Earnings call transcript: First Bank misses Q2 2025 expectations

First Bank reported its financial results for the second quarter of 2025, revealing a slight miss in both earnings per share (EPS) and revenue compared to forecasts. The bank reported an EPS of $0.41, falling short of the expected $0.42, while revenue reached $34.15 million, below the forecasted $35.09 million. Despite these misses, the stock price remained stable at $15.58, trading at an attractive P/E ratio of 10.1x and showing impressive year-over-year revenue growth of 20.8%. According to InvestingPro, First Bank exhibits strong fundamentals with multiple positive indicators, including consistent dividend payments and robust profitability metrics. Subscribers can access 6 additional exclusive ProTips and comprehensive analysis for deeper insights.

Key Takeaways

• First Bank’s EPS and revenue both missed expectations by approximately 2.4% and 2.7%, respectively.
• Net interest income increased by 6%, and pre-provision net revenue rose by 21%.
• The stock price remained stable within its 52-week range, indicating a neutral market sentiment.

Company Performance

Overall, First Bank demonstrated solid operational performance despite missing earnings expectations. The bank’s net interest income and pre-provision net revenue saw significant increases, highlighting effective management of its core banking activities. Comparatively, the bank has maintained growth in previous quarters, which underscores the minor nature of this quarter’s miss.

Financial Highlights

• Revenue: $34.15 million, down from the forecasted $35.09 million.
• Earnings per share: $0.41, slightly below the forecast of $0.42.
• Net interest income: Increased by 6% compared to the previous quarter.
• Pre-provision net revenue: Up by 21% linked quarter.

Earnings vs. Forecast

First Bank’s Q2 2025 results fell short of analyst expectations, with EPS missing by 2.38% and revenue by 2.68%. This marks a minor deviation from the bank’s typically strong performance in recent quarters.

Market Reaction

Despite the earnings miss, First Bank’s stock price remained unchanged at $15.58. The stock has shown stability within its 52-week range of $12.74 to $16.47, suggesting that investors are maintaining a neutral outlook on the company’s performance. InvestingPro’s Fair Value analysis indicates that First Bank is currently slightly undervalued, presenting a potential opportunity for value investors. Discover more undervalued opportunities at Most Undervalued Stocks.

Outlook & Guidance

Looking ahead, First Bank expects loan growth to moderate in the latter half of 2025, with stable net interest margins and a continued focus on expense management. The bank is also exploring potential mergers and acquisitions, particularly targeting low-cost deposit franchises. Analyst consensus remains optimistic, with price targets ranging from $18 to $19 per share. For comprehensive analysis including detailed financial metrics, growth projections, and expert insights, access First Bank’s full Pro Research Report, one of 1,400+ available exclusively on InvestingPro.

Executive Commentary

CEO Patrick Ryan stated, "We could do more quality loans if we found the good, low-cost funding to support it." CFO Andrew Hitchman added, "Our margin is holding in at high levels. Our strong asset growth will drive strong revenue growth during the second half of the year."

Risks and Challenges

• Competitive deposit environment could pressure margins.
• Management changes incurred severance costs, impacting short-term financials.
• Potential rate cuts may affect interest income.

Q&A

During the earnings call, analysts inquired about the drivers of loan growth, which were attributed to new customer acquisitions. Questions also focused on the bank’s ability to manage deposit costs effectively amidst a competitive environment.

Full transcript - First Bank (FRBA) Q2 2025:

Bella, Conference Operator: Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to First Bank Earnings Conference Call Second Quarter twenty twenty five. Simply press star then the number 1 on your telephone keypad. To withdraw your question, press one again.

I would now like to turn the conference over to Mr. Patrick Ryan, President and CEO. You may begin.

Patrick Ryan, President and CEO, FirstBank: Thank you, Bella. I’d like to welcome everyone today to FirstBank second quarter twenty twenty five earnings call. I’m joined by Andrew Hitchman, our chief financial officer Darlene Gillespie, our chief retail banking officer and Peter Cahill, our chief lending Officer. Before we begin, Andrew will read the Safe Harbor statement.

Andrew Hitchman, Chief Financial Officer, FirstBank: 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 and actual results could differ materially. And therefore, you should not place undue reliance on any forward looking statements we make. We may not update any forward looking statements we make today for future events or developments. Information about risks and uncertainties are described under item one a risk factors in our annual report on Form 10 k for the year ended December 2024 filed with the FDIC.

Pat, back to you.

