Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Bank Earnings Conference Call Fourth Quarter. [Operator Instructions] It is now my pleasure to turn the call over to Patrick Ryan, President and CEO. You may begin.

Thank you. I'd like to welcome everyone today to First Bank's Fourth Quarter 2025 Earnings Call. I'm joined by Andrew Hibshman, our CFO, Darleen Gillespie, our Chief Retail Banking Officer; and Peter Cahill, our Chief Lending Officer. Before we begin, however, Andrew will read the safe harbor statement.

The following discussion may contain forward-looking statements concerning the financial condition, results of operations and business of First Bank. We caution that such statements are subject to a number of uncertainties and actual results could differ materially, and therefore, you should not place undue reliance on any forward-looking statements we make. We may not update any forward-looking statements we make today for future events or developments. Information about risks and uncertainties are described under Item 1A Risk Factors in our annual report on Form 10-K for the year ended December 31, 2024, filed with the FDIC. Pat, back to you.

Thank you, Andrew. 2025 overall in Q4, in particular, did not play out exactly as we expected, but the overall results were solid, nonetheless. For us, the margin drives overall profitability. And in that respect, 2025 was a very good year. Our net interest margin of 3.7% in the fourth quarter was 20 basis higher than in the fourth quarter of last year. For the full year, our NIM was 3.69% compared to 3.57% for the full year 2024. The strong margin expansion helped drive overall profitability higher as our fourth quarter return on average assets was 1.21% compared to 1.10% in the fourth quarter of 2024. Similarly, the return on tangible common equity also improved during the year, reaching 12.58% in the fourth quarter of 2025 compared to 11.82% in the fourth quarter of 2024. Despite these strong overall results, we were not happy with the performance of our small business loan products. Given the higher yield on those loans, we did expect credit cost to be higher than our other loan products, but the overall level of delinquency and charge-offs exceeded what we believe to be accessible levels. During the course of the year, we made several changes to credit parameters and how we discuss and sell the product. We expect these changes will lead to overall better performance in 2026 and beyond, and we will continue to monitor closely to make sure the changes are having the impact we believe they should. We did see some modest improvement in noninterest income during the year as our total fee income increased by almost $2 million compared to the prior year. Gains from SBA loan sales were higher in 2025. Further enhancements to technology and staff towards the end of the year in 2025 should help drive continued improvement…

Thanks, Pat. For the 3 months ended December 31, 2025, we recorded net income of $12.3 million or $0.49 per diluted share, which translates to a 1.21% return on average assets. We saw another solid quarter of loan production. However, elevated payoffs more than offset the increase. Payoffs were $135 million for the fourth quarter, which was nearly as much as the total for the first 3 quarters of the year combined. As a result, total loans declined about $81 million from the end of the third quarter. We are happy to report that despite the elevated payoffs, loans were up $149 million or approximately 5% over the last 12 months. with C&I leading the way. On the deposit side, we took advantage of the decreased funding requirements related to the decline in loans and allowed certain higher cost balances to roll off during the fourth quarter. Total deposit balances were down $21 million during the quarter as we continued to prioritize profitable relationships. While total deposits were down, primarily driven by a $27.1 million decline in brokered deposits, we did see nice new customer acquisitions, especially at some of our newer branch locations. Net interest income increased $633,000 compared to the third quarter, primarily due to net interest margin expansion. Our net interest margin grew 3 basis points to 3.74% in the fourth quarter. It benefited from the decrease in interest-bearing deposit costs, which outpaced the decline in earning asset yields. It also reflects lower costs related to the subordinated debt refinance we executed over the summer. Recall that we had a double carry of sub debt for 2 months in the third quarter that resulted in about $486,000 in additional interest for that quarter. Last quarter, we said that we expected the immediate impact of Fed rate cuts…

Thanks, Andrew, and good morning, everyone. As mentioned, we were able to drive favorable shifts in our deposit portfolio during fourth quarter of 2025. The decline in total deposits were largely attributed to our decision to reduce higher-cost brokered deposits in light of a lower loan funding needs. You can see in our ending balances that we reduced time deposits by $38 million or 18% annualized during the quarter. We also let other higher costs and nonrelationship deposits run off, which you can see in our ending balances for money market and savings, which declined by $23.5 million or an annualized 8% during fourth quarter of 2025. Despite the attrition, we are pleased with these outcomes, the benefit from the decrease in interest-bearing deposit costs had a positive impact on our net interest margin. And even so -- even more so with our success in growing relationship-based interest-bearing demand deposits, we ended the quarter with growth of $47 million in that portfolio or 33% annualized compared to September 30. And that is a testament to the outstanding execution of our relationship bankers across our footprint. I'll also note that the $6 million linked quarter decline in noninterest-bearing deposits reflects seasonal fluctuations in business customer deposits related to things such as year-end bonuses. We have been successful onboarding noninterest-bearing deposits as we grew the portfolio by $53 million year-to-date in 2025. In addition to deposit activity, we've been equally busy in 2025, executing on our branch strategy. We opened 3 branches, closed 2 and relocated another branch, netting just 1 additional branch, but gaining stronger alignment of our branch footprint with customer demand and growth opportunities and enhancing profitability of existing locations. We ran targeted promotions at our new and relocated branches and saw great engagement, retention and the ability to…

