Market Overview

1ST Constitution Bancorp Reports Second Quarter 2018 Results, Successful Integration of New Jersey Community Bank and Quarterly Dividend of $0.06

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CRANBURY N.J., July 20, 2018 (GLOBE NEWSWIRE) -- 1ST Constitution Bancorp (NASDAQ:FCCY), the holding company (the "Company") for 1ST Constitution Bank (the "Bank"), today reported net income of $1.9 million and diluted earnings per share of $0.22 for the three months ended June 30, 2018. For the six months ended June 30, 2018, net income was $4.7 million and diluted earnings per share were $0.56.

The Board of Directors declared a quarterly cash dividend of $0.06 per share of common stock that will be paid on August 23, 2018 to shareholders of record on August 10, 2018.

On April 11, 2018, the Company completed the merger of New Jersey Community Bank ("NJCB") with and into the Bank. The shareholders of NJCB received total consideration of $8.6 million, which was comprised of 249,785 shares of common stock of the Company with a market value of $5.5 million and cash of $3.1 million of which $401,000 was placed in escrow to cover costs and expenses, including settlement costs, if any, that the Company may incur after closing the merger as a result of a certain litigation matter. As a result of the merger, merger related expenses of $2.0 million were incurred and the after-tax effect of the merger expenses reduced net income for the second quarter by $1.4 million. The acquisition method of accounting for the business combination resulted in the recognition of a gain from the bargain purchase of $184,000 and no goodwill.

Net income, excluding the after-tax effect of the merger expenses and the gain from the bargain purchase ("Adjusted net income"), was $3.1 million, or $0.36 per diluted share for the second quarter of 2018 and increased $1.2 million, or 62.7%, compared to net income for the three months ended June 30, 2017 of $1.9 million, or $0.23 per diluted share.

For the six months ended June 30, 2018, Adjusted net income was $6.1 million, or $0.72 per diluted share, compared to $3.9 million, or $0.47 per diluted share. The after-tax effect of merger expenses was $1.6 million for the six months ended June 30, 2018.

SECOND QUARTER 2018 HIGHLIGHTS

  • Return on average assets and Adjusted return on average assets were 0.65% and 1.09%, respectively, and Return on average equity and Adjusted return on average equity were 6.36% and 10.61%, respectively, for the three months ended June 30, 2018.
  • Book value per share and tangible book value per share were $14.42 and $12.94, respectively, at June 30, 2018.
  • Net interest income was $11.0 million and the net interest margin was 4.13% on a tax equivalent basis.
  • Non-interest income increased $277,000 from the comparable period in the prior year to $2.0 million, which reflected primarily the gain from the bargain purchase of $184,000.
  • A provision for loan losses of $225,000 and net charge-offs of $24,000 were recorded.
  • Total loans were $899.9 million at June 30, 2018 and included $72.7 million of loans acquired in the NJCB merger. Commercial business, commercial real estate and construction loans totaled $623.5 million and included $59.5 million of loans acquired in the NJCB merger at June 30, 2018. Excluding the acquired NJCB loans, commercial business, commercial real estate and construction loans increased $25.8 million, or 4.8%, compared to $538.2 million at December 31, 2017 and increased $67.4 million, or 13.6%, compared to $496.6 million at June 30, 2017.
  • The acquisition of NJCB included loans and deposits of $72.7 million and $90.9 million, respectively, at June 30, 2018.
  • Non-performing assets were $10.1 million, or 0.82% of assets, and included $1.2 million of OREO at June 30, 2018, which resulted primarily from the acquisition of NJCB.

Adjusted net income, Adjusted net income per diluted share, Adjusted return on average assets and Adjusted return on average equity are non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, but not as a substitute for, the Company's GAAP financial results. A reconciliation of these non-GAAP financial measures to the GAAP financial results is attached to this press release. Management believes that the presentation of these non-GAAP financial measures of the Company in this press release may be helpful to readers in understanding the Company's financial performance without including the financial impact of the NJCB merger when comparing the Company's income statement for the three- and six-month periods ended June 30, 2018 and the three- and six-month periods ended June 30, 2017.

