Hello, and welcome to the First Bank Fourth Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, today’s event is being recorded. I would now like to turn the conference over to Mr. Patrick Ryan, President and CEO. Please go ahead, sir.

Thank you. I'd like to welcome everyone today to First Bank’s fourth quarter and full-year 2018 earnings call. I am joined today by our Chief Financial Officer, Stephen Carman; and our Chief Lending Officer, Peter Cahill. Before we begin, however, Steve will read our Safe Harbor statement.

The following discussions 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 risks and uncertainties are described under Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the FDIC. Pat, back to you.

Thank you, Steve. I'll start off with some high level commentary then turn it back over to Steve and Peter for a little more detail. I think all in all, fourth quarter was an okay finish to the year. There was certainly some noise in the numbers, which we will talk a little bit about. We did come in a little bit below expectations for the quarter. Although looking back overall for the year, I think we did have a pretty decent 2018. Looking at the balance sheet, we didn't quite reach our organic loan growth goals for the year, although that was mostly a function of higher payoffs. Our new production was actually up quite significantly from last year. When we looked at our pipeline and looked back at our closed loans data, we had 347 new loans closed in 2018, which was up almost 20% from the 291 new loans that we closed in 2017. So significant growth in terms of new production on a unit basis. On a dollar basis, now these numbers are a little bit different than what you see on the balance sheet because these relate to expected fundings over time, rather than a point in time data as you see in the financial statements. But just to give you a sense, if you looked at the dollar volume of production, it was close to almost $500 million in terms of expected fundings over the life of the loans in 2018. And that compared to about $350 million in 2017 or an increase of almost 40%. So overall for the year, certainly a lot of great things happening on the new production side. We did see an uptick in terms of payoffs and paydowns. It's hard to tell whether that is a trend that…

Thanks, Pat. Throughout 2018, we have experienced consistent net interest income growth, a strong asset quality profile, and a lower annual effective tax rate. Result has been strong quarterly earnings and subsequent strong earnings performance for full-year 2018. Net income for the fourth quarter of 2018 was $4.1 million or $0.22 per diluted share compared to $583,000 or $0.03 per diluted share for the fourth quarter of 2017. During the fourth quarter of 2017, we recognized a one-time charge to income tax expense of approximately $2.6 million, or $0.15 per diluted share, as a result of the federal tax legislation that lowered corporate statutory income tax rates, requiring a revaluation of First Bank’s deferred tax assets. Net interest income growth was $1.9 million higher for the comparables fourth quarters for 2018 and 2017. Net income for 2018 was $17.6 million, or $0.95 per diluted share, compared to $7 million, or $0.48 per diluted share for the same period in 2017. Net interest income growth for 2018 was $15.3 million, or 38.5% higher for the same period in 2017. I would like to take a couple of minutes this morning to discuss our net interest margin. Efficiency ratio and our effective tax rate for 2018 and how we see that effective tax rate as we begin 2019. First, our net interest margin. Our tax equivalent net interest margin for the fourth quarter of 2018 was 3.44%, a decrease of 7 basis points compared to 3.51% for the prior year quarter. On a linked-quarter basis, our margin declined 16 basis points from 3.60% for the third quarter. The addition of $447,000 to interest income from the payoff of a non-accrual loan contributed about 11 basis points to our margin in the third quarter. Absent that item, our fourth quarter margin would have…

Thanks, Steve. As Pat mentioned earlier, loan growth in the fourth quarter was approximately $52 million compared to growth in the third quarter, which was $41 million. Loans for the year were up $236 million, some of course includes the $57 million in loans acquired from the Delanco Federal Savings Bank acquisition. Importantly, organic growth for the year was $178 million, a 15% growth rate from the end of 2017. While we finished the year strong with a solid fourth quarter as in some of our previous quarters we experienced significant loan prepayments. In the third quarter, our loan prepayments were relatively light at around $32 million, which was less than what we saw in the first two quarters. The fourth quarter, however, the loan growth I just described was after loan prepayments well in excess of $50 million. We’ve outlined in our earnings release a breakdown of the components loan portfolio in comparison of where we were at year end 2017, other than a noticeable uptick in residential and consumer lending from the Delanco acquisition. There were no dramatic changes. We’re pleased however, to see some growth in the Commercial and Industrial segment and a modest decline as a percentage of total loans in the Investor Real Estate segment as we try to keep the portfolio balance between those two areas. We continue to have a strong loan pipeline. Last quarter at September 30, after a slow loan growth quarter, the pipeline stood at $200 million, which was our high point for the year. This led to a good fourth quarter. At 12/31/2018 after a good month and quarter, the pipeline stood at $178 million. This level is well above the 12-month average for 2018, which was around $160 million. So as we head into 2019, I think we're…

Thank you, Peter. Well, at this point, I'd like to open it up to any questions.

