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

Income Statement Highlights include:

• Net interest income for the quarter ended September 30, 2023 was $6.6 million, a decrease of $250 thousand, or 4% from the same period in 2022.
• Net interest income for nine months ended September 30, 2023 was $20.0 million, an increase of $1.3 million, or 7% from the same period in 2022.
• Net interest margin for the quarter ended September 30, 2023 was 3.46%, an 8% decrease over the same period in 2022, and down 5% from the quarter ended June 30, 2023.
• For the first three quarters of 2023 net interest margin was 3.55% compared to 3.60% for the same period in 2022.
• For the third quarter of 2023, non-interest income was $917 thousand, a decrease of $285 thousand, or 24%, from the same period in 2022 and up $218 thousand or 31% from the second quarter of 2023.
• For the third quarter of 2023, annualized return on average assets was 0.92% compared to 1.36% from the same period in 2022 and 0.99% for the second quarter of 2023.

Balance Sheet Highlights include:

• Total assets grew $2.2 million, or 0.3%, to $806.4 million from $804.2 million as of June 30, 2023, and by $24.4 million, or 3%, from $782.0 million as of December 31, 2022.
• Total loans were $630.8 million as of September 30, 2023 and June 30, 2023. Total loans grew $27.2 million, or 5%, from $603.6 million as of December 31, 2022.
• Total deposits grew $29.7 million, or 5%, to $680.6 from $650.9 million as of June 30, 2023, and by $9.5 million, or 1%, from $671.1 million as of December 31, 2022.
• For the third quarter of 2023, annualized return on average equity was 11.39% compared to 17.69% for the same period in 2022 and 12.70% for the second quarter of 2023.
• Book value per share increased 6% to $13.51 as of September 30, 2023 from $12.76 as of December 31, 2022.

1st Colonial Bancorp, Inc. (FCOB), holding company of 1^st Colonial Community Bank, today reported net income of $1.8 million, or $0.38 per diluted share, for the three months ended September 30, 2023, compared to net income of $2.6 million, or $0.53 per diluted share, for the three months ended September 30, 2022. For the nine months ended September 30, 2023, net income was $5.3 million, or $1.10 per diluted share, compared to $6.2 million, or $1.29 per diluted share, for the same period in 2022.

Robert White, President and Chief Executive Officer, commented, “We are pleased with our operating performance for the quarter and year to date. Core earnings and our net interest margin have been steady even with the continued pressure on our deposit costs. Our net interest margin declined modestly for the quarter and reflected the continued pressure on deposit pricing. We remain very focused on delivering top-tier rates to all of our deposit customers. Noninterest income was further impacted this quarter by the higher mortgage rates and the overall lack of housing inventory in the market. We anticipate that continued pressure on mortgage originations will exist for the next couple of quarters as we navigate through the economic challenges presented by the higher interest rates and continued inflationary pressures.”

“Asset quality metrics remain stable, as we continue to monitor delinquency levels in all loan categories. We continue to stay focused on our Team Members and our loyal customers to deliver exceptional products and services for the long term.”

Operating Results

Net Interest Income

Net interest income for the three months ended September 30, 2023 and 2022 was $6.6 million and $6.9 million, respectively. The $250 thousand decrease in net interest income was primarily attributable to a $2.5 million increase in interest paid on average interest-bearing liabilities that was mostly offset by a $2.2 million increase in interest income earned on average interest-earning assets. For the third quarter of 2023, average loan balances increased $52.1 million to $628.7 million from $576.6 million for the third quarter of 2022. When compared to the second quarter of 2023, net interest income decreased $325 thousand from $6.9 million. Approximately 27% 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 2023, interest expense was $3.6 million, an increase of $2.5 million from $1.1 million for the third quarter of 2022. For the third quarter of 2023, average interest-bearing deposits increased $48.6 million from the third quarter of 2022 and was mostly due to a $42.3 million increase in municipal deposits. Additionally, average brokered CD balances increased $41.0 million while average retail CDs declined $19.5 million, resulting in a $21.5 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 $2.4 million in deposit interest expense in the third quarter of 2023 compared to the third quarter of 2022. When compared to the second quarter of 2023, interest expense increased $732 thousand from $2.9 million.

For the first nine months of 2023, net interest income grew $1.3 million, or 6.9%, to $20.0 million from $18.7 million for the same period in 2022. The increase in net interest income was primarily attributable to a $7.9 million increase in interest income earned on average interest-earning assets and was partially mitigated by a $6.6 million increase in interest expense on interest-bearing liabilities. During the first nine months of 2023, interest income on average loans outstanding grew $7.0 million from $19.5 million for the same period in 2022. Average outstanding loans grew $72.7 million from $545.6 million for the first nine months of 2022 to $618.3 million for the first nine months of 2023.

