1st Colonial Bancorp, Inc. Reports Second Quarter 2023 Results

Income Statement Highlights include:

• Net income was $2.0 million for the second quarter of 2023 consistent with the same quarter in 2022
• Net interest income for the quarter ended June 30, 2023 was $6.9 million, an increase of $820 thousand or 13% from the same period in 2022.
• Net interest margin for the quarter ended June 30, 2023 was 3.66%, a 3% increase over the same period in 2022, and up 4% from the quarter ended March 31, 2023.
• Second quarter revenues were $7.6 million, a decrease of $288 thousand, or 4%, from the same period in 2022 and up $695 thousand or 10% from the first quarter of 2023.
• Diluted earnings per share was $0.41 for the quarters ended June 30, 2023 and June 30, 2022.

Balance Sheet Highlights include:

• Total assets grew $22.3 million, or 3%, to $804.2 million as of June 30, 2023 from $782.0 million as of December 31, 2022.
• Total loans grew $27.2 million, or 5%, to $630.8 million as of June 30, 2023 from $603.6 million as of December 31, 2022.
• Total deposits declined $20.2 million, or 3%, from $671.1 million as of December 31, 2022 to $650.9 million as of June 30, 2023.
• Book value per share increased 4% to $13.23 as of June 30, 2023 from $12.76 as of December 31, 2022.
• For the second quarter of 2023, annualized return on average assets was 0.99% and annualized return on average equity was 12.70%

1st Colonial Bancorp, Inc. (FCOB), holding company of 1^st Colonial Community Bank, today reported net income of $2.0 million, or $0.41 per diluted share, for the three months ended June 30, 2023, compared to net income of $2.0 million, or $0.41 per diluted share, for the three months ended June 30, 2022. For the six months ended June 30, 2023, net income was $3.5 million, or $0.72 per diluted share, compared to $3.6 million, or $0.75 per diluted share, for the same period in 2022.

Robert White, President and Chief Executive Officer, commented, “We are pleased with our second quarter results, which reflect our teams focus on delivering consistent and sustainable results to our shareholders. The economic environment continues to be challenging with lower loan demand and a lack of inventory impacting our residential lending production along with continued inflationary pressures impacting all of our clients. We continue to be laser focused on managing our operating expenses as we navigate through this highly competitive deposit rate environment. We remain committed to providing leading products and services to our clients that deliver lasting value. Our loan portfolio continues to perform well and has been resilient to rising interest rates with our asset quality metrics remaining stable.”

Operating Results

Net Interest Income

Net interest income for the three months ended June 30, 2023 and 2022 was $6.9 million and $6.1 million, respectively. The $820 thousand increase in net interest income was primarily attributable to a $3.0 million increase in interest income on average interest-earning assets that was partially offset by a $2.2 million increase in interest expense on average interest-bearing liabilities. Interest income on average loans for the second quarter of 2023 increased $2.7 million from the same period in 2022. For the second quarter of 2023, average loan balances increased $76.0 million to $621.7 million from $545.7 million for the second quarter of 2022. Approximately 28% of the loan portfolio is tied to the Wall Street Journal prime rate and will re-price at various times when the rate changes. The increase in the WSJ prime rate over the last twelve months has had a positive impact on interest income. When compared to the first quarter of 2023, net interest income increased $450 thousand from $6.5 million.

For the first six months of 2023, net interest income grew $1.5 million, or 13.0%, to $13.4 million from $11.9 million for the same period in 2022. The increase in net interest income was primarily attributable to a $5.7 million increase in interest income on interest-earning assets and was partially mitigated by $4.1 million in interest expense on interest-bearing liabilities. During the first six months of 2023, interest income on average loans and average investments increased $5.1 million and $447 thousand, respectively. Our average outstanding loan balance grew $83.1 million.

For the second quarter of 2023, interest expense was $2.9 million, an increase of $2.2 million from $672 thousand for the second quarter of 2022. For the second quarter of 2023, average interest-bearing deposits increased $53.3 million from the second quarter of 2022 and was mostly due to a $33.9 million increase in municipal deposits. Additionally, average brokered CD balances increased $50.2 million while average retail CDs declined $32.8 million, resulting in a $17.4 million net increase in average CD balances. As a result of the cumulative increases in the Federal Funds Rate during 2022, we began increasing our deposit rates in the third quarter of 2022. The increase in deposit rates combined with the increase in average interest-bearing balances led to an increase of $1.8 million in deposit interest expense in the second quarter of 2023 compared to the second quarter of 2022. To fund our interest-earning asset growth, our average borrowings increased $24.6 million in the second quarter of 2023 compared to the same period in 2022 and contributed $363 thousand to the overall increase in interest expense. When compared to the first quarter of 2023, interest expense increased $277 thousand from $2.6 million.

