First Bank Q4 Earnings Call Highlights

Key Points

• Margin expansion drove profitability: Q4 net interest margin rose to 3.74% (up 20 bps YoY) and management reported Q4 ROAA of 1.21% and return on tangible common equity of 12.58%, with net income of $12.3 million.
• Loan growth was dented by a record wave of payoffs—$135 million in Q4 that caused an $81 million sequential loan decline—even though loans were still up about $149 million (≈5%) year‑over‑year after $429 million of originations in 2025.
• Credit quality is mixed: core CRE performance remains strong but the small business portfolio showed deterioration, with non‑performing assets rising to 46 bps, the allowance rising to 1.38%, and elevated charge‑offs prompting tighter underwriting and slower production.

First Bank NASDAQ: FRBA executives highlighted margin expansion and improved profitability in the fourth quarter of 2025, while acknowledging elevated credit costs tied to its small business loan product and an unusually large wave of loan payoffs that drove a quarterly decline in total loans.

Margin expansion supports profitability

President and CEO Patrick Ryan said 2025 “did not play out exactly as we expected,” but characterized results as solid, emphasizing that the bank’s net interest margin (NIM) continues to be the primary driver of profitability. First Bank reported a fourth-quarter NIM of 3.74%, up 20 basis points from the fourth quarter of 2024. For the full year, NIM was 3.69% versus 3.57% in 2024.

Those trends helped lift profitability metrics, with return on average assets (ROAA) at 1.21% in the fourth quarter, compared to 1.10% in the year-ago period. Return on tangible common equity improved to 12.58% from 11.82%.

Chief Financial Officer Andrew Hibshman reported fourth-quarter net income of $12.3 million, or $0.49 per diluted share, also translating to a 1.21% ROAA.

Loan growth tempered by record payoffs

Management said loan production remained solid, but payoffs surged late in the year. Hibshman said fourth-quarter loan payoffs totaled $135 million—nearly as much as the combined total for the first three quarters—resulting in an $81 million decline in total loans from the end of the third quarter.

Despite the quarterly decline, Hibshman said loans were still up $149 million, or approximately 5%, over the last 12 months, “with C&I leading the way.” Chief Lending Officer Peter Cahill added that the bank funded $429 million of new loans during 2025, with only 20% of that funded in the fourth quarter. He also said average loan growth for the full year was $267 million, which he called a “good indicator of a busy year.”

Cahill said most new loans were in C&I and owner-occupied real estate, which comprised 62% of 2025 originations, while investor real estate made up 22%. The largest payoffs during the quarter were largely investor real estate loans, including construction loans refinanced with long-term financing elsewhere. Cahill said the $135 million in fourth-quarter payoffs represented 47% of all payoffs for the year and was the largest quarterly payoff amount the bank has experienced, with six of its 10 largest payoffs occurring in the quarter.

In response to analyst questions, Ryan said the bank did not see “disturbing trends” such as losing relationships it wanted to keep, though he cited one large payoff that moved to the CMBS market due to non-recourse terms the bank was not willing to offer. Both Ryan and Cahill described the elevated payoff activity as potentially timing-related. Cahill said the year-end pipeline stood at $284 million of probable fundings, essentially unchanged from the end of the third quarter, with C&I representing 61% of the pipeline and investor real estate 36%.

Deposit strategy focuses on profitability and cost of funds

On the funding side, management said it used the reduced loan funding need to allow certain higher-cost deposits to roll off. Hibshman said total deposits declined $21 million during the quarter, driven mainly by a $27.1 million decline in brokered deposits, while the bank emphasized prioritizing “profitable relationships” and noted new customer acquisition at newer branches.

Chief Retail Banking Officer Darleen Gillespie said the bank reduced time deposits by $38 million, or 18% annualized, and let other higher-cost and non-relationship deposits run off, contributing to a $23.5 million decline in money market and savings balances (an annualized 8% decrease) during the quarter. She said the shift helped lower interest-bearing deposit costs and supported margin expansion, adding that relationship-based interest-bearing demand deposits grew $47 million, or 33% annualized, compared to Sept. 30.

