Origination Year Amortized Converted
2024 2023 2022 2021 Prior Cost Basis to Term Total
Real estate - residential
Payment Performance
Performing $ 11,082 $ 30,246 $ 85,678 $ 23,950 $ 19,179 $ 109,878 $ — $ 280,013
Nonperforming — — 1,232 528 3,017 424 — 5,201
Total real estate - residential loans, at amortized cost, gross $ 11,082 $ 30,246 $ 86,910 $ 24,478 $ 22,196 $ 110,302 $ — $ 285,214
Gross write offs $ — $ — $ — $ — $ — $ — $ — $ —
Consumer and other
Payment Performance
Performing $ 20,957 $ 24,402 $ 16,407 $ 867 $ 190 $ 861 $ — $ 63,684
Nonperforming — — 170 — — — — 170
Total consumer and other loans, at amortized cost, gross $ 20,957 $ 24,402 $ 16,577 $ 867 $ 190 $ 861 $ — $ 63,854
Gross write offs $ — $ 61 $ 885 $ 28 $ 4 $ — $ — $ 978

The following table presents the principal balance at December 31, 2023 in residential and consumer loans based on payment activity as well as gross write offs for the year ended December 31, 2023.

Revolving Revolving
Loans Loans
Term Loans Amortized Cost Basis by Origination Year Amortized Converted
2023 2022 2021 Prior Cost Basis to Term Total
Real estate - residential
Payment Performance
Performing $ 31,377 $ 83,951 $ 24,524 $ 19,709 $ 99,328 $ — $ 258,889
Nonperforming — 1,197 286 2,951 803 — 5,237
Total real estate - residential loans, at amortized cost, gross $ 31,377 $ 85,148 $ 24,810 $ 22,660 $ 100,131 $ — $ 264,126
Gross write offs $ — $ — $ — $ — $ — $ — $ —
Consumer and other
Payment Performance
Performing $ 25,491 $ 19,390 $ 930 $ 204 $ 990 $ — $ 47,005
Nonperforming — 258 24 — — — 282
Total consumer and other loans, at amortized cost, gross $ 25,491 $ 19,648 $ 954 $ 204 $ 990 $ — $ 47,287
Gross write offs $ 79 $ 3,182 $ 11 $ 8 $ — $ — $ 3,280

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Investment Securities Available for Sale: The fair values of investment securities available for sale are determined by matrix pricing, which is a mathematical technique used to value debt securities without relying exclusively on quoted prices for the specific investment securities, but rather by relying on the investment securities’ relationship to other benchmark quoted investment securities (Level 2). Management obtains the fair values of investment securities available for sale on a monthly basis from a third party pricing service.

Government Guaranteed Loans HFI, at Fair Value: The Company has elected to account for certain government guaranteed loans HFI at fair value. Fair value is calculated based on the present value of estimated future payments (Level 3). The valuation model uses interest rate, prepayment speed, and default rate assumptions that market participants would use in estimating future payments. Whenever available, the present value is validated against available market data.

Individually Evaluated Loans: Periodically, the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain impairment amounts for collateral-dependent loans calculated when establishing the ACL. Loans are considered collateral dependent when the Company has determined that foreclosure of the collateral is probable or when a borrower is experiencing financial difficulty and the loan is expected to be repaid substantially through the operation or sale of collateral. A collateral dependent loan’s ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. Fair value of the loan’s collateral is determined by appraisals, independent valuation, or management’s estimation of fair value which is then adjusted for the cost related to liquidation of the collateral. Collateral dependent loans are generally classified as Level 3 based on management’s judgment and estimation.

Government Guaranteed Loan Servicing Rights: The fair value of government guaranteed loan servicing rights is based on a valuation model that calculates the present value of estimated net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income. There were no government guaranteed loan servicing rights carried at fair value at March 31, 2024 and December 31, 2023. On a quarterly basis, government guaranteed loan servicing rights are evaluated for impairment based upon the fair value of the rights as compared to the cost. If the carrying amount exceeds fair value, impairment is recorded so that the servicing asset is carried at fair value.

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

Assets measured at fair value on a recurring basis at March 31, 2024 are summarized below. There were no liabilities carried at fair value on a recurring basis at March 31, 2024.

Quoted Prices in<br>Active Markets<br>for Identical Assets<br>(Level 1) Significant<br>Other<br>Observable<br>Inputs<br>(Level 2) Significant<br><br>Unobservable<br><br>Inputs<br><br>(Level 3) Total
Financial assets
Investment securities available for sale $ — $ 42,514 $ — $ 42,514
Government guaranteed loans HFI, at fair value — — 77,769 77,769

Assets measured at fair value on a recurring basis at December 31, 2023 are summarized below. There were no liabilities carried at fair value on a recurring basis at December 31, 2023.

Quoted Prices in<br>Active Markets<br>for Identical Assets<br>(Level 1) Significant<br>Other<br>Observable<br>Inputs<br>(Level 2) Significant<br><br>Unobservable<br><br>Inputs<br><br>(Level 3) Total
Financial assets
Investment securities available for sale $ — $ 39,575 $ — $ 39,575
Government guaranteed loans HFI, at fair value — — 91,508 91,508

There were no transfers between levels for assets and liabilities recorded at fair value on a recurring basis during the reported periods.

Financial Instruments Recorded Using Fair Value Option

The Company also elected the fair value option for certain of its government guaranteed loans HFI as the Company believed that fair value was the best indicator of the resolution of those loans at that time. Depending on market conditions and liquidity needs of the Company, management determines whether it is advantageous to hold or sell government guaranteed loans on a loan-by-loan basis. The portion of these loans guaranteed by the government are generally readily marketable in the secondary market and the portion of the loans that are not guaranteed may be sold periodically to other third party financial institutions. Interest income on these loans is recorded based on the contractual term of the loan and in accordance with the Company’s policy on other loans HFI.

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

The following tables provide more information about the fair value carrying amount and the unpaid principal outstanding of HFI government guaranteed loans measured at fair value at March 31, 2024 and December 31, 2023.

March 31, 2024
Total Loans Nonaccrual(1) 90 Days or More Past Due(1)
Fair Value Carrying Amount Unpaid Principal Balance Fair Value Gain (Loss) Fair Value Carrying Amount Unpaid Principal Balance Fair Value Gain (Loss) Fair Value Carrying Amount Unpaid Principal Balance Fair Value Gain (Loss)
Real estate - commercial $ 11,816 $ 12,437 $ (621) $ — $ — $ — $ — $ — $ —
Commercial and industrial 65,953 63,713 2,240 835 960 (125) 69 79 (10)
Total loans HFI, at fair value $ 77,769 $ 76,150 $ 1,619 $ 835 $ 960 $ (125) $ 69 $ 79 $ (10) December 31, 2023
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Total Loans Nonaccrual(1) 90 Days or More Past Due(1)
Fair Value Carrying Amount Unpaid Principal Balance Fair Value Gain (Loss) Fair Value Carrying Amount Unpaid Principal Balance Fair Value Gain (Loss) Fair Value Carrying Amount Unpaid Principal Balance Fair Value Gain (Loss)
Real estate - commercial $ 19,219 $ 19,156 $ 63 $ — $ — $ — $ — $ — $ —
Commercial and industrial 72,289 68,777 3,512 485 585 (100) 162 182 (20)
Total loans HFI, at fair value $ 91,508 $ 87,933 $ 3,575 $ 485 $ 585 $ (100) $ 162 $ 182 $ (20)

(1) The nonaccrual and 90 days or more past due loan balances do not include the portion of government guaranteed loan balances.

The total amount of gains and losses from changes in fair value and interest income included in earnings for the three months ended March 31, 2024 and March 31, 2023 for government guaranteed loans HFI, at fair value, were as follows:

Three Months Ended March 31,
2024 2023
Interest income $ 2,308 $ 835
Change in fair value 3,305 3,574
Total gain $ 5,613 $ 4,409

Changes in fair value for government guaranteed loans HFI, at fair value, were included in Government guaranteed loans fair value gain on the Consolidated Statements of Income.

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

The table below presents a reconciliation of government guaranteed loans HFI, at fair value, which were valued on a recurring basis and used significant unobservable inputs (Level 3) for the three months ended March 31, 2024 and March 31, 2023:

Three Months Ended March 31,
2024 2023
Balance of government guaranteed loans HFI at fair value, beginning of period $ 91,508 $ 27,078
New government guaranteed originations at fair value 37,107 51,980
Loans sold (53,442) (10,727)
Principal payments (709) (2,858)
Total gains during the period 3,305 3,574
Balance of government guaranteed loans HFI at fair value, end of period $ 77,769 $ 69,047

The Company’s valuation of government guaranteed loans HFI, at fair value, was supported by an analysis prepared by an independent third party and approved by management. The approach to determine fair value involved several steps: 1) identifying each loan’s unique characteristics, including balance, payment type, term, coupon, age, and principal and interest payment; 2) projecting these loan level characteristics for the life of each loan; and 3) performing discounted cash flow modeling.

The following table provides information about the valuation techniques and unobservable inputs used in the valuation of government guaranteed loans HFI that fall within Level 3 of the fair value hierarchy at March 31, 2024 and December 31, 2023:

Fair Value Valuation<br>Technique Unobservable Inputs Range (Weighted Average)
March 31, 2024
Government guaranteed loans HFI at fair value $ 77,769 Discounted Discount rate 7.34%-10.84% (9.05%)
cash flow Conditional prepayment rate 10.43%-15.93% (14.47%)
December 31, 2023
Government guaranteed loans HFI, at fair value $ 91,508 Discounted Discount rate 7.36%-10.86% (8.74%)
cash flow Conditional prepayment rate 10.38%-15.69% (13.91%)

The significant unobservable inputs impacting the fair value measurement of government guaranteed loans HFI, at fair value, include discount rates and conditional prepayment rates. Increases in discount rates or prepayment rates would result in a lower fair value measurement. Although the prepayment rate and discount rate are not directly interrelated, they generally move in opposite directions. The discount rates and conditional prepayment rates were weighted by the relative principal balance outstanding of these loans.

