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

·42 min read

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.

_______________
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

FIRST BANK AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except for share data)

June 30, 2020
(unaudited)

December 31, 2019

Assets

Cash and due from banks

$

24,434

$

16,751

Federal funds sold

-

40,000

Interest bearing deposits with banks

99,723

25,041

Cash and cash equivalents

124,157

81,792

Interest bearing time deposits with banks

7,160

6,087

Investment securities available for sale

66,757

47,462

Investment securities held to maturity (fair value of $43,790 at June 30, 2020 and $47,100 at December 31, 2019)

43,013

46,612

Restricted investment in bank stocks

6,585

6,652

Other investments

6,469

6,388

Loans, net of deferred fees and costs

1,955,007

1,723,574

Less: Allowance for loan losses

21,441

17,245

Net loans

1,933,566

1,706,329

Premises and equipment, net

11,320

11,881

Other real estate owned, net

1,142

1,363

Accrued interest receivable

8,656

4,810

Bank-owned life insurance

49,677

49,580

Goodwill

16,253

16,253

Other intangible assets, net

1,939

2,083

Deferred income taxes

10,088

10,400

Other assets

13,812

13,895

Total assets

$

2,300,594

$

2,011,587

Liabilities and Stockholders' Equity

Liabilities:

Non-interest bearing deposits

$

459,123

$

275,778

Interest bearing deposits

1,464,143

1,365,089

Total deposits

1,923,266

1,640,867

Borrowings

104,897

105,476

Subordinated debentures

29,475

21,964

Accrued interest payable

790

1,076

Other liabilities

15,716

15,811

Total liabilities

2,074,144

1,785,194

Stockholders' Equity:

Preferred stock, par value $2 per share; 10,000,000 shares authorized; no shares issued and outstanding

-

-

Common stock, par value $5 per share; 40,000,000 shares authorized; 20,629,892 shares issued and 19,629,892 shares outstanding at June 30, 2020 and 20,458,665 shares issued and outstanding at December 31, 2019

102,573

101,887

Additional paid-in capital

78,384

78,112

Retained earnings

52,514

46,367

Accumulated other comprehensive income

863

27

Treasury stock, 1,000,000 shares at June 30, 2020

(7,884

)

-

Total stockholders' equity

226,450

226,393

Total liabilities and stockholders' equity

$

2,300,594

$

2,011,587



FIRST BANK AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except for share data, unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

