Pacific Mercantile Bancorp (Nasdaq: PMBC), the holding company of
Pacific Mercantile Bank (the “Bank”), a wholly owned banking
subsidiary, today reported its financial results for the three and
nine months ended September 30, 2019.
For the third quarter of 2019, the Company
reported net income of $1.63 million, or $0.07 per fully diluted
share. This compares to net income of $2.73 million, or $0.12 per
fully diluted share, in the second quarter of 2019, and net income
of $3.90 million, or $0.17 per fully diluted share, in the third
quarter of 2018. The decrease in net income, as compared to the
three months ended June 30, 2019, is primarily attributable to
an increase in our provision for loan and lease losses as a result
of net charge-offs of $1.5 million, and increases in classified
loans and in the loan portfolio generally, which was partially
offset by increased net interest income during the quarter. The
decrease in net income, as compared to the three months ended
September 30, 2018, is primarily attributable to the provision
for loan and lease losses for the three months ended
September 30, 2019, as well as a tax expense of $658 thousand
for that period compared to a tax benefit of $98 thousand for the
three months ended September 30, 2018.
Brad R. Dinsmore, President & CEO of Pacific
Mercantile Bancorp, said, “In the short time since I have been at
Pacific Mercantile Bancorp, it’s become very clear that we have a
strong foundation in place to generate profitable growth in the
future. The combination of our team of experienced business
bankers, our leading-edge treasury management offerings, and the
insight provided by Horizon Analytics® has proven to be a
compelling value proposition that enables Pacific Mercantile to
successfully attract high quality operating companies. This is
reflected in the strong quarter we had in core deposit gathering,
as our noninterest-bearing deposits increased by more than 12%.
“My goal as President and CEO is to more
effectively leverage our strong foundation to accelerate growth and
profitability. We are in the process of implementing a number of
initiatives to better align our resources to allow our relationship
bankers to spend more time with existing clients and new prospects.
We believe these initiatives will improve the productivity of our
bankers and enhance our operating leverage. The markets we serve in
Southern California present excellent opportunities for us to
continue building our roster of commercial clients. Going forward,
we believe that we can increase our balance sheet growth while
maintaining disciplined expense control, which should have a
positive impact on our level of profitability and create additional
franchise value,” said Mr. Dinsmore.
Results of Operations
The following table shows our operating results
for the three and nine months ended September 30, 2019, as
compared to the three months ended June 30, 2019 and the three
and nine months ended September 30, 2018. The discussion below
highlights the key factors contributing to the changes shown in the
following table.
| |
Three Months Ended |
|
Nine Months Ended September 30, |
| |
September 30, 2019 |
|
June 30, 2019 |
|
September 30, 2018 |
|
2019 |
|
2018 |
| |
|
| |
($ in thousands) |
|
Total interest income |
$ |
16,767 |
|
|
$ |
16,466 |
|
|
$ |
15,218 |
|
|
$ |
49,399 |
|
|
$ |
46,147 |
|
| Total interest expense |
4,024 |
|
|
4,247 |
|
|
3,529 |
|
|
12,387 |
|
|
9,826 |
|
| Net interest income |
12,743 |
|
|
12,219 |
|
|
11,689 |
|
|
37,012 |
|
|
36,321 |
|
| Provision for loan and lease
losses |
2,100 |
|
|
— |
|
|
— |
|
|
5,400 |
|
|
— |
|
| Total noninterest income |
1,342 |
|
|
1,386 |
|
|
1,115 |
|
|
4,219 |
|
|
3,306 |
|
| Total noninterest expense |
9,697 |
|
|
9,707 |
|
|
9,002 |
|
|
28,388 |
|
|
27,834 |
|
| Income tax (benefit)
provision |
658 |
|
|
1,170 |
|
|
(98 |
) |
|
2,204 |
|
|
(11,183 |
) |
| Net income |
$ |
1,630 |
|
|
$ |
2,728 |
|
|
$ |
3,900 |
|
|
$ |
5,239 |
|
|
$ |
22,976 |
|
Net Interest Income
Q3 2019 vs Q2 2019. Net
interest income increased $524 thousand, or 4.3%, for the three
months ended September 30, 2019 as compared to the three
months ended June 30, 2019 primarily as a result of:
- An increase in interest income of
$301 thousand, or 1.8%, primarily attributable to an increase in
interest earned on loans as a result of higher average balances
primarily related to the loan portfolio purchase made during the
three months ended September 30, 2019 as compared to the three
months ended June 30, 2019; and
- A decrease in interest expense of
$223 thousand, or 5.3%, primarily attributable to a decreased
average borrowings balance and decreasing interest rates on
deposits during the three months ended September 30, 2019 as
compared to the three months ended June 30, 2019.
Our net interest margin increased to 3.62% for
the three months ended September 30, 2019 as compared to 3.58%
for the three months ended June 30, 2019. The increase is
primarily attributable to loan growth, which resulted in an
increase to loan interest income even though the yield on loans
decreased. Also contributing to the increase in net interest margin
was a decrease in the cost of interest bearing liabilities
resulting from a decrease in prevailing interest rates on checking,
money market, and savings accounts, partially offset by increases
in interest rates on certificates of deposit.
Q3 2019 vs Q3 2018. Net
interest income increased $1.05 million, or 9.0%, for the three
months ended September 30, 2019 as compared to the three
months ended September 30, 2018 primarily as a result of:
- An increase in interest income of
$1.55 million, or 10.2%, primarily attributable to an increase in
interest earned on loans and short-term investments as a result of
higher average balances and an increase in the average yield on
earning assets as a result of the rising interest rate environment
during the three months ended September 30, 2019 as compared
to the three months ended September 30, 2018; partially offset
by
- An increase in interest expense of
$495 thousand, or 14.0%, primarily attributable to an increase in
the volume of and rates of interest paid on our non-maturing
interest bearing deposits for the three months ended
September 30, 2019 as compared to the three months ended
September 30, 2018, which was primarily the result of higher
deposits due to new client acquisition, and our decision to
increase the rate of interest paid on our non-maturing interest
bearing deposits resulting from the rising interest rate
environment, which was somewhat offset by a change in our mix of
deposits from higher cost certificates of deposit to non-maturing
interest and non-interest bearing deposits.
