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BayFirst Financial Corp. Reports Second Quarter 2022

ST. PETERSBURG, Fla., July 27, 2022 (GLOBE NEWSWIRE) — BayFirst Financial Corp. (NASDAQ: BAFN) (“BayFirst” or the “Company”), parent company of BayFirst National Bank (f/k/a First Home Bank) (the “Bank”) reported earnings for the second quarter of 2022 of $328 thousand, or $0.03 per diluted common share compared to $13 thousand, or $(0.05) per diluted common share in the first quarter of 2022, and $13.0 million, or $2.98 per diluted common share, in the second quarter of 2021. Financial results for the second quarter of 2022 were highlighted by robust loan production in community banking, up 200% year to date over last year, as well as one of the best quarters of SBA 7(a) loan production in the Company’s history.

The increase in earnings during the second quarter of 2022, compared to the first quarter of 2022, included a $2.5 million decrease in salaries and benefits, $2.9 million increase in SBA loan fair value gains, resulting primarily from election of the fair value option on $41.7 million of loans originated in the quarter, and a $1.0 million increase in net interest income. These were partially offset by a restructuring charge of $630 thousand related to the discontinuation of the direct-to-consumer mortgage business, a reduction in residential loan fee income of $3.0 million, and a $2.7 million increase in loan loss provision, as the Company made a modest provision of $250 thousand in the second quarter compared to a $2.4 million negative provision in the prior quarter.

Compared to the year ago quarter, the decrease in net income for the second quarter of 2022 included the $13.8 million one-time gain on sale of PPP loans in 2021, a $6.0 million decrease in PPP origination fee income and a decrease of $13.1 million in residential loan fee income. These items were partially offset by a decrease in noninterest expense of $8.8 million.

“The second quarter represented a dramatic turnaround quarter for the Company,” stated Anthony N. Leo, Chief Executive Officer. “We produced excellent core loan growth, improved operating expenses, and expanded our net interest margin by 48 basis points compared to the prior quarter. The investments we made to expand our nationwide SBA production team earlier in the year are paying off, with SBA 7(a) loan production of $90 million during the quarter. This production represents one of the highest performing quarters of SBA loan production in our Company’s history, with record monthly SBA loan production in June. Our SBA business acceleration was in part due to a new lending product, BOLT, that we launched during the quarter to originate SBA loans of $150 thousand or less, which is in high demand and carries an 85% government guaranty. Conventional community bank loan production was also strong, with production up more than 200% year to date over last year, as our lending teams have done an excellent job of bringing in new customer relationships. Our net interest margin benefited from the recent interest rate increases enacted by the Federal Reserve, and we are well positioned to benefit even further in future periods as our SBA loan portfolio rates are tied to prime, with the majority of them resetting quarterly.”

“Our organization is focused on building our community banking franchise in Tampa Bay, supported by national business lines to provide the revenue engine to build out and support our community bank,” Leo continued. “During the quarter and simultaneous with converting to a national banking charter, we rebranded our community bank to the name BayFirst National Bank, which reinforces our commitment to our Tampa Bay communities. We are also continuing our expansion efforts, with plans to open two additional branches in our current markets later this year. While we will continue to support small business owners and homebuyers across the country through our SBA and residential mortgage divisions, we remain a St. Petersburg-based, independent bank focused on making a difference in our own community and in the lives of those we serve.”

Recent Significant Initiatives

  • Late in the second quarter, the Company launched BOLT, an SBA 7(a) loan product designed to expeditiously provide working capital loans of $150 thousand or less to businesses throughout the country. In its first month since inception, the Company originated 57 BOLT loans totaling $7.5 million, with an additional 296 loans, representing $39 million, closed or in process through July 21, 2022. Over the balance of the third quarter, the Company plans to deploy new automation to the BOLT loan program through its proprietary loan origination system, PowerLOS and open API integration with marketplace lending partners to increase volume and speed of delivery while limiting additional staffing.
  • During the second quarter, the Company completed a restructuring of its Residential Mortgage Division, and discontinued its primary consumer direct residential mortgage business line. The restructuring was undertaken in response to reduced volume due to a lack of refinance demand in the current rising rate environment which directly impacted the consumer direct business line. As a result of this restructuring the Bank will focus resources on its traditional retail mortgage business supported by loan production offices across the nation.
  • A large residential loan production team located in Las Vegas was onboarded after the end of the second quarter during July and, as previously reported, two large residential loan production teams were added in April, one in Branfield, CT and the other in Miami, FL. The addition of these offices is expected to increase residential loan production volume once the teams are fully integrated.
  • On May 16th, the Bank converted its charter from a Florida state chartered banking institution to that of a national association and simultaneously changed its name to BayFirst National Bank.

