Increasing Non-Interest Expenses Hurt 1st Constitution

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On May 1, 2009, 1st Constitution Bancorp ( FCCY) reported that its Q1 FY09 earnings plunged 64.1%, hurt by an increase in non-interest expenses and higher provision for loan losses. Net income declined to $288,000 or $0.07 per share from $802,000 or $0.19 per share in Q1 FY08. The latest quarterly earnings missed the consensus estimate of $0.10 per share.

Total interest income during Q1 FY09 grew 3.4% to $7.41 million from $7.17 million in the prior-year quarter, while interest expense inched up 1.6% to $3.21 million from $3.16 million a year ago. As a result, net interest income rose 4.9% to $4.20 million from $4.00 million in the same quarter of the last year. Subsequently, net interest margin (on a tax-equivalent basis) contracted 58 basis points to 3.30% from 3.88% in the same quarter of the last year. On the flip side, non-interest income increased 7.8% to $847,000 from $786,000, while non-interest expense swelled 17.8% to $4.02 million from $3.41 million a year ago. Meanwhile, income before income tax shrunk 53.4% to $564,000 million from $1.21 million in the year-ago quarter.

The bank's provision for loan losses more than doubled to $463,000 from $165,000 a year ago. Furthermore, FCCY's efficiency ratio deteriorated, as it rose to 79.7% from 71.3%, while net charge-offs were $18,000 as of March 31, 2009 compared to zero at the end of Q1 FY08, mainly led by an increase in provision for loan losses. Moreover, non-performing loans as a percentage of total loans advanced to 1.18% from 0.95%, while allowance for loan losses to total loans came down marginally to 1.01% from 1.02%. Finally, as of March 31, 2008, total loans grew 17.9% to $422.37 million, while total deposits climbed 25.3% to $474.65 million. Additionally, the bank paid a 5.0% stock dividend to the common shareholders.

The bank continued to be well-capitalized, as its total risk-based capital and Tier I capital were at 16.38% and 15.49%, respectively, at March 31, 2009.

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