Robert F. Mangano, President and Chief Executive Officer, stated "We completed the acquisition of New Jersey Community Bank, the conversion of its core operating system and achieved our expected operating synergies through the integration of its operations during the second quarter." Mr. Mangano added, "Our second quarter results, excluding the impact of merger expenses and acquisition accounting, reflected our sound operating fundamentals driven by the growth of our loan portfolio. The financial benefit of the higher short-term interest rate environment and our asset sensitive interest rate position is continuing to have a positive effect on net interest income and our net interest margin."

Mr. Mangano continued, "We are pleased to welcome the shareholders, employees and customers of New Jersey Community Bank to 1ST Constitution Bank. We look forward to building on all of our existing customer relationships and continuing to expand our presence in Freehold, Neptune and Monmouth County."

Discussion of Financial Results

Net income was $1.9 million, or $0.22 per diluted share, for the second quarter of 2018 compared to $1.9 million, or $0.23 per diluted share, for the second quarter of 2017. Adjusted net income and Adjusted net income per diluted share were $3.1 million and $0.36, respectively, for the second quarter of 2018. For the three months ended June 30, 2018, net interest income was $11.0 million, compared to $8.8 million for the three months ended June 30, 2017. The increase in earning assets and the yield on loans were the primary drivers of the $2.2 million increase in net interest income. Non-interest expenses were $10.3 million for the second quarter of 2018 compared to $7.7 million for the second quarter of 2017 and included merger related expenses of $2.0 million.

Net interest income was $11.0 million for the quarter ended June 30, 2018 and increased $2.2 million, or 24.8%, compared to net interest income of $8.8 million for the second quarter of 2017. Total interest income was $12.9 million for the three months ended June 30, 2018 compared to $10.2 million for the three months ended June 30, 2017. This increase was due primarily to the $160.3 million increase in average loans, reflecting growth primarily of commercial real estate, mortgage warehouse and construction loans. The growth of average loans included average loans of approximately $64 million from the acquisition of NJCB. Average interest-earning assets were $1.08 billion with a yield of 4.77% for the second quarter of 2018 compared to $961.7 million with a yield of 4.35% for the second quarter of 2017. The higher yield on average interest-earning assets for the second quarter of 2018 reflected primarily the higher yield earned on the loan portfolio. The 75 basis point increase in the Federal Reserve's targeted federal funds rate and the corresponding increase in the Prime Rate since June of 2017 have had a positive effect on the yields of construction, commercial business, home equity and warehouse loans with variable interest rate terms in the second quarter of 2018.

Interest expense on average interest-bearing liabilities was $1.9 million, with an interest cost of 0.91%, for the second quarter of 2018 compared to $1.3 million, with an interest cost of 0.74%, for the second quarter of 2017. The $523,000 increase in interest expense on interest-bearing liabilities for the second quarter of 2018 reflected primarily higher deposit interest costs due to higher short-term market interest rates in the second quarter of 2018 compared to the second quarter of 2017 and an increase of $98.5 million in average interest-bearing liabilities.

The net interest margin increased to 4.13% for the second quarter of 2018 compared to 3.79% for the second quarter of 2017 due primarily to the higher yield on average interest-earning assets. Net interest income for the second quarter of 2018 included $143,000 of prepayment fees due to the early repayment of loans, which increased the net interest margin by approximately 4 basis points. There were no prepayment fees received in the second quarter of 2017.

The Company recorded a higher provision for loan losses of $225,000 for the second quarter of 2018 compared to a provision for loan losses of $150,000 for the second quarter of 2017 due primarily to the growth of the loan portfolio and the change in the mix of loans in the loan portfolio.

At June 30, 2018, total loans were $899.9 million and the allowance for loan losses was $8.5 million, or 0.94% of total loans, compared to total loans of $762.6 million and an allowance for loan losses of $7.7 million, or 1.01% of total loans, at June 30, 2017. Included in loans at June 30, 2018 were $72.7 million of loans that were acquired in the NJCB merger. The decrease in the allowance as a percentage of loans was due primarily to the NJCB acquisition accounting, which resulted in the NJCB loans being recorded at their fair value which included a credit risk adjustment discount of approximately $1.6 million. Management believes that the current economic conditions in New Jersey and operating conditions for the Company are generally positive, which were also considered in management's evaluation of the adequacy of the allowance for loan losses.

