Q3 2024 First Bank Earnings Call
Okay.
Ian: Thank you for standing by my name is Ian and I will be your conference operator today.
Unknown Executive: Thank you for standing by.
Unknown Executive: My name is Ian, and I will be your conference operator today.
Unknown Executive: At this time, I would like to welcome everyone to the first bank earnings conference call, Third Quarter, 2024. All lines have been placed on mute to prevent any background noise.
Ian: At this time I would like to welcome everyone to the first Bank earnings Conference call third quarter 2024.
Ian: All lines have been placed on mute to prevent any background noise.
Unknown Executive: After the speaker's remarks, there will be a question-and-answer session.
Ian: After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press Star one.
Unknown Executive: If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad.
Unknown Executive: If you would like to withdraw your question, again, press star one. Thank you.
Patrick Ryan: I will now turn a call over to Patrick Ryan, President and CEO. You may begin your conference.
Speaker Change: I will now turn the call over to Patrick Ryan President and CEO you May begin your conference.
Patrick Ryan: Thank you.
Patrick Ryan: I'd like to welcome everyone today to First Bank, third quarter, 2024 earnings call. I am joined by Andrew Hibshman, our Chief Financial Officer, Darleen Gillespie, our Chief Retail Banking Officer, and Peter Cahill, our Chief Lending Officer.
Andrew Hibshman: Before we begin, however, Andrew will read the safe harbor statement.
Andrew Hibshman: Thanks, Pat.
Andrew Hibshman: The following discussion may contain forward-looking statements concerning the financial condition, results of operations, and business of First Bank. We caution that such statements are subject to a number of uncertainties, and actual results could differ materially. And therefore, you should not place undue reliance on any forward-looking statements we make. We may not update any forward-looking statements we make today for future events or developments.
Andrew Hibshman: Information about risks and uncertainties is described under Item 1A Risk Factors in our annual report on Form 10-K for the year-end of December 31, 2023, filed with the FDIC.
Patrick Ryan: Pat, back to you. Thanks, Andrew. I'll kick it off with some high-level summary comments, and then the team will get into a little more details. Overall, I was happy to see a return of solid loan and deposit growth during the quarter. After a couple of flatish quarters in the first half of the year, based on a little bit of a slowdown on activity and some elevated paydowns, it was nice to see some robust loan and deposit growth in the quarter, so we felt very good about that. Overall, loans grew about 90 million. Fortunately, a large portion of that came towards the back half of September, leading to a relatively small increase in the average balance is outstanding.
Patrick Ryan: So, from a quarterly results perspective, not ideal since we didn't get chance to earn much interest income on those loans, and obviously had to book a full provision. But at the end of the day, we think that that will serve us well heading into the fourth quarter and next year. We also saw deposits grow 82 million, which was a very nice quarter, and 19 of that was coming in the non-interest bearing category, which was great to see. We did have some margin compression during the quarter. Andrew will get into some of the reasons about why that happened.
Patrick Ryan: Obviously, there was still pressure on the deposit funding side. We did take some significant actions in September when the Fed made their move, and we expect we'll be able to help keep the margin stable as we move forward. We continue to find incremental opportunities to fine-tune our balance sheet. We sold about 12 million in low yielding investment securities that had about a 2.41 percent weighted average rate. We did that during the quarter when the bond market rallied, and we canceled 25 million in lower yielding boldly assets and purchased 20 million in new policies with a net pickup of about 2.5 percent on those additional boldly policies, which will certainly help as we move forward.
Patrick Ryan: We estimate sort of a normalized net income during the quarter of about 9.7 million. We calculate that by sort of smoothing out some of the unusual items during the quarter, whether that be one-time non-recurring revenue spend items or certain line items that may have been unusually higher low compared to what we normally see. We try to take a look at that, quote unquote, normalized number just to get a sense for the run rate going forward. That 9.7 million estimate was basically in line, maybe a little bit lower than where we were in the first and the second quarter, doing the same analysis.
Patrick Ryan: Continuation of continued good performance on kind of a cord normalize basis. We think we're well positioned for good results moving forward. Importantly, the income from the strong growth in Q3 together with the balance sheet in hand.
Patrick Ryan: First Bnk NJ First Bnk First Bnk NJ We had an outstanding quarter for growth, and our quarterly metrics were slightly obscured by some noisy items. The real highlight of the quarter was the growth of our loan and deposit portfolios; loans were up nearly 12% annualized and deposits up 11% annualized from the second quarter. Lone growth was broad-based, but the growth occurred late in the quarter, with the effect of raising average loan balances only 12.2 million, while point-to-point they were up 89.5 million. With such a high level of late-quarter growth, our credit loss expense outpaced the loan interest earned on the new loans originated during the quarter.
Andrew Hibshman: The 1.6 million credit loss expense for the quarter was primarily related to provision billed related to this growth, as that's the quality remains strong. On the other hand, net interest income actually declined by 446,000 due to some large in compression, which was due to higher interest income being outpaced by increased deposit costs and higher average borrowings. On the deposit side, balances were up total 82.4 million, with growth occurring across all categories. Our net interest margin declined to 3.49% in the third quarter compared to 3.62% in the prior quarter. Interest bearing deposit costs continued to increase, rising 6 basis points from Q2, as we saw some expected upward CD repricing and the competitive environment was still difficult.
Andrew Hibshman: We also saw average loan yields declined by 8 basis points compared to the link prior quarter due to a combination of approximately 200,000 and lower acquisition accounting accretion, approximately 60,000 and lower pre-payment penalties on loans, and slightly lower average loan rates, primarily due to the current market rate environment. Our margin was also impacted by the higher level of on-balance-sheet liquidity maintained during the quarter. Looking ahead, interest income will be negatively impacted by those late September Fed rate cut. However, we still have loans that were originated in a lower rate environment that will be repricing higher.
