SOURCE: 1st Capital Bank

1st Capital Bank

November 04, 2013 09:00 ET

1st Capital Bank Announces: Third Quarter and Year to Date 2013 Financial Results; Resignation of Director

MONTEREY, CA--(Marketwired - Nov 4, 2013) - 1st Capital Bank (OTCQB: FISB) (the "Bank") today announced third quarter and year to date financial results through September 30, 2013. Net income during the third quarter of 2013 was $457 thousand, equivalent to $0.13 per diluted common share, down from $540 thousand, equivalent to $0.16 per diluted common share, during the third quarter of 2012; but up from $359 thousand, equivalent to $0.11 per diluted common share, for the second quarter of 2013 (the immediately preceding quarter). The reduction in net income from the third quarter of 2012 to the third quarter of 2013 was primarily due to increased non-interest expense, which stemmed from new hires to support the Bank's growth, increased processing and servicing costs for a greater number of client accounts, enhancement of the Monterey and King City branch offices, and the Bank's recording $120 thousand in severance expense during the third quarter of 2013. The third quarter of 2013 represented the second consecutive increase in quarterly earnings.

Net income for the first nine months of 2013 and 2012 was almost identical at $1.1 million, equivalent to $0.32 per diluted common share for both time periods.

The Bank's total assets expanded by 21.6% during the twelve months ended September 30, 2013; and average interest earning assets were 20.2% higher during the third quarter of 2013 compared to the third quarter of 2012.

Commenting on the third quarter of 2013 financial performance, Mark Andino, the Bank's President and Chief Executive Officer, stated: "We are pleased to report a second consecutive quarter of increased earnings and a growth rate over the past year in excess of 20.0%, all of which was organic. The Bank concluded the third quarter of 2013 with a favorable credit profile, a record level of capital, a well positioned loan loss reserve relative to non-performing loans, and a strong pipeline of potential new business. Third quarter results would have been even more favorable if not for severance costs, the continuation of a historically low interest rate environment, and continued aggressive loan pricing competition from the very large banks. Looking forward, one of the challenges facing the Bank is balancing the growth opportunities before us with the desire to provide a competitive current return on equity to shareholders. The Bank continues to attract a broad range of local businesses and professionals who are seeking the combination of client service, technology, customization, timeliness, and experienced bankers offered by 1st Capital Bank. We have worked diligently throughout 2013 to implement multiple initiatives aimed at improving the Bank's efficiency ratio, thereby providing increased resources for investment into new markets, technologies, and products."

William G. Dorey resigned from the Bank's Board of Directors effective October 30, 2013. Mr. Dorey became a Bank director in April 2012, and resigned in light of competing requirements for his time. Mr. Dorey is a retired Chief Executive Officer of Granite Construction who continues to serve on that entity's Board of Directors. In addition, Mr. Dorey is a director of another company and is involved with a significant number of other organizations, including the California Chamber of Commerce, the California Business Roundtable, and various construction industry related groups.

Kurt Gollnick, the Bank's Chairman of the Board, stated: "The Board of Directors would like to thank Bill Dorey for his service and contributions. It was with regret that I accepted Bill's resignation, but I appreciate the extensive time commitment now required of bank directors. We are currently evaluating a number of well qualified candidates to potentially be added to the Board in coming months."

Performance Highlights

  • The Bank presented a high quality credit profile at September 30, 2013, with a nonperforming asset ratio of 0.23% and a ratio of allowance for loan losses to nonperforming loans of 546.15%.

  • Non-accrual loans totaled $0.9 million at September 30, 2013, equivalent to 0.34% of loans outstanding. No new loans were transferred to non-accrual status during the third quarter of 2013, and the inventory of non-accrual loans at June 30, 2013 continued to pay down.

  • By September 30, 2013, the Bank received the first two scheduled monthly recovery payments associated with the $500 thousand commercial loan charged off during the first quarter of 2013. In addition, the third monthly recovery payment of $4 thousand was received in October 2013. The Bank recorded $4 thousand in net recoveries during the third quarter of 2013.

  • The Bank commenced a new source of revenue during the third quarter of 2013 via the initial sale of the guaranteed portion of an SBA loan, generating a pre-tax gain on sale of $21 thousand. The Bank has installed new technology to support this line of business and intends to pursue additional SBA lending and loan sales in the future.

  • At September 30, 2013, the Bank maintained a regulatory total risk-based capital ratio of 15.04%, substantially in excess of the 10.00% threshold to be categorized in the highest regulatory capital classification of "well capitalized." The Bank's regulatory capital ratios at September 30, 2013 benefited from $680 thousand in new Tier 1 Regulatory Capital from payments received for the exercise of vested stock options during the third quarter of 2013. An additional $316 thousand in Tier 1 Regulatory Capital from the exercise of vested stock options was obtained during October 2013.

