Third Quarter Summary
Pacific Mercantile Bancorp (NASDAQ:PMBC), the holding company of
Pacific Mercantile Bank (the “Bank”), a wholly owned banking
subsidiary, and PM Asset Resolution, Inc. (“PMAR”), a wholly owned
non-bank subsidiary, today reported its financial results for the
three and nine months ended September 30, 2017.
For the third quarter of 2017, the Company
reported net income of $3.8 million, or $0.16 per share. This
compares with net income of $2.5 million, or $0.11 per share, in
the second quarter of 2017, and a net loss of $30.5 million, or
$1.33 per share, in the third quarter of 2016. The increase in net
income, as compared to the three months ended June 30, 2017, is
primarily attributable to an increase in net interest income.
The increase in net interest income is a result of a higher average
loan balance for the three months ended September 30, 2017 as
compared to the three months ended June 30, 2017 and the recovery
of $1.1 million in interest income on one loan relationship that
paid off during the quarter which was on nonaccrual status.
Commenting on the results, Tom Vertin, President
& CEO of Pacific Mercantile Bancorp, said, “We delivered
another quarter of improved profitability driven by higher revenue,
greater operating efficiencies and notable improvement in asset
quality. We continue to add new operating companies to our
client base, although our overall level of balance sheet growth in
the third quarter was impacted by payoffs of non-performing loans,
seasonal paydowns in lines and seasonal use of funds by a number of
our depositors. We have a very healthy pipeline that we
believe should result in a higher level of client acquisition in
the fourth quarter. As we continue to add quality assets and
drive additional operating leverage, we anticipate further
improvement in our level of profitability.”
Results of Operations
The following table shows our operating results
for the three and nine months ended September 30, 2017, as
compared to the three months ended June 30, 2017 and the three
and nine months ended September 30, 2016. The discussion below
highlights the key factors contributing to the changes shown in the
following table.
|
Three Months Ended |
|
Nine Months Ended September 30, |
|
September 30, 2017 |
|
June 30, 2017 |
|
September 30, 2016 |
|
2017 |
|
2016 |
|
($ in thousands) |
Total interest
income |
$ |
14,025 |
|
|
$ |
12,132 |
|
|
$ |
10,598 |
|
|
$ |
37,761 |
|
|
$ |
30,388 |
|
Total interest
expense |
2,020 |
|
|
1,736 |
|
|
1,409 |
|
|
5,289 |
|
|
4,015 |
|
Net interest
income |
12,005 |
|
|
10,396 |
|
|
9,189 |
|
|
32,472 |
|
|
26,373 |
|
Provision for loan and
lease losses |
— |
|
|
— |
|
|
10,730 |
|
|
— |
|
|
19,870 |
|
Total noninterest
income |
964 |
|
|
1,431 |
|
|
1,054 |
|
|
3,364 |
|
|
2,671 |
|
Total noninterest
expense |
9,176 |
|
|
9,262 |
|
|
9,687 |
|
|
27,649 |
|
|
27,135 |
|
Income tax
provision |
37 |
|
|
64 |
|
|
20,352 |
|
|
150 |
|
|
16,991 |
|
Net income (loss) |
$ |
3,756 |
|
|
$ |
2,501 |
|
|
$ |
(30,526 |
) |
|
$ |
8,037 |
|
|
$ |
(34,952 |
) |
Net Interest Income
Q3 2017 vs Q2 2017. Net
interest income increased $1.6 million, or 15.5%, for the three
months ended September 30, 2017 as compared to the three
months ended June 30, 2017 primarily as a result of:
- An increase in interest income of $1.9 million, or 15.6%,
primarily attributable to an increase in interest earned on loans
as a result of a higher average balance and an increase in the
average yield on loans during the three months ended
September 30, 2017 as compared to the three months ended
June 30, 2017 and the recovery of $1.1 million in interest
income on one loan relationship that paid off during the quarter
which was on nonaccrual status; partially offset by
- An increase in interest expense of $284 thousand, or 16.4%,
primarily attributable to an increase in the volume of and rates of
interest paid on our deposits for the three months ended
September 30, 2017 as compared to the three months ended
June 30, 2017, which was primarily the result of our decision
to increase the rate of interest paid on our certificates of
deposit to increase our liquidity.
Our net interest margin increased to 4.06% for
the three months ended September 30, 2017 as compared to 3.63%
for the three months ended June 30, 2017 primarily as a result
of a favorable shift in the mix of interest-earning assets for the
three months ended September 30, 2017 as compared to the three
months ended June 30, 2017 and the recovery of $1.1 million in
interest income on one loan relationship that paid off during the
quarter which was on nonaccrual status.
Q3 2017 vs Q3 2016. Net
interest income increased $2.8 million, or 30.6%, for the three
months ended September 30, 2017 as compared to the three
months ended September 30, 2016 primarily as a result of:
- An increase in interest income of $3.4 million, or 32.3%,
primarily attributable to an increase in interest earned on loans
as a result of a higher average balance and an increase in the
average yield on loans for the three months ended
September 30, 2017 as compared to the three months ended
September 30, 2016 and the recovery of $1.1 million in
interest income on one loan relationship that paid off during the
quarter which was on nonaccrual status; partially offset by
- An increase in interest expense of $611 thousand, or 43.4%,
primarily attributable to an increase in the volume of and rates of
interest paid on our deposits for the three months ended
September 30, 2017 as compared to the three months ended
September 30, 2016 due to new client acquisition and the
actions of the Federal Reserve Board to raise short-term interest
rates by 75 basis points since the fourth quarter of 2016.