Assets measured at fair value on a nonrecurring basis at March 31, 2024 are summarized below:

Fair Value Valuation Technique(s) Significant<br>Unobservable<br>Input(s) Discount % Amount
Other real estate owned 3,002 Discounted appraisals, estimated net realizable value of collateral Collateral discounts 10%

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

Assets measured at fair value on a nonrecurring basis at December 31, 2023 are summarized below:

Fair Value Valuation Technique(s) Significant<br>Unobservable<br>Input(s) Discount % Amount
Individually evaluated loans $ 135 Discounted appraisals, estimated net realizable value of collateral Collateral discounts 10%

Fair Value of Financial Instruments

The carrying values and estimated fair values of financial instruments not carried at fair value, at March 31, 2024 and December 31, 2023 are as follows:

March 31, 2024 December 31, 2023
Level Carrying Value Fair Value Carrying Value Fair Value
Assets:
Cash and cash equivalents 1 $ 57,505 $ 57,505 $ 58,385 $ 58,385
Time deposits in banks 2 3,000 2,936 4,646 4,561
Investment securities held to maturity 2 2,487 2,352 2,484 2,263
Nonmarketable equity securities, at cost 2 5,228 5,228 4,770 4,770
Government guaranteed loans held for sale 2 2,226 2,437 — —
Loans HFI, at amortized cost 3 843,193 816,699 810,721 786,350
Accrued interest receivable 2 7,625 7,625 7,130 7,130
Government guaranteed loan servicing rights 3 15,742 17,209 14,959 16,318
Liabilities:
Noninterest-bearing deposits 2 $ 96,977 $ 96,977 $ 93,708 $ 93,708
Interest-bearing transaction accounts 2 250,478 250,478 259,422 259,422
Savings and money market deposits 2 391,915 391,915 373,000 373,000
Time deposits 2 267,945 263,186 259,008 255,372
FHLB borrowings 2 15,000 15,000 10,000 10,000
Subordinated debentures 2 5,950 5,242 5,949 5,215
Notes payable 2 2,276 2,256 2,389 2,369
Accrued interest payable 2 1,598 1,598 882 882

NOTE 7 – GOVERNMENT GUARANTEED LOAN SERVICING ACTIVITIES

At March 31, 2024 and December 31, 2023, the principal balance of government guaranteed loans, excluding PPP loans, retained by the Company was $375,431 and $395,877, respectively, of which $155,601 and $181,459 represented the guaranteed portion of the loans. Loans serviced for others are not included in the accompanying Consolidated Balance Sheets. The unpaid principal balances of government guaranteed loans serviced for others requiring recognition of a servicing asset were $950,793 and $855,756 at March 31, 2024 and December 31, 2023, respectively.

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

Activity for government guaranteed loan servicing rights for the three months ended March 31, 2024 and March 31, 2023 follows:

Three Months Ended
March 31, 2024 March 31, 2023
Beginning of period $ 14,959 $ 10,906
Additions 2,178 1,597
Amortization (1,395) (878)
End of period $ 15,742 $ 11,625

The fair value of government guaranteed loan servicing rights was $17,209 and $16,318 at March 31, 2024 and December 31, 2023, respectively. Fair value was determined using a weighted average discount rate of 14.63% and a weighted average prepayment speed of 12.11% at March 31, 2024. Fair value was determined using a weighted average discount rate of 14.50% and a weighted average prepayment speed of 11.42% at December 31, 2023. The government guaranteed loan servicing rights are amortized over the life of a loan on a loan-by-loan basis.

The following table presents the components of net gain on sale of government guaranteed loans for the three months ended March 31, 2024 and March 31, 2023:

Three Months Ended
March 31, 2024 March 31, 2023
Gain on sale of guaranteed portion of government guaranteed loans $ 5,911 $ 2,812
Fair value of loan servicing rights created 2,178 1,597
Gain on sale of government guaranteed loans, net $ 8,089 $ 4,409

NOTE 8 – LEASES

For the three months ended March 31, 2024 and March 31, 2023, the components of total lease cost and supplemental information related to operating leases were as follows:

Three Months Ended<br>March 31,
2024 2023
Operating lease cost $ 259 $ 342
Short-term lease cost 9 —
Total lease cost, net (1) $ 268 $ 342

(1) Includes lease costs reported as discontinued operations of $71 and $61 for the three months ended March 31, 2024 and March 31, 2023, respectively.

Three Months Ended<br>March 31,
2024 2023
Cash flows related to operating lease liabilities $ 243 $ 381
Right-of-use assets obtained in exchange for new operating lease liabilities 263 —

At March 31, 2024, the weighted average discount rate of operating leases was 2.45% and the weighted average remaining life of operating leases was 3.14 years.

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

The future minimum lease payments for operating leases, subsequent to March 31, 2024, as recorded on the balance sheet, are summarized as follows:

2024 $ 803
2025 1,118
2026 923
2027 467
2028 —
Thereafter —
Total undiscounted lease payments $ 3,311
Less: imputed interest (109)
Net lease liabilities $ 3,202

Impairment of ROU Assets

ROU assets from operating leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, and are reviewed for impairment when indicators of impairment are present. ASC 360 requires three steps to identify, recognize and measure impairment. If indicators of impairment are present (Step 1), the Company performs a recoverability test (Step 2) comparing the sum of the estimated undiscounted cash flows attributable to the ROU asset in question to the carrying amount. The Company estimates the fair value of the ROU asset and recognizes an impairment loss when the carrying amount exceeds the estimated fair value (Step 3).

During 2022, the Company closed leased mortgage lending offices as part of its discontinuance of the nationwide residential lending operation. The mortgage lending offices were evaluated as outlined above to determine whether the operating leases were impaired. As part of the recoverability test, the Company elected to exclude operating lease liabilities from the carrying amount of the asset group. The undiscounted future cash flows used in the recoverability test were based on assumptions made by the Company rather than market participant assumptions. Since an election was made to exclude operating lease liabilities from the asset or asset group, all future cash lease payments for the lease were also excluded. In addition, the Company elected to exclude operating lease liabilities from the estimated fair value, consistent with the recoverability test. When determining the fair value of the ROU asset, the Company estimated what market participants would pay to lease the assets assuming the highest and best use in the assets’ current forms.

Based on the analysis, the Company concluded that the ROU assets for these offices were impaired. The ROU asset had a remaining ROU carrying value of $300 as of March 31, 2024. The was no additional impairment for the three months ended March 31, 2024.

NOTE 9 – OTHER BORROWINGS

At March 31, 2024, the Company had $15,000 of borrowings at 5.58% from the FHLB and no borrowings from the FRB. There were $10,000 of borrowings at 5.57% from the FHLB and no borrowings from the FRB at December 31, 2023.

The Bank is a member of the FHLB of Atlanta, which provides short- and long-term funding collateralized by mortgage-related assets to its members. FHLB short-term borrowings bear interest at variable rates set by the FHLB. Any advances that the bank were to obtain would be secured by a blanket lien on $304,516 of real estate-related loans as of March 31, 2024. Based on this collateral and the Company's holdings of FHLB stock, the Company was eligible to borrow up to

$161,970 from the FHLB at March 31, 2024.

In addition, the Bank has a secured line of credit with the Federal Reserve Bank of Atlanta which was secured by $54,847 of commercial loans as of March 31, 2024. FRB short-term borrowings bear interest at variable rates based on the FOMC's target range for the federal funds rate. Based on this collateral, the Company was eligible to borrow up to $38,538 from the FRB at March 31, 2024.

The Company has $6,000 of Subordinated Debentures (the “Debentures”) that mature June 30, 2031 and are redeemable after 5 years which is June 30, 2026. The Debentures 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 debt 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 $5,950 and $5,949 at March 31, 2024 and December 31, 2023, respectively.

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

The Company has a term note with quarterly principal and interest payments with interest at Prime (8.50% at March 31, 2024). The note matures on March 10, 2029 and the balance of the note was $2,276 and $2,389 at March 31, 2024 and December 31, 2023, respectively. The note is secured by 100% of the stock of the Bank and requires the Company to comply with certain loan covenants during the term of the note. As of March 31, 2024, the Company was in compliance with all financial debt covenants.

NOTE 10 – STOCK-BASED COMPENSATION

The Equity Plan governs the Company’s restricted stock grants and stock options. Total compensation cost charged against income related to the Equity Plan was $62 and $147 for the three months ended March 31, 2024 and March 31, 2023, respectively.

Restricted Stock

The Company awarded shares of restricted common stock to certain employees and non-employee directors for which compensation expense is recognized ratably over the vesting period of the awards based on the fair value of the stock at issue date.

A summary of changes in the Company’s nonvested restricted shares for the three months ended March 31, 2024 and March 31, 2023 follows:

Shares Weighted-Average<br>Grant-Date<br>Fair Value, per share
Nonvested at January 1, 2024 52,195 $ 18.75
Granted 30,650 11.70
Vested (28,710) (18.50)
Forfeited (330) (16.06)
Nonvested at March 31, 2024 53,805 $ 14.88 Shares Weighted-Average<br>Grant-Date<br>Fair Value, per share
--- --- --- ---
Nonvested at January 1, 2023 22,000 $ 21.52
Granted 46,175 18.30
Vested (13,860) 21.45
Forfeited (1,655) 19.40
Nonvested at March 31, 2023 52,660 $ 18.75

At March 31, 2024, there was $689 of total unrecognized compensation cost related to nonvested restricted shares granted under the Equity Plan that is expected to be recognized over a weighted average period of 2.9 years. The total fair value of shares vested during the three months ended March 31, 2024 and March 31, 2023 was $326 and $251, respectively.

