Q1 2026 First Bank Earnings Call

April 28, 2026

Operator 2: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Bank Earnings Conference Call Q1 2026. All lines have been placed on mute to prevent any background noise. 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 star followed by 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Patrick Ryan, President and CEO. Please go ahead.

Speaker #2: All lines have been placed on mute to prevent any background noise. 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 star followed by the number one on your telephone keypad.

Operator: If you would like to ask a question during this time, simply press star followed by one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Patrick Ryan, President and CEO. Please go ahead.

Speaker #2: If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Patrick Ryan, President and CEO.

Speaker #2: Please go ahead.

Speaker #3: Thank you. I'd like to welcome everyone today to First Bank's First Quarter 2026 Earnings Call. I'm joined by Andrew Hibshman, our CFO; Darleen Gillespie, our Chief Retail Banking Officer; and Peter Cahill, our Chief Lending Officer.

Patrick Ryan: Thank you. I'd like to welcome everyone today to FirstBank's Q1 2026 Earnings Call. I'm joined by Andrew Hibshman, our CFO, Darleen Gillespie, our Chief Retail Banking Officer, and Peter Cahill, our Chief Lending Officer. Before we begin, Andrew will read the safe harbor statement.

Patrick Ryan: Thank you. I'd like to welcome everyone today to First Bank's Q1 2026 Earnings Call. I'm joined by Andrew Hibshman, our CFO, Darleen Gillespie, our Chief Retail Banking Officer, and Peter Cahill, our Chief Lending Officer. Before we begin, Andrew will read the safe harbor statement.

Speaker #3: Before we begin, Andrew will read the Safe Harbor Statement.

Speaker #4: 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.

Andrew Hibshman: The following discussion may contain forward-looking statements concerning the financial condition, results of operations, and business of FirstBank. We caution that such statements are subject to a number of uncertainties, 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 1A, Risk Factors in our annual report on Form 10-K for the year ended 31 December 2025, filed with the FDIC. Pat, back to you.

Speaker #4: 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 10-K for the year ended December 31, 2025, filed with the FDIC.

Andrew Hibshman: 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 1A, Risk Factors in our annual report on Form 10-K for the year ended 31 December 2025, filed with the FDIC. Pat, back to you.

Speaker #4: Pat, back to you.

Speaker #3: Thank you, Andrew. Earnings came in below our expectations in the first quarter. Elevated credit costs and the credit scored small business portfolio were the primary driver.

Patrick Ryan: Thank you, Andrew. Earnings came in below our expectations in Q1. Elevated credit costs in the credit scored small business portfolio were the primary driver. We have taken very proactive stance regarding the management and cleanup of this portfolio. The product parameters and sales processes were revamped starting in the summer of 2025. All known issues in the portfolio have either been charged off in full or specific reserves have been established. Elevated loan payoff activity also impacted earnings. As Peter and Andrew will discuss, unusually high payoffs in Q4 drove lower average balances during Q1. That impacted the overall results. We're still working to make up for those elevated payoffs. Strong loan growth so far in April and healthy pipelines provide reason for optimism that we can still achieve our loan growth goals.

Speaker #3: We have taken very proactive stance regarding the management and cleanup of this portfolio. The product parameters and sales processes were revamped starting in the summer of 2025, and all known issues in the portfolio have either been charged off in full or specific reserves have been established.

Patrick Ryan: Elevated loan payoff activity also impacted earnings. As Peter and Andrew will discuss, unusually high payoffs in Q4 drove lower average balances during Q1. That impacted the overall results. We're still working to make up for those elevated payoffs. Strong loan growth so far in April and healthy pipelines provide reason for optimism that we can still achieve our loan growth goals.

Speaker #3: Elevated loan payoff activity also impacted earnings. As Peter and Andrew will discuss, unusually high payoffs in the fourth quarter drove lower average balances during Q1, and that impacted the overall results.

Speaker #3: We're still working to make up for those elevated payoffs, but strong loan growth so far in April and healthy pipelines provide reason for optimism that we can still achieve our loan growth goals.

Speaker #3: The net interest margin was down slightly in the first quarter, partly driven by reduced purchase accounting accretion income and partly driven by heightened deposit competition.

Patrick Ryan: The net interest margin was down slightly in Q1, partly driven by reduced purchase accounting accretion income and partly driven by heightened deposit competition. Overall, credit quality seems to be holding in at manageable levels. Specifically, our levels of non-performing assets and criticized loans remain at levels well within historical norms and peer averages. Furthermore, our strong allowance for credit losses and overall capital levels provide a strong buffer. Regarding overall core profitability, I believe we'll see a return to strong balance sheet growth as we move forward as payoffs normalize. In fact, through mid-April, net loan growth was up $50 million, putting us pretty close to plan. The margin will obviously be dependent on the overall rate and competitive environment, but we expect it should remain at healthy levels moving forward.

Speaker #3: Overall, credit quality seems to be holding in at manageable levels. Specifically, our levels of non-performing assets and criticized loans remain at levels well within historical norms and peer averages.

Speaker #3: Furthermore, our strong allowance for credit losses and overall capital levels provide a strong buffer. Regarding overall core profitability, I believe we'll see a return to strong balance sheet growth as we move forward, as payoffs normalize, and in fact, through mid-April, net loan growth was up 50 million dollars, putting us pretty close to plan.

Patrick Ryan: Furthermore, our strong allowance for credit losses and overall capital levels provide a strong buffer. Regarding overall core profitability, I believe we'll see a return to strong balance sheet growth as we move forward as payoffs normalize. In fact, through mid-April, net loan growth was up $50 million, putting us pretty close to plan. The margin will obviously be dependent on the overall rate and competitive environment, but we expect it should remain at healthy levels moving forward.

Speaker #3: The margin will obviously be dependent on the overall rate and competitive environment, but we expect it should remain at healthy levels moving forward. And the first quarter expenses were somewhat elevated based on seasonal factors, like payroll taxes and snow removal, and we expect they will remain relatively stable throughout the remainder of this year.

Patrick Ryan: The Q1 expenses were somewhat elevated based on seasonal factors like payroll taxes and snow removal, and we expect they will remain relatively stable throughout the remainder of this year. Furthermore, our strong capital levels provide significant dry powder for share buybacks should attractive buying opportunities emerge. In summary, while the quarterly results were disappointing, we believe the elevated credit costs are isolated to the small business portfolio and profitability should return to stronger levels as we move forward in 2026. At this time, I'd like to turn it over to Andrew to provide some additional detail on the financial results. Andrew.

Speaker #3: Furthermore, our strong capital levels provide significant dry powder for share buybacks should attractive buying opportunities emerge. In summary, while the quarterly results were disappointing, we believe the elevated credit costs are isolated to the small business portfolio and profitability should return to stronger levels as we move forward in 2026.

Patrick Ryan: In summary, while the quarterly results were disappointing, we believe the elevated credit costs are isolated to the small business portfolio and profitability should return to stronger levels as we move forward in 2026. At this time, I'd like to turn it over to Andrew to provide some additional detail on the financial results. Andrew.

Speaker #3: At this time, I'd like to turn it over to Andrew to provide some additional detail on the financial results. Andrew.

Speaker #4: Thanks, Pat. For the three months ended March 31, 2026, we recorded net income of 7.6 million or 30 cents per diluted share. This translates to a 0.79% return on average assets.

Andrew Hibshman: Thanks, Pat. For the three months ended 31 March 2026, we recorded net income of $7.6 million or $0.30 per diluted share. This translates to a 0.79% return on average assets. Net interest income decreased $2.2 million compared to the Q4, primarily due to lower average loan balances, which resulted from the limited growth during the current quarter coupled with the late quarter timing of payoffs in the linked Q4. Additionally, the yield on average loans declined by 21 basis points, which was partly related to the elevated level of prepayment fees in the linked Q4. This outpaced the 15 basis point decline in interest-bearing deposit costs and contributed to a 5 basis point decline in the net interest margin.

Speaker #4: Net interest income decreased $2.2 million compared to the fourth quarter, primarily due to lower average loan balances, which resulted from the limited growth during the current quarter coupled with the late-quarter timing of payoffs in the linked fourth quarter.

Speaker #4: Additionally, the yield on average loans declined by 21 basis points, which was partly related to the elevated level of prepayment fees in the linked fourth quarter.

