Market Overview

First Bank Reports Third Quarter 2018 Net Income of $5.4 Million

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Year-To-Date Net Income of $13.5 Million up 111% Over Prior Year 

Continued Solid Loan Origination and Stable and Favorable Asset Quality Metrics, Strong Revenue Growth and Period-End Capital  

HAMILTON, N.J., Oct. 22, 2018 (GLOBE NEWSWIRE) -- First Bank (NASDAQ:FRBA) today announced results for the three and nine months ended September 30, 2018. The results reflected strong net interest income growth and increased non-interest income along with effective non-interest expense management, which contributed to a $3.0 million increase in net income for the third quarter and a $7.1 million increase for the first nine months of the year, compared to the same periods in 2017. Net income for the third quarter of 2018 was $5.4 million, or $0.29 per diluted share, compared to $2.5 million, or $0.16 per diluted share, for the third quarter of 2017.  Return on average assets and return on average equity for the third quarter of 2018 were 1.28% and 11.45%, respectively, compared to 0.80% and 7.15%, respectively, for the third quarter of 2017. Net income for the first nine months of 2018 was $13.5 million, an increase of $7.1 million, or 110.5%, compared to $6.4 million in the same period in 2017. Diluted earnings per share for the first nine months of 2018 were $0.73, an increase of $0.26, or 55.3%, over $0.47 for the prior year period.  Diluted weighted average shares outstanding were 18.9 million for the quarter ended September 30, 2018, an increase of 3.2 million shares, or 20.5%, compared to the third quarter of 2017.

Net income for the third quarters of 2018 and 2017 included certain merger-related items.  Excluding those items, First Bank's third quarter 2018 adjusted diluted earnings per share1 were $0.28, adjusted return on average assets1 was 1.22% and adjusted return on average equity1 was 10.98%. Third quarter 2017 adjusted diluted earnings per share were $0.20, adjusted return on average assets was 1.04% and adjusted return on average equity was 9.28%. 

1 Adjusted diluted earnings per share, adjusted return on average assets and adjusted return on average equity are non-U.S. GAAP financial measures and are calculated by dividing net income adjusted for certain merger related expenses and income and other one-time expenses by diluted weighted average shares, average assets and average equity, respectively.  For a reconciliation of these non-U.S. GAAP financial measures, along with the other non-U.S. GAAP financial measures in this press release, to their comparable U.S. GAAP measures, see the financial reconciliations at the end of this press release. 

Third Quarter 2018 Performance Highlights:

  • Total net revenue (net interest income plus non-interest income) for the quarter increased by $4.5 million, or 39.5%, to $15.7 million, compared to $11.3 million for the prior year quarter while non-interest expense increased by $1.4 million, or 21.2%, to $8.2 million compared to $6.8 million for the prior year quarter. Total net revenue for the quarter increased by $1.3 million or 9.4% compared to the linked second quarter while non-interest expense decreased by $440,000 or 5.1%.
  • Total loans of $1.41 billion at September 30, 2018 were up $216.9 million, or 18.2%, from $1.19 billion on September 30, 2017, up $184.0 million, or 15.0%, from $1.23 billion on December 31, 2017 and increased $40.6 million, or 3.0%, from $1.37 billion on June 30, 2018.
  • Total deposits of $1.39 billion at September 30, 2018 were up $233.5 million, or 20.3%, compared to September 30, 2017, up $218.2 million, or 18.7% from $1.17 billion on December 31, 2017 and increased $64.3 million, or 4.9%, from $1.32 billion on June 30, 2018.
  • Asset quality metrics continued to be very strong, with net recoveries of $103,000 for the third quarter of 2018, compared to net charge-offs of $348,000 for the third quarter of 2017. The ratio of nonperforming loans to total loans of 0.52% at September 30, 2018 decreased by four basis points compared to 0.56% at September 30, 2017, and nine basis points from 0.61% at June 30, 2018. 
  • First Bank's efficiency ratio2 was 53.02% for the third quarter of 2018, compared to 49.63% in the third quarter of 2017 and 55.64% in the linked second quarter. This was the sixth consecutive quarter in which the Bank's efficiency ratio was below 60%.

