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1ST Constitution Bancorp Reports Second Quarter 2016 Results

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CRANBURY N.J., July 22, 2016 (GLOBE NEWSWIRE) -- 1ST Constitution Bancorp (NASDAQ: FCCY), the holding company (the "Company") for 1ST Constitution Bank (the "Bank"), today reported net income and earnings per share for the second quarter of 2016.

SECOND QUARTER 2016 HIGHLIGHTS

  • Net income was $2.3 million and diluted earnings per share was $0.28.
  • Return on Average Assets and Return on Average Equity were 0.95% and 9.36%, respectively.
  • Book value per share and tangible book value per share were $12.78 and $11.13, respectively.
  • Net interest income was $8.6 million and the net interest margin was 3.86% on a tax equivalent basis.
  • Loans held in portfolio increased $102.1 million during the quarter to $759.8 million at June 30, 2016 and the loan to asset ratio was 71.3% at June 30, 2016.
  • During the second quarter, $1.3 million of non-performing assets were resolved and non-performing assets declined to $5.3 million, or 0.50%, of assets at June 30, 2016.  OREO consisted of one commercial property with a balance of $166,000.
  • The Bank recorded a credit (negative) provision for loan losses of $100,000 due to lower historical loan loss factors that reflected the improvement in loan credit quality, the resolution and reduction of non-performing loans, the low level of net charge-offs over the prior five quarters and net recoveries of $280,000 in the second quarter of loans previously charged-off.

For the six months ended June 30, 2016, the Company reported net income of $4.5 million, or $0.56 per diluted share, a slight decrease compared to net income of $4.6 million, or $0.57 per diluted share, for the six months ended June 30, 2015.

Robert F. Mangano, President and Chief Executive Officer, stated "We are pleased to report the same level of earnings as last year in light of the challenging comparison presented by last year's strong financial performance, which benefited from higher levels of residential mortgage refinancing activity.  In the second quarter of 2016, a lower volume of residential mortgage refinancing activity resulted in a lower balance of mortgage warehouse loans.  Further improvement in our asset quality also contributed to our performance this quarter through the reduction in problem asset-related legal, workout and OREO expenses."

Mr. Mangano added, "I am also looking forward to the addition of an experienced and productive residential lending team that is anticipated to join the Bank at the end of July.  The addition of this team is expected to enhance our residential lending capabilities and broaden our lending products to include FHA insured residential mortgages."

Discussion of Financial Results

Net income was $2.3 million, or $0.28 per diluted share, for the second quarter of 2016 compared to $2.3 million, or $0.29 per diluted share, for the second quarter of 2015. Net income per diluted share declined slightly due to the higher average number of shares outstanding in 2016. All share and per share amounts have been adjusted to reflect the effect of the five percent common stock dividend paid on February 1, 2016.

Net interest income was $8.6 million for the quarter ended June 30, 2016, which represented a decrease of $797,000 compared to net interest income of $9.4 million for the second quarter of 2015 and an increase of $100,000 compared to net interest income of $8.5 million for the first quarter of 2016. Interest income for the second quarter of 2016 declined primarily due to the $720,000 decline in interest income on loans. Average earning assets were $922.5 million with a yield of 4.41% for the second quarter of 2016 compared to average earning assets of $923.9 million with a yield of 4.71% four the second quarter of 2015. The lower interest income and yield on average earning assets in the second quarter of 2016 reflects primarily the lower level of the average balance of loans, the lower percentage of average loans to average earning assets and the lower yield earned on commercial and commercial real estate loans and construction loans compared to the second quarter of 2015. The yield on loans declined due to the continued low interest rate environment as new loans were originated at yields lower than the average yield on loans in the prior year period.

Interest expense on average interest bearing liabilities was $1.3 million, or 0.71%, for the second quarter of 2016 compared to $1.2 million, or 0.64%, for the second quarter of 2015 and $1.2 million, or 0.70% for the first quarter of 2016. The increase of $104,000 in interest expense on interest bearing liabilities for the second quarter of 2016 reflects primarily higher short-term market interest rates in 2016 compared to 2015.

The net interest margin declined to 3.86% in the second quarter of 2016 compared to 4.20% in the second quarter of 2015 due primarily to the lower yield on average earning assets.

