First Bank (FRBA) Q1 2025 Earnings Call Transcript

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DATE

Wednesday, April 23, 2025 at 9:00 a.m. ET

CALL PARTICIPANTS

• President & Chief Executive Officer — Patrick L. Ryan
• Executive Vice President & Chief Financial Officer — Andrew Hibshman
• Executive Vice President & Chief Retail Banking Officer — Darleen Gillespie
• Executive Vice President & Chief Lending Officer — Peter Cahill

TAKEAWAYS

• Net Income -- $9.4 million, with earnings per diluted share at $0.37, and an ROA of 1% for the quarter.
• Adjusted Earnings -- Excluding an $815,000 OREO asset write-down, diluted EPS would have been $0.40, and ROA would have been 1.07%.
• Loan Growth -- Loans increased $92 million during the quarter, representing 12% annualized growth; the asset-based lending portfolio grew $30 million to just over $90 million, private equity fund banking to $128 million, and small business lending (Business Express and SBA) to $91 million.
• Deposit Growth -- Deposits increased $64 million, or 8.5% annualized, including $16 million growth in non-interest-bearing customer deposits; brokered deposits contributed $25 million to this figure.
• Net Interest Margin -- Increased by 11 basis points sequentially to 3.65%, with interest-bearing deposit costs declining 18 basis points from the fourth quarter to between 4% and 4.5% on brokered funds.
• Total Deposit Mix -- Non-interest-bearing demand deposits reached 17.2% of total deposits, up from 15.8% a year ago; money market and savings balances declined to 38.4% from 41.1%, while time deposits increased $47 million.
• Non-Performing Assets -- NPAs to total assets fell to 0.42%, compared to 0.46% at December 31 and 0.64% a year prior.
• Provision for Credit Losses -- $1.5 million expense, up from $234,000 in the prior quarter, reflecting higher loan growth.
• Efficiency Ratio -- 57.65%, sustaining below the 60% threshold for 23 consecutive quarters.
• Tangible Book Value -- Increased $0.28 to $14.47 per share, or 8% annualized growth.
• Share Repurchase Program -- 350,000 shares repurchased in the current plan, with authorization remaining for up to 1 million shares through September 30.
• Branch Activity -- Opened a de novo Trenton, NJ branch; approvals for two additional new branches in NJ counties, and plans to relocate/expand the Florida branch in Q3.
• Lending Pipeline -- $326 million in "probable fundings" at quarter end, up 33% from prior quarter.
• Segment Focus -- C&I loans made up 81% of new loans funded, with investor real estate loans representing under 5% of new production; C&I constituted 63% of the loan pipeline at period end.
• Effective Tax Rate -- 22.7% for the quarter; guidance for 23%-24% in subsequent periods.

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RISKS

• Patrick Ryan said, "Deposit growth was decent, but did not match our loan growth. We hope to see a catch up and a reversal of that trend in the back half of this year," directly acknowledging potential funding constraints if the deposit growth lag persists.
• Peter Cahill said, "general uncertainty across the board." in response to tariff developments, and noted, "kind of too early to tell" on potential impacts from construction cost inflation and private equity activity slowdowns.
• Patrick Ryan stated, "the bigger we get, adding one branch doesn't move the needle quite as much in terms of the impact on expenses," but also acknowledged, "new locations cost money and there's some marketing tied to them," indicating incremental expense headwinds from branch expansion.

SUMMARY

Management delivered sequential net interest margin expansion and 12% annualized loan growth in key strategic segments. Deposit growth increased but continued to lag loan growth, prompting management to target improvement later in the year. The lending pipeline grew to $326 million, primarily in commercial and industrial categories, while management reported stable asset quality and declining non-performing assets. Tangible book value per share grew $0.28, supported by under-60% efficiency and continued share repurchases.

• Quarterly provision for credit losses rose to $1.5 million, reflecting higher loan production and a focus on maintaining current reserve adequacy.
• Non-interest expense increased, driven by higher salaries, benefit costs, and branch-related occupancy, but was partially offset by $425,000 lower professional fees.
• Share repurchases totaled 350,000 shares year-to-date, with significant capacity remaining under the current plan through September 30.
• Leadership indicated that branch network expansion and CRM implementation are being targeted to boost core deposit acquisition in a competitive rate environment.
• Management highlighted that exception-based deposit pricing is under regular review as rate competition remains elevated, especially against non-bank alternatives.

