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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 September 30, 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 incorporation or organization) | (I.R.S. Employer Identification No.)
700 Central Avenue 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 4,132,986 shares of common stock as of November 5, 2024.

Table of Contents
BayFirst Financial Corp.
Table of Contents

|  | Page
Part I - Financial Information | 3
Item 1. | Financial Statements | 3
| Consolidated Balance Sheets at September 30, 2024 (Unaudited) and December 31, 2023 | 3
| Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2024 and 2023 | 5
| Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2024 and 2023 | 7
| Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) for the three and nine months ended September 30, 2024 and 2023 | 8
| Consolidated Statements of Cash Flows (Unaudited) for the nine months ended Se ptember 30, 2024 and 2023 | 10
| Notes to the Consolidated Financial Statements (Unaudited) | 12
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 37
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 58
Item 4. | Controls and Procedures | 59
Part II - Other Information | 61
Item 1. | Legal Proceedings | 61
Item 1A. | Risk Factors | 61
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 61
Item 3. | Defaults Upon Senior Securities | 61
Item 4. | Mine Safety Disclosures | 61
Item 5. | Other Information | 61
Item 6. | Exhibits | 62
Signatures | 63

1

Table of Contents
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 | FDIC: Federal Deposit Insurance Corporation
AFS: Available for Sale | FFIEC: Federal Financial Institutions Examination Council
AIO: Architecture, Infrastructure, and Operations | FHLB: Federal Home Loan Bank
ALCO: Asset-Liability Committee | FNBB: First National Bankers Bank
AOCI: Accumulated Other Comprehensive Income | FOMC: Federal Open Market Committee
ASC: FASB Accounting Standards Codification | FRB: Federal Reserve Bank
ASU: FASB Accounting Standards Update | FVO: Fair Value Option
BHCA: Bank Holding Company Act of 1956, as amended | GAAP: Generally Accepted Accounting Principles
BOLI: Bank Owned Life Insurance | HFI: Held for Investment
BSA: Bank Secrecy Act of 1970 | HTM: Held to Maturity
CARES Act: Coronavirus Aid, Relief, and Economic Security Act | IRA: Individual Retirement Account
CBLR: Community Bank Leverage Ratio | ISO: Information Security Officer
CDARS: Certificate of Deposit Account Registry Services | IT: Information Technology
CECL: Current Expected Credit Losses | JOBS Act: Jumpstart Our Business Startups Act of 2012
CEO: Chief Executive Officer | LGD: Loss Given Default
CET1: Common Equity Tier 1 Capital | LHFS: Loans Held for Sale
CFPB: Consumer Financial Protection Bureau | MMDA: Money Market Deposit Account
C&I: Commercial and Industrial | NOW: Negotiable Order of Withdrawal
CRO: Chief Risk Officer | NSPP: Non-Qualified Stock Purchase Plan
CTO: Chief Technology Officer | OCC: Office of the Comptroller of the Currency
DEI: Diversity, Equity, and Inclusion | OREO: Other Real Estate Owned
Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 | OTTI: Other-Than-Temporary Impairment
DRIP: Dividend Reinvestment Plan | PCAOB: Public Company Accounting Oversight Board
EGC: Emerging Growth Company | PD: Probability of Default
EPS: Earnings per Share | PPP: Paycheck Protection Program
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

2

BAYFIRST FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
Part I - Financial Information
Item 8. Financial Statements

| September 30, 2024 |  | December 31, 2023 | (1)
ASSETS | (Unaudited) |  |  |
Cash and due from banks | $ | 4,708 |  |  | $ | 4,099 |  |
Interest-bearing deposits in banks | 59,675 |  |  | 54,286 |  |
Cash and cash equivalents | 64,383 |  |  | 58,385 |  |
Time deposits in banks | 2,264 |  |  | 4,646 |  |
Investment securities available for sale, at fair value (amortized cost: $41,104 and $43,597 at September 30, 2024 and December 31, 2023, respectively) | 37,984 |  |  | 39,575 |  |
Investment securities held to maturity, at amortized cost, net of allowance for credit losses of $13 and $17 (fair value: $2,321 and $2,263 at September 30, 2024 and December 31, 2023, respectively) | 2,487 |  |  | 2,484 |  |
Nonmarketable equity securities | 4,997 |  |  | 4,770 |  |
Government guaranteed loans held for sale | 595 |  |  | — |  |
Government guaranteed loans HFI, at fair value | 86,441 |  |  | 91,508 |  |
Loans HFI, at amortized cost | 956,004 |  |  | 824,218 |  |
Allowance for credit losses on loans | (14,186) |  |  | (13,497) |  |
Net loans HFI, at amortized cost | 941,818 |  |  | 810,721 |  |
Accrued interest receivable | 8,537 |  |  | 7,130 |  |
Premises and equipment, net | 38,736 |  |  | 38,874 |  |
Loan servicing rights | 15,966 |  |  | 14,959 |  |
Right-of-use operating lease assets | 2,018 |  |  | 2,416 |  |
Bank owned life insurance | 26,330 |  |  | 25,800 |  |
Other assets | 12,543 |  |  | 16,150 |  |
Assets from discontinued operations | — |  |  | 348 |  |
Total assets | $ | 1,245,099 |  |  | $ | 1,117,766 |  |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |
Liabilities: |  |  |  |
Noninterest-bearing deposits | $ | 95,995 |  |  | $ | 93,708 |  |
Interest-bearing transaction accounts | 247,923 |  |  | 259,422 |  |
Savings and money market deposits | 455,297 |  |  | 373,000 |  |
Time deposits | 312,981 |  |  | 259,008 |  |
Total deposits | 1,112,196 |  |  | 985,138 |  |
FHLB borrowings | 10,000 |  |  | 10,000 |  |
Subordinated debentures | 5,954 |  |  | 5,949 |  |
Notes payable | 2,048 |  |  | 2,389 |  |
Accrued interest payable | 1,114 |  |  | 882 |  |
Operating lease liabilities | 2,271 |  |  | 2,619 |  |
Deferred income tax liabilities | 1,488 |  |  | 482 |  |
Accrued expenses and other liabilities | 7,735 |  |  | 8,980 |  |
Liabilities from discontinued operations | — |  |  | 620 |  |
Total liabilities | 1,142,806 |  |  | 1,017,059 |  |

3

Table of Contents
BAYFIRST FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS CONTINUED
(Dollars in thousands, except per share data)

| September 30, 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 September 30, 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 September 30, 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 September 30, 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, 4,134,059 and 4,110,470 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | 54,780 |  |  | 54,521 |  |
Accumulated other comprehensive loss, net | (2,312) |  |  | (2,981) |  |
Unearned compensation | (978) |  |  | (958) |  |
Retained earnings | 35,073 |  |  | 34,395 |  |
Total shareholders’ equity | 102,293 |  |  | 100,707 |  |
Total liabilities and shareholders’ equity | $ | 1,245,099 |  |  | $ | 1,117,766 |  |

(1) Derived from audited consolidated financial statements
See accompanying notes.
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BAYFIRST FINANCIAL CORP. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollars in thousands, except per share data)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Interest income: |  |  |  |  |  |  |
Loans, including fees | $ | 20,442 |  |  | $ | 16,032 |  |  | $ | 58,084 |  |  | $ | 45,475 |
Interest-bearing deposits in banks and other | 1,000 |  |  | 1,588 |  |  | 2,972 |  |  | 4,188 |
Total interest income | 21,442 |  |  | 17,620 |  |  | 61,056 |  |  | 49,663 |
Interest expense: |  |  |  |  |  |  |
Deposits | 11,609 |  |  | 9,055 |  |  | 32,272 |  |  | 21,076 |
Borrowings | 384 |  |  | 172 |  |  | 1,411 |  |  | 1,033 |
Total interest expense | 11,993 |  |  | 9,227 |  |  | 33,683 |  |  | 22,109 |
Net interest income | 9,449 |  |  | 8,393 |  |  | 27,373 |  |  | 27,554 |
Provision for credit losses | 3,122 |  |  | 3,001 |  |  | 10,180 |  |  | 7,708 |
Net interest income after provision for credit losses | 6,327 |  |  | 5,392 |  |  | 17,193 |  |  | 19,846 |
Noninterest income: |  |  |  |  |  |  |
Loan servicing income, net | 918 |  |  | 760 |  |  | 2,518 |  |  | 2,149 |
Gain on sale of government guaranteed loans, net | 6,143 |  |  | 7,139 |  |  | 19,827 |  |  | 17,576 |
Service charges and fees | 447 |  |  | 408 |  |  | 1,343 |  |  | 1,166 |
Government guaranteed loans fair value gain | 3,416 |  |  | 4,543 |  |  | 9,923 |  |  | 11,021 |
Government guaranteed loan packaging fees | 903 |  |  | 1,158 |  |  | 3,332 |  |  | 2,076 |
Other noninterest income | 445 |  |  | 671 |  |  | 1,250 |  |  | 1,076 |
Total noninterest income | 12,272 |  |  | 14,679 |  |  | 38,193 |  |  | 35,064 |
Noninterest expense: |  |  |  |  |  |  |
Salaries and benefits | 7,878 |  |  | 7,912 |  |  | 23,712 |  |  | 23,527 |
Bonus, commissions, and incentives | 1,141 |  |  | 1,406 |  |  | 3,371 |  |  | 3,515 |
Occupancy and equipment | 1,248 |  |  | 1,262 |  |  | 3,631 |  |  | 3,608 |
Data processing | 1,789 |  |  | 1,526 |  |  | 4,996 |  |  | 4,189 |
Marketing and business development | 532 |  |  | 929 |  |  | 1,660 |  |  | 2,696 |
Professional services | 853 |  |  | 816 |  |  | 3,079 |  |  | 2,587 |
Loan origination and collection | 1,956 |  |  | 1,981 |  |  | 5,633 |  |  | 4,697 |
Employee recruiting and development | 595 |  |  | 543 |  |  | 1,741 |  |  | 1,667 |
Regulatory assessments | 309 |  |  | 284 |  |  | 870 |  |  | 615 |
Other noninterest expense | 763 |  |  | 768 |  |  | 2,754 |  |  | 2,140 |
Total noninterest expense | 17,064 |  |  | 17,427 |  |  | 51,447 |  |  | 49,241 |
Income from continuing operations before income taxes | 1,535 |  |  | 2,644 |  |  | 3,939 |  |  | 5,669 |
Income tax expense from continuing operations | 398 |  |  | 674 |  |  | 1,043 |  |  | 1,415 |
Net income from continuing operations | 1,137 |  |  | 1,970 |  |  | 2,896 |  |  | 4,254 |
Loss from discontinued operations before income taxes | — |  |  | (62) |  |  | (92) |  |  | (275) |
Income tax benefit from discontinued operations | — |  |  | (15) |  |  | (23) |  |  | (68) |
Net loss from discontinued operations | — |  |  | (47) |  |  | (69) |  |  | (207) |
Net income | 1,137 |  |  | 1,923 |  |  | 2,827 |  |  | 4,047 |
Preferred stock dividends | 385 |  |  | 208 |  |  | 1,156 |  |  | 624 |
Net income available to common shareholders | $ | 752 |  |  | $ | 1,715 |  |  | $ | 1,671 |  |  | $ | 3,423 |

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BAYFIRST FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME CONTINUED (UNAUDITED)
(Dollars in thousands, except per share data)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Basic earnings (loss) per common share: |  |  |  |  |  |  |
Continuing operations | $ | 0.18 |  |  | $ | 0.43 |  |  | $ | 0.42 |  |  | $ | 0.89 |
Discontinued operations | — |  |  | (0.01) |  |  | (0.02) |  |  | (0.05) |
Total basic earnings per common share | $ | 0.18 |  |  | $ | 0.42 |  |  | $ | 0.40 |  |  | $ | 0.84 |
Diluted earnings (loss) per common share: |  |  |  |  |  |  |
Continuing operations | $ | 0.18 |  |  | $ | 0.42 |  |  | $ | 0.42 |  |  | $ | 0.88 |
Discontinued operations | — |  |  | (0.01) |  |  | (0.02) |  |  | (0.05) |
Total diluted earnings per common share | $ | 0.18 |  |  | $ | 0.41 |  |  | $ | 0.40 |  |  | $ | 0.83 |

See accompanying notes.
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BAYFIRST FINANCIAL CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (Dollars in thousands)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Net income | $ | 1,137 |  |  | $ | 1,923 |  |  | $ | 2,827 |  |  | $ | 4,047 |
Net unrealized gains (losses) on investment securities available for sale | 1,074 |  |  | (516) |  |  | 902 |  |  | 139 |
Deferred income tax (expense) benefit | (273) |  |  | 134 |  |  | (233) |  |  | (36) |
Other comprehensive income (loss), net | 801 |  |  | (382) |  |  | 669 |  |  | 103 |
Comprehensive income | $ | 1,938 |  |  | $ | 1,541 |  |  | $ | 3,496 |  |  | $ | 4,150 |

See accompanying notes.
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BAYFIRST FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) (Dollars in thousands, except per share data)

|  |  |  |  |  |  | Preferred Stock, Series A |  | Preferred Stock, Series B |  | Preferred Stock, Series C |  | Common Stock, Additional Paid-in Capital, and Unearned Compensation |  | Accumulated Other Comprehensive Income (Loss) |  |  |  | Retained Earnings |  | Total
Balance at July 1, 2023 |  |  |  |  |  |  | $ | 6,161 |  |  | $ | 3,123 |  |  | $ | — |  |  | $ | 52,998 |  |  | $ | (3,239) |  |  |  |  | $ | 32,022 |  |  | $ | 91,065 |
Net income |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 1,923 |  |  | 1,923 |
Issuance of common stock under: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-qualified stock purchase plan |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 21 |  |  | — |  |  |  |  | — |  |  | 21 |
Dividend reinvestment plan |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 75 |  |  | — |  |  |  |  | — |  |  | 75 |
Repurchase of common stock |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | (3) |  |  | — |  |  |  |  | — |  |  | (3) |
Exercise of stock options, net |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | (49) |  |  | — |  |  |  |  | — |  |  | (49) |
Issuance of preferred stock, net |  |  |  |  |  |  | — |  |  | — |  |  | 1,835 |  |  | — |  |  | — |  |  |  |  | — |  |  | 1,835 |
Stock-based awards - common stock: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Restricted stock expense, net of tax impact |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 191 |  |  | — |  |  |  |  | — |  |  | 191 |
Stock option expense |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 25 |  |  | — |  |  |  |  | — |  |  | 25 |
Other comprehensive loss, net |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (382) |  |  |  |  | — |  |  | (382) |
Dividends declared on: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Preferred stock |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | (208) |  |  | (208) |
Common stock ($0.08 per share) |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | (328) |  |  | (328) |
Balance at September 30, 2023 |  |  |  |  |  |  | $ | 6,161 |  |  | $ | 3,123 |  |  | $ | 1,835 |  |  | $ | 53,258 |  |  | $ | (3,621) |  |  |  |  | $ | 33,409 |  |  | $ | 94,165 |
Balance at July 1, 2024 |  |  |  |  |  |  | $ | 6,161 |  |  | $ | 3,123 |  |  | $ | 6,446 |  |  | $ | 53,692 |  |  | $ | (3,113) |  |  |  |  | $ | 34,653 |  |  | $ | 100,962 |
Net income |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 1,137 |  |  | 1,137 |
Stock-based awards - common stock: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Restricted stock expense, net of tax impact |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 101 |  |  | — |  |  |  |  | — |  |  | 101 |
Stock option expense |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 9 |  |  | — |  |  |  |  | — |  |  | 9 |
Other comprehensive income, net |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 801 |  |  |  |  | — |  |  | 801 |
Dividends declared on: |  |  |  |  |  |  |  |  |  |  | — |  |  |  |  |  |  |  |  |  |  |
Preferred stock |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | (385) |  |  | (385) |
Common stock ($0.08 per share) |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | (332) |  |  | (332) |
Balance at September 30, 2024 |  |  |  |  |  |  | $ | 6,161 |  |  | $ | 3,123 |  |  | $ | 6,446 |  |  | $ | 53,802 |  |  | $ | (2,312) |  |  |  |  | $ | 35,073 |  |  | $ | 102,293 |