The provision for loan losses was a credit (negative expense) of $100,000 for the second quarter of 2016 compared to no provision in the second quarter of 2015. The credit provision for the second quarter of 2016 reflects lower historical loan loss factors due to the improvement in loan credit quality, the resolution and reduction of non-performing loans, the low level of net charge-offs over the prior five quarters and net recoveries of $280,000 in the second quarter of 2016.

Non-interest income was $1.5 million for the second quarter of 2016, a decrease of $452,000, or 22.7%, compared to $2.0 million for the second quarter of 2015. Lower gains from the sales of residential mortgages and SBA loans for the second quarter of 2016 were the primary reasons for the decrease in non-interest income.  In the second quarter of 2016, $14.5 million of residential mortgages were sold and $308,000 of gains were recorded compared to $34 million of loans sold and $685,000 of gains recorded in the second quarter of 2015.  Due principally to turnover of employees in the Bank's residential mortgage unit in the first quarter of 2016, the Bank originated and sold a lower level of residential mortgages in the second quarter of 2016 compared to the second quarter of 2015.  SBA guaranteed commercial lending activity and loan sales vary from period to period. In the second quarter of 2016, $4.6 million of SBA loans were sold and gains of $439,000 were recorded compared to $5.2 million of loans sold and gains of $518,000 recorded in the second quarter of 2015. Service charges declined due primarily to lower activity.

Non-interest expenses were $6.8 million for the second quarter of 2016, a decrease of $1.1 million, or 14.4%, compared to $8.0 million for the second quarter of 2015. Salaries and employee benefits expense decreased $187,000, or 4.2%, due primarily to a reduction in commissions of $243,000 paid to residential loan officers as a result of the lower volume of residential mortgage loans originated. Occupancy expenses declined $96,000, or 9.2%, due to lower depreciation and facility maintenance expenses. FDIC insurance expense declined $75,000, or 41.7%, due to a lower assessment rate that reflected the Bank's improvement in asset quality and financial performance over the last six quarters. OREO expense declined due to the significant reduction in OREO assets. Other operating expenses decreased $418,000 due primarily to decreases in legal expense incurred for the collection and recovery of non-performing assets, consulting fees and various other operating expenses.

Income taxes were $1.1 million, which resulted in an effective tax rate of 32.5% in both the second quarter of 2016 and 2015.

At June 30, 2016, the allowance for loan losses was $7.5 million, a $78,000 decrease from the allowance for loan losses at December 31, 2015. As a percentage of total loans, the allowance was 0.98% at June 30, 2016 compared to 1.11% at year end 2015. The decline in the allowance for loan losses as a percentage of loans reflected the low level of non-performing loans and the lower historical loan loss factors at June 30, 2016 compared to December 31, 2015.

Total assets increased to $1.07 billion at June 30, 2016 from $968.0 million at December 31, 2015 due primarily to a $79.5 million increase in total loans and an increase of $19.3 million in investments, which were funded primarily by an increase of $91.0 million in short-term borrowings and an increase of $4.7 million in deposits. Total portfolio loans at June 30, 2016 were $759.8 million compared to $680.9 million at December 31, 2015. The increase in loans was due primarily to a $47.8 million increase in mortgage warehouse loans, reflecting the seasonality of residential home buying in our markets, a $15.9 million increase in commercial real estate loans, an $8.3 million increase in residential mortgage loans and a $5.8 million increase in commercial business loans. Total investment securities at June 30, 2016 were $234.0 million, an increase from $214.7 million at December 31, 2015. Total deposits at June 30, 2016 were $791.5 million compared to $786.8 million at December 31, 2015.

Regulatory capital ratios continue to reflect a strong capital position. Under the regulatory capital standards (Basel III) that became effective on January 1, 2015, the Company's common equity Tier 1 to risk based assets ("CET1"), total risk-based capital, Tier I capital, and leverage ratios were 9.53%, 12.28%, 11.47% and 11.02%, respectively, at June 30, 2016. The Bank's CET1, total risk-based capital, Tier 1 capital and leverage ratios were 11.21%, 12.02%, 11.21% and 10.77%, respectively, at June 30, 2016. The Company and the Bank are considered "well capitalized" under these capital standards.