YTD 2019 vs YTD 2018. Net
interest income increased $691 thousand, or 1.9%, for the nine
months ended September 30, 2019 as compared to the nine months
ended September 30, 2018, primarily as a result of:
- An increase in interest income of
$3.25 million, or 7.0%, primarily attributable to an increase in
interest earned on loans and short-term investments as a result of
higher average balances and an increase in the average yields
during the nine months ended September 30, 2019 as compared to
the nine months ended September 30, 2018, which was primarily
the result of the rising interest rate environment, which was
partially offset by a decrease of $1.58 million in interest
recoveries on loans that had been on nonaccrual status but were
paid in full during the nine months ended September 30, 2018;
partially offset by
- An increase in interest expense of
$2.56 million, or 26.1%, primarily attributable to an increase in
the rates of interest paid on our deposits and other borrowings for
the nine months ended September 30, 2019 as compared to the
nine months ended September 30, 2018, which was the result of
our decision to increase the rate of interest paid on our
non-maturity interest bearing deposits and our certificates of
deposit in a rising interest rate environment, in addition to
increased deposits due to new client acquisition and strong organic
growth.
Provision for Loan and Lease
Losses
Q3 2019 vs Q2 2019. We recorded
a $2.1 million provision for loan and lease losses during the three
months ended September 30, 2019 as a result of net
charge-offs, an increase in classified loans, and growth in our
loan portfolio during the quarter. We recorded no provision for
loan and lease losses during the three months ended June 30,
2019 as a result of a nominal increase in our loan portfolio during
the quarter. During the three months ended September 30, 2019,
we had net charge-offs of $1.5 million, compared to net charge-offs
of $40 thousand for the three months ended June 30, 2019.
Q3 2019 vs Q3 2018. We
recorded a $2.1 million provision for loan and lease losses during
the three months ended September 30, 2019 as a result of net
charge-offs, an increase in classified loans, and growth in our
loan portfolio during the quarter. We recorded no provision for
loan and lease losses during the three months ended
September 30, 2018 due primarily to reserves for new loan
growth being offset by a decline in the level of classified
assets.
YTD 2019 vs YTD 2018. We
recorded a $5.4 million provision for loan and lease losses during
the nine months ended September 30, 2019 as a result of total
net charge-offs of 6.8 million, an increase in classified loans,
and growth in our loan portfolio during the year. We recorded no
provision for loan and lease losses during the nine months ended
September 30, 2018 primarily as a result of reserves for new
loan growth being offset by a decline in the level of classified
assets.
Noninterest Income
Q3 2019 vs Q2 2019. Noninterest
income decreased $44 thousand, or 3.2%, for the three months ended
September 30, 2019 as compared to the three months ended
June 30, 2019, primarily resulting from less gain on SBA loan
sales.
Q3 2019 vs Q3 2018. Noninterest
income increased by $227 thousand, or 20.4%, for the three months
ended September 30, 2019 as compared to the three months ended
September 30, 2018, primarily as a result of an increase of
$265 thousand in gain on sale of SBA loans and an increase of $82
thousand in service fees, partially offset by a decrease of $113
thousand of other non-interest income during the third quarter of
2019 as compared to the same period in 2018.
YTD 2019 vs YTD 2018.
Noninterest income increased $913 thousand, or 27.6%, for the nine
months ended September 30, 2019 as compared to the nine months
ended September 30, 2018, primarily as a result of:
- An increase of $866 thousand in
gain on sale of SBA loans during the nine months ended September
30, 2019 as compared to the same period in 2018; and
- An increase of $127 thousand in
deposit related fees, credit card fees and loan service fees during
the nine months ended September 30, 2019 as compared to the
same period in 2018; partially offset by
- A gain of $48 thousand on the sale
of securities available for sale during the nine months ended
September 30, 2018 that did not occur in the same period in
2019.
Noninterest Expense
Q3 2019 vs Q2 2019. Noninterest
expense decreased $10 thousand, or 0.1%, for the three months ended
September 30, 2019 as compared to the three months ended
June 30, 2019, primarily as a result of:
- A decrease of $72 thousand in our
professional fees primarily related to legal fee recoveries during
the third quarter of 2019; and
- A decrease of $217 thousand in our
FDIC expense during the three months ended September 30, 2019 as
compared to the three months ended June 30, 2019 as the result of a
lower rate and rebate; offset by
- An increase of $333 thousand in
salaries and employee benefits primarily related to the
acceleration of equity awards of a former executive.
Q3 2019 vs Q3 2018. Noninterest
expense increased $695 thousand, or 7.7%, for the three months
ended September 30, 2019 as compared to the three months ended
September 30, 2018, primarily as a result of:
- An increase of $463 thousand in our
professional fees primarily related to higher legal fees during the
third quarter of 2019 compared to the recovery of legal fees
attributable to the payoff of a loan relationship during the third
quarter of 2018 that was previously on nonaccrual status; and
- An increase of $162 thousand in our
data processing fees primarily related to a higher credit card and
deposit volume in the third quarter of 2019; and
- An increase of $261 thousand in
salaries and employee benefits primarily related to the
acceleration of equity awards of a former executive; partially
offset by
- A decrease of $213 thousand in our
FDIC insurance expenses as the result of a lower rate and rebate;
and
- A decrease in various expense
accounts related to the normal course of operating, including
expenses related to loan production and business development during
the three months ended September 30, 2019 as compared to the
three months ended September 30, 2018.
YTD 2019 vs YTD 2018.
