As filed with the Securities and Exchange Commission on August 31, 2021

Registration No. 333-256009

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

BAYFIRST FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

 

 

 

Florida		6022		59-3665079
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

700 Central Avenue

St. Petersburg, Florida 33701

(727) 440-6848

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Anthony N. Leo

Chief Executive Officer

BayFirst Financial Corp.

700 Central Avenue

St. Petersburg, Florida 33701

(727) 440-6848

(Name, address, including zip code, and telephone number, including area code of agent for service)

 

 

Copies of all communications, including copies of all communications sent to agent for service, should be sent to:

A. George Igler, Esq. and

Richard Pearlman, Esq.

Igler and Pearlman, P.A.

2457 Care Drive, Suite 203

Tallahassee, Florida 32308

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:  ☒

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☒
				Emerging growth company		☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to be Registered		Amount to be Registered		Proposed Maximum Aggregate Offering Price Per Share*		Proposed Maximum Aggregate Offering Price*		Amount of Registration Fee
Common Stock		3,919,976.62		$27.00		$105,839,368.74		$11,547.08
Warrants to Purchase Common Stock		28,696		$13.50		$387,396		$42.26
Common Stock Underlying Warrants		43,044		$18.00		$774,792		$84.53
Total								$11,673.87

 

*

Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) of the Securities Act. The registrant calculates the proposed maximum aggregate offering price in accordance with Rule 457(c), based on the last trading price on the OTC Markets Group Quotation System (OTCQB market tier) on August 11, 2021. Of the $11,673.87 filing fee, $11,547.08 has been previously paid.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

 

 

 

The information in this prospectus is not complete and may be changed. The securities may not be sold until the Registration Statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to Completion, dated August 31, 2021

 

BayFirst Financial Corp.

3,919,976.62 Shares of Common Stock

28,696 Warrants to Purchase Common Stock

43,044 Shares of Common Stock Underlying Warrants

 

 

This prospectus relates to the registration of the resale of up to 3,919,976.62 shares of our common stock by our stockholders identified in this prospectus (the “Registered Stockholders”), as well as 28,696 warrants to purchase common stock, and 43,044 shares of common stock underlying such warrants. The Registered Stockholders may, or may not, elect to sell their shares of common stock or warrants covered by this prospectus. Any such sales will be as and to the extent determined by the Registered Stockholders. Such sales, if any, will be made at prevailing market prices, through brokerage transactions on the OTCQX Best Market (the “OTCQX”), the Nasdaq Capital Market (“Nasdaq”), or through other means. If the Registered Stockholders choose to sell their securities, we will not receive any proceeds from any such sale by the Registered Stockholders. The warrants have an exercise price of $18.00 per share of common stock. If the Registered Stockholders exercise their warrants, we will receive that amount per share. For more information, see the section titled “Plan of Distribution.”

Our common stock is quoted and traded on the OTCQX under the symbol “FHBI.” We have applied to list our common stock on Nasdaq under the symbol “BAFN.” We expect our application to be approved and our Nasdaq listing to begin once we have maintained on the OTCQX an average daily trading volume of 2,000 shares over a 30 trading day period, with trading on at least 16 of those days. Our warrants are not traded on any exchange or markets and we do not intend to seek a listing for them.

We are an “emerging growth company” as defined under the federal securities laws and, as such, we have elected to comply with reduced reporting requirements for this prospectus and may elect to do so in future filings. See “Implications of Being an Emerging Growth Company.”

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 8.

Neither the Securities and Exchange Commission nor any state securities regulator have approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

            , 2021

 

ABOUT THIS PROSPECTUS

This prospectus is a part of a registration statement on Form S-1 that we filed with the SEC using a continuous offering process. Under this process, the Registered Stockholders may, from time to time, sell the common stock covered by this prospectus in the manner described in the section titled “Plan of Distribution.” Additionally, we may provide a prospectus supplement to add information to, or update or change information contained in, this prospectus, including the section titled “Plan of Distribution.” You may obtain this information without charge by following the instructions under the section titled “Additional Information” appearing elsewhere in this prospectus. You should read this prospectus and any prospectus supplement before deciding to invest in our common stock.

The information contained in this prospectus, or any free writing prospectus prepared by us or on our behalf or to which we refer you, is accurate only as of its date, regardless of the time of delivery of this prospectus or of any sale of our common stock. Our assets, business, cash flows, financial condition, liquidity, prospects or results of operations may have changed since that date.

You should not interpret the contents of this prospectus, or any free writing prospectus prepared by us or on our behalf or to which we refer you, to be legal, business, investment or tax advice. You should consult with your own advisors for that type of advice and consult with them about the legal, tax, business, financial and other issues that you should consider before investing in our common stock.

We have not authorized anyone to provide any information to you other than that contained in this prospectus or in any free writing prospectus prepared by us or on our behalf to which we refer you. We take no responsibility for, nor provide any assurance as to the reliability of, any other information that others may give you. Information contained on, or accessible through, our website is not part of this prospectus.

No action is being taken in any jurisdiction outside the United States to permit a public offering of our securities or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about, and to observe, any restrictions as to the offering and the distribution of this prospectus applicable to those jurisdictions. We are not making an offer of these securities in any jurisdiction where such offer is not permitted.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. Words such as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “project,” “is confident that” and similar expressions constitute “forward-looking statements.” Forward-looking statements involve risk and uncertainty and a variety of factors that could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed or implied in these forward-looking statements. We do not have a policy of updating or revising forward-looking statements except as required by law, and silence by management over time should not be construed to mean that actual events are occurring as estimated in such forward-looking statements.

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse effect on our operations and the operations of our subsidiary, First Home Bank, include, but are not limited to, changes in:

 

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market interest rates and general economic conditions,

 

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legislative/regulatory changes,

 

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monetary and fiscal policies of the U.S. Government,

 

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the quality and composition of the loan or investment portfolios,

 

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demand for loan and deposit products,

 

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competition,

 

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demand for financial services in our primary trade area,

 

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litigation, tax and other regulatory matters,

 

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accounting principles and guidelines, and

 

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other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing and services.