Interest and Dividend Income

Investment securities—taxable

$

612

$

527

$

1,162

$

1,078

Investment securities—tax-exempt

76

91

154

189

Interest bearing deposits with banks,

Federal funds sold and other

203

450

626

976

Loans, including fees

21,088

19,412

42,251

38,080

Total interest and dividend income

21,979

20,480

44,193

40,323

Interest Expense

Deposits

4,565

5,282

9,951

10,228

Borrowings

550

636

1,109

1,100

Subordinated debentures

536

398

934

796

Total interest expense

5,651

6,316

11,994

12,124

Net interest income

16,328

14,164

32,199

28,199

Provision for loan losses

2,977

1,721

5,909

2,086

Net interest income after provision for loan losses

13,351

12,443

26,290

26,113

Non-Interest Income

Service fees on deposit accounts

116

116

287

208

Loan fees

649

149

934

179

Income from bank-owned life insurance

592

274

936

541

Gains on sale of loans

38

55

117

55

Gains on recovery of acquired loans

293

187

474

322

Other non-interest income

192

143

346

292

Total non-interest income

1,880

924

3,094

1,597

Non-Interest Expense

Salaries and employee benefits

5,308

5,137

10,692

10,217

Occupancy and equipment

1,548

1,283

2,964

2,644

Legal fees

235

127

455

239

Other professional fees

569

360

1,025

787

Regulatory fees

277

177

510

294

Directors' fees

215

194

430

394

Data processing

430

451

994

882

Marketing and advertising

81

225

225

450

Travel and entertainment

13

135

114

246

Insurance

122

97

318

184

Other real estate owned expense, net

94

44

211

113

Merger-related expenses

-

110

-

228

Other expense

875

787

1,744

1,449

Total non-interest expense

9,767

9,127

19,682

18,127

Income Before Income Taxes

5,464

4,240

9,702

9,583

Income tax expense

1,347

1,400

2,352

2,473

Net Income

$

4,117

$

2,840

$

7,350

$

7,110

Basic earnings per common share

$

0.21

$

0.15

$

0.37

$

0.38

Diluted earnings per common share

$

0.21

$

0.15

$

0.36

$

0.38

Cash dividends per common share

$

0.03

$

0.03

$

0.03

$

0.06

Basic weighted average common shares outstanding

19,651,675

18,670,010

19,984,351

18,653,533

Diluted weighted average common shares outstanding

19,744,571

18,954,171

20,165,724

18,950,589


FIRST BANK AND SUBSIDIARIES

AVERAGE BALANCE SHEETS WITH INTEREST AND AVERAGE RATES

(dollars in thousands, unaudited)

Three Months Ended June 30,

2020

2019

Average

Average

Average

Average

Balance

Interest

Rate (5)

Balance

Interest

Rate (5)

Interest earning assets

Investment securities (1) (2)

$

105,248

$

704

2.69

%

$

94,021

$

637

2.72

%

Loans (3)

1,905,227

21,088

4.45

%

1,528,231

19,412

5.09

%

Interest bearing deposits with banks,

Federal funds sold and other

120,343

73

0.24

%

52,338

318

2.44

%

Restricted investment in bank stocks

6,584

92

5.62

%

6,899

86

5.00

%

Other investments

6,457

38

2.37

%

6,278

46

2.94

%

Total interest earning assets (2)

2,143,859

21,995

4.13

%

1,687,767

20,499

4.87

%

Allowance for loan losses

(20,000

)

(15,848

)

Non-interest earning assets

127,537

110,913

Total assets

$

2,251,396

$

1,782,832

Interest bearing liabilities

Interest bearing demand deposits

$

164,325

$

131

0.32

%

$

144,699

$

256

0.71

%

Money market deposits

531,535

1,138

0.86

%

346,277

1,419

1.64

%

Savings deposits

135,805

268

0.79

%

75,039

135

0.72

%

Time deposits

634,281

3,028

1.92

%

629,054

3,472

2.21

%

Total interest bearing deposits

1,465,946

4,565

1.25

%

1,195,069

5,282

1.77

%

Borrowings

104,109

550

2.12

%

115,685

636

2.21

%

Subordinated debentures

32,515

536

6.59

%

21,893

398

7.27

%

Total interest bearing liabilities

1,602,570

5,651

1.42

%

1,332,647

6,316

1.90

%

Non-interest bearing deposits

406,498

232,444

Other liabilities

16,423

15,945

Stockholders' equity

225,905

201,796

Total liabilities and stockholders' equity

$

2,251,396

$

1,782,832

Net interest income/interest rate spread (2)

16,344

2.71

%

14,183

2.97

%

Net interest margin (2) (4)

3.07

%

3.37

%

Tax equivalent adjustment (2)

(16

)

(19

)

Net interest income

$

16,328

$

14,164

(1) Average balance of investment securities available for sale is based on amortized cost.

(2) Interest and average rates are tax equivalent using a federal income tax rate of 21%.

(3) Average balances of loans include loans on nonaccrual status.

(4) Net interest income divided by average total interest earning assets.

(5) Annualized.


