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1st Capital Bank Announces: Fourth Quarter and Year to Date 2013 Financial Results; Record Loans, Assets, Deposits, and Shareholders' Equity; Third Consecutive Increase in Quarterly Earnings

MONTEREY, CA -- (Marketwired) -- 01/30/14 -- 1st Capital Bank (OTCQB: FISB) (the "Bank") today announced fourth quarter and year to date financial results through December 31, 2013. Net income during the fourth quarter of 2013 was $612 thousand, equivalent to $0.18 per diluted common share. This compares to net income of $748 thousand, equivalent to $0.23 per diluted common share, during the fourth quarter of 2012. The fourth quarter of 2012 included $699 thousand in tax-free benefits from bank owned life insurance ("BOLI"), partially offset by the establishment of $294 thousand in tax reserves. Net income for the third quarter of 2013 (the immediately preceding quarter) was $457 thousand, equivalent to $0.13 per diluted common share. The fourth quarter of 2013 represented the third consecutive increase in quarterly earnings.

Net income for 2013 was $1.7 million, equivalent to $0.50 per diluted common share. This compares to net income for 2012 of $1.8 million, equivalent to $0.54 per diluted common share. The reduction in net income from 2012 to 2013 was primarily associated with the BOLI benefits received during 2012.

The Bank reported record levels of net loans, total assets, total deposits, and shareholders' equity at December 31, 2013. The Bank's total assets expanded by 17.5% during 2013; and average interest earning assets were 19.9% higher during the fourth quarter of 2013 compared to the fourth quarter of 2012.

Commenting on the fourth quarter of 2013 financial performance, Mark Andino, the Bank's President and Chief Executive Officer, stated: "We are pleased to report a third consecutive quarter of increased earnings and a record balance sheet. The Bank concluded 2013 with a favorable credit profile, a well-positioned loan loss reserve relative to non-performing loans, and a strong pipeline of potential new business." Mr. Andino then continued: "Along with much of the banking industry, our current challenges include the continuation of a historically low interest rate environment and ongoing aggressive loan pricing competition for quality borrowers. Both of those factors contributed to the margin compression experienced by the Bank over the past year. However, the Bank also enjoys many opportunities, including future revenue from the recent hire of Stuart Tripp as our Regional President covering the coastal area from the Monterey Peninsula north to the City of Santa Cruz. Mr. Tripp is an experienced, professional banker who is well known throughout this market area. This hire complements the Bank's recent success in gaining market share in counties adjacent to Monterey County."

Kurt Gollnick, the Bank's Chairman of the Board, stated: "The Board of Directors continued its focus on shareholder value during the fourth quarter of 2013. Following the vesting and issuance of the prior annual restricted share awards in November 2013, new annual director restricted share awards were postponed, resulting in the directors not receiving any compensation for the month of December 2013. In addition, in light of the Bank's return on equity and other shareholder focused metrics, executive bonuses for 2013 were a fraction of the levels paid during 2012. The Board of Directors and the executive team recently adopted an updated strategic plan for the Bank that incorporates multiple initiatives aimed at increasing the Bank's franchise value and augmenting long term shareholder value."

Performance Highlights

  • The Bank presented a high quality credit profile at December 31, 2013, with a nonperforming asset ratio of 0.22% and a ratio of allowance for loan losses to nonperforming loans of 562.47%. These figures compare to a non-performing asset ratio of 0.44% and a ratio of allowance for loan losses to non-performing loans of 299.38% as of December 31, 2012.

  • Non-accrual loans totaled $0.8 million at December 31, 2013, equivalent to 0.33% of loans outstanding. No new loans were transferred to non-accrual status during the fourth quarter of 2013, and the inventory of non-accrual loans at September 30, 2013 continued to pay down.

  • At December 31, 2013, the Bank maintained a regulatory total risk-based capital ratio of 15.63%, 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 December 31, 2013 benefited from an increase of $945 thousand in Tier 1 Regulatory Capital from payments received for the exercise of vested stock options during the fourth quarter of 2013. An additional $56 thousand in Tier 1 Regulatory Capital from the exercise of vested stock options was obtained during early January 2014.

