Q2 2025 First Bank Earnings Call
Hello and thank you for standing by. My name is Bella and I will be your conference operator. Today at this time, I would like to welcome everyone to First Bank earnings conference call second quarter 2025
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After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press start and the number 1 on your telephone keypad.
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Speaker Change: I would now like to turn the conference over to Mr. Patrick Ryan, president and CEO you may begin.
Patrick Ryan: Thank you, Bella. I'd like to welcome everyone today to First Bank second quarter, 2025 earnings. Call, I'm joined by Andrew Hitchman, our Chief Financial Officer, Darlene, Gillespie, our chief, retail banking officer, and Peter Cahill our chief lending officer. Before we, before we begin, Andrew will read the Safe Harbor statement.
Patrick Ryan: 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 information about risks and uncertainties are described under item 1, a risk factors in our annual report on form. 10K for the year ended December 31st 20202 2024 filed with the FDIC Pat back to you.
Thanks Andrew.
Patrick Ryan: 3 quarters of the net loan. Growth came from our strategic, cni, and owner, occupied segments.
Speaker Change: Our deposit growth. During the quarter was fueled by gains in the non-interest bearing category.
Speaker Change: Loan growth in excess of deposit, growth pushed our loaner deposit ratio up to 105% something. We'll be tracking and looking to move lower in the back half of the year.
Speaker Change: Strong balance sheet, Grove grow, growth growth, Topline Revenue growth.
Speaker Change: For example, net, interest income was up, 1.9 million compared to the first quarter, which is 6% link. Quarter growth, pre-provision net revenue was up 2.9 Million compared to the first quarter, which was 21%, link quarter growth and our pre-provision net revenue return on assets was 1.65%. Annualized,
Speaker Change: Results for the quarter didn't include some non-core items. Specifically, we had a 397,000 pre-tax gain on the sale of our Polly office building, and we had an 862,000 Severance cost related to some management changes.
Speaker Change: Overall credit quality seems to be holding up despite the economic and Terri tariffs induced uncertainty.
Speaker Change: Net charge also remain relatively low as do are non-performing assets and non-performing loans.
Speaker Change: Our allowance to non-performing loans, sits at 255% coverage, well above industry average.
Speaker Change: We achieved pretty good profitability. Over a 1% Roa in the quarter despite the severance costs and the elevated provision.
Speaker Change: Core profitability is tracking closer to 110 or 115 Roa.
Speaker Change: Our newer business units continue to gain size and scale driving profit Improvement, moving forward.
Speaker Change: Furthermore, we expect tighter expense containment to also help boost future profitability.
Speaker Change: New business units, new branches and Technology expenses. Have driven our non-interest expense to average asset ratio above 2%,
Speaker Change: Historically, we've operated in the 1.9 to 2% range. Excluding merger related charges.
Speaker Change: Operating leverage and expense management will help us get back to those historical levels.
We've also completed a successful subordinated, debt offering during the quarter. We brought in 35 million in new debt at 7 and 1/8 interest rate 1 of the lowest coupons on a new debt deal for a Community Bank this year.
Speaker Change: At June 30th, we still held 30 million of our older higher rate subbed that and we expect to pay that off on September 1st.
Speaker Change: In summary core operating Trends. Look good. Our our margin is holding in at high levels.
Speaker Change: Our strong asset growth will drive strong Revenue growth during the second half of the year.
And expense management will help drive better bottom line results.
Speaker Change: We're keeping a close eye on credit credit Trends, but they appear stable
Speaker Change: all in all things should be shaping up for a good back, half to the year.
Speaker Change: At this point, I'll turn it over to Andrew to get into some more details on the financial results. Andrew.
Andrew Hitchman: Thanks Matt for the 3 months ended June 30th 2025. We recorded net, income of 10.2 million or 41 cents per diluted share, and at 1.04% return on average assets. We saw another quarter of substantial loan growth. Loans were up 91 million for the first quarter or 11% annualized over the last 12 months. Loans have grown 329 million or 11% with our core areas of focus. Leading the way cni grew 176 million and owner occupied commercial real estate loans grew over 60 million.
