1st Colonial Bancorp, Inc. Reports Second Quarter 2020 Net Income of $1.2 Million

1st Colonial Bancorp, Inc. (FCOB), holding company of 1st Colonial Community Bank, today reported net income of $1.2 million, or $0.24 per diluted share, for the three months ended June 30, 2020 compared to net income of $1.1 million, or $0.21 per diluted share, for the three months ended June 30, 2019. For the six months ended June 30, 2020, net income was $1.2 million, or $0.24 per diluted share, compared to $1.9 million, or $0.38 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 improving profitability and performance. The organizational changes and realignment in our commercial lending group in the first quarter, along with improved profitability in our residential lending group, generated an increase of 11% in net income for the second quarter over the same period in 2019. The residential group’s fee income on gains from the sale of mortgage loans increased by 62%, while originations increased 42% over same period in 2019. We reduced non-performing assets by 16% during the quarter as compared to March 31, 2020. We continue to focus on diversification of our asset mix, with sustainable cash flow and verifiable liquidity being key requirements with recent loan originations.”

“We continue to take precautions to limit the potential spread of COVID-19 in all of our locations by practicing social distancing, limiting the number of attendees in meetings, and working remotely where possible. We continue to provide a full suite of products and services to our clients and prospective customers. During this period, we onboarded eleven new team members, of which five were revenue producers as we add depth and experience to be able to support a projected $1 billion asset size bank.”

“During the second quarter we participated in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”). We originated $42.3 million in PPP loans and will recognize approximately $1.2 million in net PPP origination fees over the contractual maturity of the loans. The majority of these loans were to our existing customers. Additionally, certain of our borrowers requested payment relief under our loan payment deferral programs. These programs were designed to assist our borrowers who were experiencing financial hardship as a result of the pandemic. The overwhelming majority will be ready to resume payments at the end of their initial deferral period, which is no longer than three months.”

Operating Results

The Company further announced that net interest income for the three months ended June 30, 2020 decreased $555 thousand, or 11.9%, to $4.1 million from $4.7 million for the three months ended June 30, 2019. For the first six months of 2020, net interest income declined $666 thousand, or 7.1%, to $8.7 million from $9.4 million for the same period in 2019. For the three and six months ended June 30, 2020, net interest income was negatively impacted by $628 thousand in 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 reduction in interest expense partially mitigated the decline in net interest income.

Partially lessening the impact of the loan interest income deferral was recognition of $134 thousand in PPP loan origination fees. We are earning approximately $1.2 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 2.84% for the second quarter of 2020 compared to 3.49% for the second quarter of 2019, and was 3.03% for the six months ended June 30, 2020 compared to 3.52% for the six months ended June 30, 2019. The decrease in net interest margin was mostly related to the loan interest deferral of $628 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. When net interest income is adjusted to add back the loan interest deferral amount, the net interest margin would have been 3.27% and 3.25%, respectively, for the three and six months ended June 30, 2020.

For the three and six months ended June 30, 2020, we recorded provisions to the allowance for loan losses (“allowance”) of $222 thousand and $1.5 million, respectively, compared to $300 thousand and $979 thousand for the three and six months ended June 30, 2019, respectively. The increase in 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 $2.1 million for 2020 compared to $1.4 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. The loan loss allowance as a percentage of total loans was 1.36% at June 30, 2020 compared to 1.59% at December 31, 2019 and 1.26% at June 30, 2019.

Non-interest income for the second quarter of 2020 was $1.2 million, an increase of $467 thousand, or 60.2%, from $774 thousand for the second quarter of 2019. Gains on the sale of residential mortgages increased $357 thousand, or 61.7%, to $936 thousand for the second quarter in 2020 due to a $13.5 million increase in the volume of loans sold during the 2020 period.

For the six months ended June 30, 2020, non-interest income was $2.1 million, an increase of $753 thousand, or 55.1%, from $1.4 million for the same period in 2019. Gains on the sale of residential mortgages grew $640 thousand, or 65.8%, from $972 thousand for the first two quarters of 2019 to $1.6 million for the first two quarters in 2020 due to growth of $20.9 million in the volume of loans sold during the 2020 period.

Non-interest expense was $3.6 million for the three months ended June 30, 2020, a decrease of $108 thousand, or 2.9%, from $3.7 million for the comparable period in 2019. This decrease was mainly due to a decrease in non-performing asset expenses of $114 thousand and other operating expenses of $90 thousand. These decreases were partially offset by a planned increase in salaries and benefits of $142 thousand.

Non-interest expense was $7.8 million for the six months ended June 30, 2020 an increase of $637 thousand, or 8.9%, from $7.2 million for the comparable period in 2019. Contributing to the increase in non-interest expense for 2020 was $550 thousand in one-time expenses related to the executive transition and management of previously identified troubled credits.

For the three and six months ended June 30, 2020, income tax expense was $312 thousand and $327 thousand, respectively, compared to $332 thousand and $635 thousand for the three and six months ended June 30, 2019, respectively.

Financial Condition

At June 30, 2020, total assets were $596.1 million compared to $575.2 million at December 31, 2019.

Total loans were $439.2 million at June 30, 2020, an increase of $19.4 million, or 4.6%, from $419.8 million at December 31, 2019. During the first six months of 2020, loan growth came from PPP loan origination. Residential mortgages held for sale more than doubled to $15.2 million at June 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 $539.5 million at June 30, 2020, an increase of $17.2 million, or 3.3%, from $522.3 million at December 31, 2019. Demand deposits and money market accounts increased $21.4 million and $18.9 million, respectively, while municipal NOWs decreased $24.7 million.

Total shareholders’ equity was $50.1 million at June 30, 2020, an increase of $2.2 million, or 4.7%, from $47.9 million at December 31, 2019.

Asset Quality

1st Colonial's non-performing assets at June 30, 2020 were $5.4 million and included $5.3 million in non-accrual loans and $119 thousand in other real estate owned (OREO). Non-performing assets were $5.9 million at December 31, 2019. The ratio of non-performing assets to total assets at June 30, 2020 was 0.91% 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. At June 30, 2020, the allowance was $6.0 million, or 1.36% of total loans. The allowance was $6.7 million, or 1.59% of total loans at December 31, 2019.

Income Statement and Other Highlights:

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

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 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.

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