First Bank

Thank you for standing by. My name is Angela and I'll be our conference operator today. At this time, I would like to welcome everyone to First Bank earnings conference call, first quarter 2025. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session if you would like to ask a question during this time. Please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Mr. Patrick Lyon, president and CEO. You may begin.

Thank you. I'd like to welcome everyone today to First Bank's first quarter 2025 earnings call. I'm joined by Andrew Hichman, our chief financial officer, Arlene Galefsky, our chief retail banking officer, and Peter Cahill, our chief lending officer. Before we begin, however, Andrew will read the St. Harper's Statement.

The following discussion may contain forward looking statements concerning the financial condition, results of operations, and business of First Bank. We caution that such statements are subject to a number of uncertainties and actual results could differ materially. And therefore, you should not place undue reliance on any forward looking statements we make. We may not update any forward looking statements we make today for future events or developments. Information about risk and uncertainty are described under item 1A, risk factors, in our annual report on form 10K for the year ended December 31st, 2024, filed with the FDIC. Pat, back to you.

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 shows 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, C&I, 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 in 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 816,000 also cut into quarterly profitability, excluding the Oreo write-down. Earnings would have been in line or slightly better than prior quarters. Our new and 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 outstanding. 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?

Thanks, Pat. So the three months ended March 31, 2025. We recorded net income of 9.4 million, or 37 cents 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 40 cents 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 is also solid on the deposit side, with balances of 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 .65% in the first quarter, compared to .54% in the fourth quarter. Interest-pairing 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 three basis points. The margin is also impacted by acquisition of county depreciation, 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. NTAs, the total assets, declined to 0.42%, compared to .46% at December 31st, and .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 to measure it to a 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 loss at the total loans increased slightly from .20% at December 31st, 2024, to .21% at March 31st, 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 increased 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. Author-driving expense increased with 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 .2% for Q4 2024, which included the impact of fully 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 remains 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 28 cents during the quarter to 14.47 or 8% annualized. Finally, we're happy to drive shareholder values with 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 race environment. At this time, I'll turn it over to Darlene Gillespie, our Chief Retail Banking Officer, for her remarks. Darlene?

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 -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 masked 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 shifts over the past year, -interest-bearing demand deposits have steadily grown and now comprise .2% of deposits, up from .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 .4% from .1% a year ago. Time deposits jumped this quarter by 47 million. This includes some brokerage 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 DeNovo branch in Trenton, New Jersey. Looking ahead, we have approvals in place to open two new DeNovo 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 first-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 remains 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?

Thanks, Celine. After a good

fourth quarter in 2024, the lending area has had another good quarter and strong starts of the year. As you've heard, loans grew $92 million in the quarter, an annualized growth rate of 12%, exceeding the growth rate in 2024 of 7%. Our plan is focused on C&I lending, which would be inclusive of owner-occupied real estate, which is where we believe most of our commercial bank deposits are continued. Patent mentioned areas within C&I, the increase 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 that 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 in this position down second quarter. We're depending upon our new 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 to result in a decline in the ratios of investor real estate loans to total capital from 420% a year ago to 390% at 331.25. 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 a component of the pipeline at quarter end, CNI loans made up 63% of overall pipeline, down tipped slightly from 66% at 1231.24. But if you compare the level of CNI loans to the total pipeline a year ago, at 331.24, the level was 55%. That swing of 10% is an indicator that our focus on CNI business is taking hold within the sale teams. Further, within CNI, 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 CNI, up from 25%, which is what it were a year ago. On the topic of after quality, portfolio continues to be in good shape. As the year-end release shows, non-performing loans were down. The last four quarters shown and recovery is again a heated charge-off. And the instances 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 for the market, but only modest anticipated impacts. DOGE is the easier one to address. We think risks of lower federal government spending will not impact us tremendously. We have no concentrations of business directly dependent upon government spending. This talks 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 underleased to the Social Security Administration. If that space vacates completely, which we have no indication that it will, that 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 uncertainties across the board. Most of our customers are not seeing anything yet that is feeling a lot of concern. Certain areas are, you know, produce different levels of responses. You know, construction and lending, for example, we've had mixed responses. Most of our developers say that their prices are either fixed for the projects they're 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 tapped on. So again, kind of a too early to sell group of responses. Prior to equity fund banking, here it's often too early to sell. Most of our business here, as far as been in the finance and the acquisitions made by funds, most of the funds say that, you know, yet they've seen a slowing of activity. 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 is vetted at that point. In the regional teams, where we're focused on middle market companies, you know, generally, for us that means those with revenues under $100 million. Some responses from customers have referenced pre-ordering some inventory where appropriate, potential cost of Canadian lumber having an impact. We had one that's delaying an equipment purchase from China. You know, these are kind of small one-off reactions so far. We talk about line of credit utilization rates from time to time. And bank-wise, these have not changed much either. Higher rates could be tied to customers' low 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 crossing to the optimistic. This comes across no what I'd call to be crisis distributions out there with individual clients, but we're still out talking to customers and following updates on the whole tariff situation. Employee first quarter results together and looking at the next quarter in the coming year. I'll just mention that we're keeping another big focus on deposits 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 growing 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 didn't like payoffs among the scene asset sales by customers. Clearly impact growth and obviously economic conditions are a bit of a wild card 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? Pat? Excuse me. Thank you, Peter. Thank you, Avery and Darlene. At this point, I think we'd like to open it up for the Q&A question.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press R1 in your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press R1 again. If you are called upon to ask your question and are listening by a loud speaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. And your first question comes from the line of Justin Crowley with Piper Sander. Your line is now open.