INDUSTRY AND MARKET DATA

Industry and market data used in this prospectus has been obtained from independent industry sources and publications available to the public, sometimes with a subscription fee, as well as from research reports prepared for other purposes. We did not commission the preparation of any of the sources or publications referred to in this prospectus. Industry publications and surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. We have not independently verified the data obtained from these sources. Forward-looking information obtained from these sources is subject to the same qualifications and the additional uncertainties regarding the other forward-looking statements in this prospectus. Trademarks used in this prospectus are the property of their respective owners, although for presentational convenience we may not use the ^® or the ^™ symbols to identify such trademarks.

IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY

The Jumpstart Our Business Startups Act (the “JOBS Act”), was enacted in April 2012 with the intention of encouraging capital formation in the United States and reducing the regulatory burden on newly-public companies that qualify as “emerging growth companies.” We are an “emerging growth company” within the meaning of the JOBS Act. As an emerging growth company, we intend to take advantage of certain exemptions from various public reporting requirements, including the requirement that our internal control over financial reporting be audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), certain requirements related to the disclosure of executive compensation in this prospectus and in our periodic reports and proxy statements, and the requirement that we hold a non-binding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an emerging growth company.

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We intend to avail ourselves of this exemption from new or revised accounting standards. Accordingly, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We will remain an emerging growth company until the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of the listing of our common stock on Nasdaq.

For certain risks related to our status as an emerging growth company, see the sections titled “Risk Factors,” “Risks Related to Our Securities,” and “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.”

 

 

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NO RECOMMENDATION

This prospectus should not be considered as our recommendation or advice concerning an investment in BayFirst Financial Corp. (“BayFirst”). No recommendation is being made by BayFirst as to whether you should purchase shares of our common stock.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider in making your investment decision. You should carefully read the following summary together with the entire prospectus, including the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes, before deciding to invest in our Common Stock. Some of the statements in this prospectus constitute forward-looking statements. See “Cautionary Note Regarding Forward-Looking Information.”

Throughout this prospectus the terms the “Company,” “we,” “our,” and “us” have been used. Unless otherwise indicated or unless the context requires otherwise, such references are meant to denote BayFirst and our subsidiary, First Home Bank, on a consolidated basis.

BayFirst Financial Corp.

BayFirst was incorporated on June 23, 2000, and commenced operations as a registered bank holding company on September 1, 2000.

On April 22, 2021, we changed our name from First Home Bancorp, Inc. to BayFirst Financial Corp.

Our corporate offices are located at the First Home Executive Center, 700 Central Avenue, St. Petersburg, Florida 33701. Our primary source of income is from our wholly-owned subsidiary, First Home Bank (the “Bank”).

Stock Split

Effective May 10, 2021, BayFirst effected a three-for-two stock split. All share amounts and per share financial data contained in this prospectus related to periods prior and subsequent to the stock split have been adjusted for the split.

First Home Bank

The Bank commenced business operations on February 12, 1999, and operates as a Florida state-chartered commercial bank and a member of the Federal Reserve System (“Federal Reserve”). The Bank’s main office is located at the First Home Executive Center. The Bank’s telephone number is (727) 440-6848, and the Bank’s website address is www.firsthomebank.com.

We have structured the Bank into three Divisions: the Community Banking Division, CreditBench, and the Residential Mortgage Division. Together, we expect this structure to result in a high-performing institution, producing balance sheet and revenue growth, funded primarily by a local, growing deposit base.

The Community Banking Division has six full-service banking centers in the Tampa Bay area: four in Pinellas County, one in Hillsborough County, and one in Sarasota County. Additionally, we have purchased properties in Sarasota, Belleair Bluffs, and Bradenton and have contracted to purchase sites in North Tampa, Bradenton, and Sarasota where we intend to open additional full-service banking centers. The Community

 

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Banking Division was established to generate core deposits and loans from businesses, professionals, and consumers located within our primary service area. This effort contributed to the Bank increasing its checking, savings, and money market account balances by $408.19 million from December 31, 2018 through June 30, 2021.

We have branded our SBA Lending Division as CreditBench. CreditBench has a nationwide government guaranteed lending platform and operates as a preferred lender under the Small Business Administration’s (“SBA”) 7(a) Loan Program. In addition to SBA guaranteed loan programs, the Bank’s CreditBench lends under the United States Department of Agriculture’s (“USDA”) Business and Industry Loan Program (“B&I”). CreditBench was also an active lender in the Paycheck Protection Program (“PPP”) and the Bank has used the Federal Reserve’s PPP Lending Facility (“PPPLF”) to fund a material portion of the PPP loans.

CreditBench’s lending efforts are targeted to a broad range of SBA and USDA eligible industries and geographies, with a focus on building holistic banking relationships with borrowers.

As of June 30, 2021, the Bank is ranked 17th in the number of units, and 40th in dollars, funded under the SBA’s 7(a) Loan Program. Over the past four years, the Bank has regularly placed among the top 10 SBA lenders in units and dollars funded. To reach these broad markets, the Bank utilizes a combination of proprietary customer acquisition channels, business development officers, and a national network of financial technology and other referral sources to drive prospective loan applicants to the Bank. Since the third quarter of 2018, the Bank has been gradually transitioning from a reliance on gain on sale of the government guaranteed portions of loans to holding a greater percentage of the government guaranteed loans which is expected to provide a more reliable and higher quality earnings stream through more predictable interest income. Notwithstanding, in the second quarter of 2021, we sold 3,833 PPP loans and the related servicing rights for consideration equal to the total unpaid principal balance of $326.32 million.

The Residential Mortgage Division operates from our six full-service banking centers and 22 loan production offices in 12 states. The Residential Mortgage Division provides revenue diversification, without requiring significant capital. The Residential Mortgage Division formally began operations at the beginning of 2017 and has since grown significantly, achieving loan production of $1.92 billion in the year ended December 31, 2020, and $1.24 billion during the six months ended June 30, 2021.

Six Months Ended June 30, 2021 Highlights

 

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Total assets were $1.20 billion at June 30, 2021, a decrease of $346.46 million or 22.43% since December 31, 2020.

