1St Colonial Bancorp, Inc. Reports Third Quarter 2020 Net Income of $1.3 Million

1st Colonial Bancorp, Inc. (FCOB), holding company of 1^st Colonial Community Bank, today reported net income of $1.3 million, or $0.27 per diluted share, for the three months ended September 30, 2020, compared to net income of $725 thousand, or $0.14 per diluted share, for the three months ended September 30, 2019. For the nine months ended September 30, 2020, net income was $2.5 million, or $0.51 per diluted share, compared to $2.7 million, or $0.53 per diluted share, for the same period in 2019. The 2019 earnings per diluted share were adjusted to give effect to the 5% stock dividend distributed to shareholders on April 15, 2020.

Robert White, President and Chief Executive Officer, commented, "We remain focused on executing upon our strategic priorities and continuing to improve upon our operating results. Identified organizational changes and the addition of revenue producers in our commercial lending and residential mortgage groups generated an increase of 84% in net income for the third quarter over the same period in 2019. The residential group's fee income on gains from the sale of mortgage loans increased by 75%, while originations increased 65% over the same period in 2019. Our commercial pipeline continues to expand, with the primary focus on high quality loans that demonstrate sustainable cash flow and verifiable liquidity to be able to endure continued economic stress."

"During 2020, we have onboarded 24 new team members, of which nine are proven, highly qualified revenue producers. Two of our new Business Development Officers specialize in Small Business Administration lending and have made a positive impact on our operating results. We also have added five highly experienced individuals to fill needs within the organization that will allow for scale to support a projected $1 billion asset size bank. These new additions to our team are critical to the execution of our strategic plan."

"We participated in the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP") and originated $47.4 million in PPP loans. We will recognize approximately $1.4 million in net PPP origination fees over the contractual maturity of the loans. The majority of these loans were to our existing customers. We have submitted approximately $15 million in PPP loans for forgiveness to the SBA. Additionally, our loan payment deferral programs have been successful in providing the needed relief to borrowers who were experiencing financial hardship as a result of the pandemic. At the height of our loan payment deferral program, we had 373 loans totaling $69.5 million in payment deferrals. As of September 30, 2020, we have 21 loans totaling $4.1 million in payment deferrals."

Operating Results

Net interest income for the three months ended September 30, 2020 and 2019 was $4.6 million. A 7% decline in interest income was offset by a 31% decline in interest expense. A shift in our deposit composition to non-interest bearing and lower cost deposit products coupled with interest rate reductions led to the improvement in interest expense.

For the first nine months of 2020, net interest income declined $662 thousand, or 4.7%, to $13.3 million from $14.0 million for the same period in 2019. During such period, net interest income was negatively impacted by $618 thousand in net deferred interest payments related to the pandemic. This deferred interest income will be recognized when the loans are paid in full at maturity or sooner. Average outstanding loan balances grew but at a reduced yield, primarily related to the 1% coupon associated with the PPP loans. The decline in net interest income was primarily related to a decrease in interest income on loans and in the average yield earned on average interest-earning assets. A 19% reduction in interest expense year-to-date partially mitigated the decline in interest income.

Partially lessening the impact of the loan interest income deferral was recognition of $323 thousand in PPP loan origination fees for the nine months ended September 30, 2020. We are earning approximately $1.4 million in PPP origination fees over the contractual term, which is predominately 24 months. The earnout period may be accelerated based on the timing of the forgiveness of the PPP loans by the SBA. The 75-basis point decrease in the fed funds rate in the second half of 2019 and the subsequent 150-basis point decrease in the fed funds rate in March 2020 had a negative impact on our variable rate loans indexed to the Wall Street Journal Prime Rate ("Prime Rate"). We continue to evaluate and reduce our non-maturity deposit account rates. Additionally, maturing CDs are re-pricing at our lower published rates.

The net interest margin was 3.11% for the third quarter of 2020 compared to 3.44% for the third quarter of 2019 and was 3.06% for the nine months ended September 30, 2020 compared to 3.49% for the nine months ended September 30, 2019. The decrease in net interest margin was mostly related to the loan net interest deferral of $618 thousand in combination with an elevated level in the average balance of interest-earning cash, which is a lower yielding asset, and the reduction in the Prime Rate.

For the three and nine months ended September 30, 2020, we recorded provisions to the allowance for loan losses ("allowance") of $341 thousand and $1.8 million, respectively, compared to $827 thousand and $1.8 million for the three and nine months ended September 30, 2019, respectively. The 2020 provision was related to an increase in qualitative reserve factors due to the uncertainties related to the pandemic and an increase in the historical loss rates. Net charge-offs were $2.6 million for 2020 compared to $2.0 million for 2019. The net charge-offs for 2020 included $1.8 million in specific reserves on impaired loans, which were previously recorded in the allowance. Otherwise, the Bank is seeing favorable trends as a vast majority of customers who requested loan deferrals due to Covid-19 issues have returned to their regular payment schedules. The loan loss allowance as a percentage of total loans was 1.34% at September 30, 2020 compared to 1.59% at December 31, 2019 and 1.32% at September 30, 2019.

