First Bank NASDAQ: FRBA reported first-quarter 2026 results that came in below management’s expectations, driven primarily by elevated credit costs tied to its credit-scored small business lending portfolio and the earnings impact of unusually high loan payoff activity.
“Earnings came in below our expectations in the first quarter,” President and CEO Patrick Ryan said, citing “elevated credit costs” in the small business book as well as “elevated loan payoff activity” that reduced average balances and pressured net interest income.
Quarterly results and margin trends
Chief Financial Officer Andrew L. Hibshman said the bank recorded net income of $7.6 million, or $0.30 per diluted share, for the three months ended March 31, 2026. Hibshman said this equated to a 0.79% return on average assets.
Net interest income declined $2.2 million from the fourth quarter, which Hibshman attributed primarily to lower average loan balances following limited growth during the quarter and the timing of payoffs late in the prior quarter. The yield on average loans fell 21 basis points, partly due to elevated prepayment fees in the linked fourth quarter, and this decline outpaced a 15 basis point reduction in interest-bearing deposit costs, contributing to a 5 basis point drop in the net interest margin.
The bank’s net interest margin was 3.69% in the first quarter. Hibshman said it remained “very strong” versus peers, while noting headwinds from declining acquisition-related purchase accounting accretion and increased deposit pricing pressure as the market adjusts to expectations that rates will remain “higher for longer.” Ryan added that the margin decline in the quarter was influenced by reduced accretion income and “heightened deposit competition.”
On a year-over-year basis, Hibshman said net interest income increased $1.9 million, or 6%, primarily due to lower interest-bearing deposit costs.
Credit costs rise on small business portfolio cleanup
Credit costs were a central focus of the call. Hibshman said net charge-offs rose to $5.0 million in the first quarter from $1.7 million in the linked quarter, “almost exclusively related to our small business portfolio,” and were the primary driver of higher credit loss expense. The allowance for credit losses increased to 1.39% of total loans from 1.38% at December 31, with Hibshman describing reserve coverage ratios as “very strong.”
Ryan said the bank has taken a “very proactive stance regarding the management and cleanup” of the credit-scored small business portfolio. He said product parameters and sales processes were revamped beginning in summer 2025, and that “all known issues in the portfolio have either been charged off in full or specific reserves have been established.”
During the question-and-answer session, Ryan told Piper Sandler analyst Justin Crowley that the weakness in the portfolio did not stem from one single factor, pointing to general stress among smaller businesses and some instances where marketing became “a little more aggressive than we would’ve liked” as the bank tried to scale the product. Ryan said the portfolio is “down under $100 million at this point” and emphasized it is not tied to SBA loans, describing it instead as smaller-ticket lines of credit and term loans.
Hibshman added that the bank had “about $2 million of specific reserves allocated to known problems” in the portfolio, and that the allowance calculation was also adjusted to address potential unknown problems. Ryan said the bank has been moving quickly to charge off or reserve for problem credits when delinquencies emerge and noted that delinquency trends “feel like things are starting to settle down.”
Loan payoffs weighed on balances, but pipeline grew
Chief Lending Officer Peter Cahill said first-quarter loan growth was slowed again by higher-than-normal payoffs. While loans closed and funded totaled $106 million—consistent with quarterly averages in 2024 and 2025—payoffs of $73 million were above the average quarterly level seen over the past five years, he said.
Cahill said 59% of payoffs were investor real estate loans, and 59% of total payoffs were driven by underlying asset sales, with the remainder primarily due to refinancing out of the bank. New loan production in the quarter remained centered in C&I and owner-occupied real estate (50% of new loans), with investor real estate representing 40% and consumer lending 10%.
Despite competitive pressures from regional banks—including some competitors “pricing lower” or loosening terms—Cahill said the bank continued to see “decent spreads” in the 250-basis-point range over the Federal Home Loan Bank benchmark. He said probable fundings in the pipeline were $383 million at quarter-end, up 15% from year-end, and the number of loans in the pipeline increased 9%. C&I loans represented 65% of the pipeline, up from 61% at year-end.
Management pointed to a stronger start to the second quarter. Ryan said that through mid-April, net loan growth was up $50 million, which he described as “pretty close to plan.” Cahill said the pickup put the bank “close to $50 million” in loan growth for the year by mid-April, and he reiterated confidence in growing the loan portfolio by $200 million in 2026, with all segments expected to contribute.
Cahill also addressed an increase in non-performing loans tied to a single commercial real estate borrower. He said the bank added a “well-secured” $9.5 million assisted living credit to non-performing loans, describing current cash flows above 1.8x debt service coverage and a loan-to-value ratio of 52%. Cahill said the bank expects a “positive resolution.” Ryan later noted the bank is a participant in the credit with a larger bank and said timing would depend on a broader corporate restructuring, adding he hoped the issue would be resolved by year-end but could not be more specific.
Deposits, expenses, and capital deployment
Chief Retail Banking Officer Darleen Gillespie said deposits increased $25.1 million during the quarter. She attributed the modest growth to solid onboarding and relationship expansion offset by seasonal fluctuations and expected outflows. Average interest-bearing deposit costs declined 15 basis points, aided by Federal Reserve rate cuts in the fourth quarter of 2025 and the bank’s pricing discipline, though Gillespie warned competition could moderate that benefit going forward.
Gillespie said targeted promotional pricing has helped attract and retain customers, and that newly opened and relocated branches are meeting deposit growth expectations. She added that customer retention following branch consolidations has remained strong, with attrition tracking within planned expectations. After significant branch optimization in 2025, she said the bank expects “minimal branch activity” in 2026, with focus shifting to deposit growth and pricing.
On expenses, Hibshman reported non-interest expenses of $20.9 million for the quarter compared with $17.1 million in the fourth quarter. He said the increase was largely due to a $1.9 million gain on sale of an OREO asset that reduced expenses in the fourth quarter, and that excluding that non-recurring item, expenses rose $1.9 million primarily on seasonal factors such as employment taxes, rent increases, and winter-related maintenance. Ryan also cited payroll taxes and snow removal as seasonal drivers and said expenses should remain relatively stable for the remainder of 2026.
Hibshman said the quarter marked the bank’s 27th consecutive quarter with an efficiency ratio below 60%, positioning it as a top-quartile performer among peers. He said the bank expects to drive revenue growth through the rest of the year “without needing to add to expenses.”
The bank’s effective tax rate was 22.7% in the first quarter, down from 25.7% in the fourth quarter, due in part to stock compensation-related benefits that tend to have an outsized first-quarter impact. Hibshman said the bank expects a future effective tax rate of approximately 24% to 25%.
On capital, Hibshman said ratios remain strong and the bank executed a “modest” amount of share repurchases during the quarter. He said the bank could complete its approved $20 million buyback program and still maintain strong capital ratios, estimating total risk-based capital would be approximately 12.5% under a static balance sheet assumption. Ryan also highlighted the bank’s “strong capital levels” as “significant dry powder” for buybacks, depending on market opportunities.
About First Bank NASDAQ: FRBA
First Bank provides various banking products and services to small to mid-sized businesses and individuals. The company accepts various deposits, including non-interest-bearing demand deposits, interest bearing demand accounts, money market accounts, savings accounts, and certificates of deposit, as well as commercial checking accounts. It also offers various loan products comprising commercial and industrial loans, which include line of credit, inventory, equipment, and short-term working capital financing; commercial real estate loans, such as owner-occupied, investor, construction and development, and multi-family loans; residential real estate loans comprising residential mortgages, first and second lien home equity loans, and revolving lines of credit; and consumer and other loans consists of auto, personal, traditional installment, and other loans.
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