FIRST BANK AND SUBSIDIARIES

AVERAGE BALANCE SHEETS WITH INTEREST AND AVERAGE RATES

(dollars in thousands, unaudited)

Six Months Ended June 30,

2020

2019

Average

Average

Average

Average

Balance

Interest

Rate (5)

Balance

Interest

Rate (5)

Interest earning assets

Investment securities (1) (2)

$

98,553

$

1,348

2.75

%

$

96,604

$

1,307

2.73

%

Loans (3)

1,824,020

42,251

4.66

%

1,502,766

38,080

5.11

%

Interest bearing deposits with banks,

Federal funds sold and other

105,815

343

0.65

%

58,219

694

2.40

%

Restricted investment in bank stocks

6,549

202

6.20

%

6,328

193

6.15

%

Other investments

6,438

81

2.53

%

6,255

89

2.87

%

Total interest earning assets (2)

2,041,375

44,225

4.36

%

1,670,172

40,363

4.87

%

Allowance for loan losses

(18,761

)

(15,676

)

Non-interest earning assets

127,698

110,719

Total assets

$

2,150,312

$

1,765,215

Interest bearing liabilities

Interest bearing demand deposits

$

162,643

$

293

0.36

%

$

149,617

$

518

0.70

%

Money market deposits

487,550

2,628

1.08

%

337,319

2,708

1.62

%

Savings deposits

131,215

590

0.90

%

79,552

270

0.68

%

Time deposits

647,024

6,440

2.00

%

630,900

6,732

2.15

%

Total interest bearing deposits

1,428,432

9,951

1.40

%

1,197,388

10,228

1.72

%

Borrowings

103,269

1,109

2.16

%

104,000

1,100

2.13

%

Subordinated debentures

27,244

934

6.86

%

21,879

796

7.28

%

Total interest bearing liabilities

1,558,945

11,994

1.55

%

1,323,267

12,124

1.85

%

Non-interest bearing deposits

347,539

225,854

Other liabilities

16,641

16,652

Stockholders' equity

227,187

199,442

Total liabilities and stockholders' equity

$

2,150,312

$

1,765,215

Net interest income/interest rate spread (2)

32,231

2.81

%

28,239

3.02

%

Net interest margin (2) (4)

3.18

%

3.41

%

Tax equivalent adjustment (2)

(32

)

(40

)

Net interest income

$

32,199

$

28,199

(1) Average balances of investment securities available for sale are based on amortized cost.

(2) Interest and average rates are tax equivalent using a federal income tax rate of 21%.

(3) Average balances of loans include loans on nonaccrual status.

(4) Net interest income divided by average total interest earning assets.

(5) Annualized.


FIRST BANK AND SUBSIDIARIES

QUARTERLY FINANCIAL HIGHLIGHTS

(in thousands, except for share and employee data, unaudited)

As of or For the Quarter Ended

6/30/2020

3/31/2020

12/31/2019

9/30/2019 (1)

6/30/2019

EARNINGS

Net interest income

$

16,328

$

15,871

$

16,191

$

13,976

$

14,164

Provision for loan losses

2,977

2,932

340

1,558

1,721

Non-interest income

1,880

1,214

1,493

905

924

Non-interest expense

9,767

9,915

9,309

11,928

9,127

Income tax expense

1,347

1,005

2,789

306

1,400

Net income

4,117

3,233

5,246

1,089

2,840

PERFORMANCE RATIOS

Return on average assets (2)

0.74

%

0.63

%

1.02

%

0.23

%

0.64

%

Adjusted return on average assets (2) (3)

0.74

%

0.63

%

1.16

%

0.81

%

0.66

%

Return on average equity (2)

7.33

%

5.69

%

9.24

%

2.11

%

5.64

%

Adjusted return on average equity (2) (3)

7.33

%

5.69

%

10.53

%

7.34

%

5.82

%

Return on average tangible equity (2) (3)

7.97

%

6.19

%

10.06

%

2.31

%

6.11

%

Adjusted return on average tangible equity (2) (3)

7.97

%

6.19

%

11.46

%

8.02

%

6.37

%

Net interest margin (2) (4)

3.07

%

3.30

%

3.34

%

3.15

%

3.37

%

Efficiency ratio (3)