  • Tangible book value per share rose to a record $10.71 as of September 30, 2013, as compared to $10.27 per share at December 31, 2012.

Financial Condition Analysis

Funds held at the Federal Reserve Bank of San Francisco ("FRB-SF") decreased from $26.7 million at December 31, 2012 to $18.5 million at September 30, 2013. This reduction resulted from the Bank's decision to invest excess on-balance sheet liquidity primarily into higher yielding variable rate mortgage backed securities ("MBS") and floating rate tranches of collateralized mortgage obligations ("CMO") issued by the Federal National Mortgage Association ("FNMA"), the Government National Mortgage Association ("GNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC") (collectively, "U.S. Agencies") in order to augment interest income.

Time deposits at other financial institutions declined from $9.3 million at December 31, 2012 to $4.6 million at September 30, 2013, as funds from maturing time deposits were reinvested into securities.

Securities categorized as available for sale increased from $41.8 million at December 31, 2012 to $86.6 million at September 30, 2013. During the first nine months of 2013, the Bank invested deposit inflows in excess of loan portfolio growth, maturing time deposit funds, plus some of its balances at the FRB-SF into securities, resulting in the following security portfolio profile at September 30, 2013:

   
   
$ In Thousands September 30, 2013
  Fair Value
Type of Security (Unaudited)
SBA fixed rate loan pools $ 3,026
Municipal fixed rate securities   2,154
Agency variable rate residential MBS   3,306
Agency fixed rate residential MBS   6,428
Agency variable rate commercial MBS   18,307
Agency variable rate residential CMO   44,885
Agency variable rate commercial CMO   8,517
     
Total $ 86,623
     
     

The municipal securities were all rated at least AA by a nationally recognized ratings agency. The majority of the Bank's security purchases during 2013 were adjustable rate assets, as the Bank has allocated most of its balance sheet duration to loans in response to client demand for fixed rate financing in the current interest rate environment. The fair value of the Bank's $86.6 million in securities at September 30, 2013 exceeded its amortized cost basis by $37 thousand.

At September 30, 2013, the Bank maintained a strong liquidity profile, consisting of a significant volume of on-balance sheet assets (including cash & cash equivalents and securities available for sale) and over $100 million in off-balance sheet borrowing capacity. The increase in the Bank's liquidity profile during the first nine months of 2013 is reflected in the ratio of net loans to deposits, which decreased from 81.1% at December 31, 2012 to 76.0% at September 30, 2013. Commenting on the Bank's liquidity, Jon Ditlevsen, the Bank's Chief Lending Officer, stated: "The Bank concluded the third quarter of 2013 with ample funds for lending. We continue to extensively market to local businesses and professionals throughout the Central Coast of California. We recognize that increasing the Bank's ratio of net loans to deposits via quality lending is a key objective for the Bank for the remainder of 2013 and into next year; as we aim to build a greater stream of net interest income."

Net loans increased from $238.9 million at December 31, 2012 to $246.2 million at September 30, 2013. While the Bank originated or purchased an aggregate $65.5 million in new credit commitments during the first nine months of 2013, loan payoffs and curtailments, principal reductions on lines of credit, and scheduled principal amortization combined to limit net portfolio growth. Commenting in this regard, Dale Diederick, the Bank's Chief Credit Officer stated: "The Bank has recently enjoyed strong levels of loan production. However, during the third quarter of 2013, we had a number of owner occupied residential construction loans reach project completion and obtain long term, traditional mortgage financing. That led to a $7.0 million decline in the Bank's construction and land loan portfolio during the quarter."

The Bank's allowance for loan losses increased from $4.3 million, or 1.77% of total loans, at December 31, 2012 to $4.7 million, or 1.87% of total loans, at September 30, 2013. The allowance was increased by $868 thousand in loan loss provision during the first nine months of 2013, and decreased by year to date net charge-offs of $496 thousand, almost all of which occurred during the first quarter of 2013 in conjunction with a $500 thousand impaired commercial loan.

Non-accrual loans decreased by $583 thousand from December 31, 2012 to September 30, 2013, reflective of the charge-off of the $500 thousand commercial loan described above, one other charge-off for $4 thousand, and payments received on non-accrual loans. All but one of the non-accrual loans were current or less than 30 days delinquent in scheduled payments as of September 30, 2013.

Loans graded Substandard increased from $5.1 million at December 31, 2012 to $8.2 million at September 30, 2013 primarily due to the downgrade of one credit relationship from Special Mention. Loans graded as Special Mention increased from $4.2 million at December 31, 2012 to $6.0 million at September 30, 2013, primarily due to the downgrade of one credit relationship in response to weaker farming results over the past two years. Both of the aforementioned downgraded credit relationships were current in their scheduled payments at September 30, 2013 and the borrowers have continued to be cooperative with the Bank.

