SOURCE: 1ST Constitution Bancorp

February 05, 2015 09:15 ET

1ST Constitution Bancorp Announces Fourth Quarter and Annual Results for the Year Ended December 31, 2014

CRANBURY, NJ--(Marketwired - Feb 5, 2015) - 1ST Constitution Bancorp (NASDAQ: FCCY), the holding company (the "Company") for 1ST Constitution Bank (the "Bank"), today reported net income for the three month period ended December 31, 2014 of $2.0 million, a 43% increase compared to net income of $1.4 million reported for the three month period ended December 31, 2013. Net income per diluted share for the three month period ended December 31, 2014 was $0.28, an increase of 27% compared to net income of $0.22 per diluted share for the three month period ended December 31, 2013. 

The significant increase in net income for the current quarter was due primarily to the $2.5 million increase in net interest income to $8.5 million, which was driven by the internal growth of the Bank's loan portfolio and the inclusion of the operations of the former Rumson-Fair Haven Bank & Trust Company ("Rumson") following its merger with and into the Bank on February 7, 2014. Non-interest income was $1.4 million for the current quarter compared to $1.2 million in the prior year's fourth quarter and increased primarily due to higher gains from the sale of loans. In the fourth quarter of 2013, the after-tax effect of merger expenses related to the Rumson transaction reduced net income and diluted earnings per share by $0.1 million and $0.03 per share, respectively.

Fourth Quarter Highlights

  • Net interest income was $8.5 million in the fourth quarter of 2014 compared to $8.9 million in the third quarter of 2014 and $6.0 million in the fourth quarter of 2013. The net interest margin for each of these periods was 3.83%, 4.05% and 3.31%, respectively.
  • Loans were $654 million at December 31, 2014 and increased $34 million, or 5.5%, from September 30, 2014. Mortgage warehouse loans, contrary to the expected seasonal decline in the fourth quarter of 2014, increased $21.8 million due to the Bank's mortgage warehouse customers experiencing a higher level of residential loan originations and sales activity, which increased their borrowings. Approximately 70% of the borrowings on the warehouse lines at the end of 2014 were comprised of mortgage loans for the purchase of homes. Also during the fourth quarter of 2014 construction loans increased $8.5 million and commercial and commercial real estate loans increased a combined $3.7 million.
  • During the fourth quarter of 2014, the Bank's retail mortgage banking operations originated $31 million of residential mortgage loans and sold $32 million of residential mortgage loans. The December 31, 2014 pipeline of residential mortgage loans in process was $49 million.
  • Return on average assets was 0.83% and return on average equity was 9.45% for the fourth quarter of 2014 compared to 0.71% and 8.10%, respectively, for the fourth quarter of 2013.

For the year ended December 31, 2014, net income was $4.4 million, or $0.61 per diluted share, compared to net income of $5.8 million, or $0.95 per diluted share for 2013. The results of operations for 2014 were impacted by two previously reported events during the first and second quarters of 2014. In the first quarter, the Company completed the acquisition of Rumson and incurred $1.4 million of merger-related expenses that reduced net income by $0.9 million, or $0.13 per diluted share. In the second quarter, a loan for approximately $3.7 million was fully charged-off and the provision for loan losses was increased by a similar amount due to an apparent fraud by the borrower and its principals. This additional provision reduced net income by $2.2 million, or $0.30 per diluted share, and resulted in a net loss for the second quarter of 2014. Net income, adjusted for the effect of these events (Adjusted Net Income), was $7.5 million for the year ended December 31, 2014 and earnings per diluted share, as adjusted (Adjusted Earnings per Diluted Share), was $1.05. For the year ended December 31, 2013, net income, as adjusted for the after-tax cost of the Rumson merger-related expenses of $0.3 million, was $6.1 million, or $1.00 per diluted share. Adjusted Net Income and Adjusted Earnings per Diluted Share are non-GAAP measures. A reconciliation of these non-GAAP measures to the reported net income and net income per diluted share is included in this release.

For the current year, excluding the effect of the Rumson acquisition in the first quarter of 2014, loans increased $163.3 million. Mortgage warehouse loans increased $62.2 million, construction loans increased $37.8 million, commercial and commercial real estate loans increased a combined $58.2 million and residential mortgages increased $4.6 million. The loan to asset ratio increased to 68.4% at December 31, 2014 compared to 50.3% at December 31, 2013.

