1st Colonial Bancorp, Inc. Reports 2019 Net Income

1st Colonial Bancorp, Inc. (FCOB), holding company of 1^st Colonial Community Bank, today reported net income of $569 thousand, or $0.12 per diluted share, and $3.2 million, or $0.67 per diluted share, for the three months and year ended December 31, 2019, respectively. Comparatively, net income was $1.6 million, or $0.33 per diluted share, and $5.2 million, or $1.09 per diluted share, for the three months and year ended December 31, 2018, respectively. The 2018 earnings per diluted share were adjusted to give effect to the 5% stock dividend distributed to shareholders on April 15, 2019.

Robert White, the company's newly appointed President and Chief Executive Officer, commented, "The increased costs associated with the disposition of underperforming legacy credits were a significant factor in our financial results. We are working to satisfactorily resolve these credits and improve our asset quality. We will continue our emphasis on originating high caliber commercial loans and diversifying our deposits as we focus on future growth opportunities."

Significant items for the three months and year ended December 31, 2019, included:

Balance Sheet Trends:

• At December 31, 2019, total assets increased $31.3 million, or 5.8% to $575.2 million from $543.9 million at December 31, 2018. Our on-hand cash increased $34.2 million, or 2.8 times, due to an increase in deposits.
• Total loans were $419.8 million at December 31, 2019, an increase of $15.3 million, or 3.8%, from $404.5 million at December 31, 2018. During 2019, commercial mortgage loans and residential mortgages grew $17.0 million and $2.9 million, respectively, while construction loans declined $3.3 million. At December 31, 2019, commercial commitments to extend credit were $30.4 million and included $17.6 million in construction commitments.
• Total deposits were $522.3 million at December 31, 2019, an increase of $32.2 million, or 6.6%, from $490.1 million at December 31, 2018. Governmental deposits, CDs, interest checking accounts, and demand accounts increased $20.7 million, $14.7 million, $7.6 and $7.2 million, respectively; however, brokered deposits, money markets, and savings accounts decreased $10.7 million, $4.2 million, and $3.1 million, respectively.
• Total shareholders' equity was $47.9 million at December 31, 2019, an increase of $4.2 million, or 9.6%, from $43.7 million at December 31, 2018.
• 1^st Colonial's non-performing assets at December 31, 2019 were $5.9 million compared to $2.7 million at December 31, 2018. The ratio of non-performing assets to total assets at December 31, 2019 was 1.02% compared to 0.50% at December 31, 2018. Included in the non-performing assets were $4.5 million in legacy commercial loans. We are actively managing our criticized and classified assets with the goal of maximizing value and minimizing losses. At December 31, 2019, the allowance for loan losses ("allowance") was $6.7 million, or 1.59% of total loans, and included $1.9 million in specific reserves for impaired assets. The allowance was $5.6 million, or 1.39% of total loans at December 31, 2018.

Income Statement and Other Highlights:

• Net interest income for the three months ended December 31, 2019 decreased $151 thousand, or 3.2%, to $4.6 million from $4.7 million for the three months ended December 31, 2018. For the year 2019, net interest income grew $111 thousand, or 0.6%, to $18.5 million from $18.4 million for 2018. The $1.5 million growth in interest income for 2019 was mostly offset by an increase in the interest paid on certificates of deposit and NOW accounts. The 75-basis point decrease in the fed funds rate in the second half of 2019 had a negative impact on our variable rate loans indexed to the Wall Street Journal Prime rate. Additionally, the inverted yield curve has created pricing pressure on all loan products.
• The net interest margin was 3.26% for the fourth quarter of 2019 compared to 3.51% for the fourth quarter of 2018. Our elevated level of average interest-earning cash, which is a lower yielding asset, increased $27.9 million quarter over quarter and had an adverse impact on the margin. The net interest margin was 3.43% for the year ended December 31, 2019 compared to 3.47% for the year ended December 31, 2018.
• For the three months and year ended December 31, 2019, we recorded provisions to the allowance for loan losses of $1.4 million and $3.2 million, respectively, compared to $389 thousand and $1.5 million for the three months and year ended December 31, 2018, respectively. The increase in the 2019 provision was related to an increase in specific reserves required on impaired loans, an increase in the historical loss rates due to loan charge-offs and, to a smaller extent, an increase in qualitative factors. During 2019, we recorded net charge-offs of $2.1 million compared to $708 thousand for 2018. The majority of the charge-offs were related to specific reserves on impaired loans.
• Non-interest income for the fourth quarter of 2019 was $865 thousand, a decrease of $163 thousand, or 15.9%, from $1.0 million for the fourth quarter of 2018. The decline in non-interest income was related to a $337 thousand bank owned life insurance death benefit claim in 2018. There were no such claims in 2019. Gains on the sale of residential mortgages grew $241 thousand due to an increase in the volume of mortgage loans sold quarter over quarter.
• For the year ended December 31, 2019, non-interest income was $3.0 million, a decrease of $379 thousand, or 11.3%, from $3.4 million for 2018. As mentioned previously, the decline in non-interest income was mostly related to a $337 thousand bank owned life insurance death benefit claim in 2018. Additionally, gains on the sale of SBA loans declined $177 thousand because we did not sell SBA loans in 2019. Partially mitigating these decreases was an increase of $281 thousand in gains on the sale of residential mortgages due to a $7.9 million increase in the volume of mortgage loans sold year over year.
• Non-interest expense was $3.5 million for the three months ended December 31, 2019 and increased $197 thousand, or 5.9%, from $3.3 million for the comparable period in 2018. One-time expenses associated with the executive transition contributed to the increase in non-interest expense for the fourth quarter of 2019.
• Non-interest expense was $14.3 million for the year ended December 31, 2019 and increased $853 thousand, or 6.4%, from $13.4 million for 2018. Our increased level of non-performing assets during 2019 lead to a $458 thousand increase in the associated expenses. Also contributing to the increase in non-interest expense for 2019 were increases of $178 thousand and $139 thousand in salaries and benefits and data processing expenses, respectively. The increased salary expense in 2019 was due in part to the addition of commercial and residential lenders, which also resulted in an increase in our commercial real estate loans and higher non-interest revenue from gains on the sale of residential mortgages.
• For the three months ended December 31, 2019, we recorded an income tax benefit of $17 thousand compared to income tax expense of $467 thousand for the comparable 2018 period. For the year 2019, income tax expense was $853 thousand compared to $1.7 million for 2018. The lower level of earnings and an increase in our deferred tax assets equated to lower income tax provision for the 2019 periods.

Highlights as of December 31, 2019 and 2018, and a comparison of the three months and year ended December 31, 2019 to the three months and year ended December 31, 2018 include the following:

1st Colonial Community Bank, the subsidiary of 1^st 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 also has a branch in the New Jersey community of Westville and administrative offices in Cherry Hill, New Jersey. To learn more, call (856) 858-8402 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 economic conditions; unanticipated loan losses, inability to close loans in our pipeline, changes in or additions to management and/or key employees; 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 or theft by employees, customers or outsiders, and the risk of interruptions in and breaches in security of our information systems; 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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