Non-interest income was $2.0 million for the second quarter of 2018, an increase of $277,000, compared to $1.8 million for the second quarter of 2017. This increase was due primarily to the $184,000 gain from the bargain purchase related to the acquisition of NJCB. In addition, other income increased $86,000 due primarily to higher debit card interchange income and customer service fees. Gains on the sale of loans declined $34,000. In the second quarter of 2018, $21.2 million of residential mortgages were sold and $672,000 of gains were recorded compared to $24.9 million of residential mortgage loans sold and $820,000 of gains recorded in the second quarter of 2017. The decrease in residential mortgage loans sold was due primarily to lower residential mortgage lending activity as the result of higher mortgage interest rates in 2018 compared to 2017. In the second quarter of 2018, $3.9 million of SBA loans were sold and gains of $312,000 were recorded compared to $2.1 million of SBA loans sold and gains of $198,000 recorded in the second quarter of 2017. SBA guaranteed commercial lending activity and loan sales vary from period to period.

Non-interest expenses were $10.3 million for the second quarter of 2018, an increase of $2.6 million, or 33.4%, compared to $7.7 million for the second quarter of 2017. The increase was due primarily to $2.0 million of merger related expenses that were incurred in the second quarter of 2018 for termination of contracts, legal and financial advisory fees, severance and other expenses. Salaries and employee benefits expense increased $384,000, or 8.2%, in the second quarter of 2018 due primarily to salaries for former NJCB employees joining the Company, merit increases and increases in employee benefit expenses. Occupancy costs increased $65,000, or 7.9%, due primarily to the addition of the two former NJCB branch offices in the second quarter of 2018. Data processing expenses increased to $369,000 in the second quarter of 2018 compared to $326,000 for the second quarter of 2017 due primarily to the separate NJCB data processing costs incurred from the date of the closing of the merger to the date of core operating system integration on June 15, 2018. FDIC insurance expense increased $66,000, or 82.5%, due to the internal growth of assets and the acquisition of NJCB. Other operating expenses increased $41,000 due primarily to increases in supplies, postage, telephone, business development and marketing expenses.

Income tax expense was $714,000 for the second quarter of 2018, resulting in an effective tax rate of 27.6%, compared to income tax expense of $841,000, which resulted in an effective tax rate of 30.5%, for the second quarter of 2017. Income tax expense and the effective tax rate decreased in the second quarter of 2018 due primarily to the decrease in the maximum federal corporate income tax rate from 35% to 21% beginning in 2018 as a result of the enactment of the Tax Cuts and Jobs Act (the "Tax Act") in December of 2017. Partially offsetting the lower federal corporate income tax rate was the enactment of legislation by the State of New Jersey in July of 2018, which increased the corporate income tax rate to 11.5% from 9% for taxable income of $1.0 million or more effective January 1, 2018. The higher New Jersey corporate income tax rate for 2018 increased the Company's effective tax rate for 2018 by approximately 2%.

At June 30, 2018, the allowance for loan losses was $8.5 million compared to $8.0 million at December 31, 2017. As a percentage of total loans, the allowance was 0.94% at June 30, 2018 compared to 1.01% at December 31, 2017. The decrease in the allowance as a percentage of loans was due primarily to the NJCB acquisition accounting, which resulted in the NJCB loans being recorded at their fair value and the elimination of the NJCB allowance for loan losses.

Total assets increased $150.2 million to $1.23 billion at June 30, 2018 from $1.08 billion at December 31, 2017 due primarily to a $110.0 million increase in total loans and an increase of $9.7 million in investment securities. The increase in assets was funded primarily by a $34.8 million increase in deposits and a $97.7 million increase in overnight borrowings. Total portfolio loans at June 30, 2018 were $899.9 million compared to $789.9 million at December 31, 2017. The increase in loans was due primarily to an increase of $68.0 million in commercial real estate loans, a $14.9 million increase in mortgage warehouse loans and a $15.5 million increase in commercial business loans. The acquisition of NJCB contributed $72.7 million to the increase of loans at June 30, 2018.

