1st Colonial Bancorp, Inc. Reports Fourth Quarter and Annual 2023 Results

Income Statement Highlights include:

• Net income for the fourth quarter of 2023 was $2.1 million, an 18% increase from the third quarter of 2023 and an 8% decrease from the fourth quarter of 2022.
• Net income for 2023 was $7.4 million, a decrease of $1.1 million, or 13%, from 2022.
• Net interest income for 2023 was $26.4 million, an increase of $341 thousand, or 1% from 2022.
• Net interest margin for the fourth quarter of 2023 was 3.28% compared to 3.46% for the third quarter of 2023 and 3.92% for the fourth quarter of 2022.
• Net interest margin for 2023 was 3.48% compared to 3.68% for 2022.
• Noninterest expense for the fourth quarter was $4.2 million, a 15% decrease from the third quarter of 2023 and a 7% decrease from the fourth quarter of 2022.
• Diluted earnings per share for the fourth quarter was $0.44, a 16% increase from third quarter of 2023 and an 8% decrease from the fourth quarter of 2022.
• Diluted earnings per share was $1.54 for 2023, a decrease of 13% from $1.76 for 2022.
• Annualized return on average assets for the fourth quarter of 2023, was 1.07% compared to 0.92% for the third quarter of 2023 and 1.21% for the fourth quarter of 2022.
• Return on average assets for 2023 was 0.95% compared to 1.16% for 2022.

Balance Sheet Highlights include:

• Total assets grew $19.2 million, or 2%, to $825.6 million from $806.4 million as of September 30, 2023 and by $43.6 million, or 6%, from $782.0 million as of December 31, 2022.
• Total loans grew $6.2 million, or 1%, to $637.0 million from $630.8 million as of September 30, 2023, and by $33.4 million, or 6%, from $603.6 million as of December 31, 2022.
• Total deposits grew $6.8 million, or 1%, to $687.4 million from $680.6 million as of September 30, 2023, and by $16.4 million, or 2%, from $671.1 million as of December 31, 2022.
• Book value per share increased 6% to $14.31 as of December 31, 2023 from $13.51 as of September 30, 2023 and 12% from $12.76 as of December 31, 2022.
• Annualized return on average equity for the fourth quarter of 2023 was 13.05% compared to 11.39% for the third quarter of September 30, 2023 and 15.86% for the fourth quarter of 2022.
• Return on average equity for 2023 was 11.94% compared to 14.84% for 2022.
• Leverage ratio for the Bank grew to 10.02% for 2023 from 9.74% for 2022.

1st Colonial Bancorp, Inc. (FCOB), holding company of 1^st Colonial Community Bank, today reported net income of $2.1 million, or $0.44 per diluted share, for the three months ended December 31, 2023, compared to net income of $2.3 million, or $0.48 per diluted share, for the three months ended December 31, 2022. For the year ended December 31, 2023, net income was $7.4 million, or $1.54 per diluted share, compared to $8.5 million, or $1.76 per diluted share, for the same period in 2022.

Robert White, President and Chief Executive Officer, commented, “2023 proved to be a very challenging year in the banking industry. Our Team remained very focused on delivering exceptional products and services to our clients, which allowed us to deliver above average operating results for the quarter and the full year. The inverted yield curve coupled with persistent inflation, continued to put pressure on our margin. We continue to be focused on our asset quality metrics and ensuring that our strong credit management discipline is maintained for new credits, as well as embedded in our portfolio management practices. We believe the foundation that we built is strong and will allow for continued profitable growth into 2024 and beyond.”

Operating Results

Net Interest Income

Net interest income for the three months ended December 31, 2023 and 2022 was $6.3 million and $7.3 million, respectively. The $950 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 partially offset by a $1.6 million increase in interest income earned on average interest-earning assets. For the fourth quarter of 2023, average outstanding loan balances increased $45.8 million to $635.7 million from $589.9 million for the fourth quarter of 2022. Average residential mortgages, home equity loans and lines, and commercial mortgages outstanding increased $42.8 million, $8.9 million, and $8.7 million, respectively. Average outstanding constructions loans, which have higher interest rates based on the Wall Street Journal (WSJ) prime rate, declined $15.8 million for the fourth quarter of 2023 compared to the same period in 2022. When compared to the third quarter of 2023, net interest income decreased $315 thousand from $6.6 million. Approximately 26% of the loan portfolio is tied to the WSJ prime rate and will re-price at various times when the rate changes. The yield on average interest earning assets was 5.32% for the fourth quarter of 2023 compared to 5.34% for the third quarter of 2023 and 4.68% for the fourth quarter of 2022.

