FRBA - First Bank Reports Third Quarter 2019 Net Income of $2.9 Million

Net Income is $10.0 Million for the First Nine Months of 2019  

Strong Organic Loan and Deposit Growth, Effective Expense Management,
Grand Bank Merger Completed, Total Assets Exceed $2.0 Billion

HAMILTON, N.J., Oct. 29, 2019 (GLOBE NEWSWIRE) -- First Bank (Nasdaq Global Market: FRBA) today announced results for the three and nine months ended September 30, 2019. Net income for the third quarter of 2019 was $2.9 million, or $0.15 per diluted share, compared to $5.4 million, or $0.29 per diluted share, for the third quarter of 2018. Return on average assets and return on average equity for the third quarter of 2019 were 0.61% and 5.58%, respectively, and 1.28% and 11.45%, respectively, for the third quarter of 2018. Net income for the first nine months of 2019 was $10.0 million, or $0.53 per diluted share, compared to $13.5 million, or $0.73 per diluted share, for the same period in 2018. First Bank’s third quarter 2019 adjusted diluted earnings per share¹ was $0.18, adjusted return on average assets1 was 0.74% and adjusted return on average equity1 was 6.69%. Third quarter 2018 adjusted diluted earnings per share was $0.28, adjusted return on average assets was 1.22% and adjusted return on average equity was 10.98%. 

Third Quarter and Year to Date 2019 Performance Highlights:

• Completion of the Grand Bank acquisition on September 30, 2019. Grand Bank contributed approximately $146.3 million in loans and $170.9 million in deposits to quarter end balances but did not significantly impact average balances and had no impact on the statement of income.
• Total net revenue (net interest income plus non-interest income) for the nine month period increased $1.4 million to $44.7 million, compared to the prior year period.
• Total loans of $1.74 billion at September 30, 2019 were up $332.5 million, or 23.6%, from September 30, 2018, and up $281.4 million, or 19.2%, from December 31, 2018.
• Total deposits of $1.65 billion at September 30, 2019 were up $267.3 million, or 19.3%, from September 30, 2018 and increased $259.4 million, or 18.6%, compared to December 31, 2018. Total non-interest bearing deposits were $280.2 million at September 30, 2019 or 17.0% of total deposits compared to $219.0 million or 15.7% of total deposits at December 31, 2018.   
• Continued effective expense management was reflected in the third quarter 2019 efficiency ratio² of 58.22% down from 60.51% for the linked second quarter of 2019.

Patrick L. Ryan, President and Chief Executive Officer commented, “Despite continuing challenges in the current operating environment, we had a productive third quarter characterized by healthy organic loan growth of $49.1 million, organic deposit growth of $38.2 million, core non-interest expense reductions, and the successful completion of our Grand Bank acquisition which brought our total assets above $2.0 billion. Closing the Grand Bank transaction on September 30 added significant new loan and deposit customers. Nearly 25% of Grand Bank deposits were non-interest bearing which had a positive effect on our ratio of non-interest bearing deposits to total deposits. This was a strategic transaction which expanded our Mercer County, New Jersey presence by adding two full-service branch locations, along with an organization with similar values and culture, and a strong customer base.

“Our expense management initiatives yielded positive results during the quarter with our efficiency ratio declining to 58.22%, down from 60.51% for the linked second quarter. Third quarter total non-interest expense, excluding merger-related expenses, declined by $507,000 in comparison to second quarter 2019. A portion of this savings came from the FDIC assessment credit but core cost savings initiatives also played a significant part.”

“Margin compression remains an ongoing challenge in the current interest rate environment and represents our number one focus in the near term. We have reacted quickly to reduce core deposit rates based on the latest fed rate reductions. Our balance sheet is increasingly liability sensitive and we believe we’ll have an opportunity in coming quarters to reduce our cost of funds.”

“We were very pleased to announce during the third quarter that we received favorable ratings from Kroll Bond Rating Agency (KBRA), a Nationally Recognized Statistical Rating Organization registered with the U.S. Securities and Exchange Commission. KBRA’s ratings and stable outlook were a result of our successful strategy utilizing both acquisitions and organic growth to build scale within our service footprint, the resulting improved operating leverage and enhanced profitability, as well as our capital position. The ratings included: Deposit rating of BBB+; Senior Unsecured Debt rating of BBB+; Subordinated Debt rating of BBB; Short-Term Deposit rating of K2; and Short-Term Debt rating of K2. We’re pleased with the results of the KBRA analysis, and we believe that the favorable credit rating may offer additional capital market flexibility and provides current and future customers additional assurance of our sound operating environment.”