YTD 2017 vs YTD 2016. Net
interest income increased $6.1 million, or 23.1%, for the nine
months ended September 30, 2017 as compared to the nine months
ended September 30, 2016, primarily as a result of:
- An increase in interest income of $7.4 million, or 24.3%,
primarily attributable to an increase in interest earned on loans
as a result of a higher average loan balance and an increase in the
average yield on loans for the nine months ended September 30,
2017 as compared to the nine months ended September 30, 2016
and the recovery of $1.1 million in interest income on one loan
relationship that paid off during the quarter which was on
nonaccrual status; partially offset by
- An increase in interest expense of $1.3 million, or 31.7%,
primarily attributable to an increase in the volume of and rates of
interest paid on our deposits for the nine months ended
September 30, 2017 as compared to the nine months ended
September 30, 2016 due to new client acquisition and the
actions of the Federal Reserve Board to raise short-term interest
rates by 75 basis points since the fourth quarter of 2016.
Provision for Loan and Lease
Losses
Q3 2017 vs Q2 2017. We recorded
no provision for loan and lease losses during either the three
months ended September 30, 2017 or June 30, 2017 due
primarily to reserves for new loans being offset by a decline in
the level of classified assets. During the three months ended
September 30, 2017, we had net charge-offs of $2.1 million,
compared with net recoveries of $384 thousand for the three months
ended June 30, 2017.
Q3 2017 vs Q3 2016. We
recorded no provision for loan and lease losses during the three
months ended September 30, 2017, as compared to a provision
for loan and lease losses of $10.7 million recorded during the
three months ended September 30, 2016. There was no
provision for the third quarter of 2017 due primarily to reserves
for new loan growth being offset by a decline in the level of
classified assets. We recorded a $10.7 million provision for loan
and lease losses in the third quarter of 2016 due to downgrades and
charge-offs on loans that exceeded recoveries during the third
quarter of 2016.
YTD 2017 vs YTD 2016. We
recorded no provision for loan and lease losses during the nine
months ended September 30, 2017 as compared to a provision for
loan and lease losses of $19.9 million recorded during the nine
months ended September 30, 2016. We recorded no provision for
loan and lease losses during the nine months ended
September 30, 2017 due primarily to reserves for new loan
growth being offset by a decline in the level of classified assets.
We recorded a provision for loan and lease losses of $19.9 million
for the nine months ended September 30, 2016 primarily as a
result of new loan growth and downgrades and charge-offs on several
loans that exceeded recoveries during the nine months ended
September 30, 2016.
Noninterest Income
Q3 2017 vs Q2 2017. Noninterest
income decreased $467 thousand, or 32.6%, for the three months
ended September 30, 2017 as compared to the three months ended
June 30, 2017, primarily resulting from the recovery of
appraisal fees and legal expenses related to a problem loan that
paid off during the second quarter of 2017.
Q3 2017 vs Q3 2016. Noninterest
income decreased by $90 thousand, or 8.5%, for the three months
ended September 30, 2017 as compared to the three months ended
September 30, 2016, primarily as a result of $340 thousand in
recoveries during the third quarter of 2016 that exceeded the
amount previously charged off against the allowance for loan and
lease losses (“ALLL”), which was partially offset by an increase in
loan servicing and referral fees during the third quarter of
2017.
YTD 2017 vs YTD 2016.
Noninterest income increased $693 thousand, or 25.9%, for the nine
months ended September 30, 2017 as compared to the nine months
ended September 30, 2016, primarily as a result of:
- The recovery of $373 thousand in recoveries during the second
quarter of 2017 that exceeded the amount previously charged off
against the ALLL; and
- An increase in loan servicing and referral fees during the nine
months ended September 30, 2017 as compared to the same period
in 2016; partially offset by
- A decrease of $40 thousand in net gain on sale of small
business administration loans for the nine months ended
September 30, 2017 as compared to the same period in
2016.
Noninterest Expense
Q3 2017 vs Q2 2017. Noninterest
expense decreased $86 thousand, or 0.9%, for the three months ended
September 30, 2017 as compared to the three months ended
June 30, 2017, primarily as a result of a decrease in our
loan-related expenses, which was partially offset by an increase in
our salary expense during the third quarter of 2017.
Q3 2017 vs Q3 2016. Noninterest
expense decreased $511 thousand, or 5.3%, for the three months
ended September 30, 2017 as compared to the three months ended
September 30, 2016, primarily as a result of:
- A decrease of $152 thousand in our professional fees primarily
related to lower accounting fees in 2017;
- A decrease of $157 thousand in loan-related expenses as a
result of the reversal of our mortgage repurchase reserve; and
- A decrease of $135 thousand in occupancy expenses as a result
of moving costs incurred in the prior year period associated with
the transition of a few of our locations from full-service branches
to loan production offices, which expenses were not incurred during
the three months ended September 30, 2017.
YTD 2017 vs YTD 2016.
Noninterest expense increased $514 thousand, or 1.9%, for the nine
months ended September 30, 2017 as compared to the nine months
ended September 30, 2016, primarily as a result of an increase
of $665 thousand in our professional fees attributable to an
increase in accounting and legal fees during the nine months ended
September 30, 2017.