Second Quarter 2022 Performance Review

  • The Company’s SBA loan origination platform, CreditBench, had one of the best quarters of SBA 7(a) loan production in the Company’s history. CreditBench originated $90.0 million in new SBA loans during the second quarter of 2022, a 90.2% increase compared to $47.3 million originated in the first quarter of 2022, and an 89.9% increase over the $47.4 million of loans produced during the second quarter of 2021. Additionally, the pipeline continues to remain strong at $179.4 million at June 30, 2022.
  • Loans held for investment, excluding PPP loans, increased by $93.8 million or 18.1% to $611.2 million during the second quarter of 2022 and $145.7 million, or 31.3% over the past year. Production during the quarter was partially offset by $46.8 million in sales of the guaranteed balances of SBA loans.
  • The Residential Mortgage Division originated $305.6 million in loans during the second quarter of 2022, a reduction of 8.9% compared to $335.6 million originated during the first quarter of 2022, and a 48.2% reduction compared to $522.1 million of loans produced during the second quarter of 2021.
  • Deposits decreased by $4.7 million, or 0.6% during the second quarter of 2022 and increased by $133.1 million, or 21.0% over the past year to $765.4 million at June 30, 2022. During the second quarter of 2022, there were increases in transaction accounts and time deposit balances partially offset by decreases in money market and savings account balances.Although the balances decreased slightly as customers utilized more of their existing cash, the number of transaction, savings, and money market accounts increased by 5.5% over the prior quarter
  • Tangible book value at June 30, 2022 was $20.95 per common share, down from $21.22 at March 31, 2022, primarily due to a reduction in equity as accumulated other comprehensive loss increased in the rising rate environment. Over the course of the past year, tangible book value decreased $0.18 per common share, or 0.9%, from $21.14 at June 30, 2021.
  • Net interest margin expanded 48 bps quarter-over-quarter to 3.73% in the second quarter of 2022, from 3.25% in the first quarter of 2022.

Results of Operations

Net Income

Net income was $328 thousand for the second quarter of 2022 compared to $13 thousand in the first quarter of 2022, and $13.0 million in the second quarter of 2021. The increase in net income for the second quarter of 2022 from the preceding quarter was primarily due to a $2.9 million increase related to held for investment SBA loan fair value gains, resulting primarily from election of the fair value option on $41.7 million of loans originated in the quarter, and a $2.8 million, or 10.0%, reduction in noninterest expense, partially offset by $3.0 million lower residential loan fee income, and a $2.7 million increase in loan loss provision, as the Company recorded a modest $250 thousand provision for loan loss in the second quarter compared to the $2.4 million negative provision in the prior quarter. The decrease in net income from the second quarter of 2021 was the result of the $13.8 million one-time gain on sale of PPP loans in 2021, lower PPP origination fee and interest income, and lower residential loan fee income, partially offset by higher income from the sale of non-PPP SBA guaranteed loans, and lower noninterest expense.

In the first six months of 2022, net income was $341 thousand, a decrease of $20.2 million from $20.5 million in the first six months of 2021, reflecting $32.0 million in lower residential loan fee income, a $13.8 million gain on sale of PPP loan in 2021, and lower PPP income origination fee and interest. These items were partially offset by a $2.4 million increase related to held for investment SBA loan fair value gains, higher gains on non-PPP SBA guaranteed loan sales, a $14.9 million reduction, or 22.1%, in noninterest expense and a $4.2 million lower provision for loan losses.

Net Interest Income and Net Interest Margin

Net interest income was $7.5 million in the second quarter of 2022, an increase of $1.1 million or 16.4% from $6.4 million in the first quarter of 2022, and a decrease of $5.4 million or 42.2% from $12.9 million in the second quarter of 2021. The increase during the second quarter of 2022 as compared to the prior quarter was mainly due to the increase in non-PPP loan interest income and a reduction in deposit interest expense. The decrease during the second quarter of 2022 as compared to the year ago quarter was mainly due to the decrease in net PPP loan interest and origination fee income.

