First Bank Q4 2025 Earnings Call Transcript

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Provided by Quartr
January 26, 2026

Key Takeaways

  • Positive Sentiment: First Bank reported strong margin expansion with a Q4 net interest margin of 3.74% (up 20 bps YoY) and improved profitability (ROA 1.21%, ROTCE 12.58%), which helped drive higher earnings.
  • Negative Sentiment: Management flagged deterioration in the small business loan portfolio—charge-offs and delinquencies were elevated—prompting tighter credit parameters, staff changes, and slowed production in that product line.
  • Neutral Sentiment: Loans were up about $149 million (≈5%) YoY despite unusually large Q4 payoffs of $135 million; the bank expects to achieve $200 million net loan growth in 2026 and cites a $284 million probable pipeline.
  • Positive Sentiment: Efficiency and capital moves support shareholder returns—the efficiency ratio improved to 49.46%, tangible book value rose to $15.81, the quarterly cash dividend was increased by 50%, and a repurchase plan of up to 1.2M shares / $20M is approved.
  • Positive Sentiment: Asset quality outside the small-business segment strengthened—CRE and community banking delinquencies remained very low (CRE delinquency 0.02%) and criticized loans fell from 4.86% to 4.20% of total loans YoY.
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Earnings Conference Call
First Bank Q4 2025
00:00 / 00:00

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Operator

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Bank Earnings Conference Call, fourth quarter. 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. To ask a question, simply press star followed by the number one on your telephone keypad. To withdraw your question, press star one again. It is now my pleasure to turn the call over to Patrick Ryan, President and CEO. You may begin.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Thank you. I'd like to welcome everyone today to First Bank's fourth quarter 2025 earnings call. I'm joined by Andrew Hibshman, our CFO, Darleen Gillespie, our Chief Retail Banking Officer, and Peter Cahill, our Chief Lending Officer. Before we begin, however, Andrew will read the Safe Harbor statement.

Andrew Hibshman
Andrew Hibshman
EVP and CFO at First Bank

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, 2024, filed with the FDIC. Pat, back to you.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Thank you, Andrew. 2025 overall, and Q4 in particular, did not play out exactly as we expected, but the overall results were solid nonetheless. For us, the margin drives overall profitability, and in that respect, 2025 was a very good year. Our net interest margin of 3.74% in the fourth quarter was 20 basis points higher than in the fourth quarter of last year. For the full year, our NIM was 3.69%, compared to 3.57% for the full year 2024. The strong margin expansion helped drive overall profitability higher, as our fourth quarter return on average assets was 1.21%, compared to 1.10% in the fourth quarter of 2024.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Similarly, the return on tangible common equity also improved during the year, reaching 12.58% in the fourth quarter of 2025, compared to 11.82% in the fourth quarter of 2024. Despite these strong overall results, we were not happy with the performance of our small business loan product. Given the higher yield on those loans, we did expect credit costs to be higher than our other loan products, but the overall level of delinquency and charge-off exceeded what we believe to be acceptable levels. During the course of the year, we made several changes to credit parameters and how we discuss and sell the product. We expect these changes will lead to overall better performance in 2026 and beyond, and we will continue to monitor closely to make sure the changes are having the impact we believe they should.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

We did see some modest improvement in non-interest income during the year, as our total fee income increased by almost $2 million compared to the prior year. Gains from SBA loan sales were higher in 2025. Further enhancements to technology and staff towards the end of the year in 2025 should help drive continued improvement for the SBA team in the coming year. Fee income from residential mortgage sales remained muted, given continued slowness in that market. Overall, non-interest expense was managed effectively, as a one-time benefit from the sale of an OREO asset helped to offset some severance and other non-recurring expenses during the year. Our non-interest expense to average asset ratio was 1.97% for the full year 2025, compared to 2.01% for the full year 2024.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Our goal will be to continue to move that ratio lower, as we believe improved profitability from our newer business units and improved operating leverage will allow us to drive even stronger efficiency. Regarding credit quality, the story is mixed. The challenges in small business have been documented, but we expect to see those costs stabilize over the next few quarters, given the changes we've implemented. Performance in our core CRE and community banking divisions continues to be strong. In fact, credit statistics in those areas actually improved throughout the year, as the overall risk rating on the CRE portfolio improved modestly and delinquency at the end of the year stood at a very low 0.02%.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

