1st Constitution Bancorp : Reports Results for Third Quarter 2021

CONTACT: Robert F. Mangano	Stephen J. Gilhooly
President & Chief Executive Officer	Sr. Vice President & Chief Financial Officer
[phone]	[phone]

1ST CONSTITUTION BANCORP

REPORTS A 10.6% INCREASE IN NET INCOME FOR THE THIRD QUARTER OF 2021

AND DECLARES A QUARTERLY DIVIDEND OF $0.10 PER SHARE

Cranbury NJ - October 22, 2021 -- 1ST Constitution Bancorp (NASDAQ: FCCY), the holding company (the "Company") for 1ST Constitution Bank (the "Bank"), today reported net income of $5.4 million and diluted earnings per share of $0.53 for the three months ended September 30, 2021 compared to net income of $4.9 million and diluted earnings per share of $0.48 for the three months ended September 30, 2020.

The Company's Board of Directors declared a quarterly cash dividend of $0.10 per share of common stock that will be payable on November 24, 2021 to shareholders of record on November 12, 2021.

On July 11, 2021, the Company and Lakeland Bancorp, Inc. (NASDAQ: LBAI), the holding company ("Lakeland") for Lakeland Bank, entered into an Agreement and Plan of Merger, pursuant to which the Company will merge with and into Lakeland, with Lakeland continuing as the surviving entity (the "Merger"), and the Bank will merge with and into Lakeland Bank. Expenses of $737,000 related to this pending transaction were incurred in the three-month period ended September 30, 2021.

Adjusted net income increased 24.5% to $6.1 million for the third quarter of 2021 compared to adjusted net income of $4.9 million for the third quarter of 2020. Adjusted net income per diluted share increased 22.9% to $0.59 for the third quarter of 2021 compared to adjusted net income per diluted share of $0.48 for the third quarter of 2020.

For the nine months ended September 30, 2021, net income was $15.5 million, or $1.51 per diluted share, compared to net income of $12.0 million, or $1.17 per diluted share, for the nine months ended September 30, 2020. Net income and diluted earnings per share increased 29.0% and 29.1%, respectively, for the first nine months of 2021 compared to the first nine months of 2020. For the nine months ended September 30, 2021, adjusted net income was $16.5 million, or $1.61 per diluted share, compared to adjusted net income of $12.1 million, or $1.18 per diluted share, for the nine months ended September 30, 2020.

Adjusted net income and adjusted net income per diluted share, which are referred to above, and certain other adjusted results used in this press release, are non-GAAP financial measures and should be considered in addition to, but not as a substitute for, the Company's GAAP financial results. A reconciliation of these non-GAAP financial measures to the GAAP financial results, along with an explanation of these measures and why they may be useful to investors, is attached to this press release

Robert F. Mangano, President and Chief Executive Officer of the Company, stated, "We are very pleased with our earnings for the three and nine months ended September 30, 2021. During the quarter our residential mortgage banking and SBA loan operations generated substantial gain from sales of loans. Our performance metrics continue to be strong and we remain focused on prudent and disciplined lending, improving the net interest margin and controlling non-interest expense."

"As I reported last quarter in respect to us partnering with Lakeland, the merger is proceeding as planned and expected to close in January 2022. The integration planning meetings are in progress and we expect a smooth transition. We are very excited about the combination and are looking forward to serving our customer base with a much broader array of products and services."

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THIRD QUARTER 2021 HIGHLIGHTS