Income tax provision
(benefit)
For the three and nine months ended
September 30, 2017, we had income tax expense of $37 thousand
and $150 thousand, respectively. The income tax expense for the
three and nine months ended September 30, 2017 represents the
payment to the State of California for the cost of doing business
within the state and an estimated alternative minimum tax payment.
No additional income tax expense was recorded as a result of our
net operating loss carryforward. 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 to be carried forward for 20
years from the date of the loss, and while 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, we
are unable to assert the timing as to when that realization will
occur. Due to the hierarchy of evidence that the accounting
rules specify, management determined that the valuation allowance
of $21.7 million that was previously established on the balance of
our deferred tax asset was still required at September 30,
2017.
For the three and nine months ended
September 30, 2016, we had income tax expense of $20.4 million
and $17.0 million, respectively, as a result of the establishment
of a full valuation allowance during the three months ended
September 30, 2016 on the balance of our deferred tax asset, which
includes current and historical losses that may be used to offset
taxes on future profits. Negative evidence included the significant
losses incurred during the second and third quarters of 2016, an
increase in our nonperforming assets from December 31, 2015 to
September 30, 2016, a cumulative three-year loss position, and our
accumulated deficit. Positive evidence included our forecast of our
taxable income, the time period in which we have to utilize our
deferred tax asset and the current economic conditions. While
management believed that the Company would be able to realize the
deferred tax asset within the period that our net operating losses
may be carried forward, we were unable to assert the timing as to
when that realization would occur. As a result of this conclusion
and due to the hierarchy of evidence that the accounting rules
specify, a valuation allowance was recorded as of September 30,
2016 to offset the deferred tax asset.
Balance Sheet Information
Loans
As indicated in the table below, at
September 30, 2017 gross loans totaled approximately $1.0
billion, which represented a decrease of $2.2 million, or 0.2%,
compared to gross loans outstanding at June 30, 2017, and an
increase of $93.5 million, or 9.9%, compared to gross loans
outstanding at December 31, 2016. The following table sets forth
the composition, by loan category, of our loan portfolio at
September 30, 2017, June 30, 2017 and December 31,
2016.
|
September 30, 2017 |
|
June 30, 2017 |
|
December 31, 2016 |
|
Amount |
|
Percent of Total Loans |
|
Amount |
|
Percent of Total Loans |
|
Amount |
|
Percent of Total Loans |
|
($ in thousands) |
Commercial loans |
$ |
364,242 |
|
|
35.0 |
% |
|
$ |
366,259 |
|
|
35.1 |
% |
|
$ |
333,376 |
|
|
35.2 |
% |
Commercial real estate
loans - owner occupied |
211,514 |
|
|
20.3 |
% |
|
209,724 |
|
|
20.1 |
% |
|
214,420 |
|
|
22.7 |
% |
Commercial real estate
loans - all other |
235,319 |
|
|
22.6 |
% |
|
240,653 |
|
|
23.1 |
% |
|
173,223 |
|
|
18.3 |
% |
Residential mortgage
loans - multi-family |
123,698 |
|
|
11.9 |
% |
|
126,061 |
|
|
12.1 |
% |
|
130,930 |
|
|
13.8 |
% |
Residential mortgage
loans - single family |
27,983 |
|
|
2.7 |
% |
|
30,678 |
|
|
2.9 |
% |
|
34,527 |
|
|
3.6 |
% |
Construction and land
development loans |
28,461 |
|
|
2.7 |
% |
|
21,601 |
|
|
2.1 |
% |
|
18,485 |
|
|
2.0 |
% |
Consumer loans |
48,801 |
|
|
4.7 |
% |
|
47,243 |
|
|
4.5 |
% |
|
41,563 |
|
|
4.4 |
% |
Gross loans |
$ |
1,040,018 |
|
|
100.0 |
% |
|
$ |
1,042,219 |
|
|
100.0 |
% |
|
$ |
946,524 |
|
|
100.0 |
% |
The decrease of $2.2 million in gross loans
during the third quarter of 2017 was primarily a result of $30.4
million in payoffs, which included $9.5 million of loans that were
previously on nonaccrual status, partially offset by new loan
growth during the same period. During the third quarter of 2017, we
secured new commercial loan commitments of $49.0 million, of which
$32.7 million were funded at September 30, 2017. Our total
commercial loan commitments increased to $614.1 million at
September 30, 2017 from $587.8 million at June 30, 2017, while the
utilization rate of commercial commitments increased to 59.4% at
September 30, 2017 from 59.3% at June 30, 2017.
Deposits
|
September 30, 2017 |
|
June 30, 2017 |
|
December 31, 2016 |
Type of
Deposit |
($ in thousands) |
Noninterest-bearing checking accounts |
$ |
320,248 |
|
|
$ |
343,956 |
|
|
$ |
332,573 |
|
Interest-bearing checking accounts |
92,467 |
|
|
103,136 |
|
|
75,366 |
|
Money
market and savings deposits |
314,002 |
|
|
328,469 |
|
|
335,453 |
|
Certificates of deposit |
327,803 |
|
|
291,143 |
|
|
257,908 |
|
Totals |
$ |
1,054,520 |
|
|
$ |
1,066,704 |
|
|
$ |
1,001,300 |
|
The decrease in our total deposits from
June 30, 2017 to September 30, 2017 is primarily
attributable to a decrease of $34.4 million in our checking
accounts and a decrease of $14.5 million in money market and
savings deposits, partially offset by an increase of $36.7 million
in our certificates of deposit. The increase in our certificates of
deposit is primarily the result of our decision to increase the
rate of interest paid on our certificates of deposit to increase
our liquidity. As a result of the aforementioned increase in
certificates of deposits, lower priced core deposits decreased to
69% of total deposits, while higher priced certificates of deposit
increased to 31% at September 30, 2017, as compared to 73% and
27% of total deposits, respectively, at June 30, 2017.
