1st Capital Bank Announces Third Quarter 2019 Financial Results; Record Loan Portfolio

SALINAS, CA / ACCESSWIRE / October 31, 2019 / 1st Capital Bank (OTC Pink:FISB) reported unaudited net income of $1.94 million for the three months ended September 30, 2019, an increase of 11.3% compared to net income of $1.74 million in the third quarter of 2018 and an increase of 18.3% compared to net income of $1.64 million in the second quarter of 2019, the immediately preceding quarter. Earnings per common share were $0.37 (diluted), compared to $0.31 (diluted) for the prior quarter.

On a year-to-date basis, unaudited net income was $5.35 million for the nine months ended September 30, 2019, an increase of $861 thousand, or 19.2%, compared to $4.49 million for the nine months ended September 30, 2018. Earnings per common share were $1.03 (diluted) and $0.88 (diluted) for the nine-month periods ended September 30, 2019 and 2018, respectively.

For the three months ended September 30, 2019, the Bank's return on average assets was 1.25%, compared with 1.08% for the three months ended June 30, 2019, and 1.12% for the three months ended September 30, 2018. Return on average equity was 11.79% for the three months ended September 30, 2019, compared to 10.47% for the three months ended June 30, 2019, and 12.38% for the three months ended September 30, 2018.

Year-to-date return on average assets and return on average equity totaled 1.16% and 11.40%, respectively; compared with 1.01% and 11.08%, respectively, for the first nine months of 2018.

Net interest margin increased from 3.91% in the third quarter of 2018 to 4.05% in the third quarter of 2019, but declined slightly from 4.06% in the second quarter of 2019, primarily due to a decline in earning asset yield from 4.23% in the second quarter of 2019 to 4.22% in the third quarter of 2019. The Bank's average net loans-to-deposits ratio increased from 85.1% in the third quarter of 2018 to 87.3% in the third quarter of 2019, but declined from 88.1% in the second quarter of 2019, and average gross loans outstanding increased $0.8 million or 0.2%, year-to-year, from $480.6 million to $481.4 million. Net interest income before provision for loan losses for the three-month period ended September 30, 2019 was $5.99 million, a sequential increase of $20 thousand, or 0.3%, compared to $5.97 million recognized in the three-month period ended June 30, 2019. The Bank's cost of funds declined slightly, to 0.20% for the third quarter of 2019, compared to 0.21% for the second quarter of 2019, but increased from 0.17% in the third quarter of 2018. On a year-over-year basis, quarterly net interest income before provision for loan losses increased $97 thousand, or 1.6%, from $5.89 million recognized during the third quarter of 2018.

Net loans increased $12.6 million, or 2.6%, during the third quarter, from $475.1 million at June 30, 2019 to $487.7 million at September 30, 2019. Growth was concentrated in commercial real estate loans including multifamily loans ($14.4 million). Year over year, gross loans outstanding increased 2.0%, from $484.6 million as of September 30, 2018 to $494.3 million as of September 30, 2019. Growth in commercial real estate loans of $20.1 million was the primary driver of the loan growth during the past 12 months, which was partially offset by a $6.0 million decline in single-family residential loans. Yields on commercial and industrial loans increased from 5.50% during the third quarter of 2018 to 5.72% during the third quarter of 2019, but decreased from 6.02% during the second quarter of 2019, due to changes in the Bank's prime lending rate. Yields on commercial real estate loans increased from 4.81% during the third quarter of 2018 to 4.93% and 4.97% during the second and third quarters of 2019, respectively. The yield on the total loan portfolio increased from 4.50% during the third quarter of 2018 to 4.61% and 4.60% during the second and third quarters of 2019, respectively.

"We are pleased to report growth in our core loan portfolio in the third quarter," said Thomas E. Meyer, president and chief executive officer. "Recent additions to our experienced group of relationship managers have sourced quality new opportunities for us."

Non-interest income for the nine-month period ended September 30, 2019 increased 10.9% to $1.61 million, compared to $1.45 million for the nine-month period ended September 30, 2018. Quarterly non-interest income increased $134 thousand, or 28.5% year-over-year, to $605 thousand, compared to non-interest income of $471 thousand recognized in the third quarter of 2018, and increased $77 thousand, or 14.6% compared to non-interest income of $528 thousand recognized in the second quarter of 2019.

