First Bank Reports Second Quarter 2020 Net Income of $4.1 Million

Net Income of $7.4 Million for First Six Months of 2020  

For the Second Quarter and First Half of 2020: Continued Strong Loan Origination,
Solid Revenue Growth, Effective Management of Non-Interest Expense

HAMILTON, N.J., July 27, 2020 (GLOBE NEWSWIRE) -- First Bank (Nasdaq Global Market: FRBA) today announced results for the three and six months ended June 30, 2020. Net income for the second quarter of 2020 was $4.1 million, or $0.21 per diluted share, compared to $2.8 million, or $0.15 per diluted share, for the second quarter of 2019. Return on average assets and return on average equity for the second quarter of 2020 were 0.74% and 7.33%, respectively, and 0.64% and 5.64%, respectively, for the second quarter of 2019. Net income for the first six months of 2020 was $7.4 million, or $0.36 per diluted share, compared to $7.1 million, or $0.38 per diluted share, for the same period in 2019.

Second Quarter 2020 Performance Highlights:

• Total net revenue (net interest income plus non-interest income) of $18.2 million for the quarter increased $3.1 million, or 20.7%, from $15.1 million, compared to the prior year quarter.
• Total loans of $1.96 billion at June 30, 2020 increased $406.5 million, including $190.5 million in Paycheck Protection Program (“PPP”) loans, or 26.2%, from June 30, 2019, and increased $231.4 million, or 13.4%, from December 31, 2019.
• Total deposits of $1.92 billion at June 30, 2020 increased $479.8 million, or 33.2%, from June 30, 2019 and $282.4 million, or 17.2%, compared to December 31, 2019.
• Despite the ongoing challenges presented by the COVID-19 pandemic, asset quality metrics remained solid during the quarter, with net charge-offs of $1.0 million, or an annualized 0.21% of average loans, for second quarter 2020, compared to net charge-offs of $481,000 for second quarter 2019. Nonperforming loans at June 30, 2020 were $14.1 million, $14.6 million on June 30, 2019, and $13.8 million on March 31, 2020. The ratio of nonperforming loans to total loans was 0.72% at June 30, 2020 compared to 0.94% at June 30, 2019, and 0.79% at March 31, 2020.
• Successful subordinated note issuance with net proceeds of $29.5 million. Completion of approved share repurchase program with a total of 1.0 million shares repurchased during the first six months of 2020.
• Continued effective non-interest expense management was reflected in the second quarter 2020 efficiency ratioⁱ of 53.64% compared to 59.76% for second quarter 2019, and 58.03% for the linked first quarter of 2020.

“Our intense focus on customer service was reflected in our second quarter results highlighted by strong loan origination, double-digit net revenue growth, a continuation of solid asset quality metrics, and effective non-interest expense management,” said Patrick L. Ryan, President and Chief Executive Officer. “This solid team effort was realized despite considerable logistical hurdles and the economic challenges related to the COVID-19 pandemic. These pandemic headwinds have in no way subsided, however our team continues to perform above and beyond to make certain that the Bank’s customers receive the support necessary to weather the current storm.”

“While our second quarter loan growth, prior to deferred loan fees and costs, of more than $202 million was driven primarily by PPP lending, it also included approximately $12 million in non-PPP loan growth. An additional benefit of our significant participation in the PPP lending program has been the strong increase in deposits.  Participation in the PPP lending program, and our other efforts to drive commercial deposit growth, led to strong growth in both the first and second quarters of 2020. The increase in non-interest bearing deposits in the first half of 2020 was particularly significant, growing by more than $183 million during that period.  In addition to the deposits that were linked to the PPP program, we also realized solid core deposit growth related to new and existing commercial banking relationships. We are also excited about developing additional relationships with the approximately 150 new customers introduced to us through the PPP program.”

“We took appropriate steps during the first half of 2020 to ensure that First Bank had adequate liquidity to meet the potential needs of our customers. Our liquidity position remains strong reflecting a funding base of core non-interest bearing demand deposit accounts and low-cost interest-bearing savings, interest checking and money market deposit accounts. The significant increase in non-interest bearing deposits has allowed us to lower time deposit and core deposit rates in a much lower rate environment. We expect to continue to move deposit costs lower which will help stabilize or improve our margin.”

