Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- First Bank (FRBA, Financial) experienced robust loan and deposit growth in Q3 2024, with loans increasing by $90 million and deposits by $82 million.
- The bank's credit quality remained strong across all segments, including commercial real estate, with minimal charge-offs and declining nonperforming loans.
- Tangible book value grew significantly by 38 cents, or about 3% quarter over quarter, indicating strong value creation.
- The bank successfully executed balance sheet optimization strategies, including selling low-yielding securities and restructuring BOLI assets for better returns.
- First Bank (FRBA) maintained a strong pipeline for future loan growth, with a focus on commercial and industrial (C&I) lending, which made up 70% of new loans funded in the first nine months of the year.
Negative Points
- Net interest margin declined to 3.49% in Q3 2024 from 3.62% in the previous quarter, due to increased deposit costs and higher average borrowings.
- The late quarter loan growth led to a credit loss expense that outpaced the interest income earned on new loans, impacting short-term earnings.
- Non-interest expenses increased to $18.6 million, partly due to a $533,000 increase in OREO expense related to asset write-downs.
- The bank faced margin compression due to competitive pressures on deposit pricing and lower average loan yields.
- Interest income is expected to be negatively impacted by the late September Federal Reserve rate cut, posing challenges for future earnings.
Q & A Highlights
Q: Can you discuss the outlook for maintaining a stable margin, considering the lower loan yields in the quarter?
A: Patrick M. Ryan, President and CEO, explained that while term loans have seen yields dip to the mid-low sixes, floating rate loans remain strong. The focus is on reducing deposit costs to stabilize margins. Although there is potential for margin expansion, the current strategy is to maintain stability amidst competitive pressures.
Q: What are the potential levers on the funding side to improve margins?
A: Patrick M. Ryan noted that while there is potential for margin expansion, the guidance remains conservative due to competitive pressures. The bank is focused on managing deposit costs and monitoring the yield curve for opportunities to enhance margins.
Q: With loan growth being backloaded, what are the expectations for loan growth in the medium to long term?
A: Patrick M. Ryan and Peter J. Cahill, Chief Lending Officer, emphasized that loan closings are often subject to timing variability. The bank has a strong pipeline, and while quarterly results may vary, the long-term outlook remains positive with consistent loan production.
Q: Can you provide an update on the stock buyback program and capital strategy?
A: Patrick M. Ryan stated that the buyback program is in place to be opportunistic, especially when trading near book value. Current capital levels are deemed adequate for opportunistic buybacks, but the strategy is not aggressively focused on repurchasing shares.
Q: What is the expected trend for purchase accounting accretion going forward?
A: Andrew L. Hibshman, Chief Financial Officer, explained that purchase accounting accretion will gradually decline over the next few years, with most of it being earned in the first three years post-acquisition.
Q: What were the new loan yields for the quarter, and how do they compare to previous quarters?
A: Peter J. Cahill noted that new loans funded in the quarter had a weighted average yield of around 7.65%, down from approximately 8% in the previous quarter. The mix of loan sizes and types influences these yields.
Q: How should we think about operating expenses moving forward, considering the recent write-downs?
A: Andrew L. Hibshman indicated that operating expenses are expected to stabilize between $18 million and $18.6 million, excluding any unusual or one-time items.
Q: What is the expected run rate for non-interest income, excluding one-time items?
A: Andrew L. Hibshman suggested that stripping out noise from the current quarter, a run rate of around $1.8 million for non-interest income is a reasonable expectation.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
