1st Capital Bank Announces Third Quarter 2016 Financial Results; Record Loan Portfolio
MONTEREY, CA / ACCESSWIRE / October 27, 2016 / 1st Capital Bank (OTC Pink: FISB) reported unaudited net income of $645 thousand for the three months ended September 30, 2016, an increase of 59.2% compared to net income of $405 thousand in the three months ended September 30, 2015 and a decrease of 6.3% compared to income of $689 thousand in the three months ended June 30, 2016, the immediately preceding quarter. Earnings per share were $0.15 (diluted), compared to $0.17 (diluted) for the prior quarter.
On a year-to-date basis, unaudited net income increased 19.4% to $2.04 million for the nine months ended September 30, 2016, compared to $1.71 million for the nine months ended September 30, 2015, when operating results included $249 thousand of non-recurring, non-taxable bank-owned life insurance benefits.
Net loans increased $28 million during the third quarter, from $378 million at June 30, 2016 to $406 million at September 30, 2016. Organic growth was concentrated in commercial real estate loans, which grew $10 million, or 5.5%, in the third quarter. The single-family residential portfolio increased $17 million, or 13.9%, as the result of a $20 million loan pool purchase, while the commercial and industrial loan portfolio decreased $2 million, or 4.2%, during the third quarter. Because of the increase in the loan portfolio, the Bank recorded a provision for loan losses of $255 thousand in the third quarter of 2016, compared to $365 thousand in the third quarter of 2015 and $40 thousand in the second quarter of 2016.
Net interest income before provision for loan losses for the three-month period ended September 30, 2016 was $4.18 million, an increase of 2.5% compared to $4.08 million recognized in the three-month period ended June 30, 2016. On a year-over-year basis, quarterly net interest income before provision for loan losses increased $402 thousand, or 10.6%, from $3.78 million recognized in the third quarter of 2015, and year-to-date net interest income before provision for loan losses increased 12.6%, from $11.0 million in the nine months ended September 30, 2015 to $12.4 million in the nine months ended September 30, 2016. Net interest margin increased from 2.99% in the second quarter of 2016 to 3.20% in the third quarter of 2016.
“We continue to be pleased with the growth in our core loan portfolio. Excluding purchased loans, our portfolio grew 9.8% over the past twelve months, and 4.8% in the third quarter of 2016. Consequently, it was necessary to build our allowance for loan losses to a level commensurate with our outstanding loans, which now exceed $400 million,” said Thomas E. Meyer, President and Chief Executive Officer.
“We believe the current level of the allowance for loan and lease losses is consistent with the inherent risk of the portfolio,” added Dale R. Diederick, Chief Credit Officer, “and we are happy to report that we received payment in full in October 2016 of a $1.5 million land loan that was on non-accrual status at September 30, 2016. This will add approximately $80 thousand of non-recurring interest income to our October operating results.”
Total assets declined $22 million in the third quarter, to $524 million at September 30, 2016, compared to $546 million at June 30, 2016, as a result of a decrease in deposits of $23 million, or 4.6%, from $498 million at June 30, 2016 to $475 million at September 30, 2016. Over the same period, deposits placed into Promontory Interfinancial Network’s Insured Cash Sweep (“ICS”) product but not carried on the Bank’s balance sheet increased $16 million, from $11 million at June 30, 2016 to $27 million at September 30, 2016. These funds may be moved back into the Bank’s deposit portfolio at the Bank’s discretion. The overall decline in the level of deposits under the Bank’s management of $7 million, or 1.4%, from $509 million at June 30, 2016 to $502 million at September 30, 2016 reflects normal seasonal trends, particularly among the Bank’s agricultural industry depositors.
The Bank’s investment portfolio decreased $5 million, or 5.6%, due to normal amortization and principal prepayments in its portfolios of mortgage-backed securities and collateralized mortgage obligations, and the Bank’s cash position decreased $45 million, from $67 million at June 30, 2016 to $22 million at September 30, 2016, as funds were moved into the ICS program and invested in the loan portfolio.
