1st Colonial Bancorp, Inc.
Annual Report 2023

Plain-text annual report

2023 Annual Report April 4, 2024 Dear Fellow Shareholders, We are pleased to report another successful year forff our compam ny. We generated full year net earnings of $7.4 million, which represents the second highest year ia n the company’nn s history. Although we faced many challenges durd ing thet tion, increased interest expense, and a lower loan demand due to thet year, including higher operating costs due to higher interest rates, r, as well as delivering exceptional products and services to our continued inflaff our Team remained focused on each othet loyal customer base. We continuenn relationships through the deliveryrr continued, so we can remain competitive in delivering the most modern prr market. to be focused on building relationships with new clients, as well as expanding existing in technology of value-added produdd cts and services. Investment ring available to the roduct offeff Asset growth was tempered during the year,a with loan growth of $33.4 million, or 6%, compared to 2022 year end levels. We remained focused on profitabia lity and sharea holder returns, delivering a returnrr on average equity of 11.94%. on average assets of 0.95%, and returnuu Total deposits ended the year at $687.4 million, which represents a modest level of growth for the year. Uninsured and uncollateralized deposits remain low at $97.3 million, or 14%, of total deposits. Our liquidity position remains strong, with ample cash and borrowing capaa city to suppu ort our futureuu growth. Our capital levels remain high and aboa ve well capitalized under thet regulatory framework.rr Asset quality metrics continue to be stable, with no deterioration being detected. We anticipate a modest reduction in non-performing loan levels in the first quarter of 2024, based on already defined and implemented solutions associated with two legacy credits. We expect that the higher debt and living expenses may have an impact on consumers in the future, but we do not see any signs of deterioration or stress in the portfolff prepared to assist our clients with defined mitigation strat tegies, should they experience stret ss or financa io. We closely monitor the portfolio and area ial hardship. Our investment in our Team through continued education and training will continue in 2024 so that we can exceed our clients’ expectations and continuenn to differff entiate ourselves from the competition. We are thankful forff your continuenn d support and look forff ward to a promising and profitable 2024! 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, 2023 and 2022 (With Independent Auditors’ Report Thereon) Crowe LLP Independent Member Crowe Global INDEPENDENT AUDITOR'S REPORT Shareholders and the Board of Directors 1st Colonial Bancorp, Inc. and Subsidiary Mount Laurel, New Jersey Opinion We have audited the consolidated financial statements of 1st Colonial Bancorp, Inc. and Subsidiary, which comprise the consolidated statements of financial condition as of December 31, 2023 and 2022, and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of 1st Colonial Bancorp, Inc. and Subsidiary as of December 31, 2023 and 2022, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Opinion We conducted our audits 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 to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Emphasis of Matter As discussed in Note 2 to the consolidated financial statements, in 2023, the entity adopted new accounting guidance of Financial Accounting Standards Board (FASB) Accounting Standards Codification No. 326, Financial Instruments – Credit Losses (ASC 326) using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles. Our opinion is not modified with respect to this matter. Responsibilities of Management for the Financial Statements is responsible for the preparation and fair presentation of Management the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. (Continued) 1. In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in theag gregate, that raise substantial doubt about 1st Colonial Bancorp, Inc.’s ability to continue as a going concern for one year from the date the consolidated financial statements are available to be issued. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole arefr ee 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 amate rial misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, 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 consolidated financial statements. 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 consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on ate st basis, evidence regarding the amounts and disclosures in the consolidated 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.’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 consolidated 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.’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 27, 2024 Crowe LLP 2. 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, 2022 2023 $ 52,707 21 52,728 $ 20,377 22 20,399 Investments held to maturity (fair value of $37,045 as of December 31, 2023 and $38,114 as of December 31, 2022) 37,045 38,114 Investments available for sale ("AFS") (amortized cost of $76,746 as of December 31, 2023 and $99,160 as of December 31, 2022) Investment in restricted bank stock, at cost Loans held for sale Loans Less allowance for credit 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: Preferred stock. Authorized 1,000,000 shares, no shares issued Common stock, $0 par value. Authorized 10,000,000 shares; issued 5,221,096 and 5,148,221 shares as of December 31, 2023 and December 31, 2022, respectively, and outstanding of 4,747,479 and 4,675,244 shares as of December 31, 2023 and December 31, 2022, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock at cost, 473,617 and 472,977 shares as of December 31, 2023 and December 31, 2022, respectively Total shareholders’ equity Total liabilities and shareholders’ equity See accompanying notes to consolidated financial statements. 70,532 1,457 3,619 637,037 (9,690) 627,347 1,770 3,431 3,714 17,894 6,107 825,644 687,444 10,631 53,600 668 5,378 757,721 $ $ 91,017 2,894 6,710 603,609 (8,331) 595,278 1,845 2,779 3,825 14,548 4,554 781,963 671,052 10,559 34,788 405 5,521 722,325 $ $ - - - 39,294 37,426 (4,549) - 38,619 31,149 (5,890) (4,248) 67,923 825,644 $ (4,240) 59,638 781,963 $ 3 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Operations For the years ended December 31, (Dollars in thousands, except share data) 2023 2022 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 credit losses Net interest income after provision for credit 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 Service charges on deposit accounts Gain on sales of portfolio loans 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 Loan expenses FDIC and state assessments Advertising expense Other operating expenses Tot al other expenses Income before income tax expense Income tax expense Net income Earnings per share: Basic earnings per share Diluted earnings per share $ 36,010 702 $ 27,674 142 1,623 986 39,321 11,025 824 1,122 12,971 26,350 270 26,080 667 479 510 527 103 72 - 431 2,789 11,314 2,024 1,342 894 701 511 388 1,781 18,955 9,914 2,483 7,431 1.58 1.54 $ $ $ 1,679 378 29,873 2,692 872 300 3,864 26,009 1,150 24,859 909 852 595 1,440 99 - 37 419 4,351 11,220 1,731 1,231 602 596 369 206 1,862 17,817 11,393 2,895 8,498 1.82 1.76 $ $ $ Weighted average number of shares outstanding: Basic earnings per share Diluted earnings per share 4,705,189 4,827,793 4,681,122 4,826,184 See accompanying notes to consolidated financial statements. 