a - -~ ~~i lIannualreports.co.uk/HostedData/AnnualReportArchive/1/OTC_FCOB_… · 1040 Haddon Avenue Collingswood, New Jersey 08108 • (856) 858-1100 •Stock Symbol: FCOB. KPMG

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2014 ANNUAL REPORT

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Apri13, 2015

Dear Fellow Shareholders,

It was a very good year. In 2014, ls~ Colonial Bancorp earned $1,326,000 in net income.

It's the best year we've had since our opening in 2000.

Net loans increased from $186,000,000 at December 31, 2013 to $241,600,000 atDecember 31, 2014. Similarly, our deposits increased from $306,979,000 to$377,934,000. This doesn't just happen. It is a product of a work effort by all officers andemployees, with appropriate governance by our Board of Directors. Income is asimportant as size, and we should add that our assets increased from $336,000,000 atDecember 31, 2013 to $409,000,000 at December 31, 2014.

We are constantly reviewing our situation to see where it can be improved, notably bysuch things as closing a branch that was not contributing to the bank's profitability.

Independent rating agencies have consistently given us an excellent rating, and we've

always had a good relationship with our regulators.

There is no reason to believe that 2015 can not repeat the success, and we will work hardat continuing that progress.

We appreciate your support.

Sincerely,

0 / L ~~~%~

Linda M. RohrerChairman of the Board

Gerard M. BanmillerPresident and Chief Executive Officer

1040 Haddon Avenue Collingswood, New Jersey 08108 • (856) 858-1100 •Stock Symbol: FCOB

KPMG

1ST COLONIAL BANCORP, INC. AND SUBSIDIARY

Consolidated Financial Statements

December 31, 2014 and 2013

(With Independent Auditors' Report Thereon)

KPMG LLP1601 Market StreetPhiladelphia, PA 19103

Independent Audito►•s' Report

The Board of Directors15 Colonial Bancorp, Inc.:

We have audited the accompanying consolidated financial statements of ls Colonial Bancorp, Inc. and itssubsidiary, which comprise the consolidated statements of financial condition as of December 31, 2014 and2013, and the related consolidated statements of operations, comprehensive income, shareholders' equity,and cash flows for each of the years in the three year period ended December 31, 2014, and the relatednotes to the consolidated financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with U.S. generally accepted accounting principles; this includes the design,implementation, and maintenance of internal control relevant to the preparation and fair presentation ofconsolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audit to obtain reasonable assurance aboutwhether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in theconsolidated financial statements. The procedures selected depend on the auditors' judgment, including theassessment of the risks of material misstatement of the consolidated financial statements, whether due tofraud or error. In making those risk assessments, the auditor considers internal control relevant to theentity's preparation and fair presentation of the consolidated financial statements in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion onthe effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit alsoincludes evaluating the appropriateness of accounting policies used and the reasonableness of significant

accounting estimates made by management, as well as evaluating the overall presentation of theconsolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our

audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly in all material respects,the financial position of 1S Colonial Bancorp, Inc. and its subsidiary as of December 31, 2014 and 2013,and the results of their operations and their cash flows for each of the years in the three year period endedDecember 31, 2014 in accordance with U.S. generally accepted accounting principles.

r~ ~'~ C~ LLB

Philadelphia, PennsylvaniaMarch 26, 2015

KPMG LLP is a Delaware limited liability partnership,

The U.S. member firm of KPMG International Cooperative

("KPMG International"), a Swiss entity.


Consolidated Statements of Financial Condition


(Dollars in thousands, except share data)

Assets

Cash and due from banksFederal funds sold

Cash and cash equivalents

Short-term investmentsInvestments held to maturity (fair value of $24,794 at December 31,

2014 and $32,278 at December 31, 2013)Securities available for sale (amortized cost of $112,778 at

December 31, 2014 and $92,423 at December 31, 2013)Bank stock, at costMortgage loans held for sale

LoansLess allowance for loan losses

Net loans

201-4

~ 12,2696

12,275

24,794

112,8191,6553,752

245,486(3,819)

241,667

2013

9,7257

9,732

250

32,278

91,1831,5602,464

189,613(3,547)

186,066

Premises and equipment, netAccrued interest receivableDeferred tax assetsBank-owned life insuranceReal estate ownedOther assets

Total assets

1,412961

1,2786,3141,567506

$ 409,000

1,714867

1,9266, 1281,525479

336,172

Liabilities and Shareholders' Equit~~

Liabilities:Deposits $ 377,934 306,979Other borrowings 3,221 3,587Accrued interest payable 6 5Other liabilities 855 824

Total liabilities 382,016 311,395

Shareholders' equity:Common stock, $0 par value. Authorized 5,000,000 shares;

issued and outstanding of 3,518,554 and 3,511,245 shares atDecember 31, 2014 and 2013

Preferred stock. Authorized 1,000,000 shares, no shares issuedAdditional paid-in capitalRetained earningsAccumulated other comprehensive income (loss)Treasury stock at cost, 137,876 shares

Total shareholders' equity

Total liabilities and shareholders' equity

See accompanying notes to consolidated financial statements.

25,3502,459

23(848)

26,984

$ 409,000

24,1882,183(746)(848)

24,777

336,172

3


Consolidated Statements of Operations

Years ended December 31, 2014, 2013, and 2012


Interest income:LoansFederal funds sold and interest-bearing depositsInvesrinents:

TaxableNontaxable

Total interest income

Interest expense:DepositsOther borrowings

Total interest expense

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Other income:Service charges on deposit accountsGain on sales of mortgage loans held for saleMortgage fee incomeIncrease in cash value of bank-owned life insuranceOther income, service charges, and feesGain on sale of securitiesGain on sale of guazanteed portion of SBA loans

Total other income

Other expenses:Compensation and employee benefitsOccupancy and equipment expensesAdvertising expenseData processing expenseProfessional servicesOther operating expensesOCC and FDIC assessmentsLoss on real estate owned

Total other expenses

Income before income tax expense

Income tax expense (benefit)

Net income

Earnings per share:Basic earnings per shareDiluted earnings per share

Weighted average number of shares outstanding:Basic earnings per shazeDiluted earnings per share

2014 2013 2012

$ 9,904 8,884 9,17717 33 6

1,246 1,080 1,155338 338 488

11,505 10,335 10,826

922 1, 111 1,50534 27 46

956 1,138 1,551

10,549 9,197 9,275

1,225 1,015 2,275

9,324 8,182 7,000

167 167 1781,038 1,048 1,309

85 131 157186 191 203450 368 349108 - 2926 389 344

2,060 2,294 2,569

4,529 4,009 3,9651,091 889 866338 296 288639 626 585487 554 519

1,754 2,172 1,289278 269 346335 451 264

9,451 9,266 8,122

1,933 1,210 1,447

607 337 339

$ 1,326 873 1,108

$ 0.38 0.26 0.330.37 0.25 0.33

$ 3,469,338 3,344,043 3,344,0433,599,421 3,443,304 3,344,043


4

1~ COLONIAL BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income



Net income

Other comprehensive income:Net unrealized gains (losses) on

available for-sale investment securities:Net ucuealized holding gains (losses)

arising during the periodLess reclassification adjustrnent

for net (gains) losses on salesrealized in net income

Total net unrealized gains(losses) on available-for-saleinvestment securities

Other comprehensive income

Total comprehensive income

Years ended December 31201 2

Before Tax et o ore as et o ore as et otax expense tas tsa expense tsa tax expense taz

amount (benefit) amount amount (benefit) amount amount (benefit) amount

$ 1,933 607 1,326 1,210 337 873 1,447 339 1,108

1,388 554 834 (2,453) (980)