Thanks, Darleen. As Pat and Andrew described, while not a good quarter from the standpoint of overall loan growth, we did finish the year up $149 million or almost 5% compared to the end of 2024. If you recall, we started the year very quickly, but we knew from speaking with clients that we had payoffs coming from either asset sales or refinancing and for that reason, held our overall estimate for the year than what was originally budgeted. As our press release states, average loan growth for the entire year was $267 million, which I believe is a good indicator of a busy year. We know that the strong loan growth we had in the first half put some pressure on funding sources, and I think we naturally became more selective in business development. When we dig into the numbers, we see that of the $429 million of new loans funded during the year, only 20% of that amount was funded in the fourth quarter. New loans continue to be centered on C&I and owner-occupied real estate. For the year, this category made up 62% of new loans with investor real estate loans comprising 22%. On the flip side, the loan payoffs, we believe were coming hit us pretty hard. The $135 million in payoffs in Q4, as referenced by Andrew, made up 47% of all payoffs for the year. Looking back, it was the largest amount of loan payoffs we've ever had in a single quarter. 6 of our 10 largest payoffs for the year took place in Q4, all but one were investor real estate loans and 3 of the investor real estate loans were construction loans that were paid off of long-term financing down elsewhere. Our goal continues to be moderate growth in investor real estate…

Thank you, Peter. At this point, we'd like to open it up for the Q&A portion of the call.

[Operator Instructions] And our first question comes from the line of Justin Crowley with Piper Sandler.

Good morning, everyone. I was wondering if you could start out just on some further discussion on loan growth and the outlook there. I know the payoffs can be tough to predict and you had foreshadowed some of that earlier in the year. But just wondering how you think those could perhaps trend through the year as lower rates continue to work their way through the system and especially if we continue to get more cuts, just maybe -- just what you continue to hear from customers on that end of things?

Yes, Justin, obviously, it's something we're keeping a close eye on. I'll give you kind of some high-level thoughts of mine and then let Peter give you a little more clarity based on what's actually in the pipeline. But we're looking closely not just at the amount of payoffs, but what's behind them. And we didn't see any necessary, call it, disturbing trends in the sense that we weren't keeping the business that we wanted to keep or that private credit or other nonbank lenders were stealing our customers. We did have one large payoff that went CMBS because they were able to get non-recourse, which something we weren't prepared to do. But that's sort of par for the course, forgive the term, to manage the portfolio with the rate and structure and term that we like. And in situations where other financing sources are willing to do things we're not willing to do, we obviously live with the payoffs. But I think if you look back over 12, 16, 20-quarter period, I mean, these windows of what look like abnormally high payoffs, given that they come within a 90-day window, almost always snap back with strong growth, whether it's the next quarter or the quarter after. And as we've talked about in the past, our ability to kind of deliver on that historically, $175 million, $200 million in net loan growth has been pretty consistent. And so we're not -- we're not raising any alarm bells. We think it was a little bit of an anomaly. It is interesting talking to other bankers out in the market. It sounds like there were a number of banks at least we know in this market that similarly experienced unusually high payoff activity. But again, at this point, not anything that we'd attribute to macro conditions as much as perhaps more just timing and coincidence. But Peter, maybe if you can jump in and just give a little color on where the pipeline stands and what you're seeing for kind of the first half of 26% for new production.

Yes. Thanks, Pat. Justin, I would -- the pipeline is where it was a quarter ago. I think that's a fairly positive sign. Everything we're hearing, I mean, we -- for the last 6 to 9 months after jumping way out ahead of plan early on in the year, we kind of were a little bit more restrictive as to what we would do or what deals we -- how hard we negotiate for a piece of business. But I'm hearing from whether it's real estate lenders in the Philadelphia market that there's plenty of business there to C&I type lenders in our regional/community bank space. We opened up new branches in Summit, in Monmouth, in Central to Northern New Jersey. But these are kind of new markets that locally we're out making ourselves known in and the feedback there is good as well. So Florida is another one where we've been there a year or 2 now coming out of the Malvern acquisition, staffed that up a bit with a couple of folks, and they're doing well. So it's kind of like all areas are producing good activity. No one more than others, really, but I don't see any reason to be overly concerned about being able to drive the growth we're forecasting.