4 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Comprehensive Income (In thousands) Net income Other comprehensive income (loss): Net unrealized gain (loss) on AFS investment securities: Net unrealized holding gain (loss) arising during the period For the years ended December 31, Before tax amount 9,914 $ 2023 Tax expense (benefit) $ 2,483 Net of tax amount 7,431 $ Before tax amount 11,393 $ 2022 Tax expense (benefit) $ 2,895 Net of tax amount 8,498 $ 1,929 588 1,341 (8,517) (2,355) (6,162) Total net unrealized gain (loss) on AFS investment securities Other comprehensive income (loss) Total comprehensive income 1,929 1,929 11,843 $ 588 588 3,071 $ 1,341 1,341 8,772 (8,517) (8,517) 2,876 (2,355) (2,355) 540 (6,162) (6,162) 2,336 $ $ $ $ See accompanying notes to consolidated financial statements. 5 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Changes in Shareholders’ Equity For the years ended December 31, 2023 and 2022 (In thousands) Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Treasury stock Total shareholders’ equity Balance as of Janaury 1, 2022 Stock issued Purchase of treasury stock (78,881 shares) Net unrealized loss on securities available for sale, net of tax $ Stock-based compensation Net income 38,250 104 265 Balance as of December 31, 2022 38,619 Cumulative change in accounting principle for the adoption of ASC 326* Balance as of January 1, 2023 Stock issued Purchase of treasury stock (640 shares) Net unrealized gain on securities available for sale, net of tax Stock-based compensation Net income Balance as of December 31, 2023 38,619 306 369 $ 22,651 $ 272 $ (3,356) $ 8,498 31,149 (1,154) 29,995 (884) (6,162) (5,890) (4,240) (5,890) (4,240) (8) 1,341 $ 39,294 $ 7,431 37,426 $ (4,549) $ (4,248) $ 57,817 104 (884) (6,162) 265 8,498 59,638 (1,154) 58,484 306 (8) 1,341 369 7,431 67,923 *See Note 2 Summary of Significant Accounting Policies See accompanying notes to consolidated financial statements. 6 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows For the years ended December 31, 2023 and 2022 (In thousands) Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by (used in) operating activities: 2023 2022 $ 7,431 $ 8,498 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 credit losses Cash disbursed for mortgage banking activities Cash received for mortgage banking activities Proceeds from sales of portfolio loans (Gains) losses on sales of portfolio loans Net (gain) loss on sales of OREO Net (gain) loss on disposals of premises and equipment Increase in cash value of bank-owned life insurance, net Decrease in deferred income tax benefit Changes in assets and liabilities: Increase in accrued interest receivable Increase in other assets Increase in accrued interest payable (Decrease) increase in other liabilities Total adjustments Net cash provided by 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 Proceeds from sales of short-term investments Purchases of securities available for sale Purchases of securities held to maturity Redemption (purchase) of restricted bank stock Proceeds from sale of real estate owned- Increase in loans receivable, net(39, Proceeds from the sale of premises and equipment Capital expenditures Proceeds from bank owned life insurance policies Purchase of life insurance policies Net cash used in investing activities 7 487 114 (656) 72 369 - (667) (479) 270 (58,329) 62,087 7,287 (72) - (6) (527) 41 (652) (2,073) 263 (142) 7,387 14,818 15,000 - 7,300 36,602 - - (35,533) 1,437 571) 11 (417) 1,181 (4,000) (17,990) 323 184 (1,278) 119 265 - (909) (852) 1,150 (89,549) 93,723 - - (37) 68 (1,440) 66 (1,115) (1,262) 102 1,723 1,281 9,779 - - 10,469 16,498 - (16,856) (36,136) (1,420) 76 (99,360) - (1,164) 3,052 - (124,841) 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows - Continued For the years ended December 31, 2023 and 2022 Cash flows from financing activities: Net increase in deposits Net increase (decrease) in short-term borrowings Proceeds from long-term borrowings, net of issuance costs Acquisition of treasury stock(8) Proceeds from exercise of stock options Stock issuance costs- Net cash provided by financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of year 2023 2022 16,391 18,812 - 306 35,501 32,329 20,399 60,576 34,788 - (884) 104 - 94,584 (20,478) 40,877 Cash and cash equivalents at end of year $ 52,728 $ 20,399 Supplemental disclosures: Cash paid during the year for: Interest Income taxes paid Noncash items: Net change in unrealized loss (gain) on securities available for sale, net of tax benefit of $588 for 2023 and $2,355 for 2022 Transfer to real estate owned Lease liabilities for obtaining right of use assets See accompanying notes to the consolidated financial statements. $ $ 12,708 3,025 1,341 - - $ $ 3,063 3,957 (6,162) 39 1,745 8 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 Mount Laurel, 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 its 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 27, 2024, 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. 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 90% 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, 9 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements construction and land development, and commercial and industrial loans comprised 28%, 6% and 5%, 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. On January 1, 2023, we adopted Accounting Standards Update No. 2016-13, “Financial Instruments-Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments” (“CECL”) issued by the Financial Accounting Standards Board (“FASB”). Under CECL expected credit losses on both HTM and AFS securities are to be recognized through a valuation allowance to the Allowance for Credit Losses (“ACL), instead of a direct write-down to the amortized cost basis of the security. HTM securities: Approximately 99% of our HTM securities portfolio is comprised of municipal bond anticipation notes (“BANs”) that are payable ultimately from ad valorem taxes to be levied upon all the taxable real property within the municipality issuing the BAN and have a maturity date of one year or less. As of December 31, 2023 no HTM debt securities required an ACL. AFS securities: For AFS debt securities in an unrealized loss position we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted form credit losses or other factors. We will record the portion of the impairment related to credit losses (if any) in the ACL with an offsetting entry to the Provision for credit losses of our Consolidated Income Statement. Any portion of the impairment not related to credit losses is recorded through other comprehensive income (“OCI”). We evaluate declines in the fair value of securities at least on a quarterly basis. The evaluation is a quantitative and subjective process. Management considers numerous factors, including but not limited to: (1) 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 in capital, (4) the credit rating of the issuer, (5) industry trends specific to the security, and (6) timing of debt maturity and status of debt payments. 10 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements 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, we consider 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, 2023 and 2022, respectively. Mortgage Loans Held for Sale We originate and sell residential mortgage loans with servicing released to the secondary market. This activity enables us to fulfill the credit needs of the community while reducing its overall exposure to interest rate and credit risk. These loans are reported at 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 credit 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%. 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 11 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements 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. Residential loans also include business loans secured by primary liens on one-to four family real estate collateral. 