1st Colonial Bancorp, Inc. Reports Third Quarter 2022 Results

• Net income for the third quarter of 2022 was $2.6 million, an 18% increase over the same period in 2021; and a 30% increase over the second quarter of 2022.
• Net income for the nine months ended September 30, 2022 was $6.2 million, a 12% increase over the same period in 2021.
• Net interest income for the quarter ended September 30, 2022 was $6.9 million, an increase of $832 thousand, or 14% from the same period in 2021.
• Net interest margin for the quarter ended September 30, 2022 was 3.76%, a 6% increase over the same period in 2021.
• Third quarter 2022 revenues were $8.3 million, a decrease of $244 thousand, or 3%, from the same period in 2021.
• For the third quarter of 2022, annualized return on average assets was 1.36% and annualized return on average equity was 17.7%
• For the third quarter of 2022, diluted earnings per share was $0.53, an increase of 21% over the same period in 2021.
• The efficiency ratio for the third quarter of 2022 improved to 57.1% from 58.7% for the third quarter of 2021.
• Total assets grew $28.8 million, or 4%, to $763.8 million from $735.0 million as of June 30, 2022, and by $81.0 million, or 12%, from $682.8 million as of December 31, 2021.
• Total loans grew $26.1 million, or 5%, to $587.0 million from $560.9 million as of June 30, 2022, and by $85.1 million, or 17%, from $501.9 million as of December 31, 2021.
• Total deposits grew $21.4 million, or 3%, to $660.9 from $639.5 million as of June 30, 2022, and by $50.4 million, or 8%, from $610.5 million as of December 31, 2021.

1st Colonial Bancorp, Inc. (FCOB), holding company of 1^st Colonial Community Bank, today reported net income of $2.6 million, or $0.53 per diluted share, for the three months ended September 30, 2022, compared to net income of $2.2 million, or $0.44 per diluted share, for the three months ended September 30, 2021. For the nine months ended September 30, 2022, net income was $6.2 million, or $1.29 per diluted share, compared to $5.5 million, or $1.11 per diluted share, for the same period in 2021.

Robert White, President and Chief Executive Officer, commented, “We are pleased with our third quarter results and our team’s ability to deliver another quarter of strong performance to our shareholders. Our core earnings grew 8% in the third quarter compared to last year’s comparable quarter and 16% from our second quarter 2022 results. Our performance benefited from higher interest rates, along with a disciplined approach to managing our interest expense. We anticipate heightened pressure on our margins as deposit competition intensifies. Continued economic headwinds, coupled with rising interest rates, may lessen loan demand. We remain focused on our strategic priorities and closely managing our operating expenses to minimize the impact on our bottom line. Our asset quality metrics remain stable, and we continue to monitor the loan portfolio for any early signs of borrower stress, as well as the need for additional loan loss reserves in the event of future deterioration.”

Operating Results

Net Interest Income

Net interest income for the three months ended September 30, 2022 and 2021 was $6.9 million and $6.0 million, respectively. The $832 thousand increase in net interest income was primarily attributable to a $967 thousand increase in interest income on average loans outstanding. For the third quarter of 2022, average loan balances increased $72.0 million to $576.6 million from $504.6 million for the third quarter of 2021. When compared to the second quarter of 2022, net interest income increased $745 thousand from $6.1 million. Approximately 30% of the loan portfolio is tied to the Wall Street Journal prime rate and will re-price at various times when the rate changes. For the third quarter of 2022, net loan origination income on the SBA’s Paycheck Protection Program (“PPP”) loans was $19 thousand and declined $999 thousand from the third quarter of 2021 and $89 thousand from the second quarter of 2022. PPP loans outstanding were $871 thousand as of September 30, 2022.

For the quarter ended September 30, 2022 interest expense increased $369 thousand to $1.1 million from $758 thousand for the same period in 2021. As a result of the 225 basis points increase in the fed funds interest rate during the first six months of 2022, we began increasing our deposit rates in the third quarter. To fund our interest-earning asset growth, our average borrowings increased $17.4 million and contributed to the increase in interest expense.

For the first nine months of 2022, net interest income grew $3.0 million, or 18.5%, to $18.8 million from $15.8 million for the same period in 2021. The increase in net interest income was primarily attributable to a $2.9 million increase in interest income earned on average loans. Our average outstanding loan balance grew $75.8 million and was affected by a $45.0 million reduction in average PPP loans outstanding. Net PPP loan origination income decreased $1.1 million year over year. Interest expense increased $148 thousand year-over year mainly due to a $5.8 million increase in average borrowings.

