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
months ended March 31, 2020.
For the first quarter of 2020, the Company
reported a net loss of $2.4 million, or $(0.10) per fully diluted
share. This compares to net income of $440 thousand, or $0.02 per
fully diluted share, in the fourth quarter of 2019, and net income
of $882 thousand, or $0.04 per fully diluted share, in the first
quarter of 2019. The decrease in net income, as compared to the
three months ended December 31, 2019, is primarily
attributable to an increase in our provision for loan and lease
losses, in addition to decreased interest income resulting from the
declining interest rate environment in the first quarter. The
decrease in net income, as compared to the three months ended
March 31, 2019, is primarily attributable to the provision for
loan and lease losses of $6.2 million for the three months ended
March 31, 2020, compared to a provision of $3.3 million taken
for the three months ended March 31, 2019, as well as decreased
non-interest income in comparison to the first quarter of 2019,
which included gain on sale of SBA loans that did not occur during
the same period in 2020.
Brad R. Dinsmore, President & CEO of Pacific
Mercantile Bancorp, said, “The challenges presented by the COVID-19
pandemic have demonstrated the value of our consultative community
bank model to medium-sized businesses. Since the crisis emerged, we
have been in close contact with our clients, assessing the impact
of COVID-19 on their businesses, and identifying the best solution
for helping them manage through the downturn in the economy. With
our business lending expertise, we were able to quickly put our
process in place to participate in the Small Business
Administration’s Paycheck Protection Program (PPP) and start
providing our clients with access to this funding. In the first
phase of the PPP, we funded $243 million in PPP loans for 431
companies representing over 28,000 employees in aggregate. Since
the beginning of the second phase of PPP through April 28, 2020, we
have obtained approval for another $43 million in PPP loans for 192
companies representing over 4,200 employees. The efficiency of our
PPP process has also resulted in new commercial clients coming to
Pacific Mercantile Bank when their previous bank was unable to
assist them in applying for these loans.
“The extraordinary changes in the economic
environment had a material impact on our provision for loan and
lease losses and our financial results for the first quarter of
2020. We have responded by reducing expenses, which in combination
with the additional revenue generated from our participation in the
PPP program, should result in improved pre-tax pre-provision
earnings in the coming quarters.
“While the severity and duration of the impact
of COVID-19 on our local economy is uncertain, we believe we have
the resources we need to continue supporting our clients and
communities. With our strong capital and liquidity, we believe we
are well positioned to assist our clients through this challenging
period, as well as continue our long-term mission of Helping
Companies Succeed when the economy begins to recover,” said Mr.
Dinsmore.
Results of Operations
The following table shows our operating results
for the three months ended March 31, 2020, as compared to the
three months ended December 31, 2019 and the three months
ended March 31, 2019. The discussion below highlights the key
factors contributing to the changes shown in the following
table.
|
Three Months Ended |
|
March 31, 2020 |
|
December 31, 2019 |
|
March 31, 2019 |
|
($ in thousands) |
Total interest income |
$ |
14,769 |
|
|
$ |
16,277 |
|
|
$ |
16,167 |
|
Total interest expense |
3,296 |
|
|
3,734 |
|
|
4,116 |
|
Net interest income |
11,473 |
|
|
12,543 |
|
|
12,051 |
|
Provision for loan and lease
losses |
6,200 |
|
|
3,750 |
|
|
3,300 |
|
Total noninterest income |
1,095 |
|
|
1,369 |
|
|
1,490 |
|
Total noninterest expense |
9,720 |
|
|
9,790 |
|
|
8,983 |
|
Income tax (benefit)
provision |
(991 |
) |
|
(68 |
) |
|
376 |
|
Net income |
$ |
(2,361 |
) |
|
$ |
440 |
|
|
$ |
882 |
|
Net Interest Income
Q1 2020 vs Q4 2019. Net
interest income decreased $1.1 million, or 8.5%, for the three
months ended March 31, 2020 as compared to the three months
ended December 31, 2019 primarily as a result of:
- A decrease in interest income of $1.5 million, or 9.3%,
primarily attributable to a decrease in interest earned on loans as
a result of a lower average balance and decreased average yields on
earning assets as a result of a declining interest rate environment
during the three months ended March 31, 2020 as compared to
the three months ended December 31, 2019; partially offset
by
- A decrease in interest expense of $438 thousand, or 11.7%,
primarily attributable to a decrease in the rates of interest paid
on deposits as we managed our costs to correspond with the interest
rate cuts by the Federal Reserve which decreased by 150 basis
points during three months ended March 31, 2020 as compared to
25 basis points during the three months ended December 31,
2019.