Non-interest income for the third quarter of 2020 was $1.7 million, an increase of $973 thousand, or 129%, from $754 thousand for the third quarter of 2019. Gains on the sale of residential mortgages increased $540 thousand, or 75.2%, to $1.3 million for the third quarter in 2020 due to a $15.4 million increase in the volume of loans sold during the 2020 period when compared to the 2019 period. The third quarter of 2020 benefited from a $184 thousand gain on the sale of one investment security and $79 thousand in gains on the sale of SBA loans. During the third quarter of 2019 we recorded a $169 thousand loss on the sale of seven other real estate owned ("OREO") properties. There were no net losses on OREO in the third quarter of 2020.

For the nine months ended September 30, 2020, non-interest income was $3.8 million, an increase of $1.7 million, or 81.4%, from $2.1 million for the same period in 2019. Gains on the sale of residential mortgages grew $1.2 million, or 69.8%, from $1.7 million for the first three quarters of 2019 to $2.9 million for the first three quarters in 2020 due to growth of $36.3 million in the volume of loans sold during the 2020 period. During the first nine months of 2020, gains on the sales of investment securities increased $180 thousand from 2019. As mentioned previously, we realized $79 thousand in gains on the sale of SBA loans. There were no such gains on the sale of SBA loans in 2019.

Non-interest expense was $4.2 million for the three months ended September 30, 2020, an increase of $573 thousand, or 16%, from $3.6 million for the comparable period in 2019. The increase was mainly due to a $570 thousand increase in salaries and benefits. During the second and third quarters of 2020, we successfully onboarded highly experienced revenue producers and operational team members as we executed upon our strategic plan.

Non-interest expense was $12.0 million for the nine months ended September 30, 2020, an increase of $1.2 million, or 11.2%, from $10.8 million for the comparable period in 2019. The increase was mainly due to an increase in salaries and benefits primarily caused by the reasons above. Also contributing to the increase in the nine-month non-interest expense for 2020 was $550 thousand in one-time expenses related to the executive transition and management of previously identified troubled legacy credits.

For the three and nine months ended September 30, 2020, income tax expense was $513 thousand and $840 thousand, respectively, compared to $235 thousand and $870 thousand for the three and nine months ended September 30, 2019, respectively.

Financial Condition

At September 30, 2020, total assets were $596.5 million compared to $575.2 million at December 31, 2019.

Total loans were $441.7 million at September 30, 2020, an increase of $21.9 million, or 5.2%, from $419.8 million at December 31, 2019. During the first nine months of 2020, loan growth came from PPP loan originations and residential mortgages. Residential mortgages held for sale grew to $17.6 million at September 30, 2020, from $4.4 million at December 31, 2019. With the local economy slowly re-opening, we have seen an increase in our commercial pipeline activity.

Total deposits were $528.4 million at September 30, 2020, an increase of $6.1 million, or 1.2%, from $522.3 million at December 31, 2019. Savings, demand deposits and money market accounts increased $43.8 million, $15.3 million and $12.5 million, respectively, while CDs, Brokered CDs and municipal NOWs decreased $35.6 million, $15.3 million and $12.6 million, respectively. A portion of the deposit increase was due to loan proceeds maintained in accounts from customers who received PPP loans.

Total shareholders' equity was $51.4 million at September 30, 2020, an increase of $3.5 million, or 7.2%, from $47.9 million at December 31, 2019. Tangible book value increased $0.64, or 7%, from $9.71 at December 31, 2019 to $10.35 at September 30, 2020.

Asset Quality

1^st Colonial's non-performing assets at September 30, 2020 were $6.4 million compared to $5.9 million at December 31, 2019. The ratio of non-performing assets to total assets at September 30, 2020 was 1.06% compared to 1.02% at December 31, 2019. We are actively managing our criticized and classified assets with the goal of maximizing value and minimizing losses. During the third quarter one residential construction loan for $2.1 million was transferred to non-accrual. Based on a recent appraisal of the property, we are sufficiently collateralized. At September 30, 2020, the allowance was $5.9 million, or 1.34% of total loans. The allowance was $6.7 million, or 1.59% of total loans at December 31, 2019. We continue to closely monitor relationships and are optimistic that the portfolio will withstand the negative impact of the pandemic.

Income Statement and Other Highlights:

Highlights as of September 30, 2020 and September 30, 2019 and December 31, 2019 and a comparison of the three and nine months ended September 30, 2020 to the three and nine months ended September 30, 2019 include the following:

SELECTED PERFORMANCE RATIOS:

(1) Adjusted to give effect to the 5% stock dividend distributed to shareholders on April 15, 2020.
(2) The Bank's capital ratios for September were positively impacted by a $9.0 million capital contribution from the Company as a result of the issuance of $10.75 million of subordinated debt.

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 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; 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.