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 nonaccrual loans are normally applied against principal. Excess proceeds received over the principal amounts due on 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. Allowance for Credit Losses CECL Adoption On January 1, 2023, we adopted ASU 2016-13, Financial Instruments - Credit Losses (“ASC Topic 326”): Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, including loan receivables and HTM debt securities. It also applies to off-balance sheet (“OBS”) credit exposures, such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments. The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost basis and OBS credit exposures. Results for the 2023 reporting period are presented under ASC 326 while prior reporting periods continue to be reported in accordance with previously applicable GAAP. We recorded a net increase of $1.6 million to the ACL on January 1, 2023 as result of the adoption of CECL. Retained earnings decreased $1.2 and deferred tax assets increased by $434 thousand. Included in the $1.6 million increase to the ACL was $436 thousand for certain OBS credit exposures. 12 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements The following table illustrates the impact of ASC 326. (In thousands) Assets Loans: January 1, 2023 As reported Impact of Under Pre-ASC 326 ASC 326 ASC 326 Adoption Adoption Commercial real estate $ (1,961) $ (3,403) $ 1,442 Construction and land development Commercial Residential real estate Consumer Allowance for credit losses on loans Deferred tax assets, net Liabilities (1,011) (1,824) (4,657) (30) (9,483) 4,259 (54) (455) (2,063) (22) (1,152) 434 (957) (1,369) (2,594) (8) (8,331) 3,825 - Allowance for credit losses on OBS commitments $ 993 $ 557 $ 436 Shareholders' Equity Retained Earnings 29,995 31,149 (1,154) Management estimates the ACL using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of credit losses. We have incorporated the use of peer institution data to inform regression analysis designed to quantify the impact of reasonable and supportable forecasts in our models. Adjustments to historical loss information are made to address various risk characteristics of our loan portfolio such as changes in lending policies and procedures, trends in delinquencies and other non-performing loans, changes in economic conditions and collateral values, changes in growth trends or concentrations of loan segments, and other external factors such as regulatory environment. Loans are either evaluated on a collective (pool) basis or on an individual basis for expected credit losses. The ACL is measured on a collective pool basis when similar characteristics exist. The Company has identified five portfolio segments based on the Federal Call Code segmentation and measures the allowance for ACL using discounted cash flow. All periods during the reasonable and supportable forecast period utilize a forecasted loss rate. We have elected to forecast the first four quarters of the credit loss estimate and revert to a long-run average of each considered economic factor as permitted under CECL. The reversion period is four quarters. We will evaluate loans individually when they do not share similar risk characteristics with loans evaluated on a pool basis. Loans can be identified for individual evaluation based on nonaccrual status, delinquency, risk rating or modification. Loans individually evaluated are excluded from the pool evaluation. We have elected to exclude accrued interest receivable from the measurement of its ACL. When a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income. The estimated fair values of substantially all of our individually evaluated 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 13 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements 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. When the fair value of the loan is less than the carrying value, a specific reserve is established in the ACL for the difference. OBS Commitments: The ACL on OBS commitments is a liability for credit losses on commitments to originate or fund loans. It is included in “Other liabilities” on the consolidated balance sheets. Expected credit losses are estimated over the contractual period in which the Company is exposed to credit risk via a commitment that cannot be unconditionally canceled. In addition, the estimate of the liability considers the likelihood that funding will occur. The ACL on unfunded commitments is adjusted through provision for credit losses on consolidated statements of operations. Because the business processes and risks associated with unfunded commitments are essentially the same as loans, the Company uses the same process to estimate the liability. 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, 2023 and 2022. 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 realized. Income from these policies and changes in the cash surrender value are recorded in non-interest income. During 2023, we surrendered a $1.0 million policy due to a significantly below market yield. We paid a $28 thousand tax penalty upon the redemption and reinvested the proceeds in a new BOLI policy. During 2022, we received $3.1 million in insurance proceeds related to three former employees covered by BOLI policies and recorded $1.0 million in income from these proceeds. Income from the insurance proceeds is included in BOLI income on our Consolidated Statements of Operations. 14 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Earnings Per Share Basic earnings per share is calculated as net income divided by the weighted average number of shares outstanding, net of treasury stock, during the period. Dilutive earnings per share include dilutive common stock equivalents as computed under the treasury stock method using average common stock prices. Mortgage Banking Derivatives Commitments to fund mortgage loans (interest rate lock commitments) to be sold in the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as freestanding derivatives. The fair value of the interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded. In order to hedge the change in interest rates resulting from its commitment to fund the loans, we enter into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into. We utilize a third-party model to determine the fair value of rate lock commitments or forward sale contracts. This model uses investor bids and the probability that the rate lock commitments will close. Net derivative assets and liabilities are recorded within other assets or other liabilities, respectively, on the consolidated balance sheets, with changes in fair value during the period recorded within net change in the fair value of derivative instruments on the consolidated statements of income. 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, 2023, tax years 2020 through 2022 are subject to federal examination by the IRS and years 2019 through 2022 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, 2023 and 2022. 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 15 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements 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. As cited previously under Allowance for Credit Losses, the Company adopted the amendments in ASU 2016-13 on January 1, 2023. In March 2022, FASB issued ASU 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"). This update reduces the complexity of accounting for TDRs by eliminating certain accounting guidance, enhancing disclosures and improving the consistency of vintage disclosures. The Company adopted ASU 2022-02 on January 1, 2023, and it did not have a material impact on its consolidated financial statements. Note 3. Cash and Due from Banks The Bank was required to maintain $50 thousand in cash reserves at its correspondent banks as of December 31, 2023 and 2022. 