Net interest income was $13.9 million in the first six months of 2022, a decrease of $11.6 million or 45.7% from $25.5 million in the first six months of 2021. The decrease during the first six months of 2022 as compared to the prior year was mainly due to the decrease in net PPP loan interest and origination fee income.

Net interest margin improved to 3.73% for the second quarter of 2022, an expansion of 48 bps, compared to 3.25% for the first quarter of 2022 and an expansion of 27 bps over 3.46% for the second quarter of 2021. Net interest margin improved to 3.49% for the first six months of 2022, compared to 3.34% for the first six months of 2021. With the recent rate increase enacted by the Federal Reserve, the Company anticipates further improvement in its net interest margin as its SBA loan portfolio rates are tied to prime with the vast majority resetting at the beginning of each quarter.

Noninterest Income

Noninterest income was $17.9 million for the second quarter of 2022, a decrease of $1.0 million or 5.1% from $18.9 million in the first quarter of 2022, and a decrease of $20.3 million or 53.2% from $38.2 million in the second quarter of 2021. The decrease in the second quarter of 2022, as compared to the prior quarter was primarily the result of lower residential loan fee income and gain on sale of SBA loans, partially offset by an increase related to held for investment SBA loan fair value gains, resulting primarily from election of the fair value option on $41.7 million of loans originated in the quarter. The decrease from a year ago quarter was primarily the result of the one-time $13.8 million gain on sale of PPP loans in 2021 and a decrease in residential loan fee income, partially offset by an increase in gains on SBA loan sales and the resulting gain in SBA loan servicing income.

Noninterest income was $36.8 million for the first six months of 2022, a decrease of $34.6 million or 48.5% from $71.4 million in the first six months of 2021. The decrease was primarily due to a $32.0 million reduction in residential loan income and the $13.8 million gain on sale of PPP loans in 2021. These items were partially offset by higher gains on the sale of non-PPP SBA loans and a $2.4 million increase related to held for investment SBA loan fair value gains.

Noninterest Expense

Noninterest expense was $24.9 million in the second quarter of 2022, which was a $2.7 million or 10.0% decrease from $27.6 million in the first quarter of 2022 and an $8.8 million or 26.1% decrease compared to $33.7 million in the second quarter of 2021. The decrease from the prior quarter was primarily the result of $2.5 million lower salaries and benefits, partially offset by the $630 thousand residential mortgage division restructuring expense. The decrease from a year ago quarter was primarily due to lower residential mortgage commissions, salaries and benefits, and data processing expense, partially offset by residential mortgage division restructuring expense.

Noninterest expense was $52.5 million in the first six months of 2022, which was a $14.9 million or 22.1% decrease from $67.4 million in the first six months of 2021. The decrease was primarily the result of lower residential mortgage commissions.

Balance Sheet

Assets

Total assets increased by $33.3 million or 3.7% during the second quarter of 2022 to $921.9 million, mainly due to new loan production and an increase in in both held to maturity and available for sale securities, partially offset by a decrease in cash and cash equivalents and the sale of SBA guaranteed loans.

Loans

Loans held for investment, excluding PPP loans, increased by $93.8 million or 18.1% during the second quarter of 2022 and by $145.7 million or 31.3%, over the past year to $611.2 million due to increases in both conventional community bank loans and SBA loans, partially offset by SBA loan sales. PPP loans, net of deferred origination fees, decreased $13.2 million in the second quarter of 2022 to $31.2 million, due primarily to PPP forgiveness payments.

Deposits

Deposits decreased by $4.7 million or 0.6% during the second quarter of 2022 and increased $133.1 million or 21.0% compared to June 30, 2021, ending the second quarter of 2022 at $765.4 million. During the quarter, transaction account and time deposit balances increased, partially offset by a decrease in savings and money market account balances. Over the year, savings and money market accounts and transaction account balances increased and time deposit balances decreased.

Asset Quality

Asset quality remained stable in the second quarter of 2022. As the financial impact of the COVID-19 pandemic became more predictable throughout 2021, the Company began adjusting downward its allowance for loan losses from the historic high levels reached in 2020 at the onset of the pandemic. The Company recorded a provision for loan losses in the second quarter of $250 thousand. This compared to a $2.4 million negative provision for the first quarter of 2022, and no provision for loan losses during the second quarter of 2021.

