Market Overview

First Bank Reports Second Quarter 2019 Net Income of $2.8 Million

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First Half 2019 Net Income is $7.1 Million

For the Second Quarter and First Half of 2019: Continued Strong Loan Origination,
Solid Revenue Growth, Strong Period-End Capital Levels

HAMILTON, N.J., July 24, 2019 (GLOBE NEWSWIRE) -- First Bank (Nasdaq Global Market: FRBA) today announced results for the three and six months ended June 30, 2019. Net income for the second quarter of 2019 was $2.8 million, or $0.15 per diluted share, compared to $4.0 million, or $0.22 per diluted share, for the second quarter of 2018. Return on average assets and return on average equity for the second quarter of 2019 were 0.64% and 5.64%, respectively, and 1.02% and 9.09%, respectively, for the second quarter of 2018. Net income for the first six months of 2019 was $7.1 million, or $0.38 per diluted share, compared to $8.1 million, or $0.44 per diluted share, for the same period in 2018. First Bank's second quarter 2019 adjusted diluted earnings per share1 was $0.15, adjusted return on average assets1 was 0.63% and adjusted return on average equity1 was 5.52%. Second quarter 2018 adjusted diluted earnings per share was $0.24, adjusted return on average assets was 1.13% and adjusted return on average equity was 10.12%. 

Second Quarter 2019 Performance Highlights:

  • Total net revenue (net interest income plus non-interest income) for the quarter increased $695,000 to $15.1 million, compared to the same prior year quarter.
  • Total loans of $1.55 billion at June 30, 2019 were up $155.2 million, or 11.1%, from June 30, 2018, and $86.0 million, or 5.9%, from December 31, 2018.
  • Total deposits of $1.44 billion at June 30, 2019 were up $122.4 million, or 9.3%, from June 30, 2018 and $50.3 million, or 3.6%, compared to December 31, 2018.
  • Asset quality metrics continued to be solid, with net charge-offs of $481,000, or an annualized 0.13% of average loans, for second quarter 2019, compared to net recoveries of $75,000 for second quarter 2018. The ratio of nonperforming loans to total loans was 0.94% at June 30, 2019 compared to 0.61% at June 30, 2018, and 0.50% at March 31, 2019.
  • Continued effective expense management was reflected in the second quarter 2019 efficiency ratio2 of 60.51% compared to 60.95% for the linked first quarter of 2019, with opportunities for additional improvement going forward.

Patrick L. Ryan, President and Chief Executive Officer, commented, "Our 2019 second quarter results were impacted by higher-than-normal credit costs and an adjustment to reflect our new estimated, effective tax rate.  Adjusting for those items, our operating results were basically in line with prior quarters.  We have work to do in order to move from steady earnings back to earnings growth.  Our core deposit growth initiatives, expense management and continued benefits from M&A will be the levers to help drive earnings growth in the future.  Despite challenges, the second quarter was a solid and productive period characterized by loan growth of more than $51 million, diligent expense control and year-over-year net interest income growth. Our team continues to successfully compete for appropriate lending opportunities in a challenging and highly competitive business environment. The Bank's non-interest expense has remained relatively flat over the last three quarters, exhibiting our commitment to expense control which is reflected in an efficiency ratio that has been near or below 60% for several quarters. This has been achieved while we have continued to invest in building our team to generate and handle the significant growth realized during that same period. During the second quarter of 2019 we also continued to advance through the process of obtaining regulatory and shareholder approvals to complete the proposed acquisition of Grand Bank, N.A. which we expect to complete during the third quarter of 2019.

"Consistent with most of the banking industry, we are dealing with funding cost headwinds and are very focused on acquiring the necessary funds needed to maintain our lending growth momentum. We continue to use a mix of customer deposits and other sources to address our funding needs in the most cost effective manner. To address net interest margin compression we continue to focus on attracting lower cost commercial deposits. In the second quarter of 2019, we successfully grew $22.8 million in non-interest bearing deposits which were related principally to commercial relationships.

"Our second quarter 2019 provision for loan losses increased $1.4 million to $1.7 million, in part due to a specific reserve that was required on a single commercial and industrial loan relationship. Our commercial loan portfolio has been built on our relationship-based lending strategy with customers within our core banking footprint, and because of our prudent underwriting standards and adherence to concentration limits, we remain comfortable that the credit risk in our portfolio is well managed. Our net charge-offs and nonperforming loans ratios remain at very manageable levels and we believe that our allowance for loan losses level remains appropriate.

