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1st Capital Bank Announces First Quarter 2020 Financial Results Record Loan Portfolio

SALINAS, CA / ACCESSWIRE / April 30, 2020 / 1st Capital Bank (OTC PINK:FISB) reported unaudited net income of $608 thousand for the three months ended March 31, 2020, a decrease of 65.8% compared to net income of $1.78 million in the first quarter of 2019 and a decrease of 65.0% compared to income of $1.73 million in the fourth quarter of 2019, the immediately preceding quarter. Earnings per share were $0.11 (diluted) for the first quarter of 2020, compared to $0.31 (diluted) for the prior quarter, and $0.32 (diluted) for the first quarter of 2019.

"The first quarter of 2020 marked the beginning of a humanitarian crisis unlike any the world has suffered for nearly 100 years," said Chairman of the Board Kurt J. Gollnick. "In response, 1st Capital Bank stepped forward with actions to benefit our customers, our employees, and our communities. As we entered the second quarter, our employees were working tirelessly to make credit available to hard-hit small businesses through the U.S. Small Business Administration's Paycheck Protection Program. Through April 26, 2020, we had processed more than 300 applications from local businesses and funded more than $90 million under the PPP. Forbearance is being extended to our home mortgage borrowers. We have provided salary continuation for our employees who have new-found obligations to care for family members during the crisis, and paid a special bonus to each of our hourly employees to help them cope with the often devastating impact of the crisis on their livelihoods. We have transitioned more than 65% of our employees to working remotely and have taken measures to protect those who continue to make themselves available to serve our customers through our branch network. And we have continued our ongoing programs to donate to local not-for-profit organizations and compensate employees for time spent volunteering."

Operating results reflect a provision for loan losses of $825 thousand to recognize incurred losses in the Bank's loan portfolio, which are attributable primarily to the COVID-19 outbreak and consequent action taken by governmental officials to curtail the operations of businesses deemed nonessential.

"During the first quarter, the economic environment shifted radically, and capital preservation is now the Bank's number one business priority," said Samuel D. Jimenez, chief executive officer. "We have sharpened our lenders' focus on minimizing the effect of the current economic environment on the credit quality of our loan portfolio, including thoughtful efforts to mitigate exposure in the early stages of delinquency, when positive outcomes are most likely, and assistance to borrowers who wish to avail themselves of the relief available under the PPP."

"Although the level of loan delinquency was limited at quarter-end, we recognize that deterioration in credit metrics attributable to the coronavirus outbreak is highly likely, since they are lagging indicators," said Dale R. Diederick, chief credit officer. "Therefore, we have taken steps to provide for losses that are reasonably estimable, although definitive information on losses that ultimately will occur is extremely limited at this time."

First Quarter Highlights:

  • Return on average equity was 3.53%, compared to 10.21% for the fourth quarter of 2019 and 11.95% for the first quarter of 2019.
  • Return on average assets was 0.38%, compared to 1.11% for the fourth quarter of 2019 and 1.15% for the first quarter of 2019.
  • Gross loans receivable increased 3.8%, from $511 million at December 31, 2019 to $530 million at March 31, 2020.
  • Customers drew down $9.4 million on commercial lines of credit, driving a $9.4 million, or 22.8%, increase in commercial and industrial loans outstanding.
  • Non-accrual loans were $492 thousand, or 0.09% of loans outstanding, at March 31, 2020, compared to $492 thousand at December 31, 2019. Loans 30 to 89 days delinquent increased from $634 thousand to $856 thousand during the first quarter, and no loans on accrual status were more than 90 days past due.
  • Sources of liquidity comprising secured borrowing capacity with the Federal Home Loan Bank of San Francisco and deposits eligible to be moved onto the Bank's balance sheet in the form of reciprocal deposits totaled $161 million at March 31, 2020. $25 million of additional liquidity under Federal funds facilities also was available.
  • Deposits totaled $572 million at each of March 31, 2020 and December 31, 2019.
  • Non-interest income declined from $305 thousand in the fourth quarter of 2019 to $288 thousand in the first quarter of 2020.
  • Non-interest expenses increased from $3.75 million in the fourth quarter of 2019 to $4.49 million in the first quarter of 2020.
  • The Bank's common equity Tier 1 (CET1) risked-based capital ratio was 13.66%, and its Tier 1 leverage ratio was 10.77% at March 31, 2020.
  • Net interest margin decreased from 3.89% in the fourth quarter of 2019 to 3.87% in the first quarter of 2020.