The Bank's efficiency ratio improved from 65.6% in the second quarter of 2019 to 60.0% in the third quarter of 2019, as the Bank's non-interest expenses decreased 7.1%, while total revenues grew nominally over the same period.

NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES

Net interest income before provision for credit losses was $5.99 million in the third quarter of 2019, an increase of $20 thousand, or 0.4%, compared to $5.97 million in the second quarter of 2019 and an increase of $97 thousand, or 1.6%, compared to $5.89 million in the third quarter of 2018. Net interest income before provision for credit losses for the nine months ended September 30, 2019 was $18.1 million, an increase of $1.54 million or 9.3%, compared to $16.6 million for the nine months ended September 30, 2018.

Average earning assets were $589.1 million during the third quarter of 2019, a decrease of 0.6% compared to $592.4 million in the second quarter of 2019. The yield on earning assets was 4.22% in the third quarter of 2019, compared to 4.05% in the third quarter of 2018, primarily due to an increase in the average yield of the loan portfolio from 4.50% in the third quarter of 2018 to 4.60% in the third quarter of 2019; and secondly, due to increase in yields in the investment portfolio. The average balance of the investment portfolio decreased $1.2 million, from $70.2 million in the third quarter of 2018 to $68.9 million in the third quarter of 2019, 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 2.28% in the third quarter of 2018 to 2.54% in the third quarter of 2019, but declined from 2.62% in the second quarter of 2019 as variable-rate mortgage-backed securities and collateralized mortgage obligations repriced downward in the third quarter.

The cost of interest-bearing liabilities increased from 0.30% in the third quarter of 2018, to 0.40% in the second quarter of 2019, and decreased marginally to 0.39% in the third quarter of 2019, while the average balance of interest-bearing liabilities decreased from $307.6 million in the third quarter of 2018 to $280.4 million in the second quarter of 2019, but increased to $286.9 million in the third quarter of 2019. The Bank experienced normal seasonal fluctuations in deposits, particularly from larger depositors, and managed its leverage ratio, primarily with the Insured Cash Sweep program, which had off-balance sheet quarter-end balances of $109 million, $106 million, and $82 million in the third quarter of 2018 and the second and third quarters of 2019, respectively. The average balance of noninterest-bearing demand deposit accounts increased from $249 million, or 44.8% of total deposits, in the third quarter of 2018 to $262 million, or 48.3% of total deposits in the second quarter of 2018, but decreased to $257 million, or 47.3% of total deposits, in the third quarter of 2019. The Bank's overall cost of funds increased slightly, from 0.17% in the third quarter of 2018 to 0.21% and 0.20% in second quarter and third quarter, respectively, of 2019.

"We continued to benefit from our strong reliable core funding in the third quarter of 2019, although we are seeing some migration of transitory interest-bearing balances into other asset classes as our clients redeploy funds derived from liquidity events," said Michael J. Winiarski, Chief Financial Officer. "Solid expense control also benefitted third quarter results."

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 its estimate of probable credit losses incurred as of the balance sheet date using historical loss data and qualitative factors associated with the loan portfolio.

The Bank recorded no provision for loan losses in the third quarter of 2018, and no provisions for the second and third quarters of 2019, 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 $181 thousand at September 30, 2019, compared to $240 thousand at June 30, 2019, and $3.3 million at September 30, 2018.

At September 30, 2019 and June 30, 2019, there were no non-performing loans in the Bank's loan portfolio; they totaled 0.60% of the total loans at September, 2018. At September 30, 2019, the allowance for loan losses was 1.33% of outstanding loans, compared to 1.36% at June 30, 2019 and 1.33% at September 30, 2018. The Bank recorded net recoveries of $9 thousand during the third quarter of 2019, compared to net recoveries of $12 thousand in each of the second quarter of 2019 and third quarter of 2018.