Andrew Hibshman: Additionally, the yield on average loans declined by 21 basis points, which was partly related to the elevated level of prepayment fees in the linked Q4. This outpaced the 15 basis point decline in interest-bearing deposit costs and contributed to a 5 basis point decline in the net interest margin.

Speaker #4: This outpaced the 15 basis point decline in interest-bearing deposit costs and contributed to a 5 basis point decline in the net interest margin. I'll note that compared to last year's first quarter, net interest income grew by 1.9 million or 6%, and that was primarily driven by lower interest-bearing deposit costs.

Andrew Hibshman: I'll note that compared to last year's Q1, net interest income grew by $1.9 million or 6%. That was primarily driven by lower interest-bearing deposit costs. At 3.69%, we believe our Q1 net interest margin remained very strong and compares favorably to our peers. Looking ahead, we continue to manage a well-balanced asset and liability position. We anticipate stronger loan and deposit growth, which should result in increased net interest income generation regardless of what happens with rates. We anticipate continued declines in our acquisition accounting accretion over the next several quarters. We are also seeing enhanced deposit pricing pressure as the market adjusts to the expectation that the effective Fed funds rate will stay higher for longer.

Speaker #4: At 3.69%, we believe our first quarter net interest margin remained very strong and compares favorably to our peers. Looking ahead, we continue to manage a well-balanced asset and liability position, and we anticipate stronger loan and deposit growth, which should result in increased net interest income generation regardless of what happens with rates.

Andrew Hibshman: We anticipate stronger loan and deposit growth, which should result in increased net interest income generation regardless of what happens with rates. We anticipate continued declines in our acquisition accounting accretion over the next several quarters. We are also seeing enhanced deposit pricing pressure as the market adjusts to the expectation that the effective Fed funds rate will stay higher for longer.

Speaker #4: We anticipate continued declines in our acquisition accounting accretion over the next several quarters, and we are also seeing enhanced deposit pricing pressure as the market adjusts to the expectation that the effective Fed funds rate will stay higher for longer.

Speaker #4: Offsetting some of that pressure is that we continue to replace the runoff of lower yielding assets with higher yielding loans. We expect these factors in aggregate to support a relatively stable margin with the potential for some pressure should the current flat yield curve environment persist.

Andrew Hibshman: Offsetting some of that pressure is that we continue to replace the runoff of lower yielding assets with higher yielding loans. We expect these factors in aggregate to support a relatively stable margin with the potential for some pressure should the current flat yield curve environment persist. Net charge-offs increased to $5 million for Q1 from $1.7 million in the linked quarter, almost exclusively related to our small business portfolio. This was the primary driver of increased credit loss expenses in Q1. Our allowance for credit losses to total loans increased 1 basis point to 1.39% from 1.38% at December 31st. With the recent increases in our allowance, our reserve coverage ratios are very strong.

Speaker #4: Net charge-offs increased to 5 million for the first quarter from 1.7 million in the linked quarter almost exclusively related to our small business portfolio.

Andrew Hibshman: Net charge-offs increased to $5 million for Q1 from $1.7 million in the linked quarter, almost exclusively related to our small business portfolio. This was the primary driver of increased credit loss expenses in Q1. Our allowance for credit losses to total loans increased 1 basis point to 1.39% from 1.38% at December 31st. With the recent increases in our allowance, our reserve coverage ratios are very strong.

Speaker #4: This was the primary driver of increased credit loss expenses in the first quarter. Our allowance for credit losses to total loans increased 1 basis point to 1.39% from 1.38% at December 31.

Speaker #4: With the recent increases in our allowance, our reserve coverage ratios are very strong. Non-interest income grew to 2.4 million in the first quarter of 2026 compared to 2.3 million in the linked fourth quarter and 2 million in the first quarter of 2025.

Andrew Hibshman: Non-interest income grew to $2.4 million in Q1 2026 compared to $2.3 million in the linked Q4 and $2 million in Q1 2025. The slight increase in the current quarter primarily relates to higher earnings from some SBIC investments we have made in certain small business investment funds. Non-interest expenses were $20.9 million for Q1 compared to $17.1 million in Q4. The increase was primarily driven by a $1.9 million gain on sale of an OREO asset, which was booked as a contra expense in Q4. Excluding the impact of this non-recurring item in Q4, non-interest expense increased by $1.9 million, primarily due to seasonal factors.

Speaker #4: The slight increase in the current quarter primarily relates to higher earnings from some modest investments we have made in certain small business investment funds.

Speaker #4: Non-interest expenses were 20.9 million for the first quarter compared to 17.1 million in Q4. The increase was primarily driven by 1.9 million dollar gain on sale of an Oreo asset, which was booked as a contract expense in the fourth quarter.

Andrew Hibshman: Non-interest expenses were $20.9 million for Q1 compared to $17.1 million in Q4. The increase was primarily driven by a $1.9 million gain on sale of an OREO asset, which was booked as a contra expense in Q4. Excluding the impact of this non-recurring item in Q4, non-interest expense increased by $1.9 million, primarily due to seasonal factors.

Speaker #4: Excluding the impact of this non-recurring item in Q4, non-interest expense increased by 1.9 million primarily due to seasonal factors. Salary and benefits expense increased primarily due to typical first quarter increases related to merit salary adjustments, benefit cost increases, and increased employment taxes connected to annual incentive payments.

Andrew Hibshman: Salary and benefits expense increased primarily due to typical Q1 increases related to merit salary adjustments, benefit cost increases, and increased employment taxes connected to annual incentive payments. Occupancy and equipment expenses were impacted by annual rent increases along with the impact of higher maintenance costs given the harsh winter in our primary footprint. Looking ahead, we view our Q1 expense level as a reasonable overall run rate as we move forward. The Q1 marked our 27th consecutive quarter of operating with an efficiency ratio below 60%. This has positioned us as a top quartile performer among our peers on this metric and is a differentiating strength for FirstBank. We expect to drive revenue growth during the rest of the year without needing to add to expenses, which should move our efficiency ratio down over the next several quarters.

Speaker #4: Occupancy and equipment expenses were impacted by annual rent increases, along with the impact of higher maintenance costs given the harsh winter in our primary footprint.

Speaker #4: Looking ahead, we view our first quarter expense level as a reasonable overall run rate as we move forward. The first quarter marked our 27th consecutive quarter of operating with an efficiency ratio below 60%.

Andrew Hibshman: Looking ahead, we view our Q1 expense level as a reasonable overall run rate as we move forward. The Q1 marked our 27th consecutive quarter of operating with an efficiency ratio below 60%. This has positioned us as a top quartile performer among our peers on this metric and is a differentiating strength for FirstBank. We expect to drive revenue growth during the rest of the year without needing to add to expenses, which should move our efficiency ratio down over the next several quarters.

Speaker #4: This has positioned us as a top quartile performer among our peers on this metric and is a differentiating strength for First Bank. We expect to drive revenue growth during the rest of the year without needing to add to expenses, which should move our efficiency ratio down over the next several quarters.

Speaker #4: Tax expenses totaled $2.3 million for the first quarter, with an effective tax rate of 22.7%. This compares to 25.7% for Q4. First quarter taxes included the benefit of items related to stock compensation activity, which historically has an outsized impact during the first quarter.

Andrew Hibshman: Tax expenses totaled $2.3 million for Q1, with an effective tax rate of 22.7%. This compares to 25.7% for Q4. Q1 taxes included the benefit of items related to stock compensation activity, which historically has an outsized impact during Q1. We anticipate our future effective tax rate will be approximately 24% to 25%. Our capital ratios remain strong. We executed a modest amount of share repurchases during the quarter, we could fully execute our approved $20 million buyback program and still maintain strong capital ratios. For example, assuming $20 million in buybacks and a static balance sheet, our total risk-based capital would be approximately 12.5%, well in excess of any regulatory minimums or internal policy limits.

Speaker #4: We anticipate our future effective tax rate will be approximately 24 to 25%. Our capital ratios remain strong. We executed a modest amount of share repurchases during the quarter, and we could fully execute our approved $20 million buyback program and still maintain strong capital ratios.