For the fourth quarter of 2023, interest expense was $3.9 million and increased $2.5 million from $1.4 million for the fourth quarter of 2022. For the fourth quarter of 2023, average interest-bearing deposits increased $41.4 million from the fourth quarter of 2022. Average brokered certificates of deposit (CDs), interest checking, and retail CDs increased $53.4 million, $48.9 million, and $4.9 million respectively. Average savings and money market balances declined $65.8 million. As a result of the cumulative increases in the Federal Funds Rate since 2022, we have increased our deposit rates over the last 18 months. The increase in deposit rates combined with the increase in average interest-bearing balances led to an increase of $2.5 million in deposit interest expense in the fourth quarter of 2023 compared to the fourth quarter of 2022. When compared to the third quarter of 2023, interest expense increased $324 thousand from $3.6 million. The average rate paid on interest bearing liabilities was 2.41% for the fourth quarter of 2023 compared to 2.23% for the third quarter of 2023 and 0.92% for the fourth quarter of 2022.

Net interest income for 2023 was $26.3 million and grew $341 thousand from $26.0 million for 2022. The increase in net interest income was primarily attributable to a $9.4 million increase in interest income earned on average interest-earning assets that was mostly offset by a $9.1 million increase in interest expense on interest-bearing liabilities. During 2023, average outstanding loans grew $65.9 million to $622.7 million from $556.8 million for 2022. Average residential mortgages, home equity loans and lines, and commercial mortgages outstanding increased $43.4 million, $14.8 million, and $13.9 million, respectively. Average outstanding constructions loans declined $5.9 million. The growth in average loans coupled with the increase in interest rates led to an $8.4 million increase in interest income from loans. The yield on average interest earning assets was 5.19% for 2023 compared to 4.23% for 2022.

Interest expense rose $9.1 million from $3.9 million for 2022 to $13.0 million for 2023. For 2023 average interest-bearing deposits increased $48.6 million from the average balance for 2022. Average brokered CDs, interest checking, municipal interest checking grew $49.0 million, $47.2 million, and $30.9 million respectively. Average savings and money market balances and retail CDs declined $57.9 million and $20.6 million, respectively. The increase in deposit rates combined with the increase in average interest-bearing balances led to an increase of $8.3 million in deposit interest expense for 2023 compared to 2022. As a result of non-relationship customers, shifting to higher yielding deposit alternatives, average borrowings increased $12.2 million to $32.4 million for 2023 compared to $20.2 million for 2022 and contributed $774 thousand to the overall increase in interest expense. The average rate paid on interest bearing liabilities was 2.03% for 2023 compared to 0.67% for 2022.

The net interest margin was 3.28% for the fourth quarter of 2023 compared to 3.92% for the fourth quarter of 2022, and 3.46% for the third quarter of 2023. During the fourth quarter of 2023, the 149 basis points increase in the average rates paid on interest-bearing liabilities was higher than the 63 basis points increase in the average yield earned on interest-earning assets and led to the margin compression. Net interest margin was 3.48% for the year ended December 31, 2023, compared to 3.68% for the year ended December 31, 2022.

Loan Loss Provision

For the three months ended December 31, 2023, the provision for credit losses was $148 thousand and included $95 thousand for loans and $53 thousand 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 $350 thousand for the three months ended December 31, 2022. 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 OBS commitments. For the fourth quarter of 2023, net charge-offs were $172 thousand and included $214 thousand in charge-offs for the non-guaranteed portion of three SBA lending relationships. For the fourth quarter of 2022 and the third quarter of 2023, net recoveries were $30 thousand and $222 thousand, respectively.