As a result of these positive developments in our largest portfolios, all loans rated pass, watch, special, special mention and substandard declined from 4.86% of total loans at the end of 2024 to 4.20% of total loans at the end of 2025. Despite these positive developments across the board, we did see an increase in the substandard loan category because of the downgrade of one specific $23 million C&I loan that was moved to substandard towards the end of the year. While that overall business has a number of locations that are performing well, the decline in sales and profitability makes that a situation we will be monitoring closely. As we look ahead to 2026, we see reason for optimism.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Our pipelines remain active, and we believe we'll be able to achieve our $200 million net loan growth goal for 2026. We expect growth in asset-based lending, community banking, and a return to modest growth in commercial real estate to help drive that growth in 2026. Deposit growth continues to be an area of focus. We have great teams in New Jersey and Pennsylvania working across various customer segments to help us add new relationship-based customers and drive growth. Furthermore, we continue to expect expense management and operating leverage can help drive improved earnings. In summary, our primary goals for 2026 include closing the gap with our cost of funds relative to our peers, moving modestly higher with non-interest income generation, and driving further reductions in our non-interest expense to average asset ratio.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

At this time, I'd like to turn it over to Andrew to discuss the financial details of Q4 and full year. Go ahead, Andrew.

Andrew Hibshman
Andrew Hibshman
EVP and CFO at First Bank

Thanks, Pat. For the three months ended December 31, 2025, we recorded net income of $12.3 million or $0.49 per diluted share, which translates to a 1.21% return on average assets. We saw another call, solid quarter of loan production. However, elevated payoffs more than offset the increase. Payoffs were $135 million for the fourth quarter, which was nearly as much as the total for the first three quarters of the year combined. As a result, total loans declined about $81 million from the end of the third quarter. We are happy to report that despite the elevated payoffs, loans were up $149 million, or approximately 5% over the last 12 months, with C&I leading the way.

Andrew Hibshman
Andrew Hibshman
EVP and CFO at First Bank

On the deposit side, we took advantage of the decreased funding requirements related to the decline in loans and allowed certain higher cost balances to roll off during the fourth quarter. Total deposit balances were down $21 million during the quarter as we continued to prioritize profitable relationships. While total deposits were down, primarily driven by a $27.1 million decline in broker deposits, we did see nice new customer acquisition, especially at some of our newer branch locations. Net interest income increased $633,000 compared to the third quarter, primarily due to net interest margin expansion. Our net interest margin grew 3 basis points to 3.74% in the fourth quarter. It benefited from the decrease in interest-bearing deposit costs, which outpaced the decline in earning asset yields.

Andrew Hibshman
Andrew Hibshman
EVP and CFO at First Bank

It also reflects lower costs related to the subordinated debt refinance we executed over the summer. Recall that we had a double carry of sub debt for two months in the third quarter that resulted in about $486,000 in additional interest for that quarter. Last quarter, we said that we expected the immediate impact of Fed rate cuts to be slightly negative to the net interest margin, as it takes longer to move deposit costs lower compared to the immediate impact of rates moving lower on our variable rate assets. The decline in loans in the fourth quarter shifted the balance sheet and our funding needs, ultimately driving an improvement instead. Looking ahead, we continue to manage a well-balanced asset and liability position, which should result in continued strong net interest income generation.

Andrew Hibshman
Andrew Hibshman
EVP and CFO at First Bank

We continue to expect declines in our acquisition accounting accretion over the next several quarters. However, we expect our margin to remain relatively stable as we continue efforts to push deposit costs lower and replace the runoff of lower yielding assets with higher yielding loans. Our asset quality metrics at December 31, 2025, reflects some continued deterioration in the bank's small business portfolio. NPAs to total assets increased to 46 basis points compared to 36 basis points at September 30. The increase reflects growth in non-performing loans of $4.8 million. Note that the OREO asset we sold during the quarter had a carrying value of zero, so there is no reduction in NPAs related to that sale. Our allowance for credit losses to total loans increased to 1.38% at December 31 from 1.25% at September 30.