Hey, good morning. Good morning, Justin.

Wanted to start on the loan growth in the quarter. You know, pretty strong result and we could see a lot of that coming outside of investor-free. 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 given some of the uncertainty. I know Peter touched on it, but maybe some further call around, you know, more of what you're hearing from borrowers and how you think that could impact, you know, pull-through rate on the loan growth side to the balance of the year.

Yeah, I'll hit a couple of points and then let Peter add to it. But, you know, the bottom line is a lot of the activity is, you know, stuff that's going to happen quite frankly, whether it's construction projects that are mid-funding, right? Folks aren't going to stop the 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 there's too much of an impact there. And then, you know, a lot of the activity on the real estate side, it has to do with maturities and refinancing that, you know, they 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, you know, merger-related financing or large half-axe 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, you know, 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, you know, managing our funding constraints. So I think we see lots of opportunities and, you know, in terms of what specifically borrowers are talking about, I'll turn it over to Peter and let him share a little detail there.

Yeah, I wish I had more detail there. I mean, there's a perfect example. I referenced a customer that had a big equipment, you know, 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 it 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, they're believing 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, you know, in panic mode by any case. You know, for the most part, we're still a couple quarters away from seeing the impact on that. And everyone's just watching it closely. I hope that, you know, you get some agreement today with some of these other companies and it becomes more and more of

a none of that. OK, I appreciate all that. And then just to shift a little bit

just over on the buyback, you know, you got pretty active here in the period. I wonder if you're moving forward with the stock trading below, where activity got done in the quarter. Can we see this type of pace continue or perhaps even pick up in the event growth does come in a little bit slower through the duration of the year?

Yeah, certainly on our radar, Justin. I mean, given where the stock's been trading, you know, 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, you know, have at the forefront of our radar in terms of capital management going forward, at least, you know, while the stock is trading, you know, in the current range.

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

Okay, great. And then I guess just lastly

on credit, you know, you've got pretty strong reserves here up for at least for this quarter. I'm really above where you guys were back in the pandemic. You know, does it feel like the reserve is at a point where even if things got worse, you know, from an economic standpoint, that you'd probably be okay? I know to a large extent it's people driven, but, you know, I'm just curious to think about where the allowance might have to go to if we do dip into a recession. Just, you know, given the strength of balances already.

Yeah, I think we feel pretty comfortable with where the allowance is, you know, on top of the odd balance sheet allowance. We still have, you know, some considerable credit marks on some of the acquired stuff, which gives us a little bit more in the 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 non-performers are lower than most other folks, our coverage ratio looks very, very strong relative to peers. So I think from that perspective, you know, it'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.

Yeah, I think that's right. We feel pretty good about the coverage ratio. Obviously, it was depending 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'll really depend on a lot of different factors. It's hard to say. But we do feel good about where the level is right now.

OK, got it. And then just one last thing, I guess, just taking with credit, I

just saw on the Oreo right there in the quarter. Can you remind us exactly what that is? I think you mentioned there's the New York City credit or real estate property, just the mechanics of where the mark is and the timeline in terms of just getting that off the books, assuming that's the end game.