  • Tangible book value per share rose to a record $10.79 as of December 31, 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 $15.5 million at December 31, 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 December 31, 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 $104.0 million at December 31, 2013. During 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 December 31, 2013:


                                               December 31,
    $ In Thousands                                     2013
                                                 Fair Value
    Type of Security                            (Unaudited)
    ---------------------------------------- --------------
    SBA fixed rate loan pools                $        2,929
    Municipal fixed rate securities                   2,141
    Agency variable rate residential MBS              3,184
    Agency fixed rate residential MBS                 5,997
    Agency variable rate commercial MBS              23,272
    Agency variable rate residential CMO             60,157
    Agency variable rate commercial CMO               6,281
                                             --------------

    Total                                    $      103,961
                                             ==============


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 $104.0 million in securities at December 31, 2013 was $69 thousand less than its amortized cost basis.

At December 31, 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 significant off-balance sheet borrowing capacity. The increase in the Bank's liquidity profile during 2013 is reflected in the ratio of net loans to deposits, which decreased from 81.1% at December 31, 2012 to 72.0% at December 31, 2013. The Bank's liquidity profile at the end of 2013 was impacted by a particularly favorable agricultural harvest in the Bank's primary market area during 2013, contributing to reduced utilization of borrowing lines and the inflow of deposits. Undrawn credit commitments at December 31, 2013 totaled $57.4 million, up from $51.3 million at December 31, 2012.

Commenting on the Bank's liquidity, Jon Ditlevsen, the Bank's Chief Lending Officer, stated: "The Bank concluded 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 2014; as we aim to build a greater stream of net interest income."

Clay Larson, the Bank's Regional President for the greater Monterey Peninsula area, added: "The Bank improved its competitive lending position in multiple regards during the fourth quarter of 2013, including increasing its lending limits to the largest amounts for any community bank headquartered in Monterey or Santa Cruz Counties. The addition of Senior Relationship Manager Thomas Anderson has already led to increased lending activity in San Luis Obispo County, where the Bank aims to continue increasing market share."

Net loans increased from $238.9 million at December 31, 2012 to $250.8 million at December 31, 2013. While the Bank originated or purchased over $95 million in new credit commitments during 2013, loan payoffs and curtailments, principal reductions on lines of credit, and scheduled principal amortization combined to limit net portfolio growth.

The Bank's loan mix shifted during 2013. At December 31, 2013, the Bank did not have any loans that were financing active building construction, compared to $4.8 million outstanding in such loans at December 31, 2012. Residential 1 to 4 unit loans approximately doubled during 2013, supported by the purchase of two seasoned mortgage pools. The loans in the pools were seasoned 5/1 or 7/1 mortgages that reprice based upon a margin over the 1 year LIBOR index. These mortgages met the Bank's standard underwriting criteria and are secured by first deeds of trust on homes in California. Commercial and industrial loans outstanding declined during 2013 in part due to relatively low client utilization of lines of credit at the end of 2013.

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 1.84% of total loans, at December 31, 2013. The allowance was increased by $868 thousand in loan loss provision during 2013, and decreased by net charge-offs of $491 thousand, almost all of which occurred during the first quarter of 2013 in conjunction with a $500 thousand impaired commercial loan. During the fourth quarter of 2013, the Bank recorded $11 thousand in charge-offs and $16 thousand in recoveries. The $11 thousand charged off during the fourth quarter of 2013 was fully recovered in January 2014.

Non-accrual loans decreased by $607 thousand from December 31, 2012 to December 31, 2013, primarily reflective of the charge-off of the $500 thousand commercial loan described above and payments received on non-accrual loans. All of the Bank's non-accrual loans were current or less than 30 days delinquent in scheduled payments as of December 31, 2013.

