SOURCE: 1ST Constitution Bancorp

October 23, 2014 09:15 ET

1ST Constitution Bancorp Announces Third Quarter Results

CRANBURY, NJ--(Marketwired - Oct 23, 2014) - 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 September 30, 2014 of $2.1 million, a 40% increase compared to $1.5 million reported for the three month period ended September 30, 2013. Net income per diluted share for the three month period ended September 30, 2014 was $0.30, an increase of 20% compared to $0.25 per diluted share for the three month period ended September 30, 2013.

The significant increase in net income for the current quarter was due to the $2.6 million increase in net interest income to $8.9 million, which was driven by growth of our loan portfolio in the second and third quarters and the inclusion of the operations of the former Rumson-Fair Haven Bank & Trust Company ("Rumson") following its merger with and into 1st Constitution Bank on February 7, 2014. Non-interest income was $1.5 million and included gains from the sale of residential mortgage loans and SBA loans of $556,000.

Return on average assets was 0.88% and return on average equity was 10.25% for the third quarter of 2014 compared to 0.76% and 9.25%, respectively, in the third quarter of 2013.

For the nine month period ended September 30, 2014, net income was $2.3 million, or $0.33 per diluted share, compared to net income of $4.4 million, or $0.72 per diluted share for the same period in the prior year. The results of operations for the 2014 period 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 earnings by $897,000, 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 $5.5 million for the nine month period ended September 30, 2014 and earnings per diluted share, as adjusted, was $0.77. For the nine month period ended September 30, 2013, net income was $4.4 million, or $0.72 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 or loss and net income or loss per diluted share is included in this release.

Third Quarter Highlights

  • Net interest income was $8.9 million in the third quarter of 2014 compared to $8.4 million in the second quarter of 2014 and $6.3 million in the third quarter of 2013. The net interest margin for each of these periods was 4.05%, 3.89% and 3.51%, respectively.
  • Loans were $620 million at September 30, 2014 and included $124 million of Rumson loans. Excluding the effect of the Rumson acquisition in the first quarter of 2014, loans increased $123 million primarily during the second and third quarter of 2014, with mortgage warehouse loans increasing $40.4 million, construction loans increasing $29.3 million, commercial and commercial real estate loans increasing a combined $46.8 million and residential mortgages increasing $5.1 million. The loan to asset ratio increased to 65% at September 30, 2014 compared to 50.3% at December 31, 2013.
  • During the third quarter of 2014, our mortgage banking operations originated $50 million of residential mortgage loans and sold $44.7 million of residential mortgage loans. The September 30, 2014 pipeline of residential mortgage loans in process was $53 million.
  • 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 $124 million and deposits of approximately $176 million at September 30, 2014.

Robert F. Mangano, President and Chief Executive Officer, stated, "We are pleased with our third quarter operating performance, which was positively affected by the growth of our loans and increased our net interest income. Mortgage banking and SBA lending operations contributed $556,000 of gains from the sale of loans. Our mortgage banking pipeline of loans in process was $53 million at the end of September."

"The operations of the former Rumson-Fair Haven Bank and Trust Company are fully integrated and contributing to our operating performance as we expand our presence in Monmouth County."

Mr. Mangano added, "While our loan growth benefited from the residential home buying season, we expect our mortgage warehouse loans outstanding to decline in the fourth quarter, as residential lending activity historically declines on a seasonal basis. Our third quarter operating results reflect the improving earnings performance of the Company as we continue to focus on building long term relationships with our customers, expanding our presence in our existing markets and growing our loan portfolio."

Discussion of Financial Results
Net interest income for the quarter ended September 30, 2014 totaled $8.9 million, an increase of $0.5 million, or 6.0%, compared to $8.4 million earned in the second quarter of 2014, and an increase of $2.6 million, or 41.3%, compared to $6.3 million earned in the third quarter of 2013. The increase was due principally to the increase in loans, the higher yield earned on earning assets of 4.58% compared to 4.06% earned in the third quarter of 2013 and the inclusion of $175,000 of loan fees from the prepayment of a loan.

The provision for loan losses was $650,000 in the third quarter of 2014 compared to $540,000 in the third 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 third quarter of 2014.

Non-interest income was $1.5 million in the third quarter of 2014 and increased from $1.3 million earned in the second quarter of 2014 due to higher gains from the sale of residential mortgage loans and SBA loans. Non-interest income in the third quarter of 2014 declined from $1.6 million earned in the third quarter of 2013 due to lower gains from the sale of residential mortgages.

Non-interest expenses were $6.7 million for the quarter ended September 30, 2014 compared to $6.7 million in the second quarter of this year and $5.3 million in the third quarter of 2013. The former operations of Rumson contributed approximately $715,000 of expenses in the third quarter of 2014 compared to $698,000 of expenses in the second quarter. The higher non-interest expenses in the third quarter of 2014 compared to the third quarter of 2013 included approximately $715,000 of expenses related to the operations of Rumson, higher employee compensation and benefits expense due to increases in staffing, additional professional fees and higher FDIC insurance expense due to the increase in assets.