Noninterest expense increased $554 thousand, or 2.0%, for the nine
months ended September 30, 2019 as compared to the nine months
ended September 30, 2018, primarily as a result of:
- An increase of $1.06 million in our
professional fees primarily related to higher legal fees in 2019
and the recovery of legal fees attributable to the payoff of a loan
relationship in 2018 that was previously on nonaccrual status;
and
- An increase of $174 thousand in
occupancy and equipment expense related to building and equipment
maintenance; and
- An increase $434 thousand in data
processing fees primarily related to a higher credit card and
deposit volume; partially offset by
- A decrease of $638 thousand in
salaries and employee benefits primarily related to a decrease in
employee benefits and incentive compensation partially offset by
the acceleration of equity awards of a former executive; and
- A decrease of $405 thousand in our
FDIC insurance expenses as the result of a lower rate and rebate;
and
- A decrease in various expense
accounts related to the normal course of operating, including
expenses related to loan production and business development.
Income tax provision
(benefit)
For the three and nine months ended
September 30, 2019, we had an income tax expense of $658
thousand and $2.2 million, respectively. The income tax expense
during the three and nine months ended September 30, 2019 is a
result of our operating income. Accounting rules specify that
management must evaluate the deferred tax asset on a recurring
basis to determine whether enough positive evidence exists to
determine whether it is more-likely-than-not that the deferred tax
asset will be available to offset or reduce future taxes. The tax
code allows net operating losses incurred prior to December 31,
2017 to be carried forward for 20 years from the date of the loss,
and based on its evaluation, management believes that the Company
will be able to realize the deferred tax asset within the period
that our net operating losses may be carried forward. Due to the
hierarchy of evidence that the accounting rules specify, management
determined that there continued to be enough positive evidence to
support no valuation allowance on our deferred tax asset at
September 30, 2019. The value of our deferred tax asset at
September 30, 2019 was computed based on an estimate of taxable
income for the full year of 2019.
For the three and nine months ended
September 30, 2018, we had an income tax benefit of $98
thousand and $11.2 million, respectively, as a result of the
release of our full valuation allowance on our net deferred tax
asset. During the three months ended June 30, 2018, management
computed the value of our deferred tax asset based upon an estimate
of taxable income for the full year 2018. During that period, it
was determined that the valuation allowance that was previously
established on the balance of our deferred tax asset was no longer
required and the entire $11.1 million allowance was released.
During the three months ended September 30, 2018, our taxable
income was higher than previously estimated, resulting in further
taxable benefit for the third quarter.
Balance Sheet Information
Loans
As indicated in the table below, at
September 30, 2019, gross loans totaled approximately $1.16
billion, which represented an increase of $74.1 million, or 6.8%,
compared to gross loans outstanding at June 30, 2019. The
following table sets forth the composition, by loan category, of
our loan portfolio at September 30, 2019, June 30, 2019,
and December 31, 2018.
| |
September 30, 2019 |
|
June 30, 2019 |
|
December 31, 2018 |
| |
Amount |
|
Percent ofTotalLoans |
|
Amount |
|
Percent ofTotalLoans |
|
Amount |
|
Percent
ofTotalLoans |
| |
|
| |
($ in thousands) |
|
Commercial loans |
$ |
434,249 |
|
|
37.4 |
% |
|
$ |
441,850 |
|
|
40.7 |
% |
|
$ |
444,441 |
|
|
40.7 |
% |
| Commercial real estate loans -
owner occupied |
216,848 |
|
|
18.7 |
% |
|
214,233 |
|
|
19.7 |
% |
|
211,645 |
|
|
19.3 |
% |
| Commercial real estate loans -
all other |
220,170 |
|
|
19.0 |
% |
|
221,437 |
|
|
20.4 |
% |
|
226,441 |
|
|
20.7 |
% |
| Residential mortgage loans -
multi-family |
173,275 |
|
|
14.9 |
% |
|
83,966 |
|
|
7.7 |
% |
|
97,173 |
|
|
8.9 |
% |
| Residential mortgage loans -
single family |
18,720 |
|
|
1.6 |
% |
|
21,294 |
|
|
2.0 |
% |
|
21,176 |
|
|
1.9 |
% |
| Construction and land
development loans |
6,110 |
|
|
0.5 |
% |
|
12,230 |
|
|
1.1 |
% |
|
38,496 |
|
|
3.5 |
% |
| Consumer loans |
91,198 |
|
|
7.9 |
% |
|
91,442 |
|
|
8.4 |
% |
|
54,514 |
|
|
5.0 |
% |
| Gross loans |
$ |
1,160,570 |
|
|
100.0 |
% |
|
$ |
1,086,452 |
|
|
100.0 |
% |
|
$ |
1,093,886 |
|
|
100.0 |
% |
The increase of $74.1 million in gross loans
during the third quarter of 2019 was primarily a result of total
new organic loan fundings of $94.5 million, along with multi-family
mortgage loan portfolio purchases totaling $81.0 million, partially
offset by loan payments and payoffs of $99.8 million, and charge
offs of $1.6 million. The commercial real estate loan portfolio
acquisition, which approximately doubled the size of the Bank's
existing multi-family mortgage portfolio, was made in light of the
Bank's excess liquidity, and favorable performance of this asset
class, including high asset quality and attractive yield, but does
not reflect a change in the bank’s overall market strategy of
banking operating companies.
During the third quarter of 2019, we secured new
client relationships with commercial loan commitments of $34.3
million, of which $20.6 million were funded at September 30,
2019. Our total commercial loan commitments decreased to $725.4
million at September 30, 2019 from $729.9 million at
June 30, 2019, while the utilization rate of commercial loan
commitments decreased to 59.7% at September 30, 2019 from
60.1% at June 30, 2019.
Deposits
| |
September 30, 2019 |
|
June 30, 2019 |
|
December 31, 2018 |
| |
|
| Type of
Deposit |
($ in thousands) |
|
Noninterest-bearing checking accounts |
$ |
425,596 |
|
|
$ |
378,063 |
|
|
$ |
340,406 |
|
|
Interest-bearing checking accounts |
106,325 |
|
|
112,626 |
|
|
64,144 |
|
|
Money market and savings deposits |
418,807 |
|
|
450,057 |
|
|
460,355 |
|
|
Certificates of deposit |
262,368 |
|
|
258,884 |
|
|
271,097 |
|
|
Totals |
$ |
1,213,096 |
|
|
$ |
1,199,630 |
|
|
$ |
1,136,002 |
|
The increase in total deposits of $77.1 million,
or 6.8%, during the nine months ended September 30, 2019 from
December 31, 2018 is primarily attributable to our strategy to
focus on operating companies and help them succeed. Deposit growth
was driven by an increase of $127.4 million, or 31.5%, in total
checking accounts, partially offset by a decrease of $50.3 million,
or 6.9%, in higher costing money market, savings, and certificates
of deposit accounts.
