First Bank Q2 FY2025 earnings call

• Balance sheet growth: Loans grew over $90 million during the quarter and deposits grew by $50 million. Three - fourths of the net loan growth came from the strategic C&I and owner - occupied segments. Loan - to - deposit ratio pushed up to 105%.
• Revenue growth: Net interest income was up $1.9 million compared to the first quarter, 6% linked quarter growth. Pre - provision net revenue was up $2.9 million compared to the first quarter, 21% linked quarter growth. There was a $397,000 pretax gain on the sale of the Paoli office building and an $862,000 severance cost.
• Credit quality: Credit quality seems to be holding up with net charge - offs and nonperforming assets remaining relatively low, and the allowance to nonperforming loans sits at 255% coverage.
• Profitability: Core profitability is tracking closer to 1.10% or 1.15% ROA. New business units are driving profit improvement, and tighter expense containment is expected to boost future profitability.
• Deposit growth: There was a $55 million increase in noninterest - bearing deposits, with noninterest - bearing demand comprising nearly 19% of total deposits at June 30, up from 17% a year ago.
• Loan growth: Loans were up $91 million for the quarter or 11% annualized. Over the last 12 months, loans have grown $329 million or 11% with C&I growing $176 million and owner - occupied commercial real estate loans growing over $60 million. The lending pipeline at the end of the second quarter stood at $301 million of probable fundings, with C&I loans making up 68% of the overall pipeline.

For the second quarter of 2025, loans grew over $90 million during the quarter and deposits grew by $50 million. Three - fourths of the net loan growth came from the strategic C&I and owner - occupied segments. Net interest income was up $1.9 million compared to the first quarter, which is 6% linked quarter growth. Pre - provision net revenue was up $2.9 million compared to the first quarter, which was 21% linked quarter growth. There was a $397,000 pretax gain on the sale of the Paoli office building and an $862,000 severance cost related to management changes. Credit quality is holding up with net charge - offs and nonperforming assets remaining relatively low, and the allowance to nonperforming loans sits at 255% coverage. Core profitability is tracking closer to 1.10% or 1.15% ROA. New business units are driving profit improvement, and a $35 million subordinated debt offering was completed during the quarter.

• Net interest income: Net interest income was up $1.9 million compared to the first quarter, 6% linked quarter growth, and it is expected that the loan - to - deposit ratio will move lower in the back half of the year.
• Subordinated debt impact: The $30 million in sub debt issued in 2020 will impact Q3 results, but savings of approximately $240,000 monthly are expected starting in September. It is believed that a stable margin can be maintained with potential upside due to efforts to push deposit costs lower and replace lower - yielding assets with higher - yielding loans.
• Tax rate: The effective tax rate is anticipated to be relatively stable, and recent legislative changes are not expected to have a material impact on the tax rate.
• Credit trends: Credit trends appear stable, and core operating trends look good with the margin holding at high levels.

• Economic and tariff - induced uncertainty may impact credit quality. - The $30 million in sub debt issued in 2020 will impact Q3 results. - The noninterest - bearing deposit percentage can be affected by seasonality or singular events like a company doing a capital raise or a customer selling their business. - Loan growth can be impacted by loan payoffs from unforeseen asset sales by customers.

Q: Justin Crowley asked about how to think about continued loan growth in different portfolio areas versus offsets.

A: Patrick Ryan said that in any given quarter, loan demand varies across segments and regions. Guidance is to generate plus or minus $50 million in net loan growth per quarter, and the back half of the year is expected to be a bit slower due to normalization of payoff and paydown trends and pipeline refill time. Most growth is expected to come from C&I and owner - occupied categories.

Q: Justin Crowley asked about how much C&I growth this quarter and past few quarters was driven by line utilization versus new customer acquisition.

A: Patrick Ryan said from their perspective, growth has been coming from new customer acquisition, and Peter Cahill added that line utilization rate doesn't fluctuate much, around 41% - 42%, and growth is primarily from new customer acquisition.

Q: Justin Crowley asked about the outlook for deposits and the mix of noninterest - bearing and interest - bearing deposits.

A: Patrick Ryan said they are working hard to drive the noninterest - bearing percentage higher, but it can be affected by seasonality and singular events. They are using CD promotions to fund growth, and the trend of increasing noninterest - bearing deposits is one they want to continue.

Q: Justin Crowley asked about M&A appetite.

A: Patrick Ryan said they have a disciplined M&A strategy, looking for the right opportunities at the right price, with no magic size threshold, and there is a lot of dialogue in the marketplace but it's unclear if strategic transactions will come to fruition.

Q: Manuel Navas asked about near - term NIM movements.

A: Patrick Ryan said there is a short - term headwind from sub debt, but they are gradually driving higher loan yields and pushing down deposit costs. Peter Cahill talked about loan yield side with shorter - term floating rate loans being prime to prime plus a couple of points and fixed rate loans looking for 250 to 300 basis points over. Darleen Gillespie talked about managing deposit costs by moderating pricing and CD maturity retention.

Q: Manuel Navas asked about the outlook for NIM in early 2026.

A: Patrick Ryan said it's possible but depends on the yield curve, and they are being conservative in guidance.

Q: Manuel Navas asked about balance sheet positioning for rate cuts.

A: Patrick Ryan said cuts will be beneficial in the long run if there is steepening, but the short - run impact is offset by adjusting liability costs.

Q: Manuel Navas asked about what would make loan growth accelerate.

A: Patrick Ryan said it's more a funding constraint now as there are enough loan opportunities, and they could do more quality loans with good low - cost funding.

Q: Manuel Navas asked about lumpiness in noninterest - bearing deposits and commercial deposit pipelines.

A: Patrick Ryan said there is lumpiness in noninterest - bearing deposits due to fluctuating accounts, but commercial deposit pipelines look pretty strong.

Q: Kyle Gierman asked about NPL inflows and asset quality in specialty segments.

A: Patrick Ryan said there was a little NPL inflow, nothing alarming, and asset quality in specialty segments like SBA is holding up with no systemic issues.

Q: Kyle Gierman asked about trends in borrower behavior due to tariffs.

A: Peter Cahill said there is minor impact from tariffs with no major concerns across the board currently.

Q: Kyle Gierman asked about the impact of 25 basis point rate cuts on NIM.

A: Patrick Ryan said the impact is muted in the short run as variable rate assets are repriced and deposit funding is adjusted, and there could be long - term benefits if there is steepening.