First Commerce Bank’s 1st Quarter 2023 Earnings Release
April 25, 2023
First Commerce Bank Reports Net Income of $3.35 Million for the First Quarter of 2023 and Declares a Quarterly Cash Dividend of $0.04 per Common Share
LAKEWOOD, NJ / ACCESSWIRE / April 25, 2023 / First Commerce Bank (the "Bank") (OTC PINK:CMRB) today reported net income of $3.35 million for the first quarter of 2023 as compared to $4.2 million for the first quarter of 2022. Basic earnings per common share for the first quarter of 2023 was $0.14 compared to $0.18 for the first quarter of 2022. The Board of Directors approved and declared a quarterly cash dividend of $0.04 per common share payable to shareholders on May 22, 2023, for shareholders of record as of May 8, 2023.
Regarding the performance of the Bank, President & CEO Donald Mindiak commented, "Balance sheet growth in the areas of cash and cash equivalents, loans receivable, net, and retail deposits from year-end levels has been encouraging. Recent industry events notwithstanding, the ability to attract quality credits as well as the retail and wholesale funding to support that growth bespeaks a sense of confidence in our vision, business acumen and risk management protocols to successfully navigate the current market uncertainty. Total interest income increased by $4.5 million or 38.8% to $16.2 million for the three months ended March 31, 2023 from $11.7 million for the three months ended March 31, 2022 which was offset by a $5.0 million increase in interest expense to $5.7 million for the three months ended March 31, 2023 from $713,000 for the three months ended March 31, 2022.
In addition, the migration to the Current Expected Credit Loss standard ("CECL") in conjunction with strong loan growth resulted in an additional provision for credit loss entry of $509,000 to appropriately account for the allowance for credit losses. Also due to a net decrease in unfunded commitments, a benefit for credit losses for unfunded commitments of $319,000 was recorded for the three months ended March 31, 2023. These entries amount to an increase of $190,000 being recorded in the provision for the three months ended March 31, 2023 as compared to a reversal from the provision of $775,000 for the three months ended March 31, 2022, resulting in an increase of $965,000 in the provision for the comparative quarterly periods. Non-interest income increased by $515,000 from the prior three-month period due primarily to a one-time benefit related to our Bank-Owned Life Insurance ("BOLI") investment. Non-interest expense increased 4.3% as compared to the first quarter of 2022, which is less that the rate of inflation as the management of non-interest expense continues to be an area of focus."
He continued, "Asset quality metrics continue to improve as Other Real Estate Owned ("OREO") balances of $4.0 million at year-end 2022 have all been sold, eliminating them from our balance sheet, and non-accrual loans decreased by $1.0 million during the first quarter of 2023 to $11.7 million, with a contract for sale for an additional $3.1 million non-accrual loan expected to close shortly. Lastly, the economic headwinds of persistent inflation, a greater possibility of a recession and the on-going turbulence within the banking industry remain as challenges we continue to address and overcome. Our strong capital position provides a sense of comfort that we possess the wherewithal to withstand these stress situations and continue to engage and execute, on behalf of our shareholders, those initiatives that build franchise and shareholder value."
Quarter End Financial Highlights
- Loans receivable, net increased by $70.0 million or 6.4% from year-end 2022 primarily as a result of growth in commercial and construction loans.
- Total interest income increased by $4.5 million or 38.8% from the first quarter of 2022 as a result of the growth in loans receivable, net, and investment securities.
- Net interest margin was 3.33% at March 31, 2023 as compared to 4.04% at March 31, 2022.
- Total deposits increased by $11.3 million or 1.1% during the first quarter of 2023 and $79.0 million year over year with a category breakdown at March 31, 2023 of 19.2% in non-interest bearing deposits, 4.6% in savings deposits, 24.7% in interest-bearing demand deposits and 51.5% in time deposits.
- Return on average equity was 7.44% at March 31, 2023 as compared to 9.73% at March 31, 2022.
- Return on average assets was 1.02% at March 31, 2023 as compared to 1.48% at March 31, 2022.
Balance Sheet Review
Total assets increased by $90.1 million or 7.0% to $1.38 billion at March 31, 2023 from $1.29 billion at December 31, 2022. The increase in total assets was primarily attributable to increases in cash and cash equivalent and loans receivable, net, funded by growth in retail deposits and wholesale borrowings, partially offset by a decrease in investment securities.
