FRBA - First Bank Reports Fourth Quarter 2020 Net Income of $6.2 Million

Full Year 2020 Net Income of $19.4 Million

For the Fourth Quarter 2020: Strong Revenue and Earnings Growth, Stable and Solid Asset Quality Metrics Continued Effective Expense Management with an Efficiency Ratio ¹ of 52.5%

HAMILTON, N.J., Jan. 27, 2021 (GLOBE NEWSWIRE) -- First Bank (Nasdaq Global Market: FRBA) today announced results for the fourth quarter and full year 2020. Net income for fourth quarter 2020 was $6.2 million, or $0.31 per diluted share, compared to $5.2 million, or $0.25 per diluted share, for the fourth quarter of 2019. Return on average assets and return on average equity for the fourth quarter of 2020 were 1.06% and 10.44%, respectively, compared to fourth quarter 2019 return on average assets and return on average equity of 1.02% and 9.24%, respectively. First Bank’s fourth quarter 2020 adjusted diluted earnings per share ² were $0.31, adjusted return on average assets ² was 1.06% and adjusted return on average equity ² was 10.44% compared to fourth quarter 2019 adjusted diluted earnings per share of $0.29, adjusted return on average assets of 1.16% and adjusted return on average equity of 10.53%.

Net income for 2020 was $19.4 million, or $0.97 per diluted share, compared to $13.4 million, or $0.69 per diluted share, for 2019. Net income for 2019 was adversely impacted by merger-related expenses and a deferred tax asset revaluation. Excluding the impact of these expenses, adjusted diluted earnings per share was $0.88 for 2019.

Fourth Quarter and Full Year 2020 Performance Highlights:

• Total net revenue (net interest income plus non-interest income) of $21.0 million for the fourth quarter of 2020 grew $3.4 million or 19.0% compared to the prior year quarter. Total net revenue for 2020 was $75.9 million, an increase of $13.5 million, or 21.7% compared to 2019
• Total loans of $2.05 billion at December 31, 2020, an increase of $324.0 million, or 18.8%, from December 31, 2019
• Total deposits of $1.90 billion at 2020 yearend, up $262.8 million, or 16.0%, from December 31, 2019, with a $148.3 million, or 53.8%, increase in non-interest bearing deposits
• Continued effective non-interest expense management was reflected in the fourth quarter 2020 efficiency ratio of 52.54%, compared to 52.64% for fourth quarter 2019 and 49.31% for the linked third quarter of 2020
• Asset quality metrics remained solid and stable during the quarter, despite the ongoing economic uncertainty associated with the COVID-19 pandemic, with net charge-offs of $465,000, or an annualized 0.09% of average loans, for fourth quarter 2020 and nonperforming loans of $10.2 million on December 31, 2020, or 0.50% of total loans at year-end
• Fourth quarter 2020 tax equivalent net interest margin of 3.56% increased by 22 basis points compared to fourth quarter 2019 and 33 basis points compared to the linked quarter

“Despite the considerable operational challenges that 2020 presented to all financial institutions, the First Bank team was able to produce strong results highlighted by double-digit loan and deposit growth, continued solid asset quality metrics, net revenue growth of 22%, and a well-managed operating expense profile,” said Patrick L. Ryan, President and Chief Executive Officer.

“Our lenders had a strong year, adding $324 million to the loan portfolio at yearend, with approximately $187 million coming from non-PPP-related organic opportunities. Fourth quarter net loan growth, excluding PPP loans, exceeded $96 million, helping to offset $53.6 million of PPP loan forgiveness in the quarter. Despite this very strong growth to finish the year, we are not changing our expectations for loan growth next year. Net loan growth in any particular quarter can be unpredictable given the timing of new loan funding and payoffs, but we expect annual loan growth in 2021 in the 5% to 7% range.”

“2020 was an important year as we transitioned from an early-stage enterprise focused on growth and scale to a more mature model focused on margin and profitability. To help achieve this transformation, we became laser-focused on two primary goals: i) driving down deposit costs, and ii) improving our deposit mix. We made a concerted effort to reduce our dependence on higher-cost time deposits and to focus on attracting and retaining lower-cost checking and money market accounts. For the quarter ended December 31, 2020, our total deposit cost was 0.50%, significantly improved from 1.39% one year prior, and time deposits were just 27.5% of total deposits, down from 41.0% at the end of 2019. Even more important, our non-interest bearing deposits were 22.3% at year-end compared to 16.8% at the end of 2019. At the same time, our team’s commitment and effort resulted in a more than $262 million increase in total deposits.”

