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

• Net income for the second quarter of 2022 was $2.0 million, an increase of 15% over the same period in 2021.
• Net interest income was $6.1 million, an increase of $1.1 million or 22% from the same period in 2021.
• Net interest margin for the quarter ended June 30, 2022 was 3.56%, a 15% increase over the same period in 2021.
• Second quarter revenues were $7.9 million, an increase of $641 thousand, or 9%, from the same period in 2021.
• For the second quarter of 2022, annualized return on average assets was 1.11% and annualized return on average equity was 14.02%
• For the quarter ended June 30, 2022, diluted earnings per share was $0.41, an increase of 21% over the same period in 2021.
• The efficiency ratio for the second quarter of 2022 improved to 62.5% from 64.5% for the second quarter of 2021.
• Total assets grew $37.2 million, or 5%, to $735.0 million from $697.8 million as of March 31, 2022, and by $52.1 million, or 8%, from $682.8 million as of December 31, 2021.
• Total loans grew $25.6 million, or 5%, to $560.9 million from $535.2 million as of March 31, 2022, and by $59.0 million, or 12%, from $501.9 million as of December 31, 2021.
• Total deposits grew $13.5 million, or 2%, to $639.5 from $626.0 million as of March 31, 2022, and by $29.0 million, or 5%, 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 $2.0 million, or $0.41 per diluted share, for the three months ended June 30, 2022, compared to net income of $1.7 million, or $0.34 per diluted share, for the three months ended June 30, 2021. For the six months ended June 30, 2022, net income was $3.6 million, or $0.75 per diluted share, compared to $3.4 million, or $0.67 per diluted share, for the same period in 2021.

Robert White, President and Chief Executive Officer, commented, "We are pleased with our second quarter results and our team's ability to deliver another quarter of exceptional performance for our shareholders. Our loan growth played a key part in our results and helped us replace the non-recurring PPP revenue. Our focus continues to be on executing our strategic priorities and delivering consistent and sustainable results. The economic environment continues to be challenging, creating some uncertainty surrounding future loan demand. Our team has and will continue to remain responsive to our clients' needs, as we navigate through a period of rising interest rates and extremely high inflation. The focus remains high on managing our operating expenses and minimizing any impact on our bottom line. Our loan portfolio continues to perform well with our asset quality metrics remaining stable. We continue to monitor the loan portfolio for any early signs of borrower stress."

Operating Results

Net Interest Income

Net interest income for the three months ended June 30, 2022 and 2021 was $6.1 million and $5.0 million, respectively. The $1.1 million increase in net interest income was primarily attributable to a $999 thousand increase in interest income coupled with a $98 thousand decrease in interest expense. For the second quarter of 2022, average loan balances increased $76.9 million to $545.7 million from $468.8 million for the second quarter of 2021 and generated an additional $971 thousand in interest income. When compared to the first quarter of 2022, net interest income increased $350 thousand from $5.8 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 second quarter of 2022, net loan origination income on the SBA's Paycheck Protection Program ("PPP") loans was $89 thousand and declined $188 thousand from the second quarter of 2021 and $328 thousand from the first quarter of 2022. PPP loans outstanding were $1.3 million as of June 30, 2022.

For the first six months of 2022, net interest income grew $2.1 million, or 21.4%, to $11.9 million from $9.8 million for the same period in 2021. The increase in net interest income was primarily attributable to a $1.9 million increase in interest income accompanied with a $221 thousand decrease in interest expense. For 2022, interest income on average loans increased $2.0 million while interest income on average loans held for sale and investments declined $74 thousand and $34 thousand, respectively. Our average outstanding loan balance grew $77.7 million and was affected by a $46.0 million reduction in average PPP loans outstanding. Net PPP loan origination income decreased $67 thousand year over year. Interest expense was affected by a $203 thousand decline in interest expense related to a reduction in the rate paid on average certificates of deposit (CDs) outstanding.