53.64

%

58.03

%

52.64

%

57.19

%

59.76

%

Pre-provision net revenue (3)

$

8,441

$

7,170

$

8,375

$

6,371

$

6,071

SHARE DATA

Common shares outstanding

19,629,892

20,141,204

20,458,665

20,460,078

18,757,965

Basic earnings per share

$

0.21

$

0.16

$

0.26

$

0.06

$

0.15

Diluted earnings per share

0.21

0.16

0.25

0.06

0.15

Adjusted diluted earnings per share (3)

0.21

0.16

0.29

0.20

0.15

Tangible book value per share (3)

10.61

10.33

10.17

9.92

9.85

Book value per share

11.54

11.23

11.07

10.83

10.78

MARKET DATA

Market value per share

$

6.52

$

6.94

$

11.05

$

10.83

$

11.74

Market value / Tangible book value

61.46

%

67.20

%

108.66

%

109.59

%

119.14

%

Market capitalization

$

127,987

$

139,780

$

226,068

$

221,583

$

220,219

CAPITAL & LIQUIDITY

Tangible stockholders' equity / tangible assets (3)

9.12

%

10.03

%

10.44

%

10.02

%

10.19

%

Stockholders' equity / assets

9.84

%

10.81

%

11.25

%

10.83

%

11.05

%

Loans / deposits

101.65

%

101.90

%

105.04

%

105.52

%

107.28

%

ASSET QUALITY

Net charge-offs

$

1,013

$

699

$

325

$

1,084

$

481

Nonperforming loans

14,083

13,814

22,746

15,841

14,554

Nonperforming assets

15,225

14,975

24,108

17,705

15,330

Net charge offs / average loans (2)

0.21

%

0.16

%

0.07

%

0.28

%

0.13

%

Nonperforming loans / total loans

0.72

%

0.79

%

1.32

%

0.91

%

0.94

%

Nonperforming assets / total assets

0.66

%

0.72

%

1.20

%

0.87

%

0.84

%

Allowance for loan losses / total loans

1.10

%

1.11

%

1.00

%

0.99

%

1.08

%

Allowance for loan losses / nonperforming loans

152.25

%

141.00

%

75.82

%

108.77

%

115.13

%

OTHER DATA

Total assets

$

2,300,594

$

2,092,444

$

2,011,587

$

2,044,938

$

1,830,695

Total loans

1,955,007

1,758,364

1,723,574

1,743,897

1,548,540

Total deposits

1,923,266

1,725,547

1,640,867

1,652,608

1,443,497

Total stockholders' equity

226,450

226,259

226,393

221,510

202,242

Number of full-time equivalent employees (5)

209

208

216

216

195

(1) Includes effects of Grand Bank merger effective September 30, 2019.

(2) Annualized.

(3) Non-U.S. GAAP financial measure that we believe provides management and investors with information that is useful in understanding our financial performance and condition. See accompanying table, "Non-U.S. GAAP Financial Measures", for calculation and reconciliation.

(4) Tax equivalent using a federal income tax rate of 21%.

(5) Includes 4 and 15 full-time equivalent seasonal interns as of June 30, 2020 and 2019, respectively.


FIRST BANK AND SUBSIDIARIES

QUARTERLY FINANCIAL HIGHLIGHTS

(dollars in thousands, unaudited)

As of the Quarter Ended

6/30/2020

3/31/2020

12/31/2019

9/30/2019 (1)

6/30/2019

LOAN COMPOSITION

Commercial and industrial

$

428,494

$

247,654

$

239,090

$

236,932

$

219,930

Commercial real estate:

Owner-occupied

392,096

387,217

395,995

405,485

370,498

Investor

689,891

678,568

673,300

685,006

619,174

Construction and development

131,791

124,496

105,709

113,281

93,916

Multi-family

132,942

131,566

119,005

103,858

88,801

Total commercial real estate

1,346,720

1,321,847

1,294,009

1,307,630

1,172,389

Residential real estate:

Residential mortgage and first lien home equity loans

117,796

118,020

123,917

127,337

92,760

Home equity–second lien loans and revolving lines of credit

29,371

33,764

32,555

35,264

26,695

Total residential real estate

147,167

151,784

156,472

162,601

119,455

Consumer and other

40,230

38,902

35,810

38,584

38,529

Total loans prior to deferred loan fees and costs

1,962,611

1,760,187

1,725,381

1,745,747

1,550,303

Net deferred loan fees and costs

(7,604

)

(1,823

)

(1,807

)

(1,850

)

(1,763

)

Total loans

$

1,955,007

$

1,758,364

$

1,723,574

$

1,743,897

$

1,548,540

LOAN MIX

Commercial and industrial

21.9

%

14.1

%

13.9

%

13.6

%

14.2

%

Commercial real estate:

Owner-occupied

20.1

%

22.0

%

23.0

%

23.3

%

23.9

%

Investor

35.3

%

38.6

%

39.1

%

39.3

%

40.0

%

Construction and development

6.7

%

7.1

%

6.1

%

6.5

%

6.1

%

Multi-family

6.8

%

7.5

%

6.9

%

6.0

%

5.7

%

Total commercial real estate

68.9

%

75.2

%

75.1

%

75.0

%

75.7

%

Residential real estate:

Residential mortgage and first lien home equity loans

6.0

%

6.7

%

7.2

%

7.3

%

6.0

%

Home equity–second lien loans and revolving lines of credit

1.5

%

1.9

%

1.9

%

2.0

%

1.7

%

Total residential real estate

7.5

%

8.6

%

9.1

%

9.3

%

7.7

%

Consumer and other

2.1

%

2.2

%

2.0

%

2.2

%

2.5

%

Net deferred loan fees and costs

(0.4

%)

(0.1

%)

(0.1

%)

(0.1

%)

(0.1

%)

Total loans

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

(1) Includes effects of Grand Bank merger effective September 30, 2019.


FIRST BANK AND SUBSIDIARIES

NON-U.S. GAAP FINANCIAL MEASURES

(in thousands, except for share data, unaudited)

As of or For the Quarter Ended

6/30/2020

3/31/2020

12/31/2019

9/30/2019 (1)

6/30/2019

Return on Average Tangible Equity

Net income (numerator)

$

4,117

$

3,233

$

5,246

$

1,089

$

2,840

Average stockholders' equity

$

225,905

$

228,471

$

225,200

$

204,759

$

201,796

Less: Average Goodwill and other intangible assets, net

18,236

18,309

18,377

17,412

17,450

Average Tangible stockholders' equity (denominator)

$

207,669

$

210,162

$

206,823

$

187,347

$

184,346

Return on Average Tangible equity

7.97

%

6.19

%

10.06

%

2.31

%

6.11

%

Tangible Book Value Per Share

Stockholders' equity

$

226,450

$

226,259

$

226,393

$

221,510

$

202,242

Less: Goodwill and other intangible assets, net

18,192

18,245

18,336

18,485

17,406

Tangible stockholders' equity (numerator)

$

208,258

$

208,014

$

208,057

$

203,025

$

184,836

Common shares outstanding (denominator)

19,629,892

20,141,204

20,458,665

20,460,078

18,757,965

Tangible book value per share

$

10.61

$

10.33

$

10.17

$

9.92

$

9.85

Tangible Equity / Assets

Stockholders' equity

$

226,450

$

226,259

$

226,393

$

221,510

$

202,242

Less: Goodwill and other intangible assets, net

18,192

18,245

18,336

18,485

17,406

Tangible equity (numerator)

$

208,258

$

208,014

$

208,057

$

203,025

$

184,836

Total assets

$

2,300,594

$

2,092,444

$

2,011,587

$

2,044,938

$

1,830,695

Less: Goodwill and other intangible assets, net

18,192

18,245

18,336

18,485

17,406

Adjusted total assets (denominator)

