1st Constitution Bancorp Announces Full Year and Fourth Quarter 2015 Results

CRANBURY, N.J., Feb. 03, 2016 -- 1^ST Constitution Bancorp (NASDAQ:FCCY), the holding company (the “Company”) for 1^ST Constitution Bank (the “Bank”), today reported net income and earnings per share for the year and the three month period ended December 31, 2015.

FULL YEAR 2015 HIGHLIGHTS*

• Net income increased 15.3% to $8.7 million compared to Adjusted Net Income of $7.5 million for 2014. Net income as reported for 2014 was $4.4 million.
• Diluted earnings per share increased 12.6% to $1.07 compared to Adjusted Net Income per Diluted Share of $0.95 for 2014. Diluted earnings per share as reported for 2014 was $0.55.
• Return on Assets and Return on Equity were 0.89% and 9.49%, respectively.
• Book value per share and tangible book value per share were $12.11 and $10.44, respectively.
• Net interest income increased 11.1% to $36.3 million and the net interest margin was 4.07%.
• Loans held in portfolio were $682 million at December 31, 2015 and increased $27.8 million, or 4.3%.
• The loan to asset ratio was 70.5 % at December 31, 2015.
• $6.9 million of non-performing assets were resolved during the year and non-performing assets declined to $7.0 million and 0.72% of assets at December 31, 2015.

FOURTH QUARTER 2015 HIGHLIGHTS*

• Net income was $1.6 million and included an after-tax net loss of $0.4 million from the sale of OREO.
• Diluted earnings per share was $0.20 and was reduced by $0.05 due to the after-tax net loss on the sale of OREO.
• $5.4 million of OREO was sold in the fourth quarter. OREO was $966,000 at December 31, 2015 and consisted of one single family home.
• Net interest income increased 2.5% to $8.7 million and the net interest margin was 3.96%.
• The allowance for loan losses was $7.6 million and 1.11% of loans. Net charge-offs for the quarter were $72,000. Non-performing loans were $6.0 million and 0.88% of loans at December 31, 2015.
  
  *The information in the above highlights is for the year and the three months ended December 31, 2015 compared to the same respective periods in 2014. All share and per share amounts have been adjusted to reflect the effect of the five percent stock dividend paid on April 7, 2015 and the five percent stock dividend paid on February 1, 2016.

Adjusted Net Income for 2014 excludes the after-tax effect of the merger related expenses incurred in connection with the merger of Rumson-Fair Haven Bank and Trust Company (“Rumson”) with and into the Bank 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. Adjusted Net Income and Adjusted Net Income per Diluted Share are non-GAAP measures. A reconciliation of these non-GAAP measures to reported net income and net income per diluted share is included in this release.

Robert F. Mangano, President and Chief Executive Officer, stated, “The Company earned record net income for the year and significantly improved its key financial performance metrics. We are pleased with the progress we made in a number of areas during the year which drove the growth in our net income. The internal expansion of the loan portfolio generated a significant increase in net interest income and expansion of our net interest margin. Our mortgage warehouse, mortgage banking and SBA lending operations produced significant increases in revenue that contributed to our overall performance.”

Mr. Mangano added, “The Company’s results in 2015 also reflect the impact of the resolution of a substantial portion of the remaining non-performing assets related to the severe recession and its lingering effects experienced over the last several years. We made the difficult judgment to sell $4 million of OREO in the fourth quarter at values below recent appraisals in order to resolve potential future uncertainties regarding the two assets and avoid future costs of continued ownership.”

Discussion of Financial Results

For the year ended December 31, 2015, net income was $8.7 million, or $1.07 per diluted share, compared to net income of $4.4 million, or $0.55 per diluted share. The results of operations for 2014 were significantly impacted by the $1.5 million of merger expenses related to the acquisition of Rumson in the first quarter of 2014 and the additional provision for loan losses of approximately $3.7 million related to the full charge-off of a loan in the second quarter of 2014 due to fraudulent misrepresentations by the borrower and its principals. Excluding the after-tax effect of these two events, Adjusted Net Income was $7.5 million and Adjusted Net Income per Diluted Share was $0.95 for 2014.

The significant increase in net income for 2015 was due in part to the $3.6 million increase in net interest income to $36.3 million, which was driven by the internal growth of the Bank’s loan portfolio in 2014 and 2015. The net interest margin was 4.07% in 2015 compared to 3.84% in 2014 and increased due primarily to the growth of loans, which generated the higher yield earned on earning assets of 4.58% in 2015 compared to 4.37% earned in 2014.

The provision for loan losses declined to $1.1 million in 2015 due to the significant reduction in charge-offs and non-performing loans during the year.  As noted above, the $5.8 million provision for loan losses in 2014 included a $3.7 million provision for loan losses related to fraudulent misrepresentations by the borrower and its principals, which resulted in the full charge-off of the loan. Net charge-offs were $0.5 million in 2015 compared to $5.9 million in 2014.

