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What changed in BayFirst Financial Corp.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of BayFirst Financial Corp.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+305 added−305 removedSource: 10-K (2024-03-28) vs 10-K (2023-03-28)

Top changes in BayFirst Financial Corp.'s 2023 10-K

305 paragraphs added · 305 removed · 245 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

53 edited+3 added−6 removed146 unchanged
Biggest changeThe Bank’s centralized credit approval process and loan policies are designed to assist management in managing this risk. The policies provide a general framework for loan origination, monitoring, and funding. The Bank’s loan approval process is characterized by centralized authority supported by a risk control environment that provides for prompt and thorough underwriting of loans.
Biggest changeLending Philosophy and Credit Risk Management Historically, the Company believes they have made sound, high-quality loans while recognizing that lending involves a degree of risk. The Bank’s centralized credit approval process and loan policies are designed to assist management in managing this risk. The policies provide a general framework for loan origination, monitoring, and funding.
Portfolio loans are primarily underwritten by the Bank on the borrowers’ financial strength and cash flow, with conservative loan-to-value requirements. Consumer loans include loans to individuals for automobiles, boats, and other major consumer personal, family, or household purposes. They are underwritten on the credit quality of the individual borrower and may be secured or unsecured.
Portfolio loans are primarily underwritten by the Bank on the borrowers’ financial strength and cash flow, with conservative loan-to-value requirements. Consumer loans include loans to individuals for automobiles, boats, and other major personal, family, or household purposes. They are underwritten on the credit quality of the individual borrower and may be secured or unsecured.
In 7 Table of Contents addition, the tested capability of these vendors to automatically switch over to standby systems should allow the Bank to recover the systems and provide business continuity quickly in case of a disaster. Privacy, Data Protection and Cybersecurity The regulatory framework for data privacy and cybersecurity is rapidly evolving.
In addition, the tested capability of these vendors to automatically switch over to standby systems should allow the Bank to recover the systems and provide business continuity quickly in case of a disaster. 7 Table of Contents Privacy, Data Protection and Cybersecurity The regulatory framework for data privacy and cybersecurity is rapidly evolving.
To ensure employees understand the commitment of listening to feedback, each Bright Idea submission is reviewed by the CEO. The CEO also hosts a quarterly CEO’s Council where individuals from across the organization spend the day with the CEO and executive team, providing feedback and input on improvement opportunities.
To ensure employees understand the commitment of listening to feedback, each Bright Idea submission is reviewed by the CEO and executive team. The CEO also hosts a quarterly CEO’s council where individuals from across the organization spend the day with the CEO and executive team, providing feedback and input on improvement opportunities.
In addition, the loan policies provide guidelines for personal guarantees, appraisals and valuations, loan-to-value ratios, environmental review, loans to employees, executive officers and directors, problem loan identification, maintenance of an adequate loan loss reserve, and other matters relating to lending practices. The Community Banking Centers originate residential mortgage, consumer and commercial loans.
In addition, the loan policies provide guidelines for personal guarantees, appraisals and valuations, loan-to-value ratios, environmental review, loans to employees, executive officers and directors, problem loan identification, maintenance of an adequate credit loss reserve, and other matters relating to lending practices. The community banking centers originate residential mortgage, consumer and commercial loans.
Tier 2 Capital includes subordinated debt and preferred stock not included in Additional Tier 1 Capital, total capital minority interests not included in Tier 1, and ALLL not exceeding 1.25% percent of risk-weighted assets, less applicable regulatory adjustments and deductions. 12 Table of Contents Smaller banks are subject to the following capital level threshold requirements: Capital Category Threshold Ratios Total Risk-Based Capital Ratio Tier 1 Risk-Based Capital Ratio CET1 Risk-Based Capital Ratio Tier 1 Leverage Capital Ratio Well capitalized 10.00% 8% 6.5% 5% Adequately capitalized 8% 6% 4.5% 4% Undercapitalized Significantly undercapitalized Critically undercapitalized Tangible Equity/Total Assets ≤ 2% .
Tier 2 Capital includes subordinated debt and preferred stock not included in Additional Tier 1 Capital, total capital minority interests not included in Tier 1, and ACL not exceeding 1.25% percent of risk-weighted assets, less applicable regulatory adjustments and deductions. 12 Table of Contents Smaller banks are subject to the following capital level threshold requirements: Capital Category Threshold Ratios Total Risk-Based Capital Ratio Tier 1 Risk-Based Capital Ratio CET1 Risk-Based Capital Ratio Tier 1 Leverage Capital Ratio Well capitalized 10.00% 8% 6.5% 5% Adequately capitalized 8% 6% 4.5% 4% Undercapitalized Significantly undercapitalized Critically undercapitalized Tangible Equity/Total Assets ≤ 2% .
The consumer product offering also includes unique programs, including, among others: 1) the NuStart checking that assists customers in rebuilding their access to the banking system, 2) the TrendSetters Club which offers special benefits for those customers age 50+ years, and 3) the Cash Kids’ Club savings account that offers those age 12 and under special rates while teaching children basic financial skills through interactive and mobile application tools.
The consumer product offering also includes unique programs, including, among others: 1) the Essential checking that assists customers in rebuilding their access to the banking system, 2) the TrendSetters Club which offers special benefits for those customers age 50+ years, and 3) the Cash Kids’ Club savings account that offers those age 12 and under special rates while teaching children basic financial skills through interactive and mobile application tools.
Future legislation regarding financial institutions may change banking statutes and the 16 operating environment of the Company in substantial and unpredictable ways, and could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance depending upon whether any of this potential legislation will be enacted, and if enacted, the effect that it or any implementing regulations, would have on the financial condition or results of operations of the Company.
Future legislation regarding financial institutions may change banking statutes and the 16 Table of Contents operating environment of the Company in substantial and unpredictable ways, and could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance depending upon whether any of this potential legislation will be enacted, and if enacted, the effect that it or any implementing regulations, would have on the financial condition or results of operations of the Company.
Total Rewards The Bank’s industry-leading compensation and benefits package helps attract and retain top talent throughout the U.S. and demonstrates its belief that engaged and satisfied employees directly correlate to engaged and satisfied customers, generating long-term value for the Company’s stakeholders. The Bank’s goal is to provide the most competitive compensation and benefit plans possible.
Total Rewards The Bank’s competitive compensation and benefits package helps attract and retain top talent throughout the U.S. and demonstrates its belief that engaged and satisfied employees directly correlate to engaged and satisfied customers, generating long-term value for the Company’s stakeholders. The Bank’s goal is to provide the most competitive compensation and benefit plans possible.
One is its team of SBA lenders, known as the Core SBA Team. The other is for smaller loans that are processed through financial technology platforms, collectively known and branded as FlashCap. CreditBench’s Core SBA Team makes government guaranteed loans throughout the U.S., with a particular emphasis on business acquisition financing.
One is its team of government guaranteed lenders, known as the Core Government Guaranteed Loan Team. The other is for smaller loans that are processed through financial technology platforms, collectively known and branded as FlashCap. CreditBench’s Core Government Guaranteed Loan Team makes government guaranteed loans throughout the U.S., with a particular emphasis on business acquisition financing.
These competitors include: • larger national, super-regional, and regional financial institutions that have well-established branches and significant market share in the communities the Bank serves; • non-bank SBA lenders; • finance companies, investment banking and brokerage firms, and insurance companies that offer bank-like products; • credit unions, which can offer highly competitive rates on loans and deposits because they receive tax advantages not available to commercial banks; • other community banks that compete with the Bank for clients desiring a high level of service; and • technology-based financial institutions, including large national, super-regional, and regional banks offering online deposit, bill payment and mortgage loan application services.
These competitors include: • national, super-regional, and regional financial institutions that have well-established branches and significant market share in the communities the Bank serves; • non-bank government guaranteed lenders; • finance companies, investment banking and brokerage firms, and insurance companies that offer bank-like products; • credit unions, which can offer highly competitive rates on loans and deposits because they receive tax advantages not available to commercial banks; • other community banks that compete with the Bank for clients desiring a high level of service; and • technology-based financial institutions, including large national, super-regional, and regional banks offering online deposit, bill payment and mortgage loan application services.
Late in the second quarter of 2022, the Company launched BOLT, an SBA 7(a) loan product designed to expeditiously provide working capital loans of $150 thousand or less to businesses throughout the country. CreditBench also originates USDA B&I loans for businesses located in qualifying areas.
During the second quarter of 2022, the Company launched Bolt, an SBA 7(a) loan product designed to expeditiously provide working capital loans of $150 thousand or less to businesses throughout the country. CreditBench also originates USDA B&I loans for businesses located in qualifying areas.
Generally, Sections 23A and 23B: (1) limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of that bank’s capital stock and surplus (i.e., tangible capital); and (2) require that all such transactions be on terms substantially the same, or at least as favorable to the bank or subsidiary, as those provided to a non-affiliate.
Generally, Sections 23A and 23B: (1) limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one 11 Table of Contents affiliate to an amount equal to 10% of that bank’s capital stock and surplus (i.e., tangible capital); and (2) require that all such transactions be on terms substantially the same, or at least as favorable to the bank or subsidiary, as those provided to a non-affiliate.
CreditBench also has an advanced technology platform for our SBA 7(a) Small Loan Program, called FlashCap, that enables the Bank to utilize and support technology-enabled banking products and services as well as various financial technology applications.
CreditBench also has an advanced technology platform for our SBA 7(a) Small Loan Program that enables the Bank to utilize and support technology-enabled banking products and services as well as various financial technology applications.
The senior management team is responsible for implementing the risk management processes by assessing and managing the risks they face, including strategic, operational, regulatory, investment, and execution risks, on a day-to-day basis, and reporting to the Board of Directors regarding the risk management processes.
The senior management team is responsible for implementing the risk management processes by assessing and managing the risks we face, including strategic, operational, regulatory, investment, and execution risks, on a day-to-day basis, and reporting to the Board of Directors regarding the risk management processes.
BayFirst focuses its SBA and commercial lending divisions on providing the customer quick turnaround, competitive rates, and an easy application process. The Bank offers personal lines of credit, auto, boat, and recreational vehicle loans, residential mortgages, and home equity lines of credit. The Bank has been particularly 3 Table of Contents successful in penetrating the small business community.
BayFirst focuses its government guaranteed and commercial lending divisions on providing the customer quick turnaround, competitive rates, and an easy application process. The Bank offers personal lines of credit, 3 Table of Contents auto, boat, and recreational vehicle loans, residential mortgages, and home equity lines of credit. The Bank has been particularly successful in penetrating the small business community.
The Bank utilizes a broker arrangement to originate residential mortgage loans to be sold in the secondary market. These residential mortgage loans are underwritten to meet secondary market standards so that loans can be sold into the secondary market. Some residential mortgage loans are held for its portfolio.
The Bank utilizes a broker arrangement to originate residential mortgage loans to be sold in the secondary market. These residential mortgage loans are underwritten to meet secondary market standards so that loans can be sold into the secondary market. Some residential mortgage loans are held for the Bank’s portfolio.
The Bank’s business deposit products and related services include free checking accounts, interest-bearing checking accounts, savings accounts, money market accounts, and access to business mobile and online banking, treasury management, cash management, merchant processing services, remote deposit capture, and night depository. A wide range of loans are also offered, including commercial, consumer, and real estate loans.
The Bank’s business deposit products and related services include free checking accounts, interest-bearing checking accounts, savings accounts, MMDA, and access to business mobile and online banking, treasury management, cash management, merchant processing services, remote deposit capture, and night depository. A wide range of loans are also offered, including commercial, consumer, and real estate loans.
Currently, the Core SBA Team is concentrated in the Tampa Bay area with an expanding national sales team. FlashCap employs an internal sales team and uses referral partners and financial technology companies to originate SBA loans nationwide. Underwriting, quality control, and technology are centralized and scalable for potential increases in loan volume.
Currently, the Core Government Guaranteed Loan Team is concentrated in the Tampa Bay area with an expanding national sales team. FlashCap employs an internal sales team and uses referral partners and financial technology companies to originate government guaranteed loans nationwide. Underwriting, quality control, and technology are centralized and scalable for potential increases in loan volume.
Except as authorized by the BHCA and Federal Reserve regulations or order, a bank holding company is generally prohibited from engaging in, or acquiring direct or indirect control of 5% or more of the voting shares of any company 10 Table of Contents engaged in any business other than the business of banking or managing and controlling banks.
Except as authorized by the BHCA and Federal Reserve regulations or order, a bank holding company is generally prohibited from engaging in, or acquiring direct or indirect control of 5% or more of the voting shares of any company engaged in any business other than the business of banking or managing and controlling banks.
The primary exception allows the ownership of shares by a bank holding company in any company the activities of which the Federal Reserve has determined to be so closely related to banking or to managing or controlling banks that ownership of shares of that company is appropriate.
The primary exception allows the ownership of shares by a bank holding company in any company the activities of which the Federal Reserve has 10 Table of Contents determined to be so closely related to banking or to managing or controlling banks that ownership of shares of that company is appropriate.
BayFirst’s primary source of income is from the Bank, which serves a broad spectrum of consumers and small businesses in the Tampa Bay region and is supported by a national SBA lending business line.
BayFirst’s primary source of income is from the Bank, which serves a broad spectrum of consumers and small businesses in the Tampa Bay region and is supported by a national government guaranteed lending business line.
With the enactment of various laws and regulations affecting interstate banking expansion, it is easier for financial institutions 5 Table of Contents located outside of Florida to enter the Florida market, including the Bank’s target markets.
With the enactment of various laws and regulations affecting interstate banking expansion, it is easier for financial institutions located outside of Florida to enter the Florida market, including the Bank’s target markets.
The main pillars of BayFirst’s ESG policy include 1) Fair and Equitable Access to Banking Services, 2) Environmental Sustainability, 3) Community Engagement, 4) Employee/Workforce Management and Well Being, and 5) Governance, Data Security, and Business Ethics.
The main pillars of BayFirst’s Corporate Social Responsibility policy include 1) Fair and Equitable Access to Banking Services, 2) Environmental Sustainability, 3) Community Engagement, 4) Employee/Workforce Management and Well Being, and 5) Governance, Data Security, and Business Ethics.
In 2021, BayFirst established a living minimum wage of $18 per hour. The Bank has a generous 401(k) plan, plus a discretionary profit-sharing contributions to its Employee Stock Ownership Plan. All employees are shareholders through their participation in the ESOP. Additionally, employees have the opportunity to grow their ownership through a discounted non-qualified Employee Stock Purchase Plan.
In 2023, BayFirst established a living minimum wage of $20 per hour. The Bank has a generous 401(k) plan, plus a discretionary profit-sharing contributions to its Employee Stock Ownership Plan. Most employees are shareholders through their participation in the ESOP. Additionally, employees have the opportunity to grow their ownership through a discounted non-qualified Employee Stock Purchase Plan.
As of December 31, 2022, BayFirst had 292 employees (289 full-time and 3 part-time) and recognizes that they are its greatest asset. Providing a work environment that is inclusive, transparent, and comfortable for all is foundational to the Bank’s core beliefs. The Company is an organization that values open communication and collaboration in a professional and challenging, yet informal atmosphere.
As of December 31, 2023, BayFirst had 306 employees (304 full-time and 2 part-time) and recognizes that they are its greatest asset. Providing a work environment that is inclusive, transparent, and comfortable for all is foundational to the Bank’s core beliefs. The Company is an organization that values open communication and collaboration in a professional and challenging, yet informal atmosphere.
As a progressive institution, BayFirst is committed to the highest standards in all aspects of its operations.