The increase in total deposits from
June 30, 2019 to September 30, 2019 is primarily
attributable to an increase of $41.2 million in total checking
accounts, partially offset by a decrease of $31.3 million in money
market and savings deposits. The increase to core deposits is the
result of new client acquisition, which has resulted in
relationships with growing operating companies that are attracting
capital investment to fund that growth. Lower priced core deposits
remained at 78.4% of total deposits, and higher priced certificates
of deposit held constant at 21.6% of total deposits at
September 30, 2019 and at June 30, 2019,
respectively.
Asset Quality
Nonperforming Assets
| |
2019 |
|
2018 |
|
September 30 |
|
June 30 |
|
September 30 |
| |
|
| |
($ in
thousands) |
| Total
non-performing loans |
$ |
13,209 |
|
|
$ |
1,344 |
|
|
$ |
5,881 |
|
| Other real estate owned |
— |
|
|
— |
|
|
1,275 |
|
| Other non-performing assets |
138 |
|
|
82 |
|
|
15 |
|
| Total non-performing assets |
$ |
13,347 |
|
|
$ |
1,426 |
|
|
$ |
7,171 |
|
| 90-day past due loans |
$ |
86 |
|
|
$ |
— |
|
|
$ |
2,669 |
|
| Total classified assets |
$ |
32,025 |
|
|
$ |
5,174 |
|
|
$ |
13,552 |
|
| Allowance for loan and lease losses |
$ |
12,086 |
|
|
$ |
11,474 |
|
|
$ |
13,463 |
|
| Allowance for loan and lease losses /gross loans |
1.04 |
% |
|
1.06 |
% |
|
1.25 |
% |
| Allowance for loan and lease losses /total assets |
0.84 |
% |
|
0.81 |
% |
|
1.02 |
% |
| Ratio of allowance for loan and lease losses to nonperforming
loans |
91.50 |
% |
|
853.72 |
% |
|
228.92 |
% |
| Ratio of nonperforming assets to total assets |
0.93 |
% |
|
0.10 |
% |
|
0.54 |
% |
| Net quarterly charge-offs (recoveries) to gross loans |
0.13 |
% |
|
— |
% |
|
(0.01 |
)% |
_________________
Non-performing assets at September 30, 2019
increased $11.9 million from June 30, 2019 primarily as a
result of an increase in non-performing loans. The increase in our
non-performing loans during the three months ended
September 30, 2019 resulted from the addition of $13.9 million
of commercial and consumer loans, which was primarily centered in
two commercial loan relationships, partially offset by principal
payments of $382 thousand, charge-offs of $1.5 million, and the
transfer to other assets of $80 thousand, during the same
period.
Our classified assets increased by $26.8 million
from $5.2 million at June 30, 2019 to $32.0 million at
September 30, 2019, and increased by $18.5 million from $13.6
million at September 30, 2018. The increase this quarter is
primarily related to additions of $28.9 million during the three
months ended September 30, 2019, partially offset by principal
payments of $420 thousand, charge-offs of $1.5 million, and the
transfer to other assets of $80 thousand, during the same period.
The additions to classified loans during the three months ended
September 30, 2019 represented the migration of loans to
classified rating from loans that were previously rated as Special
Mention, or "Watch" within our Pass category in the previous
quarter.
Allowance for loan and lease losses
| |
2019 |
|
2018 |
|
September 30 |
|
June 30 |
|
March 31 |
|
December 31 |
|
September 30 |
| |
|
| |
($ in
thousands) |
| Balance at
beginning of quarter |
$ |
11,474 |
|
|
$ |
11,514 |
|
|
$ |
13,506 |
|
|
$ |
13,463 |
|
|
$ |
13,369 |
|
|
Charge offs |
(1,551 |
) |
|
(127 |
) |
|
(5,698 |
) |
|
(922 |
) |
|
(419 |
) |
|
Recoveries |
63 |
|
|
87 |
|
|
406 |
|
|
965 |
|
|
513 |
|
|
Provision |
2,100 |
|
|
— |
|
|
3,300 |
|
|
— |
|
|
— |
|
| Balance at end of quarter |
$ |
12,086 |
|
|
$ |
11,474 |
|
|
$ |
11,514 |
|
|
$ |
13,506 |
|
|
$ |
13,463 |
|
At September 30, 2019, the allowance for
loan and lease losses (“ALLL”) totaled $12.1 million, which was
approximately $612 thousand more than at June 30, 2019 and
$1.4 million less than at September 30, 2018. The ALLL
activity during the three months ended September 30, 2019
included net charge-offs of $1.5 million. There was a $2.1 million
provision for loan and lease losses during the period, primarily
attributable to the net charge-offs during the quarter, along with
the increase in classified loans and growth in the total loan
portfolio, partially offset by a favorable change in the
composition of loan categories during the three months ended
September 30, 2019. The ratio of the ALLL-to-total loans
outstanding as of September 30, 2019 was 1.04% as compared to
1.06% and 1.25% as of June 30, 2019 and September 30,
2018, respectively.
Capital Resources
At September 30, 2019, the Bank had total
regulatory capital of $168.8 million. The ratio of the Bank’s total
capital-to-risk weighted assets, which is a principal federal bank
regulatory measure of the financial strength of banking
institutions, was 13.5% which exceeds the minimum for a bank to be
classified under federal bank regulatory guidelines as a
“well-capitalized” banking institution, which is the highest of the
capital standards established by federal banking regulatory
authorities.