Asset Quality
Nonperforming Assets
|
2017 |
|
2016 |
September 30 |
|
June 30 |
|
March 31 |
|
December 31 |
|
September 30 |
|
($ in thousands) |
Total non-performing
loans |
$ |
10,279 |
|
|
$ |
22,393 |
|
|
$ |
25,659 |
|
|
$ |
24,897 |
|
|
$ |
27,079 |
|
Other non-performing
assets |
95 |
|
|
181 |
|
|
58 |
|
|
— |
|
|
— |
|
Total non-performing
assets |
$ |
10,374 |
|
|
$ |
22,574 |
|
|
$ |
25,717 |
|
|
$ |
24,897 |
|
|
$ |
27,079 |
|
90-day past due
loans |
$ |
2,212 |
|
|
$ |
12,261 |
|
|
$ |
15,838 |
|
|
$ |
14,949 |
|
|
$ |
9,674 |
|
Total classified
assets |
$ |
19,116 |
|
|
$ |
31,623 |
|
|
$ |
37,114 |
|
|
$ |
53,901 |
|
|
$ |
68,489 |
|
Allowance for loan and
lease losses |
$ |
15,048 |
|
|
$ |
17,178 |
|
|
$ |
16,794 |
|
|
$ |
16,801 |
|
|
$ |
16,642 |
|
Allowance for loan and
lease losses /gross loans |
1.45 |
% |
|
1.65 |
% |
|
1.77 |
% |
|
1.78 |
% |
|
1.91 |
% |
Allowance for loan and
lease losses /total assets |
1.25 |
% |
|
1.42 |
% |
|
1.42 |
% |
|
1.47 |
% |
|
1.55 |
% |
Ratio of allowance for
loan and lease losses to nonperforming loans |
146.40 |
% |
|
76.71 |
% |
|
65.45 |
% |
|
67.48 |
% |
|
61.46 |
% |
Ratio of nonperforming
assets to total assets |
0.86 |
% |
|
1.86 |
% |
|
2.18 |
% |
|
2.18 |
% |
|
2.52 |
% |
Net quarterly
charge-offs (recoveries) to gross loans |
0.20 |
% |
|
(0.04 |
)% |
|
— |
% |
|
(0.02 |
)% |
|
0.86 |
% |
Nonperforming assets at September 30, 2017
decreased $12.2 million from June 30, 2017 primarily as a
result of a decrease in non-performing loans in the third quarter
of 2017. The decrease in our non-performing loans resulted
primarily from $9.8 million of payoffs or paydowns on our
nonaccrual loans, upgrades of $711 thousand, charge-offs of $1.9
million, and the transfer of $37 thousand to other foreclosed
assets, partially offset by the addition of one new loan totaling
$393 thousand during the three months ended September 30, 2017.
Our classified assets decreased by $12.5 million
from $31.6 million at June 30, 2017 to $19.1 million at September
30, 2017. The decrease is primarily related to principal
payments of $10.0 million, upgrades of $2.4 million and charge-offs
of $2.3 million during the three months ended September 30, 2017,
partially offset by $2.2 million of additions during the same
period.
During the three months ended September 30,
2016, the Company downgraded $48 million in loans as part of a
comprehensive credit review. During the year subsequent to
September 30, 2016, the Company has received $33.7 million in
principal payments, net of advances, on these loans, $5.5 million
in loan upgrades have been made and $1.6 million in charge-offs,
accounting for 85% of the total amount of loans downgraded during
the third quarter of 2016. These loan upgrades were reviewed and
confirmed by third parties during the first half of 2017. The
Company anticipates the progress on the remaining $7.2 million in
loan downgrades taken in the third quarter of 2016 to be reflected
in our results in future reporting periods, and cannot predict the
timing as to when these credits will be resolved.
Allowance for loan and lease losses
|
2017 |
|
2016 |
September 30 |
|
June 30 |
|
March 31 |
|
December 31 |
|
September 30 |
|
($ in thousands) |
Balance at beginning of
quarter |
$ |
17,178 |
|
|
$ |
16,794 |
|
|
$ |
16,801 |
|
|
$ |
16,642 |
|
|
$ |
13,429 |
|
Charge
offs |
(2,275 |
) |
|
(556 |
) |
|
(456 |
) |
|
(113 |
) |
|
(7,723 |
) |
Recoveries |
145 |
|
|
940 |
|
|
449 |
|
|
272 |
|
|
206 |
|
Provision |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
10,730 |
|
Balance at end of
quarter |
$ |
15,048 |
|
|
$ |
17,178 |
|
|
$ |
16,794 |
|
|
$ |
16,801 |
|
|
$ |
16,642 |
|
At September 30, 2017, the ALLL totaled
$15.0 million, which was approximately $2.1 million less than at
June 30, 2017 and $1.6 million less than at September 30,
2016. The ALLL activity during the three months ended
September 30, 2017 included net charge-offs of $2.1 million.
