Press Release


Pacific Mercantile Bancorp Reports Second Quarter 2017 Operating Results

Company Release - 7/24/2017 8:00 AM ET

Second Quarter Summary

  • Net income of $2.5 million, or $0.11 per share
  • Total new loan commitments of $122.4 million and loan fundings of $84.5 million
  • Total loans increased $91.4 million, or 9.6% from March 31, 2017
  • Total deposits increased by $13.8 million from March 31, 2017
  • Classified assets decreased by $5.5 million, or 14.8% from March 31, 2017
  • Total loans past due decreased by $1.0 million from March 31, 2017

COSTA MESA, Calif., July 24, 2017 (GLOBE NEWSWIRE) -- 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 six months ended June 30, 2017.

For the second quarter of 2017, the Company reported net income of $2.5 million, or $0.11 per share. This compares with net income of $1.8 million, or $0.08 per share, in the first quarter of 2017, and a net loss of $4.7 million, or $0.21 per share, in the second quarter of 2016. The increase in net income, as compared to the three months ended March 31, 2017, is primarily attributable to an increase in interest income and noninterest income.  The increase in interest income is a result of a higher average loan balance for the three months ended June 30, 2017 as compared to the three months ended March 31, 2017. The increase in our noninterest income is the result of recoveries on problem loans that were paid off during the three months ended June 30, 2017 and higher loan fees as a result of our loan growth during the quarter.

Commenting on the results, Tom Vertin, President & CEO of Pacific Mercantile Bancorp, said, “Our second quarter results reflect the consistent execution of our business development efforts, which are driving quality balance sheet growth and a steady increase in our profitability.  We are seeing positive trends in most of our key metrics including higher revenue, an improving operating efficiency ratio, and lower levels of problem assets. Our consultative approach to commercial banking, combined with superior treasury management capabilities, enables us to differentiate Pacific Mercantile Bank from competitors and to attract new operating companies to the Bank. We extended $122 million in new loan commitments and funded $85 million in new loans during the second quarter, which helped drive 38% annualized loan growth and allowed us to surpass $1 billion in total loans for the first time in our history.  Our loan pipeline is healthy and we expect further improvements in our profitability as we continue to attract quality assets to the Bank.”

Results of Operations

The following table shows our operating results for the three and six months ended June 30, 2017, as compared to the three months ended March 31, 2017 and the three and six months ended June 30, 2016. The discussion below highlights the key factors contributing to the changes shown in the following table.

 Three Months Ended Six Months Ended June 30,
 June 30, 2017 March 31, 2017 June 30, 2016 2017 2016
 ($ in thousands)
Total interest income$12,132  $11,604  $9,835  $23,736  $19,790 
Total interest expense1,736  1,533  1,355  3,269  2,607 
Net interest income10,396  10,071  8,480  20,467  17,183 
Provision for loan and lease losses    8,720    9,140 
Total noninterest income1,431  970  864  2,402  1,618 
Total noninterest expense9,262  9,211  8,893  18,475  17,448 
Income tax provision (benefit)64  49  (3,559) 113  (3,361)
Net income (loss)$2,501  $1,781  $(4,710) $4,281  $(4,426)

Net Interest Income

Q2 2017 vs Q1 2017. Net interest income increased $325 thousand, or 3.2%, for the three months ended June 30, 2017 as compared to the three months ended March 31, 2017 primarily as a result of:

  • An increase in interest income of $528 thousand, or 4.6%, primarily attributable to an increase in interest earned on loans as a result of a higher average balance during the three months ended June 30, 2017 as compared to the three months ended March 31, 2017; partially offset by
  • An increase in interest expense of $203 thousand, or 13.2%, primarily attributable to an increase in the volume of and rates of interest paid on our deposits for the three months ended June 30, 2017 as compared to the three months ended March 31, 2017 due to new client acquisition and the actions of the Federal Reserve Board to raise short-term interest rates by 25 basis points in the first quarter of 2017.

Our net interest margin remained relatively flat at 3.63% for the three months ended June 30, 2017 as compared to 3.64% for the three months ended March 31, 2017.

