2021
Annual Report
April 6, 2022
Dear Fellow Shareholders,
We hope this letter finff ds you well. It was a fantastic year forff
even with the lingering
effeff cts of the COVID-19 pandemic and the increase to operating costs associated with inflation. Ouruu
Company gnn
enerated record profitff s of $7.3 million, a 53% increase over 2020 results.
a
ompany,
our cuu
tionary pressure as well as furthuu
face economic headwinds in 2022 due to
It is clear that we, as well as the entire banking industry,rr
continued inflaff
inty.
ion and general economic uncertarr
rr
We anticipate that the Federal Reserve will raise short-term interest rates, with the intent to slow the
economy. Higher short-term i
r spending, which may
impact both st
hort-term and long-term borrorr wing needs going forward.
nterest rates may have a material impact on consumeu
er supply chain disrupt
rr
During 2021, we took continued steps to imprm ove our profitaff bia lity and provide a greater returnuu
for
our shareholders. Tangible book value increased to $12.23 per sharea , which represents an increase of 13%
over December 31, 2020. As a result of our suu
tock trading below tangible book value, we completed a
planned share repurchase plan of 3% of our outstanding common stock in May 2021, and announced a
o 4%
second buyback plan in November 2021. The second buyback plan authorizes the repurchase of up tu
of the Company’s outstanding shares of common stock, with a total cost not to exceed $2.0 million. We
believe this is a great use of capital, while still allowing for the execution of our growth plan withoutuu
impacting our future capital needs through 2023.
We have invested over $800 thousand in technology enhancements as we continue to build out ouruu
digital distribution channel. In addition, we invested in fraud prevention tools and resources to prevent fraud
related losses as we implement and expand our digital strategy.
Our Company continued to grow in 2021, with 39 new hires, of which 13 were replacements to the
ouruu
year. In 2021, we grew loans by $79 million to $502 million froff m $423 million
existing team. We continue to attract high quality talent in the markets we serve, which provided forff
loan growth throughout thet
at the end of 2020. Our duu
eposits grew by $44 million to $610 million as of December 31, 2021.
Our team remains very focused on providing exceptional service to our clients, as we look to
continue growing our market share. We finished 2021 as the 5th ranked Small Business Administration
riginations in New Jersey. This was a remarkable achievement, as we only
(“SBA”) lender forff
re-entered the SBA business in the third quarterr
r of 2020. As a result, our non-interest income grew 59% in
2021 to $9.5 million, up from $6 million in 2020. Our residential lending activities also playeaa d a key role
in the feeff
income growth.
new loan oa
Although we believe 2022 presents many challenges, we remain focused on executing our strategic
plan. Economic conditions and prudent expense management will be top of mind as we navigate through
the year.
We thank you for your continued support.
Sincerely,
Linda M. Rohrer
Chairman of the Board
Robert B. White
President & Chief Executive Officff er
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Consolidated Financial Statements
December 31, 2021 and 2020
(With Independent Auditors’ Report Thereon)
Crowe LLP
Independent Member Crowe Global
INDEPENDENT AUDITORS’ REPORT
Shareholders and the Board of Directors
1st Colonial Bancorp, Inc. and Subsidiary
Cherry Hill, New Jersey
Opinion
We have audited the financial statements of 1st Colonial Bancorp, Inc. and Subsidiary, which comprise the
consolidated statement of financial condition as of December 31, 2021, and the related consolidated
statement of operations, comprehensive income, changes in shareholders’ equity, and cash flows for the
year then ended, and the related notes to the financial statements.
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial
position of 1st Colonial Bancorp, Inc. and Subsidiary as of December 31, 2021, and the results of its
operations and its cash flows for the year then ended in accordance with accounting principles generally
accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of
America (GAAS). Our responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Financial Statements section of our report. We are required to be
independent of 1st Colonial Bancorp, Inc. and Subsidiary and to meet our other ethical responsibilities, in
accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Other Matter
The financial statements of 1st Colonial Bancorp, Inc. and Subsidiary for the year ended December 31,
2020, were audited by other auditors, who expressed an unmodified opinion on those statements on March
30, 2021.
Responsibilities of Management for the Financial Statements
is responsible for the preparation and fair presentation of
Management
the financial statements in
accordance with accounting principles generally accepted in the United States of America, and for the
design,
to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or error.
implementation, and maintenance of
internal control
relevant
In preparing the financial statements, management is required to evaluate whether there are conditions or
events, considered in the aggregate, that raise substantial doubt about 1st Colonial Bancorp, Inc. and
Subsidiary’s ability to continue as a going concern for one year from the date the financial statements are
available to be issued.
(Continued)
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore
is not a guarantee that an audit conducted in accordance with GAAS will always detect a material
misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion,
intentional omissions,
misrepresentations, or the override of internal control. Misstatements are considered material if there is a
substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a
reasonable user based on the financial statements.
forgery,
In performing an audit in accordance with GAAS, we:
•
Exercise professional judgment and maintain professional skepticism throughout the audit.
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud
•
or error, and design and perform audit procedures responsive to those risks. Such procedures include
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
•
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of 1st Colonial Bancorp, Inc. and Subsidiary’s internal control. Accordingly, no such opinion is expressed
Evaluate the appropriateness of accounting policies used and the reasonableness of significant
•
accounting estimates made by management, as well as evaluate the overall presentation of the financial
statements.
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that
•
raise substantial doubt about 1st Colonial Bancorp, Inc. and Subsidiary’s ability to continue as a going
concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit, significant audit findings, and certain internal control–related matters
that we identified during the audit.
Washington, D.C.
March 28, 2022
Crowe LLP
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Dollars in thousands, except share data)
Assets
Cash and due from banks
Federal funds sold
Total cash and cash equivalents
As of December 31,
2020
2021
$
40,853
24
40,877
$
37,026
14
37,040
Investments held to maturity (fair value of $18,476 as of December 31, 2021
and $55,155 as of December 31, 2020)
18,476
55,155
Investments available for sale ("AFS") (amortized cost of $92,957 as of
December 31, 2021 and $80,303 as of December 31, 2020)
Bank stock, at cost
M ortgage loans held for sale
Loans
Less allowance for loan losses
Net loans
Premises and equipment, net
Accrued interest receivable
Deferred tax assets
Bank-owned life insurance
Other assets
Total assets
Liabilities and S hareholders’ Equity
Liabilities:
Deposits
Subordinated debt, net of issuance costs
Other borrowings
Accrued interest payable
Other liabilities
Total liabilities
Shareholders’ equity:
Common stock, $0 par value. Authorized 10,000,000 shares; issued
5,120,331 and 5,099,863 shares as of December 31, 2021 and 2020,
respectively, and outstanding of 4,726,235 and 4,961,987 shares
as of December 31, 2021 and 2020, respectively
Preferred stock. Authorized 1,000,000 shares, no shares issued
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock at cost, 394,096 and 137,876 shares as of December 31, 2021
$
$
93,331
1,474
9,957
501,883
(6,906)
494,977
1,072
1,664
1,555
16,160
3,291
682,834
610,476
10,440
-
303
3,798
625,017
-
-
38,250
22,651
272
$
$
81,872
1,739
21,859
423,147
(5,624)
417,523
769
1,811
1,169
14,739
2,380
636,056
565,820
10,404
2,325
329
3,492
582,370
-
-
38,035
15,393
1,106
and 2020, respectively
Total shareholders’ equity
Total liabilities and shareholders’ equity
(3,356)
57,817
682,834
$
(848)
53,686
636,056
$
See accompanying notes to consolidated financial statements.
4
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the years ended December 31,
(Dollars in thousands, except share data)
2021
2020
Interest income:
Loans
Federal funds sold and interest-bearing deposits
Investments:
Taxable
Nontaxable
Total interest income
Interest expense:
Deposits
Subordinated debt
Other borrowings
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Other income:
Gain on sales of mortgage loans held for sale
Gain on sale of guaranteed portion of SBA loans
M ortgage fee income
Bank-owned life insurance income
Gain on sale of securities
Service charges on deposit accounts
Gain (loss) on real estate owned
Other income and fees
Total other income
Other expenses:
Compensation and employee benefits
Data processing expense
Occupancy and equipment expenses
Professional services
FDIC and state assessments
Impaired loans and other real estate owned expenses
Other operating expenses
Total other expenses
Income before income tax expense
Income tax expense
Net income
Earnings per share:
Basic earnings per share
Diluted earnings per share
$
23,331
47
$
20,514
221
1,282
275
24,935
2,248
786
3
3,037
21,898
1,715
20,183
4,878
2,276
965
802
110
92
(55)
422
9,490
12,422
1,606
1,245
734
290
152
3,170
19,619
10,054
2,796
7,258
1.49
1.47
$
$
$
1,236
580
22,551
3,890
276
24
4,190
18,361
2,140
16,221
4,049
243
531
432
184
106
3
409
5,957
9,691
1,437
945
933
357
269
2,171
15,803
6,375
1,620
4,755
0.96
0.95
$
$
$
Weighted average number of shares outstanding:
Basic earnings per share
Diluted earnings per share
4,861,992
4,953,191
4,956,837
5,000,011
See accompanying notes to consolidated financial statements.
5
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S
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the years ended December 31, 2021 and 2020
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
2021
2020
$
7,258
$
4,755
Depreciation and amortization
Net amortization of premium on investment securities
Net accretion of deferred fees and costs on loans
Amortization of issuance costs on long-term debt
Stock-based compensation expense
Gain on sale of investment securities
Gain on sales of mortgage loans held for sale
Gain on sales of guaranteed portion of SBA loans
Provision for loan losses
Cash disbursed for mortgage banking activities
Cash received for mortgage banking activities
Net losses (gains) on sales of OREO
Net loss on disposals of premises and equipment
Increase in cash value of bank-owned life insurance, net
Increase in deferred income tax benefit
Changes in assets and liabilities:
Decrease (increase) in accrued interest receivable
Increase in other assets
(Decrease) increase in accrued interest payable
Increase in other liabilities
Total adjustments
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Proceeds from maturities and calls of AFS investment securities
Proceeds from sales of AFS investment securities
Proceeds from principal repayment of AFS investment securities
Proceeds from maturities of securities held to maturity
Purchases of securities available for sale
Purchases of securities held to maturity
Redemption of Federal Home Loan Bank stock
Proceeds from sale of real estate owned
Increase in loans receivable, net
Capital expenditures
Proceeds from bank owned life insurance policies
Purchase of life insurance policies
Net cash used in investing activities
351
571
(2,936)
36
122
(110)
(4,878)
(2,276)
1,715
(184,595)
201,375
55
63
(802)
(25)
147
(911)
(26)
306
8,182
15,440
3,000
1,110
18,585
54,716
(35,810)
(18,037)
265
132
(74,144)
(717)
1,381
(2,000)
(51,519)
242
438
(1,321)
12
63
(184)
(4,049)
(243)
2,140
(150,044)
136,683
(3)
-
(432)
(77)
(114)
(888)
199
867
(16,711)
(11,956)
-
1,684
16,942
44,993
(48,318)
(57,381)
399
122
(5,091)
(320)
-
(4,500)
(51,470)
8
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows - Continued
For the years ended December 31, 2021 and 2020
Cash flows from financing activities:
Net increase in deposits
Net (decrease) increase in short-term borrowings
Proceeds from long-term borrowings, net of issuance costs
Acquisition of treasury stock
Proceeds from exercise of stock options
Stock issuance costs
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
2021
2020
44,656
(2,325)
-
(2,508)
93
-
39,916
3,837
37,040
43,568
35
10,392
-
116
(2)
54,109
(9,317)
46,357
Cash and cash equivalents at end of year
$
40,877
$
37,040
Supplemental disclosures:
Cash paid during the year for:
Interest
Income taxes paid
$
3,063
3,957
$
3,991
1,368
See accompanying notes to the consolidated financial statements.
