First Bank Reports Fourth Quarter 2017 Pretax Earnings Up 81.6% Compared to Prior Year

Fourth Quarter Net Income of $583,000 Reflects New Federal Tax Legislation

For the Fourth Quarter and 2017: Continued Organic Loan Growth; Non-Interest Expenses Well Managed; Stable Asset Quality Metrics; Assimilation of Bucks County Branch Locations

HAMILTON, N.J., Jan. 30, 2018 (GLOBE NEWSWIRE) -- First Bank (Nasdaq:FRBA) today announced results for the fourth quarter and full year 2017.  Net income for the fourth quarter 2017 was $583,000, or $0.03 per diluted share, compared to $1.8 million or $0.16 per diluted share for the fourth quarter of 2016. Return on average assets and return on average equity for the fourth quarter were 0.16% and 1.40%, respectively.  During the fourth quarter of 2017, First Bank recognized a one-time charge to income tax expense of approximately $2.6 million, or $0.15 per diluted share, as a result of the new federal tax legislation that lowered corporate statutory income tax rates, requiring a revaluation of First Bank’s deferred tax assets. Fourth quarter 2017 and fourth quarter 2016 net income also included certain merger-related items.  Excluding these items, First Bank’s fourth quarter 2017 adjusted diluted earnings per share¹ was $0.18, adjusted return on average assets¹ was 0.89% and adjusted return on average equity¹ was 7.84%. First Bank’s fourth quarter 2016 adjusted diluted earnings per share was $0.14, adjusted return on average assets was 0.63% and adjusted return on average equity was 7.28%. 
   
Net income for 2017 was $7.0 million, or $0.48 per diluted share compared to $6.4 million, or $0.61 per diluted share for 2016. First Bank’s 2017 return on average assets and return on average equity were 0.57% and 5.60%, respectively, compared to 0.66% and 8.08%, respectively, in 2016.  Full year 2017 results were affected by the change in corporate income tax rates and the resulting revaluation of deferred tax assets as well as certain merger-related items. Full year 2016 results were also affected by certain merger-related items. Excluding these items First Bank’s 2017 adjusted diluted earnings per share was $0.72, adjusted return on average assets was 0.86% and adjusted return on average equity was 8.42%. First Bank’s 2016 adjusted diluted earnings per share was $0.57, adjusted return on average assets was 0.63% and adjusted return on average equity was 7.61%. 

Fourth Quarter and Full Year 2017 Performance Highlights:

• A 53.7% increase in total net revenue (net interest income plus non-interest income) for the fourth quarter to $12.9 million, compared to $8.4 million for the prior year quarter and total net revenue for the full year 2017 increased 36.8% to $41.8 million from $30.5 million for the full year 2016.
• Total loans of $1.2 billion at December 31, 2017, an increase of $329.0 million, or 36.6%, from December 31, 2016, and an increase of $32.9 million or 2.8% from September 30, 2017.
• Total deposits of $1.2 billion at 2017 year end increased by $272.2 million, or 30.4%, from $894.9 million at December 31, 2016, and an increase of $15.2 million or 1.3% from September 30, 2017.
• Continued strong asset quality metrics with annualized net loan charge-offs to average loans of 0.10% for fourth quarter 2017. Nonperforming loans to total loans of 0.43% at December 31, 2017 improved by 13 basis points compared to 0.56% for the third quarter of 2017 and decreased 23 basis points compared to 0.66% at December 31, 2016. 
• Continued effective expense management reflected in our efficiency ratio² of 54.76% for the fourth quarter 2017 compared to 58.23% for the fourth quarter 2016.
• Completed the integration of four full-service locations in Pennsylvania acquired through our merger with Bucks County Bank.
• Entered into an agreement to acquire Delanco Bancorp and its banking subsidiary Delanco Bank.

“We completed another strong quarter to cap off a pivotal year in the growth and transition of First Bank,” said Patrick L. Ryan, President and Chief Executive Officer. “Solid organic loan and deposit growth continued in the fourth quarter of a year where we expanded our balance sheet by more than 35% through a combination of acquisition and organic activity. We finished 2017 with a solid loan pipeline that we expect will provide a robust start for 2018. Our average interest earning assets for the fourth quarter grew to nearly $1.4 billion as we effectively moved to expand our service area, while at the same time continuing to carefully manage expenses to drive expanded profitability.