Patrick Ryan, President and CEO, FirstBank: Thanks, Andrew. The 2025 was another quarter of strong balance sheet growth in the right categories. Loans grew over 90,000,000 during the quarter and deposits grew by 50,000,000. Three quarters of the net loan growth came from our strategic C and I and owner occupied segments. Our deposit growth during the quarter was fueled by gains in the non interest bearing category.

Loan growth in excess of deposit growth pushed our loan to deposit ratio up to 105%, something we’ll be tracking and looking to move lower in the back half of the year. Strong balance sheet growth growth drove top line revenue growth. For example, net interest income was up 1,900,000.0 compared to the first quarter, which is 6% linked quarter growth. Pre provision net revenue was up 2,900,000.0 compared to the first quarter, which was 21% linked quarter growth. And our pre provision net revenue return on assets was 1.65% annualized.

Results for the quarter did include some noncore items. Specifically, we had a $397,000 pretax gain on the sale of our Paoli office building, and we had an $862,000 severance costs related to some management changes. Overall, credit quality seems to be holding up despite the economic and tariff induced uncertainty. Net charge offs remain relatively low as do our nonperforming assets and nonperforming loans. Our allowance to nonperforming loans sits at 255 percent coverage, well above industry average.

We achieved pretty good profitability over a 1% ROA in the quarter despite the severance cost and the elevated provision. Core profitability is tracking closer to one fifteen ROA. Our newer business units continue to gain size and scale, driving profit improvement moving forward. Furthermore, we expect higher expense containment to also help boost future profitability. New business units, new branches, and technology expenses have driven our noninterest expense to average asset ratio above 2%.

Historically, we’ve operated in the 1.9 to 2% range, excluding merger related charges. Operating leverage and expense management will help us get back to those historical levels. We’ve also completed a successful subordinated debt offering during the quarter. We brought in 35,000,000 in new debt at seven and one eight interest rate, one of the lowest coupons on a new debt deal for a community bank this year. At June 30, we still held 30,000,000 of our older higher rate sub debt, and we expect to pay that off on September 1.

In summary, core operating trends look good. Our our margin is holding in at high levels. Our strong asset growth will drive strong revenue growth during the second half of the year, and expense management will help drive better bottom line results. We’re keeping a close eye on credit credit trends, but they appear stable. All in all, things should be shaping up for a good back half of the year.

At this point, I’ll turn it over to Andrew to get into some more details on the financial results. Andrew?

Andrew Hitchman, Chief Financial Officer, FirstBank: Thanks, Matt. For the three months ended 06/30/2025, we recorded net income of 10,200,000.0 or 41¢ per diluted share and a 1.04% return on average assets. We saw another quarter of substantial loan growth. Loans were up 91,000,000 for the first quarter or 11% annualized. Over the last twelve months, loans have grown 329,000,000 or 11% with our core areas of focus leading the way.

C and I grew a 176,000,000 and owner occupied commercial real estate loans grew over 60,000,000. Growth was also solid again on the deposit side. Balances were up over 48,000,000 during the quarter or an annualized 6.2% as we continue to execute on adding and maintaining profitable relationships. This growth all came from noninterest bearing deposits and was supplemented by additional FHLB advances to support our significant loan growth. Net interest income increased $1,900,000 compared to the first quarter, primarily due to margin stability on a growing balance sheet.

Our net interest margin remained at 3.65% in the second quarter, benefiting from slightly higher yields on loans, offset by slightly higher costs, primarily due to increased costs on our subordinated debt. Looking ahead, we continue to manage a well balanced asset and liability position, which should result in continued strong net interest income generation with limited variability in the margin regardless of the Fed’s actions on rates. We will most likely see a larger decline in our acquisition accounting accretion income over the next several quarters than what we saw in Q2, and we will be negatively impacted in Q3 by carrying both of our sub debt interest instruments. However, we believe that we will be able to maintain a stable margin with some potential upside due to our efforts to push deposit costs lower combined with lower yielding assets continuing to run off our balance sheet, which are being replaced with higher yielding loans. Our asset quality continues to be strong.

NPAs to total assets declined to 40 basis points compared to 42 basis points at March 31 and 56 basis points at 06/30/2024. This reflects the second quarter sale of our OREO asset, which with accounting value of $4,800,000 at March 31, offset somewhat by a net increase of $4,400,000 in nonperforming loans. We reported a $2,600,000 credit loss expense during the quarter compared to a credit loss expense of $1,500,000 for the first quarter. The increase is primarily due to our loan growth during the quarter, a modest uptick in net charge offs after several quarter quarters of little to no charge off activity and a slight build in reserves in our C and I portfolio. Our allowance for credit losses to total loans increased slightly from 1.21% at March 31 to January at June 30.