Yeah, no, certainly that is the end game. This was an acquired loan from the from the Malvern merger that you know, we took a pretty significant, you know, up from credit mark against and then finalized foreclosure, moved it in. And, you know, they it's in a decent area. It's in the Chelsea area in New York City. It's a retail unit below some residential that, you know, I think based on prior and location, we were thinking that it was marked appropriately, even comparatively. But, you know, we've had it on the market for a little while. And based on some of the feedback we're getting and indications 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, you know, as to when the the last control, which,

you know, our questions would be sooner than later. Okay, appreciate it. I'll leave it there. Thanks so much.

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

Hi, good morning. It seems like a lot of the growth came late in the quarter. The NIN was nice expansion, but where did the NIN finish in March, like a point in time NIN? And then you were adding funding as well, just kind of getting a little bit more guidance around that newer term NIN during how much kind of the balance you changed at the end of the quarter.

Yeah, I mean, I'm not sure we dug in here to that level, Manuel, but at the end of the day, I'm not sure we were angry that the loan growth all came late in the quarter. I think, I think we saw nice growth in each month during the quarter. And, you know, we obviously benefited from some deposits repricing during the quarter as well. So I think, listen, I think we feel like the current level is sensible. We're not predicting it's going to move a lot higher, but I don't think we see 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, is there anything you noticed more granular in terms of months and months or week to week that might have impacted the numbers that you wanted to mention?

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 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 as 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.

What were your loan yields in the first quarter and then what were the brokers added at in terms of cost and how much was added on the broker side? Peter, you want to start with the loan

yields and then I can talk about the light loan? Yeah, I

mean, I don't have the breakdown on fixed the floating, but you know, or versus floating, but if we're fixing loans, fixing the rate on loans is going to be typically at something like 250 over a five-year team. So if that's around 4%, that would be six and a half. I think our -to-month basis, we do report to our board some of our new loans report and shows a weighted average yield. I think we've been right in that middle seven to 25 to 750 range as far as the yields on new loans close. You know, that's going to drive you overall you're slowly or impacted slowly. So again, most of that hasn't changed in the past six months, six to nine months. So again, we focus on fixed rates at 250 over and we've been around seven and a quarter, seven and a half in total. Does that sound about right, Anger?

Yeah, that's about right. I think, yeah, seven and a half 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, seven and a half was the average yield on homes. And then on the liability side, the broker side, I think we added about, the broker deposit increased by about 25 million during the quarter. And those rates, typically we've been continuing to keep, we're a little bit, but we're still staying on the shorter end of the curve. And typically, broker money is falling between four and four and a half percent in that range, depending on, if you go out a little bit further, it's a little deeper. And if you stay short, it's closer to that four and a half percent.

And what's the schedule on the first time accretion, expectations are?

Yeah, I think as we mentioned before, slight declines over the next several quarters. And then once we get to year two and a half, year three, it starts dropping off more and more significantly.

Okay. 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,

on 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 we'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? But you went through it very quickly at the very beginning, and I don't think I caught it all.

So the ADL, the PE funding just kind of loves to know what each of those categories are kind of

doing. Yeah, so maybe you just think about this current outstandings and then kind of where the sheeting is going to, you know, 150, 200 million over the next couple years. That's not to say we would stop it there, but just to give you a sense for, you know, the opportunities for growth. Private equity has had 128. You know, similarly, we could see that business grow into 150 to 200 in total outstandings over the next couple 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 or even up to 150 in the next couple years. But I think meaningful growth in each of those categories and, you know, I think, you know, given the size of the teams that we have and the infrastructure we have, at those levels, each of those businesses should be contributing

meaningfully to the overall profitability of the organization. That's really helpful. SBA getting to 125, 150, what is it at now?

Well, let's not just at the SBA business express are the two components of our small business portfolio that we're quoting here. And that's about

91 million.

