1st Capital Bank Announces Fourth Quarter 2018 Financial Results; Record Annual Net Income

SALINAS, CA / ACCESSWIRE / January 31, 2019 / 1st Capital Bank (OTC PINK: FISB) reported unaudited net income of $1.94 million for the three months ended December 31, 2018, compared to net income of $182 thousand for the three months ended December 31, 2017 and net income of $1.74 million for the three months ended September 30, 2018, the immediately preceding quarter. Earnings per share were $0.38 (diluted), compared to $0.34 (diluted) for the prior quarter.

Unaudited net income for the year ended December 31, 2018 increased 126.1% to $6.43 million, compared to $2.84 million for the year ended December 31, 2017. Additionally, pre-tax income for 2018 rose significantly to $8.86 million, 45.1% above 2017’s pre-tax income of $6.11 million. Earnings per share were $1.25 (diluted) for the year ended December 31, 2018, compared to $0.56 (diluted) for the year ended December 31, 2017.

“We are pleased to report record levels of assets and net income for 2018. Our strong local deposit base funded the continued growth in our loan portfolio,” said Thomas E. Meyer, President and Chief Executive Officer. “The benefits of lower income tax rates in 2018 resulting from the Tax Cuts and Jobs Act of 2017 were also evident in our results,” Meyer added.

Net interest margin increased from 3.89% in the third quarter of 2018 to 4.01% in the fourth quarter of 2018. Net interest income before provision for loan losses for the three-month period ended December 31, 2018 was $6.13 million, an increase of $236 thousand, or 4.0%, compared to $5.89 million recognized in the three-month period ended September 30, 2018. On a year-over-year basis, quarterly net interest income before provision for loan losses increased $1.01 million, or 19.7%, from $5.12 million recognized in the fourth quarter of 2017.

For the year ended December 31, 2018, net interest income before provision for loan losses increased 18.8%, from $19.1 million in the year ended December 31, 2017 to $22.7 million in the year ended December 31, 2018. The Bank’s annual net interest margin expanded from 3.50% in 2017 to 3.86% in 2018. Growth in average loans outstanding, which increased $50.7 million, or 12.2%, from $415.9 million in 2017 to $466.6 million in 2018, made up the bulk of growth in average interest-earning assets, which increased $40.7 million, or 7.4%, from $547.6 million in 2017 to $588.3 million in 2018.

In the fourth quarter of 2018, core loan growth was concentrated in the commercial real estate portfolio which organically grew $3.1 million, or 1.2%, from $252.3 million as of September 30, 2018 to $255.4 million as of December 31, 2018, and commercial and industrial loans increased $73 thousand to $38.7 million as of December 31, 2018. Over the same period, the single-family residential portfolio, which consists primarily of purchased loans, increased $3.5 million, or 2.4%, from $147.2 million as of September 30, 2018 to $150.7 million as of December 31, 2018. Overall, the loan portfolio increased $59.4 million, or 13.9%, on an annual basis from $428 million as of December 31, 2017 to $487 million as of December 31, 2018, and increased $2.8 million or 0.6% in the fourth quarter of 2018.

“Our annual operating results reflect 6.5% growth in our core commercial and industrial and commercial real estate portfolios during 2018, which was complemented by purchases of high quality single-family residential loans” said Thomas E. Meyer, President and Chief Executive Officer. ” We have recently announced the addition of several highly experienced relationship bankers, who we believe will further enhance our relationship banking model. We see good lending opportunities in our key markets, while adhering to our credit discipline.”

Total deposits increased $12.6 million, or 2.3%, to $560.5 million as of December 31, 2018, from $547.9 million as of September 30, 2018, and increased $34.4 million, or 6.5%, from $526.1 million as of December 31, 2017. The Bank’s cost of funds increased from 0.12% for the year ended December 31, 2017 to 0.15% for the year ended December 31, 2018, reflecting increases in certificate of deposit costs during the second half of 2018.

“Our noninterest-bearing deposits made up 50.3% of our total deposits at December 31, 2018 and are the primary driver of our continued low cost of funds,” said Michael J. Winiarski, Executive Vice President and Chief Financial Officer, “although we expect deposit pricing pressure to continue into 2019.”

NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES

Net interest income before provision for credit losses was $6.13 million in the fourth quarter of 2018, an increase of $1.01 million, or 19.7%, compared to $5.12 million in the fourth quarter of 2017 and an increase of $236 thousand, or 4.0%, compared to $5.89 million in the third quarter of 2018.