9
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1. Nature of Operations
1st Colonial Bancorp, Inc. (the “Company”, “We” or “Our”) is a Pennsylvania corporation headquartered in Cherry
Hill, New Jersey, and the parent company of 1st Colonial Community Bank (the “Bank”). The Bank opened for
business on June 30, 2000 and provides a wide range of business and consumer financial services through its two New
Jersey branch offices located in Collingswood and Westville and a loan production office in Haddonfield, New Jersey.
On March 29, 2021, the Company opened a retail location in Limerick, Pennsylvania.
The Company was organized as the holding company for the Bank, in connection with the reorganization approved
by the Bank’s shareholders at the annual meeting on June 12, 2002. As a bank holding company registered under the
Bank Holding Company Act of 1956, the Company is subject to the supervision and regulation of the Board of
Governors of the Federal Reserve System (the “FRB”). The Bank was a national bank until November 1, 2012 when
it was granted a state charter by the New Jersey Department of Banking and Insurance. The Bank’s deposits are insured
by the Federal Deposit Insurance Corporation (“FDIC”). The Company’s operations and those of the Bank are subject
to supervision and regulation by FRB, the FDIC, and the New Jersey Department of Banking and Insurance. The
principal activity of the Bank is to provide its local communities with general commercial and retail banking services.
The Bank is managed as one business segment.
Subsequent Events
The Company has evaluated subsequent events for recognition and disclosure through March 28, 2022, which is the
date the financial statements were available to be issued. No subsequent events occurred requiring accrual or
disclosure.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the parent company, 1st Colonial
Bancorp, Inc. and its wholly owned subsidiary, 1st Colonial Community Bank. The accounting and reporting policies
of the Company conform to U.S. generally accepted accounting principles (“GAAP”) and, where applicable, to
accounting and reporting guidelines prescribed by bank regulatory authorities. Prior period amounts have been
reclassified, where necessary, to conform to current year classification.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
Risks and Uncertainties
The COVID-19 pandemic has created extensive disruptions to the global and U.S. economies and to the lives of
individuals throughout the world. Governments, businesses, and the public have taken unprecedented actions to
contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders,
closures and phased re-opening of businesses and schools, fiscal and monetary stimulus, and legislation designed to
deliver financial aid and other relief. While the scope, duration, and full effects of COVID-19 are rapidly evolving
and not fully known, the pandemic and the efforts to contain it have disrupted global economic activity, adversely
affected the functioning of financial markets, impacted market interest rates, increased economic and market
uncertainty, and disrupted trade and supply chains.
10
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The ultimate financial impact is unknown at this time. However, if these actions are sustained, it may adversely impact
several industries within our geographic footprint and impair the ability of the Company’s customers to fulfill their
contractual obligations to the Company. This could cause the Company to experience a material, adverse effect on our
business operations, asset valuations, financial condition, and results of operations. Material adverse impacts may
include, but are not limited to, the valuation impairments of the Company’s investments and loans.
Significant Concentration of Credit Risk
Credit risk is one of our most significant risks. It is critical for consistent profitability that we effectively manage credit
risk. Most of the Company’s activities are with customers located within the Mid-Atlantic region of the country. “Note
4 – Investment Securities” to the Consolidated Financial Statements discusses the types of securities in which the
Company invests. “Note 5 – Loans Receivable” to the Consolidated Financial Statements discusses the types of
lending in which we engage. We do not have any portion of our business dependent on a single or limited number of
customers, the loss of which would have a material adverse effect on our business. We have 91% of our investment
portfolio in securities issued by government sponsored entities.
No substantial portion of loans is concentrated within a single industry or group of related industries, except a
significant majority of loans are secured by real estate. There are numerous risks associated with commercial and
consumer lending that could impact the borrower’s ability to repay on a timely basis. They include but are not limited
to: the owner’s business expertise, changes in local, national, and in some cases international economies, competition,
government regulation, and the general financial stability of the borrowing entity. Our commercial real estate,
construction and land development, and commercial and industrial loans comprised 40%, 10% and 9%, respectively,
of the loan portfolio.
We attempt to mitigate these risks through conservative underwriting policies and procedures which include an
analysis of the borrower’s business and industry history, its financial position, as well as that of the business owner.
We will also require the borrower to provide current financial information on the operation of the business periodically
over the life of the loan. In addition, most commercial loans are secured by assets of the business or those of the
business owner, which can be liquidated if the borrower defaults, along with the personal surety of the business owner.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash, deposits with other financial institutions
with maturities fewer than 90 days, and federal funds sold. Net cash flows are reported for customer loan and deposit
transactions, interest bearing deposits in other financial institutions, and federal funds purchased and repurchase
agreements.
Investments
Debt securities that management has the positive intent and ability to hold until maturity are classified as held to
maturity (“HTM”) and are carried at their remaining unpaid principal balance, net of unamortized premiums or
unaccreted discounts. Securities not classified as held to maturity are classified as available-for-sale (“AFS”) and are
stated at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), net
of tax.
Premiums are amortized and discounts are accreted to interest income using a level yield method over the estimated
remaining term of the underlying security. Gains and losses are determined using the specific identification method
and are accounted for on a trade date basis.
We evaluate declines in the fair value of securities for other-than-temporary impairment (“OTTI”) at least on a
quarterly basis. All investment securities are evaluated for OTTI under FASB ASC Topic 320, “Investments-Debt &
Equity Securities” (“ASC Topic 320”). In determining whether OTTI exists, management considers numerous factors,
including but not limited to: (1) the length of time and the extent to which the fair value is less than the amortized
cost, (2) our intent to hold or sell the security, (3) the financial condition and results of the issuer including changes
11
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
in capital, (4) the credit rating of the issuer, (5) analysts’ earnings estimate, (6) industry trends specific to the security,
and (7) timing of debt maturity and status of debt payments.
Under ASC Topic 320, OTTI is considered to have occurred with respect to debt securities (1) if an entity intends to
sell the security; (2) if it is more likely than not an entity will be required to sell the security before recovery of its
amortized cost basis; or (3) the present value of the expected cash flows is not sufficient to recover the entire amortized
cost basis. Once a decline in value for a debt security is determined to be other-than-temporary, the OTTI is separated
into (a) the amount of the total OTTI related to a decrease in cash flows expected to be collected from the debt security
(the credit loss) and (b) the amount of the total OTTI related to all other factors. The amount of the OTTI related to
the credit loss is recognized in earnings. The amount of the OTTI related to all other factors is recognized in other
comprehensive income. In determining our intent not to sell and whether it is more likely than not that we will be
required to sell the investments before recovery of their amortized cost basis, management considers the following
factors: current liquidity and availability of other non-pledged assets that permits the investment to be held for an
extended period of time but not necessarily until maturity, capital planning, and any specific asset liability committee
goals or guidelines related to the disposition of specific investments.
Restricted Bank Stock
The Bank is a member of the Federal Home Loan Bank (“FHLB”) system. The Bank is required to acquire and hold
shares of capital stock in the FHLB based upon a percentage of the Bank’s FHLB borrowings, unused borrowing
capacity, and the amount of residential first mortgage loans sold to the FHLB. The FHLB stock is carried at cost and
is included in bank stock in the consolidated statements of financial condition. The Bank evaluates FHLB stock for
impairment based on the ultimate recoverability of par value rather than by recognizing temporary declines in value.
The Bank is required to maintain an investment in Atlantic Community Bankers Bank (“ACBB”) stock. The ACBB
stock is carried at cost because it does not have a readily determinable fair value. The Bank had $40 thousand in ACBB
stock as of December 31, 2021 and 2020, respectively.
Mortgage Loans Held for Sale
The Bank originates and sells residential mortgage loans with servicing released to the secondary market. This activity
enables the Bank to fulfill the credit needs of the community while reducing its overall exposure to interest rate and
credit risk. These loans are reported at the lower of their cost or fair market value.
Loans Receivable
Loans receivable are classified as loans held for investment (“LHFI”) when management has the intent and ability to
hold the loan or lease for the foreseeable future or until maturity or payoff. LHFI are stated at their outstanding unpaid
principal balances, net of an allowance for loan and leases losses and any deferred fees or costs. Interest income is
accrued on the principal amount outstanding. Loan origination fees and related direct costs are deferred and amortized
to interest income over the term of the respective loan as a yield adjustment.
LHFI are segmented into commercial real estate loans, construction and development loans, commercial loans,
residential loans, and consumer loans. The commercial real estate loan segment consists of owner-occupied and non-
owner occupied commercial real estate loans and multi-family real estate loans. The construction and development
loan segment consists of residential and commercial acquisition and development loans. Commercial loans, which are
also generally known as commercial and industrial loans, include permanent and short-term working capital and
machinery or equipment financing. The residential loan segment consists of primary or secondary home mortgage
loans, home equity lines of credit, and home equity loans.
Commercial Real Estate Loans: The commercial real estate loan portfolio consists primarily of loans secured by office
buildings, retail and industrial use buildings, strip shopping centers, mixed-use and other properties used for
commercial purposes primarily located in our market area. Although terms for commercial real estate and multi-family
loans vary, the underwriting standards generally allow for terms up to 10 years with the interest rate being reset in the
sixth year and with monthly amortization not greater than 25 years and loan-to-value ratios of not more than 80%.
12
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Interest rates are either fixed or adjustable and are predominantly based upon the prime rate or the five-year U.S.
Treasury rate plus a margin. Prepayment fees are charged on most loans in the event of early repayment. Generally,
the personal guarantees of the principals are obtained as additional collateral for commercial real estate and multi-
family real estate loans.
Construction and Development Loans: We originate construction loans to builders and developers predominantly in
our market area. Construction and development loans are riskier than other loan types because they are more
speculative in nature. Deteriorating economic or environmental conditions can negatively affect a project.
Construction loans are also more difficult to evaluate and monitor. In order to mitigate some of the risks inherent in
construction lending, limits are placed on the number of units that can be built on a speculative basis based upon the
reputation and financial position of the builder, his/her present obligations, the location of the property and prior sales
in the development and the surrounding area. Additionally, the construction budget is reviewed prior to loan
origination and the properties under construction are inspected. During the construction phase of a real estate project,
the loan requires interest payments only.