See accompanying notes.
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BAYFIRST FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) (Dollars in thousands, except per share data)

|  |  |  |  |  |  | Preferred Stock, Series A |  | Preferred Stock, Series B |  | Preferred Stock, Series C |  | Common Stock, Additional Paid-in Capital, and Unearned Compensation |  | Accumulated Other Comprehensive Income (Loss) |  |  |  | Retained Earnings |  | Total
Balance at January 1, 2023 |  |  |  |  |  |  | $ | 6,161 |  |  | $ | 3,123 |  |  | $ | — |  |  | $ | 52,845 |  |  | $ | (3,724) |  |  |  |  | $ | 33,479 |  |  | $ | 91,884 |
Net income |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 4,047 |  |  | 4,047 |
Impact of ASC 326 Adoption |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | (2,508) |  |  | (2,508) |
Issuance of common stock under: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-qualified stock purchase plan |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 206 |  |  | — |  |  |  |  | — |  |  | 206 |
Dividend reinvestment plan |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 159 |  |  | — |  |  |  |  | — |  |  | 159 |
Issuance of preferred stock, net |  |  |  |  |  |  | — |  |  | — |  |  | 1,835 |  |  | — |  |  | — |  |  |  |  | — |  |  | 1,835 |
Repurchase of common stock |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | (13) |  |  | — |  |  |  |  | — |  |  | (13) |
Exercise of stock options, net |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | (49) |  |  | — |  |  |  |  | — |  |  | (49) |
Unearned ESOP shares allocation |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | (329) |  |  | — |  |  |  |  | — |  |  | (329) |
Stock-based awards - common stock: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Restricted stock expense, net of tax impact |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 356 |  |  | — |  |  |  |  | — |  |  | 356 |
Stock option expense |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 83 |  |  | — |  |  |  |  | — |  |  | 83 |
Other comprehensive income, net |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 103 |  |  |  |  | — |  |  | 103 |
Dividends declared on: |  |  |  |  |  |  |  |  |  |  | — |  |  |  |  |  |  |  |  |  |  |
Preferred stock |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | (624) |  |  | (624) |
Common stock ($0.24 per share) |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | (985) |  |  | (985) |
Balance at September 30, 2023 |  |  |  |  |  |  | $ | 6,161 |  |  | $ | 3,123 |  |  | $ | 1,835 |  |  | $ | 53,258 |  |  | $ | (3,621) |  |  |  |  | $ | 33,409 |  |  | $ | 94,165 |
Balance at January 1, 2024 |  |  |  |  |  |  | $ | 6,161 |  |  | $ | 3,123 |  |  | $ | 6,446 |  |  | $ | 53,563 |  |  | $ | (2,981) |  |  |  |  | $ | 34,395 |  |  | $ | 100,707 |
Net income |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 2,827 |  |  | 2,827 |
Unearned ESOP shares allocation |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | (44) |  |  | — |  |  |  |  | — |  |  | (44) |
Stock-based awards - common stock: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Restricted stock expense, net of tax impact |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 252 |  |  | — |  |  |  |  | — |  |  | 252 |
Stock option expense |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 31 |  |  | — |  |  |  |  | — |  |  | 31 |
Other comprehensive income, net |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 669 |  |  |  |  | — |  |  | 669 |
Dividends declared on: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Preferred stock |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | (1,156) |  |  | (1,156) |
Common stock ($0.24 per share) |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | (993) |  |  | (993) |
Balance at September 30, 2024 |  |  |  |  |  |  | $ | 6,161 |  |  | $ | 3,123 |  |  | $ | 6,446 |  |  | $ | 53,802 |  |  | $ | (2,312) |  |  |  |  | $ | 35,073 |  |  | $ | 102,293 |

See accompanying notes.
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BAYFIRST FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands)

| Nine Months Ended September 30,
| 2024 |  | 2023
Cash flows from operating activities: |  |  |
Net income from continuing operations | $ | 2,896 |  |  | $ | 4,254 |
Net loss from discontinued operations | (69) |  |  | (207) |
Net income | 2,827 |  |  | 4,047 |
Adjustments to reconcile net income to net cash from operating activities: |  |  |
Depreciation of fixed assets | 1,847 |  |  | 1,744 |
Net securities premium amortization | 89 |  |  | 69 |
Amortization of debt issuance costs | 5 |  |  | 5 |
Amortization of premium on loans purchased, net | 596 |  |  | 182 |
Provision for credit losses | 10,180 |  |  | 7,708 |
Accretion of discount on unguaranteed loans | (2,207) |  |  | (2,302) |
Deferred tax expense | 772 |  |  | 1,361 |
Origination of government guaranteed loans held for sale | (2,821) |  |  | (4,276) |
Proceeds from sales of government guaranteed loans held for sale | 306,139 |  |  | 350,521 |
Net gains on sales of government guaranteed loans | (19,827) |  |  | (17,576) |
Change in fair value of government guaranteed loans HFI, at fair value | (9,923) |  |  | (11,021) |
Amortization of loan servicing rights | 4,389 |  |  | 3,080 |
Net gain on sale of other real estate owned | — |  |  | (355) |
Non-qualified stock purchase plan expense | 18 |  |  | 20 |
Stock based compensation expense | 283 |  |  | 439 |
Income from bank owned life insurance | (530) |  |  | (471) |
Changes in: |  |  |
Accrued interest receivable | (1,407) |  |  | (2,455) |
Other assets | 4,100 |  |  | 883 |
Accrued interest payable | 232 |  |  | (72) |
Other liabilities | (1,418) |  |  | (3,856) |
Net cash provided by operating activities of continuing operations | 293,413 |  |  | 327,882 |
Net cash used in operating activities of discontinued operations | (341) |  |  | (337) |
Net cash provided by operating activities | 293,072 |  |  | 327,545 |
Cash flows from investing activities: |  |  |
Purchase of investment securities available for sale | (4,458) |  |  | — |
Principal payments on investment securities available for sale | 6,862 |  |  | 2,736 |
Principal payments on investment securities held to maturity | 1 |  |  | 1 |
Call of investment securities held to maturity | — |  |  | 2,500 |
Net purchase of nonmarketable equity securities | (227) |  |  | (213) |
Purchase of time deposits in banks | (14) |  |  | — |
Maturity of time deposits in banks | 2,396 |  |  | 250 |
Purchase of government guaranteed and consumer loans | (812) |  |  | (106,413) |
Loan originations, net | (414,023) |  |  | (373,529) |
Purchase related to other real estate owned | (1,229) |  |  | — |
Purchase of premises and equipment | (1,709) |  |  | (6,199) |
Proceeds on sales of other real estate owned | 1,633 |  |  | 2,314 |
Net cash used in investing activities | (411,580) |  |  | (478,553) |

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BAYFIRST FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED (UNAUDITED) (Dollars in thousands)

| Nine Months Ended September 30,
| 2024 |  | 2023
Cash flows from financing activities: |  |  |
Net change in deposits | 127,058 |  |  | 222,726 |
Net increase in short-term borrowings | — |  |  | (25,000) |
Payments on notes payable | (341) |  |  | (341) |
Proceeds from issuance of preferred stock, net | — |  |  | 1,835 |
Repayment of subordinated debt | — |  |  | (50) |
Proceeds from issuance of common stock for benefit plans, net | (18) |  |  | 296 |
Common share buyback - redeemed stock | — |  |  | (13) |
Unearned ESOP shares | (44) |  |  | (329) |
Dividends paid on common stock | (993) |  |  | (985) |
Dividends paid on preferred stock | (1,156) |  |  | (624) |
Net cash provided by financing activities | 124,506 |  |  | 197,515 |
Net change in cash and cash equivalents | 5,998 |  |  | 46,507 |
Cash and cash equivalents, beginning of period | 58,385 |  |  | 66,046 |
Cash and cash equivalents, end of period | $ | 64,383 |  |  | $ | 112,553 |
Supplemental cash flow information |  |  |
Interest paid | $ | 33,451 |  |  | $ | 22,181 |
Income taxes paid | 8 |  |  | 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 | 669 |  |  | 103 |
Transfer of government guaranteed loans HFI to loans HFS | 289,482 |  |  | 336,914 |
Transfer of loans HFI to OREO | 404 |  |  | — |
Transfer of loans HFI to repossessed assets | 94 |  |  | — |
Transfer of premises and equipment to OREO | — |  |  | (1,903) |
Recognition of right of use asset and operating lease liability | 263 |  |  | — |

See accompanying notes.
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BAYFIRST FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (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 date.
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 nine months ended September 30, 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 is at times engaged in various legal proceedings that arise in the course of normal business, some of which were outstanding as of September 30, 2024. Although the ultimate outcome of all claims and lawsuits outstanding as of September 30, 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.
New Accounting Standards Not Yet Adopted:
In October 2023, the FASB issued ASU No. 2023-06 “Disclosure Improvements - Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative” (“ASU 2023-06”). ASU 2023-06 amends the ASC to incorporate certain disclosure requirements from SEC Release No. 33-10532 - Disclosure Update and Simplification that was issued in 2018. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Company does not believe this standard will have a material impact on its Consolidated Financial Statements.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures ("ASU 2023-07"). This ASU was issued to improve segment reporting disclosures. The amendments
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in this ASU improve financial reporting by requiring disclosure of incremental segment information including significant segment expenses regularly provided to the chief operating decision maker as well as the amount and composition of other segment items on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. Retrospective application is required in all prior periods unless impracticable to do so. The amendments in this standard will be effective for the Company for the fiscal year ended December 31, 2024 and subsequent interim periods. The Company does not expect it to have a material impact on the Company’s consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures ("ASU 2023-09"). This ASU was issued to enhance the transparency and decision usefulness of income tax disclosures. The ASU addresses investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. Retrospective application in all prior periods is permitted. The amendments in this standard will be effective for the Company on January 1, 2025. The Company is currently assessing the impact of this standard and does not expect it to have a material impact on the Company’s consolidated financial statements.
In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Disaggregation of Income Statement Expenses Disclosure (“ASU 2024-03”). This ASU was issued to improve the disclosures about public business entity’s expenses and address investor’s requests for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions. The amendments in this standard will be effective for the Company for the fiscal year ended December 31, 2027 and subsequent interim periods. The amendments should be applied either prospectively to the financial statements issued for reporting periods after the effective date of this update or retrospectively to any and all prior periods presented in the financial statements. We are currently evaluating the impact these changes may have on the Company’s consolidated financial statements.
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.
The following is a summary of the assets and liabilities of the discontinued operations of the residential mortgage lending division at September 30, 2024 and December 31, 2023:

| September 30, 2024 |  | December 31, 2023
Assets |  |  |
Right-of-use operating lease asset | $ | — |  |  | $ | 348 |
Total assets | $ | — |  |  | $ | 348 |
Liabilities |  |  |
Operating lease liability | $ | — |  |  | $ | 620 |
Total liabilities | $ | — |  |  | $ | 620 |

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The following presents operating results of the discontinued operations of the residential mortgage lending division for the three and nine months ended September 30, 2024 and September 30, 2023:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Interest income | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1 |
Noninterest income | — |  |  | — |  |  | 51 |  |  | (2) |
Total net revenue | — |  |  | — |  |  | 51 |  |  | (1) |
Noninterest expense | — |  |  | 62 |  |  | 143 |  |  | 274 |
Loss from discontinued operations before income taxes | — |  |  | (62) |  |  | (92) |  |  | (275) |
Income tax benefit | — |  |  | (15) |  |  | (23) |  |  | (68) |
Net loss from discontinued operations | $ | — |  |  | $ | (47) |  |  | $ | (69) |  |  | $ | (207) |

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 September 30, 2024 and December 31, 2023 as well as the ACL for investment securities held to maturity at September 30, 2024 and December 31, 2023 are summarized as follows:

September 30, 2024 | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
Investment securities available for sale: |  |  |  |  |  |  |
Asset-backed securities | $ | 5,378 |  |  | $ | — |  |  | $ | (51) |  |  | $ | 5,327 |
Mortgage-backed securities: |  |  |  |  |  |  |
U.S. Government-sponsored enterprises | 7,855 |  |  | 107 |  |  | (484) |  |  | 7,478 |
Collateralized mortgage obligations: |  |  |  |  |  |  |
U.S. Government-sponsored enterprises | 19,039 |  |  | — |  |  | (2,752) |  |  | 16,287 |
Corporate bonds | 8,832 |  |  | 60 |  |  | — |  |  | 8,892 |
Total investment securities available for sale | $ | 41,104 |  |  | $ | 167 |  |  | $ | (3,287) |  |  | $ | 37,984 |

September 30, 2024 | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value |  | ACL
Investment securities held to maturity: |  |  |  |  |  |  |  |  |
Corporate bonds | $ | 2,500 |  |  | $ | — |  |  | $ | (179) |  |  | $ | 2,321 |  |  | $ | 13 |
Total investment securities held to maturity | $ | 2,500 |  |  | $ | — |  |  | $ | (179) |  |  | $ | 2,321 |  |  | $ | 13 |

December 31, 2023 | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair 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 |

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December 31, 2023 | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair 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 September 30, 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 Cost |  | Fair Value |  | Amortized Cost |  | Fair Value
One to five years | $ | 8,832 |  |  | $ | 8,892 |  | $ | 1,500 |  |  | $ | 1,479
Five to ten years | 6,512 |  |  | 6,600 |  | 1,000 |  |  | 842
Beyond ten years | 25,760 |  |  | 22,492 |  | — |  |  | —
Total | $ | 41,104 |  |  | $ | 37,984 |  | $ | 2,500 |  |  | $ | 2,321