Average earning assets were $606.2 million during the fourth quarter of 2018, an increase of 0.95% compared to $600.5 million in the third quarter of 2018. The yield on earning assets was 4.18% in the fourth quarter, compared to 4.05% in the third quarter of 2018, primarily due to an increase in the yield on loans from 4.45% to 4.60%; and secondly, to an increase in the yield of the investment portfolio from 2.26% to 2.48%. The average balance of the investment portfolio decreased $374 thousand, from $70.2 million in the third quarter of 2019 to $69.8 million in the fourth quarter of 2018, reflecting normal amortization and prepayments on the Bank’s investments in mortgage-backed securities and collateralized mortgage obligations, offset by $4.1 million in investment purchases.

The cost of interest-bearing liabilities increased to 0.36% during the fourth quarter of 2018, from 0.30% during the third quarter of 2018, and 0.22% during the fourth quarter of 2017. The average balance of interest-bearing liabilities increased from $271.2 million in the fourth quarter of 2017 to $307.6 million in the third quarter of 2018 and decreased to $284.9 million in the fourth quarter of 2018. The Bank experienced normal seasonal fluctuations in deposits, particularly from larger depositors, and managed its leverage ratio, primarily with Promontory Interfinancial Network’s Insured Cash Sweep program, which had off-balance sheet quarter-end balances of $25.6 million, $109.0 million, and $61.0 million in the fourth quarter of 2017 and the third and fourth quarters of 2018, respectively. These funds may be moved back into the Bank’s deposit portfolio at the Bank’s discretion. The average balance of noninterest-bearing demand deposit accounts (“DDAs”) increased from $249.5 million, or 44.8% of total deposits, in the third quarter of 2018 to $276.9 million, or 49.3% of total deposits, in the fourth quarter of 2018. The Bank’s overall cost of funds increased, from 0.11% in the fourth quarter of 2017 to 0.17% in the third quarter of 2018 and 0.18% in the fourth quarter of 2018.

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 management’s estimate of probable incurred credit losses inherent in the loan portfolio as of the balance sheet date in light of losses historically incurred by the Bank and adjusted for qualitative factors associated with the loan portfolio.

For the year ended December 31, 2018, the Bank recorded a provision for loan losses of $120 thousand, compared to a provision for loan losses of $175 thousand in the year ended December 31, 2017. In the fourth quarter of 2018, the Bank recorded a provision for loan losses of $100 thousand, compared to no provision in the third quarter of 2018, and a provision of $65 thousand in the fourth quarter of 2017. The fourth quarter provision was recorded primarily to recognize increased uncertainty in the overall economy, evidenced by the declining stock market and weakening markets internationally.

The changes in the provision reflect the growth of the portfolio, changes in the mix of loan types within the portfolio and their respective loss histories, as well as management’s assessment of the amounts expected to be realized from certain loans identified as impaired. Impaired loans totaled $3.0 million at December 31, 2018, compared to $3.3 million at September 30, 2018, and $5.2 million at December 31, 2017.

At December 31, 2018, non-performing loans were 0.56% of the total loan portfolio, compared to 0.60% at September 30, 2018 and 0.06% at December 30, 2017. The Bank recorded net recoveries of $13 thousand in the fourth quarter of 2018, compared to recoveries of $12 thousand during the third quarter of 2018 and the fourth quarter of 2017, respectively. At December 31, 2018, the allowance for loan losses was 1.35% of outstanding loans, compared to 1.33% at September 30, 2018 and 1.49% at December 31, 2017, respectively.

NON-INTEREST INCOME

Annual non-interest income increased 72.1%, from $1.16 million in the year ended December 31, 2017 to $1.99 million in the year ended December 31, 2018. Non-interest income recognized in the fourth quarter of 2018 was $541 thousand, including $59 thousand in gain on sale of Small Business Administration (“SBA”) guaranteed loans, compared to $471 thousand in the third quarter of 2018, which did not include a gain on sale. This represents an increase of $70 thousand, or 14.9%, compared to third quarter of 2018, and an increase of $230 thousand, or 73.9%, compared to the fourth quarter of 2017.

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. On an annual basis, the increase in non-interest income included a 22.9% increase in service charges on deposits, including lockbox and analysis fees, from $243 thousand to $299 thousand, a 26.8% decrease in gain on sale of loans, from $266 thousand to $194 thousand, and a 201.6% increase in other income, from $426 thousand to $1.29 million for the years ended December 31, 2017 and 2018, respectively. The increase in other income was attributable to increases in mortgage brokerage fees from $21 thousand to $80 thousand for 2017 and 2018, respectively, as well as an increase of $759 thousand in fees associated with its participation in the ICS reciprocal and one-way sell deposits program.

