BayFirst Financial Corp.

Good morning, ladies and gentlemen, and welcome to the Bay First Financial Corporation Q1 2024 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. This call is being recorded on Friday, April 26, 2024. I would now like to turn the conference over to Mr. Tom Zernick, Chief Executive Officer. Please go ahead, sir.

Hey, thank you, Lara. Good morning, and thank you for participating on our call today. I have with me our President and Chief Operating Officer, Robin Oliver, and Chief Financial Officer, Scott McKim. Today's call will include forward-looking statements and non-gapped financial measures. Please refer to our cautionary statement on forward-looking statements contained on page two of the investor presentation. Before I discuss our Q1 performance, I want to clearly state that I and the rest of our executive team are not content with our first quarter results. We missed our goals for earnings and profitability driven by higher net charge offs and lower core SBA 7A production in the first quarter. Our underlying credit metrics remain stable and our community banking division continues to perform well. However, our focus is to elevate all areas of our business model. We're focused on that and are working to close the gaps in process, and we continue to right-size staffing as needed. This focus is applied to every small business loan we write as that lender-borrower partnership is oftentimes the key to keeping a small business operating through high inflation and interest rates. Furthermore, we operate in a footprint that many consider one of the nation's strongest. We remain committed to continuing to build the franchise value of our great community bank in Tampa Bay. During Q1, we produced net income of $800,000. This represents a 12% increase over Q1-23 earnings of $700,000, but a 50% decrease over Q4 earnings of $1.7 million. Net income decreased to two primary factors. Higher provision for credit losses of $1.3 million quarter over quarter, coupled with weaker than forecasted core SBA 7A loan production. Our core loans are loans $350,000 to $5 million in size. Bay first opened its 12th banking center in the attractive Tampa Bay market during the quarter. Our South Trail Sarasota location completes our near-term branch expansion plans. We were successful in growing deposit balances by $22.2 million during the quarter and by $74.4 million year-over-year. We maintain a community-focused business model serving individuals, families, and small businesses with a focus on establishing strong client relationships as we grow checking and savings accounts across our marketplace. This model continues to build franchise value on our great community bank here in Tampa Bay. While net charge offs increased during the first quarter, we continue to monitor asset quality metrics, including non performing loans exclusive of government guaranteed loan balances, which declined from the end of last quarter. The increase in net charge offs was due to the performance of the portfolio of unsecured consumer loans purchased in 2022, as well as higher net charge-offs from the bank's flash cap SBA-guaranteed small loan program, particularly from loans originated prior to 2020, when rates were significantly lower, and now these borrowers have felt the impact of rising rates in their payments. The bank stopped originating loans under the flash cap product model during the quarter, and Robin will share more details on asset quality metrics in a few minutes. Let me now share some highlights from around Bay first. Our retail banking centers continued to build real franchise value as we were successful in growing deposit balances 2.3% and net new accounts 4.7% during the first quarter of 2024, ending the quarter at 1.01 billion. During the first quarter, there were increases in non-interest bearing deposit account balances of 3.3 million savings and money market deposit account balances of $18.9 million and time deposit balances of $8.9 million, partially offset by a decrease in interest-bearing transaction account balances of $8.9 million. BayFirst has maintained a granular deposit base and continues to benefit from 84% of our deposits being insured at March 31, 2024. On the lending side, BayFirst continues to enjoy minimal commercial exposure in the CRE space with non-owner occupied CRE representing only 5.5% of our loans held for investments at the end of the quarter. Loans held for investment increased by 19.1 million or 2.1% during the first quarter of 2024 to 934.9 million due to originations in conventional community bank loans, and increased 142.1 million, or 17.9%, over the past year. During the quarter, the company originated $197.2 million of loans and sold 127.8 million of government-guaranteed loan balances. The company's government-guaranteed loan origination platform credit bench originated $130.6 million in new government guaranteed loans during the first quarter of 2024, a decrease of $9.9 million from $144.9 million of loans produced in the previous quarter, and a 7.8% increase over $121.1 million of loans produced during the first quarter of 2023. Demand remains strong for the company's BOLT loan program, An SBA 7 loan product designed to expeditiously provide working capital loans of $150,000 or less to businesses throughout the country. Since the bolt launch in 2022, the company has originated 4168 bolt loans totaling 539.9 million of which 760 bolt loans totaling 98.2 million were originated during the quarter. Now I will pass the microphone to Scott McKim, our Chief Financial Officer, to provide an overview of our financial performance.

Thank you, Tom. Good morning, everyone. As Tom mentioned, our net income from continuing operations was just over $800,000 in the first quarter. Balances of loans held for investments grew 19.1 million, or 2.1%, during the quarter. And overall, total assets increased 26.4 million to $1.14 billion, or an increase of 2.4% during the quarter. Year-over-year total assets have increased $74 million, or 7%. Total deposits increased 22.2 million, or 2.3%, during the quarter. of this year and increased by $74.4 million from the first quarter of 2023. Total deposits ended the quarter at just over $1 billion. Shareholders' equity at quarter end was $106 million and is flat to the end of the fourth quarter and is $10.3 million higher than the first quarter of 2023. There was a slight increase in accumulated other comprehensive loss of $207,000 during the quarter, and our tangible book value decreased slightly to $20.45 per share from $20.60 per share at the end of the fourth quarter, driven by higher share counts. Net interest income was $8.7 million in the first quarter, essentially flat to the fourth quarter, and down $300,000 from a year ago. This is reflecting both higher interest expense as well as higher interest income, and the net interest margin decreased about six basis points from the first quarter, again reflecting increases in interest income offset by slightly higher deposit costs during the quarter. Non-interest income from continuing operations was $14.3 million for the first quarter of 2024. That was down $400,000, reflecting lower fair value gains on fewer loans in the first quarter compared to the fourth quarter of last year. Loans which were sold during the quarter provided higher net premium gains of $1 million, and compared to the first quarter of 2023, non-interest income was up $4.8 million, reflecting higher gains on sale of loans, packaging fees on loans originated, as well as other income. Provision for credit losses was $4.1 million in the first quarter compared to $2.7 million in the fourth quarter and $1.9 million in the first quarter of 2023. While overall asset quality remains relatively stable, net charge-off did increase due to our portfolio of unsecured consumer loans purchased from a third party in 2022, as well as higher net charge-off on unguaranteed balances of SBA 7A loans. As we have previously mentioned, the unsecured consumer loan exposure continues to pay down, and we expect its impact on net charge-off to dissipate throughout this year. Non-interest expense decreased by $700,000 in the first quarter compared to the fourth quarter, primarily due to a decrease of $600,000 of commission and incentive costs and $1 million of loan origination and collection costs, both reflecting lower core SBA 7A loan origination volumes. Offsetting these decreases were higher salary costs of half a million dollars for income tax resets, as well as an increase in professional fees, which included a one-time $400,000 expense. Compared to the first quarter of 2023, non-interest expense is $2.3 million higher driven by loan origination and incentive costs, as loan production in the first quarter of 2024 was $37 million higher than the first quarter of last year. as well as the additional professional cost that I just mentioned as well. At this point, I will turn things over to our President and Chief Operating Officer, Robin Oliver, to discuss some asset quality in detail. Robin.