1st Capital Bank Announces Second Quarter 2016 Financial Results; Record First Half Pre-Tax Earnings

MONTEREY, CA--(Marketwired - Jul 29, 2016) - 1st Capital Bank (OTC PINK: FISB) reported net income of $689 thousand for the three months ended June 30, 2016, an increase of 14.7% compared to net income of $601 thousand in the three months ended June 30, 2015 and a decrease of 2.2% compared to income of $704 thousand in the three months ended March 31, 2016, the immediately preceding quarter. Earnings per share were $0.17 (diluted), compared to $0.17 (diluted) for the prior quarter.

On a year-to-date basis, net income increased 7.0% to $1.39 million for the six months ended June 30, 2016, compared to $1.30 million for the six months ended June 30, 2015, when operating results included $249 thousand of non-taxable bank-owned life insurance benefits.

Net loans increased $4 million during the second quarter, from $374 million at March 31, 2016 to $378 million at June 30, 2016. Growth was concentrated in commercial and industrial loans, which organically grew $7 million, or 15.8%, in the second quarter. Commercial real estate loans increased $5 million, or 2.8%, while the single-family loan portfolio decreased $8 million, or 6.2%, during the second quarter. Because of the growth in the loan portfolio, the Bank recorded a provision for loan losses of $40 thousand, whereas no provision for loan losses was required in the second quarter of 2015 or the first quarter of 2016.

"We are pleased with the continuing growth in our core commercial and industrial and commercial real estate loan portfolios in the second quarter, although that growth has led to lower reported earnings this quarter as we build our allowance for loan losses," said Thomas E. Meyer, President and Chief Executive Officer. "We enter the third quarter of 2016 with a strong pipeline of CRE and C&I loan applications, including a substantial number of applications for Small Business Administration guaranteed loans."

Total assets declined $8 million in the second quarter, to $546 million at June 30, 2016, compared to $554 million at March 31, 2016 as a result of a decrease in deposits of $9 million, or 1.8%, from $507 million at March 31, 2016 to $498 million at June 30, 2016. The Bank's investment portfolio increased $12 million, or 16.0%, as management sold certain monthly adjustable securities totaling $11.7 million and invested $25.2 million in fixed-rate mortgage-backed securities and intermediate-term municipal bonds, absorbing a portion of the cash balances on hand at the beginning of the quarter.

Net interest income before provision for loan losses for the six-month period ended June 30, 2016 was $8.23 million, an increase of 13.6% over net interest income before provision for loan losses of $7.25 million recognized in the six-month period ended June 30, 2015. On a sequential basis, net interest income before provision for loan losses decreased $72 thousand, or 1.7%, to $4.08 million in the second quarter of 2016, compared to $4.15 million in the first quarter of 2016, primarily because of lower prepayment penalties recognized in interest income, which declined $90 thousand. Net interest margin declined from 3.20% in the first quarter of 2016 to 2.99% in the second quarter of 2016, reflecting greater on-balance sheet liquidity driven by the robust growth in deposits in the first quarter of 2016.

"During the second quarter, we took steps to put our on-balance sheet liquidity to work, reduce the level of volatility in our investment and deposit portfolios, and enhance our leverage capital ratio," said Michael J. Winiarski, Chief Financial Officer. "We have reduced our exposure to the prepayment risk associated with certain floating rate mortgage-backed securities with large underlying loan balances and placed more than $8 million of customer funds into Promontory Interfinancial Network's Insured Cash Sweep product, taking these customer deposits off our balance sheet. During July 2016, we moved additional customer deposits totaling $25 million into this program, which provides us with an additional source of recurring fee income."

NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES

Net interest income before provision for credit losses was $4.08 million for the second quarter of 2016, an increase of $380 thousand, or 10.3%, compared to the second quarter of 2015 and a decrease of $72 thousand, or 1.7%, compared to $4.15 million for the first quarter of 2016.