Andrew Hibshman
Andrew Hibshman
EVP and CFO at First Bank

This increase primarily relates to fourth quarter charge-offs and an elevated level of specific reserves in our small business portfolio. Despite the $23 million C&I loan that moved to substandard that Pat mentioned, overall criticized loans increased only $9.4 million from September 30, 2025, as we experienced a number of payoffs and pay downs of classified loans during the quarter and had a few upgrades related to businesses with improving financial results. We recorded $1.7 million in net charge-offs during the fourth quarter, in line with net charge-offs of $1.7 million during the linked quarter, but net recoveries of $155,000 in the fourth quarter of 2024. Charge-offs during 2025 were almost exclusively in our small business portfolio.

Andrew Hibshman
Andrew Hibshman
EVP and CFO at First Bank

Non-interest income totaled $2.3 million in the fourth quarter of 2025, compared to $2.4 million in the third quarter. The decrease of $138,000 mainly reflected lower gains on recovery of acquired loans, but this was partially offset by higher loan swap fees and gains on sale of loans during the fourth quarter of 2025. Non-interest expenses were $17.1 million for the fourth quarter, compared to $19.7 million in Q3. The decline was primarily driven by a $1.9 million gain on the sale of an OREO asset. This Florida-based property was acquired through the Grand Bank acquisition in 2019 and was held at no carrying value. The gain was booked as a contra expense.

Andrew Hibshman
Andrew Hibshman
EVP and CFO at First Bank

Outside of this non-recurring item, salaries and benefits expense decreased by $400,000 compared to the third quarter due to lower bonus expenses, as the increased credit costs in Q4 drove a decline in our year-end bonus accruals. Other smaller declines across other expense lines compared to the linked quarter reflect our focus on expense management in 2025. We've been successful in managing expenses, even as we've incurred some ongoing costs related to our efforts to optimize our branch network. We expect branch network optimization activity to slow in 2026. Tax expenses totaled $4.3 million for the fourth quarter, with an effective tax rate of 25.7%. This compares to 23.4% for Q3. For the full year 2025, our effective tax rate was 23.8%.

Andrew Hibshman
Andrew Hibshman
EVP and CFO at First Bank

Our fourth quarter tax rate included some year-end adjustments, primarily related to state tax allocations. We anticipate our future effective tax rate will be approximately 24%-25%. Our efficiency ratio improved to 49.46 and remained below 60% for the 26th consecutive quarter. We also continued to expand tangible book value per share, which grew more than 12% annualized during the quarter to $15.81. We're pleased with our earnings momentum and our progress in executing our strategy to evolve into a middle-market commercial bank. We've demonstrated we don't need big balance sheet growth to produce growth and profitability. Our capital ratios remain strong, and we're pleased to provide our shareholders with a 50% increase in our quarterly cash dividend.

Andrew Hibshman
Andrew Hibshman
EVP and CFO at First Bank

For the first half of the quarter, of the fourth quarter, we did not have a regulatory approved share repurchase plan, and with our improved stock price during the quarter, we did not execute any share repurchases during Q4. Going forward, we aim to continue driving shareholder value through a combination of core earnings while still making ongoing investment in our franchise and technology, a stable cash dividend, and share buybacks as applicable over time. At this time, I'll turn it over to Darlene Gillespie, our Chief Retail Banking Officer, for her remarks. Darlene?

Darleen Gillespie
Darleen Gillespie
EVP and Chief Retail Banking Officer at First Bank

Thanks, Andrew, and good morning, everyone. As mentioned, we were able to drive favorable shifts in our deposit portfolio during fourth quarter of 2025. The decline in total deposits were largely attributed to our decision to reduce higher-cost brokered deposits in light of a lower loan funding needs. You can see in our ending balances that we reduced time deposits by $38 million or 18% annualized during the quarter. We also let other higher costs and non-relationship deposits run off, which you can see in our ending balances for money market and savings, which declined by $23.5 million or an annualized 8% during fourth quarter of 2025. Despite the attrition, we're pleased with these outcomes. The benefit from the decrease in interest-bearing deposit costs had a positive impact on our net interest margin.

Darleen Gillespie
Darleen Gillespie
EVP and Chief Retail Banking Officer at First Bank

Even so, even more so with our success in growing relationship-based interest-bearing demand deposits. We ended the quarter with growth of $47 million in that portfolio, or 33% annualized compared to September 30. And that is a testament to the outstanding execution of our relationship bankers across our footprint. I'll also note that the $6 million linked quarter decline in non-interest-bearing deposits reflects seasonal fluctuations in business customer deposits related to things such as year-end bonuses. We have been successful onboarding non-interest-bearing deposits as we grew the portfolio by $53 million year to date in 2025. In addition to deposit activity, we've been equally busy in 2025 executing on our branch strategy.