As a progressive institution, BayFirst is committed to the highest 9 Table of Contents standards in all aspects of its operations.
Item 1. Business BayFirst Financial Corp. BayFirst Financial Corp. (“BayFirst” or the “Company”) is a bank holding company that operates through its wholly owned subsidiary, BayFirst National Bank (the “Bank”). BayFirst commenced its bank holding company operations on September 1, 2000, by acquiring all shares of the Bank.
Item 1. Business BayFirst Financial Corp. BayFirst Financial Corp. is a bank holding company that operates through its wholly owned subsidiary, BayFirst National Bank (the “Bank”), together referred to as “the Company or “BayFirst”. BayFirst commenced its bank holding company operations on September 1, 2000, by acquiring all shares of the Bank.
The Bank’s efforts were recognized through an anonymous employee survey which ranked BayFirst in the top 15 of the 2022 Best Places to Work in Tampa Bay. 9 Table of Contents Environmental, Social, and Governance Policy In 2021, BayFirst advanced its ESG initiatives by forming a Board of Directors’ level committee and developing a policy and policy statement.
The Bank’s efforts were recognized through an anonymous employee survey which ranked BayFirst in the top 15 of the 2022 Best Places to Work in Tampa Bay. Corporate Social Responsibility Policy In 2021, BayFirst advanced its Corporate Social Responsibility initiatives by forming a Board of Directors’ level committee and developing a policy and policy statement.
BayFirst provides both paid maternity and paternity leave through the parental leave program. In addition, the Banks’ no-cost, short-term disability policy is administered in-house and provides up to 12 weeks of medical leave at 100% pay. The Bank recognizes the burdensome expense of dependent care and provides a company match to employees’ dependent care FSA accounts.
In addition, the Banks’ no-cost, short-term disability policy is administered in-house and provides up to 12 weeks of medical leave at 100% pay. The Bank recognizes the burdensome expense of dependent care and provides a company match to employees’ dependent care FSA accounts.
The Bank engages a subservicer for residential mortgage loans that is currently servicing most portfolio residential mortgage loans. Competition All phases of the Bank’s operations are highly competitive. Many of the commercial banks and other competitors have assets, capital, lending limits, and name recognition that are materially larger than the Bank’s.
There are no free-standing derivatives associated with the current lending process. The Bank engages a subservicer for residential mortgage loans that is currently servicing most portfolio residential mortgage loans. Competition All phases of the Bank’s operations are highly competitive. Many commercial banks and other competitors have assets, capital, lending limits, and name recognition that are materially larger than the Bank’s.
As of December 31, 2022, the Bank’s employee base was comprised of individuals from all walks of life, genders, ethnicities, races, ages and differing economic and social backgrounds. Females represented 62% of the Company’s employee base while minorities represented 32% of its population. The officer base was 47% female and 23% minority.
As of December 31, 2023, the Bank’s employee base was comprised of individuals from all walks of life, genders, ethnicities, races, ages and differing economic and social backgrounds. Females represented 59% of the Company’s employee base while minorities represented 32% of its population. The officer base was 50% female and 19% minority.
The Bank’s main office is located at the BayFirst Executive Center. The Bank does not engage in any foreign business activities. The Bank offers its products and services through its Community Banking Division and its separately branded loan origination platform, CreditBench. CreditBench is a government guaranteed lender with specific expertise in originating SBA 7(a) loans throughout the nation.
The Bank does not engage in any foreign business activities. The Bank offers its products and services through its Community Banking Division and its separately branded loan origination platform, CreditBench. CreditBench is a government guaranteed lender with specific expertise in originating SBA 7(a) loans and USDA loans throughout the nation.
Such programs must include administrative, procedural, and physical safeguards to ensure the security and confidentiality of client records and personal information. These security and privacy policies and procedures are in effect across the Bank. Federal banking agencies pay close attention to the cybersecurity practices of banks.
Such programs must include administrative, procedural, and physical safeguards to ensure the security and confidentiality of client records and personal information. These security and privacy policies and procedures are in effect across the Bank. Federal banking agencies pay close attention to the cybersecurity practices of banks. Such agencies review an institution’s information technology program and its ability to prevent cyberattacks.
The Bank also originates loans to be held in its loan portfolio. The portfolio loans are generally high quality, adjustable rate, non-conforming mortgages located in the primary service area where there is a greater opportunity to cross-sell other Bank products and services. The ability to fund such non-conforming loans provides the Bank a competitive advantage compared to non-bank mortgage lenders.
The portfolio loans are generally high quality, adjustable rate, non-conforming mortgages located in the primary service area where there is a greater opportunity to cross- 4 Table of Contents sell other Bank products and services. The ability to fund such non-conforming loans provides the Bank a competitive advantage compared to non-bank mortgage lenders.
BayFirst National Bank The Bank commenced operations on February 12, 1999, as a Florida state-chartered commercial bank. In 2022, the Bank converted its charter to a national banking association. The Bank currently operates out of its main office and eight additional banking centers located in the Tampa Bay area, and 1 loan production office in Sarasota.
BayFirst National Bank The Bank commenced operations on February 12, 1999, as a Florida state-chartered commercial bank. In 2022, the Bank converted its charter to a national banking association. The Bank currently operates out of its main office and eleven additional banking centers located in the Tampa Bay/Sarasota area. The Bank’s main office is located at the BayFirst Executive Center.
Areas regulated and monitored by the bank regulatory authorities include but are not limited to requirements concerning security devices and procedures, adequacy of capitalization and loss reserves, loans, investments, borrowings, deposits, mergers, issuances of securities, payment of dividends, establishment of branches, corporate reorganizations, transactions with affiliates, maintenance of books and records, and adequacy of staff training to carry out safe lending and deposit gathering practices. 11 Table of Contents Restrictions on Transactions with Affiliates and Loans to Insiders Sections 23A and 23B of the Federal Reserve Act restrict transactions by banks with their affiliates.
Areas regulated and monitored by the bank regulatory authorities include but are not limited to requirements concerning security devices and procedures, adequacy of capitalization and loss reserves, loans, investments, borrowings, deposits, mergers, issuances of securities, payment of dividends, establishment of branches, corporate reorganizations, transactions with affiliates, maintenance of books and records, and adequacy of staff training to carry out safe lending and deposit gathering practices.
All CreditBench loans regardless of size which require projection-based underwriting or have other complex characteristics, such as business acquisition financing, are underwritten subject to SBA or USDA B&I guidelines and contain a thorough underwriting analysis based on the credit quality of any guarantor as well as the historical and projected debt service coverage.
Bolt loans are guaranteed up to 85% by the SBA and are primarily underwritten based upon predictive scores and character analysis of the business and its principals. 6 Table of Contents All CreditBench loans regardless of size which require projection-based underwriting or have other complex characteristics, such as business acquisition financing, are underwritten subject to SBA or USDA B&I guidelines and contain a thorough underwriting analysis based on the credit quality of any guarantor as well as the historical and projected debt service coverage.
The Bank continues to offer fixed and variable rate home mortgages for the purchase and refinance of residential properties through the community banking centers , as well as a loan production center. 4 Table of Contents The Bank sells most of the residential mortgage loans which are originated into the secondary market through a broker arrangement.
The Bank continues to offer fixed and variable rate home mortgages for the purchase and refinance of residential properties through the community banking centers . The Bank sells most of the residential mortgage loans which are originated into the secondary market through a broker arrangement. The Bank also originates loans to be held in its loan portfolio.
The objective of the loan approval process is to provide a disciplined, consistent, predictable, and collaborative approach to larger credits, while maintaining responsiveness to client needs.
Regardless of the loan type or amount, no single individual has sole loan approval authority. The objective of the loan approval process is to provide a disciplined, consistent, predictable, and collaborative approach to larger credits, while maintaining responsiveness to client needs.
BayFirst offers a wide range of health and welfare plans designed to fit its diverse population. The Bank provides 100% employer-paid premiums for medical, dental, vision, disability, and life insurance for the employee. The Bank offers an 8 Table of Contents employee wellness program designed to support the whole employee which encompasses physical, mental, social, and financial wellness.
BayFirst offers a wide range of health and welfare plans designed to fit its diverse population. The Bank provides 100% employer-paid premiums for medical, dental, vision, disability, and life insurance for the employee.
As of December 31, 2022, BayFirst had consolidated total assets of $938.9 million, total loans of $728.7 million, total deposits of $795.1 million, and total shareholders’ equity of $91.9 million. BayFirst’s corporate office is located at the BayFirst Executive Center, 700 Central Avenue, St. Petersburg, Florida 33701.
As of December 31, 2023, BayFirst had consolidated total assets of $1.12 billion, total loans held for investment of $915.7 million, total deposits of $985.1 million, and total shareholders’ equity of $100.7 million. BayFirst’s corporate office is located at the BayFirst Executive Center, 700 Central Avenue, St. Petersburg, Florida 33701.
The revenue generated from CreditBench’s loan originations is primarily derived from three sources: interest income, loan servicing, and premiums from the sale of loans. The Bank may elect to hold the government guaranteed portion of a loan on its balance sheet to increase interest income. Alternatively, the Bank may sell that portion to realize a premium on the sale.
The Bank may elect to hold the government guaranteed portion of a loan on its balance sheet to increase interest income. Alternatively, the Bank may sell that portion to realize a premium on the sale.
Such agencies include a review of an institution’s information technology program and its ability to prevent cyberattacks. The FFIEC released its Architecture, Infrastructure, and Operations (AIO) Booklet in June 2021. The AIO Booklet calls for a layered security approach that incorporates administrative, procedural, and physical controls to include employee, vendor, and client awareness training.
The FFIEC released its Architecture, Infrastructure, and Operations (AIO) Booklet in June 2021. The AIO Booklet calls for a layered security approach that incorporates administrative, procedural, and physical controls to include employee, vendor, and client awareness training. The Bank’s cybersecurity and information security practices incorporate preventative, detective, corrective, compensatory, and deterrent controls.
Although the SBA 7(a) Small Loan Program permits broader underwriting and loan purpose parameters, non-complex CreditBench loans are limited to those 6 Table of Contents underwritten via historical cash flow and exclude start-up and business acquisition financing. Within the FlashCap program, we offer BOLT loans up to $150,000 for working capital purposes.
The non-complex loans are originated pursuant to the SBA 7(a) Small Loan Program up to $350,000 and are underwritten through a streamlined underwriting and packaging process. Although the SBA 7(a) Small Loan Program permits broader underwriting and loan purpose parameters, non-complex CreditBench loans are limited to those underwritten via historical cash flow and exclude start-up and business acquisition financing.
In connection with the origination of mortgage loans intended for sale, the Bank uses a broker to underwrite, close, and sell the loans. For loans held in its loan portfolio, the Bank underwrites and closes these loans in-house utilizing the brokers’ technology system. There are no free-standing derivatives associated with the current lending process.
The Bank’s residential mortgages are originated, processed, underwritten, and closed to secondary market standards or Bank policy. In connection with the origination of mortgage loans intended for sale, the Bank uses a broker to underwrite, close, and sell the loans. For loans held in its loan portfolio, the Bank underwrites and closes these loans in-house utilizing the brokers’ technology system.
As of December 31, 2022, the Community Banking Division operated from eight banking centers in the Tampa Bay area: five in Pinellas County, one in Hillsborough County, one in Manatee County, and one in Sarasota County.
As of December 31, 2023, the Community Banking Division operated from eleven banking centers in the Tampa Bay area: five in Pinellas County, two in Hillsborough County, one in Manatee County, and three in Sarasota County. Additionally, in February 2024, the Bank opened the twelfth banking center which is located in Sarasota.
There can be no assurance that the United States Congress, the Florida Legislature, or the applicable bank regulatory agencies will not enact legislation or promulgate regulations that may further increase competitive pressures on the Bank. Lending Philosophy and Credit Risk Management Historically, the Company believes they have made sound, high-quality loans while recognizing that lending involves a degree of risk.
There can be no assurance that the 5 Table of Contents United States Congress, the Florida Legislature, or the applicable bank regulatory agencies will not enact legislation or promulgate regulations that may further increase competitive pressures on the Bank.
In November 2021, the Federal Reserve, OCC, and FDIC adopted a new regulation for computer-security incident notification requirements for banking organizations and their bank service providers.
Failing to have adequate cybersecurity safeguards in place, in accordance with AIO and other applicable regulations and laws, can result in supervisory criticism, monetary penalties and reputational harm. In November 2021, the Federal Reserve, OCC, and FDIC adopted a new regulation for computer-security incident notification requirements for banking organizations and their bank service providers.
The loan approval process begins with obtaining detailed financial and other information from the Bank’s borrowers. The Bank also relies on its loan and executive officers’ in-depth knowledge of its markets and borrowers. Regardless of the loan type or amount, no single individual has sole loan approval authority.
The Bank’s loan approval process is characterized by centralized authority supported by a risk control environment that provides for prompt and thorough underwriting of loans. The loan approval process begins with obtaining detailed financial and other information from the Bank’s borrowers. The Bank also relies on its loan and executive officers’ in-depth knowledge of its markets and borrowers.
An affiliate of a bank is any company or entity which controls, is controlled by or is under common control with the bank.
Restrictions on Transactions with Affiliates and Loans to Insiders Sections 23A and 23B of the Federal Reserve Act restrict transactions by banks with their affiliates. An affiliate of a bank is any company or entity which controls, is controlled by or is under common control with the bank.
The program maximum limit for SBA loans is $5.0 million, and the program limit for USDA loans is $25.0 million. Both can be priced competitively relative to conventional financing. In March of 2020, the Bank made the strategic decision to become an active PPP lender, using local marketing efforts and a nationwide, online application platform.
The program maximum limit for SBA loans is $5.0 million, and the program maximum limit for USDA loans is $25.0 million. Both can be priced competitively relative to conventional financing. The Bank manages its government guaranteed lending program through a staff experienced in business development, loan documentation and monitoring, and accounting.
The Bank manages its government guaranteed lending program through a staff experienced in business development, loan documentation and monitoring, and accounting. Emphasis is placed on proper loan documentation to ensure full guarantee performance in the event of payment defaults.
Emphasis is placed on proper loan documentation to ensure full guarantee performance in the event of payment defaults. The revenue generated from CreditBench’s loan originations is primarily derived from three sources: interest income, loan servicing, and premiums from the sale of loans.
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Additionally, the Bank opened a second Tampa banking center in February 2023 with two additional banking centers planned in Sarasota currently under construction with one expected to open in mid 2023 and the other in late 2023 or early 2024, expanding the network of banking centers throughout the Tampa Bay region.
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During the second quarter of 2022, the Bank began the Bolt loan program, an SBA 7(a) loan product designed to expeditiously provide working capital loans of $150 thousand or less to businesses. The Bank has originated 3,408 Bolt loans totaling $441.8 million through December 31, 2023.
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The Bank used the Federal Reserve’s PPPLF to fund a significant portion of these loans. The Bank funded its last PPP loans in the third quarter of 2021. As of December 31, 2022, the Bank had $19.2 million of PPP loans remaining on the books.
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Within the FlashCap program, we offer Bolt loans up to $150,000 for working capital purposes.
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In 2022, the Bank retained in its loan portfolio an increased volume of originated residential mortgage loans than in previous years. The Bank’s residential mortgages are originated, processed, underwritten, and closed to secondary market standards or Bank policy.
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The Bank offers an employee wellness program designed to support the whole employee which encompasses physical, mental, social, and financial wellness. 8 Table of Contents BayFirst provides both paid maternity and paternity leave through the parental leave program.
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The non-complex loans are originated pursuant to the SBA 7(a) Small Loan Program up to $350,000 and are underwritten through a streamlined underwriting and packaging process.
