BayFirst Financial Corp.

Good morning, ladies and gentlemen, and welcome to the Bay First Financial Corp's first quarter 2023 conference call and webcast conference call. 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 a star zero for the operator. This call is being recorded on Friday, April 28, 2023. I would now like to turn the conference over to Tony Leo, Chief Executive Officer. Please go ahead.

Thanks, Brian. Today I have with me our President Tom Zernick and our Chief Operating Officer Robin Oliver, and I would like to thank everyone for joining the call. Today's call will include forward-looking statements and non-GAAP financial measures. Please refer to our cautionary statement on forward-looking statements contained on page two of the investor presentation. The first quarter of 2023 was highlighted by Bay First's strong balance sheet and core deposit growth. We are excited to report that we topped the $1 billion mark in total assets, standing at $1.07 billion at March 31st. More importantly, we benefited from exceptional growth in all categories of core deposits, with non-interest-bearing balances growing by 15% in the first quarter alone, While total transaction account balances grew by an astounding 26%, total deposits increased by 103 million, exclusive of wholesale deposits. Our goal is to fund continued balance sheet growth primarily through core deposits. We do use broker deposits on a temporary basis, generally inter-quarter, to fund transient assets, particularly our government guaranteed loans, which we expect to sell into the secondary market. This quarter, the funding of several large USDA loans late in the quarter resulted in $30 million of CDERS one-way deposits remaining on our balance sheet over quarter end. Our balance sheet liquidity is strong. At March 31st, we held over $136 million in cash balances. We maintain significant borrowing capacity from the Federal Home Loan Bank and the Federal Reserve discount window. Although we have not tapped the Federal Reserve's term funding program, we would also have borrowing capacity available through that facility should we choose to participate. Robin will speak more about the bank's liquidity position in just a moment. Most importantly, we benefit from approximately 82% of our deposits being fully FDIC insured. This impressive ratio of insured deposits is a direct product of our community-focused business model. We serve individuals, families, and small businesses with a focus on checking and savings accounts, which are not only less rate sensitive, but are also far less volatile in times of economic disruptions. Moreover, our focus on providing checking and savings accounts to a broad segment of the communities we serve expands our overall franchise in the attractive Tampa Bay region, increases opportunities for offering consumer loans, residential mortgages, and small business loans throughout the region. Last month, we opened our ninth banking center in the rapidly growing Carolwood section of Tampa. On June 1st, we will open our 10th banking center on Bee Ridge Road in Sarasota. That will be our third banking center in the Sarasota-Brington portion of the Tampa Bay region. In addition, construction is progressing on our Sarasota-South Tamiami Trail Banking Center, which will be our marquee office in the Sarasota area and is expected to open late in the year. Turning to our earnings for the quarter, our financial performance was adversely impacted by a pending sale of approximately $60 million in SBA guarantee loans that was canceled without cause by Signature Bank upon it being placed into receivership. Signature was one of the largest aggregators of SBA loans and our counterparty on the sale of the bulk of our SBA loans in the quarter. Ultimately, the retrade of these loans resulted in $1.6 million in reduced income on sale. In as much as the FDIC has taken the position that all contracts of signature would be honored, we have put the FDIC as receiver on notice of our claim for the differential in the gain. While we can assess the likelihood of our claim being fully honored, we have received no indication of doubt that it will be. The disruption caused by the signature bank failure highlights a central theme of our strategic plan to grow recurring revenue through net interest income, thereby resulting in less reliance on gain of sale of SBA loans. A critical element of this strategy focuses on our lower cost transaction account deposit base to fund a rapidly growing commercial and consumer loan portfolio. In a few minutes, Tom will talk about our success in lending throughout our business lines. Before I turn it over to Rob and discuss our financial performance in detail, I'd like to reiterate that while other institutions are seeing a decline in their deposits, our core deposit base is experiencing strong growth. As such, we are in a position to continue to expand our lending services and take advantage of opportunities that arise as our competitors pull back in the current environment. At this time, I'd like to turn it over to Rob and Oliver to discuss our financial performance and liquidity position.

