Business
First Bank : Annual Report to Shareholders (ARS) or Combined ARS/10-K
First Bank : Annual Report to Shareholders (ARS) or Combined
About this update from First Bank
2O2 4 A N N U A L R E P O R T A clear vision for future success A clear vision for future success In 2024, First Bank ranked in the top quartile of our peers in numerous key performance metrics by staying true to our vision of success. We took stock of our recent growth, assessed where we could do even better, and executed to ensure our company with community bank roots is well-equipped to thrive as an emerging middle market commercial bank. Having grown at a 21% average annual rate over the past 11 years, we used 2024 - a year of economic unease and industry apprehension - to position ourselves for future success. Highlights from our 19th year include relationship-driven loan and deposit growth, opportunistic balance sheet optimization, technological enhancements, and continued expansion of our community banking network and specialty banking teams. We produced top quartile profitability with best-in-class efficiency and a clean, well-positioned balance sheet. Our robust earnings generated ample returns to fund organic growth, dividends, and share buybacks. Our branches sit within the New York City to Philadelphia corridor - one of the country's wealthiest and most densely populated markets - with an outpost in the vibrant West Palm Beach, Florida market. Most importantly, we have an experienced, engaged, and incentivized team leading the way. First Bank has a clear vision for our future success. Contents Letter to Shareholders Charitable Foundation Performance Overview Selected Financial Information Operations Review 13 Market Area & Branch Listing 14 Board of Directors 15 Executive Management 16 Bank Officers 17 Investment Profile 17 Corporate & Shareholder Information Fast Facts We are a relationship focused commercial bank with branch locations in New Jersey, Pennsylvania and Florida with $3.78 billion in assets at the end of 2024 Efficiency ratio below 60% for 22 consecutive quarters through 2024 Robust earnings per share growth with 19% CAGR from 2019 through 2024 Both assets and deposits grew at 13% CAGR from 2019 through 2024 Consistently strong credit metrics, with NCOs/Avg Loans of 0.01% for 2024* and 0.07% average over the preceding7years Balance sheet is positioned to generate stable net interest income in almost any interest rate scenario Kroll Bond Rating Agency Affirmed Investment Grade Rating Expanding technology platform to support evolution into middle market franchise * NCOs for 2024 exclude a $5.5 million PCD loan charge-off which was reserved for through purchase accounting marks at the time of the Malvern acquisition. 25 % Total net revenue growth in 2024 1 To our shareholders, stakeholders, employees and friends: 2024 - DELIVERING STRONG RESULTS IN A DIFFICULT OPERATING ENVIRONMENT In 2024, First Bank again demonstrated how the community bank model - with a focus on relationships, service, and prudent risk management - can perform well in any environment. Our model has delivered steady and strong earnings in the face of varied industry challenges, largely because our vision of success does not include generating blockbuster annual returns. Instead, we believe banking can and should be a boring business, where boring means producing top tier returns in any environment. Our team's ability to achieve continued financial outperformance is impressive when viewed in the context of the broader operating landscape for banks. Banks generally earn higher profits when longer term interest rates are higher than short term interest rates, forming an upward-sloping "yield curve." When long term rates are lower than short term rates, the yield curve is inverted. This phenomenon presents a serious challenge for banks, which earn money primarily on the spread between rates paid on shorter term deposits, borrowed funds, and other liabilities and yields earned on longer-term earning assets. Unfortunately, 2024 saw the continuation of the longest period of inverted interest rates in modern US history. In total, the yield curve remained inverted for 793 days, only moving to neutral in December 2024. Furthermore, interest rates moved higher leading up to 2024, and they remained at the highest level we've seen since before the Great Recession. Higher rates make business more difficult for borrowers (our customers), which can put pressure on credit quality. Add a cautious regulatory climate to the mix, and you can see how difficult the environment has been for banks. First Bank navigated these choppy seas quite successfully in 2024. We earned a 1.15% return on average assets (ROAA), our preferred