• Return on average total assets and return on average shareholders' equity were 1.16% and 10.94%, respectively. Adjusted return on average total assets and adjusted return on average shareholders' equity were 1.31% and 12.33%, respectively. Adjusted return on average total assets and adjusted return on average shareholders' equity are non-GAAP measures. See the reconciliation of non-GAAP measures attached to this press release.
• Net interest income was $14.8 million and the net interest margin was 3.42% on a tax-equivalent basis.
• A provision for loan losses of $600,000 was recorded and net charge-offs were $365,000.
• Total loans were $1.2 billion at September 30, 2021 and decreased $37.0 million from June 30, 2021. During the third quarter of 2021, commercial business loans decreased $20.4 million to $139.7 million due primarily to the forgiveness and pay-off of the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans. Mortgage warehouse lines decreased $5.9 million due to the lower volume of funding than in the second quarter of 2021. Residential real estate loans held in the portfolio decreased $5.3 million due to pay-offs of loans. All other components of the loan portfolio decreased a combined $5.4 million.
• Non-interestincome was $3.9 million for the third quarter of 2021, as residential mortgage banking and SBA lending operations generated $1.5 million and $1.1 million gain on sales of loans, respectively.
• Non-interest-bearingdemand deposits increased $45.1 million, savings and interest-bearing transaction accounts increased $62.4 million and certificates of deposit declined $15.0 million during the third quarter of 2021.
• Non-performingloans were $9.5 million, or 0.80% of total loans at September 30, 2021, representing a decrease of $2.5 million from June 30, 2021. Other real estate owned ("OREO") was $48,000. One non- performing commercial real estate loan for $3.1 million was transferred to loans held for sale and was charged down $334,000 to its estimated fair value of $2.7 million.

COVID-19 Impact and Response

As the Company conducts its daily operations, the health and safety of our employees and customers remains our primary concern and we continue to maintain the same measures and protective procedures that we implemented in 2020.

During the first nine months of 2021, the Company continued working with customers impacted by the economic disruption resulting from the COVID-19 pandemic. To support our loan and deposit customers and the communities we serve, we continue to provide access to additional credit and forbearance on loan interest and or principal payments for up to 90 days where management has determined that it is warranted.

• All loans except for two that had previously received deferrals were no longer deferred at September 30, 2021. The two loans consisted of one hotel loan for $3.1 million that was placed on non-accrual in the third quarter of 2020 and one residential mortgage loan for $871,000 that was placed on non-accrual in the first quarter of 2021.
• As a long-standing SBA preferred lender, we actively participated in the SBA's PPP lending program established under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). In 2020, we funded 467 SBA PPP loans totaling $75.6 million, $75.2 million of which had been forgiven by the SBA and paid off through the end of the third quarter of 2021.
• The Economic Aid to Hard-Hit Small Business, Not for Profits and Venues Act ("Economic Aid Act") was enacted in December 2020 in further response to the COVID-19 pandemic. Among other things, the Economic Aid Act provided relief to borrowers to access additional credit through a second round of the SBA's PPP. We actively participated in the second round PPP and funded loans totaling $35.3 million, $12.7 million of which had been forgiven by the SBA and paid off through the end of the third quarter of 2021.

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Allowance for Loan Losses

Management reviewed the loan portfolio at September 30, 2021 in connection with the evaluation of the adequacy of the allowance for loan losses. As part of this review, management reviewed substantially all of the $132.1 million of commercial business and commercial real estate loans that had been modified to defer interest and or principal for up to 90 days either in 2020 or 2021. Loans with balances of less than $250,000 were generally excluded from management's review.

At September 30, 2021, the allowance for loan losses included $348,000 for loans that were rated Pass-Watch and had received a deferral. This reflects management's previously reported determination that "Pass-Watch" credit rated loans with modifications or deferrals suggest a weaker financial strength of the borrower than "Pass" credit rated loans, thereby warranting a higher allowance for loan losses than would ordinarily be reserved for "Pass- Watch" credit rated loans.

Within the loan portfolio, hotel and restaurant-food service industries have been adversely impacted by the economic disruption caused by the COVID-19 pandemic. At September 30, 2021, loans to borrowers in the hotel and restaurant-food service industries were $62.2 million and $53.3 million, respectively. Management reviewed over 90% of the hotel loans and over 96% of the restaurant-food service loans. At September 30, 2021, management continued to maintain the additional allowance for loan losses of 75 basis points, or $357,000, attributable to restaurant-food service loans and 25 basis points, or $148,000, attributable to hotel loans due to the challenging operating environment for these businesses as a result of the COVID-19 pandemic.

All construction loans are closely monitored on a quarterly basis and are reviewed to assess the progress of construction relative to the plan and budget and lease-up or sales of units.

Management also reviewed loans to schools that are private educational institutions that are generally sponsored or affiliated with religious organizations. These loans totaled $24.4 million at September 30, 2021, and all of these loans were reviewed.

As a result of management's review of the loan portfolio at September 30, 2021, a provision for loan losses of $600,000 was recorded for the third quarter of 2021 and the allowance for loan losses was $17.2 million at September 30, 2021. The provision for loan losses reflected primarily the net charge-offs of $365,000 and changes in the size, mix and risk elements of the loan portfolio at September 30, 2021. The allowance for loan losses at September 30, 2021 included $1.4 million of allowance that was attributable to management's qualitative factors related to the COVID-19 pandemic and specific reserves of $3.2 million for impaired loans. The increase in the allowance for loan losses year-over-year is due primarily to the $1.7 million increase in specific reserves for impaired loans, higher charge-offs in 2021 compared to 2020 and the concomitant increase in the historical loss factors, additional allowance due to changes in loan credit risk ratings in 2021, changes in the mix of loans in the loan portfolio and the risk factors related to the economic uncertainty due to the COVID-19 pandemic continuing to adversely impact borrowers' business operations and financial results.

Acquisition accounting for the merger with Shore Community Bank ("Shore") in 2019 and the merger with New Jersey Community Bank ("NJCB") in 2018 resulted in the Shore and NJCB loans being recorded at their fair value and no allowance for loan losses as of the effective time of the respective mergers. The unaccreted general credit fair value discounts related to the former Shore and NJCB loans were approximately $1.1 million and $317,000 at September 30, 2021, respectively. In addition, at September 30, 2021, there were $23.1 million of SBA PPP loans, which are 100% guaranteed by the SBA and, accordingly, no allowance was provided.

Discussion of Financial Results

Net income was $5.4 million, or $0.53 per diluted share, for the third quarter of 2021 compared to net income of $4.9 million, or $0.48 per diluted share, for the third quarter of 2020. For the three months ended September 30, 2021, net interest income decreased $544,000 compared to the three months ended September 30, 2020, driven primarily by the decrease in total loans, which resulted in the decline in the yield of interest-earning assets. The provision for loan losses was $600,000 for the third quarter of 2021 compared to $2.3 million for the third quarter of 2020. The decrease in the provision year-over-year reflected the generally improved economic conditions, the

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decline in the size of the loan portfolio in 2021 and the stable credit quality of the loan portfolio. Gain on sales of loans for the third quarter of 2021 decreased $764,000 compared to the third quarter of 2020 due primarily to the lower volume of residential mortgage loan originations and sales of loans. Non-interest expenses were $10.8 million for the third quarter of 2021, which included $737,000 of merger-related expenses, and decreased $121,000 compared to $11.0 million for the third quarter of 2020.

Net interest income was $14.8 million for the third quarter of 2021 and decreased $544,000 compared to net interest income of $15.4 million for the third quarter of 2020. Total interest income was $16.1 million for the three months ended September 30, 2021 compared to $17.7 million for the three months ended September 30, 2020. The decrease in total interest income was primarily due to a significant decline in the average balance of total loans that resulted in a lower yield on average interest-earning assets for the third quarter of 2021 compared to the third quarter of 2020. Average interest-earning assets were $1.7 billion, with a tax-equivalent yield of 3.71%, for the third quarter of 2021 compared to average interest-earning assets of $1.7 billion, with a tax- equivalent yield of 4.23%, for the third quarter of 2020. Total average loans were 69.8% of total average earning assets for the third quarter of 2021 compared to 85.3% for the third quarter of 2020. The Federal Reserve reduced the targeted federal funds rate 150 basis points in March 2020 in response to the economic uncertainty resulting from the COVID-19 pandemic. As a result of the reductions in the targeted federal funds rate, the prime rate declined to 3.25% in March 2020 and was unchanged through the third quarter of 2021. The low interest rate environment continued through September 30, 2021. The Bank had approximately $421.3 million of loans with an interest rate tied to the prime rate and approximately $45.2 million of loans with an interest rate tied to either 1- or 3-month LIBOR at September 30, 2021. Unearned fees, net of deferred costs, related to the SBA PPP loans were $736,000 at September 30, 2021.