The ratio of the allowance for loan losses to total loans held for investment at amortized cost, excluding government guaranteed loans, was 2.13% at June 30, 2022, 2.73% as of March 31, 2022, and 6.67% as of June 30, 2021.

Over the past five years, the Company’s loan losses have been incurred primarily in its SBA unguaranteed loan portfolio, particularly loans originated under the SBA 7(a) Small Loan Program. The Small Loan Program represents loans of $350 thousand or less and carry an SBA guaranty of 75% to 85% of the loan, depending on the original principal balance. The default rate on loans originated in the SBA 7(a) Small Loan Program has been higher than the Bank’s other loans.

Net charge-offs for the second quarter of 2022 were $856 thousand, a $26 thousand decrease from $882 thousand for the first quarter of 2022 and a $364 thousand decrease compared to $1.2 million in the second quarter of 2021. Annualized net charge-offs as a percentage of average loans, excluding PPP loans, were 0.61% for the second quarter of 2022, down from 0.7% in the first quarter of 2022 and 1.1% in the second quarter of 2021. Nonperforming assets, excluding government guaranteed loans, to total assets was 0.46% as of June 30, 2022, compared to 0.30% as of March 31, 2022, and 0.30% as of June 30, 2021.

Capital

The Bank’s Tier 1 leverage ratio was 11.44% as of June 30, 2022, a decrease from 11.75% as of March 31, 2022, and from 12.06% at June 30, 2021. The CET 1 and Tier 1 capital ratio to risk-weighted assets were 15.21% as of June 30, 2022, a decrease from 18.19% as of March 31, 2022, and from 21.27% as of June 30, 2021. The total capital to risk-weighted assets ratio was 16.46% as of June 30, 2022, a decrease from 19.45% as of March 31, 2022, and from 22.57% as of June 30, 2021.

Recent Events

Conversion to a National Bank: On May 16, 2022, BayFirst Financial Corp.’s wholly-owned subsidiary completed its conversion to a national bank. As part of this process, the Bank, formerly known as First Home Bank, changed its name to BayFirst National Bank.

About BayFirst Financial Corp.

BayFirst Financial Corp. is a registered bank holding company which commenced operations on September 1, 2000. Its primary source of income is from its wholly owned subsidiary, BayFirst National Bank (f/k/a First Home Bank), which commenced business operations on February 12, 1999. BayFirst National Bank is a national banking association. The Bank currently operates seven full-service office locations, 21 mortgage loan production offices, and was the top 15 by dollar volume and by number of units originated nationwide through the third quarter ended June 30, 2022, of SBA’s 2022 fiscal year.

BayFirst Financial Corp., through the Bank, offers a broad range of commercial and consumer banking services including various types of deposit accounts and loans for businesses and individuals. As of June 30, 2022, BayFirst Financial Corp. had $921.9 million in total assets.

Forward Looking Statements

In addition to the historical information contained herein, this presentation includes “forward-looking statements” within the meaning of such term in the Private Securities Litigation Reform Act of 1995. These statements are subject to many risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic, global military hostilities, or climate change, including their effects on the economic environment, our customers and our operations, as well as any changes to federal, state or local government laws, regulations or orders in connection with them; the ability of the Company to implement its strategy and expand its banking operations; changes in interest rates and other general economic, business and political conditions, including changes in the financial markets; changes in business plans as circumstances warrant; risks related to mergers and acquisitions; changes in benchmark interest rates used to price loans and deposits, changes in tax laws, regulations and guidance; and other risks detailed from time to time in filings made by the Company with the SEC, including, but not limited to those “Risk Factors” described in our most recent Form 10-K and Form 10-Q. Readers should note that the forward-looking statements included herein are not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking statements.

BAYFIRST FINANCIAL CORP.
SELECTED FINANCIAL DATA (Unaudited)

