1st Capital Bank Announces Fourth Quarter 2019 Financial Results; Record Annual Net Income

SALINAS, CA / ACCESSWIRE / January 31, 2020 / 1st Capital Bank (OTC Pink:FISB) reported unaudited net income of $1.73 million for the three months ended December 31, 2019, compared to net income of $1.94 million for the three months ended December 31, 2018 and net income of $1.94 million for the three months ended September 30, 2019, the immediately preceding quarter. Earnings per share were $0.31 (diluted), compared to $0.35 (diluted) for the prior quarter.

Unaudited net income for the year ended December 31, 2019 increased 10.2% to $7.09 million, compared to $6.43 million for the year ended December 31, 2018. Additionally, pre-tax income for 2019 increased to $9.65 million, 9.0% above 2018's pre-tax income of $8.86 million. Earnings per share were $1.27 (diluted) for the year ended December 31, 2019, compared to $1.17 (diluted) for the year ended December 31, 2018.

For the three months ended December 31, 2019, the Bank's return on average assets was 1.11% compared with 1.25% for the three months ended September 30, 2019, and 1.24% for the three months ended December 31, 2018. Return on average equity was 10.21% for the three months ended December 31, 2019, compared to 11.79% for the three months ended September 30, 2019, and 13.33% for the three months ended December 31, 2018.

Return on average assets and return on average equity totaled 1.15% and 11.09%, respectively for the year ended December 31, 2019, compared with 1.07% and 11.67%, respectively, for the year ended December 31, 2018.

"We are pleased to report record levels of assets and net income for 2019," said Thomas E. Meyer, President and Chief Executive Officer. "Loan growth continued to accelerate during the fourth quarter. However, decreases in both short-term and long-term interest rates negatively impacted our loan yields," Meyer added.

Net interest margin decreased from 4.05% in the third quarter of 2019 to 3.89% in the fourth quarter of 2019. Net interest income before provision for loan losses for the three-month period ended December 31, 2019 was $5.81 million, a decrease of $182 thousand, or 3.0%, compared to $5.99 million recognized in the three-month period ended September 30, 2019. On a year-over-year basis, quarterly net interest income before provision for loan losses decreased $321 thousand, or 5.2%, from $6.13 million recognized in the fourth quarter of 2018.

For the year ended December 31, 2019, net interest income before provision for loan losses increased 5.4%, from $22.7 million in the year ended December 31, 2018 to $24.0 million in the year ended December 31, 2019. The Bank's annual net interest margin expanded from 3.88% in 2018 to 4.03% in 2019. Growth in average loans outstanding, which increased $22.4 million, or 4.8%, from $466.6 million in 2018 to $489.0 million in 2019, made up the bulk of growth in average interest-earning assets, which increased $8.7 million, or 1.5%, from $588.3 million in 2018 to $596.9 million in 2019.

In the fourth quarter of 2019, core loan growth was concentrated in the commercial real estate portfolio, which organically grew $18.0 million, or 6.6%, from $271.8 million as of September 30, 2019 to $289.8 million as of December 31, 2019, and commercial and industrial loans, which increased $2.3 million to $41.1 million as of December 31, 2019. Over the same period, the single-family residential portfolio, which consists primarily of purchased loans, decreased $1.3 million, or 0.9%, from $141.9 million as of September 30, 2019 to $140.6 million as of December 31, 2019. Overall, the loan portfolio increased $23.5 million, or 4.8%, on an annual basis from $487.4 million as of December 31, 2018 to $510.9 million as of December 31, 2019, and increased $16.6 million or 3.4% in the fourth quarter of 2019.

Total deposits increased $6.4 million, or 1.1%, to $572.1 million as of December 31, 2019, from $565.7 million as of September 30, 2019, and increased $11.6 million, or 2.1%, from $560.5 million as of December 31, 2018. The Bank's cost of funds increased from 0.15% for the year ended December 31, 2018 to 0.21% for the year ended December 31, 2019, reflecting increases in certificate of deposit costs during 2019.