For the first nine months of 2023, interest expense was $9.1 million, an increase of $6.6 million from $2.5 million for the first nine months of 2022. For the first nine months of 2023, average interest-bearing deposits increased $51.0 million from the average balance for the comparable 2022 period, mainly due to a $36.1 million increase in municipal deposits. Additionally, average brokered CD balances increased $47.5 million while average retail CDs declined $29.2 million, resulting in a $18.3 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 $5.8 million in deposit interest expense for the first three quarters of 2023 compared to the same period in 2022. As a result of the shift to transactional deposits, average borrowings increased $17.5 million during the first nine months of 2023 compared to the same period in 2022 and contributed $756 thousand to the overall increase in interest expense.

The net interest margin was 3.46% for the third quarter of 2023 compared to 3.65% for the second quarter of 2023 and 3.76% for the third quarter of 2022. During the third quarter of 2023, the increase in the average rates paid on interest-bearing liabilities was higher than the average yield earned on interest-earning assets and led to the margin compression. The average yield on interest-earning assets grew 96 basis points from 4.38% for the quarter ended September 30, 2022 to 5.34% for the quarter ended September 30, 2023. The average rate paid on average interest-bearing liabilities increased 147 basis points from 0.75% for the third quarter of 2022 to 2.23% for the third quarter of 2023. Net interest margin was 3.55% for the nine months ended September 30, 2023 compared to 3.60% for the nine months ended September 30, 2022.

Provision for Credit Losses

For the three months ended September 30, 2023, the provision for credit losses was $126 thousand and included $126 thousand for loans and $0 for off balance sheet (“OBS”) commitments. The provision for credit losses reflects the estimates under the current expected credit losses (“CECL”) model. The provision for loan losses was $200 thousand for the three months ended September 30, 2022. For the three months ended June 30, 2023, the provision for credit losses was $170 thousand and included $251 thousand for loans and ($81) thousand for OBS commitments. For the third quarter of 2023 net recoveries were $222 thousand compared to net charge-offs of $4 thousand and $150 thousand for the third quarter of 2022 and the second quarter of 2023, respectively.

For the nine months ended September 30, 2023, the provision for credit losses was $122 thousand and included $180 thousand for loans and ($58) thousand for OBS commitments. The provision for loan losses was $800 thousand for the nine months ended September 30, 2022. Net recoveries were $104 thousand for the first nine months of 2023 compared to $244 thousand for the same period in 2022.

Noninterest Income

Noninterest income for the third quarter of 2023 was $917 thousand, a decrease of $285 thousand, or 24%, from $1.2 million for the third quarter of 2022. Income from the origination and sales of residential mortgages increased $327 thousand, or 153%, from the third quarter in 2022 due to a $2.2 million, or 13%, increase in sales. Mortgage activity continues to be impacted by higher interest rates and a lack of inventory in the purchase market. To prudently reduce exposure, we sold $7.2 million in home equity lines of credit and recorded a gain of $72 thousand. During the third quarter of 2023, we earned $104 thousand in gains on the sale of SBA loans compared to $121 thousand for the comparable 2022 period. The third quarter of 2022 included a non-taxable bank owned life insurance (“BOLI”) death benefit of $641 thousand related to a former employee There was no non-taxable BOLI death benefit recognized in the third quarter of 2023. When compared to the second quarter of 2023, noninterest income for the third quarter of 2023 increased $218 thousand from $699 thousand.

For the nine months ended September 30, 2023, noninterest income was $2.1 million, a decline of $1.6 million, or 44%, from $3.7 million for the same period in 2022. Income from the origination and sales of residential mortgages decreased $209 thousand, or 17%, from $1.3 million for the first three quarters of 2022 to $976 thousand for the first three quarters in 2023 due to a decline of $28.9 million in the volume of mortgages sold during the 2023 period. In the first nine months of 2023 we earned $235 thousand in gains on the sale of SBA loans compared to $785 thousand in the same period of 2022. The first nine months of 2022 included $950 thousand in non-taxable BOLI death benefits. There have been no non-taxable BOLI death benefits recognized in the comparable 2023 period.

Noninterest Expense

Noninterest expense was $5.0 million for the three months ended September 30, 2023, an increase of $455 thousand, or 10%, from $4.5 million for the comparable period in 2022. Total occupancy and equipment expenses, marketing expenses, and data processing and software expenses increased $85 thousand, $73 thousand, and $72 thousand, respectively. When compared to the second quarter of 2023, noninterest expense for the third quarter of 2023 increased $81 thousand from $4.9 million and included increases of $43 thousand and $33 thousand in SBA expenses and occupancy and equipment expenses, respectively.