Loans graded Substandard increased from $5.1 million at December 31, 2012 to $8.7 million at December 31, 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 $5.9 million at December 31, 2013, primarily due to the downgrade of one credit relationship in response to weaker farming results for 2012. Both of the aforementioned downgraded credit relationships were current in their scheduled payments at December 31, 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 562.47% at December 31, 2013. The Bank has never owned any foreclosed real estate.

Commenting on the Bank's credit profile, Dale Diederick, the Bank's Chief Credit Officer, stated: "The Bank concluded 2013 in excellent condition from a credit perspective, with comparatively few problem loans. In addition, the borrower associated with the one larger loan charged off by the Bank during 2013 has continued to make monthly restitution payments consistent with his agreement with the Bank."

Premises and equipment, net of accumulated depreciation, increased from $1.3 million at December 31, 2012 to $1.5 million at December 31, 2013. The majority of this increase was due to remodeling of the Salinas branch office and the purchase of new hardware in support of the Bank's technology platform. At the end of 2013, the Bank was in the process of upgrading its entire network to provide much greater bandwidth and support faster processing speeds.

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 December 31, 2013 due to the standard asset-based investment requirement applicable to FHLB members.

Commenting on the Bank's asset profile at December 31, 2013, Marilyn Goode, the Bank's Interim Chief Financial Officer, 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. The new commercial lenders hired by the Bank during 2013 are now well integrated with our team, with Senior Relationship Manager Chris Illig experiencing particular success in serving a wide range of professionals throughout Monterey County." Ms. Goode then continued: "The Bank's safety and soundness continues to be a competitive advantage when marketing to local businesses and professionals."

Total deposits increased 18.2% from $294.7 million at December 31, 2012 to a record $348.4 million at December 31, 2013. The Bank experienced particularly strong deposit inflows during the fourth of quarter of 2013, when the deposit portfolio increased by $24.4 million. The weighted average interest rate on the Bank's deposits at December 31, 2013 was 0.15%.

Non-interest bearing demand deposits increased from $123.4 million at December 31, 2012 to $144.2 million at December 31, 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 are now working on check deposit via smartphone and look forward to providing this service to our clients during 2014. In addition, we are currently upgrading our deposit statement features, with a planned introduction in mid-2014."

Interest bearing checking accounts increased from $15.7 million at December 31, 2012 to $20.3 million at December 31, 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 $61.9 million at December 31, 2012 to $81.3 million at December 31, 2013. Savings deposits rose from $62.4 million at December 31, 2012 to $75.7 million at December 31, 2013. Both money market and savings deposits 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 $27.0 million at December 31, 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 $27.0 million in time deposits at December 31, 2013 were comprised of low cost state term funds. None of the Bank's deposits at December 31, 2013 were brokered deposits or sourced from deposit listing services.

Commenting on the Bank's deposit performance, Irene Shippee, the Bank's Operations Administrator, stated: "The Bank enjoyed an outstanding deposit performance during the fourth quarter of 2013, including inflows across all transaction account product types and a quarterly weighted average cost of just 0.16%. We concluded 2013 with a solid pipeline of new deposit relationships and continue to attract new clients with our personalized service and highly customizable suite of cash management products." Ms. Shippee then continued: "Having a dedicated Cash Management Department has clearly helped attract new deposit clients. It's been rewarding to receive client compliments regarding the timeliness and quality of our customer service, including live technical assistance directly to their desktops."

Shareholders' equity rose from $34.0 million at December 31, 2012 to a record $37.7 million at December 31, 2013. The 2013 year to date net income of $1.7 million, $333 thousand in equity compensation expense, and $2.2 million from the exercise of vested stock options more than offset a $441 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 December 31, 2013 increased from $3.1 million during the three months ended December 31, 2012; and was consistent with the amount generated during the three months ended September 30, 2013 (the immediately preceding quarter). The year over year increase in net interest income was primarily generated by a rise in interest earning assets, as the Bank's net interest margin declined from 3.97% during the fourth quarter of 2012 to 3.40% during the fourth quarter of 2013.

