1ST Constitution Bancorp Announces Third Quarter Results

CRANBURY, NJ--(Marketwired - Oct 23, 2014) - 1^ST Constitution Bancorp (NASDAQ: FCCY), the holding company (the "Company") for 1^ST 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 1^st 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 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, Oceanport 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.

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.