First Bank: A Rapidly Growing Community Bank Selling Below Book

First Bank (FRBA) started operating on the cusp of 2007 in Williamstown, New Jersey. The company now has ten offices in two different states and in seven different counties.

Twenty Fifteen: Loan and Deposit Growth Weighted by Marginal Net Interest Income Performance

In 2015 loans grew by $142 million and total assets reached a peak of $856 million.

Total Assets Growth

Source: 2015 Annual Report

The company also completed a $22 million Tier 2 subordinated debt offering, and subsequently, opened a new regional office in Bucks County, Pennsylvania. Furthermore, the company continues to expand their market presence into Hunterdon County, New Jersey. An expansion in Hunterdon County will not only grow the company’s market share, but help to fuel additional YOY growth.

Total loan and deposit growth

Source: 2015 Annual Report

First Bank continues to grow its loans and deposits. For an example, in 2014, total deposits were $596 million. By the end of 2015, deposits grew 24% to $739 million. However, despite excellent deposit growth, competitive pressures pushed up the cost of interest-bearing deposits from 0.88% to 0.99% YOY. In addition, the $22 million raised in subordinated debt compressed the bank’s net interest margin, by adding an additional $1.1m to their funding cost. Until the bank puts that $22 million to work, the net interest margin will continue to see compression. Net interest margin fell 48 bps to 3.27% YOY.

As loan growth continued in 2015, the company’s asset quality saw noteworthy improvements.

non current loans historical

First Bank’s ratio of reserves to non-performing loans increased from 85.8% to an astounding 203.4% in 2015. Likewise, net charge offs to average loans declined from a low 0.22% in 2014, to an even lower 0.14% in 2015. Higher profitability will not ensue in the short-term from an improving asset base, however, in the long-run, lower expenses should transpire.

Given that First Bank is rapidly growing, one would expect expenses to skyrocket. On the contrary, if you take out severance and branch closing costs, First Bank’s quarterly recurring non-interest expense was $4.4 million, $4.3 million, $4.3 million and $4.3 million in Q1-Q4 of 2015. Non-interest expense was controlled by consolidating a North Region bank office, holding headcount steady, reducing administrative staff and adding revenue producing staff.

In spite of growing asset and improving asset quality, net income fell YOY from $5.8 million to $3.9 million. Management was expecting the bottom-line to be lower in 2015, due to the bargain purchase gain on Heritage Community Bank in 2014, and from the subordinated debt expense in 2015; however, management wanted to do much better than the actual results.

Investors should take note that net income was mainly down from one-time expenses/gains. In light of the net income downturn, the company continues to rapidly grow, the asset quality is improving and management is intent on getting the company noticed.

In regards to management’s intention on getting investor attention, the following statement from Patrick Ryan, CEO, shows managements mid to long-term objective…

“Essentially, we’re left asking ourselves the same question many small businesses across the country are asking: “How do I get noticed?” Our plan to get noticed in 2016 is straightforward – deliver excellent profit growth and reach the $1 billion assets threshold. Right or wrong, it seems many investors in the community bank space really don’t pay attention until you’re $1 billion or larger. Well, we’re almost there. Our focus on growth and enhanced profitability is our attempt to make sure we are well positioned once we’re finally getting noticed.”

1Q16: Bottom-line Improvements, Strong Loan Growth and Still Trading Below Book

In Q1 of 2016, First Bank reported net income of $1.4 million compared to $686 thousand in 4Q15. The reason for the net income improvement QOQ was from higher net interest income, driven by stronger loan growth and further improvements in non-interest expenses. Despite the improvements QOQ, net income was lower YOY from $1.7 million in 1Q15.

The remarkable aspect about First Bank is that the majority of the street has not recognized the company’s continual improvements. With a current share price of $6.85/share, a book value of $7.42 and TBV of $7.39/share, there is opportunity to be had for the investor focused on growing cheap banks. Even more interesting, book value increased 5% YOY.

Loan growth continued to show improvements as well. In 1Q16, loan growth increased by $68 million. This is a noteworthy feat given the record loan growth of $81 million in the previous quarter. Going forward, loan growth should taper off in the near quarters.

Finally, the company continues to improve their overall asset quality. Non-performing assets were 0.63% of total assets compared to 0.64% of total assets in the previous quarter. Furthermore, loans past due fell from $11.3 million in December 31st, 2015 to $4.2 million in March 31st, 2016. Continual asset improvements will lead to long-term profitability gains.


First Bank is an excellent example of a growing bank flying over the heads of Wall Street professionals. The company isn’t your typical pink sheet bank either. With a recent up-listing to the NASDAQ and managements goal of hitting the $1 billion mark, further investor attention should emerge.

In my opinion, First Bank is an attractive bank selling for a decent price.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Nick Bodnar

Leave a Reply