No ACL for investment securities AFS was needed at September 30, 2024 or December 31, 2023. Declines in the fair value of the AFS investment portfolio are believed by management to be unrelated to credit losses. When evaluating an investment for credit loss, management considers, among other things, 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 the investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. At September 30, 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 September 30, 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 September 30, 2024 are not material to the financial statements. There was an ACL of $13 and $17 on corporate bonds HTM at September 30, 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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The following table presents the activity in the ACL for investment securities HTM by major security type for the three and nine months ended September 30, 2024 and September 30, 2023:

| For the Three Months Ended |  | For the Nine Months Ended |  | For the Three Months Ended |  | For the Nine Months Ended
Corporate Bonds | September 30, 2024 |  | September 30, 2023
Balance at beginning of period | $ | 14 |  |  | $ | 17 |  |  | $ | 19 |  |  | $ | — |
Impact of adopting ASC 326 | — |  |  | — |  |  | — |  |  | 18 |
Provision for credit losses on HTM investment securities | (1) |  |  | (4) |  |  | — |  |  | 1 |
Investment securities charge-offs | — |  |  | — |  |  | — |  |  | — |
Investment securities recoveries | — |  |  | — |  |  | — |  |  | — |
Balance at end of period | $ | 13 |  |  | $ | 13 |  |  | $ | 19 |  |  | $ | 19 |

The following table summarizes investment securities with unrealized losses at September 30, 2024 aggregated by security type and length of time in a continuous unrealized loss position:

| Less than 12 Months |  | 12 Months or Longer |  | Total |  |
September 30, 2024 | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Number of Securities
Investment securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |  |
Asset-backed securities | $ | 1,575 |  |  | $ | (3) |  |  | $ | 3,752 |  |  | $ | (48) |  |  | $ | 5,327 |  |  | $ | (51) |  |  | 3
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government-sponsored enterprises | — |  |  | — |  |  | 2,909 |  |  | (484) |  |  | 2,909 |  |  | (484) |  |  | 2
Collateralized mortgage obligations: |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government-sponsored enterprises | — |  |  | — |  |  | 16,287 |  |  | (2,752) |  |  | 16,287 |  |  | (2,752) |  |  | 7
Total investment securities available for sale | $ | 1,575 |  |  | $ | (3) |  |  | $ | 22,948 |  |  | $ | (3,284) |  |  | $ | 24,523 |  |  | $ | (3,287) |  |  | 12
Investment securities held to maturity: |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate bonds | $ | 417 |  |  | $ | (83) |  |  | $ | 1,904 |  |  | $ | (96) |  |  | $ | 2,321 |  |  | $ | (179) |  |  | 3
Total investment securities held to maturity | $ | 417 |  |  | $ | (83) |  |  | $ | 1,904 |  |  | $ | (96) |  |  | $ | 2,321 |  |  | $ | (179) |  |  | 3

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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 September 30, 2024 or December 31, 2023, and there were no sales of investment securities during the three or nine months ended September 30, 2024 and the year ended December 31, 2023.
NOTE 4 – LOANS
Loans HFI, at amortized cost, at September 30, 2024 and December 31, 2023 were as follows:

| September 30, 2024 |  | December 31, 2023
Real estate: |  |  |
Residential | $ | 321,740 |  |  | $ | 264,126 |
Commercial | 292,026 |  |  | 293,595 |
Construction and land | 33,784 |  |  | 26,272 |
Commercial and industrial | 200,212 |  |  | 177,566 |
Commercial and industrial - PPP | 1,656 |  |  | 3,202 |
Consumer and other | 92,546 |  |  | 47,287 |
Loans HFI, at amortized cost, gross | 941,964 |  |  | 812,048 |
Deferred loan costs, net | 18,060 |  |  | 14,707 |
Discount on government guaranteed loans sold(1) | (7,880) |  |  | (7,040) |
Premium on loans purchased, net | 3,860 |  |  | 4,503 |
Allowance for credit losses | (14,186) |  |  | (13,497) |
Net loans HFI, at amortized cost | $ | 941,818 |  |  | $ | 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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NOTE 5 - ALLOWANCE FOR CREDIT LOSSES
The following schedules present the activity in the ACL by loan segment for the three and nine months ended September 30, 2024 and September 30, 2023:

Three Months Ended | Real Estate - Residential |  | Real Estate - Commercial |  | Real Estate - Construction and Land |  | Commercial and Industrial |  |  |  | Consumer and Other |  |  |  | Total
September 30, 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning Balance | $ | 1,234 |  |  | $ | 1,864 |  |  | $ | 555 |  |  | $ | 7,714 |  |  |  |  | $ | 2,476 |  |  |  |  | $ | 13,843 |
Charge-offs | (20) |  |  | — |  |  | — |  |  | (2,375) |  |  |  |  | (550) |  |  |  |  | (2,945) |
Recoveries | — |  |  | 2 |  |  | — |  |  | 111 |  |  |  |  | 75 |  |  |  |  | 188 |
Provision | (41) |  |  | (3) |  |  | (41) |  |  | 2,855 |  |  |  |  | 330 |  |  |  |  | 3,100 |
Ending Balance | $ | 1,173 |  |  | $ | 1,863 |  |  | $ | 514 |  |  | $ | 8,305 |  |  |  |  | $ | 2,331 |  |  |  |  | $ | 14,186 |
September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning Balance | $ | 2,542 |  |  | $ | 1,889 |  |  | $ | 359 |  |  | $ | 7,011 |  |  |  |  | $ | 797 |  |  |  |  | $ | 12,598 |
Charge-offs | — |  |  | (108) |  |  | — |  |  | (1,542) |  |  |  |  | (875) |  |  |  |  | (2,525) |
Recoveries | 8 |  |  | 75 |  |  | — |  |  | 114 |  |  |  |  | 93 |  |  |  |  | 290 |
Provision | 131 |  |  | (298) |  |  | 121 |  |  | 1,861 |  |  |  |  | 1,187 |  |  |  |  | 3,002 |
Ending Balance | $ | 2,681 |  |  | $ | 1,558 |  |  | $ | 480 |  |  | $ | 7,444 |  |  |  |  | $ | 1,202 |  |  |  |  | $ | 13,365 |

| Real Estate - Residential |  | Real Estate - Commercial |  | Real Estate - Construction and Land |  | Commercial and Industrial |  |  |  | Consumer and Other |  | Unallocated |  | Total
Nine Months Ended |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
September 30, 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning Balance | $ | 1,987 |  |  | $ | 1,818 |  |  | $ | 519 |  |  | $ | 6,579 |  |  |  |  | $ | 2,594 |  |  | $ | — |  |  | $ | 13,497 |
Charge-offs | (20) |  |  | (60) |  |  | — |  |  | (7,898) |  |  |  |  | (2,299) |  |  | — |  |  | (10,277) |
Recoveries | — |  |  | 6 |  |  | — |  |  | 352 |  |  |  |  | 249 |  |  | — |  |  | 607 |
Provision | (794) |  |  | 99 |  |  | (5) |  |  | 9,272 |  |  |  |  | 1,787 |  |  | — |  |  | 10,359 |
Ending Balance | $ | 1,173 |  |  | $ | 1,863 |  |  | $ | 514 |  |  | $ | 8,305 |  |  |  |  | $ | 2,331 |  |  | $ | — |  |  | $ | 14,186 |
September 30, 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 | — |  |  | (108) |  |  | — |  |  | (4,660) |  |  |  |  | (2,214) |  |  | — |  |  | (6,982) |
Recoveries | 8 |  |  | 77 |  |  | — |  |  | 303 |  |  |  |  | 219 |  |  | — |  |  | 607 |
Provision | 463 |  |  | 20 |  |  | 171 |  |  | 4,503 |  |  |  |  | 2,430 |  |  | — |  |  | 7,587 |
Ending Balance | $ | 2,681 |  |  | $ | 1,558 |  |  | $ | 480 |  |  | $ | 7,444 |  |  |  |  | $ | 1,202 |  |  | $ | — |  |  | $ | 13,365 |

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 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. The FOMC’s forecast of GDP and unemployment for the next calendar year is used in conjunction
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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 September 30, 2024 and December 31, 2023, the ACL for unfunded commitments recorded in other liabilities was $664 and $839, respectively.
The following table presents the activity in the ACL for unfunded commitments for the three and nine months ended September 30, 2024 and September 30, 2023:

| For the Three Months Ended |  | For the Nine Months Ended
| September 30, 2024 |  | September 30, 2023 |  | September 30, 2024 |  | September 30, 2023
Balance at beginning of period | $ | 641 |  |  | $ | 844 |  |  | $ | 839 |  |  | $ | 511 |
Impact of adopting ASC 326 | — |  |  | — |  |  | — |  |  | 213 |
Provision for credit losses on unfunded commitments | 23 |  |  | — |  |  | (175) |  |  | 120 |
Unfunded commitments charge-offs | — |  |  | — |  |  | — |  |  | — |
Unfunded commitments recoveries | — |  |  | — |  |  | — |  |  | — |
Balance at end of period | $ | 664 |  |  | $ | 844 |  |  | $ | 664 |  |  | $ | 844 |

The following tables present the principal balance of nonaccrual loans and loans past due over 89 days still on accrual by loan segment at September 30, 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.

September 30, 2024 | Nonaccrual with no ACL(1) |  | Nonaccrual with ACL(1) |  | Loans Past Due Over 89 Days Still Accruing(1)
Real estate - residential | $ | — |  |  | $ | 4,838 |  |  | $ | 233 |  |
Real estate - commercial | — |  |  | 4,207 |  |  | — |  |
Commercial and industrial | — |  |  | 1,429 |  |  | 3 |  |
Consumer and other | — |  |  | — |  |  | 282 |  |
Total | $ | — |  |  | $ | 10,474 |  |  | $ | 518 |  |

December 31, 2023 | Nonaccrual with no ACL(1) |  | Nonaccrual with ACL(1) |  | Loans Past Due Over 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.
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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 September 30, 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 |

The following table presents the aging of the principal balance of past due loans HFI at amortized cost at September 30, 2024 by loan segment:

| 30-89 Days Past Due |  | Greater Than 89 Days Past Due |  | Total Past Due |  | Loans Not Past Due (1) |  | Total Loans
Real estate - residential | $ | 1,926 |  |  | $ | 5,070 |  |  | $ | 6,996 |  |  | $ | 314,744 |  |  | $ | 321,740 |
Real estate - commercial | 499 |  |  | 4,108 |  |  | 4,607 |  |  | 287,419 |  |  | 292,026 |
Real estate - construction and land | — |  |  | — |  |  | — |  |  | 33,784 |  |  | 33,784 |
Commercial and industrial | 3,332 |  |  | 1,228 |  |  | 4,560 |  |  | 195,652 |  |  | 200,212 |
Commercial and industrial - PPP | — |  |  | — |  |  | — |  |  | 1,656 |  |  | 1,656 |
Consumer and other | 747 |  |  | 282 |  |  | 1,029 |  |  | 91,517 |  |  | 92,546 |
Total | $ | 6,504 |  |  | $ | 10,688 |  |  | $ | 17,192 |  |  | $ | 924,772 |  |  | $ | 941,964 |
(1) $1,733 of balances 30-89 days past due and $4,252 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, $1,228 of commercial and industrial PPP loans were delinquent as of September 30, 2024.

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:

| 30-89 Days Past Due |  | Greater Than 89 Days Past Due |  | Total Past Due |  | Loans Not Past Due (1) |  | Total Loans
Real estate - residential | $ | 1,840 |  |  | $ | 5,184 |  |  | $ | 7,024 |  |  | $ | 257,102 |  |  | $ | 264,126 |
Real estate - commercial | 2,870 |  |  | 791 |  |  | 3,661 |  |  | 289,934 |  |  | 293,595 |
Real estate - construction and land | — |  |  | — |  |  | — |  |  | 26,272 |  |  | 26,272 |
Commercial and industrial | 3,970 |  |  | 603 |  |  | 4,573 |  |  | 172,993 |  |  | 177,566 |
Commercial and industrial - PPP | — |  |  | — |  |  | — |  |  | 3,202 |  |  | 3,202 |
Consumer and other | 1,221 |  |  | 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.

Modifications to Borrowers Experiencing Financial Difficulty
For the three and nine months ended September 30, 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
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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 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 September 30, 2024 and gross write offs for the nine months ended September 30, 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 | $ | 40,742 |  |  | $ | 67,755 |  |  | $ | 71,376 |  |  | $ | 47,918 |  |  | $ | 53,626 |  |  | $ | 2,528 |  |  | $ | — |  |  | $ | 283,945 |
Special mention | 154 |  |  | 814 |  |  | 2,368 |  |  | 117 |  |  | 410 |  |  | 10 |  |  | — |  |  | 3,873 |
Substandard | — |  |  | 2,971 |  |  | 291 |  |  | 99 |  |  | 847 |  |  | — |  |  | — |  |  | 4,208 |
Doubtful | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total real estate - commercial loans, at amortized cost, gross | 40,896 |  |  | 71,540 |  |  | 74,035 |  |  | 48,134 |  |  | 54,883 |  |  | 2,538 |  |  | — |  |  | 292,026 |
Gross write offs | — |  |  | — |  |  | 60 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 60 |
Real estate - construction and land |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | 1,951 |  |  | 19,747 |  |  | 9,245 |  |  | 2,841 |  |  | — |  |  | — |  |  | — |  |  | 33,784 |
Special mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Substandard | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Doubtful | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total real estate - construction and land loans, at amortized cost, gross | 1,951 |  |  | 19,747 |  |  | 9,245 |  |  | 2,841 |  |  | — |  |  | — |  |  | — |  |  | 33,784 |
Gross write offs | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |

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|  |  |  |  |  |  |  |  |  |  | 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 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | 51,316 |  |  | 42,657 |  |  | 35,791 |  |  | 11,170 |  |  | 39,896 |  |  | 9,057 |  |  | — |  |  | 189,887 |
Special mention | 215 |  |  | 1,994 |  |  | 2,268 |  |  | 626 |  |  | 3,739 |  |  | — |  |  | — |  |  | 8,842 |
Substandard | — |  |  | 42 |  |  | 459 |  |  | 11 |  |  | 971 |  |  | — |  |  | — |  |  | 1,483 |
Doubtful | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total commercial and industrial loans, at amortized cost, gross | 51,531 |  |  | 44,693 |  |  | 38,518 |  |  | 11,807 |  |  | 44,606 |  |  | 9,057 |  |  | — |  |  | 200,212 |
Gross write offs | — |  |  | 2,533 |  |  | 2,572 |  |  | 317 |  |  | 2,476 |  |  | — |  |  | — |  |  | 7,898 |
Commercial and industrial - PPP |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | — |  |  | — |  |  | — |  |  | 223 |  |  | 434 |  |  | — |  |  | — |  |  | 657 |
Special mention | — |  |  | — |  |  | — |  |  | — |  |  | 999 |  |  | — |  |  | — |  |  | 999 |
Substandard | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Doubtful | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total commercial and industrial - PPP loans, at amortized cost, gross | — |  |  | — |  |  | — |  |  | 223 |  |  | 1,433 |  |  | — |  |  | — |  |  | 1,656 |
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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|  |  |  |  |  |  |  |  | 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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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 September 30, 2024 in residential and consumer loans based on payment activity as well as gross write offs for the nine months ended September 30, 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 | $ | 31,743 |  |  | $ | 28,410 |  |  | $ | 84,265 |  |  | $ | 23,020 |  |  | $ | 17,892 |  |  | $ | 131,339 |  |  | $ | — |  |  | $ | 316,669 |
Nonperforming | — |  |  | — |  |  | 814 |  |  | 132 |  |  | 2,949 |  |  | 1,176 |  |  | — |  |  | 5,071 |
Total real estate - residential loans, at amortized cost, gross | 31,743 |  |  | 28,410 |  |  | 85,079 |  |  | 23,152 |  |  | 20,841 |  |  | 132,515 |  |  | — |  |  | 321,740 |
Gross write offs | — |  |  | — |  |  | — |  |  | — |  |  | 20 |  |  | — |  |  | — |  |  | 20 |
Consumer and other |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment Performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | 56,112 |  |  | 22,437 |  |  | 11,635 |  |  | 701 |  |  | 156 |  |  | 1,223 |  |  | — |  |  | 92,264 |
Nonperforming | 32 |  |  | 16 |  |  | 234 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 282 |
Total consumer and other loans, at amortized cost, gross | 56,144 |  |  | 22,453 |  |  | 11,869 |  |  | 701 |  |  | 156 |  |  | 1,223 |  |  | — |  |  | 92,546 |
Gross write offs | — |  |  | 228 |  |  | 1,888 |  |  | 33 |  |  | 150 |  |  | — |  |  | — |  |  | 2,299 |

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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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 nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring 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.
Other Real Estate Owned: Other real estate owned assets are recorded at the lower of cost or fair value upon the transfer of a loan to other real estate owned and, subsequently, continue to be measured and carried at the lower of cost or fair value. The fair value of other real estate owned is based on recent real estate appraisals which are generally updated annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales, cost, and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Other real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
Appraisals for both collateral dependent impaired loans and real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by either the Company or the Company's appraisal services vendor. Once received, management reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Management compares the best-efforts price of collateral that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraised value to arrive at fair value.
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BAYFIRST FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data)

Repossessed Assets: Repossessed assets are recorded at the lower of cost or fair value upon the transfer of a loan to repossessed assets. The fair value of a repossessed asset, upon initial recognition, is estimated using a market approach or based on observable market data, such as a current appraisal, recent sale price of similar assets, or assumptions specific to the individual property or equipment, such as management applied discounts used to further reduce values to a net realizable value when observable inputs become stale.
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 September 30, 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.
Assets measured at fair value on a recurring basis at September 30, 2024 are summarized below. There were no liabilities carried at fair value on a recurring basis at September 30, 2024.

| Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total
Financial assets |  |  |  |  |  |  |
Investment securities available for sale | $ | — |  |  | $ | 37,984 |  |  | $ | — |  |  | $ | 37,984 |
Government guaranteed loans HFI, at fair value | — |  |  | — |  |  | 86,441 |  |  | 86,441 |

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 Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (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. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (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 September 30, 2024 and December 31, 2023.

| September 30, 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 | $ | 16,424 |  |  | $ | 16,476 |  |  | $ | (52) |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commercial and industrial | 70,017 |  |  | 68,494 |  |  | 1,523 |  |  | 1,559 |  |  | 1,992 |  |  | (433) |  |  | — |  |  | — |  |  | — |
Total loans HFI, at fair value | $ | 86,441 |  |  | $ | 84,970 |  |  | $ | 1,471 |  |  | $ | 1,559 |  |  | $ | 1,992 |  |  | $ | (433) |  |  | $ | — |  |  | $ | — |  |  | $ | — |

| 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 net gains and losses from changes in fair value and interest income included in earnings for the nine months ended September 30, 2024 and September 30, 2023 for government guaranteed loans HFI, at fair value, were as follows:

| Nine Months Ended September 30,
| 2024 |  | 2023
Interest income | $ | 5,978 |  |  | $ | 3,151 |
Change in fair value | 9,923 |  |  | 11,021 |
Total gain, net | $ | 15,901 |  |  | $ | 14,172 |

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. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (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 nine months ended September 30, 2024 and September 30, 2023:

| Nine Months Ended September 30,
| 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 | 105,754 |  |  | 143,535 |
Loans sold | (116,977) |  |  | (90,120) |
Principal payments | (3,767) |  |  | (7,336) |
Charge-offs | — |  |  | — |
Total fair value gains during the period | 9,923 |  |  | 11,021 |
Balance of government guaranteed loans HFI at fair value, end of period | $ | 86,441 |  |  | $ | 84,178 |

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 September 30, 2024 and December 31, 2023:

| Fair Value |  | Valuation Technique |  | Unobservable Inputs |  | Range (Weighted Average)
September 30, 2024 |  |  |  |  |  |  |
Government guaranteed loans HFI, at fair value | $ | 86,441 |  |  | Discounted |  | Discount rate |  | 6.56%-9.94% (8.51%)
|  |  | cash flow |  | Conditional prepayment rate |  | 10.87%-12.63% (12.09%)
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 (Level 3) at September 30, 2024 are summarized below:

| Fair Value |  | Valuation Technique(s) |  | Significant Unobservable Input(s) |  | Discount % Amount
Repossessed assets | $ | 94 |  |  | Discounted appraisals, estimated net realizable value of collateral |  | Collateral discounts |  | 10%

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

Assets measured at fair value on a nonrecurring basis (Level 3) at December 31, 2023 are summarized below:

| Fair Value |  | Valuation Technique(s) |  | Significant Unobservable 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 September 30, 2024 and December 31, 2023 are as follows:

|  |  | September 30, 2024 |  | December 31, 2023
| Level |  | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
Assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents | 1 |  | $ | 64,383 |  |  | $ | 64,383 |  |  | $ | 58,385 |  |  | $ | 58,385 |
Time deposits in banks | 2 |  | 2,264 |  |  | 2,228 |  |  | 4,646 |  |  | 4,561 |
Investment securities held to maturity | 2 |  | 2,487 |  |  | 2,321 |  |  | 2,484 |  |  | 2,263 |
Nonmarketable equity securities, at cost | 2 |  | 4,997 |  |  | 4,997 |  |  | 4,770 |  |  | 4,770 |
Government guaranteed loans held for sale | 2 |  | 595 |  |  | 667 |  |  | — |  |  | — |
Loans HFI, at amortized cost | 3 |  | 941,818 |  |  | 937,576 |  |  | 810,721 |  |  | 786,350 |
Accrued interest receivable | 2 |  | 8,537 |  |  | 8,537 |  |  | 7,130 |  |  | 7,130 |
Government guaranteed loan servicing rights | 3 |  | 15,966 |  |  | 18,596 |  |  | 14,959 |  |  | 16,318 |
Liabilities: |  |  |  |  |  |  |  |  |
Noninterest-bearing deposits | 2 |  | $ | 95,995 |  |  | $ | 95,995 |  |  | $ | 93,708 |  |  | $ | 93,708 |
Interest-bearing transaction accounts | 2 |  | 247,923 |  |  | 247,923 |  |  | 259,422 |  |  | 259,422 |
Savings and money market deposits | 2 |  | 455,297 |  |  | 455,297 |  |  | 373,000 |  |  | 373,000 |
Time deposits | 2 |  | 312,981 |  |  | 313,339 |  |  | 259,008 |  |  | 255,372 |
FHLB borrowings | 2 |  | 10,000 |  |  | 10,000 |  |  | 10,000 |  |  | 10,000 |
Subordinated debentures | 2 |  | 5,954 |  |  | 5,485 |  |  | 5,949 |  |  | 5,215 |
Notes payable | 2 |  | 2,048 |  |  | 2,031 |  |  | 2,389 |  |  | 2,369 |
Accrued interest payable | 2 |  | 1,114 |  |  | 1,114 |  |  | 882 |  |  | 882 |

NOTE 7 – GOVERNMENT GUARANTEED LOAN SERVICING ACTIVITIES
At September 30, 2024 and December 31, 2023, the principal balance of government guaranteed loans, excluding PPP loans, retained by the Company was $395,155 and $395,877, respectively, of which $155,345 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 $1,009,797 and $855,756 at September 30, 2024 and December 31, 2023, respectively.
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BAYFIRST FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data)

Activity for government guaranteed loan servicing rights for the three and nine months ended September 30, 2024 and September 30, 2023 follows:

| Three Months Ended |  | Nine Months Ended
| September 30, 2024 |  | September 30, 2023 |  | September 30, 2024 |  | September 30, 2023
Beginning of period | $ | 15,770 |  |  | $ | 12,820 |  |  | $ | 14,959 |  |  | $ | 10,906 |
Additions | 1,704 |  |  | 2,543 |  |  | 5,396 |  |  | 6,390 |
Amortization | (1,508) |  |  | (1,147) |  |  | (4,389) |  |  | (3,080) |
End of period | $ | 15,966 |  |  | $ | 14,216 |  |  | $ | 15,966 |  |  | $ | 14,216 |

The fair value of government guaranteed loan servicing rights was $18,596 and $16,318 at September 30, 2024 and December 31, 2023, respectively. Fair value was determined using a weighted average discount rate of 13.75% and a weighted average prepayment speed of 13.16% at September 30, 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 and nine months ended September 30, 2024 and September 30, 2023:

| Three Months Ended |  | Nine Months Ended
| September 30, 2024 |  | September 30, 2023 |  | September 30, 2024 |  | September 30, 2023
Gain on sale of guaranteed portion of government guaranteed loans | $ | 4,439 |  |  | $ | 4,596 |  |  | $ | 14,431 |  |  | $ | 11,998 |
Loss on sale of unguaranteed portion of government guaranteed loans | — |  |  | — |  |  | — |  |  | (797) |
Costs recognized on sale of government guaranteed loans | — |  |  | — |  |  | — |  |  | (15) |
Fair value of loan servicing rights created | 1,704 |  |  | 2,543 |  |  | 5,396 |  |  | 6,390 |
Gain on sale of government guaranteed loans, net | $ | 6,143 |  |  | $ | 7,139 |  |  | $ | 19,827 |  |  | $ | 17,576 |

NOTE 8 – LEASES
For the three and nine months ended September 30, 2024 and September 30, 2023, the components of total lease cost and supplemental information related to operating leases were as follows:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Operating lease cost | $ | 202 |  |  | $ | 509 |  |  | $ | 699 |  |  | $ | 1,097 |
Short-term lease cost | 30 |  |  | (224) |  |  | 102 |  |  | (204) |
Total lease cost, net (1) | $ | 232 |  |  | $ | 285 |  |  | $ | 801 |  |  | $ | 893 |

(1) Includes lease costs reported as discontinued operations of $0 and $44 for the three months ended September 30, 2024 and September 30, 2023, respectively, and $131 for the nine months ended September 30, 2024 and September 30, 2023.

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Cash flows related to operating lease liabilities | $ | 151 |  |  | $ | 281 |  |  | $ | 600 |  |  | $ | 965 |
Right-of-use assets obtained in exchange for new operating lease liabilities | — |  |  | — |  |  | 263 |  |  | — |

At September 30, 2024, the weighted average discount rate of operating leases was 2.93% and the weighted average remaining life of operating leases was 2.70 years.
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BAYFIRST FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data)

The future minimum lease payments for operating leases, subsequent to September 30, 2024, as recorded on the balance sheet, are summarized as follows:

2024 | $ | 157 |
2025 | 896 |
2026 | 857 |
2027 | 440 |
2028 | — |
Thereafter | — |
Total undiscounted lease payments | $ | 2,350 |
Less: imputed interest | (79) |
Net lease liabilities | $ | 2,271 |

NOTE 9 – OTHER BORROWINGS
At September 30, 2024, the Company had $10,000 of borrowings at 5.07% 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 be ar interest at variable rates set by the FHLB. Any a dvances that the bank were to obtain would be secured by a blanket lien on $331,918 of real estate-related loans as of September 30, 2024. Based on this collateral and the Company's holdings of FHLB stock, the Company was eligible to borrow up to
$170,668 from the FHLB at September 30, 2024.
In addition, the Bank has a secured line of credit with the Federal Reserve Bank of Atlanta which was secured by $60,831 of commercial loans as of September 30, 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 $42,955 from the FRB at September 30, 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 $5,954 and $5,949 at September 30, 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 September 30, 2024). The note matures on March 10, 2029 and the balance of the note was $2,048 and $2,389 at September 30, 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 September 30, 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 $109 and $167 for the three months ended September 30, 2024 and September 30, 2023, respectively, and $281 and $486 for the nine months ended September 30, 2024 and September 30, 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.
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BAYFIRST FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data)

A summary of changes in the Company’s nonvested restricted shares for the nine months ended September 30, 2024 and September 30, 2023 follows:

| Shares |  | Weighted-Average Grant-Date Fair Value, per share
Nonvested at January 1, 2024 | 52,195 |  |  | $ | 18.75 |
Granted | 30,650 |  |  | 11.70 |
Vested | (29,835) |  |  | (18.24) |
Forfeited | (1,125) |  |  | (16.05) |
Nonvested at September 30, 2024 | 51,885 |  |  | $ | 14.93 |

| Shares |  | Weighted-Average Grant-Date Fair Value, per share
Nonvested at January 1, 2023 | 22,000 |  |  | $ | 21.52 |
Granted | 46,175 |  |  | 18.30 |
Vested | (13,935) |  |  | (20.01) |
Forfeited | (1,865) |  |  | (19.38) |
Nonvested at September 30, 2023 | 52,375 |  |  | $ | 18.75 |

At September 30, 2024, there was $456 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 3.0 years. The total fair value of shares vested during the nine months ended September 30, 2024 and September 30, 2023 was $359 and $252, 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 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.
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BAYFIRST FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data)

A summary of the activity in the Equity Plan for the nine months ended September 30, 2024 and September 30, 2023 follows:

| Shares |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term (in years) |  | Aggregate Intrinsic Value
Outstanding at January 1, 2024 | 367,033 |  |  | $ | 15.68 |  |  |  |  |
Forfeited | (2,970) |  |  | (15.56) |  |  |  |  |
Outstanding at September 30, 2024 | 364,063 |  |  | $ | 15.57 |  |  | 4.92 |  | $ | — |
Vested and exercisable at September 30, 2024 | 349,385 |  |  | $ | 15.71 |  |  | 4.88 |  | $ | — |

| Shares |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term (in years) |  | Aggregate Intrinsic Value
Outstanding at January 1, 2023 | 405,688 |  |  | $ | 15.67 |  |  |  |  |
Exercised | (30,375) |  |  | (15.71) |  |  |  |  |
Forfeited | (7,980) |  |  | (15.51) |  |  |  |  |
Outstanding at September 30, 2023 | 367,333 |  |  | $ | 15.67 |  |  | 5.93 |  | $ | — |
Vested and exercisable at September 30, 2023 | 323,022 |  |  | $ | 15.79 |  |  | 5.78 |  | $ | — |