(108) 43 (65)

(1,473) (123) (49) (74)

— (Z9) (12) (17)

1,280 511 769 (2,453) (980) (1,473) (94) (37) (57)

1,280 511 769 (2,453) (980) (1,473) (94) (37) (57)

$ 3,213 1,118 2,095 (1,243) (643) (600) 1,353 302 1.051



Consolidated Statements of Shareholders' Equity


(Dollars in thousands)

AccumulatedAdditional other Total

Common Preferred paid-in Retained comprehensive Treasury shareholders'stock stock capital earnings income (loss) stock equity

Balance at December 31, 2011 $ 23,186 1,098 783 (848) 24,219

Stock dividend — — — — — —Stock issuance expenses — — — — —Pwchase of treasury stock — — — — —Net unrealized gain on securities

available for sale, net of tax — — — (57) — (57)Stock-based compensation — — 42 — 42Net income — — — 1,108 — — 1,108

Balance at December 31, 2012 — — 23,228 2,206 726 (848) 25,312

o, Stock dividend — — 896 (896)Stock issuance expenses — — (4) — (4)Purchase of treasury stock — — — — —Net unrealized gain on securities

available for sale, net of tax — — — — (1,472) — (1,472)Stock-based compensation — — 68 — — — 68Net income — — — 873 — — 873

Balance at December 31, 2013 — — 24,188 2,183 (746) (848) 24,777

Stock dividend — — 1,050 (1,050) — — —Stock issued — — 32 — 32Stock issuance expenses — — (2) — (2)Purchase of treasury stock — — — —Net unrealized gain on securities — — — — — —

available for sale, net of tas — — — — 769 — 769Stock-based compensation — — 82 — — — 82Net income — — — 1,326 — — 1,326

Balance at December 31, 2014 $ — — 25,350 2,459 23 (848) 26,984



Consolidated Statements of Cash Flows


(Dollazs in thousands)

Cash flows from operating activities:Net income

Adjushnents to reconcile net income to net cash (used in) provided byoperating activities:

Depreciation and amortizationAmortization of premium on securities, netAmortization of deferred fees/cost, netStcek-based compensationGain on sales of mortgage loans held for saleGain on sales of guaranteed portion of SBA loansGain on sale of securitiesLoss on real estate ownedProvision for loan lossesCash disbursed for mortgage banking activitiesCash received for mortgage banking activities(Increase) decrease in accrued interest receivableDecrease (increase) deferred income tau benefit(Increase) decrease in other assetsIncrease in cash value of bank-owned life insurance, netIncrease (decrease) in accrued interest payableIncrease (decrease) in other liabilities

Total adjustments

Net cash (used in) provided by operating activities

Cash flows from investing activities:Proceeds from maturities and sales of securities available for saleProceeds from maturities of securities held to maturityProceeds from sales of short-term investmentsPurchases of securities available for salePurchases of securities held to maturityPurchase of Federal Home Loan Bank stockRepayment of principal of securities available for saleProceeds from sale of real estate ownedIncrease in loans receivable, netCapital expenditures

Net cash used in investing activities

Cash flows from financing activities:Net increase in depositsNet decrease in other borrowingsProceeds from sale of stockStock issuance costs

Net cash provided by financing activities

Net (decrease)increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplemental disclosures:Cash paid during the yeaz for:

InterestIncome taxes paid (received)

Noncash items:Net change in unrealized gain on securites available for sale, net of

taxes of $511, $(980), and $(37) for 2014, 2013 and 20] 2, respectivelyTransfer to real estate owned

2014 2013 2012

1,326 873 1,108

375 176 181(950) (861) (279)67 37 182 68 42

(1,038) (1,048) (1,309)(26) (389) (344)(108) - (29)335 45l 264

1,225 1,015 2,275(38,662) (45,350) (54,906)38,412 52,913 50,644

(94) 51 121137 138 (153)(27) 514 267(186) (191) (203)

1 (5) (IS)31 (140) 492

(426) 7,379 (2,951)

900 8,252 (1,843)

5,831 1,562 12,84142,571 34,638 37,493

250 250 250(44,906) (43,984) (33,837)(35,087) (34,453) (35,099)

(95) (313) (347)19,777 16,383 14,0871,782 1,299 322

(58,940) (17,345) (3,535)(159) (124) (79)

(68,976) (42,087) (7,904)

70,955 34,775 15,206(366) (2,119) (3,354)32 - -~Z) C4) -

70,619 32,652 11,852

2,543 (1,183) 2,105

9,732 10,915 8,810

$ 12,275 9,732 10.915

$ 955 1,143 1,566300 761 (132)

$ 769 (1,473) (57)2,073 1,285 274



Notes to Consolidated Financial Statements


(1) Nature of Operations

1 S` Colonial Bancorp, Inc. (the Company) is a Pennsylvania corporation headquartered in Collingswood,New Jersey, and the parent company of 1 S` Colonial Community Bank (the Bank). The Bank opened forbusiness on June 30, 2000, and provides a wide range of business and consumer financial services throughits two New Jersey branch offices located in Collingswood and Westville.

The Company was organized as the holding company for the Bank, in connection with the reorganizationapproved by the Bank's shareholders at the annual meeting on June 12, 2002. As a bank holding companyregistered under the Bank Holding Company Act of 1956, the Company is subject to the supervision andregulation of the Board of Governors of the Federal Reserve System (the FRB). The Bank was a nationalbank until November 1, 2012 when it was granted a state charter by the New Jersey Department of Bankingand Insurance. The Bank's deposits are insured by the Federal Deposit Insurance Corporation (FDIC). TheCompany'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 provideits local communities with general commercial and retail banking services. The Bank is managed as onebusiness segment.

(2) Summary of Significant Accounting Policies

(a) Basis of Presentation

The accompanying consolidated financial statements include the accounts of the parent company, 15Colonial Bancorp, Inc. and its wholly owned subsidiary, ls` Colonial Community Bank. Prior periodamounts have been reclassified, where necessary, to conform to current year classification.

(b) Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally acceptedaccounting principles requires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of theconsolidated financial statements and the reported amounts of income and expenses during thereporting period. Actual results could differ from those estimates.

(c) Cash and Cash Equivalents

For purposes of reporting cash flows, cash, and cash equivalents include cash and amounts due frombanks and federal funds sold. Generally, federal funds sold are repurchased the following day.

(d) Short-Term Investments

The Bank's short-term investments comprise certificates of deposit carried at cost.

(e) Investments Held to Maturity

Debt securities that management has the positive intent and ability to hold until maturity are classifiedas held to maturity and are carried at their remaining unpaid principal balance, net of unamortizedpremiums or unaccreted discounts. Premiums are amoRized and discounts are accreted using a method

(Continued)




that produces results that approximate level yield over the estimated remaining term of the underlyingsecurity.

(~ Securities Avai/able for Sale

Securities not classified as held to maturity are classified as available-for-sale and are stated at fairvalue. Unrealized gains and losses are excluded from earnings and are reported as accumulated othercomprehensive (loss) income, net of tax, as a separate component of shareholders' equity, untilrealized. Gains and losses are determined using the specific-identification method and are accountedfor on a trade-date basis.

(~ Bank Stock

The Bank carries its investments in Atlantic Central Bankers Bank (ACBB) stock and Federal HomeLoan Bank (FHLB) stock at their amortized cost because they do not have a readily determinable fairvalue. These investments are included in bank stock in the consolidated statements of financialcondition.