Okay. Awesome. I appreciate all the detail there. I guess just on the credit side, you talked through a lot of what you've seen on the small business side. I was wondering if you could talk a little bit more about the C&I credit that got downgraded. I'm not sure if there's any further detail you could share there in terms of things like industry and whether it was your credit alone or if it was perhaps participation? Just anything there?

Yes. Not a whole lot we can add, Justin, other than what we've already provided. It's a multi-location consumer-based business that has seen some downward trends. And while they still have a number of locations that we believe they believe are performing very well. They have some others that aren't. And so that's kind of driving a decline in the performance. And just given the cash flow-based nature of the loan and the size of the loan, we -- with the downgrade of substandard, we wanted to mentioned it on the call. But other than something we're keeping a close eye on, there's not a whole lot more we can share at this point.

Okay. Got it. Understood. And then just on expenses. Obviously, some noise there this quarter with OREO gain that flowed through. And then overall, a lot of work that's been done on efficiency initiatives. I was just wondering if you could -- and I know you gave the expense to assets target, but I was wondering if you could provide thoughts on run rate from here on the expense base and just how you're thinking about costs for the duration of the year?

Yes. So high level, we're not talking about massive cuts, right? I think we're operating pretty lean and I think we're appropriately staffed. I think what we're really looking for is keeping a tight lid on expense growth as we move throughout this year and next year. And so limited expense growth, coupled with revenue growth should help drive that revenue down. But Andrew, I don't know if there's anything specific you wanted to provide around quarterly expense run rate or anything. I'm not sure we usually provide specific guidance there. But maybe you can give a sense for kind of what the core number was in Q4 and what -- is that a good basis for the future?

Yes. So I'd just add that I think the third quarter was a pretty standard quarter with not a lot of noise. So that was -- that's a decent kind of starting point. Obviously, as you head into a new year, there are some things that drive costs higher in terms of kind of standard inflationary-type adjustments to salaries and some of our other costs there. But as I mentioned, I think the fourth quarter had the OREO gain, which was unusual. And then our bonus expenses were abnormally a little low in the fourth quarter because we had to make some adjustments to our bonus numbers based on kind of the final year-end results. So again, if you look at kind of third quarter and then kind of strip out the couple of noise there in terms of bonus, lower bonus expense in the OREO, you get a decent run rate. And I do think we have some good plans to offset some of those inflationary type adjustments with some other cost-saving initiatives. So we're hoping to maintain a fairly stable and maybe slightly increasing expense number, but I do think we should be able to hold the line pretty well as we head into 2026.

Okay. I appreciate that. And then maybe just one last one. As far as the buyback, no activity in the quarter. So was wondering if you could remind us where that stands as far as capital deployment and just the appetite going forward?

I mean in terms of appetite, I don't think our views have changed, right? We had a timing issue just because these buybacks in New Jersey get approved on a kind of rolling 1-year basis. And so every year, you got to reapply and then it just -- the process can sometimes take time. So we were sort of without a plan for a while, which I think was a driver of the lack of activity. And then it stays on our -- in our toolkit. It's something we look at. We obviously pay attention to the price relative to book value when we're thinking about where to buy back. But yes, I think it's something we continue to look at. And Andrew, maybe you can just provide some information around the plan that got approved in terms of dollar amount or shares.

Yes. So I think we had it in the release, we did get a new plan approved. We got regulatory approval, I think, about in the middle of November. So we have the full allotment of what was approved. It's up to 1.2 million shares up to a total dollar amount of $20 million, and we have -- through the fourth quarter -- or through the fourth quarter, we had not executed any buybacks. We do have an active plan in place and available depending on pricing, as Pat mentioned.

[Operator Instructions] And your next question is from Dave Bishop with Hovde Group.

I'm curious, I noted that -- I saw the narrative regarding the softness in the micro small business credit portfolio there. Though just from a numbers perspective, didn't seem to really show up maybe there's a little bit of an increase in nonaccruals, charge-offs. Just curious maybe if you can maybe give us some more details what's driving that cautiousness and softness or the 20 basis points in terms of charge-offs, is that sort of well above your expectations here when you first got into it? And does that imply you're going to sort of look that to get...