NON-INTEREST INCOME

Non-interest income recognized in the third quarter of 2019 totaled $605 thousand, including $93 thousand in gain on sale of loans and investments, compared to $528 thousand in the second quarter of 2019, and $471 thousand in the third quarter of 2018, without any gain on sale recognition. Overall, this represents a decrease in non-interest income other than gain on sales of $16 thousand, or 3.0%, compared to the second quarter of 2019, and an increase of $41 thousand, or 8.7%, compared to the third 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 a year-to-date basis, non-interest income increased 10.9%, from $1.45 million to $1.61 million, including an 11.3% increase in service charges on deposits, from $221 thousand to $246 thousand, and a 99.3% increase in mortgage brokerage fees from $61 thousand to $121 thousand.

NON-INTEREST EXPENSES

Non-interest expenses of $3.96 million for the third quarter of 2019 represented a decrease of 7.1% from the previous quarter of $4.26 million and were essentially unchanged compared to $3.97 million recognized in the third quarter of 2018. Year-to-date 2019 non-interest expenses totaled $12.46 million, an increase of $606 thousand, or 5.1%, compared to $11.86 million for the first nine months of 2018.

Salaries and benefits decreased $248 thousand, or 9.2%, to $2.45 million in the third quarter of 2019 from $2.70 million in the second quarter of 2019 and decreased $30 thousand, or 1.2%, compared to $2.48 million in the third quarter of 2018. These decreases primarily reflect 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 increased to $372 thousand in the third quarter of 2019 compared to $326 thousand in the second quarter of 2019 due to rents and other costs incurred in establishing a new 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 60.0% for the third quarter of 2019, compared to 65.6% for the second quarter of 2019 and 62.4% for the third quarter of 2018. Annualized non-interest expenses as a percent of average total assets were 2.56%, 2.80%, and 2.56% for the third quarter of 2019, the second quarter of 2019, and the third 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 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 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 per share data)

September 30,

June 30,

March 31,

September 30,

Financial Condition Data1

2019

2019

2019

2018

Assets

Cash and due from banks

$
5,947

$
5,994

$
6,569

$
5,408

Funds held at the Federal Reserve Bank2

47,529

56,057

60,979

33,571

Time deposits at other financial institutions

–

–

–

996

Available-for-sale securities, at fair value

68,386

70,396

69,320

68,154

Loans receivable held for sale

–

–

–

1,000

Loans receivable held for investment:

Construction / land (including farmland)

18,602

18,014

20,189

22,396

Residential 1 to 4 units

141,907

144,336

139,765

147,205

Home equity lines of credit

7,158

7,920

8,676

7,853

Multifamily

54,324

53,561

54,586

53,984

Owner occupied commercial real estate

63,587

61,242

61,775

65,628

Investor commercial real estate

153,849

142,533

141,452

131,736

Commercial and industrial

38,801

39,603

42,098

38,672

Other loans

16,042

14,468

14,724

17,127

Total loans

494,270

481,677

483,265

484,601

Allowance for loan losses

(6,582
)

(6,572
)

(6,560
)

(6,435
)

Net loans

487,688

475,105

476,705

478,166

Premises and equipment, net

2,131

2,192

1,996

2,109

Bank owned life insurance

8,020

7,968

7,916

7,813

Investment in FHLB3 stock, at cost

3,501

3,501

3,163

3,163

Accrued interest receivable and other assets

14,254

9,577

7,780

6,255

Total assets

$
637,456

$
630,790

$
634,428

$
606,635

Liabilities and shareholders' equity

Deposits:

Noninterest bearing demand deposits

$
255,369

$
270,939

$
268,195

$
248,036

Interest bearing checking accounts

47,148

36,721

35,832

35,274

Money market deposits

140,515

134,108

134,044

139,037

Savings deposits

103,224

100,049

110,877

109,530

Time deposits

19,399

19,694

18,953

16,010

Total deposits

565,655

561,511

567,901

547,887

Accrued interest payable and other liabilities

5,466

5,305

4,818

2,344

Shareholders' equity

66,335

63,974

61,709

56,404

Total liabilities and shareholders' equity

$
637,456

$
630,790

$
634,428

$
606,635

Shares outstanding

5,142,536

5,124,892

5,118,759

5,041,058

Nominal and tangible book value per share

$
12.90

$
12.48

$
12.06

$
11.19

Ratio of net loans to total deposits

86.22
%

84.61
%

83.94
%

87.27
%

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

September 30,

June 30,

March 31,

September 30,

Operating Results Data

2019

2019

2019

2018

Interest and dividend income

Loans

$
5,578

$
5,570

$
5,681

$
5,448

Investment securities

442

457

456

404

Federal Home Loan Bank stock

62

59

56

54

Other

187

166

259

222

Total interest and dividend income

6,269

6,252

6,452

6,128

Interest expense

Interest bearing checking

3

3

3

3

Money market deposits

125

140

129

123

Savings deposits

88

85

91

80

Time deposits

62

54

49

28

Total interest expense on deposits

278

282

272

234

Interest expense on borrowings

–

–

–

–

Total interest expense

278

282

272

234

Net interest income

5,991

5,970

6,180

5,894

Provision for loan losses

–

–

–

–

Net interest income after provision

for loan losses

5,991

5,970

6,180

5,894

Noninterest income

Service charges on deposits

88

82

76

78

BOLI dividend income

52

52

51

54

Gain on sale of loans

33

–

8

–

Gain on sale of investments

60

–

–

–

Other

372

394

339

339

Total noninterest income

605

528

474

471

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

Three Months Ended

September 30,

June 30,

March 31,

September 30,

2019

2019

2019

2018

Noninterest expenses

Salaries and benefits

2,452

2,700

2,674

2,482

Occupancy

372

326

306

299

Data and item processing

220

284

215

204

Furniture and equipment

150

142

157

137

Professional services

143

108

130

161

Provision for unfunded loan

commitments

(7
)

(8
)

(15
)

4

Other

630

711

773

682

Total noninterest expenses

3,960

4,263

4,240

3,969

Income before provision for income taxes

2,636

2,235

2,414

2,396

Provision for income taxes

698

597

638

654

Net income

$
1,938

$
1,638

$
1,776

$
1,742

Common Share Data1

Earnings per common share

Basic

$
0.38

$
0.32

$
0.35

$
0.35

Diluted

$
0.37

$
0.31

$
0.34

$
0.34

Weighted average common shares outstanding

Basic

5,133,324

5,120,053

5,110,382

5,038,340

Diluted

5,213,558

5,207,230

5,186,796

5,147,292

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)

Nine Months Ended

September 30,

September 30,

Operating Results Data

2019

2018

Interest and dividend income

Loans

$
16,829

$
15,310

Investment securities

1,355

1,154

Federal Home Loan Bank stock

177

166

Other

612

538

Total interest and dividend income

18,973

17,168

Interest expense

Interest bearing checking

9

11

Money market deposits

394

277

Savings deposits

264

224

Time deposits

165

51

Total interest expense in deposits

832

563

Interest expense on borrowings

–

3

Total interest expense

832

566

Net interest income

18,141

16,602

Provision for loan losses

–

20

Net interest income after provision for loan losses

18,141

16,582

Noninterest income

Service charges on deposits

246

221

BOLI dividend income

155

159

Gain on sale of loans

41

135

Gain on sale of investments

60

–

Other

1,105

934

Total noninterest income

1,607

1,449

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

Nine Months Ended

September 30,

September 30,

2019

2018

Noninterest expenses

Salaries and benefits

7,826

7,546

Occupancy

1,004

877

Data and item processing

719

598

Furniture and equipment

449

386

Professional services

381

431

Provision for unfunded loan commitments

(30
)

(2
)