Andrew Hitchman: Growth was also solid. Again on the deposit side, balances were up over 48 million during the quarter or an annualized 6.2% as we continue to execute on adding and maintaining profitable relationships. This grows all came from non-interest bearing deposits, and was supplemented by additional fhlb advances to support our significant loan growth.
Andrew Hitchman: Net interest income increased 1.9 million compared to the first quarter primarily due to margin stability on a growing balance sheet. Our net interest margin remained at 3.65% in the second quarter and if anything from slightly higher yields on loans offset by slightly higher costs primarily due to increased costs on our subordinated debt.
Andrew Hitchman: Looking ahead, we can continue to manage a well-balanced asset and liability position which should result in continued Strong, net interest income generation with limited variability in the margin, regardless of the fed's actions on rates,
Accounting both of our subbed that instruments. However, we believe that we will be able to maintain a stable margin with some potential upside due to our efforts to push deposit costs lower combined with lower yielding assets continuing to run off our balance sheet, which are being replaced with higher yielding loans.
Andrew Hitchman: Our asset quality continues to be strong. Nwpa is the total assets declined to 40. Basis points compared to 42 basis points at March 31st and 566 basis points at June 30th 2024. This reflects the second quarter sale of our Oreo asset which with accounting value of 4.8 million at March. 31st all set somewhat by a net increase of 4.4 million in non-performing loans. We recorded a 2.6 million credit loss expense during the quarter compared to a credit loss expense of 1.5 million for the first quarter. The increase is primarily due to our long growth during the quarter, a modest uptick in net charge offs. After several quarters of little, to no charge of activity and a slight build in reserves in our cni portfolio.
Andrew Hitchman: Our allowance for credit loss is the total loans. Increase slightly from 1.21% and March 31st to 1.23% at June 30th.
Not interest income, total 2.7 million in the second quarter of 2025 up from 2 million in q1, the increase reflects higher loan fees, as well as a gain of 397,000 on the sale of our Polly location which included some excess, corporate office space, and the branch. And we have leased back, just the branch space.
Non-interest expenses were 20.9 million for the second quarter compared to 20.4 million in q1. A call the q1 expenses included an 815,000 impairment of an Oreo asset during the quarter, which we sold for a gain of 34,000 in Q2, and Q2, salaries, and employee benefits expenses grew by 841,000, primarily due to Executive Severance payments during the quarter.
Rear laser focused on expense control and believed that we continue to drive growth without adding meaningful meaningfully to our expense base.
Andrew Hitchman: Tax expense total of 3 million for the second quarter with an effective tax rate of 22.9% this compares to an effective tax rate of 22.7% for q1. We anticipate our effective tax rate. Going forward will be relatively stable and we do not expect the recent legislative changes to have a material impact on our tax rate.
Andrew Hitchman: Our efficiency ratio improved to 56.24% and remain below 60% for the 24th consecutive quarter. We also continue to expand our tangible book value per share, which grew 40 cents during the quarter,
Pack comment on this but it's worth repeating. That, our 35 million supporting debt offering was very positive for us in this rate environment, we price below our expectations and Below other comparable deals. The 30 million in subsets that we issued in 2020 will be carried until the end of August and will impact Q3 results because of the extra interest expense but we'll see Savings of approximately 240,000 monthly starting in September. I note that the extra subordinate debt is also included in our total risk base Capital ratio at June 30th, even after the expected Redemption, our Capital ratios will remain strong allowing for Capital flexibility.
Andrew Hitchman: We continue to be pleased with the momentum and very positive performance. We are executing our strategy to evolve into a middle Market Commercial Bank and we are strengthening our core earnings profile.
Andrew Hitchman: We're also pleased this success allows us to drive shareholder value through the successful continuation of our buyback program and the stable cash dividend.
Speaker Change: At this time, I'll turn it over to Darlene. Gillespie, our chief retail banking officer for her remarks Darlene.
Darlene Gillespie: Thanks Andrew and good morning.
Darlene Gillespie: Andrew noted. We experienced robust deposit growth. In the second quarter, highlighted by a 55 million increase in non-interest bearing deposits.
Darlene Gillespie: This growth was particularly strong among our commercial clients.
Darlene Gillespie: This contributed to a favorable mix shift with non-interest-bearing. Demand comprising, nearly 19% of our total deposits at June 30th.
Up from 17% a year ago.