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, 2023 and 2022 is as follows: As of December 31, 2023 (In thousands) Investments HTM: Municipal securities Corporate bonds Total HTM Amortized cost Gross unrecognized gains Gross unrecognized losses Fair value Allowance for credit losses $ $ 36,545 500 37,045 $ $ - - - $ $ - - - $ $ 36,545 500 37,045 Gross Gross Allowance Amortized cost unrealized gains unrealized losses for credit losses $ $ $ $ - - - Fair value 4,954 23,746 31,602 10,230 70,532 Investments AFS: U.S. Treasuries U.S. government securities Agency mortgage-backed securities Corporate bonds Total AFS $ $ 4,999 25,500 34,804 11,443 76,746 $ $ - - 6 - 6 $ $ (45) (1,754) (3,208) (1,213) (6,220) $ $ - - - - - 16 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements There was no allowance for credit losses on debt securities as of December 31, 2023. As of December 31, 2022 (In thousands) Investments HTM: Municipal securities Corporate bonds Total Investments AFS: U.S. Treasuries U.S. government securities Agency mortgage-backed securities Corporate bonds Total HTM unrecognized/ AFS unrealized Amortized Cost Gross gains Gross losses Fair value $ $ $ $ 37,614 500 38,114 14,956 30,490 42,272 11,442 99,160 $ $ $ $ - - - - - 1 - 1 $ $ $ $ - - - (224) (2,889) (4,270) (761) (8,144) $ $ $ $ 37,614 500 38,114 14,732 27,601 38,003 10,681 91,017 The scheduled maturities of investment securities held to maturity and securities available for sale as of December 31, 2023 are as follows: (In thousands) HTM Investments AFS Investmemts Amortized Cost Fair value Amortized Cost Fair value Due in one year or less $ 36,013 $ 36,013 $ 4,999 $ 4,955 Due after one year up to five years Due after five years up to ten years Due after ten years Subtotal Agency mortgage-backed securities 532 500 - 532 500 - 37,045 37,045 - - 26,500 24,678 9,470 973 41,942 34,804 8,551 747 38,931 31,601 Tot al $ 37,045 $ 37,045 $ 76,746 $ 70,532 There were no proceeds from the sale of securities available for sale during 2023 and 2022, respectively. There were no realized gains or losses in 2023 and 2022. As of December 31, 2023 and 2022, investment securities with a market value of $82.0 million and $74.9 million, respectively, were pledged as collateral for uninsured municipal deposits and the FHLB for potential borrowings. 17 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements The following table summarizes debt securities AFS in an unrealized loss position for which an allowance for credit losses has not been recorded at December 31, 2023, aggregated by major security type and length of time in a continuous unrealized loss position. As of December 31, 2023 (In thousands)Fa Investments AFS: U.S. Treasuries U.S. government securities Agency mortgage-backed securities Corporate bonds Total Less than 12 months Gross unrealized losses Number of positions ir value 12 months or longer Gross unrealized losses Number of positions Fair value Total Gross unrealized losses Number of positions Fair value $ $ - - - - - $ $ - - - - - - - - - - $ 4,954 23,746 $ 31,229 8,231 $ 68,160 $ (45) (1,754) (3,208) (1,213) (6,220) 1 6 53 10 70 $ 4,954 23,746 $ (45) (1,754) 31,229 8,231 (3,208) (1,213) $ 68,160 $ (6,220) 1 6 53 10 70 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, 2022 are as follows: As of December 31, 2022 (In thousands) Investments HTM : M unicipal securities Corporate bonds Tot al Investments AFS: U.S. Treasuries U.S. government securities Agency mortgage-backed securities Corporate bonds Less than 12 months Gross unrecognized/ unrealized losses Fair value Number of positions Fair value 12 months or longer Gross unrecognized/ unrealized losses Number of positions Total Gross unrecognized/ unrealized losses Number of positions $ $ $ - - - 14,732 4,807 12,140 8,681 $ $ $ - - - (224) (183) (578) (761) -$ - -$ $ $ - - - -$ $ 22,794 - (2,706) 25,553 (3,692) - - - - - - 6 9 - - - 3 1 46 10 60 Fair value -$ - -$ $ 14,732 27,601 37,693 8,681 $ $ $ - - - (224) (2,889) (4,270) (761) - - - 3 7 55 10 75 Tot al $ 40,360 $ (1,746) $ 48,347 $ (6,398) 15 $ 88,707 $ (8,144) Our corporate bonds are mostly comprised of financial institutions’ subordinated debt securities. Unrealized losses on corporate bonds have not been recognized into income because the issuers’ bonds are investment grade, management does not intend to sell, and it is likely that we will not be required to sell the security before recovery of its amortized cost basis. The decline in fair value is largely due to changes in interest rates and other market conditions. These financial institutions are well capitalized under the regulatory framework for prompt corrective action. 18 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Note 5. Loans Receivable and Allowance for Credit Losses Loans receivable consist of the following as of December 31, 2023 and 2022: (In thousands) Commercial real estate Construction and land development Commercial Residential real estate Consumer Subtotal Allowance for credit losses(9 December 31, December 31, 2023 2022 $ $ 177,062 38,815 34,077 385,841 1,242 637,037 ,690) 166,721 63,756 35,184 336,911 1,037 603,609 (8,331) Loans, net $ 627,347 $ 595,278 The Bank is subject to a loans-to-one-borrower limitation of 15% of capital funds. As of December 31, 2023, the loans-to-one-borrower limitation was $12.3 million compared to $11.1 million as of December 31, 2022. As of December 31, 2023 and 2022, 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, 2023 and 2022, mortgage loans totaled $601.7 million and $567.3 million, respectively. Mortgage loans represent 94.5% and 94.0% of total gross loans as of December 31, 2023 and 2022, respectively. Allowance for Credit Losses The following table presents the activity in the allowance for credit losses by portfolio segment for the year ended December 31, 2023: December 31, 2023 (In thousands) Allowance for credit losses: Beginning balance prior to the adoption of ASC 326 Impact of adopting ASC 326 Credit loss expense (credit) Charge-offs Recoveries Ending balance Construction Commercial and land Commercial real estate development and industrial Residential real estate Consumer Total $ 3,403 $ 957 $ 1,369 $ 2,594 $ 8 $ 8,331 (1,442) 456 (192) 264 $ 2,489 $ 54 (146) - 29 894 $ 455 (688) (213) 61 984 2,063 627 (62) 46 $ 5,268 $ 22 26 (4) 3 55 1,152 275 (471) 403 $ 9,690 The following table details the roll forward of the allowance for loan losses and the loan portfolio disaggregated by loan portfolio classification for the twelve-months ended December 31, 2022: 19 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements December 31, 2022 (In thousands) Beginning balance2,8 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 Construction Commercial and land Commercial real estate development and industrial Residential real estate Consumer Total $ $ $ $ $ $ $ 08 (88) 177 506 3,403 452 2,951 166,721 1,168 165,553 $ $ $ $ $ $ $ 825 (78) 1 209 957 - 957 63,756 1,567 62,189 $ $ $ $ $ $ $ 1,387 $ 1,870 $ (18) 154 (154) 1,369 732 637 35,184 732 34,452 (20) 142 602 2,594 21 2,573 336,911 1,375 335,536 $ $ $ $ $ $ $ $ $ $ $ $ 16 (8) 13 (13) 8 - 8 1,037 - 1,037 $ 6,906 (212) 487 1,150 8,331 1,205 7,126 603,609 4,842 598,767 $ $ $ $ $ $ The following tables details the impaired loans by loan classification as of and for the year ended December 31, 2022: (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:2,4 As of and for the year ended December 31, 2022 Unpaid principal balance Recorded investment Related allowance Average recorded Interest income investment recognized Interest income recognized cash basis $ $ $ $ 1,004 2,097 - 1,062 4,163 828 - 1,550 69 47 $ $ $ $ $ $ $ 656 1,567 - 990 3,213 828 - 732 69 $ $ $ - - - - - 452 - 732 21 1,629 $ 1,205 $ 792 1,687 106 769 3,354 64 6 642 5 717 $ $ $ $ 53 $ - - 13 66 - - - - - $ $ $ 129 11 14 56 210 - - - - - 20 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Nonaccrual Loans The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still accruing as of December 31, 2023: (In thousands) Nonaccrual With No Allowance for Credit Loss Nonaccrual with Allowance for Credit Loss Loans Past Due Over 89 Days Still Accruing Commercial real estate $ 2,170 $ 151 $ Construction and land development Commercial Residential real estate Consumer Tot al - 105 804 - 1,467 173 - - $ 3,079 $ 1,791 $ - - - - - - The Company recognized $101 thousand of interest income on nonaccrual loans during the year ended December 31, 2023. The following table present the recorded investment in nonaccrual and loans past due over 89 days still on accrual by class of loans as of December 31, 2022: (In thousands) Nonaccrual