"While our cost of funds increased during 2019, the Bank continues to benefit from our noninterest bearing deposits comprising 49% of our total deposit base," said Michael J. Winiarski, Executive Vice President and Chief Financial Officer.

NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES

Net interest income before provision for credit losses was $5.81 million in the fourth quarter of 2019, a decrease of $321 thousand, or 5.2%, compared to $6.13 million in the fourth quarter of 2018 and a decrease of $182 thousand, or 3.0%, compared to $5.99 million in the third quarter of 2019.

Average earning assets were $595.3 million during the fourth quarter of 2019, an increase of 1.05% compared to $589.1 million in the third quarter of 2019. The yield on earning assets was 4.17% in the fourth quarter, compared to 4.22% in the third quarter of 2019, primarily due to a decrease in the yield on loans from 4.60% to 4.49%; and secondly, to a decrease in the yield on the investment portfolio from 2.54% to 2.46%. Additionally, the yield on floating rate commercial and industrial loans decreased from 5.72% during the third quarter of 2019 to 5.21% during the fourth quarter, commensurate with declines in the prime lending rate. The yield on the commercial real estate portfolio decreased to 4.87% from 4.97% the previous quarter.

The cost of interest-bearing liabilities increased to 0.45% during the fourth quarter of 2019, from 0.39% during the third quarter of 2019, and 0.36% during the fourth quarter of 2018. The average balance of interest-bearing liabilities increased from $284.9 million in the fourth quarter of 2018 to $286.9 million in the third quarter of 2019 and decreased to $277.5 million in the fourth quarter of 2019. The Bank experienced normal seasonal fluctuations in deposits, particularly from larger depositors, and continued to manage its leverage ratio, primarily with Promontory Interfinancial Network's Insured Cash Sweep program, which had off-balance sheet quarter-end balances of $61.0 million, $81.9 million, and $21.0 million in the fourth quarter of 2018 and the third and fourth quarters of 2019, 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 $257.0 million, or 47.3% of total deposits, in the third quarter of 2019 to $269.6 million, or 49.3% of total deposits, in the fourth quarter of 2019. The Bank's overall cost of funds increased, from 0.18% in the fourth quarter of 2018 to 0.20% in the third quarter of 2019 and 0.23% in the fourth quarter of 2019.

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, 2019, the Bank recorded no provision for loan losses, compared to a provision for loan losses of $120 thousand in the year ended December 31, 2018.

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 $652 thousand at December 31, 2019, compared to $181 thousand at September 30, 2019, and $3.0 million at December 31, 2018.

At December 31, 2019, non-performing loans were 0.10% of the total loan portfolio, compared to 0% at September 30, 2019 and 0.56% at December 30, 2018. The Bank recorded net recoveries of $12 thousand in the fourth quarter of 2019, compared to net recoveries of $9 thousand during the third quarter of 2019 and $13 thousand during the fourth quarter of 2018, respectively. At December 31, 2019, the allowance for loan losses was 1.29% of outstanding loans, compared to 1.33% at September 30, 2019 and 1.34% at December 31, 2018, respectively.

NON-INTEREST INCOME

Annual non-interest income decreased 3.9%, from $1.99 million in the year ended December 31, 2018 to $1.91 million in the year ended December 31, 2019. Non-interest income recognized in the fourth quarter of 2019 was $305 thousand, compared to $605 thousand in the third quarter of 2019, which included $93 thousand in gain on sales of loans and investments. Overall, this represents a decrease of $300 thousand, or 49.6%, compared to third quarter of 2019, and a decrease of $236 thousand, or 43.7%, compared to the fourth quarter of 2018.

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 decrease in non-interest income included a 8.1% increase in service charges on deposits, including lockbox and analysis fees, from $299 thousand to $323 thousand, a 48.2% decrease in gain on sale of loans and investments, from $195 thousand to $101 thousand, and an increase in mortgage brokerage fees from $80 thousand to $155 thousand for 2018 and 2019, respectively.