Asset Quality
Net recoveries during the second quarter of 2016 were $280,000. Non-accrual loans were $5.2 million at June 30, 2016 compared to $6.0 million at December 31, 2015. The allowance for loan losses was 145% of non-accrual loans at June 30, 2016 compared to 126% of non-accrual loans at December 31, 2015.

Overall, we observed stable trends in loan quality with net recoveries of $280,000 during the second quarter of 2016, non-performing loans to total loans of 0.68% and non-performing assets to total assets of 0.50% at June 30, 2016.

OREO at June 30, 2016 decreased to $166,000 from $1.0 million at December 31, 2015 due to the sale of one residential property previously held in OREO.

About 1ST Constitution Bancorp

1ST Constitution Bancorp, through its primary subsidiary, 1ST Constitution Bank, operates 19 branch banking offices in Cranbury (2), Fort Lee, Hamilton, Hightstown, Hillsborough, Hopewell, Jamesburg, Lawrenceville, Perth Amboy, Plainsboro, Rocky Hill, West Windsor, Princeton, Rumson, Fair Haven, Shrewsbury, Little Silver and Asbury Park, New Jersey.

1ST Constitution Bancorp is traded on the Nasdaq Global Market under the trading symbol "FCCY" and can be accessed through the Internet at www.1STCONSTITUTION.com.

The foregoing contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management's confidence and strategies and management's expectations about new and existing programs and products, relationships, opportunities, taxation, technology and market conditions. These statements may be identified by such forward-looking terminology as "expect," "look," "believe," "anticipate," "may," "will," or similar statements or variations of such terms. Actual results may differ materially from such forward-looking statements. Factors that may cause results to differ materially from such forward-looking statements include, but are not limited to, changes in the direction of the economy in New Jersey, the direction of interest rates, effective income tax rates, loan prepayment assumptions, continued levels of loan quality and origination volume, continued relationships with major customers including sources for loans, a higher level of net loan charge-offs and delinquencies than anticipated, bank regulatory rules, regulations or policies that restrict or direct certain actions, the adoption, interpretation and implementation of new or pre-existing accounting pronouncements, a change in legal and regulatory barriers including issues related to compliance with anti-money laundering and bank secrecy act laws, as well as the effects of general economic conditions and legal and regulatory barriers and structure. 1ST Constitution Bancorp assumes no obligation for updating any such forward-looking statements at any time, except as required by law.

1ST Constitution Bancorp

Selected Consolidated Financial Data 
(Dollars in thousands, except per share data)

(Unaudited)

        
 Three Months Ended Six Months Ended
 June 30, June 30,
  2016   2015   2016   2015 
Per Common Share Data: (1)               
Earnings per common share - Basic$0.29  $0.29  $0.57  $0.58 
Earnings per common share - Diluted 0.28   0.29   0.56   0.57 
Tangible book value per common share at the period-end     11.13   10.43 
Book value per common share at the period end     12.78   12.11 
Average common shares outstanding:       
Basic 7,947,146   7,881,626   7,944,069   7,880,270 
Diluted 8,151,796   8,069,229   8,144,458   8,058,602 
        
Performance Ratios / Data: 
Return on average assets 0.95%  0.95%  0.94%  0.95%
Return on average equity 9.36%  10.42%  9.28%  10.42%
Net interest income (tax-equivalent basis) (2)$8,864  $9,666  $17,622  $18,512 
Net interest margin (tax-equivalent basis) (3) 3.86%  4.20%  3.89%  4.09%
Efficiency ratio (4) 65.6%  68.0%  66.8%  65.5%
        
     June 30, December 31,
      2016   2015 
        
Loan Portfolio Composition:       
Commercial Business    $105,104  $99,277 
Commercial Real Estate     223,124   207,250 
Construction Loans     93,221   93,745 
Mortgage Warehouse Lines     264,344   216,572 
Residential Real Estate     49,087   40,744 
Loans to Individuals     24,730   23,074 
Other Loans     197   233 
Gross Loans     759,806   680,895 
Deferred Costs (net)     1,766   1,226 
Total Loans (net)    $761,572  $682,121 
        