Loans Past Due Over 89 Days Still Accruing Commercial real estate $ Construction and land development Commercial Residential real estate Consumer Total $ 1,168 1,567 732 1,098 - $ 4,565 $ - - - - - - The following tables present an aging analysis of past due payments for each loan portfolio classification as of December 31, 2023 and December 31, 2022: December 31, 2023 (In thousands) Commercial real estate Construction and land development Commercial Residential real estate Consumer Total 30-59 Days Past Due $ 1,872 - 35 1,655 3 3,565 $ 60-89 Days Past Due $ - - 88 - - 88 $ 90+ Days Past Due $ 1,869 1,467 604 501 - 4,441 $ Total Past Due $ 3,741 1,467 727 2,156 3 8,094 $ Loans Not Past Due $ 173,321 37,348 33,350 383,685 1,239 628,943 $ Total 177,062 38,815 34,077 385,841 1,242 637,037 $ $ 21 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements December 31, 2022 (In thousands) Commercial real estate Construction and land development Commercial250 Residential real estate Consumer Total 30-59 Days Past Due 290 $ - 64 - 604 $ 60-89 Days Past Due 2,660 $ - - 316 - 2,976 $ 90+ Days Past Due $ - 1,567 893 741 - 3,201 $ Total Past Due 2,950 $ 1,567 1,143 1,121 - 6,781 $ Loans Not Past Due 163,771 $ 62,189 34,041 335,790 1,037 596,828 $ Total 166,721 63,756 35,184 336,911 1,037 603,609 $ $ Loan Modifications to Borrowers Experiencing Financial Difficulty On January 1, 2023, the Corporation adopted ASU 2022-02. Loan modifications reported below do not include modifications with insignificant payment delays. Occasionally the Company modifies loans to borrowers in financial distress by providing a modification to their original loan terms. The modification can include principal forgiveness, a term extension, an other-then-insignificant payment delay or an interest rate reduction. When principal forgiveness is granted, the amount of forgiveness is charged-off against the ACL. In some cases, the Company provides multiple types of concessions on one loan. For the loans included in the combination columns below multiple types of modifications have been made on the same loan within the current reporting period. The following table presents the amortized cost basis of loans at December 31, 2023 that were both experiencing financial difficulty and modified during the year ended December 31, 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below. (In thousands) Commercial real estate Commercial Construction and land development Residential real estate Consumer Total Principal Forgiveness - $ - - - - - $ Payment Delay $ $ 315 - - 419 - 734 Term Extension - $ 59 - - - 59 $ Interest Rate Reduction 43 $ - - - - 43 $ Combination Combination Term Term $ Payment Delay Extension and Extension and Interest Rate Reduction 654 $ 37 - - - 691 483 - - 125 - 608 $ $ Total Class of Financing Receivable 0.8% 0.2% 0.0% 0.1% 0.0% 0.3% There are no commitments to lend additional amounts to the borrowers included in the previous table. We closely monitor the performance of the loans that are modified to borrowers experiencing financially difficulty to understand the effectiveness of our modification efforts. Only one modified commercial loan in the amount of $59 thousand was past due for 81 days as of December 31, 2023. Credit Quality Indicators We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial condition, repayment sources, payment history and value of collateral. Commercial, 22 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements commercial real estate, and construction and development loans are evaluated annually or when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include the following regulatory classifications: 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. Loans not classified as special mention, substandard, or doubtful are pass-rated loans. The following table summarizes designated internal risk categories by portfolio segment and loan class, by origination year, in the current period: Term Loans Amortized Cost Basis by Origination Year Revolving Revolving Loans Loans Amortized Converted 2023 2022 2021 Prior Cost Basis To Term Total (In thousands) As of December 31, 2023 Commercial real estate Pass Special mention Substandard $ 16,376 $ 47,582 $ 43,126 $ 63,374 - - - - 499 3,618 1,478 438 Tot al commercial real estate loans $ 16,376 $ 47,582 $ 47,243 $ 65,290 Commercial real estate Current period gross write offs $ - $ - $ - $ 192 $ $ $ 571 - - 571 - Construction and land development Pass Special mention Substandard $ 19,623 $ 15,355 $ 4,476 $ 2,364 $ 4,225 - - - - - - - 1,467 - - Tot al construction and land development $ 19,623 $ 15,355 $ 4,476 $ 3,831 $ 4,225 Construction and land development: Current period gross write offs $ - $ - $ - $ - $ - 23 $ $ $ $ $ $ - - - - - - - - - - $ 171,029 1,977 4,056 $ 177,062 $ 192 $ 46,043 - 1,467 $ 47,510 $ - 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Term Loans Amortized Cost Basis by Origination Year Revolving Revolving Loans Loans Amortized Converted (In thousands) 2023 2022 2021 Prior Cost Basis To Term Total As of December 31, 2023 (cont.) Commercial Pass Special mention Substandard $ 2,378 $ 5,613 $ 1,845 $ 12,607 $ 10,926 - - - 200 - 1 35 - 66 406 Tot al commercial $ 2,378 $ 5,813 $ 1,846 $ 12,642 $ 11,398 Commercial: Current period gross write offs $ 45 $ - $ 168 $ - $ - $ $ $ - - - - - $ 33,369 101 607 $ 34,077 $ 213 The Company considers the performance of the loan portfolio and its impact on the ACL. For residential and consumer loan classes, we also evaluate credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the amortized cost in residential and consumer loans based on payment activity: Term Loans Amortized Cost Basis by Origination Year Revolving Revolving Loans Loans Amortized Converted 2023 2022 2021 Prior Cost Basis To Term Total $ $ $ $ $ $ 1,074 $ 385,038 163 803 1,237 $ 385,841 - - - - - $ 62 $ $ $ 1,242 - 1,242 4 As of December 31, 2023 Residential real estate Payment performance Performing Nonperforming $ 56,213 $ 83,996 $ 74,802 $ 83,450 $ 85,503 - 136 - 404 100 Total residential real estate $ 56,213 $ 84,132 $ 74,802 $ 83,854 $ 85,603 Residential real estate: Current period gross write offs Consumer Payment performance Performing Nonperforming Total consumer Consumer: Current period gross write offs $ $ $ $ - $ - $ - $ 62 $ - 8 - 8 - $ $ $ 665 - 665 - $ $ $ 40 - 40 - $ $ $ 482 - 482 4 $ $ $ 47 - 47 - 24 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements The following tables present risk ratings for each loan portfolio classification as of December 31, 2022 December 31, 2022 (In thousands)Pass Commercial real estate Construction and land development Commercial34,343 $ 164,961 60,013 Total $ 259,317 Special Mention $ 592 2,176 109 2,877 $ Substandard $ Doubtful $ - - - - $ Non-accrual $ 1,168 1,567 732 3,467 $ Total 166,721 63,756 35,184 265,661 $ $ - - - - $ The following tables present the recorded investment in residential and consumer loans based on payment activity: December 31, 2022 (In thousands) Residential real estate Consumer Performing 335,813 $ 933 336,746 $ Nonaccrual 1,098 $ - 1,098 $ Total 336,911 1,037 337,948 $ $ Total Note 6. Premises and Equipment, Net Premises and equipment as of December 31, 2023 and 2022 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, 2023 2022 $ 122 1,232 2,370 3,724 $ 122 1,104 2,134 3,360 (1,954) (1,515) $ 1,770 $ 1,845 Depreciation expense was $487 thousand and $323 thousand for the years ended December 31, 2023 and 2022, respectively, and is recorded in occupancy and equipment expenses. 