Noninterest income totaled 2,700,000.0 in the second quarter of twenty twenty five, up from 2,000,000 in q one. The increase reflects higher loan fees as well as a gain of 397,000 on the sale of our Paoli location, which included some excess corporate office space and the branch, and we have leased back just the branch space. Noninterest expenses were $20,900,000 for the second quarter compared to $20,400,000 in Q1. Recall, the Q1 expenses included an $815,000 impairment of an OREO asset during the quarter, which we sold for a gain of $34,000 in Q2. In Q2, salaries and employee benefit expenses grew by 841,000 primarily due to the executive severance payments during the quarter.

We are laser focused on expense control and believe that we continue to drive growth without adding meaningful meaningfully to our expense base. Tax expense totaled $3,000,000 for the second quarter with an effective tax rate of 22.9%. This compares to an effective tax rate of 22.7% for Q1. We anticipate our effective tax rate going forward will be relatively stable, and we do not expect the recent legislation changes to have a material impact on our tax rate. Our efficiency ratio improved to 56.24% and remained below 60% for the twenty fourth consecutive quarter.

We also continued to expand our tangible book value per share, which grew $0.40 during the quarter. I commented on this, but it’s worth repeating that our $35,000,000 subordinate debt offering was very positive for us in this rate environment. We priced below our expectations and below other comparable deals. The 30,000,000 in subject that we issued in 2020 will be carried until the August and will impact q three results because of the extra interest expense, but we’ll see savings of approximately 240,000 monthly starting in September. I note that the actual subordinated debt is also included in our total risk based capital ratio at June 30.

Even after the expected redemption, our capital ratios will remain strong, allowing for capital flexibility. We continue to be pleased with the momentum and very positive performance. We are executing our strategy to evolve into a middle market commercial bank, and we are strengthening our core earnings profile. We’re also pleased this success allows us to drive shareholder value through the successful continuation of our buyback program and a stable cash dividend. At this time, I’ll turn it over to Darlene Gillespie, our chief retail banking officer, for her remarks.

Darlene?

Darlene Gillespie, Chief Retail Banking Officer, FirstBank: Thanks, Andrew, and good morning, everyone. As Pat and Andrew noted, we experienced robust deposit growth in the second quarter, highlighted by a $55,000,000 increase in noninterest bearing deposits. This growth was particularly strong among our commercial clients. This contributed to a favorable mix shift with noninterest bearing demand comprising nearly 19% of our total deposits at June 30, up from 17% a year ago. Over the same time, interest bearing demand deposits declined from over 19% of total deposits a year ago to 17.5% at June 30.

This reflects our bankers’ continued success in building and maintaining deep customer relationships, which supports our focus on growing core funding and lowering our deposit costs. We have initiatives and banker incentives in place to support these goals, and they are proven to be effective. To be a bit more specific, in addition to continued momentum in retail and commercial lending, the small business banking team is advancing industry specific initiatives aimed at driving deposit growth across the bank, positioning us to meet critical growth targets through year end. As Andrew mentioned, our total deposits were up $48,000,000 or over 6% annualized from the first quarter, and they grew $2.00 $1,000,000 or nearly 7% from second quarter of twenty twenty four. What’s hitting in this net growth is our continued success in managing out some higher cost balances over the past few quarters.

If you look at the first six months of twenty twenty five, our average money market deposits grew by about 15 and a half million or 2% over the first half of twenty twenty four. But the average cost declined by nearly 60 basis points, lowering the overall interest cost on these deposits by $2,800,000 compared to the prior year period. Time deposits continued to grow, up $26,000,000 during the quarter. We introduced a series of CD promotions to strategically onboard funding in support of our continued strong loan growth. In addition, targeted promotions were implemented to drive engagement with our newly opened branch locations, which I will speak to shortly.

We’ve continued to benefit from the runoff of certain customer CD either maturing from previously higher rate terms or transitioning into our back rate pricing structure. We continue to execute our branch strategy, which is aimed at supporting engagement in our current markets and opportunistic expansion into adjacent markets. On June 9, we opened our De Novo branch in Summit, New Jersey, adding Union County to our footprint. That adds the ninth county where we have a physical location in New Jersey. Looking ahead, we have approvals in place to open another De Novo branch in Oceansport, New Jersey, which will extend our footprint into Monmouth County, making that the tenth county in New Jersey where we will reside.

