OREANDA-NEWS. 1ST Constitution Bancorp (NASDAQ:FCCY), the holding company (the “Company”) for 1ST Constitution Bank (the “Bank”), today reported net income and earnings per share for the second quarter of 2016.

SECOND QUARTER 2016 HIGHLIGHTS

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

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

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

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

Discussion of Financial Results

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

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

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

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

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

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

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

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

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

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

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

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

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

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

About 1ST Constitution Bancorp

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

1ST Constitution Bancorp
Selected Consolidated Financial Data 
(Dollars in thousands, except per share data)
(Unaudited)
               
  Three Months Ended   Six Months Ended
  June 30,   June 30,
    2016       2015       2016       2015  
Per Common Share Data: (1)                              
Earnings per common share - Basic $ 0.29     $ 0.29     $ 0.57     $ 0.58  
Earnings per common share - Diluted   0.28       0.29       0.56       0.57  
Tangible book value per common share at the period-end           11.13       10.43  
Book value per common share at the period end           12.78       12.11  
Average common shares outstanding:              
Basic   7,947,146       7,881,626       7,944,069       7,880,270  
Diluted   8,151,796       8,069,229       8,144,458       8,058,602  
               
Performance Ratios / Data:  
Return on average assets   0.95 %     0.95 %     0.94 %     0.95 %
Return on average equity   9.36 %     10.42 %     9.28 %     10.42 %
Net interest income (tax-equivalent basis) (2) $ 8,864     $ 9,666     $ 17,622     $ 18,512  
Net interest margin (tax-equivalent basis) (3)   3.86 %     4.20 %     3.89 %     4.09 %
Efficiency ratio (4)   65.6 %     68.0 %     66.8 %     65.5 %
               
          June 30,   December 31,
            2016       2015  
               
Loan Portfolio Composition:              
Commercial Business         $ 105,104     $ 99,277  
Commercial Real Estate           223,124       207,250  
Construction Loans           93,221       93,745  
Mortgage Warehouse Lines           264,344       216,572  
Residential Real Estate           49,087       40,744  
Loans to Individuals           24,730       23,074  
Other Loans           197       233  
Gross Loans           759,806       680,895  
Deferred Costs (net)           1,766       1,226  
Total Loans (net)         $ 761,572     $ 682,121  
               
Asset Quality Data:              
Loans past due over 90 days and still accruing         $ -     $ -  
Non-accrual loans           5,159       6,020  
OREO property           166       966  
Other repossessed assets             -         -  
Total non-performing assets         $   5,325     $   6,986  
                       
Net charge-offs $ 280     $ (13 )   $ 222     $ (465 )
Allowance for loan losses to total loans     0.98 %     1.11 %
Non-performing loans to total loans     0.68 %     0.88 %
Non-performing assets to total assets     0.50 %     0.72 %
 
Capital Ratios:  
1st Constitution Bancorp              
Common equity to risk weighted assets ("CET 1")           9.53 %     8.72 %
Tier 1 capital to average assets (leverage ratio)           11.02 %     10.00 %
Tier 1 capital to risk weighted assets           11.47 %     10.70 %
Total capital to risk weighted assets           12.28 %     11.51 %
1st Constitution Bank              
Common equity to risk weighted assets ("CET 1")           11.21 %     10.45 %
Tier 1 capital to average assets (leverage ratio)           10.77 %     9.77 %
Tier 1 capital to risk weighted assets           11.21 %     10.45 %
Total capital to risk weighted assets           12.02 %     11.25 %
         
1 All share and per share amounts have been adjusted to reflect the effect of the 5% stock dividend paid on February 1, 2016.  
2 The tax equivalent adjustment was $250 and $255 for the three months ended June 30, 2016 and June 30, 2015, respectively.  
3 Represents net interest income on a taxable equivalent basis as a percent of average interest earning assets.    
4 Represents non-interest expenses divided by the sum of net interest income on a taxable equivalent basis and non-interest income.
 
1ST Constitution Bancorp 
Consolidated Balance Sheets
(Dollars in Thousands)
(Unaudited)
  June 30   December 31,
ASSETS   2016       2015  
 
Cash and Due From Banks $ 13,650     $ 11,368  
Federal Funds Sold / Short Term Investments   -       -  
Total cash and cash equivalents   13,650       11,368  
       
Investment Securities:      
Available for sale, at fair value   111,327       91,422  
Held to maturity (fair value of $127,874 and $127,157      
at June 30, 2016 and December 31, 2015, respectively)   122,635       123,261  
Total securities   233,962       214,683  
       
Loans Held for Sale   3,228       5,997  
       
Loans   761,572       682,121  
Less- Allowance for loan losses   (7,482 )     (7,560 )
Net loans   754,091       674,561  
       
Premises and Equipment (net)   10,845       11,109  
Accrued Interest Receivable   3,051       2,853  
Bank Owned Life Insurance   21,936       21,583  
Other Real Estate Owned   166       966  
Goodwill and Intangible Assets   13,082       13,284  
Other Assets   14,727       11,587  
       