 

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Total net loans (including those held for sale and PPP loans, net of the allowance for loan losses) were $1.00 billion at June 30, 2021, a decrease of $414.99 million or 29.31% since December 31, 2020, primarily due to the sale of PPP loans during the quarter ended June 30, 2021, proceeds from which totaled $326.32 million. Total gross loans (excluding those held for sale and PPP loans) were $465.47 million at June 30, 2021, an increase of $62.95 million or 15.64% since December 31, 2020, due to increases in both conventional community bank loans and SBA loans.

 

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Deposits totaled $632.32 million at June 30, 2021, an increase of $73.54 million or 13.16% since December 31, 2020.

 

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Checking, money market, and savings account balances totaled $579.24 million, an increase of $89.58 million or 18.29% since December 31, 2020.

 

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Net income for the six months ended June 30, 2021 was $20.53 million, or $5.44 per basic common share or $4.88 per diluted common share. Net income for the six months ended June 30, 2020 was $1.84 million, or $0.44 per basic and diluted common share.

 

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Return on average common equity was 62.15% for the six months ended June 30, 2021, up from 6.94% for the six months ended June 30, 2020.

 

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Despite significant levels of PPP loans in the current year and throughout much of 2020, which inflated average assets, return on average assets for the six months ended June 30, 2021 was 2.58%, an increase of 217 basis points compared to 0.41% for the six months ended June 30, 2020.

 

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The Residential Mortgage Division originated $1.24 billion in loans during the six months ended June 30, 2021, an increase of $557.56 million from the $680.40 million in loan production during the six months ended June 30, 2020.

 

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Tangible book value per common share increased to $21.14 at June 30, 2021 from $16.02 (adjusted for the 3-for-2 stock split effective May 10, 2021) at December 31, 2020.

 

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The Company paid a quarterly cash dividend of $0.07 per common share on June 15, 2021. The cash dividend represented a 5% increase in the cash dividend paid to common stockholders over the previous quarter and marked the 20th consecutive quarter in which BayFirst paid a cash dividend.

2020 Highlights

 

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Total assets were $1.54 billion at December 31, 2020, an increase of $1.01 billion or 190.77% since December 31, 2019.

 

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Total net loans (including those held for sale) were $1.42 billion at December 31, 2020, an increase of $1.04 billion or 272.76% since December 31, 2019, primarily due to the addition of PPP loans during 2020 which totaled $825.80 million, net, at December 31, 2020.

 

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Deposits totaled $558.78 million at December 31, 2020, an increase of $110.19 million or 24.56% since December 31, 2019.

 

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Checking, money market, and savings accounts balances totaled $489.66 million at December 31, 2020, an increase of $182.11 million or 59.21% since December 31, 2019.

 

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Net income for 2020 was $12.70 million, or $3.45 per basic common share or $3.01 per diluted common share. Net income for 2019 was $4.48 million, or $1.27 per basic and diluted common share.

 

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In 2020, CreditBench originated $101.08 million in SBA or other government guaranteed loans, exclusive of PPP loans. This has resulted in the Bank being nationally ranked tenth in the number of SBA loans made through the SBA’s fiscal year ended September 30, 2020.

 

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CreditBench originated $876.96 million in PPP loans in 2020.

 

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The Residential Mortgage Division originated $1.92 billion in loans in 2020.

Risk Factor Summary

Prospective investors should consider all of the information discussed under “Risk Factors” beginning on page 8 before making a decision to purchase shares of our common stock. Those Risk Factors relate to:

 

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Our ability to grow the size and geographic scope of our loan production, loan sale, and deposit gathering business, and the infrastructure needed to support it;

 

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Possible loan defaults, devaluation of collateral, adverse economic events, and competition;

 

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Interest rates and available sources of liquidity;

 

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Our ability to raise capital and the effects of doing so on our stockholders;

 

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The potential that we are subject to fraud, incorrect judgments, or other bad acts of third parties;

 

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Laws, regulations, rules, and standards to which we are subject and the government agencies with which we interact;

 

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Retention and development of our key executives and other employees;

 

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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;

 

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Rapidly developing technology;

 

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Estimates used in certain valuations, including our allowance for loan losses (“ALLL”); and

 

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Features of our stock, such as liquidity, dilution, the lack of preemptive rights, and the concentration of ownership among our insiders.

Our Corporate Information

Our principal executive offices are located at First Home Executive Center, 700 Central Avenue, St. Petersburg, Florida 33701 and our telephone number is (727) 440-6848. The Bank’s website address is www.firsthomebank.com. The information contained on or accessible from our website does not constitute a part of this prospectus and is not incorporated by reference herein.

 

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RISK FACTORS

Investing in our securities involves significant risks, including the risks described below. You should carefully consider the following information about these risks, together with the other information contained in this prospectus before investing in this offering. The risks that we have highlighted here are not the only ones that we face. Additional risks presently unknown to us or that we currently consider immaterial or unlikely to occur could also impair our operations. In addition, there are risks beyond our control. If any of these risks actually occur, our business, financial condition or results of operations could be negatively affected, and you could lose part or all of your investment.

Risk Factors Related to Our Business

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. 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 will be adversely affected.

The Bank’s PPP loans carry litigation risk, possible undesirable interest rate impact, and possible credit risk.

Through our online banking platform, we received a significant amount of PPP loan applications. For reasons such as our inability to determine an applicant’s eligibility, our suspicion of fraud, or other negative application characteristics, we declined to make certain PPP loans. Some of those applicants may pursue claims against the Bank based on fair lending, unfair and deceptive trade practices, or other grounds. In addition, we do not know how the SBA will manage borrowers’ forgiveness requests or our claims on SBA guarantees of PPP loans. If the SBA declines forgiveness requests or dishonors its guarantees of our PPP loans for any reason, we may suffer loan losses. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP related litigation could have a material adverse impact on our business, financial condition and results of operations.

In addition, PPP loans are fixed, low interest rate loans that are guaranteed by the SBA and subject to numerous other regulatory requirements, and a borrower may apply to have all or a portion of the loan forgiven. If PPP borrowers fail to apply or qualify for loan forgiveness, the Bank faces a heightened risk of holding these loans at unfavorable interest rates for an extended period of time. While the PPP loans are guaranteed by the SBA, various regulatory requirements will apply to the Bank’s ability to seek recourse under the guarantees, and related procedures are currently subject to uncertainty.