“Our provision for loan losses for the first and second quarters were notably higher compared to prior quarters primarily due to continued uncertainty about the duration of, and the level of economic disruption from the COVID-19 pandemic. We are closely monitoring loan deferrals and the impact to our borrowers due to the pandemic. While it’s impossible to predict how ultimately our loan portfolio will perform in this difficult environment, we believe our strong credit underwriting standards will put us in a good position to manage the potential negative impact. We are also seeing some positive trends as over 40% of deferred loans have reached their deferred payment due date and more than three-quarters of these loans have made their regular payment.”

“Our earnings performance has benefited from PPP loan generated fees and loan swap fees. In addition, we’ve done a good job of lowering deposit costs helping to stabilize our margin. At the same time non-interest expense has been managed effectively, reflected in a lower efficiency ratio. We are well capitalized, have strong liquidity and the capital structure flexibility to adapt to these unprecedented times.”

Income Statement

First Bank’s net interest income for the second quarter of 2020 was $16.3 million, an increase of $2.2 million, or 15.3%, compared to $14.2 million in the second quarter of 2019. This increase was driven by a $1.5 million, or 7.3%, increase in interest and dividend income, along with a $665,000 decrease in total interest expense.

The increase in interest income was primarily a result of a $377.0 million increase in average loans compared with the second quarter of 2019. The reduction in interest expense was a result of a 48-basis point reduction for the average rates paid on interest bearing liabilities. Six-month 2020 net interest income totaled $32.2 million, an increase of $4.0 million or 14.2%, compared to $28.2 million for 2019. The increase in the 2020 year to date net interest income was also driven by strong growth in average loans, which increased by $321.3 million, or 21.4%, from the prior year period.

The second quarter 2020 tax equivalent net interest margin was 3.07%, a decrease of 30 basis points compared to the prior year quarter and a decrease of 23 basis points compared to the linked first quarter of 2020. The decrease compared to second quarter 2019 was primarily the result of a 74-basis point reduction in the average rate for interest-earning assets. The 74 basis point reduction was primarily the result of the 75 basis point decrease in the targeted federal funds rate during the second half of 2019 and the 150 basis point reduction in March of 2020. The decrease was also impacted by the yield on PPP loans which reduced the average rate on interest earning assets by approximately 7 basis points during the quarter ended June 30, 2020. The lower interest rates for interest-earning assets was partially offset by a 48-basis point reduction in the average cost of interest-bearing deposits, reflecting the repricing of time deposits lower, as well as lower interest rates for money markets and interest bearing demand deposits. 

The tax equivalent net interest margin for the six months ended June 30, 2020 was 3.18%, a decrease of 23 basis points compared to the same period in 2019. The decrease in the six-month net interest margin was also a result of lower average interest rates for interest-earning assets, which declined by 51 basis points. The reduction in the rate for interest-earning assets was partially mitigated by a 30-basis point reduction in the cost of total interest-bearing liabilities, primarily interest bearing deposits.

The provision for loan losses for the second quarter of 2020 was $3.0 million, an increase of $1.3 million compared to $1.7 million in the second quarter of 2019. The increase in the provision compared to second quarter 2019, is primarily attributable to uncertainty in relation to potential credit losses due to the ongoing COVID-19 pandemic. The provision for loan losses for the first six months of 2020 totaled $5.9 million compared to $2.1 million for the same period in 2019. The increase in the six-month provision for loan losses was primarily a result of the same factors as discussed for the three-month period.

Second quarter 2020 non-interest income increased by $956,000 to $1.9 million, compared to $924,000 in second quarter 2019, primarily the result of a $500,000 increase in loan fees, primarily loan swap fees, and a $318,000 increase in income from bank owned life insurance compared to the second quarter of 2019. Non-interest income totaled $3.1 million for the six months ended June 30, 2020 compared to $1.6 million for the same period in 2019. This increase in non-interest income for the first six months of 2020, was primarily a result of the same sources of revenue described for the three-month period.

Non-interest expense for second quarter 2020 totaled $9.8 million, an increase of $640,000, compared to $9.1 million for the prior year quarter. The higher non-interest expense compared to second quarter 2019 was primarily a result of increased occupancy and equipment expense related to the addition of the Grand Bank locations as well as increased costs associated with repairs, maintenance and cleaning throughout the Bank’s facilities, higher other professional fees due, in part, to consultants used to assist the Bank’s PPP lending activity and increased salaries and employee benefits expense, also related to the Grand Bank acquisition.