The ratio of the Bank's allowance for loan losses to non-performing loans rose from 299.38% at December 31, 2012 to 546.15% at September 30, 2013. The Bank has never owned any foreclosed real estate.

Premises and equipment, net of accumulated depreciation, increased from $1.3 million at December 31, 2012 to $1.4 million at September 30, 2013. The majority of this increase was due to a minor remodeling of the Salinas branch office and the purchase of new hardware in support of the Bank's technology platform.

The Bank's investment in the capital stock of the Federal Home Loan Bank ("FHLB") increased from $1.0 million at December 31, 2012 to $1.5 million at September 30, 2013 due to the standard asset-based investment requirement applicable to FHLB members.

Commenting on the Bank's asset profile at September 30, 2013, Clay Larson, the Bank's Regional President, stated: "We continue to seek to increase loans as a percentage of total assets as a means to augment net interest income and even better support the credit needs of our local communities. We plan to further enhance the Bank's visibility throughout Monterey County during the fourth quarter of 2013 via our Organizers Reception, Advisory Board meetings, Local Stockbroker Event, and ongoing sponsorship of a wide variety of non-profit and community organizations." Mr. Larson then added: "We've enjoyed great success in emphasizing the difference that 1st Capital Bank represents; where clients can reach their banker virtually 24 / 7. That commitment to providing a concierge level of service continues to differentiate us from the large banks."

Total deposits increased from $294.7 million at December 31, 2012 to $323.9 million at September 30, 2013. However, total deposits declined by $9.7 million during the third quarter of 2013 due to seasonal flows by certain agriculture related clients. These seasonal outflows more than offset the impact of a net increase of 135 deposit accounts during the third quarter of 2013.

Non-interest bearing demand deposits increased from $123.4 million at December 31, 2012 to $127.1 million at September 30, 2013. The Bank continues to enhance and market its suite of electronic banking and cash management services, with a dedicated Cash Management Department led by Brooks Kohne, who recently announced: "We have now added technology that allows us to access our clients' desktops, with their permission, through the Internet; thereby allowing us to assist with ACH file creation and origination and domestic and international wire processing on a real-time basis."

Interest bearing checking accounts increased from $17.5 million at December 31, 2012 to $18.2 million at September 30, 2013. Given the historically low interest rate environment, the Bank has attracted these consumer, sole proprietor, and non-profit organization checking accounts by its focus on a concierge level of service rather than based upon interest rate.

Money market deposits increased from $60.1 million at December 31, 2012 to $78.2 million at September 30, 2013. Money market deposits during 2013 benefited from:

  • low (often, near zero) interest rates being paid on brokerage accounts and money market mutual funds, thereby encouraging clients to transfer their funds to higher yielding and FDIC insured accounts;

  • the expiration of the FDIC Transaction Account Guaranty Program on December 31, 2012, whereby non-interest bearing checking accounts (as defined under the Program) received unlimited FDIC deposit insurance coverage (thereby encouraging certain clients to reallocate funds back to money market accounts insured under the FDIC's unified Standard Maximum Deposit Insurance Amount);

  • the Bank's cross-selling money market accounts to new checking account clients given the easy integration and customization via the Bank's online banking service;

  • the conversion of certain deposits from certificates of deposit to money market accounts given the limited yield differential between the products in the current interest rate environment; and

  • the Bank's offering tiered pricing on money market accounts, whereby clients receive a higher interest rate on their entire account balance as each successively higher balance tier level is attained.

Savings deposits rose from $62.4 million at December 31, 2012 to $73.0 million at September 30, 2013. The Bank realized balance increases in both consumer and business savings products, which have been an attractive alternative for liquid funds in the current historically low interest rate environment.

Time deposits decreased from $31.3 million at December 31, 2012 to $27.4 million at September 30, 2013. Factors contributing to this decline included transfers from certain maturing time deposits into transaction accounts and the Bank's moderating its time deposit pricing in response to its favorable liquidity position and the availability of alternative low cost funding. $6.0 million of the $27.4 million in time deposits at September 30, 2013 were comprised of low cost state term funds. None of the Bank's deposits at September 30, 2013 were brokered deposits.

Commenting on the Bank's deposit performance, Irene Shippee, the Bank's Operations Administrator, stated: "Consistent with 2012, the Bank experienced a seasonal reduction in deposit balances during the third quarter of 2013. Many of these deposit balances historically return to the Bank during the fourth and first quarters of the year, following the cash flow patterns of local agricultural companies." Ms. Shippee then added: "The year to date deposit growth was achieved without pursuing institutional or wholesale deposits in light of the Bank's strong liquidity position. We concluded the third quarter of 2013 with a solid pipeline of potential new deposit relationships."

Marilyn Goode, the Bank's Interim Chief Financial Officer, added: "The Bank's weighted average cost of deposits during the third quarter of 2013 was just 0.18%. We welcomed a notable number of new cash management clients during the first nine months of 2013, many of whom selected multiple services from our product set of ACH origination, online wire request, sweep, online banking, electronic bill payment, lockbox, positive payment, remote branch deposit, person to person payment, and remote deposit capture."

The Bank maintained $7.0 million in overnight borrowings from the Federal Home Loan Bank of San Francisco at September 30, 2013 in conjunction with its normal daily liquidity position management.

Shareholders' equity rose from $34.0 million at December 31, 2012 to a record $36.2 million at September 30, 2013. The 2013 year to date net income of $1.1 million, $261 thousand in equity compensation expense, and $1.2 million from the exercise of vested stock options more than offset a $379 thousand reduction in the accumulated other comprehensive income associated with changes in unrealized gains and losses on securities classified as available for sale.

Commencing on January 1, 2013, director compensation was shifted to consist solely of time-based restricted share awards. Similarly, the compensation packages for recently hired Bank officers have included a restricted share award component that vests over time, rather than being exclusively composed of cash compensation. The stock option exercises and the equity based compensation, in addition to retained earnings, are supporting the Bank's regulatory capital ratios and capacity for growth. The more extensive use of restricted share awards as a form of compensation emphasizes the directors' and officers' commitment to enhancing shareholder value.

Operating Results Analysis

Net interest income before provision for loan losses of $3.2 million during the three months ended September 30, 2013 increased from both: (i) $3.1 million during the three months ended September 30, 2012; and (ii) $3.1 million during the three months ended June 30, 2013 (the immediately preceding quarter). These increases in net interest income were primarily generated by a rise in interest earning assets, as the Bank's net interest margin declined from 4.11% during the third quarter of 2012 to 3.57% during the second quarter of 2013 to 3.51% during the third quarter of 2013.

Net interest income before provision for loan losses rose from $8.7 million during the nine months ended September 30, 2012 to $9.3 million during the nine months ended September 30, 2013. The Bank's net interest margin declined from 4.01% during the first nine months of 2012 to 3.60% during the first nine months of 2013. This margin compression is a general trend facing the banking industry, as funding costs have already been reduced to historically low levels while asset yields continue to fall in conjunction with:

  • the Federal Reserve's continuing to implement aggressive monetary policies (including quantitative easing) in an effort to reduce the national unemployment rate;

  • strong price competition among financial institutions for high quality loans; and

  • older, higher yielding loans and securities maturing and amortizing and being replaced by new, lower yielding loans and securities reflective of current market interest rates.

The net interest margin over the past year was particularly negatively impacted by the decline in the ratio of average loans to average deposits. Average gross loans equaled 85.7% of average deposits during the third quarter of 2012 versus 77.2% during the third quarter of 2013.

The Bank plans to support its net interest income in upcoming quarters via the following strategies:

  • continuing to focus upon the size and mix of the Bank's balance sheet, particularly the growth in the loan portfolio;

  • seeking to allocate a greater percentage of excess on-balance sheet liquidity to securities versus cash equivalents in order to obtain incremental yield; and

  • pursuing a further migration in deposit mix away from certificates of deposit and toward non-interest bearing checking accounts.

The provision for loan losses was $89 thousand during the third quarter of 2013, compared to $98 thousand during the third quarter of 2012 and $319 thousand during the second quarter of 2013 (the immediately preceding quarter). Factors contributing to the provision for loan losses during the third quarter of 2013 included:

  • additional specific loan loss reserves of $53 thousand for impaired loans associated with two credit relationships where the borrowers are current in their payments to the Bank, but are experiencing financial stress in their businesses; and

  • increased formula general reserves associated with one credit relationship placed on Watch status during the third quarter of 2013.

The Bank recorded a $4 thousand charge-off during the third quarter of 2013 which had already been 100% reserved at June 30, 2013. The Bank recorded $8 thousand in recoveries during the third quarter of 2013, all of which were associated with a $500 thousand commercial loan charged off during the first quarter of 2013. Under a settlement agreement with this borrower, the Bank is scheduled to receive monthly payments of $4 thousand. The October 2013 payment was also received as planned. In addition, during the third quarter of 2013, the borrower reimbursed the Bank for certain legal costs incurred in conjunction with his indebtedness.