Net interest income before provision for loan losses rose from $11.8 million during 2012 to $12.5 million during 2013. The Bank's net interest margin declined from 4.00% during 2012 to 3.55% during 2013.

This aforementioned 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 prior comparable periods was particularly impacted by a decline in the ratio of average loans to average deposits. Average gross loans equaled 83.7% of average deposits during the fourth quarter of 2012 versus 74.8% during the fourth 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 with the goal of originating a greater volume of loans (while maintaining credit standards) in order to support growth in the loan portfolio;

  • seeking to acquire additional residential loan pools that meet the Bank's credit criteria as a means of further diversifying the loan portfolio and as an alternative to purchasing additional investment securities; and

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

The Bank did not record any provision for loan losses during the fourth quarter of 2013 in light of the net recoveries recorded during the quarter and because of the credit profile of the loan portfolio, including no loans 30 or more days delinquent. The provision for loan losses was $432 thousand during the fourth quarter of 2012 and $89 thousand during the third quarter of 2013 (the immediately preceding quarter).

The provision for loan losses decreased from $994 thousand during 2012 to $868 thousand during 2013. Factors contributing to the provision for loan losses during 2013 included:

  • the growth in the size of the loan portfolio;

  • 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 two credit relationships where the borrowers are current in their payments to the Bank, but are experiencing financial stress in their businesses;

  • increased formula general reserves associated with: (i) a credit relationship which was downgraded to Special Mention during the second quarter of 2013; and (ii) a small number of credit relationships downgraded to Watch during 2013;

  • 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.

During the fourth quarter of 2012, the Bank received $699 thousand in tax-free BOLI benefits associated with key man life insurance carried on its former President and Chief Executive Officer.

Non-interest income, excluding the aforementioned BOLI death benefits, declined from $80 thousand during the fourth quarter of 2012 and $100 thousand during the third quarter of 2013 (the immediately preceding quarter) to $67 thousand during the fourth quarter of 2013. Non-interest income during the fourth quarter of 2013 was restrained by a lack of loan sales (compared to the third quarter of 2013), a $3 thousand loss on disposition of certain technology assets, and the termination of a residential mortgage loan referral program in mid-2013 that had been generating $5 thousand per quarter in fees. In addition, BOLI dividend income was $8 thousand lower in the fourth quarter of 2013 compared to the fourth quarter of 2012, in part due to a lower investment balance.

Non-interest income excluding the aforementioned BOLI death benefits increased from $200 thousand during 2012 to $307 thousand during 2013. Factors contributing to this increase 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 decreased from $2.3 million during the fourth quarter of 2012 and $2.4 million during the third quarter of 2013 (the immediately preceding quarter) to $2.2 million during the fourth quarter of 2013. Factors impacting non-interest expense during these time periods included:

  • The third quarter of 2013 included $120 thousand in severance expense.

  • The accrual for incentive compensation was $56 thousand lower during the fourth quarter of 2013 than the fourth quarter of 2012 (with the reduction primarily associated with lower bonuses for executive officers).

  • Non-interest expense during the fourth quarter of 2013 included $20 thousand for professional recruiter fees associated with the sourcing of a permanent Chief Financial Officer for the Bank.

Non-interest expense rose from $8.7 million during 2012 to $9.1 million during 2013. Most of this increase was associated with base salaries and restricted share award expense, as reflected in salaries and benefits costs rising from $5.2 million during 2012 to $5.5 million during 2013. While the Bank's total assets expanded by 17.5% during 2013, the number of full-time equivalents rose by just one. Compensation packages for certain new hires during 2013 were higher than those of the predecessors in the positions, as the Bank recruited experienced and high caliber bankers.

During 2013, the Bank 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 2013 were $80 thousand, down from $216 thousand during 2012. The lower incentive compensation costs partially offset higher expenses associated with new positions created during 2013 in support of the Bank's growth, including Information Technology Manager, Relationship Manager, and Credit Administrator.