Commercial: Our commercial business loans generally have been made to small
to mid-sized businesses
predominantly located in our market area. The commercial business loans are either a revolving line of credit or for a
fixed term. Interest rates are adjustable, indexed to a published prime rate of interest, or fixed. Generally, equipment,
machinery, real property or other corporate assets secure such loans. Personal guarantees from the business principals
are generally obtained as additional collateral.
Residential Loans: We originate residential mortgage loans that we retain in our loan portfolio to diversify credit risk.
We have also acquired residential mortgages through pool purchases. The mortgages we originate or acquire are
secured primarily by properties located in our primary market and surrounding areas. We originate home equity loans
and home equity lines of credit in our market area. The collateral must be the borrower’s primary or secondary
residence. Home equity lines of credit are variable rate and are indexed to the prime rate. Our home equity loans are
either first or second liens and have a fixed rate. We have originated some home equity lines of credit or home equity
loans for investment homes.
Consumer Loans: We originate cash-secured and unsecured loans and lines of credit to individuals. Unsecured
consumer loans generally have a higher interest rate than residential loans because they have additional credit risk
associated with them.
Loans are reported as non-accrual if they are past due as to principal or interest payments for a period of 90 days or
more. Exceptions may be made if a loan is deemed by management to be well collateralized and in the process of
collection. Loans that are on a current payment status may also be classified as non-accrual if there is serious doubt
as to the borrower’s ability to continue interest or principal payments. When a loan is placed on non-accrual all unpaid
interest is reversed from interest income. Interest payments received on impaired nonaccrual loans are normally
applied against principal. Excess proceeds received over the principal amounts due on impaired non-accrual loans are
recognized as income on a cash basis. We recognize income under the accrual basis when the principal payments on
the loans become current and the collateral on the loan is sufficient to cover the outstanding obligation to the Company.
If these factors do not exist, we do not recognize income. Generally, loans are restored to accrual status when the loan
is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally
six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The
past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.
Impaired loans are measured based on the present value of expected future discounted cash flows, the market price of
the loan, or the fair value of the underlying collateral if the loan is collateral dependent. The recognition of interest
income on impaired loans is the same as for non-accrual loans discussed above.
A loan modification is deemed a troubled debt restructuring (“TDR”) when two conditions are met: 1) the borrower
is experiencing financial difficulty and 2) a concession is made by us that would not otherwise be considered for a
borrower with similar credit risk characteristics. All loans classified as TDRs are considered to be impaired. TDRs
13
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
are returned to an accrual status when the loan is brought current, has performed in accordance with the contractual
restructured terms for a reasonable period of time (generally six months) and the ultimate collectability of the total
contractual restructured principal and interest is no longer in doubt. Our policy for TDRs is to recognize interest
income on currently performing restructured loans under the accrual method.
Allowance for Loan Losses
Our loan portfolio is subject to varying degrees of credit risk. The allowance for loan losses (the “allowance”)
represents management’s estimate of losses inherent in the loan portfolio as of the statement of financial condition
date and is recorded as a reduction to loans. The allowance is increased by the provision for loan and losses, and
decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance, and
subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable
are charged off to the allowance as soon as it is determined that the repayment or collateral recovery of all, or part, of
the principal balance is highly unlikely. The allowance represents an estimation made pursuant to FASB ASC Topic
450, “Contingencies” (“ASC Topic 450”) or FASB ASC Topic 310, “Receivables” (“ASC Topic 310”). The adequacy
of the allowance is determined through evaluation of the loan portfolio, and involves consideration of a number of
factors, as outlined below, to establish a prudent level. We consider that the determination of the allowance involves a
higher degree of judgment and complexity than our other significant accounting policies. Our systematic methodology
for assessing the appropriateness of the allowance includes: (1) general reserves reflecting historical loss rates by loan
type, (2) specific reserves for risk-rated credits based on probable losses on an individual or portfolio basis and (3)
qualitative reserves based upon current economic conditions and other risk factors. We also have a reserve for
unfunded lending commitments, which represents management’s estimate of losses inherent in those commitments.
The reserve for unfunded loan commitments is adjusted by a provision for credit losses on off-balance sheet credit
exposures and is recorded in other liabilities on the consolidated statement of financial condition.
The loan portfolio is stratified into loan classifications that have similar risk characteristics. The general allowance is
based upon historical loss rates using a six-year rolling average of the historical loss experienced within each loan
segment. The qualitative factors used to adjust the historical loss experience address various risk characteristics of
the our loan portfolio include evaluating: (1) trends in delinquencies and other non-performing loans, (2) changes in
the risk profile related to large loans in the portfolio, (3) changes in the growth trends of categories of loans comprising
the loan portfolio, (4) concentrations of loans to specific industry segments, (5) changes in economic conditions on
both a local and national level, (6) quality of loan review and board oversight, (7) changes in lending policies and
procedures, and (8) changes in lending staff. Each factor is assigned a value to reflect improving, stable or declining
conditions based on management’s best judgment using relevant information available at the time of the evaluation.
Adjustments to the factors are supported through documentation of changes in conditions in a report accompanying
the allowance calculation.
The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The
borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are
evaluated annually for commercial and construction and development loans or when credit deficiencies arise, such as
delinquent loan payments, for all loans. Credit quality risk ratings include regulatory classifications of special mention,
substandard, doubtful and loss. Loans classified as special mention have potential weaknesses that deserve
management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment
prospects. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the repayment
of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of
the obligor or of the collateral pledged, if any. Loans classified as doubtful have all the weaknesses inherent in loans
classified substandard with the added characteristic that collection or liquidation in full, on the basis of current
conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to
the allowance. Loans not classified as special mention, substandard, doubtful or loss are rated pass.
The specific reserves are determined utilizing standards required under ASC Topic 310. We identify a loan as impaired
when it is probable that interest and principal will not be collected according to the contractual terms of the loan
agreement. Non-accrual loans and loans restructured under a TDR are evaluated for impairment on an individual basis
considering all known relevant factors that may affect loan collectability such as the borrower’s overall financial
14
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
condition, resources and payment record, support available from financial guarantors and the sufficiency of current
collateral values (current appraisals or rent rolls for income producing properties), and risks inherent in different kinds
of lending (such as source of repayment, quality of borrower and concentration of credit quality). Management
determines the significance of payment delays and payment shortfalls on a case-by-case basis,
taking into
consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the
reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal
and interest owed.
Impairment is measured on a loan by loan basis for commercial and industrial loans, commercial real estate loans and
construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest
rate or the fair value of the collateral if the loan is collateral dependent. The estimated fair values of substantially all
of our impaired loans are measured based on the estimated fair value of the loan’s collateral. We obtain third-party
appraisals or valuations to establish the fair value of real estate collateral. Appraised values are discounted to arrive
at the estimated selling price of the collateral, which is considered to be the estimated fair value less estimated costs
to sell the property. For commercial and industrial loans secured by non-real estate collateral, such as accounts
receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial
statements, inventory reports, accounts receivable aging or equipment appraisals or invoices. Indications of value from
these sources are generally discounted based on the age of the financial information or the quality of the assets. Large
groups of smaller balance homogeneous loans are collectively evaluated for impairment. A specific reserve is
established for an impaired loan for the amount that the carrying value exceeds its estimated fair value. Once a loan
is determined to be impaired it will be deducted from the portfolio balance and the net remaining balance of the
portfolio will be used in the general and qualitative analysis.
Premises and Equipment
Premises and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation is
computed using the straight-line method over the expected useful lives of the assets. Amortization of leasehold
improvements is computed using the straight-line method over the shorter of the useful lives or the remaining lease
term. Software costs, furniture, and equipment have depreciable lives of 3 to 10 years. Building and improvements
have estimated useful lives of 5 to 35 years. The costs of maintenance and repairs are expensed as they are incurred,
and renewals and betterments are capitalized.
Leases
Our leases are operating leases and are predominantly related to real estate. As a lessee we record, for all leases with
a lease term of more than 12 months, an asset representing our right to use the underlying asset and a liability to make
lease payments. The right-of-use (“ROU”) asset is included in other assets and the lease liability is included in other
liabilities on the balance sheet. The amortization of operating lease ROU assets and the accretion of operating lease
liabilities are reported together as fixed lease expense and are included in occupancy and equipment expense within
other expense. The fixed lease expense is recognized on a straight-line basis over the life of the lease. The Company
has elected to exclude leases with original terms of less than one year from the operating lease ROU assets and lease
liabilities.
Other Real Estate Owned
Other real estate owned (“OREO”) is comprised of properties acquired through foreclosure proceedings or acceptance
of a deed in lieu of foreclosure. Real estate owned is recorded at the lower of the carrying value of the loan or the fair
value of the property, net of estimated selling costs. Costs relating to the development or improvement of properties
are capitalized, while expenses related to the operation and maintenance of properties are expensed as incurred. Gains
or losses upon dispositions are reflected in earnings as realized. The Bank had no OREO as of December 31, 2021
and 2020.
Bank-Owned Life Insurance
We have bank-owned life insurance (“BOLI”) policies on certain officers and key employees. These policies are
reflected on the consolidated statements of financial condition at their cash surrender value, or the amount that can be
15
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
realized. Income from these policies and changes in the cash surrender value are recorded in non-interest income.
During 2021, we received $1.4 million in insurance proceeds related to a former employee covered by a BOLI policy.
We recorded $385 thousand in income from these proceeds and it is included in BOLI income on our Consolidated
Statements of Operations.
Earnings Per Share
Basic earnings per share is calculated as net income divided by the weighted average number of shares outstanding
during the period. Dilutive earnings per share include dilutive common stock equivalents as computed under the
treasury stock method using average common stock prices.
Income Taxes
The Company and the Bank file a consolidated federal income tax return and a consolidated New Jersey income tax
return. The Company and the Bank file separate Pennsylvania tax returns. Income taxes are allocated to the Company
and the Bank based on the contribution of their income or use of their loss in the consolidated return. As of December
31, 2021, tax years 2018 through 2020 are subject to federal examination by the IRS and years 2017 through 2020 are
subject to state examination by various state taxing authorities. Tax regulations are subject to interpretation of the
related tax laws and regulations and require significant judgment to apply.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as
operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is established against deferred tax assets when, in the judgment of management,
it is more likely than not that such deferred tax assets will not become available.
We account for income taxes in accordance with FASB ASC Topic 740-10, “Accounting for Uncertainty in Income
Taxes”, (“ASC 740”) which includes guidance related to accounting for uncertainty in income taxes, which sets out a
consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions. We
had no unrecognized tax benefits or accrued interest and penalties as of December 31, 2021 and 2020. We classify
interest and penalties as an element of tax expense.