“During the third quarter, our net interest margin expanded as we put our on-balance sheet liquidity to work in the loan portfolio and moved excess funds off our balance sheet and into the ICS program, providing us with a source of recurring fee income. This had the added benefit of increasing our leverage capital ratio to a level more in line with our risk appetite,” said Michael J. Winiarski, Chief Financial Officer. The Bank’s leverage capital ratio increased from 8.33% at June 30, 2016 to 8.94% at September 30, 2016.
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES
Net interest income before provision for credit losses was $4.18 million for the third quarter of 2016, an increase of $402 thousand, or 10.6%, compared to the third quarter of 2015 and an increase of $103 thousand, or 2.5%, compared to $4.08 million for the second quarter of 2016.
Average earning assets were $519 million during the third quarter of 2016, a decrease of 5.3% compared to $548 million in the second quarter of 2016. The yield on earning assets was 3.33% in the third quarter, compared to 3.14% in the second quarter of 2016, primarily due to a significant reduction in the Bank’s interest-bearing cash balances and an increase in the average balance of loans from $383 million in the second quarter of 2016 to $390 million in the third quarter of 2016.
The cost of interest-bearing liabilities declined from 0.26% in the second quarter of 2016 to 0.23% in the third quarter of 2016, while the average balance of interest-bearing liabilities decreased from $313 million in the second quarter of 2016 to $282 million in the third quarter of 2016, as the Bank experienced a seasonal decrease in deposits, particularly from larger depositors, and funds were placed into the ICS program. The average balance of noninterest-bearing demand deposit accounts (“DDAs”) was stable at $194 million in both the second and third quarters of 2016. The Bank’s overall cost of funds decreased three basis points, from 0.16% in the second quarter of 2016 to 0.13% in the third quarter of 2016.
Gross loans receivable increased $28 million, or 7.3%, to $412 million at September 30, 2016 from $384 million at June 30, 2016 and increased $26 million, or 6.6%, from $387 million outstanding at September 30, 2015. During the third quarter of 2016, the Bank’s commercial real estate portfolio increased 5.5%, from $190 million to $201 million. Year over year, the commercial real estate portfolio grew 14.0%. Within the commercial real estate portfolio, loans on multi-family residential properties increased $4 million, from $50 million at June 30, 2016 to $54 million at September 30, 2016. Single-family residential loans, increased $17 million, or 13.9%, as normal amortization and prepayments offset the purchase of a $20 million pool of hybrid adjustable loans. Commercial and industrial loans outstanding decreased $3 million, from $50 million outstanding at June 30, 2016 to $47 million at September 30, 2016. Year over year, commercial and industrial loans increased 4.1%.
Non-performing loans were substantially unchanged, declining slightly to $1.6 million at September 30, 2016 from $1.7 million at June 30, 2016. Loans over 90 days past due (all of which were on non-performing status) were $79 thousand and $1.5 million at June 30, 2016 and September 30, 2016, respectively.
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. In the third quarter of 2016, the Bank recorded a $255 thousand provision for losses, compared to provisions for losses of $40 thousand in the second quarter of 2016 and $365 thousand in the third quarter of 2015, in each case primarily to recognize the increased exposure to credit losses associated with growth in the loan portfolio.
The increase in the provision reflects 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 $9.5 million at September 30, 2016, compared to $9.7 million at June 30, 2016, and $9.4 million at September 30, 2015.
At September 30, 2016, non-performing loans were 0.39% of the total loan portfolio, compared to 0.45% at June 30, 2016 and 0.49% at September 30, 2015. At September 30, 2016, the allowance for loan losses was 1.52% of outstanding loans, compared to 1.56% at June 30, 2016 and 1.53% at September 30, 2015, respectively. The Bank recorded net recoveries of $13 thousand in the third quarter of 2016, compared to net recoveries of $8 thousand in the second quarter of 2016.
NON-INTEREST INCOME
Non-interest income recognized in the third quarter of 2016 was $74 thousand, compared to $104 thousand in the second quarter of 2016, when it included $19 thousand in gain on sale of Small Business Administration guaranteed loans. This represented a decrease of $30 thousand compared to second quarter of 2016, and a decrease of $32 thousand compared to the third quarter of 2015.