Our net interest
margin decreased to 3.36% for the three months ended March 31,
2020 as compared to 3.57% for the three months ended
December 31, 2019. The decrease was primarily attributable to
a declining interest rate environment during the first quarter as
well as an unfavorable shift in the mix of earning assets for the
quarter. Also contributing to the decrease in net interest margin
was an increase in the average balance of loans placed on
nonaccrual during the first quarter.
Q1 2020 vs Q1 2019. Net
interest income decreased $578 thousand, or 4.8%, for the three
months ended March 31, 2020 as compared to the three months
ended March 31, 2019 primarily as a result of:
- A decrease in interest income of $1.4 million, or 8.6%,
primarily attributable to a decrease in interest earned on
short-term investments and loans as a result of a decrease in the
average yield on earning assets resulting from the declining
interest rate environment during the three months ended
March 31, 2020 as compared to the three months ended
March 31, 2019; partially offset by
- A decrease in interest expense of $820 thousand, or 19.9%,
primarily attributable to a decrease in the rates of interest paid
on our non-maturing interest bearing deposits for the three months
ended March 31, 2020 as compared to the three months ended
March 31, 2019, which was in correlation with the declining
interest rate environment in the first quarter of 2020 compared to
stable interest rates in the same period of 2019. Also contributing
to the decrease was a favorable change in our mix of deposits from
higher costing deposits to non-interest bearing deposits.
Provision for Loan and Lease
Losses
Q1 2020 vs Q4 2019. We recorded
a $6.2 million provision for loan and lease losses during the three
months ended March 31, 2020 as a result of net charge-offs, an
increase in classified and non-performing loans, and qualitative
factor increases related to COVID during the first quarter. We
recorded a $3.8 million provision for loan and lease losses during
the three months ended December 31, 2019 as a result of net
charge-offs primarily related to one commercial loan relationship
and an increase in classified and non-performing loans during the
fourth quarter. During the three months ended March 31, 2020,
we had net charge-offs of $2.3 million compared to net charge-offs
of $2.2 million for the three months ended December 31,
2019.
Q1 2020 vs Q1 2019. We
recorded a $6.2 million provision for loan and lease losses during
the three months ended March 31, 2020 as a result of net
charge-offs, an increase in classified and non-performing loans,
and qualitative factor increases related to COVID during the first
quarter. We recorded a $3.3 million provision for loan and lease
losses during the three months ended March 31, 2019 as a
result of total charge-offs of $5.7 million, which primarily
related to one large credit, partially offset by a decline in the
level of classified assets.
Noninterest Income
Q1 2020 vs Q4 2019. Noninterest
income decreased by $274 thousand, or 20.0%, for the three months
ended March 31, 2020 as compared to the three months ended
December 31, 2019, primarily resulting from a $160 thousand
decrease in other non-interest income and no gain on sale of SBA
loans in the first quarter of 2020 compared to gain on sale of $163
thousand during the three months ended December 31, 2019,
partially offset by an increase in deposit related fees, credit
card fees and loan service fees.
Q1 2020 vs Q1 2019. Noninterest
income decreased by $395 thousand, or 26.5%, for the three months
ended March 31, 2020 as compared to the three months ended
March 31, 2019, primarily as a result of no gain on sale of
SBA loans in the first quarter of 2020 compared to gain on sale of
$300 thousand during the same period in 2019, and a decrease in
other non-interest income, partially offset by an increase in
deposit related fees, credit card fees and loan service fees during
the first quarter of 2020.
Noninterest Expense
Q1 2020 vs Q4 2019. Noninterest
expense decreased $70 thousand, or 0.7%, for the three months ended
March 31, 2020 as compared to the three months ended
December 31, 2019, primarily as a result of:
- A decrease of $95 thousand in salaries and employee benefits
primarily related to severance payments made to former executives
during the fourth quarter of 2019, partially offset by an accrual
for incentive compensation in the first quarter of 2020; and
- A decrease of $57 thousand in other non-interest expense
primarily related to loan related and other operating expenses;
and
- A decrease of $17 thousand in our professional fees primarily
related to a decrease in consulting fees during the first
quarter; partially offset by
- An increase of $99 thousand in our FDIC expense during the
three months ended March 31, 2020 as compared to the reduction in
rate and FDIC rebate received during three months ended December
31, 2019.