The Bank is required to maintain an investment in ACBB stock. The Bank had $40,000 and $40,000in ACBB stock at December 31, 2014 and 2013, respectively.

During 2006, the Bank became a member of the Federal Home Loan Bank of New York (FHLB). TheBank is required to acquire and hold shares of capital stock in the FHLB based upon a percentage ofthe Bank's FHLB borrowings, unused borrowing capacity and the amount of residential first mortgageloans sold to the FHLB. The Bank had $1,615,000 and $1,536,000 in FHLB stock at December 31,2014 and 2013, respectively. The Bank carries its investment in FHLB stock at cost, or par value, andevaluates FHLB stock for impairment based on the ultimate recoverability of par value rather than byrecognizing temporary declines in value. As part of the impairment assessment of FHLB stock,management considers, among other things, (i) the significance and length of time any declines in netassets of the FHLB compared to its capital stock, (ii) commitments by the FHLB to make paymentsrequired by law or regulations and the level of such payments in relation to its operating performance;(iii) the impact of legislative and regulatory changes on financial institutions and, accordingly, thecustomer base of the FHLB; and (iv) the liquidity position of the FHLB. The FHLB has access to theU.S. government-Sponsored Enterprise Credit Facility, a secured lending facility that serves as aliquidity backstop, substantially reducing the likelihood that the FHLB would need to sell securities toraise liquidity and, thereby, cause the realization of large economic losses. The FHLB is rated AAAand is likely to remain unchanged based on expectations that the FHLB has a very high degree ofgovernment support and was in compliance with all regulatory capital requirements as ofDecember 31, 2014. Based on the above, we have determined there was no other-than-temporaryimpairment related to our FHLB stock investment as of December 31, 2014.

(h) Mortgage Loans Held for Sale

The Bank originates and sells residential mortgage loans servicing released to the secondary market.This activity enables the Bank to fulfill the credit needs of the community while reducing its overallexposure to interest rate and credit risk. These loans are reported at the lower of their cost or fair marketvalue.

9 (Continued)




(i) Loans

Loans are stated at the principal amount outstanding, net of deferred loan fees and costs. Interestincome is accrued on the principal amount outstanding. Loan origination fees and related direct costsare deferred and amortized to interest income over the term of the respective loan as a yield adjustment.

Loans are reported as nonaccrual if they are past due as to principal or interest payments for a periodof 90 days or more. Exceptions may be made if a loan is deemed by management to be wellcollateralized and in the process of collection. Loans that are on a current payment status may also beclassified as nonaccrual if there is serious doubt as to the borrower's ability to continue interest orprincipal payments. When a loan is placed in the nonaccrual category, interest accruals cease, anduncollected accrued interest receivable is reversed and charged against current interest income.Nonaccrual loans are generally not returned to accruing status until principal and interest paymentshave been brought current and full collectibility is reasonably assured. Impaired loans are measuredbased on the present value of expected future discounted cash flows, the market price of the loan, orthe fair value of the underlying collateral if the loan is collateral dependent. For purposes of applyingthe measurement criteria for impaired loans, the Bank excludes large groups of smaller-balancehomogeneous loans, primarily consisting of residential real estate and consumer loans, as well ascommercial loans with balances of less than $100,000. The recognition of interest income on impairedloans is the same as for nonaccrual loans discussed above.

(j) Allowance for Loan Losses

The allowance for loan losses reflects management's best estimate of losses, both known and inherent,in the existing loan portfolio. Management uses significant estimates to determine the allowance forloan losses. Management's estimates consider such factors as changes in the nature and volume of theportfolio, overall portfolio quality, review of specific problem loans, and current economic conditionsthat may affect the borrowers' ability to pay. The provision for loan losses charged to operatingexpenses represents the amount necessary to maintain an appropriate allowance. Loan losses arecharged directly against the allowance for loan losses when loans are determined to be uncollectible.Recoveries on previously charged-off loans are added to the allowance when received.

In addition, regulatory authorities, as an integral part of their examinations, periodically review theallowance for loan losses. They may require additions to the allowance based upon their judgmentsabout information available to them at the time of examination.

(k) 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 shorterof the useful lives or the remaining lease term. Software costs, furniture, and equipment havedepreciable lives of 3 to 10 years. Building and improvements have estimated useful lives of 30 to35 years. The costs of maintenance and repairs are expensed as they are incurred, and renewals andbetterments are capitalized.

10 (Continued)




(l) Real Estate Owned

Real estate owned is comprised of properties acquired through foreclosure proceedings or acceptanceof a deed in lieu of foreclosure. Real estate owned is recorded at the lower of the carrying value of theloan or the fair value of the property, net of estimated selling costs. Costs relating to the developmentor improvement of properties are capitalized, while expenses related to the operation and maintenanceof properties are expensed as incurred. Gains or losses upon dispositions are reflected in earnings asrealized. The Bank had Real estate owned in the amount of $1,567,000 and $1,525,000 atDecember 31, 2014 and 2013, respectively.

(m) Bank-Owned Life Insurance

The Bank purchased $5 million of Bank-Owned Life Insurance (BOLD on selected officers and keyemployees, $4 million was purchased in July 2005, and an additional $1 million was purchased inDecember 2009. The asset is carried at its cash surrender value of $6,314,000 at December 31, 2014.Income of $186,000 was recognized on BOLI for 2014 and is included in other income. The Bank hasan agreement to split the benefits with the employees if the employee is still working or is on disabilityat time of death. The maximum amount that will be paid to all employees is $795,000.

(n) Earnings Per Share

Basic earnings per share is calculated as net income divided by the weighted average number of sharesoutstanding. Dilutive earnings per share include dilutive common stock equivalents as computed underthe treasury stock method using average common stock prices.

(o) Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assets and liabilities and theirrespective ta~c bases, as well as operating loss carryforwards. Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income in the years in which thosetemporary differences are expected to be recovered or settled. The effect on deferred tax assets andliabilities of a change in tax rates is recognized in income in the period that includes the enactmentdate. A valuation allowance is established against deferred tax assets when, in the judgment ofmanagement, it is more likely than not that such deferred tax assets will not become available.

(p) Stock Options

As of December 31, 2014, the Company had four stock-based compensation plans, which are describedmore fully in note 18. The Company accounts for all share-based payments to employees, including

grants of employee stock options, to be recognized as compensation expense in the consolidated

financial statements based on their fair values. 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 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update

(ASU) No. 2011-OS Presentation of Comprehensive Income, regarding the presentation of

1~ (Continued)

ls'~ COLONIAL BANCORP, INC. AND SUBSIDIARY



The scheduled maturities of investments held to maturity and securities available for sale at December 31,

2014 are as follows (dollars in thousands):

Investments held to maturity securities a~~ailable for sale

Amortized Amortisedcost Fair value cost f~ air ~ aluc

Due in one year or less $ 24,290 24,290 — —

Due after one year up to five years 255 255 3,860 3,956

Due after five years up to ten years 151 151 44,259 44,186

Due after ten years 98 98 64,659 64,677

Total $ 24,794 24,794 112,778 112,819

Proceeds from sales and maturities of securities available for sale totaled $5,831,000, $1,562,000, and

$12,841,000 during 2014, 2013, and 2012, respectively. Gains realized from the sale of securities were

$108,000, $0 and $29,000 in 2014, 2013, and 2012, respectively.

At December 31, 2014, the Company pledged $133,005,000 in investment securities as collateral for

uninsured municipal deposits, uninsured deposits underlying retail repurchase agreements and the FHLB for

potential borrowings.

