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
$
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