Income Statement

The Bank’s net interest income for third quarter 2019 was $14.0 million, a decrease of $582,000, or 4.0%, compared to $14.6 million for the third quarter of 2018. This decrease was driven by an increase in interest expense of $2.0 million compared to the 2018 third quarter, which was primarily the result of average balance and interest rate increases for money market deposits and time deposits. This was partially offset by a $1.4 million or 7.5% increase in interest and dividend income, primarily a result of a $148.2 million, or 10.5%, increase in average loans compared with the third quarter of 2018. Nine month 2019 net interest income totaled $42.2 million, an increase of $1.4 million or 3.4%, compared to $40.8 million for the same period in 2018. The increase in the 2019 year to date net interest income was driven by strong growth in average loans, which increased by $184.4 million, or 13.8%, from the prior year period. Average loan and deposit balances for the three and nine months of 2019 were not impacted materially by the Grand Bank acquisition which was completed at the close of business on September 30, 2019.

The third quarter 2019 net interest margin was 3.15%, a decrease of 45 basis points compared to the prior year third quarter. The decrease compared to third quarter 2018 was primarily the result of higher average balances of interest bearing deposits (money market deposits and time deposits) along with a 48 basis point increase in the average interest rate paid on total interest bearing deposits. The net interest margin for the nine months ended September 30, 2019 was 3.32%, a decrease of 30 basis points compared to the same period in 2018. The decrease in the nine month net interest margin was also driven by higher average balances for interest bearing deposits (primarily money market deposits and time deposits) and a 53 basis point increase in the average rate paid on total interest bearing deposits.

On a linked quarter basis the third quarter 2019 margin declined 22 basis points to 3.15%. The third quarter net interest margin was impacted by two federal funds rate cuts, higher level of excess liquidity and comparatively lower business combination accounting accretion and prepayment penalty income. The federal funds rate cuts contributed to a lower loan yield in the third quarter as floating rate loan yields moved lower. Shortly after the federal funds rate cuts on July 31 and September 18, 2019, the Bank lowered core non-maturity deposit rates and time deposit rates. The change in non-maturity deposit rates will help the Bank’s margin immediately while the changes in time deposit rates should also help lower deposit costs in the near term as 83% of the Bank's time deposits at September 30, 2019 mature in less than twelve months. The addition of the Grand Bank loans and deposits at a higher net interest spread should also help the margin in future periods.      

The provision for loan losses for the third quarter of 2019 was $1.6 million, an increase of $837,000 compared to $721,000 for the third quarter of 2018. This increase in the provision primarily reflects an increased level of net charge-offs, as well as continued organic loan growth for the quarter. The provision for loan losses for the first nine months of 2019 totaled $3.6 million compared to $2.4 million for the same period in 2018. The increase in the nine month 2019 provision for loan losses was reflective of the same factors as for the three month period.

Third quarter 2019 non-interest income was $905,000, compared to $1.2 million in third quarter 2018, primarily the result of a decrease in gains on sale of loans and loan fees compared to the third quarter of 2018. Non-interest income totaled $2.5 million for both the nine months ended September 30, 2019 and for the comparable period in 2018.

Non-interest expense for third quarter 2019 totaled $9.5 million, an increase of $1.3 million, or 15.6%, compared to $8.2 million for the prior year quarter. The higher non-interest expense compared to third quarter 2018 was primarily a result of higher merger-related costs and increased salaries and employee benefits. Merger related costs were $947,000 higher for the comparable quarters. Higher salaries and employee benefits expense of $518,000 included staffing additions at the end of 2018 and the first quarter of 2019 to support ongoing growth initiatives. Non-interest expense for the first nine months of 2019 totaled $27.6 million, an increase of $3.5 million, or 14.5%, compared to $24.1 million for the same period in 2018. The increase was primarily a result of increased salaries and employee benefits, higher occupancy and equipment expense and higher merger-related expenses. The Delanco Bancorp acquisition was completed on April 30, 2018; therefore, the 2018 nine month period included five months of related expense while the 2019 nine month period includes the full impact of the Delanco Bancorp acquisition.  

Non-interest expense for the third quarter of 2019 increased $367,000, or 4.0%, compared to $9.1 million for the linked second quarter of 2019. Excluding merger-related expenses third quarter 2019 non-interest expense declined $507,000 compared to the second quarter of 2019. This decrease was mainly due to cost containment initiatives which helped to reduce salaries and employee benefits, occupancy expenses and other expense. FDIC fee assessment credits also contributed to lower non-interest expense by reducing our third quarter 2019 regulatory fees.

Pre-provision net revenue³ for the third quarter of 2019 was $6.1 million, compared to $7.2 million for the third quarter of 2018, and up $223,000, or 3.8%, compared to $5.9 million in the linked second quarter of 2019. The decrease in the third quarter of 2019 compared to the third quarter of 2018 was mainly due to a significantly higher net interest margin in the third quarter of 2018. 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 and comparatively higher prepayment penalty income.

Income tax expense for the three months ended September 30, 2019 was $947,000, with an effective tax rate of 24.7%, compared to $1.4 million for the three months ended September 30, 2018, with an effective tax rate of 20.2%, and $1.4 million for the linked second quarter of 2019, with an effective tax rate of 33.0%. Income tax expense for the nine months ended September 30, 2019 was $3.4 million, with an effective tax rate of 25.5%, compared to $3.2 million for the first nine months of 2018, with an effective tax rate of 19.3%. In May 2019, the State of 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 increased the Bank’s effective tax rate beginning in the second quarter of 2019 compared to the effective tax rate in 2018.

