First Bank(FRBA) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q1 2023, First Bank reported a net income of $7.0 million, or $0.36 per diluted share, with a return on average assets of 1.03%. Excluding merger-related expenses, diluted EPS would have been $0.38, translating to a 1.1% return on average assets [16][24][30] - The net interest margin (NIM) decreased to 3.52% from 3.69% in Q4 2022, primarily due to increased deposit costs and a decline in loan yields [25][39] - Total deposits decreased by $52 million during Q1 2023, with non-interest-bearing deposits down $40 million and interest-bearing deposits down 12% [25][48] Business Line Data and Key Metrics Changes - Commercial loan growth continued, with loans increasing by $55 million in Q1 2023, primarily driven by C&I lending, which accounted for over 80% of the growth [17][19] - Non-interest income decreased to $964,000 from $1.4 million in Q4 2022, mainly due to a decline in loan fees and losses on the sale of securities [33] - Non-interest expenses rose to $13.5 million, an increase of 8.3% compared to Q4 2022, driven by higher salaries and occupancy expenses related to new regional centers [36][39] Market Data and Key Metrics Changes - The bank experienced manageable deposit outflows, primarily attributed to customers seeking higher-yielding investment options rather than concerns about banking stability [18][44] - Non-interest-bearing demand deposits as a percentage of total deposits decreased to 20.7% from 22% in the previous quarter, while time deposits increased to 24.7% from 23.1% [49] - The bank's liquidity position improved, with an available liquidity to adjusted uninsured deposit ratio of approximately 106% as of April 2023 [30][28] Company Strategy and Development Direction - The company is undergoing a strategic transformation, focusing on diversifying its business geographically and across lines of business to enhance profitability and shareholder value [22][39] - The merger with Malvern Bank is a top priority, expected to create opportunities for growth and improve balance sheet management [10][76] - The bank aims to shift its loan portfolio composition, targeting a gradual decrease in investor real estate loans while increasing C&I and owner-occupied loans [82][84] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the community banking model's resilience, noting that strategic investments made during the quarter will drive future earnings [15][20] - The current interest rate environment is expected to continue exerting pressure on the margin, but management is confident in the bank's ability to maintain strong core profitability [39][122] - The bank is focused on quality loan growth, emphasizing the importance of economically attractive business opportunities rather than chasing growth for its own sake [124][125] Other Important Information - The bank's allowance for credit losses on loans was increased to 1.25% of total loans following the adoption of CECL [30][31] - The bank has implemented measures to enhance liquidity, including increasing borrowings and pledging securities [27][28] Q&A Session Summary Question: What is the long-term vision for the composition of the loan portfolio? - Management aims to gradually shift the loan portfolio to reduce investor real estate loans to around 50% and increase C&I and owner-occupied loans [82][84] Question: Where are the most opportunities geographically? - Opportunities are broad-based across all regions, with active pipelines and good performance noted in North Jersey, Central Jersey, South Jersey, and Southeastern PA [86] Question: Is there expected relief in expenses in the near term? - Expenses are expected to remain higher in the short run due to new hires and strategic initiatives, but management is actively looking for cost-saving opportunities [90][92] Question: What is the status of share buybacks? - There is capacity for share buybacks, with 1.2 million shares remaining on the authorization, but timing will depend on shareholder and regulatory approvals related to the merger [116][120] Question: How is the bank approaching loan growth targets in the current environment? - Management is not changing the budgeted loan growth target of approximately $200 million but emphasizes the importance of quality over quantity in loan growth [124][125]