BayFirst Financial Corp

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

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. Thedecrease 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 bynet 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.

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:

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

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