BayFirst Financial Corp.

Good morning ladies and gentlemen and welcome to the Bay First Financial Corp Q4 2022 conference call and webcast. At this time all lines are in listen only mode. Following the presentation we will conduct a question and answer session. If at any time during this call you require immediate assistance please press star 0 for the operator. This call is being recorded today and Friday, January 27, 2023. I would now like to turn the conference over to Mr. Tony Leo, Chief Executive Officer. Please go ahead, sir.

Thank you, Michelle. Good morning, and thanks to all joining us today. I have with me today our President, Tom Zernick, and Robin Oliver, our Chief Operating Officer and Chief Financial Officer. Today's discussion will include forward-looking statements and non-GAAP financial measures. I'd ask you to please refer to our cautionary statement on forward-looking statements contained on page two of our investor presentation. The fourth quarter represented the culmination of our transition to an essential focus on building the premier community banking franchise in the Tampa Bay region. During the quarter, we completed the discontinuation of our nationwide mortgage banking business while continuing to originate mortgages here in Tampa Bay, with mortgage origination now part and parcel of our community banking delivery system. While the impact of the discontinuation of our mortgage banking business continued to adversely impact financial performance in the fourth quarter, we returned to profitable overall operations during the quarter, driven largely by strong SBA loan production in our credit bench platform and overall growth of our loan portfolio. Our latest banking center in West Bradenton, which opened in September, reached $21 million in total deposits in its first full quarter of operations, nearly $12 million of which is in checking and savings accounts, continuing our track record of successful de novo branching. Our ninth full-service banking center is scheduled to open in the Carolwood section of Tampa in two weeks, with two additional Sarasota locations projected later in the year, as we continue to build a preeminent banking center network in the region. We recognize the purpose of the bank branch has changed dramatically, accelerated by the impact of the pandemic. We view our banking centers largely as marketing vehicles, providing us the opportunity to reach a broader market. We currently have approximately 260,000 households within a five-minute drive of our offices, and that number continues to grow with each new strategically located banking center. But we recognize that superior omnichannel delivery is critical to meeting customers' expectations for banking in the 21st century. For that reason, we are investing in what we believe is the premier online account opening system available, and making significant enhancements to our online account services during this quarter. Bank to bank transfers, forward pay, online loan payments from other institutions, live chat, and a host of other enhancements currently in implementation will make our account features competitive with any of the largest institutions while we offer the type of personalized service and decision making that is the hallmark of community banking. Notwithstanding our emphasis on growing our community banking franchise here in Tampa Bay, Meeting our earnings targets is dependent largely on our ability to continue to generate conventional and SBA loans in the current rate environment. In just a minute, I'll ask Tom to walk through our success in lending in 2022 and where we go from here. But first, I'd like Robin to discuss our Q4 numbers.

Thank you, Tony. Good morning to everyone on the call. As Tony mentioned, the fourth quarter represents a transition for a company, and the financial statements reflect that. From a balance sheet perspective, total assets increased slightly from $930 million at September 30th to $938 million at the end of the year. Although that demonstrates a modest overall increase, I would like to point out that assets from discontinued operations declined by $76 million in the fourth quarter as loans held for sale outstanding at the end of Q3 were sold during the quarter as the company wound down its nationwide residential lending platform. Excluding discontinued operations, the company's total assets demonstrated solid growth as total loans increased by $48 million or 7% during the fourth quarter and $145 million or 25% over the prior year. Deposit balances increased slightly during the fourth quarter to $795 million as 2022 proved to be a challenging year to maintain and grow deposit balances. The industry as a whole has been experiencing deposit runoffs However, we were able to maintain and grow deposit balances during the year by 73 million or 10%. The mix of deposits has shifted and the overall cost of funds has increased over the past year as customers demand higher rates. However, our loan rates have also increased as the majority of our SBA loans are tied to prime and repriced quarterly. Net income for the fourth quarter was 1.3 million or 27 cents per diluted share. which included $791,000 of net loss from discontinued operations. Net income from continuing operations was $2.1 million for the quarter, or $0.45 per diluted share. This represents a marked improvement over the third quarter's net loss of $1.4 million, which included loss of $4.4 million from discontinued operations. In looking at the key components of the income statement, although the company is asset sensitive, net interest margin was squeezed during the fourth quarter, primarily due to a rise in the cost of funds offset somewhat by rising rates on loans. Interest income from interest earning assets has risen steadily throughout the year. However, deposit rates were not adjusted early on in 2022. During the third quarter and on into the fourth quarter, there was more pressure to raise rates on deposits quickly but the variable rate SBA loan balances reset only at the beginning of each quarter, which caused a temporary squeeze on net interest income. As a result, net interest income from continuing operations declined by $596,000, or 6.5% during the quarter, and the net interest margin declined 44 basis points from 4.63% in the third quarter to 4.19% in the fourth quarter. That being said, net interest margin has increased dramatically from 3.07% in the same quarter in the prior year. Non-interest income from continuing operations declined by $1.4 million or 14% during the quarter, primarily due to a lower volume of SBA-guaranteed loans being sold in Q4 as compared to Q3, which resulted in less gain on sale. Non-interest expense from continuing operations also declined, however, by $665,000 or 5% during the quarter, primarily due to lower salaries and benefits costs. It should also be noted that the company recorded a more normalized provision for loan loss, again in the fourth quarter, of $700,000 compared to $750,000 in the prior quarter. Credit quality metrics remained relatively stable at year end with non-performing loans excluding government guaranteed balances declining slightly during the quarter to $3.7 million or 0.5% of total loans held for investment. Although net charge-offs increased during the quarter, a good portion of the increase was due to a charge-off on one commercial loan, which was previously reserved for, and an increase in net charge-offs on unsecured consumer debt, which was not unexpected given the seasoning of that loan portfolio. Net charge-offs on the unguaranteed portion of the SBA 7A small loan program balances actually declined in the fourth quarter as compared to Q3. At this point, I'd like to turn things over to Tom to discuss the loan production results and the overall bank strategy.