Other

2,114

2,021

Total noninterest expenses

12,463

11,857

Income before provision for income taxes

7,285

6,174

Provision for income taxes

1,933

1,683

Net income

$
5,352

$
4,491

Common Share Data1

Earnings per common share

Basic

$
1.05

$
0.89

Diluted

$
1.03

$
0.88

Weighted average common shares outstanding

Basic

5,121,337

5,028,800

Diluted

5,202,626

5,129,624

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

September 30,

June 30,

March 31,

September,

2019

2019

2019

2018

Asset Quality

Loans past due 90 days or more and accruing

interest

$
–

$
–

$
–

$
–

Nonaccrual restructured loans

–

–

–

–

Other nonaccrual loans

–

–

–

2,906

Other real estate owned

–

–

–

–

$
–

$
–

$
–

$
2,906

Allowance for loan losses to total loans

1.33
%

1.36
%

1.36
%

1.33
%

Allowance for loan losses to nonperforming loans

n/a

n/a

n/a

221.44
%

Nonaccrual loans to total loans

0.00
%

0.00
%

0.00
%

0.60
%

Nonperforming assets to total assets

0.00
%

0.00
%

0.00
%

0.48
%

Regulatory Capital and Ratios

Common equity tier 1 capital

$
65,536

$
63,446

$
61,585

$
57,166

Tier 1 regulatory capital

$
65,536

$
63,446

$
61,585

$
57,166

Total regulatory capital

$
71,377

$
69,077

$
67,209

$
62,747

Tier 1 leverage ratio

10.67
%

10.40
%

9.79
%

9.35
%

Common equity tier 1 risk based capital ratio

14.05
%

14.12
%

13.72
%

12.83
%

Tier 1 risk based capital ratio

14.05
%

14.12
%

13.72
%

12.83
%

Total risk based capital ratio

15.30
%

15.37
%

14.97
%

14.09
%

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

Three Months Ended

September 30,

June 30,

March 31,

September 30,

Selected Financial Ratios1

2019

2019

2019

2018

Return on average total assets

1.25
%

1.08
%

1.15
%

1.12
%

Return on average shareholders' equity

11.79
%

10.47
%

11.95
%

12.38
%

Net interest margin2

4.05
%

4.06
%

4.12
%

3.91
%

Net interest income to average total assets

3.87
%

3.92
%

3.99
%

3.80
%

Efficiency ratio

60.04
%

65.58
%

63.73
%

62.36
%

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

September 30,

June 30,

March 31,

September 30,

Selected Average Balances

2019

2019

2019

2018

Gross loans

$
481,402

$
484,676

$
487,838

$
480,621

Investment securities

68,949

70,033

69,553

70,152

Federal Home Loan Bank stock

3,501

3,415

3,163

3,163

Other interest earning assets

35,220

34,233

50,778

46,534

Total interest earning assets

$
589,072

$
592,357

$
611,332

$
600,470

Total assets

$
614,674

$
610,453

$
628,320

$
615,388

Interest bearing checking accounts

$
42,295

$
36,569

$
34,268

$
34,883

Money market deposits

113,151

125,529

127,764

140,443

Savings deposits

111,502

99,517

107,158

117,023

Time deposits

19,933

18,759

18,099

15,216

Total interest bearing deposits

286,881

280,374

287,289

307,565

Noninterest bearing demand deposits

256,989

262,225

275,956

249,488

Total deposits

$
543,870

$
542,599

$
563,245

$
557,053

Borrowings

$
–

$
–

$
–

$
–

Shareholders' equity

$
65,219

$
62,740

$
60,286

$
55,858

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

Nine Months Ended

September 30,

September 30,

Selected Financial Ratios

2019

2018

Return on average total assets

1.16
%

1.01
%

Return on average shareholders' equity

11.40
%

11.08
%

Net interest margin2

4.08
%

3.83
%

Net interest income to average total assets

3.93
%

3.72
%

Efficiency ratio

63.11
%

65.69
%

Six Months Ended

September 30,

September 30,

Selected Average Balances

2019

2018

Gross loans

$
484,615

$
460,685

Investment securities

69,510

71,496

Federal Home Loan Bank stock

3,361

3,163

Other interest earning assets

40,020

46,897

Total interest earning assets

$
597,506

$
582,241

Total assets

$
617,766

$
596,937

Interest bearing checking accounts

$
37,740

$
34,917

Money market deposits

122,094

126,721

Savings deposits

106,075

119,424

Time deposits

18,937

13,517

Total interest bearing deposits

284,846

294,579

Noninterest bearing demand deposits

264,987

245,491

Total deposits

$
549,833

$
540,070

Borrowings

$
–

$
308

Shareholders' equity

$
62,767

$
54,186

SOURCE: 1st Capital Bank

ReleaseID: 564914

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