2 The efficiency ratio is a non-U.S. GAAP financial measure and is calculated by dividing non-interest expense less merger-related expenses by adjusted total revenue (net interest income plus non-interest income adjusted for gains on sale of investment securities and gain on recovery of acquired assets).  For a reconciliation of this non-U.S. GAAP financial measure, along with the other non-U.S. GAAP financial measures in this press release, to their comparable U.S. GAAP measures, see the financial reconciliations at the end of this press release.

"First Bank's third quarter results extended the momentum that was realized in the first half of 2018, with continued strong earning assets and deposit growth, effective non-interest expense management and targeted expansion of our banking service area," said Patrick L. Ryan, President and Chief Executive Officer. "Our strong quarter-over-quarter revenue growth of 40% flowed to our bottom line aided by a slower rate of growth for non-interest expense, and continued stable and favorable asset quality metrics. Our balance sheet and capital position at quarter end remained very strong enabling our team to continue to actively seek and evaluate opportunities to acquire branches or whole institutions with the potential to expand or strengthen our service footprint. We believe that many smaller institutions within our targeted service area may view us as a preferred merger partner, reflecting our financial strength and stability.

Core deposit growth remains one of our most important strategic priorities, and we continue to take steps to extend the recent success we have realized in growing retail, small business, municipal and commercial deposits. In early October, we announced the addition of a highly experienced banker, Emilio Cooper, to serve as Executive Vice President and Chief Deposit Officer. The addition of Emilio, together with the strong team we have assembled, will enable First Bank to continue to build on the progress we have made toward becoming a strong deposit gatherer. We continue to take advantage of opportunities to organically expand our service area, as well as taking steps to eliminate branch overlap where and when it makes sense. We opened a new full-service branch in Pennington, New Jersey during first quarter 2018, and an additional full-service branch in West Chester, Pennsylvania in August 2018. We are nearing completion of a plan to consolidate our Bensalem, Pennsylvania location into the nearby Trevose branch at the end of this month. We also completed the systems integration of our acquired Delanco Bancorp (Delanco) branch locations in the third quarter and we believe that the process went smoothly with minimal or no disruption to our new First Bank customers. During the third quarter we entered an agreement to upgrade our core service platform in a conversion that will take place in the spring of 2019. We believe the new platform will enhance the efficiency of our customer interactions, as well as offer product and service enhancements beyond what's available through our existing platform. It is also expected that this new platform will comfortably support both organic and acquired expansion opportunities for the foreseeable future. We continued to be pleased with the Bank's progress through the first three quarters of 2018 and are working to realize another strong quarter to finish out the year."

Income Statement
The Bank's net interest income for third quarter 2018 was $14.6 million, an increase of $3.9 million, or 36.6%, compared to $10.7 million in the third quarter of 2017. This growth was driven by a $5.8 million, or 42.6%, increase in interest and dividend income which was primarily a result of a $372.1 million increase in average loans, primarily commercial, along with a 22 basis point increase in average interest rates on loans compared with the third quarter of 2017. Growth in net interest income was partially offset by an increase in interest expense of $1.9 million from the comparable 2017 quarter, which reflected average balance increases for both transaction and time accounts, as well as an increase in borrowings and a 25 basis point increase in the overall cost of interest bearing liabilities. Both loan and deposit balances reflect acquired and organic growth activity.

Nine month net interest income totaled $40.8 million, an increase of $13.4 million, or 48.8%, compared to $27.4 million for 2017. This growth in year-to-date net interest income was primarily driven by a $377.9 million increase in average loans along with a 35 basis point increase in average interest rates on loans compared to the prior year period. This increase was partially offset by higher average interest bearing liability balances with an 18 basis point increase in average rate for the comparable period.

