Market Overview

First Bank Reports First Quarter 2019 Net Income of $4.3 Million

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HAMILTON, N.J., April 29, 2019 (GLOBE NEWSWIRE) -- First Bank (Nasdaq Global Market: FRBA) today announced results for the first quarter 2019. Net income for the first quarter 2019 was $4.3 million or $0.23 per diluted share, compared to $4.0 million or $0.23 per diluted share for the first quarter of 2018. Return on average assets and return on average equity for the first quarter of 2019 were 0.99% and 8.79%, respectively, and 1.11% and 9.90%, respectively for the first quarter of 2018.

Net income for the first quarter 2019 and 2018 included certain merger-related items. First Bank's first quarter 2019 adjusted diluted earnings per share1 were $0.22, adjusted return on average assets1 was 0.99% and adjusted return on average equity1 was 8.76%.  First quarter 2018 adjusted diluted earnings per share were $0.23, adjusted return on average assets was 1.14% and adjusted return on average equity was 10.18%.
   
First Quarter 2019 Performance Highlights:

  • A 12.1% increase in total net revenue (net interest income plus non-interest income) to $14.7 million, compared to $13.1 million for the prior year quarter.
  • Total loans of $1.5 billion at March 31, 2019, an increase of $226.5 million, or 17.8%, from $1.3 billion at March 31, 2018, and an increase of $34.6 million from December 31, 2018, or 2.4%.
  • Total deposits of $1.5 billion at March 31, 2019, an increase of $260.2 million, or 21.9%, from $1.2 billion at March 31, 2018, and an increase of $57.6 million from December 31, 2018.
  • Continued strong asset quality metrics with annualized net loan charge-offs to average loans of 0.00% for first quarter 2019, and nonperforming loans to total loans of 0.49% at March 31, 2019 compared to 0.45% at March 31, 2018. 
  • Continued expense management reflected in the first quarter efficiency ratio2 of 60.95% compared to 61.78% for the linked fourth quarter of 2018, with opportunities for additional improvement going forward.
  • First Bank entered into a definitive merger agreement to acquire Grand Bank, N.A. ("Grand Bank") in a stock transaction valued at approximately $19.4 million.

"We finished 2018 with our business well-positioned to handle both the challenges we will face and the opportunities we will have during 2019, and we believe that our first quarter results demonstrate that position. Our solid first quarter performance was characterized by a double-digit increase in total revenue over first quarter 2018, respectable loan and deposit growth, and continued favorable asset quality metrics," said Patrick L. Ryan, President and Chief Executive Officer. "Our first quarter net income improved to $4.3 million driven by a $1.4 million increase in net interest income despite interest rate margin headwinds. In addition to a strong operating performance for the quarter, we entered a definitive agreement to acquire Grand Bank in a stock transaction valued at approximately $19.4 million, which will provide increased deposit market share along with two full-service branch locations in Mercer County, New Jersey. This transaction will add assets of approximately $197 million, loans of approximately $163 million and deposits of approximately $162 million. Upon completion of the merger, we will have approximately $2.0 billion in assets with eighteen branches located in seven New Jersey and two eastern Pennsylvania counties. This is another strategic transaction that we believe will elevate our market profile in our core Central New Jersey marketplace, while complementing our strong organic growth strategy. We consider this another excellent example of the reasonably priced, lower-risk transactions we are using to accelerate our growth rate, solidify market position and expand our service footprint.

"Even while we deliver significant growth and geographic expansion, we remain focused on maintaining our community bank roots and culture. We are working to create a high-performing, truly-differentiated community bank which delivers an exceptional customer experience, superior shareholder returns and a unique and rewarding work environment for our employees. We are targeting a sizable and underserved market niche of customers looking for a direct and meaningful relationship with their banker. To accomplish this goal, we are building a delivery system that provides direct and easy access to personal bankers that solve problems and meet customer needs.

"In 2018, we entered into a data processing agreement with a new core service provider to create a system capable of handling our growing bank, with an increasing number of accounts processed and services provided. We completed our system conversion in late March. We believe that our new data processing system provides a substantial upgrade to our data processing functionality and performance, while providing some cost savings."

Income Statement

Our net interest income for first quarter 2019 was $14.0 million, an increase of $1.4 million, or 11.4%, compared to $12.6 million for the first quarter of 2018. This growth was driven by a $3.7 million, or 22.6%, increase in interest and dividend income that was primarily the result of a $218.6 million increase in average loan balances compared with the first quarter of 2018, representing both organic and acquired growth. The increase in interest and dividend income was partially offset by increased interest expense of $2.2 million for the comparable period, reflecting average balance and average rate increases of $90.6 million and 63 basis points, respectively, for time deposits and $112.0 million and 69 basis points, respectively, for money market deposits. Deposit cost increases are reflective of a higher interest rate environment for the comparative quarters as well as competitive pricing pressures in our markets.