Yes. I think of it -- and again, these are high-level numbers, Dave, not specific. But right now, the average yield on the portfolio is probably around 9%. And I think what we were seeing in terms of annualized charge-off numbers were elevated 3% or higher. And so I think we'd want that portfolio to perform more in the kind of 1% to 2% annualized given the yield. So getting up at 3% or higher depending on the quarter and the annualization that just was a level that we didn't think was conducive to the long-term profitability of the segment. And so we made some changes. We reduced the overall loan amount, the availability relative size of the business, changed how we managed it. As Peter mentioned, revised the team structure a bit and really went back to basics around relationship-based selling. And I think to me, the performance is partly, as I mentioned, to be expected, right, these are smaller businesses. They have less wiggle room if they lose a big customer or they face some negative trends. And I think across the board you've seen small businesses have struggled a little bit this year. And then I think, quite frankly, we had some issues with folks that weren't selling it the right way, weren't bringing in the right types of customers and we had to fix that problem, too. And so we continue to think that if sold correctly, it can be a good product for us. Again, it's going to be -- continue to be relatively small compared to our other business units and portfolios. But it was more a function of just wanting to tighten it up a little bit. And we'll see, like you said, at 20 basis points overall, it's not overly punitive, but we look at it more within the segment itself, and we want it to be stand-alone profitable, and we think there's some work that's needed there to reduce credit cost to get it to the return on equity thresholds that we have. So...

Got it. Yes. I figured there had to be a lot more going on behind the scenes that probably comes through across the macro level. So I appreciate that detail. And then I noted in the narrative too, a pretty good bump in the prepaid fees this quarter with the higher volume. Was that just symptomatic of just getting a wash with the prepayments? Or were these loans that maybe had earlier in their prepayment penalty phase? And did that sort of surprise you as well?

Yes. Listen, I think it was a couple of larger CRE loans that had prepayment structures built into them. And in one case, in particular, the borrower found a structure they preferred, specifically around the nonrecourse that was available in the CMBS world. And so they thought it was to their benefit to refi and move in that direction despite the prepayment fee. And so we collected the fee on the way out. We don't get prepayment fees all the time, right? If it's a construction loan, and we were offering permanent financing and then it moves on, we generally get a small fee. But if we were just planning on doing the construction, knowing that it would get taken out elsewhere for permanent, we wouldn't necessarily collect the fee. But any time you see heightened prepayment activity, especially within CRE, where we tend to have those prepayment fee structures, you're generally going to see elevated income within the quarter, again, just to help offset the lost income going forward. But I don't know, Peter, anything in particular you'd point out as you look at the prepayment fee income that we got during the quarter?

No, I think you hit on most all of the topics. I mean, we do occasionally on the construction side, get kind of an exit fee on the way out. Every deal is a little different. Every deal is negotiable. And it's a combination of really all the things Pat described.

Got it. And then maybe just curious, Peter, Pat, maybe what you're seeing in terms of new loan origination yields, if there was much movement there on a quarter-to-quarter basis?

Yes. Listen, I think we expect spreads to tighten a little bit, given the payoff activity kind of across the industry. I think folks are going to want to look to replace loans and that will probably lead to a little bit of tighter pricing. But Peter, if you want to jump in, in terms of what you're seeing specifically from the team.

Yes, we're still trying to get anywhere from 200 to 300 basis points over treasuries or FHLB. So we're still north of 6%. And I think we've done a pretty good job there as far as the yield on loans as they get booked. I don't know, Andrew, I think if I recall some of the monthly presentations on new loans, they get -- we look at kind of the average interest rate, and they've been up in the high 6s. So it's a combination of all types of loans. But yes, we're still hanging in there at a spread of 250 basis points, I'll call it, as the target, whether it's treasuries or FHLB, there might be a 25, 30 basis point difference there, but that 250 number is kind of a good target for us.

Yes. And obviously, Dave, the spread depends on the credit, right? We'll tighten up the spread on a deal that we think is super strong and obviously look to stretch it a little bit if it doesn't meet kind of the A++ criteria. And so it's a mix. But I think our folks are doing a good job getting reasonable yields on the loans coming in.

Got it. One final question back to credit. Last quarter, there was a lot of other about NDFIs and such, and we talked about the private banking and ABL, mostly portfolio lending. Are you seeing any sort of credit cracks emerging there at all in terms of those commercial segments?

Yes. I mean we looked at -- one of the reasons we did the deeper dive and provided a little extra data was to kind of say, "All right, if sub-standards are up, is this a one-off credit issue? Or is it more systemic? And what we had seen across all the portfolios is actually an improvement, obviously, outside of the one downgrade we talked about." But it does seem and feel like that's a bit of an isolated situation versus an indicator of broader softness within C&I, in particular. And like we mentioned in the call, that the CRE performance has been amazing. So we're not seeing challenges emerge there yet. Obviously, you always knock on wood and keep a close eye on where things are headed. But based on what we're seeing within the portfolio today, we're not seeing across the board indicators of emerging credit issues systemically, if you will.

And with no further questions in queue, I will now hand the call back to Patrick Ryan for closing remarks.

Okay. Thank you very much. We appreciate your time today, and we look forward to regrouping with everybody when we put out the first quarter results. Thanks, everyone.

This concludes today's conference call. Thank you for joining us. You may now disconnect.