First Bank (Hamilton, New Jersey) Q1 FY2025 earnings call

Management Statement and Operational Highlights:

• Loan Growth: Strong loan growth in strategic areas like asset based lending, private equity, and small business lending. CREI loans saw a decline despite activity in the area.
• Deposit Performance: Solid deposit growth, including growth in non-interest bearing customer deposits. Deposit cost decline contributed to margin expansion. Branch strategy with new branches opened in Trenton, NJ and plans for more branches in NJ and Florida relocation.
• Profitability Factors: Higher loan growth led to larger provision for credit losses. OREO asset write-down of $815,000 impacted profitability. Excluding the OREO write-down, earnings would be in line or better. Efficiency ratio below 60%, return on assets above 1%.

Segment Performance:

• Loans: Strong loan growth of $92 million in Q1. Asset based lending portfolio increased almost $30 million to over $90 million. Private equity fund banking portfolio grew to $128 million. Small business lending group (including Business Express and SBA loans) grew to $91 million. CREI loans decreased by $12 million.
• Deposits: Total deposits up $64 million during the quarter. Non-interest bearing deposit ratio moved up. Deposit cost declined by 14 basis points.
• Profitability: Net income was $9.4 million or $0.37 per diluted share. ROA was 1%. Excluding OREO write-down, earnings would be in line or better. Return on tangible common equity above 10%, efficiency ratio below 60%, return on average assets above 1%.

Guidance:

• Loan/Deposit Growth: Hoping for catch-up in deposit growth to reverse the trend in the back half. Organic loan growth and deposit growth goals of $175 million to $200 million net.
• Margin: Expect continued strong net interest income generation with limited margin variability regardless of Fed actions.
• Buybacks: Active buyback plan with room to continue, balancing with organic growth. The buyback plan was for 1 million shares, with 350,000 shares purchased so far.

Risks:

• Economic Uncertainty: Impact of lower federal government spending (DOGE) and tariffs on borrowers. Modest anticipated impacts but monitoring closely.
• Deposit Environment: Challenging deposit environment, but customer retention and onboarding remain strong.
• Loan Production: Funding constraints may limit loan production despite opportunities in strategic areas.

Question and Answer: Q: Thoughts on lending environment and pull through rate?

A: Activity in mid-process projects won't slow soon. Some slowdown in merger/capex, but net-net opportunities. Borrowers watching tariffs but not in panic.

Q: Buybacks moving forward?

A: On radar, balancing with organic growth. Active plan with 1 million share limit, 350k shares purchased.

Q: Credit allowance and OREO write-down?

A: Comfortable with allowance, coverage ratio strong. OREO write-down on NYC property due to market feedback, aiming to sell soon.

Q: Loan yields, brokered deposits?

A: New loan yields around 7.25%-7.5%. Brokered deposits increased by $25 million, costing 4%-4.5%.

Q: M&A and private equity underwriting?

A: M&A activity muted until economy and tariffs clear. Private equity underwriting focuses on lower risk, lower yield deals.

Q: Deposit costs and exception-based pricing?

A: Struggle to push deposit costs lower due to competition from money market funds.