The Bank also has credit risk on PPP loans if a loan is not forgiven and the SBA determines that the Bank did not originate, close, or service a loan in accordance with legal standards. In the event the SBA dishonors its guarantee for one of those reasons, the Bank may be forced to hold the loan and may incur a loss if the borrower does not perform as agreed.

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.

Our strategy historically has been, and may continue to be, to sell both the guaranteed balances of SBA and other government guaranteed loans, as well as a percentage of the unguaranteed portions of such loans, within legally allowable limits. A material portion of our net income and profitability depended, and may continue to depend, on gains on sales of the guaranteed portions of the government guaranteed loans that we originate. We

 

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also from time to time pursue the sales of unguaranteed portions of such loans, which provide us with additional liquidity and capital capacity to permit us to make additional loans when needed. Our ability to sell both the guaranteed and unguaranteed portions of these loans is dependent upon our ability to identify purchasers with the demand and capacity to buy them, the attractiveness of the loans, our underwriting quality, and other factors. Our business strategy pertaining to SBA and other government guaranteed loans changed in late 2018, when we started to transition to holding an increased amount of the guaranteed portions of these loans. Our ability to continue to make new loans and hold them in our loan portfolio will be limited by our current capital and liquidity positions, and due to our change in business model, our income and results of operations may be adversely affected in the immediate near term. To the extent we retain the unguaranteed portion of these loans in our portfolio, we may be required to make significant provisions to our ALLL.

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. 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. If a borrower or a referral source intentionally, or unintentionally, provides us with incorrect information that we rely on in underwriting a loan, we will be subject to increased credit risk for that loan. Such increased risk could result in increased loan losses or heightened provisions to our ALLL, either of which would adversely affect our credit quality and net income. We may also become subject to heightened regulatory scrutiny for making loans to such borrowers and may be required to dedicate time and other resources to addressing regulatory concerns.

Our loan referral sources operate independently from us and may take actions for which we may be held responsible.

Our referral sources for SBA and other government guaranteed loans operate independently from us and have the initial interactions with many loan applicants and borrowers. 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. In certain instances, the Bank may be held responsible by an applicant or a government agency for such actions. If that were to happen, the Bank may be required to pay restitution or fines, be subject to regulatory enforcement actions, or lose certain statuses with the SBA or other government agencies.

We heavily rely 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. 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. 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 will be materially reduced, which would reduce our net income and our asset growth.

Our operations are growing at a rapid pace and our training programs and operational protocols may lag behind our growth.

Our branch network and mortgage 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 new staff or employees who are promoted.

 

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We may also not develop appropriate operational protocols as quickly as we expand our products and services. If we fail to do so, our employees may not have a set of standards and expectations pursuant to which they perform their assigned duties. If we are not able to fully and promptly provide training to our employees, or develop appropriate protocols, our employees may be susceptible to mistakes, fail to recognize fraud or other weaknesses in our operations, or fail to recognize or mitigate other risks.

The COVID-19 pandemic may adversely impact our business and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. In addition, the pandemic has resulted in closures of many businesses and the institution of social distancing requirements in many states and communities. As a result, the demand for our products and services may be significantly impacted, which could adversely affect the implementation of our growth strategy. Furthermore, the pandemic could cause the recognition of loan losses or other impairments in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain closed, the impact on the global economy worsens, or more clients draw on their lines of credit or seek additional loans to help finance their businesses. Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize further impairments on the securities we hold as well as reductions in other comprehensive income. Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively, because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

The effects of future widespread public health emergencies may negatively affect our local economies or disrupt our operations, which would have an adverse effect on our business or results of operations.

Widespread health emergencies, such as the global COVID-19 pandemic, can disrupt our operations through their impact on our employees, clients and their businesses, and the communities in which we operate. Disruptions to our clients could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans, negatively impact regional economic conditions, result in a decline in local loan demand, loan originations and deposit availability and negatively impact the implementation of our growth strategy. Any one or more of these developments could have a material adverse effect on our business, financial condition and results of operations.

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, as it did in the fourth quarter of 2018 and first quarter of 2019, it is likely that the SBA, and other agencies which guaranty the types of loans we make, will be unable to process those loans. As a result, our ability to make those loans would be delayed. During such a delay, it is possible that prospective borrowers could obtain financing from other sources or elect not to borrow. 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.

The continued development of our mortgage lending business will depend on our ability to attract and retain effective loan origination officers and other sources of mortgage loan referrals.

The mortgage lending business is highly dependent on being able to successfully originate a consistent volume of loans. The primary ways we do this is through the personal sales efforts of our mortgage lending

 

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officers and our development of loan referral sources, such as real estate brokers. If we are unable to attract and retain a productive team of such officers or develop an effective network of referral sources, we will likely be unable to generate a volume of mortgage loans to produce sufficient revenue for this line of business to be profitable. If we cannot operate this line of business in a profitable manner, we will likely incur significant losses due to expenses associated with establishing the line of business.

Changes in interest rates can impact the value of our mortgage servicing rights and can result in revenue volatility, which can reduce earnings.

The Bank began selling residential mortgage loans originated in the Tampa Bay market with servicing retained in April 2021 and thus, has begun to build a portfolio of mortgage servicing rights, which are the right to service a mortgage loan for a fee, by collecting principal, interest, and escrow payments. The Bank initially carries such rights using a fair value measurement of the present value of the estimated future net servicing income, which includes assumptions about the likelihood of prepayment by borrowers. Changes in interest rates can affect prepayment assumptions and thus fair value. When interest rates fall, prepayments tend to increase as borrowers refinance, and the fair value of mortgage servicing rights can decrease, which in turn reduces our earnings.

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.

Our SBA and other government lending programs and our mortgage lending activities are subject to laws and regulations administered by government agencies such as the SBA, the United States Department of Housing and Urban Development, and the United States Department of Agriculture. If any of these laws or regulations change, or the policies and practices of these agencies change, such changes may impact our ability to offer such products in a profitable manner, or at all. If we are unable to profitably offer these products, our net income will likely decrease and our financial condition and performance will likely deteriorate.