Stock Options

The Equity Plan permits the grant of stock options to the Company’s employees and non-employee directors for up to 15% of the total number of shares of Company common stock issued and outstanding, up to 1,500,000 shares. Option awards are

granted with an exercise price equal to the market price of the Company’s common stock at the date of grant. The market price of the Company’s common stock is the closing sales price of the Common Stock on Nasdaq on the date of the grant. Those option awards generally have a vesting period of 5 years for employees and 3 years for non-employee directors and have 10-year contractual terms.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatility is based on an average of historical volatility of peer financial institutions. The expected term of options granted represents the period of time that options granted are

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

A summary of the activity in the Equity Plan for the three months ended March 31, 2024 and March 31, 2023 follows:

Shares Weighted<br>Average<br>Exercise<br>Price Weighted<br>Average<br>Remaining<br>Contractual<br>Term (in years) Aggregate<br>Intrinsic<br>Value
Outstanding at January 1, 2024 367,033 $ 15.68
Forfeited (390) (14.82)
Outstanding at March 31, 2024 366,643 $ 15.68 5.41 $ —
Vested and exercisable at March 31, 2024 351,740 $ 15.71 5.36 $ — Shares Weighted<br>Average<br>Exercise<br>Price Weighted<br>Average<br>Remaining<br>Contractual<br>Term (in years) Aggregate<br>Intrinsic<br>Value
--- --- --- --- --- --- ---
Outstanding at January 1, 2023 405,688 $ 15.67
Exercised (30,375) 15.71
Forfeited (5,115) 15.53
Outstanding at March 31, 2023 370,198 $ 15.67 6.42 $ 152
Vested and exercisable at March 31, 2023 321,957 $ 15.77 6.28 $ 121

There were no options granted during the three months ended March 31, 2024 or March 31, 2023. Total unrecognized compensation cost related to nonvested stock options granted under the Equity Plan was $41 at March 31, 2024. This cost is expected to be recognized over a weighted average period of 1.5 years.

NOTE 11 – OTHER BENEFIT PLANS

The Company has established a stock dividend reinvestment and stock purchase plan. Under the DRIP, eligible shareholders can voluntarily purchase stock with their dividend or can make additional stock purchases. During the three months ended March 31, 2024, there were no shares purchased. During the three months ended March 31, 2023, 4,953 shares were purchased at an average price of $17.01.

All employees and Directors are eligible to participate in the NSPP. Expense recognized in relation to the NSPP for the three months ended March 31, 2024 and March 31, 2023 was $7 for both periods.

The Company has a Salary Continuation Agreement (the “Agreement”) with the Company’s retired CEO. In accordance with the Agreement, the executive will receive an annual benefit of $25 for twenty years following separation of service. The liability recorded for the Agreement was $355 and $351 at March 31, 2024 and December 31, 2023, respectively, and the related expense for the three months ended March 31, 2024 and March 31, 2023 was $4 for both periods. Payments are expected to begin in July 2024 from the retirement of the CEO on December 31, 2023.

The Company has a 401(k) plan that covers all employees subject to certain age and service requirements. The Company contributes 3% of each employee’s salary each pay period as a safe harbor contribution. The Company may also match employee contributions each year at the discretion of the Board of Directors. There was no match of contributions in 2023. Expense recognized in relation to the 401(k) plan was $345 and $240 for the three months ended March 31, 2024 and March 31, 2023, respectively.

The Company has an ESOP for eligible employees. Each year, the Company’s Board of Directors may approve a discretionary percentage of employees’ salaries to be contributed to the ESOP for eligible employees. In 2021, the ESOP trust acquired 14,154 shares of the Company’s stock. As this is a leveraged plan, unallocated shares are distributed to employees annually. There were 8,493 unallocated shares with a fair value of $110 and 14,154 unallocated shares with a fair value of $237 remaining as of March 31, 2024 and March 31, 2023, respectively. The ESOP trust’s outstanding loan, which is secured by the unallocated shares, bears a fixed interest rate equal to the Prime Rate as of the note date, which was

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

3.25%. The note requires an annual payment of principal and interest through December 2026. The Company’s ESOP, which is internally leveraged, does not report the loan receivable extended to the ESOP as an asset and does not report the ESOP debt due to the Company.

The discontinuation of the nationwide residential lending division during 2022 triggered a partial plan termination and all affected employees were 100% vested in the Company’s contributions into the ESOP. As a result of the exit of affected participants from the plan, the plan acquired 23,383 shares of the Company’s stock. As this is a leveraged plan, unallocated shares are distributed to employees annually. There were 18,706 unallocated shares with a fair value of $242 remaining as of March 31, 2024. The ESOP trust was issued a five year loan bearing an interest rate equal to the Prime Rate as of the note date, which was 8.25% and adjusts annually as of the first day of each succeeding calendar year to reflect the Prime Rate as of the first business day of the calendar year. The note requires an annual payment of principal and interest through December 2027. The Company’s ESOP, which is internally leveraged, does not report the loan receivable extended to the ESOP as an asset and does not report the ESOP debt due to the Company.

The Board did not approve any contributions in 2023. There was $136 of expense related to the ESOP for the three months ended March 31, 2024 and no expense for the three months ended March 31, 2023.

NOTE 12 – REGULATORY MATTERS

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes that the Bank met all capital adequacy requirements to which it was subject at March 31, 2024 and December 31, 2023.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At March 31, 2024 and December 31, 2023, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s classification.

In February 2019, the federal bank regulatory agencies issued a final rule that revised certain capital regulations under ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and included a transition option that allows banking organizations to phase in, over a three year period, the day one adverse effects of adoption on their regulatory capital ratios (three year transition option). In connection with the adoption of ASC 326 on January 1, 2023, the Company recognized an after-tax cumulative effect reduction to retained earnings. The Company elected to adopt the three year transition option and the deferral has been applied in capital ratios presented below. Actual and required capital amounts and ratios for the Bank are presented below at March 31, 2024:

Actual Required for Capital<br><br>Adequacy Purposes To be Well<br>Capitalized Under<br>Prompt Corrective<br>Action Regulations
Amount Ratio Amount Ratio Amount Ratio
Total Capital
(to Risk Weighted Assets) $ 113,545 12.29 % $ 73,904 8.00 % $ 92,380 10.00 %
Tier 1 Capital
(to Risk Weighted Assets) $ 101,974 11.04 % $ 55,428 6.00 % $ 73,904 8.00 %
Common Equity Tier 1 Capital
(to Risk Weighted Assets) $ 101,974 11.04 % $ 41,571 4.50 % $ 60,047 6.50 %
Tier 1 Capital
(to Average Assets) $ 101,974 9.12 % $ 44,708 4.00 % $ 55,885 5.00 %

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

Actual and required capital amounts and ratios for the Bank are presented below at December 31, 2023:

Actual Required for Capital<br><br>Adequacy Purposes To be Well<br>Capitalized Under<br>Prompt Corrective<br>Action Regulations
Amount Ratio Amount Ratio Amount Ratio
Total Capital
(to Risk Weighted Assets) $ 114,256 13.03 % $ 70,169 8.00 % $ 87,711 10.00 %
Tier 1 Capital
(to Risk Weighted Assets) $ 103,274 11.77 % $ 52,627 6.00 % $ 70,169 8.00 %
Common Equity Tier 1 Capital
(to Risk Weighted Assets) $ 103,274 11.77 % $ 39,470 4.50 % $ 57,012 6.50 %
Tier 1 Capital
(to Average Assets) $ 103,274 9.38 % $ 44,024 4.00 % $ 55,030 5.00 %

Dividend Restrictions

Banking regulations limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the net profits of the Bank for that year combined with the retained net profits for the preceding two years.

NOTE 13 – LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

Some financial instruments, such as loan commitments, credit lines, and letters of credit, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies that are used for loans are used to make such commitments, including obtaining collateral at exercise of the commitment.

The contractual amounts of financial instruments with off-balance sheet risk at March 31, 2024 and December 31, 2023 were as follows:

March 31, 2024 December 31, 2023
Unfunded loan commitments $ 8,018 $ 7,392
Unused lines of credit 188,073 178,440
Standby letters of credit 211 186

All unused lines of credit at March 31, 2024 and December 31, 2023 were variable rate lines of credit and the majority of unfunded loan commitments at March 31, 2024 and December 31, 2023 were commitments to fund variable rate loans. Unfunded loan commitments are generally entered into for periods of 90 days or less.

The Company maintains an ACL for its off-balance sheet loan commitments which is calculated by loan type using estimated line utilization rates based on historical usage. Loss rates for outstanding loans is applied to the estimated utilization rates to calculate the ACL for off-balance sheet loan commitments. At March 31, 2024 and December 31, 2023, ACL for off-balance sheet loan commitments totaled $839 for both periods.

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BAYFIRST FINANCIAL CORP.<br><br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br><br>(Dollars in thousands, except per share data)

`NOTE 14 – EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings per common share for the three months ended March 31, 2024 and March 31, 2023:

Three Months Ended<br>March 31,
2024 2023
Basic:
Income from continuing operations $ 883 $ 867
Loss from discontinued operations (59) (128)
Net income 824 739
Less: Preferred stock dividends 385 208
Net income available to common shareholders $ 439 $ 531
Weighted average common shares outstanding 4,130,484 4,080,683
Basic earnings (loss) per common share:
Continuing operations $ 0.12 $ 0.16
Discontinued operations (0.01) (0.03)
Total $ 0.11 $ 0.13
Diluted:
Income from continuing operations $ 883 $ 867
Loss from discontinued operations (59) (128)
Net income 824 739
Less: Preferred stock dividends 385 208
Add: Series B preferred stock dividends — —
Net income available to common shareholders $ 439 $ 531
Weighted average common shares outstanding for basic earnings per common share 4,130,484 4,080,683
Add: Dilutive effects of conversion of Series B preferred stock to common stock — —
Add: Dilutive effects of assumed exercises of stock options and warrants — —
Average shares and dilutive potential common shares 4,130,484 4,080,683
Diluted earnings (loss) per common share:
Continuing operations $ 0.12 $ 0.16
Discontinued operations (0.01) (0.03)
Total $ 0.11 $ 0.13

The following securities outstanding at March 31, 2024 and March 31, 2023 have been excluded from the calculation of weighted average shares outstanding as their effect on the calculation of earnings (loss) per share are antidilutive:

Three Months Ended<br>March 31,
2024 2023
Common stock options 366,776 202,686
Convertible Series B preferred stock 3,210 3,210
Convertible Series C preferred stock 6,446 0

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is an analysis of the results of operations for the three months ended March 31, 2024 and March 31, 2023 and financial condition as of March 31, 2024 and December 31, 2023. This discussion and analysis should be read in conjunction with the consolidated financial statements and related notes.