We will be closing our limited service Maritime office next month in August, transferring the deposits to nearby Denville where those clients will continue to be serviced. We also expect to complete the relocation and expansion of our Palm Beach, Florida branch to a more convenient and accessible location in nearby Wellington, Florida, staying in the prestigious Palm Beach County by the end of third quarter. As mentioned, we run promotional campaigns in our new branch markets, and it has proven to be a successful tool in gathering core deposits and building new customer relationships. Our customer retention and ability to onboard customers is strong, and we believe this should continue to support a solid and growing deposit base in 2025 and beyond. At this time, I’ll turn it over to Peter Cahill, our Chief Lending Officer, for his remarks.

Peter?

Andrew Hitchman, Chief Financial Officer, FirstBank: Thanks, Darlene. Andrew described in his comments the overall loan growth we’ve experienced in the past quarter as well as last twelve months. I think an 11% organic growth rate compares favorably to our peers. It’s important to note, as Pat pointed out, that almost 75% of the loan growth over the past twelve months has been in the C and I and owner occupied real estate areas. The residential I’m sorry.

The regional commercial banking teams in New Jersey and Pennsylvania are our largest teams, and they continue to execute on their plans to grow loans and deposits as does the smaller team in Florida. All are positioned to meet or exceed plan for the year. I mentioned last quarter our, that we expect our new business units, private equity fund banking and asset based lending to be our leaders in net loan growth this year. And through June, both are significantly ahead of plan. Regarding small business banking, which includes SBA lending, it’s showing solid loan and deposit growth.

Business Express, our credit score small business product, which is different from SBA lending and capped out at around $350,000 in availability, has shown growth through six months that almost equals what the group did in all of 2024. I’m also happy to report that our consumer lending area, including residential, also showed excellent growth through the second quarter. We normally anticipate loan runoff through amortization and normal payoffs to equal new loans. But through June 30, that area is up $28,000,000 due to an increase in referrals from our relationship managers and retail team. And lastly, regarding investor real estate, we closed a number of new loans in the second quarter, but similar to the first quarter, new loans were offset by payoff.

I mentioned last quarter a project to shift over time a greater percentage of our investor real estate business into our more specialized investor real estate team and focus on relationship development and increased management of loan concentration levels. That continues to go well. One aspect of that has been a change in the ratio of investor real estate loans to total capital. We were at 420% in early twenty twenty four, went to 390% at 03/3125, and we finished q two at 380% after adjusting for a normalized level of sub debt in our calculation of capital. The lending pipeline at the end of the second quarter stood at $301,000,000 of probable fundings, down 8% from the level of probable fundings at March 31.

I’m satisfied with the pipeline for a couple of reasons. The average month end balance for q two was 323,000,000, which was more than the average for q one. And this coupled with the loan growth we’ve experienced, which pulled loans off the pipeline, that’s the activity I’m seeing on a day to day basis makes me feel good about where we are. If one breaks down the components of the pipeline at quarter end, C and I loans made up 68% of the overall pipeline, up from 63% at 03/31, which we see as a positive. On the topic of asset quality, I really don’t have anything to add to Andrew’s comments.

We think things continue to be in good shape. The loan portfolio continues to be well diversified, and the loan growth numbers confirm the direction there. So we have nothing to report on the impact of changes in federal government spending or tariffs. We’re seeing little impact there at this point as well. In summary, I think we had a good second quarter.

We had a good start to Q3 with the lending pipeline that’s in place. But as always, things like loan payoffs among 15 asset sales by customers can impact loan growth. That concludes my remarks about lending in Q2. I’ll turn things back to Pat Ryan for some final comments. Pat?

Patrick Ryan, President and CEO, FirstBank: Thank you, Peter. At this point, I’ll turn it back to the operator to open up the q and a.

Bella, Conference Operator: At this time, I would like to remind everyone in order to ask a question, press star and then the number one in your telephone keypad. We do request right now that you will pause for just a moment to compile the q and a roster. Your first question comes from the line of Justin Crowley of Piper Sandler. Your line is now open. Please go ahead.

Patrick Ryan, President and CEO, FirstBank: Hey. Good morning, everyone. Good morning, Justin. Maybe just dig into some of the commentary on forward loan growth moderating. You know, the c and I verticals have been growing at a pretty good clip here for a while.

So wondering how we should think about continued growth there versus some of the other areas of the portfolio that could be served as an offset. Yes. It’s a good question. I mean, in any given quarter, you’re you’re lining up a lot of different things. Right?

You got different levels of loan demand across your segments, across your regions, and different time frames to get things closed. And so it’s a little tough to say with much precision, you know, within a specific ninety day window what you’re gonna see. I would say, in general, our guidance has been and continues to be that, you know, on average, we’re looking to generate plus or minus 50,000,000 in net loan growth in the quarter. That being said, we just had two quarters that were well ahead of that. If history is any guide, we usually end up seeing a little bit of a slowdown on the heels of a couple of strong quarters.