INDUSTRY GLOSSARY

• OREO: Other Real Estate Owned—property acquired by the bank through foreclosure, not held for investment, and awaiting disposition.
• Asset-Based Lending (ABL): Loans secured by collateral such as receivables or inventory rather than cash flow.
• Private Equity Fund Banking: Lending services provided to private equity investment funds, typically to support acquisition financing.
• Efficiency Ratio: Measure of non-interest expense as a percentage of revenue; lower values indicate greater operational efficiency.
• De Novo Branch: A newly opened banking office not acquired via merger or acquisition.

Full Conference Call Transcript

Patrick Ryan: Thanks, Andrew. I'd like to hit on a few highlights before turning it over to the team to provide some detail. I think in the first quarter, we saw some really nice positive trends emerge. The cost of our deposits came down 14 basis points, which drove an improvement in our net interest margin of 11 basis points. Strong loan growth of $92 million came in the areas of our strategic focus, namely asset based lending, private equity and community bank C&I lending. In fact, CREI or investor real estate loans actually came down $12 million in the quarter despite significant activity and some new production in that area. Deposit growth was decent, but did not match our loan growth.

We hope to see a catch up and a reversal of that trend in the back half of this year. Our non-interest bearing deposit ratio did move up a little bit during the quarter, which was certainly nice to see. Overall, profitability remained respectable with a 1% ROA, we did see higher than normal loan growth during the quarter, which led to a larger provision for credit losses, which pushed profitability down a little bit during the quarter. A reduction in the carrying value of our New York City OREO asset by $815,000 also cut into quarterly profitability. Excluding the OREO write-down, earnings would have been in line or slightly better than prior quarters.

Our newer middle market and small business lending units continued to gain scale. The asset based lending portfolio increased almost $30 million to just over $90 million in outstandings. Our private equity fund banking portfolio grew to $128 million and our small business lending group, which includes our Business Express and SBA loans grew to $91 million. Overall, key metrics remained in good position despite the challenging environment. We had a return on tangible common equity that was above 10%. Our efficiency ratio remained below 60%, and our return on average assets remained above 1%. Those are the quick highlights. And at this point, I'll turn it over to Andrew to discuss additional financial details for the Q1 results. Andrew?

Andrew Hibshman: Thanks, Pat. For the three months ended March 31, 2025, we recorded net income of $9.4 million or $0.37 per diluted share and a 1% return on average assets. Excluding the tax affected impact of the OREO write-down we took during the quarter, EPS would have been $0.40 per share or an ROA of 1.07%. We had very strong loan growth during the quarter following a strong fourth quarter. We were up nearly $92 million or 12% annualized from the end of the fourth quarter. Over the last 12 months, loans are up approximately $244 million.

Growth was also solid on the deposit side with balances up $64 million during the quarter or an annualized 8.5%, as we executed on adding and maintaining profitable relationships. That growth also included some broker deposits, which we added to support our significant loan growth during the quarter. Net interest income increased about $500,000 compared to the fourth quarter. Our net interest income was supported by margin expansion. Our net interest margin increased to 3.65% in the first quarter compared to 3.54% in the fourth quarter. Interest bearing deposit costs declined, down 18 basis points from Q4.

We continue to pass -- continue to be pleased with our success in moving rates lower on a significant portion of our deposit base, while still retaining and growing balances. Deposit cost declines outpaced the decline in average loan yields, which fell by 3 basis points. The margin is also impacted by acquisition accounting accretion, which totaled $2.8 million in the first quarter of 2025 compared to $3.1 million in Q4 2024. Looking ahead, we continue to manage a well-balanced asset and liability position, which should result in continued strong net interest income generation and limited variability in the margin regardless of the Fed's actions on rates. Our asset quality continues to be strong.

NPAs to total assets declined to 0.42% compared to 0.46% at December 31 and 0.64% at the end of Q1 2024. We recorded a $1.5 million credit loss expense in the current quarter. This compared to $234,000 in the fourth quarter, and the increase was commensurate with the high level of loan growth during the first quarter. For the first quarter of 2024, we recorded a $698,000 credit loss benefit, primarily due to the lack of loan growth during that period. Our allowance for credit losses to total loans increased slightly from 1.20% at December 31, 2024, to 1.21% at March 31, 2025.