25 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Note 7. Deposits Deposits consist of the following major classifications as of December 31, 2023 and 2022: (Dollars in thousand) Non-interest checking Interest checking Money market deposits Savings deposits Certificates of deposit ($250 and over) Certificates of deposit (less than $250) Brokered deposits Total deposits As of December 31, 2023 2022 $ 69,435 $ 85,716 378,140 332,032 14,597 49,190 22,612 72,471 80,999 49,952 68,987 25,518 61,397 47,450 $ 687,444 $ 671,052 The Bank has a concentration of deposits from local municipalities. Municipal deposits, which are mostly interest-checking accounts, were $309.1 million or 45.0% of total deposits as of December 31, 2023, and $298.7 million or 44.5% of total deposits as of December 31, 2022. Municipal deposit accounts in excess of $250 thousand are collateralized by investment securities with a market value of $82.0 million as of December 31, 2023 and a $173.0 million FHLB Municipal Letter of Credit. Interest expense on deposits consisted of the following for the years ended December 31, 2023 and 2022: (In thousands) Interest checking Money market deposits Savings deposits Certificates of deposit 2023 2022 $ 4,833 $ 481 411 5,300 781 244 314 1,353 2,692 Total interest expense on deposits $ 11,025 $ The following is a schedule of certificates of deposit, which includes the brokered deposits, by maturities as of December 31, 2023: (In thousands) 2024 2025 2026 2027 2028 As of December 31, 2023 $ 168,358 4,707 2,606 409 2 Total certificates of deposits $ 176,082 26 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Note 8. Borrowing Availability Federal Home Loan Bank The Bank is a member of the FHLB of New York and has access to overnight and term advances. As of December 31, 2023, we had $173.0 million in short-term municipal letters of credit outstanding and $33.0 million in additional borrowing capacity. The FHLB line of credit is secured with residential and commercial mortgage loans totaling $253.5 million. As of December 31, 2022, we had $165.0 million in short-term municipal letters of credit outstanding and $33.5 million in additional borrowing capacity. The FHLB line of credit is secured with residential and commercial mortgage loans totaling $240.2 million. As of December 31, 2023, $0 million was outstanding against the FHLB line of credit compared to $33 million, with an interest rate of 4.61%, as of December 31, 2022. The average balance of FHLB advances was $4.0 million and $9.4 million for 2023 and 2022, respectively, with average rates paid of 4.33% and 3.09% for the respective periods. Federal Reserve Bank As of December 31, 2023, we had $140.4 million in borrowing capacity at the FRB. The FRB line of credit is secured with commercial, construction and residential and commercial mortgage loans totaling $195.6 million. As of December 31, 2022, we had $114.1 million in borrowing capacity at the FRB. The FRB line of credit is secured with commercial, construction and residential and commercial mortgage loans totaling $170.7 million. As of December 31, 2023, $53.6 million, with an interest rate of 5.50%, was outstanding against the FRB line of credit compared to $0 as of December 31, 2022. The average balance of FRB advances was $17.8 million and $125 thousand for 2023 and 2022, respectively. For 2023 the average rate paid was 5.34% compared to 4.50% for 2022. 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 $10.6 million as of December 31, 2023 and December 31, 2022. Other Lines of Credit As of December 31, 2023 and 2022, the Bank had an unsecured line of credit with Atlantic Community Bankers Bank (“ACBB”) in the aggregate amount of $8.0 million. As of December 31, 2023, $0 was outstanding against the ACBB line of credit compared to $1.8 million, with an interest rate of 4.75% as of December 31, 2022. The average balance of the ACBB line was $20 thousand and $146 thousand for 2023 and 2022, respectively, with average rates paid of 5.33% and 1.48% for the respective periods.. As of December 31, 2023 and 2022, 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, 2023 and 2022, there were no outstanding balances against this line. 27 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements 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, 2023 and 2022: (In thousands, except for per share data) 2023: Basic earnings per share Effect of dilutive stock equivalents Diluted earnings per share 2022: Basic earnings per share Effect of dilutive stock equivalents Diluted earnings per share Net Income Average shares Per share Amount $ $ $ $ 7,431 - 7,431 8,498 - 8,498 4,705,189 122,604 4,827,793 4,681,122 145,062 4,826,184 $ $ $ $ 1.58 (0.04) 1.54 1.82 (0.06) 1.76 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 2023, the Company granted a total of 57,728 restricted stock unit awards, which are considered CSEs. Options to purchase 278,232 and 373,132 shares of common stock were outstanding as of December 31, 2023 and 2022, respectively. There were no antidilutive options excluded from the earnings per share calculations for 2023 and 2022. Note 10. Derivative and Hedging Activity Commitments to fund certain fixed rate mortgage loans (interest rate lock commitments) to be sold in the secondary market and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. During 2022 we began the practice of entering into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from our commitments to fund the loans. Interest rate lock commitments and forward sales commitments are recorded within other assets and/or other liabilities on the consolidated balance sheets, with changes in fair values recorded within gains on sale of mortgage loans on the consolidated statements of operations. 28 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements The following table reflects the amount and fair value of mortgage banking derivatives included in the Consolidated Balance Sheet as of December 31, 2023 and 2022. (In thousands) Amount ValueAm ount Value December 31, 2023 December 31, 2022 Included in other assets Interest Rate Lock Commitments Forward commitments Total included in other assets $ $ Included in other liabilities Interest Rate Lock Commitments Forward commitments Total included in other liabilities $ 3,149 - 3,149 - 3,000 3,000 $ $ $ Note 11. Fair Value of Financial Instruments 94 - 94 - 21 21 $ $ $ 2,351 2,250 4,601 - - - $ $ $ 54 10 64 - - - 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. 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. 29 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements 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, 2023 and 2022. Items Measured on a Recurring Basis Fair value for Level 1 securities is determined by obtaining quoted market prices in active markets. U.S. Treasuries are classified as Level 1. 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 corporate bonds. Additionally, the fair value of our forward commitments is based on market pricing and is classified as Level 2. Level 3 includes our interest rate lock commitments. The determination of fair value of includes assumptions, that are significant and unobservable, about the probability that the loans behind the rate lock commitments will close. Items Measured on a Nonrecurring Basis Loans individually evaluated are based on the fair value of the underlying collateral, less costs to sell. 