Non-interest income was $7.3 million for 2015 compared to $6.8 million in the prior year and increased primarily due to higher gains from the sale of loans, which more than offset the decline in deposit service charges and other customer charges included in other income.

Non-interest expense increased $3.0 million to $29.8 million compared to $26.8 million in 2014, excluding the effect of the $1.5 million of merger related expenses incurred in the acquisition of Rumson. OREO expenses were $1.5 million in 2015 and included $1.0 million of net losses on the sale or write-down of OREO assets and $0.4 million of ownership expenses related to the assets sold.

Net income for the three months ended December 31, 2015 was $1.6 million and declined from $2.0 million earned for the three months ended December 31, 2014 due primarily to the $0.4 million after-tax effect of the net loss on the sale of OREO. Diluted earnings per share were $0.20 and $0.25 for the fourth quarters of 2015 and 2014, respectively.

Net interest income for the fourth quarter of 2015 totaled $8.7 million, an increase of $0.2 million, or 2.5%, compared to $8.5 million earned in the fourth quarter of 2014. The increase was due principally to the increase in the loan portfolio, which generated the higher yield earned on earning assets of 4.47% for the fourth quarter of 2015 compared to 4.35% for the fourth quarter of 2014. The net interest margin was 3.96% in the fourth quarter of 2015 compared to 3.82% for the corresponding quarter in 2014 and was reduced by approximately 5 basis points due to the effect of the loans transferred to non-accrual during the quarter.

The provision for loan losses was $0.5 million in the fourth quarter of 2015 compared to $0.5 million in the fourth quarter of 2014.

Non-interest income was $1.6 million in the fourth quarter of 2015 and decreased from $1.7 million earned in the fourth quarter of 2014 due primarily to lower income from customer deposit transactions and other service charges included in other income.

Non-interest expense was $7.4 million for the quarter ended December 31, 2015 compared to $6.8 million for the fourth quarter of 2014. The higher non-interest expenses for the fourth quarter of 2015 compared to the fourth quarter of 2014 were due primarily to the $0.7 million loss on the sale of OREO in the 2015 period. Employee compensation and benefits expense for the 2015 period increased approximately 1% compared to the 2014 period. Occupancy, data processing and other expenses declined in the 2015 period due to expense management and containment. FDIC insurance expense declined due to a lower assessment rate that reflects the improvement in asset quality and financial performance of the Bank in 2015.

At December 31, 2015, the allowance for loan losses was $7.6 million, an increase of $0.6 million from $6.9 million at December 31, 2014. As a percentage of total loans, the allowance was 1.11% at the end of 2015 compared to 1.06% at year-end 2014. At the date of acquisition of Rumson, the fair value adjustment recorded for loans 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, 2015, the total credit risk adjustment was approximately $0.9 million and was comprised of a non-accretive credit discount of $0.2 million and an accretive general credit risk fair value discount of $0.7 million.

Total assets at December 31, 2015 increased to $968 million from $957 million at December 31, 2014 primarily due to the increase in loans that was funded primarily by the increase in liabilities and shareholders’ equity. Total portfolio loans at December 31, 2015 were $682 million, an increase of $28 million from $654 million at December 31, 2014. Total investment securities at December 31, 2015 were $218 million, a decline of $6 million from December 31, 2014. Total deposits at December 31, 2015 were $787 million and declined $31 million compared to $818 million at December 31, 2014. The decrease was due primarily to the outflow of maturing CDs of $21 million and the decline in municipal deposits of $24 million, which were partially offset by the growth of non-interest bearing and interest bearing demand deposits of $16 million. Short-term borrowings increased to fund the decrease in total deposits and the growth of the loan portfolio.

Capital

Regulatory capital ratios continue to reflect a strong capital position. The Company’s CET 1 ratio, total risk-based capital, Tier I capital, and Leverage ratios were 10.03%, 13.08%, 12.18% and 10.80%, respectively, at December 31, 2015. The Bank’s CET 1 ratio, total risk-based capital, Tier 1 capital and Leverage ratios were 11.90%, 12.80%, 11.90% and 10.55%, respectively at December 31, 2015.

Asset Quality

Net charge-offs during the fourth quarter of 2015 were $72,000. Non-accrual loans increased to $6.0 million at December 31, 2015 from $3.6 million at September 30, 2015 due to the transfer of two commercial real estate loans totaling $3.0 million and one $0.7 million residential real estate loan to non-accrual. Non-performing loans of $1.4 million were transferred to OREO and sold, and a total of $5.4 million of OREO was sold during the quarter. The allowance for loan losses was 126% of non-accrual loans at December 31, 2015.

Overall, the Company experienced stable trends in loan quality with loans internally rated special mention and substandard declining during 2015.

About 1^ST Constitution Bancorp

1^ST Constitution Bancorp, through its primary subsidiary, 1^ST 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.

1^ST 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. 1^ST Constitution Bancorp assumes no obligation for updating any such forward-looking statements at any time, except as required by law.

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

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