Total deposits at June 30, 2018 were $956.8 million compared to $922.0 million at December 31, 2017. The acquisition of NJCB contributed $90.9 million of deposits at June 30, 2018, which were comprised of $13.0 million of non-interest bearing deposits, $21.1 million of interest bearing demand deposits, $3.3 million of savings accounts and $53.5 million of certificates of deposit. Total deposits, excluding the NJCB deposits, declined $56.2 million during the first six months of 2018. Municipal deposits, primarily interest bearing demand deposits and savings accounts, declined approximately $37.2 million from the end of 2017. As a result of the Tax Act, a number of the Bank's municipal customers experienced significant advanced payments in December 2017 for real estate taxes that were due in 2018. This was due to income tax planning considerations by individuals. As the Bank's municipal customers expended these additional funds in the first six months of 2018, their deposit balances declined from the levels at December 31, 2017. Management estimates that there were approximately $15 to $20 million of municipal deposits, primarily interest bearing demand accounts and savings accounts, at June 30, 2018 that are likely to flow out of the Bank during the third quarter of 2018 as the municipal customers expend these additional funds to support their operations. Management believes that the Bank's liquidity resources are adequate to meet this projected outflow of deposits during this period. The balance of the outflow of interest bearing demand accounts and savings accounts was due to the routine movement of customers' funds.

Regulatory capital ratios for the Company and the Bank continue to reflect a strong capital position. Under current regulatory capital standards, the Company's common equity Tier 1 to risk-based assets ("CET1"), total risk-based capital, Tier I capital, and leverage ratios were 10.16%, 12.57%, 11.80% and 11.45%, respectively, at June 30, 2018. The Bank's CET1, total risk-based capital, Tier 1 capital and leverage ratios were 11.60%, 12.37%, 11.60% and 11.25%, respectively, at June 30, 2018. The Company and the Bank are considered "well capitalized" under these capital standards.

Asset Quality

Non-performing loans were $8.9 million at June 30, 2018 compared to $7.1 million at December 31, 2017 and $6.1 million at June 30 2017. During the second quarter of 2018, $446,000 of non-performing loans were resolved. Principal payments of $313,000 on non-accrual loans were recorded in the second quarter of 2018 and loans totaling $1.6 million were placed on non-accrual status. Charge-offs of loans were $40,000 and recoveries were $16,000 for the second quarter of 2018. The allowance for loan losses was 95% of non-performing loans at June 30, 2018 compared to 113% of non-performing loans at December 31, 2017.

Overall, management observed generally stable trends in loan quality, with non-performing loans to total loans of 0.99% and non-performing assets to total assets of 0.82% at June 30, 2018 compared to non-performing loans to total loans of 0.90% and non-performing assets to total assets of 0.66% at December 31, 2017.

OREO at June 30, 2018 was $1.2 million and consisted of one residential real estate property acquired in the NJCB acquisition and land fair valued at $93,000 that was foreclosed in the second quarter.

About 1ST Constitution Bancorp

1ST Constitution Bancorp, through its primary subsidiary, 1ST Constitution Bank, operates 20 branch banking offices in Cranbury (2), Asbury Park, Fort Lee, Freehold, Hamilton, Hightstown, Hillsborough, Hopewell, Jamesburg, Lawrenceville, Little Silver, Neptune, Perth Amboy, Plainsboro, Princeton, Rocky Hill, Rumson, Fair Haven and Shrewsbury, New Jersey.

