1st Capital Bank Announces Fourth Quarter 2016 Financial Results; Record Quarterly Net Income of $1.03 Million and Earnings per Share (Diluted) of $0.23

MONTEREY, CA / ACCESSWIRE / January 31, 2017 / 1st Capital Bank (OTC PINK: FISB) reported unaudited net income of $1.03 million for the three months ended December 31, 2016, an increase of 52.8% compared to net income of $674 thousand in the three months ended December 31, 2015 and an increase of 59.7% compared to net income of $645 thousand in the three months ended September 30, 2016, the immediately preceding quarter. Earnings per share were $0.23 (diluted), compared to $0.15 (diluted) for the prior quarter.

Unaudited net income for the year ended December 31, 2016 increased 28.9% to $3.07 million, compared to $2.38 million for the year ended December 31, 2015, when operating results included $249 thousand of non-recurring, non-taxable bank-owned life insurance benefits.

Net interest income before provision for loan losses for the three-month period ended December 31, 2016 was $4.57 million, an increase of $390 thousand, or 9.3% compared to $4.18 million recognized in the three-month period ended September 30, 2016. On a year-over-year basis, quarterly net interest income before provision for loan losses increased $555 thousand, or 13.8%, from $4.02 million recognized in the fourth quarter of 2015. For the year ended December 31, 2016, net interest income before provision for loan losses increased 12.9%, from $15.04 million in the year ended December 31, 2015 to $16.98 million in the year ended December 31, 2016. Average gross loans outstanding increased $19 million, to $409 million for the three months ended December 31, 2016 from $390 million for the three months ended September 30, 2016, and increased $32 million, or 8.6%, from an average balance of $377 million for the three months ended December 31, 2015. Net interest margin increased from 3.20% in the third quarter of 2016 to 3.41% in the fourth quarter of 2016.

Annual loan growth was concentrated in commercial real estate loans, which organically grew $22 million, or 12.4%, in 2016, from $176 million as of December 31, 2015 to $198 million as of December 31, 2016. Over the same period, commercial and industrial loans grew $3 million, or 6.3%, from $43 million as of December 31, 2015 to $45 million as of December 31, 2016, while the single-family residential portfolio, which consists primarily of purchased loans, decreased $1 million, or 0.6%, from $133 million as of December 31, 2015 to $132 million as of December 31, 2016. Overall, the loan portfolio increased $29 million, or 7.6%, from $377 million as of December 31, 2015 to $405 million as of December 31, 2016.

For the year ended December 31, 2016, the Bank recorded a provision for loan losses of $295 thousand, compared to a provision for loan losses of $565 thousand in the year ended December 31, 2015. The Bank did not record a provision for loan losses in the fourth quarter of 2016 or 2015, while it recorded a provision for loan losses of $255 thousand in the third quarter of 2016. Non-performing assets declined from $1.7 million as of December 31, 2015 and $1.6 million as of September 30, 2016 to $139 thousand as of December 31, 2016.

“Our fourth quarter operating results are a reflection of the success we have had in building our team of skilled relationship managers and their success in expanding our core loan portfolio in 2016,” said Thomas E. Meyer, President and Chief Executive Officer. “Our gross loans outstanding now exceed $400 million, and our core commercial and industrial and commercial real estate portfolios make up an increasing percentage of the total. This growth in our core business, while maintaining the Bank’s exceptional asset quality, is the key to our increased momentum.”

Total deposits increased $25 million, or 5.3% to $500 million as of December 31, 2016, from $475 million as of September 30, 2016, and increased $32 million, or 6.9% from $468 million as of December 31, 2015. In addition to the $500 million carried on the Bank’s balance sheet as of December 31, 2016, the Bank manages $24 million in additional deposits placed into Promontory Interfinancial Network’s Insured Cash Sweep (“ICS”) product, compared to $27 million as of September 30, 2016 and $0 as of December 31, 2015. These funds may be moved back into the Bank’s deposit portfolio at the Bank’s discretion.

“During the fourth quarter, our reported operating results were enhanced by certain non-recurring items, including $78 thousand in interest income recognized in connection with the payoff of a non-accrual loan, a special dividend of $117 declared by the Federal Home Loan Bank of San Francisco, and the resolution of a dispute involving Enterprise Zone income tax credits with the California Franchise Tax Board that reduced our provision for income taxes by $69 thousand,” said Michael J. Winiarski, Chief Financial Officer. “In addition, demand deposits as of December 31, 2016 include $20 million received shortly before year-end that we believe are transitory in nature.”

NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES

Net interest income before provision for credit losses was $4.57 million in the fourth quarter of 2016, an increase of $555 thousand, or 13.8%, compared to $4.02 million in the fourth quarter of 2015 and an increase of $390 thousand, or 9.3%, compared to $4.18 million in the third quarter of 2016.

