First Bank Announces Second Quarter Net Income of $6.8 Million and EPS of $0.35

HAMILTON, N.J., July 26, 2023 (GLOBE NEWSWIRE) -- First Bank (Nasdaq Global Market: FRBA) (the Bank) today announced its second quarter 2023 financial results, achieving net income of $6.8 million, or $0.35 per diluted share, and maintaining solid returns on average assets, equity, and tangible equityⁱ of 0.97%, 9.23%, and 9.87%, respectively. Excluding merger-related expenses, First Bank’s second quarter 2023 adjusted diluted earnings per shareⁱⁱ were $0.36, adjusted return on average assetsⁱⁱ was 0.99% and adjusted return on average tangible equityⁱⁱ was 10.13%.

Compared to the same period last year, the Bank's net income and returns on assets, equity, and tangible equity were lower, reflecting broader industry headwinds, primarily due to increased market interest rates and deposit costs. However, the Bank remains confident in its ability to navigate the current economic landscape and achieve sustainable growth in earnings and book value over the long term.

Second Quarter 2023 Performance Highlights:

• Total loans reached $2.44 billion at June 30, 2023, marking a 1.8% increase from the end of the linked quarter at March 31, 2023.
• Total deposits ended the quarter at $2.40 billion at June 30, 2023, a 7.1% increase from the end of the linked quarter at March 31, 2023.
• Continued favorable asset quality throughout the quarter, with net recoveries of $109,000 during the second quarter of 2023, and nonperforming loans remained constant at 0.33% at June 30, 2023, compared to 0.33% at March 31, 2023.
• Steady growth in book value per share to $15.45 and tangible book value per shareⁱⁱⁱ to $14.44 at June 30, 2023. Tangible book value per share increased $0.39 from the end of the linked quarter at March 31, 2023, and $1.36, or 10.4%, from June 30, 2022, supporting continued value creation for shareholders.

Patrick L. Ryan, President and CEO of First Bank, reflected on the quarterly results, stating, “Despite the difficult rate environment which continues to impact our margin, and the short-term headwinds from recent strategic initiatives, I am satisfied with our current results. We continue to earn acceptable returns even as the yield curve remains inverted and we reinvest in the franchise. Those strategic investments, coupled with our Malvern Bank acquisition, position us for strong financial results as we move into 2024. During the second quarter we generated a return on average assets just below one percent, grew deposits by $158.1 million and maintained favorable asset quality metrics.”

Mr. Ryan acknowledged that funding costs could continue to increase if the yield curve remains inverted, however, he noted that the Malvern Bank acquisition will provide significant balance sheet management flexibility which should assist in managing margin pressures and will provide numerous opportunities for continued efficiency gains.

Mr. Ryan also stated that, “I am pleased that we were able to execute some treasury share repurchases during the second quarter of 2023 which did not significantly impact capital levels negatively but assisted in increasing our tangible book value per share by nearly 40 cents during the second quarter.”

Mr. Ryan added, “the recent strategic investments we have made, continue to pay dividends. Our Fairfield branch and regional headquarters is off to a strong start with branch deposits already surpassing $25 million. Our small business lending, private equity/fund banking and asset-based lending teams are helping to drive our year-to-date loan portfolio diversification, with overall net loan growth in-line with our annual plan.”

Mr. Ryan concluded that, “I am excited about the opportunities that lie ahead of us. The completion of the Malvern acquisition provides us a unique opportunity to reshape our balance sheet to optimize our liquidity and interest rate risk positions while also enhancing earnings. We have work to do to integrate Malvern’s customer base and our newest employees, but our previous experience has provided us a clear roadmap to execute. Our new locations and new C&I business units are performing well, and we are continuing to push forward some key technology initiatives. Navigating the current rate environment will continue to be a challenge but we have positioned ourselves well to execute our strategic vision of evolution to a highly efficient middle market commercial institution.”

Malvern Acquisition

First Bank acquired Malvern Bancorp, Inc. (Nasdaq Global Market: MLVF) and its wholly owned subsidiary Malvern Bank, National Association on July 17, 2023. The combined stock and cash transaction was valued at approximately $129.7 million and will expand First Bank’s footprint in the highly desirable New York City to Philadelphia corridor. The consolidated assets of the combined company equal approximately $3.8 billion. Effective upon the closing of the merger, First Bank expanded its Board of Directors by appointing three former Malvern Bancorp directors to the First Bank Board.