At September 30, 2014, the allowance for loan losses was $7.1 million, relatively unchanged from December 31, 2013. As a percent of total loans, the allowance was 1.15% at the end of the third quarter 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 merger. The fair value adjustment included a credit risk adjustment discount of $2.8 million, which was comprised of a non-accretive discount of $854,000 and an accretive general credit discount of $2.0 million. At September 30, 2014, the total credit risk adjustment was approximately $1.8 million and was comprised of the non-accretive credit discount of $546,000 and the general credit risk fair value discount of $1.3 million.

Total assets at September 30, 2014 increased to $954 million from $742 million at December 31, 2013 principally due to the acquisition of Rumson. Assets declined $32 million from June 30, 2014 primarily due to the use of cash to pay off short-term borrowings from the FHLB of New York. Total portfolio loans at September 30, 2014 were $620 million, an increase of $247 million from $373 million at December 31, 2013, and included $124 million of Rumson loans. Total portfolio loans declined $15 million from the balance at June 30, 2014 due to the reduction in mortgage warehouse loans of $24 million, which was partially offset by an increase in construction loans of $9 million. Total investment securities at September 30, 2014 were $252 million, relatively unchanged from December 31, 2013. Total deposits at September 30, 2014 were $824 million compared to $639 million at December 31, 2013, with the increase principally due to the Rumson deposits of $176 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 12.33%, 11.42% and 9.35%, respectively, at September 30, 2014. The Bank's total risk-based capital, Tier 1 capital and Leverage ratios were 12.04%, 11.13% and 9.11%, respectively. Under the new regulatory capital standards (Basel III) that become effective on January 1, 2015, the Bank's common equity Tier 1 to assets ("CETA), total risk-based capital and Leverage ratios are estimated to be 11.23%, 12.13% and 9.24%, respectively. The Bank would be considered "well capitalized" under the new capital standards.

Asset Quality
Net charge-offs during the third quarter of 2014 were $960,000 and included $928,000 of gross charge-offs of specific reserves for potential loan losses that were recorded in prior periods. These charge-offs were recorded for loans in the process of foreclosure or resolution for which management determined the loss would be realized. Non-accrual loans declined to $7.5 million at September 30, 2014 from $8.3 million at June 30, 2014. The allowance for loan losses was 94% of non-accrual loans at September 30, 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 slightly during the first three quarters of the year.

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     Nine Months Ended  
    September 30,     September 30,  
($ in thousands, except per share amounts)   2014     2013     2014     2013  
Income Statement Data:                                
  Interest income   $ 10,133     $ 7,339     $ 27,693     $ 21,993  
  Interest expense     1,186       1,034       3,471       3,243  
  Net interest income     8,947       6,305       24,222       18,750  
  Provision for loan losses     650       540       5,250       777  
  Net interest income after provision for loan losses     8,297       5,765       18,972       17,973  
  Non-interest income     1,482       1,617       4,379       4,673  
  Non-interest expenses     6,724       5,254       20,776       16,499  
  Income before income taxes     3,055       2,128       2,575       6,147  
  Income tax expense     917       605       235       1,742  
  Net income   $ 2,138     $ 1,523     $ 2,340     $ 4,405  
                                 
Per Common Share Data: (1)                                
  Earnings per common share - Basic   $ 0.30     $ 0.25     $ 0.33     $ 0.73  
  Earnings per common share - Diluted   $ 0.30     $ 0.25     $ 0.33     $ 0.72  
  Tangible book value per common share at the period-end                   $ 9.94     $ 10.30  
  Average common shares outstanding:                                
    Basic     7,119,113       6,039,758       7,013,776       6,008,572  
    Diluted     7,230,585       6,194,940       7,132,268       6,137,111  
                                 
Performance Ratios / Data:                                
  Return on average assets     0.88 %     0.76 %     0.33 %     0.73 %
  Return on average equity     10.25 %     9.25 %     3.89 %     8.96 %
  Net interest income (tax-equivalent basis) (2)   $ 9,224     $ 6,581     $ 25,060     $ 19,534  
  Net interest margin (tax-equivalent basis) (3)     4.05 %     3.51 %     3.84 %     3.48 %
  Efficiency ratio (4)     62.8 %     64.1 %     70.6 %     68.2 %
                                 
                    Sept 30,     December 31,  
                    2014     2013  
Balance Sheet Data:                                
  Total Assets                   $ 954,305     $ 742,325  
  Investment Securities                     252,142       252,016  
  Loans                     620,396       373,336  
  Loans held for sale                     9,459       10,924  
  Allowance for loan losses                     (7,108 )     (7,039 )
  Goodwill and other intangible assets                     13,588       4,889  
  Deposits                     823,565       638,552  
  Shareholders' Equity                     84,476       68,358  
                                 