The net interest margin was 3.56% for the second quarter of 2022 compared to 3.46% for the first quarter of 2022 and 3.09% for the second quarter of 2021. Net interest margin was 3.51% for the six months ended June 30, 2022 compared to 3.11% for the six months ended June 30, 2021. The improvement in net interest margin was mostly related to an increase in the average yield on interest-earning assets coupled with a reduction in the average rate paid on interest-bearing liabilities. The average yield on interest-earning assets grew 38 basis points from 3.57% for the quarter ended June 30, 2021 to 3.95% for the quarter ended June 30, 2022. Additionally, we continue to benefit from the repricing of maturing CDs. The average rates paid on CDs declined 30 basis points from 1.20% for the second quarter of 2021 to 0.90% for the second quarter of 2022. For the first two quarters of 2022, the average yield on interest-earning assets grew 30 basis points to 3.90% from 3.60% for the same period in 2021. We anticipate raising our deposit rates in the third quarter to maintain our competitive position in the market.

Loan Loss Provision

For the three and six months ended June 30, 2022, we recorded provisions to the allowance for loan losses ("allowance") of $300 thousand and $600 thousand, respectively, compared to $175 thousand and $415 thousand for the three and six months ended June 30, 2021, respectively. The loan loss provision was $300 thousand for the first quarter of 2022. Net recoveries were $248 thousand for the first half of 2022 compared to $203 thousand for the same period in 2021. The allowance as a percentage of total loans was 1.38% as of June 30, 2022 and December 31, 2021 compared to 1.26% as of June 30, 2021.

Non-interest Income

Non-interest income for the second quarter of 2022 was $1.8 million, a decrease of $456 thousand, or 20.2%, from $2.3 million for the second quarter of 2021. Income from the origination and sales of residential mortgages declined $459 thousand, or 33%, from the second quarter in 2021 due to a $17.0 million, or 37%, 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 on interest rates. During the second quarter of 2022, we earned $318 thousand in gains on the sale of SBA loans compared to $616 thousand for the comparable 2021 period. The second quarter of 2022 also includes 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 2022, non-interest income for the second quarter of 2022 increased $327 thousand from $1.5 million.

For the six months ended June 30, 2022, non-interest income was $3.3 million, a decline of $1.6 million, or 32.3%, from $4.9 million for the same period in 2021. Income from the origination and sales of residential mortgages decreased $1.6 million, or 46.5%, from $3.4 million for the first two quarters of 2021 to $1.8 million for the first two quarters in 2022 due to a decline of $35.3 million in the volume of loans sold during the 2022 period. Additionally, we retained in our loan portfolio $32.0 million, or 36%, of the $90.0 million in mortgage originations in the first two quarters of 2022 compared to $18.6 million, or 17%, of the originations in the first two quarters of 2021. In the first six months of 2022 we earned $665 thousand in gains on the sale of SBA loans compared to $951 thousand in the same period of 2021.

Non-interest Expense

Non-interest expense was $5.0 million for the three months ended June 30, 2022, an increase of $258 thousand, or 5.5%, from $4.7 million for the comparable period in 2021. Personnel expenses increased $185 thousand, or 6.1%, during this period and reflects the 10.8% increase in full time equivalent employees. Additionally in the second quarter of 2022, we recognized a $195 thousand loss due to a fraudulent transaction between a long-term deposit customer and an unrelated third-party.

When compared to the first quarter of 2022, non-interest expense for the second quarter of 2022 increased $373 thousand from $4.6 million. The second quarter of 2022 was impacted by the previously mentioned loss of $195 thousand. Additionally, professional fees, impaired loan expenses and lending expenses increased $69 thousand, $51 thousand and $39 thousand, respectively. During the first quarter of 2022, we recovered $41 thousand in impaired loan expenses from the payoff of two impaired loans.

Non-interest expense was $9.5 million for the six months ended June 30, 2022 and 2021. Personnel expenses increased $243 thousand, or 4% and reflects the increase in headcount throughout 2021. Professional fees, impaired loan expenses and lending expenses declined $130 thousand, $94 thousand and $73 thousand, respectively.

Income Taxes

For the three and six months ended June 30, 2022, income tax expense was $706 thousand and $1.4 million, respectively, compared to $703 thousand and $1.4 million for the three and six months ended June 30, 2021, respectively. The non-taxable BOLI payment had a favorable impact on our income taxes in 2022.

