1st Capital Bancorp Announces Second Quarter 2023 Financial Results

SALINAS, Calif., July 28, 2023 (GLOBE NEWSWIRE) -- 1st Capital Bancorp (the “Company”) (OTCQX: FISB), the $960.9 million asset bank holding company and parent company of 1st Capital Bank (the “Bank”), today reported unaudited net income of $609 thousand for the quarter ended June 30, 2023, a decrease of 42.5% compared to net income of $1.06 million for the quarter ended March 31, 2023, and a decrease of 75.9% compared to net income of $2.52 million for the quarter ended June 30, 2022.  

Deposit balances have increased significantly with growth of $62.0 million, or 7.6%, in the quarter ended June 30, 2023 compared to March 31, 2023. As a result of this substantial increase in liquidity, the Company paid off the entire $55.0 million of other borrowings outstanding at March 31, 2023. Loan demand remained strong in the second quarter as the Company’s core loans increased $22.3 million, or 4.8%, at June 30, 2023 compared to March 31, 2023. This growth was partially offset by a $10 million decline in wholesale loan balances. Loan yields expanded 0.18 basis points (bps) to 4.95% for the quarter ended June 30, 2023 compared to 4.77% for the quarter ended March 31, 2023. Core loan asset quality remained strong and stable with nonperforming assets to total assets of 0.07% and 0.16% at June 30, 2023 and March 31, 2023, respectively.

“Our bankers remain focused on serving the growing needs of our clients despite the current macro-economic conditions, including elevated interest rates and the recent market disruptions,” stated Sam Jimenez, Chief Executive Officer. “Their efforts resulted in robust organic deposit and loan growth in the period which will further position the Company to improve on our second quarter’s operating performance. The Bank’s financial strength including a strong and stable core deposit base, ample and diverse sources of liquidity, and a solid capital position will continue to allow the team to remain focused on building long-term value for our shareholders.”

Financial Highlights
Performance highlights for the quarter ended June 30, 2023, as compared to the quarter ended March 31, 2023, and the quarter ended June 30, 2022:

• Earnings per share (diluted) were $0.11 for the second quarter of 2023, as compared to $0.19 and $0.45 for the quarters ended March 31, 2023, and June 30, 2022, respectively.
  
  

• For the quarter ended June 30, 2023, the Company's return on average equity was 4.13%, as compared to 7.51% and 14.82% for the quarters ended March 31, 2023, and June 30, 2022, respectively.
  
  

• For the quarter ended June 30, 2023, the Company’s return on average assets was 0.25% as compared to 0.45% and 0.98% for the quarters ended March 31, 2023, and June 30, 2022, respectively.
  
  

• For the quarter ended June 30, 2023, the Company’s net interest margin was 3.20% as compared to 3.39% and 3.58% for the quarters ended March 31, 2023, and June 30, 2022, respectively.
  
  

• Pretax, pre-provision income for the quarter ended June 30, 2023 totaled $1.8 million, as compared to $2.1 million and $3.5 million for the quarters ended March 31, 2023, and June 30, 2022, respectively.
  
  

• For the quarter ended June 30, 2023, the Company’s efficiency ratio was 77.32%, as compared to 74.38% and 61.89% for the quarters ended March 31, 2023 and June 30, 2022, respectively.
  
  

• The Company recorded $1.05 million and $690 thousand of provision expense for the quarters ended June 30, 2023, and March 31, 2023, respectively. There was no provision expense recorded for the quarter ended June 30, 2022.
  
  

• As of June 30, 2023, the Company’s nonperforming assets to total assets was 0.07%, as compared to 0.16% and 0.01% for March 31, 2023, and June 30, 2022, respectively.
  
  

• As of June 30, 2023, the Company reported total assets, total deposits, and total loans of $960.9 million, $879.4 million, and $585.1 million, respectively.
  
  

• Federal regulatory capital ratios for the quarters ended June 30, 2023, March 31, 2023, and June 30, 2022, exceed well capitalized thresholds.
  
  

• At June 30, 2023, the Company has $394.2 million in available liquidity from secured and unsecured borrowing lines, which represents 41.0% of total assets.
  