NON-INTEREST EXPENSES
Non-interest expenses decreased $62 thousand, or 2.1%, to $2.91 million in the third quarter of 2016, compared to $2.98 million for the second quarter of 2016, and increased $77 thousand, or 2.7%, compared to $2.84 million recognized in the third quarter of 2015. Salaries and benefits decreased $82 thousand, or 4.3%, from $1.88 million in the second quarter of 2016 to $1.80 million in the third quarter of 2016.
For the nine months ended September 30, 2016, non-interest expenses were $8.92 million, an increase of $603 thousand, or 7.2%, compared to $8.32 million recognized in the nine months ended September 30, 2015. Salaries and benefits increased $505 thousand, or 10.0%, from $5.07 million to $5.58 million over the same period, reflecting an increase in average headcount from 66 employees for the nine months ended September 30, 2015 to 73 employees for the nine months ended September 30, 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 68.4% for the third quarter of 2016, compared to 71.1% for the second quarter of 2016 and 73.0% for the third quarter of 2015. Annualized non-interest expenses as a percent of average total assets were 2.21%, 2.16%, and 2.31% for the third quarter of 2016, the second quarter of 2016, and the third quarter of 2015, respectively.
PROVISION FOR INCOME TAXES
The Bank’s effective book tax rate was 40.7% in the third quarter of 2016, compared to 41.1% for the second quarter of 2016 and 40.9% for the third quarter of 2015.
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)
September 30,
June 30,
March 31,
September 30,
Financial Condition Data1
2016
2016
2016
2015
Assets
Cash and due from banks
$
3,585
$
33,927
$
4,300
$
3,380
Funds held at the Federal Reserve Bank2
17,482
32,219
84,490
16,004
Time deposits at other financial institutions
996
1,245
4,233
2,241
Available-for-sale securities, at fair value
84,175
89,178
76,869
88,891
Loans receivable held for investment:
Construction / land (including farmland)
16,453
15,655
16,403
17,814
Residential 1 to 4 units
127,010
112,899
122,437
129,564
Home equity lines of credit
11,578
8,805
7,342
9,636
Multifamily
53,763
49,868
44,360
35,202
Owner occupied commercial real estate
52,526
51,419
55,450
55,111
Investor commercial real estate
94,378
88,920
85,238
85,766
Commercial and industrial
47,440
49,530
42,802
45,584
Other loans
9,259
7,263
5,791
8,022
Total loans
412,407
384,359
379,823
386,699
Allowance for loan losses
(6,255
)
(5,987
)
(5,940
)
(5,926
)
Net loans
406,152
378,372
373,883
380,773
Premises and equipment, net
1,433
1,471
1,537
1,679
Bank owned life insurance
2,395
2,380
2,365
2,335
Investment in FHLB3 stock, at cost
2,939
2,939
2,593
2,593
Accrued interest receivable and other assets
4,551
4,313
4,089
4,422
Total assets
$
523,708
$
546,044
$
554,359
$
502,318
Liabilities and shareholders’ equity
Deposits:
Noninterest bearing demand deposits
$
191,079
$
194,904
$
193,334
$
175,958
Interest bearing checking accounts
36,479
28,742
30,154
30,999
Money market deposits
120,181
146,228
143,616
104,876
Savings deposits
113,052
112,934
124,759
96,634
Time deposits
14,503
15,298
15,511
29,788
Total deposits
475,294
498,106
507,374
438,255
Borrowings
—
—
—
19,000
Accrued interest payable and other liabilities
1,403
1,672
1,554
1,336
Shareholders’ equity
47,011
46,266
45,431
43,727
Total liabilities and shareholders’ equity
$
523,708
$
546,044
$
554,359
$
502,318
Shares outstanding
4,127,686
4,119,026
4,090,186
4,035,417
Nominal and tangible book value per share
$
11.39
$
11.23
$
11.11
$
10.84
Ratio of net loans held for investment
to total deposits
85.45
%
75.96
%
73.69
%
86.88
%
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
September 30,
June 30,
March 31,
September 30,