metric to assess financial performance. An ROAA above 1% is the community banking industry benchmark for strong performance, and at 1.15%, we realized one of the highest levels of ROAA for banks our size and in our markets. Those returns equated to $42.2 million in net income for the year, or $1.67 per fully diluted share. Importantly, we generated a 12.5% return on tangible capital. We have been clear about our goal of achieving top-quartile financial performance and we achieved that goal again in 2024. We managed interest rates effectively at a time when many banks were stuck in neutral (or worse) because of poor earnings and balance sheets weighed down by assets with market values well below book values. With rates seemingly set up to be "higher for longer," our well-managed balance sheet should allow for continued strong performance in 2025 and beyond. While we would prefer the yield curve to get steeper, we don't need rates to move lower to sustain our profitability levels and grow our future earnings. 2 To be successful, banks need a viable business model, great people, a clean balance sheet, adequate capital, and solid regulatory relationships. I'm proud to say we have all of these. We have a clear vision for future success, especially as the prospects for a better interest rate environment and a more favorable regulatory climate emerge in 2025. LOOKING AHEAD IN 2025: ORGANIC GROWTH Today, First Bank is a relationship driven community bank that is evolving into a relationship driven middle market commercial bank. We have a clear roadmap to achieve our strategic vision, and organic growth is a key component of our plan. We are committed to our essential core businesses of deposit generation and lending to consumers and small businesses. At the same time, we're expanding "up-market" to service larger middle market commercial customers, within our existing geographic footprint. We are targeting larger businesses with a combination of our existing products and services alongside our expanding Treasury Management offerings. Additionally, we continue to build out niche commercial lending units, including Private Equity/Fund Banking (PE) and Asset-Based Lending (ABL). Much like the smaller, neighborhood businesses that we have always served, these middle market businesses are eager to rediscover a relationship-based banking model. Many of these businesses ended up with a big bank because of mergers, but they would prefer local, flexible, and responsive banking. We're working to fill that void in the market. As we continue to grow and serve larger customers, we remain deeply loyal to our business banking customers. Our Business Express product (loans under $500,000) continues to gain traction, and with a revamp of our Small Business Administration (SBA) unit, we're looking to gain market share in small business lending as well. We are also doing essential work to build out our technological capabilities. We believe this is critical to thriving as a bank of the future. We expect to drive new sources of fee income and deposits via fintech partnerships, and we are excited for the potential of our developing "Banking as a Service" (BaaS) model. Our initial BaaS programs should launch in the first half of 2025, and if successful, we hope to run several more throughout the year. We cannot achieve our goals without strong asset quality and solid capital, and we are well positioned in both areas. Our credit quality metrics are strong and improved throughout 2024. Net charge offs during 2024 were negligible, our level of non-performing assets was modest, and our allowance for credit losses stood at 323% of non-performing loans at year-end, higher than any peer bank in our region. Deposits remain the fuel for our business. We continue to invest in people, branches, and technology to help us compete and grow our core deposit base. Our branch network is both efficient and convenient, providing coverage throughout most of the New York City to Philadelphia corridor. We recently expanded our coverage with the opening of two new locations - one in Trenton, NJ and the other in Media, PA. The Trenton location fills an important gap in the center of our footprint, and Media opens up a new and contiguous market in Southeastern PA. As always, our branches remain staffed with the most dedicated, service-focused bankers in the market. 