The integration of the former Rumson operations was completed at the end of the first quarter of 2014 and customer retention has been as expected, with loans of approximately $118 million and deposits of approximately $177 million at December 31, 2014.

Robert F. Mangano, President and Chief Executive Officer, stated, "We are pleased with the progress we made during the year. The broad internal growth of the loan portfolio, combined with the loans acquired in the Rumson merger, drove our significant increase in net interest income and expansion of our net interest margin to 3.84%. The completion of the merger with Rumson and the effective integration contributed to our improving profitability and provides a solid base as we expand our presence in Monmouth County."

Mr. Mangano added, "During the fourth quarter we were able to make additional progress in resolving our two largest non-performing loans as we completed the foreclosure of $4.7 million of loans and transferred the two real estate assets collateralizing the loans to OREO. We immediately commenced the marketing for sale of these properties."

Discussion of Financial Results
Net interest income for the quarter ended December 31, 2014 totaled $8.5 million, a decrease of $0.4 million, or 4.5%, compared to $8.9 million earned in the third quarter of 2014, and an increase of $2.5 million, or 41.7%, compared to $6.0 million earned in the fourth quarter of 2013. The increase compared to the fourth quarter of 2013 was due principally to the increase in the loan portfolio, which generated the higher yield earned on earning assets of 4.35% compared to 3.84% in the fourth quarter of 2013.

The provision for loan losses was $0.5 million in the fourth quarter of 2014 compared to $0.3 million in the fourth quarter of 2013. The higher provision for loan losses reflects the growth of loans during 2014 and the effect of the net charge-offs during the fourth quarter of 2014.

Non-interest income was $1.4 million in the fourth quarter of 2014 and decreased from $1.5 million earned in the third quarter of 2014 due primarily to lower gains from the sale of residential mortgage loans and SBA loans. Non-interest income in the fourth quarter of 2014 increased $0.2 million compared to $1.2 million earned in the fourth quarter of 2013 due to higher gains from the sale of residential mortgage loans and SBA loans.

Non-interest expenses were $6.5 million for the quarter ended December 31, 2014 compared to $6.7 million in the third quarter of this year and $4.9 million in the fourth quarter of 2013. The higher non-interest expenses in the fourth quarter of 2014 compared to the fourth quarter of 2013 included approximately $836,000 of expenses related to the former operations of Rumson, higher employee compensation and benefits expense due to increases in staffing and additional operating costs due to the growth and expansion of the Bank's operations.

At December 31, 2014, the allowance for loan losses was $6.9 million, a slight decline of $0.1 million from $7.0 million at December 31, 2013. As a percent of total loans, the allowance was 1.06% at the end of 2014 compared to 1.89% at year-end 2013. The decrease in the allowance as a percentage of total loans was primarily due to the Rumson acquisition accounting, which required the acquired loans to be recorded at their fair value and the elimination of Rumson's allowance for loan losses of $1.7 million at the date of the merger. The fair value adjustment included a credit risk adjustment discount of $2.8 million, which was comprised of a non-accretive discount of $0.8 million and an accretive general credit discount of $2.0 million. At December 31, 2014, the total credit risk adjustment was approximately $1.7 million and was comprised of a non-accretive credit discount of $0.6 million and an accretive general credit risk fair value discount of $1.1 million.

Total assets at December 31, 2014 increased to $957 million from $742 million at December 31, 2013 principally due to the acquisition of Rumson. Assets increased $3 million from September 30, 2014. Total portfolio loans at December 31, 2014 were $654 million, an increase of $281 million from $373 million at December 31, 2013, and included $118 million of Rumson loans. Total investment securities at December 31, 2014 were $224 million, a decline of $28 million from December 31, 2013. Total deposits at December 31, 2014 were $818 million compared to $639 million at December 31, 2013, with the increase principally due to the retained Rumson deposits of $177 million.

Regulatory capital ratios continue to reflect a strong capital position. The Company's total risk-based capital, Tier I capital, and Leverage ratios were 12.28%, 11.41% and 9.53%, respectively, at December 31, 2014. The Bank's total risk-based capital, Tier 1 capital and Leverage ratios were 12.00%, 11.13% and 9.30%, respectively at December 31, 2014. Under the new regulatory capital standards (Basel III) that become effective on January 1, 2015, the Bank's common equity Tier 1 to assets, total risk-based capital and Leverage ratios are estimated to be 11.17%, 12.03% and 9.40%, respectively. The Bank would be considered "well capitalized" under the new capital standards.