In addition to the historical information contained herein, this Form 10-Q 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, 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 markets 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; 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.

Forward-looking statements generally can be identified by the use of forward-looking terminology such as "will," "propose," "may," "plan," "seek," "expect," "intend," "estimate," "anticipate," "believe," "continue," or similar terminology. Any forward-looking statements presented herein are made only as of the date of this document, and the Company does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

Overview

The following discussion and analysis presents the financial condition and results of operations on a consolidated basis. However, because the Company conducts all of its material business operations through the Bank, the discussion and analysis relates to activities primarily conducted at the subsidiary level. The following discussion should be read in conjunction with the consolidated financial statements.

As a one-bank holding company, the Company generates most of its revenue from interest on loans and gain-on-sale income derived from the sale of government guaranteed loans into the secondary market. The primary source of funding for its loans is deposits. 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. The largest expenses are interest on those deposits and borrowings, professional fees, loan 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.

Application of Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in accordance with GAAP requires the Company to make estimates and judgments that affect reported amounts of assets, liabilities, income and expenses and related disclosure of contingent assets and liabilities. The Company bases those estimates on historical experience and on various other assumptions that are believed to be reasonable under current circumstances, results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. Estimates are evaluated on an ongoing basis. Actual results may differ from these estimates.

Accounting policies, as described in detail in the notes to the Company’s consolidated financial statements, are an integral part of the Company’s 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 March 31, 2024, the most critical of these significant accounting policies in understanding the estimates and assumptions involved in preparing the consolidated financial statements were the policies

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related to the ACL and 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, 2023 Form 10-K.

Changes in these estimates that are likely to occur from period to period, or the use of different estimates that the Company could have reasonably used in the current period, could have a material impact on the Company’s financial position or results of operation.

Further, the Company is an emerging growth company. The JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected to take advantage of this extended transition period. This means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies do so. This may make the Company’s financial statements not comparable with those of public companies which are neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period because of the potential differences in accounting standards used.

Recent Developments

Second Quarter Common Stock Dividend. On April 23, 2024, BayFirst’s Board of Directors declared a second quarter 2024 cash dividend of $0.08 per common share, payable June 15, 2024 to common shareholders of record as of June 1, 2024. The Company has continuously paid quarterly common stock cash dividends since 2016.

Second 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 July 1, 2024 to shareholders of record as of April 15, 2024. The amount and timing of the dividend is in accordance with the terms of the Series A Preferred Stock.

Second 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 July 1, 2024 to shareholders of record as of April 15, 2024. The amount and timing of the dividend is in accordance with the terms of the Series B Convertible Preferred Stock.

Second 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 July 1, 2024 to shareholders of record as of April 15, 2024. The amount and timing of the dividend is in accordance with the terms of the Series C Cumulative Convertible Preferred Stock.

Selected Financial Data - Unaudited

As of and for the Three Months Ended
(Dollars in thousands, except for share data) 3/31/2024 12/31/2023 3/31/2023
Income Statement Data:
Net interest income $ 8,742 $ 8,877 $ 9,053
Provision for credit losses 4,058 2,737 1,942
Noninterest income 14,268 14,691 9,448
Noninterest expense 17,773 18,466 15,412
Income tax expense 296 704 280
Net income from continuing operations 883 1,661 867
Net loss from discontinued operations (59) (6) (128)
Net income 824 1,655 739
Preferred stock dividends 385 341 208
Net income available to common shareholders $ 439 $ 1,314 $ 531
Balance Sheet Data:
Average loans HFI $ 934,868 $ 915,726 $ 792,777
Average loans HFI at amortized cost 857,099 824,218 723,730

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As of and for the Three Months Ended
(Dollars in thousands, except for share data) 3/31/2024 12/31/2023 3/31/2023
Average total assets 1,126,315 1,108,550 969,489
Average common shareholders’ equity 85,385 82,574 78,835
Total loans HFI 934,868 915,726 792,777
Total loans HFI, excluding government guaranteed loan balances 776,302 698,106 596,505
Allowance for credit losses 13,906 13,497 12,208
Total assets 1,144,194 1,117,766 1,069,839
Common shareholders’ equity 84,578 84,656 80,734
Per Share Data:
Basic earnings per common share $ 0.11 $ 0.32 $ 0.13
Diluted earnings per common share $ 0.11 $ 0.32 $ 0.13
Dividends per common share $ 0.08 $ 0.08 $ 0.08
Book value per common share $ 20.45 $ 20.60 $ 19.70
Tangible book value per common share(1) $ 20.45 $ 20.60 $ 19.70
Performance Ratios:
Return on average assets(2) 0.29 % 0.60 % 0.30 %
Return on average common equity(2) 2.06 % 6.37 % 2.69 %
Net interest margin(2) 3.42 % 3.48 % 4.17 %
Dividend payout ratio 75.27 % 25.03 % 61.48 %
Asset Quality Data:
Net charge-offs $ 3,652 $ 2,612 $ 1,887
Net charge-offs/average loans HFI at amortized cost(2) 1.71 % 1.27 % 1.05 %
Nonperforming loans(3) $ 9,877 $ 9,688 $ 5,890
Nonperforming loans (excluding government guaranteed balance)(3) $ 7,568 $ 8,264 $ 2,095
Nonperforming loans/total loans HFI(3) 1.15 % 1.18 % 0.81 %
Nonperforming loans (excluding gov’t guaranteed balance)/total loans HFI(3) 0.88 % 1.00 % 0.29 %
ACL/Total loans HFI at amortized cost 1.62 % 1.64 % 1.69 %
Other Data:
Full-time equivalent employees 313 305 300
Banking centers 12 11 9
(1) See section entitled "GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures" below for a reconciliation to most comparable GAAP equivalent.
(2) Annualized
(3) Excludes loans measured at fair value

.

GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures

Some of the financial measures included in this report are not measures of financial condition or performance recognized by GAAP. These non-GAAP financial measures include tangible common shareholders' equity and tangible book value per common share. The management team uses these non-GAAP financial measures in its analysis of its performance, and they believe that providing this information to financial analysts and investors allows them to evaluate capital adequacy.

The following presents these non-GAAP financial measures along with their most directly comparable financial measures calculated in accordance with GAAP:

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Tangible Common Shareholders' Equity and Tangible Book Value Per Common Share (Unaudited)
As of
(Dollars in thousands, except for share data) March 31, 2024 December 31, 2023 March 31, 2023
Total shareholders’ equity $ 100,629 $ 100,707 $ 90,339
Less: Preferred stock liquidation preference (16,051) (16,051) (9,605)
Total equity available to common shareholders 84,578 84,656 80,734
Less: Goodwill — — —
Tangible common shareholders' equity $ 84,578 $ 84,656 $ 80,734
Common shares outstanding 4,134,914 4,110,470 4,098,805
Tangible book value per common share $ 20.45 $ 20.60 $ 19.70

Results of Operations

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 salaries and employee benefits, occupancy and equipment costs, and loan origination expenses as well as income taxes.

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, 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 second quarter of 2022, the Bank discontinued its primary consumer direct residential mortgage business line. In the third quarter of 2022, management decided to discontinue the nationwide residential lending business. As a result of the discontinuance, the nationwide residential line of business was reclassified as a discontinued operation and reported in the financial statements as such.

Net Income

The Company had net income for the three months ended March 31, 2024 of $0.8 million, or $0.11 per diluted common share, compared to net income for the three months ended March 31, 2023 of $0.7 million, or $0.13 per diluted common share. The increase in net income was primarily due to increases in gain on sale of government guaranteed loans of $3.7 million and other noninterest income of $1.3 million. This was partially offset by increases in provision for credit losses of $2.1 million and noninterest expense of $2.4 million.

Net Interest Income

Net interest income from continuing operations was $8.7 million for the three months ended March 31, 2024, a decrease of $0.3 million or 3.4% from the three months ended March 31, 2023. The decrease was mainly due to higher interest expense on deposits of $5.3 million, partially offset by an increase in loan interest income, including fees, of $5.2 million.

Net interest margin including discontinued operations was 3.42% for the first quarter of 2024, which represented a decrease of 75 basis points from 4.17% for the first quarter of 2023.

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Average Balance Sheet and Analysis of Net Interest Income

The following table sets forth, for the periods indicated, information regarding: (i) the total dollar amount of interest and dividend income of BayFirst from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest rate spread; (v) net interest margin; and (vi) ratio of average interest-earning assets to average interest-bearing liabilities. Loans in nonaccrual status, for the purposes of the following computations, are included in the average loan balances. FRB,

FHLB, and FNBB restricted equity holdings are included in other interest-earning assets. The Company did not have a significant amount of tax-exempt assets.
2023
(Dollars in thousands) Interest Yield Average  Balance Interest Yield
Interest-earning assets:
Investment securities 42,897 $ 432 4.05 % $ 46,609 $ 474 4.12 %
Loans, excluding PPP (1) (2) 18,220 7.82 747,732 13,025 7.06
PPP loans 8 1.04 18,739 47 1.02
Other 527 4.72 67,277 706 4.26
Total interest-earning assets 19,187 7.51 880,357 14,252 6.57
Noninterest-earning assets 89,132
Total assets 1,126,315 $ 969,489
Interest-bearing liabilities:
NOW, MMDA and savings 632,934 $ 6,659 4.23 $ 602,149 $ 3,849 2.59
Time deposits 3,556 5.36 140,684 1,074 3.10
Other borrowings 230 4.56 25,159 275 4.43
Total interest-bearing liabilities 10,445 4.57 767,992 5,198 2.74
Demand deposits 100,802
Noninterest-bearing liabilities 12,255
Shareholders’ equity 88,440
Total liabilities and shareholders’ equity 1,126,315 $ 969,489
Net interest income $ 8,742 $ 9,054
Interest rate spread 2.94 3.83
Net interest margin (3) 3.42 4.17
Ratio of average interest-earning assets to average interest-bearing liabilities % 114.63 %
(1) Includes nonaccrual loans.
(2) Includes no residential loans held for sale from discontinued operations as of March 31, 2024 and 315 at an average yield of 1.09% of residential loans held for sale from discontinued operations as of March 31, 2023.
(3) Net interest margin represents net interest income divided by average total interest-earning assets.