Andrew Hibshman: We executed a modest amount of share repurchases during the quarter, we could fully execute our approved $20 million buyback program and still maintain strong capital ratios. For example, assuming $20 million in buybacks and a static balance sheet, our total risk-based capital would be approximately 12.5%, well in excess of any regulatory minimums or internal policy limits.

Speaker #4: For example, assuming 20 million in buybacks and a static balance sheet our total risk-based capital would be approximately 12.5%, well in excess of any regulatory minimums or internal policy limits.

Speaker #4: Going forward, we aim to continue driving shareholder value through a combination of core earnings, a stable cash dividend, and share buybacks as applicable over time.

Andrew Hibshman: Going forward, we aim to continue driving shareholder value through a combination of core earnings, a stable cash dividend, and share buybacks as applicable over time. At this time, I'll turn it over to Darleen Gillespie, our Chief Retail Banking Officer, for her remarks. Darlene?

Speaker #4: At this time, I'll turn it over to Darleen Gillespie, our Chief Retail Banking Officer, for her remarks. Darleen.

Speaker #5: Thanks, Andrew. And good morning, everyone. Deposit growth of $25.1 million was modest during the quarter. While we saw solid activity onboarding new relationships and expanding existing ones, seasonal fluctuations and some expected outflows influenced ending balances for the quarter.

Darleen Gillespie: Thanks, Andrew, good morning, everyone. Deposit growth of $25.1 million was modest during the quarter. While we saw solid activity onboarding new relationships and expanding existing, seasonal fluctuations and some expected outflows influenced ending balances for the quarter. Average interest-bearing deposit costs came down 15 basis points during the quarter, we benefited from the Federal Reserve rate cuts that occurred in Q4 of 2025, as well as our continued proactive efforts to optimize and manage deposit pricing. Going forward, we may see some moderation in this benefit as heightened industry competition continues to place pressure on deposit pricing. We remain focused on striking the appropriate balance between growth and cost discipline. Overall, we continue to execute effectively against our dual priorities of deepening relationships while prudently managing funding costs.

Speaker #5: Average interest-bearing deposit costs came down 15 basis points during the quarter. And we benefited from the Federal Reserve rate cuts that occurred in the fourth quarter of 2025.

Speaker #5: As well as our continued proactive efforts to optimize and manage deposit pricing. Going forward, we may see some moderation in this benefit as heightened industry competition continues to place pressure on deposit pricing.

Darleen Gillespie: Going forward, we may see some moderation in this benefit as heightened industry competition continues to place pressure on deposit pricing. We remain focused on striking the appropriate balance between growth and cost discipline. Overall, we continue to execute effectively against our dual priorities of deepening relationships while prudently managing funding costs.

Speaker #5: We remain focused on striking the appropriate balance between growth and cost discipline. Overall, we continue to execute effectively against our dual priorities of deepening relationships while prudently managing funding costs.

Speaker #5: In addition, targeted promotional pricing has proven successful in attracting new customers and importantly retaining those relationships beyond the promotional period. Our newly opened and relocated branches are doing well in meeting deposit growth expectations.

Darleen Gillespie: Targeted promotional pricing has proven successful in attracting new customers and importantly, retaining those relationships beyond the promotional period. Our newly opened and relocated branches are doing well in meeting deposit growth expectations. Retention levels among customers impacted by branch consolidations have remained strong and associated attrition has tracked within our plans and budgeted expectations. This is a testament to the outstanding execution of our relationship bankers across our footprint. Looking ahead in 2026, deposit growth continues to be a priority in order to fund our expected loan growth in a profitable manner and to maintain a strong net interest margin. We intend to achieve this by maintaining a strong deposit funding pipeline, continuing to retain and grow existing relationships, and utilizing promotional pricing when prudent and necessary to win in this highly competitive market.

Speaker #5: Retention levels among customers impacted by branch consolidations have remained strong and associated attrition has tracked within our planned and budgeted expectations. This is a testament to the outstanding execution of our relationship bankers across our footprint.

Speaker #5: Looking ahead in 2026, deposit growth continues to be a priority in order to fund our expected loan growth in a profitable manner and to maintain a strong net interest margin.

Darleen Gillespie: Looking ahead in 2026, deposit growth continues to be a priority in order to fund our expected loan growth in a profitable manner and to maintain a strong net interest margin. We intend to achieve this by maintaining a strong deposit funding pipeline, continuing to retain and grow existing relationships, and utilizing promotional pricing when prudent and necessary to win in this highly competitive market.

Speaker #5: We intend to achieve this by maintaining a strong deposit funding pipeline, continuing to retain and grow existing relationships, and utilizing promotional pricing when prudent and necessary to win in this highly competitive market.

Speaker #5: Our teams are closing loans and adding full operating accounts which is a key element of our growth and funding strategy. After a very active year of optimizing our branch network in 2025, we have minimal branch activity on the horizon in 2026.

Darleen Gillespie: Our teams are closing loans and adding full operating accounts, which is a key element of our growth and funding strategy. After a very active year of optimizing our branch network in 2025, we have minimal branch activity on the horizon in 2026. We will continue to be opportunistic where it makes sense to enhance the efficiency of our network, the convenience for our customers, and our potential exposure to new clients in existing or adjacent markets. Right now, our focus is on optimizing the growth and pricing of our deposit portfolio. We intend to keep working to achieve our goal of bringing our deposit costs closer to our peer bank median. At this time, I'll turn it over to Peter Cahill, our Chief Lending Officer, for his remarks. Peter?

Speaker #5: We will continue to be opportunistic where it makes sense to enhance the efficiency of our network, the convenience for our customers, and our potential exposure to new clients in existing or adjacent markets.

Speaker #5: But right now, our focus is on optimizing the growth and the pricing of our deposit portfolio. We intend to keep working to achieve our goal of bringing our deposit costs closer to our peer bank median.

Darleen Gillespie: Right now, our focus is on optimizing the growth and pricing of our deposit portfolio. We intend to keep working to achieve our goal of bringing our deposit costs closer to our peer bank median. At this time, I'll turn it over to Peter Cahill, our Chief Lending Officer, for his remarks. Peter?

Speaker #5: At this time, I'll turn it over to Peter Cahill, our Chief Lending Officer for his remarks. Peter.

Speaker #6: Thanks, Darleen. As Pat and Andrew described, our Q1 numbers reflected a slower quarter in terms of loan growth. Last year, as you know, despite average loan growth of 267 million, we finished with annual growth of 149 million or 4.7%.

Peter Cahill: Thanks, Darleen. As Pat and Andrew described, our Q1 numbers reflected a slower quarter in terms of loan growth. Last year, as you know, despite average loan growth of $267 million, we finished with annual growth of $149 million or 4.7%. Much of that second half decline was due to loan payoffs in Q4 of $135 million, which far exceeded payoffs that averaged $50 million in each of the previous 3 quarters. Results this past quarter were impacted again by loan payoffs. We mentioned a good loan pipeline at year-end, I think we had a pretty good quarter from the standpoint of converting that pipeline into new funded loans. Loans closed and funded in Q1 totaled $106 million, which equals the quarterly average for both 2024 and 2025.

Speaker #6: Much of that second half decline was due to loan payoffs in Q4 of 135 million which far exceeded payoffs at average 50 million dollars in each of the previous three quarters.

Speaker #6: Results this past quarter were impacted again by loan payoffs; we mentioned a good loan pipeline at year-end, and I think we had a pretty good quarter from the standpoint of converting that pipeline into new funded loans.

Peter Cahill: Results this past quarter were impacted again by loan payoffs. We mentioned a good loan pipeline at year-end, I think we had a pretty good quarter from the standpoint of converting that pipeline into new funded loans. Loans closed and funded in Q1 totaled $106 million, which equals the quarterly average for both 2024 and 2025.

Speaker #6: Loans closed and funded in Q1 totaled 106 million which equals the quarterly average for both 2024 and 2025, so not a slow quarter from the standpoint of new loans closing and funding.

Peter Cahill: Not a slow Q1 from the standpoint of new loans, closing and funding. Payoffs in Q1 were $73 million, however, higher than our average quarterly payments in each of the past five years. Payoffs bank-wide were made up of 59% investor real estate loans. Of all the payoffs in the Q1, the same figure, 59%, stemmed from the underlying asset being sold, and the balance of those payoffs were primarily from loans being refinanced out of the bank. As in previous quarters, new loans continued to be centered in C&I and owner-occupied real estate. For the Q1, this category made up 50% of new loans, with investor real estate loans comprising 40% and consumer lending 10%. We're seeing the same competition we've seen in previous quarters, primarily from the regional banks in our market.

