BayFirst Financial Corp.

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 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.

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, 2025 of $4.4 million primarily due to net loan growth and higher than expected charge-offs resulting in higher provision expense based on ACL model output. This compared to a provision of $4.1 million for the three months ended March 31, 2024. During the three months ended March 31, 2025, $3.3 million of net charge offs in loans were recorded compared to $3.7 million during the three months ended March 31, 2024.

Noninterest Income

The following table presents noninterest income from continuing operations for the three months ended March 31, 2025 and March 31, 2024.

Noninterest income from continuing operations was $8.8 million during the three months ended March 31, 2025, a decrease from$14.3 million during the three months ended March 31, 2024. The decrease was the result of decreases in gain on sale of government guaranteed loans of $0.8 million, fair value gains on government guaranteed loans of $4.1 million, and government guaranteed loan packaging fees of $0.7 million.

Noninterest Expense

The following table presents noninterest expense from continuing operations for the three months ended March 31, 2025 and March 31, 2024.

Noninterest expense from continuing operations was $15.8 million during the three months ended March 31, 2025, a decrease from $17.8 million during the three months ended March 31, 2024. The decrease in the first quarter of 2025, as compared to the first quarter of 2024, was primarily due to lower compensation expense of $1.5 million, professional fees of $0.6 million, and loan origination and collection expenses of $0.7 million. This was partially offset by higher occupancy expense of $0.5 million and data processing expense of $0.5 million.

Income Taxes

Income tax benefit from continuing operations was $128 thousand for the three months ended March 31, 2025, a decrease from income tax expense of $296 thousand for the three months ended March 31, 2024. There was no income tax expense from discontinued operations for the three months ended March 31, 2025, compared to income tax benefit of $19 thousand for the three months ended March 31, 2024.

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, 2025 and December 31, 2024.

The net unrealized loss on the investment securities AFS at March 31, 2025 and December 31, 2024, was $3.2 million and $4.0 million, respectively.

The following table presents the amortized cost of the Company's investment securities portfolio classified as held to maturity as of March 31, 2025 and December 31, 2024.

There was a $12 thousand ACL on the corporate bonds HTM as of March 31, 2025 and December 31, 2024. The net unrealized loss on the investment securities HTM at March 31, 2025, was $144 thousand compared with a net unrealized loss on investment securities HTM of $154 thousand at December 31, 2024.

No investment securities were pledged as of March 31, 2025 or December 31, 2024, and there were no sales of investment securities for the three months ended March 31, 2025 or three months ended March 31, 2024.

The investment securities available for sale presented in the following tables are reported at amortized cost and by contractual maturity as of March 31, 2025 and December 31, 2024. Actual timing may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Additionally, residential mortgage-backed securities and collateralized mortgage obligations receive monthly principal payments, which are not reflected below.

The investment securities held to maturity presented in the following tables are reported at amortized cost and by contractual maturity as of March 31, 2025 and December 31, 2024. 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.

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, commercial real estate, commercial business, residential mortgage, and consumer loans. Senior management and loan officers have continued to develop new sources of loan referrals, particularly among centers of local influence and real estate professionals, and have also enjoyed repeat business from loyal customers in the markets the Bank serves. The Bank has no concentration of credit in any industry that represents 10% or more of its loan portfolio. Additionally, the loan portfolio is well-diversified across major loan types with a low concentration of non owner-occupied commercial real estate loans which makes up 10% of the total portfolio. The following table sets forth the composition of its loan portfolio.

For the three months ended March 31, 2025, the Bank originated $51.1 million in loans through conventional lending channels and $106.3 million in loans through its government guaranteed lending function. In addition, the Bank sold guaranteed loan balances of $72.5 million.

Loan Maturity/Rate Sensitivity

The following table shows the contractual maturities of our loans at March 31, 2025. Loan balances in this table include loans HFI at fair value, loans HFI at amortized cost, discount on retained balances of loans sold, premium and discount on loans purchased, and deferred loan costs, net.

The following table shows the loans with contractual maturities of greater than one year that have fixed or adjustable interest rates at March 31, 2025.

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. The Bank must maintain an adequate ACL based on a comprehensive methodology that assesses the probable losses inherent in its loan portfolio. The Bank maintains an ACL based on a number of quantitative and qualitative factors, including levels and trends of past due and nonaccrual loans, asset classifications, change in volume and mix of loans, collateral value, historical loss experience, size and complexity of individual credits, and economic conditions. In addition to this, the Company uses reasonable and supportable forecasts that are developed with internal and external data. These are updated quarterly by management and utilize data from the FOMC’s median forecasts of change in national GDP and of national unemployment. Provisions for credit losses are provided on both a specific and general basis. Specific allowances are provided for individual loans that do not share similar risk characteristics with instruments evaluated using a collective (pooled) basis. General valuation allowances are determined by loan pools with a further evaluation of various quantitative and qualitative factors noted above.

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, 2025, the Company had $16.6 million in nonperforming assets, excluding government guaranteed loan balances. The ACL represented 1.61% of total loans HFI at amortized cost. At March 31, 2024, the Company had $8.7 million in nonperforming assets, excluding government guaranteed loan balances. The ACL represented 1.62% of total loans HFI at amortized cost. The increase in nonperforming assets was partially the result of a nonaccrual loan for $2.7 million that is fully secured and there was no ACL allocated. Total loans HFI at March 31, 2025 and March 31, 2024 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 1.84% at March 31, 2025, compared to 1.88% at March 31, 2024.

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.

(1)Excludes loans measured at fair value

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

The following table details net charge-offs to average loans outstanding by loan category for thethree months ended March 31, 2025 and March 31, 2024.

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.

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.