Operating Results Data1
2016
2016
2016
2015
Interest and dividend income
Loans
$
4,028
$
3,933
$
4,020
$
3,718
Investment securities
203
190
190
149
Federal Home Loan Bank stock
64
62
52
61
Other
48
100
70
19
Total interest and dividend income
4,343
4,285
4,332
3,947
Interest expense
Interest bearing checking
3
2
3
3
Money market deposits
79
112
86
77
Savings deposits
68
82
78
73
Time deposits
11
9
13
13
Total interest expense on deposits
161
205
180
166
Interest expense on borrowings
—
—
—
1
Total interest expense
161
205
180
167
Net interest income
4,182
4,080
4,152
3,780
Provision for loan losses
255
40
—
365
Net interest income after provision
for loan losses
3,927
4,040
4,152
3,415
Noninterest income
Service charges on deposits
32
32
35
29
BOLI dividend income
14
15
15
15
Gain on sale of loans
—
19
—
38
Gain on sale of securities
—
10
—
—
Other
29
28
19
25
Total noninterest income
75
104
69
107
1ST CAPITAL BANK
CONDENSED FINANCIAL DATA, continued
(Unaudited)
(Dollars in thousands, except share and per share data)
Three Months Ended
September 30,
June 30,
March 31,
September 30,
2016
2016
2016
2015
Noninterest expenses
Salaries and benefits
1,801
1,883
1,894
1,702
Occupancy
231
216
222
224
Data and item processing
149
151
148
161
Professional services
108
142
82
137
Furniture and equipment
114
112
123
127
Provision for unfunded loan
commitments
(10
)
(25
)
15
(6
)
Other
521
496
549
492
Total noninterest expenses
2,914
2,975
3,033
2,837
Income before provision for income taxes
1,088
1,169
1,188
685
Provision for income taxes
443
480
484
280
Net income
$
645
$
689
$
704
$
405
Common Share Data
Earnings per share
Basic
$
0.16
$
0.17
$
0.17
$
0.10
Diluted
$
0.15
$
0.17
$
0.17
$
0.10
Weighted average shares outstanding
Basic
4,123,244
4,105,825
4,072,586
4,035,543
Diluted
4,168,740
4,150,068
4,120,678
4,108,966
1 = Certain reclassifications have been made to prior period financial statements to conform them to the current period presentation.
1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands, except share and per share data)
Nine Months Ended
September 30,
September 30,
Operating Results Data1
2016
2015
Interest and dividend income
Loans
$
11,981
$
10,794
Investment securities
583
457
Federal Home Loan Bank stock
178
221
Other
218
59
Total interest and dividend income
12,960
11,531
Interest expense
Interest bearing checking
8
8
Money market deposits
277
247
Savings deposits
228
208
Time deposits
33
38
Total interest expense in deposits
546
501
Interest expense on borrowings
—
2
Total interest expense
546
503
Net interest income
12,414
11,028
Provision for loan losses
295
565
Net interest income after provision for loan losses
12,119
10,463
Noninterest income
Service charges on deposits
99
89
BOLI dividend income
44
45
BOLI benefits
—
249
Gain on sale of loans
19
89
Gain on sale of securities
10
—
Other
76
64
Total noninterest income
248
536
1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands, except share and per share data)
Nine Months Ended
September 30,
September 30,
2016
2015
Noninterest expenses
Salaries and benefits
5,578
5,073
Occupancy
669
622
Data and item processing
448
447
Professional services
332
400
Furniture and equipment
349
332
Provision for unfunded loan commitments
(20
)
12
Other
1,566
1,433
Total noninterest expenses
8,922
8,319
Income before provision for income taxes
3,445
2,680
Provision for income taxes
1,407
973
Net income
$
2,038
$
1,707
Common Share Data
Earnings per share
Basic
$
0.50
$
0.42
Diluted
$
0.49
$
0.42
Weighted average shares outstanding
Basic
4,100,634
4,016,532
Diluted
4,146,576
4,077,158
1 = Certain reclassifications have been made to prior period financial statements to conform them to the current period presentation.
