FFB Bancorp's Q1 Earnings Show Resilience Amid Regulatory and Credit Challenges

FFB Bancorp (NASDAQ: FFBK) delivered a mixed bag of results for its first quarter of 2025, balancing strong growth in key financial metrics with rising credit risks and regulatory hurdles. While net income rose 4% year-over-year to $2.55 per diluted share, management faces mounting pressure to address a surge in delinquent loans and navigate a Consent Order with regulators.

Growth Amid Headwinds

The quarter’s standout performance came in net interest income, which jumped 17% to $18.9 million, driven by a 18% year-over-year expansion of the loan portfolio to $1.09 billion. Net interest margin improved to 5.35%, up 20 basis points from Q1 2024, reflecting lower funding costs and robust loan demand. Non-interest income also surged 28% to $7.86 million, fueled by higher merchant services revenue as processing volumes climbed.

However, these gains were partially offset by a 30% rise in non-interest expenses to $16.47 million, with salaries and benefits increasing 22% due to hiring and one-time adjustments. This pushed the efficiency ratio to 57.83%, though management noted that an adjusted ratio (excluding merchant-related costs) improved to 52.54%, highlighting operational discipline in core areas.

Balance Sheet Strength and Strategic Shifts

Total assets grew 12% to $1.56 billion, with commercial real estate (CRE) loans—now 64% of the portfolio—surging to $696.6 million. Multi-family loans, including short-term bridge loans for transitional projects, totaled $282.5 million. Deposits rose 10% to $1.32 billion, though the bank is phasing out 17.8% of its deposits from ISO partners, aiming to replace this revenue organically.

Capital ratios remained robust: the leverage ratio hit 14.66%, and the total risk-based capital ratio stood at 21.09%, both comfortably above “well-capitalized” thresholds. Shareholder equity increased 26% to $174.7 million, supported by a $3.42 million share repurchase under a $15 million program.

Credit Quality Pressures Emerge

The quarter’s cautionary note came in asset quality. Nonperforming assets rose to $15.37 million (0.98% of assets), with $11.37 million covered by SBA guarantees. Delinquent loans jumped to $19.12 million, driven by $11.55 million in multi-family loans from a single borrower group. The provision for credit losses increased to $1.16 million, and the allowance for credit losses-to-loans ratio dipped to 1.18%, though management emphasized conservative underwriting and expected SBA borrower rate relief.

Regulatory and Strategic Moves

FFB’s board added two directors with expertise in finance (Linda Emtman) and data analytics (Miles Mahoney), signaling a push for compliance and tech-driven growth. The bank is actively addressing its Consent Order, focusing on process improvements, while exiting ISO partnerships to reduce reliance on third-party deposits.

CEO Steve Miller highlighted investments in technology and regional expansion, while CFO Bhavneet Gill noted liquidity strengths with $746 million in accessible funds. Risks remain, however, including lingering credit issues and the pace of regulatory progress.

Conclusion: A Bank to Watch, But Not Without Caution

FFB Bancorp’s Q1 results underscore its ability to grow loans and maintain strong capital ratios, even as it grapples with credit quality and regulatory challenges. The 18% loan growth and 5.35% NIM demonstrate resilience in a low-rate environment, while shareholder equity gains reflect disciplined capital management.

Yet, the $19 million spike in delinquencies—particularly in multi-family CRE—warrants close monitoring. Should these loans deteriorate further, the 1.18% allowance ratio may prove insufficient, pressuring earnings. Meanwhile, progress on the Consent Order and ISO exit will be critical to maintaining investor confidence.

At current levels, FFBK trades at roughly 1.3x book value, a discount to peers like East West Bancorp (EWBC) and Comerica (CMA), which trade at 1.8x and 1.7x, respectively. This suggests the market is pricing in near-term risks. However, the bank’s fortress balance sheet and strategic pivots could position it for outperformance if credit trends stabilize and compliance issues resolve. Investors seeking a regional bank with growth potential but tolerance for near-term volatility may find FFBK intriguing—though a watch-and-wait approach remains prudent.