Average earning assets were $533 million during the fourth quarter of 2016, an increase of 2.6% compared to $519 million in the third quarter of 2016. The yield on earning assets was 3.53% in the fourth quarter, compared to 3.33% in the third quarter of 2016, primarily due to an increase in the average balance of loans from $390 million in the third quarter of 2016 to $409 million in the fourth quarter of 2016. 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. The average balance of the investment portfolio decreased $5 million, from $87 million in the third quarter of 2016 to $82 million in the fourth quarter of 2016, 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.

The cost of interest-bearing liabilities declined from 0.23% in the fourth quarter of 2015 and the third quarter of 2016 to 0.22% in the fourth quarter of 2016, while the average balance of interest-bearing liabilities decreased from $282 million in the third quarter of 2016 to $277 million in the fourth quarter of 2016, as the Bank experienced a seasonal decrease in deposits, particularly from larger depositors. The average balance of noninterest-bearing demand deposit accounts (“DDAs”) increased from $194 million, or 40.8% of total deposits, in the third quarter of 2016 to $215 million, or 43.7% of total deposits, in the fourth quarter of 2016. The Bank’s overall cost of funds decreased, from 0.14% in the fourth quarter of 2015 to 0.13% in the third and fourth quarters of 2016.

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 fourth quarter of 2016 or 2015, whereas in the third quarter of 2016, the Bank recorded a $255 thousand provision for losses, primarily to recognize the increased exposure to credit losses associated with growth in the loan portfolio.

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 $8.0 million at December 31, 2016, compared to $9.5 million at September 30, 2016, and $9.1 million at December 31, 2015.

At December 31, 2016, non-performing loans were 0.03% of the total loan portfolio, compared to 0.39% at September 30, 2016 and 0.46% at December 31, 2015. At December 31, 2016, the allowance for loan losses was 1.55% of outstanding loans, compared to 1.52% at September 30, 2016 and 1.57% at December 31, 2015, respectively. The Bank recorded net recoveries of $12 thousand in the fourth quarter of 2016, compared to net recoveries of $13 thousand in the third quarter of 2016 and net charge-offs of $4 thousand in the fourth quarter of 2015.

NON-INTEREST INCOME

Non-interest income recognized in the fourth quarter of 2016 was $183 thousand, including $78 thousand in gain on sale of Small Business Administration guaranteed loans, compared to $75 thousand in the third quarter of 2016, when no gain on sale was recognized. This represents an increase of $108 thousand compared to third quarter of 2016, and an increase of $109 thousand compared to the fourth quarter of 2015.

NON-INTEREST EXPENSES

Non-interest expenses increased $226 thousand, or 7.8%, to $3.14 million in the fourth quarter of 2016, compared to $2.91 million for the third quarter of 2016, and increased $194 thousand, or 6.6%, compared to $2.95 million recognized in the fourth quarter of 2015. Salaries and benefits increased $109 thousand, or 6.1%, from $1.80 million in the third quarter of 2016 to $1.91 million in the fourth quarter of 2016.

For the year ended December 31, 2016, non-interest expenses were $12.06 million, an increase of $797 thousand, or 7.1%, compared to $11.26 million recognized in the year ended December 31, 2015. Salaries and benefits increased $598 thousand, or 8.7%, from $6.89 million to $7.49 million over the same period, reflecting an increase in average headcount from 68 employees for the year ended December 31, 2015 to 74 employees for the year ended December 31, 2016, including the opening of a branch office in San Luis Obispo, California in June 2015.

The efficiency ratio (non-interest expenses divided by the sum of net interest income before provision for loan losses and non-interest income) was 66.0% for the fourth quarter of 2016, compared to 68.4% for the third quarter of 2016 and 72.0% for the fourth quarter of 2015. Annualized non-interest expenses as a percent of average total assets were 2.31%, 2.21%, and 2.33% for the fourth quarter of 2016, the third quarter of 2016, and the fourth quarter of 2015, respectively.

PROVISION FOR INCOME TAXES

The Bank’s effective book tax rate was 36.2% in the fourth quarter of 2016, compared to 40.7% for the third quarter of 2016 and 41.1% for the fourth quarter of 2015. The lower effective rate in the fourth quarter 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)

December 31,

September 30,

June 30,

December 31,

Financial Condition Data(1)

2016

2015

Assets

Cash and due from banks

$
2,754

$
3,585

$
33,927

$
3,334

Funds held at the Federal Reserve Bank(2)

50,884

17,482

32,219

42,857

Time deposits at other financial institutions

2,490

996

1,245

2,241

Available-for-sale securities, at fair value

77,870

84,175

89,178

84,203

Loans receivable held for investment:

Construction / land (including farmland)

