First Quarter 2024 Performance Review

• The Company’s government guaranteed loan origination platform, CreditBench, originated $130.6 million in new government guaranteed loans during the first quarter of 2024, a decrease of 9.9% from $144.9 million of loans produced in the previous quarter, and a 7.8% increase over $121.1 million of loans produced during the first quarter of 2023. Demand remains strong for the Company's Bolt loan program, an SBA 7(a) loan product designed to expeditiously provide working capital loans of $150 thousand or less to businesses throughout the country. Since the launch in 2022, the Company has originated 4,168 Bolt loans totaling $539.9 million, of which 760 Bolt loans totaling $98.2 million were originated during the quarter.

• Loans held for investment increased by $19.1 million, or 2.1%, during the first quarter of 2024 to $934.9 million and increased $142.1 million, or 17.9%, over the past year. During the quarter, the Company originated $197.2 million of loans and sold $127.8 million of government guaranteed loan balances.

• Deposits increased $22.2 million, or 2.3%, during the first quarter of 2024 and increased $74.4 million, or 8.0%, over the past year to $1.01 billion.

• Balance sheet liquidity remains strong, with $60.5 million in cash balances and time deposits with other banks as of March 31, 2024. Additionally, the Company maintains significant borrowing capacity through the FHLB and Federal Reserve discount window. Approximately 84% of the Company's deposits were insured at March 31, 2024.

• Book value and tangible book value at March 31, 2024 were $20.45 per common share, a decrease from $20.60 at December 31, 2023, driven by higher shares outstanding.

• Net interest margin including discontinued operations decreased by 6 bps to 3.42% in the first quarter of 2024, from 3.48% in the fourth quarter of 2023, primarily due to increases in deposit costs.
  
  

Results of Operations

Net Income

Net income was $0.8 million for the first quarter of 2024, compared to $1.7 million in the fourth quarter of 2023 and $0.7 million in the first quarter of 2023. The decrease in net income for the first quarter of 2024 from the preceding quarter was primarily the result of an increase in provision for credit losses of $1.4 million and a decrease noninterest income of $0.4 million, partially offset by a decrease in noninterest expense of $0.7 million. The increase in net income from the first quarter of 2023 was 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 and Net Interest Margin

Net interest income from continuing operations was $8.7 million in the first quarter of 2024, a decrease of $0.1 million, or 1.5%, from the fourth quarter of 2023, and a decrease of $0.3 million, or 3.4%, from the first quarter of 2023. The net interest margin decreased by 6 bps to 3.42% in the first quarter of 2024, from 3.48% in the fourth quarter of 2023.

The decrease during the first quarter of 2024 as compared to the fourth quarter of 2023 was mainly due to higher interest costs on deposits of $0.5 million and lower interest income on interest bearing deposits in banks and other of $0.2 million, partially offset by an increase in loan interest income, including fees, of $0.5 million.

The decrease during the first quarter of 2024 as compared to the year ago quarter was mainly due to higher interest expense on deposits of $5.3 million, partially offset by an increase in interest income of $4.9 million.

Noninterest Income

Noninterest income from continuing operations was $14.3 million for the first quarter of 2024, which was a decrease of $0.4 million, or 2.9% from $14.7 million in the fourth quarter of 2023 and an increase of $4.9 million, or 51.0%, from $9.4 million in the first quarter of 2023. The decrease in the first quarter of 2024, as compared to the fourth quarter of 2023 was the result of a decrease in fair value gains related to held for investment government guaranteed loans of $1.4 million, partially offset by an increase in gain on sale of government guaranteed loans of $1.1 million. The increase in the first quarter of 2024, as compared to the first quarter of 2023, was the result of increases in gain on sale of government guaranteed loans of $3.7 million, and other noninterest income of $1.3 million, primarily attributable to an increase in government guaranteed loan packaging fees.

Noninterest Expense

Noninterest expense from continuing operations was $17.8 million in the first quarter of 2024, which was a $0.7 million, or 3.8%, decrease from $18.5 million in the fourth quarter of 2023 and a $2.4 million, or 15.3%, increase compared to $15.4 million in the first quarter of 2023. The decrease in the first quarter of 2024, as compared to the prior quarter, was primarily due to a decrease in loan production expenses of $1.0 million. The increase in the first quarter of 2024, as compared to the first quarter of 2023 was primarily due to higher compensation costs of $0.9 million and higher professional fees of $0.5 million, higher loan production expenses of $0.2 million, and higher data processing expenses of $0.2 million.

Balance Sheet

Assets

Total assets increased $26.4 million, or 2.4%, during the first quarter of 2024 to $1.14 billion, mainly due to an increase of $19.1 million of loans held for investment.

Loans

Loans held for investment increased $19.1 million, or 2.1%, during the first quarter of 2024 and $142.1 million, or 17.9%, over the past year to $934.9 million, due to originations in both conventional community bank loans and government guaranteed loans, partially offset by government guaranteed loan sales.

Deposits

Deposits increased $22.2 million, or 2.3%, during the first quarter of 2024 and increased $74.4 million, or 8.0%, from March 31, 2023, ending the first quarter of 2024 at $1.01 billion. During the first quarter, there were increases in noninterest-bearing deposit account balances of $3.3 million, savings and money market deposit account balances of $18.9 million, and time deposit balances of $8.9 million, partially offset by a decrease in interest-bearing transaction account balances of $8.9 million.