The following table sets forth the regulatory
capital and capital ratios of the Bank at September 30, 2019,
as compared to the regulatory requirements that must be met for a
banking institution to be rated as a well-capitalized
institution.
| |
ActualAt June 30, 2019 |
|
Federal Regulatory Requirementto be Rated
Well-Capitalized |
| |
Amount |
|
Ratio |
|
Amount |
|
Ratio |
| |
|
| |
($ in thousands) |
| |
|
|
|
|
|
|
|
|
Total Capital to Risk Weighted Assets |
$ |
168,838 |
|
|
13.5 |
% |
|
$ |
127,979 |
|
|
At least 10.0 |
| |
|
|
|
|
|
|
|
| Common Equity Tier 1 Capital to
Risk Weighted Assets |
$ |
156,402 |
|
|
12.5 |
% |
|
$ |
83,186 |
|
|
At least 6.5 |
| |
|
|
|
|
|
|
|
| Tier 1 Capital to Risk Weighted
Assets |
$ |
156,402 |
|
|
12.5 |
% |
|
$ |
102,383 |
|
|
At least 8.0 |
| |
|
|
|
|
|
|
|
| Tier 1 Capital to Average
Assets |
$ |
156,402 |
|
|
11.0 |
% |
|
$ |
71,707 |
|
|
At least 5.0 |
About Pacific Mercantile Bancorp
Pacific Mercantile Bancorp (Nasdaq: PMBC) is the
parent holding company of Pacific Mercantile Bank, which opened for
business March 1, 1999. The Bank, which is an FDIC insured,
California state-chartered bank and a member of the Federal Reserve
System, provides a wide range of commercial banking services to
businesses, business professionals and individual clients. The Bank
is headquartered in Orange County and operates a total of seven
offices in Southern California, located in Orange, Los Angeles, San
Diego, and San Bernardino counties. The Bank offers tailored
flexible solutions for its clients including an array of loan and
deposit products, sophisticated cash management services, and
comprehensive online banking services accessible at
www.pmbank.com.
Forward-Looking Information
This news release contains statements regarding
our expectations, beliefs and views about our future financial
performance and our business, trends and expectations regarding the
markets in which we operate, and our future plans. Those
statements, which include the quotation from management, constitute
“forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, can be identified by
the fact that they do not relate strictly to historical or current
facts. Often, they include words such as “believe,” “expect,”
“anticipate,” “intend,” “plan,” “estimate,” “project,” or words of
similar meaning, or future or conditional verbs such as “will,”
“would,” “should,” “could,” or “may.” Forward-looking statements
are based on current information available to us and our
assumptions about future events over which we do not have control.
Moreover, our business and our markets are subject to a number of
risks and uncertainties which could cause our actual financial
performance in the future, and the future performance of our
markets (which can affect both our financial performance and the
market prices of our shares), to differ, possibly materially, from
our expectations as set forth in the forward-looking statements
contained in this news release.
In addition to the risk of incurring loan losses
and provision for loan losses, which is an inherent risk of the
banking business, these risks and uncertainties include, but are
not limited to, the following: the risk that the credit quality of
our borrowers declines; potential declines in the value of the
collateral for secured loans; the risk that steps we have taken to
strengthen our overall credit administration are not effective; the
risk of a downturn in the United States economy, and domestic or
international economic conditions, which could cause us to incur
additional loan losses and adversely affect our results of
operations in the future; the risk that our interest margins and,
therefore, our net interest income will be adversely affected by
changes in prevailing interest rates; the risk of increases in our
nonperforming assets, in which event we would face the prospect of
further loan charge-offs and write-downs of assets; the risk that
we will not be able to manage our interest rate risks effectively,
in which event our operating results could be harmed; the prospect
of changes in government regulation of banking and other financial
services organizations, which could impact our costs of doing
business and restrict our ability to take advantage of business and
growth opportunities; the risk that our efforts to develop a robust
commercial banking platform may not succeed; and the risk that we
may be unable to realize our expected level of increasing deposit
inflows. Readers of this news release are encouraged to review the
additional information regarding these and other risks and
uncertainties to which our business is subject that is contained in
our Annual Report on Form 10-K for the year ended December 31,
2018, which is on file with the Securities and Exchange Commission
(“SEC”). Additional information will be set forth in our Quarterly
Report on Form 10-Q for the three months ended September 30, 2019,
which we expect to file with the SEC during the fourth quarter of
2019, and readers of this release are urged to review the
additional information that will be contained in that report.
Due to these and other risks and uncertainties
to which our business is subject, you are cautioned not to place
undue reliance on the forward-looking statements contained in this
news release, which speak only as of its date, or to make
predictions about our future financial performance based solely on
our historical financial performance. We disclaim any obligation to
update or revise any of the forward-looking statements as a result
of new information, future events or otherwise, except as may be
required by law.