1ST Constitution Bancorp is traded on the Nasdaq Global Market under the trading symbol "FCCY" and information about the Company 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,
      2018       2017     2018       2017  
Per Common Share Data:              
Earnings per common share:              
  Basic $   0.22     $   0.24   $   0.57     $   0.48  
  Diluted     0.22         0.23       0.56         0.47  
Tangible book value per common share at period end             12.94         11.95  
Book value at period end             14.42         13.53  
Average common shares outstanding:              
  Basic     8,341,459         8,033,299       8,227,109         8,029,690  
  Diluted     8,628,105         8,301,939       8,506,961         8,301,431  
Shares Outstanding             8,379,342         8,046,197  
                 
Performance ratios/data:              
Return on average assets   0.65 %     0.76 0.86 %           0.77 %
Return on average equity   6.36 %     7.14 % 8.25 %           7.31 %
Net interest income (tax-equivalent basis) (1) $    11,153     $ 9,093   $ 20,968           $ 17,552  
Net interest margin (tax-equivalent basis) (2)   4.13 %     3.79 %   4.04 %           3.72 %
Efficiency ratio (tax-equivalent basis) (3)   77.68 %     70.78 %   71.88 %           70.58 %
                   
            June 30, 2018   December 31, 2017
Loan portfolio composition:              
Commercial real estate         $   378,997     $   297,843  
Mortgage warehouse lines             204,359         189,412  
Construction loans             138,144         136,412  
Commercial business             106,359         103,987  
Residential real estate             46,048         40,494  
Loans to individuals             25,171         21,025  
Other loans             583         183  
Gross loans             899,661         789,356  
Deferred costs, net             251         550  
Total loans         $   899,912     $   789,906  
                 
Asset quality data:              
Loans past due over 90 days and still accruing         $   -     $   -  
Non-accrual loans             8,913         7,114  
OREO property             1,223         -  
  Total non-performing assets         $   10,136     $   7,114  
                 
Net (charge-offs)/recoveries $   (24 )   $   7   $   35     $   (87 )
                 
Allowance for loan losses to total loans           0.94%   1.01%  
Allowance for loan losses to non-performing loans           95.34%   112.64%  
Non-performing loans to total loans           0.99%   0.90%  
Non-performing assets to total assets           0.82%   0.66%  
                   
Capital ratios:                    
1ST Constitution Bancorp                    
  Common equity to risk weighted assets ("CET 1")           10.16%   10.19%  
  Total capital to risk weighted assets           12.57%   12.84%  
  Tier 1 capital to risk weighted assets           11.80%   12.02%  
  Tier 1 capital to average assets (leverage ratio)           11.45%   11.23%  
                 
1ST Constitution Bank              
  Common equity to risk weighted assets ("CET 1")           11.60%   11.74%  
  Total capital to risk weighted assets           12.37%   12.55%  
  Tier 1 capital to risk weighted assets           11.60%   11.74%  
  Tier 1 capital to average assets (leverage ratio)           11.25%   10.96%  
                 
(1 ) The tax equivalent adjustment was $135 and $263 for the three months ended June 30, 2018 and 2017, respectively,
  The tax equivalent adjustment was $271 and $528 for the six months ended June 30, 2018 and 2017, respectively,
(2 ) Represents net interest income on a tax-equivalent basis as a percent of average interest-earning assets.  
(3 ) Represents non-interest expenses divided by the sum of net interest income on a tax-equivalent basis and
  non-interest income.              


       
1ST Constitution Bancorp      
Consolidated Statements of Condition      
(Dollars in thousands)      
Unaudited      
  June 30, 2018   December 31, 2017
ASSETS      
Cash and due from banks $   5,572     $   5,037  
Interest-earning deposits     25,079         13,717  
  Total cash and cash equivalents     30,651         18,754  
Investment securities:      
  Available for sale, at fair value     130,075         105,458  
  Held to maturity (fair value of $95,670 and $111,865 at June 30, 2018      
   and December 31, 2018)     95,322         110,267  
Total securities     225,397         215,725  
       
Loans held for sale     9,291          4,254  
       
Loans     899,912         789,906  
  Less: allowance for loan losses     (8,498 )        (8,013 )
  Net loans     891,414          781,893  
       
Premises and equipment, net     11,874         10,705  
Accrued interest receivable     3,785         3,478  
Bank owned life insurance     28,403         25,051  
Other real estate owned     1,223         -  
Goodwill and intangible assets     12,387         12,496  
Other assets     15,087          6,918  
Total assets $   1,229,512     $   1,079,274  
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
       
