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MarketScreener Homepage  >  Equities  >  Nasdaq  >  1st Constitution Bancorp    FCCY

1ST CONSTITUTION BANCORP

(FCCY)
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1st Constitution Bancorp : First Constitution Bancorp First Quarter 2020 Earnings Release

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05/13/2020 | 05:00am EDT

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported)

May 1, 2020

1ST CONSTITUTION BANCORP

(Exact Name of Registrant as Specified in Charter)

New Jersey

000-32891

22-3665653

(State or Other Jurisdiction of

(Commission File Number)

(IRS Employer

Incorporation)

Identification Number)

2650 Route 130

P.O. Box 634

Cranbury

New Jersey 08512

(Address of Principal Executive Offices)

(Zip Code)

Registrant's telephone number, including area code

609 655-4500

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

ChecktheappropriateboxbelowiftheForm8-Kfilingisintendedtosimultaneouslysatisfythefilingobligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, no par value

FCCY

NASDAQ Global Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Actof1933(17CFR§230.405ofthischapter)orRule12b-2oftheSecuritiesExchangeActof1934(17CFR§240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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Item 2.02 Results of Operations and Financial Condition.

On May 1, 2020, 1STConstitution Bancorp (the "Company") issued a press release reporting earnings and other financial results for the three months ended March 31, 2020 (the "Press Release"). A copy of the Press Release is furnished herewith as Exhibit 99.1.

Item 8.01

Other Events

In the Press Release, the Company also announced that its Board of Directors declared a cash dividend of $0.09 per share on the Company's common stock, no par value per share. The cash dividend will be paid on May 22, 2020 to all shareholders of record of the Company's common stock as of the close of business on May 12, 2020.

The following risk factor supplements the Risk Factors previously disclosed under Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

The ongoing COVID-19 pandemic and the measures implemented in response intended to prevent its spread have adversely affected, and are likely to continue to adversely affect, our business, results of operations and financial condition,theultimateimpactofwhichwilldependonfuturedevelopmentsthatarehighlyuncertainandaredifficult to predict at this time.

The outbreak of a strain of the Novel Coronavirus (COVID-19) originating from Wuhan, China has caused global disruption in the financial markets and our primary market is increasingly threatened by the potential spread of this virus. On March 11, 2020, the World Health Organization declared the rapidly spreading COVID-19 outbreak to be a global pandemic. The ultimate impact of COVID-19 is uncertain at this time, but the known effects of, and risks posed by, the pandemic are discussed below.

In response to public health concerns resulting from the pandemic, governments around the world have implemented a variety of precautionary measures to reduce the spread of COVID-19, including travel restrictions and bans, instructionstoresidentstopracticesocialdistancing,quarantineadvisories,shelter-in-placeordersandrequiredclosures of non-essential businesses. These government mandates have forced many of our customers and vendors, which are primarily located in northern and central New Jersey, communities along the New Jersey shore and the New York City metropolitan area, to seek government support in order to continue operating, to curtail drastically their service offerings or to cease operations entirely.

In addition, these measures have negatively affected, and may further affect, consumer sentiment and discretionary spending patterns, economies and financial markets, and our workforce, operations and customers. Among other measures, we have implemented work-from-home for our employees whose jobs can be performed remotely, provided employees who are not working remotely with appropriate protective equipment and supplies, adjusted branch hours and temporarily closed all of our branch lobbies, except on an appointment only basis. These changes in our operations in response to COVID-19 have impacted the way that we operate and conduct business, and may result in additional inefficiencies or delays, including additional costs related to business continuity initiatives, which cannot be avoided or alleviated through succession planning, employees working remotely or teleconferencing technologies. In recent weeks, the pandemic has also caused significant volatility in financial markets, including the market price of our common stock.

The immediate consequences of and responses to the pandemic, including the public health problems resulting from COVID-19 and precautionary measures instituted by governments and businesses to mitigate its spread, have raised the prospect of an extended global recession, which would adversely impact the businesses of our customers, clients, counterparties and service providers, as well as other market participants, and would further disrupt our operations. Other known impacts and anticipated risks of the COVID-19 pandemic include, but are not limited to, the following:

  • We primarily operate in northern and central New Jersey, communities along the New Jersey shore and the New York City metropolitan area, which are among some of the most affected areas in the U.S. and,

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accordingly,arethemostlikelygeographiestoremainsubjecttogovernmentalrestrictionsaimedatcurtailing household and non-essential business activity to contain COVID-19 for a prolonged period. The longer thatourclients,customers,communitiesandbusinesspartnersremainsubjecttosuchrestrictions,thegreater the likelihood that economic and demand uncertainty will increase, which would negatively impact, among other things, demand for and profitability of the Bank's products and services and our liquidity, regulatory capital and growth strategy.

  • Concern about the spread ofCOVID-19 and the measures enacted to mitigate its spread have already caused and are likely to continue to cause business shutdowns and interruptions, increased unemployment, labor shortages and commercial property vacancies, and supply chain disruptions, all of which contribute to economic and financial market instability and which, in turn, could impact the ability of our customers to make scheduled loan payments. If the pandemic results in widespread and sustained repayment shortfalls onloansinourportfolio,wecouldincursignificantdelinquencies,foreclosuresandcreditlosses,particularly if the available collateral is insufficient to cover our exposure.
  • Our financial performance, the ability of borrowers to pay interest on and repay principal of outstanding loans, and the value of the collateral securing such loans is highly dependent upon the business environment in the U.S. generally and in northern and central New Jersey, communities alongthe New Jersey shoreand the NewYork City metropolitan area in particular. Further economic downturn resulting from the pandemic, particularly in our primary market areas, could negatively impact the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, and the financial condition and credit risk of our customers, among other credit risks.
  • Legislative responses and regulatory policy changes to protect borrowers, such as forbearance, waiver of late payment and other fees, and the suspension of foreclosures, may have a negative impact on our business, financial condition, liquidity and results of operations. We may need to further increase the allowance for loanlossesifborrowersexperiencefinancialdifficultiesbeyondforbearanceperiods,whichwouldadversely affect our net income.
  • To support our customers, businesses and communities, we are participating in the Small Business Administration (the "SBA") Paycheck Protection Program ("PPP") established under the Coronavirus Aid, Relief and Economic SecurityAct (the "CARESAct"), notwithstanding that our participation in this federal relief program exposes the Company and the Bank to additional litigation risk. Several national banking associations have already been subject to litigation regarding their respective procedures for processing PPP applications. The Company and the Bank may be exposed to the risk of litigation, from both clients andnon-clients that approached the Bank regarding PPP loans, regarding the manner in which we processed PPP applications. Any such litigation regardless of the outcome, may result in significant financial liability or adversely affect the Company's reputation.
  • Our participation in the PPPand any other relief programs established under the CARESAct further exposes us to certain credit risks. Among other regulatory requirements, PPP loans are subject to forbearance ofloanpaymentsforasix-monthperiodtotheextentthatloansarenoteligibleforforgiveness.If PPPborrowers fail to qualify for loan forgiveness, we have a greater risk of holding these loans at unfavorable interest rates as compared to the loans to customers that we would have otherwise extended credit. Additionally, there is risk that the SBAcould conclude there is a deficiency in the manner in which the Bank originated, funded, or serviced PPP loans, which may or may not be related to the ambiguity in the CARES Act or the rules and guidance promulgated by the SBA and the U.S. Department of the Treasury thereunder regarding the operation of the PPP.
  • Our ability to meet customer servicing expectations may be limited due to certain operational risks as aresultofourreducedhours,branchlobbyclosuresandwork-from-homepolicy,asdescribedabove,including reduced productivity in our workforce, less reliable and more limited access to the networks, information systems, applications and other tools available to employees, as well as increased cybersecurity and information security risk.
  • In addition, our reliance onthird-party service providers and vendors exposes us to certain operational risks to the extent that such service providers and vendors continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize. By way of example, our business depends on vendors that supply essential services such as loan servicers, providers of financial

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information,systemsandanalyticaltoolsandprovidersofelectronicpaymentandsettlementsystems,among others. Without these services, we may experience delays in originating and closing loans.

  • During this challenging economic environment, our communities are increasingly relying on us to access necessary capital and our customers are more dependent on our credit commitments. Increased borrowings underthesecommitmentscouldadverselyimpactourliquidity. Moreover,ourmanagementhasbeenfocused on meeting clients' needs and mitigating the impact of the pandemic on our business, which has required and will continue to require a substantial investment of time and resources across our enterprise. This has resulted and can be expected to continue to result in a diversion of management attention.
  • FurthervolatilityininterestratescausedbyuncertaintiesstemmingfromCOVID-19couldnegativelyimpactour net interest income, lending activities, deposits and profitability.

To date the coronavirus pandemic has disrupted the way that we conduct business, but has not had a material adverse impact on our operations. However, the future impact of the pandemic is highly uncertain and cannot be predicted and there is no assurance that it will not have a material adverse impact on our future results. The extent of the impact will depend on future developments, including further actions taken to mitigate the spread of COVID-19, the extent and severity of the outbreak and the duration of the government mandates and business closures. At this time, we have not experienced a significant increase in loan delinquencies or downgrades in credit ratings of loans directed related to the pandemic, but we expect the economic disruption will more severely impact the businesses, clients and communities we serve, and therefore our business, in the second quarter of 2020.

While the full extent and impact of the pandemic cannot be reasonably estimated at this time, it could have a material adverse impact on our consolidated business, results of operations and financial condition. To the extent the pandemic adversely affects our business, financial condition, liquidity or results of operations, it may also enhance certain material risks relating to our business that are addressed at Item 1A Risk Factors in our Annual Report on Form 10-K filed for the year ended December 31, 2019 and in any subsequent Quarterly Reports on Form 10-Q.

Item 9.01. Financial Statements and Exhibits.