"The Bank entered the second quarter well positioned to meet the liquidity and capital requirements that active participation in the PPP entails," said Michael J. Winiarski, executive vice president and chief financial officer. "We believe the program will allow those small businesses who participate to mitigate their exposure to the steep declines in revenues that many of them face, and we are committed to partnering with them to make this a reality."

Total assets increased $0.5 million in the first quarter, from $645.3 million at December 31, 2019 to $645.8 million at March 31, 2020. Net loans increased $18.8 million, or 3.7%, during the first quarter, from $504.3 million at December 31, 2019 to $523.1 million at March 31, 2020. Growth was concentrated in the commercial real estate portfolio, which grew $14.8 million, and commercial and industrial loans, which increased $9.4 million.

Undrawn lines totaled $67.8 million at March 31, 2020, and consisted of the following: commercial and industrial, $33.2 million; agricultural production, $11.8 million; home equity lines of credit, $10.2 million; construction, $6.0 million; other real estate, $5.5 million; and other loans, $1.1 million. Through April 26, 2020, line utilization increased to 55.8% from 55.4% at March 31, 2020.

Paycheck Protection Program loans funded through April 26, 2020 totaled $92.5 million, comprising 240 loans totaling $25.7 million with principal amounts of $350,000 or less; 58 loans totaling $45.0 million with principal amounts over $350 thousand and under $2.0 million; and six loans totaling $21.8 million with principal amounts of $2.0 million or more.

Total deposits were substantially unchanged at $572.0 million as of March 31, 2020 and $572.1 million as of December 31, 2019. Noninterest-bearing demand deposit accounts ("DDAs") experienced a seasonal decline of $27.9 million, or 9.9%, from $280.6 million at December 31, 2019 to $252.8 million at March 31, 2020. DDAs decreased $15.4 million, or 5.8%, compared to March 31, 2019 levels. Average DDAs were $262.4 million in first quarter of 2020, compared to $276.0 million in the first quarter of 2019 and $269.6 million in the fourth quarter of 2019.

NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES

Net interest income before provision for credit losses was $5.86 million in the first quarter of 2020, an increase of $56 thousand, or 1.0%, compared to $5.81 million in the fourth quarter of 2019 and a decrease of $315 thousand, or 5.1%, compared to $6.18 million in the first quarter of 2019.

Average earning assets were $609.6 million during the first quarter of 2020, an increase of 2.4% compared to $595.3 million in the fourth quarter of 2019. The yield on earning assets was 4.07% in the first quarter of 2020, compared to 4.17% in the fourth quarter of 2019, primarily due to reduced yields on commercial and industrial loans and the investment portfolio as a result of the 1.50% decrease in the Federal funds target rate in March 2020. The average balance of the investment portfolio decreased $2.5 million, from $67.7 million in the fourth quarter of 2019 to $65.2 million in the first quarter of 2020. The yield on the investment portfolio decreased from 2.66% in the first quarter of 2019 to 2.46% in the fourth quarter of 2019 and 2.33% in the first quarter of 2020, as yields on floating-rate securities decreased.