For the first six months of 2023, interest expense was $5.5 million, an increase of $4.1 million from $1.3 million for the first six months of 2022. For the first six months of 2023, average interest-bearing deposits increased $52.2 million from the average balance for the comparable 2022 period, mainly due to a $33.0 million increase in municipal deposits. Additionally, average brokered CD balances increased $50.9 million while average retail CDs declined $34.2 million, resulting in a $16.7 million net increase in average CD balances. The increase in deposit rates combined with the increase in average interest-bearing balances led to an increase of $3.4 million in deposit interest expense for the first two quarters of 2023 compared to the same period in 2022. Average borrowings increased $27.4 million during the first six months of 2023 compared to the same period in 2022 and contributed $732 thousand to the overall increase in interest expense.

The net interest margin was 3.66% for the second quarter of 2023 and increased 10 basis points from 3.56% for the second quarter of 2022. The average yield on interest-earning assets grew 122 basis points from 3.95% for the quarter ended June 30, 2022 to 5.17% for the quarter ended June 30, 2023. The average rate paid on average interest-bearing liabilities increased 130 basis points from 0.48% for the second quarter of 2022 to 1.78% for the second quarter of 2023. When compared to the first quarter of 2023, the second quarter 2023 net interest margin improved 13 basis points from 3.53% and was mainly related to a 23 basis point increase in the average yield on average interest-earning assets. Net interest margin was 3.60% for the six months ended June 30, 2023 compared to 3.51% for the six months ended June 30, 2022.

Provision for Credit Losses

For the three months ended June 30, 2023, the provision for credit losses was $170 thousand. The 2023 provision includes $251 thousand for loans and ($81) thousand for off balance sheet (“OBS”) commitments and reflects the estimates under the current expected credit losses (“CECL”) model. The provision for loan losses was $300 thousand for the three months ended June 30, 2022. For the three months ended March 31, 2023, the provision for credit losses was ($174) thousand and included ($197) thousand for loans and $23 thousand for OBS commitments. For the second quarter of 2023 net charge-offs were $150 thousand compared to net recoveries of $112 thousand for the second quarter of 2022 and net recoveries of $32 thousand for the first quarter of 2023.

For the six months ended June 30, 2023, the provision for credit losses was ($4) thousand and included $54 thousand for loans and ($58) thousand for OBS commitments. The provision for loan losses was $600 thousand for the six months ended June 30, 2022. Net charge-offs were $118 thousand for the first half of 2023 compared to net recoveries of $248 thousand for the same period in 2022.

Non-interest Income

Non-interest income for the second quarter of 2023 was $699 thousand, a decrease of $721 thousand, or 50.8%, from $1.4 million for the second quarter of 2022. Income from the origination and sales of residential mortgages declined $231 thousand, or 42%, from the second quarter in 2022 due to a $12.4 million, or 45%, 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 second quarter of 2023, we earned $118 thousand in gains on the sale of SBA loans compared to $318 thousand for the comparable 2022 period. The second quarter of 2022 also included a non-taxable bank owned life insurance (“BOLI”) death benefit of $308 thousand related to a former employee. When compared to the first quarter of 2023, non-interest income for the second quarter of 2023 increased $245 thousand from $454 thousand.

For the six months ended June 30, 2023, non-interest income was $1.2 million, a decline of $1.3 million, or 53.9%, from $2.5 million for the same period in 2022. Income from the origination and sales of residential mortgages decreased $536 thousand, or 51.4%, from $1.0 million for the first two quarters of 2022 to $508 thousand for the first two quarters in 2023 due to a decline in the volume of loans sold during the 2023 period. Additionally, we retained in our loan portfolio $23.6 million, or 48%, of the $49.4 million in mortgage originations in the first two quarters of 2023 compared to $33.1 million, or 36%, of the originations in the first two quarters of 2022. In the first six months of 2023 gains on the sale of SBA loans were $131 thousand and declined $534 thousand from $665 thousand for the same period in 2022.

Non-interest Expense

Non-interest expense was $4.9 million for the three months ended June 30, 2023, an increase of $313 thousand, or 6.8%, from $4.6 million for the comparable period in 2022. Professional fees, data processing, marketing and personnel expenses increased $119 thousand, $95 thousand, $63 thousand and $57 thousand, respectively. When compared to the first quarter of 2023, non-interest expense for the second quarter of 2023 increased $20 thousand.

Non-interest expense was $9.7 million for the six months ended June 30, 2023 and increased $991 thousand from $8.8 million for the same period in 2022. Personnel expenses increased $387 thousand, or 7%, and mainly reflects the recognition of severance that was negotiated with a former executive. Data processing expenses, professional fees, and advertising expenses increased $185 thousand, $163 thousand and $104 thousand, respectively. Additionally, our FDIC assessment increased $92 thousand and was impacted by an increase in the FDIC’s uniform rate.

Income Taxes

For the three and six months ended June 30, 2023, income tax expenses were $634 thousand and $1.4 million, respectively, compared to $706 thousand and $1.4 million for the three and six months ended June 30, 2022, respectively.

Financial Condition

Assets

As of June 30, 2023, total assets were $804.2 million and grew $3.3 million, or 0.4%, from $800.9 million as of March 31, 2023. Total assets were $782.0 million as of December 31, 2022.