Total cash and cash equivalents increased by $23.4 million or 54.9% to $66.0 million at March 31, 2023 from $42.6 million at December 31, 2022. This increase was primarily due to an increase in Federal Home Loan Bank Advances during the quarter of $76.0 million to $135.0 million at March 31, 2023 from $59.0 million at December 31, 2022 and an increase in retail deposits of $11.3 million or 1.1% to $1.045 billion at March 31, 2023 from $1.034 billion at December 31, 2022.
Loans receivable, net, increased by $70.0 million or 6.4% to $1.17 billion at March 31, 2023 from $1.10 billion at December 31, 2022. Total loan increases for the quarter ended March 31, 2023 occurred primarily as a result of increases of $71.2 million in commercial mortgages and $2.5 million in construction loans, partially offset by a $4.3 million decrease in commercial loans. The allowance for credit losses increased by $783,000 to $18.6 million or 1.56% of gross loans at March 31, 2023 as compared to $17.8 million or 1.59% of gross loans at December 31, 2022.
Total investment securities decreased by $2.7 million or 3.3% to $77.0 million at March 31, 2023 from $79.7 million at December 31, 2022. The decrease in investment securities resulted primarily from $2.0 million in mortgage-backed security paydowns and $645,000 in municipal bond maturities. In addition, the after-tax unrealized gain on the available-for-sale portfolio increased by $71,000 due to the prevailing interest rate environment and its impact on the market value of those debt securities. Because the Bank does not intend to sell the investments and it is not more than likely than not that the Bank will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Bank does not consider those investments to be other-than-temporarily impaired at March 31, 2023.
Deposit liabilities increased by $11.3 million or 1.1% to $1.045 billion at March 31, 2023 from $1.034 billion at December 31, 2022. The increase in total deposits occurred primarily as a result of a $57.4 million increase in time deposits, partially offset by decreases of $17.6 million, $12.1 million, $9.3 million and $7.1 million in savings, money market, non-interest bearing and interest checking deposits, respectively. As a result of the Federal Reserves' efforts to reduce inflation through systematic short-term interest rate increases during 2022 and 2023, the Bank's deposit mix has shifted to be more heavily weighted in time deposits as opposed to core deposits. Through the first quarter of 2023, the Bank utilized its retail deposit growth and wholesale borrowings from the Federal Home Loan Bank of New York to fund loan demand. Wholesale borrowing balances increased by $76.0 million or 128.8% to $135.0 million at March 31, 2023 from $59.0 million at December 31, 2022.
The Bank has filed the necessary paperwork with the Federal Reserve to participate in the government's new program, the Bank Term Funding Program, ("BTFP"). The BTFP was created to support American businesses and households by making additional funding available to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. The BTFP offers loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging any collateral eligible for purchase by the Federal Reserve Banks in open market operations (see 12 CFR 201.108(b)), such as U.S. Treasuries, U.S. agency securities, and U.S. agency mortgage-backed securities. These assets will be valued at par. The BTFP will be an additional source of liquidity secured by high-quality securities, eliminating an institution's need to quickly sell those securities in times of stress. At present, the Bank has not availed itself to this additional liquidity source.
Stockholders' equity increased by $2.6 million or 1.4% to $183.0 million at March 31, 2023 from $180.4 million at December 31, 2022. The increase in stockholders' equity was primarily attributable to net income of $3.35 million for the three months ended March 31, 2023, an increase of $19,000 in additional paid in capital, and an increase of $71,000 in accumulated other comprehensive income related to the mark-to-market valuation of the available-for-sale investment portfolio respectively, partially offset by a decrease of $943,000 in undivided profits related to the declaration and payment of the fourth quarter cash dividend during the first quarter of this year fiscal.
Quarterly Operational Review
Total interest income increased by $4.5 million or 38.8% to $16.2 million for the three months ended March 31, 2023 as compared to $11.7 million for the three months ended March 31, 2022. The increase in interest income resulted primarily from an increase in the average balance of loans receivable, net of $227.3 million or 25.1% to $1.13 billion for the three months ended March 31, 2023 compared to $905.4 million for the three months ended March 31, 2022 and an increase in the average balance of investment securities of $29.1 million or 58.9% to $78.5 million for the three months ended March 31, 2023 from $49.4 million for the three months ended March 31, 2022. Partially offsetting the increase in interest income was a decrease in loan fees of $795,000 or 81.5% to $181,000 for the three months ended March 31, 2023 from $975,000 for the three months ended March 31, 2022. The decrease in loan fees was primarily related to quarter-over-quarter decreases of $569,000 and $289,000 in prepayment penalty fee income and fees recognized from the Paycheck Protection Program (PPP) as the majority of the Bank's PPP loans were forgiven and fees earned in 2022 and 2021. These lower fees were partially offset by an increase in commercial loan fees of $56,000 or 65.7% to $142,000 for the three months ended March 31, 2023 as compared to $85,000 for the three months ended March 31, 2022.