Share-Based Compensation
The Company accounts for all share-based payments to be recognized as compensation expense in the consolidated
financial statements based on their fair values at the grant date. That expense will be recognized on a straight-line
basis over the period during which services are provided in exchange for the award, known as the requisite service
period (usually, the vesting period).
Recent Accounting Pronouncements
In June 2016, FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments-Credit Losses (Topic
326) Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). The amendments in ASU 2016-13
replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit
losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss
estimates. The amendments affect financial assets such as loans, debt securities, trade receivables, net investments in
leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from
the scope that have the contractual right to receive cash.
The amendments in ASU 2016-13 require the measurement of expected credit losses to based on relevant information
about past events, including historical experience, current conditions, and reasonable and supportable forecasts that
affect the collectability of the reported amount. An entity must use judgment in determining the relevant information
and estimation methods that are appropriate in its circumstances.
16
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The amendments in ASU 2016-13 will become effective for the Company for financial statements issued for fiscal
years beginning after December 15, 2022, and interim periods within those fiscal years. An entity will apply the
amendments in ASU 2016-13 through a cumulative-effect adjustment to retained earnings as of the beginning of the
first reporting period in which the guidance is effective (that is, modified-retrospective approach).
We are working with a third-party vendor in developing a methodology that is in compliance with this ASU. We are
currently evaluating the impact of the amendments in ASU 2016-13 on our consolidated financial statements. We
believe that expected credit losses under ASU 2016-13 will generally result in earlier loss recognition on our loan
portfolio.
Note 3. Cash and Due from Banks
The Bank was required to maintain certain daily average reserve balances in accordance with FRB requirements. On
March 15, 2020, the FRB Board reduced reserve requirements to 0% effective March 26, 2020. This action eliminated
reserve requirements for all depository institutions. The Bank was required to maintain $50 thousand in cash reserves
at its correspondent banks as of December 31, 2021 and 2020.
Note 4. Investment Securities
A comparison of amortized cost and fair value of investment securities held to maturity and securities available for
sale as of December 31, 2021 and 2020 is as follows:
As of December 31, 2021
(In thousands)
Investments HTM :
M unicipal securities
Corporate bonds
Total
Investments AFS:
U.S. government securities
M ortgage-backed securities
Corporate bonds
Total
HTM unrecognized/ AFS
unrealized
Amortized
Cost
Gross
gains
Gross
losses
Fair
value
$
$
$
$
17,976
500
18,476
30,480
53,009
9,468
92,957
$
$
$
$
-
-
-
4
650
278
932
$
$
$
$
-
-
-
(325)
(233)
-
(558)
$
$
$
$
17,976
500
18,476
30,159
53,426
9,746
93,331
17
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
As of December 31, 2020
(In thousands)
Investments HTM :
M unicipal securities
Total
Investments AFS:
U.S. government securities
M ortgage-backed securities
Corporate bonds
Total
HTM unrecognized/ AFS
unrealized
Amortized
Cost
Gross
gains
Gross
losses
Fair
value
$
$
$
$
55,155
55,155
13,500
56,768
10,035
80,303
$
$
$
$
-
-
23
1,318
260
1,601
$
$
$
$
-
-
(6)
-
(26)
(32)
$
$
$
$
55,155
55,155
13,517
58,086
10,269
81,872
The scheduled maturities of investment securities held to maturity and securities available for sale as of
December 31, 2021 are as follows:
(In thousands)
Cost
value
Cost
value
HTM Investments
Fair
Amortized
AFS Investmemts
Fair
Amortized
Due in one year or less
$
16,499
$
16,499
$
104
$
108
Due after one year up to five
Due after five years up to ten
Due after ten years
1,477
500
-
18,476
$
1,477
500
-
18,476
$
28,835
36,709
27,309
92,957
$
28,664
37,078
27,481
93,331
$
Proceeds from sales and maturities of securities available for sale totaled $1.1 million and $1.7 million during 2021
and 2020, respectively. Gains realized from the sale of securities were $110 thousand and $184 thousand in 2021 and
2020, respectively.
As of December 31, 2021 and 2020, investment securities with a market value of $65.0 million and $74.1 million,
respectively, were pledged as collateral for uninsured municipal deposits, uninsured deposits underlying retail
repurchase agreements, and the FHLB for potential borrowings.
18
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Gross unrecognized and unrealized losses and fair value, aggregated by investment category and length of time that
individual securities have been in continuous unrecognized and unrealized loss positions as of December 31, 2021
and 2020 are as follows:
As of December 31, 2021
(In thousands)
Investments HTM :
M unicipal securities
Corporate bonds
Total
Investments AFS:
U.S. government securities
$
21,270
M ortgage-backed securities
Corporate bonds
Total
$
34,138
-
55,408
As of December 31, 2020
Less than 12 months
Gross
unrecognized/
unrealized
losses
Fair value
Number
of
positions
$
$
-
-
-
$
$
$
$
-
-
-
(230)
(233)
-
(463)
-
-
-
5
9
-
14
12 months or longer
Gross
unrecognized/
unrealized
losses
Number
of
positions
$
$
$
$
-
-
-
(95)
-
-
(95)
-
-
-
1
-
-
1
Fair value
$
$
$
$
-
-
-
3,905
-
-
3,905
Less than 12 months
12 months or longer
(In thousands)
Investments HTM :
M unicipal securities
Total
Investments AFS:
U.S. government securities
M ortgage-backed securities
Corporate bonds
Total
Fair value
$
$
$
$
-
-
3,994
-
2,487
6,481
Gross
unrecognized/
unrealized
losses
Number
of
positions
Gross
unrecognized/
unrealized
losses
Number
of
positions
Fair value
$
$
$
$
-
-
(6)
-
(26)
(32)
-
-
1
-
3
4
$
$
$
$
-
-
-
-
-
-
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
Total
Gross
unrecognized/
unrealized
losses
Number
of
positions
-
-
-
6
9
-
15
$
$
$
$
-
-
-
(325)
(233)
-
(558)
Total
Gross
unrecognized/
unrealized
losses
Number
of
positions
$
$
$
$
-
-
(6)
-
(26)
(32)
-
-
1
-
3
4
Fair value
$
$
-
-
-
$
25,175
34,138
-
59,313
$
Fair value
$
$
$
$
-
-
3,994
-
2,487
6,481
For debt securities in an unrealized loss position, management considers the extent and duration of the unrealized loss,
and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell,
or it is more likely than not that it will be required to sell, a debt security in an unrealized loss position before recovery
of it’s amortized cost basis. For all of the above investment securities, the unrealized losses are generally due to
changes in interest rates and, as such, are considered to be temporary by the Company. The temporary impairment of
fixed rate investments is likely to continue in a rising interest rate environment. Because we have the ability and intent
to hold these investments until a market price recovery or maturity, these investments are not considered other than
temporarily impaired.
All temporarily impaired investments are bank-qualified investments. There has been no significant change in the
credit quality of issuers since the securities were purchased.
19
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 5. Loans Receivable
Loans receivable consist of the following as of December 31, 2021 and 2020:
(In thousands)
Commercial real estate
Construction and land development
Commercial
Residential real estate
Consumer
Less allowance for loan losses
December 31,
2021
December 31,
2020
$
$
201,838
51,809
43,497
203,485
1,254
501,883
(6,906)
494,977
$
$
175,801
36,764
55,755
152,895
1,932
423,147
(5,624)
417,523
The Bank is subject to a loans-to-one-borrower limitation of 15% of capital funds. As of December 31, 2021, the
loans-to-one-borrower limitation was $9.7 million compared to $8.7 million as of December 31, 2020. As of
December 31, 2021 and 2020, there are no loans outstanding or committed to any one borrower that individually or
in the aggregate exceed those limits.
The Bank lends primarily to customers in its local market area. Most loans are mortgage loans. Mortgage loans include
loans secured by commercial and residential real estate and construction loans. Accordingly, lending activities could
be affected by changes in the general economy, the regional economy, or real estate values. As of December 31, 2021
and 2020, mortgage loans totaled $457.1 million and $365.5 million, respectively. Mortgage loans represent 91.1%
and 86.4% of total gross loans as of December 31, 2021 and 2020, respectively.
During 2021 and 2020 we participated in the Small Business Administration’s (“SBA”) Paycheck Protection Program
(“PPP”) and originated a total of $95.4 million in PPP loans. The majority of these loans were to our existing
customers or referrals. As of December 31, 2021, approximately 85% of our PPP loans have been forgiven by the
SBA. During 2021, we recognized in interest income $2.4 million of net deferred SBA PPP fees compared to $908
thousand for 2020.
As of December 31, 2021, PPP loans outstanding were $14.0 million with approximately $548 thousand in
unrecognized net deferred fees. The timing of the recognition of these fees is dependent upon the SBA forgiveness
process. PPP loans are included in the commercial loan balance in the above table.
As part of the process of determining the allowance, management segments the loan portfolio by product type. For
the commercial real estate, construction, and commercial loan segments, periodic reviews of the individual loans are
performed by both in-house staff as well as third-party loan reviewers. The results of these reviews are reflected in
the risk grade assigned to each loan. These internally assigned grades are as follows:
Pass – Loans considered to be satisfactory with no indications of deterioration.
Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close
attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the
loan or of the bank’s credit position at some future date.
Substandard – Loans classified as substandard are inadequately protected by the current net worth and payment
capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the bank
will sustain some loss if the deficiencies are not corrected.
Doubtful – Loans classified as doubtful have all weaknesses inherent in those classified as substandard, with the added
characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts,
conditions, and values, highly questionable, and improbable.
20
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Non-accrual (substandard non-accrual, doubtful): includes credits that demonstrate serious problems to the point that
it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement.
In addition, the remaining segments of the loan portfolio, which include residential real estate and consumer loans are
allocated portions of the allowance based on their performance status.
The following tables present risk ratings for each loan portfolio classification as of December 31, 2021 and December
31, 2020.
December 31, 2021
(In thousands)
Pass
Commercial real estate
Construction and land development
Commercial
$
199,102
47,787
42,623
Special
M ention
$
1,227
2,130
234
Total
$
289,512
$
3,591
December 31, 2020
(In thousands)
Commercial real estate
Construction and land development
Commercial
$
Total
$
Pass
171,728
33,381
54,392
259,501
Special
M ention
2,034
$
1,286
468
3,788
$
Substandard
Doubtful
Nonaccrual
Total
$
$
833
-
-
833
$
$
-
-
-
-
$
676
1,892
640
$
201,838
51,809
43,497
$
3,208
$
297,144
$
Substandard Doubtful
-
$
-
-
-
1,153
-
65
1,218
$
$
Non-accrual
$
886
2,097
830
3,813
$
Total
175,801
36,764
55,755
268,320
$
$
The following tables present the recorded investment in residential and consumer loans based on payment activity:
December 31, 2021
(In thousands)
Residential real estate
Consumer
December 31, 2020
(In thousands)
Residential real estate
Consumer
Performing
203,167
$
1,254
204,421
$
Nonaccrual
318
$
-
318
$
Total
203,485
1,254
204,739
$
$
Total
Performing
151,914
$
1,932
153,846
$
Nonaccrual
981
$
-
981
$
Total
152,895
1,932
154,827
$
$
Total
The following tables present an aging analysis of past due payments for each loan portfolio classification as of
December 31, 2021 and December 31, 2020.
