FRBA

• Overall Financial Results

  • Q2 2026 net income was $10.9 million, or $0.43 per diluted share, representing a 1.09% return on average assets. Diluted EPS increased 43% quarter-over-quarter, and grew 6.6% year-over-year.
  • Net interest income increased $798,000 versus both the prior quarter and prior year quarter; net interest margin was 3.68%, down 1 basis point quarter-over-quarter and up 3 basis points year-over-year.
  • Non-interest income was $2.1 million, down from $2.4 million Q1 and $2.7 million Q2 2025, driven by lower small business investment fund returns and a one-time property sale gain in Q2 2025.
  • Non-interest expense was $20.1 million, down $797,000 from Q1, driven by lower salaries, benefits, and occupancy costs, resulting in a 54.5% efficiency ratio (28th consecutive quarter below 60%).

• Balance Sheet Growth

  • Loans grew $68 million in Q2 (8.3% annualized growth), with $174 million in new closed/funded loans, a 64% increase from Q1. Total year-to-date loan growth is $79 million, approaching the full-year 2026 target of $200 million.
  • Total deposits grew $96 million in Q2, pushing the bank ahead of its full-year deposit growth plan, with growth driven by new commercial relationships and expanding existing client balances.
  • Capital positions remain strong: tangible common equity to tangible assets is ~10%, allowance for credit losses to total loans is 1.38%, both above peer averages. 325,000 shares were repurchased in Q2 under the approved repurchase program.

• Lending Operations

  • The probable funding pipeline stood at $323 million at the end of Q2, stable relative to Q2 end, with 62% of the pipeline allocated to C&I and owner-occupied real estate, consistent with the bank's multi-year strategic shift away from over-reliance on investor CRE.
  • Q2 payoffs totaled $87 million, 19% higher than Q1, consistent with higher overall lending volume.

• Asset Quality

  • Overall asset quality remains broadly stable; provision for credit losses fell significantly QoQ to normalized levels as small business portfolio performance improved.
  • Non-performing assets ticked up slightly due to one CRE loan moving to non-accrual; management expects full repayment due to sufficient collateral and strong guarantor support.

• The bank now expects to meet or exceed its full-year 2026 $200 million loan growth goal, if no abnormal payoff activity occurs in the second half. The bank also expects to meet or exceed its full-year $200 million deposit growth goal.
• Net interest margin is expected to stay flat or decline only 1-2 basis points for the full year 2026, as higher yields on new loan originations offset higher deposit funding costs.
• Continued improvement in credit costs is expected for the credit-scored small business portfolio, with no material red flags identified in other loan segments.
• Management aims to keep non-interest expense roughly flat, offsetting inflationary pressures with incremental cost savings, and target an efficiency ratio below 60% (its 28th consecutive quarter of sub-60% performance) while driving operating leverage as assets and revenue grow. The long-term target for non-interest expense to average assets is below 2%, eventually returning to a 1.90% longer-term average.
• Acquisition accounting accretion is expected to continue declining over upcoming quarters. The future effective tax rate is expected to hold steady at approximately 25%.
• Management will continue returning capital to shareholders via a stable cash dividend and ongoing share repurchases under the approved program.

First Bank operates across three core lending segments, with the following Q2 2026 performance highlights: 1) Commercial & Industrial (C&I) and Owner-Occupied Real Estate: This segment accounted for 61% of new loan originations in the first half of 2026, and makes up 62% of the current probable funding pipeline. Total loan growth across the bank was $68 million in Q2 2026, with year-to-date loan growth reaching $79 million. 2) Investor Commercial Real Estate (CRE): This segment represented 33% of first half 2026 new loans, and accounted for 62% of total bank loan payoffs in the first half of 2026, driven largely by refinancing and asset sales. One $ undisclosed size CRE loan moved to non-accrual status in Q2, causing a minor tick up in the non-performing asset ratio. 3) Consumer and Credit-Scored Small Business: This segment makes up the remaining balance of new loan originations. Provision for credit losses for this segment fell significantly to more normalized levels in Q2 2026, with improved portfolio performance and reduced charge-off levels compared to Q1. Deposit segments: Total deposits grew $96 million in Q2 2026; non-interest bearing deposits grew $45.1 million, accounting for 47% of total Q2 deposit growth, with the remaining growth coming from interest-bearing, brokered, and government deposits.

• Heightened competition for core deposits across the industry continues to create upward pressure on deposit pricing, requiring a balance between growth targets and funding cost discipline.
• Continued runoff of lower-yielding existing assets requires replacement with higher-yielding new loans to offset margin pressure from higher deposit costs.
• Inflation creates upward pressure on operating expenses, requiring active cost management to maintain expense targets and efficiency ratios.
• A single underperforming office CRE loan moved to non-accrual status, though management expects full recovery with collateral and guarantor support.
• Forward-looking statements are inherently uncertain, and actual results may differ materially from projected performance, with additional risks detailed in the bank's 2025 Form 10-K filed with the FDIC.

Q: The analyst asks about drivers of Q2 non-interest bearing deposit growth, the role of seasonality, and expectations for deposit mix going forward. / A: Management notes a consistent historical pattern of non-interest bearing deposit declines in Q1 followed by rebounds in Q2 and Q3, though exact fluctuations are hard to predict. The bank saw a strong bounce back of deposits that had fluctuated out earlier in the year, and will continue competing aggressively to win new deposit business to meet full-year growth targets.

Q: The analyst asks for current spot deposit pricing and details on competitive pricing pressures. / A: Management confirms new deposit pricing currently ranges from 4% to 4.25%, up from levels 3-6 months ago. Higher loan pricing on new originations offsets most of this increased cost, so management expects only a 0-2 basis point total net margin decline for the full year, as not all new deposits are priced at the highest end of the range.

Q: The analyst asks for breakdown of Q2 expense declines, and whether the Q2 expense run rate is sustainable going forward. / A: Management explains Q1 2026 non-interest expense was elevated due to seasonal factors, and Q2 reflects a normalized base run rate. While inflation creates cost pressures, management aims to offset these with incremental cost savings to keep expenses roughly flat, generating operating leverage as the bank grows.

Q: The analyst asks for details on the new CRE non-accrual loan and expected losses. / A: Management confirms the loan is for an underperforming office property. While the current market value is lower than at origination, it still roughly matches the outstanding loan balance on a discounted basis, and the bank has strong guarantor support committed to covering any shortfall. Management expects full recovery of the loan balance.