Q2 2017 vs Q2 2016. Net interest income increased $1.9 million, or 22.6%, for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 primarily as a result of:

  • An increase in interest income of $2.3 million, or 23.4%, 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 June 30, 2017 as compared to the three months ended June 30, 2016; partially offset by
  • An increase in interest expense of $381 thousand, or 28.1%, primarily attributable to an increase in the volume of and rates of interest paid on our deposits for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016 due to new client acquisition and the actions of the Federal Reserve Board to raise short-term interest rates by 25 basis points in both the first quarter of 2017 and the fourth quarter of 2016.

YTD 2017 vs YTD 2016. Net interest income increased $3.3 million, or 19.1%, for the six months ended June 30, 2017 as compared to the six months ended June 30, 2016, primarily as a result of:

  • An increase in interest income of $3.9 million, or 19.9%, 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 six months ended June 30, 2017 as compared to the six months ended June 30, 2016; partially offset by
  • An increase in interest expense of $662 thousand, or 25.4%, primarily attributable to an increase in the volume of and rates of interest paid on our deposits for the six months ended June 30, 2017 as compared to the six months ended June 30, 2016 due to new client acquisition and the actions of the Federal Reserve Board to raise short-term interest rates by 25 basis points in both the first quarter of 2017 and the fourth quarter of 2016.

Provision for Loan and Lease Losses

Q2 2017 vs Q1 2017. We recorded no provision for loan and lease losses during either the three months ended June 30, 2017 or the three months ended March 31, 2017 due primarily to reserves for new loan growth being offset by a decline in the level of classified assets. During the three months ended June 30, 2017, we had net recoveries of $384 thousand, compared with net charge-offs of $7 thousand for the three months ended March 31, 2017.

Q2 2017 vs Q2 2016.  We recorded no provision for loan and lease losses during the three months ended June 30, 2017, as compared to $8.7 million recorded during the three months ended June 30, 2016.  There was no provision for the second quarter of 2017 due to reserves for new loan growth being offset by improvement in loan portfolio asset quality. We recorded an $8.7 million provision for loan and lease losses in the second quarter of 2016 as a result of new loan growth and charge offs on several loans previously placed on nonaccrual status, which exceeded recoveries during the three months ended June 30, 2016.

YTD 2017 vs YTD 2016. We recorded no provision for loan and lease losses during the six months ended June 30, 2017 as compared to a $9.1 million provision for loan and lease losses recorded for the six months ended June 30, 2016. We recorded no provision for loan and lease losses during the six months ended June 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 $9.1 million for the six months ended June 30, 2016 primarily as a result of charge offs on several loans previously placed on nonaccrual status, which exceeded recoveries and new loan growth during the six months ended June 30, 2016.

Noninterest Income

Q2 2017 vs Q1 2017. Noninterest income increased $461 thousand, or 47.5%, for the three months ended June 30, 2017 as compared to the three months ended March 31, 2017, primarily resulting from the recovery of $373 thousand of interest income related to previous years on a loan that paid off during the second quarter of 2017, the recovery of appraisal fees and legal expenses related to a problem loan that paid off during the second quarter of 2017, and an increase in loan fees during the same period.

Q2 2017 vs Q2 2016. Noninterest income increased by $567 thousand, or 65.6%, for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016, primarily resulting from the recovery of $373 thousand of interest income related to previous years on a loan that paid off during the second quarter of 2017 and an increase in loan servicing and referral fees during the same period.

YTD 2017 vs YTD 2016. Noninterest income increased $784 thousand, or 48.5%, for the six months ended June 30, 2017 as compared to the six months ended June 30, 2016, primarily as a result of:

  • The recovery of $373 thousand of interest income related to previous years on a loan that paid off during the second quarter of 2017; and
  • An increase in loan servicing and referral fees during the six months ended June 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 six months ended June 30, 2017 as compared to the same period in 2016.