$

2,282,402

$

2,074,199

$

1,993,251

$

2,026,453

$

1,813,289

Tangible equity / assets

9.12

%

10.03

%

10.44

%

10.02

%

10.19

%

Efficiency Ratio (2)

Non-interest expense

$

9,767

$

9,915

$

9,309

$

11,928

$

9,127

Less: Merger-related expenses

-

-

-

3,418

110

Adjusted non-interest expense (numerator)

$

9,767

$

9,915

$

9,309

$

8,510

$

9,017

Net interest income

$

16,328

$

15,871

$

16,191

$

13,976

$

14,164

Non-interest income

1,880

1,214

1,493

905

924

Total revenue

18,208

17,085

17,684

14,881

15,088

Adjusted total revenue (denominator)

$

18,208

$

17,085

$

17,684

$

14,881

$

15,088

Efficiency ratio

53.64

%

58.03

%

52.64

%

57.19

%

59.76

%

Pre-Provision Net Revenue (2)

Net interest income

$

16,328

$

15,871

$

16,191

$

13,976

$

14,164

Non-interest income

1,880

1,214

1,493

905

924

Less: Non-interest expense

9,767

9,915

9,309

11,928

9,127

Add: Merger-related expenses

-

-

-

3,418

110

Pre-provision net revenue

$

8,441

$

7,170

$

8,375

$

6,371

$

6,071

(1) Includes effects of Grand Bank merger effective September 30, 2019.

(2) During the current quarter the efficiency ratio and pre-provision net revenue calculations were changed from the way these figures were calculated in previous periods. The prior quarter numbers have been adjusted accordingly. Gains on recovery of acquired loans are no longer removed from the revenue numbers as management has determined that these amounts have become part of our core operations and should not be removed in our adjusted totals.


FIRST BANK AND SUBSIDIARIES

NON-U.S. GAAP FINANCIAL MEASURES

(dollars in thousands, except for share data, unaudited)

For the Quarter Ended

6/30/2020

3/31/2020

12/31/2019

9/30/2019 (1)

6/30/2019

Adjusted diluted earnings per share,

Adjusted return on average assets, and

Adjusted return on average equity (2)

Net income

$

4,117

$

3,233

$

5,246

$

1,089

$

2,840

Add: Merger-related expenses (3)

-

-

-

2,700

87

Add: Deferred Tax Asset revaluation

-

-

730

-

-

Adjusted net income

$

4,117

$

3,233

$

5,976

$

3,789

$

2,927

Diluted weighted average common shares outstanding

19,744,571

20,565,867

20,666,729

18,976,574

18,954,171

Average assets

$

2,251,396

$

2,049,229

$

2,037,127

$

1,859,818

$

1,782,832

Average equity

$

225,905

$

228,471

$

225,200

$

204,759

$

201,796

Average Tangible Equity

$

207,669

$

210,162

$

206,823

$

187,347

$

184,346

Adjusted diluted earnings per share

$

0.21

$

0.16

$

0.29

$

0.20

$

0.15

Adjusted return on average assets (4)

0.74

%

0.63

%

1.16

%

0.81

%

0.66

%

Adjusted return on average equity (4)

7.33

%

5.69

%

10.53

%

7.34

%

5.82

%

Adjusted return on average tangible equity (4)

7.97

%

6.19

%

11.46

%

8.02

%

6.37

%

(1) Includes effects of Grand Bank merger effective September 30, 2019.

(2) During the current quarter the adjusted net income calculation was changed from the way it was calculated in previous periods. The prior quarter numbers have been adjusted accordingly. Gains on recovery of acquired loans are no longer removed from adjusted net income as management has determined that these amounts have become part of our core operations and should not be removed in our adjusted totals.

(3) Items are tax-effected using a federal income tax rate of 21%.

(4) Annualized.