Asset Quality Data:                                
  Loans past due over 90 days and still accruing                   $ -     $ -  
  Non-accrual loans                     7,539       6,322  
  OREO property                     1,748       2,136  
  Other repossessed assets                     66       -  
    Total non-performing assets                   $ 9,353     $ 8,458  
                                 
  Net charge-offs                   $ (5,181 )   $ (1,189 )
  Allowance for loan losses to total loans                     1.15 %     1.89 %
  Non-performing loans to total loans                     1.22 %     1.69 %
  Non-performing assets to total assets                     0.98 %     1.14 %
                                 
Capital Ratios:                                
  1st Constitution Bancorp                                
    Tier 1 leverage ratio                     9.35 %     10.89 %
    Tier 1 capital to risk weighted assets                     11.42 %     18.04 %
    Total capital to risk weighted assets                     12.33 %     19.29 %
  1st Constitution Bank                                
    Tier 1 leverage ratio                     9.11 %     10.59 %
    Tier 1 capital to risk weighted assets                     11.13 %     17.55 %
    Total capital to risk weighted assets                     12.04 %     18.80 %
                                 
(1) Includes the effect of the 5% stock dividend paid January 31, 2013.
(2) The tax equivalent adjustment was computed using a Federal tax rate of 34% and was $277 and $276 for the three months ended September 30, 2014 and 2013, respectively. The tax-equivalent adjustments were $838 and $784 for the nine months ended September 30, 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
(unaudited)
                                 
    Three months ended September 30, 2014     Three months ended September 30, 2013  
(yields on a tax-equivalent basis)   Average         Average    Average         Average 
    Balance     Interest   Yield     Balance     Interest   Yield  
                                         
Assets                                        
Federal Funds Sold/Short Term Investments   $ 18,858,143       10,183   0.22 %   $ 120,124,995     $ 81,745   0.27 %
Investment Securities :                                        
  Taxable     168,912,644       961,043   2.28 %     160,094,754       980,004   2.45 %
  Tax-exempt     90,191,047       852,447   3.78 %     70,880,950       851,446   4.80 %
  Total     259,103,691       1,813,490   2.80 %     230,975,704       1,831,450   3.17 %
                                         
Loan Portfolio:                                        
  Construction     84,776,306       1,408,170   6.59 %     41,845,395       631,428   5.99 %
  Residential real estate     49,466,308       524,861   4.21 %     11,104,532       141,896   5.07 %
  Home Equity     23,097,660       356,320   6.12 %     9,391,470       125,134   5.29 %
  Commercial and commercial real estate     286,369,323       4,306,422   5.97 %     145,186,260       2,760,124   7.54 %
  Mortgage warehouse lines     155,715,974       1,689,856   4.31 %     148,660,465       1,734,652   4.63 %
  Installment     417,619       5,469   5.20 %     268,341       4,214   6.23 %
  All Other Loans     24,885,673       294,851   4.70 %     35,860,675       304,357   3.37 %
  Total     624,728,863       8,585,949   5.45 %     392,317,138       5,701,805   5.77 %
                                         
      Total Interest-Earning Assets     902,690,697       10,409,622   4.58 %     743,417,837       7,615,000   4.06 %
                                         
Allowance for Loan Losses     (7,542,268 )                 (6,754,700 )            
Cash and Due From Bank     13,872,593                   10,627,034              
Other Assets     58,467,465                   48,058,164              
        Total Assets   $ 967,488,487                 $ 795,348,335              
                                         
Liabilities and Shareholders' Equity :                                        
Interest-Bearing Liabilities:                                        
  Money Market and NOW Accounts   $ 290,077,290     $ 244,485   0.33 %   $ 218,287,653     $ 178,204   0.32 %
  Savings Accounts     196,936,099       226,556   0.46 %     197,645,109       218,994   0.44 %
  Certificates of Deposit     172,114,159       484,203   1.12 %     140,761,657       445,176   1.25 %
  Other Borrowed Funds     35,420,518       144,006   1.61 %     10,000,000       103,121   4.09 %
  Trust Preferred Securities     18,557,000       86,534   1.82 %     18,557,000       88,338   1.89 %
      Total Interest-Bearing Liabilities     713,105,066       1,185,784   0.66 %     585,251,419       1,033,833   0.70 %
                                         
        Net Interest Spread                 3.92 %                 3.36 %
                                         
Demand Deposits     165,617,916                   137,526,681              
Other Liabilities     6,011,491                   7,220,361              
Total Liabilities     884,734,473                   729,998,461              
Shareholders' Equity     82,754,014                   65,349,874              
Total Liabilities and Shareholders' Equity   $ 967,488,487                 $ 795,348,335              
                                         