Non-interest expenses were $20.4 million for the first quarter of 2025 compared to $19.1 million in Q4 2024. Q1 expenses included an $815,000 impairment of an OREO asset during the quarter. The remaining increase in expenses came from higher salaries and employee benefits, primarily due to merit increases in Q1, coupled with higher payroll taxes. Payroll taxes were higher by approximately $300,000 in additional payroll taxes related to annual bonus payments made in Q1. Also driving the expense increase was higher occupancy and equipment costs due to recent branch openings and relocation activity. Offsetting this was professional fees, which declined $425,000 compared to the prior quarter.

Tax expense totaled $2.8 million for the first quarter with an effective tax rate of 22.7%. This compares to taxes of $3.9 million with an effective tax rate of 27.2% for Q4 2024, which included the impact of BOLI restructuring completed in the second half of 2024. We anticipate our effective tax rate going forward will be in a range of 23% to 24%. We are pleased with positive performance and momentum during this quarter. Our efficiency ratio remained strong at 57.65%, remaining below 60% for 23 consecutive quarters. We are also continuing to expand our tangible book value per share, which grew $0.28 during the quarter to $14.47 or 8% annualized.

Finally, we're happy to drive shareholder value through our successful continuation of our buyback program during the quarter, along with a stable cash dividend. We believe our strong core financial results, strong underwriting and low risk balance sheet, combined with our investments for growth, position us to continue performing well in any economic or rate environment. At this time, I'll turn it over to Darleen Gillespie, our Chief Retail Banking Officer for her remarks. Darleen?

Darleen Gillespie: Thanks, Andrew. Good morning, everyone. As Pat and Andrew have mentioned, we saw a solid deposit growth during the first quarter of this year, including growth of more than $16 million in non-interest bearing customer deposits. This reflects our team's continued and outstanding ability to build and maintain deep customer relationships. This has been vital to our success in growing and retaining our core deposit funding in a hypercompetitive rate environment. Our total deposits were up $64 million or 8% from the fourth quarter of 2024, and they grew $150 million or 5% from the first quarter of 2024.

Our solid growth masks another quieter success, and that is our ability to manage out some higher cost balances over the past few quarters. This has been a strategic focus, and it's nice to see and reap those benefits. You can also see that in the favorable mix shift over the past year. Non-interest bearing demand deposits have steadily grown and now comprise 17.2% of deposits, up from 15.8% a year ago. Ongoing strength in interest-bearing DDA brought that bucket up over 20%, while higher cost money market and savings dropped to 38.4% from 41.1% a year ago. Time deposits jumped this quarter by $47 million. This includes some brokered funding utilized to support our team's outstanding loan growth.

And we also benefited from some higher rate customer CDs that either rolled off or into lower rates. Given the ongoing interest in high yielding products, as mentioned, we were happy to see an overall deposit cost decrease again, and this contributed to the solid expansion of our margin for the quarter. As I have mentioned in recent quarters, our branch strategy is aimed at supporting engagement in our current markets and opportunistic expansion into adjacent markets, and we continue to be very active in this space. During the quarter, we opened our de novo branch in Trenton, New Jersey.

Looking ahead, we have approvals in place to open two new de novo branches in New Jersey counties where we currently do not operate. We are also making progress with our plans to relocate and expand our Florida branch to a more convenient and accessible location in the third quarter of this year. We run promotional campaigns in our new branch markets, which are typically at a higher cost, but the relationship value is strong, and it has proven to be a successful tool in gathering core deposits.

We also expect our sales teams to drive future growth through the rollout of our Salesforce CRM tool, which aggregates customer data for both business and consumer relationships, and we're very excited about this initiative. We understand we are still operating in a challenging deposit environment. However, our customer retention and our ability to onboard new customers remain strong. Our teams are always focused on organic core funding and expanding existing relationships. And we are confident these efforts will 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?

Peter Cahill: Thanks, Darleen. After a good fourth quarter in 2024, the lending areas had another good quarter and strong start to the year. As you've heard, loans grew $92 million in the quarter, an annualized growth rate of 12%, exceeding the growth rate in Q4 of 7%. Our plan to focus on C&I lending, which would be inclusive of owner occupied real estate, which is where we believe most of our commercial bank's deposits are continues. Pat mentioned areas within C&I that have increased. Of the new loans closed and funded in the first quarter, 81% were C&I loans. Investor real estate loans made up less than 5% of new loans funded in the period.