Average earning assets were $548 million during the second quarter of 2016, an increase of 5.0% compared to $522 million in the first quarter of 2016. The yield on earning assets was 3.14% in the second quarter, compared to 3.33% in the first quarter of 2016. The average balance of the loan portfolio grew $3 million, or 0.8% (3.2% annualized), to $383 million, compared to the first quarter's average balance of $380 million, while the yield on the loan portfolio declined from 4.24% in the first quarter of 2016 to 4.13% in the second quarter of 2016, as prepayment fees included in interest income declined $90 thousand. The average balance of investments available for sale ("AFS") declined $1.7 million sequentially, from $79 million in the first quarter of 2016 to $78 million in the second quarter of 2016. The yield on AFS investments increased 2 basis points from 0.96% in the first quarter of 2016 to 0.98% in the second quarter of 2016. Average interest-bearing cash balances increased $25 million, from $60 million in the first quarter to $85 million in the second quarter of 2016, reflecting the significant increase in deposits in the first quarter.

The cost of interest-bearing liabilities was 0.26% in both the first and second quarter of 2016, while the average balance of interest-bearing liabilities increased from $285 million in the first quarter of 2016 to $313 million in the second quarter of 2016, as the Bank experienced a strong seasonal increase in deposits, particularly from larger depositors, during the latter part of the first quarter. The average balance of noninterest-bearing demand deposit accounts ("DDAs") declined marginally, from $196 million in the first quarter of 2016 to $194 million in the second quarter of 2016. The Bank's overall cost of funds increased one basis point, from 0.15% in the first quarter of 2016 to 0.16% in the second quarter of 2016.

Gross loans receivable increased $4 million, or 1.2%, to $384 million at June 30, 2016 from $380 million at March 31, 2016 and increased $37 million, or 10.7%, from $347 million outstanding at June 30, 2015. During the second quarter of 2016, the Bank's commercial real estate portfolio increased 2.8%, from $185 million to $190 million. Within the commercial real estate portfolio, loans on multi-family residential properties increased $6 million, from $44 million at March 31, 2016 to $50 million at June 30, 2016. Single-family residential loans, which were acquired or originated primarily in prior quarters through loan pool purchases, decreased $8 million, or 6.2%, primarily as a result of normal amortization and prepayments of $9 million. Commercial and industrial loans outstanding increased $7 million, from $43 million outstanding at March 31, 2016 to $50 million at June 30, 2016. Undrawn credit lines declined from $78 million at March 31, 2016 to $69 million at June 30, 2016.

Non-performing loans were substantially unchanged at $1.7 million at March 31, 2016 and June 30, 2016. Loans over 90 days past due (all of which were on non-performing status) were $91 thousand and $79 thousand at March 31, 2016 and June 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 second quarter of 2016, the Bank recorded a $40 thousand provision for losses to recognize the increased exposure to credit losses associated with growth in the loan portfolio. There was no provision for loan losses in the first quarter of 2016 or the second quarter of 2015.

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 (including an increase in commercial and industrial loans, which generally have higher losses than real estate loans), as well as management's assessment of the amounts expected to be realized from certain loans identified as impaired. Impaired loans totaled $9.7 million at June 30, 2016, compared to $9.6 million at March 31, 2016, and $9.2 million at June 30, 2015.

At June 30, 2016, non-performing loans were 0.45% of the total loan portfolio, compared to 0.44% at March 31, 2016 and 0.03% at June 30, 2015. At June 30, 2016, the allowance for loan losses was 1.56% of outstanding loans, compared to 1.56% and 1.60% at March 31, 2016 and June 30, 2015, respectively. The Bank recorded net recoveries of $8 thousand in the second quarter of 2016, compared to net recoveries of $19 thousand in the first quarter of 2016.

NON-INTEREST INCOME

Non-interest income recognized in the second quarter of 2016 was $104 thousand, including $19 thousand in gain on sale of Small Business Administration guaranteed loans, an overall increase of $35 thousand compared to $69 thousand in the first quarter of 2016, and a decrease of $8 thousand compared to the second quarter of 2015. The Bank has an active pipeline of loans that meet SBA parameters.

NON-INTEREST EXPENSES

Non-interest expenses decreased $58 thousand, or 1.9%, to $2.98 million in the second quarter of 2016, compared to $3.03 million for the first quarter of 2016, and increased $151 thousand, or 5.4%, compared to the second quarter of 2015. Salaries and benefits decreased nominally, from $1.89 million in the first quarter of 2016 to $1.88 million in the second quarter of 2016. The Bank recognized a credit provision for unfunded loan commitments of $24 thousand in the second quarter of 2016, compared to a provision of $15 thousand in the first quarter of 2016, reflecting the $10 million decrease in unfunded loan commitments as borrowers drew on their lines of credit in the second quarter.