December 31, 2021
(In thousands)
Commercial real estate
Construction and land development
Commercial
Residential real estate
Consumer
Total loans, net of unearned income
30-59 Days
Past Due
-
$
-
12
1,164
-
1,176
$
60-89 Days
Past Due
-
$
-
-
177
-
177
$
90+ Days
Past Due
-
$
-
-
-
-
-
$
21
Non-accrual
$
676
1,892
640
318
-
3,526
$
Current
201,162
49,917
42,845
201,826
1,254
497,004
$
$
Total
201,838
51,809
43,497
203,485
1,254
501,883
$
$
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2020
(In thousands)
Commercial real estate
Construction and land development
Commercial
Residential real estate
Consumer
Total loans, net of unearned income
30-59 Days
Past Due
251
$
-
43
348
2
644
$
60-89 Days
Past Due
-
$
-
-
-
-
-
$
90+ Days
Past Due
-
$
-
-
-
-
-
$
Non-accrual
$
886
2,097
830
981
-
4,794
$
Current
174,664
34,667
54,882
151,566
1,930
417,709
$
$
Total
175,801
36,764
55,755
152,895
1,932
423,147
$
$
The Bank had 11 non-accrual loans as of December 31, 2021 in the amount of $3.5 million compared to 14 non-
accrual loans in the amount of $4.8 million as of December 31, 2020. During 2021 we transferred $847 thousand to
non-accrual; recorded $1.1 million in principal reductions and charged-off $677 thousand. All of the non-accrual loans
were impaired. If interest had accrued on these loans, such income would have been approximately $281 thousand
and $367 thousand for the years ended December 31, 2021 and 2020, respectively. The specific reserves associated
with the non-accrual loans were $640 thousand and $0 as of December 31, 2021 and 2020, respectively.
Troubled Debt Restructuring
The following table details our TDRs that are on an accrual status and non-accrual status as of December 31, 2021
and December 31, 2020.
(In thousands)
Commercial real estate
Commercial
Residential real estate
(In thousands)
Commercial real estate
Commercial
Residential real estate
As of December 31, 2021
Number of
loans
Accrual
Status
2
1
1
4
$
$
-
-
283
283
Total
Non-
Accrual
Status
$
$
403
640
-
1,043
As of December 31, 2020
Number of
loans
Accrual
Status
3
1
4
8
$
$
72
-
276
348
Total
Non-
Accrual
Status
$
$
466
781
-
1,247
Total TDRs
$
403
640
283
1,326
$
$
Total TDRs
$
538
781
276
1,595
The following tables present the new TDRs that occurred during the years ended December 31, 2021 and 2020.
Modifications by type for the year ended December 31, 2021
Number of
Combination
Pre-
Post-
Modification Modification
Outstanding
Outstanding
Recorded
Recorded
(In thousands)
loans
Rate
T erm
Payment
of types
T ot al
Investment
Investment
Residential real estate
T otal
1
1
$
$
-
-
$
$
-
-
$
$
283
283
$
$
-
-
$
$
283
283
$
$
287
287
$
$
287
287
22
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Modifications by type for the year ended December 31, 2020
Number of
Combination
Pre-
Post-
Modification Modification
Outstanding
Outstanding
Recorded
Recorded
(In thousands)
Commercial
loans
Rate
T erm
Payment
of types
T ot al
Investment
Investment
T otal
2
2
$
$
-
-
$
$
-
-
$
$
-
-
$
$
781
781
$
$
781
781
$
$
1,993
1,993
$
$
1,933
1,933
Allowance for Loan Losses
The following table details the roll forward of the allowance and the loan portfolio disaggregated by loan portfolio
classification for the twelve-months ended December 31, 2021 and 2020:
December 31, 2021
Construction
(In thousands)
Beginning balance
Charge-offs
Recoveries
Provision (credit)
Ending balance
Ending balance: related to loans
individually evaluated for impairment
Ending balance: related to loans
collectively evaluated for impairment
Loan Balances
Ending balance
Ending balance: individually evaluated
for impairment
Ending balance: collectively evaluated
for impairment
Commercial
and land
Commercial
Residential
real estate
development
and industrial
real estate
Consumer
Total
$
2,999
$
381
$
(181)
184
(194)
2,808
-
2,808
201,838
675
201,163
$
$
$
$
$
$
$
$
$
$
$
$
(491)
-
935
825
-
825
51,809
1,892
49,917
$
$
$
$
$
$
$
1,268
$
954
(85)
124
394
1,387
640
747
-
15
587
1,870
-
1,870
$
$
$
43,497
$
203,485
640
$
602
42,857
$
202,883
22
(6)
7
(7)
16
-
16
1,254
-
1,254
$
5,624
(763)
330
1,715
6,906
640
6,266
501,883
3,809
498,074
$
$
$
$
$
$
December 31, 2020
Construction
Commercial
and land
Commercial
Residential
real estate
development
and industrial
real estate
Consumer
Total
$
3,173
$
689
$
1,372
$
1,386
$
(393)
(1,624)
(In thousands)
Beginning balance
Charge-offs
Recoveries
Provision (credit)
Ending balance
Ending balance: related to loans
individually evaluated for impairment
Ending balance: related to loans
collectively evaluated for impairment
Loan Balances
Ending balance
Ending balance: individually evaluated
for impairment
Ending balance: collectively evaluated
for impairment
(1,781)
284
1,323
2,999
-
2,999
175,801
958
174,843
$
$
$
$
$
$
$
$
$
$
$
$
270
936
954
-
954
$
$
$
(48)
25
(95)
1,268
-
1,268
55,755
$
152,895
830
$
1,257
54,925
$
151,638
51
(10)
10
(29)
22
-
22
1,932
-
1,932
$
$
$
$
$
$
$
6,671
(3,856)
669
2,140
5,624
-
5,624
423,147
5,142
418,005
$
$
$
$
$
$
80
5
381
-
381
36,764
2,097
34,667
23
$
$
$
$
$
$
$
$
$
$
$
$
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The following tables details the impaired loans by loan classification as of December 31, 2021 and December 31,
2020.
(In thousands)
With no related allowance recorded:
Commercial real estate
Construction
Commercial
Residential real estate
Total:
With an allowance recorded:
Commercial real estate
Construction and land development
Commercial
Residential real estate
Total:
(In thousands)
With no related allowance recorded:
Commercial real estate
Construction
Commercial
Residential real estate
Total:
With an allowance recorded:
Commercial real estate
Construction and land development
Commercial
Residential real estate
Total:
As of and for the year ended December 31, 2021
Recorded
Related
Average
recorded
Interest
income
Interest income
recognized
investment
allowance
investment
recognized
cash basis
Unpaid
principal
balance
1,075
2,383
-
716
$
$
$
$
675
$
1,892
-
602
4,174
$
3,169
$
$
-
-
1,458
-
$
-
-
640
-
-
-
-
-
-
-
-
640
-
$
989
$
$
$
2,040
647
1,112
4,788
32
18
66
17
$
$
-
-
-
21
21
-
-
-
-
-
$
$
$
$
15
-
2
38
55
-
-
-
-
-
$
1,458
$
640
$
640
$
133
$
As of and for the year ended December 31, 2020
Unpaid
principal
balance
Recorded
Related
Average
recorded
Interest
income
Interest income
recognized
investment
allowance
investment
recognized
cash basis
$
$
$
$
1,382
2,097
1,648
1,501
6,628
-
-
-
-
-
$
$
$
$
958
$
2,097
830
1,257
5,142
-
-
-
-
-
$
$
$
-
-
-
-
-
-
-
-
-
-
$
$
992
806
1,357
1,172
4,327
$
$
$
1,120
$
60
384
289
$
1,853
$
-
-
-
15
15
5
-
-
-
5
$
$
$
$
86
-
11
1
98
-
-
-
-
-
24
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 6. Premises and Equipment, Net
Premises and equipment as of December 31, 2021 and 2020 are summarized as follows (dollars in thousands):
(In thousands)
Land
Buildings and leasehold improvements
Furniture, fixtures and equipment
Premises and equipment, gross
Less accumulated depreciation and amortization
Premises and equipment, net
Estimated
Useful Lives
5 - 35 years
3 - 10 years
As of December 31,
2021
2020
$
$
122
1,215
1,990
3,327
(2,255)
1,072
$
$
122
1,005
1,613
2,740
(1,971)
769
Depreciation expense was $351 thousand and $242 thousand for the years ended December 31, 2021 and 2020,
respectively, and is recorded in occupancy and equipment expenses.
Note 7. Deposits
Deposits consist of the following major classifications as of December 31, 2021 and 2020:
(Dollars in thousand)
Non-interest checking
Interest checking
M oney market deposits
Savings deposits
Certificates of deposit ($250 and over)
Certificates of deposit (less than $250)
Brokered deposits
Total deposits
As of December 31,
2021
2020
$
92,924
$
81,815
256,490
247,838
42,791
90,971
40,352
86,290
658
29,088
92,596
41,624
67,211
5,648
$
610,476
$
565,820
The Bank has a concentration of deposits from local municipalities. Municipal deposits, which are mostly
interest-checking accounts, were $233.7 million or 38.3% of total deposits as of December 31, 2021, and $230.2
million or 40.7% of total deposits as of December 31, 2020. Municipal deposit accounts in excess of $250 thousand
are collateralized by investment securities with a carrying value of $65.1 million as of December 31, 2021 and a
$120.0 million FHLB Municipal Letter of Credit.
Interest expense on deposits consisted of the following for the years ended December 31, 2021 and 2020:
(In thousands)
Interest checking
M oney market deposits
Savings deposits
Certificates of deposit
Total interest expense on deposits
2021
2020
$
$
432
89
251
1,476
2,248
$
1,206
89
293
2,302
3,890
$
The following is a schedule of certificates of deposit, which includes the brokered deposits, by maturities as of
December 31, 2021:
25
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(In thousands)
2022
2023
2024
2025
2026
As of
December 31, 2021
$
87,441
22,299
9,223
3,550
4,787
Total certificates of deposits
$
127,300
Note 8. Borrowing Availability
Federal Home Loan Bank
The Bank is a member of the FHLB of Pittsburgh and has access to overnight and term advances. As of December 31,
2021, we had $120.0 million in short-term municipal letters of credit outstanding and $66.7 million in additional
borrowing capacity. The FHLB line of credit is secured with residential and commercial mortgage loans totaling
$231.7 million and securities with an aggregate market value of $3 thousand. As of December 31, 2020, we had
$107.0 million in municipal letters of credit outstanding and $40.1 million in additional borrowing capacity. The
borrowing potential was secured with residential and commercial mortgage loans totaling $184.5 million and
securities with an aggregate market value of $12 thousand. As of December 31, 2021 and 2020, the Bank had no
outstanding advances against its lines of credit. The average balance of FHLB advances was $27 thousand and $0 for
2021 and 2020, respectively.