  At or for the three months ended
(Dollars in thousands, except for share data) 6/30/2022   3/31/2022   12/31/2021   9/30/2021   6/30/2021
Balance sheet data:                  
Average loans held for investment, excluding PPP loans $ 562,120     $ 520,559     $ 518,697     $ 467,283     $ 445,893  
Average total assets   879,868       872,311       923,485       1,086,377       1,541,230  
Average common shareholders’ equity   83,235       83,990       83,056       81,989       68,525  
Total loans held for investment   642,407       561,797       583,948       656,294       895,194  
Total loans held for investment, excluding PPP loans   611,197       517,434       504,525       500,647       465,470  
Total loans held for investment, excl gov’t gtd loan balances   459,294       374,353       332,977       316,528       314,438  
Allowance for loan losses   9,564       10,170       13,452       16,616       20,797  
Total assets   921,852       888,541       917,095       943,743       1,198,229  
Common shareholders’ equity   84,300       85,274       86,685       83,593       81,838  
Share data:                  
Basic earnings per common share $ 0.03     $ (0.05 )   $ 0.66     $ 0.27     $ 3.34  
Diluted earnings per common share   0.03       (0.05 )     0.61       0.26       2.98  
Dividends per common share   0.080       0.080       0.070       0.070       0.070  
Book value per common share   20.98       21.25       21.77       21.32       21.16  
Tangible book value per common share(1)   20.95       21.22       21.75       21.30       21.14  
Performance and capital ratios:                  
Return on average assets   0.15 %     0.01 %     1.22 %     0.47 %     3.38 %
Return on average common equity   0.58 %   (0.93) %     12.54 %     5.12 %     74.61 %
Net interest margin   3.73 %     3.25 %     3.07 %     3.04 %     3.46 %
Dividend payout ratio   267.63 %   (164.25) %     10.65 %     26.09 %     2.09 %
Asset quality ratios:                  
Net charge-offs $ 856     $ 882     $ 664     $ 1,181     $ 1,220  
Net charge-offs/avg loans held for investment excl PPP   0.61 %     0.68 %     0.51 %     1.01 %     1.09 %
Nonperforming loans $ 10,437     $ 8,834     $ 11,909     $ 10,495     $ 9,884  
Nonperforming loans (excluding gov’t gtd balance) $ 4,245     $ 2,660     $ 3,967     $ 3,756     $ 3,577  
Nonperforming loans/total loans held for investment   1.62 %     1.57 %     2.04 %     1.60 %     1.10 %
Nonperforming loans (excl gov’t gtd balance)/total loans held for investment   0.66 %     0.47 %     0.68 %     0.57 %     0.40 %
ALLL/Total loans held for investment at amortized cost   1.62 %     1.84 %     2.34 %     2.57 %     2.35 %
ALLL/Total loans held for investment at amortized cost, excl PPP loans   1.71 %     2.00 %     2.72 %     3.39 %     4.57 %
Other Data:                  
Full-time equivalent employees   485       575       637       651       671  
Banking center offices   7       7       7       6       6  
Loan production offices   19       20       17       22       26  
(1)See section entitled “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures” below for a reconciliation to most comparable GAAP equivalent.

GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures

Some of the financial measures included in this report are not measures of financial condition or performance recognized by GAAP. These non-GAAP financial measures include tangible common shareholders’ equity and tangible book value per common share. Our management uses these non-GAAP financial measures in its analysis of our performance, and we believe that providing this information to financial analysts and investors allows them to evaluate capital adequacy.

The following presents these non-GAAP financial measures along with their most directly comparable financial measures calculated in accordance with GAAP:

Tangible Common Shareholders’ Equity and Tangible Book Value Per Common Share
    As of
(Dollars in thousands, except per share data)   June 30, 2022   March 31, 2022   December 31, 2021   September 30, 2021   June 30, 2021
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Total shareholders’ equity   $ 93,905     $ 94,879     $ 96,290     $ 94,298     $ 92,813  
Less: Preferred stock liquidation preference     (9,605 )     (9,605 )     (9,605 )     (10,705 )     (10,975 )
Total equity available to common shareholders     84,300       85,274       86,685       83,593       81,838  
Less: Goodwill     (100 )     (100 )     (100 )     (100 )     (100 )
Tangible common shareholders’ equity   $ 84,200     $ 85,174     $ 86,585     $ 83,493     $ 81,738  
                     
Common shares outstanding     4,019,023       4,013,173       3,981,117       3,919,977       3,867,414  
Tangible book value per common share   $ 20.95     $ 21.22     $ 21.75     $ 21.30     $ 21.14  