Total Assets $ 1,068,736     $ 967,991  
               
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
       
LIABILITIES:      
Deposits      
Non-interest bearing $ 170,793     $ 159,918  
Interest bearing   620,693       626,839  
Total deposits   791,486       786,757  
       
Borrowings   149,865       58,896  
Redeemable Subordinated Debentures   18,557       18,557  
Accrued Interest Payable   846       846  
Accrued Expense and Other Liabilities   6,354       6,975  
Total liabilities   967,108       872,031  
       
       
SHAREHOLDERS EQUITY:      
Preferred stock, no par value; 5,000,000 shares authorized; none issued   -       -  
Common Stock, no par value; 30,000,000 shares authorized; 7,985,937 and      
7,575,492 shares issued and 7,952,639 and 7,545,684 shares outstanding      
as of June 30, 2016 and December 31, 2015, respectively   71,224       70,845  
Retained earnings   30,125       25,589  
Treasury Stock, 33,298 shares and 29,908 shares at June 30, 2016  
and December 31, 2015, respectively   (368 )     (344 )
Accumulated other comprehensive income (loss)   647       (130 )
Total shareholders' equity   101,627       95,960  
       
       
Total liabilities and shareholders' equity $ 1,068,736     $ 967,991  
               
1ST Constitution Bancorp
Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
                 
    Three Months Ended June 30,   Six Months Ended June 30,
      2016       2015       2016       2015  
                 
INTEREST INCOME:                
Loans, including fees   $ 8,518     $ 9,238     $ 16,825     $ 17,527  
Securities:                
Taxable     815       790       1,632       1,607  
Tax-exempt     520       530       1,040       1,086  
Federal funds sold and                
short-term investments     18       6       67       31  
Total interest income     9,871       10,564       19,564       20,251  
                 
INTEREST EXPENSE:                
Deposits     988       912       1,938       1,844  
Borrowings     165       153       301       279  
Redeemable subordinated debentures     104       88       203       174  
Total interest expense     1,257       1,153       2,442       2,297  
                 
Net interest income     8,614       9,411       17,122       17,954  
                 
(CREDIT) PROVISION FOR LOAN LOSSES     (100 )     -       (300 )     500  
Net interest income after (credit) provision                
for loan losses     8,714       9,411       17,422       17,454  
                 
NON-INTEREST INCOME:                
Service charges on deposit accounts     176       190       373       429  
Gain on sales of loans     747       1,203       1,650       2,495  
Income on Bank-owned life insurance     157       142       301       276  
Other income     456       453       808       917  
Total non-interest income     1,536       1,988       3,132       4,117  
                 
NON-INTEREST EXPENSES:                
Salaries and employee benefits     4,291       4,478       8,607       8,665  
Occupancy expense     952       1,048       1,941       2,158  
Data processing expenses     314       306       627       625  
FDIC insurance expense     105       180       223       370  
Other real estate owned expenses     35       416       65       513  
Other operating expenses     1,126       1,544       2,394       2,498  
Total non-interest expenses     6,823       7,972       13,857       14,829  
                 
Income before income taxes     3,427       3,427       6,697       6,742  
INCOME TAXES     1,113       1,112       2,161       2,167  
Net Income   $ 2,314     $ 2,315     $ 4,536     $ 4,575  
                 
NET INCOME PER COMMON SHARE                
Basic   $ 0.29     $ 0.29     $ 0.57     $ 0.58  
Diluted   $ 0.28     $ 0.29     $ 0.56     $ 0.57  
                 
WEIGHTED AVERAGE SHARES                
  OUTSTANDING                
Basic     7,947,146       7,881,626       7,944,069       7,880,270  
Diluted     8,151,796       8,069,229       8,144,458       8,058,602  
                 
               
1ST Constitution Bancorp
Net Interest Margin Analysis
(Dollars in thousands)
(Unaudited)
               
  Three months ended June 30, 2016   Three months ended June 30, 2015
(yields on a tax-equivalent basis) Average   Average   Average   Average
  Balance Interest Yield   Balance Interest Yield
               
Assets              
Federal Funds Sold/Short Term Investments $ 18,659   $ 18     0.38 %   $ 8,223   $ 6     0.28 %
Investment Securities:              
Taxable   149,629     815     2.18 %     129,888     790     2.43 %
Tax-exempt 4   80,036     770     3.85 %     80,121     785     3.92 %
Total   229,665     1,585     2.76 %     210,009     1,575     3.00 %
               
Loan Portfolio: 1              
Construction   88,411     1,309     5.95 %     96,764     1,539     6.38 %
Residential Real Estate   42,125     449     4.27 %     43,904     463     4.22 %
Home Equity   23,895     251     4.23 %     22,460     267     4.78 %
Commercial Business and Commercial Real Estate   321,983     4,431     5.53 %     313,610     4,528     5.79 %
Mortgage Warehouse Lines   192,553     2,048     4.28 %     217,199     2,360     4.36 %
Installment   580     6     4.34 %     505     6     4.54 %
All Other Loans   4,615     24     2.09 %     11,221     75     2.67 %
Total   674,162     8,518     5.08 %     705,663     9,238     5.27 %
               