Darlene Gillespie: Over the same time, interest bearings demand deposits declined from over 19% of total deposits a year ago to 17.5% at June 30th.
Darlene Gillespie: This reflects our Bankers continued success in building and maintaining deep customer relationships, which supports our focus on growing core funding and lowering. Our deposit costs.
Darlene Gillespie: Effective.
To be a bit more specific in addition to continue momentum in retail and commercial lending. The small business banking team is advancing industry, specific initiatives aimed at driving deposit growth across the bank positioning us to meet critical growth targets through year end.
Speaker Change: As Andrew Minton, our total deposits, were up 48 million or over 6% annualized from the first quarter. And they grew 201 million or nearly 7% from second quarter of 2024.
Speaker Change: What's hidden in this net growth is our continued success in managing out some higher cost, balances over the past few quarters.
Speaker Change: If you look at the first 6 months of 2025, our average money market, deposits grew by about 16 and a half million.
Speaker Change: Or 2% over the first half of 2024.
But the average cost decline by nearly 60 basis points, lowering the overall interest cost on these deposits by 2.8 million compared to the prior year period.
Speaker Change: Time deposits. Continue to grow up, 26 million. During the quarter, we introduced a series of CD promotions to strategically onboard funding and support of our continued, strong loan growth,
Speaker Change: In addition, targeted promotions were implemented to drive engagement. With our newly opened branch locations which I will speak to shortly.
Speaker Change: We've continued to benefit from the runoff of certain customer CDs. Even maturing from previously, higher rate terms or transitioning into Iraq rate, pricing structure,
Speaker Change: We continue to execute our Branch strategy which is aimed at supporting engagement in our current markets and opportunistic expansion into adjacent markets.
Speaker Change: On June 9th, we opened our denovo, branch in Summit. New Jersey, adding Union County to our footprint.
Speaker Change: That adds the ninth County where we have a physical location in New Jersey.
Speaker Change: Looking ahead, we have approvals in place to open another denovo, branch in Oceanport. New Jersey, which will extend our footprint into Mammoth County making that the 10th County in New Jersey, where we will reside.
Speaker Change: We will be closing our limited service. Mars town office next month in August,
Speaker Change: Transferring the deposits to nearby Denville where those clients will continue to be serviced.
Speaker Change: We also expect to complete the relocation and expansion of our Palm Beach Florida. Branch to a more convenient and accessible location in nearby Wellington Florida.
Speaker Change: Staying in the prestigious prestigious Palm Beach County by the end of third quarter.
Speaker Change: As mentioned, we run promotional campaigns in our new Branch markets and it has proven to be a successful tool in gathering core deposits and building new customer relationships.
Speaker Change: Our customer retention and ability to onboard. Customers is strong and we believe this should continue to support a solid and growing deposit based in 2025 and Beyond.
Speaker Change: At this time, I'll turn it over to Peter Cahill. Our chief lending officer for his remarks Peter
Peter Cahill: Thanks Darlene.
Speaker Change: Andrew described that his comments the overall loan growth. We've experienced in the past quarter as well as last 12 months.
Speaker Change: I think in order 11% organic growth rate compares favorably to our peers, it's important to note that uh as Pat pointed out that almost 75% of the loan growth over the past 12 months has been in the cni and owner occupied uh real estate areas.
Speaker Change: The residential uh I'm sorry the regional Commercial Banking teams in New Jersey and Pennsylvania are our largest teams and they continue to execute on their plans to grow loans and deposits as does. The smaller team in Florida all are positioned to meet or exceed plan for the year.
I mentioned last quarter, our uh, that we expect our new business units, private Equity Fund Banking and asset. Based lending, to be our leaders in net loan, growth this year. And through June, both are significantly ahead of plan.
Speaker Change: From SBA lending and caps out at around 350,000 and availability has shown growth. Through 6 months that almost equals. What the group did in all of 2024,
Speaker Change: I'm also happy to report that our consumer lending area including residential. Also showed excellent growth through the second quarter.
Speaker Change: We normally anticipate loan runoff, uh, through amortization and normal payoffs, the equal new loans.
Speaker Change: But through June 30th, that area is up 28 million due to an increase in referrals from our relationship, managers and Retail team.
