First Bank (FRBA) Q3 2026 earnings review
First Bank earns more on lending, but problem loans keep rising
First Bank earned more on its loans and raised its dividend, while its problem loans kept growing. It repaid $90 million of costly borrowings and charged more on new loans, so its lending margin widened to 3.74%. Chief lending officer Peter Cahill then lifted next year's loan growth target by half, on a larger pipeline.
| Net interest margin | 3.74% 3.68% last quarter; the plan was 3.66–3.68% |
|---|---|
| Profit per share | $0.49 +4% from a year ago |
| Nonperforming loans | $35.7M $14.4M a year ago |
| 2027 loan growth target | About $300M $200M goal for 2026 |
⚖️ Verdict: 🟢 Bullish
The story got better because the margin squeeze the bank had planned for did not arrive, and management now sees room for it to widen. Growth and capital return moved up together: a larger lending target and a dividend up a third. The bad news: nonperforming loans rose for a fourth straight quarter, to 1.04% of loans, with the reserve covering them only 1.3 times.
The question now is whether First Bank can fund faster loan growth without paying up for deposits. Finance chief Andrew Hibshman expects deposit prices to rise but believes wider loan spreads will cover them. The other reading is that higher rates push free deposits out, as this quarter's 8% drop in non-interest-bearing balances suggests. The December cost of deposits will tell.
🐂 Bull Case
Margin Rose After First Bank Paid Off Borrowings
Net interest margin is the gap between what a bank earns on loans and what it pays for deposits and borrowings. Three months ago chief executive Patrick Ryan planned for a flat or slightly lower margin, citing deposit costs and fading acquisition income.
Instead the margin widened to 3.74% from 3.68%. Net interest income grew 5.6% from the June quarter, and finance chief Andrew Hibshman credited higher loan yields and a cheaper funding mix. The bank built that mix by repaying wholesale borrowings with spare cash.
- Wholesale borrowings: down $90 million, or 37%, from June
- Brokered deposits: down $44 million; about $57 million of cash moved into securities
- Loan yield: 6.48%, up 15 basis points from last quarter
This matters because the headline understates the gain. Acquisition accounting income has fallen by more than half from a year ago, so by our math net interest income without it rose about 8%, against 3.4% reported. Hibshman now says the bank "should be able to maintain a stable margin with some upside". The earlier plan is gone, and that is why we count the margin risk as eased.
What to watch: next quarter's net interest margin against 3.74%, with a full quarter of the September loan repricing included. A reading at or above it would confirm that cheaper funding, not one-off prepayment fees, carried the gain.
Loans Grew on Plan and the Pipeline Rose
First Bank aims to add $200 million of loans this year, and chief lending officer Peter Cahill called the quarter "right on our growth plan for the year". The standing worry was that payoffs on investor property loans would eat the new business.
Payoffs eased. The bank closed $124 million of new loans against $53 million of payoffs, below the first-half average. Loans therefore grew $50 million, led by business lending, owner-occupied property and construction, while investor property balances slipped again.
The pipeline matters more than the quarter because it feeds next year. Probable fundings reached $363 million at September, up about 12% from the March and June average by our math. On that strength Cahill lifted the 2027 target to "a targeted growth rate closer to $300 million". The caution: by our math this year's goal still needs about $71 million in the fourth quarter, more than any quarter so far.
What to watch: fourth-quarter loan growth against the $71 million the goal needs. Reaching it would show the larger pipeline turns into loans at the pace the 2027 target assumes.
Dividend Up a Third, New $24 Million Buyback
First Bank earns more capital than its growth uses, so the board is returning more of it. It raised the quarterly dividend by a third, to $0.12 a share, and approved a new buyback of up to 1.2 million shares through September 2027.
- Tangible book value per share: $16.59, up 8% from a year ago
- Tangible equity to tangible assets: 10.26%, from 9.55%
- Shares bought this quarter: none; the old plan expired with $5.5 million used of $20.4 million
The buyback is capacity, not a commitment, because the bank used only a quarter of the old plan and bought nothing this quarter. Hibshman described the mix as "a healthy cash dividend and opportunistic share repurchases", so the dividend is the firm part.
What to watch: shares repurchased in the fourth quarter under the new plan. Purchases would show the bank treats spare capital as something to return rather than only to hold.
🐻 Bear Case
Problem Loans Rose for a Fourth Straight Quarter
"Credit costs and metrics were generally stable during the quarter," Hibshman said. The provision was flat, but the loan book was not. Nonperforming loans, those no longer paying as agreed, rose 9% from June to $35.7 million, more than double a year ago.
- Nonperforming loans: 1.04% of total loans, from 0.43% a year ago
- Reserve cover of nonperforming loans: 1.3 times, from 2.9 times
- Net charge-offs: $1.9 million, up 16% from June
- Criticized loans: 2.66% of loans, against 2.10% a year ago
- Year-to-date charge-offs: about $8.5 million, 95% from the Business Express small-business product, Ryan said
Management points to what came after the quarter: a $5.6 million paydown on one nonperforming loan, and a court-approved agreement that Cahill expects to repay a $9.5 million senior-living participation in the fourth quarter. By our math the paydown alone still leaves nonperforming loans near $30 million, about double a year ago. So "generally stable" describes the provision, not the loan book.
What to watch: nonperforming loans at December 31, after both repayments. A figure near $21 million, by our math the level if both land, would show new problem loans are not replacing the old ones.
