Safe and Sound

1st Constitution Bank

Cranbury, NJ
4
Star Rating
1st Constitution Bank is a Cranbury, NJ-based, FDIC-insured bank started in 1989. Regulatory filings show the bank having equity of $124.3 million on assets of $1.07 billion, as of June 30, 2017.

With 185 full-time employees in 18 offices in NJ, the bank holds loans and leases worth $758.5 million, including real estate loans of $501.0 million. U.S. bank customers currently have $865.0 million in deposits with the bank.

Overall, Bankrate believes that, as of June 30, 2017, 1st Constitution Bank exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's a look at how the bank did on the three key criteria Bankrate used to grade American banks.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial fortitude, capital is useful. It works as a cushion against losses and as protection for depositors when a bank is struggling financially. When looking at safety and soundness, the higher the capital, the better.
1st Constitution Bank fell below the national average of 13.38 on our test to measure the adequacy of a bank's capital, racking up 12 out of a possible 30 points.

One commonly used measure of this buffer is a bank's Tier 1 capital ratio. 1st Constitution Bank's Tier 1 capital ratio was 11.65 percent, higher than the 6 percent level considered adequate by regulators, but under the national average of 25.16 percent. A higher capital ratio means the bank will be better able to weather financial headwinds.

Overall, 1st Constitution Bank held equity amounting to 11.59 percent of its assets, which was lower than the national average of 12.10 percent.

Asset Quality Score

Bankrate uses this test to estimate the effect of problem assets, such as past-due mortgages, on the bank's capitalization and allocated loan loss reserves.

Having lots of these kinds of assets could eventually require a bank to use capital to absorb losses, shrinking its buffer of equity. It also means that there are likely to be many assets that are in non-accrual status and no longer earning money, resulting in depressed earnings and potentially more risk of a failure in the future.

1st Constitution Bank scored 40 out of a possible 40 points on Bankrate's test of asset quality, above the national average of 37.62.

A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of June 30, 2017, 0.79 percent of 1st Constitution Bank's loans were noncurrent -- in other words, they were more than 90 days past due or were in non-accrual status. That's below the national average of 1.04 percent.

Banks maintain a reserve to deal with troubled assets known as an "allowance for loan and lease losses." Comparing the the size of that reserve to the total amount of problem loans can be a useful indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on 1st Constitution Bank's loan loss allowance in its most recent filings.

Earnings score

How profitable a bank is affects its safety and soundness. A bank can retain its earnings, giving a boost to its capital cushion, or use them to deal with problematic loans, potentially making the bank more resilient in times of trouble. Losses, on the other hand, reduce a bank's ability to do those things.

1st Constitution Bank scored 14 out of a possible 30 on Bankrate's earnings test, failing to reach the national average of 16.52.

Return on equity, calculated by dividing net income (profit, basically) by the total amount of equity, is one important way to measure a bank's earnings. The most recent annualized quarterly return on equity for 1st Constitution Bank was 6.60 percent, below the national average of 9.28 percent.

The bank earned net income of $4.0 million on total equity of $124.3 million for the twelve months ended June 30, 2017. The bank reported an annualized return on average assets, or ROA, of 0.78 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.14 percent.








WHAT IS SAFE & SOUND?

Bankrate.com's Safe & Sound Ratings provide a star rating system to evaluate the current financial status of financial institutions. The information gathered about banks, credit unions and thrifts is updated as set forth in the Terms of Use of Safe & Sound Ratings and Reports. The Safe & Sound Ratings information is grouped by categories of banks, thrifts and credit unions.

Scoring methodology

Bankrate.com evaluates the financial condition of institutions and assigns a one- to five-star rating for each with five stars representing the highest rating. Institutions with satisfactory performance will generally receive a rating of three or more stars. The majority of institutions fall into the three- to four-star range. An institution with an "NR" rating may be too new to rate or may have limited the publicly available information in their regulatory filings. The "NR" is not an indication of financial strength or weakness. The Safe & Sound rating is believed to be reliable, but the information is not guaranteed. In addition, events since the information was collected may have altered the institution's financial condition.