18,993

16,453

15,655

17,499

Residential 1 to 4 units

120,983

127,010

112,899

124,741

Home equity lines of credit

11,609

11,578

8,805

8,594

Multifamily

53,338

53,763

49,868

36,862

Owner occupied commercial real estate

50,887

52,526

51,419

56,046

Investor commercial real estate

94,018

94,378

88,920

83,532

Commercial and industrial

45,219

47,440

49,530

42,528

Other loans

10,259

9,259

7,263

6,909

Total loans

405,306

412,407

384,359

376,711

Allowance for loan losses

(6,267
)

(6,255
)

(5,987
)

(5,921
)

Net loans

399,039

406,152

378,372

370,790

Premises and equipment, net

1,477

1,433

1,471

1,612

Bank owned life insurance

7,433

2,395

2,380

2,350

Investment in FHLB3 stock, at cost

2,939

2,593

Accrued interest receivable and other assets

5,541

4,551

4,313

3,970

Total assets

$
549,927

$
523,708

$
546,044

$
513,950

Liabilities and shareholders’ equity

Deposits:

Noninterest bearing demand deposits

$
239,799

$
191,079

$
194,904

$
204,624

Interest bearing checking accounts

33,888

36,479

28,742

29,838

Money market deposits

113,289

120,181

146,228

110,490

Savings deposits

100,601

113,052

112,934

94,315

Time deposits

13,044

14,503

15,298

29,121

Total deposits

500,621

475,294

498,106

468,388

Accrued interest payable and other liabilities

1,661

1,403

1,672

1,073

Shareholders’ equity

47,645

47,011

46,266

44,489

Total liabilities and shareholders’ equity

$
549,927

$
523,708

$
546,044

$
513,950

Shares outstanding

4,350,721

4,127,686

4,090,186

4,064,485

Nominal and tangible book value per share

$
10.96

$
11.23

$
11.11

$
10.95

Ratio of net loans held for investment

to total deposits

79.71
%

85.45
%

75.96
%

76.16
%

(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

December 31,

September 30,

June 30,

December 31,

Operating Results Data(1)

2016

2015

Interest and dividend income

Loans

$
4,298

$
4,028

$
3,933

$
3,938

Investment securities

213

203

190

160

Federal Home Loan Bank stock

169

Other

100

Total interest and dividend income

4,728

4,343

4,285

4,179

Interest expense

Interest bearing checking

Money market deposits

112

Savings deposits

Time deposits

Total interest expense on deposits

156

161

205

160

Interest expense on borrowings

—

Total interest expense

156

161

205

162

Net interest income

4,572

4,182

4,080

4,017

Provision for loan losses

—

255

—

Net interest income after provision

for loan losses

4,572

3,927

4,040

4,017

Noninterest income

Service charges on deposits

BOLI dividend income

Gain on sale of loans

—

Gain on sale of securities

—

Other

Total noninterest income

183

104

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

Three Months Ended

December 31,

September 30,

June 30,

December 31,

2016

2015

Noninterest expenses

Salaries and benefits

1,910

1,801

1,883

1,817

Occupancy

250

231

216

219

Data and item processing

154

149

151

149

Professional services

205

108

142

132

Furniture and equipment

127

114

112

127

Provision for unfunded loan

commitments

(9
)

(10
)

(25
)

Other

503

521

496

483

Total noninterest expenses

3,140

2,914

2,975

2,946

Income before provision for income taxes

1,615

1,088

1,169

1,145

Provision for income taxes

585

443

480

471

Net income

$
1,030

$
645

$
689

$
674

Common Share Data(2)

Earnings per share

Basic

$
0.24

$
0.15

$
0.16

Diluted

$
0.23

$
0.15

$
0.16

Weighted average shares outstanding

Basic

4,340,153

4,329,406

4,311,116

4,255,278

Diluted

4,392,963

4,377,177

4,357,571

4,338,245

(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, except share and per share data)

Twelve Months Ended

December 31,

Operating Results Data(1)

2016

2015

Interest and dividend income

Loans

$
16,279

$
14,732

Investment securities

796

617

Federal Home Loan Bank stock

347

279

Other

266

Total interest and dividend income

17,688

15,710

Interest expense

Interest bearing checking

Money market deposits

352

319

Savings deposits

297

280

Time deposits

Total interest expense in deposits

702

661

Interest expense on borrowings

—

Total interest expense

702

665

Net interest income

16,986

15,045

Provision for loan losses

295

565

Net interest income after provision for loan losses

16,691

14,480

Noninterest income

Service charges on deposits

140

123

BOLI dividend income

BOLI benefits

—

249

Gain on sale of loans

100

Gain on sale of securities

—

Other

102

Total noninterest income

431

610

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

Twelve Months Ended

December 31,

2016

2015

Noninterest expenses

Salaries and benefits

7,488

6,890

Occupancy

919

841

Data and item processing

602

596

Professional services

537

532

Furniture and equipment

476

459

Provision for unfunded loan commitments

(29
)