Noninterest Expense

Q2 2017 vs Q1 2017. Noninterest expense increased $51 thousand, or 0.6%, for the three months ended June 30, 2017 as compared to the three months ended March 31, 2017, primarily as a result of an increase in our loan related expenses partially offset by a decrease in our accounting and consulting fees during the second quarter of 2017.

Q2 2017 vs Q2 2016. Noninterest expense increased $369 thousand, or 4.1%, for the three months ended June 30, 2017 as compared to the three months ended June 30, 2016, primarily as a result of:

  • An increase of $258 thousand in our professional fees primarily related to higher accounting and legal fees in 2017;
  • An increase of $156 thousand in salaries primarily as a result of an increase in employee headcount; and
  • An increase of $104 thousand in loan-related expenses as a result of an increase in loans; partially offset by
  • A decrease of $139 thousand in occupancy expenses as a result of decreased moving costs associated with the transition of a few of our locations from a full-service branch to a loan production office during the six months ended 2016.

YTD 2017 vs YTD 2016. Noninterest expense increased $1.0 million, or 5.9%, for the six months ended June 30, 2017 as compared to the six months ended June 30, 2016, primarily as a result of an increase of $817 thousand in our professional fees attributable to an increase in accounting and legal fees during the six months ended June 30, 2017.

Income tax provision (benefit)

For the three and six months ended June 30, 2017, we had income tax expense of $64 thousand and $113 thousand, respectively.  The income tax expense for the three and six months ended June 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 is needed 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 $21.6 million was still required at June 30, 2017.

For the three and six months ended June 30, 2016, we had an income tax benefit of $3.6 million and $3.4 million, respectively, as a result of our net loss during both the first and second quarters of fiscal 2016. During the second quarter of 2016, management evaluated the positive and negative evidence and determined that there continued to be enough positive evidence to support the full realization of the deferred tax asset and that no valuation allowance at June 30, 2016 was needed.  

Balance Sheet Information

Loans

As indicated in the table below, at June 30, 2017 gross loans totaled approximately $1.0 billion, which represented an increase of $91.4 million, or 9.6%, compared to gross loans outstanding at March 31, 2017, and an increase of $95.7 million, or 10.1%, compared to gross loans outstanding at December 31, 2016. The following table sets forth the composition, by loan category, of our loan portfolio at June 30, 2017, March 31, 2017 and December 31, 2016.

 June 30, 2017 March 31, 2017 December 31, 2016
 Amount Percent of
Total
Loans
 Amount Percent of
Total
Loans
 Amount Percent of
Total
Loans
 ($ in thousands)
Commercial loans$366,259  35.1% $323,354  34.0% $333,376  35.2%
Commercial real estate loans - owner occupied209,724  20.1% 213,170  22.4% 214,420  22.7%
Commercial real estate loans - all other240,653  23.1% 195,051  20.5% 173,223  18.3%
Residential mortgage loans - multi-family126,061  12.1% 121,481  12.8% 130,930  13.8%
Residential mortgage loans - single family30,678  2.9% 33,021  3.5% 34,527  3.6%
Land development loans21,601  2.1% 21,931  2.3% 18,485  2.0%
Consumer loans47,243  4.5% 42,794  4.5% 41,563  4.4%
Gross loans$1,042,219  100.0% $950,802  100.0% $946,524  100.0%

The increase of $91.4 million in gross loans during the second quarter of 2017 was net of $28.9 million in payoffs, which included $3.0 million of loans that were previously on nonaccrual status. During the second quarter of 2017, we secured new commercial loan commitments of $71.3 million, of which $38.9 million were funded at June 30, 2017. Our total commercial loan commitments increased to $587.8 million at June 30, 2017 from $552.9 million at March 31, 2017, while the utilization rate of commercial commitments increased to 59.3% at June 30, 2017 from 58.5% at March 31, 2017.

