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1st Constitution Bancorp Reports Third Quarter 2015 Results

CRANBURY N.J., Oct. 22, 2015 (GLOBE NEWSWIRE) -- 1ST Constitution Bancorp (NASDAQ:FCCY), the holding company (the “Company”) for 1ST Constitution Bank (the “Bank”), today reported net income for the third quarter of 2015 of $2.5 million, a 15% increase, compared to net income of $2.1 million for the third quarter of 2014. Net income per diluted share for the third quarter of 2015 was $0.32, a 14% increase, compared to net income per diluted share of $0.28 for the third quarter of 2014.

Return on average assets was 0.98% and return on average equity was 10.56% for the third quarter of 2015 compared to return on average assets and return on average equity of 0.88% and 10.25%, respectively, for the third quarter of 2014.

The significant increase in net income for the third quarter of 2015 compared to net income for the third quarter of 2014 was due in part to the $716,000 increase in net interest income to $9.7 million, which was driven by the growth of the Bank’s loan portfolio in 2015. Due to stable loan quality and a moderate level of net charge-offs during the third quarter of 2015, the provision for loan losses declined to $100,000 compared to $650,000 in the third quarter of 2014. Lower non-interest income and higher non-interest expenses in the third quarter of 2015 compared to the third quarter of 2014 partially offset the higher net interest income and lower provision for loan losses for the third quarter of 2015.

For the nine months ended September 30, 2015, the Company reported net income of $7.0 million, a 28% increase, compared to Adjusted Net Income of $5.5 million for the nine months ended September 30, 2014. Net income per diluted share was $0.92 for the nine months ended September 30, 2015, a 26% increase, compared to Adjusted Net Income Per Diluted Share of $0.73 for the nine months ended September 30, 2014. Net income and net income per diluted share as reported for the nine months ended September 30, 2014 were $2.3 million and $0.31, respectively.

Adjusted Net Income excludes the after-tax effect of merger related expenses that were incurred in the first and second quarters of 2014 in connection with the merger of Rumson-Fair Haven Bank and Trust Company (“Rumson”) with and into the Bank on February 7, 2014 and the provision for loan losses related to the full charge-off of a loan participation due to fraudulent misrepresentations by the borrower and its principals recorded in the second quarter of 2014. Adjusted Net Income, Adjusted Net Income Per Diluted Share, Adjusted Return on Assets and Adjusted Return on Equity are non-GAAP measures. A reconciliation of these non-GAAP measures to the reported net income, net income per diluted share, return on average assets and return on average equity is included in this release.

Third Quarter Highlights

  • Net interest income was $9.7 million in the third quarter of 2015 compared to $9.4 million in the second quarter of 2015 and $8.9 million in the third quarter of 2014. The net interest margin for each of these periods was 4.19%, 4.19% and 4.07%, respectively.
  • During the third quarter of 2015, the total loan portfolio decreased $49.1 million, or 6.5%, to $709.4 million and mortgage warehouse lines outstanding decreased $46.8 million to $232.9 million at September 30, 2015, reflecting total pay-downs on lines that exceeded the total loan fundings during the quarter. Approximately 67% of the $1.1 billion of mortgage warehouse funding activity during the third quarter were for home purchases. The loan to asset ratio was 72% at September 30, 2015 compared to 72% at June 30, 2015, 68% at December 31, 2014 and 64% at September 30, 2014.
  • The provision for loan losses was $100,000 for the third quarter of 2015 and reflected the Bank’s stable loan quality trends, the moderate level of net-charge-offs and management’s assessment of strengthening economic conditions in the Bank’s markets.
  • SBA loan sales were $2.2 million and generated gains on sales of loans of $193,000, and SBA commercial loan originations were $850,000 during the third quarter of 2015.
  • During the third quarter of 2015, the Bank’s residential mortgage banking operation originated $22.9 million of residential mortgages and sold $38.0 million of residential mortgage loans, which generated gains from the sales of loans of $262,000. At September 30, 2015, the pipeline of residential mortgage loans in process was $41.5 million.
  • The Company’s efficiency ratio for the third quarter of 2015 was 64.0% compared to 67.4% for the second quarter of 2015 and 62.8% for the third quarter of 2014.