  1. Exhibits.

99.1 Press Release of 1ST Constitution Bancorp, dated May 1, 2020

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

1STCONSTITUTION BANCORP

Date: May 4, 2020

By:

/s/ STEPHEN J. GILHOOLY

Name:

Stephen J. Gilhooly

Title:

Chief Financial Officer

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CONTACT:Robert F. Mangano

Stephen J. Gilhooly

President & Chief Executive Officer

Sr. Vice President & Chief Financial Officer

(609) 655-4500

(609) 655-4500

1STCONSTITUTION BANCORP

REPORTS RESULTS FOR THE FIRST QUARTER OF 2020

AND DECLARES QUARTERLY DIVIDEND OF $0.09 PER SHARE

In a release issued under the same headline on May 1, 2020 by 1STConstitution Bancorp (NASDAQ: FCCY), please note that in the last sentence under the "Asset Quality" heading the date should read "March 31, 2020" rather than "December 31, 2020" as previously stated. The corrected release is as follows:

Cranbury NJ - May 1, 2020 - 1STConstitution Bancorp (NASDAQ: FCCY), the holding company (the "Company") for 1STConstitution Bank (the "Bank"), today reported net income of $3.4 million and diluted earnings per share of $0.33 for the first quarter of 2020 compared to net income of $3.4 million and diluted earnings per share of $0.39 for the first quarter of 2019. The reported results for the first quarter of 2020 include an additional provision for loan losses of approximately $388,000, or $282,000 after tax, which reflects management's current estimate of additional loan losses that may be incurred due to the weakening national and local economic conditions caused by the COVID-19 pandemic.

The Board of Directors declared a quarterly cash dividend of $0.09 per share that will be paid on May 22, 2020 to shareholders of record on May 12, 2020.

FIRST QUARTER 2020 HIGHLIGHTS

  • Return on average total assets and return on average shareholders' equity were 0.89% and 8.01%, respectively.
  • Book value per share and tangible book value per share were $16.97 and $13.38, respectively, at March 31, 2020.
  • Net interest income was $12.9 million and net interest margin was 3.68% on a tax equivalent basis.
  • A provision for loan losses of $895,000 and netcharge-offs of $165,000 were recorded.
  • Total loans were $1.2 billion at March 31, 2020. Commercial business, commercial real estate and construction loans totaled $872.6 million, and increased $16.7 million from December 31, 2019. Duringthefirstquarterof2020,mortgagewarehouseloansdeclined$11.9millionto$224.8million, reflecting the seasonal nature of residential lending in the Bank's markets.
  • Total deposits were $1.3 billion at March 31, 2020 and increased $20.7 million from $1.28 billion at December 31, 2019.
  • Non-performingassets increased $8.6 million to $13.7 million, or 0.85% of total assets, and included $470,000 of OREO at March 31, 2020.

Robert F. Mangano, President and Chief Executive Officer, stated, "We are currently focused on the COVID-19 impact on our customers and communities and are responding in a comprehensive manner to this unprecedented social and economic disruption. The safety of our employees and customers is our first priority. We are working expeditiously with our loan and deposit customers to provide access to additional credit and forbearance on loan payments where warranted. We will remain dedicated and diligent in providing comprehensive financial services to our customers and the communities we serve."

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Mr. Mangano added, "The duration and extent of the economic disruption is not knowable or measurable at this time. The federal government and the Federal Reserve System have responded in an extraordinary mannertoassistcitizensandbusinessesandtheeffectivenessofthisexpansivefinancialreliefisnotcurrently predictable. We believe that the Company is well positioned and has the financial flexibility to address these challenging times with its strong capital position, strong core operating fundamentals and liquidity resources to meet our customers' financial requirements."

COVID-19 Impact and Response

The sudden emergence of the COVID-19 global pandemic has created widespread uncertainty, social and economic disruption and highly volatile financial markets. Mandated business and school closures, restrictions on travel and social distancing have resulted in almost all businesses and employees being adversely impacted and a dramatic increase in unemployment levels in a short period of time.

In the first quarter of 2020, the Company did not experience a significant increase in loan delinquencies ordown-gradesincreditratingsofloansdirectlyrelatedtothepandemic.However,theeconomicdisruption will more severely impact businesses, borrowers and consumers in the second quarter of 2020, which may continue with increasing severity in future periods. Management increased the provision for loan losses in response to the deterioration in the economic operating conditions and higher incurred losses in the loan portfolio. Management may further increase the provision and allowance for loan losses in response to changes in economic conditions and the performance of the loan portfolio in future periods.

To protect our employees and customers we have:

  • Adjusted branch hours and temporarily closed our branch lobbies, except on an appointment only basis.
  • Continued to service our customers throughdrive-up facilities, ATMs and our robust technology capabilities that allow customers to execute transactions and apply for residential mortgage loans through our website www.momentummortgage.com through their mobile devices and computers.
  • Employees are working remotely where practical.

To support our loan and deposit customers and the communities we serve:

  • We are working tirelessly to provide access to additional credit and provide forbearance on loan interest and or principal of up to 90 days where management has determined that it is warranted.
  • As along-standing Small Business Administration ("SBA") preferred lender, we are actively participating in the SBA's Paycheck Protection Program ("PPP") established under the Coronavirus Aid, Relief and Economic SecurityAct (the "CARESAct").As ofApril 30, 2020, we have accepted and funded 156 applications for PPP loans totaling $48.1 million and have 215 SBA approved applications for $23.0 million of PPP loans in process.
  • As more information becomes available, we intend to evaluate the benefits of utilizing the Main Street New Loan Facility ("Facility") established by the Board of Governors of the Federal Reserve System (the "Federal Reserve") under the CARES Act to provide financing to our customers and communities. This Facility is intended to facilitate lending by banks to small andmedium-sized businesses that were not eligible to participate in the PPP.
  • We are participating in the Federal Reserve's PPP loan funding program and are pledging the PPP loans to collateralize a like amount of borrowings from the Federal Reserve at a favorable interest rate of 0.35% up to a 2 year term.

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Discussion of Financial Results

On November 8, 2019, the Company completed the merger of Shore Community Bank ("Shore") with and into the Bank (the "Shore Merger"). The Shore Merger contributed approximately $208.4 million and $238.5 million in loans and deposits, respectively, at March 31, 2020.

Net income was $3.4 million, or $0.33 per diluted share, for the first quarter of 2020 compared to $3.4 million, or $0.39 per diluted share, for the first quarter of 2019. Net interest income increased $1.7 million for the first quarter of 2020 compared to the first quarter of 2019, which was driven by the increase in the average balance of loans over the 12 months ended March 31, 2020. The provision for loan losses increased to $895,000 for the first quarter of 2020 compared to $300,000 for the first quarter of 2019. Gains from the sale of loans for the first quarter of 2020 increased $425,000 compared to the first quarter of 2019 due to the higher volume of residential mortgage loans originated and sold. Non-interest expenses were $9.8 millionfor the firstquarterof 2020,anincreaseof$1.7 millionfromthe firstquarterof 2019.Approximately $979,000 of the increase in non-interest expenses reflects expenses of the former Shore operations that were included in first quarter 2020 results.

Net interest income was $12.9 million for the quarter ended March 31, 2020 and increased $1.7 million compared to net interest income of $11.2 million for the first quarter of 2019. Total interest income was $16.4 million for the three months ended March 31, 2020 compared to $13.9 million for the three months ended March 31, 2019. The increase in total interest income was primarily due to a net increase of $302.1 million in average loans, reflecting growth in all segments of the loan portfolio except construction loans. The growth in average loans included approximately $207.2 million of loans from the Shore Merger. Average interest-earning assets were $1.4 billion with a tax-equivalent yield of 4.66%, for the first quarter of 2020, compared to average interest-earning assets of $1.1 billion, with a tax-equivalent yield of 5.20%, forthefirstquarterof2019.Theyieldonaverageinterest-earningassetsforthefirstquarterof2020declined 54 basis points to 4.66%, primarily due to the sharp decline in market interest rates beginning in the third quarter of 2019 and continuing through the first quarter of 2020. The Federal Reserve reduced the targeted federal funds rate 50 basis points in the third quarter and 25 basis points in the fourth quarter of 2019 and, in response to the COVID-19 pandemic, further reduced the targeted federal funds rate by 150 basis points in March 2020. The prime rate was 5.50% in the first quarter of 2019. As a result of the reductions in the targeted federal funds rate in 2019, the prime rate declined to 4.75% in October 2019 and declined further to 3.25% in March 2020. At March 31, 2020, the Bank had approximately $434 million of loans with an interest rate tied to the prime rate and approximately $50 million of loans with an interest rate tied to either 1- or 3-month LIBOR. The decline in market interest rates and the prime rate had a negative effect on the yield of the loan portfolio and investment securities in the first quarter of 2020.

Interest expense on average interest-bearing liabilities was $3.5 million, with an interest cost of 1.30%, for the first quarter of 2020, compared to $2.7 million, with an interest cost of 1.33%, for the first quarter of 2019. The $764,000 increase in interest expense on interest-bearing liabilities for the first quarter of 2020 reflected primarily an increase of $247.6 million in average interest bearing liabilities. The average cost of interest-bearing deposits was 1.27% for the first quarter of 2020 compared to 1.22% for the first quarter of 2019 and declined from the peak interest cost for the third quarter of 2019 of 1.41%. The higher interest cost of interest-bearing deposits for the first quarter of 2020 compared to the first quarter of 2019 primarily reflects (i) the rising and higher interest rate environment in 2018, which carried into the first two quarters of 2019, (ii) the lag effect on the interest cost of deposits as market interest rates declined sharply in the first quarter of 2020, (iii) competitive factors for deposits and (iv) the term structure of certificates of deposit ("CDs"). The interest rates paid on deposits generally do not adjust quickly to sharp changes in market interest rates and decline over time in a falling interest rate environment. The lower level of short-term interest rates in the first quarter of 2020 compared to the first quarter of 2019 resulted in a decline in the

6

interest cost of short-term borrowings and the redeemable subordinated debentures. The growth in average interest-bearing liabilities included average interest-bearing deposits of $176.5 million acquired in the Shore Merger. Of the total increase in average interest-bearing liabilities, certificates of deposit increased $112.1 million, which generally have a higher interest cost than other types of interest-bearing deposits. At March 31, 2020, there were $258 million of CDs with an average interest cost of 2.10% that mature within the next 12 months. Management will continue to adjust the interest rates paid on deposits to reflect the then current interest rate environment and competitive factors.

The net interest margin on a tax-equivalent basis decreased 53 basis points to 3.68% for the first quarter of 2020 compared to 4.21% for the first quarter of 2019 due primarily to the 54 basis point decline in the yield of average interest-earning assets. Due to the sharp decline in the prime rate in the third and fourth quarters of 2019 followed by the further decline in the prime rate in March of 2020, the yield of loans declined 60 basis points to 5.10% and the interest cost of deposits was not reduced as quickly and to the same extent as the decline in the yield of loans.

The Company recorded a provision for loan losses of $895,000 for the first quarter of 2020 compared to a provision for loan losses of $300,000 for the first quarter of 2019. The significant increase in the provision for loan losses in the first quarter of 2020 includes an additional provision of approximately $388,000, which reflected an increase in the qualitative factors for national and local economic conditions due to a weakening economic operating environment primarily resulting from the existing and anticipated impacts of the COVID-19 pandemic. The higher provision also reflects, to a lesser extent, the growth and change in mix of the loan portfolio. At March 31, 2020 total loans were $1.2 billion and the allowance for loan losseswas$10.0million,or0.82%oftotalloans,comparedtototalloansof$874.3millionandanallowance for loan losses of $8.7 million, or 1.00% of total loans, at March 31, 2019. Included in loans at March 31, 2020 were $208.4 million of loans that were acquired in the Shore Merger. The decrease in the allowance as a percentage of loans was due primarily to acquisition accounting for the Shore Merger, which resulted in the Shore loans being recorded at their fair value as of the effective time of the merger. The unaccreted general credit fair value discount related to the former Shore loans was $2.2 million at March 31, 2020.

Non-interest income was $2.5 million for the first quarter of 2020, an increase of $590,000 compared to $1.9 million for the first quarter of 2019. Gains on the sale of loans increased $425,000, service charges on deposit accounts increased $47,000, income on Bank-owned life insurance increased $41,000 and other income increased $69,000 as compared to the prior year period. In the first quarter of 2020, $34.0 million of residential mortgages were sold and $1.2 million of gains were recorded compared to $19.6 million of residential mortgage loans sold and $715,000 of gains recorded in the first quarter of 2019. Management believes that the increase in residential mortgage loans sold was due primarily to increased residential mortgage lending activity as a result of lower mortgage interest rates in the 2020 period compared to the 2019 period. In the first quarter of 2020, $2.7 million of SBA loans were sold and gains of $226,000 were recorded compared to $4.7 million of SBA loans sold and gains of $330,000 recorded in the first quarter of 2019. SBA guaranteed commercial lending activity and loan sales vary from period to period, and the level of activity is due primarily to the timing of loan originations.

Non-interest expenses were $9.8 million for the first quarter of 2020, which increased $1.7 million, or 21.0%, compared to $8.1 million for the first quarter of 2019. The primary reason for the increase was $979,000 of expenses for the inclusion of the former Shore operations in the first quarter of 2020. Salaries and employee benefits expense increased $1.2 million, or 24.3%, for the first quarter of 2020 due primarily tosalariesandbenefitsforformerShoreemployees$486,000whojoinedtheCompany,highercommissions expense of $328,000 related to the origination of residential mortgage loans primarily for sale, merit increases and increases in employee benefit expenses. Occupancy expense increased $149,000, or 14.6%, due primarily to the addition of the five former Shore branch offices. Data processing expenses increased

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$98,000, or 28.2%, due primarily to the addition of the Shore operations $85,000 and increases in loans, deposits and other customer services. FDIC insurance expense declined due to the small bank assessment credit received of $123,000 for the fourth quarter of 2019. The full credit has been applied and no further credits will be received. Other operating expenses increased $343,000, or 21.3%, primarily resulting from the inclusion of former Shore operations of $141,000, merger-related expenses of $64,000 and general increases in supplies, telephone, advertising and marketing expenses.

Income tax expense was $1.3 million for the first quarter of 2020, resulting in an effective tax rate of 27.3% compared to income tax expense of $1.3 million, which resulted in an effective tax rate of 27.7% for the first quarter of 2019.

At March 31, 2020, the allowance for loan losses was $10.0 million compared to $9.3 million at December 31, 2019. As a percentage of total loans, the allowance was 0.82% at March 31, 2020 compared to 0.76% at December 31, 2019.

Total assets increased $24.6 million to $1.61 billion at March 31, 2020 from $1.59 billion at December 31, 2019 due primarily to a $19.7 million increase in total investment securities and a $5.8 million increase in loans held for sale. The increase in assets was funded primarily by a $20.7 million increase in deposits and a $2.1 million increase in short-term borrowings.Total portfolio loans at March 31, 2020 were $1.22 billion, compared to $1.22 billion at December 31, 2019. Total investment securities were $252.1 million at March 31, 2020, an increase of $19.7 million compared to $232.4 million at December 31, 2019. Investment securities available for sale increased $7.9 million and investment securities held to maturity increased $11.8 million.

Total deposits increased $20.7 million to $1.30 billion at March 31, 2020 from $1.28 billion at December 31, 2019. The majority of the increase in deposits was due to an $11.6 million increase in non-interest bearing demand deposits, a $3.8 million increase in interest bearing demand deposits and a $7.3 million increase in savings deposits offset by a $2.0 million decrease in certificates of deposit. Short-term borrowings increased $2.1 million to $94.1 million at March 31, 2020 compared to $92.0 million at December 31, 2019.

Regulatory capital ratios for the Company and the Bank continue to reflect a strong capital position. Under current regulatory capital standards, the Company's estimated common equity Tier 1 to risk-based assets ("CET1"), total risk-based capital, Tier I capital, and leverage ratios were 9.84%, 11.87%, 11.14% and 10.17%, respectively, at March 31, 2020.The Bank's estimated CET1, total risk-based capital,Tier 1 capital and leverage ratios were 11.13%, 11.85%, 11.13% and 10.15%, respectively, at March 31, 2020. The Company and the Bank are considered "well capitalized" under these capital standards.