Financial Condition

Assets

As of June 30, 2022, total assets were $735.0 million and grew $37.2 million, or 5.3%, from $697.8 million as of March 31, 2022. Total assets were $682.8 million as of December 31, 2021.

Total loans were $560.9 million as of June 30, 2022, an increase of $25.6 million, or 4.8%, from $535.2 million as of March 31, 2022. Total loans grew $59.0 million, or 11.8%, from $501.9 million as of December 31, 2021. During the first half of 2022, commercial loans, including commercial real estate and construction and excluding PPP loans, grew $42.6 million. Residential mortgages and home equity loans and lines of credit increased $29.2 million. PPP loans declined $12.7 million to $1.3 million as of June 30, 2022. As of June 30, 2022, loans held for sale were $10.9 million and decreased $499 thousand from $11.4 million as of March 31, 2022. Loans held for sale as of June 30, 2022 increased $962 thousand from $10.0 million as of December 31, 2021.

Investments grew $20.1 million to $127.0 million as of June 30, 2022 from $106.9 million as of March 31, 2022. Investments were $111.8 million as of December 31, 2021. As of June 30, 2022, cash and cash equivalents declined $10.2 million, or 39.1%, from $26.1 million as of March 31, 2022 to fund the loan growth. Cash and cash equivalents were $40.9 million as of December 31, 2021.

Liabilities

Total deposits were $639.5 million as of June 30, 2022, an increase of $13.5 million, or 2.1%, from $626.0 million as of March 31, 2022. For the first six months of 2022, total deposits grew $29.0 million, or 4.8%, from $610.0 million as of December 31, 2021. Interest-checking, certificates of deposit including brokered deposits, and money market accounts increased $16.8 million, $14.9 million, and $3.6 million, respectively, while savings accounts and demand deposits decreased $3.3 million and $3.0 million, respectively. Short-term borrowings increased $24.0 million to fund the asset growth.

Shareholder's Equity

Total shareholders' equity was $56.7 million as of June 30, 2022, compared to $56.6 million as of March 31, 2022 and $57.8 million as of December 31, 2021. During the first two quarters of 2022, the net unrealized loss in our investment portfolio caused a $4.0 million decline in accumulated other comprehensive income ("AOCI") from $272 thousand as of December 31, 2021 to an accumulated other comprehensive loss of $3.8 million as of June 30, 2022. The decline in AOCI was caused by higher interest rates and the widening spreads in our government agency sponsored bonds and mortgage-backed securities. Tangible book value per share increased $0.15, or 1.2%, from $12.01 as of March 31, 2022 to $12.16 as of June 30, 2022. Tangible book value per share was $12.23 as of December 31, 2021.

During the second quarter of 2022 we completed the stock repurchase program that was announced in the fourth quarter of 2021. We repurchased 193,381 shares (78,881 shares during 2022) for a total cost of $2.0 million through a trading plan under Rule 10b5-1 under the Securities Exchange Act of 1934. The average price per share was $10.274.

Asset Quality

As of June 30, 2022, total impaired loans were $6.2 million and included $3.3 million in non-performing loans compared to $3.6 million as of March 31, 2022. As of December 31, 2021, total impaired loans were $3.8 million and included $3.5 million in non-performing loans. During the second quarter of 2022, there was one new troubled debt restructuring of a $2.7 million SBA loan with a 90% guarantee. We provided a payment deferral to the borrower for four months.

As of June 30, 2022, the ratio of non-performing assets to total assets was 0.45% compared to 0.48% as of March 31, 2022. The ratio of non-performing assets to total assets was 0.52% as of December 31, 2021. As of June 30, 2022, the allowance for loan losses was $7.8 million or 1.38% of total loans compared to $7.3 million or 1.37% of total loans as of March 31, 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 235.2% as of June 30, 2022, 220.9% as of March 31, 2022 and 195.9% as of December 31, 2021.

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 a loan production office in Haddonfield, New Jersey and 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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