LIABILITIES:      
Deposits      
  Non-interest bearing $   216,087     $   196,509  
  Interest bearing     740,700         725,497  
  Total deposits     956,787         922,006  
       
Short-term borrowings     118,225         20,500  
Redeemable subordinated debentures     18,557         18,557  
Accrued interest payable     850         804  
Accrued expense and other liabilities     14,244         5,754  
Total liabilities     1,108,663         967,621  
SHAREHOLDERS EQUITY:      
Preferred stock, no par value; 5,000,000 shares authorized; none issued     -         -  
Common stock, no par value; 30,000,000 shares authorized; 8,412,640 and
8,116,201 shares issued and 8,379,342 and 8,082,903 shares outstanding as of
June 30, 2018 and December 31, 2017, respectively
    79,003         72,935  
Retained earnings     44,061         39,822  
Treasury stock, 33,298 shares at June 30, 2018 and December 31, 2017     (368 )       (368 )
Accumulated other comprehensive loss     (1,847 )       (736 )
                 Total shareholders' equity     120,849         111,653  
       
                                      Total liabilities and shareholders' equity $   1,229,512     $   1,079,274  


               
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,
    2018     2017       2018     2017
INTEREST INCOME:              
    Loans, including fees $   11,349   $   8,697     $   20,885   $   16,740
    Securities:              
       Taxable     989       839         1,855       1,654
       Tax-exempt     509       548         1,024       1,101
    Federal funds sold and              
       short-term investments     34       86         172       158
           Total interest income     12,881       10,170         23,936       19,653
               
INTEREST EXPENSE:              
    Deposits     1,469       1,104         2,688       2,147
    Borrowings     220       109         227       236
    Redeemable subordinated debentures     174       127         324       246
           Total interest expense     1,863       1,340         3,239       2,629
               
           Net interest income     11,018       8,830         20,697       17,024
               
PROVISION FOR LOAN LOSSES     225       150         450       300
    Net interest income after provision              
         for loan losses     10,793       8,680         20,247       16,724
               
NON-INTEREST INCOME:              
    Service charges on deposit accounts     153       149         303       303
    Gain on sales of loans     984       1,018         2,133       2,607
    Income on Bank-owned life insurance     159       130         273       260
    Gain from bargain purchase     184       -         184       -
    Gain on sales of securities     6       (2 )       12       104
    Other income     557       471         1,023       905
         Total non-interest income   2,043     1,766       3,928     4,179
               
NON-INTEREST EXPENSES:              
    Salaries and employee benefits     5,076       4,692         9,814       9,193
    Occupancy expense     885       820         1,697       1,658
    Data processing expenses     369       326         678       644
    FDIC insurance expense     146       80         276       160
    Other real estate owned expenses     -       11         2       15
    Merger-related expenses     1,977       -         2,141       -
    Other operating expenses     1,798       1,757         3,288       3,672
          Total non-interest expenses     10,251       7,686         17,896       15,342
               
  Income before income taxes     2,585       2,760         6,279       5,561
INCOME TAXES     714       841         1,555       1,693
           Net Income $   1,871   $   1,919     $   4,724   $   3,868
               
NET INCOME PER COMMON SHARE              
    Basic $   0.22   $   0.24     $   0.57   $   0.48
    Diluted     0.22       0.23         0.56       0.47
               
WEIGHTED AVERAGE SHARES              
  OUTSTANDING              
    Basic     8,341,459       8,033,299         8,227,109       8,029,690
    Diluted     8,628,105       8,301,939         8,506,961       8,301,431


 
1ST Constitution Bancorp
Net Interest Margin Analysis
(Dollars in thousands)
(Unaudited)
                       
  Three months ended June 30, 2018   Three months ended June 30, 2017
  Average       Average   Average       Average
(yields on a tax-equivalent basis) Balance   Interest   Yield   Balance   Interest   Yield
                       