Yes. Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Nick Cucharale with Sandler O'Neill.

Hey guys. Good morning.

Good morning, Nick.

I just wanted to clarify on the expense base in the $575,000 of the one-time items. How much of that was due to the one-time depreciation increase related to the Levittown branch closure?

It was about $160,000, Nick.

$160,000. Okay, great. And then is it fair to say cost savings from the recent acquisitions are complete at this point?

Yes. Well, complete, I guess, it’s question of timing really. So the actions taken – the action necessary to achieve the savings are complete, and so we expect going forward, while some of last few things we did in terms of the branch closures and changes in staff really didn't show up in the Q4 numbers we will see the benefits of those starting in Q1 and going forward. Some of it relates to the timing of leases. So the Bensalem branch now is closed. The lease itself I think expires in the middle of the year, so we still have a little time left on that. So we’ve kind of gotten the people and the operating side of the savings and we'll get some of the lease savings as we move into the year. The Levittown lease does expire at the end of March, I believe. So the benefits there will accrue to us starting in the second quarter. But everything we need to do to make sure the savings would be realized has been done, and just a question of timing at this point.

Okay, great. And then I've heard your organic asset growth target of $250 million for 2019. How much of that target is attributable to loan growth?

Most of it, I'd say. We're targeting deposit and loan growth pretty close to that. Our hope is that, we will be generating deposits to fund loans and that won't end up being a lot of activity outside of deposits and loans from a balance sheet growth standpoint, although obviously timing matters. So within any given quarter, there maybe a need for some borrowings or other things as we're trying to match up the deposit and the loan growth. But overall, we don't budget a lot of kind of miscellaneous liability or asset growth outside of those two categories.

Okay, great. And then lastly, I just wanted to ask a quick question about the pipeline. Is it pretty consistent quarter-over-quarter? Or is it more skewed towards C&I after a very nice year for that in 2018?

It's fairly consistent. The point I tried to make was at the end of September, which was a relatively slow quarter, the pipeline, as you might imagine, was up. Loans didn't get closed and funded. But that helped us as we headed into the fourth quarter. But even so, after a good fourth quarter, our pipeline is still well above the average, where we were throughout 2018. So we're optimistic as we head into this year that we're going to hit – start hitting our numbers right off the bat.

Yes. I think it’s important. So Nick, as well, obviously, we're trying to have a balanced portfolio and even see a moderate increase in owner-occupied and C&I, but I think we're talking about percentage point changes, not [sea] [ph] changes. So if we're at 13% C&I, we'd like to get it up to 14%, 15% over time, but it's not going to get to 25% overnight so.

That's great. Thanks for taking my questions.

Thank you.

Thank you. And the next question comes from Joe Gladue with Merion Capital Group.

Good morning.

Good morning, Joe.

Pardon me, if you've covered this. I was interrupted briefly. But just curious about that, you deployed a lot of the excess liquidity by the end of the quarter, but it looks like that was still in the averages. Just curious when that came out and what impact we might see on average asset yields because of that?

Yes. It's a good question, Joe. I mean we did have some, as is typical for whatever reason, a lot of people really like to get their loans closed before the end of the year, whether that's a psychological or a practical goal. And so inevitably you tend to see a lot of loans closing towards the end of December, which obviously then it doesn't show up much and shows up in the year-end numbers as far as liquidity being down by year-end. We probably did have a little bit of extra during the quarter. Although quite honestly, with the Fed moving short-term rates, money sitting in cash doesn't hurt quite as much as it used to in terms of the margin impact. So we're not really expecting a boost, if you will in Q1 on the margin related to the deployment of the excess liquidity. If we get a little bit of a benefit, that's great, but it's not something we'll count on having a huge impact for us.

Okay. Thank you.

Thank you. And as there are no more questions at the present time, I would like to return the floor to Patrick Ryan for any closing comments.

Okay. Well, I'd like to thank everybody for taking the time to listen in this morning. We appreciate your interest in First Bank and we look forward to catching up with folks at the end of the first quarter. Thank you.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.