1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands)
September 30,
June 30,
March 31,
September 30,
Asset Quality
2016
2016
2016
2015
Loans past due 90 days or more and accruing
interest
$
—
$
—
$
—
$
—
Nonaccrual restructured loans
1,465
1,491
1,507
1,543
Other nonaccrual loans
154
248
183
358
Other real estate owned
—
—
—
—
$
1,619
$
1,739
$
1,690
$
1,901
Allowance for loan losses to total loans
1.52
%
1.56
%
1.56
%
1.53
%
Allowance for loan losses to nonperforming loans
386.35
%
344.28
%
351.48
%
311.73
%
Nonaccrual loans to total loans
0.39
%
0.45
%
0.44
%
0.49
%
Nonperforming assets to total assets
0.31
%
0.32
%
0.30
%
0.38
%
Regulatory Capital and Ratios
Common equity tier 1 capital
$
46,924
$
46,143
$
45,230
$
43,437
Tier 1 regulatory capital
$
46,924
$
46,143
$
45,230
$
43,437
Total regulatory capital
$
51,469
$
50,447
$
49,423
$
47,745
Tier 1 leverage ratio
8.94
%
8.33
%
8.58
%
8.94
%
Common equity tier 1 risk based capital ratio
12.97
%
13.47
%
13.56
%
12.67
%
Tier 1 risk based capital ratio
12.97
%
13.47
%
13.56
%
12.67
%
Total risk based capital ratio
14.23
%
14.73
%
14.52
%
13.92
%
Three Months Ended
September 30,
June 30,
March 31,
September 30,
Selected Financial Ratios1
2016
2016
2016
2015
Return on average total assets
0.49
%
0.50
%
0.54
%
0.33
%
Return on average shareholders’ equity
5.48
%
6.01
%
6.24
%
3.68
%
Net interest margin
3.20
%
2.99
%
3.20
%
3.12
%
Net interest income to average total assets
3.17
%
2.96
%
3.17
%
3.08
%
Efficiency ratio
68.45
%
71.10
%
71.86
%
72.99
%
1 = All Selected Financial Ratios are annualized other than the Efficiency Ratio.
Three Months Ended
September 30,
June 30,
March 31,
September 30,
Selected Average Balances
2016
2016
2016
2015
Gross loans
$
389,580
$
383,020
$
379,982
$
355,960
Investment securities
87,364
77,748
79,454
97,070
Federal Home Loan Bank stock
2,939
2,848
2,593
2,593
Other interest earning assets
39,513
84,807
60,156
24,842
Total interest earning assets
$
519,396
$
548,423
$
522,185
$
480,465
Total assets
$
524,905
$
553,957
$
527,468
$
486,149
Interest bearing checking accounts
$
32,142
$
29,327
$
31,567
$
30,203
Money market deposits
121,476
146,985
123,018
113,377
Savings deposits
113,052
120,792
109,319
97,353
Time deposits
15,062
15,434
21,335
29,664
Total interest bearing deposits
281,732
312,538
285,239
270,597
Noninterest bearing demand deposits
194,335
193,762
195,684
166,990
Total deposits
$
476,067
$
506,300
$
480,923
$
437,587
Borrowings
$
65
$
12
$
—
$
3,742
Shareholders’ equity
$
46,844
$
46,071
$
45,405
$
43,697
1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands)
Nine Months Ended
September 30,
September 30,
Selected Financial Ratios1
2016
2015
Return on average total assets
0.51
%
0.48
%
Return on average shareholders’ equity
5.92
%
5.33
%
Net interest margin
3.13
%
3.11
%
Net interest income to average total assets
3.10
%
3.07
%
Efficiency ratio
70.46
%
71.94
%
1 = All Selected Financial Ratios are annualized other than the Efficiency Ratio.
Nine Months Ended
September 30,
September 30,
Selected Average Balances1
2016
2015
Gross loans
$
384,214
$
344,889
Investment securities
81,543
99,946
Federal Home Loan Bank stock
2,794
2,350
Other interest earning assets
61,412
27,138
Total interest earning assets
$
529,963
$
474,323
Total assets
$
535,405
$
479,890
Interest bearing checking accounts
$
31,016
$
26,481
Money market deposits
130,460
119,652
Savings deposits
114,383
93,193
Time deposits
17,269
30,006
Total interest bearing deposits
293,128
269,332
Noninterest bearing demand deposits
194,592
164,650
Total deposits
$
487,720
$
433,982
Borrowings
$
26
$
1,979
Shareholders’ equity
$
46,006
$
42,858
1 = Certain reclassifications have been made to prior period financial statements to conform them to the current period presentation.
SOURCE: 1st Capital Bank
ReleaseID: 447841
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