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, 2023 and December 31, 2022 are as follows: 30 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements 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 $ 4,954 $ - $ - - - - - - - - - 23,746 31,602 10,230 3,619 - 3,619 $ 21 21 - - $ $ $ $ $ $ $ $ $ $ $ $ $ $ - - - - - 94 94 - - 5,502 5,502 $ $ $ $ $ $ 4,954 23,746 31,602 10,230 70,532 3,619 94 3,713 21 21 5,502 5,502 As of December 31, 2023 (In thousands) Asset s measured at fair value on a recurring basis Investment securities: U.S. Treasuries U.S. government agencies Agency mortgage-backed securities Corporate bonds Tot al investments AFS4,954 65,578 Mortgage loans held for sale Interest rate lock commitments Total assets measured at fair value on a recurring basis Liabilities measured at fair value on a recurring basis Forward commitments Total liabilities measured at fair value on a recurring basis Assets measured at fair value on a non-recurring basis Individually evaluated loans Total assets measured at fair value on a non-recurring basis 31 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements As of December 31, 2022 (In thousands) Assets measured at fair value on a recurring basis Investment securities: U.S. Treasuries U.S. government agencies Agency mortgage-backed securities Corporate bonds Tot al investments AFS Mortgage loans held for sale Interest rate lock commitments Forward commitments 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 $ 14,732 $ - $ - - - 14,732 - - - 27,601 38,003 10,681 76,285 6,710 - 10 - - - - - - 54 - 54 $ 14,732 27,601 38,003 10,681 91,017 6,710 54 10 $ 97,791 Total assets measured at fair value on a recurring basis $ 14,732 $ 83,005 $ Assets measured at fair value on a non-recurring basis Loans indiviually measured for impairment Total assets measured at fair value on a non-recurring basis $ $ - - $ $ - - $ $ 4,842 4,842 $ $ 4,842 4,842 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, 2023 and December 31, 2022: As of December 31, 2023 (Dollars in thousands) Valuation Unobservable Fair Value Techniques Input Range of Inputs Weighted Average Individually evaluated loans $ 5,502 Appraisal Liquidation expenses 0%-17.8% discount 13.39% Qualitative Information about Level 3 Fair Value M easurements of collateral As of December 31, 2022 (Dollars in thousands) Valuation Unobservable Fair Value Techniques Input Range of Inputs Weighted Average Loans indiviually measured for impairment $ 4,842 Appraisal Liquidation expenses 0%-12.9% discount 6.82% Qualitative Information about Level 3 Fair Value M easurements of collateral 32 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements The estimated fair value of the Company’s financial instruments as of December 31, 2023 and 2022 was as follows: Fair Value M easurements As of December 31, 2023 Quoted Prices in Active Significant M arkets for Other Significant Identical Observable Unobservable (In thousands) Financial Assets: Carrying value Estimated fair value Assets Level 1 Inputs Level 2 Inputs Level 3 Cash and cash equivalents $ Investments held to maturity Investments available for sale Restricted bank stock, at cost M ortgage loans held for sale 52,728 37,045 70,532 1,457 3,619 $ 52,728 37,045 70,532 NA 3,619 Loans receivable, net 627,347 577,512 Interest rate lock commitments Accrued interest receivable Financial liabilities: Demand deposits M oney market deposits Savings deposits Certificates of deposit Subordinated debt, net Other borrowings Forward commitments Accrued interest payable 94 3,431 447,575 14,597 49,190 176,082 10,631 53,600 21 668 94 3,431 447,575 14,597 49,190 176,779 9,819 53,600 21 668 $ 52,728 $ - $ - - - - - - - - - - - - - - 36,545 70,532 - 3,619 - - - 447,575 14,597 49,190 176,779 9,819 53,600 21 668 - 500 - NA - 577,512 94 3,431 - - - - - - - - 33 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Fair Value M easurements As of December 31, 2022 Quoted Prices in Active Significant M arkets for Other Significant Identical Observable Unobservable (In thousands) Financial Assets: Carrying value Estimated fair value Assets Level 1 Inputs Level 2 Inputs Level 3 Cash and cash equivalents $ Investments held to maturity Investments available for sale Restricted bank stock, at cost M ortgage loans held for sale 20,399 38,114 91,017 2,894 6,710 $ 20,399 38,114 91,017 NA 6,710 Loans receivable, net 595,278 548,529 Interest rate lock commitments Forward commitments Accrued interest receivable Financial liabilities: Demand deposits M oney market deposits Savings deposits Certificates of deposit Subordinated debt, net Other borrowings Accrued interest payable 54 10 2,779 417,748 49,952 68,987 134,365 10,559 34,788 405 54 10 2,779 417,748 49,952 68,987 134,881 9,773 34,792 405 $ 20,399 $ - $ - - - - - - - - - - - - - - 37,614 91,017 - 6,710 - - 10 - 417,748 49,952 68,987 134,881 9,773 34,792 405 - 500 - NA - 548,529 54 - 2,779 - - - - - - 34 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Note 12. Income Taxes The components of income tax expense (benefit) are stated below: (In thousands) Income tax expense (benefit) For the years ended December 31, 2023 2022 Federal Current Deferred State Current Deferred $ $ 1,832 (110) 1,722 692 69 761 Total income tax expense $ 2,483 $ 1,731 57 1,788 1,098 9 1,107 2,895 The following is a reconciliation between expected tax expense at the statutory rate of 21% for 2023 and 2022 and actual tax expense: (In thousands) For the years ended December 31, 2023 2022 Computed tax expense at statutory rate $ 2,082 $ 2,393 Adjustments resulting from: State tax, net of federal benefit Tax-exempt interest income Bank owned life insurance Stock-based compensation Other 601 (206) (21) (14) 41 875 (97) (303) (3) 30 Income tax expense2,483 $ $ 2,895 35 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Significant deferred tax assets and liabilities of the Bank as of December 31, 2023 and 2022 are as follows: (In thousands) Deferred tax assets: As of December 31, 2023 2022 Allowance for loan losses $ 2,556 $ Deferred rent Unrealized losses on AFS debt securities Share-based compensation cost Unfunded loan commitments Non-accrual interest Other Deferred tax assets Deferred tax liabilities: Depreciation Prepaid expenses Deferred loan costs Total deferred tax liabilities Net deferred tax asset, included in other assets 38 1,639 151 261 12 10 4,667 (380) (18) (555) (953) 2,304 11 2,234 134 157 9 11 4,860 (459) (31) (545) (1,035) $ 3,714 $ 3,825 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, 2023. As of December 31, 2023 and 2022, 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. As of December 31, 2023, the years 2020 – 2022 are open for federal examination and years 2019-2022 are open for state examinations. Note 13. 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 represents 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. No new leases were executed in 2023. During 2022 we executed a new lease for the main office and relocated to Mount Laurel, New Jersey in November. The new lease is for 92 months. Additionally, we extended the Collingswood location’s lease for another five years. The Company’s leases have remaining lease terms of one month to 7.5 years, some of which include options to extend the leases for up to five years. Because we may need to expand our office space, the extension options were excluded from the calculations of the ROU asset and lease liability. 36 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements The following table presents the ROU assets and the lease liability for the years ended December 31, 2023 and 2022. (In thousands) ROU asset Lease liabilitity1,8 For the years ended December 31, 2023 2022 $ $ 1,667 12 $ $ 1,971 2,011 The following table presents operating lease costs for the years ended December 31, 2023 and 2022. (In thousands) Operating lease cost For the years ended December 31, 2023 2022 $ $ 413 413 $ $ 323 323 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) As of December 31, 2023 2022 2023 2024 2025 2026 2027 Thereafter Total lease payments Less imputed interest $ $ 361 432 354 347 256 400 2,150 (338) 308 361 432 354 347 655 2,457 (446) Total $ 1,812 $ 2,011 Note 14. 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 Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. 37 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Commitments issued to potential borrowers of the Bank as of December 31, 2023 and 2022 were as follows: (In thousands) Fixed rate commitments Variable/adjustable rate commitments Total commitments Legal Proceedings As of December 31, 2023 2022 $ $ 2,805 137,350 140,155 $ $ 4,291 133,994 138,285 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 15. 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 $1.1 million and $1.0 million as of December 31, 2023 and 2022, respectively. During 2023 and 2022, new loans and credit line advances to such related parties amounted to $296 thousand and $335 thousand, respectively, and repayments amounted to $26 thousand and $13 thousand, respectively. Approximately $125 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 $27.3 million and $51.1 million as of December 31, 2023 and 2022, 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 $14 thousand and $20 thousand for the years ended December 31, 2023 and 2022, 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 16. 