“Despite challenges from COVID-19, our overall asset quality profile actually improved during 2020. Net charge-offs to average loans for the full year 2020 of 0.15% were comparable to 0.12% in 2019 which we consider a solid performance during a year marked by considerable economic uncertainty. When looking at non-performing assets, our ratio actually improved considerably, dropping from 1.20% of average assets at the end of 2019 to 0.46% at the end of 2020. Despite very manageable charge-offs and a reduction in nonperforming loans throughout 2020, we set aside significant additional reserves for potential loan losses in response to the ongoing business disruption that has resulted from the pandemic. While the COVID-19 pandemic has not had a significant impact on charge-offs to-date, we may see some level of charge-offs in 2021 related to the continued challenges facing many business and individual borrowers. With our ALLL/Loans of 1.25%, excluding PPP loans, we feel we have done a good job making sure we’re adequately reserved for potential problems that could arise.”

“Our top and bottom line performance for both the fourth quarter and full year would be considered strong in a normal economic environment, but it’s particularly satisfying in the current period of uncertainty. With net revenue growth of 19% for the quarter and 22% for the year, it appears that we were pulling the right levers. We remain equally focused on maintaining our operating expense at a level that’s appropriate for the size of our organization. With an efficiency ratio in the low 50s during 2020, we were able to take our top line growth and translate it into strong earnings improvement for the quarter and the full year. With an return on average assets over 1% in each of the past two quarters, and a return on average tangible equity ³ over 11%, we believe our focus on driving bottom line results is bearing fruit. Importantly, we expect these strong improvements in profitability can continue in to 2021 as we further improve our funding mix, improve our margin and gain further operating leverage.”

Income Statement

Net interest income for fourth quarter 2020 was $19.7 million, an increase of $3.5 million, or 21.8%, compared to $16.2 million in the fourth quarter of 2019. This increase was primarily the result of a $3.5 million decrease in total interest expense compared to fourth quarter 2019, while interest and dividend income modestly increased. The decrease in total interest expense for fourth quarter 2020 was primarily a result of a $158.7 million decrease in average time deposits coupled with a 112-basis point reduction in the interest rate paid on these deposits, along with a 106-basis point decline in the rate paid on money market deposits. Fourth quarter 2020 interest income on loans increased by $542,000, compared to fourth quarter 2019, reflecting an increase in the average loan balance of $278.6 million, partially offset by a 57-basis point decline in the average yield. The yield on the loan portfolio was impacted by lower rates paid on Paycheck Protection Program (“PPP”) loans, partially offset by amortization of deferred PPP loan fees.

Net interest income of $69.6 million for 2020 increased by $11.2 million, or 19.2%, compared to $58.4 million for 2019. Interest and dividend income for 2020 increased by $5.0 million to $89.2 million, compared to $84.2 million for 2019. Net interest income also benefitted from a $6.2 million decline in interest expense which dropped from $25.8 million in 2019 to $19.6 million in 2020. The increase in interest and dividend income for 2020 was primarily driven by significant growth in average loans, which increased by $336.1 million, but partially offset by a 56-basis point decrease in the average interest rate on loans compared to the prior year. As with the fourth quarter of 2020, the average yield on loans reflected lower rates paid on PPP loans, partially offset by amortization of deferred PPP loan fees. The decline in interest expense for 2020 also was a result of a decrease in the average balance of time deposits, coupled with lower average interest rates paid, and a lower average rate paid on money market deposits.

The fourth quarter 2020 tax equivalent net interest margin of 3.56% increased by 22 basis points compared to 3.34% for the prior-year quarter and increased by 33 basis points from the linked third quarter 2020. The increase in the 2020 fourth quarter margin compared to 2019 was primarily the result of lower average rates paid for interest-bearing liabilities, primarily time and money market deposits, in addition to a significant decline in the average balance of time deposits. The increase in the net interest margin compared to third quarter 2020 was a result of a 15-basis point increase in the yield on average earning assets driven by a higher yield on loans, along with a 25-basis point decline in the cost of interest-bearing liabilities. The higher yield on the loan portfolio reflected the amortization of PPP loan fees during the fourth quarter.

The net interest margin for 2020 was 3.29%, a decrease of 3 basis points compared to 3.32% for the prior year, primarily a result of a 57-basis point decline in the yield on average interest earning assets, mostly offset by a 62-basis point decline in the rate paid on interest bearing liabilities. A decline in the average balance of time deposits along with a 52-basis point decrease in the interest rate was primarily responsible for the lower cost of interest-bearing liabilities in 2020.

The provision for loan losses for the fourth quarter of 2020 was $1.6 million, an increase of $1.3 million compared to $340,000 in the fourth quarter of 2019, and a decrease of $364,000 compared to the linked third quarter of 2020. The increase in the provision compared to fourth quarter 2019 is primarily attributable to the strong loan growth during the quarter ended December 31, 2020. The provision for loan losses for 2020 totaled $9.5 million compared to $4.0 million for the same period in 2019. The more than two-fold increase in the 2020 provision for loan losses reflected our assessment of the economic uncertainty caused by the ongoing COVID-19 pandemic and its impact on potential credit losses.