We may not be able to retain or grow our core deposit base, which could adversely impact our funding costs.

We rely on client deposits as our primary source of funding for our lending activities. Our future growth will largely depend on our ability to retain and grow our core deposit base. Our retention and acquisition of customer deposits are subject to potentially dramatic fluctuations in availability or price due to certain factors outside of our control, such as increasing competitive pressures for deposits, changes in interest rates and returns on other investment classes, client perceptions of our financial health and general reputation, or a loss of confidence by clients in us or the banking sector generally. Such factors could result in significant outflows of deposits within short periods of time or significant changes in pricing necessary to maintain current client deposits or attract additional deposits. Additionally, any such loss of funds could result in lower loan originations, which could have a material adverse effect on our business, financial condition and results of operations.

We have expanded into new markets with which we have less familiarity with than our historic markets.

We currently operate residential mortgage loan production offices in a number of states. We intend to continue to expand the geographic scope of our 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 are dependent on the expertise and actions of the bankers we have hired in those markets for us to be successful there. We are also subject to risks associated with home values and the economic conditions in those markets. If our bankers are not effective at implementing our business strategy, leave the Bank, or are otherwise not successful, or if economic conditions and home values deteriorate, we will likely incur losses as a result of expansion into their markets.

 

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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. 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.

We have pledged the outstanding shares of the Bank to secure a loan, and if we cannot repay the loan when due, the lender may foreclose on the loan and take ownership of the Bank.

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 $3.53 million as of June 30, 2021. If we do not have cash available at BayFirst or we are unable to fund dividends from the Bank to BayFirst, we may not be able to make principal or interest payments due on the loan. If we cannot repay or refinance the loan on or prior to maturity, the lender may foreclose on the pledged stock and take ownership of the Bank. In which case, we may not have any source of revenue and it would be unlikely that we would continue to operate. The loan currently matures on March 10, 2029.

We engage in transactions with our directors and their related interests, which creates the potential for conflicts of interest.

We lease the office and branch space at our headquarters from a corporation of which our director George Apostolou is an officer and director. In addition, directors Mark S. Berset and Derek S. Berset are owners of an insurance agency from which the Bank purchases insurance. From time to time the Bank makes loans to, and accepts deposits from, officers and directors and their affiliates. Further, from time to time, in the ordinary course of business, the Company has entered into transactions with certain members of its Board of Directors for various professional services.

Such insider transactions present reputational and corporate governance risks to BayFirst and the Bank. Insider transactions often draw the scrutiny of regulators and stockholders. If they were to identify terms of the transactions, or aspects of the process through which we entered into them, that they deemed to be inappropriately unfavorable to BayFirst or the Bank, such regulators or stockholders might take enforcement or legal action against us. Similarly, insider transactions may present an opportunity for taking advantage of BayFirst or the Bank. If any such events were to occur, BayFirst and the Bank may incur expenses or become engaged in time consuming enforcement or legal processes that could negatively affect our performance.

We may not be able to collect on the guarantees of our SBA or other government guaranteed loans if borrowers default.

In order to collect on their guarantees, we must strictly comply with the standards set by the SBA or other government agencies. If our government guaranteed loans or our servicing and administration of them do not comply with such standards, we may not be able to collect on their guarantees in the event of default. In such case, our asset quality, earnings, and growth prospects will be adversely affected.

Our Internet-based systems and online commerce activities are subject to security threats that could adversely affect our business.

Third party, or internal, systems and networks may fail to operate properly or become disabled due to deliberate attacks or unintentional events. Our operations are vulnerable to disruptions from human error, natural disasters, power loss, computer viruses, spam attacks, denial of service attacks, unauthorized access, and other unforeseen events. Undiscovered data corruption could render our customer information inaccurate. These events

 

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may obstruct our ability to provide services, underwrite loans, and process transactions. Any such incident could put customer confidential information at risk, which may result in significant liability to us, subject us to additional regulatory scrutiny, damage our reputation, result in a loss of customers, cause us to incur significant expense to remediate any damage and inhibit current and potential customers from using our online banking services, any or all of which could have a material adverse effect on our results of operations and financial condition.

The valuation of our SBA and USDA related servicing rights is based on estimates and subject to fluctuation based on market conditions and other factors that are beyond our control.

The fair value of our SBA and USDA servicing rights is estimated by a third party based upon projections of expected future cash flows generated by the loans we service, historical prepayment rates, future prepayment estimates, portfolio characteristics, interest rates based on interest rate yield curves, volatility, market demand for servicing rights, and other factors. While this evaluation process uses historical and other objective information, the valuation of our servicing rights is ultimately an estimate based on our experience, judgment, and expectations regarding our servicing portfolio and the broader market. This is an inherently uncertain process and the value of our servicing rights may be adversely impacted by factors that are beyond our control, which may in turn cause us to record valuation allowances which could have a material adverse effect on our business, results of operations, and financial condition.

Changes in business and economic conditions, in particular those of the Florida markets in which we operate, could lead to lower asset quality and decreased earnings.

Unlike larger national or regional banks that are more geographically diversified, our business and earnings are closely tied to general business and economic conditions in our market area. The local economy is heavily influenced by tourism, real estate, and other service-based industries. Factors that could affect the local economy include declines in tourism, higher energy costs, reduced consumer or corporate spending, natural disasters or adverse weather and a significant decline in real estate values. A sustained economic downturn could adversely affect the quality of our assets, credit losses, and the demand for our products and services, which could lead to lower revenue and lower earnings.

Our credit quality may be less favorable than reported because of loan payment deferrals and certain loan payments made by the SBA.

The majority of our loan portfolio consists of SBA loans, most of which received from the SBA principal and interest payments under Section 1112 of the CARES Act during 2020 and have received from the SBA at least three months of payments in 2021. In addition, we have granted many borrowers payment deferrals and may continue to do so. Because of these actions, our asset quality trends may appear more favorable than they otherwise would without such payments or deferrals. If our borrowers are unable to make their loan payments after the expiration of the SBA’s payment support or our deferrals, we may experience loan defaults or other deterioration in our credit quality. This may result in higher provisions to our loan loss reserve or loan defaults. Such events could lead to lower earnings or losses.