3 In addition to our outstanding branch banking team, we have a re-tooled Business Banking group made up of seasoned, relationship bankers. This group drives new business across all product categories with a special focus on deposit generation. Additionally, we leverage our great Treasury Management team and our new online account opening functionality to help build and grow deposits. As we tell our bankers every day - community banking is all about deposits, deposits, deposits. Our C&I lending teams are very relationship focused, and most customers have meaningful deposit relationships. Even our investor real estate and ABL teams - two areas not normally known for deposit growth - are generating notable levels of new deposits. Likewise, our loan pipelines show opportunity for growth in 2025. If we can effectively leverage all our deposit- generating vehicles, 2025 should be another year of solid asset growth. Invigorating Our Communities The FirstBank Charitable Foundation (FBCF) is committed to driving positive community transformation through innovative partnerships and reimagined community investment approaches. In 2024, FBCF distributed nearly $160,000 to 44 organizations focused on housing, education, and community well-being, marking our largest year of giving Since our inception, we have invested over $1 million in organizations aligned with our vision of lasting positive change FBCF hosted the inaugural Better Giving for Greater Impact Summit in May 2024, bringing together nonprofit leaders, donors, foundations, and corporations to foster collaboration and maximize community impact 4 M&A LANDSCAPE Many are predicting a coming "M&A wave" in 2025. I have my doubts. I do expect bank consolidation to continue and likely accelerate off a low level of activity in the past two years. However, buyers on the sidelines, balance sheet marks, and thorny social issues could all work to slow down the wave. I have little doubt that - while the community bank model will survive and thrive - there will be hundreds (maybe even thousands) that disappear in the next 20 years. It just won't happen in the next five years. What role First Bank will play in the future consolidation of the banking industry remains to be seen. Our M&A strategy will remain thoughtful and opportunistic. We know how to use M&A to create value, but we don't need M&A to create value. Since initiating our M&A strategy in 2013, we've grown assets and earnings per share at compound average annual rates of 21% and 16%, respectively, through a mix of both M&A and organic growth, complemented by efficient balance sheet and operational management. Your management team and board of directors here at First Bank do not believe in deviating from prudent, conservative banking practices. We remain focused on proven businesses and new opportunities with strong risk/reward characteristics. We won't be looking to "stretch" to find growth. With our core businesses performing well, and our newer ventures scaling up, we have the raw materials and unique ingredients we need to grow while staying focused on profitability. A BRIGHT FUTURE We are proud of what we achieved in a challenging environment in 2024. Following our largest-ever acquisition in 2023, 2024 was a year for settling into our growing size and optimizing our franchise for the future. Today, First Bank is a nearly $4 billion franchise that can serve clients of varying sizes and complexity through our extensive coverage in New Jersey and Pennsylvania, and a growing presence in South Florida. In 2024, our franchise generated more than $40 million in earnings, and we believe that we are well-positioned for continuing success. We are excited about 2025 and beyond as our newer ventures reach scale, our core businesses continue to perform, and an upward-sloping yield curve should drive net interest margin expansion. With these catalysts in place, plus an experienced and talented team, a knowledgeable and effective board, and our vibrant banking markets - First Bank's future looks bright. Patrick L. Ryan President and CEO SA F E - H A R B O R STAT E M E N T NOTE: This document contains forward-looking statements concerning the financial condition, results of operations and business of the Bank. We caution that such statements are subject to a number of uncertainties, including but not limited to those set forth under the caption "Item1A - Risk Factors" in the Bank's 2024 annual report on Form 10-K, as well as changes in economic activity in our markets, changes in interest rates and changes in regulation and the regulatory environment. 