Mr. Ryan added that, “I am pleased that we were able to reshape our balance sheet by executing some strategic asset sales during the third quarter that allowed us to reduce our reliance on higher cost deposits and borrowings which should positively impact our margin, efficiency ratio, and return on capital in the fourth quarter and beyond.”

Mr. Ryan concluded that, “I continue to be excited about the opportunities that lie ahead of us. The completion of the Malvern acquisition and the reshaping of our balance sheet during the quarter has allowed us to optimize our liquidity and interest rate risk positions while also enhancing future earnings potential. The current rate environment will continue to be a challenge but the Malvern acquisition, coupled with our strong team of bankers, should lead to a leaner and highly efficient company.”

Malvern Acquisition

First Bank acquired Malvern Bancorp, Inc. 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 expanded First Bank’s footprint in the highly affluent and desirable Mainline Philadelphia market. After acquisition accounting adjustments, at the time of the acquisition, First Bank added $953.8 million in assets, $92.0 million in investments, $727.7 million in loans, $671.9 million in deposits, $130.0 million in Federal Home Loan Bank advances, and $25.5 million in subordinated debt, and the acquisition resulted in $26.3 million in goodwill. The Malvern acquisition led to a 15% dilution in our tangible book value per shareⁱⁱⁱ from June 30, 2023 to September 30, 2023, however, the primary cause of the dilution was interest rate-related fair value adjustments. These fair value adjustments will accrete back through income and should lead to earnings per share accretion moving forward. Because the dilution was driven by interest rate adjustments, First Bank anticipates that the dilution will be earned back as loans and securities come to maturity.

Income Statement

In the third quarter of 2023, the Bank’s net interest income increased to $28.6 million, representing an increase of $4.0 million, or 16.4%, compared to the same period in 2022. The increase was primarily driven by an increase of $19.4 million in interest income on loans which outpaced the $15.7 million increase in interest expense on deposits in the third quarter of 2023 compared to the same quarter in 2022.

The Bank’s tax equivalent net interest margin in the third quarter of 2023 decreased by 61 basis points to 3.36% compared to the prior year quarter but increased by 8 basis points from the second quarter of 2023. The decrease from the prior year quarter was primarily driven by the increase in deposit costs, which was partially offset by an increase in average loan yields. The increase in the margin from the second quarter of 2023 was primarily due to the impact of the Malvern acquisition. The repositioning of the balance sheet, primarily through the aforementioned asset sales, coupled with a full quarter of accretion income from the Malvern fair value adjustments will have a positive impact on the margin moving forward, however, the inverted yield curve and deposit pricing pressures may negate some of the positive impact.

The Bank's provision for credit losses was $6.7 million in the third quarter of 2023, compared to $216,000 in the same period of the previous year and $496,000 in the preceding quarter of 2023. The increase in provision for credit losses during the current quarter was primarily due to a $5.5 million credit loss recorded to establish the allowance for credit losses on the acquired Malvern loan portfolio.

In the third quarter of 2023, non-interest income was $193,000, compared to $944,000 during the same period in 2022 and $1.1 million during the second quarter of 2023. The decrease was primarily due to losses on the sale of investments and loans of $527,000 and $704,000, respectively, which are net against non-interest income on the income statement. The losses were primarily related to the aforementioned sale of Malvern investments and residential loans.

Non-interest expense for the third quarter of 2023 was $23.5 million, an increase of $11.7 million, or 100.1%, compared to $11.7 million for the prior year quarter. The higher non-interest expense was largely due to the $7.0 million in merger-related expenses recorded during the third quarter of 2023. Merger-related expenses primarily included severance costs, data processing system termination and conversion costs, investment banker fees and legal and other professional fees. The increase was also due to salaries and employee benefits increasing $2.4 million, or 35.6%, and to a lesser extent, a $438,000 increase in occupancy and equipment expense, a $343,000 increase in regulatory fees, a $233,000 increase in data processing costs, and an increase of $997,000 in other expense. The increases were primarily due to the new employees and locations from the Malvern acquisition.

On a linked quarter basis, third quarter 2023 non-interest expense of $23.5 million increased $9.7 million, or 70.5%, compared to $13.8 million for the second quarter of 2023. The increase was also primarily attributable to an increase in merger-related expenses and, to a lesser extent, increased salaries and employee benefits, occupancy and equipment costs, data processing and other expense. These increases were also primarily due to the Malvern acquisition.

The Bank recorded an income tax benefit of $78,000 for the third quarter of 2023 compared to a $2.2 million tax expense for the second quarter of 2023. The year to date effective tax rate for the nine months ended September 30, 2023 was 25.50% compared to 24.21% for the first nine months of 2022. Income tax expense in 2023 was impacted by a $506,000 tax expense recorded due to the revaluation of the Bank’s deferred tax assets, primarily due to the impact on state taxes from the Malvern acquisition. Excluding this expense, the effective tax rate for the first nine months of 2023 would have been 22.49%. The lower adjusted effective tax rate is primarily due to the impact of the Malvern acquisition on state income tax expense.