The first quarter of 2019 net interest margin was 3.45%, a decrease of 17 basis points compared to 3.62% for the prior year quarter, and an increase of 1 basis point from 3.44% for the fourth quarter of 2018. The decrease in the first quarter 2019 net interest margin compared to the prior year period was primarily a result of a 48 basis point increase in the average interest rate for interest bearing liabilities.

Net interest income was down $117,000 compared to the linked fourth quarter 2018 despite a stable net interest margin. The decrease was primarily due to two fewer days in the first quarter of 2019 compared to the fourth quarter of 2018. The average daily net interest income during the first quarter of 2019 was about $156,000.

The provision for loan losses for first quarter 2019 was $365,000, a decrease of $634,000 compared to $999,000 for first quarter 2018, and a decrease of $661,000 compared to $1.0 million for the fourth quarter of 2018. The lower provision in the first quarter of 2019 was mainly due to net recoveries during the quarter and a reduction in the specific reserve required on an impaired multi-family loan which had a significant paydown of the loan balance.

First quarter 2019 non-interest income increased $150,000, to $673,000, from $523,000 in the first quarter of 2018. The increase in relation to the prior year quarter was primarily a result of higher gains on recovery of acquired loans, higher income from bank-owned life insurance and increased service fees on deposit accounts.  

Non-interest expense for the first quarter of 2019 totaled $9.0 million, an increase of $1.7 million compared to $7.3 million for the prior year quarter. The higher non-interest expense in the first quarter of 2019, compared to the same period in 2018, primarily reflects increased salaries and employee benefits expense, higher occupancy and equipment costs and other expense. These higher expenses were partially offset by a reduction in merger-related expenses which declined by $102,000. First quarter of 2019 salaries and employee benefits expense increased by $1.1 million. The increase for the comparative period was due to several factors, including additional staff from the Delanco Bancorp, Inc. ("Delanco") acquisition, an increase in base annual salaries related to additional staffing in 2018, higher bonus-related costs including employer taxes, and other employee benefit costs.  Occupancy and equipment costs were up $396,000 as a result of adding locations from the Delanco acquisition that closed on April 30, 2018 and due to increases in rent expense, including the addition of new administrative office space and higher building repairs and maintenance costs. Other expense increased $199,000 for the comparable periods. The first quarter of 2019 included $118,000 of merger-related expenses related to First Bank's definitive agreement to acquire Grand Bank compared to $220,000 of merger-related expenses in the first quarter of 2018 related to the Delanco acquisition.

Non-interest expense for the first quarter of 2019 decreased $190,000 compared to the fourth quarter of 2018 mainly as a result of lower occupancy and equipment costs, other professional fees and other expense, offset somewhat by higher salaries and employee benefits and merger-related expenses. The decrease in occupancy and equipment expense was primarily the result of one-time expense items that occurred in the fourth quarter and the continued focus on cost containment throughout the Bank. Additional cost savings should be realized in the second quarter of 2019 due to the previously announced closure of the Bank's Levittown branch in March 2019. 

First Bank's efficiency ratio for the first quarter 2019 was 60.95% compared to 53.91% in the first quarter 2018, and 61.78% for the linked fourth quarter 2018.

Pre-provision net revenue3 for first quarter 2019 was $5.7 million, a decrease of $325,000 compared to $6.0 million for the first quarter 2018 and the same as the fourth quarter of 2018.

Income tax expense for the first quarter of 2019 was $1.1 million, or an effective tax rate of 20.1% compared to $832,000 or an effective tax rate of 17.1% in the first quarter of 2018 and $823,000, or an effective tax rate of 16.7% in the linked fourth quarter of 2018. We are continuing to assess the potential impact of the change to the New Jersey state tax regulations that occurred in July 2018 with our tax advisors. We believe at this time that our state tax planning strategies will continue to be beneficial in 2019 and project that our effective tax rate will be approximately 21% during 2019. If certain state tax strategies are curtailed with the new regulations, we currently estimate that it will result in an effective tax rate of approximately 28% in 2019.

Balance Sheet

Total assets as of March 31, 2019 were $1.8 billion, an increase of $66.1 million compared to December 31, 2018, and an increase of $294.2 million or 19.8%, compared to $1.5 billion at March 31, 2018, due primarily to organic and acquired loan growth. Total loans were $1.5 billion as of March 31, 2019, an increase of $34.6 million compared to December 31, 2018 and an increase of $226.5 million, or 17.8%, compared to $1.3 billion at March 31, 2018. Loan growth during the first quarter of 2019 was distributed across commercial loan types, offset somewhat by a reduction in our consumer and residential real estate loan segments.