Interest expense on average interest-bearing liabilities was $1.3 million, with an interest cost of 0.46%, for the third quarter of 2021, compared to $1.4 million, with an interest cost of 0.52%, for the second quarter of 2021 and $2.4 million, with an interest cost of 0.79%, for the third quarter of 2020. Interest expense declined $1.1 million for the third quarter of 2021 compared to the third quarter of 2020 due primarily to the decline in interest rates paid on deposits as a direct result of the low interest rate environment. The average cost of interest-bearing deposits was 0.44% for the third quarter of 2021, 0.50% for the second quarter of 2021 and 0.81% for the third quarter of 2020. The interest rates paid on deposits generally do not adjust quickly to rapid changes in market interest rates and decline over time in a falling interest rate environment. Management will continue to monitor and adjust the interest rates paid on deposits to reflect the then current interest rate environment and competitive factors.

The net interest margin on a tax-equivalent basis was 3.42% for the third quarter of 2021 compared to 3.67% for the third quarter of 2020. The net interest margin for the third quarter of 2021 was negatively impacted by the $262.0 million increase in the average balance of federal funds sold/short-term investments, which was driven in part by a $223.9 million decrease in average total loans which had a significant impact on net interest income. The reinvestment of proceeds from maturing and called investment securities and the purchase of new investment securities at the current lower interest rates also contributed to the decline in net interest income. Interest income for the third quarter of 2021 included $451,000 of fee income related to PPP loans that were forgiven and paid off by the SBA. Excluding the effect of the higher average balance of federal funds sold/short-term investments due to the increase in average deposits, the net interest margin was approximately 3.62% for the third quarter of 2021.

The Company recorded a provision for loan losses of $600,000 for the third quarter of 2021 compared to a provision for loan losses of $2.3 million for the third quarter of 2020 which included a specific reserve of $1.5 million for impaired loans. The provision for loan losses for the third quarter of 2021 reflected the decline in the size of the loan portfolio, net charge-offs of $365,000 and changes in risk elements and mix of the loan portfolio at September 30, 2021. At September 30, 2021, total loans were $1.2 billion and the allowance for loan losses was $17.2 million, or 1.43% of total loans, compared to total loans of $1.5 billion and an allowance for loan losses of $14.5 million, or 0.99% of total loans, at September 30, 2020. The increase in the allowance for loan losses year- over-year is due primarily to the $1.7 million increase in specific reserves for impaired loans, higher charge-offs in 2021 compared to 2020 and the concomitant increase in the historical loss factors, additional allowance due to changes in loan credit risk ratings in 2021, changes in the mix of loans in the loan portfolio and risk factors related to the economic uncertainty due to the COVID-19 pandemic continuing to adversely impact borrowers' business operations and financial results. The allowance for loan losses, excluding the allocated reserve for mortgage warehouse lines, was $16.1 million, or 1.67% of total loans excluding mortgage warehouse lines at September 30,

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2021. In addition, at September 30, 2021, there were $23.1 million of SBA PPP loans, which are 100% guaranteed by the SBA and, accordingly, no allowance was provided.