Net Interest Income and Net Interest Margin
The Company's second quarter 2023 net interest income decreased $226 thousand, or 2.9%, to $7.63 million as compared with $7.86 million for the quarter ended March 31, 2023, as funding costs outpaced expansion in earning asset yields. Loan interest income increased $504 thousand, or 7.50%, to $7.22 million for the quarter ended June 30, 2023, compared to $6.72 million for the quarter ended March 31, 2023. Interest income on investment securities remained consistent at $1.93 million and $1.94 million, respectively, for the quarters ended June 30, 2023 and March 31, 2023. Other interest income increased $131 thousand, or 42.1%, to $442 thousand for the quarter ended June 30, 2023 compared to $311 thousand for the quarter ended March 31, 2023, due to increases in average cash balances. Interest expense increased $854 thousand, or 71.8%, to $2.04 million for the quarter ended June 30, 2023, compared to $1.19 million for the quarter ended March 31, 2023, due to the cost of wholesale borrowings and brokered CD’s in the second quarter and a change in deposit mix to higher yielding money market and time deposit products. Interest expense for each of the quarters presented includes $169 thousand related to subordinated debt.

The Company's net interest margin declined by 19 basis points (bps) to 3.20% for the quarter ended June 30, 2023 from 3.39% when compared to the quarter ended March 31, 2023. This decrease was primarily driven by the increase in funding costs. The 0.18 bps expansion of loan yields from 4.77% for the quarter ended March 31, 2023 to 4.95% for the quarter ended June 30, 2023 was outpaced by the increased funding costs. The Company’s cost of funds increased 37 bps from 0.55% for the quarter ended March 31, 2023 to 0.92% for the quarter ended June 30, 2023.

Allowance for Credit Losses
The Company adopted Accounting Standards Update (ASU) 2016-13, more commonly referred to as the Current Expected Credit Loss (CECL) method on January 1, 2023, using the modified retrospective method with no adjustments to prior period comparative financial statements for all financial assets measured at amortized cost and off-balance sheet credit exposure as well as held to maturity securities, which resulted in a $127 thousand increase to the allowance for credit losses, a $3 thousand reserve for held-to-maturity securities and a $26 thousand increase to the reserve for unfunded commitments. The impact to retained earnings, net of taxes, was $111 thousand. Reporting periods beginning after January 1, 2023 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable Generally Accepted Accounting Principles in the United States.

Provision expense of $1.05 million was recorded in the quarter ended June 30, 2023, compared to $690 thousand in the quarter ended March 31, 2023. The provision expense was driven by loan growth, charge offs in the lease and consumer pools, and increased allocations to the wholesale loan pool portfolios.

Noninterest Expenses
The Company's total non-interest expense increased $108 thousand, or 1.79%, to $6.1 million in the quarter ended June 30, 2023, compared to $6.0 million for the quarter ended March 31, 2023. This increase is primarily due to an increase in FDIC insurance assessment.

Balance Sheet Summary
The Company's total assets at June 30, 2023 increased $6.4 million, or 0.7%, to $960.9 million as compared to $954.5 million at March 31, 2023.

Cash and due from banks decreased $1.3 million, or 2.7%, to $44.3 million at June 30, 2023 compared to $45.6 million at March 31, 2023.

Total loans outstanding were $585.1 million as of June 30, 2023, representing a $12.3 million, or 2.1%, increase from the March 31, 2023 outstanding balance of $572.8 million.   Growth in owner occupied commercial real estate loan originations comprised the majority of loan growth in the second quarter, partially offset by declines in wholesale consumer and lease pools which continue to pay down. The Company has not purchased any wholesale loan pools in 2023.

