1st Capital Bank Announces First Quarter 2017 Financial Results Record Average Earning Assets

MONTEREY, CA / ACCESSWIRE / April 28, 2017 / 1st Capital Bank (OTC PINK: FISB) reported unaudited net income of $787 thousand for the three months ended March 31, 2017, an increase of 11.8%, compared to net income of $704 thousand in the first quarter of 2016, and a decrease of 23.6%, compared to income of $1.03 million in the fourth quarter of 2016, the immediately preceding quarter. Earnings per share were $0.18 (diluted), compared to $0.23 (diluted) for the prior quarter.

Total assets grew $3 million in the first quarter, to $553 million at March 31, 2016, compared to $550 million at December 31, 2016. Net loans likewise increased $3 million during the first quarter, from $399 million at December 31, 2016 to $402 million at March 31, 2017. Growth was concentrated in the commercial real estate portfolio, which organically grew $12 million, or 6.0%, in the first quarter, and increased $25.1 million, or 13.6% year over year, from $185 million to $210 million. Commercial and industrial loans declined $671 thousand, or 1.5%, sequentially on lower utilization, while single-family residential loans declined $9.0 million, or 6.8%, as a result of normal amortization and prepayments. Because of favorable changes in the loan portfolio mix and continuing declines in historical loss rates, no provision for loan losses was required in any of the first quarter of 2017, the fourth quarter of 2016, or the first quarter of 2016.

“We are pleased to report continued double digit annualized growth in additions to our core relationship banking portfolio,” said Thomas E. Meyer, President and Chief Executive Officer. “While at the same time, we have diversified into selected consumer products and have begun to recognize brokerage fees on single-family mortgages and are now taking applications for home equity lines of credit. These efforts complement our efforts to build fee income from commercial accounts through a new and upgraded account analysis system and new relationships with money service businesses. Most significantly, our government-guaranteed loan pipeline has grown to $8.8 million in pending applications within our traditional geographic footprint as of March 31, 2017.”

Net interest income before provision for loan losses decreased $121 thousand, or 2.6%, to $4.45 million, compared to $4.57 million in the prior quarter, when the Bank recognized $78 thousand in interest in connection with the payoff of a nonaccrual loan and a $117 thousand special dividend declared by the Federal Home Loan Bank of San Francisco. Net interest margin declined from 3.41% in the fourth quarter of 2016 to 3.36% in the first quarter of 2017, reflecting the aforementioned items and greater on-balance sheet liquidity driven by seasonally higher deposits.

Non-interest income increased $43 thousand, or 20.4%, from $213 thousand in the fourth quarter of 2016 to $256 thousand in the first quarter of 2017, as various fee income initiatives began to show demonstrative results. Deposits placed into the off-balance sheet Insured Cash Sweep (“ICS”) program increased from $24 million as of December 31, 2016 to $52 million as of March 31, 2017. These deposits, which can be moved onto the Bank’s balance sheet at the Bank’s discretion, provided $18 thousand in non-interest income in the first quarter of 2017, compared to $3 thousand in the fourth quarter of 2016.

The Bank’s efficiency ratio increased from 66.0% in the fourth quarter of 2016 to 72.4% in the first quarter of 2017, as the Bank added staff in its government-guaranteed and single-family residential lending units, where expense growth outpaced the quarterly increase in revenues.

NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES

Net interest income before provision for credit losses was $4.45 million in the first quarter of 2017, a decrease of $121 thousand, or 2.6%, compared to $4.57 million in the fourth quarter of 2016, and an increase of $299 thousand, or 7.2%, compared to $4.15 million in the first quarter of 2016.

Average earning assets were $537 million during the first quarter of 2017, an increase of 0.7%, compared to $533 million in the fourth quarter of 2016. The yield on earning assets was 3.48% in the first quarter of 2017, compared to 3.53% in the fourth quarter of 2016, primarily due to a decrease in the average balance of loans from $409 million in the fourth quarter of 2016 to $400 million in the first quarter of 2017. In addition, interest and dividend income included $78 thousand of interest recognized in connection with the payoff of a non-accrual loan and a special dividend of $117 thousand declared by the Federal Home Loan Bank of San Francisco in the fourth quarter of 2016. The average balance of the investment portfolio decreased $6 million, from $82 million in the fourth quarter of 2016 to $76 million in the first quarter of 2017, reflecting normal amortization and prepayments on the Bank’s investments in mortgage-backed securities and collateralized mortgage obligations. The yield on the investment portfolio increased from 0.93% in the third quarter of 2016 to 1.03% in the fourth quarter of 2016 and 1.31% in the first quarter of 2017.