The net interest margin was 3.76% for the third quarter of 2022 compared to 3.56% for the second quarter of 2022 and 3.56% for the third quarter of 2021. Net interest margin was 3.60% for the nine months ended September 30, 2022 compared to 3.27% for the nine months ended September 30, 2021. The improvement in net interest margin was mostly related to an increase in the average yield on interest-earning assets, which grew 37 basis points from 4.01% for the quarter ended September 30, 2021 to 4.38% for the quarter ended September 30, 2022. For the first three quarters of 2022, the average yield on interest-earning assets grew 33 basis points to 4.07% from 3.74% for the same period in 2021.

Loan Loss Provision

For the three and nine months ended September 30, 2022, we recorded provisions to the allowance for loan losses (“allowance”) of $200 thousand and $800 thousand, respectively, compared to $600 thousand and $1.0 million for the three and nine months ended September 30, 2021, respectively. The loan loss provision was $300 thousand for the second quarter of 2022. For the nine months ended September 30, 2022, we recorded net recoveries of $244 thousand compared to net charge-offs of $266 thousand for the same period in 2021. The allowance as a percentage of total loans was 1.35% as of September 30, 2022, 1.38% as of December 31, 2021 and 1.24% as of September 30, 2021.

Non-interest Income

Non-interest income for the third quarter of 2022 was $1.4 million, a decrease of $1.1 million, or 43%, from $2.5 million for the third quarter of 2022. Income from the origination and sales of residential mortgages declined $749 thousand, or 63%, from the third quarter in 2021 due to a $19.6 million, or 53%, decline in sales. Mortgage activity was impacted by a drop in refinancing transactions and a lack of inventory in the purchase market that we believe were both caused by the increase in interest rates. During the third quarter of 2022, we earned $121 thousand in gains on the sale of SBA loans compared to $629 thousand for the comparable 2021 period. The third quarter of 2022 also includes a non-taxable bank owned life insurance (“BOLI”) death benefit of $641 thousand related to a former employee compared to $387 thousand BOLI death benefit for another former employee for the same period in 2021. When compared to the second quarter of 2022, non-interest income for the third quarter of 2022 decreased $384 thousand from $1.8 million.

For the nine months ended September 30, 2022, non-interest income was $4.7 million, a decline of $2.7 million, or 36%, from $7.4 million for the same period in 2021. Income from the origination and sales of residential mortgages decreased $2.3 million, or 51%, from $4.6 million for the first three quarters of 2021 to $2.3 million for the first three quarters in 2022 due to a decline of $72.3 million in the volume of loans sold during the 2022 period. In the first nine months of 2022 we earned $785 thousand in gains on the sale of SBA loans compared to $1.6 million in the same period of 2021.

Non-interest Expense

Non-interest expense was $4.7 million for the three months ended September 30, 2022, a decrease of $274 thousand, or 5%, from $5.0 million for the comparable period in 2021. Personnel expenses and impaired asset expenses decreased $97 thousand and $76 thousand, respectively. When compared to the second quarter of 2022, non-interest expense for the third quarter of 2022 decreased $227 thousand from $5.0 million. The second quarter of 2022 was impacted by a $195 thousand loss due to a fraudulent transaction between a long-term deposit customer and an unrelated third-party. We continue to pursue all legal remedies to recover the loss.

For the nine months ended September 30, 2022, non-interest expense was $14.3 million and declined $243 thousand from $14.5 million for the nine months ended September 30, 2021. Personnel and data processing expenses increased $146 thousand and $81 thousand, respectively. Impaired asset expenses, lending costs and advertising declined $170 thousand, $114 thousand and $92 thousand, respectively.

Income Taxes

For the three and nine months ended September 30, 2022, income tax expense was $800 thousand and $2.2 million, respectively, compared to $759 thousand and $2.1 million for the three and nine months ended September 30, 2021, respectively. The non-taxable BOLI payment had a favorable impact on our income taxes in 2022.

Financial Condition

Assets

As of September 30, 2022, total assets were $763.8 million and grew $28.8 million, or 4%, from $735.0 million as of June 30, 2022. Total assets were $682.8 million as of December 31, 2021.

Total loans were $587.0 million as of September 30, 2022, an increase of $26.1 million, or 5%, from $560.9 million as of June 30, 2022. Total loans grew $85.1 million, or 17%, from $501.9 million as of December 31, 2021. During the first nine months of 2022, commercial loans, including commercial real estate and construction and excluding PPP loans, grew $40.0 million. Residential mortgages and home equity loans and lines of credit increased $58.4 million. PPP loans declined $13.1 million to $871 thousand as of September 30, 2022. As of September 30, 2022, loans held for sale were $4.4 million and decreased $6.5 million from $10.9 million as of June 30, 2022. Loans held for sale as of September 30, 2022 decreased $5.6 million from $10.0 million as of December 31, 2021.