Q1 2020 vs Q1 2019. Noninterest
expense increased $737 thousand, or 8.2%, for the three months
ended March 31, 2020 as compared to the three months ended
March 31, 2019, primarily as a result of:
- An increase of $628 thousand in salaries and employee benefits
primarily related to the addition of new employees, and severance
and bonus accruals made during the first quarter of 2020; and
- An increase of $65 thousand in our professional fees primarily
related to higher legal fees during the first quarter of 2020
compared to legal fees in the first quarter of 2019 which were
offset by a legal recovery; and
- An increase of $127 thousand in our data processing fees
primarily related to a higher credit card and deposit transaction
volume in the first quarter of 2020; and
- An increase 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
March 31, 2020 as compared to the three months ended
March 31, 2019; partially offset by
- A decrease of $29 thousand in our FDIC insurance expenses as
the result of a lower rate; and
- A decrease of $68 thousand in other real estate owned expenses
during the three months ended March 31, 2020 as compared to
the three months ended March 31, 2019.
Income tax provision
(benefit)
For the three months ended March 31, 2020,
we had an income tax benefit of $991 thousand. The income tax
benefit during the three months ended March 31, 2020 is a
result of the net loss for the first quarter. 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 March 31, 2020.
For the three months ended March 31, 2019,
we had an income tax expense of $376 thousand. The income tax
expense during the three months ended March 31, 2019 is a result of
our operating income. 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 March 31, 2019.
Balance Sheet Information
Loans
As indicated in the table below, at
March 31, 2020, gross loans totaled approximately $1.14
billion, which represented an increase of $16.8 million, or 1.5%,
compared to gross loans outstanding at December 31, 2019. The
following table sets forth the composition, by loan category, of
our loan portfolio at March 31, 2020 and December 31,
2019.
|
March 31, 2020 |
|
December 31, 2019 |
|
Amount |
|
Percent of Total Loans |
|
Amount |
|
Percent
ofTotalLoans |
|
($ in thousands) |
Commercial loans |
$ |
454,493 |
|
|
39.8 |
% |
|
$ |
409,420 |
|
|
36.2 |
% |
Commercial real estate loans -
owner occupied |
200,917 |
|
|
17.6 |
% |
|
219,483 |
|
|
19.5 |
% |
Commercial real estate loans -
all other |
205,116 |
|
|
17.9 |
% |
|
208,283 |
|
|
18.5 |
% |
Residential mortgage loans -
multi-family |
172,703 |
|
|
15.1 |
% |
|
176,523 |
|
|
15.7 |
% |
Residential mortgage loans -
single family |
16,863 |
|
|
1.5 |
% |
|
18,782 |
|
|
1.7 |
% |
Construction and land
development loans |
5,457 |
|
|
0.5 |
% |
|
2,981 |
|
|
0.3 |
% |
Consumer loans |
87,608 |
|
|
7.6 |
% |
|
90,867 |
|
|
8.1 |
% |
Gross loans |
$ |
1,143,157 |
|
|
100.0 |
% |
|
$ |
1,126,339 |
|
|
100.0 |
% |
The increase of $16.8 million in gross loans
during the first quarter of 2020 was primarily a result of total
new organic loan fundings of $33.3 million and a $2.2 million loan
participation, partially offset by loan payoffs of $16.4 million
and charge offs of $2.3 million. The charge offs of $2.3 million
primarily related to four commercial loan relationships that had
been previously identified as classified, for which the Company is
continuing its collection efforts.
During the first quarter of 2020, we secured new
client relationships with commercial loan commitments of $38.5
million, of which $17.0 million were funded at March 31, 2020.
Our total commercial loan commitments decreased to $679.8 million
at March 31, 2020 from $690.6 million at December 31,
2019, and the utilization rate of commercial loan commitments
increased to 67.0% at March 31, 2020 from 59.1% at
December 31, 2019.
Deposits
|
March 31, 2020 |
|
December 31, 2019 |
Type of
Deposit |
($ in thousands) |
Noninterest-bearing checking accounts |
$ |
494,442 |
|
|
$ |
397,000 |
|
Interest-bearing checking accounts |
90,742 |
|
|
108,941 |
|
Money market and savings deposits |
443,043 |
|
|
416,751 |
|
Certificates of deposit |
268,061 |
|
|
276,878 |
|
Totals |
$ |
1,296,288 |
|
|
$ |
1,199,570 |
|
The increase in total deposits of $96.7 million,
or 8.1%, during the three months ended March 31, 2020 from December
31, 2019 is primarily attributable to a $99.0 million incoming wire
transfer deposit made on the last day of the first quarter that was
to be immediately withdrawn; however, the outgoing wire was not
made until the following day. Excluding this transaction, our
deposit balance held constant over the first quarter with some
change to the deposit mix. Money market and savings accounts
increased by $26.3 million, or 6.3%, offset by decreases of $18.2
million to interest-bearing checking accounts and $8.8 million on
certificates of deposit. Lower priced core deposits increased to
79% of total deposits, while higher priced certificates of deposits
decreased to 21% of total deposits at March 31, 2020, as
compared to 77% and 23%, respectively at December 31,
2019.
Asset Quality
Nonperforming Assets
|
2020 |
|
2019 |
March 31 |
|
December 31 |
|
March 31 |
|
($ in
thousands) |
Total
non-performing loans |
$ |
20,021 |
|
|
$ |
15,682 |
|
|
$ |
1,321 |
|
Other real estate owned |
— |
|
|
— |
|
|
— |
|
Other non-performing assets |
392 |
|
|
164 |
|
|
96 |
|
Total non-performing assets |
$ |
20,413 |
|
|
$ |
15,846 |
|
|
$ |
1,417 |
|
90-day past due loans |
$ |
3,765 |
|
|
$ |
533 |
|
|
$ |
— |
|
Total classified assets |
$ |
44,825 |
|
|
$ |
37,192 |
|
|
$ |
4,079 |
|
Allowance for loan and lease losses |
$ |
17,520 |
|
|
$ |
13,611 |
|
|
$ |
11,514 |
|
Allowance for loan and lease losses /gross loans |
1.53 |
% |
|
1.21 |
% |
|
1.07 |
% |
Allowance for loan and lease losses /total assets |
1.09 |
% |
|
0.96 |
% |
|
0.82 |
% |
Ratio of allowance for loan and lease losses to non-performing
loans |
87.51 |
% |
|
86.79 |
% |
|
871.61 |
% |
Ratio of non-performing assets to total assets |
1.28 |
% |
|
1.12 |
% |
|
0.10 |
% |
Net quarterly charge-offs (recoveries) to gross loans |
0.20 |
% |
|
0.20 |
% |
|
0.49 |
% |
March 31, 2020 vs December 31,
2019. Non-performing assets at March 31, 2020
increased by $4.6 million from December 31, 2019 primarily as
a result of an increase in non-performing loans. The increase in
our non-performing loans during the three months ended
March 31, 2020 resulted from the addition of $7.5 million of
commercial and consumer loans, partially offset by principal
payments of $561 thousand, and charge-offs of $2.3 million. As a
result of this increase in non-performing loans, the ratio of
nonperforming assets to total assets increased from 1.12% at
December 31, 2019 to 1.28% at March 31, 2020. The ratio
of allowance for loan and lease losses to non-performing loans
increased to 87.51% at March 31, 2020, from 86.79% at
December 31, 2019, as a result of a greater increase to
allowance for loan and lease losses than the increase to
non-performing loans during the first quarter.
Our classified assets increased by $7.6 million
from $37.2 million at December 31, 2019 to $44.8 million at
March 31, 2020. The increase this quarter is primarily related
to additions of $13.2 million during the three months ended
March 31, 2020, partially offset by upgrades of $2.0 million,
principal payments of $938 thousand, charge-offs of $2.3 million,
and the transfer to other assets of $315 thousand during the same
period. The additions to classified loans during the three months
ended March 31, 2020 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.
March 31, 2020 vs March 31,
2019. Non-performing assets at March 31, 2020
increased by $19.0 million from March 31, 2019 primarily as a
result of an increase in non-performing loans to $20.0 million in
the current quarter from $1.3 million the prior year. As a result
of this increase to non-performing loans, the ratio of
nonperforming assets to total assets increased from 0.10% at
March 31, 2019 to 1.28% at March 31, 2020.