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BOLT loans are guaranteed up to 85% by the SBA and primarily underwritten based upon predictive scores and character analysis of the business and its principals.
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The Bank’s cybersecurity and information security practices incorporate preventative, detective, corrective, compensatory, and deterrent controls. Failing to have adequate cybersecurity safeguards in place, in accordance with AIO and other applicable regulations and laws, can result in supervisory criticism, monetary penalties and reputational harm.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAn economic downturn could have a material adverse effect on our capital, financial condition, results of operations, and future growth. We monitor market conditions and economic factors throughout, and beyond, our geographic markets. If economic conditions were to worsen nationally, regionally, or locally, we could experience a decline in credit quality and loan and deposit demand.
Biggest changeIf economic conditions were to worsen nationally, regionally, or locally, we could experience a decline in credit quality and loan and deposit demand. Such declines could negatively affect our business and have a material adverse effect on our capital, financial condition, results of operations, and future growth.
If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.
If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.
If any of these valuations are inaccurate, our consolidated financial statements may not reflect the correct value of our foreclosed upon real estate, and our loan loss reserve may not accurately reflect loan impairments. Inaccurate valuations of properties could materially adversely affect our business, results of operations and financial condition. We operate in a highly competitive industry and market area.
If any of these valuations are inaccurate, our consolidated financial statements may not reflect the correct value of our foreclosed upon real estate, and our credit loss reserve may not accurately reflect loan impairments. Inaccurate valuations of properties could materially adversely affect our business, results of operations and financial condition. We operate in a highly competitive industry and market area.
Such weather events can disrupt operations, result in damage to properties and negatively affect the l ocal economies in the markets where we operate. Such weather events could result in a decline in loan originations, a decline in the value, or destruction of properties securing our loans and an increase in delinquencies, foreclosures, or loan losses.
Such weather events can disrupt operations, result in damage to properties and negatively affect the l ocal economies in the markets where we operate. Such weather events could result in a decline in loan originations, a decline in the value, or destruction of properties securing our loans and an increase in delinquencies, foreclosures, or credit losses.
A shutdown of the Federal government would likely result in us being temporarily unable to make SBA and other government guaranteed loans. If the Federal government experiences a shutdown, it is likely that the SBA, and other agencies which guaranty some of the loans we make, will be unable to process those loans.
A shutdown of the Federal government would likely result in us being temporarily unable to make SBA and other government guaranteed loans. If the Federal government experiences a shutdown, it is likely that the SBA, and other agencies which guaranty some of the loans we make, will be unable to process those loans and sell those loans.
In addition, our regulators periodically review our loan loss reserve and may request an increase in the provision for loan losses or the recognition of loan charge-offs, based on judgments different than those of management.
In addition, our regulators periodically review our credit loss reserve and may request an increase in the provision for credit losses or the recognition of loan charge-offs, based on judgments different than those of management.
The determination of the appropriate level of the loan loss reserve involves a high degree of subjectivity and judgment and requires us to make significant estimates of current credit risks, which may undergo material changes.
The determination of the appropriate level of the credit loss reserve involves a high degree of subjectivity and judgment and requires us to make significant estimates of current credit risks, which may undergo material changes.
At December 31, 2022, our one-year interest rate sensitivity position was asset sensitive, such that a gradual increase in interest rates during the next twelve months would have a positive impact on our net interest income. Our results of operations are affected by changes in interest rates and our ability to manage this risk.
At December 31, 2023, our one-year interest rate sensitivity position was asset sensitive, such that a gradual increase in interest rates during the next twelve months would have a positive impact on our net interest income. Our results of operations are affected by changes in interest rates and our ability to manage this risk.
Risk Factor Summary Our business is subject to uncertainties and risks and our risk factors can be broadly summarized by the following: • Our ability to grow the size and geographic scope of our loan generation, loan sale, and deposit gathering business, and the infrastructure needed to support it; • Possible loan defaults, devaluation of collateral, adverse political, environmental, or economic events, and competition; • Interest rates and available sources of liquidity; • Our ability to raise capital and the effects of doing so on our shareholders; • The potential that we are subject to fraud, incorrect judgments, or other bad acts of third parties; • Laws, regulations, rules, and standards to which we are subject and the government agencies with which we interact; • Recruitment, retention, development, performance, and potential bad acts of our key executives and other employees, as well as transactions with them and our directors; • Dividend and other restrictions placed on us by our outstanding preferred stock, restrictions that may be imposed by future issuances of preferred stock, and our pledging of the stock in the Bank to secure a loan; • Rapidly developing technology; • Estimates used in certain valuations, including our loan loss reserve; and • Features of our stock, such as liquidity, dilution, the lack of preemptive rights, our SEC reporting status, and the concentration of ownership among our insiders.
Risk Factor Summary Our business is subject to uncertainties and risks and our risk factors can be broadly summarized by the following: • Our ability to grow the size and geographic scope of our loan generation, loan sale, and deposit gathering business, and the infrastructure needed to support it; • Possible loan defaults, devaluation of collateral, adverse political, environmental, or economic events, and competition; • Interest rates and available sources of liquidity; • Our ability to raise capital and the effects of doing so on our shareholders; • The potential that we are subject to fraud, incorrect judgments, or other bad acts of third parties; • Laws, regulations, rules, and standards to which we are subject and the government agencies with which we interact; • Recruitment, retention, development, performance, and potential bad acts of our key executives and other employees, as well as transactions with them and our directors; • Dividend and other restrictions placed on us by our outstanding preferred stock, restrictions that may be imposed by future issuances of preferred stock, and our pledging of the stock in the Bank to secure a loan; • Rapidly developing technology; • Estimates used in certain valuations, including our allowance for credit losses; and • Features of our stock, such as liquidity, dilution, the lack of preemptive rights, our SEC reporting status, and the concentration of ownership among our insiders.
Expansion involves a number of risks, including the costs associated with identifying and evaluating potential acquisitions and merger partners, inaccurate estimates and judgments regarding credit, operations, management and market risks of the target institution, our ability to finance expansion, possible dilution to our existing shareholders, the diversion of our management’s attention to the negotiation of a transaction, the integration of the operations and personnel of combining businesses, and the possibility of unknown or contingent liabilities.
Expansion involves a number of risks, including the costs associated with identifying and evaluating potential acquisitions and merger partners, inaccurate estimates and judgments regarding credit, operations, management and market risks of the target institution, our ability to finance expansion, possible dilution to our existing shareholders, the diversion of our management’s attention to the 24 Table of Contents negotiation of a transaction, the integration of the operations and personnel of combining businesses, and the possibility of unknown or contingent liabilities.
We rely heavily on technology partners and other referral sources in our SBA loan origination process. As part of our SBA lending strategy, we use the services of technology partners and other referral sources. These arrangements allow us to originate loans throughout the U.S. via the internet. We do not have an exclusivity arrangement with any referral source.
We rely heavily on technology partners and other referral sources in our government guaranteed loan origination process. As part of our government guaranteed lending strategy, we use the services of technology partners and other referral sources. These arrangements allow us to originate loans throughout the U.S. via the internet. We do not have an exclusivity arrangement with any referral source.
Therefore, we cannot be assured that we will be able to originate and close or maintain any specific level of SBA loans through such sources in the future. In addition, our technology partners are subject to online commerce risks generally, including hacking and use of the site by persons using fraudulent credentials.
Therefore, we cannot be assured that we will be able to originate and close or maintain any specific level of government guaranteed loans through such sources in the future. In addition, our technology partners are subject to online commerce risks generally, including hacking and use of the site by persons using fraudulent credentials.
As part of those interactions, our referral sources may take actions 18 Table of Contents which violate laws, regulations, or our policies. These may include, among other things, charging impermissible fees, failing to provide or properly complete required documentation or disclosures, making false or misleading statements, or encouraging an applicant to make misrepresentations.
As part of those interactions, our referral sources may take actions which violate laws, regulations, or our policies. These may include, among other things, charging impermissible fees, failing to provide or properly complete required documentation or disclosures, making false or misleading statements, or encouraging an applicant to make misrepresentations.
Our clients’ or our websites or systems may be subject to attacks intended to obtain unauthorized access to confidential information, destroy data, or disable or sabotage services, often through the introduction of computer viruses or malware, cyberattacks, and other means. Furthermore, the methods of cyberattacks change frequently and may not be recognized until or after launch.
Our clients’ or our websites or systems may be subject to attacks intended to obtain unauthorized access to confidential information, destroy data, or disable or sabotage services, often through the introduction of computer viruses or malware, cyberattacks, and other means. 21 Table of Contents Furthermore, the methods of cyberattacks change frequently and may not be recognized until or after launch.
Should we not continue to generate a substantial volume of loan business through our use of referral sources, or if they experience operational interruptions, or direct loans to other lenders, our SBA lending may be materially reduced, which could reduce our net income and our asset growth.
Should we not continue to generate a substantial volume of loan business through our use of referral sources, or if they experience operational interruptions, or direct loans to other lenders, our government guaranteed lending may be materially reduced, which could reduce our net income and our asset growth.
The price of our stock could decline if one or more securities analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease 27 Table of Contents publishing reports about us. If any of the analysts who elect to cover us downgrade their recommendation with respect to our common stock, our stock price could decline rapidly.
The price of our stock could decline if one or more securities analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing reports about us. If any of the analysts who elect to cover us downgrade their recommendation with respect to our common stock, our stock price could decline rapidly.
Therefore, we may not be able to anticipate or implement effective preventive measures against all possible security breaches. Any 21 Table of Contents successful cyberattack or other security breach may result in the misappropriation, loss, or other unauthorized disclosure of confidential customer information.
Therefore, we may not be able to anticipate or implement effective preventive measures against all possible security breaches. Any successful cyberattack or other security breach may result in the misappropriation, loss, or other unauthorized disclosure of confidential customer information.
Our operations are growing at a rapid pace and our training programs and operational protocols may lag behind our growth. Our branch network and SBA lending operations are expanding at a rapid pace. As a result, we may not be able to provide comprehensive or timely training to staff.
Our operations are growing at a rapid pace and our training programs and operational protocols may lag behind our growth. Our branch network and government guaranteed lending operations are expanding at a rapid pace. As a result, we may not be able to provide comprehensive or timely training to staff.
Similar to other financial institutions, our operational risk can manifest itself in many ways, such as errors related to failed or inadequate processes, faulty or disabled computer systems, fraud by employees or outside persons, and exposure to external events. We are dependent on our operational infrastructure to help manage these risks.
Similar to other financial institutions, our operational risk can manifest itself in many ways, such as errors related to failed or inadequate processes, faulty or disabled 26 Table of Contents computer systems, fraud by employees or outside persons, and exposure to external events. We are dependent on our operational infrastructure to help manage these risks.
The holders of our outstanding Series A Preferred Stock are entitled to receive quarterly cash dividends at 9% per annum (subject to increase to 11% if we have not redeemed the shares by the tenth anniversary of their issuance in 2019) and the holders of our Series B Convertible Preferred Stock are entitled to receive quarterly cash dividends at 8% per annum (subject to increase to 9% if we have not redeemed the shares by the tenth anniversary of their issuance in 2020 and 2021).
The holders of our outstanding Series A Preferred Stock are entitled to receive quarterly cash dividends at 9% per annum (subject to increase to 11% if we have not redeemed the shares by the tenth anniversary of their issuance in 2019), the holders of our Series B Convertible Preferred Stock are entitled to receive quarterly cash dividends at 8% per annum (subject to increase to 9% if we have not redeemed the shares by the tenth anniversary of their issuance in 2020 and 2021), and the holders of our Series C Cumulative Convertible Preferred Stock are entitled to receive quarterly cash dividends at 11% per annum (subject to increase to 12% if we have not redeemed the shares by the tenth anniversary of their issuance in 2023).
Our Board of Directors owns a significant percentage of our shares and will be able to make decisions to which you may be opposed. As of December 31, 2022, BayFirst’s directors and named executive officers as a group owned approximately 14.98% of our outstanding common stock.
Our Board of Directors owns a significant percentage of our shares and will be able to make decisions to which you may be opposed. As of December 31, 2023, BayFirst’s directors and named executive officers as a group owned approximately 14.42% of our outstanding common stock.
Our Boards have selected current Bank President Thomas Zernick to become Chief 20 Table of Contents Executive Officer of the Company. If this transition is not effective or if we encounter problems in implementing it, our performance may suffer.
Our Boards 20 Table of Contents selected the current Bank President Thomas Zernick to become Chief Executive Officer of the Company and Robin Oliver to become President and COO of the Company. If this transition is not effective or if we encounter problems in implementing it, our performance may suffer.
BayFirst has outstanding debt and either BayFirst or the Bank may incur additional debt. At December 31, 2022, BayFirst had a $2.84 million term loan and $5.99 million in subordinated debt. BayFirst’s obligation to make payments on its debt will reduce the amount of cash available to BayFirst to pay dividends on its common stock.
BayFirst has outstanding debt and either BayFirst or the Bank may incur additional debt. At December 31, 2023, BayFirst had a $2.39 million term loan and $5.95 million in subordinated debt. BayFirst’s obligation to make payments on its debt will reduce the amount of cash available to BayFirst to pay dividends on its common stock.
The Bank adopted ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments effective January 1, 2023. This standard requires financial institutions to determine periodic estimates of lifetime expected credit losses on financial instruments and other commitments to extend credit.
The Bank adopted ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments effective January 1, 2023. This standard required financial institutions to determine periodic estimates of lifetime expected credit 18 Table of Contents losses on financial instruments and other commitments to extend credit.
We have pledged 100% of the outstanding shares of the Bank’s capital stock to secure a term loan with another financial institution with a balance of $2.8 million as of December 31, 2022.
We have pledged 100% of the outstanding shares of the Bank’s capital stock to secure a term loan with another financial institution with a balance of $2.4 million as of December 31, 2023.
We cannot predict the effects of future legislation and new or revised regulations on us, our competitors, or on the financial markets and economy, although they may significantly increase costs and impede the efficiency of our internal business processes.
We cannot predict the effects of future legislation and new or revised regulations on us, our competitors, or on the financial markets and economy, although they may significantly increase costs and impede the efficiency of our internal business processes. Inflation could negatively impact our business and our profitability.
Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem 22 Table of Contents loans and other factors within and outside of our control, may require an increase in the loan loss reserve.
Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors within and outside of our control, may require an increase in the credit loss reserve.
We do not generally meet with the borrowers in person. Our referral sources also are involved in assisting the borrowers with completing their loan applications. Therefore, it is difficult for us to definitively ascertain or confirm a borrower’s identity, structure, creditworthiness, or veracity in completing the loan application process.
Our referral sources also are involved in assisting the borrowers with completing their loan applications. Therefore, it is difficult for us to definitively ascertain or confirm a borrower’s identity, structure, creditworthiness, or veracity in completing the loan application process.
Future developments will be highly uncertain and cannot be predicted, including the effectiveness of post-pandemic remote working arrangements, third party providers’ abilities to continue to support our operations, and any further actions taken by governmental authorities and other third parties.
Future developments or new emergencies will be highly uncertain and cannot be predicted, including the effectiveness of remote working arrangements, third party providers’ abilities to continue to support our and our customer’s operations, and any further actions taken by governmental authorities and other third parties.
Disruptions in U.S. and global financial markets, and changes in oil production and 19 Table of Contents supply in the Middle East and Russia, also affect the economy and stock prices in the U.S., which can affect our earnings, capital, as well as the ability of our customers to repay loans.