Gross unrealized losses and fair value, aggregated by investment category and length of time that individual

securities have been in continuous unrealized loss positions at December 31, 2014 are as follows (dollars in

thousands):

Less than 12 months Over 12 months TotalUnrealized l' nrcalized nreahzed

Fair value losses I~air~alue losses I~air~alue losses

Investments held to maturity:Municipal securities $

Total

Securities available for sale:U.S. government securitiesMortgage-backed securitiesMunicipal securities

4,946 (53) 12,75524,723 (95) 18,898

(340) 17,701 (393)(264) 43,621 (359)

Total 29,669 (148) 31,653 (604) 61,322 (752)

For all of the above investment securities, the unrealized losses are generally due to changes in interest ratesand, as such, are considered to be temporary by the Company. The temporary impairment of fixed rateinvestments is likely to continue in a rising interest rate environment. The contractual terms of theseinvestments do not permit the issuer to settle the securities at a price less than the amortized cost of theinvestment. Because the Company has the ability and intent to hold these investments until a market pricerecovery or maturity, these investments are not considered other than temporarily impaired.

14 (Continued)

1ST COLO1vIAL BANCORP, INC. AND SUBSIDIARY



All temporarily impaired investments are bank-qualified investments. There has been no significant changein the credit quality of issuers since the securities were purchased.

(6) Loans Receivable

Loans receivable consist of the following at December 31, 2014 and 2013 (dollars in thousands):

2014 2013

Commercial $ 38,134 30,146Real estate —commercial 82,027 78,977Real estate —residential 99,017 66,385Construction 24,018 12,217Consumer 2,317 1,848

245,513 189,573

Less allowance for loan losses (3,819) (3,547)Deferred loan costs (27) 40

Loans receivable, net $ 241,667 186,066

The Bank is subject to aloans-to-one-borrower limitation of 15% of capital funds. At December 31, 2014,the loans-to-one-borrower limitation was $4,561,000; this excludes an additional 10% of adjusted capitalfunds or $3,040,000, which may be loaned if collateralized by readily marketable securities as defined byregulations. At December 31, 2014 and 2013, there are no loans outstanding or committed to any oneborrower that individually or in the aggregate exceed that limit.

The Bank lends primarily to customers in its local market area. Most loans are mortgage loans. Mortgageloans 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 estatevalues. At December 31, 2014 and 2013, mortgage loans totaled $205,063,000 and $157,579,000,respectively. Mortgage loans represent 83.5% and 83.1% of total gross loans at December 31, 2014 and2013, respectively.

The Bank had 12 nonaccruing loans at December 31, 2014 in the amount of $1,459,000. All of the

nonaccruing loans are impaired. The Bank has identified reserves totaling $63,000 for these loans. The

nonaccruing loans are secured and in the process of collection. The Bank had 18 nonaccruing loans at

December 31, 2013 in the amount of $2,381,000. All of the nonaccruing loans are impaired. The Bank has

identified reserves totaling $0 for these loans. The nonaccruing loans are secured and in the process of

collection.

Average nonaccruing loans were $2,156,000 and $3,387,000 for the years ended December 31, 2014 and

2013, respectively.

15 (Continued)




The following tables detail the carrying value of loans by commercial loan portfolio based on the credit

quality indicators used to allocate the allowance for loan losses as of December 31, 2014 and 2013:

Credit risk profile by internally assigned gradeCommercial real estate Construction Commercial2014 2013 2014 2013 2014 2013

December 3 lPass $ 74,314 68,177 24,018 12,217 35,303 28,760Special mention 3,266 3,330 — — 2,048 1,112Substandard 4,082 6,693 — — 665 233Doubtful 365 777 — — 118 41

$ 82,027 78,977 ?4,018 12,217 38,134 30,146

Impaired Loans

The following tables detail the recorded investment and principal balance of impaired loans by portfoliosegment, their related allowance for loan losses for the twelve months ended December 31, 2014 and 2013:

Real estate Real estateCommercial Construction Commercial residentlal Consumer Totals

As of December 31, 2014:Impaired loans with no specific

reserve $ 1,011 13l 224 — 1,396Impaired loans with specific

reserve — 63 — — 63Accruing restructured loans with

no specific reserve 92 245 — — 337Accruing restructured loads with

specific reserve 1,033 - I ~ ~ 1,186

Total impaired loanbalance $ 2,166 — -~;~~ ;?7 — 2,982

Related specific reserves $ 33 6? 57 96

As of December 31, 2013:Impaired loans with no specific

reserve $Impaired loans with specif►c

reserveAccruing restructured loans with

specific reserve 1,056 — — — — 1,056

2,086 — 445 208 18 2,757

Total impaired loanbalance $ 3, 142 — 445 208 18 3,813

Related specific reserves 5 106 — — — — 106

I g (Continued)




Troubled Debt Restructured Loans and Leases

The Company determines whether a restructuring of debt constitutes a troubled debt restructuring (TDR) inaccordance with guidance under FASB ASC Topic 310, Receivables. T'he Company considers a loan a TDRwhen the borrower is experiencing financial difficulty and we grant a concession that we would not otherwiseconsider but for the borrower's financial difficulties. The Company evaluates selective criteria to determineif a borrower is experiencing financial difficulty, including the ability of the borrower to obtain funds fromsources other than the Company at market rates.

The following tables summarize information about TDRs as of December 31, 2014:

No. of loans Balance(In thousands)

Loans modified during the period in a manner that metthe definition of a TDR 3 $ 245

Modifications granted:Deferral of principal amounts due 3 245Below market interest rate granted with deferral of

principal amounts due — —Outstanding principal balance immediately before and

after modification 3 245Outstanding principal balance at period end 7 $ 2,374

There were no TDRs, which have defaulted (defined as past due 90 days) during the twelve months endedDecember 31, 2014 that were restructured within the last twelve months prior to December 31, 2014:

(7) Premises and Equipment, Net

Premises and equipment at December 31, 2014 and 2013 are summarized as follows (dollars in thousands):

Furniture and equipmentBuilding and landLeasehold improvements

Accumulated depreciation and amortization

2014 2013

$ 1,718 1,6121,448 1,534826 766

3,992 3,912

(2,580) (2,198)

$ 1,412 1,714

Depreciation and amortization expense was $375,000, $176,000 and $181,000 for the years endedDecember 31, 2014, 2013, and 2012, respectively, and is recorded in occupancy and equipment expenses.

The Company leases its main office and operations center. The Company relocated its operations center inApri12014. The Company owns its branch located in Westville, New Jersey. The Westville branch openedin January 2003.

19 (Continued)




(8) Deposits

Deposits consist of the following major classifications at December 31, 2014 and 2013 (dollars in thousands):

2014 2013Percentage Percentage

N'cihhtecl of total Weighted of totala~cr~gc rate Amount deposits average rate ~muwit deposits

Interest checking 0.26% $ 207,380 54.9% 0.31% $ 148,871 48.5%Noninterest checking — 47,780 12.6 — 42,330 13.8Money market 0.30 18,620 4.9 0.30 22,440 73Savings 0.29 60,720 16.1 0.30 59,536 19.4Certificates of deposit 0.70 43,434 11.5 0.74 33,802 1 I.0

Total 0.29% $ 377,934 100.0% 031% $ 306,979 100.0%

The Bank has a concentration of deposits from local municipalities. Municipal deposits, which are mostlyinterest-checking accounts, were $193,015,000 or 51.1 % of total deposits at December 31, 2014, and$133,422,000 or 43.5% of total deposits at December 31, 2013. Municipal deposit accounts in excess of$250,000 are collateralized by investment securities with a carrying value of $126,459,000 at December 31,2014 and $36,000,000 secured by a FHLB Municipal Line of Credit.