Asset Quality Data:       
Loans past due over 90 days and still accruing    $-  $- 
Non-accrual loans     5,159   6,020 
OREO property     166   966 
Other repossessed assets       -     - 
Total non-performing assets    $  5,325  $  6,986 
            
Net charge-offs$280  $(13) $222  $(465)
Allowance for loan losses to total loans  0.98%  1.11%
Non-performing loans to total loans  0.68%  0.88%
Non-performing assets to total assets  0.50%  0.72%
 
Capital Ratios: 
1st Constitution Bancorp       
Common equity to risk weighted assets ("CET 1")     9.53%  8.72%
Tier 1 capital to average assets (leverage ratio)     11.02%  10.00%
Tier 1 capital to risk weighted assets     11.47%  10.70%
Total capital to risk weighted assets     12.28%  11.51%
1st Constitution Bank       
Common equity to risk weighted assets ("CET 1")     11.21%  10.45%
Tier 1 capital to average assets (leverage ratio)     10.77%  9.77%
Tier 1 capital to risk weighted assets     11.21%  10.45%
Total capital to risk weighted assets     12.02%  11.25%
     
1 All share and per share amounts have been adjusted to reflect the effect of the 5% stock dividend paid on February 1, 2016. 
2 The tax equivalent adjustment was $250 and $255 for the three months ended June 30, 2016 and June 30, 2015, respectively. 
3 Represents net interest income on a taxable equivalent basis as a percent of average interest earning assets.  
4 Represents non-interest expenses divided by the sum of net interest income on a taxable equivalent basis and non-interest income.
 



1ST Constitution Bancorp 
Consolidated Balance Sheets
(Dollars in Thousands)

(Unaudited)
 June 30 December 31,
ASSETS 2016   2015 
 
Cash and Due From Banks$13,650  $11,368 
Federal Funds Sold / Short Term Investments -   - 
Total cash and cash equivalents 13,650   11,368 
    
Investment Securities:   
Available for sale, at fair value 111,327   91,422 
Held to maturity (fair value of $127,874 and $127,157   
at June 30, 2016 and December 31, 2015, respectively) 122,635   123,261 
Total securities 233,962   214,683 
    
Loans Held for Sale 3,228   5,997 
    
Loans 761,572   682,121 
Less- Allowance for loan losses (7,482)  (7,560)
Net loans 754,091   674,561 
    
Premises and Equipment (net) 10,845   11,109 
Accrued Interest Receivable 3,051   2,853 
Bank Owned Life Insurance 21,936   21,583 
Other Real Estate Owned 166   966 
Goodwill and Intangible Assets 13,082   13,284 
Other Assets 14,727   11,587 
    
Total Assets$1,068,736  $967,991 
        
    
LIABILITIES AND SHAREHOLDERS' EQUITY   
    
LIABILITIES:   
Deposits   
Non-interest bearing$170,793  $159,918 
Interest bearing 620,693   626,839 
Total deposits 791,486   786,757 
    
Borrowings 149,865   58,896 
Redeemable Subordinated Debentures 18,557   18,557 
Accrued Interest Payable 846   846 
Accrued Expense and Other Liabilities 6,354   6,975 
Total liabilities 967,108   872,031 
    
    
SHAREHOLDERS EQUITY:   
Preferred stock, no par value; 5,000,000 shares authorized; none issued -   - 
Common Stock, no par value; 30,000,000 shares authorized; 7,985,937 and   
7,575,492 shares issued and 7,952,639 and 7,545,684 shares outstanding   
as of June 30, 2016 and December 31, 2015, respectively 71,224   70,845 
Retained earnings 30,125   25,589 
Treasury Stock, 33,298 shares and 29,908 shares at June 30, 2016 
and December 31, 2015, respectively (368)  (344)
Accumulated other comprehensive income (loss) 647   (130)
Total shareholders' equity 101,627   95,960 
    
    
Total liabilities and shareholders' equity$1,068,736  $967,991 
        



1ST Constitution Bancorp
Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
         
  Three Months Ended June 30, Six Months Ended June 30,
   2016   2015   2016   2015 
         
INTEREST INCOME:        
Loans, including fees $8,518  $9,238  $16,825  $17,527 
Securities:        
Taxable  815   790   1,632   1,607 
Tax-exempt  520   530   1,040   1,086 
Federal funds sold and        
short-term investments  18   6   67   31 
Total interest income  9,871   10,564   19,564   20,251 
         