Darleen Gillespie
Darleen Gillespie
EVP and Chief Retail Banking Officer at First Bank

We opened three branches, closed two, and relocated another branch, netting just one additional branch, but gaining stronger alignment of our branch footprint with customer demand and growth opportunities and enhancing profitability of existing locations. We ran targeted promotions at our new and relocated branches and saw great engagement, retention, and the ability to onboard new customers. We see opportunity to bring these promotional rates down in line with market rates throughout 2026, while maintaining key deposit and loan relationships. I'd also note that we saw strong retention among customers affected by our branch consolidations in both relationships and balances. As Andrew mentioned, we see branch network activity slowing in 2026. We will continue to be opportunistic where it makes sense to enhance the efficiency of our network, the convenience for our customers, and our potential exposure to new clients in existing or adjacent markets.

Darleen Gillespie
Darleen Gillespie
EVP and Chief Retail Banking Officer at First Bank

But right now, our focus is on optimizing the pricing and profitability of our deposit portfolio. We continue to prove successful in lowering our deposit rates while maintaining key customer relationships. As Pat mentioned, our goal is to bring our deposit costs closer to our peer banks. This is part of our evolution into a middle-market commercial bank as we move beyond our years of rapid growth. We no longer need to grow for the sake of growth, which necessitated funding that growth with expensive deposits. In 2026, we'll continue to focus on optimizing our deposit portfolio, as I mentioned, by continuing to lower deposit costs, while simultaneously deepening and adding high-quality relationships where we can serve the breadth of the customer's financial needs. Additionally, our relationship bankers are focused on onboarding non-interest-bearing deposits and cross-selling to clients who have interest-only deposits with us.

Darleen Gillespie
Darleen Gillespie
EVP and Chief Retail Banking Officer at First Bank

We expect this will aid in bringing our overall deposit costs down and support a strong net interest margin in 2026. At this time, I'll turn it over to Peter Cahill, our Chief Lending Officer, for his remarks. Peter?

Peter Cahill
Peter Cahill
EVP and Chief Lending Officer at First Bank

Thanks, Darlene. As Pat and Andrew described, while not a good quarter from the standpoint of overall loan growth, we did finish the year up $149 million, or almost 5% compared to the end of 2024. If you recall, we started the year very quickly, but we knew from speaking with clients that we had payoffs coming from either asset sales or refinancing, and for that reason, held our overall estimate for the year at what was originally budgeted. As our press release states, average loan growth for the entire year was $267 million, which I believe is a good indicator of a busy year. We know that the strong loan growth we had in the first half put some pressure on funding sources, and I think we naturally became more selective in business development.

Peter Cahill
Peter Cahill
EVP and Chief Lending Officer at First Bank

When we dig into the numbers, we see that of the $429 million of new loans funded during the year, only 20% of that amount was funded in the fourth quarter. New loans continued to be centered on C&I and owner-occupied real estate. For the year, this category made up 62% of new loans, with investor real estate loans comprising 22%. On the flip side, the loan payoffs we believed were coming hit us pretty hard. The $135 million in payoffs in Q4, as referenced by Andrew, made up 47% of all payoffs for the year. Looking back, it was the largest amount of loan payoffs we've ever had in a single quarter. Six of our 10 largest payoffs for the year took place in Q4.

Peter Cahill
Peter Cahill
EVP and Chief Lending Officer at First Bank

All but one were investor real estate loans, and three of the investor real estate loans were construction loans that were paid off with long-term financing found elsewhere. Our goal continues to be moderate growth in investor real estate and managing more of that business in our investor real estate team. We look closely at the ratio of investor real estate loans to total capital. We have been as high as 430% of capital after the Malvern Bank acquisition, but got to 390% at March 31st of this year, 370% at September 30th, and finished the year at 346%, due in part to the loan payoffs previously described. Going forward, we're comfortable staying around a range of 350%-375% of capital.

Peter Cahill
Peter Cahill
EVP and Chief Lending Officer at First Bank

The lending pipeline at the end of the year stood at $284 million of probable fundings, almost exactly the same as we had at the end of Q3. If one breaks down the components of the pipeline at year-end, C&I loans made up 61% of the overall pipeline, compared to 36% for investor real estate. Overall, I continue to be satisfied with where the new business pipeline stands. On the topic of asset quality, we mentioned some softness in the small business portfolio last quarter, and Pat and Andrew both talked about the Q4 impact. I'll only add that we've reorganized how we manage that business. We've turned over some staff in that area, slowed production, and we're giving a lot of attention to the relationships we have on our books presently.