Asset Quality

The Company recorded a provision for credit losses in the first quarter of $4.1 million, compared to a $2.7 million provision for the fourth quarter of 2023 and $1.9 million during the first quarter of 2023.

The ratio of ACL to total loans held for investment at amortized cost was 1.62% at March 31, 2024, 1.64% as of December 31, 2023, and 1.69% as of March 31, 2023. The ratio of ACL to total loans held for investment at amortized cost, excluding government guaranteed loans, was 2.06% at March 31, 2024, 2.03% as of December 31, 2023, and 2.10% as of March 31, 2023.

Net charge-offs for the first quarter of 2024 were $3.7 million, a $1.1 million increase from $2.6 million for the fourth quarter of 2023 and a $1.8 million increase compared to $1.9 million in the first quarter of 2023. Annualized net charge-offs as a percentage of average loans held for investment at amortized cost were 1.71% for the first quarter of 2024, up from 1.27% in the fourth quarter of 2023 and 1.05% in the first quarter of 2023. Net charge-offs for the first quarter of 2024 were elevated by higher net charge-offs from the Bank’s FlashCap, small SBA loan program, 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. Nonperforming assets to total assets was 0.97% as of March 31, 2024, compared to 0.92% as of December 31, 2023, and 0.55% as of March 31, 2023. Nonperforming assets, excluding government guaranteed loans, to total assets was 0.70% as of March 31, 2024, compared to 0.74% as of December 31, 2023, and 0.20% as of March 31, 2023.

Management made changes to improve asset quality performance of the Bank’s CreditBench working capital lending program. Beginning in January 2024, the FlashCap loan product offering was discontinued due to higher-than-expected credit losses. FlashCap provided working capital loans in the amounts of $150 thousand to $350 thousand. While the Bank’s Bolt small working capital loan program (up to $150 thousand loan size) has performed well, management also made a decision to suspend lending to a small number of certain industries which present higher risk or have performed below expectations. Furthermore, additional credit enhancements were made to the Bolt underwriting parameters to improve future performance.

Capital

The Bank’s Tier 1 leverage ratio was 9.12% as of March 31, 2024, compared to 9.38% as of December 31, 2023, and 10.18% at March 31, 2023. The CET 1 and Tier 1 capital ratio to risk-weighted assets were 11.04% as of March 31, 2024, compared to 11.77% as of December 31, 2023, and 12.87% as of March 31, 2023. The total capital to risk-weighted assets ratio was 12.29% as of March 31, 2024, compared to 13.03% as of December 31, 2023, and 14.12% as of March 31, 2023.

Liquidity

The Bank has liquidity well in excess of internal minimums and the expectations of our bank regulators. The Bank’s overall liquidity position remains strong and stable. The on-balance sheet liquidity ratio at March 31, 2024 was 9.22%, as compared to 9.33% at December 31, 2023. The Bank retained additional liquidity after bank failures generated uncertainty for all banks in early 2023. The Bank has robust liquidity resources. These resources include secured borrowings available from the Federal Home Loan Bank, the Federal Reserve, and lines of credit with other financial institutions. As of March 31, 2024, the Bank had $15.0 million of borrowings from the FHLB and no borrowings from the FRB or other financial institutions. This compares to $10.0 million of borrowings from the FHLB and no borrowings from the FRB or other financial institutions at December 31, 2023.

Recent Events

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. The dividend will be 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.

Conference Call

BayFirst’s management team will host a conference call on Friday, April 26, 2024 at 9:00 a.m. ET to discuss its first quarter results. Interested investors may listen to the call live under the Investor Relations tab at www.bayfirstfinancial.com. Investment professionals are invited to dial (800) 549-8228 to participate in the call using Conference ID 78074. A replay of the call will be available for one year at www.bayfirstfinancial.com.

About BayFirst Financial Corp.

BayFirst Financial Corp. is a registered bank holding company based in St. Petersburg, Florida which commenced operations on September 1, 2000. Its primary source of income is derived from its wholly owned subsidiary, BayFirst National Bank, a national banking association which commenced business operations on February 12, 1999. The Bank currently operates twelve full-service banking offices throughout the Tampa Bay-Sarasota region and offers a broad range of commercial and consumer banking services to businesses and individuals. The Bank was the 2nd SBA 7(a) lender by number of units originated and 5th largest by dollar volume nationwide through the second quarter ended March 31, 2024, of SBA's 2024 fiscal year. Additionally, it was the number one SBA 7(a) lender in dollar volume in the 5 county Tampa Bay market for the SBA's 2023 fiscal year. As of March 31, 2024, BayFirst Financial Corp. had $1.14 billion in total assets.

Forward-Looking Statements

In addition to the historical information contained herein, this presentation 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 change, including their effects on the economic environment, our customers and our 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; 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, including, but not limited to those “Risk Factors” described in our most recent Form 10-K and Form 10-Q. 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.

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. Our management uses these non-GAAP financial measures in its analysis of our performance, and we 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: