UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
|
For
the quarterly period ended March 31,
2009 |
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
|
For
the transition period from _____ to
_____
|
Commission
file Number:
000-32891
|
1ST CONSTITUTION
BANCORP
|
|
|
(Exact Name of
Registrant as Specified in Its Charter)
|
|
New
Jersey
|
|
22-3665653
|
(State
of Other Jurisdiction
of
Incorporation or Organization)
|
|
(I.R.S.
Employer Identification No.)
|
2650
Route 130, P.O. Box 634, Cranbury, NJ
|
|
08512
|
(Address
of Principal Executive Offices)
|
|
(Zip
Code)
|
|
(609)
655-4500
|
|
|
(Issuer’s Telephone
Number, Including Area Code)
|
|
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No
o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check one):
|
Large
accelerated filer
|
o |
Accelerated
filer
|
o
|
|
Non-accelerated
filer
(Do
not check if a smaller reporting company)
|
o |
Smaller
reporting company
|
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x
As of May
11, 2009, there were 4,271,314 shares of the registrant’s common stock, no par
value, outstanding.
1ST
CONSTITUTION BANCORP
FORM
10-Q
INDEX
|
|
Page
|
|
PART
I.
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
|
Item
1.
|
Financial
Statements
|
1
|
|
|
|
|
|
|
Consolidated
Balance Sheets
|
|
|
|
(unaudited)
as of March 31, 2009
|
|
|
|
and
December 31, 2008
|
1
|
|
|
|
|
|
|
Consolidated
Statements of Income
|
|
|
|
(unaudited)
for the Three Months Ended
|
|
|
|
March
31, 2009 and March 31, 2008
|
2
|
|
|
|
|
|
|
Consolidated
Statements of Changes in Shareholders’ Equity
|
|
|
|
(unaudited)
for the Three Months Ended
|
|
|
|
March
31, 2009 and March 31, 2008
|
3
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
|
(unaudited)
for the Three Months Ended
|
|
|
|
March
31, 2009 and March 31, 2008
|
4
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements (unaudited)
|
5
|
|
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition
|
|
|
|
and
Results of Operations
|
13
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
29
|
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
29
|
|
|
|
|
|
PART
II.
|
OTHER
INFORMATION
|
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
29
|
|
|
|
|
|
Item
6.
|
Exhibits
|
30
|
|
|
|
|
|
SIGNATURES
|
|
31
|
|
PART
I. FINANCIAL INFORMATION
Item
1. Financial
Statements.
1st
Constitution Bancorp and Subsidiaries
Consolidated
Balance Sheets
(unaudited)
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
ASSETS
|
|
|
|
|
|
|
CASH
AND DUE FROM BANKS
|
|
$ |
25,743,159 |
|
|
$ |
14,321,777 |
|
|
|
|
|
|
|
|
|
|
FEDERAL
FUNDS SOLD / SHORT-TERM INVESTMENTS
|
|
|
11,363 |
|
|
|
11,342 |
|
|
|
|
|
|
|
|
|
|
Total
cash and cash equivalents
|
|
|
25,754,522 |
|
|
|
14,333,119 |
|
|
|
|
|
|
|
|
|
|
INVESTMENT
SECURITIES:
|
|
|
|
|
|
|
|
|
Available
for sale, at fair value
|
|
|
82,117,870 |
|
|
|
93,477,023 |
|
Held
to maturity (fair value of $36,565,268 and $36,140,379 at March
31,
2009 and December 31, 2008, respectively)
|
|
|
37,130,942 |
|
|
|
36,550,577 |
|
|
|
|
|
|
|
|
|
|
Total
investment securities
|
|
|
119,248,812 |
|
|
|
130,027,600 |
|
|
|
|
|
|
|
|
|
|
LOANS
HELD FOR SALE
|
|
|
12,754,158 |
|
|
|
5,702,082 |
|
|
|
|
|
|
|
|
|
|
LOANS
|
|
|
409,611,983 |
|
|
|
377,348,416 |
|
Less-
Allowance for loan losses
|
|
|
(4,130,264 |
) |
|
|
(3,684,764 |
) |
|
|
|
|
|
|
|
|
|
Net
loans
|
|
|
405,481,719 |
|
|
|
373,663,652 |
|
|
|
|
|
|
|
|
|
|
PREMISES
AND EQUIPMENT, net
|
|
|
2,149,840 |
|
|
|
2,302,489 |
|
|
|
|
|
|
|
|
|
|
ACCRUED
INTEREST RECEIVABLE
|
|
|
2,058,861 |
|
|
|
2,192,601 |
|
|
|
|
|
|
|
|
|
|
BANK-OWNED
LIFE INSURANCE
|
|
|
10,020,226 |
|
|
|
9,929,204 |
|
|
|
|
|
|
|
|
|
|
OTHER
REAL ESTATE OWNED
|
|
|
4,326,211 |
|
|
|
4,296,536 |
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
5,149,505 |
|
|
|
3,839,246 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
586,943,854 |
|
|
$ |
546,286,529 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Non-interest
bearing
|
|
$ |
73,741,909 |
|
|
$ |
71,772,486 |
|
Interest
bearing
|
|
|
400,905,516 |
|
|
|
342,912,245 |
|
|
|
|
|
|
|
|
|
|
Total
deposits
|
|
|
474,647,425 |
|
|
|
414,684,731 |
|
|
|
|
|
|
|
|
|
|
BORROWINGS
|
|
|
30,500,000 |
|
|
|
51,500,000 |
|
REDEEMABLE
SUBORDINATED DEBENTURES
|
|
|
18,557,000 |
|
|
|
18,557,000 |
|
ACCRUED
INTEREST PAYABLE
|
|
|
1,893,017 |
|
|
|
1,984,102 |
|
ACCRUED
EXPENSES AND OTHER LIABILITIES
|
|
|
5,159,512 |
|
|
|
3,941,044 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
530,756,954 |
|
|
|
490,666,877 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock, no par value; 5,000,000 shares authorized, of which 12,000
shares
of Series B, $1,000 liquidation preference, 5% cumulative
increasing
to 9% cumulative on February 15, 2014, were issued and
outstanding
at March 31, 2009 and December 31, 2008
|
|
|
11,392,312 |
|
|
|
11,387,828 |
|
|
|
|
|
|
|
|
|
|
Common
stock, no par value; 30,000,000 shares authorized; 4,226,943 and
4,204,202
shares issued and 4,222,960 and 4,198,871 shares
outstanding
at March 31, 2009 and December 31, 2008, respectively
|
|
|
35,175,365 |
|
|
|
35,180,433 |
|
Retained
earnings
|
|
|
9,941,963 |
|
|
|
9,653,923 |
|
Treasury
Stock, at cost, 3,983 and 5,331 shares at March 31, 2009 and
December
31, 2008, respectively
|
|
|
(31,408 |
) |
|
|
(53,331 |
) |
Accumulated
other comprehensive loss
|
|
|
(291,332 |
) |
|
|
(549,201 |
) |
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
|
56,186,900 |
|
|
|
55,619,652 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$ |
586,943,854 |
|
|
$ |
546,286,529 |
|
See
accompanying notes to consolidated financial statements.
1st
Constitution Bancorp and Subsidiaries
Consolidated
Statements of Income
(unaudited)
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
INTEREST
INCOME:
|
|
|
|
|
|
|
Loans,
including fees
|
|
$ |
6,039,601 |
|
|
$ |
6,009,100 |
|
Securities:
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
1,237,655 |
|
|
|
975,401 |
|
Tax-exempt
|
|
|
128,555 |
|
|
|
145,599 |
|
Federal
funds sold and short-term investments
|
|
|
8,594 |
|
|
|
36,956 |
|
|
|
Total
interest income
|
|
|
7,414,405 |
|
|
|
7,167,056 |
|
|
|
INTEREST
EXPENSE:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
2,584,951 |
|
|
|
2,538,093 |
|
Securities
sold under agreements to repurchase
and
other borrowed funds
|
|
|
363,230 |
|
|
|
376,027 |
|
Redeemable
subordinated debentures
|
|
|
266,235 |
|
|
|
249,806 |
|
Total
interest expense
|
|
|
3,214,416 |
|
|
|
3,163,926 |
|
Net
interest income
|
|
|
4,199,989 |
|
|
|
4,003,130 |
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR LOAN LOSSES
|
|
|
463,000 |
|
|
|
165,000 |
|
Net
interest income after provision for loan losses
|
|
|
3,736,989 |
|
|
|
3,838,130 |
|
|
|
NON-INTEREST
INCOME:
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts
|
|
|
238,519 |
|
|
|
185,888 |
|
Gain
on sales of loans
|
|
|
272,193 |
|
|
|
310,044 |
|
Income
on Bank-owned life insurance
|
|
|
91,022 |
|
|
|
91,827 |
|
Other
income
|
|
|
245,318 |
|
|
|
198,618 |
|
|
|
|
|
|
|
|
|
|
Total
non-interest income
|
|
|
847,052 |
|
|
|
786,377 |
|
|
|
NON-INTEREST
EXPENSE:
|
|
Salaries
and employee benefits
|
|
|
2,227,329 |
|
|
|
1,978,061 |
|
Occupancy
expense
|
|
|
452,665 |
|
|
|
432,015 |
|
Data
processing expenses
|
|
|
259,683 |
|
|
|
211,781 |
|
Other
operating expenses
|
|
|
1,080,936 |
|
|
|
792,493 |
|
Total
non-interest expenses
|
|
|
4,020,613 |
|
|
|
3,414,350 |
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
563,428 |
|
|
|
1,210,157 |
|
Income
taxes
|
|
|
86,738 |
|
|
|
407,960 |
|
Net
income
|
|
|
476,690 |
|
|
|
802,197 |
|
Dividends
on preferred stock and accretion
|
|
|
188,650 |
|
|
|
- |
|
Net
income available to common shareholders
|
|
$ |
288,040 |
|
|
$ |
802,197 |
|
|
|
NET
INCOME PER COMMON SHARE:
|
|
Basic
|
|
$ |
0.07 |
|
|
$ |
0.19 |
|
Diluted
|
|
$ |
0.07 |
|
|
$ |
0.19 |
|
See
accompanying notes to consolidated financial statements.
1st
Constitution Bancorp and Subsidiaries
Consolidated
Statements of Changes in Shareholders’ Equity
For
the Three Months Ended March 31, 2009 and 2008
(unaudited)
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Retained
Earnings
|
|
|
Treasury
Stock
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Total
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
January 1, 2008
|
|
$ |
- |
|
|
$ |
32,514,936 |
|
|
$ |
9,009,955 |
|
|
$ |
(18,388 |
) |
|
$ |
(533,186 |
) |
|
$ |
40,973,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption
of EITF 06-4
|
|
|
|
|
|
|
|
|
|
|
(329,706 |
) |
|
|
|
|
|
|
|
|
|
|
(329,706 |
) |
FAS
123R share-based compensation
|
|
|
|
|
|
|
32,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,113 |
|
Treasury
stock, shares acquired at cost
(1,721
shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,195 |
) |
|
|
|
|
|
|
(28,195 |
) |
Comprehensive
Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income for the three months
ended
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
802,197 |
|
|
|
|
|
|
|
|
|
|
|
802,197 |
|
Unrealized
gain on securities
available
for sale, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
634,517 |
|
|
|
634,517 |
|
Unrealized
loss on interest rate swap
contract net
of tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(436,418 |
) |
|
|
(436,418 |
) |
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,296 |
|
Balance,
March 31, 2008
|
|
$ |
- |
|
|
$ |
32,547,049 |
|
|
$ |
9,482,446 |
|
|
$ |
(46,583 |
) |
|
$ |
(335,087 |
) |
|
$ |
41,647,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2009
|
|
$ |
11,387,828 |
|
|
$ |
35,180,433 |
|
|
$ |
9,653,923 |
|
|
$ |
(53,331 |
) |
|
$ |
(549,201 |
) |
|
$ |
55,619,652 |
|
FAS
123R share-based compensation
|
|
|
|
|
|
|
19,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,445 |
|
Treasury
stock, shares acquired at cost
(5,935
shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,382 |
) |
|
|
|
|
|
|
(36,382 |
) |
Exercise
of stock options (7,283 shares)
|
|
|
|
|
|
|
(24,513 |
) |
|
|
|
|
|
|
58,305 |
|
|
|
|
|
|
|
33,792 |
|
Dividends
accrued on preferred stock
|
|
|
|
|
|
|
|
|
|
|
(161,666 |
) |
|
|
|
|
|
|
|
|
|
|
(161,666 |
) |
Preferred
stock issuance costs
|
|
|
(22,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,500 |
) |
Accretion
of discount on preferred stock
|
|
|
26,984 |
|
|
|
|
|
|
|
(26,984 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income for the three months
ended
March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
476,690 |
|
|
|
|
|
|
|
|
|
|
|
476,690 |
|
Pension
liability, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,687 |
|
|
|
29,687 |
|
Unrealized
gain on securities for sale
net
of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210,536 |
|
|
|
210,536 |
|
Unrealized
gain on interest rate swap
contract
net
of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,646 |
|
|
|
17,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
734,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
March 31, 2009
|
|
$ |
11,392,312 |
|
|
$ |
35,175,365 |
|
|
$ |
9,941,963 |
|
|
$ |
(31,408 |
) |
|
$ |
(291,332 |
) |
|
$ |
56,186,900 |
|
See
accompanying notes to consolidated financial statements.
1st
Constitution Bancorp and Subsidiaries
Consolidated
Statements of Cash Flows
(unaudited)
|
|
Three
Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
Net income
|
|
$ |
476,690 |
|
|
$ |
802,197 |
|
Adjustments to reconcile net income
|
|
|
|
|
|
|
|
|
to net cash used
in operating activities-
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
463,000 |
|
|
|
165,000 |
|
Depreciation and amortization
|
|
|
166,843 |
|
|
|
173,960 |
|
Net (accretion) amortization of premiums and
discounts on securities
|
|
|
19,438 |
|
|
|
(3,229 |
) |
Gain on sales of loans held for sale
|
|
|
(272,193 |
)
|
|
|
(310,044 |
) |
Proceeds from sales of loans held for sale
|
|
|
24,741,138 |
|
|
|
16,450,496 |
|
Originations of loans held for sale
|
|
|
(31,521,021 |
)
|
|
|
(19,388,430 |
) |
Income on Bank – owned life insurance
|
|
|
(91,022 |
)
|
|
|
(91,827 |
) |
Share-based
compensation expense
|
|
|
71,605 |
|
|
|
32,113 |
|
Decrease in accrued interest receivable
|
|
|
133,740 |
|
|
|
435,125 |
|
(Increase) in other assets
|
|
|
(1,456,121 |
)
|
|
|
(1,493,738 |
) |
(Decrease) increase in accrued interest
payable
|
|
|
(91,085 |
)
|
|
|
25,858 |
|
Increase in accrued expenses and other
liabilities
|
|
|
1,167,289 |
|
|
|
812,440 |
|
|
Net
cash used in operating activities
|
|
|
(6,191,699 |
)
|
|
|
(2,390,079 |
) |
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases of securities -
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
(4,424,641 |
)
|
|
|
(3,020,614 |
) |
Held to maturity
|
|
|
(1,619,834 |
)
|
|
|
- |
|
Proceeds from maturities and prepayments of securities -
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
16,118,915 |
|
|
|
8,128,985 |
|
Held to maturity
|
|
|
1,003,482 |
|
|
|
7,018,220 |
|
Net increase in loans
|
|
|
(33,312,594 |
)
|
|
|
(49,822,652 |
) |
Additional investment in other real estate
owned
|
|
|
(179,123 |
)
|
|
|
(1,344,566 |
) |
Proceeds from sales of other real estate
owned
|
|
|
1,180,975 |
|
|
|
- |
|
Capital expenditures
|
|
|
(5,016 |
)
|
|
|
(61,479 |
) |
|
Net
cash used in investing activities
|
|
|
(21,237,836 |
)
|
|
|
(39,102,106 |
) |
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net increase in demand, savings and time deposits
|
|
|
59,962,694 |
|
|
|
49,377,121 |
|
Net (repayments) of borrowings
|
|
|
(21,000,000 |
)
|
|
|
(3,800,000 |
) |
Exercise
of stock options and issuance of treasury stock
|
|
|
33,792 |
|
|
|
- |
|
Purchase of treasury stock
|
|
|
(36,382 |
)
|
|
|
(28,195 |
) |
Dividend
paid on preferred stock
|
|
|
(86,666 |
)
|
|
|
- |
|
Preferred
stock issuance costs paid
|
|
|
(22,500 |
)
|
|
|
- |
|
|
Net
cash provided by financing activities
|
|
|
38,850,938 |
|
|
|
45,548,926 |
|
|
Increase
in cash and cash equivalents
|
|
|
11,421,403 |
|
|
|
4,056,741 |
|
|
CASH
AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
AT BEGINNING OF PERIOD
|
|
|
14,333,119 |
|
|
|
7,548,102 |
|
|
CASH
AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
AT END OF PERIOD
|
|
$ |
25,754,522 |
|
|
$ |
11,604,843 |
|
|
SUPPLEMENTAL
DISCLOSURES
|
|
|
|
|
|
|
|
|
OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the period for -
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
3,305,501 |
|
|
$ |
3,173,981 |
|
Income
taxes
|
|
|
- |
|
|
|
1,051,040 |
|
Non-cash
investing activities
|
|
|
|
|
|
|
|
|
Real
estate acquired in full satisfaction of loans in
foreclosure
|
|
|
1,031,527 |
|
|
|
- |
|
See
accompanying notes to consolidated financial statements.
1st
Constitution Bancorp and Subsidiaries
Notes
To Consolidated Financial Statements
March
31, 2009 (Unaudited)
(1) Summary
of Significant Accounting Policies
The
accompanying unaudited Consolidated Financial Statements include 1st
Constitution Bancorp (the “Company”), its wholly-owned subsidiary, 1st
Constitution Bank (the “Bank”), and the Bank’s wholly-owned subsidiaries, 1st
Constitution Investment Company of Delaware, Inc., FCB Assets Holdings, Inc. and
1st Constitution Title Agency, LLC. 1st Constitution Capital Trust
II, a subsidiary of the Company, is not included in the Company’s consolidated
financial statements, as it is a variable interest entity and the Company is not
the primary beneficiary. All significant intercompany accounts and
transactions have been eliminated in consolidation and certain prior period
amounts have been reclassified to conform to current year
presentation. The accounting and reporting policies of the Company
and its subsidiaries conform to accounting principles generally accepted in the
United States of America and pursuant to the rules and regulations of the
Securities and Exchange Commission (the “SEC”) including the instructions to
Form 10-Q and Article 8 of Regulation S-X. Certain information and
footnote disclosures normally included in financial statements have been
condensed or omitted pursuant to such rules and regulations. These
Consolidated Financial Statements should be read in conjunction with the audited
consolidated financial statements and the notes thereto included in the
Company’s Form 10-K for the year ended December 31, 2008, filed with the SEC on
March 27, 2009.
In the
opinion of the Company, all adjustments (consisting only of normal recurring
accruals) which are necessary for a fair presentation of the operating results
for the interim periods have been included. The results of operations for
periods of less than a year are not necessarily indicative of results for the
full year.
(2) Net
Income Per Common Share
Basic net
income per common share is calculated by dividing net income less dividends and
discount accretion on preferred stock by the weighted average number of common
shares outstanding during each period.
Diluted
net income per common share is calculated by dividing net income less dividends
and discount accretion on preferred stock by the weighted average number of
common shares outstanding, as adjusted for the assumed exercise of stock options
and the vesting of unvested Stock Awards (as defined below), using the treasury
stock method. All 2008 share information has been restated for the effect of a
5% stock dividend declared December 18, 2008 and paid on February 2, 2009 to
shareholders of record on January 20, 2009.
The
following tables illustrate the reconciliation of the numerators and
denominators of the basic and diluted earnings per common share (EPS)
calculations. Dilutive securities in the tables below exclude common
stock options and warrants with exercise prices that exceed the average market
price of the Company’s common stock during the periods
presented. Inclusion of these common stock options and warrants would
be anti-dilutive to the diluted earnings per common share
calculation.
|
|
Three
Months Ended March 31, 2009
|
|
|
|
Income
|
|
|
Weighted-
average
shares
|
|
|
Per
share
amount
|
|
Basic
Earnings Per Common Share
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
476,690 |
|
|
|
|
|
|
|
Preferred
stock dividends and accretion
|
|
|
(188,650 |
) |
|
|
|
|
|
|
Income
available to common shareholders
|
|
|
288,040 |
|
|
|
4,218,698 |
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options and unvested stock awards
|
|
|
- |
|
|
|
17,242 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common shareholders
plus
assumed conversion
|
|
$ |
288,040 |
|
|
|
4,235,940 |
|
|
$ |
0.07 |
|
|
|
Three
Months Ended March 31, 2008
|
|
|
|
Income
|
|
|
Weighted-
average
shares
|
|
|
Per
share
Amount
|
|
Basic
Earnings Per Common Share
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
802,197 |
|
|
|
|
|
|
|
Preferred
stock dividends and accretion
|
|
|
- |
|
|
|
|
|
|
|
Income
available to common shareholders
|
|
|
802,197 |
|
|
|
4,188,899 |
|
|
$ |
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options and unvested stock awards
|
|
|
- |
|
|
|
57,680 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common shareholders
plus
assumed conversion
|
|
$ |
802,197 |
|
|
|
4,246,579 |
|
|
$ |
0.19 |
|
(3) Share-Based
Compensation
Share-based
compensation is accounted for in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 123 (revised 2004) (“SFAS No. 123R”), Share-Based
Payment. The Company adopted SFAS No. 123R on January 1, 2006
using the modified prospective approach. The Company establishes fair
value for its equity awards to determine its cost and recognizes the related
expense for stock options over the vesting period using the straight-line
method. The grant date fair value for stock options is calculated
using the Black-Scholes option valuation model.
The
Company’s stock plans authorize the issuance of an aggregate of 1,119,022 shares
of common stock pursuant to awards that may be granted in the form of stock
options to purchase common stock (“Options”) and awards of shares of common
stock (“Stock Awards”). The purpose of the Company’s stock-based
incentive plans is to attract and retain personnel for positions of substantial
responsibility and to provide additional incentive to certain officers,
directors, employees and other persons to promote the success of the
Company. Under the Company’s stock plans, options expire ten years
after the date of grant. Options are granted at the then fair market
value of the Company’s common stock. As of March 31, 2009, there were
309,756 shares of common stock (as adjusted for the 5% stock dividend declared
December 18, 2008 and paid February 2, 2009 to shareholders of record on January
20, 2009) available for Options or Stock Awards under the Company’s stock
plans.
Stock-based
compensation expense related to Options was $19,445 and $32,113 for the three
months ended March 31, 2009 and 2008, respectively.
Option
transactions under the Company’s stock plans during the three months ended March
31, 2009 are summarized as follows:
Stock
Options
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at January 1, 2009
|
|
|
164,041 |
|
|
$ |
9.92 |
|
|
|
|
|
|
|
Options
Granted
|
|
|
17,220 |
|
|
|
10.00 |
|
|
|
|
|
|
|
Options
Exercised
|
|
|
(7,283 |
) |
|
|
4.64 |
|
|
|
|
|
|
|
Options
Forfeited
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
Options
Expired
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
Outstanding
at March 31, 2009
|
|
|
173,978 |
|
|
$ |
10.15 |
|
|
|
5.0 |
|
|
$ |
84,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at March 31, 2009
|
|
|
138,116 |
|
|
$ |
9.42 |
|
|
|
3.8 |
|
|
$ |
84,157 |
|
The total
intrinsic value (market value on date of exercise less grant price) of Options
exercised during the three month period ended March 31, 2009 was
$12,524.
Significant
assumptions used to calculate the fair value of the Options granted for the
three month period ended March 31, 2009 are as follows:
Fair
value of options granted
|
$ |
3.26 |
|
Risk-free
rate of return
|
|
1.60 |
% |
Expected
option life in years
|
|
7 |
|
Expected
volatility
|
|
27.58 |
% |
Expected
dividends (1)
|
|
- |
|
(1)
|
To
date, the Company has not paid cash dividends on its common
stock.
|
As of
March 31, 2009, there was approximately $175,126 of unrecognized compensation
costs related to non-vested stock option-based compensation arrangements granted
under the Company’s stock plans. That cost is expected to be
recognized over the next four years.
Stock
Awards generally vest over a four-year service period on the anniversary of the
grant date. Once vested, Stock Awards are irrevocable. The
product of the number of shares granted and the grant date market price of the
Company’s common stock determine the fair value of shares covered by the Stock
Award under the Company’s stock plans. Management recognizes
compensation expense for the fair value of the shares covered by the Stock Award
on a straight-line basis over the requisite service
period. Stock-based compensation expense related to Stock Awards was
$50,000 and $82,950 for the three months ended March 31, 2009 and 2008,
respectively.
The
following table summarizes the non-vested portion of Stock Awards outstanding at
March 31, 2009:
Stock
Awards
|
|
Number
of
Shares
|
|
|
Average
Grant Date
Fair
Value
|
|
Non-vested
stock awards at January 1, 2009
|
|
|
30,470 |
|
|
$ |
14.80 |
|
Shares
granted
|
|
|
22,260 |
|
|
|
10.00 |
|
Shares
vested
|
|
|
- |
|
|
|
- |
|
Shares
forfeited
|
|
|
- |
|
|
|
- |
|
Non-vested
stock awards at March 31, 2009
|
|
|
52,730 |
|
|
$ |
12.77 |
|
As of
March 31, 2009, there was approximately $524,565 of unrecognized compensation
cost related to non-vested share-based compensation arrangements granted under
the Company’s stock plans. That cost is expected to be recognized
over the next four years.
(4) Benefit
Plans
The
Company provides certain retirement benefits to employees under a 401(k)
plan. The Company’s contributions to the 401(k) plan are expensed as
incurred.
The
Company also provides retirement benefits to certain employees under a
supplemental executive retirement plan. The plan is unfunded and the
Company accrues actuarial determined benefit costs over the estimated service
period of the employees in the plan. The Company follows Statement of
Financial Accounting Standards No. 132, as revised in December 2003 (“SFAS No.
132”), “Employers’ Disclosures about Pensions and Other Post-retirement
Benefits—an amendment of FASB Statements No. 87, 88, and 106” and Statement of
Financial Accounting Standards No. 158 (“SFAS No. 158”), “Employers Accounting
for Defined Benefit Pension and Other Post-retirement Plans—an amendment of FASB
Statements No. 87, 88, 106 and 132(R)”. SFAS No. 132 revised
employers’ disclosures about pension and other post-retirement benefit
plans. It requires the disclosure of additional information about
changes in the benefit obligation and the fair values of plan assets. It also
standardizes the requirements for pensions and other postretirement benefit
plans, to the extent possible, and illustrates combined formats for the
presentation of pension plan and other post-retirement benefit plan
disclosures. SFAS 158 requires an employer to recognize the over
funded or under funded status of a defined benefit post-retirement plan (other
than a multiemployer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in
which the changes occur, through comprehensive income.
The
components of net periodic expense for the Company’s supplemental executive
retirement plan for the three months ended March 31, 2009 and 2008 are as
follows:
|
|
Three
months ended
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
61,094 |
|
|
$ |
57,637 |
|
Interest
cost
|
|
|
45,630 |
|
|
|
39,830 |
|
Actuarial
loss recognized
|
|
|
21,744 |
|
|
|
15,375 |
|
Prior
service cost recognized
|
|
|
24,858 |
|
|
|
24,858 |
|
|
|
$ |
153,326 |
|
|
$ |
137,700 |
|
In
September 2006, the Financial Accounting Standards Board (“FASB”) Emerging
Issues Task Force finalized Issue No. 06-4, Accounting for Deferred Compensation
and Postretirement Benefit Aspects of Endorsement Split-dollar Life Insurance
Arrangements (“EITF 06-4”). EITF 06-4 requires that a
liability be recorded during the service period when a split-dollar life
insurance agreement continues after participants’ employment or
retirement. The required accrued liability is based on either the
post-employment benefit cost for the continuing life insurance or based on the
future death benefit depending on the contractual terms of the underlying
agreement. The Company adopted EITF 06-4 on January 1, 2008, and
recorded a cumulative effect adjustment of $329,706 as a reduction of retained
earnings effective January 1, 2008.
(5) Comprehensive
Income and Accumulated Other Comprehensive Loss
The
components of other comprehensive income are as follows:
For the three months ended March 31,
2009
|
|
Before
Tax
Amount
|
|
|
Tax
Benefit
(Expense)
|
|
|
Net
of
Tax Amount
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized gains on available for sale securities:
|
|
|
|
|
|
|
|
|
|
Net
unrealized holding losses arising during the period
|
|
$ |
318,572 |
|
|
$ |
(108,036 |
) |
|
$ |
210,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
pension liability
|
|
|
46,600 |
|
|
|
(16,913 |
) |
|
|
29,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of interest rate swap contract
|
|
|
29,381 |
|
|
|
(11,735 |
) |
|
|
17,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
$ |
394,553 |
|
|
$ |
(136,684 |
) |
|
$ |
257,869 |
|
For the three months ended March 31,
2008
|
|
Before
Tax
Amount
|
|
|
Tax
Benefit
(Expense)
|
|
|
Net
of
Tax Amount
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized gains on available for sale securities:
|
|
|
|
|
|
|
|
|
|
Net
unrealized holding losses arising during the period
|
|
$ |
961,183 |
|
|
$ |
(326,666 |
) |
|
$ |
634,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
pension liability
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of interest rate swap contract
|
|
|
(726,278 |
) |
|
|
289,860 |
|
|
|
(436,418 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
$ |
(234,905 |
) |
|
$ |
36,806 |
|
|
$ |
198,899 |
|
The
components of Accumulated other comprehensive loss, net of tax, which is a
component of shareholders’ equity, were as follows:
|
|
Net
Unrealized
Gains
On
Available
for
Sale Securities
|
|
|
Fair
Value of
Interest
Rate
Swap Contract
|
|
|
Defined
Benefit
Pension Plans
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Balance,
December 31, 2008
|
|
$ |
603,527 |
|
|
$ |
(695,408 |
) |
|
$ |
(457,320 |
) |
|
$ |
(549,201 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change
|
|
|
210,536 |
|
|
|
17,646 |
|
|
|
29,687 |
|
|
|
257,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2009
|
|
$ |
814,063 |
|
|
$ |
(677,762 |
) |
|
$ |
(427,633 |
) |
|
$ |
(291,332 |
) |
(6) Recent
Accounting Pronouncements
In April
2009, the Financial Accounting Standards Board (FASB) issued FASB Staff
Position (FSP) No. FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly (FSP FAS
157-4). FASB Statement 157, Fair Value Measurements,
defines fair value as the price that would be received to sell the asset or
transfer the liability in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement
date under current market conditions. FSP FAS 157-4 provides additional guidance
on determining when the volume and level of activity for the asset or liability
has significantly decreased. The FSP also includes guidance on identifying
circumstances when a transaction may not be considered orderly.
FSP FAS
157-4 provides a list of factors that a reporting entity should evaluate to
determine whether there has been a significant decrease in the volume and level
of activity for the asset or liability in relation to normal market activity for
the asset or liability. When the reporting entity concludes there has been a
significant decrease in the volume and level of activity for the asset or
liability, further analysis of the information from that market is needed and
significant adjustments to the related prices may be necessary to estimate fair
value in accordance with Statement 157.
This FSP
clarifies that when there has been a significant decrease in the volume and
level of activity for the asset or liability, some transactions may not be
orderly. In those situations, the entity must evaluate the weight of the
evidence to determine whether the transaction is orderly. The FSP provides a
list of circumstances that may indicate that a transaction is not orderly. A
transaction price that is not associated with an orderly transaction is given
little, if any, weight when estimating fair value.
This FSP
is effective for interim and annual reporting periods ending after June 15,
2009, with early adoption permitted for periods ending after March 15,
2009. An entity early adopting FSP FAS 157-4 must also early adopt
FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. The Company is currently
reviewing the effect this new pronouncement will have on its consolidated
financial statements.
In April
2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments (FSP FAS 115-2 and FAS
124-2). FSP FAS 115-2 and FAS 124-2 clarifies the interaction
of the factors that should be considered when determining whether a debt
security is other-than-temporarily impaired. For debt securities, management
must assess whether (a) it has the intent to sell the security and
(b) it is more likely than not that it will be required to sell the
security prior to its anticipated recovery. These steps are done before
assessing whether the entity will recover the cost basis of the investment.
Previously, this assessment required management to assert it has both the intent
and the ability to hold a security for a period of time sufficient to allow for
an anticipated recovery in fair value to avoid recognizing an
other-than-temporary impairment. This change does not affect the need to
forecast recovery of the value of the security through either cash flows or
market price.
In
instances when a determination is made that an other-than-temporary impairment
exists but the investor does not intend to sell the debt security and it is not
more likely than not that it will be required to sell the debt security prior to
its anticipated recovery, FSP FAS 115-2 and FAS 124-2 changes the presentation
and amount of the other-than-temporary impairment recognized in the income
statement. The other-than-temporary impairment is separated into (a) the
amount of the total other-than-temporary impairment related to a decrease in
cash flows expected to be collected from the debt security (the credit loss) and
(b) the amount of the total other-than-temporary impairment related to all
other factors. The amount of the total other-than-temporary impairment related
to the credit loss is recognized in earnings. The amount of the total
other-than-temporary impairment related to all other factors is recognized in
other comprehensive income.
This FSP
is effective for interim and annual reporting periods ending after June 15,
2009, with early adoption permitted for periods ending after March 15,
2009. An entity early adopting FSP FAS 115-2 and FAS 124-2 must also
early adopt FSP FAS 157-4,
Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly. The Company is currently reviewing the effect this
new pronouncement will have on its consolidated financial
statements.
In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments (FSP FAS 107-1 and APB 28-1). FSP FAS
107-1 and APB 28-1 amends FASB Statement No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. This FSP also amends APB Opinion
No. 28, Interim Financial
Reporting, to require those disclosures in summarized financial
information at interim reporting periods.
This FSP
is effective for interim and annual reporting periods ending after June 15,
2009, with early adoption permitted for periods ending after March 15,
2009. An entity early adopting FSP FAS 107-1 and APB 28-1 must also
early adopt FSP FAS 157-4,
Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly and FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. The Company is currently
reviewing the effect this new pronouncement will have on its consolidated
financial statements.
In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161 (“SFAS
No. 161”), “Disclosures about Derivative Instruments and Hedging Activities - an
amendment of FASB Statement No. 133.” SFAS No. 161 requires entities that
utilize derivative instruments to provide qualitative disclosures about the
objectives and strategies for using derivatives, quantitative data about the
fair value of, and gains and losses on, derivative contracts, and details of
credit-risk-related contingent features in their hedged
positions. SFAS No. 161 also requires entities to disclose additional
information about the amounts and location of derivatives located within the
financial statements, how the provisions of SFAS No. 133 have been applied, and
the impact that hedges have on an entity’s financial position, financial
performance, and cash flows. SFAS No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged, but not required. The
adoption of SFAS No. 161 did not have a material impact on the Company’s
financial statements.
(7) Fair
Value Disclosures
In
September 2006, the FASB issued Statement No. 157, “Fair Value Measurements”
(“SFAS 157”), which defines fair value, establishes a framework for measuring
fair value under GAAP, and expands disclosures about fair value
measurements. SFAS 157 applies to other accounting pronouncements
that require or permit fair value measurements. The new standard is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and for interim periods within those fiscal
years. The Company adopted SFAS 157 effective for its fiscal year
beginning January 1, 2008.
In
December 2007, the FASB issued FASB Staff Position 157-2 “Effective Date of FASB Statement No.
157” (“FSP 157-2”). FSP 157-2 delays the effective date of
SFAS 157 for all non-financial assets and liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually)
to fiscal years beginning after November 15, 2008 and interim periods within
those fiscal years. As such, the Company only partially adopted the
provisions of SFAS 157 in 2008 and began to account and report for non-financial
assets and liabilities in 2009. In October 2008, the FASB issued FASB
Staff Position 157-3, “Determining the Fair Value of a
Financial Asset When the Market for that Asset is Not Active” (“FSP
157-3”), to clarify the application of the provisions of SFAS 157 in an inactive
market and how an entity would determine fair value in an inactive
market. FSP 157-3 is effective immediately. The adoption
of SFAS 157 and FSP 157-3 had no impact on the amounts reported in the
consolidated financial statements.
The
primary effect of SFAS 157 on the Company was to expand the required disclosures
pertaining to the methods used to determine fair values.
SFAS 157
established a fair value hierarchy that prioritizes the inputs to valuation
methods used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value
hierarchy under SFAS 157 are as follows:
|
Level
1:
|
Unadjusted
quoted prices in active markets that are accessible at the measurement
date for identical, unrestricted assets or liabilities.
|
|
|
|
|
Level
2:
|
Quoted
prices in markets that are not active, or inputs that are observable
either directly or indirectly, for substantially the full term of the
asset or liability.
|
|
|
|
|
Level
3:
|
Prices
or valuation techniques that require inputs that are both significant to
the fair value measurement and unobservable (i.e., supported with little
or no market
activity).
|
An
asset’s or liability’s level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value
measurement.
A
description of the valuation methodologies used for instruments measured at fair
value, as well as the general classification of such instruments pursuant to the
valuation hierarchy, is set forth below. These valuation
methodologies were applied to all of the Company’s financial assets and
financial liabilities carried at fair value effective January 1,
2008.
In
general, fair value is based upon quoted market prices, where
available. If such quoted market prices are not available, fair value
is based upon internally developed models that primarily use, as inputs,
observable market-based parameters. Valuation adjustments may be made
to ensure that financial instruments are recorded at fair
value. These adjustments may include amounts to reflect counterparty
credit quality and counterparty creditworthiness, among other things, as well as
unobservable parameters. Any such valuation adjustments are applied
consistently over time. The Company’s valuation methodologies may
produce a fair value calculation that may not be indicative of net realizable
value or reflective value or reflective of future values. While
management believes the Company’s valuation methodologies are appropriate and
consistent with other market participants, the use of different methodologies or
assumptions to determine the fair value of certain financial instruments could
result in a different estimate of fair value at the reporting date.
Securities Available for
Sale. Securities classified as available for sale are reported
at fair value utilizing Level 2 Inputs. For these securities, the
Company obtains fair value measurements from an independent pricing
service. The fair value measurements consider observable data that
may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield
curve, live trading levels, trade execution data, market consensus prepayments
speeds, credit information and the security’s terms and conditions, among other
things.
Impaired
loans. Loans included in the following table are those
accounted for under SFAS 114, “Accounting by Creditors for
Impairment of a Loan,” in which the Company has measured impairment
generally based on the fair value of the loan’s collateral. Fair
value is generally determined based upon independent third party appraisals of
the properties, or discounted cash flows based on the expected
proceeds. These assets are included as Level 3 fair values, based
upon the lowest level of input that is significant to the fair value
measurements. The fair value consists of the loan balances less
valuation allowance as determined under SFAS 114.
Derivatives. Derivatives
are reported at fair value utilizing Level 2 Inputs. The Company
obtains dealer quotations to value its interest rate swap.
The
following table summarizes financial assets and financial liabilities measured
at fair value on a recurring basis, segregated by the level of the valuation
inputs within the fair value hierarchy utilized to measure fair
value:
|
|
Level
1 Inputs
|
|
|
Level
2 Inputs
|
|
|
Level
3 Inputs
|
|
|
Total
Fair Value
|
|
March
31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale
|
|
|
- |
|
|
$ |
82,117,870 |
|
|
|
- |
|
|
$ |
82,117,870 |
|
Derivative
liabilities
|
|
|
- |
|
|
|
(1,129,775 |
) |
|
|
- |
|
|
|
(1,129,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale
|
|
|
- |
|
|
$ |
93,477,023 |
|
|
|
- |
|
|
$ |
93,477,023 |
|
Derivative
liabilities
|
|
|
- |
|
|
|
(1,159,156 |
) |
|
|
- |
|
|
|
(1,159,156 |
) |
Certain
financial assets and financial liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at fair value on
an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of
impairment). Financial assets and financial liabilities measured at
fair value on a non-recurring basis consist of impaired loans as
follows:
|
|
Level
1 Inputs
|
|
|
Level
2 Inputs
|
|
|
Level
3 Inputs
|
|
|
Total
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2009
|
|
|
-
|
|
|
|
-
|
|
|
$ |
2,527,580
|
|
|
$ |
2,527,580
|
|
December
31, 2008
|
|
|
-
|
|
|
|
-
|
|
|
$ |
1,427,673
|
|
|
$ |
1,427,673
|
|
Impaired
loans measured at fair value and included in the above table consisted of 12
loans at March 31, 2009, having a principal balance of $3,259,284 and specific
loan loss allowances of $731,704, and eleven loans at December 31, 2008, having
a principal balance of $1,913,012 and specific loan loss allowances of
$485,339.
Certain
non-financial assets and non-financial liabilities measured at fair value on a
recurring basis include reporting units measured at fair value in the first step
of a goodwill impairment test. Certain non-financial assets measured
at fair value on a non-recurring basis include non-financial assets and
non-financial liabilities measured at fair value in the second step of a
goodwill impairment test, as well as intangible assets and other non-financial
long-lived assets measured at fair value for impairment
assessment. As stated above, SFAS No. 157 is applicable to these fair
value measurements beginning January 1, 2009.
Effective
January 1, 2008, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 159 (“SFAS No. 159”), “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115”. SFAS No. 159 permits the Company to choose to
measure eligible items at fair value at specified election
dates. Unrealized gains and losses on items for which the fair value
measurement option has been elected are reported in earnings at each subsequent
reporting date. The fair value option (i) may be applied instrument
by instrument, with certain exceptions, and thus, the Company may record
identical financial assets and liabilities at fair value or by another
measurement basis permitted under generally accepted accounting principals, (ii)
is irrevocable (unless a new election date occurs) and (iii) is applied only to
entire instruments and not to portions of instruments. Adoption of
SFAS No. 159 on January 1, 2008 did not have a significant impact on the
Company’s financial statements.
(8) Derivative
Financial Instruments
The use
of derivative financial instruments creates exposure to credit
risk. This credit risk relates to losses that would be recognized if
the counterparts fail to perform their obligations under the
contracts. As part of the Company’s interest rate risk management
process, the Company entered into an interest rate derivative contract effective
November 27, 2007. Interest rate derivative contracts are typically
used to limit the variability of the Company’s net interest income that could
result due to shifts in interest rates. This derivative interest rate
contract was an interest rate swap used to modify the repricing characteristics
of a specific liability. At March 31, 2009, the Company’s position in
derivative contracts consisted entirely of this interest rate
swap.
Maturity
|
|
Hedged Liability
|
|
Notional
Amounts
|
|
|
Swap
Fixed
Interest Rates
|
|
|
Swap
Variable
Interest Rates
|
|
|
|
|
|
|
|
|
|
|
|
June
15, 2011
|
|
Subordinated
Debenture
|
|
$ |
18,000,000 |
|
|
|
5.87%
|
|
|
3
month LIBOR plus
165
basis
points
|
During
2006, the Company established 1st Constitution Capital Trust II, a Delaware
business trust and wholly- owned subsidiary of the Company (“Trust II”), for the
sole purpose of issuing $18 million of trust preferred securities (the “Trust
Preferred Securities”). The Company issued $18,557,000 in
subordinated debentures to 1st Constitution Capital Trust II. The
Company owns all of the $557,000 in common equity of the Trust and the
debentures are the sole asset of the Trust. The Company issued the Trust
Preferred Securities to fund loan growth and generate liquidity. In
conjunction with the Trust Preferred Securities issuance, the Company entered
into a $18.0 million in pay fixed swap designated as fair value hedges that was
used to convert floating rate quarterly interest payments indexed to three month
LIBOR, based on common notional amounts and maturity dates. The pay
fixed swap changed the repricing characteristics of the quarterly interest
payments from floating rate to fixed rate. The fair value of the pay
fixed swap outstanding at March 31, 2009 and December 31, 2008, was ($1,129,775)
and ($1,159,156), respectively, and was recorded in other liabilities in the
consolidated balance sheets.
(9) Shareholders’
Equity
As a
result of its participation in the Troubled Asset Relief Program (‘TARP”)
Capital Purchase Program (the “CPP”) under the Emergency Economic Stabilization
Act of 2008 (“EESA”) through the sale by the Company of its Fixed Rate
Cumulative Perpetual Preferred Stock, Series B (“Preferred Stock Series B”) to
the United States Department of the Treasury (the “Treasury”) the Company is
subject to restrictions contained in the agreement between the Treasury and the
Company related to the sale of the Preferred Stock Series B which, among other
things, restricts the repurchase of its shares of common stock or other capital
stock or other equity securities of any kind of the Company or any of its or its
affiliates’ trust preferred securities until the third anniversary of the
purchase of the Preferred Stock Series B by the Treasury, with certain
exceptions, without approval of the Treasury. See “ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Shareholders’ Equity and Dividends”.
Item
2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The
purpose of this discussion and analysis of the operating results and financial
condition at March 31, 2009 is intended to help readers analyze the accompanying
financial statements, notes and other supplemental information contained in this
document. Results of operations for the three month period ended March 31, 2009
are not necessarily indicative of results to be attained for any other
period.
This
discussion and analysis should be read in conjunction with the Consolidated
Financial Statements, notes and tables included elsewhere in this report and
Part II, Item 7 of the Company’s Form 10-K (Management’s Discussion and Analysis
of Financial Condition and Results of Operations) for the year ended December
31, 2008, as filed with the Securities and Exchange Commission (the “SEC”) on
March 27, 2009.
General
Throughout
the following sections, the “Company” refers to 1st
Constitution Bancorp and, as the context requires, its wholly-owned
subsidiaries, 1st
Constitution Bank and 1st
Constitution Capital Trust II; the “Bank” refers to 1st
Constitution Bank; “Trust II” refers to 1st
Constitution Capital Trust II. Trust II is not included in the
Company’s consolidated financial statements as it is a variable interest entity
and the Company is not the primary beneficiary.
The
Company is a bank holding company registered under the Bank Holding Company Act
of 1956, as amended. The Company was organized under the laws of the State of
New Jersey in February 1999 for the purpose of acquiring all of the issued and
outstanding stock of the Bank, a full service commercial bank which began
operations in August 1989, and thereby enabling the Bank to operate within a
bank holding company structure. The Company became an active bank holding
company on July 1, 1999. The Bank is a wholly-owned subsidiary of the Company.
Other than its ownership interest in the Bank, the Company currently conducts no
other significant business activities.
The Bank
operates eleven branches, and manages an investment portfolio through 1st
Constitution Investment Company of Delaware, Inc., its
subsidiary. FCB Assets Holdings, Inc., a subsidiary of the Bank, is
used by the Bank to manage and dispose of repossessed real estate.
Trust II,
a subsidiary of the Company, was created in May 2006 to issue trust preferred
securities to assist the Company to raise additional regulatory
capital.
Forward-Looking
Statements
This
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). The Private
Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward
looking statements. When used in this and in future filings by the
Company with the SEC, in the Company’s press releases and in oral statements
made with the approval of an authorized executive officer of the Company, the
words or phrases “will,” “will likely result,” “could,” “anticipates,”
“believes,” “continues,” “expects,” “plans,” “will continue,” “is anticipated,”
“estimated,” “project” or “outlook” or similar expressions (including
confirmations by an authorized executive officer of the Company of any such
expressions made by a third party with respect to the Company) are intended to
identify forward-looking statements. The Company wishes to caution readers not
to place undue reliance on any such forward-looking statements, each of which
speak only as of the date made. Such statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected.
Factors
that may cause actual results to differ from those results expressed or implied,
include, but are not limited to, those listed under “Business”, “Risk Factors”
and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in the Company’s Annual Report on Form 10-K filed with the SEC on
March 27, 2009, such as the overall economy and the interest rate environment;
the ability of customers to repay their obligations; the adequacy of the
allowance for loan losses; competition; significant changes in accounting, tax
or regulatory practices and requirements; certain interest rate risks; risks
associated with investments in mortgage-backed securities; and risks associated
with speculative construction lending. Although management has taken certain
steps to mitigate any negative effect of the aforementioned items, significant
unfavorable changes could severely impact the assumptions used and could have an
adverse effect on profitability. The Company undertakes no obligation to
publicly revise any forward-looking statements to reflect anticipated or
unanticipated events or circumstances occurring after the date of such
statements, except as required by law.
Recent
Developments
There
have been historical disruptions in the financial system during the past year
and many lenders and financial institutions have reduced, modified or ceased to
provide certain types of funding to borrowers, including other lending
institutions. The availability of credit and confidence in the entire
financial sector have been adversely affected and there has been increased
volatility in financial markets. These disruptions have had and are
likely to continue to have a material impact on institutions in the U.S. banking
and financial industries. The Federal Reserve System has been
providing vast amounts of liquidity into the banking systems to compensate for
weaknesses in short-term borrowing markets and other capital
markets. A reduction in the Federal Reserve’s activities or capacity
could reduce liquidity in the markets, thereby potentially increasing funding
costs to the Bank or reducing the availability of funds to the Bank to finance
its existing operations.
RESULTS
OF OPERATIONS
Three
Months Ended March 31, 2009 Compared to the Three Months Ended March 31,
2008
Summary
The
Company realized net income of $476,690 for the three months ended March 31,
2009, a decrease of 40.6% from the $802,197 reported for the three months ended
March 31, 2008. The decrease is due primarily to increases in
non-interest expenses relating to professional fees, FDIC insurance premiums and
salaries and employee benefits and to an increase in the loan loss provision for
the three months ended March 31, 2009, which resulted from a higher level of
non-performing assets as at March 31, 2009 compared to March 31,
2008. Diluted net income per common share was $0.07 for the three
months ended March 31, 2009 compared to $0.19 per diluted common share for the
three months ended March 31, 2008. All prior year share information
has been restated for the effect of a 5% stock dividend declared on December 18,
2008 and paid on February 2, 2009 to shareholders of record on January 20,
2009.
Key
performance ratios declined for the three months ended March 31, 2009 due to
lower net income for that period compared to the three months ended March 31,
2008. Return on average assets and return on average equity were
0.34% and 3.49% for the three months ended March 31, 2009 compared to 0.72% and
7.75%, respectively, for the three months ended March 31, 2008.
A
significant factor impacting the Company’s net interest income has been the
continued low level of market interest rates on loans and the resulting
compression of the Company’s net interest margin. The net interest
margin for the three months ended March 31, 2009 was 3.30% as compared to the
3.88% net interest margin recorded for the three months ended March 31, 2008, a
reduction of 58 basis points. The Federal Reserve has decreased the
discount rate by 400 basis points since January 1, 2008, which has resulted in
lower market interest rates on loans. Since the majority of the
Company’s interest earning assets earn at floating rates, these interest rate
reductions have resulted in a decreased level of interest income. The
Company will continue to closely monitor the mix of earning assets and funding
sources to maximize net interest income during this challenging interest rate
environment.
The
Company has a significant investment in federal agency-backed collateralized
mortgage obligations and trust preferred securities. The Company does
not have any investments in private issuer collateralized mortgage
obligations. At March 31, 2009, the Company held collateralized
mortgage obligations with an aggregate market value of $6,626,500 in the
available for sale portfolio. These securities had an unrealized loss
of $97,513. The Company held trust preferred securities in the
available for sale portfolio with an aggregate market value of $1,088,030 and an
unrealized loss of $1,367,354 at March 31, 2009. The Company also
held trust preferred securities in the held to maturity portfolio with a cost of
$998,358 and an unrealized loss of $889,719 at March 31,
2009. Several financial institutions have reported significant
write-downs of the value of mortgage-related and trust preferred
securities. Management has considered the severity and duration of
the unrealized losses within the Company’s collateralized mortgage obligations
and trust preferred securities portfolios, and evaluated recent events specific
to the issuers of these securities and their industries, as well as external
credit ratings and downgrades thereto. Based on these considerations and
evaluations, management does not believe that any of the Company’s
collateralized mortgage obligations or trust preferred securities are
other-than-temporarily impaired as of March 31, 2009. Certain of
these types of securities may also not be marketable except at significant
discounts. While management of the Company is, as of the date of this
report, unaware of any other-than-temporarily impairment in the Company’s
portfolio of these securities, market, entity or industry conditions could
further deteriorate and result in the recognition of future impairment losses
related to these securities.
Earnings
Analysis
Net
interest income, the Company’s largest and most significant component of
operating income, is the difference between interest and fees earned on loans
and other earning assets, and interest paid on deposits and borrowed funds. This
component represented 83.2% of the Company’s net revenues for the three-month
period ended March 31, 2009 and 83.6% of net revenues for the three-month period
ended March 31, 2008. Net interest income also depends upon the relative amount
of interest-earning assets, interest-bearing liabilities, and the interest rate
earned or paid on them.
The
following table sets forth the Company’s consolidated average balances of
assets, liabilities and shareholders’ equity as well as interest income and
expense on related items, and the Company’s average yield or rate for the three
month periods ended March 31, 2009 and 2008, respectively. The average rates are
derived by dividing interest income and expense by the average balance of assets
and liabilities, respectively.
Average
Balance Sheets with Resultant Interest and Rates
|
|
(yields
on a tax-equivalent basis)
|
|
Three months ended March 31,
2009
|
|
|
Three months ended March 31,
2008
|
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Rate
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Average
Rate
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
Funds Sold/Short-Term
Investments
|
|
$ |
1,689,465 |
|
|
$ |
8,594 |
|
|
|
2.06 |
% |
|
$ |
4,140,640 |
|
|
$ |
36,956 |
|
|
|
3.58 |
% |
Investment
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
107,599,793 |
|
|
|
1,237,655 |
|
|
|
4.66 |
% |
|
|
75,746,746 |
|
|
|
975,402 |
|
|
|
5.17 |
% |
Tax-exempt
|
|
|
13,185,747 |
|
|
|
190,262 |
|
|
|
5.85 |
% |
|
|
15,373,203 |
|
|
|
215,486 |
|
|
|
5.62 |
% |
Total
|
|
|
120,785,540 |
|
|
|
1,427,917 |
|
|
|
4.79 |
% |
|
|
91,119,949 |
|
|
|
1,190,888 |
|
|
|
5.24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
Portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
92,670,610 |
|
|
|
1,396,767 |
|
|
|
6.11 |
% |
|
|
130,639,223 |
|
|
|
2,381,892 |
|
|
|
7.31 |
% |
Residential
real estate
|
|
|
11,165,216 |
|
|
|
175,975 |
|
|
|
6.39 |
% |
|
|
10,110,283 |
|
|
|
159,309 |
|
|
|
6.32 |
% |
Home
Equity
|
|
|
15,536,040 |
|
|
|
225,505 |
|
|
|
5.89 |
% |
|
|
14,627,203 |
|
|
|
245,339 |
|
|
|
6.73 |
% |
Commercial
and commercial real estate
|
|
|
135,866,767 |
|
|
|
2,328,972 |
|
|
|
6.95 |
% |
|
|
123,704,192 |
|
|
|
2,320,399 |
|
|
|
7.52 |
% |
Mortgage
warehouse lines
|
|
|
116,887,876 |
|
|
|
1,332,358 |
|
|
|
4.62 |
% |
|
|
21,520,265 |
|
|
|
324,612 |
|
|
|
6.05 |
% |
Installment
|
|
|
825,581 |
|
|
|
16,543 |
|
|
|
8.13 |
% |
|
|
1,399,625 |
|
|
|
28,330 |
|
|
|
8.12 |
% |
All
Other Loans
|
|
|
29,059,088 |
|
|
|
563,481 |
|
|
|
7.86 |
% |
|
|
23,301,888 |
|
|
|
549,219 |
|
|
|
9.45 |
% |
Total
|
|
|
402,011,178 |
|
|
|
6,039,601 |
|
|
|
6.09 |
% |
|
|
325,302,679 |
|
|
|
6,009,100 |
|
|
|
7.49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Interest-Earning Assets
|
|
|
524,486,183 |
|
|
|
7,476,112 |
|
|
|
5.78 |
% |
|
|
420,563,268 |
|
|
|
7,236,943 |
|
|
|
6.90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for Loan Losses
|
|
|
(3,789,419 |
) |
|
|
|
|
|
|
|
|
|
|
(3,405,168 |
) |
|
|
|
|
|
|
|
|
Cash
and Due From Bank
|
|
|
29,821,054 |
|
|
|
|
|
|
|
|
|
|
|
10,094,025 |
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
21,043,796 |
|
|
|
|
|
|
|
|
|
|
|
20,330,862 |
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
571,561,614 |
|
|
|
|
|
|
|
|
|
|
$ |
447,582,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
Market and NOW Accounts
|
|
$ |
97,318,705 |
|
|
$ |
490,133 |
|
|
|
2.04 |
% |
|
$ |
86,359,683 |
|
|
$ |
504,836 |
|
|
|
2.34 |
% |
Savings
Accounts
|
|
|
105,534,945 |
|
|
|
618,651 |
|
|
|
2.38 |
% |
|
|
68,446,977 |
|
|
|
499,764 |
|
|
|
2.93 |
% |
Certificates
of Deposit
|
|
|
178,417,901 |
|
|
|
1,476,167 |
|
|
|
3.36 |
% |
|
|
132,123,368 |
|
|
|
1,533,493 |
|
|
|
4.66 |
% |
Other
Borrowed Funds
|
|
|
34,463,333 |
|
|
|
363,230 |
|
|
|
4.27 |
% |
|
|
32,736,813 |
|
|
|
376,027 |
|
|
|
4.61 |
% |
Trust
Preferred Securities
|
|
|
18,557,000 |
|
|
|
266,235 |
|
|
|
5.82 |
% |
|
|
18,557,000 |
|
|
|
249,806 |
|
|
|
5.41 |
% |
Total
Interest-Bearing Liabilities
|
|
|
434,291,884 |
|
|
|
3,214,416 |
|
|
|
3.00 |
% |
|
|
338,223,841 |
|
|
|
3,163,926 |
|
|
|
3.76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Spread
|
|
|
|
|
|
|
|
|
|
|
2.78 |
% |
|
|
|
|
|
|
|
|
|
|
3.14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
Deposits
|
|
|
76,552,970 |
|
|
|
|
|
|
|
|
|
|
|
63,097,231 |
|
|
|
|
|
|
|
|
|
Other
Liabilities
|
|
|
5,336,952 |
|
|
|
|
|
|
|
|
|
|
|
4,619,947 |
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
516,181,806 |
|
|
|
|
|
|
|
|
|
|
|
405,941,019 |
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
55,379,808 |
|
|
|
|
|
|
|
|
|
|
|
41,641,968 |
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders’
Equity
|
|
$ |
571,561,614 |
|
|
|
|
|
|
|
|
|
|
$ |
447,582,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Margin
|
|
|
|
|
|
$ |
4,261,695 |
|
|
|
3.30 |
% |
|
|
|
|
|
$ |
4,073,017 |
|
|
|
3.88 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company’s net interest income on a tax-equivalent basis increased by $188,678,
or 4.6%, to $4,261,695 for the three months ended March 31, 2009 from the
$4,073,017 reported for the three months ended March 31, 2008. The increase in
net interest income was attributable to increased average balances of earning
assets exceeding the increase in average interest bearing
liabilities.
Average
interest earning assets increased by $103,922,915, or 24.7%, to $524,486,183 for
the quarter ended March 31, 2009 from $420,563,268 for the quarter ended March
31, 2008, with an increase of $76,708,499 in average total loans and an increase
of $29,665,591 in average total securities in the three months ended March 31,
2009 when compared to the three months ended March 31, 2008.
The
average loan portfolio grew by 23.6% for the first quarter of 2009 when compared
to the average loan portfolio for the first quarter of 2008. The yield on loans
averaged 6.09% for the first quarter of 2009, decreasing 140 basis points
compared to the 7.49% yield on loans for the first quarter of 2008. The average
securities portfolio increased by 32.6% and the yield on that portfolio
decreased by 45 basis points for the quarter ended March 31, 2009 when compared
to the quarter ended March 31, 2008. Overall, the yield on interest earning
assets decreased 112 basis points to 5.78% for the quarter ended March 31, 2009
when compared to 6.90% for the quarter ended March 31, 2008.
Average
interest bearing liabilities increased by $96,068,043, or 28.4%, to $434,291,884
for the quarter ended March 31, 2009 from $338,223,841 for the quarter ended
March 31, 2008. Certificates of deposit increased on average by $46,294,533, or
35.0%, for the three months ended March 31, 2009 when compared to the three
months ended March 31, 2008. The cost of certificates of deposit decreased 130
basis points to 3.36% for the first quarter of 2009 compared to 4.66% for the
first quarter of 2008. Overall, the cost of total interest bearing liabilities
decreased 76 basis points to 3.00% for the three months ended March 31, 2009
compared to 3.76% for the three months ended March 31, 2008.
The net
interest margin (on a tax-equivalent basis), which is net interest income
divided by average interest earning assets, was 3.30% for the first three months
of 2009 compared to 3.88% for the first three months of 2008.
Non-Interest
Income
Total
non-interest income for the three months ended March 31, 2009 was $847,052, an
increase of $60,675, or 7.7%, over non-interest income of $786,377 for the three
months ended March 31, 2008.
Service
charges on deposit accounts represents a significant source of non-interest
income. Service charge revenues increased by $52,631, or 28.3%, to $238,519 for
the three months ended March 31, 2009 from the $185,888 for the three months
ended March 31, 2008. This increase was the result of a higher volume of
uncollected funds and overdraft fees collected on deposit accounts during the
first quarter of 2009 compared to the first quarter of 2008.
Gain on
sales of loans decreased by $37,851, or 12.2%, to $272,193 for the three months
ended March 31, 2009 when compared to $310,044 for the three months ended March
31, 2008. The Bank sells both residential mortgage loans and SBA
loans in the secondary market. Although the volume of loan sales has
increased during the first quarter of 2009 compared to the first quarter of
2008, the margin earned as a result of these sales in the first quarter of 2009
has decreased from that of the first quarter of 2008 due to the lower level of
interest rates in the first quarter of 2009. The lower interest rate
environment that continued from 2008 into the first quarter of 2009 has
significantly decreased the volume of sales transactions in the SBA loan markets
and resultant gains resulting from these transactions.
Non-interest
income also includes income from bank-owned life insurance (“BOLI”), which
amounted to $91,022 for the three months ended March 31, 2009 compared to
$91,827 for the three months ended March 31, 2008. The Bank purchased tax-free
BOLI assets to partially offset the cost of employee benefit plans and reduced
the Company’s overall effective tax rate.
The Bank
also generates non-interest income from a variety of fee-based services. These
include safe deposit box rental, wire transfer service fees and Automated Teller
Machine fees for non-Bank customers. Increased customer demand for these
services contributed to the other income component of non-interest income
amounting to $245,318 for the three months ended March 31, 2009, compared to
$198,618 for the three months ended March 31, 2008.
Non-Interest
Expense
Non-interest
expenses increased by $606,263, or 17.8%, to $4,020,613 for the three months
ended March 31, 2009 from $3,414,350 for the three months ended March 31, 2008.
The following table presents the major components of non-interest expenses for
the three months ended March 31, 2009 and 2008.
Non-interest
Expenses
|
|
|
|
|
|
|
|
|
Three
months ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Salaries
and employee benefits
|
|
$ |
2,227,329 |
|
|
$ |
1,978,061 |
|
Occupancy
expenses
|
|
|
452,665 |
|
|
|
432,015 |
|
Equipment
expense
|
|
|
155,079 |
|
|
|
137,791 |
|
Marketing
|
|
|
39,441 |
|
|
|
66,329 |
|
Data
processing services
|
|
|
259,683 |
|
|
|
211,781 |
|
Regulatory,
professional and other fees
|
|
|
379,815 |
|
|
|
171,718 |
|
Office
expense
|
|
|
128,037 |
|
|
|
141,171 |
|
All
other expenses
|
|
|
378,564 |
|
|
|
275,484 |
|
|
|
$ |
4,020,613 |
|
|
$ |
3,414,350 |
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits, which represent the largest portion of non-interest
expenses, increased by $249,268, or 12.6%, to $2,227,329 for the three months
ended March 31, 2009 compared to $1,978,061 for the three months ended March 31,
2008. The increase in salaries and employee benefits for the three months ended
March 31, 2009 was a result of an increase in the number of employees, regular
merit increases and increased health care costs. Staffing levels overall
increased to 113 full-time equivalent employees at March 31, 2009 as compared to
105 full-time equivalent employees at March 31, 2008.
Regulatory,
professional and other fees increased by $208,097, or 121.2%, to $379,815 for
the three months ended March 31, 2009 compared to $171,718 for the three months
ended March 31, 2008. During the first quarter of 2009, the Company
incurred additional legal fees primarily in connection with the recovery of
non-performing asset balances. The Bank incurred additional fees in
connection with examinations performed by independent consultants during the
first quarter of 2009 to assess the effectiveness of internal controls as
required by the Sarbanes-Oxley Act. In addition, the cost of FDIC
deposit insurance has increased from $25,026 for the three months ended March
31, 2008 to $99,758 for the three months ended March 31, 2009.
Data
processing services increased by $47,902, or 22.6%, to $259,683 for the three
months ended March 31, 2009 compared to $211,781 for the three months ended
March 31, 2008. The increase in expense was primarily attributable to
increased costs in enhancing the Bank’s data security systems.
All other
expenses increased by $103,080, or 37.4%, to $378,564 for the three months ended
March 31, 2009 compared to $275,484 for the three months ended March 31,
2008. The primary cause for the current year increase was due to the
costs incurred to maintain the Bank’s other real estate owned
properties. Other Real Estate owned expenses increased by $51,952 to
$55,368 to for the three months ended March 31, 2009 compared to $3,416 for the
three months ended March 31, 2008. All other expenses are comprised
of a variety of operating expenses and fees as well as expenses associated with
lending activities.
An
important financial services industry productivity measure is the efficiency
ratio. The efficiency ratio is calculated by dividing total operating expenses
by net interest income plus non-interest income. An increase in the efficiency
ratio indicates that more resources are being utilized to generate the same or
greater volume of income, while a decrease would indicate a more efficient
allocation of resources. The Company’s efficiency ratio increased to
79.7% for the three months ended March 31, 2009, compared to 71.3% for the three
months ended March 31, 2008. The increase in the efficiency ratio is
due to the above-noted increases in non-interest expenses and reduced net
interest income.
Income
Taxes
Income
tax expense decreased by $321,222 to $86,738 for the three months ended March
31, 2009 from $407,960 for the three months ended March 31, 2008. The
decrease was primarily due to a lower 2009 level of pretax
income. The decrease in the effective tax rate of 15.4% for the three
months ended March 31, 2009 as compared to 33.7% for the three months ended
March 31, 2008 can be attributed to a higher proportion of earnings from
tax-exempt assets, such as bank-owned life insurance and obligations of states
and political subdivisions during the 2009 period compared to the 2008
period.
Financial
Condition
March
31, 2009 Compared with December 31, 2008
Total
consolidated assets at March 31, 2009 were $586,943,854, representing an
increase of $40,657,325, or 7.44%, from $546,286,529 at December 31,
2008. The asset growth was focused in our loan portfolio, which
increased by $32,263,567. The primary funding for asset growth came
from deposits, which increased by $59,962,694.
Cash
and Cash Equivalents
Cash and
cash equivalents at March 31, 2009
totaled $25,754,522 compared to $14,333,119 at December 31, 2008. Cash and cash
equivalents at March 31, 2009 consisted of cash and due from banks of
$25,743,339 and Federal funds sold/short term investments of $11,363. The
corresponding balances at December 31, 2008 were $14,321,777 and $11,342,
respectively. The increase was due primarily to timing of cash flows
related to the Bank’s business activities.
Investment
Securities
Investment
securities represented 20.3% of total assets at March 31, 2009 and 23.8% at
December 31, 2008. Total investment securities decreased $10,778,788, or 8.3%,
to $119,248,812 at March 31, 2009 from $130,027,600 at December 31,
2008. Due to the continued low level of market interest rates during
the first three months of 2009, combined with strong loan and deposit growth,
funds were used primarily to fund loan portfolio growth and secondarily to
purchase investment securities at a reduced net interest spread.
Securities
available for sale are investments that may be sold in response to changing
market and interest rate conditions or for other business
purposes. Securities available for sale consist primarily of U.S.
Government and Federal agency securities and mortgage-backed securities, with
smaller amounts of municipal obligations, corporate debt and restricted
stock. Activity in this portfolio is undertaken primarily to manage
liquidity and interest rate risk and to take advantage of market conditions that
create more economically attractive returns. At March 31, 2009,
securities available for sale totaled $82,117,870, which is a decrease of
$11,359,153 or 12.2%, from securities available for sale totaling $93,477,023 at
December 31, 2008.
At March
31, 2009, the securities available for sale portfolio had net unrealized gains
of $1,244,738, compared to net unrealized gains of $926,166 at December 31,
2008. These unrealized gains are reflected net of tax in
shareholders’ equity as a component of Accumulated other comprehensive
loss.
Securities
held to maturity, which are carried at amortized historical cost, are
investments for which there is the positive intent and ability to hold to
maturity. The held to maturity portfolio consists primarily of U.S. Government
and Federal agency securities, mortgage-backed securities and obligations of
states and political subdivisions, with a smaller amount of corporate debt
obligations. At March 31, 2009, securities held to maturity were
$37,130,942, an increase of $580,365, or 1.6%, from $36,550,577 at December 31,
2008. The fair value of the held to maturity portfolio at March 31,
2009 was $36,565,268, resulting in an unrealized loss of $565,674.
During
the three months ended March 31, 2009, the Company purchased securities in the
amounts of $4,424,641 and $1,619,834 for the available for sale portfolio and
held to maturity portfolio, respectively. During this same period,
$17,122,397 in proceeds from maturities and repayments were
received.
Loans
The loan
portfolio, which represents the Company’s largest asset, is a significant source
of both interest and fee income. Elements of the loan portfolio are subject to
differing levels of credit and interest rate risk. The Company’s primary lending
focus continues to be construction loans, commercial loans, owner-occupied
commercial mortgage loans and tenanted commercial real estate
loans.
The
following table sets forth the classification of loans by major category at
March 31, 2009 and December 31, 2008.
Loan
Portfolio Composition
|
|
March
31, 2009
|
|
December
31, 2008
|
Component
|
|
Amount
|
|
|
%
of
total
|
|
Amount
|
|
|
%
of
total
|
Construction
loans
|
|
$ |
92,301,125
|
|
|
23%
|
|
$ |
94,163,997
|
|
|
25%
|
Residential
real estate loans
|
|
|
11,354,653
|
|
|
3%
|
|
|
11,078,402
|
|
|
3%
|
Commercial
business
|
|
|
57,100,133
|
|
|
14%
|
|
|
57,528,879
|
|
|
15%
|
Commercial
real estate
|
|
|
91,822,341
|
|
|
22%
|
|
|
90,904,418
|
|
|
24%
|
Mortgage
warehouse lines
|
|
|
139,955,750
|
|
|
34%
|
|
|
106,000,231
|
|
|
28%
|
Loans
to individuals
|
|
|
16,175,921
|
|
|
4%
|
|
|
16,797,194
|
|
|
5%
|
Deferred
loan fees and costs
|
|
|
681,292
|
|
|
0%
|
|
|
647,673
|
|
|
0%
|
All
other loans
|
|
|
220,768
|
|
|
0%
|
|
|
227,622
|
|
|
0%
|
|
|
$ |
409,611,983
|
|
|
100%
|
|
$ |
377,348,416
|
|
|
100%
|
The loan
portfolio increased by $32,263,567, or 8.6%, to $409,611,983 at March 31, 2009,
compared to $377,348,416 at December 31, 2008. The construction loan
portfolio decreased by $1,862,872, or 2.0%, to $92,301,125 at March 31, 2009
compared to $94,163,997 at December 31, 2008. This current period
decrease is a direct result of the current uncertain New Jersey economic
conditions and management’s actions to allow the higher risk construction loan
portfolio to run off while simultaneously focusing efforts to building the
balance of the lesser risk mortgage warehouse lines. In January 2008,
the Bank’s Mortgage Warehouse Funding Group introduced a revolving line of
credit that is available to licensed mortgage banking companies (the “Warehouse
Line of Credit”) and that has been successful from inception. The
Warehouse Line of Credit is used by the mortgage banker to originate one-to-four
family residential mortgage loans that are pre-sold to the secondary mortgage
market, which includes state and national banks, national mortgage banking
firms, insurance companies and government-sponsored enterprises, including the
Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage
Corporation (“FHLMC”) and others. On average, an advance under the
Warehouse Line of Credit remains outstanding for a period of less than 30 days,
with repayment coming directly from the sale of the loan into the secondary
mortgage market. Interest (the spread between our borrowing cost and
the rate charged to the client) and a transaction fee are collected by the Bank
at the time of repayment. Additionally, customers of the Warehouse
Lines of Credit are required to maintain deposit relationships with the Bank
that, on average, represent 10% to 15% of the loan balances. The Bank
had $139,955,750 and $106,000,231 in outstanding Warehouse Line of Credit
advances at March 31, 2009 and December 31, 2008, respectively.
The
ability of the Company to enter into larger loan relationships and management’s
philosophy of relationship banking are key factors in the Company’s strategy for
loan growth. The ultimate collectability of the loan portfolio and
recovery of the carrying amount of real estate are subject to changes in the
Company’s market region’s economic environment and real estate
market.
Non-Performing
Assets
Non-performing
assets consist of non-performing loans and other real estate owned.
Non-performing loans are composed of (1) loans on a non-accrual basis, (2) loans
which are contractually past due 90 days or more as to interest and principal
payments but have not been classified as non-accrual, and (3) loans whose terms
have been restructured to provide a reduction or deferral of interest on
principal because of a deterioration in the financial position of the
borrower.
The
Bank’s policy with regard to non-accrual loans is that generally, loans are
placed on a non-accrual status when they are 90 days past due, unless these
loans are well secured and in the process of collection or, regardless of the
past due status of the loan, when management determines that the complete
recovery of principal or interest is in doubt. Consumer loans are
generally charged off after they become 120 days past due. Subsequent
payments on loans in non-accrual status are credited to income only if
collection of principal is not in doubt.
Non-performing
loans increased by $1,500,157 to $4,851,934 at March 31, 2009 from $3,351,777 at
December 31, 2008, as the disruptions in the financial system and the real
estate market during the past year have negatively affected certain of the
Bank’s construction borrowers. The major segments of non-accrual
loans consist of land designated for residential development where the required
approvals to begin construction have been received, commercial loans which are
in the process of collection and residential real estate which is either in
foreclosure or under contract to close after March 31, 2009. The
table below sets forth non-performing assets and risk elements in the Bank’s
portfolio for the periods indicated. As the table demonstrates,
non-performing loans to total loans increased to 1.18% at March 31, 2009 from
0.89% at December 31, 2008. Loan quality is still considered to be
sound. This was accomplished through quality loan underwriting, a proactive
approach to loan monitoring and aggressive workout strategies.
|
|
|
|
|
|
|
Non-Performing
Assets and Loans
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
Non-Performing
loans:
|
|
|
|
|
|
|
Loans
90 days or more past due and still accruing
|
|
$ |
0 |
|
|
$ |
0 |
|
Non-accrual
loans
|
|
|
4,851,934 |
|
|
|
3,351,777 |
|
Total
non-performing loans
|
|
|
4,851,934 |
|
|
|
3,351,777 |
|
Other
real estate owned
|
|
|
4,326,211 |
|
|
|
4,296,536 |
|
Total
non-performing assets
|
|
$ |
9,178,145 |
|
|
$ |
7,648,313 |
|
|
|
|
|
|
|
|
|
|
Non-performing
loans to total loans
|
|
|
1.18% |
|
|
|
0.89% |
|
Non-performing
assets to total assets
|
|
|
1.56% |
|
|
|
1.40% |
|
Non-performing
assets increased by $1,529,832 to $9,178,145 at March 31, 2009 from $7,648,313
at December 31, 2008. During the twelve months ended December 31,
2008, the Bank took possession of five residential properties totaling
$1,389,181 after aggregate loan charge-offs of $53,946. During the
first three months of 2009, the Bank acquired other real estate of $1,031,527 in
full satisfaction of a loan in foreclosure. During the twelve months
ended December 31, 2008 and the first three months of 2009, management was
successful in selling a number of these real estate owned properties without
incurring any losses. The balance of the net increase of $29,675 to
“other real estate owned” is the result of the Company continuing to complete an
18-unit condominium project for which it has, as of March 31, 2009, commitments
from individual buyers to purchase. Non-performing assets represented
1.56% of total assets at March 31, 2009 and 1.40% at December 31,
2008.
The Bank
had no loans classified as restructured loans at March 31, 2009 or December 31,
2008.
Management
takes a proactive approach in addressing delinquent loans. The Company’s
President meets weekly with all loan officers to review the status of credits
past-due ten days or more. An action plan is discussed for each of the loans to
determine the steps necessary to induce the borrower to cure the delinquency and
restore the loan to a current status. Also, delinquency notices are system
generated when loans are five days past-due and again at 15 days
past-due.
In most
cases, the Company’s collateral is real estate and when the collateral is
foreclosed upon, the real estate is carried at the lower of fair market value
less the estimated selling costs or the initially recorded amount. The amount,
if any, by which the recorded amount of the loan exceeds the fair market value
of the collateral is a loss which is charged to the allowance for loan losses at
the time of foreclosure or repossession. Resolution of a past-due loan can be
delayed if the borrower files a bankruptcy petition because collection action
cannot be continued unless the Company first obtains relief from the automatic
stay provided by the bankruptcy code.
Allowance
for Loan Losses and Related Provision
The
allowance for loan losses is maintained at a level sufficient to absorb
estimated credit losses in the loan portfolio as of the date of the financial
statements. The allowance for loan losses is a valuation reserve
available for losses incurred or inherent in the loan portfolio and other
extensions of credit. The determination of the adequacy of the
allowance for loan losses is a critical accounting policy of the
Company.
The
Company’s primary lending emphasis is the origination of commercial and
commercial real estate loans. Based on the composition of the loan
portfolio, the primary risks inherent in it are deteriorating credit quality, a
decline in the economy, and a decline in New Jersey real estate market
values. Any one or a combination of these events may adversely affect
the loan portfolio and may result in increased delinquencies, loan losses and
increased future provision levels.
All, or
part, of the principal balance of commercial and commercial real estate loans,
and construction loans are charged off to the allowance as soon as it is
determined that the repayment of all, or part, of the principal balance is
highly unlikely. Consumer loans are generally charged off no later
than 120 days past due on a contractual basis, earlier in the event of
bankruptcy, or if there is an amount deemed uncollectible. Because all
identified losses are immediately charged off, no portion of the allowance for
loan losses is restricted to any individual loan or groups of loans, and the
entire allowance is available to absorb any and all loan losses.
Management
reviews the adequacy of the allowance on at least a quarterly basis to ensure
that the provision for loan losses has been charged against earnings in an
amount necessary to maintain the allowance at a level that is adequate based on
management’s assessment of probable estimated losses. The Company’s
methodology for assessing the adequacy of the allowance for loan losses consists
of several key elements. These elements may include a specific
reserve for doubtful or high risk loans, an allocated reserve, and an
unallocated portion.
The
Company consistently applies the following comprehensive
methodology. During the quarterly review of the allowance for loan
losses, the Company considers a variety of factors that include:
·
|
General
economic conditions.
|
·
|
Trends
and levels of delinquent loans.
|
·
|
Trends
and levels of non-performing loans, including loans over 90 days
delinquent.
|
·
|
Trends
in volume and terms of loans.
|
·
|
Levels
of allowance for specific classified
loans.
|
The
specific reserve for high risk loans is established for specific commercial
loans, commercial real estate loans, and construction loans which have been
identified by management as being high risk or impaired loans. A high
risk or impaired loan is assigned a doubtful risk rating grade because the loan
has not performed according to payment terms and there is reason to believe that
repayment of the loan principal in whole, or in part, is
unlikely. The specific portion of the allowance is the total amount
of potential unconfirmed losses for such individual doubtful
loans. To assist in determining the fair value of loan collateral,
the Company often utilizes independent third party qualified appraisal firms
which, in turn, employ their own criteria and assumptions that may include
occupancy rates, rental rates, and property expenses, among others.
The
second category of reserves consists of the allocated portion of the
allowance. The allocated portion of the allowance is determined by
taking pools of loans outstanding that have similar characteristics and applying
historical loss experience for each pool. This estimate represents
the potential unconfirmed losses within the portfolio. Individual loan pools are
created for commercial and commercial real estate loans, construction loans, and
the various types of loans to individuals. The historical estimation
for each loan pool is then adjusted to account for current conditions, current
loan portfolio performance, loan policy or management changes, or any other
factor which may cause future losses to deviate from historical
levels.
During
the quarterly reviews, the Company may determine that an unallocated allowance
is appropriate. The unallocated allowance is used to cover any
factors or conditions which may cause a potential loan loss but are not
specifically identifiable. It is prudent to maintain an unallocated
portion of the allowance because no matter how detailed an analysis of potential
loan losses is performed, these estimates inherently lack
precision. Management must make estimates using assumptions and
information which is often subjective and changing rapidly. At March
31, 2009, management believed that the allowance for loan losses was
adequate.
While
management uses the best information available to make such evaluations, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank’s allowance for
loan losses. Such agencies may require the Bank to recognize
additions to the allowance based on their judgments of information available to
them at the time of their examination.
The
following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data.
Allowance
for Loan Losses
|
|
Three
Months
Ended
March
31,
2009
|
|
|
Year
Ended
December
31,
2008
|
|
|
Three
Months
Ended
March
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
$ |
3,684,764 |
|
|
$ |
3,348,080 |
|
|
$ |
3,348,080 |
|
Provision
charged to operating expenses
|
|
|
463,000 |
|
|
|
640,000 |
|
|
|
165,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
loans
|
|
|
- |
|
|
|
(53,946 |
) |
|
|
- |
|
Residential
real estate loans
|
|
|
- |
|
|
|
(31,865 |
) |
|
|
- |
|
Commercial
and commercial real estate
|
|
|
(17,500 |
) |
|
|
(220,565 |
) |
|
|
- |
|
Loans
to individuals
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Lease
financing
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
All
other loans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
(17,500 |
) |
|
|
(306,376 |
) |
|
|
0 |
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
loans
|
|
|
- |
|
|
|
0 |
|
|
|
0 |
|
Residential
real estate loans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
and commercial real estate
|
|
|
- |
|
|
|
3,060 |
|
|
|
- |
|
Loans
to individuals
|
|
|
- |
|
|
|
- |
|
|
|
0 |
|
Lease
financing
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
All
other loans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
3,060 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(charge offs) / recoveries
|
|
|
(17,500 |
) |
|
|
(303,316 |
) |
|
|
0 |
|
Balance,
end of period
|
|
$ |
4,130,264 |
|
|
$ |
3,684,764 |
|
|
$ |
3,513,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
At
period end
|
|
$ |
409,611,983 |
|
|
$ |
377,348,416 |
|
|
$ |
344,583,370 |
|
Average
during the period
|
|
|
388,118,429 |
|
|
|
340,666,744 |
|
|
|
313,292,168 |
|
Net
annualized charge offs to average loans outstanding
|
|
|
(0.00% |
) |
|
|
(0.09% |
) |
|
|
(0.00% |
) |
Allowance
for loan losses to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans at period end
|
|
|
1.01% |
|
|
|
0.98% |
|
|
|
1.02% |
|
Non-performing
loans
|
|
|
85.13% |
|
|
|
109.93% |
|
|
|
107.46% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
considers a complete review of the following specific factors in determining the
provisions for loan losses: historical losses by loan category, non-accrual
loans, problem loans as identified through internal classifications, collateral
values, and the growth and size of the loan portfolio. In addition to
these factors, management takes into consideration current economic conditions
and local real estate market conditions. Using this evaluation
process, the Company’s provision for loan losses was $463,000 for the three
months ended March 31, 2009 and $165,000 for the three months ended March 31,
2008. While the risk profile of the loan portfolio was reduced by a
change in its composition via a $1,862,872 reduction in higher risk construction
loans and a $33,955,519 increase in lower risk mortgage warehouse lines, the
total loan portfolio grew by 8.6% from December 31, 2008 to March 31, 2009 and
necessitated the increased provision to account for the inherent risk in the
portfolio as a result of this growth. Also, management replenished
the reserves to compensate for the current period net charge-offs as well as to
take into consideration that the real estate market conditions remained
weak. Net charge-offs/recoveries amounted to a net charge-off of
$17,500 for the three months ended March 31, 2009.
At March
31, 2009, the allowance for loan losses was $4,130,264 compared to $3,684,764 at
December 31, 2008, an increase of $445,500, or 12.1%. The ratio of
the allowance for loan losses to total loans at March 31, 2009 and December 31,
2008 was 1.01% and 0.98%, respectively. The allowance for loan losses
as a percentage of non-performing loans was 85.13% at March 31, 2009, compared
to 109.93% at December 31, 2008. Management believes the quality of the loan
portfolio remains sound and that the allowance for loan losses is adequate in
relation to credit risk exposure levels.
Deposits
Deposits,
which include demand deposits (interest bearing and non-interest bearing),
savings deposits and time deposits, are a fundamental and cost-effective source
of funding. The Company offers a variety of products designed to
attract and retain customers, with the Company’s primary focus being on building
and expanding long-term relationships.
At March
31, 2009, total deposits were $474,647,425, an increase of $59,962,694, or 14.5%
from $414,684,731 at December 31, 2008. The primary cause for this
increase was the successful introduction of the Bank’s internet bank,
1STConstitutionDirect.com, which opened in late
2008. 1STConstitutionDirect.com offers competitive rates on savings
accounts and continues to facilitate growth in new accounts and
deposit balances.
Savings
accounts increased by $45,251,780, or 54.3%, to $128,662,185 at March 31, 2009
compared to $83,410,405 at December 31, 2008. The accounts of
1STConstitutionDirect.com are included in this component of total deposits and
increased to $43,701,590 at March 31, 2009 from $19,063,938 at December 31,
2008.
Interest
bearing demand deposits increased by $9,262,266, or 11.2%, to $92,104,679 at
March 31, 2009, compared to $82,842,413 at December 31, 2008, as the Bank
continued to require customers of the Mortgage Warehouse Line of Credit to
maintain deposit relationships with the Bank that, on average, represent 10% to
15% of the respective loan balances.
The
following table summarizes deposits at March 31, 2009 and December 31,
2008.
|
|
March
31,
2009
|
|
|
December
31,
2008
|
|
Demand
|
|
|
|
|
|
|
Non-interest
bearing
|
|
$ |
73,741,909 |
|
|
$ |
71,772,486 |
|
Interest
bearing
|
|
|
92,104,679 |
|
|
|
82,842,413 |
|
Savings
|
|
|
128,662,185 |
|
|
|
83,410,405 |
|
Time
|
|
|
180,138,652 |
|
|
|
176,659,427 |
|
|
|
$ |
474,647,425 |
|
|
$ |
414,684,731 |
|
Borrowings
Borrowings
are mainly comprised of Federal Home Loan Bank (“FHLB”) borrowings and overnight
funds purchased. These borrowings are primarily used to fund asset
growth not supported by deposit generation. The balance of other
borrowings was $30,500,000 at March 31, 2009, consisting of long-term FHLB
borrowings of $30,500,000. The balance of other borrowings at
December 31, 2008 was $51,500,000 and consisted of FHLB borrowings of
$30,500,000 and overnight funds purchased of
$21,000,000.
The Bank
has five ten-year fixed rate convertible advances from the FHLB that total
$30,500,000 in the aggregate. These advances, in the amounts of
$3,000,000, $2,500,000, $5,000,000, $5,000,000 and $10,000,000 bear interest at
the rates of 5.82%, 5.50%, 5.34%, 5.06%, and 4.08%, respectively. The
Bank has one two-year advance in the amount of $5,000,000 that bears interest at
a 3.833% rate. These advances may be called by the FHLB quarterly at
the option of the FHLB if rates rise and the rate earned by the FHLB is no
longer a “market” rate. These advances are fully secured by
marketable securities.
Shareholders’
Equity and Dividends
Shareholders’
equity increased by $567,248, or 1.0%, to $56,186,900 at March 31, 2009, from
$55,619,652 at December 31, 2008. Book value per common share
increased by $0.07, or 0.07%, to $10.61 at March 31, 2009 from $10.54 at
December 31, 2008. The ratio of shareholders’ equity to total assets
was 9.57% and 10.18% at March 31, 2009 and December 31, 2008,
respectively. The increase in shareholders’ equity was primarily the
result of net income of $476,690 and $257,869 in other comprehensive income,
partially offset by, among other items, the $161,866 in dividends accrued on the
Company’s Preferred Stock Series B.
On
December 23, 2008, pursuant to the TARP CPP under the EESA (each as defined and
described under the heading “Recent Legislation and Other Regulatory
Initiatives” below), the Company entered into a Letter Agreement, including the
Securities Purchase Agreement – Standard Terms, with the Treasury pursuant to
which the Company issued and sold, and the Treasury purchased (i) 12,000 shares
of the Company’s Preferred Stock Series B and (ii) a ten-year warrant to
purchase up to 200,222 shares of the Company’s common stock, no par value, at an
initial exercise price of $8.99 per share, for aggregate cash consideration of
$12,000,000. As a result of the 5% stock dividend paid on February 2,
2009 to holders of record as of the close of business on January 20, 2009, the
shares of common stock initially underlying the warrant were adjusted to 210,233
shares and the initial exercise price was adjusted to $8.562 per
share.
The
Preferred Stock Series B pays quarterly cumulative dividends at a rate of 5% per
year for the first five years and thereafter at a rate of 9% per year and has a
liquidation preference of $1,000 per share. The warrant provides for the
adjustment of the exercise price and the number of shares of the Company’s
common stock issuable upon exercise pursuant to customary anti-dilution
provisions, such as upon stock splits or distributions of securities or other
assets to holders of the Company’s common stock, and upon certain issuances of
the Company’s common stock at or below a specified price relative to the initial
exercise price. The warrant is immediately exercisable and expires 10
years from the issuance date. If, on or prior to December 31, 2009, the Company
receives aggregate gross cash proceeds of not less than $12,000,000 from
qualified equity offerings announced after October 13, 2008, the number of
shares of common stock issuable pursuant to the Treasury’s exercise of the
warrant will be reduced by one-half of the original number of shares. In
addition, the Treasury has agreed not to exercise voting power with respect to
any shares of common stock issued upon exercise of the warrant.
The
Company is subject to restrictions contained in the agreement between the
Treasury and the Company related to the sale of the Preferred Stock Series B
which among other things restricts the payment of cash dividends or making other
distributions by the Company on its common stock or the repurchase of its shares
of common stock or other capital stock or other equity securities of any kind of
the Company or any of its or its affiliates’ trust preferred securities until
the third anniversary of the purchase of the Preferred Stock Series B by the
Treasury with certain exceptions without approval of the Treasury and the
Company is prohibited by the terms of the Preferred Stock Series B from paying
dividends on the common stock of the Company or redeeming or otherwise acquiring
its common stock or certain other of its equity securities unless all dividends
on the Preferred Stock Series B have been declared and either paid in full or
set aside with certain limited exceptions.
In
addition, EESA and guidance issued by the Treasury limit executive compensation
and require the reporting of information to the Treasury and others and limit
the deductibility for Federal income tax purposes of compensation paid to
certain executives in excess of $500,000 per year and the payment of certain
severance and change in control payments to certain
executives. The Stimulus Package Act contains further limitations on
the payment of compensation to certain executives of the Company or the Bank,
the claw back of certain compensation paid to certain executives of the Company
or the Bank and imposes new corporate governance requirements on the Company,
including the inclusion of a non-binding “say to pay” proposal in the Company’s
annual proxy statement.
The Board
of Governors of the Federal Reserve System has issued a supervisory letter to
bank holding companies that contains guidance on when the board of directors of
a bank holding company should eliminate or defer or severely limit
dividends including for example when net income available for shareholders for
the past four quarters net of previously paid dividends paid during that period
is not sufficient to fully fund the dividends. The letter also contains guidance
on the redemption of stock by bank holding companies which urges bank holding
companies to advise the Federal Reserve of any such redemption or repurchase of
common stock for cash or other value which results in the net reduction of a
bank holding company’s capital at the beginning of the quarter below the capital
outstanding at the end of the quarter.
In lieu
of cash dividends, the Company (and its predecessor the Bank) has declared a
stock dividend every year since 1992 and has paid such dividends every year
since 1993. A 5% stock dividend was declared in 2008 and paid in
2009. A 6% stock dividend was declared in 2007 and paid in
2008.
The
Company’s common stock is quoted on the Nasdaq Global Market under the symbol
“FCCY”.
In 2005,
the Board of Directors authorized a common stock repurchase program that allows
for the repurchase of a limited number of the Company’s shares at management’s
discretion on the open market. The Company undertook this repurchase program in
order to increase shareholder value. A table disclosing repurchases of Company
shares made during the quarter ended March 31, 2009 is set forth under Part II,
Item 2 of this report, Unregistered Sales of Equity
Securities and Use of Proceeds.
Actual
capital amounts and ratios for the Company and the Bank as of March 31, 2009 and
December 31, 2008 are as follows:
|
Actual
|
|
For
Capital
Adequacy
Purposes
|
To
Be Well Capitalized
Under
Prompt
Corrective
Action
Provision
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
Amount
|
|
Ratio
|
As
of March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
Total
Capital to Risk Weighted Assets
|
|
$ |
76,829,194 |
|
|
16.65%
|
|
|
$ |
36,910,800 |
|
>8%
|
|
|
N/A |
|
N/A
|
Tier
1 Capital to Risk Weighted Assets
|
|
|
72,698,930 |
|
|
15.76%
|
|
|
|
18,455,400 |
|
>4%
|
|
|
N/A |
|
N/A
|
Tier
1 Capital to Average Assets
|
|
|
72,698,930 |
|
|
12.73%
|
|
|
|
22,835,508 |
|
>4%
|
|
|
N/A |
|
N/A
|
Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital to Risk Weighted Assets
|
|
$ |
75,553,296 |
|
|
16.38%
|
|
|
$ |
36,892,800 |
|
>8%
|
|
$ |
46,116,000 |
|
>10%
|
Tier
1 Capital to Risk Weighted Assets
|
|
|
71,423,032 |
|
|
15.49%
|
|
|
|
18,446,400 |
|
>4%
|
|
|
27,669,600 |
|
>6%
|
Tier
1 Capital to Average Assets
|
|
|
71,423,032 |
|
|
12.54%
|
|
|
|
22,791,404 |
|
>4%
|
|
|
28,489,255 |
|
>5%
|
As
of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital to Risk Weighted Assets
|
|
$ |
76,475,124 |
|
|
17.90%
|
|
|
$ |
34,184,717 |
|
>8%
|
|
$ |
42,730,897 |
|
>10%
|
Tier
1 Capital to Risk Weighted Assets
|
|
|
72,790,360 |
|
|
17.03%
|
|
|
|
17,092,359 |
|
>4%
|
|
|
25,638,538 |
|
>6%
|
Tier
1 Capital to Average Assets
|
|
|
72,790,360 |
|
|
14.05%
|
|
|
|
20,715,932 |
|
>4%
|
|
|
25,894,916 |
|
>5%
|
Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital to Risk Weighted Assets
|
|
$ |
75,316,536 |
|
|
17.67%
|
|
|
$ |
34,096,080 |
|
>8%
|
|
$ |
42,620,100 |
|
>10%
|
Tier
1 Capital to Risk Weighted Assets
|
|
|
71,631,772 |
|
|
16.81%
|
|
|
|
17,048,040 |
|
>4%
|
|
|
25,572,060 |
|
>6%
|
Tier
1 Capital to Average Assets
|
|
|
71,631,772 |
|
|
13.88%
|
|
|
|
20,636,440 |
|
>4%
|
|
|
25,795,550 |
|
>5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
minimum regulatory capital requirements for financial institutions require
institutions to have a Tier 1 capital to average assets ratio of 4.0%, a Tier 1
capital to risk weighted assets ratio of 4.0% and a total capital to risk
weighted assets ratio of 8.0%. To be considered “well capitalized,”
an institution must have a minimum Tier 1 leverage ratio of 5.0%. At
March 31, 2009, the ratios of the Company exceeded the ratios required to be
considered well capitalized. It is management’s goal to monitor and maintain
adequate capital levels to continue to support asset growth and continue its
status as a well capitalized institution.
Recent
Legislation and Other Regulatory Initiatives
On
October 3, 2008, the President of the United States signed the Emergency
Economic Stabilization Act of 2008 (“EESA”) into law. This
legislation, among other things, authorized the Secretary of Treasury
(“Treasury”) to establish a Troubled Asset Relief Program (“TARP”) to purchase
up to $700 billion in troubled assets from qualified financial institutions
(“QFI”). EESA is also being interpreted by the Treasury to allow it
to make direct equity investments in QFIs. Subsequent to the
enactment of EESA, the Treasury announced the TARP Capital Purchase Program
(“CPP”) under which the Treasury will purchase up to $250 billion in senior
perpetual preferred stock of QFIs that elect to participate in the
CPP. The Treasury’s investment in an individual QFI may not exceed
the lesser of 3% of the QFIs risk-weighted assets or $25 billion and may not be
less than 1% of risk-weighted assets. QFIs have until November 14,
2008, to elect to participate in the CPP. The CPP also requires the
issuance of warrants exercisable for a number of shares of common stock with an
aggregate value equal to 15% of the amount of the preferred stock
investment.
EESA also
increases the maximum deposit insurance amount up to $250,000 until December 31,
2009 and removes the statutory limits on the FDIC’s ability to borrow from the
Treasury during this period. The FDIC may not take the temporary
increase in deposit insurance coverage into account when setting
assessments.
As a
condition to selling troubled assets to the TARP and/or participating in the
CPP, the QFI must agree to the Treasury’s standards for executive compensation
and corporate governance. These standards generally apply to the
Chief Executive Officer, Chief Financial Officer, and next three highest
compensated officers of the QFI. In general, these standards require
the QFI to: (1) ensure that incentive compensation for senior executives does
not encourage unnecessary and excessive risk taking; (2) recoup, or claw-back,
any bonus or incentive compensation paid to a senior executive based on
financial statements that later prove to be erroneous; (3) prohibit the QFI from
making “golden parachute” payments in connection with certain terminations of
employment; and (4) not deduct, for tax purposes, executive compensation in
excess of $500,000 for each senior executive. Participation in the
CPP also results in certain restrictions on the QFIs dividend and stock
repurchase activities. These restrictions remain in place until the
Treasury no longer holds any equity or debt securities of the QFI.
As noted
in the “Shareholders’ Equity and Dividends” section above, the Company exceeds
the minimum regulatory capital standards by substantial
margins. Furthermore, management does not currently believe that the
Company has a significant exposure to troubled assets that would warrant sale of
such assets under the TARP.
Concurrent
with the announcement of the CPP, the FDIC also established the Temporary
Liquidity Guaranty Program (“TLGP”). This program contains two
elements: (i) a debt guarantee program and (ii) an increase in deposit insurance
coverage for certain types of non-interest bearing accounts. Pursuant
to the debt guarantee program, newly issued senior unsecured debt of banks,
thrifts or their holding companies issued on or before June 30, 2009 would be
protected in the event the issuing institution subsequently fails or its holding
company files for bankruptcy. Financial institutions opting to
participate in this program would be charged an annualized fee equal to 75 basis
points multiplied by the amount of debt being guaranteed. The amount
of debt that may be guaranteed cannot exceed 125% of the institution’s
outstanding debt at September 30, 2008 and due to mature before June 30,
2009. The guarantee would expire by June 30, 2012 even if the debt
itself has not matured. Pursuant to the temporary unlimited deposit
insurance coverage, a qualifying institution may elect to provide unlimited
coverage for non-interest bearing transaction deposit accounts in excess of the
$250,000 limit by paying a 10 basis point surcharge on the covered amounts in
excess of $250,000. Institutions may choose whether to continue the
coverage and be charged the surcharge. To opt out of the program,
institutions must have notified the FDIC by December 5, 2008. This
coverage would expire on December 31, 2009. The Company elected to
continue this coverage through December 31, 2009.
The
American Recovery and Reinvestment Act of 2009 (the “Stimulus Act”), which was
signed into law on February 17, 2009, imposes extensive new restrictions
applicable to the Company on participants in the TARP. The new restrictions
include, without limitation, additional limits on executive compensation such as
prohibiting the payment or accrual of any bonus, retention award or incentive
compensation to the Company’s most highly compensated employee except for the
payment of long-term restricted stock; prohibiting any compensation plan that
would encourage the manipulation of earnings; and extending the claw-back
required by EESA to certain other highly compensated employees. The Stimulus Act
also requires compliance with new corporate governance standards including an
annual “say on pay” shareholder vote, the adoption of policies regarding
excessive or luxury expenditures, and a certification by the Company’s chief
executive officer and chief financial officer that we have complied with the
standards in the Stimulus Act. The full impact of the Stimulus Act is
not yet certain because it calls for additional regulatory action. The Company
will continue to monitor the effect of the Stimulus Act and the anticipated
regulations.
The
actions described above, together with additional actions announced by the
Treasury and other regulatory agencies continue to develop. It is not
clear at this time what impact, EESA, TARP, other liquidity and funding
initiatives of the Treasury and other bank regulatory agencies that have been
previously announced, and any additional programs that may be initiated in the
future will have on the financial markets and the financial services
industry. The extreme levels of volatility and limited credit
availability currently being experienced could continue to effect the U.S.
banking industry and the broader U.S. and global economies, which will have an
affect on all financial institutions, including the Company. We
cannot predict the full effect that this wide-ranging legislation will have on
the national economy or on financial institutions.
Liquidity
At March
31, 2009, the amount of liquid assets remained at a level management deemed
adequate to ensure that contractual liabilities, depositors’ withdrawal
requirements, and other operational and customer credit needs could be
satisfied.
Liquidity
management refers to the Company’s ability to support asset growth while
satisfying the borrowing needs and deposit withdrawal requirements of customers.
In addition to maintaining liquid assets, factors such as capital position,
profitability, asset quality and availability of funding affect a bank’s ability
to meet its liquidity needs. On the asset side, liquid funds are maintained in
the form of cash and cash equivalents, Federal funds sold, investment securities
held to maturity maturing within one year, securities available for sale and
loans held for sale. Additional asset-based liquidity is derived from scheduled
loan repayments as well as investment repayments of principal and interest from
mortgage-backed securities. On the liability side, the primary source of
liquidity is the ability to generate core deposits. Short-term borrowings are
used as supplemental funding sources when growth in the core deposit base does
not keep pace with that of earnings assets.
The Bank
has established a borrowing relationship with the FHLB and a correspondent bank
which further supports and enhances liquidity. At March 31, 2009, the Bank
maintained an Overnight Line of Credit at the FHLB in the amount of $47,534,500
plus a One-Month Overnight Repricing Line of Credit of $47,534,500. Advances
issued under these programs are subject to FHLB stock level and collateral
requirements. Pricing of these advances may fluctuate based on existing market
conditions. The Bank also maintains an unsecured Federal funds line of
$20,000,000 with a correspondent bank.
The
Consolidated Statements of Cash Flows present the changes in cash from
operating, investing and financing activities. At March 31, 2009, the balance of
cash and cash equivalents was $25,754,522.
Net cash
used in operating activities totaled $6,191,699 for the three months ended March
31, 2009 compared to net cash used in operating activities of $2,390,079 in the
three months ended March 31, 2008. The primary sources of funds are net income
from operations adjusted for provision for loan losses, depreciation expenses,
and net proceeds from sales of loans held for sale. The primary use
of funds was origination of loans held for sale.
Net cash
used in investing activities totaled $21,237,836 in the three months ended March
31, 2009, compared to $39,102,106 used in investing activities in the three
months ended March 31, 2008. The current period amount was primarily the result
of an increase in the loan portfolio.
Net cash
provided by financing activities amounted to $38,850,938 in the three months
ended March 31, 2009, compared to $45,548,926 provided by financing activities
in the three months ended March 31, 2008. The current period amount resulted
primarily from an increase in deposits, partially offset by repaid short-term
borrowings, during the three months period ended March 31,
2009.
The
securities portfolio is also a source of liquidity, providing cash flows from
maturities and periodic repayments of principal. During the three months ended
March 31, 2009, maturities and prepayments of investment securities totaled
$17,122,397. Another source of liquidity is the loan portfolio, which
provides a flow of payments and maturities.
The
Company anticipates that cash and cash equivalents on hand, the cash flow from
assets as well as other sources of funds will provide adequate liquidity for the
Company’s future operating, investing and financing needs. Management
will continue to monitor the Company’s liquidity and maintain it at a level that
it deems adequate and not excessive.
Interest
Rate Sensitivity Analysis
The
largest component of the Company’s total income is net interest income, and the
majority of the Company’s financial instruments are composed of interest
rate-sensitive assets and liabilities with various terms and maturities. The
primary objective of management is to maximize net interest income while
minimizing interest rate risk. Interest rate risk is derived from timing
differences in the repricing of assets and liabilities, loan prepayments,
deposit withdrawals, and differences in lending and funding rates. Management
actively seeks to monitor and control the mix of interest rate-sensitive assets
and interest rate-sensitive liabilities.
The
Company continually evaluates interest rate risk management opportunities,
including the use of derivative financial instruments. Management believes that
hedging instruments currently available are not cost-effective, and therefore,
has focused its efforts on increasing the Bank’s spread by attracting lower-cost
retail deposits.
Item
3. Quantitative and
Qualitative Disclosures About Market Risk
Not
required.
Item
4. Controls and
Procedures.
The
Company has established disclosure controls and procedures designed to ensure
that information required to be disclosed in the reports that the Company files
or submits under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in SEC rules and forms and is
accumulated and communicated to management, including the principal executive
officer and principal financial officer, to allow timely decisions regarding
required disclosure.
The
Company’s principal executive officer and principal financial officer, with the
assistance of other members of the Company’s management, have evaluated the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) as of the end of the period covered by this quarterly
report. Based upon such evaluation, the Company’s principal executive
officer and principal financial officer have concluded that the Company’s
disclosure controls and procedures are effective as of the end of the period
covered by this quarterly report.
The
Company’s principal executive officer and principal financial officer have also
concluded that there was no change in the Company’s internal control over
financial reporting (as such term is defined in Rule 13a-15(f) under the
Exchange Act) that occurred during the quarter ended March 31, 2009 that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
PART
II. OTHER INFORMATION
Item
2. Unregistered Sales of Equity
Securities and Use of Proceeds.
Issuer
Purchases of Equity Securities
In 2005,
the Board of Directors authorized a stock repurchase program under which the
Company may repurchase in open market or privately negotiated transactions up to
5% of its common shares outstanding at that date. The Company
undertook this repurchase program in order to increase shareholder value. The
following table provides common stock repurchases made by or on behalf of the
Company during the three months ended March 31, 2009.
Issuer
Purchases of Equity Securities (1)
Period
|
Total
Number
of
Shares
Purchased
|
Average
Price
Paid
Per Share
|
Total
Number of
Shares
Purchased As
Part
of Publicly
Announced
Plan or
Program
|
Maximum
Number
of
Shares That May
Yet
be Purchased
Under
the Plan or
Program
|
Beginning
|
Ending
|
|
|
|
|
January
1, 2009
|
January
31, 2009
|
-
|
$ -
|
-
|
162,861
|
February
1, 2009
|
February
28, 2009
|
5,935
|
6.13
|
5,935
|
156,926
|
March
1, 2009
|
March
31, 2009
|
-
|
-
|
-
|
156,926
|
Total
|
5,935
|
$6.13
|
5,935
|
156,926
|
_________________
(1)
|
The
Company’s common stock repurchase program covers a maximum of 195,076
shares of common stock of the Company, representing 5% of the outstanding
common stock of the Company on July 21, 2005, as adjusted for subsequent
stock dividends.
|
As a
result of the Company’s issuance on December 23, 2008 of Preferred Stock Series
B and a warrant to purchase common stock to the Treasury as part of its TARP
CPP, the Company may not repurchase its common stock or other equity securities
except under certain limited circumstances.
|
31.1
|
*
|
Certification
of Robert F. Mangano, principal executive officer of the Company, pursuant
to Securities Exchange Act Rule 13a-14(a)
|
|
|
|
|
|
31.2
|
*
|
Certification
of Joseph M. Reardon, principal financial officer of the Company, pursuant
to Securities Exchange Act Rule 13a-14(a)
|
|
|
|
|
|
32
|
*
|
Certifications
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
The Sarbanes-Oxley Act of 2002, signed by Robert F. Mangano, principal
executive officer of the Company, and Joseph M. Reardon, principal
financial officer of the Company
|
|
_____________________
* Filed
herewith.
|
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 thereunto
duly authorized.
|
1ST CONSTITUTION
BANCORP |
|
|
|
|
|
|
|
|
|
Date:
May 14, 2009
|
By:
|
/s/
ROBERT F. MANGANO |
|
|
|
Robert
F. Mangano |
|
|
|
President
and Chief Executive Officer
(Principal
Executive Officer)
|
|
Date:
May 14, 2009
|
By:
|
/s/
JOSEPH M. REARDON |
|
|
|
Joseph
M. Reardon |
|
|
|
Senior
Vice President and Treasurer
(Principal
Financial and Accounting Officer)
|
|
31