The provision for loan losses increased from $562 thousand during the first nine months of 2012 to $868 thousand during the first nine months of 2013. Factors contributing to the provision for loan losses during the first half of 2013 (i.e. in addition to those specified above) included:

  • additional loan loss reserves of $277 thousand associated with the $500 thousand impaired commercial loan that was charged off during the first quarter of 2013;

  • increased specific reserves associated with one of the credit relationships described above in reference to the third quarter of 2013 based upon an updated valuation of the collateral securing the debt and additional information regarding the borrower's financial profile;

  • increased formula general reserves associated with a credit relationship which was downgraded to Special Mention during the second quarter of 2013;

  • growth in the size of the loan portfolio;

  • an increase in hospitality industry related loans (a primary industry in the Bank's market area), which are reserved at a higher ratio than most other types of investor real estate; and

  • a rise in the amount of loan loss reserves designated for the Bank's qualitative adjustment factors.

Non-interest income of $100 thousand during the three months ended September 30, 2013 represented an increase from both: (i) $46 thousand during the three months ended September 30, 2012; and (ii) $76 thousand during the three months ended June 30, 2013 (the immediately preceding quarter). Non-interest income of $240 thousand during the first nine months of 2013 almost doubled the $121 thousand recognized during the first nine months of 2012. Factors contributing to these increases in non-interest income included:

  • The Bank implemented a revised fee and service charge schedule effective May 1, 2013 that included some new fees as well as increases to certain existing fees for various services the Bank provides.

  • Fee waivers during 2013 have been more selective, based upon the client's profitability to the Bank.

  • Late in the third quarter of 2012, the Bank made its initial investment into Bank Owned Life Insurance ("BOLI"). This investment generates monthly dividend income that increases its cash surrender value and is accounted for as a component of non-interest income.

  • The management team has increased the Bank's focus on generating non-interest income during 2013 through a variety of sources, including merchant bankcard services, check printing, and wire transfers.

  • The Bank recorded a $21 thousand gain during the third quarter of 2013 from its initial sale of the guaranteed portion of an SBA 7(a) Program loan. The Bank has implemented software that supports this secondary marketing and related servicing; and intends to pursue additional such sales in the future should secondary market prices continue at attractive levels.

Non-interest expense increased from $2.1 million during the third quarter of 2012 and $2.3 million during the second quarter of 2013 (the immediately preceding quarter) to $2.4 million during the third quarter of 2013. Non-interest expense rose from $6.4 million during the first nine months of 2012 to $6.9 million during the first nine months of 2013.

During 2013, the Bank has implemented multiple initiatives in order to moderate the pace of increase in operating costs despite the ongoing growth of the Bank. These initiatives have included:

  • Linking the Bank's incentive compensation accrual more directly to performance on key metrics which closely align with the generation of shareholder value. Incentive compensation costs for the first nine months of 2013 were $82 thousand, down from $162 thousand during the first nine months of 2012.

  • The Bank redesigned its health and welfare benefits effective January 1, 2013 to both provide good relative value to its employees and control related expenses. As a result, health and welfare expenses were slightly lower during the first nine months of 2013 versus the same period the prior year despite the Bank's increased staffing and the general upward trend for such costs.

  • During the second quarter of 2013, the Bank deregistered its common shares under the Securities Exchange Act of 1934, as amended. This has led to savings in external expenses for legal and accounting services, while also freeing internal resources for other projects in support of the Bank's strategic plan.

Salaries and benefits costs increased from $1.3 million during the third quarter of 2012 to $1.5 million during the third quarter of 2013. Salary and benefits costs during the second quarter of 2013 (the immediately preceding quarter) were $1.4 million. Salaries and benefits costs rose from $3.8 million during the first nine months of 2012 to $4.2 million during the first nine months of 2013.

Salaries and benefits costs during the third quarter of 2013 were inflated by $120 thousand in severance expense. The year over year increases in salaries and benefits costs primarily resulted from expenses for new positions created in support of the Bank's growth, including Information Technology Manager, Relationship Manager, Credit Administrator, and Business Development Officer. The number of full time equivalent employees increased from 57 at December 31, 2012 to 61 at September 30, 2013.

In October 2013, the Bank hired Thomas Anderson as its new Senior Relationship Manager responsible for lending and client acquisition in the region from King City in the north to Santa Maria in the south. Mr. Anderson is an experienced and well-known commercial banker in that area. This hire complements the Bank's recent success in gaining market share in San Luis Obispo County and leverages the expansion of the King City branch office which was completed earlier this year.

Occupancy expenses increased from $173 thousand during the third quarter of 2012 to $191 thousand during the third quarter of 2013. Occupancy expenses during the second quarter of 2013 (the immediately preceding quarter) were $186 thousand. Occupancy expenses rose from $530 thousand during the first nine months of 2012 to $570 thousand during the first nine months of 2013 primarily due to the incremental costs associated with the new location for the Monterey branch office, which opened in March 2012. In response to an expanding client base, the Bank also enlarged its King City branch office in March 2013, resulting in a monthly rent increase of $2 thousand.