Deposits

 June 30, 2017 March 31, 2017 December 31, 2016
Type of Deposit($ in thousands)
Noninterest-bearing checking accounts$343,956  $329,958  $332,573 
Interest-bearing checking accounts103,136  96,912  75,366 
Money market and savings deposits328,469  360,661  335,453 
Certificates of deposit291,143  265,353  257,908 
Totals$1,066,704  $1,052,884  $1,001,300 

The increase in our total deposits from March 31, 2017 to June 30, 2017 is primarily attributable to an increase of $25.8 million in our certificates of deposit and an increase of $20.2 million in our checking accounts, partially offset by a decrease of $32.2 million in money market and savings deposits. 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 in order to increase our liquidity. As a result of the aforementioned increase in certificates of deposits, lower priced core deposits decreased to 73%, and higher priced certificates of deposit increased to 27%, of total deposits at June 30, 2017, as compared to 75% and 25% of total deposits, respectively, at March 31, 2017.

Asset Quality

Nonperforming Assets

 2017 2016
June 30 March 31 December 31 September 30 June 30
 ($ in thousands)
Total non-performing loans$22,393  $25,659  $24,897  $27,079  $26,320 
Other non-performing assets181  58       
Total non-performing assets$22,574  $25,717  $24,897  $27,079  $26,320 
90-day past due loans$12,261  $15,838  $14,949  $9,674  $14,126 
Total classified assets$31,623  $37,114  $53,901  $68,489  $29,716 
Allowance for loan and lease losses$17,178  $16,794  $16,801  $16,642  $13,429 
Allowance for loan and lease losses /gross loans1.65% 1.77% 1.78% 1.91% 1.52%
Allowance for loan and lease losses /total assets1.42% 1.42% 1.47% 1.55% 1.22%
Ratio of allowance for loan and lease losses to nonperforming loans76.71% 65.45% 67.48% 61.46% 51.02%
Ratio of nonperforming assets to total assets1.86% 2.18% 2.18% 2.52% 2.39%
Net quarterly charge-offs (recoveries) to gross loans(0.04)% % (0.02)% 0.86% 0.94%

Nonperforming assets at June 30, 2017 decreased $3.1 million from March 31, 2017 primarily as a result of a decrease in non-performing loans in the second quarter of 2017. The decrease in our non-performing loans resulted primarily from $4.1 million of payoffs or paydowns on our nonaccrual loans and charge-offs of $556 thousand, partially offset by the addition of three new loans totaling $1.5 million and the transfer of $123 thousand to other foreclosed assets during the three months ended June 30, 2017.

Our classified assets decreased by $5.5 million from $37.1 million at March 31, 2017 to $31.6 million at June 30, 2017.  The decrease is primarily related to principal payments of $7.9 million and charge-offs of $556 thousand during the three months ended June 30, 2017 partially offset by 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 nine months subsequent to September 30, 2016, the Company has received $28.5 million in principal payments, net of advances, on these loans and $6.9 million in loan upgrades have been made, accounting for 73% 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 making additional progress during the second half of 2017 on the remaining $12.8 million in loan downgrades taken in the third quarter of 2016.

Allowance for loan and lease losses

 2017 2016
June 30 March 31 December 31 September 30 June 30
 ($ in thousands)
Balance at beginning of quarter$16,794  $16,801  $16,642  $13,429  $13,029 
Charge offs(556) (456) (113) (7,723) (9,049)
Recoveries940  449  272  206  729 
Provision      10,730  8,720 
Balance at end of quarter$17,178  $16,794  $16,801  $16,642  $13,429 

At June 30, 2017, the allowance for loan and lease losses (“ALLL”) totaled $17.2 million, which was approximately $384 thousand more than at March 31, 2017 and $3.7 million more than at June 30, 2016.  The ALLL activity during the three months ended June 30, 2017 included net recoveries of $384 thousand. There was no provision for loan and lease losses during the period, primarily attributable to a reserves for new loan growth being offset by a decline in classified assets. Of the $556 thousand in gross charge-offs during the three months ended June 30, 2017, $537 thousand related to loans that were previously on nonaccrual status. The ratio of the ALLL-to-total loans outstanding as of June 30, 2017 was 1.65% as compared to 1.77% and 1.52% as of March 31, 2017 and June 30, 2016, respectively. 