Speaker Change: And lastly, regarding investor real estate. Uh we closed a number of new loans in the second quarter. But similar to the first quarter, new loans were offset by payoffs.
Speaker Change: I mentioned in the last quarter of project to shift, over time, a greater percentage of our investor real estate business. Into our more specialized, investor real estate team and focus on relationship development and increased management of loan concentration levels, that continues to go. Well,
Speaker Change: 1 aspect of that has been a change in the ratio of investor real estate loans to Total Capital. We were at 420% in early 2024 went to 390% at 33125 and we finished 22 at 380% after adjusting for
Speaker Change: For a normalized level of sub debt in our calculation of capital.
The Lending pipeline at the end of the second quarter, stood at 301 million dollars of probable funding down 8% from the level of probable funding that March 31st
Speaker Change: I'm satisfied with the pipeline for a couple of reasons.
Speaker Change: The average month, end balance for Q2 was 323 million, which was more than the average for q1.
Speaker Change: And this coupled with the loan growth, we've experienced which pulls loans off the pipeline.
Speaker Change: Any activity, I'm seeing on a day-to-day basis, makes me feel good about where we are.
Speaker Change: If 1 breaks down a component of the pipeline a quarter end cni loans made up 68% of the overall pipeline up from 63% at 331, which we see is a positive
Speaker Change: On the topic of asset quality. I really don't have anything to add to Andrew's comments, we think things continue to be in. Good shape, the loan portfolio continues to be well Diversified and the loan growth numbers confirm the direction there.
Speaker Change: We have nothing new to report on the impact of changes in federal government spending or tariffs, we're seeing little impact there at this point as well.
Speaker Change: In summary, I think we had a good second quarter, we're having a good start to Q3 with the lending pipeline that's in place. But as always things like loan, payoffs are unforeseen asset sales by customers can impact uh, loan growth.
Speaker Change: That concludes my remarks about lending in Q2. I'll turn things back to Pat Ryan for some final comments. Pat.
Pat Ryan: Thank you Peter, at this point, I'll turn it back to the operator, to open up the Q&A.
Speaker Change: At this time, I would like to remind everyone in order to ask a question. Press star, then the number 1 on your telephone keypad, we do request right now that
Speaker Change: you will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Justin Crowley of Piper Sandler.
Speaker Change: Your line is now open. Please go ahead.
Justin Crowley: Hey, good morning everyone morning Justin.
Um, maybe just, uh, dig it into some of the commentary on forward loan. Growth moderating, um, you know, the cni verticals have been grown at a pretty good clip here for a while. So, you know, wondering how we should think about continued growth there, uh, versus some of the other areas of the portfolio that could be, uh, you know, served as an offset. Yeah, it's a good question. I mean in any given quarter, your, your lining up a lot of different things, right? You got different levels of loan, demand, across your segments, across your re
Justin Crowley: We're we're sort of predicting. The things will flow in the back, half of the year, not because of Any macroeconomic Trends. Or or any slowness, we're seeing in the market, just more a function of how our business works. And as we as we close and fund loans, it takes some time to refill the funnel, Etc. Um, we've also seen a little bit of an unusually low level of payoffs and pay Downs just in. So uh some of the net loan growth is driven not just by new production but uh by our estimates of what we think will pay off and pay down during any given quarter just based on historical.
Trends and uh, during the first half of the year, the the payoffs and pay Downs, were a little, a little slower than, uh, what we'd seen in Prior years. So again, we're sort of estimating, that, that that payoff and pay down Trend will normalize and, and sort of pick back up a little bit together. With some time, it takes to refill the pipeline. So, you know, we're uh, we're thinking things will be a little slower in the back half of the year, but as Peter mentioned you know, the pipeline remains healthy and the payoffs are a little little difficult to predict. So um,
You know, sorry we can't be more specific there. But, uh, the other thing I think you asked was just about mix. And and I think we'll continue to see, uh, a majority of the growth coming from the cni and the owner occupied categories. Uh, we continue to be active on the investor real estate side, but, uh, you know,
Justin Crowley: Certainly being selective. And, uh, you know, a lot of times new production is replacing, uh, you know, runoff and pay Downs there, so, um, we do see some, some modest growth in that quarter going forward. But, uh, we expect, uh, the growth in the cni units to be a little bit stronger.
