SOURCE: 1st Capital Bank

1st Capital Bank

July 29, 2016 17:31 ET

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.

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