Income Statement

In the second quarter of 2023, the Bank’s net interest income decreased to $22.1 million, representing a reduction of $782,000, or 3.4%, compared to the same period in 2022. The decrease was primarily driven by the $11.4 million increase in deposit interest expense which outpaced the $9.9 million increase in interest income on loans in the second quarter of 2023 compared to the same quarter in 2022.

The Bank’s tax equivalent net interest margin decreased by 48 basis points to 3.28% compared to the prior year quarter and by 24 basis points from the first quarter of 2023. The decrease was primarily driven by the increase in deposit costs which was partially offset by the increase in average loan yields. The inverted yield curve, deposit pricing pressures and the focus on maintaining excess on-balance sheet liquidity all had a negative impact on the margin during the second quarter of 2023.

The Bank's provision for credit losses was $449,000 in the second quarter of 2023, compared to $1.3 million in the same period of the previous year and $1.1 million in the preceding quarter of 2023. The decline in provision for credit losses during the current quarter was primarily due to the benefit of net recoveries during the second quarter of 2023 and slightly lower net loan growth compared to the second quarter of 2022 and the first quarter of 2023.

In the second quarter of 2023, non-interest income was $1.1 million, compared to $1.5 million during the same period in 2022. The decrease was primarily due to a $196,000 decline in gains on recovery of acquired loans, a decrease of $84,000 in loan fees, primarily loan swap fees, and a decrease of $83,000 in gains on sale of loans, primarily Small Business Administration (SBA) loans. Gains on recovery of acquired loans have declined due to a reduction in collection of payments on acquired loans that were valued at $0 at the time of past acquisitions. Loan swap activity continues to be slow which resulted in the reduced loan swap income, but SBA loan sale activity has accelerated somewhat. Although down from the same period in the prior year, gains on sale of loans increased $29,000 during the second quarter of 2023 compared to the first quarter of 2023.       

Non-interest expense for the second quarter of 2023 was $13.8 million, an increase of $2.4 million, or 21.1%, compared to $11.4 million for the prior year quarter. The higher non-interest expense was largely due to a $1.4 million, or 21.3%, increase in salary and benefits costs in the second quarter of 2023, and to a lesser extent, a $283,000, or 121.5%, increase in regulatory fees, a $232,000 increase in occupancy and equipment expense, and $221,000 in merger-related costs during the second quarter of 2023. The increase in salaries and employee benefits was due to merit adjustments, inflationary market adjustments, and increased headcount, primarily due to new locations and growth initiatives, and increases in employee benefit costs. The increase in regulatory fees was due to the recent increase in FDIC fee assessments and the increase in occupancy and equipment was primarily due to the recently added new locations.

On a linked quarter basis, second quarter 2023 non-interest expense of $13.8 million increased $319,000, or 2.4%, compared to $13.5 million for the first quarter of 2023. The increase was primarily attributable to increased regulatory fees and increased salaries and employee benefits, and was offset somewhat by decreased merger-related expenses. The rise in regulatory fees and the increase in salaries and employee benefits were due to the same factors as noted above.  

The Bank's income tax expense for the second quarter of 2023 was $2.2 million with an effective tax rate of 24.3%, compared to $2.2 million with an effective tax rate of 23.7% for the first quarter of 2023 and $2.8 million with an effective tax rate of 24.4% for the second quarter of 2022.

Balance Sheet

The Bank reported total assets of $2.87 billion as of June 30, 2023, an increase of $57.5 million, or 2.0%, from $2.82 billion at March 31, 2023. The Bank’s assets grew $141.5 million, or 5.2%, for the six months ended June 30, 2023.

The Bank's increase in loans during the three and six month periods ended June 30, 2023 was $44.1 million and $98.9 million, respectively. The net loan growth was in-line with plan and driven primarily by owner-occupied commercial real estate and commercial and industrial loans.

As of June 30, 2023, the Bank's total deposits were $2.40 billion, an increase of $105.9 million, or 4.6%, from $2.29 billion at December 31, 2022. After a decline in deposits during the first quarter of 2023, deposits increased $158.1 million, or 7.1%, from $2.24 billion at March 31, 2023. Non-interest-bearing deposits totaled $476.7 million at June 30, 2023, which represents an increase of $12.8 million, or 2.8%, from March 31, 2023.

As of June 30, 2023, the Bank's stockholders' equity totaled $294.2 million, an increase of $4.6 million, or 1.6%, compared to $289.6 million at December 31, 2022 and a decline of $60,000 compared to March 31, 2023. During the quarter-ended June 30, 2023, the Bank repurchased 550,000 treasury shares for a total purchase price of $5.5 million, or an average price of $10.06 per share.