Federal Reserve Bank
As of December 31, 2021, we had $98.1 million in borrowing capacity at the FRB. The FRB line of credit is secured
with commercial, construction and residential and commercial mortgage loans totaling $144.1 million. The Bank did
not borrow from the FRB during 2021. We did not have any borrowing capacity with the FRB in 2020.
Repurchase Agreements
Historically, the Bank has sold securities under agreements to repurchase as a funding source. These agreements were
cancelled in 2021. As of December 31, 2020, the Bank had $2.3 million of securities sold under agreements to
repurchase with a weighted average fixed rate of 0.29% with maturity dates not exceeding one year. The underlying
securities for the repurchase agreements had an aggregate market value of $2.5 million as of December 31, 2020 and
were predominantly U.S. government-sponsored mortgage-backed securities.
Subordinated Debt
On August 26, 2020, the Company issued $10.750 million of 7.00% fixed-to-floating rate subordinated notes with a
maturity date of September 1, 2030. The subordinated notes, which qualify as Tier 2 capital, bear interest at an annual
rate of 7.00%, payable semi-annually in arrears and a floating rate of interest equivalent to the 3-month Secured
Overnight Financing Rate (SOFR) plus 6.89% payable quarterly in arrears commencing on September 1, 2025. The
subordinated debt issuance costs of approximately $359 thousand are being amortized over five years on a straight-
line basis into interest expense. The carrying value of subordinated debt was $10.4 million as of December 31, 2021
and 2020.
26
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Other Lines of Credit
As of December 31, 2021 and 2020, the Bank had an unsecured line of credit with Atlantic Community Bankers Bank
(“ACBB”) in the aggregate amount of $8.0 million. There was no outstanding balance as of December 31, 2021 and
2020. The average balance of the ACBB line was $24 thousand and $11 thousand for 2021 and 2020, respectively.
As of December 31, 2021 and 2020, 1st Colonial Bancorp, Inc. had a secured line of credit with ACBB in the aggregate
amount of $2.5 million. The ACBB line is secured with 100% of the voting stock of 1st Colonial Community Bank.
As of December 31, 2021 and 2020, there were no outstanding balances against this line. There were no amounts
outstanding in 2021 and 2020 under this line.
Note 9. Earnings Per Share
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share
calculation for the years ended December 31, 2021 and 2020:
(In thousands, except for per share data)
Income
Net
Average
shares
Per share
Amount
2021:
Basic earnings per share
Effect of dilutive stock equivalents
Diluted earnings per share
2020:
Basic earnings per share
Effect of dilutive stock equivalents
Diluted earnings per share
$
$
$
$
7,258
4,861,992
-
91,199
7,258
4,953,191
4,755
4,956,837
-
43,174
4,755
5,000,011
$
$
$
$
1.49
(0.02)
1.47
0.96
(0.01)
0.95
Basic earnings per share is calculated on the basis of weighted average number of shares outstanding. Diluted earnings
per share is calculated on the basis of weighted average number of shares outstanding and common stock equivalents
(“CSEs”) that would arise from the exercise of dilutive securities. For 2021, the Company granted a total of 55,069
restricted stock unit awards, which are considered CSEs, and options to acquire a total of 124,500 shares of common
stock. Options to purchase 407,592 and 332,041 shares of common stock were outstanding as of December 31, 2021
and 2020, respectively. Options to purchase 174,290 and 157,263 shares were antidilutive for 2021 and 2020,
respectively, and excluded from the earnings per share calculations.
Note 10. Fair Value of Financial Instruments
Under FASB ASC Topic 820 “Fair Value Measurements and Disclosures” (“ASC Topic 820”), fair values are based
on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When available, management uses quoted market prices to determine
fair value. If quoted prices are not available, fair value is based upon valuation techniques such as matrix pricing or
other models that use, where possible, current market-based or independently sourced market parameters, such as
interest rates. If observable market-based inputs are not available, we use unobservable inputs to determine appropriate
valuation adjustments using discounted cash flow methodologies.
Management uses its best judgment in estimating the fair value of our financial instruments; however, there are
inherent weaknesses in any estimation technique. The estimated fair value amounts have been measured as of their
respective period end and have not been re-evaluated or updated for purposes of these financial statements subsequent
to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective
reporting dates may be different than the amounts reported at each period-end.
27
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
ASC Topic 820 provides guidance for estimating fair value when the volume and level of activity for an asset or
liability has significantly declined and for identifying circumstances when a transaction is not orderly. ASC Topic 820
establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of
the fair value hierarchy under ASC Topic 820 are as follows:
Level 1:
Level 2:
Unadjusted quoted prices in active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities.
Quoted prices in markets that are not active, or inputs that are observable either directly or
indirectly, for substantially the full term of the asset or liability. Level 2 includes debt
securities with quoted prices that are traded less frequently then exchange-traded instruments.
Valuation techniques include matrix pricing which is a mathematical technique used widely
in the industry to value debt securities without relying exclusively on quoted market prices
for the specific securities but rather by relying on the securities’ relationship to other
benchmark quoted prices.
Level 3:
Prices or valuation techniques that require inputs that are both significant to the fair value
measurement and unobservable (i.e., supported with little or no market activity).
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to
the fair value measurement. We did not have transfers of financial instruments within the fair value hierarchy during
the years ended December 31, 2021 and 2020.
Items Measured on a Recurring Basis
Our available for sale investment securities are recorded at fair value on a recurring basis.
Fair value for Level 1 securities are determined by obtaining quoted market prices on nationally recognized securities
exchanges. We do not have any level 1 securities.
Level 2 securities include obligations of U.S. government-sponsored agencies and debt securities with quoted prices,
which are traded less frequently than exchange-traded instruments, whose value is determined using matrix pricing
with inputs that are observable in the market or can be derived principally from or corroborated by observable market
data. The prices were obtained from third party vendors. This category generally includes our mortgage-backed
securities and CMOs issued by U.S. government and government-sponsored agencies, and municipal bonds.
Items Measured on a Nonrecurring Basis
Non-accrual loans and TDRs are evaluated for impairment on an individual basis under FASB ASC Topic 310
“Receivables”. The impairment analysis includes current collateral values, known relevant factors that may affect
loan collectability, and risks inherent in different kinds of lending. When the collateral value less costs to sell is less
than the carrying value of the loan a specific reserve (valuation allowance) is established. OREO is carried at the lower
of cost or fair value. Fair value is based upon independent market prices, appraised values of the collateral or
management’s estimation of the value of the real estate. These assets are included as Level 3 fair values, based upon
the lowest level of input that is significant to the fair value measurements.
For financial assets measured at fair value on a recurring and nonrecurring basis, the fair value measurements by level
within the fair value hierarchy used as of December 31, 2021 and December 31, 2020 are as follows:
28
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
As of December 31, 2021
(In thousands)
Assets measured at fair value on a recurring basis
Investment securities:
U.S. government agencies
M ortgage-backed securities-residential
Corporate bonds
Total assets measured at fair value on a recurring basis
Assets measured at fair value on a non-recurring basis
Impaired loans
Other real estate owned
$
$
$
Total assets measured at fair value on a non-recurring basis
$
Fair Value M easurements Using:
Quoted Prices
in Active
Significant
M arkets for
Other
Significant
Identical
Observable
Unobservable
Assets
Level 1
Inputs
Level 2
Inputs
Level 3
Total
-
-
-
-
-
-
-
$
30,159
53,426
9,746
$
93,331
$
$
-
-
-
$
$
$
$
-
-
-
-
$
30,159
53,426
9,746
$
93,331
3,809
-
3,809
$
$
3,809
-
3,809
As of December 31, 2020
(In thousands)
Assets measured at fair value on a recurring basis
Investment securities:
U.S. government agencies
M ortgage-backed securities-residential
Corporate bonds
Total assets measured at fair value on a recurring basis
Assets measured at fair value on a non-recurring basis
Impaired loans
Total assets measured at fair value on a non-recurring basis
Fair Value M easurements Using:
Quoted Prices
in Active
Significant
M arkets for
Other
Significant
Identical
Observable
Unobservable
Assets
Level 1
Inputs
Level 2
Inputs
Level 3
Total
$
$
$
$
-
-
-
-
-
-
$
$
$
$
13,517
58,086
10,269
81,872
-
-
$
$
$
$
-
-
-
-
5,142
5,142
$
$
$
$
13,517
58,086
10,269
81,872
5,142
5,142
The following tables present additional quantitative information about assets measured at fair value on a nonrecurring
basis and for which we have utilized Level 3 inputs to determine fair value as of December 31, 2021 and December
31, 2020:
29
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
As of December 31, 2021
Valuation
Unobservable
Range
(In thousands)
Fair Value
Techniques
Input
(Weighted Average)
Impaired loans
$
3,809
Appraisal
Liquidation expenses
0%
-13.07%
(-6.81%)
Qualitative Information about Level 3 Fair Value M easurements
of collateral
Qualitative Information about Level 3 Fair Value M easurements
As of December 31, 2020
Valuation
Unobservable
Range
(In thousands)
Fair Value
Techniques
Input
(Weighted Average)
Impaired loans
$
5,142
Appraisal
Liquidation expenses
0%
-8.62%
(-6.42%)
of collateral
The estimated fair value of the Company’s financial instruments as of December 31, 2021 and 2020 was as follows:
Fair Value M easurements
As of December 31, 2021
Quoted Prices
in Active
Significant
M arkets for
Other
Significant
Identical
Observable
Unobservable
Carrying
value
Estimated
fair value
Assets
Level 1
Inputs
Level 2
Inputs
Level 3
40,877
18,476
93,331
1,474
9,957
494,977
1,664
349,414
42,791
90,971
127,300
10,440
-
303
$
40,877
18,476
93,331
NA
9,957
498,109
1,664
349,414
42,791
90,971
128,555
10,166
-
303
$
40,877
$
-
$
-
-
-
-
-
-
-
-
-
-
-
-
18,476
93,331
-
9,957
-
-
349,414
42,791
90,971
128,555
10,166
-
303
-
-
-
NA
-
498,109
1,664
-
-
-
-
-
-
-
(In thousands)
Financial Assets:
Cash and cash equivalents
$
Investments held to maturity
Investments available for sale
Restricted bank stock, at cost
M ortgage loans held for sale
Loans receivable, net
Accrued interest receivable
Financial liabilities:
Demand deposits
M oney market deposits
Savings deposits
Certificates of deposit
Subordinated debt, net
Other borrowings
Accrued interest payable
30
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Fair Value M easurements
As of December 31, 2020
Quoted Prices
in Active
Significant
M arkets for
Other
Significant
Identical
Observable
Unobservable
Carrying
value
Estimated
fair value
Assets
Level 1
Inputs
Level 2
Inputs
Level 3
37,040
55,155
81,872
1,739
21,859
417,523
1,811
329,653
29,088
92,596
114,483
10,404
2,325
329
$
37,040
55,155
81,872
NA
21,859
419,954
1,811
329,653
29,088
92,596
116,071
10,371
2,323
329
$
37,040
$
-
$
-
-
-
-
-
-
-
-
-
-
-
-
55,155
81,872
-
21,859
-
-
329,653
29,088
92,596
116,071
10,371
2,323
329
-
-
-
NA
-
419,954
1,811
-
-
-
-
-
-
(In thousands)
Financial Assets:
Cash and cash equivalents
$
Investments held to maturity
Investments available for sale
Restricted bank stock, at cost
M ortgage loans held for sale
Loans receivable, net
Accrued interest receivable
Financial liabilities:
Demand deposits
M oney market deposits
Savings deposits
Certificates of deposit
Subordinated debt, net
Other borrowings
Accrued interest payable
Note 11. Income Taxes
The components of income tax expense (benefit) are stated below:
(In thousands)
Income tax expense (benefit)
Federal
Current
Deferred
State
Current
Deferred
Total income tax expense
$
For the years ended December 31,
2021
2020
$
1,777
$
1,033
(103)
1,674
1,044
78
1,122
2,796
(30)
1,003
664
(47)
617
$
1,620
31
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The following is a reconciliation between expected tax expense at the statutory rate of 21% for 2021 and 2020 and
actual tax expense:
(In thousands)
For the years ended December 31,
2021
2020
Computed tax expense at statutory rate
$
2,112
$
1,339
Adjustments resulting from:
State tax, net of federal benefit
Tax-exempt interest income
Bank owned life insurance
Stock-based compensation
Other
Income tax expense
886
(77)
(168)
5
38
471
(137)
(91)
24
14
$
2,796
$
1,620
Significant deferred tax assets and liabilities of the Bank as of December 31, 2021 and 2020 are as follows:
(In thousands)
Deferred tax assets:
As of December 31,
2021
2020
Allowance for loan losses
$
1,911
$
1,660
Deferred rent
Share-based compensation cost
PPP loan origination fees
Unfunded loan commitments
Non-accrual interest
Other
Deferred tax assets
Deferred tax liabilities:
Depreciation
Unrealized gains on AFS debt securities
Prepaid expenses
Deferred loan costs
Total deferred tax liabilities
Net deferred tax asset, included in other
assets
18
113
173
169
13
15
29
116
140
118
36
17
2,412
2,116
(164)
(102)
(16)
(575)
(857)
(75)
(463)
(21)
(388)
(947)
$
1,555
$
1,169
The realizability of deferred tax assets is dependent upon various factors, including the generation of future taxable
income, the existence of taxes paid and recoverable, the reversal of deferred tax liabilities, and tax planning strategies.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which the net operating loss carryforwards are
available and the temporary differences representing net future deductibles reverse. Based upon these and other factors
management has determined that it is more likely than not that the Company will realize the benefits of the deferred
tax assets that exist as of December 31, 2021.