  • 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 2013 versus 2012 despite the Bank's increased staffing and the general upward trend for such costs. The Bank took further initiative in this regard effective January 1, 2014 in restructuring its employer paid group term life insurance program.

  • 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 totaled $1.3 million during both the fourth quarter of 2012 and the fourth quarter of 2013. The Bank anticipates a rise in aggregate salary and benefits costs during the first quarter of 2014 in conjunction with periodic salary increases and the hire of two to three additional positions in support of further growth. The Bank has restructured its compensation program for officers to incorporate a greater percentage of restricted share awards in order to more closely align employee interests with those of shareholders and to support the Bank's regulatory capital formation.

Occupancy expenses increased slightly from $195 thousand during the fourth quarter of 2012 to $198 thousand during the fourth quarter of 2013. Occupancy expenses during the third quarter of 2013 (the immediately preceding quarter) were $191 thousand. Occupancy expenses rose from $725 thousand during 2012 to $768 thousand during 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 slightly from $74 thousand during the fourth quarter of 2012 to $77 thousand during the fourth quarter of 2013. Furniture and equipment expense during the third quarter of 2013 (the immediately preceding quarter) was $71 thousand. Furniture and equipment expense during 2013 totaled $273 thousand, down from $306 thousand during 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. These technology upgrades include new laptops and workstations, as the Bank completes the replacement of Windows XP devices in light of the upcoming suspension of vendor support for that operating system.

Other non-interest expense during the fourth quarter of 2013 totaled $607 thousand, down from $689 thousand during the fourth quarter of 2012 and $657 thousand during the third quarter of 2013 (the immediately preceding quarter). Other non-interest expense during 2013 decreased slightly from the total for 2012. Areas of higher costs for the Bank during 2013 included:

  • 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;

  • FDIC insurance and state banking assessments deriving from the larger size of the Bank; and

  • provision for unfunded liabilities, stemming from the greater volume of credit commitments maintained by the Bank.

The above sources of increases in operating costs were largely offset during 2013 with expense reductions in the following areas:

  • director related costs;

  • professional fees (largely resulting from the deregistration of the Bank's common stock from SEC reporting);

  • more efficient management of check printing and other deposit account supplies; and

  • more effective utilization of a lower amount of marketing and advertising related expenditures.

The Bank's efficiency ratio (operating costs compared to income from operations), excluding the BOLI benefits received during the fourth quarter of 2012, improved from 72.23% during the fourth quarter of 2012 to 68.16% during the fourth quarter of 2013; and from 72.75% during 2012 to 70.82% during 2013. This improvement in the Bank's efficiency ratio would have been even more pronounced if the Bank had not: (i) experienced a narrower net interest margin; and (ii) incurred $120 thousand in severance costs during the third quarter of 2013 and $20 thousand in recruiting costs during the fourth quarter of 2013. The progress in the Bank's efficiency ratio reflects the 17.5% rise in total assets during 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 Bank's 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 several 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 are planned enhancements to the Bank's teller and new accounts platforms combined with much faster network speeds."

The Bank's effective book tax rate increased from 39.2% during 2012 to 41.0% during 2013 primarily due to the effect of the tax-free BOLI benefits received during the fourth quarter of 2012, which was partially offset by the establishment of a tax reserve associated with deductions under the State of California Enterprise Zone program. The Bank purchased its first tax qualified municipal bonds during 2013.

About 1st Capital Bank

The Bank's primary target markets are commercial enterprises, professionals, real estate investors, family business entities, and residents along the Central Coast Region of California. The Bank provides a wide range of credit products, including loans under various government programs such as those provided through the U.S. Small Business Administration ("SBA") and the U.S. Department of Agriculture ("USDA"). A full suite of 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.

