Q2 2026 First Bank Earnings Call

July 24, 2026

Operator 3: Hello everyone. Thank you for joining us and welcome to the First Bank Q2 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Patrick Ryan, President and CEO. Patrick, please go ahead.

Operator: Hello everyone. Thank you for joining us and welcome to the First Bank Q2 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Patrick Ryan, President and CEO. Patrick, please go ahead.

Speaker #1: If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Patrick Ryan, President and CEO.

Speaker #1: Patrick, please go ahead.

Speaker #2: Thank you. I'd like to welcome everyone today to First Bank's second quarter 2026 earnings call. I'm joined by Andrew Hibshman, our Chief Financial Officer, and Peter Cahill, our Chief Lending Officer.

Patrick Ryan: Thank you. I'd like to welcome everyone today to First Bank Q2 2026 earnings call. I'm joined by Andrew Hibshman, our Chief Financial Officer, and Peter Cahill, our Chief Lending Officer. Before we begin, Andrew will read the safe harbor statement.

Speaker #2: Before we begin, Andrew will read the Safe Harbor statement.

Speaker #3: 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.

Andrew Hibshman: The following discussion may contain forward-looking statements concerning the financial condition, results of operations, and business of First Bank. We caution that such statements are subject to a number of uncertainties and actual results could differ materially, 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 #3: 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.

Speaker #3: Information about risks and uncertainties are described under Item 1A, Risk Factors, in our annual report on Form 10-K for the year-end of December 31, 2025, filed with the FDIC.

Speaker #3: Back to you.

Speaker #2: Thank you, Andrew. I'll share some high-level thoughts on the quarter and then turn it over to Andrew and Peter to provide a little more detail.

Patrick Ryan: Thank you, Andrew. I'll share some high-level thoughts on the quarter, then turn it over to Andrew and Peter to provide a little more detail. In summary, Q2 was a much better quarter. We saw a return of solid asset growth. Our loans grew $68 million during the quarter, with year-to-date growth of $79 million, we're getting close to being back on pace for our annual loan growth goal of $200 million for the year. Our deposits grew $96 million during the quarter, which actually pushed us ahead of our deposit growth plan for the year. Our margin held in at 3.68%. We realized a small decline in loan yields that were largely offset by a modest decline in deposit costs.

Speaker #2: I think, in summary, Q2 was a much better quarter. We saw a return of solid asset growth. Our loans grew $68 million during the quarter, and with year-to-date growth of $79 million, we're getting close to being back on pace for our annual loan growth goal of $200 million for the year.

Speaker #2: Our deposits grew 96 million during the quarter, which actually pushed us ahead of our deposit growth plan for the year. Our margin held in at 3.68%.

Speaker #2: We realized a small decline in loan yields that was largely offset by a modest decline in deposit costs. Our provision for credit losses came down significantly to more normalized levels, as the profile within our small business portfolio showed signs of improvement.

Patrick Ryan: Our provision for credit losses came down significantly to more normalized levels as the profile within our small business portfolio showed signs of improvement. Our non-interest expense came in at $20.1 million, down from an artificially high level in Q1. We are making progress with our goal to get our non-interest expense to average assets down below 2%, eventually back closer to our longer-term average of 1.90%. Our pre-provision return on average assets came in at 1.69%, an increase of 10 basis points compared to the prior quarter. A few important points about the results. Regarding the asset growth, the return of stronger asset growth feels sustainable. Pipelines are strong. As we've discussed, the new production engine has been very busy. Peter will provide some more details on that later.

Speaker #2: Our non-interest expense came in at $20.1 million, down from an artificially high level in the first quarter. We are making progress with our goal to get our non-interest expense to average assets down below 2%, and eventually back closer to our longer-term average of 1.90%.

Speaker #2: Our pre-provision return on average assets came in at 1.69%, an increase of 10 basis points compared to the prior quarter. A few important points about the results.

Speaker #2: Regarding asset growth, the return of stronger asset growth feels sustainable. Pipelines are strong. As we've discussed, the new production engine has been very busy, and Peter will provide some more details on that later.

Speaker #2: Absent abnormal payoff activity between now and the end of the year, we believe we should be able to meet or exceed our $200 million loan growth goal for the year.

Patrick Ryan: Absent abnormal payoff activity between now and the end of the year, we believe we should be able to meet or exceed our $200 million loan growth goal for the year. Regarding deposit growth, we like that it really picked up in Q2 as we continue to bring in new customers. We saw a return of money that had fluctuated out earlier in the year. The new growth did not come without a cost, as the competition for deposits in our markets remains high. The decision to bring in higher cost money relates to the quality of our loan pipeline. We feel good about where things stand at the moment. Regarding asset quality, overall things seem to be holding in.

