FISB 1st Capital Bancorp (QX)

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 - Jan 30, 2014) - 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 Data1					December 31, 2013				September 30, 2013				June 30, 2013				December 31, 2012
Assets
	Cash and due from banks				$	1,734			$	1,688			$	1,561			$	2,872
	Funds held at the Federal Reserve Bank2					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 FHLB3 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 outstanding4						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 Data1				December 31, 2013			September 30, 2013			December 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 Data1				December 31, 2013			December 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)
Asset Quality			December 31, 2013				September 30, 2013				June 30, 2013				December 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 Ratios1			December 31, 2013			September 30, 2013			December 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 Ratios1			December 31, 2013			December 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 Balances1				December 31, 2013			September 30, 2013			December 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 Balances1				December 31, 2013			December 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.

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