Certificates of deposit accounts of $100,000 and over totaled $21,733,000 and $23,487,000 at December 31,2014 and 2013, respectively.

Interest expense on deposits consisted of the following for the years ended December 31, 2014 and 2013,(dollars in thousands):

2014 2013 2012

Interest checking $ 423 560 759Money market 66 83 101Savings 166 201 262Certificates of deposit 267 267 383

Interest expense ondeposits $ 922 1,111 1,505

The following is a schedule of certificates of deposit by maturities as of December 31, 2014 (dollars inthousands):

Year ending December 31:2015 $ 30,0432016 6,530> 2016 6,861

Total $ 43,434

20 (Continued)




(9) Borrowing Availability

At December 31, 2014, the Bank had an unsecured line of credit with First Tennessee Bank in the aggregateamount of $5 million, an unsecured line of credit with Atlantic Central Bankers Bank in the aggregate amountof $7.5 million, and a secured line of credit with the FHLB in the amount of $8,414,000. The FHLB line ofcredit is secured with residential and commercial mortgage loans with an aggregate market value of$10,765,000 at December 31, 2014. At December 31, 2014, the Bank had no outstanding borrowing againstits lines of credit. The Bank had borrowed funds outstanding for 163 days in 2014. The amounts outstandingranged from $400,000 to $23,500,000. Total outstanding borrowings averaged $3,121,000 for the year endedDecember 31, 2014. At December 31, 2013, the Bank had an unsecured line of credit with First TennesseeBank in the aggregate amount of $5 million, an unsecured line of credit with Atlantic Central Bankers Bankin the aggregate amount of $7.5 million, and a secured line of credit with the FHLB in the amount of$176,000. The FHLB line of credit is secured with U.S. government securities and mortgage-backedsecurities with an aggregate market value of $185,000 at December 31, 2013. At December 31, 2013, theBank had no outstanding borrowing against its lines of credit. The Bank had borrowed funds outstanding for72 days in 2013. The amounts outstanding ranged from $100,000 to $14,300,000. Total outstandingborrowings averaged $954,000 for the year ended December 31, 2013.

In addition, the Bank sold securities under agreements to repurchase as another funding source. As ofDecember 31, 2014 and 2013, the Bank had $3,221,000 and $3,587,000, respectively, of securities sold underagreements to repurchase. As of December 31, 2014, these repurchase agreements had fixed rates rangingfrom 0.5% to 1.0% and terms ranging from 1 day to 365 days. The underlying securities for the repurchaseagreements were U.S. government securities and mortgage-backed securities with an aggregate market valueof $6,493,000 and $4,362,000 as of December 31, 2014 and 2013, respectively.

At December 31, 2014, ls` Colonial Bancorp, Inc. had a secured line of credit with Atlantic Central BankersBank (ACBB) in the aggregate amount of $2,000,000. The ACBB line is secured with 100% of the votingstock of 151 Colonial Community Bank. At December 31, 2014, there were no outstanding balances againstthis line. There were no amounts outstanding in 2014 under this line.

21 (Continued)




(10) Earnings Per Share

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings pershare calculation for the years ended December 31, 2014 and 2013 (dollars in thousands, except per sharedata):

Net income

2014:Basic earnings per share $ 1,326Effect of dilutive stock equivalents —

Diluted earnings per share $ 1,326

2013:Basic earnings per share $ 873Effect of dilutive stock equivalents —

Diluted earnings per share $ 873

2012:Basic earnings per share $ 1,108Effect of dilutive stock equivalents —

Diluted earnings per share $ 1,108

Weightedaveragenumberof shares

outstanding

3,469,338124,410

3,593,748

3,344,04399,261

3,443,304

3,344,043

3,344,043

Per shareamount

0.380.01

0.37

0.260.01

0.25

0.33

0.33

Earnings per share is calculated on the basis of weighted average number of shares outstanding. Options topurchase 320,662, 370,061, and 388,904 shares of common stock were outstanding at December 31, 2014,2013, and 2012, respectively. All unexercised warrants expired during 2006. Options and warrants, to theextent dilutive, were included in the denominator in the computation of earnings per diluted share. Optionsto purchase 196,252, 265,937, and 388,904 shares were antidilutive for 2014, 2013, and 2012, respectively,and, therefore, excluded from the calculation of earnings per diluted common share.

(11) Fair Value of Financial Instruments

The following required disclosure of the estimated fair value of financial instruments has been determinedby the Company using available market information and appropriate valuation methodologies. However,considerable judgment is necessarily required to interpret market data to develop the estimates of fair value.Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company couldrealize in a current market exchange. The use of different market assumptions and/or estimationmethodologies may have a material effect on the estimated fair value amounts.

22 (Continued)




The methods and assumptions used to estimate the fair values of each class of financial instrument are asfollows:

(a) Cash and Cash Equivalents, Short-Term Investments, Accrued Interest Receivable, and AccruedInterest Payable

The items are generally short term in nature, and accordingly, the carrying amounts reported in theconsolidated statements of financial condition are reasonable approximations of their fair values.

(b) Investment Securities

Fair values for investment securities are based on quoted market prices, if available. If quoted marketprices are not available, then fair values are based on quoted market prices of comparable instruments.

(c) Bank Stock

The carrying value of bank stock in the accompanying consolidated statements of financial conditionapproximates fair value.

(d) Loans and Mortgage Loans Held for Sale

For variable rate loans that reprice frequently and with no significant change in credit risk, fair valueis based on carrying value. The fair value for other loans receivable was estimated using a discountedcash flow analysis, which uses interest rates currently being offered for loans with similar terms toborrowers of similar credit quality. Consideration was given to prepayment speeds, economicconditions, risk characteristics, and other factors considered appropriate.

(e) Deposits

The fair values of deposits subject to immediate withdrawal, such as interest and noninterest checking,statement savings, and money market demand deposit accounts, are equal to their carrying amounts inthe accompanying consolidated statements of financial condition. Fair values for certificates of depositare estimated by discounting future cash flows using interest rates currently offered on certificates ofdeposit with similar remaining maturities.

(f) Other Borrowings

The fair value of other borrowings is established using a discounted cash flow calculation that appliesinterest rates currently being offered on borrowings with similar terms.

(~J) Off-Balance-Sheet Instruments

Off-balance-sheet instruments are primarily comprised of loan commitments and unfunded lines ofcredit that are generally priced at market rate at the time of funding. Therefore, these instruments havenominal value prior to funding.