The yields on commercial and industrial and commercial real estate loans in first quarter of 2020 were 5.48% and 4.83% on average balances of $43.8 million and $237.6 million, respectively, compared to 5.21% and 4.89% on average balances of $39.4 million and $222.2 million, respectively, in the fourth quarter of 2019. The portfolio of single-family residential mortgages, which yielded 3.61% and 3.45% on average balances of $143.6 million and $147.9 million in the first quarter of 2020 and the fourth quarter of 2019, respectively, declined $4.0 million, or 2.8% during the first quarter of 2020.

The cost of interest-bearing liabilities was 0.44% in the first quarter of 2020 and in the fourth quarter of 2019, while the average balance of interest-bearing liabilities increased 7.0% from $277.5 million in the fourth quarter of 2019 to $297.0 million in the first quarter of 2020, as the Bank actively managed its balance sheet, primarily with the placement of large deposits into the Insured Cash Sweep ("ICS") program. The average balance of noninterest-bearing demand deposit accounts decreased from $275.9 million, or 49.0% of total deposits, in the first quarter of 2019 to $269.6 million, or 49.3% of total deposits, in the fourth quarter of 2019 and $262.4 million, or 46.9% of total deposits, in the first quarter of 2020. The Bank's overall cost of funds increased from 0.20% in the first quarter of 2019 to 0.23% in the fourth quarter of 2019 and 0.23% in the first quarter of 2020.

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.

The Bank recorded a provision for loan losses of $825 thousand in the first quarter of 2020, compared with no provision in the first quarter of 2019 or the fourth quarter of 2019. Although the level of criticized assets, the mix of loan types within the portfolio and their respective historical loss rates, and management's assessment of the amounts expected to be realized from certain loans identified as impaired were largely unchanged, management recognized that economic conditions had deteriorated by March 31, 2020 and adjusted the qualitative factors used to compute the allowance for loan and lease losses upward. In particular, the qualitative factor for economic conditions was adjusted to estimate the effect of the coronavirus outbreak on the loan portfolio. Impaired loans totaled $630 thousand at March 31, 2020, compared to $652 thousand at December 31, 2019 and $279 thousand at March 31, 2019. The amount of impairment was $326 thousand at March 31, 2020, compared to $13 thousand at March 31, 2019 and $326 thousand December 31, 2019.

At March 31, 2020, non-performing loans were 0.09% of the Bank's loan portfolio, compared with 0.10% at December 31, 2019, and zero at March 31, 2019. At March 31, 2020, the allowance for loan losses was 1.40% of outstanding loans, compared to 1.29% at December 31, 2019 and 1.36% at March 31, 2019, respectively. The Bank recorded net recoveries of $12 thousand in each of the first quarter of 2020, the fourth quarter of 2019, and the first quarter of 2019.

NON-INTEREST INCOME

Non-interest income recognized in the first quarter of 2020 was $288 thousand, compared to $305 thousand in the fourth quarter of 2019. A $37 thousand decline in ICS fee income was the primary cause of the decrease.

NON-INTEREST EXPENSES

Non-interest expenses increased $750 thousand, or 20.0%, to $4.49 million in the first quarter of 2020, compared to $3.75 million for the fourth quarter of 2019, and increased $255 thousand, or 6.0%, compared to $4.24 million recognized in the first quarter of 2019.

Salaries and benefits increased $687 thousand, or 32.1%, to $2.82 million in the first quarter of 2020 from $2.14 million in the fourth quarter of 2019, and increased $150 thousand, or 5.6%, compared to $2.67 million in the first quarter of 2019. Employee salaries and bonuses increased $223 thousand, or 11.1%, sequentially and $161 thousand, or 7.7%, year over year. Health insurance premiums increased $47 thousand, or 24.4%, sequentially and $47 thousand, or 24.2%, year over year. The increase in salaries and benefits also included payments aggregating $234 thousand to the Bank's former chief executive officer in connection with his retirement and seasonal increases in payroll taxes. In addition, the absorption of direct loan origination costs decreased $143 thousand sequentially, reflecting the larger average size of loans originated in the first quarter of 2020.