--- financial data follows ---



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

Financial Condition Data(1)    December   September    June 30,    December
                               31, 2013    30, 2013        2013    31, 2012
---------------------------- ----------  ----------  ----------  ----------
Assets
  Cash and due from banks    $    1,734  $    1,688  $    1,561  $    2,872
  Funds held at the Federal
   Reserve Bank(2)               15,548      18,521      20,873      26,721
  Time deposits at other
   financial institutions         4,582       4,582       8,823       9,321
  Available-for-sale
   securities, at fair value    103,961      86,623      79,673      41,762
  Loans receivable held for
   investment:
    Construction / land
     (including farmland)        15,555      15,175      22,149      18,207
    Residential 1 to 4 units     44,322      32,300      32,922      22,711
    Home equity lines of
     credit                       9,092      10,506      10,033      12,243
    Multifamily                   5,963       5,127       5,011       2,397
    Owner occupied
     commercial real estate      49,747      49,712      49,780      47,917
    Investor commercial real
     estate                      67,019      65,223      64,272      65,733
    Commercial and
     industrial                  56,564      65,989      62,902      71,848
    Other loans                   7,268       6,842       6,053       2,197
                             ----------  ----------  ----------  ----------
      Total loans               255,530     250,874     253,122     243,253
    Allowance for loan
     losses                      (4,691)     (4,686)     (4,593)     (4,314)
                             ----------  ----------  ----------  ----------
  Net loans                     250,839     246,188     248,529     238,939
  Premises and equipment,
   net                            1,484       1,387       1,386       1,282
  Bank owned life insurance       3,648       3,626       3,603       3,555
  Investment in FHLB(3)
   stock, at cost                 1,494       1,494       1,494       1,026
  Accrued interest
   receivable and other
   assets                         3,774       3,987       3,586       3,871
                             ----------  ----------  ----------  ----------
Total assets                 $  387,064  $  368,096  $  369,528  $  329,349
                             ==========  ==========  ==========  ==========

Liabilities and
 shareholders' equity
  Deposits:
    Noninterest bearing
     demand deposits         $  144,173  $  127,132  $  129,840  $  123,403
    Interest bearing
     checking accounts           20,268      18,167      18,611      15,701
    Money market                 81,266      78,221      85,224      61,872
    Savings                      75,685      72,991      71,690      62,364
    Time                         26,983      27,423      28,307      31,314
                             ----------  ----------  ----------  ----------
      Total deposits            348,375     323,934     333,672     294,654
  Borrowings                         --       7,000          --          --
  Accrued interest payable
   and other liabilities            947         988         777         694
  Shareholders' equity           37,742      36,174      35,079      34,001
                             ----------  ----------  ----------  ----------
Total liabilities and
 shareholders' equity        $  387,064  $  368,096  $  369,528  $  329,349
                             ==========  ==========  ==========  ==========

Shares outstanding(4)         3,497,190   3,377,672   3,306,861   3,310,503
Nominal and tangible book
 value per share             $    10.79  $    10.71  $    10.61  $    10.27
Ratio of net loans to total
 deposits                         72.00%      76.00%      74.48%      81.09%
----------------------------

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 share and per share data)

                                                    3 Months Ended
                                         -----------------------------------
Operating Results Data(1)                   December   September    December
                                            31, 2013    30, 2013    31, 2012
                                         ----------- ----------- -----------
Interest and dividend income
  Loans                                  $     3,078 $     3,137 $     3,110
  Investment securities                          188         151         101
  Federal Home Loan Bank stock                    25          21           8
  Other                                           20          27          46
                                         ----------- ----------- -----------
    Total interest and dividend income         3,311       3,336       3,265
                                         ----------- ----------- -----------
Interest expense
  Interest bearing checking accounts               6           6           7
  Money market deposits                           53          68          67
  Savings deposits                                58          57          74
  Time deposits                                   17          17          35
  Borrowings                                      --           1          --
                                         ----------- ----------- -----------
    Total interest expense                       134         149         183
                                         ----------- ----------- -----------
Net interest income                            3,177       3,187       3,082
Provision for loan losses                         --          89         432
                                         ----------- ----------- -----------
Net interest income after provision for
 loan losses                                   3,177       3,098       2,650

