Good morning, and welcome to the First Bank First Quarter 2019 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Patrick Ryan, President and CEO. Please go ahead.

Thank you. I'd like to welcome everyone today to First Bank's First Quarter 2019 Earnings Call. I am joined today by our Chief Financial Officer, Stephen Carman; and Chief Lending Officer, Peter Cahill. Before we begin, however, Steve will read the safe harbor 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 risks and uncertainties are described under item 1A, Risk Factors in our annual report on Form 10-K for the year ended December 31, 2018, filed with the FDIC. Pat, back to you.

Thank you, Steve. Well, I think we had a decent start to the year giving - given the challenging operating interest rate environment. From a balance sheet standpoint, we did have net loan growth but we were a little behind plan, although I don't think that's the worst outcome given the competitive environment we're in today. We certainly don't want to chase deals especially if we're in the later innings of the economic cycle, and we did see about $30 million in payoffs during the quarter, which obviously impacted our net gross number. Deposit growth was almost double loan growth, helping to lower our longer deposit ratio from 105% at the end of the year to 103%. Unfortunately, we did not see growth in noninterest bearing balances, but we did open several new accounts and we expect positive trends in this category going forward. Some run-off involved normal fluctuation, and we do expect that we'll see a return to some dollar balances in certain categories as we move forward throughout the year. From an income statement perspective, our net interest income was up significantly compared to Q1 2018 and was basically flat compared to Q4. We believe a big part of the deposit repricing has occurred. Our review of current funding costs compared to stated product rates that we're currently offering would indicate that we're getting towards the tail end of the impact from repricing of short-term liabilities. We do still expect to see some impact of higher liability costs moving forward, which will lead to some additional margin compression, but we hope we're getting towards the later stages of that impact. From a noninterest expense standpoint, our expenses were $9 million in the first quarter, which were down compared to $9.2 million in the fourth quarter, and we still…

Thanks, Pat. After a successful 2018, we knew entering 2019 we'd be facing this challenge of a flat converted treasury yield curve in very competitive deposit markets. Our focus based on this environment was the impact to our net interest margin and bottom line results. Net income for first quarter of 2019 was $4.3 million or $0.23 per diluted share compared to $4 million or $0.23 per diluted share for the first quarter of 2018. Net interest income growth, the primary driver of our profitability, was $14 million for Q1 2019, an increase of $1.4 million or 11.4% compared to $12.6 million for the first quarter. Our tax equivalent net interest margin for the first quarter of 2019 was 3.45% compared to 3.62% for Q1 of 2018, a decline of 17 basis points. The combination of a higher interest rate environment during 2018, coupled with stiff competition for deposits, resulted in a 54 basis point increase on interest-bearing deposits outpacing the 23 basis point increase on interest-earning assets. On a linked-quarter basis, our tax equivalent net interest margin was 3.45% for the 3 months ended March 31, 1 basis point higher than our margin for the fourth quarter of 2018. Our margin in the first quarter benefited from the Federal Reserve rate increase on December 19 as well as additional loan income from prepayment penalties, a normal part of our commercial loan business. As we look at the margin over the next couple of quarters, we are projecting our margin to modestly decline from Q1 2019. Commercial loan pricing is expected to be impacted by the inverted yield curve, and we expect that competitive pricing measure - pressure will continue as well. The 17 basis point increase in interest-bearing deposits experienced in Q1 2019, we expect to lessen over the…

Thanks, Steve. As was mentioned earlier, loan growth in the first quarter was $34.6 million, up about 2.4% from year-end 2018. The bad news, I guess, is that this is a slow quarter for us from a loan growth perspective; we were off about $10 million from the average quarterly rate of growth that we experienced in 2018. You might recall, though, that the slow first quarter we had comes after a pretty strong fourth quarter, our biggest quarter in 2018. So a slowdown was kind of normal. If there's any good news in having a slow quarter is that the quarterly growth we did have was in line with what most of our peers experienced during the period. More important, though, is that we continue to close and fund new loans at a steady pace and with it offsetting payoffs and that our loan pipeline continues to be strong. At 12/31/18, after a good loan growth quarter, which usually shrinks the pipeline a bit, the loan pipeline stood at $178 million, which was well above the 12-month average for 2018. The pipeline at the end of the first quarter was $172 million, also well above the 2018 average. And I think that positions us well for hitting our organic loan growth target of about 15% to 16% for the year, which would pretty much match what we did last year. Things affecting loan growth include, obviously, loan prepayments. The level experienced in the first quarter were in line with previous quarters. Also impacting the lending effort was our recent core system conversion. The earnings release outlined the conversion of our core operating system from Jack Henry to Fiserv during the quarter. I had mentioned last quarter the impact that this project had on lending stats in 2018, and that…

Great. Thank you, Peter. Thank you, Steve. And at this point, we'll turn it back to the operator to open up for any questions.

[Operator Instructions]. Our first question comes from Joe Gladue with Alden Securities.

Let me, I guess, just ask a little bit about the Grand Bank acquisition. Yes, they've got a pretty nice deposit mix. Just wondering if there's any opportunity to - I guess any strategies they have or anything that can be expanded more widely in your network to sort of improve the deposit mix a little bit?

Yes. I don't know if there's any sort of secret sauce, Joe, that they have as much as I think part of what you see, the good side of loan growth is you drive revenue growth but it also pressures deposit pricing because you need deposits to fund those loans. And you probably notice Grand Bank hadn't been growing much over the last couple years, which I think gave them some added flexibility on the deposit side. But I do believe there's some things we're going to bring to the table in terms of cash management solutions and a larger lending limit that should allow us to expand some of their existing relationships as well as really help solidify our position of strength in Mercer County, which I think can drive some added scale and benefits from a marketing standpoint in kind of the home base of Mercer County. So I do think there are some nice upside opportunities there, none of which were really modeled in from a financial analysis perspective. But I do think there are some things that we can do to help make the combined franchise even better.

Okay. So we're shifting gears just a little bit. Just wondering if there's any trends in sort of early-stage delinquencies that are notable.

Yes. And I think Peter hit on part of it, that part of the increase we saw in the delinquencies are related to a couple of situations where there were lines of credit that needed to be removed that took a little longer than expected and ultimately got booked and updated on the system after the end of the month, so they showed up as delinquencies. But as Peter mentioned, were more administrative than payment delinquencies. But there were a couple of C&I credits that payment got extended on a little bit that we're keeping an eye on. So overall, we still feel pretty good about credit quality, but you can't be - can't be complacent and certainly, we're keeping a close eye on things there. And Peter, I guess, I would turn it over to you to add anything on that point.

No, Pat, I think that's exactly right. He had it covered well.

[Operator Instructions]. At this time seeing no further questions, I would like to turn the conference back over to Patrick Ryan for any closing remarks.

Great. Thank you. Well, I'd like to thank everybody for taking the time to listen in and we'll be back to the group in another quarter with additional update, so thank you very much.

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