Total Interest-Earning Assets     922,486   $    10,121     4.41 %       923,895   $    10,819     4.71 %
               
Allowance for Loan Losses   (7,432 )         (7,698 )    
Cash and Due From Bank   5,065           7,680      
Other Assets   60,092           63,073      
Total Assets $    980,211         $    986,950      
               
Liabilities and Shareholders' Equity:              
Interest-Bearing Liabilities:              
Money Market and NOW Accounts $ 294,048   $ 270     0.37 %   $ 304,755   $ 250     0.33 %
Savings Accounts   205,997     302     0.59 %     198,252     230     0.47 %
Certificates of Deposit   143,057     416     1.17 %     152,253     432     1.14 %
Other Borrowed Funds   47,028     165     1.41 %     51,085     153     1.21 %
Trust Preferred Securities   18,557     104     2.24 %     18,557     88     1.89 %
Total Interest-Bearing Liabilities    708,687   $    1,257     0.71 %     724,902   $    1,153     0.64 %
               
Net Interest Spread 2       3.70 %         4.07 %
               
Demand Deposits   165,396           163,223      
Other Liabilities   6,737           8,975      
Total Liabilities   880,820           897,100      
Shareholders' Equity   99,391           89,850      
Total Liabilities and Shareholders' Equity $    980,211         $    986,950      
               
Net Interest Margin 3   $    8,864     3.86 %     $    9,666     4.20 %
               
(1) Loan Origination fees are considered an adjustment to interest income. For the purpose of calculating loan yields, average loan balances  
include non-accrual loans with no related interest income and the average balance of loans held for sale.        
(2) The net interest spread is the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities
(3) The net interest margin is equal to net interest income divided by average interest-earning assets.          
(4) Tax equivalent basis.              
               
1ST Constitution Bancorp
Net Interest Margin Analysis
(Dollars in thousands)
(Unaudited)
               
  Six months ended June 30, 2016   Six months ended June 30, 2015
(yields on a tax-equivalent basis) Average   Average   Average   Average
  Balance Interest Yield   Balance Interest Yield
               
Assets              
Federal Funds Sold/Short Term Investments $ 30,611   $ 67     0.44 %   $ 24,420   $ 31     0.25 %
Investment Securities:              
U.S. Treasury Bonds   0     0     -       0     0     -  
Taxable   142,420     1,632     2.29 %     131,611     1,607     2.44 %
Tax-exempt 4   80,348     1,540     3.83 %     84,867     1,645     3.88 %
Total   222,768     3,172     2.85 %     216,478     3,252     3.00 %
               
Loan Portfolio: 1              
Construction   92,392     2,661     5.79 %     96,944     3,080     6.41 %
Residential Real Estate   40,583     858     4.23 %     44,797     936     4.18 %
Home Equity   23,539     490     4.19 %     22,305     506     4.58 %
Commercial Business and Commercial Real Estate   313,655     8,884     5.70 %     310,249     8,782     5.71 %
Mortgage Warehouse Lines   178,912     3,836     4.31 %     186,682     4,079     4.41 %
Installment   564     12     4.29 %     443     11     4.81 %
All Other Loans   6,185     84     2.73 %     9,732     132     2.73 %
Total   655,830     16,825     5.16 %     671,152     17,527     5.27 %
               
Total Interest-Earning Assets     909,209   $    20,064     4.43 %       912,050   $    20,810      4.60 %
               
Allowance for Loan Losses   (7,525 )         (7,467 )    
Cash and Due From Bank   5,120           10,127      
Other Assets   59,534           62,664      
Total Assets $   966,338         $ 977,374      
               
Liabilities and Shareholders' Equity:              
Interest-Bearing Liabilities:              
Money Market and NOW Accounts $ 295,382   $ 539     0.37 %   $ 306,486   $ 506     0.33 %
Savings Accounts   204,663     573     0.56 %     196,889     455     0.47 %
Certificates of Deposit   143,379     826     1.16 %     157,809     883     1.13 %
Other Borrowed Funds   37,054     301     1.63 %     36,524     279     1.54 %
Trust Preferred Securities   18,557     203     2.19 %     18,557     174     1.88 %
Total Interest-Bearing Liabilities    699,035   $    2,442     0.70 %     716,265   $    2,297     0.64 %
               
Net Interest Spread 2       3.73 %         3.96 %
               
Demand Deposits   161,593           163,516      
Other Liabilities   7,435           8,677      
Total Liabilities   868,063           888,458      
               
Shareholders' Equity   98,275           88,916      
Total Liabilities and Shareholders' Equity $   966,338         $   977,374      
               
Net Interest Margin 3   $    17,622     3.89 %     $    18,513     4.09 %
               
(1) Loan Origination fees are considered an adjustment to interest income. For the purpose of calculating loan yields, average loan  
balances include non-accrual loans with no related interest income and the average balance of loans held for sale.      
(2) The net interest spread is the difference between the average yield on interest-earning assets and the average rate paid on interest-  
bearing liabilities              
(3) The net interest margin is equal to net interest income divided by average interest-earning assets.        
(4) Tax equivalent basis.