The third quarter 2018 net interest margin was 3.60%, an increase of two basis points compared to 3.58% for the prior year quarter, and a decrease of three basis points compared to 3.63% in the linked second quarter of 2018. The increase compared to third quarter 2017 was primarily the result of higher average interest-earning assets (primarily loans) and a 23 basis point improvement in the average rate on interest-earning assets, partially offset by higher average interest bearing liabilities along with a 25 basis point increase in their cost. The third quarter 2018 net interest margin benefited from the recoupment of $447,000 in interest income related to the payoff of a large commercial non-accruing loan which occurred during the quarter and contributed approximately 11 basis points to the net interest margin. The third quarter net interest margin also benefited from prepayment penalties of $277,000 related to early loan payoffs during the quarter compared to $232,000 in prepayment penalties in the linked second quarter and $489,000 in the quarter ended September 30, 2017.  The net interest margin for the nine months ended September 30, 2018 was 3.62%, a 28 basis point increase compared to 3.34% in the same period in 2017. The improvement was also driven by higher average interest-earning assets (primarily loans) as well as an increase in the average rate for interest-earning assets.

The provision for loan losses for the third quarter of 2018 was $721,000, an increase of $5,000 compared to $716,000 in the third quarter of 2017, and an increase of $20,000 compared to $701,000 for the linked second quarter of 2018. The increase in the provision compared to the prior periods, reflected continued strong loan growth, along with stable asset quality metrics which included net recoveries of $103,000 for third quarter 2018 and $75,000 for second quarter 2018. The provision for loan losses for the first nine months of 2018 totaled $2.4 million compared to $2.0 million for the same period in 2017. The increase in the nine month provision is reflective of the Bank's continued strong loan growth in 2018 offset somewhat by a continuation of stable asset quality metrics during this time. 

Third quarter 2018 non-interest income of $1.2 million, increased by $554,000 compared to $631,000 in third quarter 2017, primarily as a result of higher other non-interest income and additional gains on recovery of acquired loans compared to third quarter 2017. Nine-month non-interest income totaled $2.5 million for 2018 compared to $1.5 million for 2017. The increase in 2018 nine-month non-interest income was primarily a result of higher income from other non-interest income, higher gains on recovery of acquired loans and income from bank-owned life insurance. The increase for the comparable periods in other non-interest income mainly related to a one-time loan fee of $117,000 and other miscellaneous customer service fee income reflective of a growing bank.

Non-interest expense for third quarter 2018 totaled $8.2 million, an increase of $1.4 million, compared to $6.8 million for the prior year quarter. The higher non-interest expense compared to third quarter 2017 was primarily a result of increased salaries and employee benefits, higher occupancy and equipment cost and other expense.  These higher expenses were partially offset by a reduction in merger-related expenses and other real estate owned expense, net. The higher salaries and employee benefits and occupancy and equipment cost, compared to third quarter 2017, reflect a full quarter of expenses related to the locations and staff from the Delanco transaction, which closed in the second quarter of 2018 and expenses related to the locations and staff from the Bucks County Bank acquisition which closed at the end of the third quarter of 2017. Non-interest expense for the first nine months of 2018 totaled $24.1 million, an increase of $6.7 million, or 38.3%, compared to $17.4 million for the same period in 2017. The year-to-date increase to non-interest expense was also primarily a result of increased salaries and employee benefits and higher occupancy and equipment expenses and was partially offset by lower merger-related and other real-estate owned expenses.

Pre-provision net revenue3 for the third quarter of 2018 was $7.2 million, an increase of $1.6 million, or 28.8%, compared to $5.6 million the third quarter of 2017, and an increase of $929,000, or 14.7%, compared to $6.3 million in the linked second quarter of 2018.

Pre-provision net revenue is a non-U.S. GAAP financial measure and is calculated by adding net interest income and non-interest income and subtracting non-interest expense adjusted by certain non-recurring items.  For a reconciliation of this non-U.S. GAAP financial measure, along with the other non-U.S. GAAP financial measures in this press release, to their comparable U.S. GAAP measures, see the financial reconciliations at the end of this press release.

Income tax expense for the third quarter of 2018 was $1.4 million, with an effective tax rate of 20.2% compared to $1.3 million, with an effective tax rate of 34.6% for the third quarter of 2017. The effective tax rate for the nine months ended September 30, 2018 and 2017 was 19.3% and 31.4%, respectively. The reduction in the effective tax rate for both comparable periods was primarily a result of the enactment of the Tax Cuts and Jobs Act in 2017, which reduced the federal statutory corporate income tax rate from 35% to 21%.