Speaker #2: Regarding deposit growth, we like that it really picked up in the second quarter, as we continue to bring in new customers and we saw a return of money that had fluctuated out earlier in the year.

Speaker #2: The new growth did not come without a cost, as the competition for deposits in our markets remains high. The decision to bring in higher-cost money relates to the quality of our loan pipeline, and we feel good about where things stand at the moment.

Speaker #2: Regarding asset quality, we think overall things seem to be holding in. We feel better about the trends in the small business portfolio, which helped fuel the significant reduction in our charge-off levels for the quarter.

Patrick Ryan: We feel better about the trends in the small business portfolio, which helped fuel the significant reduction in our charge-off levels for the quarter. Our NPA ratio did tick up as one CRE loan moved to non-accrual. We're comfortable where we stand with the loan given collateral and guarantor support. Regarding balance sheet strength, even though we had strong growth in the quarter, our capital position remains very strong. Our tangible common to tangible asset ratio is right about 10%. Our allowance for credit losses to loans is at 1.38%, both levels that compare favorably to peer averages. In summary, I'm excited about where we stand at the midpoint of the year.

Speaker #2: Our non-performing asset ratio did tick up as one CRE loan moved to non-accrual, but we're comfortable where we stand with the loan given collateral and guarantor support.

Speaker #2: Regarding balance sheet strength, even though we had strong growth in the quarter, our capital position remains very strong. Our tangible common to tangible asset ratio is right about 10%, and our allowance for credit losses to loans is at 1.38%, both levels that compare favorably to peer averages.

Speaker #2: In summary, I'm excited about where we stand at the midpoint of the year. The return of strong balance sheet growth, coupled with a stable margin, normalized credit expenses, and flattish to minor non-interest expense growth, should help us yield even better results as we move through the back half of the year.

Patrick Ryan: The return of strong balance sheet growth, coupled with a stable margin, normalized credit expenses, and flattish to minor non-interest expense growth should help us yield even better results as we move through H2. At this time, I'd like to turn it over to Andrew to discuss some additional details on the financial results. Andrew?

Speaker #2: At this time, I'd like to turn it over to Andrew to discuss some additional details on the financial results. Andrew?

Speaker #3: Thanks, Pat. For the three months ended June 30, 2026, we recorded net income of $10.9 million, or $0.43 per diluted share, which translates to a 1.09% return on average assets.

Andrew Hibshman: Thanks, Pat. For the three months ended 30 June 2026, we recorded net income of $10.9 million or $0.43 per diluted share, which translates to a 1.09% return on average assets. A $3.3 million decline in credit loss expense compared to Q1 drove improvement to our bottom line, with diluted earnings per share increasing $0.13 or about 43% on a linked quarter basis. Year over year, EPS grew 6.6%. Net interest income increased $798,000 compared to both the linked and prior year quarters. Compared to the linked quarter, net interest income increased primarily due to growth in average loan balances. Rates were essentially stable on both sides of the balance sheet, and our net interest margin was 3.68%, down just one basis point from the linked quarter.

Speaker #3: A $3.3 million decline in credit loss expense compared to the first quarter drove improvement to our bottom line, with diluted earnings per share increasing 13 cents, or about 43%, on a linked-quarter basis. Year over year, EPS grew 6.6%.

Speaker #3: Net interest income increased $798,000 compared to both the linked and prior year quarters. Compared to the linked quarter, net interest income increased primarily due to growth in average loan balances.

Speaker #3: Rates were essentially stable on both sides of the balance sheet, as our net interest margin was 3.68%, down just one basis point from the linked quarter.

Speaker #3: Compared to the second quarter of last year, net interest income increased due to a combination of growth and slightly better spreads, which drove a 3-basis-point improvement in the margin.

Andrew Hibshman: Compared to Q2 of last year, net interest income increased due to a combination of growth and slightly better spreads, which drove a three basis point improvement in the margin. We believe our Q2 net interest margin remains strong and compares favorably to our peers. We expect continued declines in acquisition accounting accretion over the next several quarters, and the ongoing competitive landscape for core deposits remains challenging. However, the yield curve has steepened, and we continue to replace the runoff of some lower yielding assets with higher yielding loans, offsetting some of the deposit pressure. We continue to manage a well-balanced asset and liability position, and we anticipate continued loan and deposit growth will drive increased net interest income regardless of what happens with rates. We're very pleased with our balance sheet growth during the quarter. Loans growth of $68 million was strong.

Speaker #3: We believe our second-quarter net interest margin remains strong and compares favorably to our peers. We expect continued declines in acquisition accounting accretion over the next several quarters, and the ongoing competitive landscape for core deposits remains challenging.