Collectively

that is at 91 today. And then it seems like the pipeline is still really strong. This quarter was a fantastic quarter of growth. Any kind of perspective, there are some uncertainties. Any perspective on kind of past targets for full year growth? Well, listen, I think we talk about

organic loan growth and deposit growth goals of, you know, 175 to 200 million net. I think one quarter of 90, obviously, the annualized that would push you well ahead of that target. But history shows that, you know, we can have a 90 million dollar 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, you know, that's yes on the loan side. We're probably coming a little bit ahead of the plan based on quarter one, but I wouldn't be too much into one quarter's worth of production. And similarly on the deposit side, I think we're a little bit behind our budget growth plans in Q1. And so we're hoping to see some uptick in activity there, but we are not

necessarily looking to change our overall organic goals for the year at this point. That's helpful. And then on expenses, is the core rate at the Oreo impairment and some of the seasonal items kind of where I should look at for OpEx, is there anything that should change it from that level? 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 one. Obviously, we're always looking for opportunities to improve efficiency and save money. That being said, you know, our goals for growth in some of these new businesses 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, you know, I think will continue to be part of the program going forward. So I think, you know, overall levels of non-insurance expense to assets are, you know, probably a good run rate to think about moving forward.

And just adding those branches, the branch cost and the value probably is in terms of increases from the current run rate?

Yeah, I think that's right. Certainly new locations cost money and there's some marketing tied to them. Sometimes, you know, what we've seen in the past is, you know, we're open to new and maybe consolidate one of the existing into another location to help offset some of the costs. But, you know, the bigger we get, adding one branch sort of

moves the needle quite as much in terms of the impact on expenses. Okay, I appreciate the commentary. I'll step back and take you. All right, thanks, Daniel.

Your next question comes from the line of David Bichoff, it's called The Group. Your line is now open.

Hey, good morning, gentlemen. Glad to get in the

question

queue here. Hey, Pat,

I'm just curious, you know, capital still very abundant here. I know there's obviously a lot of dislocation within the market, but process from M&A activities this year, I'm just curious how the federal mines have been trending here. Do you think that's an opportunity to deploy capital?

Well, you know, I think our view on M&A is the same as it's always been, which is, you know, we keep our eyes and ears open. We have lots of conversations, most of which don't go anywhere. And ultimately, you know, 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. So, you know, it really comes down to, you know, 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 hopeful rebound so that, you know, the announcement looks better on paper? Those are hard questions to answer today. So, I think, you know, you said it well, right? There's a lot of conversation, but, you know, how much of it is going to result in actual activity? I suspect until, you know, we have a clear visibility of 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. Got it. And then, you know, Pat, you know, she sort of, you

know, wrote some of the commercials in small business, you know, sag us on the C&I side, especially for private equity banking. Comfort level, I mean, I'm just curious, you know, when you're underwriting and doing the due diligence there, I'm just curious with the comfort level for the portfolio companies that sort of make up some of these private equity sponsor units. Just curious how you're thinking about that, you know, limiting credit exposure and credit quality records and the sort of thing.

Well, listen, I can tell you, Dave, we went into these new units with a lower risk, lower yield mindset, right? And so private equity fund banking is a good example, right, is 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, you know, lower yields. But from our perspective, much better, you know, credit profile, if you will. And our mindset of credit has always been don't stretch for yields and take on risk, but do the lower risk yields and manage overall profitability with really strong expense management. And so that mindset being changed as we launched, you know, some of these new units, we brought that same mindset to, you know, the thought process of the teams we wanted to bring in and the strategies they're going to deploy. And so, you know, within ADL 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, you know, our mindset at SBA has never been, hey, if the SBA will prove it, we'll do it. We just don't want to, you know, move out on the risk curve that far. And it was a candidate that constrained some volume on the SBA side, but we're willing to live with that rather than take the risk. So, long-winded way of saying, you know, our model within the core community bank business in terms of risk, reward and credit hasn't changed with these newer units.

So, that's a great color. And I guess one final question for me, you know, it's always a battle, you know, in terms of deposit rates and deposit costs. To experience, you know, a piece amount of exception-based pricing where you can sort of lean on some relation-based pricing to continue to move deposits to a semi-cost level.

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, you know, what the other options are in the market. But I saw a chart the other day that showed, you know, the money flowing into the money market and, you know, overnight funding mechanisms continue to move higher. And that's obviously a direct competitor to the bank deposit business. So, you know, so 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 the deposit costs down. I appreciate it, Tyler. Yes, please.

Thank you, Tyler. There are no further questions. I will now turn the call back over to Mr. Patrick Ryan for closing remarks.

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.

Ladies and gentlemen, that concludes today's call. Thank you all for joining me. May I now disconnect.