The regional commercial banking teams in New Jersey and Pennsylvania are our largest teams and are executing on their plans to grow loans and deposits. The New Jersey team had another excellent quarter, and the Pennsylvania team has a good pipeline and is positioned to have a sound second quarter. We're depending upon our newer business units, private equity fund banking and asset based lending to be our leaders in net loan growth this year. And Pat mentioned small business banking, which includes SBA lending, which is showing very solid loan and deposit growth. We mentioned each quarter our focus on investor real estate.

Late last year, we undertook a project to shift over a period of time, a greater percentage of our investor real estate loans to be managed in our investor real estate team. The goal here is an increased focus on relationship development and increased management of loan concentration levels. This helped result in a decline in the ratio of investor real estate loans to total capital from 420% a year ago to 390% at 3/31/25. The lending pipeline at the end of the first quarter stood at $326 million of probable fundings, that's up 33% from the level of probable fundings at December 31.

We're pleased with the level of business in the pipeline, especially after the loan growth we experienced during the quarter. If one breaks down the components of the pipeline at quarter end, C&I loans made up 63% of overall pipeline, down just slightly from 66% at 12/31/24. But if you compare the level of C&I loans to the total pipeline a year ago, at 3/31/24, the level was 55%, that swing of 10% is a good indicator that our focus on C&I business is taking hold within the sales teams. Further, within C&I, SBA and asset based lending have good pipelines and private equity banking is up significantly over a year ago.

Those three areas now comprise 39% of total C&I, up from 25%, which is where they were a year ago. On the topic of asset quality, portfolio continues to be in good shape. As the earnings release shows, non-performing loans were down for the last four quarters shown and recoveries again exceeded charge-offs and delinquencies in the portfolio continue to be very low. On the topics of DOGE and tariffs, we've had our relationship managers reach out to customers two different times now to discuss potential impacts on their companies. Generally, the responses we've gotten at this point reflect concern, but only modest anticipated impacts. DOGE is the easier one to address.

We think risks from lower federal government spending will not impact us tremendously. We have no concentrations of business directly dependent upon government spending. We've talked on prior calls about office space in particular. First, we have no exposure in the greater Washington, D.C. market, so that obviously helps. In the markets we do business in, we have minimal federal government leases in our investor real estate portfolio. For example, we have one property with space under lease to the Social Security Administration. If that space vacates completely, which we have no indication that it will, debt service coverage still exceeds 1.0 times coverage.

We have that kind of analysis underway, and I can tell you that the overall exposure is going to be very small. Regarding tariffs, the feedback we've gotten is basically general uncertainty across the board. Most of our customers are not seeing anything yet that is creating a lot of concern. Certain areas have produced different levels of responses. In construction lending, for example, we've had mixed responses. Most of our developers say that their prices are either fixed for the projects are in and any impact would be small and can be covered by amounts budgeted for contingencies. In the longer term, they believe cost increases will be able to be passed on.

So again, kind of too early to tell group of responses. Private equity fund banking, here, it's also too early to tell. Most of our business here thus far has been in the financing of acquisitions made by funds. Most of the funds say that, yes, they've seen a slowing of activity. But at the smaller end of the spectrum, there's still plenty of action. And on a deal-by-deal basis, the topic of tariffs comes up and gets vetted at that point. In the regional teams, where we're focused on middle market companies, generally, for us, that means those with revenues under $100 million.

Some responses from customers have referenced preordering some inventory where appropriate, potential cost of Canadian lumber having an impact. We had one that's delaying an equipment purchase from China. These are kind of small one-off reactions so far. We talk about line of credit utilization rates from time-to-time. And bank wide, these have not changed much either. Higher rates could be tied to customers building inventory levels, but we're just not seeing that yet. Historically, these rates have been in the low to mid-40% range, and they continue to be there. And of course, we're following the trend in that number pretty closely. So in summary, we're cautiously optimistic.

We've come across no, what I'd call to be crisis situations out there with individual clients, but we're still out talking to customers and following updates on the whole tariff situation. Pulling these first quarter results together and looking at the next quarter and the coming year, I'll just mention that we continue to have a big focus on deposit generation. It's an important part of our conversation that we have with our sales teams and then with our customers and prospects. Sales teams in all regions are in the middle of new business calling efforts that we hope will result in increased deposit balances.

We're having a good start to Q2 with the lending pipeline that's in place, but things like payoffs from unforeseen asset sales by customers clearly impact growth. And obviously, economic conditions are a bit of a wildcard and can change things a bit for us as the year plays out. That concludes my remarks about lending. So I'll turn things back to Pat for some final comments. Pat?