Furniture and equipment expense increased from $60 thousand during the third quarter of 2012 to $70 thousand during the third quarter of 2013. Furniture and equipment expense during the first nine months of 2013 totaled $195 thousand, down from $231 thousand during the first nine months of 2012 primarily due to lower levels of depreciation expense. Furniture and equipment expense is projected to increase in future periods in conjunction with the planned technology upgrades by the Bank over the forthcoming six months.

Other non-interest expense during the third quarter of 2013 totaled $658 thousand, up from $587 thousand during the third quarter of 2012 and $647 thousand during the second quarter of 2013 (the immediately preceding quarter). These increases were primarily generated by higher aggregate costs for software and technology, which have been trending upward in conjunction with an increased client base with more accounts and more transactions, and with the implementation of new technologies.

The Bank's efficiency ratio (operating costs compared to income from operations) unfavorably rose from 67.24% during the third quarter of 2012 to 74.08% during the third quarter of 2013 primarily due to a narrower net interest margin and the severance costs recorded during the third quarter of 2013. Excluding the severance costs, the efficiency ratio during the third quarter of 2013 was 70.43%, consistent with the 70.69% experienced during the second quarter of 2013.

The Bank's efficiency ratio for the first nine months of 2013 was 71.74%, compared to 72.91% during the first nine months of 2012. This improvement in the Bank's efficiency ratio would have been even more pronounced if the Bank had not experienced the margin compression described above. The progress in the Bank's efficiency ratio reflects the 21.6% rise in total assets during the twelve months ended September 30, 2013 without adding additional branch office locations. Technology has been utilized to perform an increasing volume of client transactions without adding new physical locations or hiring a significant volume of additional branch office staff. The Bank offers both qualified businesses and consumers check deposit processing via scanner, with check deposit via smartphone planned for introduction in coming months.

Dr. Daniel Hightower, the Vice Chairman of the Board and the Chairman of the Bank's Information Technology Steering Committee, commented: "We are excited about the technology enhancements scheduled at the Bank over the forthcoming six months. We expect this new hardware and software to facilitate even better client service while improving employee productivity and job satisfaction. In conformity with our Strategic Plan, we aim to utilize technology as a competitive advantage and as a means of improving the Bank's efficiency ratio over time. Next up is an enhancement to our consumer and business debit card products and processing that presents even more flexibility and convenience to our clients."

The Bank's effective book tax rate declined from 41.9% during the third quarter of 2012 to 40.1% during the third quarter of 2013 primarily due to the increase in tax preferred income from Bank Owned Life Insurance and bank eligible and bank qualified municipal bonds. The same factors contributed to a reduction in the Bank's effective book tax rate for the nine months ended September 30, 2013.

About 1st Capital Bank

The Bank's primary target markets are commercial enterprises, professionals, real estate investors, family business entities, and residents in Monterey County. 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 deposits accounts are also furnished, complemented by robust cash management services. The Bank operates full service branch offices in Monterey, Salinas, and King City. The Bank's corporate offices are located at 5 Harris Court, Building N, Suite 3, Monterey, California 93940. The Bank's website is www.1stcapitalbank.com and the main telephone number is 831.264.4000.

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 per share data)
                               
Financial Condition Data1   September 30, 2013       June 30, 2013       December 31, 2012       September 30, 2012  
Assets                                      
  Cash and due from banks   $ 1,688       $ 1,561       $ 2,872       $ 1,996  
  Funds held at the Federal Reserve Bank2     18,521         20,873         26,721         32,878  
  Time deposits at other financial institutions     4,582         8,823         9,321         9,570  
  Available-for-sale securities, at fair value     86,623         79,673         41,762         17,383  
  Loans receivable held for investment:                                      
    Construction / land (including farmland)     15,175         22,149         18,207         17,859  
    Residential 1 to 4 units     32,300         32,922         22,711         21,118  
    Home equity lines of credit     10,506         10,033         12,243         12,813  
    Multifamily     5,127         5,011         2,397         3,944  
    Owner occupied commercial real estate     49,712         49,780         47,917         46,701  
    Investor commercial real estate     65,223         64,272         65,733         56,997  
    Commercial and industrial     65,989         62,902         71,848         72,029  
    Other loans     6,842         6,053         2,197         2,622  
      Total loans     250,874         253,122         243,253         234,083  
    Allowance for loan losses     (4,686 )       (4,593 )       (4,314 )       (3,882 )
  Net loans     246,188         248,529         238,939         230,201  
  Premises and equipment, net     1,387         1,386         1,282         1,324  
  Bank owned life insurance     3,626         3,603         3,555         4,500  
  Investment in FHLB3 stock, at cost     1,494         1,494         1,026         1,026  
  Accrued interest receivable and other assets     3,987         3,586         3,871         3,811  
Total assets   $ 368,096       $ 369,528       $ 329,349       $ 302,689  
                                       