Speaker #6: Payoffs in Q1 were 73 million, however, higher than our average quarterly payments in each of the past five years. Payoffs bank-wide were made up of 59% investor real estate loans of all of the payoffs in the quarter; the same figure, 59%, stemmed from the underlying asset being sold and the balance of those payoffs were primarily from loans being refinanced out of the bank.

Peter Cahill: As in previous quarters, new loans continued to be centered in C&I and owner-occupied real estate. For the Q1, this category made up 50% of new loans, with investor real estate loans comprising 40% and consumer lending 10%. We're seeing the same competition we've seen in previous quarters, primarily from the regional banks in our market.

Speaker #6: As in previous quarters, new loans continue to be centered in CNI and owner-occupied real estate. For the quarter, this category made up 50% of new loans with investor real estate loans comprising 40% and consumer lending 10%.

Speaker #6: We're seeing the same competition we've seen in previous quarters, primarily from the regional banks in our market. We continue to get decent spreads in the 250 basis point range over FHLB.

Peter Cahill: We continue to get decent spreads in the 250 basis point range over FHLB. Some of the competition is pricing lower, and we're also seeing banks loosening terms a bit by not requiring deposits or offering longer amortization schedules, et cetera. Despite the competition, we are still seeing good things in our lending pipeline. After closing and funding over $100 million in new loans, as I just described, during the quarter, the pipeline at quarter end stood at what we call probable fundings of $383 million, up 15% from where it was at year-end. The number of loans in the pipeline, these are the number of individual loans, at quarter end was up 9% over year-end. Regarding the makeup of those loans, 65% are C&I loans compared to 61%, at 12/31.

Speaker #6: Some of the competition is pricing lower and we're also seeing banks loosening terms a bit. By not requiring deposits or offering longer amortization schedules etc.

Speaker #6: Despite the competition, we are still seeing good things in our lending pipeline. After closing and funding over 100 million dollars in new loans as I just described, during the quarter, the pipeline at quarter-end stood at what we call probable fundings of 383 million up 15% from where it was at year-end.

Peter Cahill: After closing and funding over $100 million in new loans, as I just described, during the quarter, the pipeline at quarter end stood at what we call probable fundings of $383 million, up 15% from where it was at year-end. The number of loans in the pipeline, these are the number of individual loans, at quarter end was up 9% over year-end. Regarding the makeup of those loans, 65% are C&I loans compared to 61%, at 12/31.

Speaker #6: The number of loans in the pipeline—these are the number of individual loans in the quarter-end—was up 9% over year-end. Regarding the makeup of those loans, 65% are CNI loans compared to 61% at 12/31.

Speaker #6: The impact of our solid pipeline, as Pat mentioned, has been seen already in Q2. In mid-April, we hit loan growth for the year of close to 50 million dollars which is where we should have been a couple of weeks earlier at March 31st.

Peter Cahill: The impact of our solid pipeline, as Pat mentioned, has been seen already in Q2. In mid-April, we hit loan growth for the year of close to $50 million, which is where we should have been a couple of weeks earlier at 31 March. On the topic of asset quality, we've mentioned the softness we've been experiencing in the small business portfolio over the last couple of quarters, and Pat and Andrew both talked about the impact this past quarter. Last quarter, I mentioned that we've turned over staff in that area and significantly tightened credit parameters, which, as you would imagine, has slowed production significantly. Delinquencies are no longer growing, and we are very focused on providing attention to the relationships we have in that portfolio presently. Otherwise, delinquencies across all business lines were very manageable at quarter end.

Speaker #6: On the topic of asset quality, we've mentioned the softest we've been experiencing in the small business portfolio over the last couple of quarters, and Pat and Andrew both talked about the impact this past quarter.

Speaker #6: Last quarter, I mentioned that we've turned over staff in that area and significantly tightened credit parameters which, as you would imagine, has slowed production significantly.

Peter Cahill: Last quarter, I mentioned that we've turned over staff in that area and significantly tightened credit parameters, which, as you would imagine, has slowed production significantly. Delinquencies are no longer growing, and we are very focused on providing attention to the relationships we have in that portfolio presently. Otherwise, delinquencies across all business lines were very manageable at quarter end.

Speaker #6: Delinquencies are no longer growing, and we are very focused on providing attention to the relationships we have in that portfolio presently. Otherwise, delinquencies across all business lines were very manageable at quarter-end.

Speaker #6: The earnings release did mention that our increase in non-performing loans was related primarily to the addition of a well-secured single borrower commercial real estate credit totaling $9.5 million.

Peter Cahill: The earnings release did mention that our increase in non-performing loans was related primarily to the addition of a well-secured single borrower commercial real estate credit totaling $9.5 million. I'll just add that this assisted living property shows current cash flows north of 1.8x debt service coverage and a loan to value of 52%. While it impacts our numbers presently, we expect a positive resolution there. In summary, while the payoffs we experienced resulted in a slow quarter as far as loan growth goes, we've seen pickup since then, and we remain confident of our plan to grow the loan portfolio by $200 million this year. All segments are expected to contribute to that growth. That concludes my remarks about lending, so I'll turn things back now to Pat for some final comments.

Speaker #6: I'll just add that this assisted living property shows current cash flows north of 1.8 times debt service coverage and a loan-to-value of 52%. So, while it impacts our numbers presently, we expect a positive resolution there.

Speaker #6: In summary, while the payoffs we experienced resulted in a slow quarter as far as loan growth goes, we've seen pickups since then and we remain confident of our plan to grow the loan portfolio by 200 million this year.

Peter Cahill: In summary, while the payoffs we experienced resulted in a slow quarter as far as loan growth goes, we've seen pickup since then, and we remain confident of our plan to grow the loan portfolio by $200 million this year. All segments are expected to contribute to that growth. That concludes my remarks about lending, so I'll turn things back now to Pat for some final comments.

Speaker #6: All segments are expected to contribute to that growth. That concludes my remarks about lending, so I'll turn things back now to Pat for some final comments.

Speaker #1: Thanks, Peter. At this point, I'd like to open it up for the Q&A.

Patrick Ryan: Thanks, Peter. At this point, I'd like to open it up for the Q&A.

Operator 2: I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Justin Crowley with Piper Sandler. Your line is open.

Speaker #5: Time. I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster.

Operator: I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Justin Crowley with Piper Sandler. Your line is open.

Speaker #5: Your first question comes from the line of Justin Crowley with Piper Sandler. Your line is open.

Speaker #4: Hey, good morning, everyone.

Justin Crowley: Hey, good morning, everyone.

Speaker #6: Good morning, Justin.

Patrick Ryan: Morning, Justin.

Justin Crowley: you know, first, I was just wondering if you could spend just a little more time on the small business portfolio that I know we've discussed a lot, you know, just a little more on what's been driving the weakness there and what gets you to a point, you know, now where you're comfortable that any further negative impact in that book should be contained with just some of the actions taken over the past couple quarters.

Speaker #4: First, I was just wondering if you could spend just a little more time on the small business portfolio that I know we've discussed a lot.

Speaker #4: Just a little more on what's been driving the weakness there and what gets you to a point now where you're comfortable that any further negative impact in that book should be contained with just some of the actions taken over the past couple of quarters.

Speaker #6: Yeah. Absolutely. So the short answer, Justin, is there's no one factor. Certainly, I think we've seen plenty of data in the market that small businesses have been feeling some stress given the volatility in the overall economy and so certainly, I just think general economic factors within a small business portfolio, right, obviously these are companies by definition that have a smaller revenue base and therefore just less of a cushion to absorb things like volatility in margins, loss of a big customer, etc.

Patrick Ryan: Yeah. Absolutely. You know, the short answer, Justin, is there's no one factor. Certainly, I think we've seen plenty of data in the market that, you know, small businesses have been, you know, feeling some stress given the volatility in the overall economy. Certainly, I just think general economic factors within a small business portfolio, right? Obviously these are companies by definition that have a smaller revenue base and therefore just less of a cushion to absorb things like, you know, volatility in margins, loss of a big customer, et cetera. On top of that, you know, some of it we believe was tied to, you know, folks being a little more aggressive than we would've liked on the overall marketing of the product. It is a credit score product.