There was no provision for loan and lease losses during the period,
primarily attributable to reserves for new loans being offset by a
decline in classified assets. Of the $2.3 million in gross
charge-offs during the three months ended September 30, 2017,
$1.6 million related to one loan relationship that was previously
on nonaccrual status. The ratio of the ALLL-to-total loans
outstanding as of September 30, 2017 was 1.45% as compared to
1.65% and 1.91% as of June 30, 2017 and September 30,
2016, respectively.
Capital Resources
At September 30, 2017, we had total
regulatory capital on a consolidated basis of $142.4 million, and
the Bank had total regulatory capital of $134.4 million. The
ratio of the Bank’s total capital-to-risk weighted assets, which is
the principal federal bank regulatory measure of the financial
strength of banking institutions, was 11.6% and, as a result, the
Bank continued to be classified, under federal bank regulatory
guidelines, as a “well-capitalized” banking institution, which is
the highest of the capital standards established by federal banking
regulatory authorities.
The following table sets forth the regulatory
capital and capital ratios of the Company (on a consolidated basis)
and the Bank (on a stand-alone basis) at September 30, 2017,
as compared to the regulatory requirements that must be met for a
banking institution to be rated as a well-capitalized
institution.
|
ActualAt September 30,
2017 |
|
Federal Regulatory
Requirementto be Rated
Well-Capitalized |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
($ in thousands) |
Total Capital to Risk
Weighted Assets: |
|
|
|
|
|
|
|
Company |
$ |
142,421 |
|
|
12.2 |
% |
|
N/A |
|
N/A |
Bank |
134,355 |
|
|
11.6 |
% |
|
$ |
116,371 |
|
At least 10.0 |
Common Equity Tier 1
Capital to Risk Weighted Assets: |
|
|
|
|
|
|
|
Company |
$ |
110,839 |
|
|
9.5 |
% |
|
N/A |
|
N/A |
Bank |
119,799 |
|
|
10.3 |
% |
|
$ |
75,641 |
|
At
least 6.5 |
Tier 1 Capital to Risk
Weighted Assets: |
|
|
|
|
|
|
|
Company |
$ |
127,839 |
|
|
11.0 |
% |
|
N/A |
|
N/A |
Bank |
119,799 |
|
|
10.3 |
% |
|
$ |
93,096 |
|
At least 8.0 |
Tier 1 Capital to
Average Assets: |
|
|
|
|
|
|
|
Company |
$ |
127,839 |
|
|
10.8 |
% |
|
N/A |
|
N/A |
Bank |
119,799 |
|
|
10.2 |
% |
|
$ |
58,967 |
|
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 nine
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 that we will not
succeed in further reducing our remaining 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, 2016, which is on file with the Securities and
Exchange Commission (“SEC”) and will be set forth in our Quarterly
Report on Form 10-Q for the three months ended September 30, 2017,
which we expect to file with the SEC during the fourth quarter of
2017.
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, 2017 |
|
June 30, 2017 |
|
September 30, 2016 |
|
Sep '17 vs Jun '17%
Change |
|
Sep '17 vs Sep '16 % Change |
|
September 30, 2017 |
|
September 30, 2016 |
|
% Change |
Total interest
income |
$ |
14,025 |
|
|
$ |
12,132 |
|
|
$ |
10,598 |
|
|
15.6 |
% |
|
32.3 |
% |
|
$ |
37,761 |
|
|
$ |
30,388 |
|
|
24.3 |
% |
Total interest
expense |
2,020 |
|
|
1,736 |
|
|
1,409 |
|
|
16.4 |
% |
|
43.4 |
% |
|
5,289 |
|
|
4,015 |
|
|
31.7 |
% |
Net
interest income |
12,005 |
|
|
10,396 |
|
|
9,189 |
|
|
15.5 |
% |
|
30.6 |
% |
|
32,472 |
|
|
26,373 |
|
|
23.1 |
% |
Provision for loan and
lease losses |
— |
|
|
— |
|
|
10,730 |
|
|
— |
% |
|
(100.0 |
)% |
|
— |
|
|
19,870 |
|
|
(100.0 |
)% |