Peter Cahill
Peter Cahill
EVP and Chief Lending Officer at First Bank

Delinquencies across all business lines are very manageable at year-end, and were virtually nonexistent other than what was from the small business portfolio. In summary, while the payoffs we experienced resulted in a down quarter as far as loan growth goals, as I mentioned earlier, average loan growth for the year was strong. Our plan is to continue to grow in all segments, those being the New Jersey and Pennsylvania regions, SBA, consumer, private equity, asset-based lending, and exceed what we accomplished in 2025. That concludes my remarks about lending, so I'll turn things back down to Pat Ryan.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Thank you, Peter. At this point, we'd like to open it up for the Q&A portion of the call.

Operator

As a reminder, to ask a question, simply press star one on your telephone keypad. Again, that is star one to ask a question. And our first question comes from the line of Justin Crowley with Piper Sandler. Please go ahead.

Justin Crowley
Justin Crowley
VP at Piper Sandler

Hey, good morning, everyone.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Good morning, Justin.

Justin Crowley
Justin Crowley
VP at Piper Sandler

I was wondering if you could start out just on some further discussion on loan growth and the outlook there. You know, I know the payoffs can be tough to predict, and you'd foreshadowed some of that earlier in the year, but just wondering how you think those could perhaps trend through the year as lower rates continue to work their way through the system and, you know, especially if we continue to get more cuts, just, you know, maybe just what you continue to hear from customers on that end of things?

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Yeah, Justin, obviously, it's something we're keeping a close eye on. I'll give you kind of some high-level thoughts of mine, and then let Peter give you a little more clarity based on what's actually in the pipeline. But, you know, we're looking closely, not just at the amount of payoffs, but what's behind them. And we didn't see any necessary, you know, call it disturbing trends in the sense that, you know, we weren't keeping the business that we wanted to keep or that, you know, private credit or other non-bank lenders were stealing our customers. You know, we did have one large payoff that went CMBS because they were able to get non-recourse, which was something we weren't prepared to do.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

But, you know, that's sort of par for the course, forgive the- forgive the term, to, you know, manage the portfolio with the rate and structure and term that we like. And, in situations where other financing sources are willing to do things we're not willing to do, we obviously, live with the payoffs. But I think if you look back over a 12, 16, 20-quarter period, I mean, these, these windows of what look like abnormally high payoffs, given that they come within, a 90-day window, almost always snap back with, you know, strong growth, whether it's the, the next quarter or the quarter after.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

As we've talked about in the past, our ability to kind of deliver on that, you know, historically, $175 million-$200 million in net loan growth has been pretty consistent, and so we're not, we're not raising any alarm bells. We think it was a little bit of an anomaly. It is interesting talking to other bankers out in the market. It sounds like there were a number of banks, at least we know in this market, that similarly experienced unusually high payoff activity. But again, at this point, not anything that we'd attribute to macro conditions as much as, you know, perhaps more just timing and coincidence.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Peter, maybe if you can jump in and just give a little color on where the pipeline stands and what you're seeing for, you know, kind of the first half of 2026 for new production.

Peter Cahill
Peter Cahill
EVP and Chief Lending Officer at First Bank

Yeah. Thanks, Pat. Yeah, Justin, I would—you know, the pipeline is where it was a quarter ago. I think that's, you know, a fairly positive sign. Everything we're hearing, I mean, we've for the last six to nine months after jumping way out ahead of plan early on in the year, you know, we kind of were a little bit more restrictive as to what we would do or what deals we—how hard we negotiate for a piece of business. But, you know, I'm hearing from, whether it's real estate lenders in the Philadelphia market, that there's plenty of business there to C&I type lenders in our regional/community bank space.

Peter Cahill
Peter Cahill
EVP and Chief Lending Officer at First Bank

You know, we opened up new branches in Summit and in Monmouth, in central to northern New Jersey, so these are kind of new markets that locally we're out making ourselves known in, and the feedback there is good as well. So Florida is another one where you know, we've been there a year or two now, coming out of the Malvern acquisition, staffed that up a bit with a couple of folks, and they're doing well. So it's kind of like all areas are producing good activity, no one more than others, really, but I don't see any reason to be overly concerned about being able to drive the growth we're forecasting.