23 (Continued)




The estimated fair value of the Company's financial instruments at December 31, 2014 and 2013 wasas follows (dollars in thousands):

2014 2013Fair value Carr~~ing Estimated Carrying Estimated

hierarchy amount fair value amount fair value

Financial assets:Cash and cash equivalent Level 1 $ 12,'69 12,269 9,732 9,729

Short-term investments Level 1 - - 250 250

Investments held tomaturity Leve12 24,794 24,794 32,278 32,278

Investments available forsale Leve12 112,819 112,819 91,183 91,183

Bank stock, at cost Level 2 1,655 1,655 1,560 1,560

Mortgages loans held forsale Leve12 3,752 3,752 2,464 2,464

Loans receivable, net Leve13 241,667 242,818 186,066 188,610

Accrued interest receivable Leve12 961 961 867 867

Total financialassets $ 397,917 399,068 324,400 326,941

Financial liabilities:Demand deposits Leve12 $ 255,160 255,160 191,200 191,200

Money market deposits Level 2 18,620 18,620 22,441 22,441

Savings deposits Leve12 60,720 60,720 59,536 59,536

Certificates of deposit Level 2 43,434 43,495 33,802 33,861Other borrowings Leve12 3,221 3,221 3,587 3,589

Accrued interest payable Level 2 6 6 5 5

Total financialliabilities $ 381,161 381,222 310,571 310,632

(12) Income Taxes

Total income tax expense (benefit) was allocated for the years ended December 31, 2014, 2013, and 2012,as follows (dollars in thousands):

Income tax expense (benefit)Shareholders' equity for unrealized

gain (loss) on securities availablefor sale

2014

607

2013

337

2012

339

511 (980) (37)

$ 1,118 (643) 302

24 (Continued)




Income tax expense (benefit) consisted of the following for the years ended December 31, 2014, 2013, and2012 (dollars in thousands):

2014 2013 2012

Federal:Current $ 321 136 365Deferred 121 111 (150)

442 247 215

State:Current 149 63 127Deferred 16 27 (3)

165 90 124

Total $ 607 337 339

The following is a reconciliation between expected tax expense at the statutory rate of 34% and actual taxexpense (dollars in thousands):

2014 2013 2012

At federal statutory rate $ 657 411 492Adjustments resulting from:

State tax, net of federal benefit 109 68 82Tax-exempt interest income (135) (132) (178)Bank-owned life insurance (64) (65) (69)Stock-based compensation 16 3 2Other (12) 16 10Expired charitable contribution 36 36 —

Total $ 607 337 339

25 (Continued)



December 31, 20l 4 and 2013

Significant deferred tax assets and liabilities of the Bank at December 31, 2014 and 2013 are as follows(dollars in thousands):

2014 2013

Deferred tax assets:Bad debt reserves —loans $ 690 739Nonaccrual interest 25 21Deferred rent 57 31Stock based compensation 118 111Charitable contributions 65 110Alternative minimum tax credit 517 554Unrealized losses on AFS — 495Other-than-temporary impairment 64 69Other 17Depreciation 14 14

Total gross deferred tax assets 1,567 2,144

Deferred tax liabilities:Deferred loan costs (266) (198)Prepaid expenses (7) (20)Unrealized gains on available-for-sale securities (16) —

Total gross deferred tax liabilities (289) (218)

Net deferred tax assets $ 1,278 1,926

The realizability of deferred tax assets is dependent upon various factors, including the generation of futuretaxable income, the existence of taxes paid and recoverable, the reversal of deferred tax liabilities, and taxplanning strategies.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than notthat some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferredtax assets is dependent upon the generation of future taxable income during the periods in which the netoperating loss carryforwards are available and the temporary differences representing net future deductiblesreverse. Based upon these and other factors management has determined that it is more likely than not thatthe Company will realize the benefits of the deferred tax assets that exist at December 31, 2014. TheCompany has a federal charitable contribution carryforward in the amount of $165,000, which will begin toexpire on December 31, 2015. The Company also has a New Jersey charitable contribution of $156,000,which will begin to expire on December 31, 2015 if not utilized. In addition, the Company has an alternativeminimum tax credit carryforward of $517,000 with an indefinite life.

Effective January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertaintyin Income Taxes — an interpretation of FASB Statement No. 109 (FIN 48). As of December 31, 2014 and2013, the Company had no material unrecognized tax benefits or accrued interest and penalties. TheCompany's policy is to account for interest as a component of interest expense and penalties as a componentof other expense.

26 (Continued)



December 31, 20l 4 and 2013

As of December 31, 2014, the years 2012 - 2014 are open for federal examination, years 2010-2014 are openfor state examinations.

(13) Properties

The Bank operates from its main office in Collingswood, New Jersey, and a branch office in Westville, NewJersey. In addition, the Bank maintains an operation and administration center in Cherry Hill, New Jerseyand loan production offices in Cinnaminson, New Jersey and Mantua, New Jersey.

The Westville branch location was purchased on August 30, 2002. Subsequent to regulatory approval andrenovation, this new branch opened in January 2003. The Cinnaminson facility location was purchased onJune 6, 2005 and operated as a branch until December 19, 2014.

The main office and operations center are leased. The main office lease was amended in June, 2014 to extendthe lease period for eight years expiring on December 31, 2022, with an option to renew for two additionalfive-year terms.

In January, 2014, the Bank signed a lease agreement for a new corporate lending and operations center. Thebank took occupancy in April, 2014. The bank signed aseven-year and ten month lease.

Future minimum payments under leases, assuming exercise of renewal options, are summarized as follows(dollars in thousands):

2015 $ 1512016 1742017 1812018 187Thereafter 693

$ 1,386

Total rent expense was $225,000 for the years ended December 31, 2014, 2013, and 2012.

(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 itscustomers. Such commitments have been made in the normal course of business and at current prevailingmarket terms. The commitments, once funded, are principally to originate commercial loans and other loanssecured by real estate. The Bank uses the same credit policies in making commitments and conditionalobligations as it does for on-balance-sheet instruments.

27 (Continued)




Commitments issued to potential borrowers of the Bank at December 31, 2014 and 2013 were as follows(dollars in thousands):

2014 2013

Fixed rate commitments $ 1,131 1,199Variable/adjustable rate commitments 35,496 31,050

Total $ 36,627 32,249

Legal Proceedings

At December 31, 2014, the Company was neither engaged in any existing nor aware of any pending legalproceedings. From time to time, the Bank is a party to legal proceedings within the normal course of businesswherein it enforces its security interest in loans made by it, and other matters of a similar nature.

(15) Related-Party Transactions

The Bank routinely enters into transactions with its directors and executive officers. Such transactions aremade in the ordinary course of business on substantially the same terms and conditions, including interestrates and collateral, as those prevailing at the same time for comparable transactions with other customers,and do not, in the opinion of management, involve more than normal credit risk or present other unfavorablefeatures. The aggregate amount of loans to such related parties was $702,000 and $796,000 at December 31,2014 and 2013, respectively. During 2014 and 2013, new loans and credit line advances to such relatedparties amounted to $5,000 and $197,000, respectively, and repayments amounted to $99,000 and $85,000,respectively. The aggregate amount of deposits from related parties was $29,533,000 and $24,342,000 atDecember 31, 2014 and 2013, respectively.

The Bank engaged in certain property inspection services with an entity that is affiliated with a director ofthe Bank. Such aggregate services amounted to fees of $14,000 and $32,000 for the years endedDecember 31, 2014 and 2013, respectively. The Bank engages a law firm that is affiliated with a director ofthe Bank for certain debt collection services. Total fees for such services amounted to $ 16,000 and $47,000for the years ended December 31, 2014 and 2013, respectively. In management's opinion, the terms of theservices provided were substantially equivalent to that which would have been obtained from unaffiliatedparties.

(16) llividend Policy

Coir7pany.

The Company has not paid a cash dividend since its inception in June 2000. Any payment of cash dividendsto 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. TheCompany's future dividend policy is subject to the discretion of its board of directors and will depend upona number of factors, including future earnings, financial conditions, cash needs, and general businessconditions. Holders of common stock will be entitled to receive dividends as and when declared by the boardof directors out of funds legally available for that purpose.