Net
interest income (loss) after provision for loan and lease
losses |
12,005 |
|
|
10,396 |
|
|
(1,541 |
) |
|
15.5 |
% |
|
(879.0 |
)% |
|
32,472 |
|
|
6,503 |
|
|
399.3 |
% |
Non-interest
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
fees on deposits and other banking services |
346 |
|
|
332 |
|
|
279 |
|
|
4.2 |
% |
|
24.0 |
% |
|
985 |
|
|
801 |
|
|
23.0 |
% |
Net gain
on sale of small business administration loans |
— |
|
|
— |
|
|
— |
|
|
— |
% |
|
— |
% |
|
— |
|
|
40 |
|
|
(100.0 |
)% |
Net
(loss) gain on sale of other assets |
(16 |
) |
|
— |
|
|
— |
|
|
(100.0 |
)% |
|
(100.0 |
)% |
|
(14 |
) |
|
— |
|
|
(100.0 |
)% |
Other
non-interest income |
634 |
|
|
1,099 |
|
|
775 |
|
|
(42.3 |
)% |
|
(18.2 |
)% |
|
2,393 |
|
|
1,830 |
|
|
30.8 |
% |
Total non-interest
income |
964 |
|
|
1,431 |
|
|
1,054 |
|
|
(32.6 |
)% |
|
(8.5 |
)% |
|
3,364 |
|
|
2,671 |
|
|
25.9 |
% |
Non-interest
expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
5,796 |
|
|
5,662 |
|
|
5,727 |
|
|
2.4 |
% |
|
1.2 |
% |
|
17,171 |
|
|
16,920 |
|
|
1.5 |
% |
Occupancy
and equipment |
1,089 |
|
|
1,054 |
|
|
1,296 |
|
|
3.3 |
% |
|
(16.0 |
)% |
|
3,206 |
|
|
3,706 |
|
|
(13.5 |
)% |
Professional Fees |
958 |
|
|
1,032 |
|
|
1,110 |
|
|
(7.2 |
)% |
|
(13.7 |
)% |
|
3,100 |
|
|
2,435 |
|
|
27.3 |
% |
OREO
expenses |
— |
|
|
— |
|
|
— |
|
|
— |
% |
|
— |
% |
|
— |
|
|
(70 |
) |
|
(100.0 |
)% |
FDIC
Expense |
294 |
|
|
262 |
|
|
229 |
|
|
12.2 |
% |
|
28.4 |
% |
|
859 |
|
|
675 |
|
|
27.3 |
% |
Other
non-interest expense |
1,039 |
|
|
1,252 |
|
|
1,325 |
|
|
(17.0 |
)% |
|
(21.6 |
)% |
|
3,313 |
|
|
3,469 |
|
|
(4.5 |
)% |
Total non-interest
expense |
9,176 |
|
|
9,262 |
|
|
9,687 |
|
|
(0.9 |
)% |
|
(5.3 |
)% |
|
27,649 |
|
|
27,135 |
|
|
1.9 |
% |
Income
(loss) before income taxes |
3,793 |
|
|
2,565 |
|
|
(10,174 |
) |
|
47.9 |
% |
|
(137.3 |
)% |
|
8,187 |
|
|
(17,961 |
) |
|
(145.6 |
)% |
Income tax expense |
37 |
|
|
64 |
|
|
20,352 |
|
|
(42.2 |
)% |
|
(99.8 |
)% |
|
150 |
|
|
16,991 |
|
|
(99.1 |
)% |
Net income (loss) |
$ |
3,756 |
|
|
$ |
2,501 |
|
|
$ |
(30,526 |
) |
|
50.2 |
% |
|
(112.3 |
)% |
|
$ |
8,037 |
|
|
$ |
(34,952 |
) |
|
(123.0 |
)% |
Basic income per common
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) available to common shareholders |
$ |
0.16 |
|
|
$ |
0.11 |
|
|
$ |
(1.33 |
) |
|
45.5 |
% |
|
(112.0 |
)% |
|
$ |
0.35 |
|
|
$ |
(1.52 |
) |
|
(123.0 |
)% |
Diluted income per
common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) available to common shareholders |
$ |
0.16 |
|
|
$ |
0.11 |
|
|
$ |
(1.33 |
) |
|
45.5 |
% |
|
(112.0 |
)% |
|
$ |
0.35 |
|
|
$ |
(1.52 |
) |
|
(123.0 |
)% |
Weighted average number
of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
23,193 |
|
|
23,187 |
|
|
22,996 |
|
|
— |
% |
|
0.9 |
% |
|
23,173 |
|
|
22,944 |
|
|
1.0 |
% |
Diluted |
23,331 |
|
|
23,296 |
|
|
22,996 |
|
|
0.2 |
% |
|
1.5 |
% |
|
23,290 |
|
|
22,944 |
|
|
1.5 |
% |
Ratios from
continuing operations(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on
average assets |
1.26 |
% |
|
0.86 |
% |
|
(10.66 |
)% |
|
|
|
|
|
0.93 |
% |
|
(4.24 |
)% |
|
|
Return on
average equity |
13.82 |
% |
|
9.60 |
% |
|
(92.18 |
)% |
|
|
|
|
|
10.22 |
% |
|
(34.80 |
)% |
|
|
Efficiency ratio |
70.75 |
% |
|
78.31 |
% |
|
94.57 |
% |
|
|
|
|
|
77.15 |
% |
|
93.43 |
% |
|
|
____________________
(1) Ratios and net interest margin for the three and nine months
ended September 30, 2017, June 30, 2017 and
September 30, 2016 have been annualized.
CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION |
(Dollars in thousands, except share and book
value data) |
(Unaudited) |
|
ASSETS |
September 30, 2017 |
|
December 31, 2016 |
|
Increase/ (Decrease) |
|
|
|
|
Cash and due from
banks |
$ |
15,186 |
|
|
$ |
16,789 |
|
|
(9.5 |
)% |
|
Interest bearing
deposits with financial institutions(1) |
92,687 |
|
|
122,056 |
|
|
(24.1 |
)% |
|
Interest bearing time
deposits |
3,419 |
|
|
3,669 |
|
|
(6.8 |
)% |
|
Investment securities
(including stock) |
49,725 |
|
|
51,650 |
|
|
(3.7 |
)% |
|
Loans (net of
allowances of $15,048 and $16,801, respectively) |
1,027,896 |
|
|
931,525 |
|
|
10.3 |
% |
|
Other assets |
16,048 |
|
|
15,000 |
|
|
7.0 |
% |
|
Total
assets |
$ |
1,204,961 |
|
|
$ |
1,140,689 |
|
|
5.6 |
% |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
Non-interest bearing
deposits |
$ |
320,248 |
|
|
$ |
332,573 |
|
|
(3.7 |
)% |
|
Interest bearing
deposits |
|
|
|
|
|
|
Interest
checking |
92,467 |
|
|
75,366 |
|
|
22.7 |
% |
|
Savings/money market |
314,002 |
|
|
335,453 |
|
|
(6.4 |
)% |
|
Certificates of deposit |
327,803 |
|
|
257,908 |
|
|
27.1 |
% |
|
Total
interest bearing deposits |
734,272 |
|
|
668,727 |
|
|
9.8 |
% |
|
Total deposits |
1,054,520 |
|
|
1,001,300 |
|
|
5.3 |
% |
|
Other borrowings |
15,000 |
|
|
15,000 |
|
|
— |
% |
|
Other liabilities |
7,655 |
|
|
7,143 |
|
|
7.2 |
% |
|
Junior subordinated
debentures |
17,527 |
|
|
17,527 |
|
|
— |
% |
|
Total
liabilities |
1,094,702 |
|
|
1,040,970 |
|
|
5.2 |
% |
|
Shareholders’
equity |
110,259 |
|
|
99,719 |
|
|
10.6 |
% |
|
Total Liabilities and Shareholders’ Equity |
$ |
1,204,961 |
|
|
$ |
1,140,689 |
|
|
5.6 |
% |
|
Tangible book value per
share |
$ |
4.75 |
|
|
$ |
4.33 |
|
|
9.7 |
% |
|
Tangible book value per
share, as adjusted(2) |
$ |
4.79 |
|
|
$ |
4.41 |
|
|
8.6 |
% |
|
Shares outstanding |
23,188,650 |
|
|
23,004,668 |
|
|
0.8 |
% |
|
____________________
(1) Interest bearing deposits held in the Bank’s
account maintained at the Federal Reserve Bank.(2) Excludes
accumulated other comprehensive income/loss, which is included in
shareholders’ equity.
CONSOLIDATED AVERAGE BALANCES AND YIELD
DATA |
(Dollars in thousands) |
(Unaudited) |
|
|
Three Months Ended |
|
September 30, 2017 |
|
June 30, 2017 |
|
September 30, 2016 |
|
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) |
$ |
104,968 |
|
|
$ |
335 |
|
|
1.27 |
% |
|
$ |
117,482 |
|
|
$ |
305 |
|
|
1.04 |
% |
|
$ |
188,982 |
|
|
$ |
244 |
|
|
0.51 |
% |
Securities available for sale and stock(2) |
49,033 |
|
|
304 |
|
|
2.46 |
% |
|
50,144 |
|
|
283 |
|
|
2.26 |
% |
|
56,457 |
|
|
356 |
|
|
2.51 |
% |
Loans(3) |
1,019,253 |
|
|
13,386 |
|
|
5.21 |
% |
|
980,987 |
|
|
11,544 |
|
|
4.72 |
% |
|
857,784 |
|
|
9,998 |
|
|
4.64 |
% |
Total
interest-earning assets |
1,173,254 |
|
|
14,025 |
|
|
4.74 |
% |
|
1,148,613 |
|
|
12,132 |
|
|
4.24 |
% |
|
1,103,223 |
|
|
10,598 |
|
|
3.82 |
% |
Noninterest-earning
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
due from banks |
13,801 |
|
|
|
|
|
|
14,598 |
|
|
|
|
|
|
14,462 |
|
|
|
|
|
All other
assets |
(2,099 |
) |
|
|
|
|
|
(1,887 |
) |
|
|
|
|
|
21,784 |
|
|
|
|
|
Total assets |
1,184,956 |
|
|
|
|
|
|
1,161,324 |
|
|
|
|
|
|
1,139,469 |
|
|
|
|
|
Interest-bearing
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing checking accounts |
$ |
93,597 |
|
|
$ |
104 |
|
|
0.44 |
% |
|
$ |
95,543 |
|
|
$ |
85 |
|
|
0.36 |
% |
|
$ |
57,614 |
|
|
$ |
41 |
|
|
0.28 |
% |
Money
market and savings accounts |
323,825 |
|
|
761 |
|
|
0.93 |
% |
|
343,445 |
|
|
689 |
|
|
0.80 |
% |
|
326,666 |
|
|
520 |
|
|
0.63 |
% |
Certificates of deposit |
304,404 |
|
|
980 |
|
|
1.28 |
% |
|
277,264 |
|
|
797 |
|
|
1.15 |
% |
|
267,590 |
|
|
679 |
|
|
1.01 |
% |
Other
borrowings |
652 |
|
|
2 |
|
|
1.22 |
% |
|
209 |
|
|
— |
|
|
— |
% |
|
9,293 |
|
|
24 |
|
|
1.03 |
% |
Junior
subordinated debentures |
17,527 |
|
|
173 |
|
|
3.92 |
% |
|
17,527 |
|
|
165 |
|
|
3.78 |
% |
|
17,527 |
|
|
145 |
|
|
3.29 |
% |
Total
interest bearing liabilities |
740,005 |
|
|
2,020 |
|
|
1.08 |
% |
|
733,988 |
|
|
1,736 |
|
|
0.95 |
% |
|
678,690 |
|
|
1,409 |
|
|
0.83 |
% |
Noninterest bearing
liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
329,168 |
|
|
|
|
|
|
315,483 |
|
|
|
|
|
|
322,768 |
|
|
|
|
|
Accrued expenses and
other liabilities |
7,959 |
|
|
|
|
|
|
7,314 |
|
|
|
|
|
|
6,274 |
|
|
|
|
|
Shareholders'
equity |
107,824 |
|
|
|
|
|
|
104,539 |
|
|
|
|
|
|
131,737 |
|
|
|
|
|
Total liabilities and
shareholders' equity |
1,184,956 |
|
|
|
|
|
|
1,161,324 |
|
|
|
|
|
|
1,139,469 |
|
|
|
|
|
Net interest
income |
|
|
$ |
12,005 |
|
|
|
|
|
|
$ |
10,396 |
|
|
|
|
|
|
9,189 |
|
|
|
Net interest
income/spread |
|
|
|
|
3.66 |
% |
|
|
|
|
|
3.29 |
% |
|
|
|
|
|
2.99 |
% |
Net interest
margin |
|
|
|
|
4.06 |
% |
|
|
|
|
|
3.63 |
% |
|
|
|
|
|
3.31 |
% |
(1) Short-term investments consist of federal funds sold and
interest bearing deposits that we maintain at other financial
institutions.(2) Stock consists of Federal Home Loan Bank stock and
Federal Reserve Bank of San Francisco stock.(3) Loans include the
average balance of nonaccrual loans.