The efficiency ratio (non-interest expenses divided by the sum of net interest income before provision for loan losses and non-interest income) was 71.1% for the second quarter of 2016, compared to 71.9% for the first quarter of 2016 and 74.1% for the second quarter of 2015. Annualized non-interest expenses as a percent of average total assets were 2.16%, 2.29%, and 2.36% for the second quarter of 2016, the first quarter of 2016, and the second quarter of 2015, respectively. 

PROVISION FOR INCOME TAXES

The Bank's effective book tax rate was 41.1% in the second quarter of 2016, compared to 40.7% for the first quarter of 2016 and 39.2% for the second 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.1stCapitalBank.com. 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.1stCapitalBank.com internet site for no charge.

1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands, except share and per share data)
					June 30,				March 31,				December 31,				June 30,
Financial Condition Data1					2016				2016				2015				2015
Assets
	Cash and due from banks				$	33,927			$	4,300			$	3,334			$	3,261
	Funds held at the Federal Reserve Bank2					32,219				84,490				42,857				23,759
	Time deposits at other financial institutions					1,245				4,233				2,241				2,739
	Available-for-sale securities, at fair value					89,178				76,869				84,203				98,672
	Loans receivable held for investment:
		Construction / land (including farmland)				15,655				16,403				17,499				20,274
		Residential 1 to 4 units				112,899				122,437				124,741				107,792
		Home equity lines of credit				8,805				7,342				8,594				7,515
		Multifamily				49,868				44,360				36,862				31,290
		Owner occupied commercial real estate				51,419				55,450				56,046				53,848
		Investor commercial real estate				88,920				85,238				83,532				75,210
		Commercial and industrial				49,530				42,802				42,528				45,038
		Other loans				7,263				5,791				6,909				6,264
			Total loans			384,359				379,823				376,711				347,231
		Allowance for loan losses				(5,987	)			(5,940	)			(5,921	)			(5,549	)
	Net loans					378,373				373,883				370,790				341,682
	Premises and equipment, net					1,471				1,537				1,612				1,689
	Bank owned life insurance					2,380				2,365				2,350				2,321
	Investment in FHLB3 stock, at cost					2,939				2,593				2,593				2,593
	Accrued interest receivable and other assets					4,313				4,089				3,970				3,950
Total assets					$	546,044			$	554,359			$	513,950			$	480,666
Liabilities and shareholders' equity
	Deposits:
		Noninterest bearing demand deposits			$	194,904			$	193,334			$	204,624			$	159,920
		Interest bearing checking accounts				28,742				30,154				29,838				28,329
		Money market deposits				146,228				143,616				110,490				120,449
		Savings deposits				112,934				124,759				94,315				98,262
		Time deposits				15,298				15,511				29,121				29,434
			Total deposits			498,106				507,374				468,388				436,394
	Accrued interest payable and other liabilities					1,672				1,554				1,073				1,056
	Shareholders' equity					46,266				45,431				44,489				43,216
Total liabilities and shareholders' equity					$	546,044			$	554,359			$	513,950			$	480,666
Shares outstanding4						4,119,026				4,090,186				4,064,485				4,035,050
Nominal and tangible book value per share					$	11.23			$	11.11			$	10.95			$	10.71
Ratio of net loans held for investment to total deposits						75.96	%			73.69	%			76.16	%			78.30	%

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
4 =		Shares outstanding and book value per share reflect the 5% stock dividend declared July 29, 2015 and payable September 30, 2015.