Cheapest Deposits Fell as Rates Moved Up
The release headlines "Robust Deposit Generation and Effective Deposit Cost Management", and total deposits did grow $43 million, or $87 million before brokered money ran off. The standing concern is what First Bank pays for that money, and this quarter the cheapest kind shrank.
- Non-interest-bearing deposits: down $48.7 million from June, to 16.6% of deposits, the lowest share in five quarters
- Total cost of deposits: 2.47%, up 5 basis points, the first rise in four quarters
- Average non-interest-bearing balances: up $32 million, Hibshman said, so part of the drop is timing
This matters because the margin gain rests on cheap funding. Hibshman said "we are seeing increased pricing pressure with the recent run-up in rates". He expects deposit costs to move higher and counts on wider loan spreads to cover them, while new CD promotions bring money in at market rates.
What to watch: the non-interest-bearing share of deposits at December 31. A share back near 18% would mean the September drop was timing, as Hibshman argued.
Risks this quarter didn't answer
Three standing concerns got no new numbers this quarter, and each still carries a reading that would move the case one way or the other.
- Acquisition accounting income: $1.2 million, flat from June but under half of a year ago; Hibshman repeated that it will "decline over time" without giving a schedule.
- The office loan that went nonperforming in June: no update on size, appraisal or workout; a payoff or a charge-off would settle it.
- Business Express small-business portfolio: an analyst asked for the balance and did not get one; Ryan aims for losses of 2% to 3% a year on it.
👓 Other Themes
Higher Rates Have Not Slowed Borrowers Yet
Rates moved up in September, including a Fed increase mid-month, Hibshman said. About a quarter of First Bank's assets reprice at once when the Fed moves, while most deposits adjust later, so the bank gains at first. Ryan said property borrowers may renegotiate deals in progress, but "we have not seen a significant pullback or slowdown".
💲 Other KPIs
Improved for a second quarter, to 52.4% from 54.5% in June. The efficiency ratio is non-interest expense as a share of revenue, so lower is better. Revenue grew 4.9% from June while costs barely moved. That extends the run of quarters below 60% to 29, Ryan said.
Fell for a third quarter, to $2.0 million, down 17% from a year ago. The drop came from a smaller gain on recovered acquired loans and a $165,000 loss on the value of other investments. Hibshman sees more SBA loan sales ahead but expects no material change soon; fees stay a small part of revenue.
Little changed from June, at 101.65%, and down from 104.66% a year ago as deposits grew faster than loans. The ratio shows how much of the loan book customer deposits fund; the rest comes from borrowings and the bank's own capital.
🔮 Guidance
Raised. Three months ago the plan called for a flat to slightly lower margin; now Hibshman says the bank "should be able to maintain a stable margin with some upside". The reason: about a quarter of assets reprice as soon as the Fed moves, while deposits adjust later. The record is short, with one quarter a basis point under plan and this one seven above.
Unchanged. Cahill said the team is still focused on meeting the goal this year. By our math that leaves about $71 million for the fourth quarter, above the $50 million delivered this quarter and above any quarter this year. Payoffs of $53 million were low this quarter; a return to the first-half level would make the goal hard to reach.
New. Cahill set next year's loan growth target at about $300 million, up from the $200 million the bank aimed for in each of the past two years. By our math that is about 8.6% growth on the year-end book if the 2026 goal is met, against 1.4% over the past year. He pointed to the larger pipeline and spare room for investor property lending.
Unchanged. Ryan said deposit growth is ahead of plan so far this year. By our math the goal now needs about $36 million in the fourth quarter, less than this quarter's $43 million. Brokered deposits fell $44 million this quarter, so the growth came from customers rather than wholesale money.
New. Ryan is "working towards our goal of 1.90%" and hopes to reach it by the middle of 2027, from 1.97% this quarter. He also said the pre-2020 level of 1.80% is possible longer term. Both halves must work: expenses must grow more slowly than the balance sheet. The ratio has fallen for two quarters from 2.11% in March.
Unchanged. The bank again expects a tax rate of about 23% to 25%. This quarter's 24.96% sat at the top of the range, after 25.5% last quarter landed just above it. Hibshman said he expects to keep the rate at or below 25%.
Raised. The board lifted the quarterly dividend by a third, to $0.12, the second increase in a year after the move from $0.06. By our math it is about 24% of this quarter's profit per share, so the payout stays modest and leaves room for the new buyback.
❓ Key Questions
How big is the Business Express portfolio now?
An analyst asked and got no balance. Almost all of this year's charge-offs came from this product, Ryan said. Its remaining size sets how much credit cost is still to come as it runs off.
What is the status of the office loan?
A commercial office loan went nonperforming in June. The post-quarter news covered a different loan and the senior-living participation; the office credit got no update on size, appraisal or workout plan.
How fast does acquisition accounting income run off?
It added $1.2 million to net interest income this quarter, flat from June but under half of a year ago. Hibshman repeated that it will decline, without a schedule; one would show how much the margin must earn elsewhere.
How much brokered money is left, and at what cost?
Brokered deposits fell $44 million this quarter. The bank gave neither the remaining balance nor its rate, and both decide how much of the funding gain can repeat.
What rates do the new CD promotions pay?
Hibshman said the bank rolled out CD promotions and a targeted liquid-account offer to attract customers. Their rates, against the 2.47% total cost of deposits, show what new money costs as competition rises.