Most expansion activities require approval of our regulators, which we may not be able to obtain, or that may impose conditions that we find to be unacceptable.

Branch openings, and other expansion activities, generally require the approval of our regulators. We may not be able to obtain such approvals if our regulators do not believe we are financially or managerially strong enough to integrate or manage such activities. In addition, our regulators consider our capital, liquidity, profitability, regulatory compliance, including with the Community Reinvestment Act and the Bank Secrecy Act, and levels of goodwill and intangibles when considering acquisition and expansion proposals. Our regulators may also impose conditions in approvals that we find to be unacceptable, prohibitive, or otherwise undesirable.

 

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In any of those instances, we may be unable or unwilling to consummate a transaction or undertake an expansionary activity.

We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to material penalties and have negative effects on our business.

The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act, and other fair lending laws and regulations impose obligations and nondiscriminatory lending requirements on financial institutions. The banking regulators and the U.S. Department of Justice are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s performance under the Community Reinvestment Act or fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on branch expansion, merger and acquisition activity, and restrictions on entering new business lines. 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.

We may be required to make increases in our ALLL and to charge off loans in the future, which could adversely affect our results of operations.

The determination of the appropriate level of the ALLL involves a high degree of subjectivity and judgment and requires us to make significant estimates of current credit risks, which may undergo material changes. 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 ALLL. In addition, our regulators periodically review our ALLL 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. Furthermore, the Financial Accounting Standards Board has issued a current expected credit loss rule, which will change our accounting for losses by requiring us to record, at the time of origination, credit losses expected throughout the life of loans, held-to-maturity securities, and certain other assets and off-balance sheet credit exposures as opposed to the current practice of recording losses when it is probable that a loss event has occurred. We expect this new standard to be implemented on January 1, 2023, when 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. Also, if charge-offs in future periods exceed the allowance, we will need additional provisions to increase the allowance, which would result in a decrease in net income and capital, and could have a material adverse effect on our financial condition and results of operations.

If real estate values in our markets decline, we could experience losses upon foreclosure of the loan or sale of the real estate.

A material portion of our loan portfolio consists of mortgages secured by real estate located in Pinellas, Hillsborough, Manatee, and Sarasota Counties, Florida. Real estate values in our market may decline due to changes in national, regional or local economic conditions; fluctuations in interest rates and the availability of loans to potential purchasers; changes in the tax laws and other governmental statutes, regulations and policies; and acts of nature. If real estate values decline in our market, the value of the real estate collateral securing our loans will likely be reduced. Any reduction in the value of the collateral securing our loans could reduce the amount of money we could realize on the sale of any collateral and thereby adversely affect our financial performance.

Hurricanes or other adverse weather events, as well as climate change, could negatively affect our local economies or disrupt our operations, which would have an adverse effect on our business and results of operations.

Our market areas in Florida are susceptible to hurricanes, tropical storms, and related flooding and wind damage. Such weather events can disrupt operations, result in damage to properties and negatively affect the

 

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local 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. Our business and results of operations may be adversely affected by these and other negative effects of future hurricanes, tropical storms, related flooding and wind damage and other similar weather events. Climate change may be increasing the severity and frequency of adverse weather conditions, making the impact from these types of natural disasters on us or customers worse.

Further, concerns over the long-term impacts of climate change have led and may continue to lead to governmental efforts around the world to mitigate those impacts. Investors, consumers, and businesses also may change their behavior on their own as a result of these concerns. The State of Florida could be disproportionately impacted by long-term climate changes. We and our customers may face cost increases, asset value reductions, and changes in 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.

The credit risk associated with commercial real estate loans and commercial and industrial (“C&I”) loans is a result of several factors, including the concentration of principal in a limited number of loans and to borrowers in similar lines of business, the size of loan balances, the effects of general economic conditions on the demand for C&I products and services and income-producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Repayment of commercial real estate and C&I loans in some cases is dependent upon the successful operation of the related business or the development or sale of the related real estate. If the actual or potential cash flow from a business or property is reduced, the borrower’s ability to repay the loan may be impaired. As a result, repayment of these loans may, to a greater extent than other types of loans, be subject to adverse conditions in the real estate market or economy. In addition, if the Bank forecloses on the collateral securing C&I loans, the potential market for selling such collateral may be limited to persons already engaged in a similar business. 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.

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. However, an appraisal is only an estimate of the value of the property at the time the appraisal is made, and, as real estate values may fluctuate over relatively short periods of time, especially in times of heightened economic uncertainty, this estimate might not accurately describe the net value of the real property collateral after the loan has been closed. If the appraisal does not reflect the amount that may be obtained upon any sale or foreclosure of the property, we may not realize an amount equal to the indebtedness secured by the property. In addition, we rely on appraisals and other valuation techniques to establish the value of our foreclosed upon real estate and to determine certain loan impairments. 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 ALLL 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.

We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and may have more financial resources than we do. Such competitors primarily include Internet banks and national, regional and community banks within the various markets we serve. We also face competition from many other types of financial institutions, including, without limitation, savings and loan institutions, credit unions, mortgage companies, other finance companies, brokerage firms, insurance companies, factoring companies and other financial intermediaries. The financial services industry could become even more

 

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competitive as a result of legislative, regulatory and technological changes, as well as continued consolidation. Many of our competitors have fewer regulatory constraints and may have lower cost structures. Our success depends on our ability to compete successfully in our market area, and there is no guarantee that we will be able to do so.

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.

Liquidity is essential to our business. Actions by the Federal Home Loan Bank of Atlanta or the Board of Governors of the Federal Reserve System may reduce our borrowing capacity. Additionally, we may not be able to attract deposits at competitive rates. Our inability to raise funds through traditional deposits, brokered deposits, borrowings, the sale of securities or loans, and other sources could negatively affect our liquidity or result in increased funding costs. 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.

Changes in interest rates affect our profitability and assets.

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. We are unable to predict changes in market interest rates, which are affected by many factors beyond our control including inflation, economic recession, unemployment, money supply, domestic and international events, and changes in the United States and other financial markets.