Patrick Ryan: Thank you, Peter, and thanks, Andrew and Darleen. At this point, I think we'd like to open it up for the Q&A portion.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Justin Crowley with Piper Sandler. Your line is now open.

Justin Crowley: Hey, good morning.

Patrick Ryan: Good morning, Justin.

Justin Crowley: I wanted to start on the loan growth in the quarter, pretty strong result, and it was good to see a lot of that coming outside of Investor CRE. And I know you gave an update on the pipeline, but I just wanted to ask how you're thinking about the lending environment as we move forward here, just given some of the uncertainty. I know Peter touched on it, but maybe just some further color on more of what you're hearing from borrowers and how you think that could impact pull through rate on the loan growth side through the balance of the year?

Patrick Ryan: Yeah. I'll hit a couple of points and then let Peter add to it. But the bottom line is a lot of, the activity is stuff that's going to happen, quite frankly, whether it's construction projects that are mid funding, right, folks aren't going to stop things that are already in process. Now you might see a slowdown in construction six, nine, 12 months from now if the economy is slow or going into recession. But over the next quarter or two, I don't think you'll see much of an impact there.

And then a lot of the activity on the real estate side has to do with maturities and refinancings that need to get dealt with one way or the other. And so I don't think you'll see a real slowdown there. You might see a little bit of a slowdown in merger related financing or large CapEx purchases. But I think net-net, there won't be at least in the next quarter or two, a huge decline in loan demand overall. But we'll certainly keep an eye on that. Our bigger governor, if you will, in terms of loan production has always been making sure we can fund it with good core deposit funding.

And so, we tend to turn away more than we can do anyways just based on managing our funding constraints. So I think we see lots of opportunities. And in terms of what specifically borrowers are talking about, I'll turn it over to Peter and let him share a little detail there.

Peter Cahill: Yeah. I wish I had more detail there. I mean, the perfect example I referenced a customer that had a big equipment or machinery purchase out of China, and it was kind of a nice to have. We'll be a little bit more efficient with it. And they had a $10 million number on it, and they're just going to put it on hold. They don't need the equipment, and they're going to wait and see because in that particular case, their belief was that tariffs were in place. Other cases, folks are just waiting to see how things roll out. They don't seem that tremendously concerned. I mean, again, I don't want to say they're not concerned.

They're just not in panic mode by any state. From what you read, we're still a couple of quarters away from seeing a big impact on that. And everyone is just watching it closely, hoping we get some agreements made with some of these other companies, and it becomes more and more of a non-event.

Justin Crowley: Okay. I appreciate all that. And then just to shift a little bit just over on -- or to buybacks. You got pretty active here in the period. Just what are your thoughts moving forward with the stock trading below where activity got done in the quarter. Could we see this type of pace continue or perhaps even pick up and the event growth does come in a little bit slower through the duration of the year?

Patrick Ryan: Yeah. It's certainly on our radar, Justin. I mean, given where the stock has been trading, had we not been in blackout for earnings, I think you would have probably seen even more activity. So definitely something we're looking at. Obviously, we're trying to balance it with organic growth goals and other constraints. But I think it's something we'll continue to have at the forefront of our radar in terms of capital management going forward, at least while the stock is trading in the current range. So...

Andrew Hibshman: Yeah. Pat, I would just add, we disclosed this previously, but we do have an active plan right now. We've purchased 350,000 shares from that plan, but the plan was 1 million shares. So we have plenty of run room in our current plan, that plan goes through September 30. So we have room there for sure.

Justin Crowley: Okay. Great. And then I guess just lastly, on credit. You've got pretty strong reserves here up slightly for the quarter and really above where you guys were back in the pandemic. Does it feel like the reserve is at a point where even if things got worse from an economic standpoint that you'd probably be okay. I know to a large extent, it's CECL driven, but I'm just curious your thinking on where the allowance may have to go to -- if we do dip into a recession, just given the strength of balances already.

Patrick Ryan: Yeah. I think we feel pretty comfortable with where the allowance is on top of the on-balance sheet allowance, we still have some considerable credit marks on some of the acquired stuff, which gives us a little bit more of an off-balance sheet cushion. And so, when you look at things like our coverage ratio, meaning our allowance to our non-performers, I think in general, for banks in our area, our allowance is higher than most already. And then given that our nonperformers are lower than most other folks, our coverage ratio looks very, very strong relative to peers. So I think from that perspective, there's room to feel like, we're in a pretty good place.