Total deposits were $1.5 billion at March 31, 2019, an increase of $57.6 million compared to December 31, 2018, and an increase of $260.2 million, or 21.9%, compared to $1.2 billion at March 31, 2018. Non-interest bearing deposits totaled $218.6 million at March 31, 2019, an increase of $24.4 million, or 12.6%, from $194.2 million on March 31, 2018 and a slight decrease of $479,000, or 0.2% compared to $219.0 million at December 31, 2018.

Stockholders' equity increased to $199.3 million at March 31, 2019, an increase of $4.5 million compared to December 31, 2018 and an increase of $32.6 million or 19.5% compared to $166.7 million at March 31, 2018. The increase compared to March 31, 2018 was primarily the result of a $15.6 million increase in retained earnings, along with the Bank's issuance of additional common shares for the acquisition of Delanco, which increased capital by $14.4 million.

Asset Quality

First Bank's asset quality metrics remained stable and favorable for first quarter 2019, reflective of the Bank's ongoing disciplined risk management and underwriting standards. Net recoveries for the first quarter were $16,000, compared to net charge-offs of $180,000 for first quarter 2018 and $7,000 for the linked fourth quarter of 2018. Net charge-offs as an annualized percentage of average loans were 0.00% in first quarter 2019, compared to 0.06% for first quarter 2018 and 0.00% for the linked fourth quarter of 2018. Nonperforming loans as a percentage of total loans at March 31, 2019 were 0.49%, compared with 0.45% at March 31, 2018, and 0.44% at December 31, 2018. The allowance for loan losses to nonperforming loans was 212.3% at March 31, 2019, compared with 220.5% at March 31, 2018, and 237.9% at December 31, 2018.

As of March 31, 2019, the Bank continued to exceed all regulatory capital requirements to be considered well capitalized, with a Tier 1 Leverage ratio of 10.48%, a Tier 1 Risk-Based capital ratio of 10.70%, a Common Equity Tier 1 Capital ratio of 10.70%, and a Total Risk-Based capital ratio of 12.89%.

Grand Bank Acquisition

On March 19, 2019, First Bank announced a definitive agreement to acquire Grand Bank, N.A. in a stock transaction valued at approximately $19.4 million. The merger has been unanimously approved by the boards of directors of both institutions and is expected to be completed in the third quarter of 2019, subject to the approval of First Bank and Grand Bank shareholders, as well as customary regulatory approvals.

Cash Dividend Declared

Reflecting the Bank's continued performance, at their April 2019 meeting, 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 May 10, 2019, payable on May 24, 2019. The Board of Directors believes that this dividend provides stockholders an added tangible benefit, and that it is appropriate given our current financial performance, momentum and near-term prospects.

Conference Call Details

First Bank will host an earnings call on Tuesday, April 30, 2019 at 9:00 a.m. Eastern time.  The direct dial toll free number for the call is 844-825-9784.  For those unable to participate in the call, a replay will be available by dialing 877-344-7529 (access code 10130828) from one hour after the end of the conference call until July 26, 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 information for the conference call.

About First Bank

First Bank is a New Jersey state-chartered bank with 16 full-service branches in Cinnaminson, Cranbury, Denville, Delanco, Ewing, Flemington, Hamilton, Lawrence, Pennington, Randolph, Somerset and Williamstown, New Jersey, and Doylestown, Trevose, Warminster and West Chester, Pennsylvania. With $1.8 billion in assets as of March 31, 2019, First Bank offers a full 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 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; the ability to complete the Grand Bank, N.A. merger as expected and within the expected timeframe, and the possibility that one or more of the conditions to the completion of such merger may not be satisfied; 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.

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 gains or 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. 

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 gains on recovery of acquired loans).  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.

3 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.

 
FIRST BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except for share data)
             
        March 31, 2019    
        (unaudited)   December 31, 2018
Assets        
Cash and due from banks $ 13,503     $ 13,547  
Federal funds sold   25,000       25,000  
Interest bearing deposits with banks   43,202       16,883  
    Cash and cash equivalents   81,705       55,430  
Interest bearing time deposits with banks   7,115       5,925  
Investment securities available for sale   50,251       51,260  
Investment securities held to maturity (fair value of $45,566      
  at March 31, 2019 and $49,411 at December 31, 2018)   45,703       49,811  
Restricted investment in bank stocks   5,579       5,803  
Other investments   6,246
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