First Bank Earnings Call Balances Credit Strain, Growth

First Bank ((FRBA)) has held its Q1 earnings call. Read on for the main highlights of the call.

First Bank’s latest earnings call struck a cautious but hopeful tone as management framed a weak quarter as the product of isolated small business credit issues and unusual loan payoffs. They emphasized strong capital, resilient margins, and a growing loan pipeline as reasons to expect profitability and loan growth to recover once these pressures subside.

Profitability Soft Despite Positive Return Metrics

First Bank reported Q1 2026 net income of $7.6 million, or $0.30 per diluted share, translating into a 0.79% return on average assets. While solidly profitable, these results fell short of internal expectations, underscoring how credit costs and payoffs weighed on an otherwise stable core franchise.

Net Interest Margin Holds Up as NII Climbs

Net interest margin remained robust at 3.69%, slipping just 5 basis points from the prior quarter despite notable headwinds. Net interest income grew 6% year over year, adding $1.9 million versus Q1 2025, showing that core spread revenues are still trending higher even as purchase accretion fades.

Loan Pipeline Signals Re‑Acceleration in Growth

The bank highlighted a healthy loan pipeline, with probable fundings of $383 million, up 15% from year‑end and supported by a 9% increase in the number of loans year over year. Net loan growth through mid‑April was about $50 million, and management reiterated a full‑year loan growth target of $200 million, suggesting that payoffs should become less of a drag.

Efficiency Remains a Standout Strength

Operating discipline remained a bright spot, as First Bank delivered its 27th consecutive quarter with an efficiency ratio below 60%. This top‑quartile efficiency positions the bank to absorb short‑term earnings volatility from credit and funding pressures while preserving long‑term profitability.

Capital Provides Cushion and Buyback Optionality

Management underscored that capital ratios remain strong, leaving room to support growth and shareholder returns. They executed modest share repurchases in the quarter and noted they could fully use the $20 million authorized buyback and still maintain total risk‑based capital of roughly 12.5% on a static balance sheet.

Allowance Bolstered by Specific Small Business Reserves

The allowance for credit losses to total loans edged up to 1.39%, rising 1 basis point quarter over quarter. Management layered in about $2 million of specific reserves tied to identified small business credit problems and adjusted broader allowance factors to cover potential unknown issues within that portfolio.

Noninterest Income Aids Revenue Diversification

Noninterest income grew to $2.4 million in Q1 2026 from $2.0 million a year earlier, an increase of about 20%. Part of this lift came from earnings on modest investments in small business investment funds, helping diversify revenue beyond spread income.

Credit Costs Drag Earnings Below Expectations

Quarterly earnings came in below what management had anticipated, largely because of elevated credit costs in the credit‑scored small business portfolio. These issues overshadowed otherwise healthy core performance, reinforcing management’s focus on tightening underwriting and remediating this segment.

Net Charge‑Offs Surge on Concentrated Portfolio Stress

Net charge‑offs climbed to $5.0 million in Q1 from $1.7 million in the prior quarter, an increase of roughly 194%. Nearly all of this spike was tied to the small business portfolio, which management described as now under $100 million and subject to targeted charge‑offs and reserve builds.

Heavy Loan Payoffs Hit Balances and NII

Unusually high loan payoffs continued to pressure average loan balances and net interest income, with Q4 2025 payoffs at $135 million and Q1 2026 at $73 million versus a historical average near $50 million per quarter. These elevated payoffs contributed to a $2.2 million sequential decline in net interest income, masking the underlying pipeline strength.

Margin Faces Pressure from Funding and Accretion Trends

The modest 5‑basis‑point NIM decline was driven in part by falling purchase accounting accretion, which dropped from $2.6 million last year to $1.2 million in Q1. Management also cited increased deposit competition, with higher pricing needed on interest‑bearing deposits, as another factor that could squeeze margins going forward.

Noninterest Expense Jumps on Seasonal and One‑Off Factors

Noninterest expense rose to $20.9 million in Q1 from $17.1 million in Q4, roughly a 22% sequential increase versus the headline Q4 figure. Excluding a Q4 contra gain, the rise mainly reflected seasonal payroll taxes, merit increases, and higher occupancy and maintenance costs following a harsh winter.

Small Business Portfolio Under Scrutiny

The credit‑scored small business portfolio, now below $100 million, showed elevated delinquencies and charge‑offs over recent quarters, prompting decisive remediation. While historical performance averaged around 2%–3% annual losses over several years, current losses are more concentrated, and management has responded with charge‑offs, tighter underwriting, and added reserves.

Deposit Competition and Higher‑for‑Longer Rates

Management noted mounting pressure on deposit pricing as markets adjust to expectations that policy rates will stay higher for longer. Incremental funding costs are rising in CDs and wholesale channels, and depending on the mix of funding sources chosen, this could further weigh on net interest margin.

Ongoing Decline in Purchase Accounting Accretion

Purchase accounting accretion, which boosted margin in prior periods, continued to step down, landing at $1.2 million in Q1 versus $2.6 million a year ago. Management expects this income stream to fade by roughly $0.1 million to $0.2 million per quarter, creating a steady but manageable headwind for margin.

Guidance and Outlook Emphasize Gradual Recovery

Looking ahead, management expects loan growth to build toward the $200 million 2026 target, supported by $106 million funded in Q1, about $50 million of net growth through mid‑April, and a $383 million pipeline skewed toward commercial and industrial lending. They aim to keep NIM roughly around 3.69% despite deposit repricing and declining accretion, view the current expense run rate near $20.9 million as stable, and plan to maintain ample capital while potentially executing the full share buyback.

First Bank’s call painted a story of near‑term turbulence but resilient fundamentals, as isolated small business credit problems and heavy payoffs obscured otherwise healthy core performance. With strong capital, tight efficiency, and a robust loan pipeline, the bank is positioned for a measured rebound, though investors will be watching credit trends, funding costs, and margin stability closely in coming quarters.