Total interest expense increased by $5.0 million to $5.7 million for the three months ended March 31, 2023 from $713,000 for the three months ended March 31, 2022. The increase in interest expense occurred primarily as a result of an increase in the average cost of interest bearing liabilities to 2.07% for the three months ended March 31, 2023 from 0.30% for the three months ended March 31, 2022 and an increase in the average balance of interest bearing liabilities of $183.6 million or 24.9% to $922.1 million for the three months ended March 31, 2023 from $738.4 million for the three months ended March 31, 2022. The average balance of interest-bearing liabilities was broken down to a $113.2 million or 15.3% increase in interest bearing deposit liabilities and a $70.4 million increase in wholesale borrowings for the three months ended March 31, 2023. The Bank had no wholesale borrowings for the three months ended March 31, 2022. These were partially offset by an increase in the average yield on interest earning assets to 5.10% for the three months ended March 31, 2023 from 4.25% for the three months ended March 31, 2022 and an increase in the average balance of interest earning assets of $172.6 million or 15.6% to $1.28 billion for the three months ended March 31, 2023 from $1.1 billion for the three months ended March 31, 2022. The increases in the average balance of interest-bearing deposit liabilities and interest-bearing wholesale borrowings were used primarily to fund the loan growth previously discussed.
Net interest margin decreased by seventy-one basis points to 3.33% for the three months ended March 31, 2023 as compared to 4.04% for the three months ended March 31, 2022. The decrease in the net interest margin was primarily attributable to an increase in the average cost of interest-bearing liabilities to 2.07% for the three months ended March 31, 2023 from 0.30% for the three months ended March 31, 2022 and an increase in the average balance of interest-bearing liabilities to $922.0 million for the three months ended March 31, 2023 from $738.4 million for the three months ended March 31, 2022. These were partially offset by an increase in the average yield on interest earning assets to 5.10% for the three months ended March 31, 2023 from 4.25% for the three months ended March 31, 2022 and an increase in the average balance of interest earning assets to $1.28 billion for the three months ended March 31, 2023 from $1.10 billion for the three months ended March 31, 2022.
Non-interest income increased by $515,000 or 142.9% to $875,000 for the three months ended March 31, 2023 from $360,000 for the three months ended March 31, 2022. The increase in total non-interest income resulted primarily from an increase of $516,000 or 319.6% in BOLI income to $678,000 for the three months ended March 31, 2023 from $162,000 for the three months ended March 31, 2022. The increase resulted from a one-time benefit received on the Bank's investment in BOLI. This increase was partially offset by a decrease of $22,000 in other miscellaneous income over the comparative three-month time periods. All other variances within the non-interest income grouping were not material.
Non-interest expense increased by $280,000 or 4.3% to $6.79 million for the three months ended March 31, 2023 compared to $6.51 million for the three months ended March 31, 2022. Salaries and employee benefits increased by $107,000 or 2.6% to $4.27 million for the three months ended March 31, 2023 as compared to $4.16 million for the three months ended March 31, 2022. The increase in salaries and employee benefits resulted primarily from an increase in full-time equivalent employees to 166 at March 31, 2023 from 157 at March 31, 2022. Occupancy and equipment expense increased by $32,000 or 3.4% to $985,000 for the three months ended March 31, 2023 as compared to $953,000 for the three months ended March 31, 2022. Marketing expense increased by $49,000 or 118.3% to $91,000 for the three months ended March 31, 2023 from $42,000 for the three months ended March 31, 2022. Marketing expense increased as a result of the Bank utilizing resources to build our brand and attract retail deposits. Professional fees increased by $20,000 or 4.5% to $461,000 for the three months ended March 31, 2023 from $441,000 for the three months ended March 31, 2022 as a result of increased fees related to the Holding Company Reorganization application and the initiative to up list to the Nasdaq Capital Market exchange. Data processing costs increased by $38,000 or 20.9% to $218,000 for the three months ended March 31, 2023 from $181,000 for the three months ended March 31, 2022. Other expenses increased by $106,000 or 19.1% to $662,000 for the three months ended March 31, 2023 from $556,000 for the three months ended March 31, 2022. Other expenses is primarily comprised of miscellaneous loan expense, telephone, subscriptions, software maintenance and depreciation, office supplies and computer supplies. These increases were partially offset by a $133,000 or 73.4% decrease in FDIC assessment to $49,000 for the three months ended March 31, 2023 from $182,000 for the three months ended March 31, 2022.