Balance Sheet

The Bank reported total assets of $3.56 billion as of September 30, 2023, an increase of $684.0 million, or 23.8%, from $2.87 billion at June 30, 2023. The Bank’s assets grew $825.5 million, or 30.2%, for the nine months ended September 30, 2023.

The Bank's increase in loans during the three and nine month periods ended September 30, 2023 were $584.1 million and $683.0 million, respectively. Excluding the $626.3 million in loans acquired from Malvern at September 30, 2023, which is net of loan sales and pay-downs since the acquisition, net loan growth was $56.7 million during the nine months ended September 30, 2023 compared to a decline of $42.2 million during the quarter ended September 30, 2023. The decline during the current quarter was primarily due to the Bank being more selective as it relates to new relationships, as well as more active loan repayments on the part of a few existing customers due to increasing interest rates.

As of September 30, 2023, the Bank's total deposits were $2.97 billion, an increase of $673.5 million, or 29.4%, from $2.29 billion at December 31, 2022. Excluding the $671.9 million in deposits acquired from Malvern, deposit balances increased $1.6 million for the first nine months of 2023 but declined by $104.3 million during the three months ended September 30, 2023. The decline during the quarter ended September 30, 2023 was primarily due to the Bank allowing some higher cost brokered and non-core funding to leave the Bank, but the overall industry wide deposit declines and competitive pricing pressures are also impacting our total deposit levels.

As of September 30, 2023, the Bank's stockholders' equity totaled $361.0 million, an increase of $71.5 million, or 24.7%, compared to $289.6 million at December 31, 2022 and an increase of $66.9 million compared to June 30, 2023 primarily due to the equity issued in the Malvern acquisition.

As of September 30, 2023, the Bank continued to exceed all regulatory capital requirements to be considered well-capitalized with a Tier 1 Leverage ratio of 8.92%, a Tier 1 Risk-Based capital ratio of 9.00%, a Common Equity Tier 1 Capital ratio of 9.00%, and a Total Risk-Based capital ratio of 11.54%. The tangible stockholders' equity to tangible assets ratio^iv was 8.72% as of September 30, 2023. All of the Bank’s capital ratios declined during the quarter due to the Malvern acquisition, however, all capital ratios remain above well-capitalized minimums. In addition, the Bank anticipates that the earnings accretion from the Malvern acquisition will contribute to enhanced capital ratios in future periods.

Asset Quality

First Bank's asset quality metrics for the third quarter of 2023 remained favorable with nonperforming loans, excluding $17.2 million of purchase credit deteriorated (PCD) loans, decreasing slightly from $8.0 million at June 30, 2023, to $7.0 million at September 30, 2023. Nonperforming loans, excluding PCD loans, as a percentage of total loans were 0.23% at September 30, 2023, compared to 0.33% at June 30, 2023. The Bank recorded net charge-offs of $1.1 million during the third quarter of 2023 compared to net recoveries of $109,000 in the second quarter of 2023 and net charge-offs of $705,000 in the in the third quarter of 2022. The allowance for credit losses on loans as a percentage of total loans increased to 1.42% at September 30, 2023 compared to 1.25% at June 30, 2023, primarily due to the impact of the allowance for credit losses on the acquired Malvern loan portfolio. The allowance for credit losses at September 30, 2023 included $6.0 million in reserves on the Bank’s PCD loans.

Liquidity and Borrowings

The Bank maintained a strong liquidity position in the third quarter of 2023. Total cash and cash equivalents declined slightly by $2.1 million during the third quarter to $180.2 million at September 30, 2023. The Bank utilized asset sales to allow some higher cost deposits to run-off and paid off a significant amount of borrowings during the third quarter of 2023. The reduction in outstanding borrowings has also increased the Bank’s available borrowing capacity. The Bank’s current 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 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 October 17, 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 November 10, 2023, payable on November 24, 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/3e846bda-0f73-493b-bc6c-c5c63f65f218

First Bank will host its earnings call on Thursday, October 26, 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 January 25, 2024. 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 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 $3.56 billion in assets as of September 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, integrate acquired entities and realize anticipated efficiencies, 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 in early 2023); 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.

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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 tangible equity (equity minus goodwill and other intangible assets) by common shares outstanding. For a reconciliation of this non-U.S. GAAP financial measure, along with the other non-U.S. GAAP financial measures in this press release, to their comparable U.S. GAAP measures, see the financial reconciliations at the end of this press release.

^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.

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