Core banking income supports topline growth

In its H1:2025 financial report, First HoldCo (FIRSTHOLDCO or First Bank Holding Company) showcased a robust topline performance, with gross earnings increasing by 18.1% year-on-year to N1.66 trillion, which accounts for approximately 51.6% of the Group’s fiscal year 2024 gross earnings. This growth was mainly fueled by a notable 51.7% year-on-year rise in interest income, which reached N1.44 trillion. The increase in interest income is indicative of a 13.1% year-to-date
expansion in the Group’s loan portfolio to both banks and customers, a 7.1% rise in interest-earning assets, and a 145 basis points increase in
asset yield to 14.6% (up from 13.1% in H1 2024), all of which were encouraged by the persistently moderately high interest rate
environment during the period.

Conversely, non-interest income experienced a sharp decline of 56.5% year-on-year, primarily due to a N53.67 billion loss on financial assets assessed
at fair value through profit or loss, resulting in a 90.2% drop in trading income. This was further aggravated by a 65.3%
decrease in other income during the same timeframe. Nevertheless, fee and commission income offered some relief, increasing by 25.1%
year-on-year, bolstered by heightened revenues from electronic banking services and commissions on letters of credit.

Looking forward, while the existing high interest rate environment, although moderating, is expected to continue supporting interest
income, sustained topline growth will likely hinge on the Group’s capacity to expand its loan portfolio sustainably. In the meantime, we
foresee a slight recovery in non-interest income, particularly from fees and commissions, given the Group’s interest in digital
banking and product innovation. These initiatives reinforce our optimistic outlook for recurring, fee-based income in the latter half of
the year.

Cost pressures impact the bottom line.

The bank’s net interest margin (NIM) increased by 204 basis points to 9.2% in the first half of 2025, reflecting enhanced asset efficiency bolstered by a rise in asset yield to 14.6%. This enhancement underscores the bank’s growing capability to optimize its assets, further supported by a year-on-year decline of 37 basis points in the cost of funds to 4.8%. The NIM expansion was also reinforced by a more effective deposit mix, as the Current Account Savings Account (CASA) ratio improved to 83.5% (up from 80.0% in H1 2024), indicating a slight shift towards lower-cost funding sources.

Despite the margin improvements, the bank encountered significant cost pressures, as evidenced by the increase in its cost-to-income ratio to 50.5% (compared to 46.9% in H1 2024). This rise was driven by a 24.0% year-on-year increase in operating expenses, primarily due to higher personnel costs, AMCON levies, maintenance expenses, and increased expenditures on advertising and promotions. Additionally, loan impairment charges surged by 99.4% during the period, reflecting the bank’s efforts to unwind its forbearance positions in accordance with the Central Bank of Nigeria’s directive issued in June 2025. Consequently, due to the heightened operating expenses and increased provisioning, profit after tax faced pressure, declining by 21.6% year-on-year to N280.39 billion, compared to N357.77 billion in H1 2024.

Notwithstanding the recent moderation in headline inflation following the rebasing exercise, underlying price pressures remain high and are anticipated to drive increased operating costs for the remainder of the year. Furthermore, in alignment with the Central Bank of Nigeria’s directive mandating banks to fully unwind their forbearance positions, the bank is likely to incur higher impairment charges in the upcoming quarters. This expectation is consistent with the bank’s own guidance as communicated in its press release in response to the CBN circular. As a result, while we foresee some pressure on the bottom line, we project moderate earnings growth in FY 2025, primarily supported by sustained momentum.

Balance Sheet

The Group’s total loans and advances to customers experienced modest growth, increasing by only 0.5% year-to-date to N9.31 trillion in the first half of 2025, up from N8.77 trillion in the first half of 2024. This growth was mainly attributed to slight rises in overdrafts and term loans. However, the quality of assets significantly deteriorated, as the non-performing loan (NPL) ratio escalated to 12.9% (up from 4.2% in the first half of 2024), while the cost of risk rose to 4.0% (compared to 2.3% in the first half of 2024). This decline reflects the effects of write-offs and reclassifications related to the termination of legacy forbearance positions, in accordance with regulatory requirements.

Recommendation

We have determined a fair value estimate of N49.78 for FIRSTHOLDCO utilizing a blended valuation methodology, which includes the Equity Discounted Cash Flow (DCF), Dividend Discount Model (DDM), and Relative Valuation. This valuation suggests an upside potential of 54.4% from the stock’s closing price of N32.25 as of July 31, 2025. Consequently, we assign a BUY rating to the ticker. SOURCE: Coronation Merchant bank