28 (Continued)




Bank

The amount of dividends that may be paid by the Bank depends upon the Bank's earnings and capitalposition, and is limited by New Jersey and federal law, regulations, and policies. As a state chartered banksubject to New Jersey and FDIC regulations, the Bank cannot pay any dividend if the dividend would reducethe required surplus of the Bank as defined in New Jersey statutes. As a matter of policy, the FDIC expectsstate banks to follow the national bank dividend limits, which allow a bank to pay dividends up to the amountof net profits of the current year plus the retained net profits from the last two years. Amounts in excess ofthat would require prior approval of the FDIC. In addition, the FDIC and the state of New Jersey haveauthority to further limit any dividends to be paid by the Bank in a specific case. No specific dividendrestrictions have been imposed on the Bank at this time.

(17) Employee Benefits

The Bank instituted a noncontributory 401(k) for all current employees in August 2005. All eligibleemployees are 100% vested in any required safe harbor contributions. The Bank made safe harborcontributions in the amount of $101,000 and $94,000 during 2014 and 2013, respectively.

(18) Stock Option Plans and Stock Warrants

Stock Options

Two stock option programs were adopted in September 2013.

At December 31, 2014, the 2013 Employee Stock Option Plan provides up to 115,436 options for keyemployees. The exercise price of options granted under this program will be equal to at least the fair marketvalue of common stock as of the grant date. All options granted under this plan vest in five equal annualinstallments, upon retirement or a change in control of the Company. These options expire 10 years from thegrant date. At December 31, 2014, 46,200 options were outstanding under this plan.

The 2013 Outside Director Plan provides up to 116,013 options for nonemployee directors. The exerciseprice of options granted under this program is required to be equal to at least the fair market value of commonstock as of the grant date. All options granted under this plan vest in five equal annual installments or uponretirement. These options expire 10 years from the grant date. At December 31, 2014, 53,901 options wereoutstanding under this plan.

Two additional stock option programs were adopted in Apri12003.

Under the 2003 Employee Stock Option Plan, as amended in Apri12005, 62,531 options remain outstandingat December 31, 2014 for key employees. The exercise price of options granted under this program will beequal to at least the fair market value of common stock as of the grant date. All options granted under thisplan are fully vested except for the options granted in 2009, which 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.

Under the 2003 Outside Director Plan, as amended in April 2005 and May 2008, 158,029 options remainoutstanding at December 31, 2014 for nonemployee directors. The exercise price of options granted underthis program is required to be equal to at least the fair market value of common stock as of the grant date.All options granted under this plan are fully vested, except for the options granted in 2009, 2010, 2011, and

29 (Continued)




2012, which vest in five equal annual installments or upon retirement. These options expire 10 years fromthe grant date.

A summary status of the Company's stock option plans as of December 31, 2014 and 2013, and the changesduring the years then ended, is as follows:

2014

Outstanding, beginning of yearGrantedExercisedForfeited or cancelled

Outstanding, end of year

Options exercisable atDecember 31

Weightedaverageexercise

Shares price

370,601 $ 6.5825,960 6.25(6,614) 433

(69,285) 7.13

320,662 $ 6.49

229,050 5.88

2013Weightedaverageexercise

Shares price

388,904 $ 6.5576,470 6.05

(94,773) 6.02

370,601 $ 6.58

275,799 6.16

The weighted average fair value of options granted during 2014 and 2013 was $2.87 and $3.00, respectively.

The total fair value of shares vested during 2014 and 2013 was $96,593 and $135,582, respectively.

The Company issues new shares upon the exercise of stock options.

Nonvested Stock Options

At December 31, 2014, total unrecognized compensation cost related to nonvested options was $92,463. TheCompany expects to record that expense over a weighted average period of years.

To estimate the fair value of stock option awards, the Company uses the Black-Scholes valuation method,which incorporates the assumptions summarized in the table below. The table also summarizes the fair valueof each option grant in 2014, 2013, and 2012.

Grantdate

December 2014September 2013September 2013May 2012May 2011May 2010

Option Exercise Fair valueplan price per option

Director $ 6.25 $ 2.86Director 6.35 3.00Employee 6.35 3.00Director 4.70 1.99Director 4.25 1.87Director 4.25 1.91

Risk-free Cash Expectedrate di~~idends life

1.70% none 6.5 years1.66 none 6.5 years1.66 none 6.5 years1.00 none 6.5 years1.91 none 6.5 years2.16 none 6.5 years

• The risk-free interest rate is the U.S. Treasury rate commensurate with the expected life of options onthe date of their grant.

30 (Continued)




The volatility of the Company's stock is based on a combination of historical volatility and peer dataover a span of time equal to the expected life of stock option awards, which is the period of time theCompany estimates that stock options granted will remain outstanding.

The Company used the simplified method to estimate the expected life of stock options granted in2014, 2013 and 2012. The simplified method averages an award's weighted average vesting periodand its contractual term.

(19) Regulatory Matters

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 additionaldiscretionary —actions by regulators that, if undertaken, could have a direct material effect on the Bank'sconsolidated financial statements. Under capital adequacy guidelines and the regulatory framework forprompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measuresof the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accountingpractices. The Bank's capital amounts and classification are also subject to qualitative judgments by theregulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintainminimum amounts and ratios (set forth in the following table) of Total and Tier I capital (as defined in theregulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (asdefined). Management believes, as of December 31, 2014 and 2013, the Bank meets all capital adequacyrequirements to which it is subject.

As of December 31, 2014, the most recent notification from the FDIC categorized the Bank aswell-capitalized under the regulatory framework for prompt corrective action. To be categorized aswell-capitalized, the Bank must maintain minimum total risk-based, Tier Irisk-based, and Tier I leverageratios as set forth in the table. There are no conditions or events since that notification that managementbelieves have changed the institution's category.

The Bank's actual capital amounts and ratios at December 31, 2014 and 2013 are presented in the followingtable (dollars in thousands):

Actual For capital adeyuacy purpose Well capitalizedAmount Ratio Amount Ratio Amount Ratio

December 31, 2014:Total capital (to risk-weighted $ 29,652 12.12% $ 19,565 8% $ 24,456 10%

assets)Tier 1 capital (to risk-weighted 26,586 10.87 9,783 4 14,674 6

assets)Tier 1 capital (to average assets) 26,586 6.90 15,409 4 19,261 5

December 31, 2013:Total capital (to risk-weighted $ 27,633 14.05% $ 15,737 8% $ 19,671 10%

assets)Tier I capital (to risk-weightedassets) 25,161 12.79 7,868 4 11,803 6Tier I capital (to average assets) 25,161 7.54 13,340 4 16,675 5

31 (Continued)




(20) Parent Company Financial Information

A summary of the statements of financial condition at December 31, 2014 and 2013 is as follows (dollars inthousands):

Assets 2014 2013

Cash in subsidiary $ 225 217Investment in subsidiary 26,609 24,415Prepaid income taxes 145 140Other assets 7 6

Total assets $ 26,986 24,778

Liabilities and Shareholders' Equity

Other liabilities $ 2 1Shareholders' equity 26,984 24,777

Total liabilities and stockholders' equity $ 26,986 24,778

A summary of the statements of operations for the years ended December 31, 2014 and 2013 is as follows(dollars in thousands):

2014 2013

Equity income from subsidiary $ 1,425 948Interest income 1 1

Total income 1,426 949

Other expenses:Other operating expenses 1 OS 96

Total other expenses I O5 96

Income before income tax benefit 1,321 853

Income tax benefit (5) (20)

Net income $ 1,326 873

32 (Continued)




A summary of the statements of cash flows for the years ended December 31, 2014 and 2013 is as follows(dollars in thousands):

Cash flows from operating activities:Net income

Adjustments to reconcile net income to net cashprovided by (used m) operating activities:

Equity in income from subsidiaryStock-based compensation(Increase) in prepaid income taxes(Increase) decrease m other assetsIncrease (decrease) in other liabilities