INTEREST EXPENSE:        
Deposits  988   912   1,938   1,844 
Borrowings  165   153   301   279 
Redeemable subordinated debentures  104   88   203   174 
Total interest expense  1,257   1,153   2,442   2,297 
         
Net interest income  8,614   9,411   17,122   17,954 
         
(CREDIT) PROVISION FOR LOAN LOSSES  (100)  -   (300)  500 
Net interest income after (credit) provision        
for loan losses  8,714   9,411   17,422   17,454 
         
NON-INTEREST INCOME:        
Service charges on deposit accounts  176   190   373   429 
Gain on sales of loans  747   1,203   1,650   2,495 
Income on Bank-owned life insurance  157   142   301   276 
Other income  456   453   808   917 
Total non-interest income  1,536   1,988   3,132   4,117 
         
NON-INTEREST EXPENSES:        
Salaries and employee benefits  4,291   4,478   8,607   8,665 
Occupancy expense  952   1,048   1,941   2,158 
Data processing expenses  314   306   627   625 
FDIC insurance expense  105   180   223   370 
Other real estate owned expenses  35   416   65   513 
Other operating expenses  1,126   1,544   2,394   2,498 
Total non-interest expenses  6,823   7,972   13,857   14,829 
         
Income before income taxes  3,427   3,427   6,697   6,742 
INCOME TAXES  1,113   1,112   2,161   2,167 
Net Income $2,314  $2,315  $4,536  $4,575 
         
NET INCOME PER COMMON SHARE        
Basic $0.29  $0.29  $0.57  $0.58 
Diluted $0.28  $0.29  $0.56  $0.57 
         
WEIGHTED AVERAGE SHARES        
  OUTSTANDING        
Basic  7,947,146   7,881,626   7,944,069   7,880,270 
Diluted  8,151,796   8,069,229   8,144,458   8,058,602 
         



        
1ST Constitution Bancorp
Net Interest Margin Analysis
(Dollars in thousands)
(Unaudited)
        
 Three months ended June 30, 2016 Three months ended June 30, 2015
(yields on a tax-equivalent basis)Average Average Average Average
 BalanceInterestYield BalanceInterestYield
        
Assets       
Federal Funds Sold/Short Term Investments$18,659 $18  0.38% $8,223 $6  0.28%
Investment Securities:       
Taxable 149,629  815  2.18%  129,888  790  2.43%
Tax-exempt 4 80,036  770  3.85%  80,121  785  3.92%
Total 229,665  1,585  2.76%  210,009  1,575  3.00%
        
Loan Portfolio: 1       
Construction 88,411  1,309  5.95%  96,764  1,539  6.38%
Residential Real Estate 42,125  449  4.27%  43,904  463  4.22%
Home Equity 23,895  251  4.23%  22,460  267  4.78%
Commercial Business and Commercial Real Estate 321,983  4,431  5.53%  313,610  4,528  5.79%
Mortgage Warehouse Lines 192,553  2,048  4.28%  217,199  2,360  4.36%
Installment 580  6  4.34%  505  6  4.54%
All Other Loans 4,615  24  2.09%  11,221  75  2.67%
Total 674,162  8,518  5.08%  705,663  9,238  5.27%
        
Total Interest-Earning Assets   922,486  $   10,121   4.41%    923,895  $   10,819   4.71%
        
Allowance for Loan Losses (7,432)    (7,698)  
Cash and Due From Bank 5,065     7,680   
Other Assets 60,092     63,073   
Total Assets$   980,211     $   986,950    
        
Liabilities and Shareholders' Equity:       
Interest-Bearing Liabilities:       
Money Market and NOW Accounts$294,048 $270  0.37% $304,755 $250  0.33%
Savings Accounts 205,997  302  0.59%  198,252  230  0.47%
Certificates of Deposit 143,057  416  1.17%  152,253  432  1.14%
Other Borrowed Funds 47,028  165  1.41%  51,085  153  1.21%
Trust Preferred Securities 18,557  104  2.24%  18,557  88  1.89%
Total Interest-Bearing Liabilities  708,687  $   1,257   0.71%  724,902  $   1,153   0.64%
        