The cost of interest-bearing liabilities declined from 0.25% in the first quarter of 2016 to 0.22% in the fourth quarter of 2016 and the first quarter of 2017, while the average balance of interest-bearing liabilities decreased from $285 million in the first quarter of 2016 to $277 million in the fourth quarter of 2016 and increased to $278 million in the first quarter of 2017, as the Bank experienced normal seasonal fluctuations in deposits, particularly from larger depositors, and managed its leverage ratio, primarily with the ICS program. The average balance of noninterest-bearing demand deposit accounts increased from $196 million, or 40.7% of total deposits, in the first quarter of 2016 to $215 million, or 43.7% of total deposits, in the fourth quarter of 2016, and $220 million, or 44.2% of total deposits in the first quarter of 2017. The Bank’s overall cost of funds decreased, from 0.15% in the first quarter of 2016 to 0.13% in the fourth quarter of 2016 and the first quarter of 2017.

“During the first quarter of 2017, we continued to experience deposit inflows, while interest rates in our market remained stable. This environment, together with our strong portfolio of demand deposits, which made up 44.2% of average deposits in the first quarter, allowed us to maintain our overall cost of funds at 0.13%,” noted Michael J. Winiarski, Chief Financial Officer.

PROVISION FOR CREDIT LOSSES

The provision for credit losses is a charge against current earnings in an amount determined by management to be necessary to maintain the allowance for loan losses at a level sufficient to absorb estimated probable losses inherent in the loan portfolio in light of losses historically incurred by the Bank and adjusted for qualitative factors associated with the loan portfolio.

The Bank did not record a provision for loan losses in the first or fourth quarter of 2016 or the first quarter of 2017, reflecting reductions in the level of criticized assets, changes in the mix of loan types within the portfolio and their respective historical loss rates, and management’s assessment of the amounts expected to be realized from certain loans identified as impaired. Impaired loans totaled $8.0 million at March 31, 2017, compared to $8.0 million at December 31, 2016, and $9.6 million at March 31, 2016.

At March 31, 2017, non-performing loans were 0.03% of the total loan portfolio, compared to 0.03% at December 31, 2016 and 0.44% at March 31, 2016. At March 31, 2017, the allowance for loan losses was 1.52% of outstanding loans, compared to 1.55% at December 31, 2016 and 1.56% at March 31, 2016, respectively. The Bank recorded net charge-offs of $59 thousand in the first quarter of 2017, compared to net recoveries of $12 thousand and $19 thousand in the fourth quarter and first quarters of 2016, respectively.

NON-INTEREST INCOME

Non-interest income recognized in the first quarter of 2017 was $256 thousand, including $76 thousand in gain on sale of Small Business Administration (“SBA”) guaranteed loans, compared to $213 thousand in the fourth quarter of 2016, after making certain reclassifications to fee income. The Bank recognized $78 thousand in gain on sale of SBA loans in the fourth quarter of 2016 and no such gains in the first quarter of 2016. Overall, this represents an increase non-interest income of $43 thousand compared to fourth quarter of 2016, and an increase of $159 thousand compared to the first quarter of 2016, when non-interest income totaled $97 thousand.

Management has been actively seeking to increase non-interest income across a range of sources, including account analysis fees, lockbox service fees, and mortgage brokerage fees. In addition, in the fourth quarter of 2016, the Bank increased its investment in Bank-owned life insurance (“BOLI”) policies by $5.0 million, from $2.4 million to $7.4 million. BOLI dividend income increased from $14 thousand in the third quarter of 2016 to $38 thousand in the fourth quarter of 2016 and $54 thousand in the first quarter of 2017.