Andrew, I don't know if there's anything you want to add there.

Andrew Hibshman: Yeah. I think that's right. We feel pretty good about the coverage ratio. Obviously, it would depend on the level of any economic issues or concerns and if our data changes. But right now, we're just not seeing a lot of risk in our portfolio. We think we have a fairly conservative allowance and approach right now. So, if we see something like a mild recession, I just -- I wouldn't think we need to move it significantly, but it will really depend on a lot of different factors. So it's hard to say. But we do feel good about where the level is right now.

Justin Crowley: Okay. Got it. And then just one last one, I guess, just sticking with credit. Just on the OREO write-down in the quarter, can you remind us exactly what that is? I think you mentioned it was the New York City credit or real estate property, just the mechanics of where the mark is and the time line in terms of just getting that off the books, assuming that's the end game.

Patrick Ryan: Yeah. No, certainly, that is the end game. This was an acquired loan from the Malvern merger that we took a pretty significant upfront credit mark against and then finalized foreclosure, moved it in and it's in a decent area. It's in the Chelsea area of New York City. It's a retail unit below some residential that I think based on prior appraisals and location, we were thinking that it was marked appropriately, even conservatively. But we've had it on the market for a little while.

And based on some of the feedback we're getting and an indication from the broker, we thought it was prudent to take a little bit of an additional write-down just to make sure we're fully covered if and when the asset gets sold, which our preference would be sooner than later. So...

Justin Crowley: Okay. Appreciate it. I’ll leave it there. Thanks so much.

Patrick Ryan: Sure.

Operator: Your next question comes from the line of Manuel Navas with D.A. Davidson. Your line is now open.

Manuel Navas: Hi. Good morning. It seemed like a lot of the growth came late in the quarter. The NIM was nice expansion, but where did the NIM finish in March, like a point in time NIM? And I know you were adding funding as well. Just kind of giving a little bit more guidance around that near-term NIM given how much kind of the balance sheet changed at the end of the quarter?

Patrick Ryan: Yeah. I mean, I'm not sure we dug into that level, Manuel. But at the end of the day, I'm not sure, Andrew, that the loan growth all came late in the quarter. I think we saw a nice growth in each month during the quarter, and we obviously benefited from some deposits repricing during the quarter as well. So yeah, I think -- listen, I think we feel like the current level is defensible. We're not predicting it's going to necessarily move a lot higher, but I don't think we see a reason for it to come back a lot either. Obviously, it depends on what the Fed does and the shape of the yield curve and all that.

But I think from our perspective, we think the current level, plus or minus, is a reasonable estimate moving forward. I don't know, Andrew, if there's anything you noticed more granular in terms of month-to-month or week-to-week that might have impacted the numbers that you wanted to mention.

Andrew Hibshman: Yeah. So I'd add that you're right, there was decent growth in all the months. March was our best month in terms of loan growth, but there was growth in January and February as well. We did add some of our higher cost funding towards the end of the quarter in terms of some of the broker deposits and some of the advances that we added. We're also going to see a decline in -- another decline in purchase accounting accretion as we talked about, that kind of continues to run down. So there's some headwinds and some tailwinds that we think are kind of offsetting each other with the good -- the loan growth.

Obviously, that growth will trickle into the second quarter. We are going to see some of the higher cost funding that got added later in the quarter, have some strain on the margin and then the purchase accounting as well. But yeah, all things kind of getting close to offsetting each other, we think a fairly stable margin is the right kind of mark or at least in the short term.

Manuel Navas: What were new loan yields in the first quarter? And then, what were the brokered added at in terms of cost and how much was added on the broker side?

Andrew Hibshman: Peter, do you want to start with the loan yields and then I can talk about the liability.

Peter Cahill: Yeah. I mean I don't have the breakdown on fixed to floating, but -- or versus floating. But if we're fixing loans -- fixing the rate on loans, it's going to be typically at something like 250 (ph) over a five year T. So if that's around 4%, that would be 6.5%. I think our -- on a month-to-month basis, we do report to our Board kind of our new loans report and shows the weighted average yield. And I think we've been right in that middle 7.25% to 7.50% range as far as the yields on new loans closed, but that's going to drive the overall yield slowly or impact it slowly.

So again, most of that hasn't changed in the past six months, six to nine months, again, we focus on fixed rates at 250 over, and we've been around 7.25%, 7.5% in total. Does that sound about right, Andrew?