NON-INTEREST EXPENSES

Non-interest expenses decreased $216 thousand, or 5.5%, to $3.75 million in the fourth quarter of 2019, compared to $3.96 million for the third quarter of 2019, and decreased $141 thousand, or 3.6%, compared to $3.89 million recognized in the fourth quarter of 2018. Salaries and benefits decreased $315 thousand, or 12.9%, from $2.45 million in the third quarter of 2019 to $2.14 million in the fourth quarter of 2019, reflecting certain nonrecurring expenses incurred in the third quarter.

For the year ended December 31, 2019, non-interest expenses were $16.2 million, an increase of $465 thousand, or 3.0%, compared to $15.7 million recognized in the year ended December 31, 2018. Salaries and benefits decreased $106 thousand, or 1.1%, from $10.07 million to $9.96 million over the same period. This decrease primarily reflects increased absorption of direct loan origination costs associated with higher lending volume and revisions to the standard costs the Bank uses to capitalize such costs. Occupancy costs as well as furniture and equipment costs increased from $408 thousand during the fourth quarter of 2018 to $500 thousand during the fourth quarter of 2019. This 22.8% increase is attributable to the rents and other costs incurred in establishing a new branch and loan center in Santa Cruz and branch relocation costs in San Luis Obispo.

The efficiency ratio (non-interest expenses divided by the sum of net interest income before provision for loan losses and non-interest income) was 61.3% for the fourth quarter of 2019, compared to 60.1% for the third quarter of 2019 and 58.3% for the fourth quarter of 2018. Annualized non-interest expenses as a percent of average total assets were 2.45%, 2.56%, and 2.48% for the fourth quarter of 2019, the third quarter of 2019, and the fourth quarter of 2018, respectively.

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 and a loan production office in Santa Cruz County. 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
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

— financial data follow —

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

2019

2019

2019

2018

Assets

Cash and due from banks

$
6,198

$
5,947

$
5,994

$
6,476

Funds held at the Federal Reserve Bank2

46,155

47,529

56,057

45,625

Available-for-sale securities, at fair value

66,095

68,386

70,396

70,263

Loans receivable held for investment:

Construction / land (including farmland)

19,457

18,602

18,014

21,353

Residential 1 to 4 units

140,623

141,907

144,336

150,677

Home equity lines of credit

6,964

7,158

7,920

8,008

Multifamily

59,830

54,324

53,561

53,181

Owner occupied commercial real estate

70,622

63,587

61,242

62,976

Investor commercial real estate

159,350

153,849

142,533

139,261

Commercial and industrial

41,100

38,801

39,603

38,745

Other loans

12,943

16,042

14,468

13,189

Total loans

510,889

494,270

481,677

487,390

Allowance for loan losses

(6,594
)

(6,582
)

(6,572
)

(6,548
)

Net loans

504,295

487,688

475,105

480,842

Premises and equipment, net

2,102

2,131

2,192

2,087

Bank owned life insurance

8,071

8,020

7,968

7,866

Investment in FHLB3 stock, at cost

3,501

3,501

3,501

3,163

Accrued interest receivable and other assets

8,930

14,254

9,577

5,965

Total assets

$
645,347

$
637,456

$
630,790

$
622,287

Liabilities and shareholders' equity

Deposits:

Noninterest bearing demand deposits

$
280,634

$
255,369

$
270,939

$
281,695

Interest bearing checking accounts

35,804

47,148

36,721

33,144

Money market deposits

128,559

140,515

134,108

129,064

Savings deposits

107,677

103,224

100,049

99,340

Time deposits

19,395

19,399

19,694

17,254

Total deposits

572,069

565,655

561,511

560,497

Accrued interest payable and other liabilities

5,263

5,466

5,305

2,625

Shareholders' equity

68,015

66,335

63,974

59,165

Total liabilities and shareholders' equity

$
645,347

$
637,456

$
630,790

$
622,287

Shares outstanding

5,520,179

5,502,514

5,483,634

5,463,189

Nominal and tangible book value per share

$
12.32

$
12.06

$
11.67

$
10.83

Ratio of net loans to total deposits

88.15
%

86.22
%

84.61
%

85.79
%

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
4 = Some items in prior periods have been reclassified to conform to the current presentation.