Robert F. Mangano, President and Chief Executive Officer, stated, “We focused on enhancing our operational and financial performance and we are pleased with our progress over the last five quarters. Our net interest margin, driven primarily by the increase in mortgage warehouse lending, expanded to 4.19%, which generated an increase in ROA and ROE to 0.98% and 10.6%, respectively in the third quarter this year. Our commercial, construction, SBA and residential lending groups also contributed to our increased profitability. As we enter the fourth quarter, we anticipate that the financing of home purchase activity within our residential mortgage banking operation and our mortgage warehouse lending operation will slow due to seasonal factors.”

Discussion of Financial Results

Net interest income was $9.7 million for the third quarter ended September 30, 2015, an increase of $252,000, or 2.7%, compared to $9.4 million for the second quarter of 2015 and an increase of $716,000, or 8.0%, compared to $8.9 million for the third quarter ended September 30, 2014. The $716,000 increase compared to the third quarter of 2014 was due primarily to the increase in the loan portfolio in 2015 and the higher proportion of average loans to average assets, which generated the higher yield on earning assets of 4.68% compared to 4.58% for the third quarter of 2014.

Interest expense on average interest bearing liabilities was 0.63% for the third quarter of 2015 compared to 0.64% for the second quarter of 2015 and 0.66% for the third quarter of 2014.

A provision for loan losses of $100,000 was recorded for the third quarter of 2015 compared to no provision for loan losses for the second quarter of 2015 and $650,000 for the third quarter of 2014. The $100,000 provision for loan losses for the third quarter of 2015 reflected the moderate level of net charge-offs, the Bank’s stable loan quality trends over the last five quarters, the level of estimated loss in the loan portfolio and management’s assessment of the strengthening economic conditions in the Bank’s markets.

Non-interest income was $1.1 million for the third quarter of 2015, a decrease of $519,000, or 32.1%, compared to $1.6 million for the second quarter of 2015, and a decrease of $383,000, or 25.9%, compared to $1.5 million for the third quarter of 2014. Lower gains from the sales of SBA and residential mortgage loans of $377,000 and lower customer service fees in the third quarter of 2015 of $143,000 were the principal reasons for the decrease in non-interest income compared to the second quarter of 2015. Gains from the sale of SBA and residential mortgage loans in the third quarter of 2015 were $101,000 lower than the gains from the sales of these loans in the third quarter of 2014 and customer service fees were $282,000 lower due to lower customer activity.

Non-interest expenses were $7.1 million for the third quarter of 2015 and decreased $550,000, or 7.2%, compared to $7.6 million for the second quarter of 2015 and increased $328,000, or 4.9%, compared to $6.7 million for the third quarter of 2014. Non-interest expenses in the third quarter of 2015 declined compared to the second quarter of 2015 due primarily to lower OREO expenses of $119,000 and lower professional fees of $390,000, compared to OREO expenses of $416,000 and professional fees of $743,000. Non-interest expenses increased in the third quarter of 2015 compared to the third quarter of 2014 due to a $123,000, or 3.1%, increase in employee compensation and benefits expense and additional operating costs due to the growth and expansion of the Bank’s operations.

Income taxes were $1.1 million, which resulted in an effective tax rate of 31.8% for the third quarter of 2015 compared to income taxes of $1.1 million and an effective tax rate of 32.4% for the second quarter of 2015 and income taxes of $917,000 and an effective tax rate of 30.0% for the third quarter of 2014. The increase in income taxes was due to the higher amount of pre-tax income in the third quarter of 2015 compared to the third quarter of 2014.

At September 30, 2015, the allowance for loan losses was $7.1 million, a $207,000 increase from the allowance for loan losses at December 31, 2014. As a percentage of total loans, the allowance was 1.01% at the end of the third quarter of 2015 compared to 1.06% at year-end 2014. With respect to the acquired Rumson loans of approximately $94 million at September 30, 2015, the accretable general credit discount was $778,000 and the non-accretable credit discount was $546,000.

Total assets increased approximately $23 million to $980 million at September 30, 2015 from $957 million at December 31, 2014 due principally to the $55.1 million increase in loans. The increase in loans was funded primarily by a $40.1 million increase in FHLB borrowings. Total portfolio loans at September 30, 2015 were $709.4 million compared to $654.3 million at December 31, 2014. Total investment securities at September 30, 2015 were $195.6 million, a decrease from $223.8 million at December 31, 2014. Total deposits at September 30, 2015 were $793.8 million compared to $817.8 million at December 31, 2014. The decrease in deposits was due primarily to the outflow of municipal deposits.