All values are in US Dollars.

Rate/Volume Analysis

The table below presents the effects of volume and rate changes on interest income and expense for the periods indicated. Changes in volume are changes in the average balance multiplied by the previous period’s average rate. Changes in rate are changes in the average rate multiplied by the average balance from the previous period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate. Loans in nonaccrual status, for the purpose of the following computations, are included in the average

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loan balances. FRB, FHLB, and FNBB restricted equity holdings are included in other interest-earning assets. The Company did not have a significant amount of tax-exempt assets.

(Dollars in thousands) Rate Volume Total
Three Months Ended March 31, 2024 vs. March 31, 2023:
Interest-earning assets:
Investment securities $ (8) $ (34) $ (42)
Loans, excluding PPP 1,551 3,644 5,195
PPP loans 1 (40) (39)
Other interest-earning assets 72 (251) (179)
Total interest-earning assets 1,616 3,319 4,935
Interest-bearing liabilities:
NOW, MMDA and savings 2,600 210 2,810
Time deposits 1,116 1,366 2,482
Other borrowings 8 (53) (45)
Total interest-bearing liabilities 3,724 1,523 5,247
Net change in net interest income $ (2,108) $ 1,796 $ (312)

Provision for Credit Losses

The provision for credit losses is charged to operations to adjust the total allowance 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 on loans for the three months ended March 31, 2024 of $4.1 million primarily due to net charge-offs and net loan growth. This compared to a provision of $1.9 million for the three months ended March 31, 2023. During the three months ended March 31, 2024, $3.7 million of net charge offs in loans were recorded compared to $1.9 million during the three months ended March 31, 2023. Net charge-offs for the first quarter of 2024 were elevated by higher net charge-offs from the Bank’s FlashCap, our small SBA loan program for balances over $150 thousand and under $350 thousand, which the Bank ended during the quarter, as well as $0.8 million of net charge-offs from a purchased portfolio of unsecured consumer loans. The Company stopped purchasing these consumer loans at the end of 2022 and the portfolio balances decreased from $17.0 million to $14.3 million during the quarter.

Noninterest Income

The following table presents noninterest income from continuing operations for the three months ended March 31, 2024 and March 31, 2023.

For the Three Months Ended March 31,
(Dollars in thousands) 2024 2023
Noninterest income:
Loan servicing income, net $ 795 $ 740
Gain on sale of government guaranteed loans, net 8,089 4,409
Service charges and fees 444 379
Government guaranteed loan fair value gain 3,305 3,574
Government guaranteed loan packaging fees 1,407 121
Other noninterest income 228 225
Total noninterest income $ 14,268 $ 9,448

Noninterest income from continuing operations was $14.3 million during the three months ended March 31, 2024, an increase of $4.8 million or 51.0% during the three months ended March 31, 2023. The increase was the result of increases

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in gain on sale of government guaranteed loans of $3.7 million and government guaranteed loan packaging fees of $1.3 million.

Noninterest Expense

The following table presents noninterest expense from continuing operations for the three months ended March 31, 2024 and March 31, 2023.

For the Three Months Ended March 31,
(Dollars in thousands) 2024 2023
Noninterest expense:
Salaries and benefits $ 8,005 $ 7,835
Bonus, commissions, and incentives 1,571 804
Occupancy and equipment 1,110 1,163
Data processing 1,560 1,347
Marketing and business development 588 665
Professional services 1,349 897
Loan origination and collection 1,719 1,495
Employee recruiting and development 597 568
Regulatory assessments 282 99
Director compensation 118 140
Liability and fidelity bond insurance 145 122
ATM and interchange 148 96
Telecommunication 108 92
Other noninterest expense 473 89
Total noninterest expense $ 17,773 $ 15,412

Noninterest expense from continuing operations was $17.8 million during the three months ended March 31, 2024, an increase of $2.4 million or 15.3% during the three months ended March 31, 2023. The increase was primarily due to higher compensation costs of $0.9 million, higher professional fees of $0.5 million, higher loan production expenses of $0.2 million, and higher data processing expenses of $0.2 million.

Income Taxes

Income tax expense from continuing operations was $296 thousand for the three months ended March 31, 2024, an increase of $16 thousand from income tax expense of $280 thousand for the three months ended March 31, 2023. The increase was primarily due to the increase in pre-tax earnings from continuing operations. Income tax benefit from discontinued operations was $19 thousand for the three months ended March 31, 2024, compared to income tax benefit of $42 thousand for the three months ended March 31, 2023. The change was primarily due to the decrease in pre-tax loss from discontinued operations.

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Financial Condition

Investment Securities

The following table presents the fair value of the Company's investment securities portfolio classified as available for sale as of March 31, 2024 and December 31, 2023.

(Dollars in thousands) March 31, 2024 December 31, 2023
Investment securities available for sale:
Asset-backed securities $ 7,208 $ 7,933
Mortgage-backed securities:
U.S. Government-sponsored enterprises 7,496 3,236
Collateralized mortgage obligations:
U.S. Government-sponsored enterprises 16,417 17,098
Corporate bonds 11,393 11,308
Total investment securities available for sale $ 42,514 $ 39,575

The net unrealized loss on the investment securities AFS at March 31, 2024, was $4.4 million compared with a net unrealized loss on investment securities AFS of $4.0 million at December 31, 2023. The change in unrealized loss on investment securities AFS from December 31, 2023 to March 31, 2024 was primarily due to the change in the interest rate environment.

The following table presents the amortized cost of the Company's investment securities portfolio classified as held to maturity as of March 31, 2024 and December 31, 2023.

(Dollars in thousands) March 31, 2024 December 31, 2023
Investment securities held to maturity:
Mortgage-backed securities:
U.S. Government-sponsored enterprises $ 1 $ 1
Corporate bonds 2,500 2,500
Total investment securities held to maturity $ 2,501 $ 2,501

There was a $14 thousand ACL on the corporate bonds HTM as of March 31, 2024 and a $17 thousand ACL on the corporate bonds HTM as of December 31, 2023. The net unrealized loss on the investment securities HTM at March 31, 2024, was $149 thousand compared with a net unrealized loss on investment securities HTM of $238 thousand at December 31, 2023.

No investment securities were pledged as of March 31, 2024 or December 31, 2023, and there were no sales of investment securities during the three months ended March 31, 2024 or three months ended March 31, 2023.

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The investment securities available for sale presented in the following tables are reported at amortized cost and by contractual maturity as of March 31, 2024 and December 31, 2023. 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.

March 31, 2024
One year or less One to five years Five to ten years After ten years
(Dollars in thousands) Amortized<br>Cost Average Yield Amortized<br>Cost Average Yield Amortized<br>Cost Average Yield Amortized<br>Cost Average Yield
Asset-backed securities $ — — % $ — — % $ — — % $ 7,263 6.36 %
Mortgage-backed securities:
U.S. Government-sponsored enterprises — — — — 4,458 4.59 3,681 1.58
Collateralized mortgage obligations:
U.S. Government-sponsored enterprises — — — — — — 20,084 1.83
Corporate bonds — — 11,330 6.38 — — — —
Total investment securities available for sale $ — — % $ 11,330 6.38 % $ 4,458 4.59 % $ 31,028 2.86 % December 31, 2023
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
One year or less One to five years Five to ten years After ten years
(Dollars in thousands) Amortized<br>Cost Average Yield Amortized<br>Cost Average Yield Amortized<br>Cost Average Yield Amortized<br>Cost Average Yield
Asset-backed securities $ — — % $ — — % $ — — % $ 8,041 6.25 %
Mortgage-backed securities:
U.S. Government-sponsored enterprises — — — — — — 3,842 1.58
Collateralized mortgage obligations:
U.S. Government-sponsored enterprises — — — — — — 20,382 1.82
Corporate bonds — — 11,332 6.23 — — — —
Total investment securities available for sale $ — — % $ 11,332 6.23 % $ — — % $ 32,265 2.90 %

The investment securities held to maturity presented in the following tables are reported at amortized cost and by contractual maturity as of March 31, 2024 and December 31, 2023. 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.

March 31, 2024
One year or less One to five years Five to ten years After ten years
(Dollars in thousands) Amortized<br>Cost Average Yield Amortized<br>Cost Average Yield Amortized<br>Cost Average Yield Amortized<br>Cost Average Yield
Mortgage-backed securities:
U.S. Government-sponsored enterprises $ — — % $ — — % $ — — % $ 1 4.23 %
Corporate bonds — — 1,500 4.38 1,000 4.38 — —
Total investment securities held to maturity $ — — % $ 1,500 4.38 % $ 1,000 4.38 % $ 1 4.23 %

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December 31, 2023
One year or less One to five years Five to ten years After ten years
(Dollars in thousands) Amortized<br>Cost Average Yield Amortized<br>Cost Average Yield Amortized<br>Cost Average Yield Amortized<br>Cost Average Yield
Mortgage-backed securities:
U.S. Government-sponsored enterprises $ — — % $ — — % $ — — % $ 1 4.30 %
Corporate bonds — — 1,500 4.38 1,000 4.38 — —
Total investment securities held to maturity $ — — % $ 1,500 4.38 % $ 1,000 4.38 % $ 1 4.30 %

Loan Portfolio Composition

The Company offers a variety of products designed to meet the credit needs of our borrowers. Our lending activities primarily consist of government guaranteed loans, real estate loans, commercial business loans, 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 6% of the total portfolio. The following table sets forth the composition of its loan portfolio, including LHFS as of the dates indicated.