There were no options granted during the three and nine months ended September 30, 2024 or September 30, 2023. Total unrecognized compensation cost related to nonvested stock options granted under the Equity Plan was $23 at September 30, 2024. This cost is expected to be recognized over a weighted average period of 1.2 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 nine months ended September 30, 2024, there were no shares issued. During the nine months ended September 30, 2023, 10,589 shares were issued at an average of $14.98 per share.
All employees and Directors are eligible to participate in the NSPP. Expense recognized in relation to the NSPP for the nine months ended September 30, 2024 and September 30, 2023 was $18 and $20, respectively.
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 $324 and $351 at September 30, 2024 and December 31, 2023, respectively, and the related benefit for the nine months ended September 30, 2024 was $3 and the related expense for the nine months ended September 30, 2023 was $11. Payments began in July 2024 as a result of 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 $749 and $678 for the nine months ended September 30, 2024 and September 30, 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 $112 and 11,323 unallocated shares with a fair value of $127 remaining as of September 30, 2024 and September 30, 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 3.25%. The note requires an annual payment of principal and interest through December 2026. The
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BAYFIRST FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data)

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 $246 and 23,383 unallocated shares with a fair value of $263 remaining as of September 30, 2024 and September 30, 2023, respectively. 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 $149 of expense related to the ESOP for the nine months ended September 30, 2024 and no expense for the nine months ended September 30, 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 September 30, 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 September 30, 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 September 30, 2024:

| Actual |  | Required for Capital Adequacy Purposes |  | To be Well Capitalized Under Prompt Corrective Action Regulations
| Amount |  | Ratio |  | Amount |  | Ratio |  | Amount |  | Ratio
Total Capital |  |  |  |  |  |  |  |  |  |  |
(to Risk Weighted Assets) | $ | 115,123 |  |  | 11.39 | % |  | $ | 80,848 |  |  | 8.00 | % |  | $ | 101,059 |  |  | 10.00 | %
Tier 1 Capital |  |  |  |  |  |  |  |  |  |  |
(to Risk Weighted Assets) | $ | 102,479 |  |  | 10.14 | % |  | $ | 60,636 |  |  | 6.00 | % |  | $ | 80,848 |  |  | 8.00 | %
Common Equity Tier 1 Capital |  |  |  |  |  |  |  |  |  |  |
(to Risk Weighted Assets) | $ | 102,479 |  |  | 10.14 | % |  | $ | 45,477 |  |  | 4.50 | % |  | $ | 65,689 |  |  | 6.50 | %
Tier 1 Capital |  |  |  |  |  |  |  |  |  |  |
(to Average Assets) | $ | 102,479 |  |  | 8.41 | % |  | $ | 48,768 |  |  | 4.00 | % |  | $ | 60,960 |  |  | 5.00 | %

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BAYFIRST FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (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 Adequacy Purposes |  | To be Well Capitalized Under Prompt Corrective 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 September 30, 2024 and December 31, 2023 were as follows:

| September 30, 2024 |  | December 31, 2023
Unfunded loan commitments | $ | 79,412 |  |  | $ | 7,392 |
Unused lines of credit | 200,109 |  |  | 178,440 |
Standby letters of credit | 211 |  |  | 186 |

All unused lines of credit at September 30, 2024 and December 31, 2023 were variable rate lines of credit and the majority of unfunded loan commitments at September 30, 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 September 30, 2024 and December 31, 2023, ACL for off-balance sheet loan commitments totaled $664 and $839, respectively.
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BAYFIRST FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (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 and nine months ended September 30, 2024 and September 30, 2023:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Basic: |  |  |  |  |  |  |
Income from continuing operations | $ | 1,137 |  |  | $ | 1,970 |  |  | $ | 2,896 |  |  | $ | 4,254 |
Loss from discontinued operations | — |  |  | (47) |  |  | (69) |  |  | (207) |
Net income | 1,137 |  |  | 1,923 |  |  | 2,827 |  |  | 4,047 |
Less: Preferred stock dividends | 385 |  |  | 208 |  |  | 1,156 |  |  | 624 |
Net income available to common shareholders | $ | 752 |  |  | $ | 1,715 |  |  | $ | 1,671 |  |  | $ | 3,423 |
Weighted average common shares outstanding | 4,134,169 |  |  | 4,105,014 |  |  | 4,133,082 |  |  | 4,096,584 |
Basic earnings (loss) per common share: |  |  |  |  |  |  |
Continuing operations | $ | 0.18 |  |  | $ | 0.43 |  |  | $ | 0.42 |  |  | $ | 0.89 |
Discontinued operations | — |  |  | (0.01) |  |  | (0.02) |  |  | (0.05) |
Total | $ | 0.18 |  |  | $ | 0.42 |  |  | $ | 0.40 |  |  | $ | 0.84 |
Diluted: |  |  |  |  |  |  |
Income from continuing operations | $ | 1,137 |  |  | $ | 1,970 |  |  | $ | 2,896 |  |  | $ | 4,254 |
Loss from discontinued operations | — |  |  | (47) |  |  | (69) |  |  | (207) |
Net income | 1,137 |  |  | 1,923 |  |  | 2,827 |  |  | 4,047 |
Less: Preferred stock dividends | 385 |  |  | 208 |  |  | 1,156 |  |  | 624 |
Add: Series B preferred stock and preferred C stock dividends | — |  |  | 64 |  |  | — |  |  | 193 |
Net income available to common shareholders | $ | 752 |  |  | $ | 1,779 |  |  | $ | 1,671 |  |  | $ | 3,616 |
Weighted average common shares outstanding for basic earnings per common share | 4,134,169 |  |  | 4,105,014 |  |  | 4,133,082 |  |  | 4,096,584 |
Add: Dilutive effects of conversion of Series B preferred stock and Preferred C to common stock | — |  |  | 250,690 |  |  | — |  |  | 253,626 |
Add: Dilutive effects of assumed exercises of stock options and warrants | — |  |  | — |  |  | — |  |  | 4,098 |
Average shares and dilutive potential common shares | 4,134,169 |  |  | 4,355,704 |  |  | 4,133,082 |  |  | 4,354,308 |
Diluted earnings (loss) per common share: |  |  |  |  |  |  |
Continuing operations | $ | 0.18 |  |  | $ | 0.42 |  |  | $ | 0.42 |  |  | $ | 0.88 |
Discontinued operations | — |  |  | (0.01) |  |  | (0.02) |  |  | (0.05) |
Total | $ | 0.18 |  |  | $ | 0.41 |  |  | $ | 0.40 |  |  | $ | 0.83 |

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

The following securities outstanding at September 30, 2024 and September 30, 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 September 30, |  | Nine Months Ended September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Common stock options | 364,576 |  | 367,461 |  | 365,680 |  | 374,802
Convertible Series B preferred stock | 3,210 |  | 0 |  | 3,210 |  | 0
Convertible Series C preferred stock | 6,446 |  | 0 |  | 6,446 |  | 0

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 and nine months ended September 30, 2024 and September 30, 2023 and financial condition as of September 30, 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, weather events, 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
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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 September 30, 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 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
Fourth Quarter Common Stock Dividend. On October 22, 2024, BayFirst’s Board of Directors declared a fourth quarter 2024 cash dividend of $0.08 per common share, payable December 15, 2024 to common shareholders of record as of December 1, 2024. The Company has continuously paid quarterly common stock cash dividends since 2016.
Fourth 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 January 2, 2025 to shareholders of record as of October 15, 2024. The amount and timing of the dividend is in accordance with the terms of the Series A Preferred Stock.
Fourth 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 January 2, 2025 to shareholders of record as of October 15, 2024. The amount and timing of the dividend is in accordance with the terms of the Series B Convertible Preferred Stock.
Fourth 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 January 2, 2025 to shareholders of record as of October 15, 2024. The amount and timing of the dividend is in accordance with the terms of the Series C Cumulative Convertible Preferred Stock.
Hurricane Recovery. Hurricane Helene struck the Florida gulf coast on September 26, 2024 and caused widespread damage from Florida to the Carolinas and eastern Tennessee. On October 9, 2024, Hurricane Milton struck the west coast of Florida and tracked across the middle of the state. Both storms caused widespread damage including flooding from storm surge, extreme winds, and substantial rainfall.
The Company maintained uninterrupted digital and telephone access for our customers, and having experienced minimal impact to our branch properties, the Company fully reopened to serve our communities shortly after each storm.
Recovery efforts in many areas continue and the full impacts on people and businesses in the most hard-hit regions are not fully known. At this time, there have been relatively few loan concessions (mostly in the form of loan payment deferrals up to 90 days) for distressed borrowers impacted by the hurricanes. However, the Company continues to assess the impact of the hurricanes on our customers. Where appropriate, we will work constructively with individual borrowers. Management is assessing the impact of both hurricanes to determine if additional provisions are warranted.
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Selected Financial Data - Unaudited

| As of and for the Three Months Ended |  | As of and for the Nine Months Ended
(Dollars in thousands, except for share data) | 9/30/2024 |  | 6/30/2024 |  | 9/30/2023 |  | 9/30/2024 |  | 9/30/2023
Income Statement Data: |  |  |  |  |  |  |  |  |
Net interest income | $ | 9,449 |  |  | $ | 9,182 |  |  | $ | 8,393 |  |  | $ | 27,373 |  |  | $ | 27,554 |
Provision for credit losses | 3,122 |  |  | 3,000 |  |  | 3,001 |  |  | 10,180 |  |  | 7,708 |
Noninterest income | 12,272 |  |  | 11,653 |  |  | 14,679 |  |  | 38,193 |  |  | 35,064 |
Noninterest expense | 17,064 |  |  | 16,610 |  |  | 17,427 |  |  | 51,447 |  |  | 49,241 |
Income tax expense | 398 |  |  | 349 |  |  | 674 |  |  | 1,043 |  |  | 1,415 |
Net income from continuing operations | 1,137 |  |  | 876 |  |  | 1,970 |  |  | 2,896 |  |  | 4,254 |
Net loss from discontinued operations | — |  |  | (10) |  |  | (47) |  |  | (69) |  |  | (207) |
Net income | 1,137 |  |  | 866 |  |  | 1,923 |  |  | 2,827 |  |  | 4,047 |
Preferred stock dividends | 385 |  |  | 386 |  |  | 208 |  |  | 1,156 |  |  | 624 |
Net income available to common shareholders | $ | 752 |  |  | $ | 480 |  |  | $ | 1,715 |  |  | $ | 1,671 |  |  | $ | 3,423 |
Balance Sheet Data: |  |  |  |  |  |  |  |  |
Average loans HFI | $ | 1,034,819 |  |  | $ | 984,372 |  |  | $ | 857,338 |  |  | $ | 986,426 |  |  | $ | 822,330 |
Average loans HFI at amortized cost | 948,528 |  |  | 902,417 |  |  | 789,167 |  |  | 900,961 |  |  | 764,038 |
Average total assets | 1,228,040 |  |  | 1,178,501 |  |  | 1,088,517 |  |  | 1,177,785 |  |  | 1,041,131 |
Average common shareholders’ equity | 86,381 |  |  | 84,948 |  |  | 81,067 |  |  | 85,574 |  |  | 80,080 |
Total loans HFI | 1,042,445 |  |  | 1,008,314 |  |  | 878,447 |  |  | 1,042,445 |  |  | 878,447 |
Total loans HFI, excluding government guaranteed loan balances | 885,444 |  |  | 844,659 |  |  | 687,141 |  |  | 885,444 |  |  | 687,141 |
Allowance for credit losses | 14,186 |  |  | 13,843 |  |  | 13,365 |  |  | 14,186 |  |  | 13,365 |
Total assets | 1,245,099 |  |  | 1,217,869 |  |  | 1,133,979 |  |  | 1,245,099 |  |  | 1,133,979 |
Common shareholders’ equity | 86,242 |  |  | 84,911 |  |  | 82,725 |  |  | 86,242 |  |  | 82,725 |
Per Share Data: |  |  |  |  |  |  |  |  |
Basic earnings per common share | $ | 0.18 |  |  | $ | 0.12 |  |  | $ | 0.42 |  |  | $ | 0.40 |  |  | $ | 0.84 |
Diluted earnings per common share | $ | 0.18 |  |  | $ | 0.12 |  |  | $ | 0.41 |  |  | $ | 0.40 |  |  | $ | 0.83 |
Dividends per common share | $ | 0.08 |  |  | $ | 0.08 |  |  | $ | 0.08 |  |  | $ | 0.24 |  |  | $ | 0.24 |
Book value per common share | $ | 20.86 |  |  | $ | 20.54 |  |  | $ | 20.12 |  |  | $ | 20.86 |  |  | $ | 20.12 |
Tangible book value per common share(1) | $ | 20.86 |  |  | $ | 20.54 |  |  | $ | 20.12 |  |  | $ | 20.86 |  |  | $ | 20.12 |
Performance Ratios: |  |  |  |  |  |  |  |  |
Return on average assets(2) | 0.37 | % |  | 0.29 | % |  | 0.71 | % |  | 0.32 | % |  | 0.52 | %
Return on average common equity(2) | 3.48 | % |  | 2.26 | % |  | 8.46 | % |  | 2.60 | % |  | 5.70 | %
Net interest margin(2) | 3.34 | % |  | 3.43 | % |  | 3.36 | % |  | 3.39 | % |  | 3.89 | %
Dividend payout ratio | 43.98 | % |  | 68.91 | % |  | 19.15 | % |  | 59.36 | % |  | 28.72 | %
Asset Quality Data: |  |  |  |  |  |  |  |  |
Net charge-offs | $ | 2,757 |  |  | $ | 3,261 |  |  | $ | 2,234 |  |  | $ | 9,670 |  |  | $ | 6,375 |
Net charge-offs/average loans HFI at amortized cost(2) | 1.16 | % |  | 1.45 | % |  | 1.13 | % |  | 1.43 | % |  | 1.11 | %
Nonperforming loans(3) | $ | 15,489 |  |  | $ | 12,312 |  |  | $ | 9,518 |  |  | $ | 15,489 |  |  | $ | 9,518 |
Nonperforming loans (excluding government guaranteed balance)(3) | $ | 10,992 |  |  | $ | 8,054 |  |  | $ | 7,997 |  |  | $ | 10,992 |  |  | $ | 7,997 |
Nonperforming loans/total loans HFI(3) | 1.62 | % |  | 1.34 | % |  | 1.20 | % |  | 1.62 | % |  | 1.20 | %