As of June 30, 2023, the Bank continued to exceed all regulatory capital requirements to be considered well-capitalized with a Tier 1 Leverage ratio of 10.03%, a Tier 1 Risk-Based capital ratio of 10.20%, a Common Equity Tier 1 Capital ratio of 10.20%, and a Total Risk-Based capital ratio of 12.39%. The Bank's strong capital position provides a cushion against potential losses and supports its ability to pursue growth opportunities. The tangible stockholders' equity to tangible assets ratio^iv was 9.63% as of June 30, 2023, indicating that the Bank has a sufficient cushion to absorb potential losses.

Asset Quality

First Bank's asset quality metrics for the second quarter of 2023 remained favorable, with net recoveries of $109,000 compared to a net charge-off of $315,000 in the previous quarter and net charge-offs of $404,000 in the second quarter of 2022. Nonperforming loans increased slightly from $7.8 million at March 31, 2023, to $8.0 million at June 30, 2023, but decreased from $11.9 million at the end of the second quarter of 2022. Nonperforming loans as a percentage of total loans were 0.33% at June 30, 2023, compared to 0.33% at March 31, 2023, and down from 0.53% at the end of the second quarter of 2022. The allowance for loan credit losses to nonperforming loans remains healthy at 379.55% at June 30, 2023, compared to 210.58% at June 30, 2022, and 382.26% at the end of the first quarter of 2023. The allowance for loan credit losses as a percentage of total loans remained at 1.25% at June 30, 2023 compared to the same level at March 31, 2023.

Liquidity and Borrowings

The Bank enhanced its liquidity position in the second quarter of 2023. Total cash and cash equivalents increased $21.3 million during the second quarter to $182.4 million at June 30, 2023. The Bank’s increase in deposits during the second quarter contributed to the increased cash balances and allowed for a reduction of $100.0 million in borrowings during the second quarter of 2023. The reduction in outstanding borrowings has also increased the Bank’s available borrowing capacity. This enhanced liquidity position coupled with the balance sheet flexibility gained after the Malvern Bancorp acquisition, provides the Bank with a strong liquidity base and a diverse source of funding options.   

Overall, the Bank has a strong capital, liquidity, and asset quality position, which provides a solid foundation to navigate future challenges that may arise. The Bank is committed to managing risk prudently while pursuing growth opportunities and delivering value to its shareholders.

Cash Dividend Declared

On July 18, 2023, the Bank’s Board of Directors declared a quarterly cash dividend of $0.06 per share to common stockholders of record at the close of business on August 11, 2023, payable on August 25, 2023.

Conference Call and Earnings Release Supplement

Additional details on the quarterly results and the Bank are included in the attached earnings release supplement. 
http://ml.globenewswire.com/Resource/Download/8b1d11f5-35da-404b-9d40-76b955b58884

First Bank will host its earnings call on Thursday, July 27, 2023 at 9:00 AM eastern time. The direct dial toll free number for the live call is 1-888-330-3273 and the access code is 7660423. For those unable to participate in the call, a replay will be available by dialing 1-800-770-2030 (access code 7660423) from one hour after the end of the conference call until August 27, 2023. 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

After acquiring Malvern Bank on 7/17/2023, First Bank is a New Jersey state-chartered bank with 26 full-service branches in Cinnaminson, Delanco, Denville, Ewing, Fairfield, Flemington (2), Hamilton, Lawrence, Monroe, Morristown, Pennington, Randolph, Somerset and Williamstown, New Jersey; and Coventry, Devon, Doylestown, Glenn Mills, Lionville, Malvern, Paoli, Trevose, Warminster and West Chester, Pennsylvania; and Palm Beach, Florida. With $2.87 billion in assets as of June 30, 2023, 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, sustain its internal growth rate, and 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 effects of the recent turmoil in the banking industry (including the failures of two financial institutions); the impact of disease pandemics, including 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 and 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; and 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.

CONTACT: Andrew Hibshman, Chief Financial Officer
(609) 643-0058, andrew.hibshman@firstbanknj.com

ⁱ Return on average tangible equity is a non-U.S. GAAP financial measure and is calculated by dividing net income by average tangible equity (average equity minus average 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.

ⁱⁱ Adjusted diluted earnings per share, adjusted return on average assets and adjusted return on average tangible 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 tangible 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.

ⁱⁱⁱ Tangible book value per share is a non-U.S. GAAP financial measure and is calculated by dividing common shares outstanding by tangible equity (equity minus 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.

^iv Tangible stockholders' equity to tangible assets ratio is a non-U.S. GAAP financial measure and is calculated by dividing tangible equity (equity minus goodwill and other intangible assets) by tangible assets (total assets minus 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.