1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands, except share and per share data)
					Three Months Ended
					June 30,			March 31,			December 31,			June 30,
Operating Results Data1					2016			2016			2015			2015
Interest and dividend income
	Loans				$	3,933		$	4,020		$	3,938		$	3,571
	Investment securities					190			190			160			155
	Federal Home Loan Bank stock					62			52			58			127
	Other					100			70			23			18
	Total interest and dividend income					4,285			4,332			4,179			3,871
Interest expense
	Interest bearing checking					2			3			3			2
	Money market deposits					112			86			71			88
	Savings deposits					82			78			72			68
	Time deposits					9			13			14			12
		Total interest expense on deposits				205			180			160			170
	Interest expense on borrowings					--			--			2			1
			Total interest expense			205			180			162			171
Net interest income						4,080			4,152			4,017			3,700
Provision for loan losses						40			--			--			--
Net interest income after provision for loan losses						4,040			4,152			4,017			3,700
Noninterest income
	Service charges on deposits					32			35			34			29
	BOLI dividend income					15			15			15			14
	Gain on sale of loans					19			--			--			51
	Gain on sale of securities					10			--			11			--
	Other					28			19			14			18
		Total noninterest income				104			69			74			112

1ST CAPITAL BANK
CONDENSED FINANCIAL DATA, continued
(Unaudited)
(Dollars in thousands, except share and per share data)
				Three Months Ended
				June 30,				March 31,			December 31,			June 30,
				2016				2016			2015			2015
Noninterest expenses
	Salaries and benefits				1,883				1,894			1,817			1,744
	Occupancy				216				222			219			198
	Data and item processing				151				148			149			144
	Professional services				142				82			132			151
	Furniture and equipment				112				123			127			107
	Provision for unfunded loan commitments				(25	)			15			19			10
	Other				496				549			483			470
		Total noninterest expenses			2,975				3,033			2,946			2,824
Income before provision for income taxes					1,169				1,188			1,145			988
Provision for income taxes					480				484			471			387
Net income				$	689			$	704		$	674		$	601
Common Share Data2
	Earnings per share
		Basic		$	0.17			$	0.17		$	0.17		$	0.15
		Diluted		$	0.17			$	0.17		$	0.16		$	0.15
	Weighted average shares outstanding
		Basic			4,105,826				4,072,586			4,052,646			4,028,844
		Diluted			4,150,069				4,120,678			4,131,661			4,085,410

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 July 29, 2015 and payable September 30, 2015.

1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands, except share and per share data)
					Six Months Ended
					June 30,			June 30,
Operating Results Data1					2016			2015
Interest and dividend income
	Loans				$	7,953		$	7,076
	Investment securities					380			308
	Federal Home Loan Bank stock					114			160
	Other					170			40
		Total interest and dividend income				8,617			7,584
Interest expense
	Interest bearing checking					5			5
	Money market deposits					198			170
	Savings deposits					160			135
	Time deposits					22			25
		Total interest expense in deposits				385			335
	Interest expense on borrowings					--			1
			Total interest expense			385			336
Net interest income						8,232			7,248
Provision for loan losses						40			200
Net interest income after provision for loan losses						8,192			7,048
Noninterest income
	Service charges on deposits					67			60
	BOLI dividend income					30			30
	BOLI benefits					--			249
	Gain on sale of loans					19			51
	Gain on sale of securities					10			--
	Other					47			39
		Total noninterest income				173			429

1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands, except share and per share data)
				Six Months Ended
				June 30,				June 30,
				2016				2015
Noninterest expenses
	Salaries and benefits				3,777				3,371
	Occupancy				438				398
	Data and item processing				299				286
	Professional services				224				263
	Furniture and equipment				235				205
	Provision for unfunded loan commitments				(10	)			18
	Other				1,045				941
		Total noninterest expenses			6,008				5,482
Income before provision for income taxes					2,357				1,995
Provision for income taxes					964				693
Net income				$	1,393			$	1,302
Common Share Data2
	Earnings per share
		Basic		$	0.34			$	0.32
		Diluted		$	0.34			$	0.32
	Weighted average shares outstanding
		Basic			4,089,206				4,006,869
		Diluted			4,135,373				4,060,991

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 July 29, 2015 and payable September 30, 2015.