CONSOLIDATED STATEMENTS OF
OPERATIONS(Dollars and numbers of shares in
thousands, except per share
data)(Unaudited)
| |
Three Months Ended |
|
Nine Months Ended |
| |
September 30, 2019 |
|
June 30,2019 |
|
September30, 2018 |
|
Sept '19 vsJune '19% Change |
|
Sept '19 vsSept '18% Change |
|
September 30, 2019 |
|
September30, 2018 |
|
% Change |
|
Total interest income |
$ |
16,767 |
|
|
$ |
16,466 |
|
|
$ |
15,218 |
|
|
1.8 |
% |
|
10.2 |
% |
|
$ |
49,399 |
|
|
$ |
46,147 |
|
|
7.0 |
% |
| Total interest expense |
4,024 |
|
|
4,247 |
|
|
3,529 |
|
|
(5.3 |
)% |
|
14.0 |
% |
|
12,387 |
|
|
9,826 |
|
|
26.1 |
% |
|
Net interest income |
12,743 |
|
|
12,219 |
|
|
11,689 |
|
|
4.3 |
% |
|
9.0 |
% |
|
37,012 |
|
|
36,321 |
|
|
1.9 |
% |
| Provision for loan and lease
losses |
2,100 |
|
|
— |
|
|
— |
|
|
100.0 |
% |
|
100.0 |
% |
|
5,400 |
|
|
— |
|
|
— |
% |
|
Net interest income after provision for loan and lease losses |
10,643 |
|
|
12,219 |
|
|
11,689 |
|
|
(12.9 |
)% |
|
(8.9 |
)% |
|
31,612 |
|
|
36,321 |
|
|
(13.0 |
)% |
| Non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service fees on deposits and other banking services |
463 |
|
|
443 |
|
|
382 |
|
|
4.5 |
% |
|
21.2 |
% |
|
1,303 |
|
|
1,176 |
|
|
10.8 |
% |
|
Net gain on sale of securities available for sale |
— |
|
|
— |
|
|
— |
|
|
— |
% |
|
— |
% |
|
— |
|
|
48 |
|
|
(100.0 |
)% |
|
Net gain on sale of small business administration loans |
265 |
|
|
300 |
|
|
— |
|
|
(11.7 |
)% |
|
100.0 |
% |
|
866 |
|
|
— |
|
|
— |
% |
|
Net loss on sale of other assets |
(6 |
) |
|
(11 |
) |
|
— |
|
|
(45.5 |
)% |
|
— |
% |
|
(42 |
) |
|
(4 |
) |
|
950.0 |
% |
|
Other non-interest income |
620 |
|
|
654 |
|
|
733 |
|
|
(5.2 |
)% |
|
(15.4 |
)% |
|
2,092 |
|
|
2,086 |
|
|
0.3 |
% |
| Total non-interest income |
1,342 |
|
|
1,386 |
|
|
1,115 |
|
|
(3.2 |
)% |
|
20.4 |
% |
|
4,219 |
|
|
3,306 |
|
|
27.6 |
% |
| Non-interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
6,070 |
|
|
5,737 |
|
|
5,809 |
|
|
5.8 |
% |
|
4.5 |
% |
|
17,247 |
|
|
17,885 |
|
|
(3.6 |
)% |
|
Occupancy and equipment |
1,099 |
|
|
1,127 |
|
|
1,029 |
|
|
(2.5 |
)% |
|
6.8 |
% |
|
3,314 |
|
|
3,140 |
|
|
5.5 |
% |
|
Professional Fees |
1,118 |
|
|
1,190 |
|
|
655 |
|
|
(6.1 |
)% |
|
70.7 |
% |
|
3,104 |
|
|
2,041 |
|
|
52.1 |
% |
|
OREO expenses, net |
— |
|
|
1 |
|
|
(16 |
) |
|
(100.0 |
)% |
|
(100.0 |
)% |
|
69 |
|
|
(8 |
) |
|
100.0 |
% |
|
FDIC Expense |
(24 |
) |
|
193 |
|
|
189 |
|
|
(112.4 |
)% |
|
(112.7 |
)% |
|
333 |
|
|
738 |
|
|
(54.9 |
)% |
|
Other non-interest expense |
1,434 |
|
|
1,459 |
|
|
1,336 |
|
|
(1.7 |
)% |
|
7.3 |
% |
|
4,321 |
|
|
4,038 |
|
|
7.0 |
% |
| Total non-interest
expense |
9,697 |
|
|
9,707 |
|
|
9,002 |
|
|
(0.1 |
)% |
|
7.7 |
% |
|
28,388 |
|
|
27,834 |
|
|
2.0 |
% |
|
Income before income taxes |
2,288 |
|
|
3,898 |
|
|
3,802 |
|
|
(41.3 |
)% |
|
(39.8 |
)% |
|
7,443 |
|
|
11,793 |
|
|
(36.9 |
)% |
| Income tax expense
(benefit) |
658 |
|
|
1,170 |
|
|
(98 |
) |
|
(43.8 |
)% |
|
(771.4 |
)% |
|
2,204 |
|
|
(11,183 |
) |
|
(119.7 |
)% |
|
Net income from continuing operations |
1,630 |
|
|
2,728 |
|
|
3,900 |
|
|
(40.2 |
)% |
|
(58.2 |
)% |
|
5,239 |
|
|
22,976 |
|
|
(77.2 |
)% |
| Net income |
$ |
1,630 |
|
|
$ |
2,728 |
|
|
$ |
3,900 |
|
|
(40.2 |
)% |
|
(58.2 |
)% |
|
$ |
5,239 |
|
|
$ |
22,976 |
|
|
(77.2 |
)% |
|
Net income allocable to common shareholders |
$ |
1,630 |
|
|
$ |
2,728 |
|
|
$ |
3,900 |
|
|
(40.2 |
)% |
|
(58.2 |
)% |
|
$ |
5,239 |
|
|
$ |
22,976 |
|
|
(77.2 |
)% |
| Basic income per common
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders |
$ |
0.07 |
|
|
$ |
0.12 |
|
|
$ |
0.17 |
|
|
(41.7 |
)% |
|
(58.8 |
)% |
|
$ |
0.22 |
|
|
$ |
0.98 |
|
|
(77.6 |
)% |
| Diluted income per common
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders |
$ |
0.07 |
|
|
$ |
0.12 |
|
|
$ |
0.17 |
|
|
(41.7 |
)% |
|
(58.8 |
)% |
|
$ |
0.22 |
|
|
$ |
0.98 |
|
|
(77.6 |
)% |
| Weighted average number of
common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
23,356 |
|
|
22,620 |
|
|
22,996 |
|
|
3.3 |
% |
|
1.6 |
% |
|
22,606 |
|
|
23,121 |
|
|
(2.2 |
)% |
|
Diluted |
23,657 |
|
|
23,616 |
|
|
23,598 |
|
|
0.2 |
% |
|
0.3 |
% |
|
23,605 |
|
|
23,535 |
|
|
0.3 |
% |
| Ratios from continuing
operations(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
0.45 |
% |
|
0.78 |
% |
|
1.16 |
% |
|
|
|
|
|
0.50 |
% |
|
2.31 |
% |
|
|
|
Return on average equity |
4.36 |
% |
|
7.57 |
% |
|
11.50 |
% |
|
|
|
|
|
4.82 |
% |
|
24.78 |
% |
|
|
|
Efficiency ratio |
68.85 |
% |
|
71.35 |
% |
|
70.31 |
% |
|
|
|
|
|
68.85 |
% |
|
70.24 |
% |
|
|
____________________(1) Ratios for the three months ended
September 30, 2019, June 30, 2019 and September 30,
2018 have been annualized.
CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION(Dollars in thousands, except share and
book value data)(Unaudited)
|
ASSETS |
September 30,2019 |
|
December 31,2018 |
|
Increase/(Decrease) |
|
| |
|
|
| Cash and due
from banks |
$ |
19,425 |
|
|
$ |
13,250 |
|
|
46.6 |
% |
|
| Interest bearing deposits with financial institutions(1) |
191,431 |
|
|
174,468 |
|
|
9.7 |
% |
|
| Interest bearing time deposits |
2,420 |
|
|
2,420 |
|
|
— |
% |
|
| Investment securities (including stock) |
32,883 |
|
|
40,053 |
|
|
(17.9 |
)% |
|
| Loans (net of allowances of $12,086 and $13,506,
respectively) |
1,153,217 |
|
|
1,083,240 |
|
|
6.5 |
% |
|
| Other real estate owned |
— |
|
|
1,173 |
|
|
(100.0 |
)% |
|
| Net deferred tax assets |
7,844 |
|
|
10,935 |
|
|
(28.3 |
)% |
|
| Other assets |
31,491 |
|
|
23,799 |
|
|
32.3 |
% |
|
|
Total assets |
$ |
1,438,711 |
|
|
$ |
1,349,338 |
|
|
6.6 |
% |
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
| Non-interest bearing deposits |
$ |
425,596 |
|
|
$ |
340,406 |
|
|
25.0 |
% |
|
| Interest bearing deposits |
|
|
|
|
|
|
|
Interest checking |
106,325 |
|
|
64,144 |
|
|
65.8 |
% |
|
|
Savings/money market |
418,807 |
|
|
460,355 |
|
|
(9.0 |
)% |
|
|
Certificates of deposit |
262,368 |
|
|
271,097 |
|
|
(3.2 |
)% |
|
|
Total interest bearing deposits |
787,500 |
|
|
795,596 |
|
|
(1.0 |
)% |
|
|
Total deposits |
1,213,096 |
|
|
1,136,002 |
|
|
6.8 |
% |
|
| Other borrowings |
40,000 |
|
|
40,000 |
|
|
— |
% |
|
| Other liabilities |
20,054 |
|
|
14,435 |
|
|
38.9 |
% |
|
| Junior subordinated debentures |
17,527 |
|
|
17,527 |
|
|
— |
% |
|
|
Total liabilities |
1,290,677 |
|
|
1,207,964 |
|
|
6.8 |
% |
|
| Shareholders’ equity |
148,034 |
|
|
141,374 |
|
|
4.7 |
% |
|
|
Total Liabilities and Shareholders’ Equity |
$ |
1,438,711 |
|
|
$ |
1,349,338 |
|
|
6.6 |
% |
|
| Book value per share |
$ |
6.29 |
|
|
$ |
6.06 |
|
|
3.8 |
% |
|
| Shares outstanding, common |
23,520,776 |
|
|
21,916,195 |
|
|
7.3 |
% |
|
____________________(1) Interest bearing deposits held in
the Bank’s account maintained at the Federal Reserve Bank.
CONSOLIDATED AVERAGE BALANCES AND YIELD
DATA(Dollars in
thousands)(Unaudited)
| |
Three Months
Ended |
| |
September 30, 2019 |
|
June 30, 2019 |
|
September 30, 2018 |
| |
AverageBalance |
|
InterestEarned/Paid |
|
AverageYield/Rate |
|
AverageBalance |
|
InterestEarned/Paid |
|
AverageYield/Rate |
|
Average Balance |
|
Interest Earned/ Paid |
|
Average Yield/ Rate |
| Interest earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments(1) |
$ |
263,219 |
|
|
$ |
1,465 |
|
|
2.21 |
% |
|
$ |
269,980 |
|
|
$ |
1,620 |
|
|
2.41 |
% |
|
$ |
209,805 |
|
|
$ |
1,055 |
|
|
1.99 |
% |
|
Securities available for sale and stock(2) |
|
35,105 |
|
|
257 |
|
|
2.90 |
% |
|
|
36,880 |
|
|
260 |
|
|
2.83 |
% |
|
|
38,409 |
|
|
|
265 |
|
|
2.74 |
% |
|
Loans(3) |
|
1,097,646 |
|
|
15,045 |
|
|
5.44 |
% |
|
|
1,062,228 |
|
|
14,586 |
|
|
5.51 |
% |
|
|
1,050,264 |
|
|
|
13,898 |
|
|
5.25 |
% |
|
Total interest-earning assets |
|
1,395,970 |
|
|
16,767 |
|
|
4.77 |
% |
|
|
1,369,088 |
|
|
16,466 |
|
|
4.82 |
% |
|
|
1,298,478 |
|
|
|
15,218 |
|
|
4.65 |
% |
| Noninterest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
16,551 |
|
|
|
|
|
|
|
15,573 |
|
|
|
|
|
|
|
14,711 |
|
|
|
|
|
|
All other assets |
|
25,295 |
|
|
|
|
|
|
|
26,052 |
|
|
|
|
|
|
|
17,459 |
|
|
|
|
|
| Total assets |
$ |
1,437,816 |
|
|
|
|
|
$ |
1,410,713 |
|
|
|
|
|
$ |
1,330,648 |
|
|
|
|
| Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing checking accounts |
$ |
111,614 |
|
|
163 |
|
|
0.58 |
% |
|
$ |
108,530 |
|
|
181 |
|
|
0.67 |
% |
|
$ |
66,799 |
|
|
|
86 |
|
|
0.51 |
% |
|
Money market and savings accounts |
|
432,397 |
|
|
1,904 |
|
|
1.75 |
% |
|
|
460,935 |
|
|
2,106 |
|
|
1.83 |
% |
|
|
421,562 |
|
|
|
1,764 |
|
|
1.66 |
% |
|
Certificates of deposit |
|
259,830 |
|
|
1,562 |
|
|
2.39 |
% |
|
|
261,721 |
|
|
1,466 |
|
|
2.25 |
% |
|
|
299,305 |
|
|
|
1,321 |
|
|
1.75 |
% |
|
Other borrowings |
|
28,804 |
|
|
177 |
|
|
2.44 |
% |
|
|
40,220 |
|
|
262 |
|
|
2.61 |
% |
|
|