Speaker #6: On top of that, some of it we believe was tied to folks being a little more aggressive than we would have liked on the overall marketing of the product.

Speaker #6: It is a credit score product; it is one that we've been using for six or seven years now, so it wasn't a brand new solution.

Patrick Ryan: It is one that we've been using for, you know, 6 or 7 years now, so it wasn't a brand new solution. Certainly we were looking to grow and scale that business over the last couple years. I think some folks in an effort to try to build that were moving beyond kind of the core tenets of our relationship banking model. We've revamped those processes. We've tightened up the parameters and, as Peter mentioned, you know, sort of new production has slowed down significantly. We're tracking the data closely. When we see issues, when we have significant delinquency, we're moving quickly to, you know, take care of those loans, either through charge-off or specific reserve.

Speaker #6: But certainly, we were looking to grow and scale that business over the last couple of years and I think some folks in an effort to try to build that were moving beyond kind of the core tenets of our relationship banking model.

Speaker #6: So we've revamped those processes; we've tightened up the parameters, and as Peter mentioned, new production has slowed down significantly. And we're tracking the data closely.

Speaker #6: When we see issues, when we have significant delinquency, we're moving quickly to take care of those loans either through charge-off or specific reserve and as Peter mentioned, as we've looked at some of the delinquency trends, it feels like things are starting to settle down there.

Patrick Ryan: As Peter mentioned, as we've looked at some of the delinquency trends, you know, it feels like things are starting to settle down there. Obviously time will tell. You know, definitely feeling like that initial surge is past us. You know, given the changes we've made over the last nine months, we think, you know, the results moving forward should be significantly better. Exactly what better means, obviously time will tell. Again, it's a relatively small portfolio. It's down under $100 million at this point. Given the steps we've taken to address the known issues, you know, we think we're definitely getting past the uptick and, you know, we think we'll see some better performance out of that portfolio moving forward.

Speaker #6: Obviously, time will tell, but definitely feeling like that initial surge is past us and given the changes we make and we've made over the last nine months, we think the results moving forward should be significantly better exactly what better means.

Speaker #6: Obviously, time will tell. But again, it's a relatively small portfolio; it's down under 100 million at this point and given the steps we've taken to address the known issues, we think we're definitely getting past the uptick and we think we'll see some better performance out of that portfolio moving forward.

Speaker #4: Okay. And then just to clarify that the stress you're seeing, it's not coming from the SBA product; it's coming outside of that program and smaller dollar-type loans.

Justin Crowley: Okay. Then just to clarify that, you know, the stress you're seeing, it's not coming from the SBA product, it's coming outside of that program and, you know, smaller dollar, type loans. Is that accurate?

Speaker #4: Is that accurate?

Speaker #6: Correct. Correct. These are smaller-ticket couple hundred thousand lines of credit term loans that are not necessarily SBA-related. So yeah, it's not an SBA-specific situation.

Patrick Ryan: Correct. These are, you know, smaller ticket, you know, couple 100,000, you know, lines of credit term loans that are not necessarily SBA related. It's, yeah, it's not an SBA specific situation.

Speaker #4: Okay. And you said it was about 100 million dollars. Just looking to put some more numbers around it, do you have what the reserves against that portfolio where those stand and then just a sense of where charge-off rates, what you've experienced in that book specifically so far?

Justin Crowley: Okay. You said it was about $100 million. You know, just looking to put some more numbers around it, do you have, you know, what the reserves against that portfolio, you know, where those stand? Then just the, you know, sense of, you know, where charge off rates, you know, what you've experienced in that book specifically so far.

Speaker #6: Yeah. If you look at over obviously, if you looked at the quarter, right, the $5 million number was almost exclusively related to that portfolio.

Patrick Ryan: Yeah. If you look at, over, you know, obviously if you looked at the quarter, right, the $5 million dollar number was, you know, almost exclusively related to that portfolio. I think over a 12-month period, you know, the number was probably closer to $9 million. If you sort of scroll back further, again, this isn't a brand-new product. It was one that we've been using for a while that, you know, it felt like the scoring became a little less predictable. Some of it might have been related to some of the cash infusions from COVID. We can't really say for sure. Prior to that, you know, the performance was actually really good. We had very minimal charge off.

Speaker #6: I think, over a 12-month period, the number was probably closer to 9 million. But if you sort of scroll back further—again, this isn't a brand-new product; it was one that we've been using for a while—it felt like the scoring became a little less predictable.

Speaker #6: Some of it might have been related to some of the cash infusions from COVID. We can't really say for sure. But prior to that, the performance was actually really good.

Speaker #6: We had very minimal charge-off. So if you look at it at a point in time, the numbers look really high. If you spread it out over two or three-year period, you're probably looking at maybe 2 to 3 percent a year over that timeframe.

Patrick Ryan: You know, if you look at it at a point in time, the numbers look really high. If you spread it out over, you know, a, you know, a 2 or 3-year period, you're probably looking at, you know, maybe 2% to 3% a year over that timeframe. You know, again, higher than we'd like. Obviously, as a result, we made the changes to the underwriting and the sales process to slow that production down. You know, what we have in the portfolio now is folks that have been with us for a while, folks that, you know, have been paying as agreed, that haven't been showing delinquency issues. Again, we think, the performance moving forward should be significantly better.

Speaker #6: So again, higher than we'd like. And obviously, as a result, we made the changes to the underwriting and the sales process to slow that production down.

Speaker #6: But what we have in the portfolio now is folks that have been with us for a while—folks that have been paying as agreed, that haven't been showing delinquency issues. And so, again, we think the performance moving forward should be significantly better.

Justin Crowley: Okay.

Andrew Hibshman: Pat, if I could just quickly add. We have about $2 million of specific reserves allocated to known problems. We've obviously also made some adjustments in our allowance calculation to put some money away for unknown problems. Right now it's $2 million of specific reserves for identified specific loans. We've adjusted some of the other factors within our calculation to put some more money away to address some potential issues going forward.

Speaker #4: Pat, Justin, I just quickly add, so we have about $2 million of specific reserves allocated to known problems and we've obviously also made some adjustments in our allowance calculation to put some money away for unknown problems.

Speaker #4: But right now, it's $2 million of specific reserves for identified specific loans, and we've adjusted some of the other factors within our calculation to put some more money away to address some potential issues going forward.

Speaker #5: Okay. So does that get you north of sort of like a 3% reserve in that book?

Justin Crowley: Okay. Does that get you north of sort of like a 3% reserve in that book?

Patrick Ryan: Yeah, probably. I mean, again, within the allowance models, the, you know, the small business is part of the overall C&I. You can see the overall allowance is up at, you know, 137, which is, you know, obviously a very healthy level, relative to where we've been, relative to where the industry is. You know, we certainly think there's significant money set aside to deal with potential issues. You know, listen, we're charging everything off in full. There will be some recoveries here. We're not, you know, factoring that into the numbers. You know, we think that, you know, we put a lot of money aside to make sure we're protected here.

Speaker #6: Yeah, probably. I mean, again, within the allowance models, the small business is part of the overall CNI, but you can see the overall allowances up at 137, which is obviously a very healthy level relative to where we've been, relative to where the industry is.

Speaker #6: So we certainly think there's significant money set aside to deal with potential issues. And listen, we're charging everything off in full. There will be some recoveries here.

Speaker #6: We're not factoring that into the numbers, but we think that we put a lot of money aside to make sure we're protected here.

Speaker #4: Got it. I guess just shifting gears, just on the comment that the NIMS should hold relatively stable here, and that's kind of been the messaging, I was wondering if you could detail a little of what's embedded in that.

Justin Crowley: Got it. I guess just shifting gears. Just, you know, on the comment that the NIM should hold relatively stable here, and you know, that's kind of been the messaging. You know, I was wondering if you could detail a little of, you know, what's embedded in that, just in the way of new loan yields, where those are coming on at, versus what's rolling off the portfolio. Then just, you know, if you have it, just a sense of, you know, the volume of repricing opportunity, as we get through the year.