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| As of and for the Three Months Ended |  | As of and for the Nine Months Ended
(Dollars in thousands, except for share data) | 9/30/2024 |  | 6/30/2024 |  | 9/30/2023 |  | 9/30/2024 |  | 9/30/2023
Nonperforming loans (excluding gov’t guaranteed balance)/total loans HFI(3) | 1.15 | % |  | 0.87 | % |  | 1.01 | % |  | 1.15 | % |  | 1.01 | %
ACL/Total loans HFI at amortized cost | 1.48 | % |  | 1.50 | % |  | 1.68 | % |  | 1.48 | % |  | 1.68 | %
Other Data: |  |  |  |  |  |  |  |  |
Full-time equivalent employees | 295 |  | 302 |  | 307 |  | 295 |  | 307
Banking centers | 12 |  | 12 |  | 10 |  | 12 |  | 10
(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 calculated in accordance with GAAP:

Tangible Common Shareholders' Equity and Tangible Book Value Per Common Share (Unaudited)
|  | As of
(Dollars in thousands, except for share data) |  | September 30, 2024 |  | June 30, 2024 |  | September 30, 2023
Total shareholders’ equity |  | $ | 102,293 |  |  | $ | 100,962 |  |  | $ | 94,165 |
Less: Preferred stock liquidation preference |  | (16,051) |  |  | (16,051) |  |  | (11,440) |
Total equity available to common shareholders |  | 86,242 |  |  | 84,911 |  |  | 82,725 |
Less: Goodwill |  | — |  |  | — |  |  | — |
Tangible common shareholders' equity |  | $ | 86,242 |  |  | $ | 84,911 |  |  | $ | 82,725 |
Common shares outstanding |  | 4,134,059 |  |  | 4,134,219 |  |  | 4,110,650 |
Tangible book value per common share |  | $ | 20.86 |  |  | $ | 20.54 |  |  | $ | 20.12 |

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
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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 September 30, 2024 of $1.1 million, or $0.18 per diluted common share, compared to net income for the three months ended September 30, 2023 of $1.9 million, or $0.41 per diluted common share. The decrease in net income was primarily due to a decrease in government guaranteed loan fair value gains of $1.1 million and a decrease in gain on sale of government guaranteed loans of $1.0 million, partially offset by an increase in net interest income of $1.1 million and lower compensation expense of $0.3 million.
For the nine months ended September 30, 2024, net income was $2.8 million, or $0.40 per diluted common share, a decrease from net income of $4.0 million, or $0.83 per diluted common share, for the nine months ended September 30, 2023. The change was primarily due to higher provision for credit losses of $2.5 million, a decrease in government guaranteed fair value gains of $1.1 million, and higher noninterest expense of $2.2 million, partially offset by higher gain on sale of government guaranteed loans of $2.3 million and higher government guaranteed loan packaging fees of $1.3 million.
Net Interest Income
Net interest income from continuing operations was $9.4 million for the three months ended September 30, 2024, an increase from $8.4 million during the three months ended September 30, 2023. The increase was mainly due to an increase in interest income of $3.8 million, partially offset by higher interest expense on deposits.
Net interest margin was 3.34% for the third quarter of 2024, which represented a decrease from 3.36% for the third quarter of 2023.
Net interest income from continuing operations was $27.4 million for the nine months ended September 30, 2024, a decrease from $27.6 million for the nine months ended September 30, 2023. The decrease was mainly due to an increase in interest expense of $11.6 million, partially offset by an increase in interest income, including fees, of $11.4 million.
Net interest margin decreased to 3.39% for the nine months ended September 30, 2024, compared to 3.89% for the nine months ended September 30, 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.

| Three Months Ended September 30,
| 2024 |  | 2023
(Dollars in thousands) | Average Balance |  | Interest |  | Yield |  | Average Balance |  | Interest |  | Yield
Interest-earning assets: |  |  |  |  |  |  |  |  |  |  |
Investment securities | $ | 41,092 |  |  | $ | 407 |  |  | 3.94 | % |  | $ | 43,383 |  |  | $ | 465 |  |  | 4.25 | %
Loans, excluding PPP (1) (2) | 1,032,909 |  |  | 20,437 |  |  | 7.87 |  |  | 841,920 |  |  | 15,992 |  |  | 7.54 |
PPP loans | 1,917 |  |  | 5 |  |  | 1.04 |  |  | 15,418 |  |  | 40 |  |  | 1.03 |
Other | 50,809 |  |  | 593 |  |  | 4.64 |  |  | 91,749 |  |  | 1,123 |  |  | 4.86 |
Total interest-earning assets | 1,126,727 |  |  | 21,442 |  |  | 7.57 |  |  | 992,470 |  |  | 17,620 |  |  | 7.04 |
Noninterest-earning assets | 101,313 |  |  |  |  |  |  | 96,047 |  |  |  |  |
Total assets | $ | 1,228,040 |  |  |  |  |  |  | $ | 1,088,517 |  |  |  |  |
Interest-bearing liabilities: |  |  |  |  |  |  |  |  |  |  |
NOW, MMDA and savings | $ | 681,822 |  |  | $ | 7,423 |  |  | 4.33 |  |  | $ | 633,657 |  |  | $ | 6,390 |  |  | 4.00 |
Time deposits | 310,754 |  |  | 4,186 |  |  | 5.36 |  |  | 235,100 |  |  | 2,665 |  |  | 4.50 |
Other borrowings | 27,110 |  |  | 384 |  |  | 5.64 |  |  | 15,714 |  |  | 172 |  |  | 4.34 |
Total interest-bearing liabilities | 1,019,686 |  |  | 11,993 |  |  | 4.68 |  |  | 884,471 |  |  | 9,227 |  |  | 4.14 |
Demand deposits | 94,574 |  |  |  |  |  |  | 100,734 |  |  |  |  |
Noninterest-bearing liabilities | 11,348 |  |  |  |  |  |  | 12,600 |  |  |  |  |
Shareholders’ equity | 102,432 |  |  |  |  |  |  | 90,712 |  |  |  |  |
Total liabilities and shareholders’ equity | $ | 1,228,040 |  |  |  |  |  |  | $ | 1,088,517 |  |  |  |  |
Net interest income |  |  | $ | 9,449 |  |  |  |  |  |  | $ | 8,393 |  |  |
Interest rate spread |  |  |  |  | 2.89 |  |  |  |  |  |  | 2.90 |
Net interest margin (3) |  |  |  |  | 3.34 |  |  |  |  |  |  | 3.36 |
Ratio of average interest-earning assets to average interest-bearing liabilities | 110.50 | % |  |  |  |  |  | 112.21 | % |  |  |  |
(1) Includes nonaccrual loans.
(2) Includes no residential loans held for sale from discontinued operations as of September 30, 2024 or September 30, 2023.
(3) Net interest margin represents net interest income divided by average total interest-earning assets.

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| For the Nine Months Ended September 30,
| 2024 |  | 2023
(Dollars in thousands) | Average Balance |  | Interest |  | Yield |  | Average Balance |  | Interest |  | Yield
Interest-earning assets: |  |  |  |  |  |  |  |  |  |  |
Investment securities | $ | 42,069 |  |  | $ | 1,277 |  |  | 4.05 | % |  | $ | 44,888 |  |  | $ | 1,398 |  |  | 4.16 | %
Loans, excluding PPP (1) (2) | 983,867 |  |  | 58,064 |  |  | 7.88 |  |  | 805,049 |  |  | 45,346 |  |  | 7.53 |
PPP loans | 2,602 |  |  | 20 |  |  | 1.03 |  |  | 17,337 |  |  | 130 |  |  | 1.00 |
Other | 48,641 |  |  | 1,695 |  |  | 4.65 |  |  | 80,522 |  |  | 2,790 |  |  | 4.63 |
Total interest-earning assets | 1,077,179 |  |  | 61,056 |  |  | 7.57 |  |  | 947,796 |  |  | 49,664 |  |  | 7.01 |
Noninterest-earning assets | 100,606 |  |  |  |  |  |  | 93,335 |  |  |  |  |
Total assets | $ | 1,177,785 |  |  |  |  |  |  | $ | 1,041,131 |  |  |  |  |
Interest-bearing liabilities: |  |  |  |  |  |  |  |  |  |  |
NOW, MMDA and savings | $ | 652,481 |  |  | $ | 20,886 |  |  | 4.28 |  |  | $ | 620,237 |  |  | $ | 15,598 |  |  | 3.36 |
Time deposits | 283,298 |  |  | 11,386 |  |  | 5.37 |  |  | 186,827 |  |  | 5,478 |  |  | 3.92 |
Other borrowings | 34,606 |  |  | 1,411 |  |  | 5.45 |  |  | 30,325 |  |  | 1,033 |  |  | 4.55 |
Total interest-bearing liabilities | 970,385 |  |  | 33,683 |  |  | 4.64 |  |  | 837,389 |  |  | 22,109 |  |  | 3.53 |
Demand deposits | 93,830 |  |  |  |  |  |  | 101,661 |  |  |  |  |
Noninterest-bearing liabilities | 11,945 |  |  |  |  |  |  | 12,383 |  |  |  |  |
Shareholders’ equity | 101,625 |  |  |  |  |  |  | 89,698 |  |  |  |  |
Total liabilities and shareholders’ equity | $ | 1,177,785 |  |  |  |  |  |  | $ | 1,041,131 |  |  |  |  |
Net interest income |  |  | $ | 27,373 |  |  |  |  |  |  | $ | 27,555 |  |  |
Interest rate spread |  |  |  |  | 2.93 |  |  |  |  |  |  | 3.48 |
Net interest margin (3) |  |  |  |  | 3.39 |  |  |  |  |  |  | 3.89 |
Ratio of average interest-earning assets to average interest-bearing liabilities | 111.01 | % |  |  |  |  |  | 113.18 | % |  |  |  |
(1) Includes nonaccrual loans.
(2) Includes no residential loans held for sale from discontinued operations as of September 30, 2024 and $56 at an average yield of 2.02% as of September 30, 2023.
(3) Net interest margin represents net interest income divided by average total interest-earning assets.

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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.

(Dollars in thousands) | Rate |  | Volume |  | Total
Three Months Ended September 30, 2024 vs. September 30, 2023: |  |  |  |  |
Interest-earning assets: |  |  |  |  |
Investment securities | $ | (34) |  |  | $ | (24) |  |  | $ | (58) |
Loans, excluding PPP | 729 |  |  | 3,716 |  |  | 4,445 |
PPP loans | — |  |  | (35) |  |  | (35) |
Other interest-earning assets | (47) |  |  | (483) |  |  | (530) |
Total interest-earning assets | 648 |  |  | 3,174 |  |  | 3,822 |
Interest-bearing liabilities: |  |  |  |  |
NOW, MMDA and savings | 538 |  |  | 495 |  |  | 1,033 |
Time deposits | 568 |  |  | 953 |  |  | 1,521 |
Other borrowings | 62 |  |  | 150 |  |  | 212 |
Total interest-bearing liabilities | 1,168 |  |  | 1,598 |  |  | 2,766 |
Net change in net interest income | $ | (520) |  |  | $ | 1,576 |  |  | $ | 1,056 |

(Dollars in thousands) | Rate |  | Volume |  | Total
Nine Months Ended September 30, 2024 vs. September 30, 2023: |  |  |  |  |
Interest-earning assets: |  |  |  |  |
Investment securities | $ | (36) |  |  | $ | (85) |  |  | $ | (121) |
Loans, excluding PPP(1) | 2,212 |  |  | 10,506 |  |  | 12,718 |
PPP loans | 3 |  |  | (113) |  |  | (110) |
Other interest-earning assets | 13 |  |  | (1,108) |  |  | (1,095) |
Total interest-earning assets | 2,192 |  |  | 9,200 |  |  | 11,392 |
Interest-bearing liabilities: |  |  |  |  |
NOW, MMDA, and savings | 4,439 |  |  | 849 |  |  | 5,288 |
Time deposits | 2,464 |  |  | 3,444 |  |  | 5,908 |
Other borrowings | 220 |  |  | 158 |  |  | 378 |
Total interest-bearing liabilities | 7,123 |  |  | 4,451 |  |  | 11,574 |
Net change in net interest income | $ | (4,931) |  |  | $ | 4,749 |  |  | $ | (182) |
(1) Includes no interest income on residential loans held for sale from discontinued operations as of September 30, 2024 and $1 as of September 30, 2023.

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 September 30, 2024 of $3.1 million primarily due to net charge-offs and net loan growth. This compared to a provision of $3.0 million for the three
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months ended September 30, 2023. During the three months ended September 30, 2024, $2.8 million of net charge offs in loans were recorded compared to $2.2 million during the three months ended September 30, 2023.
T he Company recorded a provision for credit losses for the nine months ended September 30, 2024 of $10.2 million compared to a $7.7 million provision for the nine months ended September 30, 2023. The increase of $2.5 million in the provision for credit losses expense was primarily due to higher than expected charge-offs resulting in higher provision expense based on ACL model output. During the nine months ended September 30, 2024, net loan charge offs totaled $9.7 million compared to $6.4 million during the nine months ended September 30, 2023.
The Bank developed an express modification program for SBA 7(a) borrowers to help those borrowers who are challenged with larger payments in the higher interest rate environment compared to interest rates at the time the loans were originated. Through September 30, 2024, approximately 400 SBA 7(a) borrowers have been offered loan modification options. These efforts have helped and are expected to continue to help reduce net charge-offs.
The ACL was $14.2 million at September 30, 2024 and $13.4 million at September 30, 2023.
Noninterest Income
The following table presents noninterest income from continuing operations for the three and nine months ended September 30, 2024 and September 30, 2023.

| For the Three Months Ended September 30, |  | For the Nine Months Ended September 30,
(Dollars in thousands) | 2024 |  | 2023 |  | 2024 |  | 2023
Noninterest income: |  |  |  |  |  |  |
Loan servicing income, net | $ | 918 |  |  | $ | 760 |  |  | $ | 2,518 |  |  | $ | 2,149 |
Gain on sale of government guaranteed loans, net | 6,143 |  |  | 7,139 |  |  | 19,827 |  |  | 17,576 |
Service charges and fees | 447 |  |  | 408 |  |  | 1,343 |  |  | 1,166 |
Government guaranteed loan fair value gain | 3,416 |  |  | 4,543 |  |  | 9,923 |  |  | 11,021 |
Government guaranteed loan packaging fees | 903 |  |  | 1,158 |  |  | 3,332 |  |  | 2,076 |
Other noninterest income | 445 |  |  | 671 |  |  | 1,250 |  |  | 1,076 |
Total noninterest income | $ | 12,272 |  |  | $ | 14,679 |  |  | $ | 38,193 |  |  | $ | 35,064 |

Noninterest income from continuing operations was $12.3 million during the three months ended September 30, 2024, a decrease from $14.7 million during the three months ended September 30, 2023. The decrease was primarily due to decreases in gain on sale of government guaranteed loans of $1.0 million, fair value gains on government guaranteed loans of $1.1 million, government guaranteed loan packaging fees of $0.3 million, and other noninterest income of $0.2 million.
Noninterest income from continuing operations was $38.2 million for the nine months ended September 30, 2024, an increase from $35.1 million for the nine months ended September 30, 2023. The increase was primarily the result of increases in gain on sale of government guaranteed loans of $2.3 million and government guaranteed loan packaging fees of $1.3 million, partially offset by a decrease in fair value gains on government guaranteed loans of $1.1 million. As of September 30, 2024, the Company had $86.4 million of loans held at fair value compared to $84.2 million at September 30, 2023.
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Noninterest Expense
The following table presents noninterest expense from continuing operations for the three and nine months ended September 30, 2024 and September 30, 2023.