|
Nine Months Ended |
|
September 30, 2017 |
|
September 30, 2016 |
|
AverageBalance |
|
InterestEarned/Paid |
|
AverageYield/Rate |
|
AverageBalance |
|
InterestEarned/Paid |
|
AverageYield/Rate |
Interest earning
assets |
|
|
|
|
|
|
|
|
|
|
|
Short-term investments(1) |
$ |
117,128 |
|
|
$ |
904 |
|
|
1.03 |
% |
|
$ |
160,346 |
|
|
$ |
613 |
|
|
0.51 |
% |
Securities available for sale and stock(2) |
50,032 |
|
|
930 |
|
|
2.49 |
% |
|
58,293 |
|
|
1,075 |
|
|
2.46 |
% |
Loans(3) |
981,504 |
|
|
35,927 |
|
|
4.89 |
% |
|
847,833 |
|
|
28,700 |
|
|
4.52 |
% |
Total
interest-earning assets |
1,148,664 |
|
|
37,761 |
|
|
4.40 |
% |
|
1,066,472 |
|
|
30,388 |
|
|
3.81 |
% |
Noninterest-earning
assets |
|
|
|
|
|
|
|
|
|
|
|
Cash and
due from banks |
14,297 |
|
|
|
|
|
|
15,610 |
|
|
|
|
|
All other
assets |
(1,711 |
) |
|
|
|
|
|
20,057 |
|
|
|
|
|
Total assets |
1,161,250 |
|
|
|
|
|
|
1,102,139 |
|
|
|
|
|
Interest-bearing
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing checking accounts |
$ |
88,962 |
|
|
$ |
254 |
|
|
0.38 |
% |
|
$ |
54,993 |
|
|
$ |
108 |
|
|
0.26 |
% |
Money
market and savings accounts |
340,464 |
|
|
2,080 |
|
|
0.82 |
% |
|
324,222 |
|
|
1,481 |
|
|
0.61 |
% |
Certificates of deposit |
279,630 |
|
|
2,458 |
|
|
1.18 |
% |
|
264,457 |
|
|
1,924 |
|
|
0.97 |
% |
Other
borrowings |
399 |
|
|
3 |
|
|
1.01 |
% |
|
9,785 |
|
|
74 |
|
|
1.01 |
% |
Junior
subordinated debentures |
17,527 |
|
|
494 |
|
|
3.77 |
% |
|
17,527 |
|
|
428 |
|
|
3.26 |
% |
Total
interest bearing liabilities |
726,982 |
|
|
5,289 |
|
|
0.97 |
% |
|
670,984 |
|
|
4,015 |
|
|
0.80 |
% |
Noninterest bearing
liabilities |
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
321,808 |
|
|
|
|
|
|
290,830 |
|
|
|
|
|
Accrued expenses and
other liabilities |
7,359 |
|
|
|
|
|
|
6,156 |
|
|
|
|
|
Shareholders'
equity |
105,101 |
|
|
|
|
|
|
134,169 |
|
|
|
|
|
Total liabilities and
shareholders' equity |
1,161,250 |
|
|
|
|
|
|
1,102,139 |
|
|
|
|
|
Net interest
income |
|
|
$ |
32,472 |
|
|
|
|
|
|
$ |
26,373 |
|
|
|
Net interest
income/spread |
|
|
|
|
3.43 |
% |
|
|
|
|
|
3.01 |
% |
Net interest
margin |
|
|
|
|
3.78 |
% |
|
|
|
|
|
3.30 |
% |
(1) Short-term investments consist of federal funds sold and
interest bearing deposits that we maintain at other financial
institutions.(2) Stock consists of Federal Home Loan Bank stock and
Federal Reserve Bank of San Francisco stock.(3) Loans include the
average balance of nonaccrual loans.
For more information contact
Curt Christianssen, Chief Financial Officer, 714-438-2500
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