For the year ended December 31, 2023, the provision for credit losses was $270 thousand and included $275 thousand for loans and ($5) thousand for OBS commitments. For the year ended December 31, 2022, the provision for loan losses was $1.2 million. For 2023, we recognized net charge-offs of $68 thousand compared to net recoveries of $274 thousand for 2022.

Noninterest Income

Noninterest income for the fourth quarter of 2023 was $719 thousand, an increase of $71 thousand from $648 thousand for the fourth quarter of 2022. Income from the sales of SBA loans increased $177 thousand from $67 thousand for the fourth quarter of 2022. Income from the origination and sales of residential mortgages declined $50 thousand from the fourth quarter in 2022. The fourth quarter of 2022 included a non-taxable bank owned life insurance (“BOLI”) death benefit of $98 thousand related to a former employee. There was no non-taxable BOLI death benefit recognized in the fourth quarter of 2023. When compared to the third quarter of 2023, noninterest income for the fourth quarter of 2023 decreased $198 thousand from $917 thousand. Income from the origination and sales of residential mortgages declined $267 thousand and gains on the sale of SBA loans increased $140 thousand from their amounts for the third quarter in 2023.

For the year ended December 31, 2023, noninterest income was $2.8 million, a decrease of $1.6 million, or 36%, from $4.4 million for 2022. Income from the origination and sales of residential mortgages decreased $328 thousand, or 22%, from $1.5 million for 2022 to $1.2 million for 2023 due to a decline of $31.2 million in the volume of loans sold during the 2023 period. Mortgage activity continues to be impacted by higher interest rates and a lack of inventory in the purchase market. In 2023, we earned $479 thousand in gains on the sale of SBA loans, which declined $373 thousand, or 44%, from $852 thousand in 2022. During 2022, we recognized $1.0 million in non-taxable BOLI death benefits related to former employees. There were no non-taxable BOLI death benefits recognized in 2023.

Noninterest Expense

Noninterest expense was $4.2 million for the three months ended December 31, 2023, a decrease of $309 thousand, or 7%, from $4.5 million for the comparable period in 2022. Total personnel and occupancy and equipment expenses declined $254 thousand and $47 thousand, respectively. When compared to the third quarter of 2023, noninterest expense decreased $724 thousand from $5.0 million and included declines in personnel expenses, marketing expenses, and occupancy and equipment expenses of $389 thousand, $106 thousand and $39 thousand, respectively. Additionally, we recovered $100 thousand on a previously recognized fraud loss between a long-term customer and an unrelated third party.

Noninterest expense was $19.0 million for 2023 and increased $1.1 million, or 6%, from $17.8 million for 2022. For 2023, professional fees, data processing and software expenses, marketing expenses, and FDIC insurance grew $304 thousand, $293 thousand, $181 thousand, and $135 thousand, respectively, from their 2022 amounts and were mostly planned to increase.

Income Taxes

For the three and twelve months ended December 31, 2023, income tax expense was $497 thousand and $2.5 million, respectively, compared to $682 thousand and $2.9 million for the three and twelve months ended December 31, 2022, respectively.

Financial Condition

Assets

As of December 31, 2023, total assets were $825.6 million and grew $19.2 million, or 2%, from $806.4 million as of September 30, 2023. Total assets increased $43.7 million, or 6%, from $782.0 million as of December 31, 2022.

Total loans were $637.0 million as of December 31, 2023 and grew $6.2 million, or 1%, from $630.8 million as of September 30, 2023. Total loans grew $33.4 million, or 6%, from $603.6 million as of December 31, 2022. Residential mortgages increased $10.9 million in the fourth quarter and $41.0 million for the year ended December 31, 2023, respectively. Commercial loans, including commercial real estate and construction loans, declined $10.7 million and $16.7 million for the three months and year ended December 31, 2023, respectively. Loans held for sale were $3.6 million as of December 31, 2023, compared to $8.0 million as of September 30, 2023 and $6.7 million as of December 31, 2022.

