First Bank Q4 FY2025 earnings call

• Margin and Profitability: Strong NIM expansion drove profitability; ROAA was 1.21% in Q4 2025 vs. 1.10% in Q4 2024; ROTCE was 12.58% in Q4 2025 vs. 11.82% in Q4 2024.
• Small Business Loans: Made changes to credit parameters and sales approach; expect better performance in 2026.
• Noninterest Income: Modest improvement in fee income, with SBA loan sales gains and tech/staff enhancements; residential mortgage fee income muted.
• Expense Management: Noninterest expense ratio improved; OREO sale benefit offset some expenses; branch network optimization activity to slow in 2026.
• Credit Quality: Mixed; small business challenges, but CRE and Community Banking strong; criticized loans declined, but substandard loans increased due to specific C&I loan downgrade.
• 2026 Outlook: Aim for $200 million net loan growth, focus on deposit growth, expense management, and closing cost of funds gap with peers.

For the Fourth Quarter 2025, First Bank's net interest margin was 3.7%, 20 basis points higher than Q4 2024. Full-year NIM was 3.69% vs. 3.57% in 2024. Total loans declined ~$81 million in Q4 due to elevated payoffs, but were up $149 million (+5%) over 12 months, led by C&I. Total deposits were down $21 million in Q4, driven by a $27.1 million decline in brokered deposits, but new customer acquisitions at newer branches. Noninterest income saw a modest increase, with total fee income up ~$2 million Y/Y, though residential mortgage fee income was muted. Noninterest expense to average asset ratio was 1.97% for full-year 2025 vs. 2.01% in 2024. Credit quality was mixed: small business loans had challenges, but CRE and Community Banking were strong; criticized loans declined from 4.86% to 4.20% of total loans, but substandard loans increased due to a $23 million C&I loan downgrade.

• Loan Growth: Expect $200 million net loan growth in 2026, driven by asset-based lending, community banking, and modest CRE growth.
• Deposit Growth: Focus on adding relationship-based customers and driving deposit growth.
• Expenses: Expect continued expense management and operating leverage to drive improved earnings; aim to lower noninterest expense to average asset ratio.
• Margin: Expect margin to remain relatively stable as efforts to lower deposit costs and replace lower-yielding assets with higher-yielding loans continue.

• Small Business Loan Performance: Delinquency and charge-offs in small business loans exceeded expected levels; changes made, but need to monitor impact.
• Macro Factors: Unpredictable loan payoffs and potential impact of rate cuts on net interest margin; need to manage balance sheet and funding needs.
• Credit Quality: Isolated substandard loan increase in C&I portfolio; need to closely monitor performance of that specific loan and overall small business portfolio.

Q: Further discussion on loan growth and outlook A: Patrick and Peter discussed loan payoffs, pipeline stability, and positive activity in various markets, expecting growth to snap back.

Q: C&I credit downgrade details A: Patrick mentioned it's a multi-location consumer-based business with downward trends, closely monitored.

Q: Expense run rate and future costs A: Andrew noted Q4 had noise with OREO gain and lower bonus expenses, expecting limited expense growth and tight lid on costs.

Q: Buyback activity and capital deployment A: Patrick and Andrew discussed regulatory approval for buyback plan, up to 1.2 million shares, available depending on pricing.

Q: Small business credit portfolio softness A: Patrick explained elevated charge-offs in small business loans, changes made, and focus on improving profitability.

Q: Prepaid fees and loan origination yields A: Patrick and Peter discussed prepayment fees from CRE loans and new loan origination yields targeting 250 basis points over treasuries/FHLB.

Q: Credit cracks in commercial segments A: Patrick stated no systemic credit cracks seen, with CRE performance strong, but monitoring continues.