Speaker Change: As compared to the linked prior quarter due to a combination of approximately 200000 and lower acquisition accounting accretion approximately 60000, and lower prepayment penalties on loans and slightly lower average loan rates, primarily due to the current market rate environment. Our margin was also impacted by the higher level of on balance sheet liquidity.
Speaker Change: Maintained during the quarter.
Speaker Change: Looking ahead interest income will be negatively impacted by those late September fed rate cut. However, we still have loans that were originated in a lower rate environment that will be repricing higher. We also successfully moved rates lower on a significant portion of our deposit base. After the recent fed cut we continue to manage a well balanced asset.
Andrew Hibshman: We also successfully moved rates lower on a significant portion of our deposit base after the recent Fed cut. But we continue to manage a well-balanced asset and liability can position, which we expect will lead to a relatively stable margin with opportunities for improvement, regardless of how quickly the Fed reduces rates. As I mentioned, our asset quality continues to be strong, and PA is the total assets declined from 56 space points to 47, and our allowance for credit losses to total loans remain steady at 1.21%. Including general acquisition accounting credit marks that are not included in the allowance, our ratio increases to 1.47%.
Speaker Change: And liability can position, which we expect will lead to a relatively stable margin with opportunities for improvement regardless of how quickly the fed reduces rates as.
Speaker Change: As I mentioned, our asset quality continues to be strong NPA to total assets declined from 56 basis points to 47.
Speaker Change: Our allowance for credit losses to total loans remained steady at one point to 1% <unk>.
Including General acquisition accounting credit marks that are not included in the allowance our ratio increases to 147%.
Andrew Hibshman: As we continue our ongoing work to prioritize our balance sheet, we executed sales of certain lower-yielding investment securities. During the third quarter, we sold approximately 11.7 million in additional investment securities, resulting in a $555,000 net loss on the sale of investments. Another balance sheet optimization strategy that impacted income was the bully restructuring transaction we completed during the quarter. We recorded a one-time enhancement fee of approximately 1.1 million related to the restructuring, and on the flip side of this benefit was additional tax expense totaling approximately 1.2 million. Nine interest expenses were 18.6 million for the third quarter compared to 18 million in Q2 2024.
Speaker Change: As we continue our ongoing work to prioritize our balance sheet or optimize our balance sheet, we executed sales of certain lower yielding investment securities. During the third quarter, we sold approximately $11 7 million in additional investment securities, resulting in a $555000 net loss on the sale of investments.
Speaker Change: Another balance sheet optimization strategy that impacted income was the bally restructuring transaction, we completed during the quarter. We recorded a onetime enhancement fee of approximately $1 1 million related to the restructuring and on the flip side of this benefit was additional tax expense totaling approximately $1 2 million.
Speaker Change: Noninterest expenses were $18 6 million for the third quarter compared to $18 million in Q2 2024. The increase primarily reflects an increase of 533000 Oreo expense, which was primarily related to the write down of an Oreo asset during the quarter.
Andrew Hibshman: The increased primarily reflects an increase of 533,000 Oreo expense, which was primarily related to the write-down of an Oreo asset during the quarter. We continue to prioritize expense management and expect the core expense base to be relatively stable over the next several quarters. As I mentioned earlier, our tax rate was affected by a one-time basis by the bully restructuring. Without that impact, our effective tax rate would have been approximately 24% for the quarter. We anticipate that our effective tax rate going forward will be in the range of 24 to 25%. Stripping away, some of these noisy factors, you see a very positive story for this quarter.
Speaker Change: We continue to prioritize expense management and expect our core expense base to be relatively stable over the next several quarters.
Speaker Change: As I mentioned earlier, our tax rate was affected by a one time basis by the bully restructuring without that impact our effective tax rate would have been approximately 24% for the quarter, we anticipate that our effective tax rate going forward will be in the range of 24% to 25%.
Speaker Change: Stripping away some of these noisy factors you see a very positive story for this quarter, we reported an efficiency ratio of around 58%. Once again remaining below 60% for the 20 <unk> consecutive quarter. We also expanded our tangible book value per share as Pat mentioned.
Andrew Hibshman: We reported an efficiency ratio of around 58%, once again remaining below 60% for the 21st consecutive quarter. We also expanded our tangible book value per share, as Pat mentioned. We are very pleased with our business growth and the continued balance sheet repositioning we executed during the quarter, despite the short-term impact it had on earnings. We believe we are positioned to perform very well for the remainder of 2024 and beyond.
Darleen Gillespie: At this time, I'll turn it over to Darlene Gillespie, our Chief Retail Banking Officer, for her remarks. Darlene, go ahead.
Darleen Gillespie: Sure, thanks.
Darleen Gillespie: Thank you, Andrew, and good morning, everyone. As Pat and Andrew have mentioned, deposit growth was robust during the third quarter of this year. We attribute this to our team's outstanding ability to build and maintain deep customer relationships, as well as our very proactive efforts to manage deposit pricing in anticipation of the Fed's rate reduction in September. As mentioned, our total deposits were up approximately 82.4 million, or over 11% annualized from the second quarter of 2024, and the expansion was across the board. Non-interest bearing demand and interest bearing demand showed tremendous growth in a very dynamic rate environment, up 19.3 million and 23.3 million, respectively, during the quarter.
Darleen Gillespie: Money market and savings grew 36.3 million, and time deposits grew 3.6 million from the second quarter of 2024. The majority of this growth was in our commercial portfolio. Predominantly, all of the banks' year-to-date deposit growth occurred during the third quarter as a result of onboarding some larger commercial relationships, which aligns with the quarter's loan growth. We have been working to strike the balance of achieving profitable pricing while also maintaining desirable customer relationships. And our third quarter outcome suggests our bankers are doing this skillfully and effectively. This comes even as we continue to let costlier and non-relationship funding leave the bank.