On a linked quarter basis non-interest expense decreased $148,000 to $9.8 million for second quarter 2020 compared to $9.9 million for the linked first quarter of 2020. The lower non-interest expense compared to the linked first quarter of 2020, was primarily a result of reduced data processing costs reflecting completion of integration activities for the Grand Bank locations, which ended the need to retain the services of Grand Bank’s prior data processing vendor as well as other cost saving initiatives that began in the second quarter of 2020. 

Non-interest expense for the first six months of 2020 totaled $19.7 million, an increase of $1.6 million, or 8.6%, compared to $18.1 million for the same period in 2019. The increase was primarily a result of increased salaries and employee benefits, higher occupancy and equipment expense, as well as increased other expense, legal fees, other professional fees and regulatory fees. Increases to the prior expense categories were partially offset by reduced merger-related expenses, marketing and advertising, and travel and entertainment costs.

Pre-provision net revenueⁱⁱ for the second quarter of 2020 was $8.4 million, an increase of $2.3 million, or 39.0%, compared to $6.1 million for the second quarter of 2019, and up $1.2 million, or 17.7%, compared to $7.2 million in the linked first quarter of 2020.

Income tax expense for the three months ended June 30, 2020 was $1.3 million, with an effective tax rate of 24.7% compared to $1.4 million for the three months ended June 30, 2019, with an effective tax rate of 33.0%, and $1.0 million for the linked first quarter of 2020, with an effective tax rate of 23.7%. Income tax expense for the six months ended June 30, 2020 was $2.4 million, with an effective tax rate of 24.2% compared to $2.5 million for the first six months of 2019, with an effective tax rate of 25.8%.  The Company expects an effective tax rate in a range of 24% to 25% for the remainder of 2020.

Balance Sheet

Total assets at June 30, 2020 were $2.30 billion, an increase of $469.9 million, or 25.7%, compared to $1.83 billion at June 30, 2019, and an increase of $289.0 million, or 14.4%, from December 31, 2019. Total loans were $1.96 billion at June 30, 2020, an increase of $406.5 million, or 26.2%, compared to $1.55 billion at June 30, 2019, and an increase of $231.4 million, or 13.4%, from the 2019 year end. Total loans as of June 30, 2020 increased $196.6 million from $1.76 billion at the end of the linked first quarter of 2020. The growth during the second quarter 2020 was mainly derived from commercial and industrial loans originated as a result of funding available through the PPP.

Total deposits were $1.92 billion at June 30, 2020, an increase of $479.8 million, or 33.2%, compared to $1.44 billion at June 30, 2019, and an increase of $282.4 million, 17.2%, from December 31, 2019. Non-interest-bearing deposits totaled $459.1 million at June 30, 2020, an increase of $167.2 million, or 57.3%, from March 31, 2020, reflective of continued growth in commercial deposits primarily related to PPP loan program.

On May 29, 2020, First Bank entered into a Subordinated Note Purchase Agreement with certain institutional accredited investors pursuant to which the Bank sold and issued $30.0 million in aggregate principal amount of 5.50% Fixed-to-Floating Rate Subordinated Notes due June 1, 2030. The Notes qualify as Tier 2 capital for regulatory capital purposes.  The Bank utilized the net proceeds of the offering of $29.5 million to redeem their outstanding $22.0 million subordinated notes on June 30, 2020, and will use the remainder of the net proceeds for general corporate purposes.

Stockholders’ equity was $226.4 million at June 30, 2020 and on December 31, 2019. Stockholder’s equity at June 30, 2020 reflects treasury stock purchases of $7.9 million and $1.2 million in cash dividends during the first six months of 2020 offset by net income of $7.4 million, stock option exercises and an increase in accumulated other comprehensive income of $836,000.   

As of June 30, 2020, the Bank continued to exceed all regulatory capital requirements to be considered well capitalized, with a Tier 1 Leverage ratio of 9.26%, a Tier 1 Risk-Based capital ratio of 10.37%, a Common Equity Tier 1 Capital ratio of 10.37%, and a Total Risk-Based capital ratio of 12.93%.

Asset Quality

First Bank’s asset quality metrics have remained relatively stable and favorable during the past 12 months. Net charge-offs were $1.0 million for the second quarter of 2020, compared to net charge-offs of $481,000 for the second quarter of 2019 and net charge-offs of $699,000 for the first quarter of 2020. Net charge-offs as an annualized percentage of average loans were 0.21% in second quarter 2020, compared to 0.13% in second quarter 2019 and 0.16% in the linked first quarter 2020. Nonperforming loans as a percentage of total loans at June 30, 2020 were 0.72%, compared with 0.94% on June 30, 2019 and 0.79% at March 31, 2020. Nonperforming loans were $14.1 million at June 30, 2020, down from $14.6 million on June 30, 2019, and up slightly from $13.8 million on March 31, 2020. The allowance for loan losses to nonperforming loans was 152.25% at June 30, 2020, compared with 115.13% at the end of second quarter 2019 and 141.00% at March 31, 2020.