BAYFIRST FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS

(Dollars in thousands) 6/30/2022 3/31/2022 6/30/2021
Assets Unaudited Unaudited Unaudited
Cash and due from banks $ 2,944   $ 3,141   $ 2,896  
Interest-bearing deposits in banks   64,992     118,960     102,441  
Cash and cash equivalents   67,936     122,101     105,337  
Time deposits in banks   4,881     3,881     2,381  
Investment securities available for sale   45,283     41,656     22,674  
Investment securities held to maturity   5,016     2     6  
Restricted equity securities, at cost   3,274     2,520     2,820  
Residential loans held for sale   74,708     75,022     126,479  
SBA loans held for sale       1,445      
SBA loans held for investment, at fair value   52,209     8,769     10,070  
Loans held for investment, at amortized cost net of allowance for loan losses of $9,564, $10,170, and $20,797   580,634     542,858     864,327  
Accrued interest receivable   3,190     3,150     7,039  
Premises and equipment, net   31,368     31,037     21,076  
Loan servicing rights   7,952     7,601     6,614  
Deferred income tax assets   1,145     490     2,594  
Right-of-use operating lease assets   3,547     4,166     3,722  
Bank owned life insurance   24,850     24,698     12,351  
Other assets   15,859     19,145     10,739  
Total assets $ 921,852   $ 888,541   $ 1,198,229  
Liabilities:      
Noninterest-bearing deposits $ 103,613   $ 92,680   $ 81,150  
Interest-bearing transaction accounts   195,386     180,815     143,046  
Savings and money market deposits   432,369     464,847     355,045  
Time deposits   34,038     31,787     53,081  
Total deposits   765,406     770,129     632,322  
FHLB and FRB borrowings   40,000          
Subordinated debentures   5,989     5,987     5,982  
Notes payable   3,072     3,186     3,527  
PPP Liquidity Facility           443,906  
Accrued interest payable   31     86     928  
Operating lease liabilities   4,014     4,377     3,923  
Accrued expenses and other liabilities   9,435     9,897     14,828  
Total liabilities   827,947     793,662     1,105,416  
Shareholders’ equity:      
Preferred stock, Series A; no par value, 10,000 shares authorized, 6,395 shares issued and outstanding at June 30, 2022, March 31, 2022, and June 30, 2021, respectively; aggregate liquidation preference of $6,395 each period   6,161     6,161     6,161  
Preferred stock, Series B; no par value, 20,000 shares authorized, 3,210, 3,210, and 4,580 shares issued and outstanding at June 30, 2022, March 31, 2022, and June 30, 2021; aggregate liquidation preference of $3,210, $3,210, and $4,580, respectively   3,123     3,123     4,456  
Common stock and additional paid-in capital; no par value, 15,000,000 shares authorized, 4,019,023, 4,013,173, and 3,867,414 shares issued and outstanding at June 30, 2022, March 31, 2022, and June 30, 2021, respectively   52,432     52,252     49,501  
Accumulated other comprehensive (loss), net   (2,574 )   (1,458 )   (122 )
Unearned compensation   (467 )   (630 )   (29 )
Retained earnings   35,230     35,431     32,846  
Total shareholders’ equity   93,905     94,879     92,813  
Total liabilities and shareholders’ equity $ 921,852   $ 888,541   $ 1,198,229  

BAYFIRST FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

  For the Quarter Ended   Year-to-Date
(Dollars in thousands, except per share data) 6/30/2022   3/31/2022   6/30/2021   6/30/2022   6/30/2021
Interest income:                  
Loans, other than PPP $ 7,924     $ 7,115     $ 5,282   $ 15,039     $ 11,881
PPP loan interest income   87       140       3,330     227       5,529
PPP origination fee income   200       300       6,234     500       12,247
Interest-bearing deposits in banks and other   415       185       151     600       232
Total interest income   8,626       7,740       14,997     16,366       29,889
Interest expense:                  
Deposits   1,060       1,217       1,194     2,277       2,514
PPPLF borrowings         20       655     20       1,421
Other   112       97       244     209       420
Total interest expense   1,172       1,334       2,093     2,506       4,355
Net interest income   7,454       6,406       12,904     13,860       25,534
Provision for loan losses   250       (2,400 )         (2,150 )     2,000
Net interest income after provision for loan losses   7,204       8,806       12,904     16,010       23,534
Noninterest income:                  
Residential loan fee income   10,212       13,191       23,352     23,403       55,381
Loan servicing income, net   438       461       325     899       1,029
Gain (loss) on sale of SBA loans, net   3,848       4,621       13,798     8,469       13,798
Service charges and fees   322       282       364     604       586
SBA loan fair value (loss) gain   2,708       (197 )     7     2,511       79
Other noninterest income   371       510       366     881       498
Total noninterest income   17,899       18,868       38,212     36,767       71,371
Noninterest Expense:                  
Salaries and benefits   11,215       13,697       12,948     24,912       26,115
Bonus, commissions, and incentives   4,807       4,606       9,218     9,413       21,091
Mortgage banking   677       1,002       1,572     1,679       3,267
Occupancy and equipment   1,382       1,421       1,297     2,803       2,629
Data processing   1,367       1,467       2,593     2,834       3,862
Marketing and business development   1,659       1,742       1,878     3,401       3,520
Professional services   1,075       1,307       843     2,382       1,767
Loan origination and collection   331       670       1,105     1,001       1,601
Employee recruiting and development   474       871       1,008     1,345       1,622
Regulatory assessments   120       69       100     189       202
Residential mortgage division restructuring expense   630                 630      
Other noninterest expense   1,133       795       1,106     1,928       1,713
Total noninterest expense   24,870       27,647       33,668     52,517       67,389
Income before taxes   233       27       17,448     260       27,516
Income tax expense   (95 )     14       4,432     (81 )     6,989
Net income   328       13       13,016     341       20,527
Preferred dividends   208       208       235     416       567
Net income available to common shareholders $ 120     $ (195 )   $ 12,781   $ (75 )   $ 19,960
Basic earnings per common share $ 0.03     $ (0.05 )   $ 3.34   $ (0.02 )   $ 5.44
Diluted earnings per common share $ 0.03     $ (0.05 )   $ 2.98   $ (0.02 )   $ 4.87