For the nine months ended September 30, 2023, noninterest expense was $14.7 million and increased $1.4 million from $13.3 million for the nine months ended September 30, 2022. Personnel expenses, data processing and software expenses, professional fees, and marketing expenses increased $347 thousand, $257 thousand, $208 thousand, and $177 thousand, respectively.

Income Taxes

For the three and nine months ended September 30, 2023, income tax expense was $626 thousand and $2.0 million, respectively, compared to $800 thousand and $2.2 million for the three and nine months ended September 30, 2022, respectively.

Financial Condition

Assets

As of September 30, 2023, total assets were $806.4 million and grew $2.2 million, or 0.3%, from $804.2 million as of June 30, 2023. Total assets were $782.0 million as of December 31, 2022.

Total loans were $630.8 million as of September 30, 2023 and June 30, 2023. Total loans grew $27.2 million, or 4.5%, from $603.6 million as of December 31, 2022. Residential mortgages increased $11.0 million in the third quarter and $30.1 million during the first nine months of 2023. Commercial loans, including commercial real estate and construction loans, declined $4.7 million and $7.5 million during the three and nine months ended September 30, 2023. As of September 30, 2023, loans held for sale were $8.0 million and decreased $159 thousand from $8.1 million as of June 30, 2023. Loans held for sale as of September 30, 2023 increased $1.3 million from $6.7 million as of December 31, 2022.

Investments declined $5.7 million to $100.5 million as of September 30, 2023 from $106.2 million as of June 30, 2023. Investments were $129.1 million as of December 31, 2022. During 2023 we received $48.1 million in principal paydowns and maturity payments and reinvested $20.0 million into short-term municipal bond anticipation notes. The unrealized loss was $8.5 million as of September 30, 2023 compared to $8.1 million as of December 31, 2022. Approximately 87% of the available for sale investment portfolio is invested in U.S. government sponsored securities.

Asset Quality

As of September 30, 2023, the allowance for credit losses (“ACL”) for loans was $9.8 million, or 1.55%, of total loans compared to $9.4 million, or 1.49%, of total loans as of June 30, 2023. The allowance for loan losses was $8.3 million, or 1.38% of total loans, as of December 31, 2022. As of September 30, 2023, non-performing assets were $3.4 million compared to $3.8 million as of June 30, 2023 and $4.6 million as of December 31, 2022. The ACL to non-accrual loans was 288.3% as of September 30, 2023 compared to 251.0% as of June 30, 2023. The allowance for loan losses to non-accrual loans was 182.5% as of December 31, 2022. As of September 30, 2023, the ratio of non-performing assets to total assets was 0.42% compared to 0.47% as of June 30, 2023 and 0.58% as of December 31, 2022.

As of September 30, 2023, total delinquent loans were $6.3 million and included $3.1 million in SBA guaranteed loans. Total delinquent loans were $3.3 million as of June 30, 2023 and December 31, 2022. During the third quarter we saw a $3.0 million temporary increase in 30-day delinquent loans that was mainly related to residential mortgages and home equity lines. During October, delinquencies have returned to a normalized level. We maintain compliant collections and loss mitigation practices as we work with our borrowers to make timely payments.

Liabilities

Total deposits were $680.6 million as of September 30, 2023, an increase of $29.7 million, or 4.6%, from $650.9 million as of June 30, 2023. For the first nine months of 2023, total deposits grew $9.5 million, or 1.4%, from $671.1 million as of December 31, 2022. Certificates of deposit including brokered deposits, interest checking and municipal deposits increased $34.6 million, $32.2 million and $13.0 million, respectively, while money markets and savings deposits and non-interest checking accounts decreased $58.1 million and $12.1 million, respectively. The current interest rate environment has made it highly competitive in retaining and growing our deposit customers. Like many of our peers we are seeing a shift in customers preference in moving away from term deposit products and towards liquidity through interest-checking deposits. Our uninsured and uncollateralized deposits are approximately 15% of total deposits.

As of September 30, 2023, short-term borrowings were $44.8 million. Short-term borrowings decreased $29.2 million from June 30, 2023 and increased $10.0 million from December 31, 2022. The increase in short-term borrowings was to supplement funding requirements.

Shareholder’s Equity

Total shareholders’ equity was $64.0 million as of September 30, 2023, compared to $62.3 million as of June 30, 2023 and $59.6 million as of December 31, 2022. The accumulated comprehensive loss was $6.2 million as of September 30, 2023 and $5.9 million as of December 31, 2022 and is related to the unrealized loss in our investment portfolio. Tangible book value per share increased $0.28, from $13.23 as of June 30, 2023 to $13.51 as of September 30, 2023. Tangible book value per share was $12.76 as of December 31, 2022.

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 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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