Assets                      
Federal funds sold/short term investments $   11,633     $   34   1.17 %   $   38,469     $   86   0.89 %
Investment securities:                      
    Taxable   149,366         989   2.65 %     144,790         839   2.32 %
    Tax-exempt (4)   76,567         644   3.36 %     93,415         811   3.47 %
    Total   225,933       1,633   2.89 %     238,205       1,650   2.77 %
                       
Loans: (1)                      
    Commercial real estate   368,850         4,794   5.14 %     253,050         3,290   5.14 %
    Mortgage warehouse lines   154,796         2,057   5.26 %     140,469         1,530   4.31 %
    Construction   133,679         2,178   6.45 %     110,994         1,699   6.05 %
    Commercial business   109,245         1,460   5.31 %     110,772         1,441   5.15 %
    Residential real estate   50,154         548   4.37 %     41,275         460   4.46 %
    Loans to individuals   24,990         275   4.41 %     22,466         232   4.14 %
    Loans held for sale   2,428         26   4.28 %     4,303         39   3.64 %
    All other loans   1,123         11   3.88 %     1,677         6   1.47 %
    Total   845,265       11,349   5.32 %     685,006       8,697   5.09 %
                       
  Total interest-earning assets     1,082,831     $   13,016   4.77 %       961,680     $   10,433   4.35 %
                       
Allowance for loan losses   (8,390 )             (7,617 )        
Cash and due from bank   6,232               4,978          
Other assets   65,721               58,346          
Total assets $   1,146,394             $   1,017,387          
                       
Liabilities and shareholders' equity:                      
Interest-bearing liabilities:                      
  Money market and NOW accounts   375,846     $   506   0.54 %   $   341,704     $   358   0.42 %
  Savings accounts   208,755         361   0.69 %     209,719         331   0.63 %
  Certificates of deposit   174,107         602   1.39 %     139,931         415   1.19 %
  Other borrowed funds   43,464         220   2.03 %     12,367         109   3.54 %
  Trust preferred securities   18,557         174   3.75 %     18,557         127   2.72 %
  Total interest-bearing liabilities   820,729     $   1,863   0.91 %     722,278     $   1,340   0.74 %
                       
Net interest spread (2)         3.86 %           3.61 %
                       
Demand deposits   199,707               181,446          
Other liabilities   7,978               5,901          
Total liabilities     1,028,414                 909,625          
                       
Shareholders' equity   117,980               107,762          
  Total liabilities and shareholders' equity $   1,146,394             $   1,017,387          
                       
Net interest income/Net interest margin (3)     $   11,153   4.13 %       $   9,093   3.79 %
                       
(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, using 21% federal tax rate in 2018 and 34% in 2017.                


 
1ST Constitution Bancorp
Net Interest Margin Analysis
(Dollars in thousands)
(Unaudited)
                       
  Six months ended June 30, 2018   Six months ended June 30, 2017
  Average       Average   Average       Average
(yields on a tax-equivalent basis) Balance   Interest   Yield   Balance   Interest   Yield
                       
Assets                      
Federal funds sold/short term investments $   26,031     $   172   1.33 %   $   38,917     $   158   0.82 %
Investment securities:                      
  Taxable   143,405         1,855   2.59 %     141,312         1,654   2.34 %
  Tax-exempt (4)   78,524         1,295   3.30 %     94,022         1,629   3.46 %
  Total   221,929       3,150   2.84 %     235,334       3,283   2.79 %
                       
Loans: (1)                      
  Commercial real estate   336,743         8,490   5.01 %     245,921         6,278   5.08 %
  Mortgage warehouse lines   145,728         3,813   5.23 %     146,171         3,100   4.22 %
  Construction   131,330         4,141   6.36 %     105,140         3,140   5.94 %
  Commercial business   110,118         2,895   5.30 %     108,781         2,684   4.98 %
  Residential real estate   45,537         988   4.32 %     41,983         915   4.36 %
  Loans to individuals   22,742         475   4.15 %     22,452         477   4.29 %
  Loans held for sale   2,997         63   4.20 %     4,761         128   5.41 %
  All other loans   1,168         20   3.41 %     1,981         18   1.82 %
  Total   796,363       20,885   5.24 %     677,191       16,740   4.99 %
                       