Loan type (dollars in thousands)	6/30/2023			% of Total Loans			3/31/2023			% of Total Loans			6/30/2022			% of Total Loans
Construction / land (including farmland)	$	24,212		4.1	%		$	21,605		3.8	%		$	18,502		3.2	%
Residential 1 to 4 units		58,952		10.1	%			60,754		10.6	%			57,381		9.8	%
Home equity lines of credit		3,643		0.6	%			4,214		0.7	%			5,392		0.9	%
Multifamily		80,796		13.8	%			78,103		13.6	%			76,168		13.0	%
Owner occupied commercial real estate		123,545		21.1	%			112,600		19.7	%			111,283		19.0	%
Investor commercial real estate		189,216		32.3	%			188,220		32.9	%			186,448		31.8	%
Commercial and industrial		42,949		7.3	%			40,498		7.1	%			43,652		7.4	%
Paycheck Protection Program		--		0.0	%			--		0.0	%			1,986		0.3	%
Leases		33,618		5.7	%			38,059		6.6	%			34,095		5.8	%
Consumer		18,882		3.2	%			22,410		3.9	%			36,372		6.2	%
Other loans		9,258		1.6	%			6,347		1.1	%			14,784		2.6	%
Total loans		585,071		100.0	%			572,810		100.0	%			586,063		100.0	%
Allowance for credit losses		(6,746	)					(7,374	)					(8,066	)
Net loans held for investment	$	578,325					$	565,436					$	577,997

The investment portfolio decreased $6.6 million to $293.1 million from a balance of $299.7 million at March 31, 2023. The decline is reflective of paydowns and a $3.1 million increase in unrealized losses associated with the Company’s available-for-sale investment security portfolio; unrealized losses totaled $38.6 million at June 30, 2023 compared to $35.5 million at March 31, 2023. The increase in unrealized losses was driven by changes in the treasury yield curve that negatively impacted the portfolio’s valuation. At June 30, 2023 and March 31, 2023, $70.5 million and $71.0 million, respectively, or approximately 24%, of the investment portfolio is classified as held-to-maturity.

Total deposits were $879.4 million at June 30, 2023 representing a $62.0 million, or 7.6%, increase compared to total deposits of $817.4 million at March 31, 2023.   Second quarter deposit growth benefitted from industry stabilization and represents growth in both new and existing relationships. Noninterest-bearing balances continue to comprise nearly half of total deposits at June 30, 2023.

Deposit type (dollars in thousands)	6/30/2023			% of Total Deposits				3/31/2023			% of Total Deposits				6/30/2022			% of Total Deposits
Interest- bearing checking accounts	$	47,483			5.4	%		$	51,631			6.3	%		$	62,779			6.8	%
Money market		287,148			32.7	%			233,666			28.6	%			290,106			31.3	%
Savings		116,582			13.3	%			126,513			15.5	%			143,215			15.4	%
Time		33,044			3.8	%			15,937			1.9	%			13,509			1.5	%
Total interest-bearing deposits		484,257			55.1	%			427,747			52.3	%			509,609			54.9	%
Noninterest-bearing		395,132			44.9	%			389,623			47.7	%			418,692			45.1	%
Total deposits	$	879,389			100.0	%		$	817,370			100.0	%		$	928,301			100.0	%

Uninsured deposits represent $314.2 million, or 47%, of total deposits at June 30, 2023. The Company maintains borrowing capacity of $394.2 million in secured and unsecured funding sources at June 30, 2023 covering 125.4% of uninsured balances.

Subordinated debt balances totaled $14.8 at June 30, 2023 and March 31, 2023. Other borrowings totaled $0 and $55.0 million at June 30, 2023 and March 31, 2023, respectively as deposit growth and cash flows generated by the loan and bond portfolios provided liquidity to pay off $55.0 million in other borrowings outstanding at March 31, 2023.

Shareholder’s equity totaled $57.8 million at June 30, 2023, a decrease of $500 thousand, or 0.9%, compared to $58.3 million at March 31, 2023. The decrease is reflective of the increase in unrealized losses on the available-for-sale investment security portfolio, the impact of which flows through accumulated other comprehensive income (AOCI), a component of equity, partially offset by an increase in the fair value of the cap corridor hedge which positively impacted AOCI. The negative AOCI impact in second quarter was partially offset by $609 thousand in net income contribution. The unrealized loss position on the held-to-maturity investment securities was captured at the date of transfer and amortizes over the remaining life of the bonds with market value movements having no future impact on the unrealized loss position of these bonds.

Asset Quality
At June 30, 2023, nonperforming assets were 0.07% of the Company’s total assets, compared with 0.16% at March 31, 2023. The allowance for credit losses was 1.15% of outstanding loans at June 30, 2023, compared to 1.29% at March 31, 2023.   The Company had $138 thousand and $665 thousand in nonaccrual loans at June 30, 2023 and March 31, 2023, respectively, representing .02% and .12% of total loans, respectively. The Company recorded net charge-offs of $1.7 million in the quarter ended June 30, 2023, compared to $789 thousand in the quarter ended March 31, 2023. Charge-offs for the periods ended June 30, 2023 and March 31, 2023 were virtually all within the purchased consumer and lease pools, with the exception of a $46 thousand charge off of the unguaranteed portion of an SBA loan in the second quarter.

Asset Quality (dollars in thousands)		6/30/2023				3/31/2023				6/30/2022
Loans past due 90 days or more and accruing interest	$	487			$	891			$	145
Other nonaccrual loans		138				665				--
Other real estate owned		--				--				--
Total nonperforming assets	$	625			$	1,556			$	145
Allowance for credit losses to total loans		1.15	%			1.29	%			1.38	%
Allowance for credit losses to nonperforming loans		1079.36	%			474.01	%			5562.76	%
Nonaccrual loans to total loans		0.02	%			0.12	%			0.00	%
Nonperforming assets to total assets		0.07	%			0.16	%			0.01	%

1ST CAPITAL BANCORP
CONDENSED FINANCIAL DATA – UNAUDITED
($ in 000s, except per share data)
Assets		6/30/2023			3/31/2023			6/30/2022
Cash and due from banks		$	44,320		$	45,567		$	35,450
Investment securities available-for-sale			222,662			228,711			298,483
Investment securities held-to-maturity			70,468			70,977			45,223
Loans and leases held for investment			585,071			572,810			586,063
Allowance for credit losses			(6,746	)		(7,374	)		(8,066	)
Net loans and leases held for investment			578,325			565,436			577,997
Other Assets			45,129			43,829			32,926
Total assets		$	960,904		$	954,520		$	990,079
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing		$	395,132		$	389,623		$	418,692
Interest-bearing			484,257			427,747			509,609
Total deposits			879,389			817,370			928,301
Subordinated debentures			14,776			14,757			14,701
Other borrowings			--			55,000			--
Other liabilities			8,915			9,044			8,386
Shareholders' equity			57,824			58,349			38,691
Total liabilities and shareholders' equity		$	960,904		$	954,520		$	990,079
Shares outstanding			5,518,996			5,509,429			5,467,966
Earnings per share basic		$	0.11		$	0.19		$	0.46
Earnings per share diluted		$	0.11		$	0.19		$	0.45
Nominal and tangible book value per share		$	10.48		$	10.59		$	7.08

1ST CAPITAL BANCORP CONDENSED FINANCIAL DATA – UNAUDITED ($ in 000s)
	Three Months Ended
Operating Results Data	6/30/2023			3/31/2023			6/30/2022
Interest and dividend income
Loans	$	7,222		$	6,718		$	7,258
Investment securities		1,929			1,944			2,038
Federal Home Loan Bank stock		78			70			59
Other income		442			311			56
Total interest and dividend income		9,671			9,043			9,411
Interest expense		2,042			1,188			573
Net interest income		7,629			7,855			8,838
Provision for credit losses		1,052			690			-
Net interest income after provision for credit losses		6,577			7,165			8,838
Noninterest income		297			373			290
Net (loss) on sales/calls of investment securities		--			(134	)		--
Noninterest expenses
Salaries and benefits expense		3,615			3,747			3,457
Occupancy expense		463			414			463
Data and item processing		328			308			265
Furniture and equipment		101			117			150
Professional services		279			268			114
Other		1,342			1,167			1,201
Total noninterest expenses		6,128			6,021			5,650
Income before provision for income taxes		746			1,383			3,478
Provision for income taxes		137			325			958
Net income	$	609		$	1,058		$	2,520