Regulatory capital ratios continue to reflect a strong capital position. Under the new regulatory capital standards (Basel III) that became effective on January 1, 2015, the Company’s common equity Tier 1 to risk based assets (“CET1”) ratio, total risk-based capital ratio, Tier I capital ratio and Leverage ratio were 9.56%, 12.49%, 11.66% and 10.12%, respectively, at September 30, 2015. The Bank’s CET1 ratio, total risk-based capital ratio, Tier 1 capital ratio and Leverage ratio were 11.38%, 12.21%, 11.38% and 9.88%, respectively, at September 30, 2015. The Company and the Bank are considered “well capitalized” under the new capital standards.

Asset Quality

Net charge-offs during the third quarter of 2015 were $318,000. Non-accrual loans were $3.6 million at September 30, 2015 compared to $4.5 million at December 31, 2014. The allowance for loan losses was 196% of non-accrual loans at September 30, 2015 compared to 153% of non-accrual loans at December 31, 2014.

Overall, the Company observed stable trends in loan quality with net charge-offs of $318,000 during the third quarter of 2015, non-performing loans to total loans of 0.62% and non-performing assets to total assets of 0.95% at September 30, 2015.

OREO at September 30, 2015 was comprised of three properties that totaled $4.9 million compared to $5.7 million at December 31, 2014.

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
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
($ in thousands, except per share amounts) 2015 2014 2015 2014
Income Statement Data :
Interest income $ 10,832 $ 10,133 $ 31,083 $ 27,693
Interest expense 1,169 1,186 3,466 3,471
Net interest income 9,663 8,947 27,617 24,222
Provision for loan losses 100 650 600 5,250
Net interest income after provision for loan losses 9,563 8,297 27,017 18,972
Non-interest income 1,099 1,482 4,602 4,379
Non-interest expenses 7,052 6,724 21,267 20,776
Income before income taxes 3,610 3,055 10,352 2,575
Income tax expense 1,148 917 3,315 235
Net income $ 2,462 $ 2,138 $ 7,037 $ 2,340
Per Common Share Data: (1)
Earnings per common share - Basic $ 0.33 $ 0.29 $ 0.94 $ 0.32
Earnings per common share - Diluted 0.32 $ 0.28 0.92 $ 0.31
Tangible book value per common share at the period-end 10.74 9.80
Book value per common share at the period end 12.51 11.63
Average common shares outstanding:
Basic 7,543,040 7,475,069 7,517,828 7,364,465
Diluted 7,695,082 7,603,626 7,674,946 7,498,647
Adjusted Net Income (2)
Net Income 2,462 2,138 7,037 2,340
Adjusted Expenses After-tax - - - 3,157
2,462 2,138 7,037 5,497
Performance Ratios / Data:
Return on average assets (2) 0.98% 0.88% 0.96% 0.78%
Return on average equity (2) 10.56% 10.25% 10.46% 9.16%
Net interest income (tax-equivalent basis) (3) $ 9,914 $ 9,224 $ 28,389 $ 25,060
Net interest margin (tax-equivalent basis) (4) 4.19% 4.07% 4.11% 3.84%
Efficiency ratio (5) 64.0% 62.8% 64.5% 65.4%
September 30, December 31,
2015 2014
Balance Sheet Data:
Total Assets $ 980,450 $ 956,780
Investment Securities 195,581 223,799
Total loans 709,399 654,297
Loans held for sale 5,707 8,372
Allowance for loan losses (7,132) (6,925)
Goodwill and other intangible assets 13,391 13,712
Deposits 793,842 817,761
Borrowings 65,187 25,107
Shareholders' Equity 94,432 87,110
Asset Quality Data:
Loans past due over 90 days and still accruing $ 764 $ 317
Non-accrual loans 3,632 4,523
OREO property 4,927 5,710
Other repossessed assets - 66
Total non-performing assets $ 9,323 $ 10,616
Net charge-offs $ (319) $ (1,189)
Allowance for loan losses to total loans 1.01% 1.06%
Non-performing loans to total loans 0.62% 0.74%
Non-performing assets to total assets 0.95% 1.11%
Capital Ratios:
1st Constitution Bancorp
Common equity to risk weighted assets ("CET 1") 9.56% NA
Tier 1 capital to average assets (leverage ratio) 10.12% 9.35%
Tier 1 capital to risk weighted assets 11.66% 11.42%
Total capital to risk weighted assets 12.49% 12.33%
1st Constitution Bank
Common equity to risk weighted assets ("CET 1") 11.38% NA
Tier 1 capital to average assets (leverage ratio) 9.88% 9.11%
Tier 1 capital to risk weighted assets 11.38% 11.13%
Total capital to risk weighted assets 12.21% 12.04%
____________
(1) Includes the effect of the 5% stock dividend declared February 20, 2015 to shareholders of record on March 16, 2015 and paid April 6, 2015.
(2) The Company used the non-GAAP financial measures, Adjusted Net Income (Loss) and Adjusted Net Income (Loss) 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 incurred in the merger with Rumson and the large provision for loan losses recorded as a result of the fraudulent
misrepresentations by a borrower and its principals. Management believes that these non-GAAP financial 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.
(3) The tax equivalent adjustments were $251 and $277 for the three months ended September 30, 2015 and September 30, 2014, respectively.
(4) Represents net interest income on a taxable equivalent basis as a percent of average interest earning assets.
(5) Represents non-interest expenses, excluding merger-related expenses, divided by the sum of net interest income on a taxable equivalent
basis and non-interest income.