Justin Crowley
Justin Crowley
VP at Piper Sandler

Okay, awesome. I appreciate all the detail there. I guess, you know, just on the credit side, you know, you talked through a lot of, you know, what you've seen in, on the small business side. You know, I was wondering if you could talk a little bit more about the C&I credit that got downgraded. I'm not sure if there's any further detail you can share there, in terms of things like industry and whether it was your credit alone or if it was perhaps participation, just anything, there.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Yeah. Not a whole lot we can add, Justin, other than what we've already provided. You know, it's a multi-location, consumer-based business that, you know, has seen some downward trends and, you know, while they still have a number of locations that we believe they believe are performing very well, they have some others that aren't, and so that's kind of driving a decline in the performance. And just given the cash flow-based nature of the loan and the size of the loan, we, you know, with the downgrade to substandard, we wanted to mention it on the call. But other than something we're keeping a close eye on, there's not a whole lot more we can share at this point.

Justin Crowley
Justin Crowley
VP at Piper Sandler

Okay. Got it. Understood. And then, you know, just on expenses, obviously, some noise there this quarter with the OREO gain that flowed through, and then, you know, overall, a lot of, a lot of work that's been done on efficiency initiatives. Was just wondering if you could—I know you gave the expense-to-assets target, but I was wondering if you could provide thoughts on run rate from here on the expense base and just how you're thinking about costs for the duration of the year.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Yeah. So high level, you know, we're not talking about, you know, massive cuts, right? I think we're operating pretty lean and, you know, I think we're appropriately staffed. I think what we're really looking for is keeping a tight lid on expense growth as we move throughout this year and next year. And so, you know, limited expense growth coupled with revenue growth should help drive that ratio down. But, Andrew, I don't know if there's anything specific you wanted to provide around, you know, quarterly expense run rate or anything. I'm not sure we usually provide specific guidance there. But maybe you can give a sense for kind of what the core number was in Q4 and what you know, is that a good basis for the future?

Andrew Hibshman
Andrew Hibshman
EVP and CFO at First Bank

Yeah. So I'd, I'd just add that I think the third quarter was a pretty standard quarter with not a lot of noise, so that was-- that's a decent kind of starting point. Obviously, as you head into a new year, there's some things that drive costs higher in terms of kind of standard inflationary type adjustments to salaries and, and some of our other costs there. But, as I mentioned, I think the fourth quarter had the OREO gain, which was unusual, and then our bonus expenses were abnormally a little low in the fourth quarter because we had to make some adjustments to our, our bonus numbers based off kind of the, the final year-end results.

Andrew Hibshman
Andrew Hibshman
EVP and CFO at First Bank

So again, if you look at kind of third quarter and then kind of strip out the couple of noise there in terms of bonus, lower bonus expense and the OREO, you get a decent run rate. And I do think we have some good plans to offset some of those inflationary type adjustments with some other cost-saving initiatives. We're hoping to maintain a fairly stable and maybe slightly increasing expense number, but I do think we should be able to hold the line pretty well as we head into 2026.

Justin Crowley
Justin Crowley
VP at Piper Sandler

Okay, appreciate that. And then maybe just one last one. As far as the buyback, you know, no activity in the quarter, so I was wondering if you could remind us, you know, where that stands as far as, you know, capital deployment and just, you know, the appetite going forward?

Andrew Hibshman
Andrew Hibshman
EVP and CFO at First Bank

Yeah, so-

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Yeah, I mean, in terms of appetite, I don't think our views have changed, right? We had a timing issue just because, you know, these buybacks in New Jersey get approved on a kind of rolling one-year basis, and so every year you got to reapply, and then it just, you know, the process can sometimes take time. So we were sort of without a plan for a while, which I think was a driver of the lack of activity. And then, you know, it stays in our toolkit as something we look at. We obviously, you know, pay attention to the price relative to book value when we're thinking about where to buy back. But, yeah, I think it's something we continue to look at.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Andrew, maybe you can just provide some information around the plan that got approved in terms of dollar amount or shares.