As of December 31, 2021 and 2020, the Company had no material unrecognized tax benefits or accrued interest and
penalties. The Company’s policy is to account for interest as a component of interest expense and penalties as a
component of other expense.
32
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
As of December 31, 2021, the years 2018 – 2020 are open for federal examination and years 2017-2020 are open for
state examinations.
Note 12. Leases
The Company has operating leases for a retail branch, our operation and administration center (main office) and certain
equipment. On commencement date of a new lease, the Company recognizes a ROU asset, which represents the right
to use an underlying asset for the lease term, and a lease liability, which represent an obligation to make lease payments
arising from the lease. The ROU assets are included in other assets and lease liabilities are included in other liabilities.
The Company’s leases have remaining lease terms of eight months to three years, some of which include options to
extend the leases for up to five years. The main office lease expires on November 30, 2022, with an option to renew
for two additional five-year terms. Because we may need to expand our office space, the extension options were
excluded from the calculations of the ROU asset and lease liability.
The following table presents the ROU assets and the lease liability for the years ended December 31, 2021 and 2020.
(In thousands)
ROU asset
Lease liabilitity
For the years ended December 31,
2021
2020
$
$
558
617
$
$
459
557
The following table presents operating lease costs for the years ended December 31, 2021 and 2020.
(In thousands)
Operating lease cost
For the years ended December 31,
2021
2020
$
$
342
342
$
$
269
269
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of
operating lease liabilities is as follows:
(In thousands)
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less imputed interest
Total
$
As of December 31,
2021
2020
$
367
$
278
90
92
93
6
-
648
(54)
594
$
-
-
-
-
-
278
(25)
253
Note 13. Commitments and Contingencies
Financial Instruments with Off-Balance-Sheet Risk
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business. These
financial instruments include commitments to extend credit to meet the financing needs of its customers. Such
commitments have been made in the normal course of business and at current prevailing market terms. The
commitments, once funded, are principally to originate commercial loans and other loans secured by real estate. The
33
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet
instruments.
Commitments issued to potential borrowers of the Bank as of December 31, 2021 and 2020 were as follows:
(In thousands)
As of December 31,
2021
2020
Fixed rate commitments
$
4,864
Variable/adjustable rate commitments
111,698
Total commitments
$
116,562
$
$
3,585
73,184
76,769
Legal Proceedings
Within the normal course of business, the Company may be a party to various claims or legal proceedings.
Management is not aware of any litigation that would have a material adverse effect on the consolidated financial
statements. There are no proceedings pending other than routine litigation incident to the business of the Company.
Note 14. Related-Party Transactions
Directors and executive officers of the Company, including their immediate families and companies in which they
have a direct or indirect material interest, are considered to be related parties. In the ordinary course of business, the
Company engages in various related party transactions, including extending credit and deposit accounts. Federal
banking regulations require that any extensions of credit to insiders and their related interests not be offered on terms
more favorable than would be offered to non-related borrowers of similar creditworthiness. The Company relies on
the directors and executive officers for the identification of their associates.
The aggregate amount of loans to related parties was $664 thousand and $920 thousand as of December 31, 2021 and
2020, respectively. During 2021 and 2020, new loans and credit line advances to such related parties amounted to $0
and $125 thousand, respectively, and repayments amounted to $6 thousand and $22 thousand, respectively.
Approximately $250 thousand is no longer classified as related party due to a change in composition of related parties.
The aggregate amount of deposits from related parties was $60.9 million and $61.8 million as of December 31, 2021
and 2020, respectively.
The Bank engaged in certain property inspection and construction services with an entity that is affiliated with a
director of the Bank. Such aggregate services amounted to fees of $20 thousand and $33 thousand for the years ended
December 31, 2021 and 2020, respectively. In management’s opinion, the terms of the services provided were
substantially equivalent to that which would have been obtained from unaffiliated parties.
Note 15. Employee Benefits
The Bank instituted a qualified defined contribution plan (‘the 401(K) Plan”) for all current employees in August 2005.
All eligible employees are 100% vested in any required safe harbor contributions. The Bank made safe harbor
contributions in the amount of $253 thousand and $188 thousand during 2021 and 2020, respectively.
Note 16. Share-Based Compensation
During 2020, the shareholders approved the 1st Colonial Bancorp, Inc. 2020 Equity Incentive Plan (“2020 Equity
Plan”). The Board of Directors approved the 2020 Equity Plan for the purpose of enabling the Company to continue
to recruit and retain highly qualified personnel, to provide those personnel with an incentive for productivity, and to
provide those personnel with an opportunity to share in the growth and value of the Company. Accordingly, the board
of directors has reserved 400,000 shares of our common stock for issuance upon the grant or exercise of awards
pursuant to the 2020 Equity Plan. The Board of Directors believes that the shares authorized by the 2020 Equity Plan
are needed to ensure the continued availability of equity-based compensation and that the 2020 Equity Plan will
enhance the effectiveness of the Bank’s equity compensation program by authorizing the award of restricted stock and
the use of other stock-based compensation techniques. The exercise price of options granted under this program is
34
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
required to be equal to at least the fair market value of common stock as of the grant date. The 2020 Equity Plan allows
for the Compensation Committee of the Board of Directors to determine the type of incentive to be awarded, its term,
vesting and restrictions on shares. As of December 31, 2021, 272,016 options and restricted stock units were
outstanding under this plan.
Compensation expense for equity grants is recognized over the requisite service period. During 2021 and 2020, we
recognized $122 thousand and $63 thousand, respectively, in compensation expense for equity grants. As of
December 31, 2021, approximately $928 thousand remained to be recognized in compensation expense over a
weighted-average period of approximately four and half years.
The authorization of the 2020 Equity Plan terminated two other stock option programs, the 2013 Outside Director
Plan and the 2013 Employee Stock Option Plan. No new options or awards will be granted under the 2013 Plans.
Under the 2013 Outside Director Plan, 124,907 options remain outstanding as of December 31, 2021 for nonemployee
directors. The exercise price of options granted under this program was required to be equal to at least the fair market
value of common stock as of the grant date. All options granted under this plan vest in five equal annual installments
or upon retirement. These options expire 10 years from the grant date.
Under the 2013 Employee Stock Option Plan, 57,901 options remain outstanding as of December 31, 2021 for key
employees. The exercise price of options granted under this program was equal to at least the fair market value of
common stock as of the grant date. All options granted under this plan vest in five equal annual installments, upon
retirement or a change in control of the Company. These options expire 10 years from the grant date.
We had two other stock option programs, the 2003 Outside Director Plan and the 2003 Employee Stock Option Plan.
The ability to grant new options under these plans has expired.
Under the 2003 Outside Director Plan, as amended, 7,784 options remain outstanding as of December 31, 2021 for
nonemployee directors. The exercise price of options granted under this program was required to be equal to at least
the fair market value of common stock as of the grant date. All options granted under this plan are fully vested. These
options expire 10 years from the grant date. Under the 2003 Employee Stock Option Plan, as amended, no options
remain outstanding as of December 31, 2021 for key employees.
The fair value of each stock option award is estimated on the date of the grant using the Black-Scholes option-pricing
model. The risk-free interest rate for the expected term of the stock option awarded is based on the U.S. Treasury
yield curve in effect at the time of the grant. The volatility of the Company’s stock is based on a combination of
historical volatility and peer data over a span of time equal to the expected life of stock option awards, which is the
period of time the Company estimates that stock options granted will remain outstanding. The simplified method
averages an award’s weighted average vesting period and its contractual term. The following assumptions were used
to estimate the fair value of the options granted during 2021 and 2020:
Weighted average risk-free interest rate
Weighted average volatility
Expected dividend yield
Weighted average expected life (years)
2021
2020
0.83%
24.68%
-
6.50
0.38%
24.00%
-
6.50
35
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
A summary status of the Company’s stock option plans as of December 31, 2021 and 2020, and the changes during
the years then ended, is as follows:
2021
2020
Weighted
Weighted
(1)
Average
Exercise
Price
Options
Average
Aggregate
Remaining
Intrinsic
Term (yrs)
Value
Options
Weighted
Average
Exercise
Price
Options outstanding at beginning of year
332,041
$
Granted
Exercised
Forfeited or expired
Options outstanding at the end of the year
Options exercisable at the end of the year
Weighted-average fair value of options
124,500
(20,468)
(28,481)
407,592
195,422
$
$
7.05
9.68
4.54
6.05
7.77
6.44
6.0
326,710
$
101,000
(26,084)
(69,585)
332,041
212,239
$
$
5.6
2.4
$
$
798
605
6.81
6.99
4.29
6.86
7.05
5.97
granted during the year
$
2.59
$
1.75
(1) The aggregate intrinsic value of a stock option in the table above (shown in thousands) represents the total
pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the
exercise price of the option) that would have been received by the option holders had they exercised their
options on December 31, 2021. The intrinsic value varies based on the changes in the market value in the
Company’s stock.