Noninterest income
  Service charges on deposits                     30          31          22
  BOLI benefits                                   --          --         699
  BOLI dividend income                            22          23          30
  Gain on sale of loans                           --          21          --
  Other                                           15          25          28
                                         ----------- ----------- -----------
    Total noninterest income                      67         100         779

Noninterest expenses
  Salaries and benefits                        1,329       1,516       1,326
  Occupancy                                      198         191         195
  Furniture and equipment                         77          71          74
  Other                                          607         657         689
                                         ----------- ----------- -----------
    Total noninterest expenses                 2,211       2,435       2,284
                                         ----------- ----------- -----------
Income before provision for income taxes       1,033         763       1,145
Provision for income taxes                       421         306         397
                                         ----------- ----------- -----------
Net income                               $       612 $       457 $       748
                                         =========== =========== ===========

Common Share Data
  Earnings per share
    Basic                                $      0.18 $      0.14 $      0.23
    Diluted                              $      0.18 $      0.13 $      0.23

  Weighted average shares outstanding
    Basic                                  3,411,109   3,348,041   3,228,689
    Diluted                                3,474,389   3,420,215   3,295,371

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 share and per share data)

                                                         12 Months Ended
                                                     -----------------------
Operating Results Data(1)                               December    December
                                                        31, 2013    31, 2012
                                                     ----------- -----------
Interest and dividend income
  Loans                                              $    12,296 $    12,008
  Investment securities                                      612         413
  Federal Home Loan Bank stock                                68          10
  Other                                                      114         181
                                                     ----------- -----------
    Total interest and dividend income                    13,090      12,612
                                                     ----------- -----------
Interest expense
  Interest bearing checking accounts                          26          27
  Money market deposits                                      257         344
  Savings deposits                                           230         282
  Time deposits                                               83         171
  Borrowings                                                   1          --
                                                     ----------- -----------
    Total interest expense                                   597         824
                                                     ----------- -----------
Net interest income                                       12,493      11,788
Provision for loan losses                                    868         994
                                                     ----------- -----------
Net interest income after provision for loan losses       11,625      10,794

Noninterest income
  Service charges on deposits                                112          85
  BOLI benefits                                               --         699
  BOLI dividend income                                        93          37
  Gain on sale of loans                                       21          --
  Other                                                       81          78
                                                     ----------- -----------
    Total noninterest income                                 307         899

Noninterest expenses
  Salaries and benefits                                    5,522       5,160
  Occupancy                                                  768         725
  Furniture and equipment                                    273         306
  Other                                                    2,502       2,530
                                                     ----------- -----------
    Total noninterest expenses                             9,065       8,721
                                                     ----------- -----------
Income before provision for income taxes                   2,867       2,972
Provision for income taxes                                 1,175       1,166
                                                     ----------- -----------
Net income                                           $     1,692 $     1,806
                                                     =========== ===========

Common Share Data
  Earnings per share
    Basic                                            $      0.51 $      0.56
    Diluted                                          $      0.50 $      0.54

  Weighted average shares outstanding
    Basic                                              3,319,990   3,224,782
    Diluted                                            3,395,126   3,319,925

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)

                               December   September    June 30,    December
Asset Quality                  31, 2013    30, 2013        2013    31, 2012
                             ----------  ----------  ----------  ----------
  Loans past due 90 days or
   more and accruing
   interest                  $       --  $       --  $       --  $       --
  Nonaccrual restructured
   loans                            230         230         233         238
  Other nonaccrual loans            604         628         654       1,203
  Other real estate owned            --          --          --          --
                             ----------  ----------  ----------  ----------
                             $      834  $      858  $      887  $    1,441
                             ==========  ==========  ==========  ==========

  Allowance for loan losses
   to total loans                  1.84%       1.87%       1.81%       1.77%
  Allowance for loan losses
   to nonperforming loans        562.47%     546.15%     517.81%     299.38%
  Nonaccrual loans to total
   loans                           0.33%       0.34%       0.35%       0.59%
  Nonperforming assets to
   total assets                    0.22%       0.23%       0.24%       0.44%