COVID-19 Response

First Bank participated in the PPP, established by the Coronavirus Aid, Relief, and Economic Securities Act (CARES Act), during the second quarter of 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 July 15, 2020, First Bank has submitted and received approval from the SBA for 1,151 PPP loans totaling approximately $190.9 million. First Bank realized gross fees of $6.9 million from the SBA from the origination of these loans. These fees, net of the associated direct origination costs of approximately $519,000, are being amortized through interest income over the life of the PPP loans.

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.  Through July 15, 2020, the Bank granted COVID-19 deferrals, primarily for 90 days, for a total of 616 loans representing approximately $430.7 million of existing loan balances. As of July 15, 2020, 291 loans totaling $180.4 million of these deferred loans have already come due for their first payment since their 90 day deferral was put in place.  Out of the 291 loans, 260 loans or $144.6 million have made a payment and the Bank anticipates regular payments will continue on these loans. The Bank is working with the remainder of these customers and expects the majority will also get back on track with normal payments or will take an additional 90 day deferral. Early results are positive with 79% of COVID-19 deferrals that came due by July 15, 2020 now paying as agreed. While these trends are positive, future results will be dependent on the pandemic and its impact on the local business conditions in New Jersey and Pennsylvania.  

First Bank has focused on proactively working with its borrowers in the industries hardest hit by the COVID-19 pandemic. First Bank’s hospitality and restaurant loan portfolio totaled $160.9 million at June 30, 2020 or 8.23% of total loans. Hospitality loans totaling $59.0 million have received a COVID-19 related deferral out of a total of $74.9 million total loans, or 79%. Of these COVID-19 deferred loans, as of July 15, 2020, loans totaling $20.0 million have already come due for their first payment since their 90 day deferral was put in place.  Of the $20.0 million in loans, $7.7 million have made a payment and the Bank anticipates regular payments will continue on these loans. The Bank is in discussions with the remainder of these early deferrals about either additional deferral time, return to partial payment, or return to full repayment.  Restaurant loans totaling $46.0 million have received a COVID-19 related deferral out of a total of $86.0 million total loans or 53%. Of these COVID-19 deferred loans, as of July 15, 2020, loans totaling $29.7 million have already come due for their first payment since their 90 day deferral was put in place.  Of the $29.7 million, $29.2 million have made a payment and the Bank anticipates regular payments will continue on these loans.

Requests for deferrals have significantly decreased with only approximately $4.0 million of the $430.7 million in total deferrals occurring in the first 15 days of July.  As of the July 15, 2020 date, the portfolio of deferred loans was $286.2 million, a reduction of $144.5 million, or 34%, compared to the peak deferral portfolio of $430.7 million.  If the remainder of the deferrals behave in a similar way to the initial 42% that reached the end of their 90-day deferral period by July 15, 2020, the entire deferral portfolio would be $89.3 million, or 4.6% of total loans as of June 30, 2020.  

Consistent with industry regulatory guidance, borrowers that were otherwise current on loan payments that were granted COVID-19 related financial hardship payment deferrals will continue to be reported as current loans throughout the agreed upon deferral period, will continue to accrue interest and will not be required to be accounted for as a troubled debt restructuring. This will also apply to borrowers that request a second 90 day deferral request.  

Cash Dividend Declared

On July 21, 2020, 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 7, 2020, payable on August 21, 2020.

Share Repurchase Program

On October 23, 2019, First Bank announced that the Board of Directors authorized, and the Bank had received regulatory approval for, the repurchase of up to 1.0 million shares of First Bank common stock in the open market. The Bank repurchased 1.0 million shares of common stock during the first six months of 2020 for an aggregate purchase price of approximately $7.9 million. The Company currently has no plans to expand its authorization to repurchase shares of its common stock.

Conference Call

First Bank will host its earnings call on Tuesday, July 28, 2020 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 10145757) from one hour after the end of the conference call until October 28, 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 $2.3 billion in assets as of June 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 markets; 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 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.

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ⁱ 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).  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.

ⁱⁱ 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