| For the Three Months Ended September 30, |  | For the Nine Months Ended September 30,
(Dollars in thousands) | 2024 |  | 2023 |  | 2024 |  | 2023
Noninterest expense: |  |  |  |  |  |  |
Salaries and benefits | $ | 7,878 |  |  | $ | 7,912 |  |  | $ | 23,712 |  |  | $ | 23,527 |
Bonus, commissions, and incentives | 1,141 |  |  | 1,406 |  |  | 3,371 |  |  | 3,515 |
Occupancy and equipment | 1,248 |  |  | 1,262 |  |  | 3,631 |  |  | 3,608 |
Data processing | 1,789 |  |  | 1,526 |  |  | 4,996 |  |  | 4,189 |
Marketing and business development | 532 |  |  | 929 |  |  | 1,660 |  |  | 2,696 |
Professional services | 853 |  |  | 816 |  |  | 3,079 |  |  | 2,587 |
Loan origination and collection | 1,956 |  |  | 1,981 |  |  | 5,633 |  |  | 4,697 |
Employee recruiting and development | 595 |  |  | 543 |  |  | 1,741 |  |  | 1,667 |
Regulatory assessments | 309 |  |  | 284 |  |  | 870 |  |  | 615 |
Director compensation | 143 |  |  | 147 |  |  | 427 |  |  | 438 |
Liability and fidelity bond insurance | 143 |  |  | 148 |  |  | 431 |  |  | 403 |
ATM and interchange | 150 |  |  | 154 |  |  | 432 |  |  | 359 |
Telecommunication | 127 |  |  | 90 |  |  | 354 |  |  | 275 |
Other noninterest expense | 200 |  |  | 229 |  |  | 1,110 |  |  | 665 |
Total noninterest expense | $ | 17,064 |  |  | $ | 17,427 |  |  | $ | 51,447 |  |  | $ | 49,241 |

Noninterest expense from continuing operations was $17.1 million durin g the three months ended September 30, 2024, a decrease from $17.4 million during the three months ended September 30, 2023. The decrease in the third quarter of 2024, as compared to the third quarter of 2023, was primarily due to lower compensation expense of $0.3 million and lower marketing and business development expenses of $0.4 million, partially offset by higher data processing expenses of $0.3 million.
Noninterest expense was $51.4 million during the nine months ended September 30, 2024, an increase from $49.2 million for the nine months ended September 30, 2023. The increase was the result of increases in data processing expense of $0.8 million, loan origination and collection expense of $0.9 million, professional services expenses of $0.5 million, and other noninterest expenses of $0.6 million. The increases were partially offset by a decrease in marketing and business development expenses of $1.0 million.
Income Taxes
Income tax expense from continuing operations was $398 thousand for the three months ended September 30, 2024, a decrease from income tax expense of $674 thousand for the three months ended September 30, 2023. There was no income tax expense from discontinued operations for the three months ended September 30, 2024, compared to income tax benefit of $15 thousand for the three months ended September 30, 2023.
Income tax expense from continuing operations was $1.0 million for the nine months ended September 30, 2024, a decrease from income tax expense of $1.4 million for the nine months ended September 30, 2023. The decrease was primarily due to the decrease in pre-tax earnings from continuing operations. Income tax benefit from discontinued operations was $23 thousand for the nine months ended September 30, 2024, from income tax benefit of $68 thousand for the nine months ended September 30, 2023.
At September 30, 2024, the Company had $1.4 million of federal net operating loss carryforward and $0.3 million of state net operating loss carryforward. The net operating loss carryforwards do not expire. At September 30, 2023, the Company had $2.7 million of federal net operating loss carryforward and $0.4 million of state net operating loss carryforward.
The effective income tax rate was 26.51% for the nine months ended September 30, 2024 and 24.97% for the nine months ended September 30, 2023.
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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 September 30, 2024 and December 31, 2023.

(Dollars in thousands) | September 30, 2024 |  | December 31, 2023
Investment securities available for sale: |  |  |
Asset-backed securities | $ | 5,327 |  |  | $ | 7,933 |
Mortgage-backed securities: |  |  |
U.S. Government-sponsored enterprises | 7,478 |  |  | 3,236 |
Collateralized mortgage obligations: |  |  |
U.S. Government-sponsored enterprises | 16,287 |  |  | 17,098 |
Corporate bonds | 8,892 |  |  | 11,308 |
Total investment securities available for sale | $ | 37,984 |  |  | $ | 39,575 |

The net unrealized loss on the investment securities AFS at September 30, 2024, was $3.1 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 September 30, 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 September 30, 2024 and December 31, 2023.

(Dollars in thousands) | September 30, 2024 |  | December 31, 2023
Investment securities held to maturity: |  |  |
Mortgage-backed securities: |  |  |
U.S. Government-sponsored enterprises | $ | — |  |  | $ | 1 |
Corporate bonds | 2,500 |  |  | 2,500 |
Total investment securities held to maturity | $ | 2,500 |  |  | $ | 2,501 |

There was a $13 thousand ACL on the corporate bonds HTM as of September 30, 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 September 30, 2024, was $179 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 September 30, 2024 or December 31, 2023, and there were no sales of investment securities during the three or nine months ended September 30, 2024 or three or nine months ended September 30, 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 September 30, 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.

| September 30, 2024
| One year or less |  | One to five years |  | Five to ten years |  | After ten years
(Dollars in thousands) | Amortized Cost |  | Average Yield |  | Amortized Cost |  | Average Yield |  | Amortized Cost |  | Average Yield |  | Amortized Cost |  | Average Yield
Asset-backed securities | $ | — |  |  | — | % |  | $ | — |  |  | — | % |  | $ | 2,051 |  |  | 5.31 | % |  | $ | 3,327 |  |  | 6.34 | %
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government-sponsored enterprises | — |  |  | — |  |  | — |  |  | — |  |  | 4,461 |  |  | 4.63 |  |  | 3,394 |  |  | 1.25 |
Collateralized mortgage obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government-sponsored enterprises | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 19,039 |  |  | 1.80 |
Corporate bonds | — |  |  | — |  |  | 8,832 |  |  | 5.96 |  |  | — |  |  | — |  |  | — |  |  | — |
Total investment securities available for sale | $ | — |  |  | — | % |  | $ | 8,832 |  |  | 5.96 | % |  | $ | 6,512 |  |  | 4.84 | % |  | $ | 25,760 |  |  | 2.31 | %

| December 31, 2023
| One year or less |  | One to five years |  | Five to ten years |  | After ten years
(Dollars in thousands) | Amortized Cost |  | Average Yield |  | Amortized Cost |  | Average Yield |  | Amortized Cost |  | Average Yield |  | Amortized 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 September 30, 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.

| September 30, 2024
| One year or less |  | One to five years |  | Five to ten years |  | After ten years
(Dollars in thousands) | Amortized Cost |  | Average Yield |  | Amortized Cost |  | Average Yield |  | Amortized Cost |  | Average Yield |  | Amortized Cost |  | Average Yield
Corporate bonds | $ | — |  |  | — | % |  | $ | 1,500 |  |  | 4.38 | % |  | $ | 1,000 |  |  | 4.38 | % |  | $ | — |  |  | — | %
Total investment securities held to maturity | $ | — |  |  | — | % |  | $ | 1,500 |  |  | 4.38 | % |  | $ | 1,000 |  |  | 4.38 | % |  | $ | — |  |  | — | %

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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 Cost |  | Average Yield |  | Amortized Cost |  | Average Yield |  | Amortized Cost |  | Average Yield |  | Amortized 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, 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 l oan 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.

| September 30, 2024 |  | December 31, 2023
(Dollars in thousands) | Amount |  | % of Total |  | Amount |  | % of Total
Government guaranteed loans, held for sale | $ | 595 |  |  |  |  | $ | — |  |  |
Loans HFI: |  |  |  |  |  |  |
Government guaranteed loans HFI, at fair value | $ | 86,441 |  |  |  |  | $ | 91,508 |  |  |
Loans HFI, at amortized cost: |  |  |  |  |  |  |
Residential real estate | 321,740 |  |  | 34.1 | % |  | 264,126 |  |  | 32.5 | %
Commercial real estate | 292,026 |  |  | 31.0 |  |  | 293,595 |  |  | 36.2 |
Construction and land | 33,784 |  |  | 3.6 |  |  | 26,272 |  |  | 3.2 |
Commercial and industrial | 200,212 |  |  | 21.3 |  |  | 177,566 |  |  | 21.9 |
Commercial and industrial – PPP | 1,656 |  |  | 0.2 |  |  | 3,202 |  |  | 0.4 |
Consumer and other | 92,546 |  |  | 9.8 |  |  | 47,287 |  |  | 5.8 |
Loans HFI, at amortized cost, gross | 941,964 |  |  | 100.0 | % |  | 812,048 |  |  | 100.0 | %
Discount on government guaranteed loans sold | (7,880) |  |  |  |  | (7,040) |  |  |
Premium on loans purchased, net | 3,860 |  |  |  |  | 4,503 |  |  |
Deferred loan costs, net | 18,060 |  |  |  |  | 14,707 |  |  |
Allowance for credit losses | (14,186) |  |  |  |  | (13,497) |  |  |
Loans HFI, at amortized cost, net | 941,818 |  |  |  |  | 810,721 |  |  |
Total loans HFI, net | $ | 1,028,259 |  |  |  |  | $ | 902,229 |  |  |

During the nine months ended September 30, 2024, the Bank originated approximately $218.8 million in loans through conventional lending channels and $323.6 million in loans through its government guaranteed lending function. In addition, the Bank sold guaranteed loan balances of $290.8 million.
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Loan Maturity/Rate Sensitivity
The following table shows the contractual maturities of our loans at September 30, 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 or Less |  | Due After One Year to Five Years |  | Due After Five Years to 15 Years |  | Due After 15 Years |  | Total
Real estate: |  |  |  |  |  |  |  |  |
Residential | $ | 2,046 |  |  | $ | 823 |  |  | $ | 14,919 |  |  | $ | 304,534 |  |  | $ | 322,322 |
Commercial | 6,393 |  |  | 988 |  |  | 53,154 |  |  | 253,979 |  |  | 314,514 |
Construction and land | 8,783 |  |  | 2,208 |  |  | 7,278 |  |  | 15,516 |  |  | 33,785 |
Commercial and industrial | 8,456 |  |  | 39,908 |  |  | 215,129 |  |  | 11,345 |  |  | 274,838 |
Commercial and industrial - PPP | 1,523 |  |  | 133 |  |  | — |  |  | — |  |  | 1,656 |
Consumer and other | 2,781 |  |  | 25,695 |  |  | 24,776 |  |  | 42,078 |  |  | 95,330 |
Total loans HFI | $ | 29,982 |  |  | $ | 69,755 |  |  | $ | 315,256 |  |  | $ | 627,452 |  |  | $ | 1,042,445 |

The following table shows the loans with contractual maturities of greater than one year that have fixed or adjustable interest rates at September 30, 2024.

(Dollars in thousands) | Fixed Interest Rate |  | Adjustable Interest Rate
Real estate: |  |  |
Residential | $ | 74,081 |  |  | $ | 246,195 |
Commercial | 4,378 |  |  | 303,743 |
Construction and land | — |  |  | 25,002 |
Commercial and industrial | 14,228 |  |  | 252,154 |
Commercial and industrial - PPP | 133 |  |  | — |
Consumer and other | 80,092 |  |  | 12,457 |
Total loans HFI | $ | 172,912 |  |  | $ | 839,551 |

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 1.73% 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, t he Company uses reasonable and supportable forecasts that are developed with internal and external data. These
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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 September 30, 2024, the Company had $12.5 million in nonperforming assets, excluding government guaranteed loan balances, and the ACL represented 1.48% of total loans HFI at amortized cost. At September 30, 2023, the Company had $8.4 million in nonperforming assets, excluding government guaranteed loan balances, and their ACL represented 1.68% of total loans HFI at amortized cost. Total loans HFI at September 30, 2024 and September 30, 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 1.70% at September 30, 2024, compared to 2.03% at September 30, 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) | September 30, 2024 |  | September 30, 2023 |  | December 31, 2023
Nonperforming loans (government guaranteed balances), at amortized cost, gross | $ | 4,497 |  |  | $ | 1,521 |  |  | $ | 1,424 |
Nonperforming loans (unguaranteed balances), at amortized cost, gross | 10,992 |  |  | 7,997 |  |  | 8,264 |
Total nonperforming loans, at amortized cost, gross | 15,489 |  |  | 9,518 |  |  | 9,688 |
Nonperforming loans (government guaranteed balances), at fair value | 24 |  |  | 96 |  |  | — |
Nonperforming loans (unguaranteed balances), at fair value | 1,535 |  |  | 363 |  |  | 648 |
Total nonperforming loans, at fair value | 1,559 |  |  | 459 |  |  | 648 |
Repossessed assets | 94 |  |  | — |  |  | — |
Total nonperforming assets, gross | $ | 17,142 |  |  | $ | 9,977 |  |  | $ | 10,336 |
Nonperforming loans as a percentage of total loans HFI(1) | 1.62 | % |  | 1.20 | % |  | 1.18 | %
Nonperforming loans (excluding government guaranteed balances) to total loans HFI(1) | 1.15 | % |  | 1.01 | % |  | 1.00 | %
Nonperforming assets as a percentage of total assets | 1.38 | % |  | 0.88 | % |  | 0.92 | %
Nonperforming assets (excluding government guaranteed balances) to total assets | 0.88 | % |  | 0.71 | % |  | 0.74 | %
ACL to nonperforming loans(1) | 91.59 | % |  | 128.60 | % |  | 139.32 | %
ACL to nonperforming loans (excluding government guaranteed balances)(1) | 129.06 | % |  | 152.29 | % |  | 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 September 30, |  | At and for the Nine Months Ended September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Allowance at beginning of period | $ | 13,843 |  |  | $ | 12,598 |  |  | $ | 13,497 |  |  | $ | 9,046 |
Impact of adopting ASC 326 | — |  |  | — |  |  | — |  |  | 3,107 |
Charge-offs: |  |  |  |  |  |  |
Residential real estate | (20) |  |  | — |  |  | (20) |  |  | — |
Commercial real estate | — |  |  | (108) |  |  | (60) |  |  | (108) |
Commercial and industrial | (2,375) |  |  | (1,542) |  |  | (7,898) |  |  | (4,660) |
Consumer and other | (550) |  |  | (875) |  |  | (2,299) |  |  | (2,214) |
Total charge-offs | (2,945) |  |  | (2,525) |  |  | (10,277) |  |  | (6,982) |
Recoveries: |  |  |  |  |  |  |
Commercial real estate | 2 |  |  | 75 |  |  | 6 |  |  | 77 |
Commercial and industrial | 111 |  |  | 114 |  |  | 352 |  |  | 303 |
Consumer and other | 75 |  |  | 93 |  |  | 249 |  |  | 219 |
Total recoveries | 188 |  |  | 290 |  |  | 607 |  |  | 607 |
Net charge-offs | (2,757) |  |  | (2,235) |  |  | (9,670) |  |  | (6,375) |
Provision for credit losses on loans | 3,100 |  |  | 3,002 |  |  | 10,359 |  |  | 7,587 |
Allowance at end of period | $ | 14,186 |  |  | $ | 13,365 |  |  | $ | 14,186 |  |  | $ | 13,365 |
Net charge-offs to average loans HFI at amortized cost | 1.16 | % |  | 1.13 | % |  | 1.43 | % |  | 1.11 | %
Allowance as a percent of total loans HFI at amortized cost | 1.48 | % |  | 1.68 | % |  | 1.48 | % |  | 1.68 | %
Allowance as a percent of loans HFI at amortized cost, not including government guaranteed loans | 1.70 | % |  | 2.03 | % |  | 1.70 | % |  | 2.03 | %
Allowance as a percent of nonperforming loans at amortized cost, gross | 91.59 | % |  | 140.42 | % |  | 91.59 | % |  | 140.42 | %
Total loans HFI | $ | 1,042,445 |  |  | $ | 878,447 |  |  | $ | 1,042,445 |  |  | $ | 878,447 |
Average loans HFI at amortized cost | $ | 948,528 |  |  | $ | 789,167 |  |  | $ | 900,961 |  |  | $ | 764,038 |
Nonperforming loans (including government guaranteed balances) at amortized cost, gross | $ | 15,489 |  |  | $ | 9,518 |  |  | $ | 15,489 |  |  | $ | 9,518 |
Nonperforming loans (excluding government guaranteed balances) at amortized cost, gross | $ | 10,992 |  |  | $ | 7,997 |  |  | $ | 10,992 |  |  | $ | 7,997 |
Guaranteed balance of government guaranteed loans | $ | 157,001 |  |  | $ | 191,306 |  |  | $ | 157,001 |  |  | $ | 191,306 |