Our classified assets increased by $40.7 million
to $44.8 million at March 31, 2020 from $4.1 million at
March 31, 2019. The additions to classified loans represented
the migration of loans to classified rating from loans that were
previously rated as Special Mention, or "Watch" within our Pass
category in the same quarter prior year.
Allowance for loan and lease losses
|
2020 |
|
2019 |
March 31 |
|
December 31 |
|
September 30 |
|
June 30 |
|
March 31 |
|
($ in
thousands) |
Balance at
beginning of quarter |
$ |
13,611 |
|
|
$ |
12,086 |
|
|
$ |
11,474 |
|
|
$ |
11,514 |
|
|
$ |
13,506 |
|
Charge offs |
(2,314 |
) |
|
(2,608 |
) |
|
(1,551 |
) |
|
(127 |
) |
|
(5,698 |
) |
Recoveries |
23 |
|
|
383 |
|
|
63 |
|
|
87 |
|
|
406 |
|
Provision |
6,200 |
|
|
3,750 |
|
|
2,100 |
|
|
— |
|
|
3,300 |
|
Balance at end of quarter |
$ |
17,520 |
|
|
$ |
13,611 |
|
|
$ |
12,086 |
|
|
$ |
11,474 |
|
|
$ |
11,514 |
|
At March 31, 2020, the allowance for loan
and lease losses (“ALLL”) totaled $17.5 million, which was
approximately $3.9 million more than at December 31, 2019 and
$6.0 million more than at March 31, 2019. The ALLL activity
during the three months ended March 31, 2020 included net
charge-offs of $2.3 million. There was a $6.2 million provision for
loan and lease losses during the period, primarily attributable to
the net charge-offs during the quarter, an increase in classified
and non-performing loans, and qualitative factor increases related
to COVID during the three months ended March 31, 2020. The
ratio of the ALLL-to-total loans outstanding as of March 31,
2020 was 1.53% as compared to 1.21% and 1.07% as of
December 31, 2019 and March 31, 2019, respectively.
Capital Resources
At March 31, 2020, the Bank had total
regulatory capital of $172.8 million. The ratio of the Bank’s total
capital-to-risk weighted assets, which is a principal federal bank
regulatory measure of the financial strength of banking
institutions, was 14.1% which exceeds the minimum for a bank to be
classified under federal bank regulatory guidelines as a
“well-capitalized” banking institution, which is the highest of the
capital standards established by federal banking regulatory
authorities.
The following table sets forth the regulatory
capital and capital ratios of the Bank at March 31, 2020, as
compared to the regulatory requirements that must be met for a
banking institution to be rated as a well-capitalized
institution.
|
ActualAt March 31, 2020 |
|
Federal Regulatory Requirementto be Rated
Well-Capitalized |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
($ in thousands) |
|
|
|
|
|
|
|
|
Total Capital to Risk Weighted Assets |
$ |
172,824 |
|
|
14.1 |
% |
|
$ |
123,938 |
|
|
At least 10.0 |
|
|
|
|
|
|
|
|
Common Equity Tier 1 Capital to
Risk Weighted Assets |
$ |
157,467 |
|
|
12.8 |
% |
|
$ |
80,560 |
|
|
At least 6.5 |
|
|
|
|
|
|
|
|
Tier 1 Capital to Risk Weighted
Assets |
$ |
157,467 |
|
|
12.8 |
% |
|
$ |
99,151 |
|
|
At least 8.0 |
|
|
|
|
|
|
|
|
Tier 1 Capital to Average
Assets |
$ |
157,467 |
|
|
11.1 |
% |
|
$ |
71,566 |
|
|
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, including the
credit exposure of certain loan products and other components of
our business that could be impacted by the COVID-19 pandemic. 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, which is an inherent risk of the banking business, these
risks and uncertainties include, but are not limited to, the
following: deteriorating economic conditions and
macroeconomic factors such as unemployment rates and the volume of
bankruptcies, as well as changes in monetary, fiscal or tax policy
to address the impact of COVID-19, any of which could cause us to
incur additional loan losses and adversely affect our results of
operations in the future; 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 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 other real
estate owned and would continue to incur expenses associated with
the management and disposition of those 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
that government regulation of banking and other financial services
organizations will increase, causing our costs of doing business to
increase and restricting 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. Many of the foregoing risks and uncertainties are,
and will be, exacerbated by the COVID-19 pandemic and any worsening
of the global business and economic environment as a result.