Disruptions in U.S. and global financial 19 Table of Contents markets, and changes in oil production and supply in those and other areas, also affect the economy and stock prices in the U.S., which can affect our earnings, capital, as well as the ability of our customers to repay loans.
In addition, the directors and named executive officers have stock options to acquire shares of common stock, which, if fully exercised within sixty days of December 31, 2022, would have resulted in them owning approximately 19.41% of our outstanding common stock.
In addition, the directors and named executive officers have stock options to acquire shares of common stock, which, if fully exercised within sixty days of December 31, 2023, would have resulted in them owning approximately 18.83% of our outstanding common stock.
Recent political developments in Russia and Ukraine may result in substantial changes in economic and political conditions for the U.S. and the remainder of the world.
Recent political developments in Russia, Ukraine, the Middle East, and South America may result in substantial changes in economic and political conditions for the U.S. and the remainder of the world.
Changes in interest rates affect our profitability and assets. 17 Table of Contents Our profitability depends to a large extent on the Bank’s net interest income, which is the difference between income on interest-earning assets, such as loans and investment securities, and expenses on interest-bearing liabilities, such as deposits and borrowings.
Our profitability depends to a large extent on the Bank’s net interest income, which is the difference between income on interest-earning assets, such as loans and investment securities, and expenses on interest-bearing liabilities, such as deposits and borrowings.
Liquidity may also be adversely impacted by bank supervisory and regulatory authorities mandating changes in the composition of our balance sheet to asset classes that are less liquid.
Liquidity may also be adversely impacted by bank supervisory and regulatory authorities mandating changes in the composition of our balance sheet to asset classes that are less liquid. 17 Table of Contents Changes in interest rates affect our profitability and assets.
Further, additional legislation and regulations that could significantly affect our power and authority, and operations may be enacted or adopted in the future which could have a material adverse effect on our financial condition and results of operations.
Further, additional legislation and regulations that could significantly affect our power and authority, and operations may be enacted or adopted in the future which could have a material adverse effect on our financial condition and results of operations. Legislation and regulatory proposals enacted in response to market and economic conditions may materially adversely affect our business and results of operations.
We and our customers may face cost increases, asset value reductions, and changes in supply or demand for products and services resulting from new laws, regulations, and changing consumer and investor preferences regarding responses to climate change. Our loan portfolio includes a material amount of commercial real estate and commercial and industrial loans.
We and our customers may face cost increases, asset value reductions, and changes in supply or demand for products and services resulting from new laws, regulations, and changing consumer and investor preferences regarding responses to climate change.
Our management may determine that it is in the best interest of the Company or the Bank to apply our capital in a manner that is inconsistent with a shareholder’s wishes. Failure to use such funds effectively might harm your investment.
Our management may determine that it is in the best interest of the Company or the Bank to apply our capital in a manner that is inconsistent with a shareholder’s wishes.
This changed the current method of providing allowances for credit losses that are probable, which may require us to increase our allowance for loan losses. Our loan origination processes present heightened opportunities for borrower or referral fraud. The loans we originate through our technology partners and referral sources are obtained primarily through an online application process.
This changed the current method of providing allowances for credit losses that are probable. Our loan origination processes present heightened opportunities for borrower or referral fraud. The loans we originate through our technology partners and referral sources are obtained primarily through an online application process. We do not generally meet with the borrowers in person.
If equity research analysts do not publish research or reports about our business, or if they do publish such reports but issue unfavorable commentary or downgrade our common stock, the price and trading volume of our common stock could decline.
Failure to use such funds effectively might harm your investment. 27 Table of Contents If equity research analysts do not publish research or reports about our business, or if they do publish such reports but issue unfavorable commentary or downgrade our common stock, the price and trading volume of our common stock could decline.
We have expanded into new markets with which we have less familiarity with than our historic markets. We intend to continue to expand the geographic scope of our SBA and USDA loan origination efforts when we identify attractive opportunities. Our senior management and Board of Directors have less familiarity with these markets than they do with our Florida markets.
We have expanded into new markets with which we have less familiarity with than our historic markets. We intend to continue to expand the location and number of our Florida banking centers and the national scope of our SBA and USDA loan origination efforts when we identify attractive opportunities.
As market interest rates increased during 2022, the unrealized losses on the Bank’s investment portfolio also increased. The increase in unrealized losses is reflected in Accumulated Other Comprehensive Income (“AOCI”) on the balance sheet and reduces book capital, and therefore, the tangible common equity ratio. Unrealized losses do not affect regulatory capital ratios.
The increase or decrease in unrealized losses is reflected in Accumulated Other Comprehensive Income (“AOCI”) on the balance sheet and increases or reduces book capital, and therefore, the tangible common equity ratio. Unrealized losses do not affect regulatory capital ratios.
Legislation and regulatory proposals enacted in response to market and economic conditions may materially adversely affect our business and results of operations. 24 Table of Contents Changes in the laws, regulations, and regulatory practices affecting the banking industry may increase our costs of doing business or otherwise adversely affect us and create competitive advantages for our competitors.
Changes in the laws, regulations, and regulatory practices affecting the banking industry may increase our costs of doing business or otherwise adversely affect us and create competitive advantages for our competitors.
You should not purchase common stock if you will need or expect an investment that pays dividends. 28 Table of Contents We are an emerging growth company, and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
Moreover, the Federal Reserve will closely scrutinize any dividend payout ratio exceeding 30% of after-tax net income. You should not purchase common stock if you will need or expect an investment that pays dividends. We are an emerging growth company, and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
That may result in the Bank recovering an amount for such collateral less than the amount of the loan or taking an extended time to liquidate such collateral. 23 Table of Contents Our use of appraisals in deciding whether to make a loan secured by real property or how to value the loan in the future may not accurately describe the net value of the collateral that we can realize.
Our use of appraisals in deciding whether to make a loan secured by real property or how to value the loan in the future may not accurately describe the net value of the collateral that we can realize. In considering whether to make a loan secured by real property, we generally require an appraisal of the property.
If we, or our clients or business partners, become the subject of such negative publicity, our ability to attract and retain clients, employees, and business partners, may be negatively impacted, which could affect our results of operation or growth prospects. Additionally, investors and shareholder advocates are increasing their emphasis on how corporations address ESG issues in their business strategies.
If we, or our clients or business partners, become the subject of such negative 25 Table of Contents publicity, our ability to attract and retain clients, employees, and business partners, may be negatively impacted, which could affect our results of operation or growth prospects.
Our future success will depend, in part, upon our ability to invest in and use technology to provide products and services that provide convenience to customers and to create additional efficiencies in our operations.
In addition to serving clients better, the effective use of technology may increase efficiency and may enable financial institutions to reduce costs. Our future success will depend, in part, upon our ability to invest in and use technology to provide products and services that provide convenience to customers and to create additional efficiencies in our operations.
Our business strategy places a significant emphasis on SBA and other government guaranteed lending. In order to successfully implement this strategy, we must originate and fund a substantial dollar amount of loans. To do so, we must identify qualified and interested borrowers and have sufficient capital and liquidity to support and fund such loans.
We may be unable to continue to produce the volume of loans necessary to support our SBA and other government guaranteed lending business. Our business strategy places a significant emphasis on SBA and other government guaranteed lending. In order to successfully implement this strategy, we must originate and fund a substantial dollar amount of loans.
Gains or losses on these instruments can have a direct impact on our results of operations. Increases in interest rates or changes in spreads may adversely impact the fair value of loans or debt securities and, accordingly, for debt securities classified as available for sale, may adversely affect accumulated other comprehensive income and, thus, capital levels.
Increases in interest rates or changes in spreads may adversely impact the fair value of loans or debt securities and, accordingly, for debt securities classified as available for sale, may adversely affect accumulated other comprehensive income and, thus, capital levels. These market factors also may adversely impact the value of debt securities we hold to meet regulatory liquidity requirements.
We have a large portfolio of financial instruments, including loans and loan commitments, debt securities, and certain other assets and liabilities that we measure at fair value that are subject to valuation and impairment assessments. We determine these values based on applicable accounting guidance.
We may incur losses if asset values decline, including due to changes in interest rates and prepayment speeds. We have a large portfolio of financial instruments, including loans and loan commitments, debt securities, and certain other assets and liabilities that we measure at fair value that are subject to valuation and impairment assessments.
Our ability to develop and deliver new products that meet the needs of our existing customers and attract new ones depends on the functionality of our technology systems. 26 Table of Contents Risks Related to Our Securities A vibrant public trading market for our common stock has not and may not develop, which may hinder your ability to sell the common stock and may lower the market price of the stock.
Risks Related to Our Securities A vibrant public trading market for our common stock has not and may not develop, which may hinder your ability to sell the common stock and may lower the market price of the stock.
We have 1,000,000 shares of authorized preferred stock, no par value.
We have 1,000,000 shares of authorized preferred stock, no par value. Of those, shares in three classes are issued and outstanding.
For financial instruments measured at fair value, this requires us to base fair value on exit price and to maximize the use of observable inputs and minimize the use of unobservable inputs in fair value measurements. The fair values of financial instruments include adjustments for market liquidity, credit quality, and other transaction-specific factors, if appropriate.
We determine these values based on applicable accounting guidance. For financial instruments measured at fair value, this requires us to base fair value on exit price and to maximize the use of observable inputs and minimize the use of unobservable inputs in fair value measurements.
We may be required to make increases in our loan loss reserve and to charge off loans in the future, which could adversely affect our results of operations.
Such actions could have a material adverse effect on our business, financial condition, results of operations, and future prospects. 22 Table of Contents We may be required to make increases in our credit loss reserve and to charge off loans in the future, which could adversely affect our results of operations.
If we are not successful in implementing this strategy, our income and results of operations may be adversely affected. We depend on the sale of both the guaranteed and unguaranteed portions of our government guaranteed loans, but also face risks relating to the retained portions of unguaranteed loans.
We depend on the sale of both the guaranteed and unguaranteed portions of our government guaranteed loans, but also face risks relating to the retained portions of unguaranteed loans.
Any delay in closing these types of loans, or losing the opportunity to make them, could result in decreased fee and interest income and adversely affect our financial performance. Changes in the laws or regulations governing our SBA and other government guaranteed lending activities and our mortgage lending business may adversely affect our ability to operate them profitably.
Changes in the laws or regulations governing our SBA and other government guaranteed lending activities and our mortgage lending business may adversely affect our ability to operate them profitably.
We implemented this new standard on January 1, 2023 and we will recognize a one-time adjustment to the allowance. We have not yet determined the magnitude of such adjustment or the overall impact on financial results but expect it to be between $3 million and $5 million.
We implemented this new standard on January 1, 2023 and we will recognize a one-time adjustment to the allowance of $3.1 million.
Such declines could negatively affect our business and have a material adverse effect on our capital, 25 Table of Contents financial condition, results of operations, and future growth. In addition, international economic and political uncertainty could impact the U.S. financial markets by potentially suppressing stock prices, including ours, and adding to overall market volatility, which could adversely affect our business.
In addition, international economic and political uncertainty could impact the U.S. financial markets by potentially suppressing stock prices, including ours, and adding to overall market volatility, which could adversely affect our business. The effects of any economic downturn on our business could continue for many years after the downturn is considered to have ended.
Technological changes, including online and mobile banking, have the potential of disrupting our business model, and we may have fewer resources than many competitors to invest in technological improvements. The financial services industry continues to undergo rapid technological changes with frequent introductions of new technology-driven products and services, including mobile and online banking services.
The financial services industry continues to undergo rapid technological changes with frequent introductions of new technology-driven products and services, including mobile and online banking services. Changes in customer behaviors have increased the need to offer these options to our customers.
Such adverse effect may be magnified if any such officer or employee were to become employed with a competitor of ours. In early 2023, our Chief Executive Officer Anthony Leo announced his retirement effective at the end of the year.
The loss or unavailability of such officers or employees could have a material adverse effect on our operations and prospects. Such adverse effect may be magnified if any such officer or employee were to become employed with a competitor of ours. On December 31,2023, our Chief Executive Officer Anthony Leo retired.
Private parties may also have the ability to challenge our performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition, results of operations, and future prospects.
Private parties may also have the ability to challenge our performance under fair lending laws in private class action litigation.
Additionally, our Articles of Incorporation provide that our Board of Directors may authorize and issue additional series of preferred stock without shareholder approval. Any preferred shares issued in the future may further restrict our ability to declare or pay dividends on any junior stock, including the common stock.
Additionally, our Articles of Incorporation provide that our Board of Directors may authorize and issue additional series of preferred stock without shareholder approval.
Our growth and development are particularly dependent upon the personal efforts and abilities of our executive officers and other qualified personnel. The loss or unavailability of such officers or employees could have a material adverse effect on our operations and prospects.
We are dependent on our management team and any of their departure, or subsequent employment with a competitor could adversely affect our operations. Our growth and development are particularly dependent upon the personal efforts and abilities of our executive officers and other qualified personnel.
We are also subject to state and federal statutory and regulatory limitations on our ability to pay dividends on our capital stock.
Any preferred shares issued in the future may further restrict our ability to declare or pay dividends on any junior stock, including the common stock. 28 Table of Contents We are also subject to state and federal statutory and regulatory limitations on our ability to pay dividends on our capital stock.
We are dependent on the expertise and actions of the bankers we have hired to be successful in these markets. We are dependent on our management team and any of their departure, or subsequent employment with a competitor could adversely affect our operations.
Our senior management and Board of Directors have less familiarity with out of state markets and may not fully understand the nuances of our new Florida markets. We are dependent on the expertise and actions of the bankers we have hired to be successful in these markets.
In addition, the mix of assets and liabilities could change as varying levels of market interest rates might present our customer base with more attractive options. We may be unable to continue to produce the volume of loans necessary to support our SBA and other government guaranteed lending business.
In addition, the mix of assets and liabilities could change as varying levels of market interest rates might present our customer base with more attractive options. Loss of deposits or a change in deposit mix could increase our funding costs and adversely affect our performance. Deposits are a low cost and stable source of funding.
Accordingly, the pandemic and related dynamics could continue to materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels. Further, there are no comparable recent events to provide guidance as to the effect a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change.
Accordingly, public health crises could materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels. Further, it is impossible to effectively predict future events relative to the nature, duration, or severity of recent events.
These market factors also may adversely impact the value of debt securities we hold to meet regulatory liquidity requirements. Decreases in interest rates may increase prepayments of certain assets, and, therefore, may adversely affect net interest income.
Decreases in interest rates may increase prepayments of certain assets, and, therefore, may adversely affect net interest income. Technological changes, including online and mobile banking, have the potential of disrupting our business model, and we may have fewer resources than many competitors to invest in technological improvements.
Removed
The COVID-19 pandemic has disrupted economic conditions, the financial and labor markets and workplace operating environments and the effects of such disruptions will depend on future developments, which are highly uncertain and are difficult to predict.
Added
We compete with banks and other financial institutions for deposits and as a result, the Company could lose deposits in the future, clients may shift their deposits into higher cost products, or the Company may need to raise interest rates to avoid deposit attrition. Funding costs may also increase if deposits lost are replaced with wholesale funding.
Removed
While COVID-19 pandemic conditions have improved, past and potential future government actions taken to reduce the spread of the virus have been weighing on the macroeconomic environment. As a result, lingering economic uncertainty and reduced economic activity remains. In addition, new virus strains could adversely impact our borrowers’, customers’, and business partners’ workforces and operations.
Added
Higher funding costs reduce our net interest margin, net interest income, and net income. In recent months, the environment for maintaining and growing deposits has become more challenging.