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 5 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. Performance Overview Total Stockholders' Equity Total Net Revenue* At 12-31, $ in Millions For Year Ended 12-31, $ in Millions 129.9 409.2 370.9 103.8 97.5 289.6 89.6 266.7 75.9 238.1 226.4 62.4 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024 5-year CAGR = 12.6% 5-year CAGR = 15.8% Total Loans Total Deposits At 12-31, $ in Billions At 12-31, $ in Billions 3.02 3.14 2.97 3.06 2.05 2.11 2.34 2.11 2.29 1.90 1.72 1.64 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024 5-year CAGR = 12.8% 5-year CAGR = 13.2% Book Value Per Share Tangible Book Value Per Share At 12-31 At 12-31 $14.89 $14.85 $16.30 $12.67 $13.89 $12.65 $14.19 $13.69 $11.17 $12.08 $10.17 $11.07 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024 5-year CAGR = 8.0% 5-year CAGR = 6.9% * Total net revenue is the sum of net interest income and non-interest income 6 Selected Financial Information IN THOUSANDS, EXCEPT COMMON SHARE DATA AT OR FOR THE YEAR ENDED DECEMBER 31, 2024 2019 5-YR CAGR Selected Balance Sheet Data Total assets $ 3,780,346 $ 2,011,587 13.4% Total loans 3,144,266 1,723,574 12.8% Allowance for loan losses 37,773 17,245 17.0% Total deposits 3,055,896 1,640,867 13.2% Total borrowings 246,933 105,476 18.5% Total subordinated debentures 29,954 21,964 6.4% Total stockholders' equity 409,156 226,393 12.6% Average total assets 3,664,463 1,858,291 14.5% Average stockholders' equity 392,132 207,338 13.6% Selected Income Statement Data Interest and dividend income $ 222,127 $ 84,170 21.4% Interest expense 99,581 25,804 31.0% Net interest income 122,546 58,366 16.0% Credit loss expense 1,178 3,984 (21.6%) Net interest income after credit loss expense 121,368 54,382 17.4% Non-interest income 7,308 3,995 12.8% Non-interest expense 73,531 39,364 13.3% Income before income taxes 55,145 19,013 23.7% Income tax expense 12,901 5,568 18.3% Net income $ 42,244 $ 13,445 25.7% Common Share Data Diluted earnings per share $ 1.67 $ 0.69 19.3% Adjusted diluted earnings per share 1 1.72 0.85 15.1% Cash dividends paid 0.24 0.12 14.9% Diluted weighted average common shares outstanding 25,283,771 19,392,429 5.4% Book value per common share 16.30 11.07 8.0% Common shares outstanding 25,100,829 20,458,665 4.2% Selected Performance Ratios Return on average assets 1.15% 0.72% Adjusted return on average assets 1 1.18% 0.88% Return on average equity 10.77% 6.48% Adjusted return on average equity 1 11.06% 7.93% Net interest margin, tax equivalent 2 3.57% 3.32% Efficiency ratio 1 56.73% 58.00% Selected Asset Quality Ratios Nonperforming loans to total loans 3 0.37% 1.32% Allowance for credit losses on loans to nonperforming loans 323.48% 75.82% Net loan charge offs to average loans 0.19% 0.12% Capital Ratios Stockholders' equity to assets 10.82% 11.25% Tier 1 leverage capital 9.50% 10.27% Common equity tier 1 capital 9.70% 10.74% Tier 1 risk-based capital 9.70% 10.74% Total risk-based capital 11.56% 12.79% 1 2 3 This measure is not recognized under U.S. GAAP and is therefore a non-U.S. GAAP financial measure. See our annual report on Form 10-K for a reconciliation of the 2024 calculation. The tax equivalent adjustment is calculated using a federal income tax rate of 21% in 2019 and 2024. 7 Nonperforming loans consist of nonaccrual loans (including nonaccrual purchased credit deteriorated loans) and loans past due 90 days or more and still accruing. Complementary Community Banking and Specialty Banking Teams Core Community Banking Relationship-driven community bank model, with resiliency and value validated during recent market turbulence Highly experienced and invested leadership team In 2024 we continued to optimize our branch network, deepening and expanding our presence in the densely populated and high-wealth NYC - Philadelphia corridor Total Deposits At 12-31, $ in Millions Time Money Market Savings Interest Checking Noninterest Checking $3,056 17% 21% $1,641 5% DEPOSITS Deposit initiatives are at the forefront of our growth strategy, with sales teams focused on core deposit generation Deposits grew $88 million during 2024 as we focused on building new relationships and optimizing the existing portfolio The percentage of non-interest bearing deposits to total deposits remained stable in 2024 17% 10% 8% 24% 41% 2019 34% 23% 2024 LOANS Our loan portfolio is well-diversified across our footprint and key commercial categories In 2024 we grew C&I loans to further diversify the portfolio, creating new deposit growth channels Our conservative underwriting continues to result in excellent credit quality, with NPAs/Assets and NCOs/Average Loans that have been below our peers in 7 of the past 9 years, including 2024 Total Loans by Geography At 12-31-2024 Total Loans * - $3,148M 13% 30% 6% Central NJ Northern NJ 24% Eastern PA Southern NJ 27% All Other Total Loans* At 12-31, $ in Millions CREI CREO C&I Consumer and Residential Mortgage Multi-Family ACD $1,725 6% 7% 11% 14% 23% 39% 2019 $3,148 7% 9% 7% 18% 21% 38% 2024 8 * Total loans excluding deferred loan fees and costs Attention : This is an excerpt of the original content. 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