So we’re we’re sort of predicting that things will flow in the back half of the year, not because of any macroeconomic trends or or any slowness we’re seeing in the market, just more a function of how our business works. And as we as we close and fund loans, it takes some time to refill the funnel, etcetera. We’ve also seen a little bit of an unusually low level of payoffs and paydowns, Justin. So some of the net loan growth is driven not just by new production, but by our estimates of what we think will pay off and pay down during any given quarter just based on historical trends. And during the first half of the year, the the pay ups and pay downs were a little little slower than what we’ve seen in prior years.

So, again, we’re sort of estimating that that that payoff and pay down trend will normalize and and sort of pick back up a little bit together with some time it takes to resell the pipeline. So, you know, we’re we’re thinking things will be a little slower in the back half of the year. But as Peter mentioned, you know, the pipeline remains healthy and the payoffs are a little little difficult to predict. So, you know, sorry, we can’t be more specific there. But the other thing I think you asked was just about mix, and and I think we’ll continue to see majority of the growth coming from the C and I and the owner occupied categories.

We continue to be active on the investor real estate side, but, you know, certainly being selective and, you know, a lot of times, new production is replacing, you know, runoff and pay downs there. So we do see some some modest growth in that quarter going forward, but we expect the growth in the C and I units to be a little bit strong. Okay. Got it. That’s helpful.

And then, like, on the c and I units, the the specialty verticals that you’re in, can you give us a sense for how much of the growth, you know, this quarter and maybe even just the past few quarters, but, you know, how much of that growth has been driven by line utilization versus new customer acquisition? Yeah. I’ll I’ll let Peter try to give a little more clarity if he has it. But, you know, from our perspective, we haven’t seen big changes in line utilization overall. And in general, the growth has been coming from new customer acquisition.

But, Peter, I don’t know if you have any color you can add on kind of the line utilization question.

Andrew Hitchman, Chief Financial Officer, FirstBank: No. That’s right. The line, I check it every quarter, and never seems to fluctuate much. You know, one or 2% can be a big number, but we continue to be in that 41, 42% line utilization rate quarter after quarter. Yeah.

There is kind of more fluctuation in, ABL, for example. You see a big chunk moving in and out of individual loan commitments there. But I would say the growth has been primarily from new customer acquisition.

Patrick Ryan, President and CEO, FirstBank: Okay. Got it. And then on the outlook for deposits, a lot of success increasing that noninterest bearing bucket for a number of quarters running now. Do you think we could continue to see that trend play out? I know you mentioned leaning a bit more on CD promotions to fund growth, maybe in part because of some of the new branch locations.

But just wondering how you think that mix could shake out. Yes. Listen. We’re obviously working hard to drive that noninterest bearing percentage higher. It is it is working right.

I think, you know, post Malvern, we had dipped even as low as 16%. So nice to see it move from 16 to 19. You know, that can also be a little harder to predict because, you know, you’ll have some bigger swings in just kind of balance levels based on seasonality or, you know, companies do a capital raise or a customer sells his business and gets a big chunk of money. So there’s a lot of, you know, kind of singular events that can impact that. But, you know, certainly, the trend is one we wanna continue to move higher.

And I’d say on the other side and the interest bearing side, we’re, you know, we’re continuing to see pressure from, quote, unquote, park money looking for yield in, you know, money market funds and investment products. So in some cases, you know, we’ve tried to offset some runoff in some of those categories with some additional CD dollars. Plus, you know, at the end of the day, when you run when you open a new branch location, offering an attractive CD is a good way to get people in the door, get them to know you’re there, and then build the relationship. And so it’s not uncommon regardless of the underlying trends that as we open a new location, we’ll see a little bit of an uptick in CD activity just because we’re running promotions for those those newer offices. But, you know, hopefully, that answers the question, but, you know, a little harder to predict on the NIB side.

Understood. Gotcha. And so I guess with maybe at least net loan growth flowing through the back half of the year, do you do you look at share repurchases as still a good use of capital with the software it is now? And, you know, is there room to perhaps get even more active there? Yeah.

I mean, I certainly think we have the capital to be, active on the repurchase side. You know, we try to be selective, I e, you know, making sure we’re buying at the right time and the right price. And as I’m sure you’ve noticed, there’s been a fair amount of volatility in the community bank stocks even as they’ve been moving higher. And so we generally don’t rush to keep buying as the market’s moving higher just because, you you know, you tend to have some headline risk that that pushes things down, and then that creates good buying opportunities for us. So trying to be disciplined and collected, but certainly think at the right prices, we can continue to find opportunities to repurchase.