Removed
As a result, we may experience losses due to operational factors impacting us or our borrowers, employees, customers, or business partners. The effects of the COVID-19 pandemic have varied significantly by region, and the extent of the effects of the pandemic on the U.S. and global economies, labor markets and financial markets are likely to continue to change.
Added
This is partially attributable to the FRB reducing the size of its balance sheet through quantitative tightening and continues to increase interest rates giving depositors an incentive to move deposits to money market funds and other higher-yielding alternatives.
Removed
In considering whether to make a loan secured by real property, we generally require an appraisal of the property.
Added
In addition, recent unusually high levels of withdrawals from other, larger banks, which in some cases has resulted in bank failure, may result in similar withdrawal patterns at the Company. Should we experience any of these events, we may need to rely on higher cost wholesale funding, which would adversely affect our financial performance and net income.
Removed
Changes in local, national, or global economic and political conditions could adversely affect results of operations by affecting deposits and loan demand, credit quality and our relationships with vendors. Our success depends to a significant extent upon local, national, and, to a lesser extent, global economic and political conditions.
Added
To do so, we must identify qualified and interested borrowers and have sufficient capital and liquidity to support and fund such loans. If we are not successful in implementing this strategy, our income and results of operations may be adversely affected.
Removed
Conditions such as inflation, recession, unemployment, changes in interest rates, fiscal and monetary policy, government budget deficits, slowing gross domestic product, tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, military hostilities, terrorism, trade wars, economic sanctions, and other factors beyond our control may adversely affect our deposit levels and composition, the quality of investment securities in our portfolio or available for purchase, demand for loans, the ability of our borrowers to repay their loans, the value of the collateral securing loans, and the ability of our vendors to perform according to contractual requirements.
Added
Any delay in closing these types of loans, or losing the opportunity to originate or sell them, could result in decreased fee and interest income, which would adversely affect our financial performance.
Removed
Recent political and military developments in Russia, Ukraine, and elsewhere may result in substantial changes in economic and political conditions for the U.S. and the remainder of the world.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIndian Rocks Road Belleair Bluffs, FL 33770 Banking Center Own 2021 2102 59th Street West Bradenton, FL 34209 Banking Center Own 2022 16002 N. Dale Mabry Highway Tampa, FL 33618 Banking Center Own 2023 1782 Dr.
Biggest changeIndian Rocks Road Belleair Bluffs, FL 33770 Banking Center Own 2021 2102 59th Street West Bradenton, FL 34209 Banking Center Own 2022 16002 N. Dale Mabry Highway Tampa, FL 33618 Banking Center Own 2023 5600 Bee Ridge Road Sarasota, FL 34233 Banking Center Own 2023 1782 Dr. Martin Luther King Way Sarasota, FL 34240 Banking Center Own 2023 2075 S.
Item 2. Properties The following table contains information concerning the current and intended locations of the Bank’s full-service banking centers. The Bank also operates 1 loan production office located in Sarasota. Location Use Own or Lease Year First Operated 700 Central Avenue St.
Item 2. Properties The following table contains information concerning the current locations of the Bank’s full-service banking centers. Location Use Own or Lease Year First Operated 700 Central Avenue St.
Removed
Martin Luther King Way Sarasota, FL 34240 Loan Production Office Own 2021 In addition, the Bank acquired the following properties to be used as full-service banking centers. Location Ownership Status Year Acquired 2075 S. Tamiami Trail Sarasota, FL 34239 Own 2019 5600 Bee Ridge Road Sarasota, FL 34233 Own 2021 8704 SR 70 East Bradenton, FL 34202 Own 2021
Added
Tamiami Trail Sarasota, FL 34239 Banking Center Own 2024

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed2 unchanged
Biggest changeThere are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or to which its property is the subject. It em 4. Mine Safety Disclosures Not applicable. Part II
Biggest changeThere 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. It em 4. Mine Safety Disclosures Not applicable. Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+4 added−1 removed0 unchanged
Biggest change(OTCQX) under the symbol “FHBI”. 30 Table of Contents Issuer Purchases of Equity Securities Share Buyback Program. On January 26, 2021, the Company’s Board of Directors authorized a stock repurchase program for the repurchase of up to $100,000 per calendar quarter of the company’s issued and outstanding common stock.
Biggest changeIssuer Purchases of Equity Securities Share Buyback Program. On February 28, 2023, the Board of Directors approved the Company’s 2023 Stock Repurchase Program (“Repurchase Program”). The Repurchase Program permits the Company to repurchase up to $1,000,000 of the Company’s issued and outstanding common stock. The Repurchase Program ended as of December 31, 2023.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The common stock began trading on the Nasdaq under the symbol “BAFN” on November 30, 2021. Prior to that, the common stock was traded on the OTC Markets Group Inc.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The common stock began trading on the Nasdaq under the symbol “BAFN” on November 30, 2021. Prior to that, the common stock was traded on the OTC Markets Group Inc. (OTCQX) under the symbol “FHBI”.
Period Number of Shares Average Price Paid Per Share Cumulative Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs October 1-31, 2022 — $ — — $ 911,472 November 1-30, 2022 — — — $ 911,472 December 1-31, 2022 — — — $ 911,472 Total — $ — — Under applicable state law, Florida corporations are not permitted to retain treasury stock.
Period Number of Shares Average Price Paid Per Share Cumulative Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs October 1-31, 2023 — $ — 900 $ 987,178 November 1-30, 2023 — — 900 $ 987,178 December 1-31, 2023 — — 900 $ 987,178 Total — $ — Under applicable state law, Florida corporations are not permitted to retain treasury stock.
As such, the price paid for the repurchased shares reduces the amount of common stock on the consolidated balance sheet. As of December 31, 2022, total shares repurchased for $88,528 had been redeemed since the program was implemented. The repurchased shares remain authorized, unissued shares. Item 6. {Reserved} 31 Table of Contents
As such, the price paid for the repurchased shares reduces the amount of common stock on the consolidated balance sheet. As of December 31, 2023, total shares repurchased for $12,822 had been redeemed since the Repurchase Program was implemented. The repurchased shares remain authorized, unissued shares. Item 6. {Reserved}
All common shares repurchased in the program have been retired and are now held as unissued shares available for use and reissuance for purposes as and when determined by the Board. The following table sets forth information regarding the Company’s repurchase of shares of its outstanding common stock during the three months ended December 31, 2022.
The impact of the Inflation Reduction Act of 2022 on our consolidated financial statements will be dependent on the extent of stock repurchases made in future periods. The following table sets forth information regarding the Company’s repurchase of shares of its outstanding common stock during the three months ended December 31, 2023.
Removed
On November 30, 2021, the Board of Directors approved the amendment to its stock repurchase program to allow the Company to repurchase up to $450,000 of the Company’s issued and outstanding common stock per quarter. The changes to the program were implemented immediately and continued until December 31, 2022.
Added
The Inflation Reduction Act of 2022 created a new nondeductible 1% excise tax on repurchases of corporate stock by certain publicly traded corporations or their specified affiliates after December 31, 2022.
Added
The tax is imposed on the fair 31 Table of Contents value of the stock of a covered corporation that is repurchased in a given year, less the fair market value of any stock issued in that year. A “covered corporation” is any domestic corporation whose stock is traded on an established securities market, such as Nasdaq.
Added
The excise tax applies to all of the stock of a covered corporation regardless of whether the corporation has profits or losses.
Added
The act contains several exceptions to the excise tax, including, but not limited to, any repurchase of stock: in which the total value of the repurchased stock in a given year does not exceed $1,000,000; that is contributed to an employer sponsored retirement plan or other similar stock compensation plan; that is taxed as a dividend.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

109 edited+34 added−35 removed35 unchanged
Biggest changeSelected Financial Data - Unaudited As of and for the Three Months Ended As of and for the Year Ended (Dollars in thousands, except per share data) 12/31/2022 9/30/2022 12/31/2021 12/31/2022 12/31/2021 Income Statement Data: Net interest income $ 8,574 $ 9,170 $ 5,745 $ 30,000 $ 36,526 Provision for loan losses 700 750 (2,500) (700) (3,500) Noninterest income 8,404 9,804 5,597 31,550 21,973 Noninterest expense 13,493 14,158 13,262 55,212 50,279 Income tax expense (benefit) 672 983 (276) 1,560 2,691 Net income from continuing operations 2,113 3,083 856 5,478 9,029 Net (loss) income from discontinued operations (791) (4,485) 1,955 (5,827) 15,589 Net income (loss) 1,322 (1,402) 2,811 (349) 24,618 Preferred stock dividends 208 208 208 832 1,005 Net income available to (loss attributable to) common shareholders $ 1,114 $ (1,610) $ 2,603 $ (1,181) $ 23,613 Balance Sheet Data: Average loans held for investment, excluding PPP loans $ 703,193 $ 663,716 $ 518,697 $ 608,563 $ 421,936 Average total assets 925,194 939,847 923,485 904,546 1,294,287 Average common shareholders’ equity 80,158 83,014 83,056 82,589 72,955 Total loans held for investment 728,652 680,805 583,948 728,652 583,948 Total loans held for investment, excluding PPP loans 709,479 658,669 504,525 709,479 504,525 Total loans held for investment, excluding government guaranteed loan balances 569,892 520,408 332,977 569,892 332,977 Allowance for loan losses 9,046 9,739 13,452 9,046 13,452 Total assets 938,895 930,275 917,095 938,895 917,095 32 Table of Contents As of and for the Three Months Ended As of and for the Year Ended (Dollars in thousands, except per share data) 12/31/2022 9/30/2022 12/31/2021 12/31/2022 12/31/2021 Common shareholders’ equity 82,279 81,032 86,685 82,279 86,685 Per Share Data: Basic earnings (loss) per common share $ 0.28 $ (0.40) $ 0.66 $ (0.29) $ 6.21 Diluted earnings (loss) per common share $ 0.28 $ (0.37) $ 0.62 $ (0.22) $ 5.91 Dividends per common share $ 0.080 $ 0.080 $ 0.070 $ 0.320 $ 0.277 Book value per common share $ 20.35 $ 20.10 $ 21.77 $ 20.35 $ 21.77 Tangible book value per common share (1) $ 20.35 $ 20.10 $ 21.75 $ 20.35 $ 21.75 Performance Ratios: Return on average assets 0.57 % (0.60) % 1.22 % (0.04) % 1.90 % Return on average common equity 5.56 % (7.76) % 12.54 % (1.43) % 32.37 % Net interest margin 4.19 % 4.63 % 3.07 % 3.97 % 3.23 % Dividend payout ratio 28.99 % (20.02) % 10.65 % (108.95) % 4.46 % Asset Quality Data: Net charge-offs $ 1,393 $ 575 $ 664 $ 3,706 $ 4,210 Net charge-offs/average loans held for investment excluding PPP 0.79 % 0.35 % 0.51 % 0.61 % 1.00 % Nonperforming loans $ 10,468 $ 10,267 $ 11,909 $ 10,468 $ 11,909 Nonperforming loans (excluding government guaranteed balance) $ 3,671 $ 4,015 $ 3,967 $ 3,671 $ 3,967 Nonperforming loans/total loans held for investment 1.44 % 1.51 % 2.04 % 1.44 % 2.04 % Nonperforming loans (excluding gov’t guaranteed balance)/total loans held for investment 0.50 % 0.59 % 0.68 % 0.50 % 0.68 % ALLL/Total loans held for investment at amortized cost 1.29 % 1.48 % 2.34 % 1.29 % 2.34 % ALLL/Total loans held for investment at amortized cost, excluding PPP loans 1.33 % 1.54 % 2.72 % 1.33 % 2.72 % Other Data: Full-time equivalent employees 291 524 637 291 637 Banking centers 8 8 7 8 7 Loan production offices (2) 1 20 17 1 17 (1) See section entitled "GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures" below for a reconciliation to most comparable GAAP equivalent.
Biggest changeCONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) Selected Financial Data - Unaudited As of and for the Three Months Ended As of and for the Year Ended (Dollars in thousands, except for share data) 12/31/2023 9/30/2023 12/31/2022 12/31/2023 12/31/2022 Income Statement Data: Net interest income $ 8,877 $ 8,393 $ 8,574 $ 36,431 $ 30,000 Provision for credit losses (1) 2,737 3,001 700 10,445 (700) Noninterest income 14,691 14,679 8,404 49,755 31,550 Noninterest expense 18,466 17,427 13,493 67,707 55,212 Income tax expense 704 674 672 2,119 1,560 Net income from continuing operations 1,661 1,970 2,113 5,915 5,478 Net loss from discontinued operations (6) (47) (791) (213) (5,827) Net income (loss) 1,655 1,923 1,322 5,702 (349) Preferred stock dividends 341 208 208 965 832 Net income available to (loss attributable to) common shareholders $ 1,314 $ 1,715 $ 1,114 $ 4,737 $ (1,181) Balance Sheet Data: Average loans HFI, excluding PPP loans $ 900,289 $ 841,920 $ 703,193 $ 829,012 $ 608,563 Average loans HFI at amortized cost, excluding PPP loans 812,446 773,749 677,172 754,612 580,308 Average total assets 1,108,550 1,088,517 925,194 1,058,124 904,546 Average common shareholders’ equity 82,574 81,067 80,158 80,718 82,589 Total loans HFI 915,726 878,447 728,652 915,726 728,652 Total loans HFI, excluding PPP loans 912,524 863,203 709,479 912,524 709,479 Total loans HFI, excluding government guaranteed loan balances 698,106 687,141 569,892 698,106 569,892 Allowance for credit losses (1) 13,497 13,365 9,046 13,497 9,046 Total assets 1,117,766 1,133,979 938,895 1,117,766 938,895 Common shareholders’ equity 84,656 82,725 82,279 84,656 82,279 Per Share Data: Basic earnings (loss) per common share $ 0.32 $ 0.42 $ 0.28 $ 1.16 $ (0.29) Diluted earnings (loss) per common share $ 0.32 $ 0.41 $ 0.28 $ 1.12 $ (0.22) Dividends per common share $ 0.08 $ 0.08 $ 0.08 $ 0.32 $ 0.32 Book value per common share $ 20.60 $ 20.12 $ 20.35 $ 20.60 $ 20.35 Tangible book value per common share (2) $ 20.60 $ 20.12 $ 20.35 $ 20.60 $ 20.35 Performance Ratios: Return on average assets (3) 0.60 % 0.71 % 0.57 % 0.54 % (0.04) % Return on average common equity (3) 6.37 % 8.46 % 5.56 % 5.87 % (1.43) % Net interest margin (3) 3.48 % 3.36 % 4.19 % 3.78 % 3.97 % Dividend payout ratio 25.03 % 19.15 % 28.99 % 27.70 % (108.95) % Asset Quality Data: Net charge-offs $ 2,612 $ 2,234 $ 1,393 $ 8,987 $ 3,706 Net charge-offs/average loans HFI at amortized cost, excluding PPP (3) 1.29 % 1.15 % 0.82 % 1.19 % 0.64 % Nonperforming loans (4) $ 9,688 $ 9,518 $ 10,468 $ 9,688 $ 10,468 Nonperforming loans (excluding government guaranteed balance) (4) $ 8,264 $ 7,997 $ 3,671 $ 8,264 $ 3,671 Nonperforming loans/total loans HFI (4) 1.18 % 1.20 % 1.49 % 1.18 % 1.49 % 33 Table of Contents BAYFIRST FINANCIAL CORP.
This activity inevitably has risks for potential loan 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.
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.
The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based on management’s credit evaluation of the counterparty. 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.
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 issued 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.
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.
Under the proposal, a qualifying organization may elect to use the CBLR framework if its CBLR is greater than 9%. The Bank has elected not to use the CBLR framework.