Speaker #3: However, the yield curve has steepened, and we continue to replace the runoff of some lower-yielding assets with higher-yielding loans, offsetting some of the deposit pressure.

Speaker #3: We continue to manage a well-balanced asset and liability position, and we anticipate that continued loan and deposit growth will drive increased net interest income, regardless of what happens with rates.

Speaker #3: We're very pleased with our balance sheet growth during the quarter. Loans grew—growth of $68 million was strong. This parallels our robust deposit growth, which was driven by new commercial relationships and growth in existing commercial client balances.

Andrew Hibshman: This parallels our robust deposit growth, which was driven by new commercial relationships and growth in existing commercial client balances. Our sales teams are deposit focused, and we are seeing good deposit activity throughout our regions and teams. Non-interest-bearing balances grew $45.1 million during the quarter, or about half of our $96 million increase in total deposits for the quarter. We also added some brokered and government deposits to support our robust loan production. Credit costs improved from the linked quarter. However, we saw some additional charge-offs, again, almost entirely related to our credit scored small business portfolio. Looking ahead, we expect to see continued improvement in credit costs in the small business portfolio, and we are not seeing any red flags in our other loan segments. Overall, asset quality remained generally stable, and our allowance for credit losses to total loans was essentially flat at 1.38%.

Speaker #3: Our sales teams are deposit-focused, and we are seeing good deposit activity throughout our regions and teams. Non-interest-bearing balances grew 45.1 million during the quarter or about half of our 96 million dollar increase in total deposits for the quarter.

Speaker #3: We also added some brokered and government deposits to support our robust loan production. Credit costs improved from the linked quarter. However, we saw some additional charge-offs, again, almost entirely related to our credit-scored small business portfolio.

Speaker #3: Looking ahead, we expect to see continued improvement in credit costs in the small business portfolio, and we are not seeing any red flags in our other loan segments.

Speaker #3: Overall, asset quality remains generally stable, and our allowance for credit losses to total loans is essentially flat at 1.38%. As Pat mentioned, we saw a slight increase in NPAs during the quarter, which again was related to one new non-accrual CRE loan.

Andrew Hibshman: As Pat mentioned, we saw a slight increase in NPAs during the quarter, which again was related to one new non-accrual CRE loan. We continue to believe our reserve coverages are very strong. Non-interest income was $2.1 million for Q2 2026 compared to $2.4 million in the linked Q1 and $2.7 million in Q2 2025. The decrease from the linked quarter was primarily due to lower earnings from our investments in certain small business investment funds. The year-over-year decline was primarily related to a $397,000 gain on the sale of a corporate facility in last year's Q2. Non-interest expenses were $20.1 million for Q2, down by $797,000 compared to $20.9 million in Q1. The decrease primarily reflects lower salaries and benefit costs during Q2 and to a lesser extent, lower Q2 occupancy expenses.

Speaker #3: We continue to believe our reserve coverages are very strong. Non-interest income was $2.1 million for the second quarter of 2026, compared to $2.4 million in the linked first quarter and $2.7 million in the second quarter of 2025.

Speaker #3: The decrease from the linked quarter was primarily due to lower earnings from our investments in certain small business investment funds and the year-over-year decline was primarily related to a 397,000 gain on the sale of a corporate facility in last year's second quarter.

Speaker #3: Non-interest expenses were $20.1 million for the second quarter, down by $797,000 compared to $20.9 million in Q1. The decrease primarily reflects lower salaries and benefit costs during the second quarter and, to a lesser extent, lower second quarter occupancy expenses.

Speaker #3: Looking ahead, we believe we can continue to drive growth without adding to the expense base, and we have opportunities for some additional expense savings.

Andrew Hibshman: Looking ahead, we believe we can continue to drive growth without adding to the expense base. We have opportunities for some additional expense savings. Our continued focus on tight expense management produced a 54.5% efficiency ratio and marked our 28th consecutive quarter of operating with a sub 60% efficiency ratio. We believe this continues to be a differentiating strength for us. Tax expenses totaled $3.7 million for Q2 with an effective tax rate of a little over 25%. This compares to 22.7% for Q1, which included the benefit of discrete items related to stock compensation activity. We can anticipate our future effective tax rate will be approximately 25%. Our capital ratios remain strong and we executed share repurchases totaling about 325,000 shares during the quarter, bringing our total to 5.5 million or 359,000 shares under the currently approved program.

Speaker #3: Our continued focus on tight expense management produced a 54.5% efficiency ratio and marked our 28th consecutive quarter of operating with a sub-60% efficiency ratio.