Asset Quality

Non-accrual loans were $13.2 million at March 31, 2020 compared to $4.5 million at December 31, 2019. During the first quarter of 2020, a participation in a construction loan with a balance of $7.5 million, $1.5 million in commercial real estate loans, $84,000 in commercial business loans and $108,000 in loans to individuals totaling $9.2 million were placed on non-accrual. During the first quarter of 2020, $513,000 of non-performing loans were resolved. Net loan charge-offs were $165,000 for the first quarter of 2020.

Non-performing loans to total loans were 1.08% and non-performing assets to total assets were 0.85% at March 31, 2020 compared to nonperforming loans to total loans of 0.37% and non-performing assets to total assets of 0.32% at December 31, 2019.

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OREO at March 31, 2020 was $470,000 and consisted of 5 residential lots acquired in the Shore merger with a carrying value of $377,000 and land with a carrying value of $93,000 that was foreclosed in the second quarter of 2018.

About 1STConstitution Bancorp

1STConstitutionBancorp,throughitsprimarysubsidiary,1STConstitutionBank,operates26branchbanking offices inAsbury Park, Cranbury (2), Fair Haven, Fort Lee, Freehold, Hamilton, Hightstown, Hillsborough, Hopewell, Jackson, Jamesburg, Lawrenceville, Little Silver, Long Branch, Manahawkin, Neptune City, Perth Amboy, Plainsboro, Princeton, Rocky Hill, Rumson, Shrewsbury and Toms River (3), New Jersey.

1STConstitution Bancorp is traded on the Nasdaq Global Market under the trading symbol "FCCY" and information about the Company can be accessed through the Internet at www.1STCONSTITUTION.com

Theforegoingcontains"forward-lookingstatements"withinthemeaningofthePrivateSecuritiesLitigation Reform Act of 1995 relating to, without limitation, our future economic performance, plans and objectives for future operations, and projections of revenues and other financial items that are based on our beliefs, as well as assumptions made by and information currently available to us. The words "may," "will," "anticipate," "should," "would," "believe," "contemplate," "could," "project," "predict," "expect," "estimate," "continue," and "intend," as well as other similar words and expressions of the future, are intended to identify forward-looking statements.

These forward-looking statements are based upon our opinions and estimates as of the date they are made and are not guarantees of future performance. Although we believe that the expectations reflected in these forward-looking statements are reasonable, such forward-looking statements are subject to known and unknown risks and uncertainties that may be beyond our control, which could cause actual results, performance and achievements to differ materially from results, performance and achievements projected, expected, expressed or implied by the forward-looking statements.

Examples of factors or events that could cause actual results to differ materially from historical results or those anticipated, expressed or implied include, without limitation, changes in the overall economy and interest rate changes; inflation, market and monetary fluctuations; the ability of our customers to repay their obligations; the accuracy of our financial statement estimates and assumptions, including the adequacy oftheestimatemadeinconnectionwithdeterminingtheadequacyoftheallowanceforloanlosses;increased competition and its effect on the availability and pricing of deposits and loans; significant changes in accounting, tax or regulatory practices and requirements; changes in deposit flows, loan demand or real estate values; the enactment of legislation or regulatory changes; changes in monetary and fiscal policies of the U.S. government; changes to the method that LIBOR rates are determined and to the potential phasing out of LIBOR after 2021; changes in loan delinquency rates or in our levels of non-performing assets; our ability to declare and pay dividends; changes in the economic climate in the market areas in which we operate; the frequency and magnitude of foreclosure of our loans; changes in consumer spending and saving habits; the effects of the health and soundness of other financial institutions, including the need of the FDIC to increase the Deposit Insurance Fund assessments; technological changes; the effects of climate change and harsh weather conditions, including hurricanes and man-made disasters; the economic impact of any future terrorist threats and attacks, acts of war or threats thereof and the response of the United States to any such threats and attacks; our ability to integrate acquisitions and achieve cost savings; other risks described from time to time in our filings with the Securities and Exchange Commission; and our ability to manage the risks involved in the foregoing.

9

Inaddition,statementsaboutthepotentialeffectsandimpactsoftheCOVID-19pandemicontheCompany's business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that actual results may differ, possibly materially, from what is reflected in such forward-looking statements due to factors and future developments that are uncertain, unpredictable and, in many cases, beyond our control, including the scope, duration and extent of the pandemic, actions taken by governmental authorities in response to the pandemic and the direct and indirect impact of the pandemic on our employees, customers, business and third-parties with which we conduct business. Further, the foregoingfactorsmaybeexacerbatedbytheultimateimpactoftheCOVID-19pandemic,whichisunknown at this time.

Although management has taken certain steps to mitigate any negative effect of the aforementioned factors, significant unfavorable changes could severely impact the assumptions used and have an adverse effect on profitability. Any forward-looking statements made by us or on our behalf speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances, except as required by law.