Andrew Hibshman: Yeah. That's about right. I think, yes, 7.5% about is kind of the average rate of new loans. Now remember, we did a lot of C&I, which -- during the quarter, which tends to be more of the variable rate. I don't have the exact numbers as well, but some typically a little bit shorter term. But yeah, around 7.5% was the average yield on loans. And then on the liability side, the brokered side, we -- I think we added about -- broker deposits increased by about $25 million during the quarter. And those rates, typically, we've been continuing to keep -- we latter a little bit, but we're still staying on the shorter end of the curve.

And typically, brokered money is falling between 4% and 4.5% in that range depending on -- if you go out a little bit further, it's a little cheaper. And if you stay short, it's closer to that 4.5% range.

Manuel Navas: And what's the schedule on the purchase accounting accretion expectations there?

Andrew Hibshman: Yeah. I think as we've mentioned before, slight declines over the next several quarters. And then once you get year 2.5, year three, it starts dropping off more significantly.

Manuel Navas: Okay. Great color on kind of the C&I categories and how well they're growing. I feel like I'd love to get more color on that how much bigger they could get? Like, what are they targeting? I guess you're probably still in the experimentation phase, seeing what works is kind of how you've talked about it in the past. Can you just add some perspective on how big each can get and how much growth you've already had? You went through it very quickly at the very beginning, and I don't think I caught it all. So the ABL, the PE funding, just kind of love to know what each of those categories are kind of doing.

Patrick Ryan: Yeah. So maybe the easiest way to think about it is current outstandings and then kind of where are we seeing it heading over the next couple of years that, ABL is sitting at $90 million right now. I think we envision that business growing to $150 million, $200 million over the next couple of years, that's not to say we would stop it there. But just to give you a sense for the opportunities for growth. Private equity is at $128 million. Similarly, we could see that business growing to $150 million to $200 million in total outstandings over the next couple of years.

And on the small business and SBA side, we sell a fair portion of the SBA production. So the total outstandings probably won't grow as much there. Maybe that portfolio gets to $125 million or even up to $150 million in the next couple of years. But I think meaningful growth in each of those categories. And I think given the size of the teams that we have and the infrastructure we have at those levels, each of those business units should be contributing meaningfully to the overall profitability of the organization.

Manuel Navas: That's really helpful. And SBA getting to $125 million, $150 million, what is it at now? Did you get that one earlier?

Patrick Ryan: Let's be careful. It's not just SBA and Business Express are the two components of our small business portfolio that we're quoting here.

Manuel Navas: And that’s about $91 million, right?

Patrick Ryan: Those are -- collectively, that is at $91 million today.

Manuel Navas: And then, so it seems like the pipelines are still really strong. This quarter was a fantastic quarter in growth. Any kind of perspective -- there are some uncertainties. Any perspective on kind of past targets for full year growth?

Patrick Ryan: Well, listen, I think we talk about organic loan growth and deposit growth goals of $175 million to $200 million net. I think one quarter of $90 million, obviously, if you annualize that would put you well ahead of that target. But history shows that we can have a $90 million quarter and then we can have a flat quarter, and then we can have a $50 million quarter and things hop around a little bit. So best guess on the loan side, we probably come in a little bit ahead of the plan based on quarter one, but I wouldn't read too much into one quarter's worth of production.

And similarly, on the deposit side, I think we are a little bit behind our budgeted growth plans in Q1. And so we're hoping to see some uptick in activity there, but not necessarily looking to change our overall organic goals for the year at this point.

Manuel Navas: That's helpful. And then on expenses, is the core rate ex the OREO impairment and some of the seasonal items kind of where I should look at for OpEx? Anything that should change it from that level?

Patrick Ryan: Yeah. I don't think there's anything major on the drawing board that would lead to a major push higher. Similarly, we don't have any big cost cutting campaign coming. And so I think the current level is a decent run rate. Obviously, we're always looking for opportunities to improve efficiency and save money. That being said, our goals for growth in some of these new business units require investment. And so, we expect we'll continue to do that as well. And we continue to opportunistically look for opportunities on the technology side, which I think will continue to be part of the program going forward.

So I think overall levels of non-interest expense to assets are probably a good run rate to think about moving forward.

Manuel Navas: And just adding those branches, the branch costs, and that will be probably it in terms of increases from the current run rate?