Asset Quality
Net charge-offs during the fourth quarter of 2014 were $0.7 million and included $0.7 million of gross charge-offs of specific reserves for potential loan losses that were recorded in prior periods. These charge-offs were recorded principally for two loans that were foreclosed and transferred to OREO. Non-accrual loans declined to $4.5 million at December 31, 2014 from $7.5 million at September 30, 2014 due to the foreclosure and transfer of $4.7 million of non-performing loans to OREO. During the fourth quarter of 2014, $1.8 million of loans were classified as non-performing. The allowance for loan losses was 153% of non-accrual loans at December 31, 2014.

The acquired Rumson loans are performing as expected. Overall, we observed stable trends in loan quality with loans internally rated special mention and substandard declining during 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, Oceanport 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     Twelve Months Ended  
    December 31,     December 31,  
($ in thousands, except per share amounts)   2014     2013     2014     2013  
Income Statement Data :                                
  Interest income   $ 9,668     $ 6,999     $ 37,361     $ 28,992  
  Interest expense     1,188       1,012       4,659       4,255  
  Net interest income     8,480       5,987       32,702       24,737  
  Provision for loan losses     500       300       5,750       1,077  
  Net interest income after provision for loan losses     7,980       5,687       26,952       23,660  
  Non-interest income     1,385       1,154       5,763       5,827  
  Non-interest expenses     6,511       4,923       27,286       21,422  
  Income before income taxes     2,854       1,918       5,429       8,065  
  Income tax expense     838       543       1,073       2,285  
  Net income   $ 2,016     $ 1,375     $ 4,356     $ 5,780  
                                 
Per Common Share Data: (1)                                
  Earnings per common share - Basic   $ 0.28     $ 0.23     $ 0.62     $ 0.97  
  Earnings per common share - Diluted     0.28       0.22       0.61       0.95  
  Tangible book value per common share at the period-end                     10.32       10.55  
  Book value per common share at the period end                     12.21       11.36  
  Average common shares outstanding:                                
    Basic     7,134,415       6,011,674       7,016,148       5,973,323  
    Diluted     7,271,200       6,186,683       7,146,127       6,102,043  
                                 
Performance Ratios / Data:                                
  Return on average assets     0.83 %     0.71 %     0.46 %     0.72 %
  Return on average equity     9.45 %     8.10 %     5.34 %     8.73 %
  Net interest income (tax-equivalent basis) (2)   $ 8,751     $ 6,263     $ 33,811     $ 25,797  
  Net interest margin (tax-equivalent basis) (3)     3.83 %     3.31 %     3.84 %     3.44 %
  Efficiency ratio (4)     64.2 %     66.4 %     68.9 %     67.7 %
                                 
                December 31,     December 31,  
                2014     2013  
Balance Sheet Data:                                
  Total Assets                   $ 956,780     $ 742,325  
  Investment Securities                     223,799       252,016  
  Loans                     654,297       373,336  
  Loans held for sale                     8,372       10,924  
  Allowance for loan losses                     (6,925 )     (7,039 )
  Goodwill and other intangible assets                     13,477       4,889  
  Deposits                     817,761       638,552  
  Shareholders' Equity                     87,110       68,358  
                                 
Asset Quality Data:                                
  Loans past due over 90 days and still accruing                   $ 317     $ -  
  Non-accrual loans                     4,523       6,322  
  OREO property                     5,710       2,136  
  Other repossessed assets                     66       -  
    Total non-performing assets                   $ 10,616     $ 8,458  
                                 
  Net charge-offs                   $ (5,864 )   $ (1,189 )
  Allowance for loan losses to total loans                     1.06 %     1.89 %
  Non-performing loans to total loans                     0.74 %     1.69 %
  Non-performing assets to total assets                     1.11 %     1.14 %
                                 
Capital Ratios:                                
  1st Constitution Bancorp                                
    Tier 1 capital to average assets                     9.53 %     10.82 %
    Tier 1 capital to risk weighted assets                     11.41 %     18.04 %
    Total capital to risk weighted assets                     12.28 %     19.29 %
  1st Constitution Bank                                
    Tier 1 capital to average assets                     9.30 %     10.59 %
    Tier 1 capital to risk weighted assets                     11.13 %     17.55 %
    Total capital to risk weighted assets                     12.00 %     18.80 %
                                 