Under the proposal, a qualifying organization may elect to use the CBLR framework if its CBLR is greater than 9%. The Bank elected not to use the CBLR framework.
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 Year Ended December 31, 2022 vs.
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 Year Ended December 31, 2023 vs.
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.
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.
Allowance for Loan Losses The allowance for loan losses is calculated with the objective of maintaining a reserve sufficient to absorb estimated losses. Management's determination of the appropriateness of the allowance is based on periodic evaluations of the loan portfolio, lending-related commitments, and other relevant factors.
Allowance for Credit Losses The ACL is calculated with the objective of maintaining a reserve sufficient to absorb estimated losses. Management's determination of the appropriateness of the allowance is based on periodic evaluations of the loan portfolio, lending-related commitments, and other relevant factors.
The net changes attributable to the 37 Table of Contents 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.
The net changes attributable to the 39 Table of Contents 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.
The Company does 51 Table of Contents 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 does 53 Table of Contents 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.
These statements are subject to many risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic, global military hostilities, or climate changes, including its effects on the economic environment, its customers and its operations, as well as any changes to federal, state or local government laws, regulations or orders in connection with them; the ability of the Company to implement its strategy and expand its banking operations; changes in interest rates and other general economic, business and political conditions, including changes in the financial markets or global military hostilities; changes in business plans as circumstances warrant; risks related to mergers and acquisitions; changes in benchmark interest rates used to price loans and deposits, changes in tax laws, regulations and guidance; and other risks detailed from time to time in filings made by the Company with the SEC.
These statements are subject to many risks and uncertainties, including, but not limited to, the effects of health crises, global military hostilities, or climate changes, including its effects on the economic environment, its customers and its operations, as well as any changes to federal, state or local government laws, regulations or orders in connection with them; the ability of the Company to implement its strategy and expand its banking operations; changes in interest rates and other general economic, business and political conditions, including changes in the financial markets or global military hostilities; changes in business plans as circumstances warrant; risks related to mergers and acquisitions; changes in benchmark interest rates used to price loans and deposits, changes in tax laws, regulations and guidance; and other risks detailed from time to time in filings made by the Company with the SEC.
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 loans into the secondary market. The primary source of funding for its loans is deposits.
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.
In addition, its 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, and occupancy and equipment costs, as well as income taxes.
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, and occupancy and equipment costs, as well as income taxes.
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 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. 49 Table of Contents The Bank emphasizes commercial banking relationships in an effort to increase demand deposits as a percentage of total deposits.
Item 7. 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 fiscal years ended December 31, 2022 and December 31, 2021 and financial condition as of December 31, 2022 and December 31, 2021.
Item 7. 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 fiscal years ended December 31, 2023 and December 31, 2022 and financial condition as of December 31, 2023 and December 31, 2022.
Provision for Loan Losses The provision for loan losses is charged to operations to increase 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, and other factors that may affect the ability to collect on the loans in its portfolio.
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 following table provides information on the maturity distribution of the time deposits exceeding the FDIC insurance limit of $250 thousand as of December 31, 2022.
The following table provides information on the maturity distribution of the time deposits exceeding the FDIC insurance limit of $250 thousand as of December 31, 2023.
The following table sets forth, at the dates indicated, information regarding the geographic disbursement of its SBA loan portfolio. The “All Other” category includes states with less than 5% in any period presented.
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.
The Bank maintains an ALLL based on a number of quantitative and qualitative factors, including levels and trends of past due and nonaccrual loans, asset classifications, loan grades, change in volume and mix of loans, collateral value, historical loss experience, size and complexity of individual credits, and economic conditions.
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.
At December 31, 2022 and December 31, 2021, the Bank's capital ratios were in excess of the requirement to be "well capitalized" under the regulatory guidelines. 49 Table of Contents As of the dates indicated, the Bank met all capital adequacy requirements to which it is subject.
At December 31, 2023 and December 31, 2022, the Bank's capital ratios were in excess of the requirement to be "well capitalized" under the regulatory guidelines. 51 Table of Contents As of the dates indicated, the Bank met all capital adequacy requirements to which it is subject.
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 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 35 Table of Contents companies do so.
In addition, management may include qualitative adjustments intended to capture the impact of other uncertainties in the lending environment such as underwriting standards, current economic and political conditions, and other factors affecting the credit quality. Changes to one or more of the estimates used could result in a different estimated allowance for loan losses.
In addition, management may include qualitative adjustments intended to capture the impact of other uncertainties in the lending environment such as underwriting standards, current economic and political conditions, and other factors affecting the credit quality. Changes to one or more of the estimates used could result in a different estimated ACL.
(Dollars in thousands) December 31, 2022 December 31, 2021 Investment securities held to maturity: Mortgage-backed securities: U.S.
(Dollars in thousands) December 31, 2023 December 31, 2022 Investment securities held to maturity: Mortgage-backed securities: U.S.
Specific allocation of reserves on impaired 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 tertiary support on each impaired credit.
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 tertiary support on each individually evaluated credit.
BayFirst’s liquidity needs are to make interest payments on its debt obligations, dividends on shares of its Series A Preferred Stock, Series B Convertible Preferred Stock, and common stock, and payment of certain operating expenses. As of December 31, 2022, BayFirst Financial Corp. held $559 thousand in cash and cash equivalents.
BayFirst’s liquidity needs are to make interest payments on its debt obligations, dividends on shares of its Series A Preferred Stock, Series B Convertible Preferred Stock, Series C Cumulative Convertible Preferred Stock, and common stock, and payment of certain operating expenses. As of December 31, 2023, BayFirst Financial Corp. held $954 thousand in cash and cash equivalents.
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.
Management believes that the critical 34 Table of Contents accounting policies and estimates listed below require the Company to make difficult, subjective or complex judgments about matters that are inherently uncertain.
Loan balances in this table include loans held for investment at fair value, loans held for investment at amortized cost, discount on retained balances of loans sold, premium and discount on loans purchased, and deferred loan costs, net.
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.
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.
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. 32 Table of Contents BAYFIRST FINANCIAL CORP.
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 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.
Net interest margin including discontinued operations improved to 3.97% for the year ended 2022, compared to 3.23% for the year ended 2021. 36 Table of Contents 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.
Net interest margin including discontinued operations decreased to 3.78% for the year ended December 31, 2023 , compared to 3.97% for the year ended December 31, 2022 . 38 Table of Contents 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.
The effective income tax rate was 51.60% for the year ended December 31, 2022 and 24.20% for the year ended December 31, 2021. 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 December 31, 2022 and December 31, 2021.
The effective income tax rate was 26.44% for the year ended December 31, 2023 and 51.60% for the year ended December 31, 2022. 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 December 31, 2023 and December 31, 2022.
(2) Includes $58,525 at an average yield of 4.69% and $123,953 at an average yield of 3.00% of residential loans held for sale from discontinued operations as of December 31, 2022 and December 31, 2021, respectively. (3) Net interest margin represents net interest income divided by average total interest-earning assets.
(2) Includes $42 at an average yield of 2.02% and $58,525 at an average yield of 4.69% of residential loans held for sale from discontinued operations as of December 31, 2023 and December 31, 2022, respectively. (3) Net interest margin represents net interest income divided by average total interest-earning assets.
On January 24, 2023, BayFirst’s Board of Directors declared a first quarter 2023 cash dividend of $0.08 per common share, payable March 15, 2023 to common shareholders of record as of March 1, 2023. This dividend marks the 27 th consecutive quarterly cash dividend paid since BayFirst initiated cash dividends in 2016. First Quarter Preferred Series A Stock Dividend.
On January 23, 2024, BayFirst’s Board of Directors declared a first quarter 2024 cash dividend of $0.08 per common share, payable March 15, 2024 to common shareholders of record as of March 1, 2024. This dividend marks the 31 st consecutive quarterly cash dividend paid since BayFirst initiated cash dividends in 2016. First Quarter Preferred Series A Stock Dividend.
The Debentures carry interest at a fixed rate of 4.50% per annum for the initial five years of their term and carry interest at a floating rate for the final five years of their term. Under the terms of the Debentures, the floating rates are based on a SOFR benchmark plus 3.78% per annum.
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. Under the debt agreements, the floating rates are based on a SOFR benchmark plus 3.78% per annum.
Additionally, the Company purchased $16.6 million of government guaranteed loans and $37.2 million of consumer loans. Loan Maturity/Rate Sensitivity The following table shows the contractual maturities of our loans at December 31, 2022.
The Bank purchased $16.6 million of government guaranteed loans and $37.2 million of unsecured consumer loans. Loan Maturity/Rate Sensitivity The following table shows the contractual maturities of our loans at December 31, 2023.
In the second quarter of 2022, the Bank discontinued its primary consumer direct residential mortgage business line. In the third quarter of 2022, management decided to discontinue the nationwide residential lending business. As a result of the discontinuance, the nationwide residential line of business was reclassified as a discontinued operation and reported in the financial statements as such.
In the third quarter of 2022, management decided to discontinue the nationwide residential lending business. As a result of the discontinuance, the nationwide residential line of business was reclassified as a discontinued operation and reported in the financial statements as such.
(Dollars in thousands) December 31, 2022 December 31, 2021 Investment securities available for sale: Asset-backed securities $ 9,605 $ 7,535 Mortgage-backed securities: U.S. Government-sponsored enterprises 3,440 4,394 Collateralized mortgage obligations: U.S.
(Dollars in thousands) December 31, 2023 December 31, 2022 Investment securities available for sale: Asset-backed securities $ 7,933 $ 9,605 Mortgage-backed securities: U.S. Government-sponsored enterprises 3,236 3,440 Collateralized mortgage obligations: U.S.
Government-sponsored enterprises $ — — % $ — — % $ — — % $ 2 2.65 % Corporate bonds — — 4,000 5.79 1,000 4.38 — — Total investment securities held to maturity $ — — % $ 4,000 5.79 % $ 1,000 4.38 % $ 2 0.74 % December 31, 2021 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 % December 31, 2022 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.
A summary of the amounts of the Bank’s financial instruments, with off-balance sheet risk as of the dates indicated, is as follows: (Dollars in thousands) December 31, 2022 December 31, 2021 Unfunded loan commitments $ 23,512 $ 18,567 Unused lines of credit 134,366 52,076 Standby letters of credit 244 68 Total $ 158,122 $ 70,711 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.
A summary of the amounts of the Bank’s financial instruments, with off-balance sheet risk as of the dates indicated, is as follows: (Dollars in thousands) December 31, 2023 December 31, 2022 Unfunded loan commitments $ 7,392 $ 23,512 Unused lines of credit 178,440 134,366 Standby letters of credit 186 244 Total $ 186,018 $ 158,122 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.
There were no borrowings from the FHLB or FRB at December 31, 2021. 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.
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.
Total loans held for investment at December 31, 2022 and December 31, 2021 included government guaranteed loans and loans measured at fair value, which had no reserves allocated to them.
Total loans HFI at December 31, 2023 and December 31, 2022 included government guaranteed loans and loans measured at fair value, which had no reserves allocated to them.
The Company's ability to accept 47 Table of Contents or renew brokered deposits is contingent upon the Bank maintaining a capital level of "well capitalized." At December 31, 2022 and December 31, 2021, the Company had $746 thousand and $759 thousand, respectively, of brokered deposits.
The Company's ability to accept or renew brokered deposits is contingent upon the Bank maintaining a capital level of "well capitalized." At December 31, 2023 and December 31, 2022, the Company had $30.0 million and $746 thousand, respectively, of brokered deposits.
Any a dvances that the bank were to obtain would be secured by a blanket lien on $210.8 million of real estate-related loans as of December 31, 2022. Based on this collateral and the Company's holdings of FHLB stock, the Company was eligible to borrow up to an additional $128.6 million from the FHLB at December 31, 2022.
Any a dvances that the bank were to obtain would be secured by a blanket lien on $285.9 million of real estate-related loans as of December 31, 2023. Based on this collateral and the Company's holdings of FHLB stock, the Company was eligible to borrow up to $153.5 million from the FHLB at December 31, 2023.
December 31, 2022 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 $ — — % $ — — % $ — — % $ 9,873 5.40 % Mortgage-backed securities: U.S.
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.
Income Taxes Income tax expense from continuing operations was $1.6 million for the year ended December 31, 2022, a decrease of $1.1 million from income tax expense of $2.7 million for the year ended December 31, 2021. The decrease was primarily due to the decrease in pre-tax earnings from continuing operations.
Income Taxes Income tax expense from continuing operations was $2.1 million for the year ended December 31, 2023, an increase of $0.6 million from income tax expense of $1.6 million for the year ended December 31, 2022. The increase was primarily due to the increase in pre-tax earnings from continuing operations.
BayFirst’s Board of Directors declared a quarterly cash dividend of $22.50 on the Series A Preferred Stock. The dividend will be payable April 3, 2023 to shareholders of record as of January 16, 2023. The amount and timing of the dividend is in accordance with the terms of the Series A Preferred Stock. First Quarter Preferred Series B Stock Dividend.
BayFirst’s Board of Directors declared a quarterly cash dividend of $22.50 on the Series A Preferred Stock. The dividend was payable March 1, 2024 to shareholders of record as of January 15, 2024. The amount and timing of the dividend is in accordance with the terms of the Series A Preferred Stock. First Quarter Preferred Series B Stock Dividend.
Based on this collateral, the Company was eligible to borrow up to an additional $17.0 million from the FRB at December 31, 2022. In June 2021, the Company issued $6.0 million of Subordinated Debentures (the “Debentures”) that mature June 30, 2031 and are redeemable after five years.
Based on this collateral, the Company was eligible to borrow up to $40.4 million from the FRB at December 31, 2023. 50 Table of Contents In June 2021 , the Company issued $6.0 million of Subordinated Debentures (the “Debentures”) that mature June 30, 2031 and are redeemable after 5 years.
At December 31, 2022, 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 allowance for loan losses, and fair value measurement of investment securities, SBA servicing rights and SBA loans held for investment at fair value, which are discussed more fully below.
At December 31, 2023, 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, fair value measurement of government guaranteed loan servicing rights and government guaranteed loans HFI at fair value, which are discussed more fully below.
In addition, the Bank has a line of credit with the Federal Reserve Bank secured by $62.5 million of commercial loans as of December 31, 2022. FRB short-term borrowings bear interest at variable rates based on the Federal Open Market Committee's target range for the federal funds rate.
In addition, the Bank has a line of credit with the Federal Reserve Bank of Atlanta which was secured by $57.7 million of commercial loans as of December 31, 2023. FRB short-term borrowings bear interest at variable rates based on the FOMC's target range for the federal funds rate.
The Bank periodically reviews the assumptions and formulates methodologies by which changes are made to the specific and general valuation allowances for loan losses in an effort to refine such allowances in light of the current status of the factors described above. The methodology is presented to and approved by the Bank’s Board of Directors.
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.
(2) All out of market nationwide residential loan production offices have been closed. 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.
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.
Income tax benefit from discontinued operations was $1.9 million for the year ended December 31, 2022, a change of $7.1 million from income tax expense of $5.2 million for the year ended December 31, 2021. The change was primarily due to the decrease in pre-tax earnings from discontinued operations.
Income tax benefit from discontinued operations was $70 thousand for the year ended December 31, 2023, a change of $1.9 million from income tax benefit of $1.9 million for the year ended December 31, 2022. The change was primarily due to the decrease in pre-tax loss from discontinued operations.
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 April 3, 2023 to shareholders of record as of January 16, 2023. The amount and timing of the dividend is in accordance with the terms of the Series B Convertible Preferred Stock. Management Succession .