March 31, 2024 December 31, 2023
(Dollars in thousands) Amount % of Total Amount % of Total
Government guaranteed loans, held for sale $ 2,226 $ —
Loans HFI:
Government guaranteed loans HFI, at fair value 77,769 91,508
Loans HFI, at amortized cost:
Residential real estate 285,214 33.8 % 264,126 32.5 %
Commercial real estate 273,227 32.3 293,595 36.2
Construction and land 36,764 4.3 26,272 3.2
Commercial and industrial 182,264 21.6 177,566 21.9
Commercial and industrial – PPP 2,965 0.4 3,202 0.4
Consumer and other 63,854 7.6 47,287 5.8
Loans HFI, at amortized cost, gross 844,288 100.0 % 812,048 100.0 %
Discount on government guaranteed loans sold (7,674) (7,040)
Premium on loans purchased, net 4,252 4,503
Deferred loan costs, net 16,233 14,707
Allowance for credit losses (13,906) (13,497)
Loans HFI, at amortized cost, net 843,193 810,721
Total loans HFI, net $ 920,962 $ 902,229

During the three months ended March 31, 2024, the Bank originated approximately $66.6 million in loans through conventional lending channels and $130.6 million in loans through CreditBench (its government guaranteed lending function). In addition, the Bank sold guaranteed loan balances of $127.8 million.

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Loan Maturity/Rate Sensitivity

The following table shows the contractual maturities of our loans at March 31, 2024. 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.

(Dollars in thousands) Due in One Year<br>or Less Due After One<br>Year to Five<br>Years Due After Five<br>Years to 15 Years Due After 15<br>Years Total
Real estate:
Residential $ 2,030 $ 629 $ 15,723 $ 267,363 $ 285,745
Commercial 3,657 1,473 42,503 243,845 291,478
Construction and land 11,965 3,054 3,857 17,887 36,763
Commercial and industrial 6,323 26,523 210,637 8,400 251,883
Commercial and industrial - PPP 345 2,620 — — 2,965
Consumer and other 1,773 26,855 18,596 18,810 66,034
Total loans HFI $ 26,093 $ 61,154 $ 291,316 $ 556,305 $ 934,868

The following table shows the loans with contractual maturities of greater than one year that have fixed or adjustable interest rates at March 31, 2024.

(Dollars in thousands) Fixed<br><br>Interest Rate Adjustable<br><br>Interest Rate
Real estate:
Residential $ 64,835 $ 218,880
Commercial 4,817 283,004
Construction and land — 24,798
Commercial and industrial 7,786 237,774
Commercial and industrial - PPP 2,620 —
Consumer and other 47,912 16,349
Total loans HFI $ 127,970 $ 780,805

Credit Risk

The Bank’s primary business is making commercial, consumer, and real estate loans. This activity inevitably has risks for potential credit losses, the magnitude of which depends on a variety of economic factors affecting borrowers, which are beyond its control. The Bank has developed policies and procedures for evaluating the overall quality of its credit portfolio and the timely identification of potential problem loans. Management’s judgment as to the adequacy of the allowance is based upon a number of assumptions about the economic environment that it believes impacts credit quality as of the balance sheet date that it believes to be reasonable, but which may or may not prove accurate. Thus, there can be no assurance that charge-offs in future periods will not exceed the ACL, or that additional increases in the ACL will not be required.

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 ACL for loans increased by $3.1 million to 2.37% 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.

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 utilizing data from the FOMC’s median forecasts of change

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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.

The Bank periodically reviews the assumptions and formulates methodologies by which changes are made to the specific and general valuation ACL in an effort to refine such allowances in light of the current status of the factors described above.

All nonaccrual loans and modifications to loans for borrowers experiencing financial difficulty are reviewed to determine if the loans share the same risk characteristics as the pooled loans. If the loan does not share the same risk characteristics, the loan is evaluated individually for credit losses. Specific allocation of reserves for individually evaluated loans considers the value of the collateral, the financial condition of the borrower, and industry and current economic trends. The Bank reviews the collateral value, cash flow, and other support on each individually evaluated credit. Any deficiency outlined by a real estate collateral evaluation analysis, or cash flow shortfall, is accounted for through a specific allocation for the loan.

Nonperforming Assets. At March 31, 2024, the Company had $8.7 million in nonperforming assets, excluding government guaranteed loan balances, and the ACL represented 1.62% of total loans HFI at amortized cost. At March 31, 2023, the Company had $2.1 million in nonperforming assets, excluding government guaranteed loan balances, and their ACL represented 1.69% of total loans HFI at amortized cost. Total loans HFI at March 31, 2024 and March 31, 2023 included government guaranteed loans 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 1.88% at March 31, 2024, compared to 2.10% at March 31, 2023.

The following table sets forth certain information on nonaccrual loans, loans 90 days or more past due, and foreclosed assets, the ratio of such loans and foreclosed assets to total assets as of the dates indicated, and certain other related information.

(Dollars in thousands) March 31,<br>2024 March 31,<br>2023 December 31,<br>2023
Nonperforming loans (government guaranteed balances), at amortized cost, gross $ 2,309 $ 3,795 $ 1,424
Nonperforming loans (unguaranteed balances), at amortized cost, gross 7,568 2,095 8,264
Total nonperforming loans, at amortized cost, gross 9,877 5,890 9,688
Nonperforming loans (government guaranteed balances), at fair value 94 — —
Nonperforming loans (unguaranteed balances), at fair value 729 — 648
Total nonperforming loans, at fair value 823 — 648
OREO 404 3 —
Total nonperforming assets, gross $ 11,104 $ 5,893 $ 10,336
Nonperforming loans as a percentage of total loans HFI(1) 1.15 % 0.81 % 1.18 %
Nonperforming loans (excluding government guaranteed balances) to total loans HFI(1) 0.88 % 0.29 % 1.00 %
Nonperforming assets as a percentage of total assets 0.97 % 0.55 % 0.92 %
Nonperforming assets (excluding government guaranteed balances) to total assets 0.70 % 0.20 % 0.74 %
ACL to nonperforming loans(1) 140.79 % 207.27 % 139.32 %
ACL to nonperforming loans (excluding government guaranteed balances)(1) 183.75 % 582.72 % 163.32 %

(1) Excludes loans measured at fair value

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The following table sets forth information with respect to activity in the ACL for loans for the periods shown:

(Dollars in thousands) At and for the Three Months Ended March 31,
2024 2023
Allowance at beginning of period $ 13,497 $ 9,046
Impact of adopting ASC 326 — 3,107
Charge-offs:
Commercial and industrial (2,924) (1,408)
Consumer and other (978) (665)
Total charge-offs (3,902) (2,073)
Recoveries:
Commercial real estate 2 2
Commercial and industrial 130 117
Consumer and other 118 67
Total recoveries 250 186
Net charge-offs (3,652) (1,887)
Provision for credit losses 4,061 1,942
Allowance at end of period $ 13,906 $ 12,208
Net charge-offs to average loans HFI at amortized cost 1.71 % 1.05 %
Allowance as a percent of total loans HFI at amortized cost 1.62 % 1.69 %
Allowance as a percent of loans HFI at amortized cost, not including government guaranteed loans 1.88 % 2.10 %
Allowance as a percent of nonperforming loans at amortized cost, gross 140.79 % 207.27 %
Total loans HFI $ 934,868 $ 792,777
Average loans HFI at amortized cost $ 855,040 $ 718,094
Nonperforming loans (including government guaranteed balances) at amortized cost, gross $ 9,877 $ 5,890
Nonperforming loans (excluding government guaranteed balances) at amortized cost, gross $ 7,568 $ 2,095
Guaranteed balance of government guaranteed loans $ 158,566 $ 197,135

The following table details net charge-offs to average loans outstanding by loan category for the three months ended March 31, 2024 and March 31, 2023.

Three Months Ended March 31, 2024 Three Months Ended March 31, 2023
(Dollars in thousands) Net (Charge-off) Recovery Average Loans HFI at amortized cost Net (Charge-off) Recovery Ratio Net (Charge-off) Recovery Average Loans HFI at amortized cost Net (Charge-off) Recovery Ratio
Residential real estate $ — $ 261,289 — % $ — $ 190,285 — %
Commercial real estate 2 337,651 — 2 258,562 —
Commercial and industrial (2,794) 198,453 (5.63) (1,291) 213,960 (2.41)
Commercial and industrial - PPP — 3,080 — — 18,739 —
Consumer and other (860) 54,567 (6.30) (598) 36,547 (6.54)
Total loans HFI at amortized cost $ (3,652) $ 855,040 (1.71) % $ (1,887) $ 718,093 (1.05) %

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SBA and Other Government Guaranteed Loans

The following table sets forth, for the periods indicated, information regarding the SBA and other government guaranteed lending activity, excluding PPP loans.

(Dollars in thousands) At and for the Three Months Ended March 31,
Government Guaranteed, Excluding PPP 2024 2023
Number of loans originated 809 568
Amount of loans originated $ 130,556 $ 121,062
Average loan size originated $ 161 $ 213
Government guaranteed loan balances sold $ 127,766 $ 71,636
Government unguaranteed loan balances sold $ — $ —
Total government guaranteed loan balances:
Guaranteed portion of government guaranteed loan balances $ 155,601 $ 177,962
Unguaranteed portion of government guaranteed loan balances $ 219,830 $ 172,524
Total government guaranteed loans $ 375,431 $ 350,486
Government guaranteed loans serviced for others $ 950,793 $ 693,920

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 its government guaranteed loan portfolio. The “All Other” category includes states with less than 5% in any period presented.