Speaker Change: Okay, I got it. That's helpful. And then, like on the cni units, the, the specialty verticals that you're in, can you give us a sense for how much of the growth, you know, this core and maybe even just the past few quarters. Um, but you know how much that growth has been driven by line utilization versus um, new customer acquisition.
Justin Crowley: Yeah. I'll uh, I'll
Speaker Change: Leader. Try to give a little more clarity if he has it. But you know, from our perspective we haven't seen big changes in line utilization overall. And uh, in general the growth, uh, has been coming from new customer acquisition, but Peter, I don't know if you have any uh color you can add on kind of the line utilization question.
Peter Cahill: No, that's right. The line I check it every quarter and it it never seems to fluctuate much you know what? That's, you know, 1 or 2% can be a big number but uh we continue to be in that 41 42% line, utilization rate, uh, quarter after quarter. Um, yeah, there is kind of more fluctuation in like abl for example, you see big chunks move it in and out of individual, uh, loan commitments there. But I would say the growth has been primarily from new customers.
Speaker Change: Acquisition.
Speaker Change: Okay, got it. And then on the outlook for deposits. Um, you know, a lot of success, increasing that non-interest bearing bucket. Um, for a number of quarters running now. Um, you know, do you think we could continue to see that Trend play out? I know you mentioned leaning a bit more on CD promotions to fund growth, uh maybe in part because of some of the new, you know, branch locations. But just wondering how you think that mix could shake out.
Yeah.
Speaker Change: Listen, we're obviously working hard to drive that non-interest, bearing, uh, percentage higher. Um, it is, it is working right? I think, you know, post malvin, we had dipped even as low as 16%, so nice to see it move from 16 to 19. Um,
Speaker Change: you know, that can also be a little harder to predict because, you know, you'll have some bigger swings in, uh, just kind of balanced levels based on seasonality, or, you know, companies do a capital raise or a customer sells his business and gets a big chunk of money. So, there's a lot of, you know, kind of, uh, singular events that can impact that. But, you know, certainly the trend is 1, we want to continue to move higher and I'd say on the other side and the interest bearing side. We're you know, we're continuing to see pressure from quote unquote, parked money, looking for yield in you know, money market, funds, and investment products. Um so in some cases you know, we've tried to offset some runoff.
Speaker Change: in some of those categories with some, uh, additional CD dollars plus
Speaker Change: You know.
at the end of the day, when you run,
Speaker Change: Promotions for those, those newer offices. But, um,
Speaker Change: You know, hopefully that answers the question but uh, you know, a little harder to predict on the nib side.
Speaker Change: Understood gotcha. Um and so I guess with maybe at least Matt loan, growth, slowing through the back, half of the year, do you do? You look at share or purchases is still a good use of capital, um, with the stock where it is now and you know, is there room to perhaps get even more active there?
Speaker Change: Yeah. I mean uh, I certainly think we have the capital to be uh active on the repurchase side. Um,
Speaker Change: You know, we try to be selectively IE. You know, making sure we're buying at the right time and the right price, and as I'm sure you've noticed there's been a fair amount of volatility in the Community Bank stocks, even as they've been moving higher. And so, uh, we generally don't rush to keep buying as the Market's moving higher just because you, you know, you tend to have some headline risk that that pushes things down and then that creates good buying opportunities for us, so, trying to be disciplined and selective. But certainly think if the right price is, uh, we can continue to, uh, find Opportunities to repurchase.
Speaker Change: Okay, and then maybe just 1 last 1 just a question on the appetite for m&a here. I know you know, the currency maybe isn't quite where you want it to be, but can you remind us how whole Bank deals fit into the strategy? Um, right now, uh, you know, just the level of conversations being had out there and you know what you'd potentially look for in terms of, uh, size and geography.