Darleen Gillespie: The key words for us here are relationship, and that's our marching order. We continue to prioritize full banking relationships, and this approach has proven successful. While we started to move some rates lower earlier in the year in anticipation of the Fed rate cut, with the cut actually taken place in late September, it gave us the opportunity to move rates down in a more aggressive manner. We have not experienced any significant attrition to date, and we actually saw an increase in our deposit balances. Given the interest in high yielding products throughout the year in our large growth and volume during the quarter, we're happy to see our overall total deposit cost only increased by four basis points from the second quarter.
Darleen Gillespie: We continue to effectively manage our funding costs to support lowering this metric and maintaining a stable net interest margin.
Darleen Gillespie: As I've mentioned in recent quarters, our branch strategy is aimed at supporting engagement in our current markets and opportunistic expansion in adjacent markets. We currently have 26 branches, and in Q4, we're completing a relocation from our Glen Mills, Pennsylvania location to Media, Pennsylvania, and we're excited about our new branch opening in Trenton, New Jersey. We will also be consolidating our two Flemington, New Jersey, locations into one. Net, there is no change in the number of locations, but we are excited about the deposit and overall opportunities. That will present itself by expanding into these markets.
Darleen Gillespie: Lastly, I want to mention we recently launched our online account opening platform as part of our digital banking initiative to support our deposit growth efforts. We continue to see an increased preference for digital banking, and we're excited about the momentum we have built in offering easy and convenient solutions for our customers. Overall, we are very pleased with the performance of our deposit portfolio this quarter and confident that our continued focus on customer service, competitive product offerings, and innovation will support sustained deposit growth into the next quarter and beyond.
Peter Cahill: At this time, I'll turn it over to Peter Cahill, our Chief Lending Officer, for his remarks. Thanks, Starlean. The lending area in Q3 had a quarter where our work over the past few quarters was a lot more evident. As you know, we've been focused on developing business where relationships are shared with our customers. That's where deposits and other ancillary business lies. Transaction business is something we're just not looking to do. As we've mentioned before, we are seeing more relationship business in commercial and industrial than elsewhere. Our regional teams are doing well, and the C&I-related specialized business areas are also doing very well.
Peter Cahill: Private equity banking, after a slower start than planned this year, has picked up steam significantly, and our asset-based lending area is on track to meet its goals for the year. All of this is not to say that we are no longer in the market for investor real estate relationships. We've always done a good bit of investor real estate lending and will continue to do so. Historically, slightly more than half of our lending business has been in that area. Investor real estate loans, as you know, tend to be more transactional as properties are bought and sold.
Peter Cahill: Our focus on investor real estate has been with investors and developers who want to maintain a relationship with us over the long term. The earnings release details lending activities; your date, loan growth was essentially flat through the first six months, absent the sale of approximately 24 million in non-strategic investor real estate loans in Q2. In the third quarter, we converted our very strong loan pipeline into outstanding loans that resulted in growth for the quarter of almost $90 million. The schedules and yearnings release break down the loan portfolio into their various segments and show the changes from quarter to quarter.
Peter Cahill: We saw growth in all key areas led by C&I, Slash, DRGO and Onor Occupied, and including investor real estate as well as residential and consumer. A positive factor in all this growth, as was pointed out by thinkable Pat Andrew, was that growth in C&I loans outpaced growth in investor real estate by a factor of 2 to 1. Overall for Q3, we closed and funded new loans of $122 million and experienced loan payoffs of $43 million. Other factors impacting overall loan growth are borrowings and pay downs under lines of credit, as well as the amortization of term debt.
Speaker Change: Pictures impacting overall loan growth, our borrowings and pay downs under our lines of credit as well as the amortization of our term term debt.
Peter Cahill: We're mentioning, I think, as a Q3 represented our largest quarter in terms of new loans funded and our smallest quarter in terms of loan payoffs in over two years. I don't really have a specific reason for this happening other than the build of a strong and growing loan pipeline heading into Q3, coupled with experiencing, you know, out of the ordinary levels of payoffs in recent quarters. The bottom line is a quarter-to-quarter results can be bumpy, but they should even out in the long run. C&I loans made up 70% of new loans funded over the first nine months of the year.
Speaker Change: Worth mentioning I think it's a Q3 represented our largest quarter in terms of new loans funded and our smallest quarter in terms of loan pay offs and over two years.
Speaker Change: I don't really have a specific reason for this happening other than.
Speaker Change: The build of a strong and growing loan pipeline heading into Q3, coupled with experiencing you know out of the ordinary levels of payoffs in recent quarters.
Speaker Change: Bottom line is a quarter to quarter results can be bumpy, but they should even out in the long run.
Speaker Change: C&I loans made up 70% of new loans funded over the first nine months of the year. This well exceeds what we've done in previous years and as evidence I think that we're executing on our plan to go where the relationship businesses.
Peter Cahill: This well exceeds what we've done in previous years and is evidence, I think, that we're executing on our plan to go where the relationship business is. We always track the reasons that loans get paid off, and the number one reason through the first nine months of the year was that the asset underlying the loan was sold, kind of an out of control occurrence source. Very close second was where loans are refinanced out of the bank. and the good news is that some of these payoffs at the majority in over 70% have been investor real estate loans.
Speaker Change: We always track the reasons that loans get paid off in the number one reason through the first nine months of the year was that the asset underlying underlying alone was sold kind of an out of control or current source.
Speaker Change: Very close second was where loans are refinanced out of the bank.
Speaker Change: And the good news is with some of these payoffs at the majority and over 70% have been investor real estate loans.
Peter Cahill: The turnover in this segment helps us manage the makeup of the overall portfolio. In fact, there's a slide in the earnings supplement that reflects our level of investor real estate loans to capital. One can see an increase after the acquisition of Malvern last September, but then decreasing since.
Speaker Change: The turnover in this segment helps us manage the makeup of the overall portfolio in.