The efficiency ratio (non-interest expenses divided by the sum of net interest income before provision for loan losses and non-interest income) was 73.1% for the first quarter of 2020, compared to 61.3% for the fourth quarter of 2019 and 63.7% for the first quarter of 2019. Annualized non-interest expenses as a percent of average total assets were 2.85%, 2.45%, and 2.74% for the first quarter of 2020, the fourth quarter of 2019, and the first quarter of 2019, respectively.

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 and the U.S. Department of Agriculture. A full suite of deposit accounts also is furnished, complemented by robust cash management services. The Bank operates full service branch offices in Monterey, Salinas, King City, and San Luis Obispo and a loan production office in Santa Cruz County. The Bank's corporate offices are located at 150 Main Street, Suite 150, Salinas, California 93901. The Bank's website is www.1stCapital.bank. The main telephone number is 831.264.4000. The primary facsimile number is 831.264.4001. Member FDIC / Equal Opportunity Lender / SBA Preferred Lender

Forward-Looking Statements

Certain of the statements contained herein that are not historical facts are "forward-looking statements" within the meaning of and subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may contain words or phrases including, but not limited, to: "believe," "expect," "anticipate," "intend," "estimate," "target," "plans," "may increase," "may fluctuate," "may result in," "are projected," and variations of those words and similar expressions. All such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Factors that might cause such a difference include, among other matters, changes in interest rates; economic conditions including inflation and real estate values in California and the Bank's market areas; governmental regulation and legislation; credit quality; competition affecting the Bank's businesses generally; the risk of natural disasters and future catastrophic events including pandemics, terrorist related incidents and other factors beyond the Bank's control; and other factors. The Bank does not undertake, and specifically disclaims any obligation, to update or revise any forward-looking statements, whether to reflect new information, future events, or otherwise, except as required by law.

This news release is available at the www.1stCapital.bank internet site for no charge.

For further information, please contact:

Samuel D. Jimenez
Chief Executive Officer
831.264.4057 office
Sam.Jimenez@1stCapitalBank.com

or

Michael J. Winiarski
Chief Financial Officer
831.264.4014 office
Michael.Winiarski@1stCapitalBank.com

--- financial data follow ---

1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands, except per share data)

  March 31,  December 31,  September 30,  March 31, 
Financial Condition Data1 2020  2019  2019  2019 
Assets            
Cash and due from banks $6,582  $6,198  $5,947  $6,569 
Funds held at the Federal Reserve Bank2  30,071   46,155   47,529   60,979 
Available-for-sale securities, at fair value  63,728   66,095   68,386   69,320 
Loans receivable held for investment:                
Construction / land (including farmland)  21,193   19,457   18,602   20,189 
Residential 1 to 4 units  136,014   140,623   141,907   139,765 
Home equity lines of credit  7,656   6,964   7,158   8,676 
Multifamily  57,900   59,830   54,324   54,586 
Owner occupied commercial real estate  73,488   70,622   63,587   61,775 
Investor commercial real estate  171,266   159,350   153,849   141,452 
Commercial and industrial  50,460   41,100   38,801   42,098 
Other loans  12,510   12,943   16,042   14,724 
Total loans  530,487   510,889   494,270   483,265 
Allowance for loan losses  (7,431)  (6,594)  (6,582)  (6,560)
Net loans  523,056   504,295   487,688   476,705 
Premises and equipment, net  2,189   2,102   2,131   1,996 
Bank owned life insurance  8,119   8,071   8,020   7,916 
Investment in FHLB3 stock, at cost  3,501   3,501   3,501   3,163 
Accrued interest receivable and other assets  8,514   8,930   14,254   7,780 
Total assets $645,760  $645,347  $637,456  $634,428 
                 