Loan Composition

(Dollars in thousands) 6/30/2022   3/31/2022   12/31/2021   9/30/2021   6/30/2021
Real estate: (Unaudited)   (Unaudited)       (Unaudited)   (Unaudited)
Residential $ 122,403     $ 102,897     $ 87,235     $ 79,889     $ 75,618  
Commercial   216,067       189,684       163,477       151,122       143,388  
Construction and land   9,686       18,038       18,632       17,848       14,293  
Commercial and industrial   168,990       180,163       217,155       232,416       215,359  
Commercial and industrial – PPP   31,430       44,792       80,158       156,783       432,469  
Consumer and other   35,845       13,502       3,581       4,910       3,489  
Loans held for investment, at amortized cost, gross   584,421       549,076       570,238       642,968       884,616  
Deferred loan costs (fees), net   8,299       7,297       7,975       7,298       4,968  
Discount on SBA 7(a) loans sold   (2,521 )     (3,335 )     (3,866 )     (3,753 )     (4,420 )
Discount on PPP loans purchased   (1 )     (10 )     (13 )     (24 )     (40 )
Allowance for loan losses   (9,564 )     (10,170 )     (13,452 )     (16,616 )     (20,797 )
Loans held for investment, at amortized cost $ 580,634     $ 542,858     $ 560,882     $ 629,873     $ 864,327  

Nonperforming Assets (Unaudited)

(Dollars in thousands) 6/30/2022   3/31/2022   12/31/2021   9/30/2021   6/30/2021
Nonperforming loans (government guaranteed balances) $ 6,192     $ 6,174     $ 7,942     $ 6,739     $ 6,307  
Nonperforming loans (unguaranteed balances)   4,245       2,660       3,967       3,756       3,577  
Total nonperforming loans   10,437       8,834       11,909       10,495       9,884  
OREO   56       3       3       3        
Total nonperforming assets $ 10,493     $ 8,837     $ 11,912     $ 10,498     $ 9,884  
Nonperforming loans as a percentage of total loans held for investment   1.62 %     1.57 %     2.04 %     1.60 %     1.10 %
Nonperforming loans (excluding government guaranteed balances) to total loans held for investment   0.66 %     0.47 %     0.68 %     0.57 %     0.40 %
Nonperforming assets as a percentage of total assets   1.14 %     0.99 %     1.30 %     1.11 %     0.82 %
Nonperforming assets (excluding government guaranteed balances) to total assets   0.46 %     0.30 %     0.43 %     0.40 %     0.30 %
ALLL to nonperforming loans   91.64 %     115.12 %     112.96 %     158.32 %     210.41 %
ALLL to nonperforming loans (excluding government guaranteed balances)   225.30 %     382.33 %     339.10 %     442.39 %     581.41 %
Contacts:  
Anthony N. Leo Robin L. Oliver
Chief Executive Officer  Chief Financial Officer
727.399.5678 727.685.2082

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