Fourth quarter 2020 non-interest income was $1.3 million, a decrease of $181,000 compared to $1.5 million in fourth quarter 2019. The decline was primarily the result of a $323,000 decrease in loan fees (primarily loan swap fees), along with a $121,000 decrease in gains on sale of loans. This was partially offset by a $225,000 increase in gains on recovery of acquired loans. Non-interest income totaled $6.4 million for 2020, an increase of $2.4 million compared to $4.0 million for the same period in 2019. This increase in non-interest income for 2020 was primarily a result of a $1.0 million increase in loan fees (primarily loan swap fees), a $613,000 increase on gains on recovery of acquired loans, and a $459,000 increase in income from bank-owned life insurance.

Non-interest expense for fourth quarter 2020 totaled $11.1 million, an increase of $1.7 million compared to $9.3 million for the prior-year quarter and an increase of $1.4 million compared to the third quarter of 2020. The increase in non-interest expense compared to fourth quarter 2019 was primarily a result of increased salaries and employee benefits reflecting an increase in performance-related compensation expense which was updated based on actual 2020 year-end results, along with increased regulatory and other professional fees.

Non-interest expense for 2020 totaled $40.4 million, an increase of $1.0 million, or 2.6%, compared to $39.4 million for 2019. Excluding $3.6 million in merger-related expenses in 2019, the increase in non-interest expense was $4.7 million, or 13.1%. The 2020 increase in non-interest expense over the prior year was also primarily a result of increased salaries and employee benefits expense, along with an increase in occupancy and equipment costs, which, in addition to other certain non-interest expense categories, reflects a full year of the additional expense related to the acquisition of Grand Bank.

The Bank’s efficiency ratio for the fourth quarter of 2020 was 52.54%, a reduction of 10 basis points compared to 52.64% in the fourth quarter of 2019 and an increase of 323 basis points compared to 49.31% for the linked third quarter of 2020. The efficiency ratio for the full year 2020 was 53.21% compared to 57.28% in 2019.

Pre-provision net revenue ⁴ for fourth quarter 2020 was $10.0 million, an increase of $1.6 million, or 19.2%, compared to $8.4 million for the fourth quarter 2019, and up $61,000, or 0.61%, compared to $9.9 million in the linked third quarter of 2020.

Income tax expense for the three months ended December 31, 2020 was $2.2 million, with an effective tax rate of 25.8%, compared to $2.8 million and an effective tax rate of 34.7% for the fourth quarter of 2019 and $2.0 million with an effective tax rate of 25.5% for the third quarter of 2020. Income tax expense for 2020 was $6.5 million, with an effective tax rate of 25.1% compared to $5.6 million for 2019, with an effective tax rate of 29.3%. Income tax expense for the quarter and full year included an increase in the New Jersey state income tax surcharge from 1.5% to 2.5%. Income tax expense for the quarter and full year ended December 31, 2019 included an expense of approximately $730,000 due to a revaluation of the Bank’s deferred tax assets.

Balance Sheet

Total assets at December 31, 2020 were $2.35 billion, an increase of $334.7 million, or 16.6%, compared to $2.01 billion at December 31, 2019, primarily due to the origination of PPP loans and commercial loan growth. Total loans were $2.05 billion at December 31, 2020, an increase of $324.0 million, or 18.8%, compared to $1.72 billion at December 31, 2019, and an increase of $42.9 million, or 2.1%, from $2.00 billion at end of the linked third quarter of 2020. During the fourth quarter $53.6 million in PPP loans were forgiven. As a result, organic loan growth was $96.5 million, mainly derived from commercial real estate loan activity with existing and new relationships.

Total deposits were $1.90 billion at December 31, 2020, an increase of $262.7 million, or 16.0%, compared to $1.64 billion at December 31, 2019. Non-interest-bearing deposits totaled $424.1 million at December 31, 2020, an increase of $148.3 million, or 53.8%, from December 31, 2019, primarily a result of the Bank’s participation in the PPP lending program and continued growth in commercial banking relationships. Borrowings at December 31, 2020 were $161.1 million, an increase of $55.7 million, or 52.8%, compared to the 2019 yearend. The increase in deposits and borrowings provided additional liquidity to support strong commercial loan growth as well as PPP lending.

Stockholders’ equity was $238.1 million at December 31, 2020, compared to $226.4 million at December 31, 2019. The increase in stockholders’ equity for 2020 was due to net income of $19.4 million, $2.0 million in stock option exercises and restricted stock grants or vesting and an increase in accumulated other comprehensive income of $812,000. The increase was partially offset by stock repurchase program activity, whereby slightly over 1.0 million shares have been repurchased during 2020 for an aggregate of $8.2 million or an average cost of $7.91 per share, along with $2.4 million paid in cash dividends. The Bank’s current share repurchase program received regulatory approval for the repurchase of up to 1.5 million shares of First Bank common stock in the open market. Of the shares repurchased during 2020, only 34,684 shares had been repurchased under this repurchase program which will run through September 30, 2021. So far in 2021, through January 25th, we have repurchased an additional 33,663 shares at an average cost of $9.41 per share.