Liabilities and shareholders' equity                
Deposits:                
Noninterest bearing demand deposits $252,760  $280,634  $255,369  $268,195 
Interest bearing checking accounts  41,857   35,804   47,148   35,832 
Money market deposits  158,178   128,559   140,515   134,044 
Savings deposits  99,789   107,677   103,224   110,877 
Time deposits  19,400   19,395   19,399   18,953 
Total deposits  571,984   572,069   565,655   567,901 
Accrued interest payable and other liabilities  4,961   5,263   5,466   4,818 
Shareholders' equity  68,815   68,015   66,335   61,709 
Total liabilities and shareholders' equity $645,760  $645,347  $637,456  $634,428 
                 
Shares outstanding  5,528,218   5,520,179   5,502,514   5,477,072 
Nominal and tangible book value per share $12.45  $12.32  $12.06  $12.06 
Ratio of net loans to total deposits  91.45%  88.15%  86.22%  83.94%
                 

1 = Loans receivable 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 = Some items in prior periods have been reclassified to conform to the current presentation.

1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands, except per share data)

  Three Months Ended 
  March 31,  December 31,  September 30,  March 31, 
Operating Results Data 2020  2019  2019  2019 
Interest and dividend income            
Loans $5,683  $5,556  $5,578  $5,681 
Investment securities  375   410   442   456 
Other  130   153   249   315 
Total interest and dividend income  6,188   6,119   6,269   6,452 
Interest expense                
Interest bearing checking  3   3   3   3 
Money market deposits  175   159   125   129 
Savings deposits  89   93   88   91 
Time deposits  56   55   62   49 
Total interest expense  323   310   278   272 
Net interest income  5,865   5,809   5,991   6,180 
Provision for loan losses  825   -   -   - 
Net interest income after provision                
for loan losses  5,040   5,809   5,991   6,180 
                 
Noninterest income                
Service charges on deposits  94   76   88   76 
BOLI dividend income  48   50   52   51 
Gain on sale of loans  -   -   33   8 
Gain on sale of investments  -   -   60   - 
Other  146   179   372   339 
Total noninterest income  288   305   605   474 
                 
 1ST CAPITAL BANKCONDENSED FINANCIAL DATA(Unaudited)(Dollars in thousands, except per share data) 
  Three Months Ended 
  March 31,  December 31,  September 30,  March 31, 
  2020  2019  2019  2019 
Noninterest expenses            
Salaries and benefits  2,824   2,137   2,452   2,674 
Occupancy  363   331   372   306 
Data and item processing  221   231   220   215 
Furniture and equipment  191   169   150   157 
Professional services  161   235   143   130 
Provision for unfunded loan                
commitments  (17)  12   (7)  (15)
Other  752   630   630   773 
Total noninterest expenses  4,495   3,745   3,960   4,240 
Income before provision for income taxes  833   2,369   2,636   2,414 
Provision for income taxes  225   634   698   638 
Net income $608  $1,735  $1,938  $1,776 
                 
Common Share Data1                
Earnings per common share                
Basic $0.11  $0.32  $0.35  $0.32 
Diluted $0.11  $0.31  $0.35  $0.32 
                 
Weighted average common shares outstanding                
Basic  5,521,518   5,506,349   5,492,657   5,468,109 
Diluted  5,582,687   5,584,827   5,578,507   5,549,872 
                 

1 = Earnings per common share and weighted average common shares outstanding have been restated to reflect the effect of the 7% stock dividend to shareholders of record November 22, 2019 and paid December 20, 2019.

1ST CAPITAL BANK
CONDENSED FINANCIAL DATA
(Unaudited)
(Dollars in thousands)
  March 31,  December 31,  September 30,  March 31, 
Asset Quality 2020  2019  2019  2019 
Loans past due 90 days or more and accruing            
interest $-  $-  $-  $- 
Nonaccrual restructured loans  -   -   -   - 
Other nonaccrual loans  492   492   -   - 2,906 
Other real estate owned  -   -   -   - 
  $492  $492  $-  $- 
Allowance for loan losses to total loans  1.40%  1.29%  1.33%  1.36%
Allowance for loan losses to nonperforming loans  1510.37%  1340.24%  n/a   n/a 
Nonaccrual loans to total loans  0.09%  0.10%  0.00%  0.00%
Nonperforming assets to total assets  0.08%  0.08%  0.00%  0.00%
                 