Liabilities and shareholders' equity                                      
  Deposits:                                      
    Noninterest bearing demand deposits   $ 127,132       $ 129,840       $ 123,403       $ 102,745  
    Interest bearing checking accounts     18,167         18,611         17,482         13,329  
    Money market     78,221         85,224         60,091         59,621  
    Savings     72,991         71,690         62,364         58,260  
    Time     27,423         28,307         31,314         34,584  
      Total deposits     323,934         333,672         294,654         268,539  
  Borrowings     7,000         --         --         --  
  Accrued interest payable and other liabilities     988         777         694         915  
  Shareholders' equity     36,174         35,079         34,001         33,235  
Total liabilities and shareholders' equity   $ 368,096       $ 369,528       $ 329,349       $ 302,689  
                                       
Shares outstanding4     3,377,672         3,306,861         3,310,503         3,251,003  
Nominal and tangible book value per share   $ 10.71       $ 10.61       $ 10.27       $ 10.22  
Ratio of net loans to total deposits     76.00 %       74.48 %       81.09 %       85.72 %
                                       
                                       

1 = Certain reclassifications have been made to prior period financial statements to conform them to the current period presentation. 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 = The Bank revised its 2007 Equity Incentive Plan during the second quarter of 2013. Those revisions resulted in a lower number of outstanding common shares being reported at June 30, 2013 (and prospectively) due to the elimination of voting and other rights for unvested restricted share awards.

 
 
1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands, except per share data)
 
 
    3 Months Ended
Operating Results Data1   September 30, 2013   June 30, 2013   September 30, 2012
Interest and dividend income                  
  Loans   $ 3,137   $ 3,089   $ 3,155
  Investment securities     151     141     103
  Federal Home Loan Bank stock     21     16     --
  Other     27     31     41
    Total interest and dividend income     3,336     3,277     3,299
Interest expense                  
  Interest bearing checking accounts     6     7     7
  Money market deposits     68     72     87
  Savings deposits     57     56     74
  Time deposits     17     21     39
  Borrowings     1     --     --
    Total interest expense     149     156     207
Net interest income     3,187     3,121     3,092
Provision for loan losses     89     319     98
Net interest income after provision for loan losses     3,098     2,802     2,994
                   
Noninterest income                  
  Service charges on deposits     31     29     20
  BOLI dividend income     23     24     8
  Gain on sale of loans     21     --     --
  Other     25     23     18
    Total noninterest income     100     76     46
                   
Noninterest expenses                  
  Salaries and benefits     1,516     1,360     1,290
  Occupancy     191     186     173
  Furniture and equipment     70     67     60
  Other     658     647     587
    Total noninterest expenses     2,435     2,260     2,110
Income before provision for income taxes     763     618     930
Provision for income taxes     306     259     390
Net income   $ 457   $ 359   $ 540
                   
Common Share Data                  
  Earnings per share                  
    Basic   $ 0.14   $ 0.11   $ 0.17
    Diluted   $ 0.13   $ 0.11   $ 0.16
                   
  Weighted average shares outstanding                  
    Basic     3,348,041     3,269,382     3,248,690
    Diluted     3,420,215     3,359,011     3,337,605
                       
                       

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 per share data)
    9 Months Ended

Operating Results Data1
  September 30,
2013
  September 30,
2012
Interest and dividend income            
  Loans   $ 9,218   $ 8,898
  Investment securities     424     312
  Federal Home Loan Bank stock     43     2
  Other     94     134
    Total interest and dividend income     9,779     9,346
Interest expense            
  Interest bearing checking accounts     20     19
  Money market deposits     204     277
  Savings deposits     173     208
  Time deposits     66     136
  Borrowings     1     --
    Total interest expense     464     640
Net interest income     9,315     8,706
Provision for loan losses     868     562
Net interest income after provision for loan losses     8,447     8,144
             
Noninterest income            
  Service charges on deposits     82     63
  BOLI dividend income     71     8
  Gain on sale of loans     21     --
  Other     66     50
    Total noninterest income     240     121
             
Noninterest expenses            
  Salaries and benefits     4,193     3,835
  Occupancy     570     530
  Furniture and equipment     195     231
  Other     1,897     1,840
    Total noninterest expenses     6,855     6,436
Income before provision for income taxes     1,832     1,829
Provision for income taxes     754     771
Net income   $ 1,078   $ 1,058
             