  Total interest-earning assets      1,044,323     $    24,207   4.63 %        951,442     $    20,181   4.27 %
                       
Allowance for loan losses   (8,249 )             (7,583 )        
Cash and due from bank   5,789               5,502          
Other assets   61,980               58,275          
Total assets $    1,103,843             $   1,007,636          
                       
Liabilities and shareholders' equity:                      
Interest-bearing liabilities:                      
  Money market and NOW accounts   373,873     $   938   0.51 %   $    331,197     $   675   0.41 %
  Savings accounts   216,180         708   0.66 %     210,822         654   0.63 %
  Certificates of deposit   154,814         1,042   1.36 %     141,199         818   1.17 %
  Other borrowed funds   22,673         227   2.02 %     16,917         236   2.81 %
  Trust preferred securities   18,557         324   3.49 %     18,557         246   2.64 %
  Total interest-bearing liabilities   786,097     $   3,239   0.83 %     718,692     $    2,629   0.74 %
                       
Net interest spread (2)         3.80 %           3.53 %
                       
Demand deposits   194,189               175,770          
Other liabilities   8,121               6,511          
Total liabilities     988,407                  900,973          
                       
Shareholders' equity     115,436               106,663          
  Total liabilities and shareholders' equity $    1,103,843             $    1,007,636          
                       
Net interest income/Net interest margin (3)     $   20,968   4.04 %       $   17,552   3.72 %
                       
                       
(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, using 21% federal tax rate in 2018 and 34% in 2017.              


1ST Constitution Bancorp  
Reconciliation of Non-GAAP Measures (1)  
(Dollars in thousands, except per share data)  
(Unaudited)  
  Three months ended   Six months ended
  June 30,   June 30,
    2018       2017       2018       2017  
Adjusted net income              
Net income $   1,871     $   1,919     $   4,724     $   3,868  
Adjustments:              
  Merger-related expenses     1,977         -         2,141         -  
  Gain from bargain purchase     (184 )       -         (184 )       -  
  Income tax effect of adjustments (2)     (542 )       -         (568 )       -  
Adjusted net income $   3,122     $   1,919     $   6,113     $   3,868  
               
Adjusted net income per diluted share              
Adjusted net income $   3,122     $   1,919     $   6,113     $   3,868  
Diluted shares outstanding      8,628,105          8,301,939        8,506,961        8,301,431  
Adjusted net income per diluted share $   0.36     $   0.23     $   0.72     $   0.47  
               
Adjusted return on average assets              
Adjusted net income $   3,122     $   1,919     $   6,113     $   3,868  
Average assets      1,146,394        1,017,387        1,103,843          1,007,636  
Adjusted return on average assets   1.09 %     0.76 %     1.12 %     0.77 %
               
Adjusted return on average equity              
Adjusted net income $   3,122     $   1,919     $   6,113     $   3,868  
Average equity      117,980          107,762          115,436          106,663  
Return on average equity   10.61 %     7.14 %     10.68 %     7.31 %
               
Book value and tangible book value per share              
Shareholders' equity              120,849         108,848  
Less: goodwill and intangible assets             12,387         12,687  
Tangible shareholders' equity              108,462         96,161  
Shares outstanding              8,379,342         8,046,197  
Book value per share         $   14.42     $   13.53  
Tangible book value per share         $   12.94     $   11.95  
               
(1)  The Company used the non-GAAP financial measures, adjusted net income and adjusted net income per diluted share,  
because the Company believes that it is useful for the users of the financial information to understand the effect on net  
income of the merger-related expenses and the gain from the bargain purchase recorded in connection with the merger  
of New Jersey Community Bank. These non-GAAP measures improve the comparability of the current period results  
with the results of prior periods. The Company cautions that the non-GAAP financial measures should be considered  
in addition to, but not as a substitute for, the Company's GAAP results.          
(2)  Tax effected at an income tax rate of 30.09%, less the impact of non-deductible merger expenses and the non-  
taxable gain from the bargain purchase.              
               

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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