        Net Interest Margin           $ 9,223,838   4.05 %           $ 6,581,167   3.51 %
                                         
                                         
 
1st Constitution Bancorp
Average Balance Sheet with Resultant Interest and Rates
(unaudited)
                                 
    Nine months ended September 30, 2014     Nine months ended September 30, 2013  
(yields on a tax-equivalent basis)   Average         Average    Average         Average 
    Balance     Interest   Yield     Balance     Interest   Yield  
                                         
Assets                                        
Federal Funds Sold/Short Term Investments   $ 60,616,449     $ 110,892   0.24 %   $ 112,351,662     $ 221,087   0.26 %
Investment Securities :                                        
  Taxable     177,880,389       3,141,788   2.36 %     156,884,880       2,818,801   2.40 %
  Tax-exempt     87,095,642       2,583,648   3.97 %     67,610,995       2,418,022   4.77 %
  Total     264,976,031       5,725,436   2.89 %     224,495,875       5,236,823   3.11 %
                                         
Loan Portfolio:                                        
  Construction     73,497,268       3,791,105   6.90 %     42,149,774       1,926,931   6.11 %
  Residential real estate     44,761,735       1,363,469   4.07 %     11,057,154       430,207   5.20 %
  Home equity     21,985,052       921,528   5.60 %     9,208,816       373,778   5.43 %
  Commercial and commercial real estate     264,617,694       11,779,442   5.95 %     143,067,333       7,838,953   7.33 %
  Mortgage warehouse lines     118,959,945       4,022,743   4.52 %     166,142,165       5,808,889   4.67 %
  Installment     321,030       13,668   5.69 %     254,238       12,284   6.46 %
  All other loans     21,900,870       802,694   4.90 %     41,800,648       928,216   2.97 %
  Total     546,043,594       22,694,649   5.56 %     413,680,128       17,319,258   5.60 %
                                         
      Total Interest-Earning Assets     871,636,074       28,530,977   4.38 %     750,527,665       22,777,168   4.05 %
                                         
Allowance for Loan Losses     (7,547,794 )                 (6,777,671 )            
Cash and Due From Bank     15,325,837                   18,481,914              
Other Assets     57,087,058                   48,636,271              
        Total Assets   $ 936,501,175                 $ 810,868,179              
                                         
Liabilities and Shareholders' Equity :                                        
Interest-Bearing Liabilities:                                        
  Money Market and NOW Accounts   $ 279,311,533     $ 692,097   0.33 %   $ 225,215,899     $ 579,798   0.34 %
  Savings Accounts     200,283,559       676,075   0.45 %     202,754,977       676,979   0.45 %
  Certificates of Deposit     169,628,119       1,458,167   1.15 %     141,258,225       1,411,530   1.34 %
  Other Borrowed Funds     24,630,579       387,422   2.10 %     10,380,769       310,649   4.00 %
  Trust Preferred Securities     18,557,000       257,314   1.85 %     18,557,000       263,982   1.90 %
      Total Interest-Bearing Liabilities     692,410,790       3,471,075   0.67 %     598,166,870       3,242,938   0.72 %
                                         
        Net Interest Spread                 3.71 %                 3.33 %
                                         
Demand Deposits     156,999,596                   139,542,141              
Other Liabilities     6,859,237                   7,394,439              
Total Liabilities     856,269,623                   745,103,450              
Shareholders' Equity     80,231,552                   65,764,729              
Total Liabilities and Shareholders' Equity   $ 936,501,175                 $ 810,868,179              
                                         
        Net Interest Margin           $ 25,059,902   3.84 %           $ 19,534,230   3.48 %
                                         
                                         
                                         
 
1st Constitution Bancorp
Reconciliation of Non-GAAP Measures (1)
(Unaudited)
                   
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
($ in thousands, except per share amounts)   2014   2013   2014     2013
Adjusted Net Income                          
                           
Net Income (Loss)   $ 2,138   $ 1,523   $ 2,340     $ 4,405
                           
Adjustments                          
                           
Provision for Loan losses     0     0     3,656       0
                           
Merger-related Expenses     0     0     1,532       0
                           
Income Tax Effect of Adjustments (2)     0     0     (2,031 )     0
                           
Adjusted Net Income   $ 2,138   $ 1,523   $ 5,497     $ 4,405
                           
                           
                           
Adjusted Net Income per Diluted Share                          
                           
Adjusted Net Income   $ 2,138   $ 1,523   $ 5,497     $ 4,405
                           
Diluted Shares Outstanding     7,230     6,195     7,132       6,137
                           
Adjusted Net Income per Diluted Share   $ 0.30   $ 0.25   $ 0.77     $ 0.72
                           
(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