On July 1, 2018 New Jersey passed a new Corporation Business Tax Act which imposes a surtax on corporations beginning on or after January 1, 2018. In addition, the new law reduced the dividends received deduction for certain dividend income retroactive to January 1, 2017. Another aspect of the law that is likely to impact us is the adoption of combined tax filings for corporations that are part of an affiliated group beginning in 2019. The surtax and the reduction in the dividends received deduction will have a minimal impact to our 2018 income tax expense and effective tax rate. We are continuing to assess the potential impact of the change to the state tax regulations with our advisors, however, if certain tax strategies are curtailed with the new regulations, we currently estimate that it will result in an effective tax rate in the range of 28% to 31% in 2019.

Balance Sheet
Total assets at September 30, 2018 were $1.72 billion, an increase of $270.4 million, or 18.7%, compared to $1.45 billion at September 30, 2017 and an increase of $264.8 million, or 18.2%, from December 31, 2017. Total loans were $1.41 billion at September 30, 2018, an increase of $216.9 million, or 18.2%, compared to $1.19 billion at September 30, 2017, and an increase of $184.0 million, or 15.0%, from the 2017 year-end. The increase from the prior year periods was broadly distributed across the Bank's commercial and consumer loan segments, and reflected continued strong organic originations as well as loans acquired in the Delanco merger. Total loans increased $40.6 million compared to the linked second quarter of 2018 mainly due to organic commercial loan growth. 

Total deposits were $1.39 billion at September 30, 2018, an increase of $233.5 million, or 20.3%, compared to $1.15 billion at September 30, 2017, and an increase of $218.2 million from December 31, 2017. Non-interest bearing deposits totaled $223.7 million at September 30, 2018, an increase of $28.3 million, or 14.5%, from $195.4 million on September 30, 2017, reflective of expanded commercial lending relationships, as well as our recent acquisition of Delanco.

Stockholders' equity increased to $190.7 million at September 30, 2018, up $27.4 million or 16.8% compared to $163.3 million at December 31, 2017.  The increase was primarily the result of the Bank's issuance of additional common shares for the acquisition of Delanco, which increased capital by $14.4 million, along with a $12.0 million increase in retained earnings.

Asset Quality
First Bank's asset quality metrics remained stable during the third quarter and continue to compare favorably to peer and industry averages, reflective of disciplined risk management and underwriting standards. Net recoveries were $103,000 for the third quarter of 2018, compared to net charge-offs of $348,000 for third quarter 2017, and net recoveries of $75,000 for the linked second quarter of 2018. Net recoveries as an annualized percentage of average loans were 0.03% in third quarter 2018, compared to net charge-offs as an annualized percentage of average loans of 0.13% in third quarter 2017. Nonperforming loans as a percentage of total loans at September 30, 2018 were 0.52%, compared with 0.56% on September 30, 2017 and 0.61% at June 30, 2018. Nonperforming loans decreased to $7.3 million at September 30, 2018, down from $8.4 million on June 30, 2018, primarily a result of two impaired commercial loans paying off during the quarter ended September 30, 2018. The allowance for loan losses to nonperforming loans was 192.16% at September 30, 2018, compared with 167.07% at the end of third quarter 2017 and 158.77% at June 30, 2018.

As of September 30, 2018, the Bank exceeded all regulatory capital requirements to be considered well capitalized, with a Tier 1 Leverage ratio of 10.37%, a Tier 1 Risk-Based capital ratio of 11.08%, a Common Equity Tier 1 Capital ("CET1") ratio of 11.08%, and a Total Risk-Based capital ratio of 13.39%.

Cash Dividend Declared
On October 16, 2018 the Board of Directors declared a quarterly cash dividend of $0.03 per share to common stockholders of record at the close of business on November 9, 2018 and payable on November 23, 2018. The First Bank Board believes that this dividend provides stockholders an added tangible benefit, and that it is appropriate given the Company's current financial performance, momentum and near-term prospects.

Conference Call
First Bank will host an earnings call on Tuesday, October 23, 2018 at 9:00 AM eastern time.  The direct dial toll free number for the call is 1-844-825-9784.  For those unable to participate in the call, a replay will be available by dialing 1-877-344-7529 (access code 10125067) from one hour after the end of the conference call until January 24, 2019.  Replay information will also be available on our website at www.firstbanknj.com under the "About Us" tab.  Click on "Investor Relations" to access the replay of the conference call. 