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 are contained
in our Annual Report on Form 10-K for the year ended
December 31, 2019 which is on file with the Securities and
Exchange Commission (the “SEC”). Additional information will
be set forth in our Quarterly Report on Form 10-Q for the three
months ended March 31, 2020, which we expect to file with the SEC
during the second quarter of 2020, 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 |
|
|
March 31, 2020 |
|
December 31, 2019 |
|
March 31, 2019 |
|
Mar '20 vs Dec '19% Change |
|
Mar '20 vs Mar '19 % Change |
|
Total interest income |
$ |
14,769 |
|
|
$ |
16,277 |
|
|
$ |
16,167 |
|
|
(9.3 |
)% |
|
(8.6 |
)% |
|
Total interest expense |
3,296 |
|
|
3,734 |
|
|
4,116 |
|
|
(11.7 |
)% |
|
(19.9 |
)% |
|
Net interest income |
11,473 |
|
|
12,543 |
|
|
12,051 |
|
|
(8.5 |
)% |
|
(4.8 |
)% |
|
Provision for loan and lease
losses |
6,200 |
|
|
3,750 |
|
|
3,300 |
|
|
65.3 |
% |
|
100.0 |
% |
|
Net interest income after provision for loan and lease losses |
5,273 |
|
|
8,793 |
|
|
8,751 |
|
|
(40.0 |
)% |
|
(39.7 |
)% |
|
Non-interest income: |
|
|
|
|
|
|
|
|
|
|
Service fees on deposits and other banking services |
522 |
|
|
479 |
|
|
398 |
|
|
9.0 |
% |
|
31.2 |
% |
|
Net gain on sale of securities available for sale |
— |
|
|
— |
|
|
— |
|
|
— |
% |
|
— |
% |
|
Net gain on sale of small business administration loans |
— |
|
|
163 |
|
|
300 |
|
|
(100.0 |
)% |
|
100.0 |
% |
|
Net loss on sale of other assets |
6 |
|
|
— |
|
|
(25 |
) |
|
100.0 |
% |
|
— |
% |
|
Other non-interest income |
567 |
|
|
727 |
|
|
817 |
|
|
(22.0 |
)% |
|
(30.6 |
)% |
|
Total non-interest income |
1,095 |
|
|
1,369 |
|
|
1,490 |
|
|
(20.0 |
)% |
|
(26.5 |
)% |
|
Non-interest expense: |
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
6,069 |
|
|
6,164 |
|
|
5,441 |
|
|
(1.5 |
)% |
|
11.5 |
% |
|
Occupancy and equipment |
1,123 |
|
|
1,123 |
|
|
1,088 |
|
|
— |
% |
|
3.2 |
% |
|
Professional Fees |
861 |
|
|
878 |
|
|
796 |
|
|
(1.9 |
)% |
|
8.2 |
% |
|
OREO expenses, net |
— |
|
|
— |
|
|
68 |
|
|
— |
% |
|
(100.0 |
)% |
|
FDIC Expense |
193 |
|
|
94 |
|
|
164 |
|
|
105.3 |
% |
|
17.7 |
% |
|
Other non-interest expense |
1,474 |
|
|
1,531 |
|
|
1,426 |
|
|
(3.7 |
)% |
|
3.4 |
% |
|
Total non-interest
expense |
9,720 |
|
|
9,790 |
|
|
8,983 |
|
|
(0.7 |
)% |
|
8.2 |
% |
|
Income before income taxes |
(3,352 |
) |
|
372 |
|
|
1,258 |
|
|
(1,001.1 |
)% |
|
(366.5 |
)% |
|
Income tax expense
(benefit) |
(991 |
) |
|
(68 |
) |
|
376 |
|
|
1,357.4 |
% |
|
(363.6 |
)% |
|
Net income from continuing operations |
(2,361 |
) |
|
440 |
|
|
882 |
|
|
(636.6 |
)% |
|
(367.7 |
)% |
|
Net income |
$ |
(2,361 |
) |
|
$ |
440 |
|
|
$ |
882 |
|
|
(636.6 |
)% |
|
(367.7 |
)% |
|
Net income allocable to common shareholders |
$ |
(2,361 |
) |
|
$ |
440 |
|
|
$ |
882 |
|
|
(636.6 |
)% |
|
(367.7 |
)% |
|
Basic income per common
share: |
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders |
$ |
(0.10 |
) |
|
$ |
0.02 |
|
|
$ |
0.04 |
|
|
(600.0 |
)% |
|
(350.0 |
)% |
|
Diluted income per common
share: |
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders |
$ |
(0.10 |
) |
|
$ |
0.02 |
|
|
$ |
0.04 |
|
|
(600.0 |
)% |
|
(350.0 |
)% |
|
Weighted average number of
common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
Basic |
23,597 |
|
|
23,549 |
|
|
21,824 |
|
|
0.2 |
% |
|
8.1 |
% |
|
Diluted |
23,597 |
|
|
23,714 |
|
|
23,547 |
|
|
(0.5 |
)% |
|
0.2 |
% |
|
Ratios from continuing
operations(1): |
|
|
|
|
|
|
|
|
|
|
Return on average assets |
(0.67 |
)% |
|
0.12 |
% |
|
0.26 |
% |
|
|
|
|
|
Return on average equity |
(6.29 |
)% |
|
1.16 |
% |
|
2.50 |
% |
|
|
|
|
|
Efficiency ratio |
77.34 |
% |
|
70.37 |
% |
|
66.34 |
% |
|
|
|
|
|
____________________
(1) Ratios for the three months
ended March 31, 2020, December 31, 2019 and
March 31, 2019 have been annualized.
CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION(Dollars in thousands, except share and
book value data)(Unaudited)
ASSETS |
March 31, 2020 |
|
December 31, 2019 |
|
Increase/ (Decrease) |
|
|
|
|
Cash and due
from banks |
$ |
16,010 |
|
|
$ |
17,409 |
|
|
(8.0 |
)% |
|
Interest bearing deposits with financial institutions(1) |
375,992 |
|
|
202,729 |
|
|
85.5 |
% |
|
Interest bearing time deposits |
2,345 |
|
|
2,420 |
|
|
(3.1 |
)% |
|
Investment securities (including stock) |
35,622 |
|
|
36,254 |
|
|
(1.7 |
)% |
|
Loans (net of allowances of $17,520 and $13,611,
respectively) |
1,130,305 |
|
|
1,117,511 |
|
|
1.1 |
% |
|
Other real estate owned |
— |
|
|
— |
|
|
— |
% |
|
Net deferred tax assets |
9,017 |
|
|
8,434 |
|
|
6.9 |
% |
|
Other assets |
30,847 |
|
|
31,397 |
|
|
(1.8 |
)% |
|
Total assets |
$ |
1,600,138 |
|
|
$ |
1,416,154 |
|
|
13.0 |
% |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
Non-interest bearing deposits |
$ |
494,442 |
|
|
$ |
397,000 |
|
|
24.5 |
% |
|
Interest bearing deposits |
|
|
|
|
|
|
Interest checking |
90,742 |
|
|
108,941 |
|
|
(16.7 |
)% |
|
Savings/money market |
443,043 |
|
|
416,751 |
|
|
6.3 |
% |
|
Certificates of deposit |
268,061 |
|
|
276,878 |
|
|
(3.2 |
)% |
|
Total interest bearing deposits |
801,846 |
|
|
802,570 |
|
|
(0.1 |
)% |
|
Total deposits |
1,296,288 |
|
|
1,199,570 |
|
|
8.1 |
% |
|
Other borrowings |
120,000 |
|
|
30,000 |
|
|
300.0 |
% |
|
Other liabilities |
18,825 |
|
|
20,009 |
|
|
(5.9 |
)% |
|
Junior subordinated debentures |
17,527 |
|
|
17,527 |
|
|
— |
% |
|
Total liabilities |
1,452,640 |
|
|
1,267,106 |
|
|
14.6 |
% |
|
Shareholders’ equity |
147,498 |
|
|
149,048 |
|
|
(1.0 |
)% |
|
Total Liabilities and Shareholders’ Equity |
$ |
1,600,138 |
|
|
$ |
1,416,154 |
|
|
13.0 |
% |
|
Book value per share |
$ |
6.66 |
|
|
$ |
6.74 |
|
|
(1.2 |
)% |
|
Shares outstanding, common |
22,136,484 |
|
|
22,106,374 |
|
|
0.1 |
% |
|
____________________
(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 |
|
March 31, 2020 |
|
December 31, 2019 |
|
March 31, 2019 |
|
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) |
$ |
220,598 |
|
|
$ |
721 |
|
|
1.31 |
% |
|
$ |
198,349 |
|
|
$ |
825 |
|
|
1.65 |
% |
|
$ |
225,561 |
|
|
$ |
1,355 |
|
|
2.44 |
% |
Securities available for sale and stock(2) |
|
35,844 |
|
|
261 |
|
|
2.93 |
% |
|
|
35,733 |
|
|
257 |
|
|
2.85 |
% |
|
|
39,203 |
|
|
|