At June 30, 2021, 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. The difference between interest rates charged on interest-earning assets and interest rates paid on interest-bearing liabilities may be affected by changes in market interest rates, changes in relationships between interest rate indices, and changes in the relationships between long-term and short-term market interest rates. Our net interest income may be reduced if: (i) more interest-earning assets than interest-bearing liabilities reprice or mature during a time when interest rates are declining; or (ii) more interest-bearing liabilities than interest-earning assets reprice or mature during a time when interest rates are rising. 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 face additional risks due to our increased mortgage banking activities that could negatively impact our net income and profitability.

We sell a substantial portion of the mortgage loans that we originate. The sale of these loans generates noninterest income and can be a source of liquidity for the Bank. Disruption in the secondary market for residential mortgage loans could result in our inability to sell mortgage loans, which could negatively impact our liquidity position and earnings. In addition, declines in real estate values or increases in interest rates could reduce the potential for robust mortgage originations, which also could negatively impact our earnings. As we do sell mortgage loans, we also face the risk that such loans may have been made in breach of our representations and warranties to the buyers, and we could be forced to repurchase such loans or pay other damages.

We may face risks with respect to future expansion.

We may consider and enter into new lines of business or offer new products or services. We may acquire all or parts of other institutions and we may engage in additional de novo branch expansion. 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 and possible dilution to our existing stockholders, the diversion

 

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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.

We may need additional capital in the future, but such capital may not be available when needed or at all.

We may need to obtain additional debt or equity financing to fund future growth and meet our capital needs. We cannot guarantee that such financing will be available to us on acceptable terms or at all. If our financial performance is unsatisfactory or if negative economic events or disruptions in the capital markets occur, it may not be possible for us to find sources of sufficient capital for our business operations. If we are unable to obtain future financing, we may not have the resources available to fund our planned growth.

We are subject to government regulation and monetary policy that could constrain our growth and profitability.

We are subject to extensive federal government supervision and regulations that impose substantial limitations with respect to lending activities, purchases of investment securities, the payment of dividends, and many other aspects of our business. Many of these regulations are intended to protect depositors, the public, and the FDIC, but not our stockholders. The banking industry is heavily regulated. We are subject to examinations, supervision and comprehensive regulation by various federal and state agencies. Our compliance with these regulations is costly and restricts certain of our activities. Banking regulations are primarily intended to protect the federal deposit insurance fund and depositors, not stockholders. The burden imposed by federal and state regulations puts banks at a competitive disadvantage compared to less regulated competitors such as finance companies, mortgage banking companies, and leasing companies. Federal economic and monetary policy may also affect our ability to attract deposits, make loans, and achieve our planned operating results.

Legislation and regulatory proposals enacted in response to market and economic conditions may materially adversely affect our business and results of operations.

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. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) in particular represented a significant overhaul of many aspects of the regulation of the financial services industry, some of which have yet to be implemented. In addition, because regulation of financial institutions changes regularly and is the subject of constant legislative debate, we cannot forecast how federal or state regulation of financial institutions may change in the future and impact our operations. Recent and forthcoming changes to banking regulations may impact the profitability of our business activities, require changes to some of our business practices, or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements. It may also require us to hold higher levels of regulatory capital and/or liquidity and it may cause us to adjust our business strategy and limit our future business opportunities. 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.

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. Changes in customer behaviors have increased the need to offer these options to our customers. 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

 

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products and services that provide convenience to customers and to create additional efficiencies in our operations. We may need to make significant additional capital investments in technology in the future, and we may not be able to effectively implement new technology-driven products and services in a timely manner in response to changes in customer behaviors, thus adversely impacting our operations. Many of our competitors have substantially greater resources to invest in technological improvements and banking regulators may permit emerging technology companies to engage in activities previously reserved to traditional commercial banks. Such competition could adversely affect our performance and results of operations.

Changes in accounting standards may affect our performance.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time, there are changes in the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be difficult to predict and can materially impact how we record and report our financial condition and statements of operations. Future changes in financial accounting and reporting standards could require us to apply a new or revised standard retroactively, which could result in a material adverse effect on our financial condition or could even require us to restate prior period financial statements.

We face risks related to our operational, technological, and organizational infrastructure.

Our ability to grow and compete is dependent on our ability to build or acquire the necessary operational and technological infrastructure and to manage the cost of that infrastructure while we expand. 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. In addition, we are heavily dependent on the strength and capability of our technology systems, which we use both to interface with our customers and to manage our internal financial and other systems. 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.

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.

Our common stock is quoted and traded on the OTCQX under the symbol “FHBI.” However, such quotation has resulted in minimal trading, which may make it difficult for you to sell your shares and is likely to depress the prices at which you would be able to sell your shares. You may, therefore, be required to bear the risks of this investment for an indefinite period of time. We have applied to have our stock listed on Nasdaq. However, we do not expect a substantially liquid market for our common stock to develop for an uncertain period of time, if at all. Accordingly, potential investors should consider the potential illiquid and long-term nature of an investment in our common stock.

Our application to list our common stock on Nasdaq may not be approved and our stock may continue to be traded only on the OTCQX.

Our application to list our common stock on Nasdaq will only be approved once we have maintained on the OTCQX an average daily trading volume of 2,000 shares for a 30 trading day period, with trading on at least 16 of those days. We may fail to attain that level of trading volume, fail to meet another listing requirement, or our application may not be approved for another reason. In any such event, our common stock will continue to be traded only on the OTCQX. The OTCQX has less liquidity and is not as efficient as Nasdaq. Therefore, if we fail to list our common stock on Nasdaq, it may be difficult to sell your shares or obtain the best price for them.

 

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Investors may face dilution resulting from the issuance of common stock in the future.

We may issue common stock without stockholder approval, up to the number of authorized shares set forth in our Articles of Incorporation. Our Board may determine, from time to time, a need to obtain additional capital through the issuance of additional shares of common stock or other securities. There can be no assurance that such shares will be issued at prices or on terms better than or equal to the price or terms in this offering. The issuance of any additional shares of common stock by us in the future may result in a reduction of the book value or market price, if any, of the then-outstanding common stock. Issuance of additional shares of common stock will reduce the proportionate ownership and voting power of our existing stockholders.

The price of our common stock could be volatile.