Gillespie also noted a $6 million linked-quarter decline in non-interest-bearing deposits due to seasonal business fluctuations, but said the bank grew non-interest-bearing deposits by $53 million year-to-date in 2025. Looking ahead, she said First Bank aims to bring deposit costs closer to peers by lowering deposit rates while deepening relationships and cross-selling to customers who currently hold only interest-bearing deposits.

Credit quality: strong core portfolios, small business pressure

Management described credit quality as mixed. Ryan said performance in the core commercial real estate (CRE) and community banking divisions remained strong, with CRE delinquency at 0.02% at year-end. He said loans rated Pass/Watch, Special Mention, and Substandard declined to 4.20% of total loans at the end of 2025 from 4.86% at the end of 2024.

However, executives highlighted continued deterioration in the small business portfolio. Hibshman said non-performing assets to total assets rose to 46 basis points at Dec. 31, 2025 from 36 basis points at Sept. 30, reflecting a $4.8 million increase in non-performing loans. The allowance for credit losses increased to 1.38% of total loans from 1.25%, driven by charge-offs and higher specific reserves in small business.

The bank recorded $1.7 million in net charge-offs in the fourth quarter, matching the prior quarter, compared with net recoveries of $155,000 in the fourth quarter of 2024. Hibshman said charge-offs during 2025 were “almost exclusively” in the small business portfolio.

In the question-and-answer session, Ryan provided additional context, saying the small business portfolio yields around 9% on average, but annualized charge-offs were running “elevated” at 3% or higher, versus a target of roughly 1% to 2% given that yield. Management said it tightened underwriting and commercial terms, reduced loan amounts and availability relative to business size, reorganized the team, turned over some staff, and slowed production while focusing more closely on existing relationships.

Separately, Ryan noted a specific $23 million C&I loan that was downgraded to Substandard late in the year due to declining sales and profitability at a multi-location consumer-based business. He described it as a situation the bank will monitor closely, but did not provide additional detail beyond that characterization.

Expenses, capital actions, and 2026 priorities

Non-interest income was $2.3 million in the fourth quarter, down slightly from $2.4 million in the third quarter, with Hibshman citing lower gains on recovery-acquired loans partially offset by higher loan swap fees and gains on loan sales. Ryan said total fee income increased by almost $2 million in 2025 versus the prior year, including higher gains from SBA loan sales, while residential mortgage fee income remained muted due to a slow market.

Non-interest expenses were $17.1 million in the fourth quarter, down from $19.7 million in the third quarter, primarily due to a $1.9 million gain on the sale of an OREO asset booked as a contra expense. Hibshman said salaries and benefits were also lower sequentially due to reduced bonus accruals following higher credit costs. He said branch optimization costs continued in 2025 but are expected to slow in 2026.

Hibshman reported an efficiency ratio of 49.46%, remaining below 60% for the 26th consecutive quarter, and tangible book value per share of $15.81, up more than 12% annualized during the quarter. He also said the bank increased its quarterly cash dividend by 50% and maintained strong capital ratios.

On share repurchases, Hibshman said the bank did not buy back shares in the fourth quarter due to timing around regulatory approval and an improved stock price. Management said a new repurchase plan was approved in mid-November, allowing up to 1.2 million shares and up to $20 million, with repurchases dependent on pricing.

Looking to 2026, Ryan said the bank’s pipelines remain active and it believes it can achieve its $200 million net loan growth goal. He cited expected contributions from asset-based lending, community banking, and a return to modest CRE growth. He also outlined key priorities:

• Closing the gap in cost of funds relative to peers
• Moving modestly higher in non-interest income generation
• Further reducing the non-interest expense to average asset ratio

Management also said it expects to continue seeing declines in acquisition accounting accretion over the next several quarters, but anticipates the margin will remain relatively stable as it works to lower deposit costs and replace runoff of lower-yielding assets with higher-yielding loans.

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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