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 $293 thousand and $289 thousand during 2023 and 2022, respectively. Note 17. 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 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, 38 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements vesting and restrictions on shares. As of December 31, 2023, 286,228 options and restricted stock units were outstanding under this plan. Compensation expense for equity grants is recognized over the requisite service period. During 2023 and 2022, we recognized $369 thousand and $265 thousand, respectively, in compensation expense for equity grants. As of December 31, 2023, approximately $1.2 million remained to be recognized in compensation expense over a weighted- average period of approximately three 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, 92,187 options remain outstanding as of December 31, 2023 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, 14,745 options remain outstanding as of December 31, 2023 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. 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. There were no stock option awards granted in 2023 and 2022. A summary status of the Company’s stock option plans as of December 31, 2023 and 2022, and the changes during the years then ended, is as follows: 2023 2022 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 373,132 $ 7.60 5.7 407,592 $ 7.58 Granted Exercised Forfeited or expired(36,077) 8.21 - (58,823) Options outstanding at the end of the year Options exercisable at the end of the year 278,232 180,532 $ $ - 5.20 8.02 7.73 - (18,160) (16,300) 373,132 220,432 $ $ - 5.77 9.33 7.60 7.01 5.4 4.4 $ $ 1,148 799 (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, 2023. 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. 39 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements The following table provides detail for non-vested stock options under the 2020 Equity Plan as of December 31, 2023: Weighted Average Exercise Price Options Non-vested options December 31, 2022 152,700 $ 8.44 Granted Forfeited Vested - (22,500) (32,500) Non-vested options December 31, 2023 97,700 $ - 7.21 8.90 8.57 The following table summarizes the activity for the Company’s restricted stock unit awards as of December 31, 2023: Outstanding as of December 31, 2022 Granted Forfeited Vested Weighted Restricted Average stock units 77,786 57,728 (6,534) (14,052) Fair Value $ 10.58 11.46 11.34 10.34 Outstanding as of December 31, 2023 114,928 $ 11.01 Note 18. Shareholders’ Equity and Regulatory Capital Shareholders’ Equity In November 2021, the Company announced and adopted a stock repurchase program that was completed in May 2022 with a total of 193,381 shares repurchased for a cost of $2.0 million, or an average cost of $10.30 per share. Under this repurchase program 114,500 shares were purchased in 2021 and 78,881 shares were repurchased in 2022. On August 8, 2023, the Company announced and adopted another stock repurchase program that will expire in July 2024. As of December 31, 2023 640 shares were repurchased for a cost of $8 thousand. 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 40 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements 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. 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. At year end 2023 and 2022, 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, 2023 and 2022 are presented in the following table: (Dollars in thousands) Tot al risk-based capital As of December 31, 2023 As of December 31, 2022 Tier 1 risk-based capital As of December 31, 2023 As of December 31, 2022 Tier 1 leverage capital As of December 31, 2023 As of December 31, 2022 Tier 1 common equity risk-based capital As of December 31, 2023 As of December 31, 2022 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 $ $ $ $ $ $ $ $ 86,824 82,086 79,815 74,817 79,815 74,817 79,815 74,817 15.554% 14.141% 14.298% 12.889% 10.015% 9.742% 14.298% 12.889% $ $ $ $ $ $ $ $ 44,657 46,439 33,493 34,829 31,878 30,718 25,120 26,122 8.00% 8.00% 6.00% 6.00% 4.00% 4.00% 4.50% 4.50% $ $ $ $ $ $ $ $ 58,612 60,951 47,448 49,342 31,878 30,718 39,075 40,634 10.500% 10.500% 8.500% 8.500% 4.000% 4.000% 7.000% 7.000% $ $ $ $ $ $ $ $ 55,821 58,049 44,657 46,439 39,847 38,398 36,284 37,732 10.00% 10.00% 8.00% 8.00% 5.00% 5.00% 6.50% 6.50% 41 1ST COLONIAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Note 19. Parent Company Financial Information A summary of the statements of financial condition as of December 31, 2023 and 2022 is as follows: (In thousands) Assets Cash in subsidiary Investment in subsidiary Deferred tax asset Other assets Tot al assets Liabilities and S hareholders’ Equity Subordinated debt, net of issuance costs Accrued interest payable Other liabilities Shareholders' equity Tot al liabilities and shareholders’ equity As of December 31, 2023 2022 $ $ $ $ 3,981 74,401 151 296 78,829 10,631 251 24 67,923 78,829 $ $ $ $ 1,148 68,927 135 257 70,467 10,559 251 19 59,638 70,467 A summary of the statements of operations for the years ended December 31, 2023 and 2022 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 benefit Income tax benefit Net income 2023 2022 $ $ 5,286 3,400 8,686 824 474 1,298 7,388 (43) 7,431 $ $ 9,649 - 9,649 872 350 1,222 8,427 (71) 8,498 42 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, 2023 and 2022 is as follows: (In thousands) Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by (used in) operating activities: Equity in income from subsidiary Stock-based compensation expense Increase deferred income tax benefit Amortization of issuance costs on long-term debt Increase in other assets 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: Acquisition of treasury stock Proceeds from sale of stock Net cash provided by (used in) financing activities Net increase (decrease) 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 2023 2022 $ 7,431 $ 8,498 (5,286) 369 (17) 72 (39) 5 (4,896) 2,535 - (8) 306 298 2,833 1,148 3,981 3,726 2,782 $ $ (9,649) 265 (21) 120 (56) 3 (9,338) (840) - - (884) 104 (780) (1,620) 2,768 1,148 3,726 2,782 $ $ Supplemental disclosures: Net change in unrealized gains on securities available for sale, net tax benefit of $588 for 2023 and $2,355 for 2022 $ 1,341 $ (6,162) 43 Administrative Office 1000 Atrium Way Suite 200 Mount Laurel, NJ 08054 (856) 858-1100 Collingswood Branch 1040 Haddon Avenue Collingswood, NJ 08108 (856) 858-8604 Westville Branch 321 Broadway Westville, NJ 08093 (856) 456-6544 Limerick Branch 440 Linfield Trappe Road Limerick, PA 19456 (610) 226-3000 Stock Listing 1st Colonial Bancorp, Inc.'s Common Stock is traded under the Symbol "FCOB" Board of Directors Linda M. Rohrer, Chairman Thomas A. Clark, III, Esquire Harvey Johnson, Esquire Thomas R. Brugger John J. Donnelly, IV Stanley H. Molotsky Curt Byerley Michael C. Haydinger Shelley Y. Simms Executive Officers Robert B. White, President and Chief Executive Officer Mary Kay Shea, Executive Vice President and Chief Financial Officer Senior Management 1st Colonial Community Bank Gino Brown, SVP Residential Mortgage Lending Matthew McGonigal, SVP Director of Digital Experience and Operations William Pizzichil, SVP Managing Director of Risk Randolph D. Wolfe, SVP Chief Revenue Officer Auditors Counsel Crowe LLP 1455 Pennsylvania Avenue NW Suite 700 Washington, DC 20004 Stradley Ronon Stevens & Young LLP A Pennsylvania Limited Liability Partnership 2005 Market Street, Suite 2600 Philadelphia, Pennsylvania 19103-7018 Registrar and Transfer Agent Pacific Stock Transfer Company 6725 Via Austi Parkway Suite 300 Las Vegas, Nevada 89119 Telephone (800) 785-7782 1000 Atrium Way Suite 200 Mt. Laurel, NJ 08054 877.785.8550 1 S T C O L O N I A L . C O M 

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