The market price of our common stock may be volatile and could be subject to wide fluctuations in price in response to various factors, some of which are beyond our control. These factors include, among other things: variations in our quarterly results of operations; recommendations by securities analysts; performance of other companies that investors deem comparable to us; economic factors unrelated to our performance; general market conditions; and changes in government regulations. In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition, or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

An investment in our common stock is not an insured deposit.

An investment in our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC. Investment in our common stock is inherently risky for the reasons described herein, and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire our common stock, you could lose some or all of your investment.

Owning our stock will not give you the right to participate in any future offerings of our capital stock and your ownership could be diluted.

As a stockholder, you are not automatically entitled to purchase additional shares of common stock in future issuances of our common stock; therefore, you may not be able to maintain your current percentage of ownership in BayFirst. If we decide to issue additional shares of common stock or conduct an additional offering of stock, your ownership in BayFirst could be diluted and your potential share of future profits may be reduced.

Management has broad discretion concerning the use of our capital.

We use our capital to maintain liquidity and to continue to support the growth of the Bank. This growth may include the opening of branch offices, increasing the size and volume of loans, or other such activities that may require additional capital. The additional capital may also be used to service our outstanding debt. 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 stockholder’s wishes. Failure to use such funds effectively might harm your investment.

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.

The trading market for our common stock could be affected by whether and to what extent equity research analysts publish research or reports about us and our business. We cannot predict at this time whether any

 

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research analysts will cover us and our common stock or whether they will publish research and reports on us. 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. If any of these analysts ceases coverage of us, we could lose visibility in the market, which in turn could cause our common stock price or trading volume to decline and our common stock to be less liquid.

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 June 30, 2021, BayFirst’s directors and executive officers as a group owned approximately 17.70% of our outstanding common stock. In addition, the directors and executive officers have stock options and warrants to acquire shares of common stock, which, if fully exercised, would have resulted in them owning approximately 20.62% of our outstanding common stock. Our directors and executive officers are expected to exert a significant influence on the election of Board members and on the direction of the Company. This influence could negatively affect the price of our shares or be inconsistent with other stockholders’ desires.

We have outstanding preferred stock and our Board may authorize the issuance of additional series of preferred stock.

We have 1,000,000 shares of authorized preferred stock, no par value. Of those, 10,000 shares have been designated as Series A Preferred Stock, of which 6,395 shares were outstanding as of June 30, 2021, with a $1,000 liquidation preference and a 9% (subject to increase to 11% if we have not redeemed the shares by the tenth anniversary of their issuance) per annum quarterly dividend. We also have 20,000 authorized shares of Series B Convertible Preferred Stock, of which 4,580 shares were outstanding as of June 30, 2021, with a $1,000 liquidation preference and an 8% per annum dividend (subject to increase to 9% if we have not redeemed the shares by the tenth anniversary of their issuance), which is otherwise on a parity with our Series A Preferred Stock as to priority of dividends and liquidation preference. Additionally, our Articles of Incorporation provide that our Board of Directors may authorize additional series of preferred stock without stockholder approval. Accordingly, the issuance of new shares of preferred stock may adversely affect the rights of the holders of shares of our common stock.

BayFirst has outstanding debt and either BayFirst or the Bank may incur additional debt.

BayFirst has outstanding debt and either BayFirst or the Bank may incur additional debt. At June 30, 2021, BayFirst had a $3.53 million term loan and $5.98 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. Either or both of BayFirst or the Bank may issue additional debt. Payments due on such debt will further reduce the amount of money available to BayFirst to pay dividends on its common stock.

We are restricted by law and government policy in our ability to pay dividends to our stockholders.

Holders of shares of our capital stock are only entitled to receive such dividends as our Board may declare out of funds legally available for such payments. Although we have recently declared cash dividends on our common stock, we are not required to do so and may reduce or eliminate our common stock dividend in the future. This could adversely affect the market price of our common stock. Furthermore, the terms of our subordinated debt and the preferred stock will prohibit us from declaring or paying any dividends on any junior series of our capital stock, including our common stock, or from repurchasing, redeeming or acquiring such junior stock, unless we have declared and paid full dividends on our outstanding preferred stock for the most recently completed dividend period. 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

 

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by the tenth anniversary of their issuance) 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). Additionally, our Articles of Incorporation provide that our Board of Directors may authorize and issue additional series of preferred stock without stockholder 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.

We are also subject to state and federal statutory and regulatory limitations on our ability to pay dividends on our capital stock. For example, it is the policy of the Federal Reserve that bank holding companies should generally pay dividends on common stock only out of earnings, and only if prospective earnings retention is consistent with the organization’s expected future needs, asset quality and financial condition. Moreover, the Federal Reserve will closely scrutinize any dividend payout ratio exceeding 30% of after-tax net income. You should not purchase common stock in the offering 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.

We are an emerging growth company, as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies. These include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We may take advantage of these exemptions until we are no longer an emerging growth company, which could be as long as five full fiscal years following the listing of our common stock on Nasdaq. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. 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.

Further, the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have not opted out of such extended transition period. This means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies do so. This may make our financial statements not comparable with those of public companies which are neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period because of the potential differences in accounting standards used.

We are a smaller reporting company and will be exempt from certain disclosure requirements, which could make our common stock less attractive to potential investors.

We are a smaller reporting company, as defined under the Exchange Act, and may continue to be so after we no longer qualify as an emerging growth company. As a smaller reporting company, we will: (i) not be required and may not include a Compensation Discussion and Analysis section in our proxy statements, (ii) provide only two years of financial statements; and (iii) not need to provide a table of selected financial data. We also will have other scaled disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies which could make our common stock less attractive to potential investors. We cannot predict if investors will find our common stock less attractive as a result of our reliance on these exemptions. 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.

 

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Certain provisions of Florida and federal law may discourage or prevent a takeover of BayFirst and result in a lower market price for our common stock.

Florida and federal law contain anti-takeover provisions that apply to us. These provisions could discourage potential buyers from seeking to acquire us in the future, even if the proposed transaction would allow stockholders to realize a premium for their shares and even if a majority of our stockholders wish to participate in such a transaction. As a result, these provisions could also adversely affect the market price of our common stock.

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