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

2019

2019

2019

2018

Interest and dividend income

Loans

$
5,556

$
5,578

$
5,570

$
5,611

Investment securities

410

442

457

436

Federal Home Loan Bank stock

62

62

59

107

Other

91

187

166

236

Total interest and dividend income

6,119

6,269

6,252

6,390

Interest expense

Interest bearing checking

3

3

3

4

Money market deposits

159

125

140

134

Savings deposits

93

88

85

81

Time deposits

55

62

54

41

Total interest expense

310

278

282

260

Net interest income

5,809

5,991

5,970

6,130

Provision for loan losses

–

–

–

100

Net interest income after provision

for loan losses

5,809

5,991

5,970

6,030

Noninterest income

Service charges on deposits

76

88

82

78

BOLI dividend income

50

52

52

53

Gain on sale of loans

–

33

–

59

Gain on sale of investments

–

60

–

–

Other

179

372

394

351

Total noninterest income

305

605

528

541

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,

2019

2019

2019

2018

Noninterest expenses

Salaries and benefits

2,137

2,452

2,700

2,523

Occupancy

331

372

326

292

Data and item processing

231

220

284

193

Furniture and equipment

169

150

142

116

Professional services

235

143

108

119

Provision for unfunded loan

commitments

12

(7
)

(8
)

10

Other

630

630

711

633

Total noninterest expenses

3,745

3,960

4,263

3,886

Income before provision for income taxes

2,369

2,636

2,235

2,685

Provision for income taxes

634

698

597

745

Net income

$
1,735

$
1,938

$
1,638

$
1,940

Common Share Data1

Earnings per common share

Basic

$
0.32

$
0.35

$
0.30

$
0.36

Diluted

$
0.31

$
0.35

$
0.29

$
0.35

Weighted average common shares outstanding

Basic

5,506,349

5,492,657

5,478,457

5,436,948

Diluted

5,584,827

5,578,507

5,571,736

5,528,276

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 22, 2019 and paid December 20, 2019.

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

Twelve Months Ended

December 31,

December 31,

Operating Results Data

2019

2018

Interest and dividend income

Loans

$
22,385

$
20,921

Investment securities

1,765

1,590

Federal Home Loan Bank stock

239

273

Other

704

774

Total interest and dividend income

25,093

23,558

Interest expense

Interest bearing checking

12

15

Money market deposits

554

411

Savings deposits

357

305

Time deposits

220

92

Total interest expense in deposits

1,143

823

Interest expense on borrowings

–

3

Total interest expense

1,143

826

Net interest income

23,950

22,732

Provision for loan losses

–

120

Net interest income after provision for loan losses

23,950

22,612

Noninterest income

Service charges on deposits

323

299

BOLI dividend income

205

212

Gain on sale of loans

41

194

Gain on sale of investments

60

–

Other

1,283

1,285

Total noninterest income

1,912

1,990

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

Twelve Months Ended

December 31,

December 31,

2019

2018

Noninterest expenses

Salaries and benefits

9,963

10,069

Occupancy

1,335

1,169

Data and item processing

950

791

Furniture and equipment

617

502

Professional services

616

550

Provision for unfunded loan commitments

(18
)