Speaker #4: Just in the way of new loan yields—where those are coming on at versus what's rolling off the portfolio—and then, just if you have it, a sense of the volume of repricing opportunity as we get through the year.

Speaker #6: Yeah. I can address part of that and Peter, you can jump in. Obviously, on the new loan yields, with some of the volatility in the markets, Treasury yields moving higher, I think, have put loan pricing well in the 6 to 6 and a half percent range.

Patrick Ryan: Yeah, I can address part of that. Peter, you can jump in obviously on the new loan yields. You know, with some of the volatility in the markets, you know, treasury yields moving higher, I think have, you know, put loan pricing, you know, well in the 6% to 6.5% range, higher depending on, you know, asset class, product type, things like that. In terms of, Andrew, the repricing and the modeling, if you want to provide some of the details there.

Speaker #6: Higher depending on asset-class product-type things like that. And then in terms of, Andrew, the repricing and the modeling, if you want to provide some of the details there.

Speaker #4: Yeah. So we still have a good chunk without getting into a ton of specifics of loans that are repricing off of loans that were originated five years ago, obviously in a significantly lower interest rate environment.

Andrew Hibshman: Yeah. We still have a good chunk without getting into a ton of specifics of loans that are repricing off of loans that were originated 5 years ago, obviously in a significantly lower interest rate environment. We have a lot of loan activity that's repricing into, like I said, a couple hundred basis points higher in some instances. Again, I think we believe that that repricing is going to offset some of the purchase accounting accretion declines. Those declines we expect to be a little bit more muted than they were over the last couple quarters. I believe purchase accounting accretion was $1.2 million in Q1. It was $2.6 million, I believe, last year.

Speaker #4: So we have a lot of loan activity that's repricing into like I said, a couple hundred basis points higher in some instances. So again, I think we believe that that repricing is going to offset some of the purchase accounting accretion declines that those declines we expect to be a little bit more muted than they were over the last couple quarters.

Speaker #4: I believe purchase accounting accretion was 1.2 million in the first quarter. It was 2.6, I believe, last year. So that'll continue to come down, but probably only 100,000 to a couple hundred thousand dollars a quarter going forward.

Andrew Hibshman: That'll continue to come down, probably only $100,000 to $200,000 a quarter going forward. That'll continue to have a negative pull on the margin. Again, I do think that we continue to see enough loans repricing higher that should offset most of those declines. Obviously it'll be very dependent on what we can do on the deposit pricing side, whether we need to price up to bring in new money to fund the loan growth that we expect is the big wild card there. Again, I think we feel fairly confident that we can maintain a fairly stable margin with, I think, a lean towards maybe some pressure depending on deposit pricing over the next several months.

Speaker #4: So that'll continue to have a negative pull on the margin. But again, I do think that we continue to see enough loans repricing higher that should off the set most of those declines.

Speaker #4: And then, obviously, it'll be very dependent on what we can do on the deposit pricing side—whether we need to price up to bring in new money to fund the loan growth that we expect.

Speaker #4: Is the big wild card there. But again, I think we feel fairly confident that we can maintain a fairly stable margin with, I think, a lean towards maybe some pressure depending on deposit pricing over the next several months.

Speaker #5: Okay. And then do you just have just what floating rate exposure is in the loan book?

Justin Crowley: Okay. Then do you just have just, you know, what floating rate exposure is in the loan book?

Speaker #6: It's still about 25% of the portfolio. It fluctuates a little bit. We have that number has moved a little higher over the last couple of years because we've been doing more CNI and shorter-term stuff than we had been doing in the past.

Andrew Hibshman: It's still about 25% of the portfolio. It fluctuates a little bit. That number has moved a little higher over the last couple of years because we've been doing more C&I and shorter-term stuff than we had been doing in the past. It's still about a quarter or about a 25% of the portfolio. It's gone up. I think it was closer to 20 maybe a couple of years ago, and now it's between 25 and 30. Around 25% is still the right number.

Speaker #6: But it's still about a quarter or about a 25% of the portfolio. It's gone up. I think it was closer to 20 maybe a couple of years ago.

Speaker #6: And now it's between 25 and 30, but around 25% is still the right number.

Speaker #5: Okay. And so would that all reprice immediately or how much of the lag is there in that? And then is there any protection in the way of interest rate floors?

Justin Crowley: Okay. Would that all reprice immediately or, you know, how much of a lag is there in that? You know, is there any protection in the way of interest rate floors?

Speaker #6: I don't have the details on the floors, but yes, there is some protection there. Most of it would reprice either right away or the next month.

Andrew Hibshman: I don't have the details on the floors, but yes, there is some protection there. Most of it would reprice either right away or like the next month. We still do have some interest rate swaps in place that are protecting us a little bit on some of these things, but not much. Especially as rates move lower, some of those would move lower. It's pretty much right away for the 25%. There are some floors, but I don't believe most of the loans are at the floors. Obviously, if we see some bigger rate cuts, the floors become more relevant than like a quarter point adjustment by the Fed.

Speaker #6: We still do have some interest rate swaps in place that are protecting us a little bit on some of these things, but not much.

Speaker #6: Especially as rates move lower, some of those would move lower. But it's pretty much right away for the 25%. There are some floors, but I don't believe most of the loans are at the floors.

Speaker #6: Obviously, if we see some bigger rate cuts, the floors become more relevant than like a quarter point adjustment by the Fed.

Speaker #5: Okay. That's helpful. And then just on expenses, you called out some of the seasonally higher occupancy costs, inflating the number in the period. But as we look at the comp line, is that a good way to think about that level moving forward?

Justin Crowley: Okay. That's helpful. Then just, you know, on expenses, you know, you called out some of the seasonally higher occupancy costs inflating the number in the period. You know, as we look at the comp line, you know, is that a good way to think about that level moving forward? I know you mentioned, you know, some higher payroll taxes. Just kind of curious if, you know, that's a decent run rate or if there's, you know, how much should flow back out, just as we think about, you know, the forward trajectory here.

Speaker #5: I know you mentioned some higher payroll taxes. Just kind of curious if that's a decent run rate or if there's how much should flow back out just as we think about the forward trajectory here.

Speaker #6: Yeah, I think the first quarter is a pretty reasonable expectation. It could move a little bit down because of that payroll tax, as we did.

Andrew Hibshman: Yeah. I think Q1 is a pretty reasonable expectation. It could move a little bit down because of that payroll taxes we did. We do our salary increases in March, so you don't have the full impact of those salary increases in Q1. I think the run rate in Q1 is probably pretty close to where we'd see things going forward because some of the one-time items will get offset by the increases in the salary line item that would happen late in Q1. I don't anticipate there being any significant increases to that number going forward.

Speaker #6: Our salary increases in March, so you don't have the full impact of those salary increases in the first quarter. So I think the run rate in Q1 is probably pretty close to where we'd see things going forward, because some of the one-time items will get offset by the increases in the salary line item that would happen late in the quarter.

Speaker #6: But I don't anticipate there being any significant increases to that number going forward. So I think, again, I think as we mentioned, I think in most of the expense line items, I think a fairly stable run rate going forward over the next several quarters is kind of where we're seeing things.

Andrew Hibshman: I think, again, I think as we mentioned, I think in most of the expense line items, I think a fairly stable run rate going forward over the next several quarters is kind of where we're seeing things.

Speaker #5: Okay, and then just maybe on the broader topic of expenses—maybe a higher-level question here as well—but there's just a lot of talk on managing expense levels.

Justin Crowley: Okay. Just maybe on the broader topic of expenses, you know, maybe a higher level question here as well. Just a lot of talk on managing expense levels. Just wondering, you know, how you balance that against further investment and, you know, where you think you stand, you know, particularly on the technology side as you're seeing more rapid AI adoption. You know, a lot of banks experimenting with different use cases, trying to be fast followers. Just any thoughts on how you're implementing that to the extent that you are?

Speaker #5: And so just wondering, how you balance that against further investment and where you think you stand particularly on the technology side as you're seeing more rapid AI adoption?

Speaker #5: A lot of banks experimenting with different use cases. Trying to be fast followers. So just any thoughts on how you're implementing that to the extent that you are?

Speaker #6: Yeah. I'd say it's a combination of working internally with folks who are sort of our first movers in terms of we've got a full team that sort of doing testing.