The Company issues new shares upon the exercise of stock options.
The following table provides detail for non-vested stock options under the 2020 Equity Plan and the 2013 Outside
Director and Employee Stock Option Plans as of December 31, 2021:
Weighted
Average
Exercise
Price
Options
Non-vested options December 31, 2020
119,802
$
Granted
Forfeited
Vested
124,500
(7,960)
(24,172)
Non-vested options December 31, 2021
212,170
$
7.37
9.68
7.17
8.24
8.63
36
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The following table summarizes the activity for the Company’s restricted stock unit awards as of December 31, 2021:
Weighted
Average
Fair
Value
Options
Outstanding at beginning of year
-
$
-
Granted
Forfeited
Vested
55,016
9.31
-
-
-
-
Outstanding at end of year
55,016
$
9.31
Note 17. Shareholders’ Equity and Regulatory Capital
Shareholders’ Equity
On January 25, 2021, the Company announced that it had adopted a stock repurchase program, effective February 1,
2021. Under the stock repurchase program, management was authorized to repurchase up to 3% of the Company’s
outstanding shares of common stock, with a total cost not to exceed $1.4 million. This repurchase program was
completed in May 2021 with a total of 141,720 shares repurchased for a cost of $1.4 million.
On November 10, 2021, the Company announced that it had adopted a new stock repurchase program, effective
November 22, 2021. Under the new stock repurchase program, management is authorized to repurchase up to 4% of
the Company’s outstanding shares of common stock, with a total cost not to exceed $2.0 million. During 2021, the
combined total of shares repurchased under the two programs was 256,220 shares for a total cost of $2.5 million, or
an average cost of $9.79 per share.
Dividend Policy
Company
The Company has not paid a cash dividend since its inception in June 2000. Any payment of cash dividends to its
shareholders would be dependent on the payment of a cash dividend from the Bank to the Company. The payment of
cash dividends by the Bank to the Company is limited under federal banking law. The Company’s future dividend
policy is subject to the discretion of its board of directors and will depend upon a number of factors, including future
earnings, financial conditions, cash needs, and general business conditions. Holders of common stock will be entitled
to receive dividends as and when declared by the board of directors out of funds legally available for that purpose.
Bank
The amount of dividends that may be paid by the Bank depends upon the Bank’s earnings and capital position, and is
limited by New Jersey and federal law, regulations, and policies. As a state-chartered bank subject to New Jersey and
FDIC regulations, the Bank cannot pay any dividend if the dividend would reduce the required surplus of the Bank as
defined in New Jersey statutes. As a matter of policy, the FDIC expects state banks to follow the national bank dividend
limits, which allow a bank to pay dividends up to the amount of net profits of the current year plus the retained net
profits from the last two years. Amounts in excess of that would require prior approval of the FDIC. In addition, the
FDIC and the state of New Jersey have authority to further limit any dividends to be paid by the Bank in a specific
case. No specific dividend restrictions have been imposed on the Bank at this time.
37
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Common Stock Dividends
Historically, the Company declared stock dividends annually. As a result of the stock repurchase program, the
Company did not declare a stock dividend in 2021. On January 29, 2020, the Company declared a 5% stock
dividend to all shareholders of record as of April 1, 2020 payable on April 15, 2020.
Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure
to meet minimum capital requirements can initiate certain mandatory – and possibly additional discretionary – actions
by regulators that, if undertaken, could have a direct material effect on the Bank’s consolidated financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that
liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The net unrealized gain or loss on
available for sale securities is not included in computing regulatory capital. The Bank’s capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other
factors.
involve quantitative measures of the Bank’s assets,
A banking organization must hold a capital conservation buffer comprised of Common Equity Tier 1 above its minimum
risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. As of December 31, 2021,
the Bank met all capital adequacy requirements to which it is subject and met the criteria for a well-capitalized
institution. At yearend 2021 and 2020, the most recent regulatory notifications categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. There are no conditions or events since that notification
that management believes have changed the institution’s category.
The Bank’s actual capital amounts and ratios as of December 31, 2021 and 2020 are presented in the following table:
(Dollars in thousands)
Total risk-based capital
As of December 31, 2021
As of December 31, 2020
Tier 1 risk-based capital
As of December 31, 2021
As of December 31, 2020
Tier 1 leverage capital
As of December 31, 2021
As of December 31, 2020
Tier 1 common equity risk-based capital
As of December 31, 2021
As of December 31, 2020
Actual
For capital adequacy
purposes
For capital adequacy
purposes with capital
conservation buffer
To be well capitalized under
prompt corrective action
provision
Amount
Ratio
Amount
Ratio*
Amount
Ratio*
Amount
Ratio
$
$
$
$
$
$
$
$
70,954
66,191
65,168
61,462
65,168
61,462
65,168
61,462
15.365%
17.538%
14.112%
16.285%
9.216%
9.601%
14.112%
16.285%
$
$
$
$
$
$
$
$
36,943
30,193
27,707
22,645
28,284
25,607
20,780
16,984
8.00%
8.00%
6.00%
6.00%
4.00%
4.00%
4.50%
4.50%
$
$
$
$
$
$
$
$
48,488
39,628
39,252
32,080
28,284
25,607
32,325
26,419
10.500%
10.500%
8.500%
8.500%
4.000%
4.000%
7.000%
7.000%
$
$
$
$
$
$
$
$
46,179
37,741
36,943
30,193
35,356
32,009
30,016
24,532
10.00%
10.00%
8.00%
8.00%
5.00%
5.00%
6.50%
6.50%
38
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 18. Parent Company Financial Information
A summary of the statements of financial condition as of December 31, 2021 and 2020 is as follows:
(In thousands)
Assets
Cash in subsidiary
Investment in subsidiary
Deferred tax asset
Other assets
Total assets
Liabilities and S hareholders’ Equity
Subordinated debt, net of issuance costs
Accrued interest payable
Other liabilities
Shareholders' equity
Total liabilities and shareholders’ equity
As of December 31,
2021
2020
$
$
$
$
2,768
65,440
113
201
68,522
10,440
251
14
57,817
68,522
$
$
$
$
1,599
62,568
109
85
64,361
10,404
263
8
53,686
64,361
A summary of the statements of operations for the years ended December 31, 2021 and 2020 is as follows:
(In thousands)
Equity income from subsidiary
Dividend income
Total income
Other expenses:
Interest on subordinated debt
Other operating expenses
Total other expenses
Income before income tax expense (benefit)
Income tax (benefit) expense
Net income
2021
2020
$
$
3,706
4,400
8,106
786
182
968
7,138
(120)
7,258
$
$
5,210
-
5,210
276
110
386
4,824
69
4,755
39
1ST COLONIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
A summary of the statements of cash flows for the years ended December 31, 2021 and 2020 is as follows:
(In thousands)
Cash flows from operating activities:
2021
2020
Net income
Adjustments to reconcile net income to net cash (used in)
$
7,258
$
4,755
provided by operating activities:
Equity in income from subsidiary
Stock-based compensation expense
(Increase) decrease deferred income tax benefit
Amortization of issuance costs on long-term debt
(Increase) decrease in other assets
(Decrease) increase in other liabilities
Total adjustments
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Investment in subsidiary
Net cash used in investing activities
Cash flows from financing activities:
Cost of processing stock dividend
Proceeds from long term borrowings
Increase in investment in subsidiary
Acquisition of treasury stock
Proceeds from sale of stock
Net cash (used in) provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Cash paid during the year for:
Interest
Income taxes paid
(3,706)
122
(4)
36
(117)
(5)
(3,674)
3,584
-
-
-
-
-
(2,508)
93
(2,415)
1,169
1,599
2,768
3,063
3,957
$
$
(5,210)
63
29
12
44
267
(4,795)
(40)
-
-
(2)
10,392
(9,000)
-
116
1,506
1,466
133
1,599
3,991
1,368
$
$
40
Administrative
Offiff ce
210 Lake Drive East
Suite 300
Cherry Hrr
08002
(856) 858-1100
ill, NJ
Collingswood
Branch
1040 Haddon
Avenue
Collingswood, NJ
08108
(856) 858-8604
Westville Branch
321 Broadwayaa
Westville, NJ 08093
(856) 456-6544
Limerick Branch
440 Linfield
Trappe Road
Limerick, PA
19456
(610) 226-3000
Haddonfieldff
Loan
Production Office
205 N Haddon
Avenue
Haddonfield, NJ
08003
(856) 607-2004
Stock Listing
1st Colonial's Common Stock is tratt ded under the Symbom l "FCOB"
Board of Directors
Linda M. Rohrer, Chairman
Thomas A. Clark, III, Esquire
Harvey Johnson, Esquire
Shelley Y. Simms
Letitia G. Colombi, Director
Emeritus
Thomas R. Brugger
John J. Donnelly, IV
Harrison Melstein
Curt Byerley
Michael C. Haydinger
Stanley H. Molotsky
Executive Officers
Robert B. White, President and Chief Executive Officer
Frank J. Monaghan, Executive Vice President and Chief Operating Officff
Mary Kay Shea, Executive Vice President and Chief Financial Officff er
er
Senior Management
1st Colonial Community
Bank
Gino Brown, SVP Residential Mortgage Lending
Michael Cosden, SVP Senior Credit Officeff
Anthony W. LaMarca, EVP Chief Commercial Lending Offiff cer
Matthew McGonigal, SVP Director of Digital Expex rience and Operations
Randolph D. Wolfe,ff SVP Chief Revenue Offiff cer
r
Auditors
Counsel
Registrar and Transfer
Agent
Crowe LLP
1455 Pennsylvania Avenue. NW #700
Washington, DC 20004
Stevens & Lee
A PA Professional Corpor
100 Lenox Drive, Suite 200
Lawrenceville, New Jersey 08648
ration
Philadelphia Stock Transaa fer, Inc.
2320 Haverford Rd.
Suite 230
Ardmore, PA 19003
Telephone (866) 223-0448
210 Lake Drive East, Suite 300
Woodland Falls Corporate Park
Cherry Hill, NJ 08002
T 877-785-8550
1 S T C O L O N I A L . C O M