First Bank Q3 FY2025 earnings call

• Revenue and Margin: Net interest income increased, margin expanded, pre-provision net revenue improved, and profitability saw growth in net income, ROAA, and EPS.
• Loan Portfolio: Continued loan growth with diversification, investor commercial real estate ratio improved, and specialized lending groups diversified.
• Credit Quality: Holding up except small business segment (revenues <$1M), NPAs declined, allowance coverage ratio at 2.93%, and charge-offs manageable.
• Expenses: Noninterest expenses $19.7M Q3 vs $20.9M Q2 (Q2 had one-time executive severance), efficiency ratio 52% for 25th consecutive quarter below 60%.
• Branch Strategy: Opened de novo branch, relocated Palm Beach branch, closed Morristown and Coventry branches, with net 1 branch increase by year-end.
• Share Buyback: Bought back almost 120,000 shares at an average price of $14.91.

In the third quarter, First Bank saw a nice increase in net interest income, up $1.5 million compared to the second quarter and $5 million compared to a year ago. Margin was up 6 basis points QoQ and 23 basis points YoY, with pre-provision net revenue at 1.81% vs 1.65% prior quarter. Net income was up $3.5 million or 43% YoY, return on average assets improved to 1.16% (vs 0.88% YoY), earnings per share $0.47 (46% increase YoY), and return on tangible common equity 12.35%. Loan growth was $47 million QoQ (5.6% annualized), $286 million YoY (over 9%), with C&I growing $194 million and owner-occupied commercial real estate loans $40 million. Investor commercial real estate to capital ratio down to 370% from 430% post-Malvern acquisition. Specialized lending groups 16% of total loans, no niche >5% of total loans. Deposit balances up over $55 million QoQ (7% annualized), average cost of deposits down 3 basis points to 2.69%, and average noninterest-bearing deposits grew $21 million QoQ.

• Net Interest Income: Expect margin to remain relatively stable as efforts to lower deposit costs and replace lower-yielding assets with higher-yielding loans continue.
• Loan Growth: Target 6%-7% growth range, anticipating higher loan payoffs in Q4.
• Expenses: Expect expenses to be relatively flat, with slight creep from new branches but no major new costs or initiatives.
• Capital Deployment: Flexibility in capital use, including share buybacks, dividends, and potential M&A, with comfort in risk-based capital ratio around 11.5%.

• Economic Uncertainty: Impact on credit quality and overall economic activity.
• Credit Softness: In small business segment (revenues <$1M).
• Interest Rate Moves: Immediate negative impact of Fed rate cuts on margin due to slower deposit cost reduction vs variable rate assets.

Q: Describe efficiency actions and remaining work on expenses.

A: Pat mentioned focusing on costs, digesting acquisitions, recalibrating. Andrew added no drastic cost cuts, fine-tuning, some branch creep but keeping expenses flat.

Q: Aggressiveness on lowering deposit costs.

A: Pat and Darleen discussed aligning with Fed moves, focusing on competitive pricing without overdoing, government portfolio tied to Fed funds, 12%-13% of deposits indexed to Fed funds.

Q: Buyback considerations and capital levels.

A: Pat mentioned comfort in risk-based capital ratio around 11.5%, flexibility in capital use including buybacks, dividends, and M&A depending on opportunities.