Speaker Change: In fact, there's a slide in the earnings supplement that reflects our level of investor real estate loans to capital one could see a you know an increase after the acquisition of Malvern last September, but then decreasing sense.
Speaker Change: Comment now on our loan pipeline.
Peter Cahill: Comment now on our loan pipeline. Our pipeline at the end of the third quarter studied $276 million of probable fundings, down 19% from the June 30th level of $342 million. This was expected after the loan closings we had in Q3, most of which were at the very end of the quarter, as Andrew and Pat mentioned. Overall, I continue to be pleased with these results. We have an active calling effort, and we're seeing good diversification between the groups. If one breaks down the components of the pipeline at quarter end, D&I loans are 49% of the pipeline, investor real estate 48%, and consumer making up the balance of 2 or 3%.
Speaker Change: Our pipeline at the end of the third quarter stood at $276 million of probable fundings down 19% from the June 30th level of $342 million.
Speaker Change: This was expected after the loan closings, we had in Q3, most of which were at the very end of the quarter as Andrew and Pat mentioned.
Speaker Change: Overall I continue to be pleased with these results we have an active calling effort and we're seeing good diversification between the groups if.
Speaker Change: If one breaks down the components of the pipeline at quarter in C&I loans are up 49% of the pipeline investor real estate, 48% and consumer making up the balance of two or 3%.
Peter Cahill: Looking at how this might impact the risk of the year, our level of projected loan funding for Q4 is solid and in line with historic quarterly loan growth projections. While a lot of banks in the market are experiencing weak loan demand, we're seeing good activity in most areas.
Speaker Change: Looking at how this might impact the rest of the year our level of projected loan funding for Q4 is solid and in line with historic quarterly loan growth projections, while a lot of banks in the market are experiencing weak loan demand, we're seeing good activity in most areas.
Speaker Change: Regarding asset quality I don't have anything to add to what's in the earnings release or what's already been mentioned the portfolio continues to look good to me.
Peter Cahill: Regarding asset quality, I don't have anything to add to what's in the earnings release or what's already been mentioned. The portfolio continues to look good to me. Charge loss from minimal, non-performing loans continues to decline, and delinquent loans continue to be very small.
Speaker Change: Our jobs for minimal nonperforming loans continue to decline and delinquent loans continue to be very small.
Peter Cahill: To wrap things up, there weren't any significant changes this quarter with our regional teams or specialty banking areas. They all continue to perform fairly well.
Speaker Change: To wrap things up there werent any significant.
Speaker Change: Changes this quarter with our regional teams or specialty banking areas. They all continue to perform fairly well.
Patrick Ryan: This concludes my remarks about lending, and I'll turn things back down to Pat Ryan for some final comment.
Speaker Change: Concludes my remarks about lending and then I'll turn things back now to Pat Ryan for some final comments.
Patrick Ryan: Thank you, Peter. Thank you, Andrew and Darleen.
Pat Ryan: Thanks, Peter and thank you Andrew and Darlene.
Patrick Ryan: At this point, we will open it up for the Q&A portion of the call.
Pat Ryan: This point, we will open it up for the Q&A portion of the call.
Unknown Executive: At this time, I would like to remind everybody that in order to ask a question, please press star, followed by the number one on your telephone keypad. Once again, that is star, fall by the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
Speaker Change: At this time I would like to remind everybody that in order to ask a question. Please.
Please press star followed by the number one on your telephone keypad. Once again that is star fall by the number one on your telephone keypad.
Speaker Change: Pause for just a moment to compile the Q&A roster.
Speaker Change: Yeah.
Justin Crowley: Our first question comes from the line of Justin Crowley with Piper Sandler. Your line is open.
Speaker Change: Our first question comes from the line of Justin Crowley with Piper Sandler Your line is open.
Patrick Ryan: Good morning, everyone. I'm wondering if you could talk through a little more of the commentary on a stable margin from here, and I guess to start with the lower loan yields in the quarter. Just where new loan production is coming on that and how that compares to what's rolling off. Yeah, Justin, great question. Obviously, we're keeping a close eye on it. On the term side, as I'm sure you know, a lot of that gets priced off of kind of the middle of the curve, and so when things dipped for a while, we did see loans on the term term side moving closer to the mid-low sixes, which was down a fair bit from where we were a few months ago when we were getting yields in the sevens.
Justin Crowley: Hey, good morning, everyone.
Justin Crowley: I'm wondering if you could talk through a little more of the commentary on a stable margin from here and I you know I guess to start with the lower loan yields in the quarter, just where new loan production is coming on that and.
Justin Crowley: And how that compares to what's rolling off.
Speaker Change: Yes, Justin Great question, obviously, we're keeping a close eye on that on the kind of the term side.
Speaker Change: I'm sure you know a lot of that gets priced off of kind of the middle of the curve and so when things dipped for a while we did see loans on the term side moving closer to the mid low sixes, which was down a fair bit from where we were a few months ago. When we were getting yields.
Speaker Change: In the Sevens that being said our.
Patrick Ryan: That being said, you know, our floating rate stuff, whether it's construction or prime-based lines of credit, are still, you know, still learning prime, prime plus hat, prime plus one. And even with the Fed move, the yields on those are still, you know, in the eights or nines sometimes. So sometimes it's a little bit of a mix that can help drive the impact within any given quarter, but, you know, the big thing for overall margin stabilization is in our commitment to continue to move deposit costs lower to make sure that we're at least matching, if not doing better than what we're seeing on the asset side.
Speaker Change: Floating rate stuff, whether it's construction or prime based lines of credit.
Speaker Change: So.
Speaker Change: Still earn a prime and prime plus a half practice, one even with the fed move the yields on those are still.
Speaker Change: The eighth or ninth sometimes so sometimes it's a little bit of a mix that can help drive the impact within any given quarter, but.
Speaker Change: The big thing for overall margin stabilization is.
