First Bank Earnings Call: Margins Up, Credit in Focus

First Bank ((FRBA)) has held its Q4 earnings call. Read on for the main highlights of the call.

First Bank Earnings Call Signals Cautious Optimism Amid Isolated Credit Pressures

Management at First Bank struck a cautiously optimistic tone on the latest earnings call, emphasizing broad-based strength in margins, profitability, loan production, and expense control, while openly acknowledging concentrated credit issues in small business lending and a single large C&I downgrade. Despite temporary loan and deposit headwinds from unusually high fourth-quarter payoffs, executives highlighted clear corrective actions, stronger capital returns, and achievable 2026 targets as reasons for confidence in the bank’s forward trajectory.

Net Interest Margin Expansion Fuels Core Earnings

A key positive from the quarter was net interest margin (NIM) expansion. Fourth-quarter NIM came in at roughly 3.7% (3.74% versus the prior quarter), about 20 basis points higher than a year earlier, and full-year NIM improved to 3.69% from 3.57% in 2024. This margin uplift, driven by disciplined pricing and asset mix management, directly supported stronger net interest income and underpinned the bank’s improved profitability profile.

Profitability Metrics Move Higher

Earnings quality improved alongside margins. First Bank reported fourth-quarter net income of $12.3 million, translating to diluted EPS of $0.49. Return on average assets rose to 1.21%, up from 1.10% in the prior-year quarter, while return on tangible common equity increased to 12.58% from 11.82%. These stronger returns signal more efficient use of the balance sheet and enhanced value creation for shareholders despite a mixed macro backdrop.

Solid Loan Growth Despite Heavy Year-End Payoffs

Loan growth remained solid on a full-year basis, even with a challenging fourth quarter. Total loans increased $149 million, or about 5% year over year, supported by $429 million in new loan originations and average loan growth of $267 million for the year. However, elevated fourth-quarter payoffs totaling $135 million—nearly matching the first three quarters combined—caused reported loans to decline about $81 million from the third quarter, highlighting timing noise rather than a lack of demand.

Efficiency Gains and Shareholder-Friendly Capital Actions

Operating efficiency continued to be a bright spot. The efficiency ratio improved to 49.46%, remaining below 60% for the 26th consecutive quarter, a notable achievement in a still-competitive funding environment. Tangible book value per share climbed at more than a 12% annualized pace to $15.81, reflecting retained earnings growth. In a clear signal of confidence, the board approved a 50% increase in the quarterly cash dividend and authorized a share repurchase program of up to 1.2 million shares, or $20 million, underscoring a commitment to returning excess capital to investors.

Noninterest Income and SBA Platform Strengthen

On the fee side, First Bank delivered a nearly $2.0 million year-over-year increase in total noninterest income, aided by stronger gains on Small Business Administration (SBA) loan sales in 2025. Management highlighted ongoing technology and staffing enhancements in the SBA business, which are expected to support further performance improvements and provide a more resilient, diversified source of revenue over time.

Deposit Mix Optimization Supports Margins

The bank continued to reshape its funding base, consciously paring back higher-cost deposits to protect margin. Brokered deposits fell by $27.1 million in the quarter, time deposits were reduced by $38 million (an 18% annualized decline), and money market and savings balances were trimmed by $23.5 million (8% annualized). In contrast, relationship-driven interest-bearing demand deposits grew by $47 million, a 33% annualized increase versus September 30. This shift toward stickier, lower-cost relationship deposits is key to sustaining the bank’s improved NIM.

CRE and Community Banking Credit Metrics Remain Strong

Despite broader credit concerns in parts of the industry, First Bank’s core commercial real estate and community banking portfolios showed resilience. CRE delinquency was a negligible 0.02%, and the ratio of criticized loans (watch, special mention, and substandard) fell from 4.86% of total loans at the end of 2024 to 4.20% at the end of 2025. These trends suggest that credit stress is largely confined to specific segments rather than systemic across the loan book.