NON-INTEREST EXPENSES

Non-interest expenses decreased $83 thousand, or 2.1%, to $3.89 million in the fourth quarter of 2018, compared to $3.97 million for the third quarter of 2018, and increased $312 thousand, or 8.72%, compared to $3.57 million recognized in the fourth quarter of 2017. Salaries and benefits increased $41 thousand, or 1.65%, from $2.48 million in the third quarter of 2018 to $2.52 million in the fourth quarter of 2018.

For the year ended December 31, 2018, non-interest expenses were $15.57 million, an increase of $1.55 million, or 11.1%, compared to $14.02 million recognized in the year ended December 31, 2017. Salaries and benefits increased $1.36 million, or 15.6%, from $8.71 million to $10.07 million over the same period, reflecting an increase in average headcount from 78 employees for the year ended December 31, 2017 to 83 employees for the year ended December 31, 2018, as well as increases in insurance and benefit costs. These increases reflect the hiring primarily of loan production and underwriting personnel, including new regional leaders and additionally a new compliance manager. The Bank’s professional services expense decreased $172 thousand, or 23.8%, to $550 thousand in 2018, from $722 thousand in 2017, primarily because of the reduction in regulatory compliance consulting fees resulting from the aforementioned new full-time compliance manager.

The efficiency ratio (non-interest expenses divided by the sum of net interest income before provision for loan losses and non-interest income) was 58.3% for the fourth quarter of 2018, compared to 62.4% for the third quarter of 2018 and 65.8% for the fourth quarter of 2017. Annualized non-interest expenses as a percent of average total assets were 2.48%, 2.56%, and 2.49% for the fourth quarter of 2018, the third quarter of 2018, and the fourth quarter of 2017, respectively.

PROVISION FOR INCOME TAXES

The Bank’s effective book tax rate was 27.7% in the fourth quarter of 2018, compared to 27.3% for the third quarter of 2018 and 89.8% for the fourth quarter of 2017. The higher effective rate in the fourth quarter of 2017 reflected a $913 thousand increase in income tax expense resulting in an adjustment to the Bank’s net deferred tax assets resulting from the lowering of the corporate tax rate from 35% to 21% during December, 2017.

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 150 Main Street, Suite 150, Salinas, California 93901. 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

Michael J. Winiarski

President and Chief Executive Officer

Chief Financial Officer

831.264.4057 office

831.264.4014 office

Tom.Meyer@1stCapitalBank.com

Michael.Winiarski@1stCapitalBank.com

1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands, except per share data)

December 31,

September 30,

June 30,

December 31,

Financial Condition Data1

2018

2017

Assets

Cash
and due from banks

$
6,476

$
5,408

$
5,078

$
7,727

Funds held at the Federal Reserve Bank2

45,625

33,571

45,124

56,249

Time
deposits at other financial institutions

–

996

1,743

Available-for-sale securities, at fair value

70,263

68,154

71,102

74,927

Loans receivable held for sale

–

1,000

–

Loans receivable held for investment:

Construction / land (including farmland)

21,353

22,396

16,866

16,301

Residential 1 to 4 units

150,677

147,205

140,124

115,340

Home
equity lines of credit

8,008

7,853

6,655

8,832

Multifamily

53,181

53,984

56,101

51,983

Owner occupied commercial real estate

62,976

65,628

64,048

67,326

Investor commercial real estate

139,261

131,736

128,289

105,196

Commercial and industrial

38,745

38,672

45,051

51,663

Other loans

13,189

17,127

16,956

11,292

Total loans

487,390

484,601

474,090

427,933

Allowance for loan losses

(6,548
)

(6,435
)

(6,423
)

(6,378
)

Net
loans

480,842

478,166

467,667

421,555

Premises and equipment, net

2,087

2,109

2,239

2,308

Bank
owned life insurance

7,866

7,813

7,759

7,654

Investment in FHLB3 stock, at cost

3,163

Accrued interest receivable and other assets

5,965

6,255

5,512

4,905

Total
assets

$
622,287

$
606,635

$
609,640

$
580,231

Liabilities and shareholders’ equity

Deposits:

Noninterest bearing demand deposits

$
281,695

$
248,036

$
247,247

$
261,705

Interest bearing checking accounts

33,144

35,274

31,693

35,082

Money market deposits

129,064

139,037

144,069

107,101

Savings deposits

99,340

109,530

117,155

110,058

Time
deposits

17,254

16,010

12,717

12,130

Total deposits

560,497

547,887

552,881

526,076

Accrued interest payable and other liabilities

2,625

2,344

2,093

2,163

Shareholders’ equity

59,165

56,404

54,666

51,992

Total
liabilities and shareholders’ equity

$
622,287

$
606,635

$
609,640

$
580,231

Shares outstanding

5,105,784

5,041,058

5,035,423

5,014,577

Nominal and tangible book value per share

$
11.59

$
11.19

$
10.86

$
10.37

Ratio
of net loans to total deposits

85.79
%

87.27
%

84.59
%

80.13
%

1 = Loans receivable 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 per share data)

Three Months Ended

December 31,

September 30,

June 30,

December 31,

Operating Results Data

2018

2017

Interest and dividend income

Loans

$
5,611

$
5,448

$
5,093

$
4,769

Investment securities

436

404

382

313

Federal Home Loan Bank stock

107

Other

236

222

143

130

Total interest and dividend income

6,390

6,128

5,672

5,268

Interest expense

Interest bearing checking

Money market deposits

134

123

Savings deposits

Time
deposits

Total interest expense on deposits

260

234

172

148

Interest expense on borrowings

–

Total interest expense

260

234

172

148

Net
interest income

6,130

5,894

5,500

5,120

Provision for loan losses

100

–

Net
interest income after provision

for
loan losses

6,030

5,894

5,500

5,055

Noninterest income

Service charges on deposits

BOLI
dividend income

Gain
on sale of loans

–

Other

351

339

407

106

Total noninterest income

541

471

597

311

1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands, except per share data)

Three Months Ended

December 31,

September 30,

June 30,

December 31,

2018

2017

Noninterest expenses

Salaries and benefits

2,523

2,482

2,583

2,194

Occupancy

292

299

288

282

Data
and item processing

193

204

197

183

Professional services

119

161

132

168

Furniture and equipment

116

137

123

120

Provision for unfunded loan

commitments

–

Other

633

682

683

611

Total noninterest expenses

3,886

3,969

4,006

3,575

Income before provision for income taxes

2,685

2,396

2,091

1,791

Provision for income taxes

745

654

581

1,609

Net
income

$
1,940

$
1,742

$
1,510

$
182

Common Share Data1

Earnings per common share

Basic

$
0.38

$
0.35

$
0.30

$
0.04

Diluted

$
0.38

$
0.34

$
0.29

$
0.04

Weighted average common shares outstanding

Basic

5,081,260

5,038,340

5,028,336

5,008,614

Diluted

5,166,613

5,147,292

5,130,832

5,097,412

1 = Earnings per common share and weighted average common shares outstanding have been restated to reflect the effect of the 7% stock dividend to shareholders of record November 21, 2018 and paid December 14, 2018.

1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands, except per share data)

Twelve Months Ended

December 31,

Operating Results Data

2018

2017

Interest and dividend income

Loans

$
20,921

$
17,860

Investment securities

1,590

1,131

Federal Home Loan Bank stock

273

235

Other

774

536

Total interest and dividend income

23,558

19,762

Interest expense

Interest bearing checking

Money market deposits

411

308

Savings deposits

305

260

Time
deposits

Total interest expense in deposits

823

620

Interest expense on borrowings

–

Total interest expense

826

620

Net
interest income

22,732

19,142

Provision for loan losses

120

175

Net
interest income after provision for loan losses

22,612

18,967

Noninterest income

Service charges on deposits

299

243

BOLI
dividend income

212

221

Gain
on sale of loans

194

266

Other

1,285

426

Total noninterest income

1,990

1,156

1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands, except per share data)

Twelve Months Ended

December 31,

December 30,

2018

2017

Noninterest expenses

Salaries and benefits

10,069

8,712

Occupancy

1,169

1,057

Data
and item processing

791

726

Professional services

550

722

Furniture and equipment

502

485

Provision for unfunded loan commitments

Other

2,654

2,280

Total noninterest expenses

15,743

14,018

Income before provision for income taxes

8,859

6,105

Provision for income taxes

2,428

3,260

Net
income

$
6,431

$
2,845

Common Share Data1

Earnings per common share

Basic

$
1.28

$
0.57

Diluted

$
1.25

$
0.56

Weighted average common shares outstanding

Basic

5,042,023

4,962,200

Diluted

5,138,947

5,039,172

1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands)