BayFirst’s Board of Directors declared a quarterly cash dividend of $20.00 on the Series B Convertible Preferred Stock. The dividend was payable March 1, 2024 to shareholders of record as of January 15, 2024. The amount and timing of the dividend is in accordance with the terms of the Series B Convertible Preferred Stock.
The following presents these non-GAAP financial measures along with their most directly comparable financial measures calculated in accordance with GAAP: 33 Table of Contents Tangible Common Shareholders' Equity and Tangible Book Value Per Common Share As of (Dollars in thousands, except per share data) December 31, 2022 September 30, 2022 December 31, 2021 (Unaudited) (Unaudited) (Unaudited) Total shareholders’ equity $ 91,884 $ 90,637 $ 96,290 Less: Preferred stock liquidation preference (9,605) (9,605) (9,605) Total equity available to common shareholders 82,279 81,032 86,685 Less: Goodwill — — (100) Tangible common shareholders' equity $ 82,279 $ 81,032 $ 86,585 Common shares outstanding 4,042,474 4,031,937 3,981,117 Tangible book value per common share $ 20.35 $ 20.10 $ 21.75 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 following presents these non-GAAP financial measures along with their most directly comparable 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) December 31, 2023 September 30, 2023 December 31, 2022 Total shareholders’ equity $ 100,707 $ 94,165 $ 91,884 Less: Preferred stock liquidation preference (16,051) (11,440) (9,605) Total equity available to common shareholders 84,656 82,725 82,279 Less: Goodwill — — — Tangible common shareholders' equity $ 84,656 $ 82,725 $ 82,279 Common shares outstanding 4,110,470 4,110,650 4,042,474 Tangible book value per common share $ 20.60 $ 20.12 $ 20.35 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 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.
As a result of the accounting change, equity was reduced by $2.5 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.
The ALLL was $9.0 million at December 31, 2022 and $13.5 million at December 31, 2021. 38 Table of Contents Noninterest Income The following table presents noninterest income from continuing operations for the years ended December 31, 2022 and December 31, 2021.
The ACL was $13.5 million at December 31, 2023 and $9.0 million using the incurred losses methodology at December 31, 2022. 40 Table of Contents Noninterest Income The following table presents noninterest income from continuing operations for the year ended December 31, 2023 and December 31, 2022.
At December 31, 2022, the Company had $2.2 million of federal net operating loss carryforward and $362 thousand of state net operating loss carryforward. The net operating loss carryforwards do not expire. At December 31, 2021, the Company did not have any net operating loss carryforward.
At December 31, 2023, the Company had $1.8 million of federal net operating loss carryforward and $0.4 million of state net operating loss carryforward. The net operating loss carryforwards do not expire. At December 31, 2022, the Company had $2.2 million of federal net operating loss carryforward and $0.4 million of state net operating loss carryforward.
The amount of each of the following categories of deposits, at the dates indicated, are as follows: (Dollars in thousands) December 31, 2022 December 31, 2021 Noninterest-bearing deposits $ 93,235 11.8 % $ 83,638 11.6 % Interest-bearing transaction accounts 202,656 25.5 163,495 22.7 Money market accounts 345,200 43.4 408,257 56.5 Savings 17,853 2.2 15,607 2.2 Subtotal 658,944 82.9 670,997 93.0 Total time deposits 136,126 17.1 50,688 7.0 Total deposits $ 795,070 100.0 % $ 721,685 100.0 % At December 31, 2022, the Company held approximately $308.4 million of deposits that exceeded the FDIC insurance limit.
The amount of each of the following categories of deposits, at the dates indicated, are as follows: (Dollars in thousands) December 31, 2023 December 31, 2022 Noninterest-bearing deposits $ 93,708 9.5 % $ 93,235 11.8 % Interest-bearing transaction accounts 259,422 26.3 202,656 25.5 Money market accounts 355,946 36.2 345,200 43.4 Savings 17,054 1.7 17,853 2.2 Subtotal 726,130 73.7 658,944 82.9 Total time deposits 259,008 26.3 136,126 17.1 Total deposits $ 985,138 100.0 % $ 795,070 100.0 % At December 31, 2023, the Company held approximately $162.3 million of deposits that exceeded the FDIC insurance limit which was 16% of total deposits.
The Bank’s actual capital amounts and percentages are as shown in the table below: Actual Minimum (1) Well Capitalized (2) (Dollars in thousands) Amount Percent Amount Percent Amount Percent As of December 31, 2022 Total Capital (to risk-weighted assets) $ 108,307 15.00 % $ 57,767 8.00 % $ 72,209 10.00 % Tier 1 Capital (to risk-weighted assets) 99,269 13.75 43,325 6.00 57,767 8.00 Common Equity Tier 1 Capital (to risk-weighted assets) 99,269 13.75 32,494 4.50 46,936 6.50 Tier 1 Capital (to total assets) 99,269 10.79 36,816 4.00 46,020 5.00 As of December 31, 2021 Total Capital (to risk-weighted assets) 106,002 21.25 39,909 8.00 49,886 10.00 Tier 1 Capital (to risk-weighted assets) 99,656 19.98 29,932 6.00 39,909 8.00 Common Equity Tier 1 Capital (to risk-weighted assets) 99,656 19.98 22,449 4.50 32,426 6.50 Tier 1 Capital (to total assets) 99,656 12.22 32,619 4.00 40,774 5.00 (1) Minimum to be considered “adequately capitalized” under Basel III Capital Adequacy.
The Bank’s actual capital amounts and percentages are as shown in the table below: Actual Minimum (1) Well Capitalized (2) (Dollars in thousands) Amount Percent Amount Percent Amount Percent 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 As of December 31, 2022 Total Capital (to risk-weighted assets) 108,307 15.00 57,767 8.00 72,209 10.00 Tier 1 Capital (to risk-weighted assets) 99,269 13.75 43,325 6.00 57,767 8.00 Common Equity Tier 1 Capital (to risk-weighted assets) 99,269 13.75 32,494 4.50 46,936 6.50 Tier 1 Capital (to total assets) 99,269 10.79 36,816 4.00 46,020 5.00 (1) Minimum to be considered “adequately capitalized” under Basel III Capital Adequacy.
For the Year Ended December 31, (Dollars in thousands) 2022 2021 Noninterest expense: Salaries and benefits $ 27,422 $ 24,879 Bonus, commissions, and incentives 2,394 3,216 Occupancy and equipment 3,995 3,214 Data processing 4,828 5,288 Marketing and business development 2,660 2,698 Professional services 4,083 3,907 Loan origination and collection 3,711 2,452 Employee recruiting and development 2,230 1,714 Regulatory assessments 457 442 Director compensation 686 323 Liability and fidelity bond insurance 463 340 ATM and interchange 381 312 Telecommunication 367 250 Other noninterest expense 1,535 1,244 Total noninterest expense $ 55,212 $ 50,279 Noninterest expense was $55.2 million during the year ended December 31, 2022, an increase of $4.9 million or 9.8% from $50.3 million for the year ended December 31, 2021.
For the Year Ended December 31, (Dollars in thousands) 2023 2022 Noninterest expense: Salaries and benefits $ 30,973 $ 27,422 Bonus, commissions, and incentives 5,726 2,394 Occupancy and equipment 4,758 3,995 Data processing 5,611 4,828 Marketing and business development 3,336 2,660 Professional services 3,657 4,083 Loan origination and collection 7,425 3,711 Employee recruiting and development 2,177 2,230 Regulatory assessments 881 457 Director compensation 575 686 Liability and fidelity bond insurance 546 463 ATM and interchange 534 381 Telecommunication 387 367 Other noninterest expense 1,121 1,535 Total noninterest expense $ 67,707 $ 55,212 41 Table of Contents Noninterest expense was $67.7 million during the year ended December 31, 2023, an increase of $12.5 million or 22.6% from $55.2 million for the year ended December 31, 2022.
Contractual Obligations as of December 31, 2022 (Dollars in thousands) Less than One Year One to Three Years Three to Five Years Over Five Years Total Operating lease obligations $ 1,450 $ 2,267 $ 1,245 $ — $ 4,962 Short-term borrowings 25,000 — — — 25,000 Long-term borrowings — — — 2,844 2,844 Subordinated notes 50 — — 5,942 5,992 Time deposits 120,240 15,587 299 — 136,126 Total $ 146,740 $ 17,854 $ 1,544 $ 8,786 $ 174,924 Contractual Obligations as of December 31, 2021 (Dollars in thousands) Less than One Year One to Three Years Three to Five Years Over Five Years Total Operating lease obligations $ 1,454 $ 2,249 $ 1,279 $ 301 $ 5,283 Long-term borrowings — — — 3,299 3,299 PPP Liquidity Facility 44,647 — 25,007 — 69,654 Subordinated notes — 50 — 6,000 6,050 Time deposits 40,868 9,210 610 — 50,688 Total $ 86,969 $ 11,459 $ 26,896 $ 9,650 $ 134,974 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.
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 Contractual Obligations as of December 31, 2022 (Dollars in thousands) Less than One Year One to Three Years Three to Five Years Over Five Years Total Operating lease obligations $ 1,450 $ 2,267 $ 1,245 $ — $ 4,962 Short-term borrowings 25,000 — — — 25,000 Long-term borrowings 456 912 912 564 2,844 Subordinated notes 50 — — 5,942 5,992 Time deposits 120,240 15,587 299 — 136,126 Total $ 146,740 $ 17,854 $ 1,544 $ 8,786 $ 174,924 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.
For the Year Ended December 31, (Dollars in thousands) 2022 2021 Noninterest income: Loan servicing income, net $ 2,040 $ 1,864 Gain on sale of government guaranteed loans, net 21,720 18,024 Service charges and fees 1,306 1,027 SBA loan fair value gain 4,756 184 Other noninterest income 1,728 874 Total noninterest income $ 31,550 $ 21,973 Noninterest income from continuing operations was $31.6 million for the year ended December 31, 2022, an increase of $9.6 million or 43.6% from $22.0 million for the year ended December 31, 2021.
For the Year Ended December 31, (Dollars in thousands) 2023 2022 Noninterest income: Loan servicing income, net $ 2,826 $ 2,040 Gain on sale of government guaranteed loans, net 24,553 21,720 Service charges and fees 1,721 1,306 Government guaranteed loan fair value gain 15,718 4,756 Government guaranteed loan packaging fees 3,664 774 Other noninterest income 1,273 954 Total noninterest income $ 49,755 $ 31,550 Noninterest income from continuing operations was $49.8 million for the year ended December 31, 2023, an increase of $18.2 million or 57.7% from $31.6 million for the year ended December 31, 2022.
(Dollars in thousands) At and for the Year Ended December 31, Government Guaranteed, Excluding PPP 2022 2021 Number of loans originated 1,364 374 Amount of loans originated $ 386,024 $ 169,467 Average loan size originated $ 283 $ 453 Government guaranteed loan balances sold $ 311,783 $ 44,854 Government unguaranteed loan balances sold $ 13,803 $ 5,034 Total government guaranteed loans $ 300,219 $ 300,415 Government guaranteed loan balances $ 139,587 $ 171,548 Government unguaranteed loan balances $ 160,632 $ 128,867 Government guaranteed loans serviced for others $ 660,600 $ 459,670 46 Table of Contents The Bank makes government guaranteed loans throughout the United States.
(Dollars in thousands) At and for the Year Ended December 31, Government Guaranteed, Excluding PPP 2023 2022 Number of loans originated 2,817 1,364 Amount of loans originated $ 547,469 $ 386,024 Average loan size originated $ 194 $ 283 Government guaranteed loan balances sold $ 437,935 $ 311,783 Government unguaranteed loan balances sold $ 13,669 $ 13,803 Total government guaranteed loans $ 395,877 $ 300,219 Government guaranteed loan balances $ 214,418 $ 139,587 Government unguaranteed loan balances $ 181,459 $ 160,632 Government guaranteed loans serviced for others $ 855,756 $ 660,600 The Bank makes government guaranteed loans throughout the United States.
At December 31, 2022, we had $3.7 million in nonperforming assets, excluding government guaranteed loan balances, and its ALLL represented 1.29% of total loans held for investment at amortized cost. At December 31, 2021, we had $4.0 million in nonperforming assets, excluding government guaranteed loan balances, and its ALLL represented 2.34% of total loans held for investment at amortized cost.
At 46 Table of Contents December 31, 2022, the Company had $3.7 million in nonperforming assets, excluding government guaranteed loan balances, and their ALLL represented 1.29% of total loans HFI at amortized cost.
The Company measures its performance through its net interest income after provision for loan losses, return on average assets, and return on average common equity, while maintaining appropriate regulatory leverage and risk-based capital ratios. Recent Developments First Quarter Common Stock Dividend.
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. Recent Developments Preferred Stock Offering. On September 30, 2023, the Company issued 1,835 shares of 11.0% Series C Cumulative Convertible Preferred Stock.
Government-sponsored enterprises — — — — — — 4,470 1.32 Collateralized mortgage obligations: U.S.
Government-sponsored enterprises — — — — — — 3,842 1.58 Collateralized mortgage obligations: U.S.
Government-sponsored enterprises — — — — — — 19,370 1.31 Total investment securities available for sale $ — — % $ — — % $ — — % $ 31,464 1.21 % The investment securities held to maturity presented in the following tables are reported at amortized cost and by contractual maturity as of December 31, 2022 and December 31, 2021.
Government-sponsored enterprises — — — — — — 22,031 1.89 Corporate bonds — — 9,981 3.70 1,356 4.34 — — Total investment securities available for sale $ — — % $ 9,981 3.70 % $ 1,356 4.34 % $ 36,037 2.81 % The investment securities held to maturity presented in the following tables are reported at amortized cost and by contractual maturity as of December 31, 2023 and December 31, 2022.
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.
Our lending activities primarily consist of government guaranteed loans, real estate loans, commercial business loans, residential mortgage, and consumer loans. Senior management and loan officers have continued to develop new sources of loan referrals, particularly among centers of local influence and real estate professionals, and have also enjoyed repeat business from loyal customers in the markets the Bank serves.
This evaluation is inherently subjective as it requires numerous estimates, including the loss content for internal risk ratings, collateral values, and the amounts and timing of expected future cash flows.
This evaluation is inherently subjective as it requires numerous estimates, including the loss for internal risk ratings, collateral values, and the amounts and timing of expected future cash flows. The Company’s ACL on loans is estimated using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.
The increase was primarily due to higher salaries and benefits, occupancy expense, and loan origination and collection expense. Discontinued Operations 39 Table of Contents Net loss from discontinued operations was $5.8 million for the year 2022, which was a $21.4 million reduction from net income of $15.6 million for the year ended 2021.
The increase was primarily the result of higher compensation costs and loan origination and collection expense. Discontinued Operations Net loss from discontinued operations was $213 thousand for the year ended December 31, 2023, which was a $5.6 million reduction from a net loss of $5.8 million for the year ended December 31, 2022.
The decrease was the result of the reduction in qualitative factors which were elevated as a result of the uncertainty of the impact of the COVID-19 pandemic. 44 Table of Contents The following table sets forth certain information on nonaccrual loans and foreclosed assets, the ratio of such loans and foreclosed assets to total assets as of the dates indicated, and certain other related information.
The following table sets forth certain information on nonaccrual loans and foreclosed assets, the ratio of such loans and foreclosed assets to total assets as of the dates indicated, and certain other related information.
ALLL as a percentage of loans held for investment at amortized cost, not including government guaranteed loan balances, was 1.62% at December 31, 2022, compared to 4.07% at December 31, 2021.