Andrew Hibshman
Andrew Hibshman
EVP and CFO at First Bank

Yeah. So I think we had it in the release. We did get a new plan approved. It got regulatory approval, I think, about in the middle of November. So we have the full allotment of what was approved. It's up to 1.2 million shares, up to a total dollar amount of $20 million, and we have, through the fourth quarter, we had not executed any buybacks. We do have an active plan in place and available, depending on pricing, as Pat mentioned.

Justin Crowley
Justin Crowley
VP at Piper Sandler

Okay, great. I will leave it there. I really appreciate it.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Thanks, Justin.

Operator

Again, to ask a question, simply press star one on your telephone keypad. Your next question is from Dave Bishop with Hovde Group. Please go ahead.

David Bishop
David Bishop
Director and Senior Equity Research Analyst at Hovde Group

Hey, good morning, Pat and Al.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Good morning.

David Bishop
David Bishop
Director and Senior Equity Research Analyst at Hovde Group

Pat, hey, I'm curious. You know, I noted that I saw the, you know, the narrative regarding the softness in the micro small business credit portfolio there. Though, you know, just from a numbers perspective, it didn't seem to really, you know, show up maybe in the— there was a little bit of an increase in nonaccruals, charge-offs. Just curious, maybe if you can maybe give us some more details, you know, what, what's driving that cautiousness and softness or the 20 basis points, you know, in terms of charge-off? Is that sort of well above your expectations here when you first got into it, and does that imply you're going to just sort of-

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Yeah

David Bishop
David Bishop
Director and Senior Equity Research Analyst at Hovde Group

lead into that to get that back?

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Yeah, I think of it, and again, these are high-level numbers, Dave, not specific. But, you know, right now, the average yield on the portfolio is probably around 9%, and I think what we were seeing in terms of annualized charge-off numbers were, you know, elevated 3% or higher. And so, I think we'd want that portfolio to perform more in the kind of 1%-2% annualized, given the yield. So getting up at, you know, 3% or higher, depending on the quarter and the annualization, it just was a level that, you know, we didn't think was conducive to the long-term profitability of the segment. And so we made some changes. You know, we reduced the overall loan amounts, the availability relative to the size of the business, you know, changed how we managed it.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Peter mentioned, you know, revised the team structure a bit and really went back to basics around, you know, relationship-based selling. And I think, you know, to me, the performance is, you know, partly, as I mentioned, to be expected, right? These are smaller businesses. They have less wiggle room if they lose a big customer or they face some negative trends. And I think, you know, across the board, you've seen small businesses have struggled a little bit this year. And then I think, quite frankly, we had some issues with folks that weren't selling it the right way, weren't bringing in the right types of customers, and, you know, we had to fix that problem too.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

We continue to think that if sold correctly, it can be a good product for us. Again, it's going to continue to be relatively small, compared to our other business units and portfolios, but it was more a function of just wanting to tighten it up a little bit and, yeah, we'll see. Like you said, at 20 basis points overall, it's not overly punitive, but we look at it more within the segment itself and, you know, we want it to be standalone profitable, and we think there's some work that's needed there to, you know, reduce credit costs to get it to the, you know, return on equity thresholds that we have, so.

David Bishop
David Bishop
Director and Senior Equity Research Analyst at Hovde Group

Got it. Yeah, I figured there had to be a lot more going on behind the scenes, but probably comes through across the macro level, so appreciate that detail. And then I noted in the narrative, too, pretty, pretty good bump in the prepaid fees, this quarter, you know, with the higher vol. Was that just symptomatic of just getting, you know, awash with the prepayments, or were these loans that maybe had, you know, earlier in their prepayment penalty phase, and did that sort of surprise you as well?

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Yeah, listen, I think it was a couple of larger CRE loans that had, you know, prepayment structures built into them. And, in one case in particular, the borrower found a structure they preferred, specifically around the non-recourse that was available in the CMBS world. And so they thought it was to their benefit to refi and move in that direction despite the prepayment fee. And so we collected the fee on the way out. You know, we don't get prepayment fees all the time, right? If it's a construction loan and we were offering permanent financing and then it moves on, we generally get a small fee. But if we were just planning on doing the construction, knowing that it would get taken out elsewhere for permanent, we wouldn't necessarily collect a fee.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

But, you know, anytime you see heightened prepayment activity, especially within CRE, where we tend to have those prepayment fee structures, you're generally going to see elevated income within the quarter. Again, just to help offset the lost income going forward. But I don't know, Peter, anything in particular you'd point out as you look at the prepayment fee income that we got during the quarter?