Other

2,069

1,916

Total noninterest expenses

12,062

11,265

Income before provision for income taxes

5,060

3,825

Provision for income taxes

1,992

1,444

Net income

$
3,068

$
2,381

Common Share Data(2)

Earnings per share

Basic

$
0.71

$
0.56

Diluted

$
0.70

$
0.55

Weighted average shares outstanding

Basic

4,314,335

4,226,917

Diluted

4,363,723

4,296,133

(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)

December 31,

September 30,

June 30,

December 31,

Asset Quality

2016

2015

Loans past due 90 days or more and accruing

interest

$
—

Nonaccrual restructured loans

—

1,465

1,491

1,526

Other nonaccrual loans

139

154

248

205

Other real estate owned

—

$
139

$
1,619

$
1,739

$
1,731

Allowance for loan losses to total loans

1.55
%

1.52
%

1.56
%

1.57
%

Allowance for loan losses to nonperforming loans

4,508.63
%

386.35
%

344.28
%

342.06
%

Nonaccrual loans to total loans

0.03
%

0.39
%

0.45
%

0.46
%

Nonperforming assets to total assets

0.03
%

0.31
%

0.32
%

0.34
%

Regulatory Capital and Ratios

Common equity tier 1 capital

$
48,093

$
46,924

$
46,143

$
44,258

Tier 1 regulatory capital

$
48,093

$
46,924

$
46,143

$
44,258

Total regulatory capital

$
52,740

$
51,469

$
50,447

$
48,461

Tier 1 leverage ratio

8.89
%

8.94
%

8.33
%

8.82
%

Common equity tier 1 risk based capital ratio

12.99
%

12.97
%

13.47
%

13.24
%

Tier 1 risk based capital ratio

12.99
%

12.97
%

13.47
%

13.24
%

Total risk based capital ratio

14.25
%

14.23
%

14.73
%

14.49
%

Three Months Ended

December 31,

September 30,

June 30,

December 31,

Selected Financial Ratios(1)

2016

2015

Return on average total assets

0.76
%

0.49
%

0.50
%

0.53
%

Return on average shareholders’ equity

8.59
%

5.48
%

6.01
%

6.04
%

Net interest margin

3.41
%

3.20
%

2.99
%

3.21
%

Net interest income to average total assets

3.36
%

3.17
%

2.96
%

3.17
%

Efficiency ratio

66.04
%

68.45
%

71.10
%

72.03
%

(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

2016

2015

Gross loans

$
409,396

$
389,580

$
383,020

$
376,956

Investment securities

82,195

87,364

77,748

86,974

Federal Home Loan Bank stock

2,939

2,848

2,593

Other interest earning assets

38,435

39,513

84,807

29,366

Total interest earning assets

$
532,982

$
519,396

$
548,423

$
495,889

Total assets

$
540,925

$
524,905

$
553,957

$
502,349

Interest bearing checking accounts

$
35,366

$
32,142

$
29,327

$
31,352

Money market deposits

114,818

121,476

146,985

114,281

Savings deposits

112,046

113,052

120,792

96,740

Time deposits

14,287

15,062

15,434

29,460

Total interest bearing deposits

276,517

281,732

312,538

271,833

Noninterest bearing demand deposits

214,675

194,335

193,762

183,569

Total deposits

$
491,192

$
476,067

$
506,300

$
455,402

Borrowings

$
—

$
65

$
12

$
2,283

Shareholders’ equity

$
47,722

$
46,844

$
46,071

$
44,308

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

Twelve Months Ended

December 31,

Selected Financial Ratios(1)

2016

2015

Return on average total assets

0.57
%

0.49
%

Return on average shareholders’ equity

6.61
%

5.51
%

Net interest margin

3.20
%

3.14
%

Net interest income to average total assets

3.16
%

3.10
%

Efficiency ratio

69.25
%

71.96
%

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

Twelve Months Ended

December 31,

Selected Average Balances(1)

2016

2015

Gross loans

$
390,544

$
352,971

Investment securities

81,707

96,676

Federal Home Loan Bank stock

2,830

2,411

Other interest earning assets

55,641

27,700

Total interest earning assets

$
530,722

$
479,758

Total assets

$
536,792

$
485,551

Interest bearing checking accounts

$
32,109

$
27,709

Money market deposits

126,528

118,298

Savings deposits

113,795

94,087

Time deposits

16,519

29,868

Total interest bearing deposits

288,952

269,963

Noninterest bearing demand deposits

199,641

169,419

Total deposits

$
488,593

$
439,381

Borrowings

$
19

$
2,056

Shareholders’ equity

$
46,436

$
43,244

(1) = Certain reclassifications have been made to prior period financial statements to conform them to the current period presentation.

SOURCE: 1st Capital Bank

ReleaseID: 453992

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