ACL as a percentage of loans HFI at amortized cost, not including government guaranteed loan balances, was 2.03% under CECL at December 31, 2023, compared to 1.62% under the incurred loss method at December 31, 2022.
Government-sponsored enterprises $ 2 $ 2 Corporate bonds 4,753 — Total investment securities held to maturity $ 4,755 $ 2 No investment securities were pledged as of December 31, 2022 or December 31, 2021, and there were no sales of investment securities during the year ended December 31, 2022 or the year ended December 31, 2021.
No investment securities were pledged as of December 31, 2023 or December 31, 2022, and there were no sales of investment securities during the year ended December 31, 2023 or year ended December 31, 2022.
Year Ended December 31, 2022 2021 (Dollars in thousands) Average Balance Interest Yield Average Balance Interest Yield Interest earning-assets: Investment securities $ 43,768 $ 1,065 2.43 % $ 17,404 $ 199 1.14 % Loans, excluding PPP (1) (2) 667,088 38,280 5.74 545,889 27,681 5.07 PPP loans 39,959 959 2.40 537,710 19,292 3.59 Other 73,867 1,009 1.37 145,654 371 0.25 Total interest-earning assets 824,682 41,313 5.01 1,246,657 47,543 3.81 Noninterest-earning assets 79,864 47,630 Total assets $ 904,546 $ 1,294,287 Interest-bearing liabilities: NOW, MMDA and savings $ 602,491 $ 6,175 1.02 $ 501,701 $ 4,032 0.80 Time deposits 72,603 1,669 2.30 74,749 853 1.14 PPPLF advances 5,667 20 0.35 510,911 1,791 0.35 Other borrowings 22,708 702 3.09 28,359 624 2.20 Total interest-bearing liabilities 703,469 8,566 1.22 1,115,720 7,300 0.65 Demand deposits 101,193 85,542 Noninterest-bearing liabilities 7,690 8,088 Shareholders’ equity 92,194 84,937 Total liabilities and shareholders’ equity $ 904,546 $ 1,294,287 Net interest income $ 32,747 $ 40,243 Interest rate spread 3.79 3.16 Net interest margin (3) 3.97 3.23 Ratio of average interest-earning assets to average interest-bearing liabilities 117.23 % 111.74 % (1) Includes nonaccrual loans.
For the Year Ended December 31, 2023 2022 (Dollars in thousands) Average Balance Interest Yield Average Balance Interest Yield Interest-earning assets: Investment securities $ 44,108 $ 1,847 4.19 % $ 43,768 $ 1,065 2.43 % Loans, excluding PPP (1) (2) 829,054 62,924 7.59 667,088 38,280 5.74 PPP loans 16,181 266 1.64 39,959 959 2.40 Other 74,905 3,481 4.65 73,867 1,009 1.37 Total interest-earning assets 964,248 68,518 7.11 824,682 41,313 5.01 Noninterest-earning assets 93,876 79,864 Total assets $ 1,058,124 $ 904,546 Interest-bearing liabilities: NOW, MMDA and savings $ 617,467 $ 21,817 3.53 $ 602,491 $ 6,175 1.02 Time deposits 206,978 8,978 4.34 72,603 1,669 2.30 PPPLF advances — — — 5,667 20 0.35 Other borrowings 28,130 1,291 4.59 22,708 702 3.09 Total interest-bearing liabilities 852,575 32,086 3.76 703,469 8,566 1.22 Demand deposits 101,740 101,193 Noninterest-bearing liabilities 12,262 7,690 Shareholders’ equity 91,547 92,194 Total liabilities and shareholders’ equity $ 1,058,124 $ 904,546 Net interest income $ 36,432 $ 32,747 Interest rate spread 3.35 3.79 Net interest margin (3) 3.78 3.97 Ratio of average interest-earning assets to average interest-bearing liabilities 113.10 % 117.23 % (1) Includes nonaccrual loans.
As of December 31, 2022, there were no loans under pa yment deferral as a result of COVID-19 pandemic. 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.
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.
Government-sponsored enterprises — — — — — — 22,031 1.89 Corporate bonds — — 9,981 3.70 1,356 4.34 — — Total investment securities available for sale $ — — % $ 9,981 3.70 % $ 1,356 4.34 % $ 36,037 2.81 % December 31, 2021 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 $ — — % $ — — % $ — — % $ 7,624 0.90 % Mortgage-backed securities: 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 % 43 Table of Contents December 31, 2022 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 $ — — % $ — — % $ — — % $ 9,873 5.40 % Mortgage-backed securities: U.S.
(Dollars in thousands) December 31, 2022 December 31, 2021 Nonperforming loans (government guaranteed balances) $ 6,797 $ 7,942 Nonperforming loans (unguaranteed balances) 3,671 3,967 Total nonperforming loans 10,468 11,909 OREO 56 3 Total nonperforming assets $ 10,524 $ 11,912 Nonperforming loans as a percentage of total loans held for investment 1.44 % 2.04 % Nonperforming loans (excluding government guaranteed balances) to total loans held for investment 0.50 % 0.68 % Nonperforming assets as a percentage of total assets 1.12 % 1.30 % Nonperforming assets (excluding government guaranteed balances) to total assets 0.40 % 0.43 % ALLL to nonperforming loans 86.42 % 112.96 % ALLL to nonperforming loans (excluding government guaranteed balances) 246.42 % 339.10 % The following table sets forth information with respect to activity in the ALLL for the periods shown: (Dollars in thousands) At and for the Year Ended December 31, 2022 2021 Allowance at beginning of period $ 13,452 $ 21,162 Charge-offs: Commercial real estate (42) (169) Commercial and industrial (3,632) (4,919) Consumer and other (669) (70) Total charge-offs (4,343) (5,158) Recoveries: Commercial real estate 80 78 Commercial and industrial 503 863 Consumer and other 54 7 Total recoveries 637 948 Net charge-offs (3,706) (4,210) Provision for loan losses (700) (3,500) Allowance at end of period $ 9,046 $ 13,452 Net charge-offs to average loans held for investment 0.57 % 0.44 % Allowance as a percent of total loans held for investment at amortized cost 1.29 % 2.34 % Allowance as a percent of loans held for investment at amortized cost, not including government guaranteed loans 1.62 % 4.07 % Allowance as a percent of nonperforming loans 86.42 % 112.96 % Total loans held for investment $ 728,652 $ 583,948 Average loans held for investment $ 648,522 $ 959,646 Nonperforming loans (including government guaranteed balances) $ 10,468 $ 11,909 Nonperforming loans (excluding government guaranteed balances) $ 3,671 $ 3,967 Guaranteed balance of government guaranteed loans $ 158,760 $ 250,971 45 Table of Contents The following table details net charge-offs to average loans outstanding by loan category for the years ended December 31, 2022 and December 31, 2021.
(Dollars in thousands) December 31, 2023 December 31, 2022 Nonperforming loans (government guaranteed balances), at amortized cost, gross $ 1,424 $ 6,797 Nonperforming loans (unguaranteed balances), at amortized cost, gross 8,264 3,671 Total nonperforming loans, at amortized cost, gross 9,688 10,468 Nonperforming loans (government guaranteed balances), at fair value — — Nonperforming loans (unguaranteed balances), at fair value 648 — Total nonperforming loans, at fair value 648 — OREO — 56 Total nonperforming assets, gross $ 10,336 $ 10,524 Nonperforming loans as a percentage of total loans HFI (1) 1.18 % 1.49 % Nonperforming loans (excluding government guaranteed balances) to total loans HFI (1) 1.00 % 0.52 % Nonperforming assets as a percentage of total assets 0.92 % 1.12 % Nonperforming assets (excluding government guaranteed balances) to total assets 0.74 % 0.40 % ACL to nonperforming loans (1) 139.32 % 86.42 % ACL to nonperforming loans (excluding government guaranteed balances) (1) 163.32 % 246.42 % (1) Excludes loans accounted for at fair value 47 Table of Contents 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 Year Ended December 31, 2023 2022 Allowance at beginning of period $ 9,046 $ 13,452 Impact of adopting ASC 326 3,107 — Charge-offs: Commercial real estate (108) (42) Commercial and industrial (6,240) (3,632) Commercial and industrial - PPP (223) — Consumer and other (3,280) (669) Total charge-offs (9,851) (4,343) Recoveries: Commercial real estate 87 80 Commercial and industrial 435 503 Consumer and other 334 54 Total recoveries 864 637 Net charge-offs (8,987) (3,706) Provision for credit losses 10,331 (700) Allowance at end of period $ 13,497 $ 9,046 Net charge-offs to average loans HFI at amortized cost 1.17 % 0.60 % Allowance as a percent of total loans HFI at amortized cost 1.64 % 1.29 % Allowance as a percent of loans HFI at amortized cost, not including government guaranteed loans 2.03 % 1.62 % Allowance as a percent of nonperforming loans at amortized cost, gross 139.32 % 86.42 % Total loans HFI $ 915,726 $ 728,652 Average loans HFI at amortized cost $ 770,793 $ 620,267 Nonperforming loans (including government guaranteed balances) at amortized cost, gross $ 9,688 $ 10,468 Nonperforming loans (excluding government guaranteed balances) at amortized cost, gross $ 8,264 $ 3,671 Guaranteed balance of government guaranteed loans $ 217,620 $ 158,760 The following table details net charge-offs to average loans outstanding by loan category for the years ended December 31, 2023 and December 31, 2022.
While the Company retains some of its government guaranteed loans on the balance sheet, we may sell both the guaranteed balance of its government guaranteed loans, as well as a percentage of the unguaranteed portions of such loans. The sale of the guaranteed portions of the loans generates noninterest income.
While the Company retains some of its government guaranteed loans on the balance sheet, the 36 Table of Contents 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.
The increase was primarily due to an increase in time deposits of $85.4 million and an increase in short-term FRB borrowings of $25.0 million, partially offset by the payoff of $69.7 million in PPP Liquidity Facility. The following tables present our contractual obligations as of December 31, 2022 and December 31, 2021.
The increase was primarily due to an increase in time deposits of $122.9 million. The following tables present our contractual obligations as of December 31, 2023 and December 31, 2022.
December 31, 2022 December 31, 2021 (Dollars in thousands) Amount % of Total Amount % of Total Residential loans held for sale from discontinued operations $ 449 $ 114,131 Government guaranteed loans, held for sale $ — $ 1,460 SBA loans held for investment, at fair value $ 27,078 $ 9,614 Loans held for investment, at amortized cost: Residential real estate $ 202,329 29.1 % $ 87,235 15.3 % Commercial real estate 231,281 33.3 163,477 28.7 Construction and land 9,320 1.3 18,632 3.3 Commercial and industrial 194,643 28.0 217,155 38.0 Commercial and industrial – PPP 19,293 2.8 80,158 14.1 Consumer and other 37,288 5.5 3,581 0.6 Loans held for investment, at amortized cost, gross 694,154 100.0 % 570,238 100.0 % Discount on SBA 7(a) loans sold (5,621) (3,866) Premium (discount) on loans purchased 2,301 (13) Deferred loan costs, net 10,740 7,975 Allowance for loan losses (9,046) (13,452) Loans held for investment, at amortized cost, net $ 692,528 $ 560,882 42 Table of Contents In general, construction loans are originated as construction-to-permanent loans.
The following table sets forth the composition of its loan portfolio, including LHFS as of the dates indicated. 44 Table of Contents December 31, 2023 December 31, 2022 (Dollars in thousands) Amount % of Total Amount % of Total Residential loans held for sale from discontinued operations $ — $ 449 Government guaranteed loans, held for sale $ — $ — Government guaranteed loans HFI, at fair value $ 91,508 $ 27,078 Loans HFI, at amortized cost: Residential real estate $ 264,126 32.5 % $ 202,329 29.1 % Commercial real estate 293,595 36.2 231,281 33.3 Construction and land 26,272 3.2 9,320 1.3 Commercial and industrial 177,566 21.9 194,643 28.0 Commercial and industrial – PPP 3,202 0.4 19,293 2.8 Consumer and other 47,287 5.8 37,288 5.5 Loans HFI, at amortized cost, gross 812,048 100.0 % 694,154 100.0 % Discount on government guaranteed loans sold (7,040) (5,621) Premium on loans purchased, net 4,503 2,301 Deferred loan costs, net 14,707 10,740 Allowance for credit losses (1) (13,497) (9,046) Loans HFI, at amortized cost, net $ 810,721 $ 692,528 (1) Prior to January 1, 2023, the incurred loss methodology was used to estimate credit losses.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+0 added−0 removed13 unchanged
Biggest changeDecember 31, 2022 December 31, 2021 Change in rates Following 12 months Following 24 months Following 12 months Following 24 months +400 basis points 11.0 % 11.9 % 26.1 % 33.5 % +300 basis points 9.4 10.5 22.4 28.5 +200 basis points 5.4 6.1 13.1 16.8 +100 basis points 1.3 1.8 3.6 4.9 -100 basis points (3.8) (4.4) (13.3) (16.7) -200 basis points (8.3) (9.5) (26.4) (32.3) 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.
Biggest changeDecember 31, 2023 December 31, 2022 Change in rates Following 12 months Following 24 months Following 12 months Following 24 months +400 basis points 14.7 % 12.8 % 11.0 % 11.9 % +300 basis points 12.7 12.1 9.4 10.5 +200 basis points 7.6 7.4 5.4 6.1 +100 basis points 2.5 2.6 1.3 1.8 -100 basis points (4.5) (4.5) (3.8) (4.4) -200 basis points (9.1) (9.1) (8.3) (9.5) 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.
Item 7A. 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. Its market risk arises primarily from interest-rate risk inherent in loan and deposit taking activities. To that end, the Company actively monitors and manages its interest-rate risk exposure.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Market Risk and Interest Rate Sensitivity Market risk is the risk of loss from adverse changes in market prices and rates. Market risk arises primarily from interest-rate risk inherent in loan and deposit taking activities. To that end, the Company actively monitors and manages its interest-rate risk exposure.
To do this, the Company (i) emphasizes the origination of adjustable-rate and variable-rate loans to be held for investment; (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.
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.
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. 52 Table of Contents Net interest income simulation involves forecasting net interest income under a variety of interest rate scenarios including instantaneous shocks.
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. 54 Table of Contents Net interest income simulation involves forecasting net interest income under a variety of interest rate scenarios including instantaneous shocks.
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 December 31, 2022 and December 31, 2021, assuming immediate parallel shifts in interest rates.
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 December 31, 2023 and December 31, 2022, assuming immediate parallel shifts in interest rates.
The estimated impact on the net interest income as of December 31, 2022 and December 31, 2021, assuming immediate parallel moves in interest rates, is presented in the table below.
The estimated impact on the net interest income as of December 31, 2023 and December 31, 2022, assuming immediate parallel moves in interest rates, is presented in the table below.
To minimize the potential for adverse effects of changes in interest rates on the results of the operations, we monitor assets and liabilities to better match the maturities and repricing terms of the interest-earning assets and interest-bearing liabilities.
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.
Change in rates December 31, 2022 December 31, 2021 +400 basis points (12.7) % 1.7 % +300 basis points (9.5) 1.9 +200 basis points (7.0) 0.8 +100 basis points (4.3) (0.5) -100 basis points 2.6 (3.5) -200 basis points 5.0 (10.8) 53
Change in rates December 31, 2023 December 31, 2022 +400 basis points (6.3) % (12.7) % +300 basis points (4.1) (9.5) +200 basis points (3.3) (7.0) +100 basis points (2.7) (4.3) -100 basis points 0.2 2.6 -200 basis points (0.3) 5.0 55 Table of Contents

Other BAFN 10-K year-over-year comparisons