About First Bank
First Bank is a New Jersey state-chartered bank with 17 full-service branches in Cinnaminson, Cranbury, Denville, Delanco, Ewing, Flemington, Hamilton, Lawrence, Pennington, Randolph, Somerset and Williamstown, New Jersey, and Trevose, Doylestown, Warminster, West Chester and Levittown, Pennsylvania. With $1.7 billion in assets as of September 30, 2018, First Bank offers a traditional range of deposit and loan products to individuals and businesses throughout the New York City to Philadelphia corridor. First Bank's common stock is listed on the Nasdaq Global Market exchange under the symbol "FRBA".

Forward Looking Statements
This press release contains certain forward-looking statements, either express or implied, within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements include information regarding First Bank's future financial performance, business and growth strategy, projected plans and objectives, and related transactions, integration of the acquired businesses, ability to recognize anticipated operational efficiencies, and other projections based on macroeconomic and industry trends, which are inherently unreliable due to the multiple factors that impact economic trends, and any such variations may be material.  Such forward-looking statements are based on various facts and derived utilizing important assumptions, current expectations, estimates and projections about First Bank, any of which may change over time and some of which may be beyond First Bank's control. Statements preceded by, followed by or that otherwise include the words "believes," "expects," "anticipates," "intends," "projects," "estimates," "plans" and similar expressions or future or conditional verbs such as "will," "should," "would," "may" and "could" are generally forward-looking in nature and not historical facts, although not all forward-looking statements include the foregoing. Further, certain factors that could affect our future results and cause actual results to differ materially from those expressed in the forward-looking statements include, but are not limited to: whether First Bank can: successfully implement its growth strategy, including identifying acquisition targets and consummating suitable acquisitions; continue to sustain its internal growth rate; provide competitive products and services that appeal to its customers and target markets; difficult market conditions and unfavorable economic trends in the United States generally, and particularly in the market areas in which First Bank operates and in which its loans are concentrated, including the effects of declines in housing markets; an increase in unemployment levels and slowdowns in economic growth; First Bank's level of nonperforming assets and the costs associated with resolving any problem loans including litigation and other costs; changes in market interest rates may increase funding costs and reduce earning asset yields thus reducing margin; the impact of changes in interest rates and the credit quality and strength of underlying collateral and the effect of such changes on the market value of First Bank's investment securities portfolio; the extensive federal and state regulation, supervision and examination governing almost every aspect of First Bank's operations including changes in regulations affecting financial institutions, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations being issued in accordance with this statute and potential expenses associated with complying with such regulations; First Bank's ability to comply with applicable capital and liquidity requirements, including First Bank's ability to generate liquidity internally or raise capital on favorable terms, including continued access to the debt and equity capital markets; possible changes in trade, monetary and fiscal policies, laws and regulations and other activities of governments, agencies, and similar organizations. For discussion of these and other risks that may cause actual results to differ from expectations, please refer to "Forward-Looking Statements" and "Risk Factors" in First Bank's Annual Report on Form 10-K and any updates to those risk factors set forth in First Bank's subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K. If one or more events related to these or other risks or uncertainties materialize, or if First Bank's underlying assumptions prove to be incorrect, actual results may differ materially from what First Bank anticipates. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and First Bank does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. All forward-looking statements, expressed or implied, included in this communication are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that First Bank or persons acting on First Bank's behalf may issue.

CONTACT: 
Patrick L. Ryan, President and CEO
(609) 643-0168, patrick.ryan@firstbanknj.com 

FIRST BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except for share data)
 
        September 30,    
        2018   December 31,
        (unaudited)   2017
Assets        
Cash and due from banks $   11,733   $   12,808
Interest bearing deposits with banks   102,133     30,570
    Cash and cash equivalents   113,866     43,378
Interest bearing time deposits with banks   4,721     4,113
Investment securities available for sale   52,523     62,393
Investment securities held to maturity (fair value of $47,420      
   at September 30, 2018 and $52,920 at December 31, 2017)   48,310     52,900
Restricted investment in bank stocks   6,582     5,289
Other investments   6,162   ?
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