"Our two-pronged strategy of investing in organic and acquired growth has resulted in total assets of more than $1.8 billion at June 30, 2019, and positions First Bank for our next threshold target of $2.0 billion in assets. We continue to see opportunities to use both strategies within our service area and expect to strategically and tactically grow our franchise through the remainder of 2019."

Income Statement

The Bank's net interest income for second quarter 2019 was $14.2 million, an increase of $531,000, or 3.9%, compared to $13.6 million in the second quarter of 2018. This increase was driven by a $2.8 million, or 15.9%, increase in interest and dividend income, primarily a result of a $185.9 million increase in average loans and a 10 basis point increase in the average rate on loans compared with the second quarter of 2018. This was partially offset by an increase in interest expense of $2.3 million compared to the 2018 second quarter, which was primarily the result of average balance and interest rate increases for money market deposits and time deposit accounts. Six month 2019 net interest income totaled $28.2 million, an increase of $2.0 million or 7.5%, compared to $26.2 million for 2018. The increase in the 2019 year to date net interest income was also driven by strong growth in average loans, which increased by $202.8 million, or 15.6%, from the same prior year period.

The second quarter 2019 net interest margin was 3.37%, a decrease of 26 basis points compared to the same prior year quarter and a decrease of 8 basis points compared to the linked first quarter of 2019. The decrease compared to second quarter 2018 was primarily the result of higher average balances of interest bearing liabilities (primarily money market deposits, time deposit accounts and borrowings) and a 57 basis point increase in the average rate on total interest bearing deposits.

The net interest margin for the six months ended June 30, 2019 was 3.41%, a decrease of 22 basis points compared to the same period in 2018. The decrease in the six month net interest margin, as with the three month decrease, was driven by higher average balances for interest bearing liabilities (primarily money market deposits and time deposit accounts) and a 55 basis point increase in the average rate on total interest bearing deposits.

The provision for loan losses for the second quarter of 2019 was $1.7 million, an increase of $1.0 million compared to $701,000 in the second quarter of 2018. The increase in the provision compared to second quarter 2018 reflecting a specific reserve for a commercial and industrial loan relationship, an increased level of net charge-offs, and loan growth for the quarter. The provision for loan losses for the first six months of 2019 totaled $2.1 million compared to $1.7 million for the same period in 2018. The increase in the six month provision for loan losses was primarily reflective of the same factors as for the three month period.

Second quarter 2019 non-interest income increased by $164,000 to $924,000, compared to $760,000 in second quarter 2018, primarily the result of a one-time swap referral loan fee, an increase in service fees on deposit accounts and an increase in gains on recovery of acquired loans compared to the second quarter of 2018. Non-interest income totaled $1.6 million for the six months ended June 30, 2019 compared to $1.3 million for the same period in 2018. This increase in non-interest income was primarily reflective of the same factors as for the three month period.

Non-interest expense for second quarter 2019 totaled $9.1 million, an increase of $473,000, compared to $8.7 million for the same prior year quarter, and $127,000 higher compared to $9.0 million for the linked first quarter of 2019. The higher non-interest expense compared to second quarter 2018 was primarily a result of increased salaries and employee benefits, occupancy and equipment expense and other expense, partially offset by a decrease in merger-related expenses and other professional fees. The higher salaries and employee benefits expense reflects a full quarter of cost associated with the acquired Delanco locations as well as other staffing additions during and since the second quarter of 2018 to support further growth. Non-interest expense for the first six months of 2019 totaled $18.1 million, an increase of $2.2 million, or 13.9%, compared to $15.9 million for the same period in 2018. The increase was also primarily a result of increased salaries and employee benefits, higher occupancy and equipment expense and other expense, partially offset by reduced merger-related expenses and lower other professional fees.

Pre-provision net revenue3 for the second quarter of 2019 was $5.9 million, compared to $6.3 million for the second quarter of 2018, and up $193,000, or 3.4%, compared to $5.7 million in the linked first quarter of 2019.