The income tax provision decreased by $356,000 or 25.1% to $1.06 million for the three months ended March 31, 2023 from $1.42 million for the three months ended March 31, 2022. The decrease in the income tax provision resulted primarily from a decrease in earnings before income taxes of $1.2 million or 21.5%, which included additional non-taxable income of $510,000 for the one-time benefit from BOLI, to $4.4 million for the three months ended March 31, 2023 from $5.6 million for the three months ended March 31, 2022. The effective tax rate for the three months ended March 31, 2023 was 24.1% as compared to 25.3% for the three months ended March 31, 2022.
Asset Quality
The allowance for credit losses increased by $783,000 and $1.55 million respectively, to $18.56 million or 1.56% of gross loans at March 31, 2023 as compared to $17.78 million or 1.59% of gross loans at December 31, 2022 and $17.0 million or 1.82% of gross loans at March 31, 2022. Changes in the allowance for credit losses are calculated and adjusted quarterly and accordingly, relative to loan growth and quantitatively measured asset quality metrics. Total loans, gross, increased by $70.8 million or 6.3% and $254.7 million or 27.3% respectively, to $1.19 billion at March 31, 2023 from $1.12 billion at December 31, 2022 and $934.2 million at March 31, 2022. The Bank had non-accrual loans totaling $11.8 million or 0.99% of gross loans at March 31, 2023 as compared to $12.7 million or 1.14% of gross loans at December 31, 2022 and $12.2 million or 1.31% of gross loans at March 31, 2022. Quarter-over-quarter, non-accrual loans decreased by $988,000 or 7.8% to $11.7 million at March 31, 2023 from $12.7 million at December 31, 2022 and REO balances decreased by $4.0 million or 100% to no REO at March 31, 2023 from $4.0 million at December 31, 2022.
The allowance for credit losses was $18.56 million or 1.56% of gross loans at March 31, 2023, $17.78 million or 1.59% of gross loans at December 31, 2022 and $17.0 million or 1.82% of gross loans at March 31, 2022. The allowance for credit losses was 158.0% of non-accrual loans at March 31, 2023, 139.6% of non-accrual loans at December 31, 2022 and 139.4% of non-accrual loans at March 31, 2022.
About First Commerce Bank
Established in 2006 and headquartered in Lakewood, New Jersey, the Bank has offices in Allentown, Bordentown, Closter, Englewood, Fairfield, Freehold, Lakewood, Montvale, Robbinsville and Teaneck, New Jersey, with a new office in Jackson anticipated to open during the second quarter. The Bank provides businesses and individuals a wide range of loans, deposit products and retail and commercial banking services. For more information, please go to www.firstcommercebk.com.
Forward-Looking Statements
This release, like many written and oral communications presented by First Commerce Bank, and our authorized officers, may contain certain forward-looking statements regarding our prospective performance and strategies within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of said safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Bank, are generally identified by use of the words "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "seek," "strive," "try," or future or conditional verbs such as "could," "may," "should," "will," "would," or similar expressions. Our ability to predict results or the actual effects of our plans or strategies is inherently uncertain. Accordingly, actual results may differ materially from anticipated results.
In addition to the factors previously disclosed in prior Bank communications and those identified elsewhere, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: the impact of the COVID-19 pandemic on the Bank, its operations and its customers, changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer acceptance of the Bank's products and services; customer borrowing, repayment, investment and deposit practices; customer disintermediation; the introduction, withdrawal, success and timing of business initiatives; competitive conditions; the inability to realize cost savings or revenues or to implement integration plans and other consequences associated with certain corporate initiatives; economic conditions; and the impact, extent and timing of technological changes, capital management activities, and actions of governmental agencies and legislative and regulatory actions and reforms.
FIRST COMMERCE BANK
Consolidated Balance Sheets
(Unaudited)
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