Speaker Change: And our commitment to continue to move.
Speaker Change: Posit costs lower to make sure that.
Speaker Change: At least matching if not doing better than what we're seeing on the asset side. We did take some steps during the quarter in terms of funding. Obviously you saw based on what happened with loan yields.
Patrick Ryan: And we did take some steps during the quarter in terms of funding; obviously, you saw based on what happened with loan yields. We didn't quite keep pace, but, you know, we're keeping a close eye on it and, you know, we're going to continue to drive liability cost down based on what we need to do to preserve the margin. So, you know, hard to say specifically how it'll play out, but obviously a key goal of ours and we're happy to say that, you know, what we're seeing in the market and what we're hearing from customers and we have lower rates is not necessarily excitement, but, you know, we're not getting a ton of pushback, and it doesn't appear to be anybody in the market who's really trying to continue to push growth with higher yield and deposit products.
Speaker Change: Not quite keep pace, but.
Speaker Change: We're keeping a close eye on it and are working to continue to drive our liability costs down based on what we need to do to preserve the margins. So you know.
Speaker Change: Hard to say, specifically, how it will play out, but it's obviously a key goal of ours and.
Speaker Change: We're we're happy to say that what we're seeing in the market and what we're hearing from customers and we have lowered rates is not.
Speaker Change: Not necessarily excitement but.
Speaker Change: You know, we're not getting a ton of pushback and it doesn't appear to be anybody in the market, who is really trying to continue to push growth with with higher yielding deposit products. So I think we will have the opportunity to.
Patrick Ryan: So, I think we will have the opportunity to, you know, see things stabilized as we move forward.
See things stabilize as we move forward.
Patrick Ryan: Okay, and then on, just leverage to pull on the funding side. What is sort of in a much or if you're able to quantify it, but as far as data is on the way down, what's embedded in there, and is there any element of conservatism as far as that goes, and might there be opportunity to do better there to perhaps see or outperform a stable margin and see margin expansion as rates continue to come down? Yeah, I mean, listen, there's certainly a scenario where that plays out. I don't think we're forecasting it, not because it can't happen, but there's obviously a scenario where competitive pressures on the deposit side make it harder to keep it stable.
Speaker Change: Okay, and then on just levers to pull on the funding side.
Speaker Change: What is sort of and I'm not sure if you're able to quantify it but as far as betas on the way down.
Speaker Change: What's embedded in there and is there any element of conservatism.
Speaker Change: As far as that goes.
Speaker Change: Might there be opportunity to do better there too perhaps C. R.
Speaker Change: Our outperform a stable margin and see margin expansion.
Speaker Change: Rates continue to come down.
Speaker Change: Yeah, I mean listen there is certainly a scenario where that plays out right I don't think we're or or forecasting it not because it can't happen, but there's.
Speaker Change: There's obviously, a scenario where competitive pressures on the deposit side make it harder to to keep it stable. So I think we figured the safest guidance was the middle of the road guidance, but yeah.
Patrick Ryan: So I think we figured the safest guidance was the middle of the road guidance, but yeah, and obviously the other piece of this is what's happening with the yield curve. There's been a lot of talk about the spread between two and 10s, and you know, the curves are not inverted anymore. Well, yeah, I guess at the two and the 10 level, but what about the, you know, the zero to five, which is probably more meaningful for banks that do commercial lending like us. And so if we start to see some extension and some steepening within the lower part of the curve, that could obviously lead to some margin expansion, but I think it's a little early to predict that at this point.
Speaker Change: And obviously the other piece of this is what's happening with the yield curve has been a lot of talk about the spread between two intends and you know the curves not inverted anymore, well, yeah, I guess at the two and the 10 level, but what about the you know the zero to five which is probably more meaningful for for <unk>.
Speaker Change: Thanks that do commercial lending like us and so if we start to see some.
Speaker Change: Pension and some steepening within.
Speaker Change: The lower part of the curve that could obviously lead to some margin expansion, but I think it's a little early to predict that at this point, so where we're going to work towards stable and obviously take advantage of opportunities to make it move higher if we see them.
Patrick Ryan: So we're going to work towards stable and obviously take advantage of opportunities to make it move higher if we see them.
Speaker Change: Okay got it that's helpful.
Unknown Executive: Okay, God, if that's helpful.
Patrick Ryan: And then to shifting gears a little, with the long growth so backloaded, you know, not sure if you think there was any correlation to the Fed having moved in borrowers making decision decisions based off that, you know, however expected it was. But, you know, what are your expectations on how long growth could trend over more so that like the medium and longer term for the bank? Yeah, I'll let Peter give you a little bit of data just in terms of the historical trends. I think it's worth, you know, mentioning that we obviously spend our time looking at the world in quarterly 90-day increments.
Speaker Change: And then to.
Speaker Change: Just shifting gears, a little with the loan growth so back loaded.
Speaker Change: I'm not sure. If you think there was any correlation to the fed hasn't moved and borrowers making decision decisions based off that however expected. It was but what are your expectations on how loan growth could trend over over now more so like the medium and longer term for the bank.
Speaker Change: Yeah, I'll, let Peter gave you a little bit of data just in terms of the historical trends I think it's worth.
Speaker Change: Mentioning that we obviously spend our time looking at the World and quarterly 90 day increments, but in our business. It's it's a little it's a little crazy to think about things in that short time horizon. So the short answer to the first part of your question as loans closed at the end, because that's where they happen to <unk>.
Peter Cahill: But in our business, it's a little, it's a little crazy to think about things in that short of time horizon. So the short answer to the first part of your question is loans close at the end because that's where they happen to close, right? So we tend to see very consistent performance over time in terms of loan production, but whether they close in the beginning of the quarter, the end of the quarter, the beginning of the year, the end of the year, there's just a lot of variability across, you know, the hundreds of conversations that we're having with our different borrowers and different projects that it's very rare that some outside factor would be the key driver.