Speaker #3: We believe this continues to be a differentiating strength for us. Tax expenses totaled $3.7 million for the second quarter, with an effective tax rate of a little over 25%.

Speaker #3: This compares to 22.7% for Q1, which included the benefit of discrete items related to stock compensation activity. We anticipate our future effective tax rate will be approximately 25%.

Speaker #3: Our capital ratios remain strong and we executed share repurchases totaling about 325,000 shares during the quarter. Bringing our total to 5.5 million or 359,000 shares, under the currently approved program.

Speaker #3: 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. I'll now dig into the deposit activity a little further. During the quarter, we saw solid activity onboarding new relationships and expanding existing relationships. Total deposits increased a little over $96 million from 31 March to 30 June, with non-interest-bearing balances increasing $45.1 million. However, average interest-bearing deposit balances were up only $41.4 million, and average non-interest-bearing balances were actually down $461,000 during the quarter. This was due to strong growth towards the end of the quarter, which should be a nice tailwind as we head into the back half of the year. Total cost of deposits came down one basis point during the quarter from 2.43% in Q1 to 2.42% in Q2.

Speaker #3: I'll now dig into the deposit activity a little further. During the quarter, we saw solid activity onboarding new relationships and expanding existing relationships. Total deposits increased a little over 96 million, from March 31 to June 30, with non-interest-bearing balances increasing 45.1 million.

Speaker #3: However, average interest-bearing deposit balances were up only 41.4 million and average non-interest-bearing balances were actually down 461,000 during the quarter. This was due to strong growth towards the end of the quarter, which should be a nice tailwind as we head into the back half of the year.

Speaker #3: Total cost of deposits came down one basis point during the quarter, from 2.43% in Q1 to 2.42% in Q2. Going forward, we believe heightened industry competition will place some pressure on deposit pricing.

Andrew Hibshman: Going forward, we believe heightened industry competition will place some pressure on deposit pricing. We do 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. Looking ahead, our deposit funding pipeline is strong with some nice new commercial and government opportunities as we continue to retain and grow existing relationships. We are also utilizing retail promotional pricing when prudent and necessary to win in this highly competitive market. At this time, I'll turn it over to Peter Cahill, our Chief Lending Officer, for his remarks. Peter.

Speaker #3: But we do remain focused on striking the appropriate balance between growth and cost discipline. Overall, we continue to execute effectively against our dual priorities of deepening our relationships while prudently managing funding costs.

Speaker #3: Looking ahead, our deposit funding pipeline is strong, with some attractive new commercial and government opportunities, as we continue to retain and grow existing relationships.

Speaker #3: We are also utilizing retail promotional pricing when prudent and necessary to win in this highly competitive market. At this time, I'll turn it over to Peter Cahill, our Chief Lending Officer, for his remarks.

Speaker #3: Peter.

Speaker #2: Thanks, Andrew. As Pat and Andrew both mentioned, in the lending area, we had a much better quarter in Q2, following up modest loan growth in the first quarter with new business activity, which resulted in loan growth of 8.3% annualized for the period. Excuse me.

Peter Cahill: Thanks, Andrew. As Pat and Andrew both mentioned, in the lending area, we had a much better quarter in Q2, following up modest loan growth in Q1 with new business activity, which resulted in loan growth of 8.3% annualized. Excuse me. For the period. New loans closed and funded in Q2 totaled $174 million, up 64% from Q1, and you might recall that Q1 was not a bad quarter from the standpoint of new business. The $106 million of new loans we generated in Q1 equaled the quarterly average of both 2024 and 2025. We're very pleased with our performance finishing H1. As we've talked about previously, while investor real estate loans will always be a big part of our business, we've been looking to drive C&I lending for a few years now.

Speaker #2: New loans closed and funded in the second quarter totaled $174 million, up 64% from the first quarter, and you might recall that Q1 was not a bad quarter from the standpoint of new business.

Speaker #2: The $106 million of new loans we generated in Q1 equaled the quarterly average of both 2024 and 2025. So we're very pleased with our performance finishing the first half of the year.

Speaker #2: As we've talked about previously, while investor real estate loans will always be a big part of our business, we've been looking to drive CNI lending for a few years now.

Speaker #2: CNI and owner-occupied real estate made up 61% of our new loans during the first half of the year, with investor real estate at 33%, and consumer loans making up the balance.