Patrick Ryan: Yeah. I'd say it's a combination of, you know, working internally with folks who are, you know, sort of our, you know, our first movers in terms of, we've got a full team that's sort of doing testing. They have access to the more advanced tools, developing use cases. I think, you know, as those use cases roll out, there will almost certainly be some tech costs associated with them. In many cases, there should also be corresponding savings. There may be a situation where the tech spend might increase a bit, but we also would envision some other expenses coming down. Certainly, in conversations with our primary technology providers, they're looking at embedding AI tools into products and services we're already using.

Speaker #6: They have access to the more advanced tools. Developing use cases. I think as those use cases roll out, there will almost certainly be some tech cost associated with them.

Speaker #6: But in many cases, there should also be corresponding savings. And so there may be a situation where the tech spend might increase a bit, but we also would envision some other expenses coming down.

Speaker #6: Certainly, in conversations with our primary technology providers, they're looking at embedding AI tools into products and services we're already using. We have in most cases fixed price contracts there.

Patrick Ryan: You know, we have, in most cases, fixed price contracts there. We don't expect that will drive significantly higher costs in the short run. What it might mean moving forward, as you know, the quality or value add of the tools they embed are more noticeable. Could that drive, you know, some pricing power on their part? Perhaps. I guess the short answer is, you know, we will be looking to make strategic incremental investments based on use cases that we uncover, but it's not something that we expect would be huge additional dollars, right? We're not, we not spending time on R&D and coding and the types of things that the big guys are doing to try to get a step ahead.

Speaker #6: So we don't expect that will drive significantly higher costs in the short run. What it might mean moving forward, as the quality or value-add of the tools they embed are more noticeable, is could that drive some pricing power on their part?

Speaker #6: Perhaps. But I guess the short answer is we will be looking to make strategic incremental investments based on use cases that we uncover. But it's not something that we expect would be huge additional dollars, right?

Speaker #6: We're not spending time on R&D and coding and the types of things that the big guys are doing to try to get a step ahead.

Speaker #6: But obviously, as you said, we want to be ready to move quickly, which is why we've developed the working groups and the use cases and the testing parameters and the sandbox safety parameters so that we can really start using some of these AI tools in a safe way.

Patrick Ryan: Obviously, as you said, we want to be ready to move quickly, which is why we've developed the working groups and the use cases and the testing parameters and the sandbox safety parameters so that we can really start using some of these AI tools in a safe way.

Speaker #5: Okay. Great. I appreciate the color. I'll leave it there. Thanks so much.

Justin Crowley: Okay, great. I appreciate the color. I'll leave it there. Thanks so much.

Speaker #6: All right. Thanks, guys.

Patrick Ryan: All right. Thanks.

Speaker #1: Your next question comes from the line of David Bishop with Hofde Group. Your line is open.

Operator 1: Your next question comes from the line of David Bishop with Hovde Group. Your line is open.

Operator: Your next question comes from the line of David Bishop with Hovde Group. Your line is open.

Speaker #4: Hey, good morning, guys. Hey. Hey, Pat, I think you mentioned in the preamble the you still sit in the very enviable tangible and regulatory capital position.

David Bishop: Hey, good morning, guys.

Patrick Ryan: Morning, David.

David Bishop: Hey, hey, Pat, I think you mentioned, in the preamble, you know, the, you still sit in a very enviable, tangible and regulatory capital position. Just maybe your view of excess capital, maybe how aggressive you can be in terms of addressing the buyback on any sort of, you know, pullback in the share price?

Speaker #4: Just maybe your view of excess capital, maybe how aggressive you can be in terms of addressing the buyback on any sort of pullback in the share price.

Speaker #6: Yeah. I mean, listen, we have an approved buyback in place. There's plenty of availability within the plan. Obviously, slower growth in the quarter isn't the goal, but the paydowns during fourth quarter and first quarter led to some significant additional capital appreciation during the last half year.

Patrick Ryan: Yeah, I mean, listen, we have a buyback, approved buyback in place. There's plenty of availability within the plan. Obviously, slower growth in the quarter isn't the goal, but, you know, the paydowns during Q4 and Q1 led to some significant additional capital appreciation during the last half year. The short answer is, I think we've got strong capital levels to put to work if it makes sense.

Speaker #6: So the short answer is, I think we've got strong capital levels to put to work if it makes sense, so.

Speaker #4: Got it. And then just in terms of holistically, maybe the revamping of the small business group there, you've got the other specialized business units do you guys continue to see good opportunity to grow there?

David Bishop: Got it. Just in terms of holistically, you know, the revamping of the small business, you know, group there, you know, you've got the other specialized business units. Do you guys continue to see, you know, good opportunity to grow there, any stress you're seeing in any of those segments like private equity or ABL, and just, you know, appetite to continue to grow those segments?

Speaker #4: Any stress you're seeing in any of those segments like private equity or ABL and just appetite to continue to grow those segments?

Speaker #6: Yeah. No, I think those segments are doing well. And we talk about them together as sort of niche businesses, but they're really very different businesses, right?

Patrick Ryan: Yeah, no, I think those segments are doing well. You know, we talk about them together as sort of niche businesses, but they're really very different businesses, right? You're talking about a credit scored, you know, product that's supposed to be scalable, but it's supposed to be light touch, which is very different than, you know, the detailed, thorough traditional underwriting that we're doing on the ABL and the private equity side. The short answer is I think those other groups are performing well. You know, we think again, we try to take a very measured, methodical approach.

Speaker #6: You're talking about a credit-scored product that's supposed to be scalable, but it's supposed to be light touch, which is very different than the detailed thorough traditional underwriting that we're doing on the ABL and the private equity side.

Speaker #6: And so the short answer is I think those other groups are performing well. And we think, again, without we try to take a very measured, methodical approach.

Speaker #6: We're not looking to bet the farm on any one of these individual segments, but we think each of them could grow reasonably over the next couple of years and continue to contribute to overall profitability and diversification of the portfolio.

Patrick Ryan: We're not looking to bet the farm on any one of these individual segments, but we think each of them could grow reasonably over the next couple of years and continue to contribute to overall profitability and diversification of the portfolio.

Speaker #4: Got it. And as a follow-up, I think Peter may have mentioned the one larger commercial real estate credit—assisted living. Any sort of color or more details you could add there in terms of ultimate resolution and the near-term outlook for that credit?

David Bishop: Got it. As a follow-up, I think Peter may have mentioned the one larger commercial real estate credit, assisted living. Any sort of, you know, color or more details you could add there in terms of, you know, ultimate resolution and, you know, the near-term outlook for that credit?

Speaker #6: Yeah. So we're a participant with a larger bank on that, so we're sort of taking our cues from them. But again, all the data regarding our specific borrower—which is part of a much larger corporate entity that's going through a restructuring—points to the fact that we're in a very strong position.

Patrick Ryan: Yeah. We're a participant with a larger bank on that. We're sort of taking our, you know, our cues from them. Again, all the data regarding our specific borrower, which is part of a much larger corporate entity that's going through a restructuring, you know, points to the fact that, you know, we're in a very strong position. Obviously, when you've got a corporate restructuring, things kind of get put on hold while that restructuring gets sorted out. Again, given the underlying strength of the asset from a cash flow and LTV perspective, you know, we have every reason to believe we're going to be fine there.

Speaker #6: But obviously, when you've got a corporate restructuring, things kind of get put on hold while that restructuring gets sorted out. But again, given the underlying strength of the asset from a cash flow and LTV perspective, we have every reason to believe we're going to be fine there.

Speaker #6: But the timing of when that sort of comes off the books will be driven by how long it takes to work through that corporate restructuring process.

Patrick Ryan: The, the timing of when that sort of comes off the books will be driven by, you know, how long it takes to work through that corporate restructuring process. We certainly think and hope it would be gone by the end of the year, but it's hard to be a little more specific than that.

Speaker #6: So we certainly think and hope it would be gone by the end of the year, but it's hard to be a little more specific than that.

Speaker #4: Got it. Then, final question. Obviously, there’s a lot of discussion about deposit pricing competition across the metro New Jersey and New York markets. Obviously, very competitive.