Peter Cahill
Peter Cahill
EVP and Chief Lending Officer at First Bank

No, I think you hit on most all the most all the topics. I mean, we do occasionally, on the construction side, get a kind of an exit fee on the way out. You know, every deal is a little different, every deal is negotiable, and it's a combination of really all the things Pat, Pat described.

David Bishop
David Bishop
Director and Senior Equity Research Analyst at Hovde Group

Got it. And then maybe, just curious, Peter, or Pat, maybe, what you're seeing in terms of new loan origination yields, if there was much movement there on a quarter-to-quarter basis?

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Yeah, listen, I think I think we expect spreads to tighten a little bit, given the payoff activity, you know, kind of across the industry. I think folks are going to want to look to replace loans, and that'll probably lead to a little bit of tighter pricing. But, Peter, if you want to, you know, jump in terms of what you're seeing specifically from the team.

Peter Cahill
Peter Cahill
EVP and Chief Lending Officer at First Bank

Yeah, we're still trying to get, you know, anywhere from 200 basis points-300 basis points over, over, Treasuries or, or FHLB. So, you know, we're still, we're still north of 6%, and, and I think we've done a pretty good job there as far as the yield on, on, on loans as they, as they get booked. I don't know, Andrew, I think if I recall some of the monthly presentations on new loans, they get... We look at kind of the average interest rate, and they've been up in the, in the high 6s. So, yeah, it's a combination of all, all types of loans. But, yeah, we're still hanging in there at a spread of, you know, 250 basis points, I'll call it, as the target.

Peter Cahill
Peter Cahill
EVP and Chief Lending Officer at First Bank

Whether it's Treasuries or FHLB, there might be a 25 basis points-30 basis points difference there, but that 250 number is kind of a good target for us.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Yeah, and obviously, Dave, the spread depends on the credit, right? We'll, we'll tighten up-

David Bishop
David Bishop
Director and Senior Equity Research Analyst at Hovde Group

Right

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

The spread on a deal that we think is super strong and obviously look to stretch it a little bit if it doesn't meet, you know, kind of the A criteria. And so, it's a mix, but I think our folks are doing a good job getting reasonable yields on the loans coming in.

David Bishop
David Bishop
Director and Senior Equity Research Analyst at Hovde Group

Got it. One final question back to credit. You know, last quarter, there was a lot of discussion about, you know, NBFIs and such, and we talked about the private banking and ABL, mostly portfolio lending. Are you seeing any sort of, you know, credit cracks emerging there at all in terms of those commercial segments? Thanks.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Yeah, I mean, we've looked at, you know, one of the reasons we did the deeper dive and provided a little extra data was to kind of say, all right, if substandards are up, is this a, is this a one-off credit issue, or is it more systemic? And what, you know, what we had seen across all the portfolios is actually an improvement, obviously, outside of the, the one downgrade we talked about. But, it does seem and feel like that's a bit of an isolated situation versus a indicator of, you know, broader softness within, within C&I in particular. And, and like we mentioned in the call, the, the CRE performance has been, you know, has been amazing. So, we're not seeing, we're not seeing challenges emerge there yet.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Obviously, you always knock on wood and keep a close eye on where things are headed. But based on what we're seeing within the portfolio today, we're not, you know, we're not seeing across-the-board indicators of, you know, emerging credit issues systemically, if you will.

David Bishop
David Bishop
Director and Senior Equity Research Analyst at Hovde Group

Great. Appreciate the color.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Yep. Thank you, Dave.

Operator

With no further questions in queue, I will now hand the call back to Patrick Ryan for closing remarks.

Patrick Ryan
Patrick Ryan
President and CEO at First Bank

Okay. Thank you very much. We appreciate your time today, and we'll look forward to regrouping with everybody, when we put out the first quarter results. Thanks, everyone.

Operator

This concludes today's conference call. Thank you for joining us. You may now disconnect.

Executives
    • Patrick Ryan
      Patrick Ryan
      President and CEO
    • Andrew Hibshman
      Andrew Hibshman
      EVP and CFO
    • Darleen Gillespie
      Darleen Gillespie
      EVP and Chief Retail Banking Officer
    • Peter Cahill
      Peter Cahill
      EVP and Chief Lending Officer
Analysts
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