NON-INTEREST EXPENSES

Non-interest expenses increased $238 thousand, or 7.5%, to $3.41 million in the first quarter of 2017, compared to $3.17 million for the fourth quarter of 2016, and increased $347 thousand, or 11.3%, compared to $3.06 million recognized in the first quarter of 2016.

Salaries and benefits increased $281 thousand, or 14.7%, to $2.19 million in the first quarter of 2017 from $1.91 million in the fourth quarter of 2016 and increased $297 thousand, or 15.7%, compared to $1.89 million in the first quarter of 2016. These increases reflect the hiring primarily of loan production personnel, including those specializing in government-guaranteed lending and single-family residential lending to support the introduction of home equity lines of credit and the Bank’s mortgage brokerage program. From the fourth quarter of 2016 to the first quarter of 2017, base salaries and wages increased $117 thousand, or 7.8%, from $1.49 million to $1.60 million, health insurance premiums increased $23 thousand, or 17.4%, from $136 thousand to $159 thousand, and the employer’s portion of payroll taxes increased $109 thousand, or 121.1%, from $90 thousand to $199 thousand, reflecting the seasonal pattern of such taxes. Payroll taxes increased $44 thousand, or 28.0%, year over year. Other non-interest expenses reflect a reclassification of certain electronic transaction fees, but were otherwise relatively unchanged.

The efficiency ratio (non-interest expenses divided by the sum of net interest income before provision for loan losses and non-interest income) was 72.4% for the first quarter of 2017, compared to 66.0% for the fourth quarter of 2016 and 71.9% for the first quarter of 2016. Annualized non-interest expenses as a percent of average total assets were 2.53%, 2.33%, and 2.31% for the first quarter of 2017, the fourth quarter of 2016, and the first quarter of 2016, respectively.

PROVISION FOR INCOME TAXES

The Bank’s effective book tax rate was 39.4% in the first quarter of 2017, compared to 36.2% for the fourth quarter of 2016 and 40.7% for the first quarter of 2016. The lower effective rate in the fourth quarter or 2016 reflects the settlement of certain disputed Enterprise Zone interest deductions dating from 2011.

About 1st Capital Bank

The Bank’s primary target markets are commercial enterprises, professionals, real estate investors, family business entities, and residents along the Central Coast Region of California. The Bank provides a wide range of credit products, including loans under various government programs such as those provided through the U.S. Small Business Administration (“SBA”) and the U.S. Department of Agriculture (“USDA”). A full suite of deposit accounts is also furnished, complemented by robust cash management services. The Bank operates full service branch offices in Monterey, Salinas, King City, and San Luis Obispo. The Bank’s corporate offices are located at 5 Harris Court, Building N, Monterey, California 93940. The Bank’s website is www.1stCapital.bank. The main telephone number is 831.264.4000. The primary facsimile number is 831.264.4001.

Member FDIC / Equal Opportunity Lender / SBA Preferred Lender

Forward-Looking Statements

Certain of the statements contained herein that are not historical facts are “forward-looking statements” within the meaning of and subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may contain words or phrases including, but not limited, to: “believe,” “expect,” “anticipate,” “intend,” “estimate,” “target,” “plans,” “may increase,” “may fluctuate,” “may result in,” “are projected,” and variations of those words and similar expressions. All such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Factors that might cause such a difference include, among other matters, changes in interest rates; economic conditions including inflation and real estate values in California and the Bank’s market areas; governmental regulation and legislation; credit quality; competition affecting the Bank’s businesses generally; the risk of natural disasters and future catastrophic events including terrorist related incidents and other factors beyond the Bank’s control; and other factors. The Bank does not undertake, and specifically disclaims any obligation, to update or revise any forward-looking statements, whether to reflect new information, future events, or otherwise, except as required by law.

This news release is available at the www.1stCapital.bank internet site for no charge.