During the quarter we completed the smooth integration of Bucks County Bank adding four full-service locations to our suburban Philadelphia market area. We then announced, on October 18th, that we would further expand our central New Jersey service area into Burlington County by acquiring Delanco Bancorp, Inc. Similar to the Bucks County transaction, we consider this to be another strategic transaction to help us expand into an area with compelling customer demographics and excellent growth potential. Upon completion, this transaction will further strengthen our balance sheet by diversifying our loan portfolio and providing expanded access to cost-effective retail funding. We continued to progress through the regulatory approval process and we expect to complete the transaction in the second quarter. Also in October, we added a team of three senior lenders to focus on expanding our commercial lending presence in the Southeastern Pennsylvania counties of Chester, Delaware and Philadelphia. With more than 90 combined years of commercial banking experience, this group of lenders demonstrates our commitment to elevating our presence in the Philadelphia metropolitan area.”

Mr. Ryan added that, “our fourth quarter and 2017 net income, excluding the impact of the write-down of our deferred tax assets and merger related items, was up significantly over the prior year and increased over the third quarter 2017.  We also expect to realize significant future bottom-line benefits from the recent tax law changes well in excess of the one-time charges recognized in the fourth quarter. Importantly, the partial write-down of our deferred tax assets had no significant impact on our regulatory capital ratios, liquidity, or our ability to continue to pay regular cash dividends. In January, our board of directors decided that it was an appropriate time to increase our quarterly cash dividend by 50% to $0.03 per share. The success of our ongoing efforts to create additional value is evidenced by First Bank’s inclusion in New Jersey’s 50 fastest growing companies for the second consecutive year. We continue to make strategic investments in the people and infrastructure that are required to support a larger and growing institution, and as a result First Bank remains solidly-positioned to continue our performance into 2018.”

Income Statement

Our net interest income for fourth quarter 2017 was $12.3 million, an increase of $4.5 million, or 57.1%, compared to $7.8 million in the fourth quarter of 2016. This growth was driven by a $5.4 million, or 53.0%, increase in interest and dividend income that was primarily a result of a $358.0 million increase in average loan balances compared with the fourth quarter 2016, a result of both organic and acquired growth. Included in this growth was $175.8 million in gross principal loans, as of September 15, 2017, from our acquisition of Bucks County Bank.  The increase in net interest income was partially offset by increased interest expense of $962,000 for the comparative quarter, which reflected average balance increases for both interest bearing deposits and borrowings, primarily as a result of $155.1 million of deposits, as of September 15, 2017, from Bucks County Bank. Fourth quarter 2017 net interest income was up $1.6 million or 15.0% from third quarter 2017.

Net interest income of $39.7 million for 2017 increased by $10.8 million, or 37.2%, compared to $28.9 million for 2016. The increase in net interest income was also driven by significant growth in average loans, both organic and acquired, which increased by $228.9 million from 2016.

The fourth quarter 2017 net interest margin was 3.51%, an increase of 39 basis points compared to 3.12% for the prior year quarter and a decrease of 7 basis points from third quarter 2017. The increased fourth quarter margin compared to 2016 was primarily the result of a higher average loan yield which was reflected in a 40 basis point increase in the average rate earned on interest-earning assets. Floating rate loan yields were positively impacted by Fed rate increases during 2017. Also contributing to the higher average loan yield was the addition of higher yielding loans from Bucks County Bank. The decrease from third quarter 2017 was primarily due to the impact of a significant prepayment penalty related to the early payoff of a large commercial loan relationship which had the effect of adding 16 basis points to the net interest margin in the third quarter 2017.

The net interest margin for 2017 was 3.39%, an increase of 28 basis points compared to 3.11% for the prior year. The increase in the full year net interest margin was also primarily the result of a higher average loan yield.   

The provision for loan losses for the fourth quarter 2017 totaled $715,000, a decrease of $239,000 compared to $954,000 for the fourth quarter 2016 and compares to $716,000 for the third quarter 2017. The provision amount is a result of solid organic growth in our commercial loan portfolio, along with asset quality metrics that remained stable and favorable for the comparable periods. The provision for loan losses totaled $2.7 million for both 2017 and the prior year period.