Investments grew $1.5 million to $128.5 million as of September 30, 2022 from $127.0 million as of June 30, 2022. Investments were $111.8 million as of December 31, 2021. Investments were negatively impacted by an unrealized loss of $8.6 million as of September 30, 2022. The unrealized loss was caused by higher interest rates and the widening spreads in our government agency sponsored bonds and mortgage-backed securities. Approximately 89% of the available for sale investment portfolio is invested in U.S. government sponsored securities. As of September 30, 2022, cash and cash equivalents increased $5.6 million, or 35%, to $21.5 million from $15.9 million as of June 30, 2022. Cash and cash equivalents were $40.9 million as of December 31, 2021.

Liabilities

Total deposits were $660.9 million as of September 30, 2022, an increase of $21.4 million, or 3%, from $639.5 million as of June 30, 2022. For the first nine months of 2022, total deposits grew $50.4 million, or 8%, from $610.5 million as of December 31, 2021. Interest-checking, brokered deposits and money market accounts increased $61.2 million, $15.3 million, and $4.2 million, respectively, while retail certificates of deposit and savings accounts decreased $24.2 million and $6.2 million, respectively. Overnight borrowings increased $31.0 million to fund the asset growth.

Shareholder’s Equity

Total shareholders’ equity was $56.9 million as of September 30, 2022, compared to $56.7 million as of June 30, 2022 and $57.8 million as of December 31, 2021. During the first nine months of 2022, the net unrealized loss in our investment portfolio caused a $6.5 million decline in accumulated other comprehensive income (“AOCI”) from $272 thousand as of December 31, 2021 to an accumulated other comprehensive loss of $6.3 million as of September 30, 2022. Tangible book value per share increased $0.02 from $12.16 as of June 30, 2022 to $12.18 as of September 30, 2022. Tangible book value per share was $12.23 as of December 31, 2021.

Asset Quality

As of September 30, 2022, total impaired loans were $4.2 million and included $3.6 million in non-performing loans compared to $3.8 million in impaired loans, of which $3.3 million was non-performing, as of June 30 2022. As of December 31, 2021, total impaired loans were $3.8 million and included $3.5 million in non-performing loans.

As of September 30, 2022, the ratio of non-performing assets to total assets was 0.48% compared to 0.45% as of June 30, 2022. The ratio of non-performing assets to total assets was 0.52% as of December 31, 2021. As of September 30, 2022, the allowance for loan losses was $8.0 million or 1.35% of total loans compared to $7.8 million or 1.38% of total loans as of June 30, 2022. The allowance was $6.9 million or 1.38% of total loans as of December 31, 2021. The allowance to non-accrual loans was 222.4% as of September 30, 2022, 235.2% as of June 30, 2022 and 195.9% as of December 31, 2021.

Consolidated Financial Statements and Other Highlights:

GAAP to NON-GAAP RECONCILIATION

(Unaudited, dollars in thousands, except per share data)

Pre-BOLI death benefit core earnings are determined by methods other than in accordance with generally accepted accounting principles (“GAAP”) and is considered a non-GAAP financial measure. Management believes that this non-GAAP financial measure is useful because it enhances the ability of management and investors to evaluate and compare our core operating results from period to period.

1st Colonial Community Bank, the subsidiary of 1st Colonial Bancorp, provides a range of business and consumer financial services, placing emphasis on customer service and access to decision makers. Headquartered in Collingswood, New Jersey, the Bank has branches in Westville, New Jersey and Limerick, Pennsylvania. The bank also has administrative offices in Cherry Hill, New Jersey. To learn more, call (877) 785-8550 or visit www.1stcolonial.com.

This release contains forward-looking statements that are not historical facts and include statements about management’s strategies and expectations about our business. There are risks and uncertainties that may cause our actual results and performance to be materially different from results indicated by these forward-looking statements. Factors that might cause a difference include the extent of the adverse impact of the current global coronavirus outbreak on our customers, prospects and business, as well as the impact of any future pandemics or other natural disasters; economic conditions including rising inflation and supply chain shortages; civil unrest, rioting, acts or threats of terrorism, or actions taken by the local, state and Federal governments in response to such events, which could impact business and economic conditions in our market area; unanticipated loan losses; inability to close loans in our pipeline; lack of liquidity; varying and unanticipated costs of collection with respect to nonperforming loans; an inability to dispose of real estate owned; changes in interest rates, changes in FDIC assessments, deposit flows, loan demand, and real estate values; changes in relationships with major customers; operational risks, including the risk of fraud by employees, customers or outsiders; competition; changes in accounting principles, policies or guidelines; changes in laws or regulations and in the manner in which the regulators enforce same; new technology and other factors affecting our operations, pricing, products and services.

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