	Three Months Ended
Selected Average Balances	6/30/2023			3/31/2023			6/30/2022
Gross loans	$	584,939		$	571,144		$	593,990
Investment securities		333,844			303,034			373,853
Federal Home Loan Bank stock		4,314			4,058			4,024
Other interest earning assets		43,581			34,996			31,158
Total interest earning assets		966,678			913,232			1,003,025
Total assets		962,808			947,453			1,027,269
Interest-bearing checking accounts		49,082			66,480			64,988
Money market		260,482			238,012			278,646
Savings		124,088			138,031			149,930
Time deposits		28,375			10,897			12,350
Total interest- bearing deposits		462,027			453,420			505,914
Noninterest bearing demand deposits		386,503			405,436			427,351
Total deposits		848,530			858,856			933,265
Subordinated debentures and other borrowings		45,308			21,261			17,546
Shareholders' equity	$	59,145		$	57,148		$	68,227
1ST CAPITAL BANCORP CONDENSED FINANCIAL DATA – UNAUDITED ($ in 000s)
	Three Months Ended
Selected Financial Ratios	6/30/2023			3/31/2023			6/30/2022
Return on average total assets		0.25	%		0.45	%		0.98		%
Return on average shareholders' equity		4.13	%		7.51	%		14.82		%
Net interest margin		3.20	%		3.39	%		3.58		%
Net interest income to average total assets		3.18	%		3.36	%		3.56		%
Efficiency ratio		77.32	%		74.38	%		61.89		%

1ST CAPITAL BANCORP CONDENSED FINANCIAL DATA – UNAUDITED ($ in 000s)
	Six Months Ended
Operating Results Data	6/30/2023			6/30/2022
Interest and dividend income
Loans	$	13,940		$	14,154
Investment securities		3,873			3,595
Federal Home Loan Bank stock		148			117
Other income		753			69
Total interest and dividend income		18,714			17,935
Interest expense		3,230			1,103
Net interest income		15,484			16,832
Provision for credit losses		1,742			--
Net interest income after provision for credit losses		13,742			16,832
Noninterest income		670			609
Net (loss) on sales/calls of investment securities		(134	)		--
Noninterest expenses
Salaries and benefits expense		7,363			6,902
Occupancy expense		877			897
Data and item processing		636			528
Furniture and equipment		218			290
Professional services		547			283
Other		2,508			2,215
Total noninterest expenses		12,149			11,115
Income before provision for income taxes		2,129			6,326
Provision for income taxes		462			1,714
Net income	$	1,667		$	4,612

	Six Months Ended
Selected Average Balances	6/30/2023			6/30/2022
Gross loans	$	578,080		$	582,060
Investment securities		336,772			368,123
Federal Home Loan Bank stock		4,187			3,987
Other interest earning assets		39,312			35,207
Total interest earning assets		958,351			989,377
Total assets		955,173			1,012,035
Interest bearing checking accounts		57,733			65,368
Money market		217,762			250,017
Savings		131,021			154,434
Time deposits		19,684			11,963
Total interest-bearing deposits		426,200			481,782
Noninterest-bearing demand deposits		427,464			432,842
Total deposits		853,664			914,624
Subordinated debentures and other borrowings		33,351			16,116
Shareholders' equity	$	58,152		$	74,152

 

1ST CAPITAL BANCORP CONDENSED FINANCIAL DATA – UNAUDITED ($ in 000s)
	Six Months Ended
Selected Financial Ratios	6/30/2023			6/30/2022
Return on average total assets		0.35	%		0.92	%
Return on average shareholders' equity		5.78	%		12.54	%
Net interest margin		3.30	%		3.51	%
Net interest income to average total assets		3.27	%		3.35	%
Efficiency ratio		75.84	%		63.73	%

Regulatory Capital and Ratios	6/30/2023			3/31/2023			6/30/2022
Common equity tier 1 capital	$	103,412		$	102,724		$	97,226
Tier 1 regulatory capital	$	103,412		$	102,724		$	97,226
Total regulatory capital	$	110,312		$	110,295		$	105,418
Tier 1 leverage ratio		10.36	%		10.45	%		9.62	%
Common equity tier 1 risk-based capital ratio		15.26	%		15.32	%		13.27	%
Tier 1 capital ratio		15.26	%		15.32	%		13.27	%
Total risk-based capital ratio		16.28	%		16.45	%		14.39	%

About 1st Capital Bancorp

1^st Capital Bancorp is the holding company for 1^st 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, San Luis Obispo and Santa Cruz. 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.
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		Danelle Thomsen
Chief Executive Officer		Chief Financial Officer
831.264.4057 office		831.264.4014 office
Sam.Jimenez@1stCapitalBank.com		Danelle.Thomsen@1stCapitalBank.com