Fourth quarter 2017 non-interest income increased $34,000, to $604,000, from $570,000 in the fourth quarter of 2016. The increase compared to 2016 was primarily a result of higher income from bank-owned life insurance and other non-interest income, largely offset by a reduction in gains on recovery of acquired loans. Fourth quarter 2017 non-interest income decreased $27,000 from $631,000 in the third quarter of 2017. The decrease compared to third quarter 2017 was primarily due to lower gains on sale of loans and gains on recovery of acquired loans, partially offset by an increase in other non-interest income. Non-interest income for 2017 was $2.1 million, up from $1.6 million for 2016. The increase in 2017 non-interest income was a result of higher gains on sale of loans, increased income from bank-owned life insurance and other non-interest income, partially offset by lower gains on recovery of acquired loans. The higher other non-interest income for the fourth quarter and full year 2017 was, in part, reflective of increased activity from the assimilation of Bucks County Bank customers.

Non-interest expense for fourth quarter 2017 totaled $7.2 million, an increase of $2.5 million compared to $4.7 million for the prior year quarter and an increase of $468,000 compared to the third quarter 2017. The higher non-interest expense in fourth quarter 2017 reflects the integration of Bucks County Bank into First Bank. The result was higher salaries and employee benefits, which increased by $1.4 million, increased occupancy and equipment costs of $223,000, and higher data processing expense which was up $196,000 compared to the fourth quarter 2016. The quarter also included an additional $254,000 of merger-related expenses compared to fourth quarter 2016 mainly related to the pending Delanco Bancorp acquisition. The higher non-interest expense in fourth quarter 2017 compared to the third quarter 2017 also reflects the integration of Bucks County Bank into First Bank partially offset by lower merger-related expenses.  

Pre-provision net revenue³ for fourth quarter 2017 was $5.8 million, an increase of $2.4 million, or 70.8%, compared to $3.4 million for the fourth quarter 2016, and an increase of $150,000, or 2.7%, compared to $5.6 million in the third quarter 2017.

Income tax expense for the fourth quarter 2017 was $4.3 million, compared to $891,000 for fourth quarter 2016. As a result of the Tax Cuts and Job Act that was enacted on December 22, 2017, First Bank revalued its deferred tax assets to account for the future impact of significantly lower corporate income tax rates. Based on this analysis, First Bank recorded a one-time charge of $2.6 million, primarily related to the revaluation of the deferred tax assets. The reduction in 2017 net income related to the revaluation is $0.18 per diluted share. Excluding the effects of this one-time charge the effective tax rate for 2017 would have been 33.7%.

Balance Sheet

Total assets at December 31, 2017 were $1.5 billion, an increase of $379.0 million, or 35.3%, compared to $1.1 billion at December 31, 2016 due primarily to loan growth, both organic and acquired. Total loans were $1.2 billion at December 31, 2017, an increase of $329.0 million, or 36.6%, compared to $898.4 million at year end 2016. Loan growth during 2017 was distributed across commercial and consumer loan segments and included both originated and acquired loans.

Total deposits were $1.2 billion at December 31, 2017, an increase of $272.2 million, or 30.4%, compared to $894.9 million on December 31, 2016. Non-interest bearing deposits totaled $198.6 million at December 31, 2017, an increase of $80.0 million, or 67.5%, from December 31, 2016. Non-interest bearing deposits were 17.0% of total deposits at December 31, 2017 compared to 13.2% for the same period in 2016.

Stockholders’ equity increased to $163.3 million at December 31, 2017, up $74.4 million or 83.8% compared to $88.8 million at December 31, 2016. The increase was primarily a result of the common stock offering completed in June 2017, which raised $37.5 million in net new capital, the issuance of additional shares in the acquisition of Bucks County Bank which increased capital by $29.7 million and a $6.1 million increase in retained earnings for 2017.