Speaker Change: Clothes right. So we tend to see very consistent performance over time in terms of loan production, but whether they close in the beginning of the quarter at the end of the quarter. The beginning of the year at the end of the year Theres just a lot of variability across the hundreds of conversations that we're having with our different borrowers of different projects that.
Speaker Change: It's very rare that some outside factor would be the key driver. It just tends to be more of the timing of that specific project or the renewal of our line or what what have you, but Peter wanting to jump in and maybe share with testing some of that kind of the historical numbers ive looked at not quarter to quarter per se, but how it kind of averages out over time.
Peter Cahill: It just tends to be more the timing of the specific project or the renewal of the line or what, what have you. But Peter, want to jump in and maybe share with just some of the kind of the historical numbers you've looked at, not quarter to quarter per se, but how it kind of averages out over time. Yeah, Justin, what that says is correct. I mean, deals end up in the pipeline for, you know, quarters on end. In fact, we just went through the end of September and kind of did a very, you know, modest scrub of the pipeline and said, hey, look, it deals.
Speaker Change: Yeah, just to what Pat said is correct I mean deals end up in the pipeline for you know quarters on and in fact, we just went through the end of September and kind of did a very modest scrub of the pipeline and said Hey look if deals you go through deals that have been in the pipeline for 360 days or more.
Peter Cahill: You go through deals that have been in the pipeline for 360 days or more. And it was only a handful of them, but it was amazing to me that most of them were still live deals. In fact, one was closing within the two weeks. So they can get delayed as to the various stages they go through. But when you look back at the two, you know, two, we're at 276 million of what we call probable funding, and you've been on our call. That's where we kind of waited; is the likelihood in where it is in the approval process.
Speaker Change: With only a handful of them, but it was amazing to me that most of them are still alive deals in fact, one of them was closing within a two week. So they can get delayed as to the various stages to go through but when you look back at the two two square a $276 million, what we call probable funding and he's been on our calls that's where we kind of waited this long.
Speaker Change: Likelihood and where it is in the approval process. So.
Peter Cahill: So, you know, 276 million compared to an average for this year or for the nine months was over $315 million. So we're down, but we're down because we had, you know, our biggest quarter and our biggest month in September in loan funding. So if you took that $315 million average for the nine months and compared it to last year, last year we were at $214 million. So we're $100 million average pipeline this year, greater than where we were last year. So our folks are finding, you know, business out there; it's just a question sometimes of getting across the finish.
276 million compared to an average for this year or for the nine months was over $315 million, but were down but were down because we had our biggest quarter in our biggest month in September and loan fundings if you.
Speaker Change: Looked at $315 million average for the nine months comparative to last year last year were $214 million or $100 million.
Speaker Change: Average pipeline this year greater than where we were last year. So our folks are finding.
Speaker Change: No business out there. It's just a question sometimes of getting across the finish line.
Speaker Change: Okay, Great I appreciate it yeah, no kind of way, but I appreciate the detail there.
Unknown Executive: I appreciate the detail there.
Patrick Ryan: And then Pat, I guess just one on the buy back. You know, I think at the past you've spoken about perhaps wanting to get to a point where you're operating with, you know, call it excess capital, if you will, before thinking about getting relaxed there, you know, just directly saw capillarations move lower with some of the growth. So just looking for an update there and if the new authorization is more of a just let you know, put it in place so we have it. Yeah, I mean, I say it's both right. I mean, obviously, we think there's value in having a program in place, regardless of the environment or the situation, but as far as, you know, how do we think about when we're going to, you know, jump in, obviously, a key factor is where are we trading, right?
Speaker Change: Then Pat I guess, just one on the buyback I think in the past you've spoken about perhaps wanting to get to a point, where you're operating with call. It excess capital. If you will before thinking about getting real active there.
Just directionally, we saw capital ratios moved lower with some of the growth. So just I guess looking for an update there and if the new authorization is more of a just let's put it in place. So we have it.
Pat Ryan: Yeah, I mean, I'd say, it's both right I mean, obviously, we think there's value in having a program in place regardless of the environment or the situation but.
Pat Ryan: As far as you know how do we think about when we're going to.
Pat Ryan: Jump in obviously.
Pat Ryan: Key factors, where are we trading right in the closer we get.
Patrick Ryan: And the closer we get to book value, the more interesting the, you know, the stock. Buyback looks to us. Obviously, some of it has to do with what we're seeing in our own pipeline and our growth prospects and overall capital levels, but I think we're at a point with current capital where we can be opportunistic. So I don't think we are in a, let's wait till we get to some much higher level than we are. I think the levels that we're at are adequate, and therefore we can be in the market looking as we think the time is right.
Pat Ryan: The book value of the more interesting the stock buyback looks to US obviously some of it has to do with what we're seeing in our own pipeline and our growth prospects and overall capital levels, but I think we're at a point with current capital where we can be opportunistic.
Pat Ryan: So I don't think we are in a let's wait till we get to some much higher level than we are I think the levels that were at are adequate and therefore.
Pat Ryan: We can be.
Pat Ryan: In the market looking with we think the time is right.
Patrick Ryan: But at the same time, you know, it's not an aggressive strategy of ours to buy back every share we can that's in the plan. I think it's more, you know, an opportunistic vehicle, if you will.
Pat Ryan: But at the same time.
Pat Ryan: It's not a aggressive strategy of ours too.
Pat Ryan: Buyback every share we can that's in the plan I think it's more.
Pat Ryan: And opportunistic vehicle if you will.
Pat Ryan: Yeah.
Unknown Executive: Okay, helpful.
Speaker Change: Okay helpful.
Unknown Executive: I will leave it there. Appreciate you guys taking the question. Yeah, thank you, Justin.
Speaker Change: Leave it there I appreciate you guys taking the questions.
Speaker Change: Thank you Justin.
Speaker Change: Yeah.