Net Interest Spread 2   3.70%    4.07%
        
Demand Deposits 165,396     163,223   
Other Liabilities 6,737     8,975   
Total Liabilities 880,820     897,100   
Shareholders' Equity 99,391     89,850   
Total Liabilities and Shareholders' Equity$   980,211     $   986,950    
        
Net Interest Margin 3 $   8,864   3.86%  $   9,666   4.20%
        
(1) Loan Origination fees are considered an adjustment to interest income. For the purpose of calculating loan yields, average loan balances 
include non-accrual loans with no related interest income and the average balance of loans held for sale.    
(2) The net interest spread is the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities
(3) The net interest margin is equal to net interest income divided by average interest-earning assets.     
(4) Tax equivalent basis.       
        

 

1ST Constitution Bancorp
Net Interest Margin Analysis
(Dollars in thousands)
(Unaudited)
        
 Six months ended June 30, 2016 Six months ended June 30, 2015
(yields on a tax-equivalent basis)Average Average Average Average
 BalanceInterestYield BalanceInterestYield
        
Assets       
Federal Funds Sold/Short Term Investments$30,611 $67  0.44% $24,420 $31  0.25%
Investment Securities:       
U.S. Treasury Bonds 0  0  -   0  0  - 
Taxable 142,420  1,632  2.29%  131,611  1,607  2.44%
Tax-exempt 4 80,348  1,540  3.83%  84,867  1,645  3.88%
Total 222,768  3,172  2.85%  216,478  3,252  3.00%
        
Loan Portfolio: 1       
Construction 92,392  2,661  5.79%  96,944  3,080  6.41%
Residential Real Estate 40,583  858  4.23%  44,797  936  4.18%
Home Equity 23,539  490  4.19%  22,305  506  4.58%
Commercial Business and Commercial Real Estate 313,655  8,884  5.70%  310,249  8,782  5.71%
Mortgage Warehouse Lines 178,912  3,836  4.31%  186,682  4,079  4.41%
Installment 564  12  4.29%  443  11  4.81%
All Other Loans 6,185  84  2.73%  9,732  132  2.73%
Total 655,830  16,825  5.16%  671,152  17,527  5.27%
        
Total Interest-Earning Assets   909,209  $   20,064   4.43%    912,050  $   20,810   4.60%
        
Allowance for Loan Losses (7,525)    (7,467)  
Cash and Due From Bank 5,120     10,127   
Other Assets 59,534     62,664   
Total Assets$  966,338     $977,374    
        
Liabilities and Shareholders' Equity:       
Interest-Bearing Liabilities:       
Money Market and NOW Accounts$295,382 $539  0.37% $306,486 $506  0.33%
Savings Accounts 204,663  573  0.56%  196,889  455  0.47%
Certificates of Deposit 143,379  826  1.16%  157,809  883  1.13%
Other Borrowed Funds 37,054  301  1.63%  36,524  279  1.54%
Trust Preferred Securities 18,557  203  2.19%  18,557  174  1.88%
Total Interest-Bearing Liabilities  699,035  $   2,442   0.70%  716,265  $   2,297   0.64%
        
Net Interest Spread 2   3.73%    3.96%
        
Demand Deposits 161,593     163,516   
Other Liabilities 7,435     8,677   
Total Liabilities 868,063     888,458   
        
Shareholders' Equity 98,275     88,916   
Total Liabilities and Shareholders' Equity$  966,338     $  977,374    
        
Net Interest Margin 3 $   17,622   3.89%  $   18,513  4.09%
        
(1) Loan Origination fees are considered an adjustment to interest income. For the purpose of calculating loan yields, average loan 
balances include non-accrual loans with no related interest income and the average balance of loans held for sale.   
(2) The net interest spread is the difference between the average yield on interest-earning assets and the average rate paid on interest- 
bearing liabilities       
(3) The net interest margin is equal to net interest income divided by average interest-earning assets.    
(4) Tax equivalent basis.       
        
CONTACT: Robert F. Mangano President & Chief Executive Officer (609) 655-4500 Stephen J. Gilhooly Sr. Vice President & Chief Financial Officer (609) 655-4500
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