1st Capital Bancorp : Quarterly Financial Report Q2 2022

1st Capital Bancorp Announces Second Quarter 2022 Financial Results

Salinas, California - July 29, 2022. 1st Capital Bancorp (the "Company"), (OTCQX: FISB), the $990.1 million asset bank holding company and parent company of 1st Capital Bank (the "Bank"), today reported unaudited net income of $2.52 million for the quarter ended June 30, 2022, an increase of 20.49% compared to net income of $2.09 million for the quarter ended March 31, 2022, and an increase of 29.25% compared to net income of $1.95 million for the quarter ended June 30, 2021.

Financial Highlights

Performance highlights for the quarter ended June 30, 2022, as compared to the quarter ended June 30, 2021 and the quarter ended March 31, 2022:

• Earnings per share (diluted) were $0.45 for the second quarter of 2022, as compared to $0.34 and $0.37 for the quarters ended June 30, 2021 and March 31, 2022, respectively.
• For the quarter ended June 30, 2022, the Company's return on average equity was 14.82%, as compared to 10.36% and 10.59% for the quarters ended June 30, 2021 and March 31, 2022, respectively.
• For the quarter ended June 30, 2022, the Company's return on average assets was 0.98%, as compared to 0.89% and 0.85% for the quarters ended June 30, 2021 and March 31, 2022, respectively.
• For the quarter ended June 30, 2022, the Company's net interest margin was 3.58%, as compared to 3.54% and 3.40% for the quarters ended June 30, 2021 and March 31, 2022, respectively.
• Pre-tax,pre-provision income for the quarter ended June 30, 2022 totaled $3.5 million, as compared to $2.7 million and $2.8 million for the quarters ended June 30, 2021 and March 31, 2022, respectively.
• For the quarter ended June 30, 2022, the Company's efficiency ratio was 61.89%, as compared to 64.79% and 65.75% for the quarters ended June 30, 2021 and March 31, 2022, respectively.
• The Company recorded no provision expense for the quarters ended June 30, 2022, June 30, 2021, and March 31, 2022.
• As of June 30, 2022, the Company's nonperforming assets to total assets was .01%, as compared to 0.23% and 0.01% for the quarters ended June 30, 2021 and March 31, 2022, respectively.
• As of June 30, 2022, the Company reported total assets, total deposits, and total loans of $990.1 million, $928.3 million, and $586.1 million, respectively.

"Our second quarter results continue to reflect our expectations of positive operating trends including strong growth in net interest income, net income, and earnings per share," commented Sam Jimenez, Chief Executive Officer. "While the yield curve paints a picture of economic uncertainty on the horizon, we anticipate continuing solid financial results, and maintain a strong capital position with a Common Equity Tier 1 ratio of 13.01%."

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Net Interest Income and Net Interest Margin

The Company's second quarter 2022 net interest income increased $1.3 million, or 17.8%, to $8.84 million as compared with $7.51 million for the quarter ending June 30, 2021 and $844 thousand or 10.6% compared with the $7.99 million for the quarter ending March 31, 2022. Loan interest income in the second quarter of 2022, excluding

1. income, increased $959 thousand, or 16.1%, to $6.91 million compared to $5.96 million for the quarter ending June 30, 2021. Interest and fee income related to PPP loans decreased $677 thousand to $344 thousand for the quarter ended June 30, 2022, compared to $1.02 million for the quarter ended June 30, 2021, a year over year decrease of 66.3%.

The Company's net interest margin increased by 4 basis points (bps), or 1.1%, to 3.58% when compared to 3.54% for the quarter ended June 30, 2021. This increase was primarily driven by the Company's mix of average earning assets as cash was deployed into higher yielding loans and leases, and investment securities. Interest expense increased $278 thousand for the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 primarily related to interest expense associated with subordinated debt.

Provision for Loan Losses

Strong credit quality resulted in no loan loss provision in the quarters ended June 30, 2022, June 30, 2021, March 31, 2022.

Noninterest Expenses

The Company's total non-interest expense increased $663 thousand, or 13.3%, to $5.65 million in the quarter ended June 30, 2022, compared to $4.99 million for the quarter ended June 30, 2021. This increase is attributed to a rise in salaries and benefits, software, community relations and business development costs.

Balance Sheet Summary

The Company's total assets increased $39.4 million, or 4.1%, to $990.1 million as compared to $950.7 million at June 30, 2021.