1st Constitution Bancorp
Average Balance Sheets with Resultant Interest and Rates
Three months ended September 30, 2015 Three months ended September 30, 2014
(yields on a tax-equivalent basis)Average Average Average Average
BalanceInterestYield BalanceInterestYield
Assets
Federal Funds Sold/Short Term Investments$14,827,056 $7,434 0.20% $18,858,143 $10,183 0.21%
Investment Securities :
U.S.Treasury Bonds 0 0 - 0 0 -
Taxable 122,093,749 776,219 2.54% 168,912,644 961,043 2.28%
Tax-exempt 76,971,556 772,898 4.02% 90,191,047 852,447 3.78%
Total 199,065,305 1,549,117 3.11% 259,103,691 1,813,490 2.80%
Loan Portfolio:
Construction 93,952,844 1,470,231 6.21% 84,776,306 1,408,170 6.59%
Residential real estate 41,827,836 444,764 4.22% 49,466,308 524,861 4.21%
Home Equity 19,684,595 272,243 5.49% 23,097,660 356,320 6.12%
Commercial and commercial real estate 293,937,584 4,314,060 5.82% 286,369,323 4,306,422 5.97%
Mortgage warehouse lines 243,273,189 2,634,426 4.30% 155,715,974 1,689,856 4.31%
Installment 516,182 5,345 4.11% 417,619 5,469 5.20%
All Other Loans 33,692,214 385,518 4.54% 24,885,673 294,851 4.70%
Total 726,884,443 9,526,587 5.20% 624,728,863 8,585,949 5.45%
Total Interest-Earning Assets 940,776,804 11,083,138 4.68% 902,690,698 10,409,622 4.58%
Allowance for Loan Losses (7,665,137) (7,542,268)
Cash and Due From Bank 5,806,826 13,872,593
Other Assets 62,093,731 58,467,465
Total Assets$1,001,012,223 $967,488,488
Liabilities and Shareholders' Equity :
Interest-Bearing Liabilities:
Money Market and NOW Accounts$295,478,919 $248,396 0.33% $290,077,290 $244,485 0.33%
Savings Accounts 194,948,382 231,196 0.47% 196,936,099 226,556 0.46%
Certificates of Deposit 170,499,683 441,080 1.03% 172,114,159 484,203 1.12%
Other Borrowed Funds 52,082,010 158,943 1.21% 35,420,518 144,006 1.61%
Trust Preferred Securities 18,557,000 89,433 1.89% 18,557,000 86,535 1.82%
Total Interest-Bearing Liabilities 731,565,994 1,169,049 0.63% 713,105,065 1,185,785 0.66%
Net Interest Spread 4.05% 3.92%
Demand Deposits 167,525,970 165,617,916
Other Liabilities 9,405,949 6,011,491
Total Liabilities 908,497,914 884,734,472
Shareholders' Equity 92,514,310 82,754,016
Total Liabilities and Shareholders' Equity$1,001,012,223 $967,488,488
Net Interest Margin $9,914,089 4.19% $9,223,837 4.07%