Okay. And then maybe just one last one. Just a question on the appetite for m and a here. I know, you know, the currency maybe isn’t quite where you want it to be, but can you remind us how full bank deals fit into the strategy right now? You know, just the level of conversations being had out there and, you know, what you’d potentially look for in terms of size and geography.

Yeah. I mean, listen. We’ve had, I think, a pretty consistent and disciplined m and a strategy. We think size and scale matters, and so we want to be in a position to look at opportunities for M and A. Obviously, we’ve got to be very careful without a currency.

We’d be careful with a good currency. But you know, our our job is to find the right opportunities at the right price. And, you know, we don’t have a magic number in terms of of size threshold. But I do think, in general, there’s a lot of dialogue in the marketplace, but it’s not always clear how much of the dialogue is, you know, serious dialogue versus folks just, you know, thinking about a variety of different things, but, you know, ultimately unclear whether any of those, you know, more strategic type transactions would come to fruition. So, you know, we’ve been we’ve been pretty vocal about, you know, understanding the importance of looking at m and a from all directions, and we continue to make sure we’re in the market and aware of conversations and having conversations.

But I would say in the market, I think there’s gonna be a bit of a resurgence in activity. Whether that means we’ll end up doing something or not, I I I couldn’t tell you. It’s it’s hard to know, but our strategy and philosophy on M and A hasn’t changed. So Okay. And then just from a geography standpoint, I know you’re getting into some new counties in New Jersey.

But as far as inorganic growth, are there any areas outside of the footprints that are contiguous to kind of strike you as you know, appealing if you if, you know, the right opportunity were to come along? You know, listen. I think geography is important in a sense that at a high level, you tend to see, you know, lower cost deposits at franchise is that are a little bit removed from the more competitive urban markets. And so I think for us, given our strong loan growth generation capabilities, you know, finding an opportunity for a low cost deposit franchise would be would be very interesting if, you know, that became available to us. And then I think if you’re looking at more sort of tuck in, you know, economy of scale type transactions, then, you know, you’re probably looking more within the existing footprint to to generate the cost saves.

So, again, I think we’ve looked at opportunities in different geographies, but the strategic rationale would would be different, obviously.

Andrew Hitchman, Chief Financial Officer, FirstBank: Okay. Great. I appreciate all the detail. I’ll leave

Patrick Ryan, President and CEO, FirstBank: it there. Thanks so much for taking the questions. Yeah. Thank you, Jeff.

Bella, Conference Operator: Your next question comes from the line of Manuel Navas with D. A. Davidson. Please go ahead.

Patrick Ryan, President and CEO, FirstBank: Hey. Good morning. Can I start on some of the near term NIM movements? You you talked about it being pretty stable. But just kind of dig a little deeper, what are kind of new loan yields coming at?

How how fast can you lower deposit costs? Just sort of talk through some of that a bit. Yeah. I’ll talk high level, and then I’ll let Peter and Arlene get more specific in their areas. But I’d say, in general, right, we’ve got a very short term headwind on NIM with the extra sub debt, if you will, that will be going away at the August.

Outside of that, I think the general trends are decent in terms of, you know, we’re seeing an ability to gradually drive higher loan yields with some repricing of some some older assets as they come due. We’re having some success, you know, slowly trying to push down some of our higher rate liability deposit costs. So I think we’ve got a little bit of a headwind in terms of the reduction of the merger accretion income that comes out of net interest income and can hurt the margin. But with the growth and the fact that the new business seems to be margin accretive, I think we’re still kinda go guiding high level towards, you know, flattish margin over the next couple of quarters. But, Peter, maybe you could talk a little bit about what you’re seeing on the loan yield side and then turn it to Darlie to talk a little bit about what you’ve seen on the deposit cost side.

Andrew Hitchman, Chief Financial Officer, FirstBank: Sure. As far as pricing on the lending side, I mean, you know, shorter term floating rate loans or small business loans continue to be prime to prime, you know, plus a couple of points. On the fixed rate side, which would be most of investor real estate and some fixed rate and smaller investor deals getting done in the regions, you know, we’re still looking for 250 to 300 basis points over, you know, we we kind of price the five year treasuries or SHLB, which should be 25 to 30 basis points over treasuries. But we’re trying to get in that, you know, 250 basis point spread on that. And, overall, when you look at new loans that have come in on a month to month basis, our weighted average yield on that, you know, bucket of new loans each month has been in the, you know, I’d say the low to mid 7% range.