December 31,

September 30,

June 30,

December 31,

Asset Quality

2018

2017

Loans past due 90 days or more and accruing

interest

$
–

Nonaccrual restructured loans

–

Other nonaccrual loans

2,711

2,906

198

255

Other real estate owned

–

$
2,711

$
2,906

$
198

$
255

Allowance for loan losses to total loans

1.35
%

1.33
%

1.35
%

1.49
%

Allowance for loan losses to nonperforming loans

241.53
%

221.44
%

3,243.94
%

2,501.18
%

Nonaccrual loans to total loans

0.56
%

0.60
%

0.04
%

0.06
%

Nonperforming assets to total assets

0.44
%

0.48
%

0.03
%

0.04
%

Regulatory Capital and Ratios

Common equity tier 1 capital

$
59,565

$
57,166

$
55,240

$
52,097

Tier
1 regulatory capital

$
59,565

$
57,166

$
55,240

$
52,097

Total regulatory capital

$
65,177

$
62,747

$
60,673

$
57,161

Tier
1 leverage ratio

9.55
%

9.35
%

9.14
%

Common equity tier 1 risk based capital ratio

13.30
%

12.83
%

12.74
%

12.91
%

Tier
1 risk based capital ratio

13.30
%

12.83
%

12.74
%

12.91
%

Total risk based capital ratio

14.55
%

14.09
%

14.00
%

14.16
%

Three Months Ended

December 31,

September 30,

June 30,

December 31,

Selected Financial Ratios1

2018

2017

Return on average total assets

1.24
%

1.12
%

1.03
%

0.13
%

Return on average shareholders’ equity

13.33
%

12.38
%

11.25
%

1.38
%

Net
interest margin

4.01
%

3.89
%

3.84
%

3.68
%

Net
interest income to average total assets

3.91
%

3.80
%

3.74
%

3.56
%

Efficiency ratio

58.26
%

62.36
%

65.70
%

65.83
%

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

Three Months Ended

December 31,

September 30,

June 30,

December 31,

Selected Average Balances

2018

2017

Gross loans

$
484,041

$
480,621

$
459,931

$
431,144

Investment securities

69,778

70,152

70,500

73,586

Federal Home Loan Bank stock

3,163

Other interest earning assets

49,212

46,534

41,454

44,568

Total interest earning assets

$
606,194

$
600,470

$
575,048

$
552,461

Total assets

$
622,259

$
615,388

$
590,041

$
569,812

Interest bearing checking accounts

$
36,273

$
34,883

$
34,207

$
36,702

Money market deposits

124,924

140,443

124,057

112,179

Savings deposits

106,889

117,023

120,962

109,936

Time
deposits

16,828

15,216

12,763

12,368

Total interest bearing deposits

284,914

307,565

291,989

271,185

Noninterest bearing demand deposits

276,866

249,488

241,852

243,874

Total deposits

$
561,780

$
557,053

$
533,841

$
515,059

Borrowings

$
–

$
1

Shareholders’ equity

$
57,751

$
55,858

$
53,844

$
52,365

1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands)

Twelve Months Ended

December 31,

Selected Financial Ratios

2018

2017

Return on average total assets

1.07
%

0.51
%

Return on average shareholders’ equity

11.67
%

5.65
%

Net
interest margin

3.86
%

3.50
%

Net
interest income to average total assets

3.77
%

3.41
%

Efficiency ratio

63.68
%

69.06
%

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

Twelve Months Ended

December 31,

Selected Average Balances

2018

2017

Gross loans

$
466,572

$
415,893

Investment securities

71,063

74,408

Federal Home Loan Bank stock

3,163

3,093

Other interest earning assets

47,481

54,228

Total interest earning assets

$
588,279

$
547,622

Total assets

$
603,319

$
561,427

Interest bearing checking accounts

$
35,258

$
34,641

Money market deposits

126,268

120,229

Savings deposits

116,264

110,477

Time
deposits

14,352

12,908

Total interest bearing deposits

292,142

278,255

Noninterest bearing demand deposits

253,399

230,951

Total deposits

$
545,541

$
509,206

Borrowings

$
230

$
11

Shareholders’ equity

$
55,085

$
50,356

SOURCE: 1st Capital Bank

ReleaseID: 534123

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