Asset Quality and Capital Ratios

Net charge-offs for the fourth quarter 2020 were $465,000, compared to $325,000 for fourth quarter 2019 and $633,000 for the linked third quarter of 2020. Net charge-offs as an annualized percentage of average loans were 0.09% in fourth quarter 2020, compared to 0.07% for fourth quarter 2019 and 0.13% for the linked third quarter 2020. Nonperforming loans as a percentage of total loans at December 31, 2020, were 0.50%, compared with 1.32% at December 31, 2019, and 0.63% at September 30, 2020. Average and actual total loan balances in 2020 were impacted by the level of PPP loans. The allowance for loan losses to nonperforming loans was 234.3% at December 31, 2020, compared with 75.8% at December 31, 2019, and 179.7% at September 30, 2020.

As of December 31, 2020, the Bank exceeded all regulatory capital requirements to be considered well capitalized, with a Tier 1 Leverage ratio of 9.74%, a Tier 1 Risk-Based capital ratio of 10.36%, a Common Equity Tier 1 Capital ratio of 10.36%, and a Total Risk-Based capital ratio of 12.90%.

COVID-19 Response

First Bank participated in the PPP, established by the Coronavirus Aid, Relief, and Economic Securities Act (CARES Act), during 2020. PPP is a specialized low-interest loan program funded by the U.S. Treasury Department and administered by the U.S. Small Business Administration (SBA). The PPP provides borrower guarantees for lenders, as well as loan forgiveness incentives for borrowers that utilize the loan proceeds to cover compensation-related business operating costs. As of December 31, 2020, First Bank had 937 PPP loans with a current balance of $137.1 million. First Bank generated gross fees of $6.9 million from the SBA related to the origination of these loans. These fees, net of the associated direct origination costs of approximately $529,000, are being amortized through interest income over the life of the PPP loans. As of December 31, 2020, the Bank had $3.0 million in remaining unamortized fees associated with these loans with $3.3 million in income recorded during the year-ended December 31, 2020 from the amortization of these fees. During the fourth quarter of 2020 the Bank realized $1.8 million in fee income on these loans as any deferred fees remaining on the forgiven loans were accelerated. The Bank is also participating in the appropriations for new PPP loans and advances under the Consolidated Appropriations Act, 2021. Through January 26, 2021 we already have 255 PPP loans totaling $56.5 million approved by the SBA and have begun funding these loans. In addition, we have received another 283 applications totaling $35.9 million that are in various stages of the approval process.

First Bank continues to monitor and analyze its COVID-19 related financial hardship payment deferrals (COVID-19 deferrals) based on asset class and borrower type. As of December 31, 2020, the Bank’s population of COVID-19 deferrals was $37.2 million, or 1.8% of total loans, down from a peak of $433.7 million. The $37.2 million in COVID-19 deferrals is comprised of loans across a diverse list of industries and are primarily secured by real estate. The largest industry components are hospitality at $12.1 million, arts, entertainment and recreation at $8.3 million, multi-family $2.9 million, transportation at $2.6 million, and retail at $2.6 million.

Consistent with industry regulatory guidance, borrowers that were otherwise current on loan payments that were granted COVID-19 related financial hardship payment deferrals continue to be reported as current loans throughout the agreed upon deferral period, continue to accrue interest and are not required to be accounted for as a troubled debt restructuring.

Cash Dividend Declared

On January 19, 2021, 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 February 12, 2021, payable on February 26, 2021.

Conference Call

First Bank will host an earnings conference call on Thursday, January 28, 2021, 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 10150870) from one hour after the end of the conference call until April 28, 2021. 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 18 full-service branches in Cinnaminson, Cranbury, Delanco, Denville, Ewing, Flemington, Hamilton, Hamilton Square, Lawrence, Mercerville, Pennington, Randolph, Somerset and Williamstown, New Jersey; and Doylestown, Trevose, Warminster and West Chester, Pennsylvania. With $2.3 billion in assets as of September 30, 2020, 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 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; 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 market values; the impact of disease pandemics, such as the novel strain of coronavirus disease (COVID-19), on First Bank, its operations and its customers and employees; 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; uncertainties in tax estimates and valuations, including due to changes in state and federal tax law; 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 proxy statement, 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 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 certain one-time 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.

² 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 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.

³ Return on average tangible equity is a non-U.S. GAAP financial measure and is calculated by dividing net income by average stockholders’ equity net of goodwill and other intangible 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.

⁴ 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.

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