Common Share Data            
  Earnings per share            
    Basic   $ 0.33   $ 0.33
    Diluted   $ 0.32   $ 0.32
             
  Weighted average shares outstanding      
    Basic     3,289,617     3,238,440
    Diluted     3,369,865     3,343,070
             
             

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)

Asset Quality
  September 30,
2013
  June 30,
2013
  December 31,
2012
  September 30,
2012
 
  Loans past due 90 days or more and accruing interest   $ --   $ --   $ --   $ --  
  Nonaccrual restructured loans     230     233     238     220  
  Other nonaccrual loans     628     654     1,203     520  
  Other real estate owned     --     --     --     --  
    $ 858   $ 887   $ 1,441   $ 740  
                           
  Allowance for loan losses to total loans     1.87 %   1.81 %   1.77 %   1.66 %
  Allowance for loan losses to nonperforming loans     546.15 %   517.81 %   299.38 %   524.59 %
  Nonaccrual loans to total loans     0.34 %   0.35 %   0.59 %   0.32 %
  Nonperforming assets to total assets     0.23 %   0.24 %   0.44 %   0.24 %
                           
                           
Regulatory Capital and Ratios                          
  Tier 1 regulatory capital   $ 36,152   $ 34,918   $ 33,600   $ 32,798  
  Total regulatory capital   $ 39,450   $ 38,141   $ 36,646   $ 35,685  
  Tier 1 leverage ratio     9.88 %   9.79 %   10.67 %   10.81 %
  Tier 1 risk based capital ratio     13.78 %   13.64 %   13.87 %   14.21 %
  Total risk based capital ratio     15.04 %   14.90 %   15.12 %   15.47 %
       
       
    3 Months Ended  
Selected Financial Ratios1   September 30, 2013     June 30, 2013     September 30, 2012  
  Return on average total assets   0.50 %   0.40 %   0.71 %
  Return on average shareholders' equity   5.06 %   4.14 %   6.50 %
  Net interest margin   3.51 %   3.57 %   4.11 %
  Net interest income to average total assets   3.45 %   3.51 %   4.05 %
  Efficiency ratio   74.08 %   70.69 %   67.24 %
       
       
    9 Months Ended  

Selected Financial Ratios1
  September 30,
2013
    September 30,
2012
 
  Return on average total assets   0.41 %   0.48 %
  Return on average shareholders' equity   4.12 %   4.34 %
  Net interest margin   3.60 %   4.01 %
  Net interest income to average total assets   3.52 %   3.96 %
  Efficiency ratio   71.74 %   72.91 %
             
             

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

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

Selected Average Balances1
September 30,
2013
June 30,
2013
September 30,
2012
  Gross loans $ 253,739 $ 249,169 $ 231,716
  Investment securities   79,497   70,398   17,866
  Federal Home Loan Bank stock   1,494   1,366   1,026
  Other interest earning assets   25,205   29,684   48,736
    Total interest earning assets $ 359,935 $ 350,617 $ 299,344
  Total assets $ 366,011 $ 356,775 $ 303,785
             
  Interest bearing checking accounts $ 17,347 $ 17,495 $ 13,169
  Money market   83,730   81,289   64,378
  Savings   72,088   67,991   55,170
  Time deposits   27,664   28,000   35,229
    Total interest bearing deposits $ 200,829 $ 194,775 $ 167,946
  Noninterest bearing demand deposits   127,919   126,284   102,537
    Total deposits $ 328,748 $ 321,059 $ 270,483
  Borrowings   576   --   --
  Shareholders' equity $ 35,858 $ 34,775 $ 33,031
             
     
    9 Months Ended
         
Selected Average Balances1   September 30, 2013   September 30, 2012
  Gross loans   $ 247,177   $ 215,472
  Investment securities     67,126     17,132
  Federal Home Loan Bank stock     1,298     980
  Other interest earning assets     30,488     56,450
    Total interest earning assets   $ 346,089   $ 290,034
  Total assets   $ 353,869   $ 293,736
             
  Interest bearing checking accounts   $ 16,818   $ 12,497
  Money market     77,824     63,740
  Savings     68,932     48,348
  Time deposits     28,536     37,985
    Total interest bearing deposits   $ 192,110   $ 162,570
  Noninterest bearing demand deposits     124,353     98,210
    Total deposits   $ 316,463   $ 260,780
  Borrowings     232     --
  Shareholders' equity   $ 35,000   $ 32,564
             
             

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

Contact Information

  • For further information, please contact:

    Mark R. Andino
    President and Chief Executive Officer
    831.264.4028 office
    831.915.6498 cellular
    Mark.Andino@1stcapitalbank.com