Absecon Bancorp : 2021 Annual Report

2021

The Annual Meeting of Stockholders of

Absecon Bancorp

will be held on Wednesday, May 25, 2022 at 2:00 P.M. at the Main Office of First National Bank of Absecon

106 New Jersey Avenue

Absecon, New Jersey

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The Year In Review

To Our Shareholders:

Absecon Bancorp (the "Company") is the holding company for First National Bank of Absecon (the "Bank") and its subsidiary Absecon Investment Corporation. 2021 represents 106 years of operations for the Bank. 2021 saw a continuation of coronavirus which began to lessen then turn to a variant tagged "Omicron", quickly spreading across the world just after Thanksgiving. Loan growth was subdued as businesses worked through the challenges created by the pandemic and its many side-effects. We continued to meet the needs of customers through the second round of PPP loans in 2021. While the variant has subsided business disruptions and headwinds remain as we move into 2022 and look to grow loans and deploy liquidity effectively. The economy is now working through the volatility created by the Russian invasion of Ukraine and inflation running at its highest levels in four decades. Unemployment decreased from a rate of 6.7% to 3.9% as of December 31, 2021. Gross domestic product increased from an annual rate of -3.5% in 2020 to 5.7% in 2021. Inflation ended the year at 7.0% up from 2.3% at year-end 2020. Locally, Atlantic County unemployment experienced a decrease from 12.0% at year-end 2020 to 7.4% as of December 31, 2021; however, still greater than the pre-pandemic rate of 5.5% at year-end 2019.

At the beginning of 2022, the Fed median estimates project up to seven short-term interest rate increases starting in March and continuing with three to four increases in 2023 to tame inflation. The central bank now sees inflation ending 2022 at 4.10% from 8.5% currently. Gross domestic product is now expected to grow 2.8% in 2022 compared to the central banks December forecast of 4.0%. Unemployment is expected to fall to 3.5% in 2022 from 3.9% at December 2021 year-end. As spring begins, the outlook for commercial real estate is coming back as the damage from COVID-19 finally starts to wane. Our balance sheet is positioned to benefit from the expected interest rate increases in 2022 and 2023.

In addition to supporting financial needs of customers through PPP loans in 2021 team members implemented a number of projects to enhance services, systems, and security for customers, such as, mobile banking enhancement, implementation of Zelle (P2P), facility improvements, and network and cybersecurity enhancements. Our team remains resilient and ready to work with our customers and community to navigate through the challenges ahead in 2022.

Net income for the year ended December 31, 2021 was $665,000 compared to $855,000 for the year December 31, 2020, a decrease of $190,000. The year over year decline in earnings resulted primarily from $290,000 of margin compression and a $268,000 increase in salaries and employee benefits, partially offset by a $285,000 decrease in the provision for loan losses and $85,000 from the gain on sale of loans. The balance sheet experienced significant changes due to the prolonged impact from the pandemic as excess funds from deposit growth and the forgiveness of PPP loans contributed to growth in the investment portfolio. Investment securities increased $19,395,000 to $62,476,000 as of December 31, 2021, representing an increase of 45.0% from $43,081,000 as of December 31, 2020. Total deposits were $164,788,000 as of December 31, 2021, an increase of $18,208,000, or 12.4% from $146,580,000 as of December 31, 2020. Net loans were $91,278,000 as of December 31, 2021 compared to $93,078,000 as of December 31, 2020, a decrease of $1,800,000, or 1.9%. Regulatory capital ratios exceeded well capitalized status as of December 31, 2021.

As 2022 begins, we remain focused on achieving our goals, however, we are aware of the challenges presented by the headwinds that remain as the economy recovers from the pandemic and geopolitical issues. We are positioned to mitigate the pressure on net interest margin as interest rates begin to increase to tame inflation. Stimulus programs, supply chain issues, and reduced loan demand resulted in excess liquidity in 2021 and an unintended increase in the investment portfolio. We look forward to returning to our primary strategy which continues to focus on shifting the asset mix by decreasing investments and growing commercial loans throughout our expanded market area. Absecon Bancorp's 2021 financial performance enabled the payment of a sixth consecutive regular dividend to shareholders with a 5% increase over the prior dividend, and a second share buyback program. We continue to strive to optimize the use of capital, to maximize return for shareholders and increase shareholder value.

We are committed to remaining independent, building on our sustained performance and are excited about the opportunities that expanding our lending footprint will produce. We remain confident in our ability to serve and compete in the South Jersey marketplace. We thank you for your continued support in these endeavors.

Sincerely,

C. Eric Gaupp

Vice Chairman, President and CEO