Regulatory Capital and Ratios               
Common equity tier 1 capital $68,150  $67,471  $65,536  $61,585 
Tier 1 regulatory capital $68,150  $67,471  $65,536  $61,585 
Total regulatory capital $74,404  $73,487  $71,377  $67,209 
Tier 1 leverage ratio  10.77%  10.90%  10.67%  9.79%
Common equity tier 1 risk based capital ratio  13.66%  14.04%  14.05%  13.72%
Tier 1 risk based capital ratio  13.66%  14.04%  14.05%  13.72%
Total risk based capital ratio  14.91%  15.29%  15.30%  14.97%
  Three Months Ended 
  March 31,  December 31,  September 30,  March 31, 
Selected Financial Ratios1 2020  2019  2019  2019 
Return on average total assets  0.38%  1.11%  1.25%  1.15%
Return on average shareholders' equity  3.53%  10.21%  11.79%  11.95%
Net interest margin2  3.87%  3.89%  4.05%  4.12%
Net interest income to average total assets  3.71%  3.72%  3.87%  3.99%
Efficiency ratio  73.06%  61.25%  60.04%  63.73%
                 

1 = All Selected Financial Ratios are annualized other than the Efficiency Ratio.
2 = Net interest margin calculated on a tax equivalent yield basis. Prior periods have been updated to conform to current presentation.

  Three Months Ended 
  March 31,  December 31,  September 30,  March 31, 
Selected Average Balances 2020  2019  2019  2019 
Gross loans $519,468  $501,995  $481,402  $487,838 
Investment securities  65,163   67,695   68,949   69,553 
Other interest earning assets  24,964   25,572   38,721   53,941 
Total interest earning assets $609,595  $595,262  $589,072  $611,333 
Total assets $633,623  $620,218  $614,674  $628,320 
                 
Interest bearing checking accounts $42,092  $38,440  $42,295  $34,268 
Money market deposits  132,363   113,313   113,151   127,762 
Savings deposits  103,156   106,293   111,502   107,158 
Time deposits  19,367   19,484   19,933   18,099 
Total interest bearing deposits  296,978   277,530   286,881   287,289 
Noninterest bearing demand deposits  262,416   269,597   256,989   275,956 
Total deposits $559,394  $547,127  $543,870  $563,245 
Borrowings $-  $-  $-  $- 
Shareholders' equity $69,006  $67,381  $65,219  $60,286 

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

Real Estate Loans Original Loan-to-Value Ratio             
  Average  Median  Maximum             
Construction/land  29.28%  31.07%  67.94%                
Residential 1 to 4 units  54.39%  29.84%  79.17%                
Home equity lines of credit  23.13%  29.23%  75.00%                
Multifamily  41.69%  28.99%  71.12%                
Owner occupied CRE  46.72%  30.68%  82.06%                
Investor CRE  42.01%  30.80%  78.78%                
                             
                             
 
   Original Loan-to-Value Ratio 
   Under 50%   50%-60%   60%-70%   70%-75%   75%-80%   Over 80%   March 31, 2020 
Construction/land  16,261    3,935    997    -    -    -    21,193 
Residential 1 to 4 units    40,092      40,268      36,488      11,186      7,980      -      136,014 
Home equity lines of credit    5,492      947      562      655      -      -      7,656 
Multifamily    26,691      15,329      14,579      1,301      -      -      57,900 
Owner occupied CRE    30,534      19,979      16,327      6,000      -      648      73,488 
Investor CRE    100,724      44,007      19,480      3,862      3,193      -      171,266 
   219,794    124,465    88,433    23,004    11,173    648    467,517 

SOURCE: 1st Capital Bank

 



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