Peter Cahill: C&I and owner-occupied real estate made up 61% of our new loans during H1, with investor real estate at 33% and consumer loans making up the balance. As we grow, the volume of loan payoffs grows and this continued in Q2. This past quarter, we experienced $87 million in payoffs, 19% greater than what we had in Q1. Payoffs bank-wide were 62% investor real estate loans for H1, mainly due to refinancing or the sale of the underlying asset. Regarding our new loans pipeline, our sales team continues to be active and the pipeline continues to be in good shape. We finished Q2 after a solid new business quarter at a level of what we call probable fundings that totaled $323 million. This is in line with the level at the end of March, which totaled $325 million.

Speaker #2: As we grow, the volume of loan payoffs grows, and this continued in Q2. This past quarter, we experienced $87 million in payoffs, 19% greater than what we had in Q1.

Speaker #2: Payoffs bank-wide were 62%, with investor real estate loans for the first half mainly due to refinancing or the sale of the underlying asset. Regarding our new loans pipeline, our sales team continues to be active, and the pipeline continues to be in good shape.

Speaker #2: We finished Q2 after a solid new business quarter at a level of what we call probable fundings that totaled $323 million. This is in line with the level at the end of March, which totaled $325 million.

Speaker #2: If one breaks down the components of the pipeline at June 30, C&I and owner-occupied loans made up 62% of the pipeline, again in line with previous quarters.

Peter Cahill: If one breaks down the components of the pipeline at 30 June, C&I and owner-occupied loans made up 62% of the pipeline, again, in line with previous quarters. As we've talked about these calls, there are more deposits and ancillary business with C&I relationships. Our salespeople are relationship managers, and as Andrew pointed out, they're focused on deposits as well as loans, and their goals are set accordingly. All in all, I think the pipeline is strong and positions us well to finish the year very nicely in terms of both loan and deposit growth. On the topic of asset quality, we've mentioned some continued softness in the credit score small business portfolio, but relative to asset quality, did much better than we did in Q1, and we expect to see improvement over time based upon the changes we made there.

Speaker #2: As we've talked about in these calls, there are more deposits and ancillary business with CNI relationships. Our salespeople are relationship managers, and as Andrew pointed out, they're focused on deposits as well as loans, and their goals are set accordingly.

Speaker #2: All in all, I think the pipeline is strong and positions us well to finish the year very nicely, in terms of both loan and deposit growth.

Speaker #2: On the topic of asset quality, we've mentioned some continued softness in the credit scored small business portfolio. But relative to asset quality, did much better in Q1 than we did in Q1, and we expect to see improvement over time based upon the changes we made there.

Speaker #2: The earnings release mentions non-performing loans increasing marginally during the quarter, as both Pat and Andrew, I think, mentioned this is related to one credit and as Pat mentioned earlier, our expectation there is repayment in full.

Peter Cahill: The earnings release mentions non-performing loans increasing marginally during the quarter. As both Pat and Andrew, I think, mentioned, this is related to one credit. As Pat mentioned earlier, our expectation there is repayment in full. In summary, loan growth for Q2 was strong. Our plan is to continue to grow in all of our business segments and meet or exceed the bank's plan for the year. That concludes my remarks about lending, and I'll turn things back now to Pat for some final comments.

Speaker #2: In summary, loan growth for the second quarter was strong, our plan is to continue to grow in all of our business segments and meter exceed the bank's plan for the year.

Speaker #2: That concludes my remarks about lending, and I'll turn things back now to Pat for some final comments.

Patrick Ryan: Thank you, Peter and Andrew. At this point, we'll turn it back to the operator to open things up for the Q&A session.

Speaker #1: And at this point, we'll turn it back to the operator to open things up for the Q&A session.

Speaker #4: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand.

Operator 3: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Bader Hijleh with Piper Sandler. Your line is open. Please go ahead.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Bader Hijleh with Piper Sandler. Your line is open. Please go ahead.

Speaker #4: To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #4: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question, comes from the line of Bauder Hysle, with Piper Sandler.

Speaker #4: Your line is open. Please go ahead.

Speaker #5: Hey, good morning, guys. This is Bader, just on for Justin Crowley.

Bader Hijleh: Hey, good morning, guys. This is Bader just on for Justin Crowley.

Speaker #1: Yeah, good morning, Bader.

Patrick Ryan: Yeah, good morning, Bader.

Speaker #5: Starting on deposit growth this quarter, you highlighted the performance of non-interest-bearing accounts. It seems like you guys typically get some nice pickup in the second quarter.

Bader Hijleh: Starting on deposit growth this quarter. You highlighted the performance of a non-interest bearing. It seems like you guys typically get some nice pickup in Q2. Can you talk more about that trend and to what extent that is driven by seasonality and how you're thinking about maybe the deposit mix evolving from here in the coming quarters?

Speaker #5: Can you talk more about that trend and to what extent that is driven by seasonality and how you're thinking about maybe the deposit mix evolving from here in the coming quarters?