Investments grew $7.1 million to $107.6 million as of December 31, 2023 from $100.5 million as of September 30, 2023. Total investments declined $21.5 million, or 17%, from $129.1 million as of December 31, 2022. During 2023 we received $58.9 million in maturity payments and principal paydowns and reinvested $35.5 million into short-term municipal bond anticipation notes. The unrealized loss in the investment portfolio was $6.2 million as of December 31, 2023 compared to $8.1 million as of December 31, 2022. Approximately 85% of the available for sale investment portfolio is invested in U.S. government sponsored securities. As of December 31, 2023, cash and cash equivalents increased $8.9 million, or 20%, to $52.7 million from $43.8 million as of September 30, 2023. Cash and cash equivalents were $20.4 million as of December 31, 2022.

Asset Quality

As of December 31, 2023, the allowance for credit losses (“ACL”) for loans was $9.7 million, or 1.52%, of total loans compared to $9.8 million, or 1.55%, of total loans as of September 30, 2023. The allowance for loan losses was $8.3 million, or 1.38% of total loans, as of December 31, 2022. As of December 31, 2023, non-performing assets were $4.9 million compared to $3.4 million as of September 30, 2023 and $4.6 million as of December 31, 2022. During the fourth quarter, we transferred a $1.8 million commercial mortgage to non-accrual due to the death of the guarantor. The loan has an approximate loan to value of approximately 30% and we are working with the estate on a full settlement of the debt.

The ACL to non-accrual loans was 199.0% as of December 31, 2023 compared to 288.3% as of September 30, 2023. The allowance for loan losses to non-accrual loans was 182.5% as of December 31, 2022. As of December 31, 2023, the ratio of non-performing assets to total assets was 0.59% compared to 0.42% as of September 30, 2023 and 0.58% as of December 31, 2022.

As of December 31, 2023, total delinquent loans were $3.9 million and included $1.7 million in SBA guaranteed loans. Total delinquent loans were $6.3 million as of September 30, 2023 and $3.3 million as of December 31, 2022. Total delinquent loans to total loans was 0.62% as of December 31, 2023 compared to 1.00% as of September 30, 2023. Total delinquent loans to total loans was 0.55% as of December 31, 2022. We maintain compliant collections and loss mitigation practices as we work with our borrowers to make timely payments.

Liabilities

Total deposits were $687.4 million as of December 31, 2023, an increase of $6.8 million, or 1%, from $680.6 million as of September 30, 2023. For the year ended December 31, 2023, total deposits increased 16.4 million, or 2%, from $671.1 million as of December 31, 2022. Interest checking, brokered deposits, municipal deposits, and retail CDs increased $35.2 million, $34.0 million, $10.9 million, and $7.7 million, respectively, while money markets and savings deposits and non-interest checking accounts decreased $55.2 million and $16.3 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 14% of total deposits.

As of December 31, 2023, short-term borrowings were $53.6 million. Short-term borrowings increased $8.8 million from September 30, 2023 and increased $18.8 million from December 31, 2022. The increase in short-term borrowings was to supplement funding requirements.

Shareholder’s Equity

Total shareholders’ equity was $67.9 million as of December 31, 2023, an increase of $3.9 million, or 6%, from $64.0 million as of September 30, 2023. Total shareholders’ equity increased $8.3 million, or 14% from $59.6 million as of December 31, 2022. The accumulated comprehensive loss improved to $4.5 million as of December 31, 2023 from $6.2 million as of September 30, 2023 and is related to the unrealized loss in our investment portfolio. The accumulated comprehensive loss was $5.9 million as of December 31, 2022. Tangible book value per share increased $0.80, from $13.51 as of September 30, 2023 to $14.31 as of December 31, 2023. Tangible book value per share was $12.76 as of December 31, 2022. As of December 31, 2023, the Bank’s capital ratios remain strong with a leverage ratio and a total risk-based capital ratio of 10.02% and 15.55%, respectively, compared to 9.74% and 14.14%, respectively, 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.

About 1^st Colonial Bancorp, Inc.

1st Colonial Bancorp, Inc, is a Pennsylvania corporation headquartered in Mount Laurel, New Jersey, and the parent company of 1^st 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.

“Safe Harbor” Statement

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; 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; the effects of inflation; 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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