8

Other

2,745

2,654

Total noninterest expenses

16,208

15,743

Income before provision for income taxes

9,654

8,859

Provision for income taxes

2,567

2,428

Net income

$
7,087

$
6,431

Common Share Data1

Earnings per common share

Basic

$
1.29

$
1.19

Diluted

$
1.27

$
1.17

Weighted average common shares outstanding

Basic

5,486,515

5,394,965

Diluted

5,571,351

5,498,673

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

December 31,

September 30,

June 30,

December 31,

Asset Quality

2019

2019

2019

2018

Loans past due 90 days or more and accruing

interest

$
–

$
–

$
–

$
–

Nonaccrual restructured loans

–

–

–

–

Other nonaccrual loans

492

–

–

2,711

Other real estate owned

–

–

–

–

$
492

$
–

$
–

$
2,711

Allowance for loan losses to total loans

1.29
%

1.33
%

1.36
%

1.34
%

Allowance for loan losses to nonperforming loans

1340.24
%

n/a

n/a

241.53
%

Nonaccrual loans to total loans

0.10
%

0.00
%

0.00
%

0.56
%

Nonperforming assets to total assets

0.08
%

0.00
%

0.00
%

0.44
%

Regulatory Capital and Ratios

Common equity tier 1 capital

$
67,471

$
65,536

$
63,446

$
59,565

Tier 1 regulatory capital

$
67,471

$
65,536

$
63,446

$
59,565

Total regulatory capital

$
73,487

$
71,377

$
69,077

$
65,177

Tier 1 leverage ratio

10.90
%

10.67
%

10.40
%

9.55
%

Common equity tier 1 risk based capital ratio

14.04
%

14.05
%

14.12
%

13.30
%

Tier 1 risk based capital ratio

14.04
%

14.05
%

14.12
%

13.30
%

Total risk based capital ratio

15.29
%

15.30
%

15.37
%

14.55
%

Three Months Ended

December 31,

September 30,

June 30,

December 31,

Selected Financial Ratios1

2019

2019

2019

2018

Return on average total assets

1.11
%

1.25
%

1.08
%

1.24
%

Return on average shareholders' equity

10.21
%

11.79
%

10.47
%

13.33
%

Net interest margin2

3.89
%

4.05
%

4.06
%

4.03
%

Net interest income to average total assets

3.72
%

3.87
%

3.92
%

3.91
%

Efficiency ratio

61.25
%

60.04
%

65.58
%

58.26
%

1 = All Selected Financial Ratios are annualized other than the Efficiency Ratio.
2 = Net interest margin calculated on a tax equivalent yield basis. Prior periods have been updated to conform to current presentation.

Three Months Ended

December 31,

September 30,

June 30,

December 31,

Selected Average Balances

2019

2019

2019

2018

Gross loans

$
501,995

$
481,402

$
484,676

$
484,041

Investment securities

67,695

68,949

70,033

69,778

Federal Home Loan Bank stock

3,501

3,501

3,415

3,163

Other interest earning assets

22,071

35,220

34,233

49,212

Total interest earning assets

$
595,262

$
589,072

$
592,357

$
606,194

Total assets

$
620,218

$
614,674

$
610,453

$
622,259

Interest bearing checking accounts

$
38,440

$
42,295

$
36,569

$
36,273

Money market deposits

113,313

113,151

125,529

124,924

Savings deposits

106,293

111,502

99,517

106,889

Time deposits

19,484

19,933

18,759

16,828

Total interest bearing deposits

277,530

286,881

280,374

284,914

Noninterest bearing demand deposits

269,597

256,989

262,225

276,866

Total deposits

$
547,127

$
543,870

$
542,599

$
561,780

Borrowings

$
–

$
–

$
–

$
–

Shareholders' equity

$
67,381

$
65,219

$
62,740

$
57,751

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

Twelve Months Ended

December 31,

December 31,

Selected Financial Ratios

2019

2018

Return on average total assets

1.15
%

1.07
%

Return on average shareholders' equity

11.09
%

11.67
%

Net interest margin2

4.03
%

3.88
%

Net interest income to average total assets

3.87
%

3.77
%

Efficiency ratio

62.67
%

63.68
%

Twelve Months Ended

December 31,

December 31,

Selected Average Balances

2019

2018

Gross loans

$
488,996

$
466,572

Investment securities

69,052

71,063

Federal Home Loan Bank stock

3,396

3,163

Other interest earning assets

35,496

47,481

Total interest earning assets

$
596,940

$
588,279

Total assets

$
618,384

$
603,319

Interest bearing checking accounts

$
37,916

$
35,258

Money market deposits

119,880

126,268

Savings deposits

106,130

116,264

Time deposits

19,075

14,352

Total interest bearing deposits

283,001

292,142

Noninterest bearing demand deposits

266,149

253,399

Total deposits

$
549,150

$
545,541

Borrowings

$
–

$
230

Shareholders' equity

$
63,930

$
55,085

SOURCE: 1st Capital Bank

ReleaseID: 574866

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