So I think we’re still doing a good job holding to what we wanna get on pricing, and we’re able to negotiate what we want there between, you know, loan pricing and deposits. I think we’re we’re in good shape.

Patrick Ryan, President and CEO, FirstBank: Thanks, Peter. Darlene, you wanna jump in?

Darlene Gillespie, Chief Retail Banking Officer, FirstBank: Yeah. Sure. So one of the common things we’ve talked about is, you know, basing our relationship banking and looking at clients and determining how we can ensure that we are competitive because there is still competition out in the market relative to deposits, but also making sure that with fairly priced, we’ve been able to moderate some of our pricing, lower some of our deposit costs as a result of that. And then I’ll also add, we have great success with some of our CD maturities that were at higher rates that are rolling into our wrap rate pricing. I would say we probably have about 85% retention rate in that portfolio, which has voted well for us in terms of helping us manage our deposit costs.

And that’s even despite rolling out some TD promotions as a result of some of the activity in the loan side and also with the new branches that we are opening. So I think we have a good handle on managing our deposit costs, and I think we’ll see some additional savings despite what regardless of what the Fed decides to do.

Patrick Ryan, President and CEO, FirstBank: Thanks, Sarah. And, really, I hope that helps. I, you know, obviously, a little bit of a moving target. So It does. I mean, the takeaway is flattish overall, but I I just wanted to dig in on a a couple of details there.

The PAA was about 2,700,000.0 this quarter. Where where does and it’s supposed to trend down. Where should it hit? Where is it expected in the second half of the year? Andrew, you got those quarterly numbers handy?

Andrew Hitchman, Chief Financial Officer, FirstBank: Yeah. It’ll it depends a little bit, Manuel, on on payoffs. Right? So if you see an acceleration of payoffs, the number could change a little bit. But so, yeah, we we saw a decline of only about a 100,000 q one to q two.

We expect that to be a little bit higher than that over the back half of the year in terms of the decline quarter over quarter. So 200,000 decline each quarter. And then into 2026, the number will drop more significantly. But again, it can depend a little bit on on prepayment activity on the loan side. So it could could jump around a little bit, but we are expecting based off kind of the current run rate for that to come down again in the third and again in the fourth, but not huge declines.

But then starting in 2026, the number comes down more significantly.

Patrick Ryan, President and CEO, FirstBank: I I I mean, it’s kind of impressive with a lot of the noise and and kind of the new branches with with maybe having higher deposit costs that that you have kind of a stable NIM, you know, with the sub debt as well. As we get into, like, early two thousand twenty six and and PAA stabilized, the sub debt is is gone. Could you start to see some ramp in in NIM? Just kind of thoughts on on Yeah. I mean, listen.

I have no idea. It’s certainly possible. Right? I mean, the big question is, tell me the shape of the yield curve in January 26, and then I’ll give you a better answer. But, listen, there’s certainly an opportunity.

But, you know, there’s a lot of different things that might happen. So we like that as a potential future benefit, but we’d rather be a little more conservative in the guidance and hope the optimistic scenario plays out. And with this, you know, your your balance sheet is more mutually positioned. If there were to be cuts, you still think stable ish in the back half of this year, just as how it’s structured currently? Yeah.

I mean, that’s kind of what we saw last time around with the cuts. You know, we were able to move Yeah. Liability costs enough to offset the, you know, whatever it is, the 25% of the balance sheet that also goes lower when the Fed moves. So I do think in the long run, cuts will be beneficial if the long end kind of stays where it is and the short end goes down and we get a little more steepening. I think that will be a benefit to us, you know, in the back half of ’26 and into ’27.

But, you know, you don’t get the benefit right away until the steepening really kind of gets through the gets through the repricing process. Shifting lanes a bit, what would get you to pick up loan growth? If the funding comes in faster, you probably can’t have your folks run this hard consistently. I think that’s what came across in some of your commentary to get to re refill the opportunities a bit. But can you just talk about what would take you to to to re to keep loan growth accelerating and general loan demand.

It seems like it’s it’s a lot better than Yeah. Than you maybe expected in the market. Yeah. And listen. I don’t I I think, you know, we we now have enough different business units, different teams, different geographies.

We’re seeing a lot of good loan opportunities. So it’s really a funding constraint at this point more than it is a loan opportunity constraint. We could do more quality loans if we found the good, you know, low cost funding to support it. So the market is certainly, you know, there with the the diversity of the teams and the geographies and the business units. I mean, we’re we’re we feel really good about the fact that we don’t have to stretch and we don’t have to hope.