Non-interest income was $3.9 million for the third quarter of 2021 and decreased $833,000 compared to $4.7 million for the third quarter of 2020. The decrease in non-interest income was due primarily to a $764,000 decrease in gain on sales of loans. In the third quarter of 2021, $8.3 million of SBA loans were sold and gains of $1.1 million were recorded compared to $5.1 million of SBA loans sold and gains of $463,000 recorded for the third quarter of 2020. In the third quarter of 2021, residential mortgage banking operations originated $51.0 million of residential mortgages, sold $54.0 million of residential mortgages and recorded a $1.5 million gain on sales of loans compared to approximately $118.0 million of residential mortgages originated, $97.5 million of residential mortgage loans sold and a $2.9 million gain on sales of loans recorded for the third quarter of 2020. Income from bank-owned life insurance increased $191,000 for the third quarter of 2021 compared to the third quarter of 2020, due primarily to $200,000 of income from a death benefit. Other income decreased $173,000 for the third quarter of 2021 compared to the third quarter of 2020, which included an interest rate swap fee of $172,000.

Non-interest expenses were $10.8 million for the third quarter of 2021 and decreased $121,000 compared to $11.0 million for the third quarter of 2020. Adjusted non-interest expenses, which excludes the $737,000 of merger- related expenses incurred in the third quarter of 2021 in connection with the pending Merger, decreased $858,000 compared to the third quarter of 2020. Adjusted non-interest expenses is a non-GAAP measure that excludes merger-related expenses and should be considered in addition to, but not as a substitute for, the Company's GAAP financial results. A reconciliation of this non-GAAP financial measure to the GAAP financial results is attached to this press release. Salaries and employee benefits expense decreased $483,000 for the third quarter of 2021 compared to the third quarter of 2020 due primarily to a $855,000 decrease in mortgage commissions and a $68,000 decrease in overtime expense, partially offset by a $62,000 increase in temporary staffing costs and a $336,000 increase in incentive compensation. FDIC insurance expense decreased $117,000 due to a decrease in the FDIC assessment rate for the third quarter of 2021 compared to the assessment rate for the third quarter of 2020. Other operating expenses decreased $212,000 for the third quarter of 2021 compared to the third quarter of 2020, resulting primarily from a decrease of $144,000 in legal and consulting fees and net decreases in various components of other operating expenses.

Income tax expense was $1.8 million for the third quarter of 2021, resulting in an effective tax rate of 25.3%, compared to income tax expense of $1.9 million, which resulted in an effective tax rate of 27.9% for the third quarter of 2020. The lower effective tax rate in the third quarter of 2021 reflected primarily the lower state tax rate due to tax planning initiatives that reduced the effective tax rate and the tax benefit from higher deductions for stock based compensation in the third quarter of 2021 compared to the third quarter of 2020.

Total assets were $1.91 billion at September 30, 2021 compared to $1.81 billion at December 31, 2020. Total cash and cash equivalents increased $252.0 million and total investment securities increased $111.4 million from December 31, 2020 to September 30, 2021, which amounts were partially offset by decreases of $235.3 million in total portfolio loans and $23.0 million in loans held for sale. Total portfolio loans at September 30, 2021 were $1.20 billion, compared to $1.43 billion at December 31, 2020. The $235.3 million decrease in portfolio loans was due primarily to a decrease of $152.5 million in mortgage warehouse lines as a result of lower funding volume in the third quarter of 2021 compared to the fourth quarter of 2020, a decrease of $49.1 million in commercial business loans as a result of the forgiveness and pay-offs of SBA PPP loans, a decrease of $25.0 million in residential real estate loans due to pay-offs and a $6.2 million decrease in commercial real estate loans. Loans held for sale decreased $23.0 million due to loan sales in excess of originations in the first nine months of 2021 and the lower level of residential mortgage loan originations in the third quarter of 2021. In response to the higher level of liquidity driven by the significant increase in deposits in the third quarter of 2021, purchases of investment securities were $115.1 million. The purchases were primarily bonds with maturities between one and three years. Total investment securities increased $114.4 million to $329.1 million at September 30, 2021 compared to $217.7 million at December 31, 2020. Investment securities available for sale increased $78.7 million and investment securities held to maturity increased $32.7 million at September 30, 2021 from December 31, 2020.

Total deposits were $1.64 billion at September 30, 2021, representing an increase of $75.7 million from December 31, 2020. There was a significant change in the composition of total deposits as non-interest-bearing

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