For further information, please contact:

Thomas E. Meyer
President and Chief Executive Officer
831.264.4057 office
Tom.Meyer@1stCapitalBank.com

Michael J. Winiarski
Chief Financial Officer
831.264.4014 office
Michael.Winiarski@1stCapitalBank.com

1ST CAPITAL BANK

CONDENSED FINANCIAL DATA

(Unaudited)

(Dollars in thousands, except share and per share data)

March 31,

December 31,

September 30,

March 31,

Financial Condition Data 1

2017

2016

Assets

Cash and due from banks

$
20,999

$
2,754

$
3,585

$
4,300

Funds held at the Federal Reserve Bank 2

37,975

50,884

17,482

84,490

Time deposits at other financial institutions

747

2,490

996

4,233

Available-for-sale securities, at fair value

73,504

77,870

84,175

76,869

Loans receivable held for investment:

Construction / land (including farmland)

20,155

18,993

16,453

16,403

Residential 1 to 4 units

113,397

120,983

127,010

122,437

Home equity lines of credit

10,207

11,609

11,578

7,342

Multifamily

53,471

53,338

53,763

44,360

Owner occupied commercial real estate

61,182

50,887

52,526

55,450

Investor commercial real estate

95,485

94,018

94,378

85,238

Commercial and industrial

44,548

45,219

47,440

42,802

Other loans

10,108

10,259

9,259

5,791

Total loans

408,553

405,306

412,407

379,823

Allowance for loan losses

(6,208
)

(6,267
)

(6,255
)

(5,940
)

Net loans

402,345

399,039

406,152

373,883

Premises and equipment, net

1,824

1,477

1,433

1,537

Bank owned life insurance

7,487

7,433

2,395

2,365

Investment in FHLB 3 stock, at cost

2,939

2,593

Accrued interest receivable and other assets

5,668

5,041

4,551

4,089

Total assets

$
553,488

$
549,927

$
523,708

$
554,359

Liabilities and shareholders’ equity

Deposits:

Noninterest bearing demand deposits

$
211,599

$
239,799

$
191,079

$
193,334

Interest bearing checking accounts

36,907

33,888

36,479

30,154

Money market deposits

126,638

113,289

120,181

143,616

Savings deposits

115,094

100,601

113,052

124,759

Time deposits

13,181

13,044

14,503

15,511

Total deposits

503,419

500,621

475,294

507,374

Accrued interest payable and other liabilities

1,283

1,661

1,403

1,554

Shareholders’ equity

48,786

47,645

47,011

45,431

Total liabilities and shareholders’ equity

$
553,488

$
549,927

$
523,708

$
554,359

Shares outstanding

4,374,209

4,350,721

4,127,686

4,090,186

Nominal and tangible book value per share

$
11.15

$
10.96

$
11.23

$
11.11

Ratio of net loans held for investment

to total deposits

79.92
%

79.71
%

85.45
%

73.69
%

1 = Loans held for investment are presented according to definitions applicable to the regulatory Call Report.
2 = Includes cash letters in the process of collection settled through the Federal Reserve Bank.
3 = Federal Home Loan Bank

1ST CAPITAL BANK

CONDENSED FINANCIAL DATA

(Unaudited)

(Dollars in thousands, except share and per share data)

Three Months Ended

March 31,

December 31,

September 30,

March 31,

Operating Results Data 1

2017

2016

Interest and dividend income

Loans

$
4,187

$
4,298

$
4,028

$
4,020

Investment securities

246

213

203

190

Federal Home Loan Bank stock

169

Other

102

Total interest and dividend income

4,605

4,728

4,343

4,332

Interest expense

Interest bearing checking

Money market deposits

Savings deposits

Time deposits

Total interest expense on deposits

154

156

161

180

Interest expense on borrowings

—

Total interest expense

154

156

161

180

Net interest income

4,451

4,572

4,182

4,152

Provision for loan losses

—

255

—

Net interest income after provision

for loan losses

4,451

4,572

3,927

4,152

Noninterest income

Service charges on deposits

BOLI dividend income

Gain on sale of loans

—

Other

Total noninterest income

256

213

104

1ST CAPITAL BANK

CONDENSED FINANCIAL DATA

(Unaudited)

(Dollars in thousands, except share and per share data)

Three Months Ended

March 31,

December 31,

September 30,

March 31,

2017

2016

Noninterest expenses

Salaries and benefits

2,191

1,910

1,801

1,894

Occupancy

229

250

231

222

Data and item processing

135

154

149

148

Professional services

124

205

108

Furniture and equipment

124

127

114

123

Provision for unfunded loan

commitments

(9
)