                                 
(1) Includes the effect of the 5% stock dividend paid January 31, 2013.  
(2) The tax equivalent adjustment was $271 and $276 for the three months ended December 31, 2014 and 2013, respectively, and $1,109 and $1,060 for the twelve months ended December 31, 2014 and 2013, 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
Average Balance Sheets with Resultant Interest and Rates
                       
  Three months ended December 31, 2014   Three months ended December 31, 2013

(Yields on a tax-equivalent basis)
Average
Balance
 
Interest
  Average
Yield
  Average
Balance
 
Interest
  Average
Yield
                               
Assets:                              
Federal Funds Sold/Short Term Investments $ 61,872,811   $ 38,751   0.25%   $ 143,191,516   $ 78,974   0.22%
Investment Securities:                              
  Taxable   142,617,112     880,031   2.47%     178,156,330     1,096,460   2.46%
  Tax-exempt   88,522,610     835,224   3.77%     73,748,549     851,750   4.62%
    Total   231,139,722     1,715,255   2.97%     251,904,879     1,948,210   3.09%
                               
Loan Portfolio:                              
  Construction   88,027,184     1,441,667   6.50%     47,075,100     830,422   7.00%
  Residential Real Estate   47,976,377     491,625   4.07%     12,783,961     158,807   4.93%
  Home Equity   22,320,404     279,743   4.97%     9,542,216     120,918   5.03%
  Commercial and Commercial Real Estate   293,460,633     4,113,566   5.56%     152,601,018     2,553,387   6.64%
  Mortgage Warehouse Lines   139,458,777     1,565,891   4.45%     107,399,501     1,287,036   4.75%
  Installment   395,736     5,295   5.31%     298,776     4,616   6.13%
  All Other Loans   23,178,231     286,834   4.91%     27,572,270     292,926   4.21%
    Total   614,817,342     8,184,621   5.28%     357,272,842     5,248,112   5.83%
                               
      Total Interest-Earning Assets   907,829,875     9,938,627   4.35%     752,369,237     7,275,296   3.84%
                               
Allowance for Loan Losses   (7,307,668 )             (7,094,852 )        
Cash and Due From Bank   12,527,382               (15,173,855 )        
Other Assets   59,475,531               43,735,864          
        Total Assets $ 972,525,120             $ 773,836,394          
                               
      Liabilities and Shareholders' Equity:                              
Interest-Bearing Liabilities:                              
  Money Market and NOW Accounts   306,778,124     261,483   0.34%     214,763,001     178,107   0.33%
  Savings Accounts   195,501,666     227,832   0.46%     184,559,517     216,530   0.47%
  Certificates of Deposit   168,979,351     482,826   1.13%     137,683,994     424,974   1.22%
  Other Borrowed Funds   21,033,714     128,501   2.42%     10,000,000     104,255   4.14%
  Trust Preferred Securities   18,557,000     86,721   1.85%     18,557,000     88,085   1.88%
      Total Interest-Bearing Liabilities   710,849,855     1,187,363   0.66%     565,563,512     1,011,951   0.71%
                               
        Net Interest Spread             3.69%               3.13%
                               
Demand Deposits   168,646,746               132,919,970          
Other Liabilities   7,677,373               7,813,574          
Total Liabilities   887,173,974               706,297,056          
Shareholders' Equity   85,351,145               67,539,335          
Total Liabilities and Shareholders' Equity $ 972,525,119             $ 773,836,391          
                               
        Net Interest Margin       $ 8,751,264   3.83%         $ 6,263,345   3.31%
                               
 
 
1st Constitution Bancorp
Average Balance Sheets with Resultant Interest and Rates
                       
  For the year ended December 31, 2014   For the year ended December 31, 2013
(yields on a tax-equivalent basis) Average
Balance
 
Interest
  Average
Yield
  Average
Balance
 
Interest
  Average
Yield
                               
Assets                              
Federal Funds Sold/Short Term Investments $ 60,933,121   $ 149,643   0.25%   $ 120,124,995   $ 300,061   0.25%
Investment Securities :                              
  Taxable   168,992,111     4,021,819   2.38%     162,246,451     3,915,261   2.41%
  Tax - exempt   87,455,316     3,418,872   3.91%     69,157,995     3,269,772   4.73%
    Total   256,447,427     7,440,691   2.90%     231,404,446     7,185,033   3.10%
                               