Regulatory Capital and
 Ratios
  Tier 1 regulatory capital  $   37,783  $   36,152  $   34,918  $   33,600
  Total regulatory capital   $   41,087  $   39,450  $   38,141  $   36,646
  Tier 1 leverage ratio           10.04%       9.88%       9.79%      10.67%
  Tier 1 risk based capital
   ratio                          14.38%      13.78%      13.64%      13.87%
  Total risk based capital
   ratio                          15.63%      15.04%      14.90%      15.12%


                                                   3 Months Ended
                                         ----------------------------------
Selected Financial Ratios(1)               December   September    December
                                           31, 2013    30, 2013    31, 2012
                                         ----------  ----------  ----------
  Return on average total assets               0.65%       0.50%       0.94%
  Return on average shareholders' equity       6.57%       5.06%       8.84%
  Net interest margin                          3.40%       3.51%       3.97%
  Net interest income to average total
   assets                                      3.35%       3.45%       3.89%
  Efficiency ratio                            68.16%      74.08%      59.16%


                                                         12 Months Ended
                                                     ----------------------
Selected Financial Ratios(1)                           December    December
                                                       31, 2013    31, 2012
                                                     ----------  ----------
  Return on average total assets                           0.47%       0.60%
  Return on average shareholders' equity                   4.77%       5.50%
  Net interest margin                                      3.55%       4.00%
  Net interest income to average total assets              3.48%       3.94%
  Efficiency ratio                                        70.82%      68.74%
----------------------------------------------------

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



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

                                                    3 Months Ended
                                         -----------------------------------
Selected Average Balances(1)                December   September    December
                                            31, 2013    30, 2013    31, 2012
                                         ----------- ----------- -----------
  Gross loans                            $   251,916 $   253,739 $   235,680
  Investment securities                       90,490      79,497      22,081
  Federal Home Loan Bank stock                 1,494       1,494       1,027
  Other interest earning assets               26,283      25,205      49,953
                                         ----------- ----------- -----------
    Total interest earning assets        $   370,183 $   359,935 $   308,741
  Total assets                           $   376,265 $   366,011 $   315,501

  Interest bearing checking accounts     $    18,924 $    17,326 $    13,545
  Money market                                81,571      83,730      61,159
  Savings                                     74,422      72,088      62,486
  Time deposits                               27,151      27,664      32,872
                                         ----------- ----------- -----------
    Total interest bearing deposits      $   202,068 $   200,808 $   170,062
  Noninterest bearing demand deposits        134,626     127,941     111,670
                                         ----------- ----------- -----------
    Total deposits                       $   336,694 $   328,749 $   281,732
  Borrowings                                   1,517         576          --
  Shareholders' equity                   $    36,950 $    35,858 $    33,646


                                                         12 Months Ended
                                                     -----------------------
Selected Average Balances(1)                            December    December
                                                        31, 2013    31, 2012
                                                     ----------- -----------
  Gross loans                                        $   248,372 $   220,552
  Investment securities                                   73,015      18,376
  Federal Home Loan Bank stock                             1,347         992
  Other interest earning assets                           29,428      54,817
                                                     ----------- -----------
    Total interest earning assets                    $   352,162 $   294,737
  Total assets                                       $   358,546 $   299,207

  Interest bearing checking accounts                 $    17,308 $    12,654
  Money market                                            78,768      63,092
  Savings                                                 70,316      51,902
  Time deposits                                           28,187      36,700
                                                     ----------- -----------
    Total interest bearing deposits                  $   194,579 $   164,348
  Noninterest bearing demand deposits                    126,984     101,701
                                                     ----------- -----------
    Total deposits                                   $   321,563 $   266,049
  Borrowings                                                 555          --
  Shareholders' equity                               $    35,492 $    32,836


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

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