Speaker Change: I think a pretty consistent and disciplined m&a strategy. Uh, we think, uh, size and scale matters. And so we want to be, uh, in a position to look at opportunities for m&a. Uh, obviously, we've got to be very careful without a currency. We'd be careful with a good currency, but, um, you know, our, our job is to find the right opportunities at the right price. And, um, you know, we don't have a magic number in terms of uh, of size threshold, but I do think in general, uh, there's a lot of dialogue in the marketplace but it's not always clear how much of the dialogue is, you know, uh, serious dialogue. Versus folks, just uh, you know, thinking about a variety of different things. But, you know, ultimately unclear whether any of those, uh, you know, more strategic type transactions would come to fruition. So, you know, we've been, we've been pretty vocal about, you know, understanding
Speaker Change: The importance of looking at m&a from all directions, and, uh, we continue to make sure we're in the market and, uh, aware of conversations and having conversations. But, uh, I would say
Speaker Change: in the market, I think there's going to be a bit of a Resurgence in activity. Uh, whether that means, we'll end up doing something or not. I I, I couldn't tell you obviously, it's, uh, it's hard to know but um our strategy and philosophy on m&a hasn't changed. So,
Speaker Change: Okay, and then just from a geography standpoint, I know you're getting into some new, uh, counties in New Jersey. But, you know, as far as inorganic growth, are there any areas outside of the footprint um that are contiguous to kind of strike you as uh, you know, appealing if you if you know the right opportunity were to come along.
Speaker Change: You know, listen.
Speaker Change: geography is important in a sense that
Speaker Change: at a high level.
Speaker Change: you know, lower cost deposits at franchises that are a little bit removed from the more competitive Urban markets and so, um, I think for us given, uh, our strong, uh, loan growth, generation capabilities, uh, you know, finding an opportunity for a low cost deposit franchise would be would be very interesting, um, if you know that became available to us, and then, I think, if you're looking at more sort of tuck in, you know, uh economy of scale type transactions,
Speaker Change: Then, you know, you're probably looking more within the existing footprint, to, to generate, the cost saves. So again, I think we'd look at opportunities in different geographies but the Strategic rationale would would be different obviously.
Speaker Change: Okay, great. I appreciate all the uh detail. I'll leave it there. Thanks so much for taking the questions. Yeah, thank you. Just
Speaker Change: your next question comes from.
Speaker Change: Of manual novice with da Davidson. Please go ahead.
Speaker Change: Lower deposit costs. Um, just kind of talk through some of that a bit.
Speaker Change: Yeah, I'll
uh, I'll talk high level and then I'll let
Speaker Change: H and Darlene get more specific in their areas, but I'd say in general, right, we've got a very short-term headwind on Nim with the uh, extra sub debt, if you will, that will be going away at the end of August. Um, outside of that, I think the general Trends are are decent, uh, in terms of, you know, we're seeing an ability to gradually uh, Drive higher loan yields with some repricing of some, some older assets as they come due. Uh, we're having some success, you know, slowly, uh, trying to push down some of our higher rate, uh, liability deposit costs. Um, so, you know, I think we've got a little bit of a headwind in terms of the um, reduction of the merger accretion income that you know, comes out of net interest income and and can hurt the margin but with the growth and the fact that the new business seems to be margin accretive I think
We're still kind of go guiding high level towards uh, you know, flattish margin over the next couple quarters. But Peter, maybe you can talk a little bit about what you're seeing on the loan yield side and then turn it to Darlene to talk a little bit about what she's seen on the deposit cost side.
Peter Cahill: Um, sure. Uh you know, as far as pricing on the lending side, I mean you know, shorter term floating rate loans. Um are small business loans, continue to be primed to Prime, you know, plus a couple of uh points uh, on the fixed rate side, which would be most of investor real estate, and some fixed rate and smaller investor deals, getting done in a regions.
Peter Cahill: you know, we're still looking for 250 to 300 basis points over, you know, we kind of price the treasure 5 year, treasuries, or fhl day, which could be 25 to 30 basis points over treasuries, but we're trying to get
Peter Cahill: In that, uh, you know, um, 250 basis points spread on that. And uh, overall, when you look at new loans that have come in on a month-to-month basis, our weighted average yield uh on that, you know, bucket of new loans. Each month has been in the and I'd say the low to mid 7% range. So I think we're still doing a good job holding, uh, to what we want to get on pricing. And, uh, we're able to negotiate uh,
Peter Cahill: What we want there between, um, you know, loan pricing and deposits. Uh, I think we're we're in good shape.
Speaker Change: Thanks Peter Darlene. You want to jump in?
