CRANBURY, NJ — (Marketwired) — 10/23/14 — 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
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.