Thank you, Tony. Good morning, everyone. As Tony mentioned, the growth in the balance sheet in the first quarter was outstanding with total assets increasing 131 million or 14% during the quarter to 1.07 billion, mainly due to new loan production offset by the sale of 72 million in government guaranteed loans during the quarter. Loans held for investment, excluding PPP loans, increased by 65 million during the quarter. In addition, cash also increased by 66 million, primarily due to increases in our deposit balances, which were up 138 million over the prior quarter. Although the deposit growth included 35 million in short-term wholesale funding, the remaining deposit growth from customer deposits was 103 million during the quarter, with the bulk of the increase coming from transaction accounts. As Tony noted, The growth in deposits in the first quarter came at a time when the industry as a whole and many of the larger banks were experiencing an outflow of deposit balances. With our loan growth goals, we continued our focus on growing checking and savings accounts for the broad community and remained competitive in our pricing to attract deposit customers. In addition, we engaged proactively with customers during the disruption in the banking industry in March to answer any questions and to offer products or strategies for customers to make their deposit balances fully insured by the FDIC. Our primary vehicle for insuring any larger deposit balances has been the ICS program from Intrify, which has proven to be a valuable program for our customers and the bank, as our uninsured deposit ratios stood at approximately 18% at the end of the quarter. Stockholders' equity decreased one and a half million during the quarter, primarily due to the adjustment to retained earnings with the adoption of the current expected credit loss model, more commonly known as CECL. Our allowance for credit losses was bolstered by over $3 million as we adopted CECL with the corresponding beginning adjustment to retained earnings of $2.5 million. As such, the tangible book value per share did decline from $20.35 at the end of the year to $19.70 at March 31. Turning to earnings, our net income for the first quarter was $739,000 compared to $1.3 million in the prior quarter. And net income from continuing operations was $867,000 compared to $2.1 million in the prior quarter. The decrease in net income was the result of $1.2 million higher provision for credit loss, the loss of $1.6 million in premium income with the rebid of the SBA loans, and $1.9 million higher in non-interest expense offset by an increase in fair value gains and net interest income. In breaking down these key income statement components, net interest margin remained relatively stable at 4.17% in the first quarter compared to 4.19% in the prior quarter with net interest income increasing by 478,000. The cost of funds continued to rise during the quarter along with an increase in deposit balances resulting in additional interest expense. However, loan balances also grew during the quarter and with an asset sensitive balance sheet the majority of our loans repriced at least quarterly, which also resulted in an increase in interest income. Non-interest income from continuing operations increased by 1 million or 12% during the quarter, primarily due to higher fair value gains of 2.3 million, offset by a lower gain on sale of government-guaranteed loans of 1.4 million. As Tony described, our gain on sale of loans was less than expected due to our need to pivot from Signature Bank to another investor which caused less premium income on the sale of those loans. But I want to point out that although Signature happened to have won the bid on the majority of our loans this past quarter, we do bid our SBA guaranteed loans to seven or eight investors each quarter. So there are multiple other players in the market that we already have relationships with and sell to on a regular basis. Non-interest expense from continuing operations increased by $1.9 million, with the bulk of the increase coming from salaries and benefits. with many salaries adjusted as of January 1st in the normal course of business, an increase in bonus expense now that the company has returned to profitability, as well as the fact that the company recognized a one-time non-recurring payroll tax credit in the fourth quarter. Provision for credit losses increased from 700,000 in the fourth quarter to 1.9 million in the first. The increased provision was the result of an increase in net charge-offs of approximately 500,000 loan growth during the quarter, and the adoption of CECL, which evaluates the provision under the new standard. The increase in net charge-offs was mainly related to the SBA flash cap small loan portfolio, as well as the unsecured consumer loan portfolio purchased from a third party. However, I should point out that starting in January, we suspended the purchase of the consumer unsecured loans until the economic outlook improved. Although the provision in net charge-offs increased, other asset quality metrics remained relatively stable with non-performing loans to total loans declining during the quarter from 50 basis points to 26 basis points. At this point, I'd like to turn things over to Tom to discuss the loan production results and overall bank strategy.