Darlene Gillespie: Yeah, sure. Um, so 1 of the common themes we've talked about, um, is you know, basing our relationship Banking and looking at clients and determining how we can ensure that we are competitive because there is still competition out in the market relative to deposits. Um, but also making sure that um, with fairly priced. Um, we've been able to moderate some of our pricing lower, some of our, uh, deposit costs as a result of that. And then I also add, um, we have great success with some of our CD maturity that were at higher rates that are rolling into our rack rate pricing. Um, I would say we probably have about 85% retention rate, um, in that portfolio, which has voted well for us, in terms of helping us, uh, manage our deposit costs. And that's, um, even despite rolling.
Darlene Gillespie: Out some CD promotions. Um, as a result of some of the activity in the loan side and also with the new branches that uh we're opening. So I think we have a good um, handle on managing our deposit costs and I think we'll see some additional savings uh, despite what regardless of what the FED decides to do.
Darlene Gillespie: Thanks Charlie, hope that helps. But, you know, obviously a little bit of a moving Target, so,
Speaker Change: It does. I mean, the takeaway is flattish overall, but I I just wanted to dig in on a couple details there. The paa was about 2.7 million this quarter, where, where does, and it's supposed to Trend down. Where should it hit? Where is it expected in the second half of the year?
And are you got those quarterly numbers handy?
Speaker Change: Quarter. So few hundred thousand dollars decline each quarter and then into 2026. The number will drop more significantly but again it can depend a little bit on on prepayment activity on the loan side so it could could jump around a little bit, but we are expecting based off kind of the current run rate for that to come down. Uh, again in the third again in the fourth, um, but not huge declines, but then starting in 2026. The number comes down more significantly.
Speaker Change: I I, I mean, it's kind of impressive with a lot of noise and kind of a new branches with with, uh, maybe having higher deposit costs that that you have kind of a stable men, you know, with the sub debt, as well as we get into like early 2026 and and PAs stabilized.
Speaker Change: And um, uh, the sub debt is, is gone. Could you start to see some ramp in in then um, just kind of thoughts on on that? Yeah, I mean, listen type of idea. It's certainly possible, right? I mean the big question is tell me the shape of the yield curve. Is it January 26th and then I'll give you a better answer. But, um, listen, there's certainly, uh, an opportunity. Uh, but you know it, there's a lot of different things that might happen. So uh, we like that as a potential, uh, future benefit but you know, we'd rather be a little more conservative in the guidance and you know, hope the the optimistic scenario plays out
Speaker Change: Uh, and with this, um, you know, your your your balance sheet is more mutually positioned. If there were to be Cuts, you still think stable is in the back half of this year just as how it's structured currently.
Speaker Change: Yeah, I mean that's kind of what we saw last time around with the cuts. You know, we were able to move. Yeah, liability costs enough to offset the you know, whatever it is the 25% of the balance sheet that also goes lower when the FED moves. Um, so uh, I do think in the long run Cuts will be beneficial if the long end kind of stays where it is and the short end goes down and we get a little more steepening, I think that will be a benefit to us, you know, in the back half of 26 and in the 27. But um you know you don't get the benefit right away until the steepening really kind of gets through the gets through the repricing process.
At shifting um, Lanes, a bit. Uh, what would get you to pick up loan growth if if, if the funding comes in Faster? Um, I I, I, you probably can't have your folks run this hard. Consistently. I think that's what came across as some of your commentaries. And yet the re refill the opportunities a bit, but can you just talk about
Speaker Change: What would take you to?
Speaker Change: To to read to keep long growth accelerating and um General loan demand. It seems like it's it's a lot better than than you maybe expected in the market. Yeah, and listen, I don't I I think
Speaker Change: You know, we, we now have enough different business units, different teams, different geographies. Uh, we're seeing a lot of good loan opportunities so it's really a funding constraint at this point, more than it is a loan opportunity constraint. We could do more.
Quality loans. Uh, if we found the good, you know low cost funding to support it. So uh the market is certainly, you know, there with the the diversity of the teams and the geographies and the business units, I mean we're we're we feel really good about the fact that we don't have to stretch and we don't have to hope we continually gets a look at, you know, quality opportunities and we picked the ones we like the best.