Total loans outstanding were $586.1 million as of June 30, 2022, representing a $20.2 million, or 3.3%, decrease from the June 30, 2021 outstanding balance of $606.3 million. Excluding the $82.9 million decline in PPP loan balances, loans increased $62.6 million, or 12.0% at June 30, 2022 compared to June 30, 2021. In the second quarter of 2022, the Company purchased an $11.0 million pool of consumer loans and a $18.7 million pool of leases.

1. loans outstanding were $1.99 million as of June 30, 2022, and included a deferred fee balance of $51 thousand. At June 30, 2021, PPP loans outstanding were $84.9 million and included a deferred fee balance of $2.2 million.

					% of Total					% of Total						% of Total
Loan type (dollars in thousands)		6/30/2022		Loans			3/31/2022	Loans			6/30/2021		Loans
Construction / land (including farmland)	$	18,502	3.2%	$	17,738	3.1%	$	22,091		3.6%
Residential 1 to 4 units		57,381	9.8%				58,191	10.0%				75,906		12.5%
Home equity lines of credit		5,392	0.9%				5,555	1.0%				6,669		1.1%
Multifamily		76,168	13.0%				78,291	13.5%				77,183		12.7%
Owner occupied commercial real estate		111,283	19.0%				111,580	19.2%				83,763		13.8%
Investor commercial real estate		186,448	31.8%				193,426	33.3%				172,776		28.3%
Commercial and industrial		43,652	7.4%				41,859	7.2%				49,147		8.1%
Paycheck Protection Program		1,986	0.3%				13,342	2.3%				84,866		14.0%
Leases		34,095	5.8%				17,597	3.0%				-		0.0%
Consumer		36,372	6.2%				31,488	5.4%				23,380		3.9%
Other loans		14,784	2.6%				11,143	2.0%				12,320		2.0%
Total loans		586,063	100.0%				580,210	100.0%				606,310		100.0%
Allowance for loan losses		(8,066)						(8,424)					(8,840)
Net loans held for investment	$	577,997					$	571,786				$	597,470

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The investment portfolio increased $79.1 million, or 29.9%, to $343.7 million from $264.6 million at June 30, 2021. The unrealized loss associated with the Company's available-for-sale investment security portfolio increased from $23.6 million at March 31, 2022 to $38.2 million at June 30, 2022 as market yields rose in the second quarter of driving down market values. Investment securities with book values of $60 million and unrealized losses of $7.7 million were transferred from available-for-sale to held-to-maturity in the second quarter of 2022.

Total deposits were $928.3 million as of June 30, 2022. This represents a $74.7 million, or 8.7% increase from the June 30, 2021 balance of $853.6 million. Growth in money market and savings balances of $48.9 million and $14.0 million, respectively, drove deposit growth. Noninterest-bearing balances comprised 45.1% and 48.3% of total deposit balances at June 30, 2022 and June 30, 2021, respectively.

					% of Total						% of Total						% of Total
Deposit type (dollars in thousands)		6/30/2022		Deposits				3/31/2022		Deposits				6/30/2021		Deposits
Interest bearing checking accounts	$	62,779	6.8%			$	59,455	6.4%			$	57,422	6.7%
Money market		290,106	31.3%				250,596	27.2%				241,163	28.3%
Savings		143,215	15.4%				161,720	17.5%				129,176	15.1%
Time		13,509	1.5%				11,520	1.2%				13,761	1.6%
Total interest-bearing deposits		509,609	54.9%				483,291	52.4%				441,522	51.7%
Noninterest-bearing		418,692	45.1%				438,914	47.6%				412,108	48.3%
Total deposits	$	928,301	100.0%			$	922,205	100.0%			$	853,630	100.0%

Shareholder's equity totaled $38.7 million at June 30, 2022, a decline of $38.6 million, or 49.9%, compared to $77.3 million at June 30, 2021. The decrease is driven by the increase in unrealized losses on the investment security portfolio, the impact of which flows through accumulated other comprehensive income (AOCI), a component of equity. The Company transferred approximately 20% of the book value of the investment portfolio from available- for-sale to held-to-maturity to mitigate the impact of future market rate increases on unrealized losses and AOCI.

In the second quarter of 2022, the Company entered into a cap corridor transaction with a $100 million notional amount. The cap corridor is designed to hedge a portion of interest expenses associated with deposits and to partially mitigate the future investment portfolio valuation impact of increasing interest rates. The corridor qualifies for hedge accounting treatment and is carried at fair value on the balance sheet with changes in fair value flowing through AOCI.