Income tax expense for the six months ended June 30, 2019 was $2.5 million, with an effective tax rate of 25.8%, compared to $1.9 million for the first six months of 2018, with an effective tax rate of 18.7%.  Income tax expense for the three months ended June 30, 2019 was $1.4 million, with an effective tax rate of 33.0%, compared to $1.0 million for the three months ended June 30, 2018, with an effective tax rate of 20.2%, and $1.1 million for the linked first quarter of 2019, with an effective tax rate of 20.1%. In May 2019, New Jersey issued clarifying statements related to the impact of the new tax legislation enacted in July 2018, specifically related to the combined income tax reporting for certain members of a commonly controlled unitary business group. These statements provided clarity on First Bank's New Jersey state tax liability and affected the Bank's effective tax rate.

Balance Sheet

Total assets at June 30, 2019 were $1.83 billion, an increase of $189.7 million, or 11.6%, compared to $1.64 billion at June 30, 2018 and an increase of $119.5 million, or 7.0%, from December 31, 2018. Total loans were $1.55 billion at June 30, 2019, an increase of $155.2 million, or 11.1%, compared to $1.39 billion at June 30, 2018, and an increase of $86.0 million, or 5.9%, from the 2018 year end. Total loans as of June 30, 2019 increased $51.5 million compared to the linked first quarter of 2019. The growth during the second quarter 2019 was mainly derived from commercial real estate loans and commercial and industrial loans.

Total deposits were $1.44 billion at June 30, 2019, an increase of $122.4 million, or 9.3%, compared to $1.32 billion at June 30, 2018, and an increase of $50.3 million, or 3.6%, from December 31, 2018. Non-interest bearing deposits totaled $241.4 million at June 30, 2019, an increase of $22.8 million, or 10.5%, from March 31, 2019, reflective of continued growth in commercial deposits.

Stockholders' equity increased to $202.2 million at June 30, 2019, up $7.4 million or 3.8% compared to December 31, 2018. The increase was primarily the result a $6.0 million increase in retained earnings.

As of June 30, 2019, the Bank continued to exceed all regulatory capital requirements to be considered well capitalized, with a Tier 1 Leverage ratio of 10.42%, a Tier 1 Risk-Based capital ratio of 10.55%, a Common Equity Tier 1 Capital ratio of 10.55%, and a Total Risk-Based capital ratio of 12.78%.

Asset Quality

First Bank's asset quality metrics increased from low levels, but remained healthy during the second quarter. Net charge-offs were $481,000 for the second quarter of 2019, compared to net recoveries of $75,000 for second quarter of 2018 and net recoveries of $16,000 for the first quarter of 2019. Net charge-offs as an annualized percentage of average loans were 0.13% in second quarter 2019, compared to net recoveries as an annualized percentage of average loans of 0.02% in second quarter 2018 and 0.00% in the linked first quarter 2019. Nonperforming loans as a percentage of total loans at June 30, 2019 were 0.94%, compared with 0.61% on June 30, 2018 and 0.50% at March 31, 2019. Nonperforming loans increased to $14.6 million at June 30, 2019, up from $7.5 million on March 31, 2019, primarily reflecting the movement of a commercial and industrial lending relationship to nonaccrual status. The allowance for loan losses to nonperforming loans was 115.13% at June 30, 2019, compared with 158.77% at the end of second quarter 2018 and 206.85% at March 31, 2019.
                                      
Cash Dividend Declared

On July 16, 2019, First Bank's Board of Directors declared a quarterly cash dividend of $0.03 per share to common stockholders of record at the close of business on August 9, 2019, payable on August 23, 2019. The Board of Directors 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.

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.

Conference Call

First Bank will host an earnings call on Thursday, July 25, 2019 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 10133276) from one hour after the end of the conference call until October 25, 2019.  Replay information will also be available on First Bank's 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 16 full-service branches in Cinnaminson, Cranbury, Delanco, Denville, Ewing, Flemington, Hamilton, Lawrence, Pennington, Randolph, Somerset and Williamstown, New Jersey, and Doylestown, Trevose, Warminster and West Chester, Pennsylvania. With $1.83 billion in assets as of June 30, 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.

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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)
             
        June 30, 2019    
        (unaudited)   December 31, 2018
Assets        
Cash and due from banks $ 12,795     $ 13,547  
Federal funds sold   25,000       25,000  
Interest bearing deposits with banks   48,858       16,883  
    Cash and cash equivalents   86,653       55,430  
Interest bearing time deposits with banks   6,871       5,925  
Investment securities available for sale   48,871       51,260  
Investment securities held to maturity (fair value of $43,493      
  at June 30, 2019 and $49,411 at December 31, 2018)   43,170       49,811  
Restricted investment in bank stocks   8
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