Speaker #1: Yeah. I wish we had a perfect answer regarding seasonality. There's definitely some components within certain clients, but there's a lot of different types of customers that have different needs at different points in time, and so it's a little difficult to predict with precision the fluctuations.

Patrick Ryan: Yeah. I wish we had a perfect answer regarding seasonality. There's definitely some components within certain clients, but there's a lot of different types of customers that have different needs at different points in time. It's a little difficult to predict with precision the fluctuations. We generally see a decline, especially in the non-interest bearing in Q1, and we start to see some money coming back during Q2 and Q3. I think that's pretty consistent with what we've seen in prior years. We were certainly happy that the overall level of kind of fluctuation change, i.e., the change in balances and accounts that had already been open at the start of the year. We saw a nice bounce back there in Q2. That was certainly good news.

Speaker #1: But we generally see a decline, especially in the non-interest bearing, in Q1, and we start to see some money coming back during the second and third quarters.

Speaker #1: So I think that's pretty consistent with what we've seen in prior years. But we were certainly happy that the overall level of kind of fluctuation change, i.e., the change in balance is in accounts that had already been open at the start of the year, we saw a nice bounce back there in the second quarter.

Speaker #1: So, that was certainly good news. But given the strong pipeline and what we think are some significant, high-quality lending opportunities, we're going to continue to be out in the market to ensure that we can win our share of the new deposit business as well, and certainly our plan is to meet or exceed that $200 million deposit growth goal for the year.

Patrick Ryan: Given the strong pipeline and what we think are some significant high-quality lending opportunities, we're going to continue to be out in the market to ensure that we can win our share of the new deposit business as well and certainly are planned to meet or exceed that $200 million deposit growth goal for the year.

Speaker #5: Got it. Thanks. And then with regard to that and deposit pricing, the full quarter figures remain a relatively stable from last quarter. I know you mentioned you guys mentioned the expectation for increased pressure on cost in the near term.

Bader Hijleh: Got it. Thanks. With regard to that and deposit pricing, the full quarter figures remained relatively stable from last quarter. I know you guys mentioned the expectation for increased pressure on cost in the near term. Could you provide the current spot rate for deposits and just any color on pricing competition you're seeing on that front?

Speaker #5: Could you provide the current spot rate for deposits and just any color on pricing competition you're seeing on that front?

Speaker #1: Yeah, I think if you're out in the market trying to get new dollars we're seeing the pricing anywhere from 4 to 4.10, 4.15, 4.25 in some cases.

Patrick Ryan: Yeah, I think if you're out in the market trying to get new dollars, we're seeing the pricing anywhere from four to four ten, four fifteen, four and a quarter in some cases. Certainly that's up a little bit. I think you see that same increase if you look out in the wholesale markets in terms of what brokers or that kind of money is going for now. It's all north of four, which certainly it wasn't three or six months ago. Now the good news is the 5- and the 10-year Treasuries and the FHLB rates are moving higher, we're getting some of that back in terms of the pricing on our new loan production, which is why we're sort of targeting flat to down slightly on the margin as we move through this year.

Speaker #1: So certainly that's up a little bit. I think you see that same increase if you look out in the wholesale markets. In terms of what broker or that kind of money is going for now, it's all north of 4, which certainly it wasn't 3 or 6 months ago.

Speaker #1: Now, the good news is the 5- and 10-year Treasuries and the FHLB rates are moving higher, and so we're getting some of that back in terms of the pricing on our new loan production.

Speaker #1: Which is why we're sort of targeting flat to down slightly on the margin as we move through this year. But I think what we saw in the second quarter in terms of the margin impact, one basis point decline, I think that's hopefully we can keep it flat, but we don't see it declining more than a basis point or two as we move forward.

Patrick Ryan: I think what we saw in Q2 in terms of the margin impact, one basis point decline, hopefully we can keep it flat, but we don't see it declining more than a basis point or two as we move forward. Obviously loan mix plays a role there too. We're earning healthy yields on the new loan production. Obviously, the incremental spread on a new loan versus a dollar we have to raise out in the market in terms of the higher price money, whether it's four and a quarter, that obviously is diluted to the margin, but not every dollar we're raising is at the highest price point. Hopefully that provides a little bit of our view on where we see things heading.

Speaker #1: And obviously, loan mix plays a role there too, but we're earning healthy yields on the new loan production. Obviously, the incremental spread on a new loan versus a dollar we have to raise out in the market, in terms of the higher-priced money—whether it's 4% or 4.25%—that obviously is dilutive to the margin, but not every dollar we're raising is at the highest price point.