1st Constitution Bancorp
Average Balance Sheets with Resultant Interest and Rates
Nine months ended September 30, 2015 Nine months ended September 30, 2014
Average Average Average Average
BalanceInterestYield BalanceInterestYield
Assets
Federal Funds Sold/Short Term Investments$22,042,333 $38,299 0.23% $60,616,449 $110,892 0.24%
Investment Securities :
U.S.Treasury Bonds 0 0 - 0 0 -
Taxable 128,404,116 2,382,766 2.47% 177,880,389 3,141,788 2.35%
Tax-exempt 82,207,355 2,380,084 3.86% 87,095,642 2,583,648 3.96%
Total 210,611,471 4,762,849 3.02% 264,976,031 5,725,436 2.88%
Loan Portfolio:
Construction 95,935,994 4,550,562 6.34% 73,497,268 3,791,105 6.90%
Residential real estate 43,796,422 1,381,188 4.22% 44,761,735 1,363,469 4.07%
Home Equity 22,308,186 778,475 4.67% 21,985,052 921,528 5.60%
Commercial and commercial real estate 291,656,494 12,524,444 5.74% 264,617,694 11,779,442 5.95%
Mortgage warehouse lines 205,752,931 6,713,760 4.36% 118,959,945 4,022,743 4.52%
Installment 467,804 15,901 4.54% 321,030 13,668 5.69%
All Other Loans 29,755,674 1,089,404 4.89% 21,900,870 802,694 4.90%
Total 689,673,504 27,053,735 5.24% 546,043,594 22,694,649 5.56%
Total Interest-Earning Assets 922,327,308 31,854,883 4.62% 871,636,075 28,530,977 4.37%
Allowance for Loan Losses (7,532,730) (7,547,794)
Cash and Due From Bank 7,816,389 15,325,837
Other Assets 62,474,477 57,087,058
Total Assets 985,085,444 $936,501,176
Liabilities and Shareholders' Equity :
Interest-Bearing Liabilities:
Money Market and NOW Accounts$302,776,858 $753,925 0.33% $279,311,533 $692,097 0.33%
Savings Accounts 196,265,638 686,202 0.47% 200,283,559 676,075 0.45%
Certificates of Deposit 162,085,520 1,324,342 1.09% 169,628,119 1,458,167 1.15%
Other Borrowed Funds 41,767,238 438,241 1.40% 24,630,579 387,422 2.10%
Trust Preferred Securities 18,557,000 263,216 1.87% 18,557,000 257,314 1.83%
Total Interest-Bearing Liabilities 721,452,254 3,465,927 0.64% 692,410,789 3,471,075 0.67%
Net Interest Spread 3.97% 3.70%
Demand Deposits 164,867,369 156,999,596
Other Liabilities 8,782,231 6,859,237
Total Liabilities 895,101,854 856,269,622
Shareholders' Equity 89,983,590 80,231,552
Total Liabilities and Shareholders' Equity$985,085,444 $936,501,174
Net Interest Margin $28,388,956 4.11% $25,059,902 3.84%


1st Constitution Bancorp
Reconciliation of Non-GAAP Measures (1)
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months EndedNine Months Ended
September 30, 2015September 30, 2014September 30, 2015September 30, 2014
Adjusted Net Income
Net Income (Loss) $2,462 $2,138 $7,037 $2,340
Adjustments
Provision for Loan losses (2) 3,656
Merger-related Expenses 1,532
Income Tax Effect of Adjustments (3) (2,031)
Adjusted Net Income (Loss) $2,462 $2,138 $7,037 $5,497
Adjusted Net Income (Loss) per Diluted Share
Adjusted Net Income $2,462 $2,138 $7,037 $5,497
Diluted Shares Outstanding 7,695,082 7,603,626 7,674,946 7,498,647
Adjusted Net Income (Loss) per Diluted Share$0.32 $0.28 $0.92 $0.73
Adjusted Return on Assets (4) 0.98% 0.88% 0.96% 0.78%
Adjusted Return on Equity (4) 10.56% 10.25% 10.46% 9.16%
(1) Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per diluted share are measures not in accordance with generally accepted
accounting principles ("GAAP"). The Company used the non-GAAP financial measures, Adjusted Net Income (Loss) and Adjusted Net
Income (Loss) 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 incurred in the merger with Rumson Fair Haven Bank and Trust Company
and the large provision for loan losses recorded as the result of the fraudulent misrepresentations by a borrower and its principals.
Management believes that these non-GAAP financial 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) The amount represents the full charge-off of a loan participation due to fraudulent misrepresentations by the borrower and its principals
that was recorded in the second quarter of 2014.
(3) Tax effected at an income tax rate of 39.94%, less the impact of non-deductible merger expenses.
(4) Adjusted Return on Assets and Adjusted Return on Equity excludes the after-tax effect of the merger related expenses
and loan loss provision in 2014.


CONTACT: Robert F. Mangano President & Chief Executive Officer (609) 655-4500 Stephen J. Gilhooly Sr. Vice President & Chief Financial Officer (609) 655-4500

Source:1st Constitution Bancorp