Manuel Nevis: Our next question comes from the wide of Manuel Nevis with DA Davidson. Your line is open.
Speaker Change: Our next question comes from the wind up Manwell nervous with D. A Davidson your line is open.
Manuel Nevis: Hey, good morning. What is the kind of the right level of purchase of county increasing going forward? It should be running down.
Speaker Change: Hey, good morning.
Speaker Change: What is the kind of the right level of purchase accounting accretion going forward or could you just kind of.
Speaker Change: It should be running down was this quarter that different than expectations, just kind of help with that.
Andrew Hibshman: Was this quarter that different than expectations? Just can you kind of help with that? Yeah, I think Andrew can give you some visibility there. I mean, it's a set schedule that does slowly work its way down over time.
Speaker Change: Yeah, I think Andrew can give you some visibility there I mean, it's a it's a set schedule that does.
Speaker Change: Slowly work its way down over time, so Andrew do you want to jump in.
Andrew Hibshman: So, Andrew, you want to jump in? Yeah, I think we talked about this. The level will drop, and it does depend sometimes on paid prepayments, loans, and things like that. That loan accretion is the primary driver of this. There is some, some other things going on in there, but it's mainly loan mark accretion. So it'll drop slightly over the next few years, and most of it gets earned in the first three years, and then it drops off fairly significantly after that. So they'll continue to be small declines over the next two years, and then it drops off kind of after that.
Andrew: Yeah, I think we talked about this the level will drop and it does depend sometimes on paid prepayments of loans and things like that loan accretion as the primary driver of this there is some some other things going on in there, but it's mainly loan.
Andrew: Mark accretion so it'll drop.
Andrew: Slightly over the next few years and most of it gets earned in the first three years and then and then it drops off fairly significantly after that so that'll continue to be small declines over the next two years and then it drops off.
Andrew: After that.
Andrew Hibshman: But it should, again, it'll continue to drop slowly over approximately the next 24 months.
Andrew: It should again and it will continue to drop slowly over approximately the next 24 months.
Andrew: Yeah.
Andrew: And.
Andrew Hibshman: And do you have, do you have an exact number for what the new loan yield was? I know a lot of it came on at the end of the quarter or just was trying to compare it to this. to Lonel, to you: you booked the whole quarter.
Speaker Change: Do you have to give an exact number for what the new loan yield was.
Speaker Change: I know a lot of it came on at the end of the quarter I guess was trying to compare it to the cause.
Speaker Change: The loan yields.
Speaker Change: Booked for the whole quarter.
Speaker Change: Hello.
Peter Cahill: Hello. Yeah, ma'am, I'm sorry. Uh, this is Andrew. Peter, do you, I know you keep track of the kind of the weighted average yields. I don't have that data in front of me, but do you have some kind of at least an estimate of what the loan yields were for the quarter? Yeah, you know, if you know, if you look at the new loans funded, closed and funded, not advances under existing lines, things like that, but new loans funded for the quarter, the weighted average was around, um, 765, and that was down about a quarter, maybe 30 basis points from the same similar number, uh, the quarter before.
Speaker Change: Yes, ma'am I'm sorry, this is Andrew or Peter do you I know you keep track of the kind of the weighted average yields I don't have that data in front of me, but do you have.
Speaker Change: I'm just kind of at least an estimate of what the loan yields were for the quarter. Yeah. You know if they're well if you look at the new loans.
Speaker Change: It closed and funded not advances under existing lines things like that but.
Speaker Change: New loan fundings for the quarter the weighted average.
Speaker Change: Was around.
Speaker Change: 765.
Speaker Change: And that was down about a quarter, maybe 30 basis points from the same similar number.
Speaker Change: The quarter before.
Peter Cahill: So I'd say the loans, you know, some of that gets pushed by larger loans; it might be a tighter, tighter spread, whatever, but quarter to quarter went down, went from about, uh, 8% to around 765, 770. Okay. Does that help? Uh, yeah, it does help. Um, so that, that's where the commentary that the name would have been, hello better if those loans were, were fully in their whole quarter. Why doesn't there kind of a bias for up and then given a day, they are up, you know, uh, some of the, some of the smaller loans that we do, we have, uh, business banking teams that are out doing, you know, a couple hundred thousand dollar lines of credit, turn loans to smaller businesses, they're going to be at, uh, you know, prime plus one, um, where, you know, a larger, uh, owner occupied real estate loan, ten, fifteen million dollar loan is going to be at, you know, two hundred and fifty basis points, or three, you know, two hundred fifty two seventy five over treasury, five year treasuries, as you know, are right around four.
Speaker Change: I'd say the loans you know some of that gets pushed by larger loans that might be at a tighter tighter spread whatever but quarter to quarter went down it went from about eight.
Speaker Change: 8% to around 765 770.
Speaker Change: Okay that helps.
Speaker Change: Yes, it does help.
Speaker Change: So that's where the commentary that the NIM would have been a little better if those loans, where we're fully in there the whole quarter.
Speaker Change: Why isn't there kind of a bias for up NIM given that they are.
Speaker Change: Like what are some of the some of the some of the smaller loans that we do we have a business banking teams that are out doing.
Speaker Change: A couple of hundred thousand dollars lines of credit and term loans to smaller businesses, they're gonna be it.
Speaker Change: Prime plus one.
Speaker Change: Where you know a larger owner occupied real estate loans $10 million to $15 million alone is gonna be it you know 250.
Speaker Change: Basis points or 250 to 75 over treasuries five year treasuries as you know are right around four or so.
Unknown Executive: So, you know, there's a different mix in there, different sizes, different mixes, and, uh, you know, it impacts that quarter-to-quarter number a little bit. Okay. Um, yeah.
Speaker Change: There's different there's a different mix in their different sizes different mixes and.
Speaker Change: <unk> quarter to quarter number a little bit.
Okay.