Speaker #1: So hopefully, that provides a little bit of our view on where we see things heading.

Speaker #5: Got it. That's some good detail, thank you. And maybe one last question: if you could pivot to expenses, could you walk us through the decrease in the expense line this quarter?

Bader Hijleh: Got it. That's some good detail. Thank you. Maybe one last question. If we could pivot to expenses. Could you walk us through the decrease in the expense line this quarter? We're just trying to understand the underlying moving parts and whether the current quarter's expense run rate is sustainable or if we should anticipate normalization in the subsequent quarters.

Speaker #5: We're just trying to understand the underlying moving parts, and whether the current quarter's expense run rate is sustainable, or if we should anticipate normalization in the subsequent quarters.

Speaker #1: Yeah, I do think Q2 is a much more sort of base run-rate, normalized number. As Andrew pointed out last quarter, there were some seasonal factors that led to the higher levels in terms of non-interest expense in Q1. But Andrew, I don't know if you want to jump in and give some thoughts going forward.

Patrick Ryan: Yeah, I do think Q2 is a much more sort of base run rate normalized number. As Andrew pointed out last quarter, there were some sort of seasonal factors that led to the higher levels in terms of non-interest expense in Q1. Andrew, I don't know if you want to jump in and give some thoughts going forward. Obviously, in a world where inflationary pressures are increasing, it's difficult to keep expenses flat. That's our goal. Flat to single-digit growth, certainly as we add assets and revenue, we think that will be generating operating leverage. Andrew, if you want to jump in.

Speaker #1: I mean, obviously, in a world where inflationary pressures are increasing, it's difficult to keep expenses flat. But that's our goal—flat to single-digit growth. And certainly, as we add assets and revenue, we think that will be generating operating leverage.

Speaker #1: But Andrew, if you want to jump in.

Speaker #3: Yeah, I think that's a good summary. I'd just add that there wasn't really any kind of unusual noise. I think, like Pat said, pretty straightforward quarter, pretty good run rate.

Andrew Hibshman: Yeah, I think that's a good summary. I'd just add that there wasn't really any kind of unusual noise. I think that, like Pat said, pretty straightforward quarter. Pretty good run rate. We don't have any major projects or major cost-saving initiatives right now, but we are always looking at cost saves and things. I think hopefully we can offset any of those kind of inflationary pressures with some savings. I think we should be able to manage expenses pretty flat and continue to grow, and obviously that'll create some additional efficiency.

Speaker #3: We don't have any major projects or major cost-saving initiatives right now, but we are always looking at cost saves and things. So, I think, hopefully, we can offset any of those kind of inflationary pressures with some savings.

Speaker #3: So I think we should be able to manage expenses pretty flat and continue to grow, and obviously that'll create some additional efficiency.

Speaker #5: Got it. That is all for me. Thanks for taking my questions.

Bader Hijleh: Got it. That is all for me. Thanks for taking that question.

Speaker #1: No problem. Thank you.

Patrick Ryan: No problem. Thank you.

Speaker #2: As a reminder, if you would like to ask a question, press star one to raise your hand. Your next question, comes from the line of Emily Grazis with HUFDI Group.

Operator 3: As a reminder, if you would like to ask a question, press star one to raise your hand. Your next question comes from the line of Emily Graessle with Hovde Group. Your line is open. Please go ahead.

Operator: As a reminder, if you would like to ask a question, press star one to raise your hand. Your next question comes from the line of Emily Graves with Hovde Group. Your line is open. Please go ahead.

Speaker #2: Your line is open. Please go ahead.

Speaker #4: Good morning, everyone. I'm in for Dave Bishop today.

Emily Graessle: Good morning, everyone. I'm in for David Bishop today.

Emily Graves: Good morning, everyone. I'm in for David Bishop today.

Speaker #1: Hi, Emily.

Patrick Ryan: Hi, Emily.

Speaker #4: So, I wanted to start off with: what is the rate on new commercial loan originations during the quarter, and how does it compare to last quarter?

Emily Graessle: I wanted to start off on what is the rate on new commercial loan originations during the quarter, and how does it compare to last quarter?

Emily Graves: I wanted to start off on what is the rate on new commercial loan originations during the quarter, and how does it compare to last quarter?

Speaker #1: Yeah, so obviously within Commercial we have several different business lines that have different kinds of origination rates, but I think, Peter, on average over the last few months, the average for new origination per month has kind of fluctuated between, what, 6.5 and 7?

Patrick Ryan: Yeah. Obviously within commercial, we have several different business lines that have different kind of origination rates. I think Peter, on average, over the last few months, the average for new origination per month has kind of fluctuated between what? Six and a half and seven?