1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands)
			June 30,				March 31,				December 31,				June 30,
Asset Quality			2016				2016				2015				2015
	Loans past due 90 days or more and accruing interest		$	--			$	--			$	--			$	--
	Nonaccrual restructured loans			1,491				1,507				1,526				--
	Other nonaccrual loans			248				183				205				92
	Other real estate owned			--				--				--				--
			$	1,739			$	1,690			$	1,731			$	92
	Allowance for loan losses to total loans			1.56	%			1.56	%			1.57	%			1.60	%
	Allowance for loan losses to nonperforming loans			344.28	%			351.48	%			342.06	%			6,031.52	%
	Nonaccrual loans to total loans			0.45	%			0.44	%			0.46	%			0.03	%
	Nonperforming assets to total assets			0.32	%			0.30	%			0.34	%			0.02	%
Regulatory Capital and Ratios
	Common equity tier 1 capital		$	46,143			$	45,230			$	44,258			$	42,941
	Tier 1 regulatory capital		$	46,143			$	45,230			$	44,258			$	42,941
	Total regulatory capital		$	50,447			$	49,423			$	48,461			$	46,919
	Tier 1 leverage ratio			8.33	%			8.58	%			8.82	%			8.97	%
	Common equity tier 1 risk based capital ratio			13.47	%			13.56	%			13.24	%			13.57	%
	Tier 1 risk based capital ratio			13.47	%			13.56	%			13.24	%			13.57	%
	Total risk based capital ratio			14.73	%			14.52	%			14.49	%			14.82	%
			Three Months Ended
			June 30,				March 31,				December 31,				June 30,
Selected Financial Ratios1			2016				2016				2015				2015
	Return on average total assets			0.50	%			0.54	%			0.53	%			0.50	%
	Return on average shareholders' equity			6.01	%			6.24	%			6.04	%			5.60	%
	Net interest margin			2.99	%			3.20	%			3.21	%			3.13	%
	Net interest income to average total assets			2.96	%			3.17	%			3.17	%			3.10	%
	Efficiency ratio			71.10	%			71.86	%			72.03	%			74.08	%

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

				Three Months Ended
				June 30,				March 31,				December 31,				June 30,
Selected Average Balances				2016				2016				2015				2015
	Gross loans			$	383,020			$	379,982			$	376,956			$	345,008
	Investment securities				77,748				79,454				86,974				101,475
	Federal Home Loan Bank stock				2,848				2,593				2,593				2,445
	Other interest earning assets				84,807				60,156				29,366				25,233
		Total interest earning assets		$	548,423			$	522,185			$	495,889			$	474,161
	Total assets			$	553,957			$	527,468			$	502,349			$	479,363
	Interest bearing checking accounts			$	29,327			$	31,567			$	31,352			$	26,132
	Money market deposits				146,985				123,018				114,281				125,098
	Savings deposits				120,792				109,319				96,740				91,735
	Time deposits				15,434				21,335				29,460				29,775
		Total interest bearing deposits			312,538				285,239				271,833				272,740
	Noninterest bearing demand deposits				193,762				195,684				183,569				160,349
		Total deposits		$	506,300			$	480,923			$	455,402			$	433,089
	Borrowings			$	12			$	--			$	2,283			$	2,154
	Shareholders' equity			$	46,071			$	45,405			$	44,308			$	43,013

1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands)
			Six Months Ended
			June 30,			June 30,
Selected Financial Ratios1			2016			2015
	Return on average total assets		0.52	%		0.55	%
	Return on average shareholders' equity		6.15	%		6.19	%
	Net interest margin		3.10	%		3.10	%
	Net interest income to average total assets		3.06	%		3.07	%
	Efficiency ratio		71.48	%		71.41	%

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

				Six Months Ended
				June 30,			June 30,
Selected Average Balances1				2016			2015
	Gross loans			$	381,501		$	339,261
	Investment securities				78,601			101,407
	Federal Home Loan Bank stock				2,720			2,227
	Other interest earning assets				71,250			28,306
		Total interest earning assets		$	534,072		$	471,201
	Total assets			$	540,712		$	476,709
	Interest bearing checking accounts			$	30,446		$	24,590
	Money market deposits				135,002			122,841
	Savings deposits				115,055			91,078
	Time deposits				18,385			30,181
		Total interest bearing deposits			298,888			268,690
	Noninterest bearing demand deposits				194,723			163,461
		Total deposits		$	493,611		$	432,151
	Borrowings			$	6		$	1,083
	Shareholders' equity			$	45,582		$	42,432

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

For further information, please contact:

Thomas E. Meyer
President and Chief Executive Officer
831.264.4057 office
[e-mail]

or

Michael J. Winiarski
Chief Financial Officer
831.264.4014 office
[e-mail]