First Bank(US:FRBA)2022-10-26 18:57Financial Data and Key Metrics Changes - The company reported a net income of $10.2 million for Q3 2022, translating to $0.52 per diluted share, with a return on average assets of 1.57% [14] - The net interest margin expanded by 21 basis points during the quarter, reaching 3.7% [4][18] - Return on tangible common equity was above 15%, and the efficiency ratio remained below 50% for the seventh consecutive quarter [6] - Non-performing assets to total assets declined to just 21 basis points, reflecting improved asset quality [6][25] Business Line Data and Key Metrics Changes - Year-to-date net loan growth was $185 million, representing a 12% annualized growth rate, excluding PPP loans [7][31] - Total loans increased by $36.5 million in Q3 2022, with a total of $101 million in new loans closed and funded during the quarter [16][32] - Non-interest income decreased to $944,000 from $1.5 million in Q2 2022, primarily due to lower loan sale income and fees [26] Market Data and Key Metrics Changes - Total deposits increased by $25 million during Q3 2022, although non-interest-bearing deposits decreased by $16.4 million [17] - The company anticipates an acceleration of deposit costs due to the rising interest rate environment [9] Company Strategy and Development Direction - The company is refocusing on deposit growth after a period of excess liquidity, emphasizing the importance of core deposit generation [11][60] - New opportunities are being explored in niche areas such as asset-based lending and small business lending, alongside traditional commercial banking [12] - The company is also looking to expand its presence in private equity fund banking, which is expected to diversify its portfolio and enhance profitability [63] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining strong loan growth despite potential market slowdowns due to rising interest rates [48][51] - The company is well-positioned to take advantage of opportunities arising from recent M&A activity in the market [48] - Management indicated that while deposit pricing pressures are increasing, they expect to maintain margins at current levels [21][70] Other Important Information - The company repurchased 59,885 shares at an average price of $13.97 during Q3 2022, which had a marginal impact on tangible book value per share [24] - The allowance for loan losses as a percentage of loans was reduced to 1.09%, supported by a significant decline in non-performing loans [25] Q&A Session Summary Question: Loan growth expectations in light of rising deposit costs - Management noted that while there may be a slight slowdown in demand due to rising rates, they expect to see opportunities from recent M&A activity [48][51] Question: Future loan sales in the SBA environment - Management indicated a preference to hold new SBA production loans for now, with potential for future sales depending on the rate environment [53][54] Question: Capital return strategies including stock repurchase - Management stated that they are considering various methods to return capital to shareholders, including stock buybacks and dividends, depending on market conditions [56][57] Question: Changes in deposit and funding strategies - Management clarified that the refocus on deposits is more about returning to a normal operational mindset rather than a complete revamp of strategies [60] Question: Performance of the new private equity fund banking group - Management expressed optimism about the new group, expecting it to contribute significantly to loan growth and deposit generation over time [63][64] Question: Loan fees turning negative - Management explained that the negative loan fees were due to accounting nuances related to early payoffs of SBA loans [66][67]