We continually get to look at, you know, quality opportunities, and we pick the ones we like the best. That’s great. And and I just wanted to clarify, was there any lumpiness in the noninterest bearing end of period number? I mean, the average is a little bit more tame, but still solid good growth trend. Yeah.

And and and could you just comment a little bit on commercial kind of deposit pipeline? Yeah. So listen. There’s always there’s always lumpiness in the NIB because there’s always some significant fluctuations. Right?

Some quarters, the fluctuations work against it. Some quarters, they they move higher and they work poorly. I certainly think we benefited from some positive fluctuations. So there’s probably some accounts that are sitting there running higher than average at the moment. But it’s not like it’s not like loans where, hey, we book a big loan and it kind of explains the quarter.

There’s so many moving pieces and so many different accounts fluctuating at different levels that, you know, if I had to guess, given the the strong uptick in q two, we’d probably see some fluctuations back down a little in q three, but, you know, nothing in there that says, oh, there was, you know, kind of a lot of noise in the number, if you will. In terms of commercial deposit pipeline, I think they look pretty strong. They’re kind of consistent with where they’ve been. And, you know, if if we were growing loans 25,000,000 a quarter, we feel really good about the 50,000,000 in deposits. But because we grew 90,000,000 and we’re sort of saying, hey, we need to do better than 50.

But I think the the overall pipelines there continue to look pretty good. Thank you so much for the commentary. Yeah. Sure. No problem.

Thank you. Thank you, Emmanuel.

Bella, Conference Operator: Your next question comes from the line of Kyle German with

Andrew Hitchman, Chief Financial Officer, FirstBank: the

Bella, Conference Operator: Hobby Group. Please go ahead.

Patrick Ryan, President and CEO, FirstBank: Hi. Good morning, everyone. I was wondering if you can share details on the NPL inflows this quarter. Then a quick the the

Bella, Conference Operator: just quarter.

Patrick Ryan, President and CEO, FirstBank: A the the second couple loans that moved into nonperforming category and, you know, listen, not anything that was alarming or really candidly unusual. There’s flows in and flows out, and, you know, we try to keep an eye on the overall trends. But we’re not seeing anything systemic at this point that would lead us to believe that there’s gonna be major cracks on the credit side. But the I don’t know. Pima, anything you wanna add there?

Andrew Hitchman, Chief Financial Officer, FirstBank: No. I’m just trying to think over the the segments mentioned there. Private equity fund banking, no real changes this quarter. ABL, clean. Yeah.

I mean, SBA, we have is a great pipeline there. I think we should have a pretty good second half of the year getting loans closed and closed fund that didn’t, you know, sell we typically sell a guaranteed portion. But we haven’t seen much problem loans coming out of SBA. I I’d say it’s just, you know, you know, general uptick caused by increased loan volume and, you know, a couple smaller problem loans. Nothing unusual.

Patrick Ryan, President and CEO, FirstBank: Got it. Thank you. And then you mentioned tariffs on loan demand in in the commentary. Was wondering if you could provide some more color. Are you seeing any specific trends or shifts in borrower behavior due to the current tariff environment?

Andrew Hitchman, Chief Financial Officer, FirstBank: Well, I mean, if by trends, you’re saying anything in certain business segments? No. I mean, we keep bringing the topic up and RMs are out, you know, researching the issue. And, yeah, you see a customer or two that says they’re building inventory to hedge against, you know you know, changes in pricing and and that kind of thing, but it’s minor. It’s there’s nothing across the board that gives us much concern right now.

I mean, we are watching it. We’re looking for feedback at our various loan committees and things like that, but no big impact as we speak.

Patrick Ryan, President and CEO, FirstBank: Got it. Thank you. And then you did mention balance sheet positioning for rate cuts. I was wondering if you could specifically quantify the impact of each, like, 25 basis point rate cut on on your NIM. Well, again, I think the impact has been and should be muted in the sense that we see a repricing of our variable rate assets, and we make an appropriate adjustment on the non fixed deposit funding side to really offset the impact.

So it tends to be, you know, a wash in the short run. And then, obviously, if if it generates a steeper yield curve moving forward, then we’ll start to see some benefit down the road. That’s all I have. Thank you for your time. Alright.

Thank you, Kyle. Kyle.

Bella, Conference Operator: That concludes our q and a session. I will now turn the call back over to mister Ryan for closing remarks.

Patrick Ryan, President and CEO, FirstBank: Okay. Thanks very much, everybody. We appreciate your time today, your interest in FirstBank, and we’ll look forward to reconnecting with folks after third quarter results are released. Thanks, everybody.

Bella, Conference Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect. Everyone, have a great day.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.