March 31,
2024 2023
(Dollars in thousands) Amount % of Total Amount % of Total
Florida $ 111,634 30 % $ 129,966 37 %
California 49,204 13 38,997 11
Tennessee 30,914 8 23,199 7
Texas 23,298 6 21,771 6
All Other 160,381 43 136,553 39
Total government guaranteed loans, excluding PPP loans $ 375,431 100 % $ 350,486 100 %

Deposits

General. In addition to deposits, sources of funds available for lending and for other purposes include loan repayments and 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.

Deposits. Deposits are sourced principally from within its primary service area of Pinellas, Hillsborough, Manatee, Pasco, and Sarasota Counties, Florida. The Bank offers a wide selection of deposit instruments including demand deposit accounts, NOW accounts, money-market accounts, regular savings accounts, time deposit accounts, and retirement savings plans (such as IRA accounts).

Time deposit rates are set to encourage longer maturities as cost and market conditions will allow. Deposit account terms vary, with the primary differences being the minimum balance required, the time period the funds must remain on deposit, and the interest rate.

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, based on a review of loan demand, recent cash flows and a survey of rates among competitors.

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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 15% 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 March 31, 2024 and December 31, 2023, the Company had $30.5 million and $30.0 million, respectively, of brokered deposits.

The amount of each of the following categories of deposits, at the dates indicated, are as follows:

(Dollars in thousands) March 31, 2024 December 31, 2023
Noninterest-bearing deposits $ 96,977 9.6 % $ 93,708 9.5 %
Interest-bearing transaction accounts 250,478 24.9 259,422 26.3
Money market accounts 375,096 37.2 355,946 36.2
Savings 16,819 1.7 17,054 1.7
Subtotal 739,370 73.4 726,130 73.7
Total time deposits 267,945 26.6 259,008 26.3
Total deposits $ 1,007,315 100.0 % $ 985,138 100.0 %

At March 31, 2024, the Company held approximately $158.4 million of deposits that exceeded the FDIC insurance limit which was 16% 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 March 31, 2024.

(Dollars in thousands)
Three months or less $ 16,484
Over three months through six months 5,507
Over six months through 12 months 34,377
Over 12 months 61,627
Total time deposits over $250 $ 117,995

Deposits increased $22.2 million or 2.25% during the three months ended 2024, with growth in noninterest-bearing deposits, money market accounts, and time deposits, partially offset by decreases in interest-bearing transaction accounts and savings.

Other Borrowings

At March 31, 2024, the Company had $15.0 million of borrowings at 5.58% from the FHLB and no borrowings from the 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 Bank is a member of the FHLB of Atlanta, which provides short- and long-term funding collateralized by mortgage-related assets to its members. FHLB short-term borrowings bear interest at variable rates set by the FHLB. Any advances that the bank were to obtain would be secured by a blanket lien on $304.5 million of real estate-related loans as of March 31, 2024. Based on this collateral and the Company's holdings of FHLB stock, the Company was eligible to borrow up to $162.0 million from the FHLB at March 31, 2024.

In addition, the Bank has a line of credit with the Federal Reserve Bank of Atlanta which was secured by $54.8 million of commercial loans as of March 31, 2024. FRB short-term borrowings bear interest at variable rates based on the FOMC's target range for the federal funds rate. Based on this collateral, the Company was eligible to borrow up to $38.5 million from the FRB at March 31, 2024.

The Company has $6.0 million of Subordinated Debentures (the “Debentures”) that mature June 30, 2031 and are redeemable after 5 years which is June 30, 2026. The Debentures 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 debt agreements, the floating rates are based on a SOFR benchmark plus 3.78% per annum. The balance of Subordinated

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Debentures outstanding at the Company, net of offering costs, amounted to $6.0 million and $5.9 million at March 31, 2024 and December 31, 2023, respectively.

The Company has a term note with quarterly principal and interest payments with interest at Prime (8.50% at March 31, 2024). The note matures on March 10, 2029 and the balance of the note was $2.3 million and $2.4 million at March 31, 2024 and December 31, 2023, 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 of March 31, 2024, the Company was in compliance with all financial debt covenants.

Capital Resources

Shareholders' equity is influenced primarily by earnings, dividends, the Company's sales and repurchases of its common and preferred stock, and changes in accumulated other comprehensive income caused primarily by fluctuations in unrealized gains or losses, net of taxes, on available for sale investment securities.

Shareholders' equity decreased $0.1 million to $100.6 million at March 31, 2024 as compared to $100.7 million at December 31, 2023. The decrease was primarily due to common stock dividends of $0.3 million, preferred stock dividends of $0.4 million, and an increase in other comprehensive loss of $0.2 million partially offset by net income of $0.8 million .

The Company strives to maintain an adequate capital base to support its activities in a safe and sound manner while at the same time attempting to maximize shareholder value. Management assesses capital adequacy against the risk inherent in the balance sheet, recognizing that unexpected loss is the common denominator of risk and that common equity has the greatest capacity to absorb unexpected loss.

The Bank is subject to regulatory capital requirements imposed by various regulatory banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by banking regulators that, if undertaken, could have a direct material effect on BayFirst’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.

In 2020, the Federal banking regulatory agencies adopted a rule to simplify the methodology for measuring capital adequacy for smaller, uncomplicated banks. This CBLR is calculated as the ratio of tangible equity capital divided by average total consolidated assets. CBLR tangible equity is defined as total equity capital, prior to including minority interests, and excluding accumulated other comprehensive income, deferred tax assets arising from net operating loss and tax credit carryforwards, goodwill, and other intangible assets (other than mortgage servicing assets). Under the proposal, a qualifying organization may elect to use the CBLR framework if its CBLR is greater than 9%. The Bank elected not to use the CBLR framework.

At March 31, 2024 and December 31, 2023, the Bank's capital ratios were in excess of the requirement to be "well capitalized" under the regulatory guidelines.

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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:

Actual Minimum(1) Well Capitalized(2)
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
As of March 31, 2024
Total Capital (to risk-weighted assets) $ 113,545 12.29 % $ 73,904 8.00 % $ 92,380 10.00 %
Tier 1 Capital (to risk-weighted assets) 101,974 11.04 55,428 6.00 73,904 8.00
Common Equity Tier 1 Capital (to risk-weighted assets) 101,974 11.04 41,571 4.50 60,047 6.50
Tier 1 Capital (to total assets) 101,974 9.12 44,708 4.00 55,885 5.00
As of December 31, 2023
Total Capital (to risk-weighted assets) 114,256 13.03 70,169 8.00 87,711 10.00
Tier 1 Capital (to risk-weighted assets) 103,274 11.77 52,627 6.00 70,169 8.00
Common Equity Tier 1 Capital (to risk-weighted assets) 103,274 11.77 39,470 4.50 57,012 6.50
Tier 1 Capital (to total assets) 103,274 9.38 44,024 4.00 55,030 5.00

(1) Minimum to be considered “adequately capitalized” under Basel III Capital Adequacy.

(2) Minimum to be considered “well capitalized” under Prompt Corrective Actions Provisions.

Off-Balance Sheet Arrangements

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business. These financial instruments primarily include unfunded loan commitments, unfunded lines of credit, and standby letters of credit. The Bank uses these financial instruments to meet the financing needs of its customers. These financial instruments involve, to varying degrees, elements of credit, interest rate, and liquidity risk. These do not present unusual risks and management does not anticipate any accounting losses that would have a material effect on the Bank.

A summary of the amounts of the Bank’s financial instruments, with off-balance sheet risk as of the dates indicated, was as follows:

(Dollars in thousands) March 31,<br>2024 December 31,<br>2023
Unfunded loan commitments $ 8,018 $ 7,392
Unused lines of credit 188,073 178,440
Standby letters of credit 211 186
Total $ 196,302 $ 186,018

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Management evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based on management’s credit evaluation of the customer.

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 general, loan commitments and letters of credit are made on the same terms, including with respect to collateral, as outstanding loans. Each customer’s creditworthiness and the collateral required are evaluated on a case-by-case basis.

The Company maintains an ACL for its off-balance sheet loan commitments which is calculated by loan type using estimated line utilization rates based on historical usage. Loss rates for outstanding loans is applied to the estimated

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utilization rates to calculate the ACL for off-balance sheet loan commitments. At March 31, 2024 and December 31, 2023, ACL for off-balance sheet loan commitments totaled $839 thousand for both periods.

Contractual Obligations

In the ordinary course of its operations, the Company enters into certain contractual obligations. Total contractual obligations at March 31, 2024 were $294.5 million, an increase of $13.8 million from $280.7 million at December 31, 2023. The increase was primarily due to an increase in time deposits of $8.9 million and short-term FHLB borrowings of $5.0 million.

The following tables present our contractual obligations as of March 31, 2024 and December 31, 2023.

Contractual Obligations as of March 31, 2024
(Dollars in thousands) Less than One Year One to Three Years Three to Five Years Over Five Years Total
Operating lease obligations $ 1,102 $ 1,972 $ 237 $ — $ 3,311
Short-term borrowings 15,000 — — — 15,000
Long-term borrowings 456 912 908 — 2,276
Subordinated notes — — — 5,950 5,950
Time deposits 163,417 104,009 519 — 267,945
Total $ 179,975 $ 106,893 $ 1,664 $ 5,950 $ 294,482
Contractual Obligations as of December 31, 2023
(Dollars in thousands) Less than One Year One to Three Years Three to Five Years Over Five Years Total
Operating lease obligations $ 1,105 $ 1,861 $ 413 $ — $ 3,379
Short-term borrowings 10,000 — — — 10,000
Long-term borrowings 456 912 912 109 2,389
Subordinated notes — — — 5,949 5,949
Time deposits 173,887 84,552 569 — 259,008
Total $ 185,448 $ 87,325 $ 1,894 $ 6,058 $ 280,725

Liquidity

Liquidity management is the process by which the Bank manages the flow of funds necessary to meet its financial commitments on a timely basis and at a reasonable cost to take advantage of earnings enhancement opportunities. These financial commitments include withdrawals by depositors, credit commitments to borrowers, expenses of the operations, and capital expenditures. The Bank generally maintains a minimum liquidity ratio of liquid assets to total assets of at least 7.0%. Liquid assets include cash and due from banks, federal funds sold, interest-bearing deposits with banks and unencumbered investment securities available for sale. The on-balance sheet liquidity ratio at March 31, 2024 was 9.22%, as compared to 9.33% at December 31, 2023.