Speaker Change: Yes, I also think there's you know as Justin talked about there is a scenario where the margin Ken.
Andrew Hibshman: And you also think, uh, many of all, there's, you know, as, as Justin talked about, there is a scenario where the margin can, uh, take back up a little bit. I think we're a little hesitant to predict it, just because A, we don't know, uh, what the Fed's going to do. We got twenty-five percent of our balance sheet that, you know, floats down every time the Fed moves, and, uh, you get into the unknowns around what, what, what will the market absorb in terms of deposit reductions? And so, uh, I think there's a scenario where that plays out to our benefit, but, uh, I'd be hesitant to predict it until we, you know, get a little more visibility in how quickly we can lower the deposit costs.
Speaker Change: Tick back up a little bit I think we're a little hesitant to predict it just because we don't know.
Speaker Change: What the fed is going to do we've got 25% of our balance sheet debt floats down every time, the fed moves and you.
Speaker Change: You get into the unknowns around what what will the market absorb in terms of deposit reductions and so I think there is a scenario where that plays out to our benefit but I'd be hesitant to predict it until we get a little more visibility and how quickly we can lower the deposit costs.
Andrew Hibshman: On deposit cost, do you have an end of period total deposit costs after the Fed cut? You know, your average was at three three oh five. What were you at? I don't know. Did that calculation. I know we, what we did was we took a look at the asset side and we figured out, um, you know, the dollar amount that was going to reprice with the Fed move and then we, uh, came up with a, uh, reduction across a variety of our deposit portfolios that, uh, once fully implemented, you know, would have a similar impact to the loss interest income from the asset side, uh, but I'm not sure we, you know, sort of calculated what did that mean in terms of the, the funding costs from the last two or three weeks of the quarter.
Speaker Change: On deposit costs do you have an end of period total deposit costs after the fed cut.
You know your average was at three 305.
Speaker Change: Where are you at.
Speaker Change: Did that calculation I know, we what we did was we took a look at the asset side and we figure it out.
Speaker Change: The dollar amount that was going to reprice with the fed move and then we.
Speaker Change: Came up with a a reduction across a variety of our deposit portfolios that once fully implemented you know would have a similar impact to the lost interest income from the asset side, but I'm not sure we sort of calculate and what does that mean in terms of the funding.
Speaker Change: For the last two or three weeks of the quarter, but.
Andrew Hibshman: But, um, you know, obviously it's something we're keeping a close eye on.
Speaker Change: Obviously, it's something we're keeping a close eye on.
Unknown Executive: Ryan. Okay.
Speaker Change: Okay and then the.
Andrew Hibshman: And then, the op-x run rate, you did call out the Oreo right down. Should we think of op-x being stable with the right down without, so it's like 18 million or 18.6 million. Yeah, probably in between, but I don't know, Andrew, if you want to give a little more color there. Yeah, I think that that's about right. Obviously, there's, that's assuming kind of a core and they're very rarely doing out have some kind of one time unusual item during a quarter. But yeah, I think we're, we're thinking somewhere kind of in between. That is the kind of core run rate over the next couple quarters, outside of any kind of unusual or one-time items. Okay.
Speaker Change: The Opex run rate.
Speaker Change: You did call out the Oreo write down.
Speaker Change: Should we think of Opex being stable with the write down without so it's like 18 million or $18 6 million.
Speaker Change: Okay.
Speaker Change: Yes, probably in between but I don't know Andrew if you want to give a little more color there yeah.
Speaker Change: Yeah, I think that's about right. Obviously, there's that's assuming kind of a core in there.
Speaker Change: Very rarely do we not have some kind of one time unusual item during the quarter, but yeah, I think where we're thinking somewhere kind of in between that and the kind of core run rate over the next couple of quarters outside of any kind of unusual or onetime items.
Speaker Change: Okay, and then is the right way to think of the fee side is that like $1 8 million.
Andrew Hibshman: And it's the right way to think of the key side is that like 1.8 million, stripping out securities, stripping out sort of the bully. Is that the right run rate going forward, and what could kind of take it out to get it down?
Speaker Change: Stripping out.
Speaker Change: Security is stripping out some of the bully.
Speaker Change: Is that the right run rate going forward and what could kind of tick. It up you can take it down.
Andrew Hibshman: The question's on non-interest income. Yes, the income. Yeah, I mean, I think if you strip out some of the noise from this quarter, that's a decent expectation for what we expect the numbers to look like going forward. Thank you.
Speaker Change: The question's on noninterest income.
Speaker Change: Yes.
Speaker Change: Yeah, I mean, I think if you strip out some of the noise from this quarter, that's a decent expectation for what we are what we expect the numbers to look like going forward.
Speaker Change: Okay.
Speaker Change: Thank you I'll step back into the queue.
Unknown Executive: I'll step back and take you. All right. Thank you, Daniel.
Speaker Change: Alright, Thank you Emmanuel.
Unknown Executive: There are no further questions at this time.
Speaker Change: There are no further questions at this time I will hand, the call back over to Patrick Ryan for closing remarks.
Patrick Ryan: I will hand the call back over to Patrick Ryan for closing remarks.
Patrick Ryan: Okay, great.
Patrick Ryan: Okay, great well again, thanks, everybody for taking their time to join the call and we appreciate the interest in first bank and we'll look forward to regrouping with everybody here at.
Patrick Ryan: Well, again, thanks everybody for taking their time to join the call. We appreciate the interest in First Bank and we'll look forward to regrouping with everybody at the end of next quarter.
Patrick Ryan: At the end of next quarter and hope everybody has a wonderful day.
Unknown Executive: Hope everybody has a wonderful day.
Unknown Executive: This concludes today's conference call. You may now disconnect. Out of good day.
Speaker Change: This concludes today's conference call you may now disconnect.
Patrick Ryan: Good day.
Patrick Ryan: Okay.
Patrick Ryan: [music].