Stock Repurchase Activity

The Company announced a Stock Repurchase Program on December 3, 2021 and subsequently has repurchased a total of 181,589 shares to date at a weighted average price of $15.19. The stock repurchase program is currently paused.

Asset Quality

At June 30, 2022, non-performing assets were 0.01% of the Company's total assets, compared with 0.23% at June 30, 2021. The allowance for loan losses was 1.38% of outstanding loans at June 30, 2022, compared to 1.46% at June 30, 2021. The Company had $0 and $2.2 million in nonaccrual loans at June 30, 2022 and June 30, 2021, respectively. The Company recorded net charge-offs of $358 thousand in the quarter ended June 30, 2022 compared to $12 thousand of net recoveries for the quarter ended June 30, 2021 and net charge offs of $154 thousand in the quarter ended March 31, 2022. Charge-offs were within the purchased consumer loan pools.

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Asset Quality

Loans past due 90 days or more and accruing interest Other nonaccrual loans

Other real estate owned Total nonperforming assets

Allowance for loan losses to total loans Allowance for loan losses to nonperforming loans Nonaccrual loans to total loans Nonperforming assets to total assets

	6/30/2022		3/31/2022	6/30/2021
	$ 145		$ 71		$ -
	-	-	2,161
	-	-	-
	$ 145	$ 71	$ 2,161
	1.38%	1.45%	1.46%
	5562.76%	11864.79%	409.07%
	0.00%	0.00%	0.36%
	0.01%	0.01%	0.23%

As of June 30,2022, the Company had no outstanding loan deferments or forbearances stemming from COVID-19.

1ST CAPITAL BANCORP

CONDENSED FINANCIAL DATA - UNAUDITED

($ in 000s)

				Three Months Ended
	Operating Results Data		6/30/2022			3/31/2022		6/30/2021
	Interest and dividend income
	Loans	$	7,258		$	6,896	$	6,976
	Investment securities		2,038			1,557		750
	Federal Home Loan Bank stock		59			58		66
	Other income		56			13		8
	Total interest and dividend income		9,411			8,524		7,800
	Interest expense		573			530		295
	Net interest income		8,838			7,994		7,505
	Provision for loan losses		-			-		-
	Net interest income after provision for loan losses		8,838			7,994		7,505
	Noninterest income		290			319		191
	Noninterest expenses
	Salaries and benefits expense		3,457			3,445		3,222
	Occupancy expense		463			435		390
	Data and item processing		265			263		265
	Furniture and equipment		150			140		114
	Professional services		114			169		162
	Other		1,201			1,014		833
	Total noninterest expenses		5,650			5,466		4,986
	Income before provision for income taxes		3,478			2,847		2,710
	Provision for income taxes		958			755		760
	Net income	$	2,520		$	2,092	$	1,950

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		Three Months Ended
Selected Average Balances	6/30/2022		3/31/2022		6/30/2021
Gross loans	$	593,990	$	569,997	$	620,093
Investment securities		373,853		362,328		202,246
Federal Home Loan Bank stock		4,024		3,948		3,834
Other interest earning assets		31,158		31,744		30,287
Total interest earning assets		1,003,025		968,017		856,460
Total assets		1,027,269		996,632		881,495
Interest bearing checking accounts		64,988		65,753		59,503
Money market		278,646		221,071		200,199
Savings		149,930		158,988		127,046
Time deposits		12,350		11,572		14,279
Total interest- bearing deposits		505,914		457,384		401,027
Noninterest bearing demand deposits		427,351		438,394		398,007
Total deposits		933,265		895,778		799,034
Subordinated debentures and other borrowings		17,546		14,669		1,641
Shareholders' equity	$	68,227	$	80,143	$	75,481

1ST CAPITAL BANCORP

CONDENSED FINANCIAL DATA - UNAUDITED

($ in 000s)

	Three Months Ended
Selected Financial Ratios	6/30/2022	3/31/2022		6/30/2021
Return on average total assets	0.98%	0.85%		0.89%
Return on average shareholders' equity	14.82%	10.59%		10.36%
Net interest margin	3.58%	3.40%		3.54%
Net interest income to average total assets	3.56%	3.25%		3.41%
Efficiency ratio	61.89%	65.75%		64.79%

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