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

1st Capital Bank Announces: Third Quarter and Year to Date 2013 Financial 
Results; Resignation of Director 
MONTEREY, CA -- (Marketwired) -- 11/04/13 --  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    September 30,    June 30,    December 31,   September 30, 
      Data(1)          2013          2013          2012            2012     
                  -------------   ----------   ------------   ------------- 
Assets                                                                      
  Cash and due                                                              
   from banks     $       1,688   $    1,561   $      2,872   $       1,996 
  Funds held at                                                             
   the Federal                                                              
   Reserve                                                                  
   Bank(2)               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                                                             
   FHLB(3) 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                                                                      
 outstanding(4)       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               
                                --------------------------------------------
                                 September 30,                 September 30,
Operating Results Data(1)            2013       June 30, 2013      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       
                                               -----------------------------
                                                September 30,  September 30,
Operating Results Data(1)                           2013           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)                           
                       September 30,  June 30,   December 31, September 30, 
Asset Quality               2013        2013         2012          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                
                              --------------------------------------------- 
                               September 30,                  September 30, 
Selected Financial Ratios(1)       2013       June 30, 2013       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        
                                               ---------------------------- 
                                               September 30,  September 30, 
Selected Financial Ratios(1)                        2013           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            
                                     ---------------------------------------
                                     September 30,   June 30,  September 30,
Selected Average Balances(1)              2013         2013         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      
                                                 ---------------------------
                                                                            
                                                 September 30, September 30,
Selected Average Balances(1)                          2013          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. 
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