292 |
|
|
3.02 |
% |
Loans(3) |
|
1,116,999 |
|
|
13,787 |
|
|
4.96 |
% |
|
|
1,158,852 |
|
|
15,196 |
|
|
5.20 |
% |
|
|
1,080,771 |
|
|
|
14,520 |
|
|
5.45 |
% |
Total interest-earning assets |
|
1,373,441 |
|
|
14,769 |
|
|
4.32 |
% |
|
|
1,392,934 |
|
|
16,278 |
|
|
4.64 |
% |
|
|
1,345,535 |
|
|
|
16,167 |
|
|
4.87 |
% |
Noninterest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
16,774 |
|
|
|
|
|
|
|
16,667 |
|
|
|
|
|
|
|
15,084 |
|
|
|
|
|
All other assets |
|
25,151 |
|
|
|
|
|
|
|
25,586 |
|
|
|
|
|
|
|
29,231 |
|
|
|
|
|
Total assets |
$ |
1,415,366 |
|
|
|
|
|
|
$ |
1,435,187 |
|
|
|
|
|
|
$ |
1,389,850 |
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing checking accounts |
$ |
103,355 |
|
|
87 |
|
|
0.34 |
% |
|
$ |
121,012 |
|
|
141 |
|
|
0.46 |
% |
|
$ |
95,475 |
|
|
|
161 |
|
|
0.68 |
% |
Money market and savings accounts |
|
415,533 |
|
|
1,298 |
|
|
1.26 |
% |
|
|
404,608 |
|
|
1,511 |
|
|
1.48 |
% |
|
|
457,975 |
|
|
|
2,114 |
|
|
1.87 |
% |
Certificates of deposit |
|
276,045 |
|
|
1,580 |
|
|
2.30 |
% |
|
|
269,722 |
|
|
1,626 |
|
|
2.39 |
% |
|
|
272,256 |
|
|
|
1,349 |
|
|
2.01 |
% |
Other borrowings |
|
33,626 |
|
|
133 |
|
|
1.59 |
% |
|
|
48,261 |
|
|
249 |
|
|
2.05 |
% |
|
|
40,000 |
|
|
|
258 |
|
|
2.62 |
% |
Junior subordinated debentures |
|
17,527 |
|
|
198 |
|
|
4.54 |
% |
|
|
17,527 |
|
|
208 |
|
|
4.71 |
% |
|
|
17,527 |
|
|
|
234 |
|
|
5.41 |
% |
Total interest bearing liabilities |
|
846,086 |
|
|
3,296 |
|
|
1.57 |
% |
|
|
861,130 |
|
|
3,735 |
|
|
1.72 |
% |
|
|
883,233 |
|
|
|
4,116 |
|
|
1.89 |
% |
Noninterest bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
398,547 |
|
|
|
|
|
|
|
404,411 |
|
|
|
|
|
|
|
341,134 |
|
|
|
|
|
Accrued expenses and other liabilities |
|
19,704 |
|
|
|
|
|
|
|
19,606 |
|
|
|
|
|
|
|
22,277 |
|
|
|
|
|
Shareholders' equity |
|
151,029 |
|
|
|
|
|
|
|
150,040 |
|
|
|
|
|
|
|
143,206 |
|
|
|
|
|
Total liabilities and shareholders' equity |
$ |
1,415,366 |
|
|
|
|
|
|
$ |
1,435,187 |
|
|
|
|
|
|
$ |
1,389,850 |
|
|
|
|
|
Net interest income |
|
|
$ |
11,473 |
|
|
|
|
|
|
$ |
12,543 |
|
|
|
|
|
|
$ |
12,051 |
|
|
|
Net interest income/spread |
|
|
|
|
2.75 |
% |
|
|
|
|
|
2.92 |
% |
|
|
|
|
|
2.98 |
% |
Net interest margin |
|
|
|
|
3.36 |
% |
|
|
|
|
|
3.57 |
% |
|
|
|
|
|
3.63 |
% |
(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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