During the first quarter of 2024, the Bank paid a quarterly dividend of $1.20 million to BayFirst 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 March 31, 2024, BayFirst Financial Corp. held $912 thousand in cash and cash equivalents.

The Company expects that all the liquidity needs, including the contractual commitments 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, FRB, and 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 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

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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.”

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk and Interest Rate Sensitivity

Market risk is the risk of loss from adverse changes in market prices and rates. Market risk arises primarily from interest-rate risk inherent in loan and deposit taking activities. To that end, the Company actively monitors and manages its interest-rate risk exposure. The measurement of market risk associated with financial instruments is meaningful only when all related and offsetting on- and off-balance sheet transactions are aggregated, and the resulting net positions are identified. Disclosures about the fair value of financial instruments, which reflect changes in market prices and rates, should also be considered.

The objective in managing interest-rate risk is to minimize the adverse impact of changes in interest rates on net interest income and capital, while adjusting the asset-liability structure to obtain the maximum yield-cost spread on that structure. The Company relies primarily on its asset-liability structure to control interest rate risk. A sudden or substantial increase in interest rates may impact its earnings, to the extent that the interest rates borne by assets and liabilities do not change at the same rate, to the same extent, or on the same basis.

The Company established a comprehensive interest rate risk management policy which is administered by management’s Asset-Liability Committee. The policy establishes risk limits, which are quantitative measures of the percentage change in net interest income (net interest income at risk) and the fair value of equity capital (economic value of equity at risk) resulting from a hypothetical change in interest rates for maturities from one day to 30 years. Management measures the potential adverse impacts that changing interest rates may have on its short-term earnings, long-term value, and liquidity with computer-generated simulation analysis. The simulation model is designed to capture call features and interest rate caps and floors embedded in investment and loan contracts. As with any method of analyzing interest rate risk, there are certain shortcomings inherent in the interest rate modeling methodology used. When interest rates change, actual movements in different categories of interest-earning assets and interest-bearing liabilities, loan prepayments, and withdrawals of time and other deposits, may deviate significantly from the assumptions used in modeling. The methodology does not measure the impact that higher rates may have on borrowers’ ability to service their debts, or the impact of rate changes on demand for loan and deposit products.

To minimize the potential for adverse effects of changes in interest rates on the results of the operations, the Company monitors assets and liabilities to better match the maturities and repricing terms of the interest-earning assets and interest-bearing liabilities. To do this, the Company (i) emphasizes the origination of adjustable-rate and variable-rate loans to be HFI; (ii) maintains a stable core deposit base; and (iii) maintains a significant portion of liquid assets (cash, interest-bearing deposits with other banks, and available for sale investment securities).

Management regularly reviews its exposure to changes in interest rates. Among the factors they consider are changes in the mix of interest-earning assets and interest-bearing liabilities, interest rate spreads and repricing periods. ALCO reviews, on at least a quarterly basis, its interest rate risk position.

The interest rate risk position is measured and monitored at the Bank using net interest income simulation models and economic value of equity sensitivity analysis that captures both short-term and long-term interest-rate risk exposure.

Modeling the sensitivity of net interest income and the economic value of equity to changes in market interest rates is highly dependent on numerous assumptions incorporated into the modeling process. The models used for these measurements rely on estimates of the potential impact that changes in interest rates may have on the value and prepayment speeds on all components of its loan portfolio, investment portfolio, as well as embedded options and cash flows of other assets and liabilities. Balance sheet growth assumptions are also included in the simulation modeling process. The analysis provides a framework as to what the overall sensitivity position is as of the most recent reported position and the impact that potential changes in interest rates may have on net interest income and the economic value of its equity.

Net interest income simulation involves forecasting net interest income under a variety of interest rate scenarios including instantaneous shocks.

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The estimated impact on the net interest income as of March 31, 2024 and December 31, 2023, assuming immediate parallel moves in interest rates, is presented in the table below.

March 31, 2024 December 31, 2023
Change in rates Following 12 months Following 24 months Following 12 months Following 24 months
+400 basis points 11.1 % 10.3 % 14.7 % 12.8 %
+300 basis points 10.2 10.3 12.7 12.1
+200 basis points 6.1 6.3 7.6 7.4
+100 basis points 1.8 2.1 2.5 2.6
-100 basis points (3.7) (3.9) (4.5) (4.5)
-200 basis points (7.5) (8.1) (9.1) (9.1)

Management strategies may impact future reporting periods, as the actual results may differ from simulated results due to the timing, magnitude, and frequency of interest rate changes, the difference between actual experience and the characteristics assumed, as well as changes in market conditions. Market-based prepayment speeds are factored into the analysis for loan and investment securities portfolios. Rate sensitivity for transactional deposit accounts is modeled based on both historical experience and external industry studies.

The Company uses economic value of equity sensitivity analysis to understand the impact of interest rate changes on long-term cash flows, income, and capital. Economic value of equity is based on discounting the cash flows for all balance sheet instruments under different interest rate scenarios.

The table below presents the change in the economic value of equity as of March 31, 2024 and December 31, 2023, assuming immediate parallel shifts in interest rates.

Change in rates March 31, 2024 December 31, 2023
+400 basis points (5.5) % (6.3) %
+300 basis points (3.1) (4.1)
+200 basis points (2.7) (3.3)
+100 basis points (2.6) (2.7)
-100 basis points (0.2) 0.2
-200 basis points (2.0) (0.3)

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Exchange Act), was carried out under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer as of March 31, 2024, the last day of the period covered by this Quarterly Report. The Company’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of March 31, 2024, in ensuring that the information required to be disclosed in the reports the Company files or submits under the Exchange Act is (i) accumulated and communicated to management (including the Company’s Chief Executive Officer and Chief Financial Officer) as appropriate to allow timely decisions regarding required disclosures, and (ii) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal period to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II

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Item 1. Legal Proceedings

In the normal course of business, the Company is named or threatened to be named as a defendant in various lawsuits, none of which is expected to have a material effect on the Company. However, given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to its business (including laws and regulations governing consumer protection, fair lending, fair labor, privacy, information security, anti-money laundering and anti-terrorism), the Company, like all banking organizations, is subject to heightened legal and regulatory compliance and litigation risk. There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company is a party or to which its property is the subject.

Item 1A. 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 for the year ended December 31, 2023. 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.

Item 5. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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ITEM 6. EXHIBITS

(a)Exhibits.

Exhibit<br>Number Exhibit Name
3.1 Amended and Restated Articles of Incorporation
3.2 Bylaws
3.3 Amendment to Bylaws, dated August 22, 2019
3.4 Amendment to Articles of Incorporation, dated September 7, 2023
4.1 Form of common stock certificate
4.2 Form of Series A Preferred Stock certificate
4.3 Form of Series B Convertible Preferred Stock certificate
4.4 Form of Series C Cumulative Convertible Preferred Stock certificate
31.1 Principal Executive Officer’s Certification required by Rule 13(a)-14(a) - filed herewith
31.2 Principal Financial Officer’s Certification required by Rule 13(a)-14(a) - filed herewith
32.1 Principal Executive Officer’s Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - filed herewith
32.2 Principal Financial Officer’s Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - filed herewith
101 Financial information from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended<br><br>March 31, 2024, formatted in iXBRL interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Shareholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to the Consolidated Financial Statements – filed herewith.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

BAYFIRST FINANCIAL CORP.
Date: May 13, 2024
By: /s/ Thomas G. Zernick
Thomas G. Zernick
Chief Executive Officer<br>(Principal Executive Officer)
Date: May 13, 2024
By: /s/ Scott J. McKim
Scott J. McKim
Chief Financial Officer<br>(Principal Financial Officer)

57

Document

CERTIFICATIONS REQUIRED BY

RULE 13a-14(a) OR RULE 15d-14(a)

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas G. Zernick, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of BayFirst Financial Corp., Inc. (the “Registrant”);

2.    Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3.    Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;

4.    The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f)) for the Registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

b)    Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

c)    Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

d)    Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.    The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

BAYFIRST FINANCIAL CORP.

Date:    May 13, 2024

By:    /s/ Thomas G. Zernick

Thomas G. Zernick

Chief Executive Officer

(principal executive officer)

Document

CERTIFICATIONS REQUIRED BY

RULE 13a-14(a) OR RULE 15d-14(a)

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott J. McKim, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of BayFirst Financial Corp., Inc. (the “Registrant”);

2.    Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3.    Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;

4.    The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f)) for the Registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

b)    Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

c)    Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

d)    Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.    The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

BAYFIRST FINANCIAL CORP.

Date:    May 13, 2024

By:    /s/ Scott J. McKim

Scott J. McKim

Chief Financial Officer

(principal financial officer)

Document

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas G. Zernick, Chief Executive Officer of BayFirst Financial Corp. (the “Company”) certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1)The Quarterly Report on Form 10-Q of the Company for the quarter period ended March 31, 2024 (the “Report”) fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

BAYFIRST FINANCIAL CORP.

Date:    May 13, 2024

By:    /s/ Thomas G. Zernick

Thomas G. Zernick

Chief Executive Officer

(principal executive officer)

Document

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott J. McKim, Chief Financial Officer of BayFirst Financial Corp. (the “Company”) certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1)    The Quarterly Report on Form 10-Q of the Company for the quarter period ended March 31, 2024 (the “Report”) fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2)    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

BAYFIRST FINANCIAL CORP.

Date:    May 13, 2024

By:    /s/ Scott J. McKim

Scott J. McKim

Chief Financial Officer

(principal financial officer)

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