BayFirst Financial Corp.

Good morning, ladies and gentlemen, and welcome to the Bay First Financial Court's second quarter 2023 conference call and webcast. At this time, all lines are in a 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 zero for the operator. I would now like to turn the conference over to Mr. Tony Leo, CEO. Please go ahead, sir.

Thank you, Lara. Today I have with us our president, Tom Zernick, our chief operating officer, Robin Oliver, and our chief financial officer, Scott McKinnon. First, I'd like to welcome Scott to our call, who joined us this week as CFO. We've now segregated Robin's role in the company with her serving solely as chief operating officer. Going forward, Scott will be discussing our financial results. However, today, in consideration of Scott's very short tenure, You'll be hearing the detailed discussion of our financial performance from Robin. Today's call will include forward-looking statements and non-GAAP financial measures. Please refer to the cautionary statement on forward-looking statements contained on page two of the investor presentation. We were pleased to report Bay First's second quarter performance as we saw earnings increase from Q1, deposits steadily grow, and most importantly, continued expansion of our net interest margin, an overall trend we've enjoyed throughout the current rate cycle. Our emphasis on growing the footprint and overall franchise of our community bank has resulted in 20% year-to-day increase in transaction account balances and more than 1,000 net new checking accounts during the year. This growth in retail and commercial checking accounts is a direct result of our unique products and services and the expansion of our network of banking centers throughout the Tampa Bay region. This month, we opened our 10th banking center on Bee Ridge Road in Sarasota. This inviting new banking center is now our third in the Sarasota-Brington portion of the Tampa Bay region. We're completing construction on our flagship Sarasota Banking Center on South Tamiami Trail, which is expected to open late this year, early in 2024. We're also seeking regulatory approval to convert our North Sarasota LPO and Financial Resource Center in the Newtown District to a full-service branch. The Newtown District of North Sarasota is the city's only majority minority area and represents our ongoing commitment to serve the entire community and reach out to the underserved. While we continue to build our core community bank, Credit Bench, our government guaranteed lending division remains a national leader in SBA lending, currently placing sixth among all SBA lenders nationwide. Aided by advances in technology, our small balanced loan products within the overall 7A program have been a key driver of our growth in SBA lending. Our BOLT product provides working capital loans up to $150,000 and carries an 85% SBA guarantee. Launched in June of 2022, BOLT loan originations are now averaging in excess of $25 million a month and garnering strong premiums in the secondary market. We have also expanded our reach in government guaranteed lending into the USDA BNI program, which generally involves larger loans carrying an 80% guarantee. Tom will speak more about our success in government-guaranteed lending and across all of our lending products in just a few minutes. Throughout the rate cycle, we have experienced expansion in our net interest margin. This expansion is a direct result of the asset-sensitive position of the bank's balance sheet and, likewise, our ability to grow loans and deposits even in these challenging times. Robin will speak more about our margin in just a moment. Most importantly, we continue to grow our core deposit base and our overall banking franchise here in the Tampa Bay region. As I mentioned at the outset, we have enjoyed significant growth in both the number of transaction accounts and associated balances. While we continue to expand our branch network with inviting new banking centers, we're also investing in the technology necessary to offer our customers the ability to do banking on their terms. Within the next 60 days, we expect to introduce a streamlined digital account opening system that we believe is second to none in the industry. We are confident that these investments will result in continued growth of our franchise and an attractive, stable core deposit base. At this time, I'd like to turn it over to Robin to discuss our financial results.

Thank you, Tony. Good morning, everyone. As you may recall, balance sheet growth and stability were a key focus in the first quarter. And in the second quarter, we were able to build upon those themes with continued stability in our deposit base, with 82% of deposits being fully insured, strong growth in loan balances of 6% during the quarter, but a more modest overall increase in total assets of 1.6% for the quarter, as excessive levels of cash held in an abundance of caution at March 31st intentionally reduced during the second quarter as fears in the banking industry subsided. Overall, year to date, total assets have increased 16%, and retail or non-wholesale deposits have increased by an astounding 14% since the beginning of the year, at a time when the industry as a whole is experiencing deposit headwinds. Stockholders' equity increased by $726,000 this quarter, as positive earnings added to equity offset somewhat by dividends paid on our common and preferred shares. Although tangible book value per share was negatively impacted in the first quarter when the company adopted the current expected credit loss model, or CECL, tangible book value increased this quarter to $19.85 per share from $19.70 per share at the end of Q1. As Tony mentioned, net income increased in Q2 as compared to Q1, with net income in the second quarter of $1.4 million compared to $739,000 in Q1. The higher net income this quarter was the result of higher net interest income and non-interest income offset somewhat by higher provision for credit losses and higher non-interest expense. Net interest income was $10 million in the second quarter, an increase of $1 million from the first quarter of 2023, and an increase of $3.5 million from the second quarter of 2022. Net interest margin also increased slightly to 4.18% in the second quarter from 4.17% in the first quarter and more significantly from 3.73% in the second quarter of 22. Although deposit costs have risen over the past year, a significant portion of the loan portfolio has a variable rate of interest with the vast majority of SBA loans repricing quarterly and much of the consumer loan portfolio repricing immediately after a rate adjustment. The company has a low concentration of conventional commercial real estate loans, which are typically fixed for five years or longer. So the asset-sensitive nature of our balance sheet, along with a significant amount of SBA loans, which typically carry a higher rate of interest than conventional loans, allows us to pay a higher rate of interest on deposits to attract customers and grow our franchise. Non-interest income from continuing operations was $10.9 million for the second quarter of 23, an increase of $1.5 million from the first quarter, primarily due to an increase in $1.6 million in gain on sale of government-guaranteed loans, partially offset by a reduction in fair value gains on government-guaranteed loans. Premiums on the sale of guaranteed SBA balances returned to historically strong levels after a dip in premiums and lower gain on sale in the first quarter, which we discussed previously in our April call. In addition, we also sold 11 million of unguaranteed loan balances at a modest discount during the quarter, which helps to reduce credit risk on our balance sheet associated with the unguaranteed portion of SBA loans. While we sold the unguaranteed balances at a discount, the complex accounting associated with these sales actually resulted in a positive impact to earnings as the loss on sale is offset by lower provision for credit losses, and the acceleration of income related to previously deferred gain on sale from guaranteed loans. As I mentioned at the outset, the increases in net interest income and non-interest income were somewhat offset by a higher provision for credit losses of $2.8 million in the second quarter compared to $1.9 million in Q1. While our overall asset quality remains stable, net charge-offs did increase due to increases in both the SBA small loan program as well as unsecured consumer loans purchased from a third party. We ceased purchasing consumer loans from the third party in January of this year, however, and the increase in SBA charge-offs is not unexpected given the rate environment as well as just our overall increase in loan volume. We also experienced an increase in non-performing loans. However, this increase was primarily the result of one large single family residential loan as opposed to any concerning trends in the SBA or conventional loan portfolios. Finally, as it relates to earnings, non-interest expense also increased primarily in salaries and benefits and marketing costs as we continue to grow our franchise and build our brand. Although return on average assets of 52 basis points other earnings ratios remained lower than anticipated, mainly due to lower than expected core SBA production, as well as lower gain on sale in the first quarter, we are encouraged by the positive trajectory of our earnings and are continuing to invest in building our franchise as we work towards stability of earnings. At this point, I'd like to turn things over to Tom to discuss loan production results and our overall bank strategy.