Expense Discipline and One-Time Gains Enhance Results

Cost management remained tight. Noninterest expense to average assets improved to 1.97% in 2025 from 2.01% in 2024, reflecting continued efficiency efforts. Fourth-quarter noninterest expense benefited from a $1.9 million gain on the sale of an OREO asset that had no carrying value and from lower bonus accruals. While not recurring, these items helped keep expense ratios in check and support profitability in the quarter.

Small Business Credit Underperformance Draws Scrutiny

The main sore spot in the quarter was the small business loan portfolio, which saw elevated levels of delinquency and charge-offs. Quarterly charge-offs totaled $1.7 million, roughly in line with the prior quarter, but the annualized charge-off rate of around 3% in this segment was above management’s 1–2% target range. In response, the bank has tightened credit parameters and reorganized staffing in this business line, aiming to bring loss rates back toward desired levels while preserving attractive growth opportunities.

Large C&I Downgrade Pressures Classified Loans

Credit quality metrics were also affected by a single sizable commercial and industrial relationship. A $23 million C&I loan was downgraded to substandard late in the year, materially increasing the balance of substandard loans and necessitating higher specific reserves. Management framed the issue as isolated rather than indicative of broader weakness, but investors will be monitoring the outcome of this credit closely given its size and impact on reserves.

Elevated Payoffs and Declining Loans in Q4

The fourth quarter saw unusually heavy payoff activity that temporarily masked underlying growth trends. Payoffs of $135 million—six of the ten largest of the year occurred in Q4—contributed to an $81 million sequential decline in total loans even as year-over-year balances rose. Management characterized the payoff surge as episodic, but it weighed on reported loan growth in the quarter and partially offset otherwise robust production.

Quarterly Deposit Contraction by Design

Total deposits declined by $21 million on a sequential basis as the bank allowed more expensive balances, including $27.1 million of brokered deposits, to roll off. This deliberate contraction, part of the broader deposit optimization strategy, did pressure total deposit levels but supported margin defense. Management emphasized it is prioritizing relationship-based funding and profitable growth over absolute deposit size.

Higher Credit Reserves and Nonperforming Assets

Reflecting the small business underperformance and the large C&I downgrade, the allowance for credit losses increased to 1.38% of total loans, up from 1.25% at September 30. Nonperforming assets also ticked higher, rising to 0.46% of total assets from 0.36% in the prior quarter. While still modest in absolute terms, these moves underscore a more cautious stance on credit risk as the economic cycle matures.

Muted Residential Mortgage Fees Limit Diversification

One area that remained subdued was residential mortgage-related fee income. A sluggish housing and refinance environment kept gains on mortgage sales muted, limiting the bank’s noninterest income diversification. Until mortgage activity improves, First Bank is relying more heavily on its SBA platform and other fee categories for incremental noninterest revenue growth.

Guidance: Targeted Growth, Stable Margins, and Ongoing Capital Returns

Looking to 2026, management outlined a strategy centered on measured balance-sheet growth, stable profitability metrics, and continued capital return. The bank is targeting roughly $200 million in net loan growth while keeping NIM near current levels—around the fourth quarter’s 3.74% and the 2025 full-year 3.69%—by further lowering deposit costs and redeploying runoff into higher-yielding loans, even as acquisition-related accretion fades. Noninterest income is expected to rise modestly from 2025’s roughly $2 million year-over-year gain, and the bank aims to push noninterest expense to average assets below the 1.97% posted in 2025, closing the cost-of-funds gap with peers. Management plans to maintain the recently increased dividend and the authorized share repurchase program, while operating with an effective tax rate of about 24–25%. Key supporting metrics cited with this guidance included fourth-quarter ROA of 1.21%, ROTCE of 12.58%, NPAs of 46 basis points, an allowance ratio of 1.38%, an efficiency ratio of 49.46%, and tangible book value per share of $15.81.

In closing, First Bank’s earnings call painted a picture of a bank with solid core momentum, expanding margins, and improving efficiency, offset by clearly defined pockets of credit weakness in small business lending and a single large C&I exposure. Management’s transparent acknowledgment of these issues, paired with concrete corrective actions and continued capital return, suggests a risk profile that is manageable rather than systemic. For investors, the story is one of steady underlying performance with identifiable credit watch points, making execution on 2026 growth and credit targets the key catalyst to watch in the coming year.