Asset Quality

First Bank’s asset quality metrics were stable and favorable throughout 2017, reflective of our ongoing disciplined risk management and underwriting standards. Net charge-offs for the fourth quarter were $287,000, compared to $424,000 for fourth quarter 2016 and $348,000 for third quarter 2017. Net charge-offs as an annualized percentage of average loans were 0.10% in fourth quarter 2017, compared to 0.20% for fourth quarter 2016 and 0.13% for the third quarter 2017. Nonperforming loans as a percentage of total loans at December 31, 2017 were 0.43%, compared with 0.66% at December 31, 2016, and 0.56% at September 30, 2017. The allowance for loan losses to nonperforming loans was 220.7% at December 31, 2017, compared with 164.7% at December 31, 2016, and 167.1% at September 30, 2017.

As of December 31, 2017, the Bank exceeded all regulatory capital requirements to be considered well capitalized with a Tier 1 Leverage ratio of 10.54% a Tier 1 Risk-Based capital ratio of 11.05%, a Common Equity Tier 1 Capital ("CET1") ratio of 11.05%, and a Total Risk-Based capital ratio of 13.49%.

Definitive Agreement to Acquire Delanco Bancorp, Inc.

First Bank announced on October 18, 2017 that it had entered into a definitive merger agreement to acquire Delanco Bancorp, Inc. (OTC Pink: DLNO.OB) in a stock transaction for total consideration valued at approximately $13.5 million based on First Bank’s stock price on the date of the merger agreement. Upon the closing of the transaction, Delanco Federal Savings Bank, the wholly owned bank subsidiary of Delanco Bancorp, Inc. will merge with and into First Bank. The merger has been unanimously approved by the boards of directors of both institutions. The transaction is expected to be completed in the second quarter, subject to customary approvals and closing conditions. Delanco Federal Savings Bank is headquartered in Delanco, New Jersey, and serves its customers and communities through two full-service locations in Delanco and Cinnaminson, New Jersey. Delanco Federal Savings Bank had assets of approximately $128 million, loans of $85 million and deposits of $115 million as of December 31, 2017. 

Cash Dividend Increased

On January 16, 2018 the Board of Directors declared a quarterly cash dividend of $0.03 per share, an increase of $0.01 or 50%, over the prior quarter to common shareholders of record at the close of business on February 9, 2018, payable on February 23, 2018. The Board of Directors believes that this dividend provides shareholders an added tangible benefit, and that it is appropriate given our current financial performance, momentum and near-term prospects.

Conference Call

First Bank will host an earnings call on Wednesday, January 31, 2018 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 10115695) from one hour after the end of the conference call until April 27, 2018.  Replay information will also be available on our website at www.firstbanknj.com under the “About Us” tab.  Click on “Investor Relations” to access the replay of the conference call.

About First Bank

First Bank is a New Jersey state-chartered bank with 14 full-service branches in Cranbury, Denville, Ewing, Flemington, Hamilton, Lawrence, Randolph, Somerset and Williamstown, New Jersey, and Trevose, Doylestown, Warminster, Bensalem and Levittown, Pennsylvania. With $1.5 billion in assets as of December 31, 2017, First Bank offers a traditional range of deposit and loan products to individuals and businesses throughout the New York City to Philadelphia corridor. First Bank's common stock is listed on the Nasdaq Global Market under the symbol “FRBA”. 

This release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements include information regarding First Bank’s future financial performance, business and growth strategy, projected plans and objectives, and related transactions, integration of the acquired businesses, ability to recognize anticipated operational efficiencies, and other projections based on macroeconomic and industry trends, which are inherently unreliable due to the multiple factors that impact economic trends, and any such variations may be material.  Such forward-looking statements are based on various facts and derived utilizing important assumptions, current expectations, estimates and projections about First Bank, any of which may change over time and some of which may be beyond First Bank’s control. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts, although not all forward-looking statements include the foregoing. Further, certain factors that could affect our future results and cause actual results to differ materially from those expressed in the forward-looking statements include, but are not limited to whether First Bank can: successfully implement its growth strategy, including identifying acquisition targets and consummating suitable acquisitions; continue to sustain its internal growth rate; provide competitive products and services that appeal to its customers and target markets; the ability to obtain required shareholder approvals of the Delanco Bancorp merger, the ability to complete such merger as expected and within the expected timeframe, 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 our 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.  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.  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 see the financial reconciliations at the end of this press release.

³ Pre-provision net revenue is a non-U.S. GAAP financial measure.  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