Loan Portfolio:                              
  Construction   77,159,603     5,232,772   6.78%     43,391,226     2,757,353   6.35%
  Residential real estate   45,572,001     1,855,094   4.07%     11,492,404     589,014   5.13%
  Home equity   22,069,579     1,201,271   5.44%     9,292,851     494,696   5.32%
  Commercial and commercial real estate   271,887,695     15,893,008   5.85%     145,470,344     10,392,340   7.14%
  Mortgage warehouse lines   124,126,774     5,588,634   4.50%     151,335,795     7,095,925   4.69%
  Installment   339,860     18,963   5.58%     265,464     16,900   6.37%
  All other loans   22,222,835     1,089,528   4.90%     38,214,317     1,221,142   3.20%
    Total   563,378,347     30,879,270   5.48%     399,462,401     22,567,370   5.65%
                               
      Total Interest-Earning Assets   880,758,895     38,469,604   4.37%     750,991,842     30,052,464   4.00%
                               
Allowance for Loan Losses   (7,487,269 )             (6,857,618 )        
Cash and Due From Bank   14,620,473               9,998,816          
Other Assets   57,689,084               47,401,100          
        Total Assets $ 945,581,183             $ 801,534,140          
                               
Liabilities and Shareholders' Equity :                              
Interest-Bearing Liabilities:                              
  Money Market and NOW Accounts $ 286,234,619   $ 953,580   0.33%   $ 222,581,196   $ 757,905   0.34%
  Savings Accounts   199,078,260     903,907   0.45%     198,168,724     893,509   0.45%
  Certificates of Deposit under $100,000   70,574,064     910,326   1.29%     68,741,109     860,217   1.25%
  Certificates of Deposit of $100,000 and Over   98,890,530     1,030,667   1.04%     71,616,214     976,287   1.36%
  Other Borrowed Funds   23,723,972     515,923   2.17%     10,284,794     414,904   4.03%
  Trust Preferred Securities   18,557,000     344,035   1.90%     18,557,000     352,067   1.90%
      Total Interest-Bearing Liabilities   697,058,445     4,658,438   0.67%     589,949,037     4,254,889   0.72%
                               
        Net Interest Spread             3.70%               3.28%
                               
Demand Deposits   159,935,316               137,872,991          
Other Liabilities   7,065,452               7,500,084          
Total Liabilities   864,059,213               735,322,112          
Shareholders' Equity   81,521,970               66,212,027          
Total Liabilities and Shareholders' Equity $ 945,581,183             $ 801,534,139          
                               
        Net Interest Margin       $ 33,811,166   3.84%         $ 25,797,575   3.44%
                               
                       
                       
    1st Constitution Bancorp  
    Reconciliation of Non-GAAP Measures (1)  
    (Unaudited)  
                       
                       
    Three Months Ended     Year Ended  
    December 31,     December 31,  
($ in thousands, except per share amounts)   2014   2013     2014     2013  
Adjusted Net Income                              
                               
Net Income (Loss)   $ 2,016   $ 1,375     $ 4,356     $ 5,779  
                               
Adjustments                              
                               
Provision for Loan losses     0     0       3,656       0  
                               
Merger-related Expenses     0     165       1,532       327  
                               
Income Tax Effect of Adjustments (2)     0     (17 )     (2,031 )     (24 )
                               
Adjusted Net Income   $ 2,016   $ 1,523     $ 7,513     $ 6,082  
                               
                               
                               
Adjusted Net Income per Diluted Share                              
                               
Adjusted Net Income   $ 2,016   $ 1,523     $ 7,513     $ 6,082  
                               
Diluted Shares Outstanding     7,271     6,176       7,146       6,102  
                               
Adjusted Net Income per Diluted Share   $ 0.28   $ 0.25     $ 1.05     $ 1.00  
                               
                               
(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 incurred in the merger with Rumson Fair Haven Bank and Trust Company and the large provision for loan losses recorded as a result of the apparent fraud by a borrower and its principals. 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) Tax effected at an income tax rate of 39.94%, less the impact of non-deductible merger expenses.  

Contact Information

  • CONTACT:
    Robert F. Mangano
    President & Chief Executive Officer
    (609) 655-4500


    Stephen J. Gilhooly
    Sr. Vice President &
    Chief Financial Officer
    (609) 655-4500