CRANBURY N.J., July 22, 2016 (GLOBE NEWSWIRE) -- 1ST Constitution Bancorp (NASDAQ:FCCY), the holding company for 1ST Constitution Bank, today reported net income and earnings per share for the second quarter of 2016.
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 is traded on the Nasdaq Global Market under the trading symbol “FCCY” and can be accessed through the Internet at www.1STCONSTITUTION.com.