Total loans were $630.8 million as of June 30, 2023, an increase of $11.4 million, or 1.8%, from $619.4 million as of March 31, 2023. Total loans grew $27.2 million, or 4.5%, from $603.6 million as of December 31, 2022. Residential mortgages and home equity loans and lines of credit increased $12.1 million in the second quarter and $30.0 million during the first half of 2023. Commercial loans, including commercial real estate and construction loans, remained flat in the second quarter and declined $2.8 million during the six months ended June 30, 2023. As of June 30, 2023, loans held for sale were $8.1 million and increased $6.1 million and $1.4 million from $2.0 million as of March 31, 2023 and $6.7 million as of December 31, 2022, respectively.

Investments decreased $21.0 million, or 16.5%, to $106.2 million as of June 30, 2023 from $127.2 million as of March 31, 2023. Investments were $129.1 million as of December 31, 2022. During 2023 we received $33.7 million in principal paydowns and maturity payments. The unrealized loss was $8.1 million as of June 30, 2023 and December 31, 2022.

Asset Quality

As of June 30, 2023, the allowance for credit losses (“ACL”) for loans was $9.4 million, or 1.49%, of total loans compared to $9.3 million, or 1.50%, of total loans as of March 31, 2023. The allowance for loan losses was $8.3 million, or 1.38% of total loans, as of December 31, 2022. As of June 30, 2023, non-performing assets were $3.8 million compared to $4.2 million as of March 31, 2023 and $4.6 million as of December 31, 2022. The ACL to non-accrual loans was 250.97% as of June 30, 2023 compared to 223.7% as of March 31, 2023. The allowance for loan losses to non-accrual loans was 182.5% as of December 31, 2022. As of June 30, 2023, the ratio of non-performing assets to total assets was 0.47% compared to 0.52% as of March 31, 2023 and 0.58% as of December 31, 2022.

Liabilities

Total deposits were $650.9 million as of June 30, 2023, a decrease of $11.4 million, or 1.7%, from $662.3 million as of March 31, 2023. For the first six months of 2023, total deposits declined $20.2 million, or 3.0%, from $671.1 million as of December 31, 2022. Certificates of deposit including brokered deposits, municipal deposits, and non-interest checking accounts decreased $10.5 million, $7.8 million, and $6.8 million, respectively. The current interest rate environment has made it highly competitive in retaining and growing our deposit customers.

As of June 30, 2023, short-term borrowings were $74.0 million and increased $13.4 million from March 31, 2023 and $39.2 million from December 31, 2022. The increase in short-term borrowings was to supplement funding requirements.

Shareholder’s Equity

Total shareholders’ equity was $62.3 million as of June 30, 2023, compared to $60.9 million as of March 31, 2023 and $59.6 million as of December 31, 2022. The accumulated comprehensive loss was $5.9 million as of June 30, 2023 and December 31, 2022 and is related to the unrealized loss in our investment portfolio. Tangible book value per share increased $0.22 from $13.01 as of March 31, 2023 to $13.23 as of June 30, 2023. Tangible book value per share was $12.76 as of December 31, 2022.

Consolidated Financial Statements and Other Highlights:

1st Colonial Bancorp, Inc, is a Pennsylvania corporation headquartered in Mount Laurel, New Jersey, and the parent company of 1st Colonial Community Bank (the “Bank”). The Bank 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 Mount Laurel, New Jersey. To learn more, call (877) 785-8550 or visit www.1stcolonial.com.

In addition to historical information, this press release may contain “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements with respect to 1st Colonial Bancorp, Inc.’s strategies, goals, beliefs, expectations, estimates, intentions, capital raising efforts, financial condition and results of operations, future performance, and business. Statements preceded by, followed by, or that include the words “may,” “could,” “should,” “pro forma,” “looking forward,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” or similar expressions generally indicate a forward-looking statement. These forward-looking statements involve risks and uncertainties that are subject to change based on various important factors (some of which, in whole or in part, are beyond 1st Colonial Bancorp, Inc.’s control). Numerous competitive, economic, regulatory, legal and technological factors, risks and uncertainties that could cause actual results to differ materially include, without limitation, the impact of the ongoing pandemic and government responses thereto; on the U.S. economy, including the markets in which we operate; actions that we and our customers take in response to these factors and the effects such actions have on our operations, products, services and customer relationships; increased competitive pressures; changes in the interest rate environment; changes in general economic conditions and conditions within the securities markets; legislative and regulatory changes; and the effects of inflation, a potential recession, among others, could cause 1st Colonial Bancorp, Inc.’s financial performance to differ materially from the goals, plans, objectives, intentions and expectations expressed in such forward-looking statements. 1st Colonial Bancorp, Inc. cautions that the foregoing factors are not exclusive, and neither such factors nor any such forward-looking statement takes into account the impact of any future events. All forward-looking statements and information set forth herein are based on management’s current beliefs and assumptions as of the date hereof and speak only as of the date they are made. 1st Colonial Bancorp, Inc. does not undertake to update any forward-looking statement whether written or oral, that may be made from time to time by 1st Colonial Bancorp, Inc. or by or on behalf of 1st Colonial Community Bank.

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