Speaker #6: Yeah, actually the majority of the loans get priced off FHLB. Treasuries is five-year treasuries is an alternative that's usually I don't know, 15 to 25 basis points less, but we add more of a spread to treasury-based pricing.

Peter Cahill: Yeah. Actually, the majority of the loans get priced off FHLB. 5-year Treasury is an alternative that's usually, I don't know, 15 to 25 basis points less. We add more of a spread to Treasury-based pricing. Yeah, if you look back at Q2, the weighted average new loan rate was between, I don't know, 6.50% to 6.75%. Q1 was probably right around that same range. A lot of it has to do with what Pat said, the mix. If it's a prime-based loan, it's going to be prime plus one's a little higher than that, right? The majority of our loans booked are going to be term loans kind of 5-year interest rate. Could be 10-year loan, but a 5-year commitment on rates adjustable in 60 months. That help at all?

Peter Cahill: Yeah. Actually, the majority of the loans get priced off FHLB. Five-year Treasury is an alternative that's usually, I don't know, 15 to 25 basis points less. We add more of a spread to Treasury-based pricing. Yeah, if you look back at Q2, the weighted average new loan rate was between, I don't know, 6.50% to 6.75%. Q1 was probably right around that same range. A lot of it has to do with what Pat said, the mix. If it's a prime-based loan, it's going to be prime plus one's a little higher than that, right? The majority of our loans booked are going to be term loans kind of 5-year interest rate. Could be 10-year loan, but a 5-year commitment on rates adjustable in 60 months. That help at all?

Speaker #6: But yeah, if you look back at Q2, the weighted average new loan rate was between, I don't know, 6.50% to 6.75%. Q1 was probably right around that same range.

Speaker #6: A lot of it has to do with what Pat said—the mix. If it's a prime-based loan, it's going to be prime plus one, maybe a little higher than that, right?

Speaker #6: But the majority of our loans booked are going to be term loans, kind of five-year. The interest rate could be a 10-year loan, but a five-year commitment, with rates adjustable in 60 months.

Speaker #6: That help at all?

Speaker #4: Yes, thank you. And then my second question is, can you provide some color on new CRU non-accrual loans, and provide some details around what your loss expectations are?

Emily Graessle: Yes. Thank you. My second question is, can you provide some color on new CRE non-accrual loans and provide some details around what your loss expectations are?

Emily Graves: Yes. Thank you. My second question is, can you provide some color on new CRE non-accrual loans and provide some details around what your loss expectations are?

Speaker #6: Did you say non-accrual? Can you repeat the question?

Peter Cahill: Did you say non-accrual?

Patrick Ryan: I think the question here was about the loan that moved into non-accrual.

Speaker #1: Peter, was that about the loan that moved into non-accrual?

Speaker #6: Oh, okay.

Peter Cahill: Oh, okay. Well, real estate, it's office space loan. It's underperforming. It was worth a lot more when we made the loan than it is now, but it's still roughly, even on a discounted basis, about the same value as the loan amount. We have strong guarantor support there to make up the difference. Guarantor's committed to do that, and as I said in my comments, we expect full recovery there.

Speaker #1: Well, that's the real estate it's office space loan. It's underperforming it was worth a lot more when we made the loan than it is now, but it's still roughly even on a discounted basis about the same value as the loan amount and we have strong guarantors support there to make up the difference.

Speaker #1: Guarantors committed to do that and we, as I said, in my comments, we expect full recovery there.

Speaker #4: All right. Thank you for your time. That is all my questions.

Emily Graessle: All right. Thank you for your time. That is all my questions.

Emily Graves: All right. Thank you for your time. That is all my questions.

Speaker #1: Thanks, Emily.

Patrick Ryan: Thanks, Emily.

Speaker #6: You're welcome.

Peter Cahill: You're welcome.

Speaker #2: There are no further questions at this time. I will now turn the call back to Patrick for closing remarks.

Operator 3: There are no further questions at this time. I will now turn the call back to Patrick for closing remarks.

Operator: There are no further questions at this time. I will now turn the call back to Patrick for closing remarks.

Speaker #1: Okay, thank you very much. We appreciate everybody taking time out of their busy day to listen in on the call, and we look forward to getting back in front of the group after third quarter results are released.

Patrick Ryan: Okay. Thank you very much. We appreciate everybody taking their time out of their busy day to listen in on the call, and we'll look forward to getting back in front of the group after Q3 results are released. Thanks, everybody. Have a great day.

Speaker #1: So, thanks everybody. Have a great day.

Operator 3: This concludes today's call. Thank you for attending. You may now disconnect.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

Q2 2026 First Bank Earnings Call

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