27,935 |
|
|
|
138 |
|
|
1.96 |
% |
|
Junior subordinated debentures |
|
17,527 |
|
|
218 |
|
|
4.93 |
% |
|
|
17,527 |
|
|
232 |
|
|
5.31 |
% |
|
|
17,527 |
|
|
|
220 |
|
|
4.98 |
% |
|
Total interest bearing liabilities |
|
850,172 |
|
|
4,024 |
|
|
1.88 |
% |
|
|
888,933 |
|
|
4,247 |
|
|
1.92 |
% |
|
|
833,128 |
|
|
|
3,529 |
|
|
1.68 |
% |
| Noninterest bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Demand deposits |
|
421,524 |
|
|
|
|
|
|
|
360,597 |
|
|
|
|
|
|
|
353,635 |
|
|
|
|
|
| Accrued expenses and other liabilities |
|
17,739 |
|
|
|
|
|
|
|
16,544 |
|
|
|
|
|
|
|
9,292 |
|
|
|
|
|
| Shareholders' equity |
|
148,381 |
|
|
|
|
|
|
|
144,639 |
|
|
|
|
|
|
|
134,593 |
|
|
|
|
|
| Total liabilities and shareholders' equity |
$ |
1,437,816 |
|
|
|
|
|
$ |
1,410,713 |
|
|
|
|
|
$ |
1,330,648 |
|
|
|
|
| Net interest income |
|
|
$ |
12,743 |
|
|
|
|
|
|
$ |
12,219 |
|
|
|
|
|
|
$ |
11,689 |
|
|
| Net interest income/spread |
|
|
|
|
2.89 |
% |
|
|
|
|
|
2.90 |
% |
|
|
|
|
|
2.97 |
% |
| Net interest margin |
|
|
|
|
3.62 |
% |
|
|
|
|
|
3.58 |
% |
|
|
|
|
|
3.57 |
% |
____________________(1) Short-term investments consist of
federal funds sold and interest bearing deposits that we maintain
at other financial institutions.(2) Stock consists of FHLB
stock and Federal Reserve Bank of San Francisco stock.(3)
Loans include the average balance of nonaccrual loans.
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Nine Months
Ended |
| |
September 30, 2019 |
|
September 30, 2018 |
| |
AverageBalance |
|
InterestEarned/Paid |
|
AverageYield/Rate |
|
AverageBalance |
|
InterestEarned/Paid |
|
AverageYield/Rate |
| Interest earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments(1) |
$ |
253,058 |
|
|
$ |
4,439 |
|
|
2.35 |
% |
|
$ |
194,302 |
|
|
$ |
2,615 |
|
|
1.80 |
% |
|
Securities available for sale and stock(2) |
37,047 |
|
|
808 |
|
|
2.92 |
% |
|
39,987 |
|
|
801 |
|
|
2.68 |
% |
|
Loans(3) |
1,080,278 |
|
|
44,152 |
|
|
5.46 |
% |
|
1,067,399 |
|
|
42,731 |
|
|
5.35 |
% |
|
Total interest-earning assets |
1,370,383 |
|
|
49,399 |
|
|
4.82 |
% |
|
1,301,688 |
|
|
46,147 |
|
|
4.74 |
% |
| Noninterest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
15,741 |
|
|
|
|
|
|
15,717 |
|
|
|
|
|
|
All other assets |
26,845 |
|
|
|
|
|
|
12,547 |
|
|
|
|
|
| Total assets |
1,412,969 |
|
|
|
|
|
|
1,329,952 |
|
|
|
|
|
| Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing checking accounts |
$ |
105,265 |
|
|
$ |
505 |
|
|
0.64 |
% |
|
$ |
69,363 |
|
|
$ |
263 |
|
|
0.51 |
% |
|
Money market and savings accounts |
450,342 |
|
|
6,123 |
|
|
1.82 |
% |
|
401,993 |
|
|
4,418 |
|
|
1.47 |
% |
|
Certificates of deposit |
264,557 |
|
|
4,377 |
|
|
2.21 |
% |
|
327,873 |
|
|
4,050 |
|
|
1.65 |
% |
|
Other borrowings |
36,300 |
|
|
698 |
|
|
2.57 |
% |
|
34,932 |
|
|
475 |
|
|
1.82 |
% |
|
Junior subordinated debentures |
17,527 |
|
|
684 |
|
|
5.22 |
% |
|
17,527 |
|
|
620 |
|
|
4.73 |
% |
|
Total interest bearing liabilities |
873,991 |
|
|
12,387 |
|
|
1.89 |
% |
|
851,688 |
|
|
9,826 |
|
|
1.54 |
% |
| Noninterest bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
| Demand deposits |
374,713 |
|
|
|
|
|
|
344,090 |
|
|
|
|
|
| Accrued expenses and other liabilities |
18,837 |
|
|
|
|
|
|
10,230 |
|
|
|
|
|
| Shareholders' equity |
145,428 |
|
|
|
|
|
|
123,944 |
|
|
|
|
|
| Total liabilities and shareholders' equity |
1,412,969 |
|
|
|
|
|
|
1,329,952 |
|
|
|
|
|
| Net interest income |
|
|
$ |
37,012 |
|
|
|
|
|
|
$ |
36,321 |
|
|
|
| Net interest income/spread |
|
|
|
|
2.93 |
% |
|
|
|
|
|
3.20 |
% |
| Net interest margin |
|
|
|
|
3.61 |
% |
|
|
|
|
|
3.73 |
% |
____________________(1) Short-term investments consist of
federal funds sold and interest bearing deposits that we maintain
at other financial institutions.(2) Stock consists of FHLB
stock and Federal Reserve Bank of San Francisco stock.(3)
Loans include the average balance of nonaccrual loans.
For more information contactCurt Christianssen, Chief Financial
Officer, 714-438-2500
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