##############

10

1STConstitution Bancorp

Selected Consolidated Financial Data

(Dollars in thousands, except per share data)

(Unaudited)

Three Months Ended March 31,

2020

2019

Per share data:

Earnings per share - basic

$

0.34

$

0.39

Earnings per share - diluted

0.33

0.39

Book value per share at end of period

16.97

15.21

Tangible book value per common share at end of period(1)

13.38

13.79

Weighted average shares outstanding - basic

10,200,836

8,624,088

Weighted average shares outstanding - diluted

10,262.047

8,693.949

Shares outstanding at end of period

10,201,298

8,611,342

Performance ratios/data:

Return on average total assets

0.89%

1.18%

Return on average shareholders' equity

8.01%

10.75%

Net interest income (tax-equivalent basis)(2)

$

13,053

$

11,344

Net interest margin (tax-equivalent basis)(3)

3.68%

4.21%

Efficiency ratio (tax-equivalent basis)(4)

63.14%

61.27%

Loan portfolio composition:

March 31, 2020

December 31, 2019

Commercial real estate

$

576,886

$

567,655

Mortgage warehouse lines

224,794

236,672

Construction loans

145,599

148,939

Commercial business

150,067

139,271

Residential real estate

89,347

90,259

Loans to individuals

30,556

32,604

Other loans

141

137

Gross loans

1,217,390

1,215,537

Deferred costs, net

417

491

Total loans

$

1,217,807

$

1,216,028

Asset quality data:

Loans past due over 90 days and still accruing

-

-

Non-accrual loans

13,198

4,497

OREO property

470

571

Total non-performing assets

$

13,668

$

5,068

Net charge-offs

$

165

$

481

Allowance for loan losses to total loans

0.82%

0.76%

Allowance for loan losses to non-performing loans

75.78%

206.16%

Non-performing loans to total loans

1.08%

0.37%

Non-performing assets to total assets

0.85%

0.32%

Capital ratios:

1ST Constitution Bancorp

Common equity tier 1 capital to risk-weighted assets

9.84%

9.70%

Total capital to risk-weighted assets

11.87%

11.69%

Tier 1 capital to risk-weighted assets

11.14%

11.01%

Tier 1 leverage ratio

10.17%

10.56%

1ST Constitution Bank

Common equity tier 1 capital to risk-weighted assets

11.13%

10.99%

Total capital to risk-weighted assets

11.85%

11.67%

Tier 1 capital to risk-weighted assets

11.13%

10.99%

Tier 1 leverage ratio

10.15%

10.54%

1Tangible book value per share is a non-GAAP financial measure and is calculated by subtracting goodwill and other intangible assets from shareholders' equity and dividing it by common shares outstanding.

2The tax-equivalent adjustment was $117 for the three months ended March 31, 2020 and 2019.

3Represents net interest income on a tax-equivalent basis as a percent of average interest-earning assets.

4Represents non-interest expenses divided by the sum of net interest income on a tax-equivalent basis and non-interest income.

11

1STConstitution Bancorp

Consolidated Balance Sheets

(Dollars in thousands)

(Unaudited)

March 31, 2020

December 31, 2019

ASSETS

Cash and due from banks

$

8,762

$

2,547

Interest-earning deposits

3,277

12,295

Total cash and cash equivalents

12,039

14,842

Investment securities:

Available for sale, at fair value

163,725

155,782

Held to maturity (fair value of $91,138 and $78,223 at March 31, 2020 and

88,381

76,620

December 31, 2019, respectively)

Total investment securities

252,106

232,402

Loans held for sale

11,755

5,927

Loans

1,217,807

1,216,028

Less: allowance for loan losses

(10,001)

(9,271)

Net loans

1,207,806

1,206,757

Premises and equipment, net

14,966

15,262

Right-of-use assets

17,550

17,957

Accrued interest receivable

4,843

4,945

Bank-owned life insurance

36,858

36,678

Other real estate owned

470

571

Goodwill and intangible assets

36,654

36,779

Other assets

15,822

14,142

Total assets

$

1,610,869

$

1,586,262

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES

Deposits

Non-interest bearing

$

299,147

$

287,555

Interest bearing

998,885

989,807

Total deposits

1,298,032

1,277,362

Short-term borrowings

94,125

92,050

Redeemable subordinated debentures

18,557

18,557

Accrued interest payable

1,430

1,592

Lease liability

18,257

18,617

Accrued expense and other liabilities

7,363

7,506

Total liabilities

1,437,764

1,415,684

SHAREHOLDERS EQUITY

Preferred stock, no par value; 5,000,000 shares authorized; none issued

-

-

Common stock, no par value; 30,000,000 shares authorized; 10,240,624 and

10,224,974 shares issued and 10,201,298 and 10,191,676 shares outstanding

110,254

109,964

as of March 31, 2020 and December 31, 2019, respectively

Retained earnings

63,295

60,791

Treasury stock, 39,326 and 33,298 shares at March 31, 2020 and December

(503)

(368)

31, 2019

Accumulated other comprehensive income

59

191

Total shareholders' equity

173,105

170,578

Total liabilities and shareholders' equity

$

1,610,869

$

1,586,262

1STConstitution Bancorp

Consolidated Statements of Income

(Dollars in thousands, except per share data)

(Unaudited)

Three Months Ended

March 31,

2020

2019

INTEREST INCOME

Loans, including fees

$

14,805

$

12,157

Securities:

Taxable

1,056

1,270

Tax-exempt

438

441

Federal funds sold and short-term investments

89

47

Total interest income

16,388

13,915

INTEREST EXPENSE

Deposits

3,238

2,317

Borrowings

62

173

Redeemable subordinated debentures

152

198

Total interest expense

3,452

2,688

Net interest income

12,936

11,227

PROVISION FOR LOAN LOSSES

895

300

Net interest income after provision for loan losses

12,041

10,927

NON-INTEREST INCOME

Service charges on deposit accounts

213

166

Gain on sales of loans, net

1,470

1,045

Income on bank-owned life insurance

180

139

Gain on sales/calls of securities

8

-

Other income

585

516

Total non-interest income

2,456

1,866

NON-INTEREST EXPENSES

Salaries and employee benefits

6,169

4,963

Occupancy expense

1,170

1,021

Data processing expenses

446

348

FDIC insurance expense

34

100

Other real estate owned expenses

17

48

Other operating expenses

1,957

1,614

Total non-interest expenses

9,793

8,094

Income before income taxes

4,704

4,699

INCOME TAXES

1,283

1,302

Net income

$

3,421

$

3,397

EARNINGS PER COMMON SHARE

Basic

$

0.34

$

0.39

Diluted

0.33

0.39

WEIGHTED AVERAGE SHARES OUTSTANDING

Basic

10,200,836

8,624,088

Diluted

10,262,047

8,694,004

1STConstitution Bancorp

Net Interest Margin Analysis

(Unaudited)

Three months ended March 31, 2020

Three months ended March 31, 2019

(In thousands except yield/cost information)

Average

Average

Average

Average

Assets

Balance

Interest

Yield

Balance

Interest

Yield

Interest-earning assets:

Federal funds sold/short term investments

$

24,557

$

89

1.46%

$

8,004

$

47

2.38%

Investment securities:

Taxable

168,376

1,056

2.51%

160,825

1,270

3.16%

Tax-exempt(1)

65,194

555

3.40%

59,837

558

3.73%

Total investment securities

233,570

1,611

2.76%

220,662

1,828

3.31%

Loans: (2)

Commercial real estate

574,640

7,355

5.06%

390,251

5,011

5.14%

Mortgage warehouse lines

175,275

2,035

4.64%

123,394

1,824

5.91%

Construction

147,496

2,179

5.94%

155,864

2,662

6.93%

Commercial business

142,793

1,803

5.08%

122,878

1,823

6.02%

Residential real estate

90,360

996

4.36%

47,274

535

4.53%

Loans to individuals

30,497

392

5.08%

22,748

275

4.84%

Loans held for sale

3,986

35

3.51%

1,363

17

4.99%

All other loans

1,803

10

2.19%

1,013

10

3.95%

Total Loans

1,166,850

14,805

5.10%

864,785

12,157

5.70%

Total interest-earning assets

1,424,977

16,505

4.66%

1,093,451

14,032

5.20%

Non-interest-earning assets:

Allowance for loan losses

(9,454)

(8,535)

Cash and due from bank

13,383

10,479

Other assets

122,482

74,307

Total non-interest-earning assets

126,411

76,251

Total assets

$

1,551,388

$

1,169,702

Liabilities and shareholders' equity:

Interest-bearing liabilities:

Money market and NOW accounts

$

401,837

$

760

0.76%

$

334,955

$

574

0.69%

Savings accounts

265,053

604

0.92%

189,175

426

0.91%

Certificates of deposit

359,881

1,874

2.09%

247,735

1,317

2.16%

Short-term borrowings

18,915

62

1.32%

26,199

173

2.68%

Redeemable subordinated debentures

18,557

152

3.24%

18,557

198

4.27%

Total interest-bearing liabilities

1,064,243

3,452

1.30%

816,621

2,688

1.33%

Non-interest-bearing liabilities:

Demand deposits

283,520

208,079

Other liabilities

31,793

16,798

Total non-interest-bearing liabilities

315,313

224,877

Shareholders' equity

171,832

128,204

Total liabilities and shareholders' equity

$

1,551,388

$

1,169,702

Net interest spread (3)

3.36%

3.87%

Net interest income and margin (4)

$

13,053

3.68%

$

11,344

4.21%

  1. Tax-equivalentbasis, using 21% federal tax rate in 2020 and 2019.
  2. Loan origination fees and costs are considered an adjustment to interest income. For the purpose of calculating loan yields, average loan balances includenon-accrual loans with no related interest income and the average balance of loans held for sale.
  3. The net interest spread is the difference between the average yield oninterest-earning assets and the average rate paid on interest-bearing liabilities.
  4. The net interest margin is equal to net interest income divided by averageinterest-earning assets.

Disclaimer

1st Constitution Bancorp published this content on 12 May 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 13 May 2020 08:59:04 UTC

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Financials (USD)
Sales 2020 64,2 M - -
Net income 2020 11,6 M - -
Net Debt 2020 - - -
P/E ratio 2020 11,2x
Yield 2020 2,86%
Capitalization 128 M 128 M -
EV / Sales 2019
Capi. / Sales 2020 2,00x
Nbr of Employees 223
Free-Float 87,2%
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Mean consensus OUTPERFORM
Number of Analysts 3
Average target price 14,00 $
Last Close Price 12,58 $
Spread / Highest target 19,2%
Spread / Average Target 11,3%
Spread / Lowest Target 3,34%
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Managers
NameTitle
Robert F. Mangano President, Chief Executive Officer & Director
Charles S. Crow Chairman
Christina Barbaro Senior Vice President-Operations
Stephen J. Gilhooly Chief Financial Officer, Treasurer & Senior VP
William M. Rue Secretary & Independent Director