Balance Sheet

Total assets at September 30, 2019 were $2.05 billion, an increase of $330.2 million, or 19.2%, compared to $1.72 billion at September 30, 2018, and an increase of $336.2 million, or 19.6%, from December 31, 2018. Total loans were $1.74 billion at September 30, 2019, an increase of $332.5 million, or 23.6%, compared to $1.41 billion at September 30, 2018, and an increase of $281.4 million, or 19.2%, from the 2018 year end. Total loans as of September 30, 2019 increased $195.4 million compared to the linked second quarter of 2019. Total loans at September 30, 2019 included $146.3 million of acquired loans related to the acquisition of Grand Bank. Commercial, residential and consumer loans all had growth during third quarter 2019 from organic and/or acquired loans.

Total deposits were $1.65 billion at September 30, 2019, an increase of $267.3 million, or 19.3%, compared to $1.39 billion at September 30, 2018, and an increase of $259.4 million, or 18.6%, from December 31, 2018.
Total deposits at September 30, 2019 included $170.9 million related to the Grand Bank acquisition. Non-interest bearing deposits totaled $280.2 million at September 30, 2019, an increase of $61.2 million, or 27.9%, from December 31, 2018. The increase included $41.0 million in non-interest bearing deposits related to the Grand Bank acquisition, along with continued organic growth in commercial deposits.

Stockholders’ equity increased to $223.3 million at September 30, 2019, up $28.5 million or 14.6% compared to December 31, 2018. The increase was primarily the result of the Grand Bank acquisition which added $18.4 million in additional capital along with an $8.3 million increase in retained earnings.

As of September 30, 2019, the Bank continued to exceed all regulatory capital requirements and is considered well capitalized, with a Tier 1 Leverage ratio of 10.95%, a Tier 1 Risk-Based capital ratio of 10.32%, a Common Equity Tier 1 Capital ratio of 10.32%, and a Total Risk-Based capital ratio of 12.34%.

Asset Quality

Net charge-offs were $1.08 million for the third quarter of 2019, compared to net recoveries of $103,000 for third quarter of 2018 and net charge-offs of $481,000 for the linked second quarter of 2019. Net charge-offs were $1.55 million for the nine months ended September 30, 2019 compared to net charge-offs of $2,000 for the nine months ended September 30, 2018. Year to date annualized net charge-offs as a percentage of average loans were 0.14%.

Of the $1.55 million in net charge-offs year to date, $1.17 million, or 75.5% were related to acquired loans. The $373,000 in year to date net charge-offs from non-acquired loans represent 0.04% of average non-acquired loans on an annualized basis. Since 2014, gains on recovery of acquired loans have totaled $3.8 million while net charge-offs in our acquired loan portfolios have totaled $2.8 million.

Nonperforming loans as a percentage of total loans at September 30, 2019 were 0.91%, compared with 0.52% on September 30, 2018 and 0.94% at June 30, 2019. Nonperforming loans increased to $15.8 million at September 30, 2019, up from $14.6 million on June 30, 2019, primarily due to one acquired commercial and industrial loan relationship becoming non-accrual during the current quarter. The allowance for loan losses to nonperforming loans was 108.77% at September 30, 2019, compared with 192.16% at the end of third quarter 2018 and 115.13% at June 30, 2019.
                                      
Cash Dividend Declared

On October 15, 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 November 8, 2019, payable on November 22, 2019.

Grand Bank Acquisition Completed

On October 1, 2019, First Bank announced that it had completed the acquisition of Grand Bank, N.A., effective as of the close of business on September 30, 2019. The merger had previously been unanimously approved by both boards of directors, and was then approved by the shareholders of both institutions in September. The merger provides two additional full-service branch locations in Mercer County, New Jersey, $146.3 million in loans and $170.9 million in deposits. First Bank management previous disclosed that the Grand Bank acquisition would reduce tangible book value per share⁴ by approximately 3%. Based on the initial business combination accounting results as of September 30, 2019, the effect of the acquisition was tangible book value per share dilution of approximately 2%. 

Share Repurchase Program

First Bank announced on October 23, 2019 that its board of directors has authorized, and the Bank has received regulatory approval for, the repurchase of up to 1.0 million shares of First Bank common stock in the open market. This program is scheduled to expire on September 30, 2020. First Bank currently has approximately 20.5 million shares of common stock issued and outstanding. The shares authorized for repurchase under the new program represent approximately 4.9% of the Bank’s outstanding shares.

Conference Call

First Bank will host its third quarter 2019 earnings conference call on Wednesday, October 30, 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 10135614) from one hour after the end of the conference call until January 30, 2020. 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 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 $2.05 billion in assets as of September 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 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 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 joint 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.

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 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.

⁴ Tangible book value per share is a non-U.S. GAAP financial measure and is calculated by subtracting goodwill and other intangibles from stockholders’ equity divided by common shares outstanding.  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.