David Bishop: Got it. Final question. You know, obviously a lot of discussion about, you know, deposit pricing competition across the metro New Jersey, New York markets. Obviously very competitive. Just curious, Pat, or Andrew, if you had the spot rate of deposits or margin at the end of the quarter, and maybe, sort of the marginal cost of deposits, you know, so far through April? Thanks.

Speaker #4: Just curious, Pat, or Andrew, if you had the spot rate of deposits or margin at the end of the quarter and maybe sort of the marginal cost of deposits so far through April.

Speaker #4: Thanks.

Speaker #6: Yeah, sure, Andrew. You probably have the March deposit cost number. Maybe that's the best place to start. Certainly, for incremental dollars, we're seeing pressure.

Patrick Ryan: Yeah, sure. Andrew, you probably have the March deposit cost number. Maybe that's the best place to start. Certainly for incremental dollars, you know, we're seeing pressure, like if you want to try to raise some money out in the CD market, you know, that might have been a 3.50% rate, 3, 6 months ago, and now it's moving closer to 3.75% or even higher. I'm sure you've seen the cost move higher on the, on the brokered and the wholesale side. So, those markets are kind of moving in lockstep. Andrew, if you've got more specific data around kind of what the March deposit level looked like.

Speaker #6: If you want to try to raise some money out in the CD market, that might have been a 350 rate to 36 months ago, and now it's moving closer to 375 or even higher.

Speaker #6: I'm sure you've seen the cost move higher on the brokered and wholesale side. And so those markets are kind of moving in lockstep. But Andrew, if you've got more specific data around kind of what the March deposit level looked like.

Speaker #5: Yeah. I think obviously, we had a rate cut in December, and a couple other rate cuts earlier in the quarter. So that trickled into the first quarter.

Andrew Hibshman: Yeah, I think, obviously we had a rate cut in December, a couple other rate cuts earlier in the quarter. That trickled into the Q1. We saw the big benefit of that hit in January. Pricing has stayed relatively stable when you look at kind of the overall deposit cost, January, February, March. I think relatively stable. Obviously, like Pat said, there's a little bit of pressure now with us trying to bring in some additional money, and the pricing has gotten a little bit more competitive with the treasury yields moving a little bit. I do think deposit pricing should remain relatively stable compared to the Q1, with maybe a little bit of pressure as we saw a little bit of pressure starting in March.

Speaker #5: We saw the big benefit of that hit in January. Pricing has stayed relatively stable when you look at, kind of, the overall deposit cost.

Speaker #5: January and February and March, so I think relatively stable. Obviously, like Pat said, there's a little bit of pressure now with us trying to bring in some additional money in the pricing has gotten a little bit more competitive with the Treasury yields moving a little bit.

Speaker #5: But I do think deposit pricing should remain relatively stable compared to the first quarter, with maybe a little bit of pressure, as we saw a little bit of pressure starting in March.

Speaker #5: And I do think that we're going to have to continue to be competitive into the second quarter.

Andrew Hibshman: I do think that we're gonna have to continue to be competitive into Q2.

Speaker #4: Got it. Appreciate the color.

Operator 2: Got it. Appreciate the color. Your next question comes from the line of Jake Civiello with D.A. Davidson. Your line is open.

David Bishop: Got it. Appreciate the color.

Speaker #1: Your next question comes from the line of Jake Civillo with BA Davidson. Your line is open.

Operator: Your next question comes from the line of Jake Civiello with D.A. Davidson. Your line is open.

Speaker #7: Hey, good morning. You talked about on the compensation expense side, you talked about some of the moving parts associated with that. Is any of that competition-related or opportunistic hiring?

Jake Civiello: Hey, good morning. You talked about on the compensation expense side, you talked about some of the moving parts associated with that. Is any of that competition related or opportunistic hiring?

Speaker #6: Yeah. I mean, listen, I think regarding opportunistic hiring, that's sort of always happening. But I don't think there was anything in particular I would point to in Q1 to say that was a driver.

Patrick Ryan: Yeah. I mean, listen, I think regarding opportunistic hiring, that's sort of always happening. I don't think there was anything in particular I would point to in Q1 to say that was that was a driver. Again, I think it was really more a function of, you know, what we see as kind of seasonal items that, I don't wanna call them non-recurring because they happen every season, but they're non-recurring for the remainder of the year. I think that was kind of the driver of the elevated numbers in Q1.

Speaker #6: Again, I think it was really more a function of what we see as kind of seasonal items that I don't recall non-recurring because they happen every season, but they're non-recurring for the remainder of the year.

Speaker #6: And I think that was kind of the driver of the elevated numbers in Q1.

Speaker #7: Okay. Understood. Thanks, Pat.

Jake Civiello: Okay, understood. Thanks for that.

Andrew Hibshman: Yeah, Jake, I would just add that I mean, I think the market is still competitive where we are finding people, but we haven't seen a ton of extra pressure, like salary increases were pretty standard this year. Overall, it's more standard stuff and some seasonal items in Q1, but nothing outside of normal or outsized salary increases or anything this year. We don't expect that we're gonna have to be more competitive than normal to continue to bring good people into the bank.

Speaker #5: Yeah, Jake, I would just add that we're—I mean, I think the market is still competitive where we are finding people, but we haven't seen a ton of extra pressure.

Speaker #5: Salary increases were pretty standard this year. So overall, it was more standard stuff and some seasonal items in Q1, but nothing outside of normal or outsized salary increases or anything this year.

Speaker #5: And we don't expect that we're going to have to be more competitive than normal to continue to drive in good people into the bank.

Speaker #7: That's fair. Thanks, Andrew. And then just one more for me. You pointed to the kind of $50 million net loan growth number in the first couple of weeks of April.

Jake Civiello: That's fair. Thanks, Andrew. Then just one more for me. You know, you pointed to the kind of $50 million net loan growth number in the first couple weeks of April. Does that kind of follow the similar 50-40-10 split that you referenced earlier?

Speaker #7: Does that kind of follow the similar 50, 40, 10 split that you referenced earlier?

Speaker #6: Yeah, I think year-to-date, growth has been pretty consistent with kind of the portfolio that exists today. In any given quarter or month, you could have a particular larger loan that might sway the particular numbers one way or the other.

Patrick Ryan: Yeah. I think year-to-date growth has been pretty consistent with kind of the portfolio, you know, that exists today. Any given quarter or month, you could have a particular larger loan that might sway the particular numbers one way or the other. I don't know, Peter, was there anything that jumped out at you as you looked at year-to-date growth that was sort of an outlier from kind of the overall portfolio composition?

Speaker #6: But I don't know, Peter, was there anything that jumped out at you if you looked at year-to-date growth that was sort of an outlier from kind of the overall portfolio composition?

Speaker #5: No, I'd say it sits right in. I do cite, I mean, because it's more recent, I know a couple of chunkier loans since 331 were in that CNI owner-occupied category.

Peter Cahill: No, I'd say it fits right in. I do cite, because it's more recent, I know a couple of the chunkier loans since three thirty-one were in that C&I owner-occupied category. It was not the case where we closed and funded a couple of investor real estate loans to help the numbers or anything like that. It's been kind of more of what we've been chasing for previous years.

Speaker #5: So it's not it was not the case where we closed and funded a couple of investor real estate loans to help the numbers or anything like that.

Speaker #5: It's been kind of more of what we've been chasing for previous years.

Speaker #7: Okay. Great. Thank you.

Jake Civiello: Okay, great. Thank you.

Speaker #1: Again, if you would like to ask a question, press star one on your telephone keypad. I will now turn the call back over to Patrick Ryan for closing remarks.

Operator 1: Again, if you would like to ask a question, press star one on your telephone keypad. I will now turn the call back over to Patrick Ryan for closing remarks.

Operator: Again, if you would like to ask a question, press star one on your telephone keypad. I will now turn the call back over to Patrick Ryan for closing remarks.

Speaker #6: Okay. Well, thank you, everybody. We appreciate your time today, and we'll look forward to regrouping with folks once we get through the second quarter here.

Patrick Ryan: Okay. Well, thank you, everybody. We appreciate your time today, and we'll look forward to regrouping with folks once we get through the Q2 here. Thanks, everyone.

Speaker #6: Thanks, everyone.

Operator 1: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Q1 2026 First Bank Earnings Call

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