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The following table details net charge-offs to average loans outstanding by loan category for the three months ended September 30, 2024 and September 30, 2023.

| Three Months Ended September 30, 2024 |  | Three Months Ended September 30, 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 | $ | (20) |  |  | $ | 301,296 |  |  | (0.03) | % |  | $ | 8 |  |  | $ | 228,539 |  |  | 0.01 | %
Commercial real estate | 2 |  |  | 350,518 |  |  | — |  |  | (33) |  |  | 306,299 |  |  | (0.04) |
Commercial and industrial | (2,264) |  |  | 202,850 |  |  | (4.46) |  |  | (1,428) |  |  | 199,677 |  |  | (2.86) |
Commercial and industrial - PPP | — |  |  | 1,917 |  |  | — |  |  | — |  |  | 15,418 |  |  | — |
Consumer and other | (475) |  |  | 91,954 |  |  | (2.07) |  |  | (782) |  |  | 39,234 |  |  | (7.97) |
Total loans HFI at amortized cost | $ | (2,757) |  |  | $ | 948,535 |  |  | (1.16) | % |  | $ | (2,235) |  |  | $ | 789,167 |  |  | (1.13) | %

The following table details net charge-offs to average loans outstanding by loan category for the nine months ended September 30, 2024 and September 30, 2023.

| Nine Months Ended September 30, 2024 |  | Nine Months Ended September 30, 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 | $ | (20) |  |  | $ | 282,908 |  |  | (0.01) | % |  | $ | 8 |  |  | $ | 209,934 |  |  | 0.01 | %
Commercial real estate | (54) |  |  | 340,933 |  |  | (0.02) |  |  | (31) |  |  | 282,470 |  |  | (0.01) |
Commercial and industrial | (7,546) |  |  | 200,378 |  |  | (5.02) |  |  | (4,357) |  |  | 217,253 |  |  | (2.67) |
Commercial and industrial - PPP | — |  |  | 2,602 |  |  | — |  |  | — |  |  | 17,337 |  |  | — |
Consumer and other | (2,050) |  |  | 74,183 |  |  | (3.68) |  |  | (1,995) |  |  | 37,044 |  |  | (7.18) |
Total loans HFI, at amortized cost | $ | (9,670) |  |  | $ | 901,004 |  |  | (1.43) | % |  | $ | (6,375) |  |  | $ | 764,038 |  |  | (1.11) | %

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 Nine Months Ended September 30, |  |
Government Guaranteed, Excluding PPP |  | 2024 |  | 2023 |  |
Number of loans originated |  | 1,965 |  | 1,968 |  |
Amount of loans originated |  | $ | 323,591 |  |  | $ | 402,528 |  |  |
Average loan size originated |  | $ | 165 |  |  | $ | 205 |  |  |
Government guaranteed loan balances sold |  | $ | 290,820 |  |  | $ | 316,333 |  |  |
Government unguaranteed loan balances sold |  | $ | — |  |  | $ | 10,937 |  |  |
Total government guaranteed loan balances: |  |  |  |  |  |
Guaranteed portion of government guaranteed loan balances |  | $ | 155,345 |  |  | $ | 176,062 |  |  |
Unguaranteed portion of government guaranteed loan balances |  | $ | 239,810 |  |  | $ | 197,657 |  |  |
Total government guaranteed loans |  | $ | 395,155 |  |  | $ | 373,719 |  |  |
Government guaranteed loans serviced for others |  | $ | 1,009,797 |  |  | $ | 825,723 |  |  |

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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.

| September 30, |  |
| 2024 |  | 2023 |  |
(Dollars in thousands) | Amount |  | % of Total |  | Amount |  | % of Total |  |  |  |
Florida | $ | 121,223 |  |  | 31 | % |  | $ | 131,928 |  |  | 35 | % |  |  |  |
California | 47,653 |  |  | 12 |  |  | 45,121 |  |  | 12 |  |  |  |  |
Tennessee | 28,622 |  |  | 7 |  |  | 28,395 |  |  | 8 |  |  |  |  |
Texas | 31,253 |  |  | 8 |  |  | 23,710 |  |  | 6 |  |  |  |  |
All Other | 166,404 |  |  | 42 |  |  | 144,565 |  |  | 39 |  |  |  |  |
Total government guaranteed loans, excluding PPP loans | $ | 395,155 |  |  | 100 | % |  | $ | 373,719 |  |  | 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.
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 September 30, 2024 and December 31, 2023, the Company had $76.9 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) | September 30, 2024 |  | December 31, 2023
Noninterest-bearing deposits | $ | 95,995 |  |  | 8.6 | % |  | $ | 93,708 |  |  | 9.5 | %
Interest-bearing transaction accounts | 247,923 |  |  | 22.3 |  |  | 259,422 |  |  | 26.3 |
Money market accounts | 438,193 |  |  | 39.4 |  |  | 355,946 |  |  | 36.2 |
Savings | 17,104 |  |  | 1.5 |  |  | 17,054 |  |  | 1.7 |
Subtotal | 799,215 |  |  | 71.8 |  |  | 726,130 |  |  | 73.7 |
Total time deposits | 312,981 |  |  | 28.2 |  |  | 259,008 |  |  | 26.3 |
Total deposits | $ | 1,112,196 |  |  | 100.0 | % |  | $ | 985,138 |  |  | 100.0 | %

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At September 30, 2024, the Company held approximately $241.5 million of deposits that exceeded the FDIC insurance limit which was 22% 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 September 30, 2024.

(Dollars in thousands) |
Three months or less | $ | 35,555 |
Over three months through six months | 8,081 |
Over six months through 12 months | 78,985 |
Over 12 months | 52,393 |
Total time deposits over $250 | $ | 175,014 |

Deposits increased $127.1 million or 12.90% during the nine months ended September 30, 2024, with growth in all categories of deposits.
Other Borrowings
At September 30, 2024, the Company had $10.0 million of borrowings at 5.07% 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 be ar interest at variable rates set by the FHLB. Any a dvances that the bank were to obtain would be secured by a blanket lien on $331.9 million of real estate-related loans as of September 30, 2024. Based on this collateral and the Company's holdings of FHLB stock, the Company was eligible to borrow up to $170.7 million from the FHLB at September 30, 2024.
In addition, the Bank has a line of credit with the Federal Reserve Bank of Atlanta which was secured by $60.8 million of commercial loans as of September 30, 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 $43.0 million from the FRB at September 30, 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 September 30, 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 September 30, 2024). The note matures on March 10, 2029 and the balance of the note was $2.0 million and $2.4 million at September 30, 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 September 30, 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 was $102.3 million at September 30, 2024 as compared to $100.7 million at December 31, 2023. The increase was primarily due to net income of $2.8 million and a decrease in other comprehensive loss of $0.7 million, partially offset by common stock dividends of $1.0 million and preferred stock dividends of $1.2 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
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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 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.
At September 30, 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:

| Actual |  | Minimum(1) |  | Well Capitalized(2)
(Dollars in thousands) | Amount |  | Percent |  | Amount |  | Percent |  | Amount |  | Percent
As of September 30, 2024 |  |  |  |  |  |  |  |  |  |  |
Total Capital (to risk-weighted assets) | $ | 115,123 |  |  | 11.39 | % |  | $ | 80,848 |  |  | 8.00 | % |  | $ | 101,059 |  |  | 10.00 | %
Tier 1 Capital (to risk-weighted assets) | 102,479 |  |  | 10.14 |  |  | 60,636 |  |  | 6.00 |  |  | 80,848 |  |  | 8.00 |
Common Equity Tier 1 Capital (to risk-weighted assets) | 102,479 |  |  | 10.14 |  |  | 45,477 |  |  | 4.50 |  |  | 65,689 |  |  | 6.50 |
Tier 1 Capital (to total assets) | 102,479 |  |  | 8.41 |  |  | 48,768 |  |  | 4.00 |  |  | 60,960 |  |  | 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) | September 30, 2024 |  | December 31, 2023
Unfunded loan commitments | $ | 79,412 |  |  | $ | 7,392 |
Unused lines of credit | 200,109 |  |  | 178,440 |
Standby letters of credit | 211 |  |  | 186 |
Total | $ | 279,732 |  |  | $ | 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
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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 utilization rates to calculate the ACL for off-balance sheet loan commitments. At September 30, 2024 and December 31, 2023, ACL for off-balance sheet loan commitments totaled $664 thousand and $839 thousand, respectively.
Contractual Obligations
In the ordinary course of its operations, the Company enters into certain contractual obligations. Total contractual obligations at September 30, 2024 were $333.3 million, an increase from $280.7 million at December 31, 2023. The increase was primarily due to an increase in time deposits of $54.0 million.
The following tables present our contractual obligations as of September 30, 2024 and December 31, 2023.

| Contractual Obligations as of September 30, 2024
(Dollars in thousands) | Less than One Year |  | One to Three Years |  | Three to Five Years |  | Over Five Years |  | Total
Operating lease obligations | $ | 833 |  |  | $ | 1,517 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,350 |
Short-term borrowings | 10,000 |  |  | — |  |  | — |  |  | — |  |  | 10,000 |
Long-term borrowings | 456 |  |  | 912 |  |  | 680 |  |  | — |  |  | 2,048 |
Subordinated notes | — |  |  | — |  |  | — |  |  | 5,954 |  |  | 5,954 |
Time deposits | 241,397 |  |  | 69,388 |  |  | 2,196 |  |  | — |  |  | 312,981 |
Total | $ | 252,686 |  |  | $ | 71,817 |  |  | $ | 2,876 |  |  | $ | 5,954 |  |  | $ | 333,333 |
| 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 September 30, 2024 was 8.62%, as compared to 9.33% at December 31, 2023.
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For the first nine months of 2024, the Bank paid dividends of $2.80 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 September 30, 2024, BayFirst Financial Corp. held $489 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 or FRB, or 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 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 lending 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 change 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.
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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 and investment portfolios, 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.
The estimated impact on the net interest income as of September 30, 2024 and December 31, 2023, assuming immediate parallel moves in interest rates, is presented in the table below.

| September 30, 2024 |  | December 31, 2023
Change in rates | Following 12 months |  | Following 24 months |  | Following 12 months |  | Following 24 months
+400 basis points | 10.0 | % |  | 8.9 | % |  | 14.7 | % |  | 12.8 | %
+300 basis points | 9.8 |  |  | 9.7 |  |  | 12.7 |  |  | 12.1 |
+200 basis points | 6.0 |  |  | 6.1 |  |  | 7.6 |  |  | 7.4 |
+100 basis points | 1.9 |  |  | 2.4 |  |  | 2.5 |  |  | 2.6 |
-100 basis points | (3.9) |  |  | (4.3) |  |  | (4.5) |  |  | (4.5) |
-200 basis points | (8.1) |  |  | (9.0) |  |  | (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 September 30, 2024 and December 31, 2023, assuming immediate parallel shifts in interest rates.

Change in rates | September 30, 2024 | December 31, 2023
+400 basis points | (6.6) | % |  | (6.3) | %
+300 basis points | (3.1) |  |  | (4.1) |
+200 basis points | (2.2) |  |  | (3.3) |
+100 basis points | (1.9) |  |  | (2.7) |
-100 basis points | (1.1) |  |  | 0.2 |
-200 basis points | (2.7) |  |  | (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 September 30, 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 September 30, 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
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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.
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Part II
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. 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.
The development and use of artificial intelligence by us or others, or our inability to effectively and timely implement its use, may adversely affect the Company.
The use of artificial intelligence in the banking industry is developing and growing. Customer demand may cause us and others to offer products or services incorporating artificial intelligence. As with many developing technologies, artificial intelligence presents risks and challenges that could affect its further development, adoption, and use, and therefore our business. Our future success will depend, in part, upon our ability to invest in and use appropriate technology, which may include artificial intelligence. To effectively make such investments, we may need to expend significant financial, human, and other resources. However, we may not be able to implement artificial intelligence in an effective or timely way, thus adversely impacting our operations. This may also adversely impact our ability to compete with financial institutions which have greater resources to invest in such technological improvements. Ultimately, any artificial intelligence we develop or use may be flawed. If our use of artificial intelligence, or its use by third parties with which we do business or otherwise interact, is deficient, biased, or inaccurate, or compromises customer privacy or implicates other ethics issues, we could be subject to competitive harm, potential legal liability, and brand or reputational harm.
Item 2. 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.
It em 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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ITEM 6. EXHIBITS
(a)Exhibits.

Exhibit 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 September 30, 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: | November 13, 2024 |
By: | /s/ Thomas G. Zernick |
| Thomas G. Zernick |
| Chief Executive Officer (Principal Executive Officer) |
Date: | November 13, 2024 |
By: | /s/ Scott J. McKim |
| Scott J. McKim |
| Chief Financial Officer (Principal Financial Officer) |

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