That's great. And and I just want to clarify, was there any lumpiness in a non-interest bearing? Um, and the period number, I mean, the average was a little bit more tame but still solid good growth Trend. Um, yeah. And and, and could you just comment a little bit on Commercial kind of deposit Pipelines?
uh,
Speaker Change: If I had to guess given the the strong uptick in Q2, we'd probably see some fluctuations back down a little in Q3. But, you know, nothing in there that says oh there was you know kind of a lot of noise in the numbers. He will.
Speaker Change: In terms of the commercial deposit pipelines. Uh, I think they look pretty strong. They're kind of consistent with where they've been and, uh, you know, if, if we were growing loans, 25 million a quarter, we'd feel really good about the 50 million in deposits. But as we grew 90 million, and we're sort of saying, hey, we need to do better than 50, but um I think the the overall pipeline is there continue to look pretty good.
Speaker Change: Thank you so much for the commentary.
Speaker Change: Yeah, sure. No problem. Thank you. Thank you manual.
Your next question comes from the line of Kyle gearman with the Havi group, please go ahead.
Kyle Gearman: Hi, good morning everyone. Um, I was wondering if you can share, um, details on the npl and flows this quarter. And additionally, how is asset quality holding up in your specialy segments like an SBA and private banking.
Speaker Change: Yeah, so, uh, obviously you saw on the numbers. There was a little bit of movement, uh, uh, couple loans that, uh, moved into non-performing category and uh, you know, listen, not anything that was alarming or really candidly unusual. There's flows in and flows out. And, you know, we try to keep an eye on the overall Trends but uh, we're not seeing anything systemic at this point. That would lead us to believe that there's going to be major, uh, cracks on the credit side. But um,
Peter Cahill: The, uh, I don't know. Peter, anything you want to add there?
Peter: No, I'm just trying to think over this the segments, uh, mentioned their private Equity Fund banking. No, real changes this quarter.
Peter: Um, ebl
Peter: clean.
Peter: Um,
Peter: yeah, I mean SBA we have there's a great pipeline there. I think we should have a pretty good second half of the Year, getting loans, closed and closed funded. Didn't, you know, install the typically sell the guaranteed portion. Um, but we haven't seen much, uh,
Peter: Problem loans coming out SBA. I I'd say it's just uh, you know,
Peter: uh, you know, General uptick caused by increased loan volume and uh,
Peter: You know, a couple smaller, uh, problems.
Peter: Nothing unusual.
Speaker Change: Got it. Thank you. And then you mentioned uh tariffs on loan demand and and the commentary. I was wondering if you could provide some more color. Are you seeing any specific Trends or shifts and borrow Behavior due to the current tariff environment?
Speaker Change: If by Trends, you're saying, you know, anything in certain business, segments know. I mean, we're, we keep bringing the topic up and RMS are out, you know, researching the issue. And yeah. You see a customer or 2 that says they're building inventory at a hedge against, you know.
You know, changes in pricing and, and that kind of thing, but it's minor. It's there's nothing. AC, the board that gives us M much concern right now. I mean, we are watching it and we're looking for feedback in our various loan committees and things like that. But, uh,
Speaker Change: Um, no big impact as we speak.
Got it. Thank you. And then you did mention, uh, balance sheet positioning for rate Cuts. I was wondering if you could, um, specifically quantify the impact of each, like 25 basis point rate, cut on on your Nim.
Speaker Change: well, again, I think
Speaker Change: The impact.
Speaker Change: Has been and should be muted in the sense that we see a repricing of our, uh, you know, variable rate assets. And, uh, we make an appropriate adjustment on the non-fixed deposit funding side to really offset the impact. So, uh, it tends to be a, you know, a wash in the short run. And then obviously, if if it generates a steeper yield curve, moving forward then we'll start to see some benefit down the road.
Speaker Change: That's all I have. Thank you for your time. All right, thank you k.
again, if you would like to ask a question press star 1 on your telephone keypad,
Speaker Change: That concludes our Q&A session. I will now turn the call back over to Mr. Ryan for closing remarks,
Pat Ryan: Hey, thanks very much everybody. We appreciate your time today, your interest in First Bank and we'll look forward to uh reconnecting with folks. After uh third quarter results are released. Thanks everybody.
Pat Ryan: Ladies and gentlemen, that concludes today's call.
Thank you all for joining you may now. Disconnect everyone have a great day.