Total adjustments

Net cash usedm operating activities

Cash flows from financing activities:Cost of processing stock dividendIncrease in inveshnent in subsidiaryProceeds from sale of stock

Net cash used in financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Noncash items:Net change m unrealized losses on securities

available for sale, net of taxes of $511 and $(980),for 2014 and 2013, respectively

(21) Fair Value Measurement

2014 2013

$ 1,326 873

(1,425) (948)82 68(5) (21)(1) 2

1

(1,348) (899)

~~~) X26)

~~) ~4)

32

30 (4)

8 (30)

217 ?47

$ 225 217

$ 769 (1,473)

The following disclosures are made in conjunction with the initial application of FASB AccountingStandards Codification (ASC) 820-10, Fair Value Measurement, in 2009.

ASC 820-10 establishes a fair value hierarchy based on the nature of data inputs for fair value determinations,under which the Company is required to value each asset using assumptions that market participants wouldutilize to value that asset. When the Company uses its own assumptions, it is required to disclose additionalinformation about the assumptions used and the effect of the measurement on earnings or the net change inassets for the period.

33 (Continued)




The value of the Company's investment securities that generally include state and municipal securities,U.S. government agencies, and mortgage-backed securities are reported at fair value. These securities arevalued by an independent third party. The third party's evaluations are based on market data. The third partyutilizes evaluated pricing models that vary by asset and incorporate available trade, bid, and other marketinformation. For securities that do not trade on a daily basis, their pricing applications apply availableinformation such as benchmarking and matrix pricing. The market inputs normally sought in the evaluationof securities include benchmark yields, reported trades, broker/dealer quotes (only obtained from marketmakers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmarksecurities, bid, offers, and reference data. For certain securities, additional inputs may be used or somemarket inputs may not be applicable. Inputs are prioritized differently on any given day based on marketconditions.

U.S. government agencies are evaluated and priced using multidimensional relational models and optionadjusted spreads. State and municipal securities are evaluated on a series of matrices including reportedtrades and material event notices. Mortgage-backed securities are evaluated using matrix correlation totreasury or floating index benchmarks, prepayment speeds, monthly payment information, and otherbenchmarks. Other investments are evaluated using abroker-quote based application, including quotes fromissuers. These investment securities are classified as available-for-sale.

The value of the investment portfolio is determined using three broad levels of inputs:

Level 1 —Quoted prices in active markets for identical securities.

Level 2 —Quoted prices for similar instruments in active markets; quoted prices for identical or similarinstruments in markets that are not active; and model-derived valuations whose inputs are observable orwhose significant value drivers are observable.

Leve13 —Instruments whose significant value drivers are unobservable.

34 (Continued)




These levels are not necessarily an indication of the risks or liquidity associated with these investments. Thefollowing table summarizes the assets at December 31, 2014, which are recognized on the Company'sconsolidated statements of financial condition using fair value measurement determined based on thediffering levels of input:

Fair value measurement at December 31, 2014Quoted prices

in active Significantmarkets for other Significantidentical observable unobservableassets inputs inputs

Total (Level l) (Level 2) (Leve13)(Dollars in thousands)

Assets measured at fair valueon a recurring basis:

Investments:U.S. government securities $ 17,702 — 17,702Mortgage-backed securities 92,826 — 92,826 —Municipal bonds 2,291 — 2,291 —

Total assets measuredat fair value on arecurring basis $ 112,819 — 112,819 —

Assets measured at fair valueon a nonrecurring basis:

Impaired loansReal estate owned

$ 2,9821,567

2,982 —1,567 —

Total assets measured atfair value on anonrecurring basis $ 4,549 — 4,549 —

35 (Continued)




The following table summarizes the assets at December 31, 2013, which are recognized on the Company'sconsolidated statements of financial condition using fair value measurement determined based on thediffering levels of input:

Fair value measurement at December 31, 2013Quoted prices

in active Significantmarkets for other Significantidentical observable unobservableassets inputs inputs

Total (I,e~ell) (L,e~e12) (L.er+e13)(Dollars in thousands)

Assets measured at fair valueon a recurring basis:

Investments:U.S. government securities $ 14,127 — 14,127Mortgage-backed securities 74,498 — 74,498Municipal bonds 2,558 — 2,558

Total assets measuredat fair value on arecurring basis $ 91,183 91,183 —

Assets measured at fair valueon a nonrecurring basis:

Impaired loans $ 2,381 2,381Real estate owned 1,525 — 1,525

Total assets rr~easured atfair value on anonrecurring basis $ 3,906 — 3,906

There were no Leve13 assets held in 2013 and no changes between Level 1 and Leve12 assets in 2013.

(22) Subsequent Events

The Company has evaluated subsequent events through March 26, 2015, the date the consolidated financialstatements were available to be issued.

36

~,~ ' 1 B n r Inc.Co onla a co p~Main Office Collingswood Branch Westville Branch210 Lake Drive East 1040 Haddon Avenue 321 BroadwaySuite 300 Collingswood, NJ 08108 Westville, NJ 08093Cherry Hill, NJ 08002 Telephone (856) 858-1100 Telephone (856) 456-6544Telephone (856) 885-2042 Fax (856) 858-9255 Fax (856) 456-3142Fax (856) 321-8272

Stock Listing 1st Colonial's Common Stock is traded on the OTCQB under the Symbol "FCOB"

Board of Directors Linda M. Rohrer, Chairman Gerard M. Banmiller Mary R. Burke, Ed.D.Thomas A. Clark, III, Esquire Letitia G. Colombi John J. Donnelly, IVEduardo F. Enriquez, M.D. Michael C. Haydinger Harrison MelsteinStanley H. Molotsky

1st ColonialCommunity BankBoard of Directors

Camden CountyAdvisory Board

Linda M. Rohrer, ChairmanCurt ByerleyJohn J. Donnelly, IVHarvey Johnson, Esquire

Richard HardenberghWilliam Getzinger, III

Lawrence A. Levine, D.P.M

Gerard M. BanmillerThomas A. Clark, III, EsquireEduardo F. Enriquez, M.D.Harrison Melstein

Mary R. Burke, Ed.D.Letitia G. ColombiMichael C. HaydingerStanley H. Molotsky

Gloucester CountyAdvisory Board

James PolieroDean Ragone

Dr. Charles N. Wahl, DMD

William Bittner, Jr. Charles Zambito

Mary Kay MaleySteve Cordasco

John F. Wachter Jr.

Burlington County Elaine M. Damm Tammy Savidge Peter R. Thorndike, EsquireAdvisory Board

Executive Officers Gerard M. Banmiller, President and Chief Executive OfficerPaul D. Castignani, Executive Vice President, Chief Financial Officer and SecretaryFrank J. Monaghan, Senior Vice President and Chief Operating Officer

Auditors KPMG LLP1601 Market StreetPhiladelphia, Pennsylvania 19103

Counsel Stevens &LeeA Professional Corporation1415 Marlton Pike East, Suite 506Cherry Hill, New Jersey 08034

Registrar and Philadelphia Stock Transfer, Inc.Transfer Agent 2320 Haverford Rd.

Suite 230Ardmore, PA 19003Telephone (866) 223-0448

Corporate Office1040 Haddon Avenue, Collingswood, New Jersey 08108 • (856) 858-1100

Documents

a - -~ ~~i lIannualreports.co.uk/HostedData/AnnualReportArchive/1/OTC_FCOB_… · 1040 Haddon Avenue Collingswood, New Jersey 08108 • (856) 858-1100 •Stock Symbol: FCOB. KPMG