Patrick Ryan: Yeah. I think that's right. Certainly, new locations cost money and there's some marketing tied to them. Sometimes what we've seen in the past is we'll open two new and maybe consolidate one of the existing into another location to help offset some of the costs. But the bigger we get, adding one branch doesn't move the needle quite as much in terms of the impact on expenses.

Manuel Navas: Okay. I appreciate the commentary. I’ll step back into queue.

Patrick Ryan: All right. Thanks, Manuel.

Operator: Your next question comes from the line of David Bishop with Hovde Group. Your line is now open.

David Bishop: Hey. Good morning, gentlemen. Glad to finally get in the question queue, here. Hey, Pat. Just curious, capital is still very abundant here. I know there's obviously a lot of dislocation within the market. But prospects for M&A activity this year. I was just curious how the phone lines have been trending here. Do you think that's an opportunity to deploy capital?

Patrick Ryan: Well, I think our view on M&A is the same as it's always been, which is we keep our eyes and ears open. We have lots of conversations, most of which don't go anywhere. And ultimately, when I look at probabilities for M&A, you either need a catalyst on the sell side or you need improved valuations on the buy side. We certainly don't have the latter right now. And so really comes down to what's driving somebody to seek a partner. And based on that, is it enough to push them forward at a time when nominal prices won't look that good?

Or do they want to wait it out until some hope for rebound so that the announcement looks better on paper. Those are hard questions to answer, Dave. So I think you said it well, right? There's a lot of conversation, but how much of it is going to result in actual activity. I suspect until we have a clear visibility on where the economy is headed and what's actually going to happen with the tariff discussions that M&A activity is going to stay muted is my best guess.

David Bishop: Got it. And then, Pat, as you sort of grow some of the commercial and small business segments on the C&I side, especially the private equity banking. Comfort level in terms -- I mean, I'm just curious when you're underwriting and doing the due diligence there, just curious with the comfort level and sort of the portfolio companies that sort of make up some of these private sponsor units. Just curious how you're thinking about that limiting credit exposure and credit quality degradation in a slower economy.

Patrick Ryan: Yeah. Well, listen, I can tell you, Dave, we went into these new units with a lower risk, lower yield mindset, right? So private equity fund banking is a good example, right? As we're calling on folks and developing relationships, we're making it very clear where we want to live on that spectrum. And for us, that means lower leverage situations with lower yields. But from our perspective, much better credit profile, if you will. And our mindset on credit has always been don't stretch for yield and take on risk, but do the lower-risk deals and manage overall profitability with really strong expense management. And so that mindset didn't change as we launched some of these new units.

We brought that same mindset to the thought process of the teams we want to bring in and the strategies they're going to deploy. And so within ABL and private equity specifically, we've been very focused on trying to stay at the lower end of the risk curve in terms of leverage on deals and things like that. And similarly, in small business, we're constantly tweaking the model there. But within SBA, similarly, we're looking and trying to find deals that look and feel a lot closer to almost conventional in nature than our mindset in SBA has never been, hey, if the SBA will approve it, we'll do it.

We just don't want to move out on the risk curve that far. And listen, candidly, that's constrained some volume on the SBA side, but we're willing to live with that rather than take the risk. So a long-winded way of saying our model within the core Community Bank business in terms of risk reward and credit hasn't changed with these newer units. So...

David Bishop: That's great color. And I guess one final question for me. It's always a battle, I know in terms of deposit rates and deposit costs. Just curious, is there a decent amount of exception-based pricing left where you can sort of lean on some relation-based pricing to continue to move deposit funding costs lower?

Patrick Ryan: Well, listen, that's a great question, right? I mean, to the extent that there is some exception-based pricing, we're regularly reviewing it and moving it down where and when we think we can. And a lot of that just becomes a function of what the other options are in the market. But I saw a chart the other day that showed the money flowing into money market and overnight funding mechanisms continues to move higher. And that's obviously a direct competitor to the bank deposit business.

So until the dynamic between what folks can earn in low-risk money market fund assets and bond fund assets versus bank deposits changes, I think it's going to continue to be a struggle to push deposit costs down.

David Bishop: Got it. Appreciate the color.

Patrick Ryan: Yeah. Good pleasure.

Operator: There are no further questions. I will now turn the call back over to Mr. Patrick Ryan for closing remarks.

Patrick Ryan: Okay. Thanks, everybody. We certainly appreciate your time, your interest and your questions today, and we'll look forward to catching up with everybody when we do our earnings call at the end of the second quarter. Thanks, everyone.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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