(10
)

Other

587

533

550

577

Total noninterest expenses

3,408

3,170

2,943

3,061

Income before provision for income taxes

1,299

1,615

1,088

1,188

Provision for income taxes

512

585

443

484

Net income

$
787

$
1,030

$
645

$
704

Common Share Data 2

Earnings per share

Basic

$
0.18

$
0.24

$
0.15

$
0.16

Diluted

$
0.18

$
0.23

$
0.15

$
0.16

Weighted average shares outstanding

Basic

4,374,209

4,340,153

4,329,406

4,276,215

Diluted

4,444,823

4,392,963

4,377,177

4,326,712

1 = Certain reclassifications have been made to prior period financial statements to conform them to the current period presentation.
2 = Earnings per share and weighted average shares outstanding have been restated to reflect the effect of the 5% stock dividend declared November 23, 2016 and paid December 15, 2016.

1ST CAPITAL BANK

CONDENSED FINANCIAL DATA

(Unaudited)

(Dollars in thousands)

March 31,

December 31,

September 30,

March 31,

Asset Quality

2017

2016

Loans past due 90 days or more and accruing

interest

$
—

Nonaccrual restructured loans

—

1,465

1,507

Other nonaccrual loans

124

139

154

183

Other real estate owned

—

$
124

$
139

$
1,619

$
1,690

Allowance for loan losses to total loans

1.52
%

1.55
%

1.52
%

1.56
%

Allowance for loan losses to nonperforming loans

5,006.45
%

4,508.63
%

386.35
%

351.48
%

Nonaccrual loans to total loans

0.03
%

0.39
%

0.44
%

Nonperforming assets to total assets

0.02
%

0.03
%

0.31
%

0.30
%

Regulatory Capital and Ratios

Common equity tier 1 capital

$
49,137

$
48,093

$
46,924

$
45,230

Tier 1 regulatory capital

$
49,137

$
48,093

$
46,924

$
45,230

Total regulatory capital

$
53,889

$
52,740

$
51,469

$
49,423

Tier 1 leverage ratio

8.97
%

8.89
%

8.94
%

8.58
%

Common equity tier 1 risk based capital ratio

12.98
%

12.99
%

12.97
%

13.56
%

Tier 1 risk based capital ratio

12.98
%

12.99
%

12.97
%

13.56
%

Total risk based capital ratio

14.23
%

14.25
%

14.23
%

14.52
%

Three Months Ended

March 31,

December 31,

September 30,

March 31,

Selected Financial Ratios 1

2017

2016

Return on average total assets

0.58
%

0.76
%

0.49
%

0.54
%

Return on average shareholders’ equity

6.61
%

8.59
%

5.48
%

6.24
%

Net interest margin

3.36
%

3.41
%

3.20
%

Net interest income to average total assets

3.30
%

3.36
%

3.17
%

Efficiency ratio

72.40
%

66.04
%

68.45
%

71.86
%

1 = All Selected Financial Ratios are annualized other than the Efficiency Ratio.

Three Months Ended

March 31,

December 31,

September 30,

March 31,

Selected Average Balances

2017

2016

Gross loans

$
400,404

$
409,396

$
389,580

$
379,982

Investment securities

76,057

82,195

87,364

79,454

Federal Home Loan Bank stock

2,939

2,593

Other interest earning assets

57,376

38,453

39,513

60,156

Total interest earning assets

$
536,776

$
532,982

$
519,396

$
522,185

Total assets

$
546,805

$
540,925

$
524,905

$
527,468

Interest bearing checking accounts

$
34,223

$
35,366

$
32,142

$
31,567

Money market deposits

121,748

114,818

121,476

123,018

Savings deposits

108,703

112,046

113,052

109,319

Time deposits

13,097

14,287

15,062

21,335

Total interest bearing deposits

277,771

276,517

281,732

285,239

Noninterest bearing demand deposits

219,807

214,675

194,335

195,684

Total deposits

$
497,578

$
491,192

$
476,067

$
480,923

Borrowings

$
—

$
65

$
—

Shareholders’ equity

$
48,260

$
47,722

$
46,844

$
45,405

SOURCE: 1st Capital Bank

ReleaseID: 461054

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