Capital Resources

At June 30, 2017, we had total regulatory capital on a consolidated basis of $138.2 million, and the Bank had total regulatory capital of $125.9 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 11.1% 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 June 30, 2017, as compared to the regulatory requirements that must be met for a banking institution to be rated as a well-capitalized institution.

 Actual
At June 30, 2017
 Federal Regulatory Requirement
to be Rated Well-Capitalized
 Amount Ratio Amount Ratio
 ($ in thousands)
Total Capital to Risk Weighted Assets:       
Company$138,201  12.1%  N/A  N/A
Bank125,880  11.1% $113,223  At least 10.0
Common Equity Tier 1 Capital to Risk Weighted Assets:         
Company$106,851  9.3%  N/A  N/A
Bank111,683  9.9% $73,595  At least 6.5
Tier 1 Capital to Risk Weighted Assets:         
Company$123,851  10.8%  N/A  N/A
Bank111,683  9.9% $90,578  At least 8.0
Tier 1 Capital to Average Assets:         
Company$123,851  10.7%  N/A  N/A
Bank111,683  9.7% $57,560  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 report 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 June 30, 2017, which we expect to file with the SEC during the third 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 Six Months Ended
 June 30,
2017
 March 31,
2017
 June 30,
2016
 Jun '17
vs Mar '17

% Change
 Jun '17
vs Jun '16
% Change
 June 30,
2017
 June 30,
2016
 % Change
Total interest income$12,132  $11,604  $9,835  4.6% 23.4% $23,736  $19,790  19.9%
Total interest expense1,736  1,533  1,355  13.2% 28.1% 3,269  2,607  25.4%
Net interest income10,396  10,071  8,480  3.2% 22.6% 20,467  17,183  19.1%
Provision for loan and lease losses    8,720  % (100.0)%   9,140  (100.0)%
Net interest income (loss) after provision for loan and lease losses10,396  10,071  (240) 3.2% (4,431.7)% 20,467  8,043  154.5%
Non-interest income:                            
Service fees on deposits and other banking services332  308  267  7.8% 24.3% 640  522  22.6%
Net gain on sale of small business administration loans      % %   40  (100.0)%
Net gain on sale of other assets  2    (100.0)% % 2    100.0%
Other non-interest income1,099  660  597  66.5% 84.1% 1,760  1,056  66.7%
Total non-interest income1,431  970  864  47.5% 65.6% 2,402  1,618  48.5%
Non-interest expense:                            
Salaries and employee benefits5,662  5,712  5,506  (0.9)% 2.8% 11,375  11,193  1.6%
Occupancy and equipment1,054  1,063  1,243  (0.8)% (15.2)% 2,117  2,411  (12.2)%
Professional Fees1,032  1,110  774  (7.0)% 33.3% 2,142  1,325  61.7%
OREO expenses      % %   (70) (100.0)%
FDIC Expense262  304  251  (13.8)% 4.4% 566  446  26.9%
Other non-interest expense1,252  1,022  1,119  22.5% 11.9% 2,275  2,143  6.2%
Total non-interest expense9,262  9,211  8,893  0.6% 4.1% 18,475  17,448  5.9%
Income (loss) before income taxes2,565  1,830  (8,269) 40.2% (131.0)% 4,394  (7,787) (156.4)%
Income tax expense (benefit)64  49  (3,559) 30.6% (101.8)% 113  (3,361) (103.4)%
Net income (loss)2,501  1,781  (4,710) 40.4% (153.1)% 4,281  (4,426) (196.7)%
Basic income per common share:                            
Net income (loss) available to common shareholders$0.11  $0.08  $(0.21) 37.5% (152.4)% $0.19  $(0.19) (200.0)%
Diluted income per common share:                            
Net income (loss) available to common shareholders$0.11  $0.08  $(0.21) 37.5% (152.4)% $0.19  $(0.19) (200.0)%
Weighted average number of common shares outstanding:                            
Basic23,187  23,138  22,962  0.2% 1.0% 23,163  22,918  1.1%
Diluted23,296  23,238  22,962  0.2% 1.5% 23,269  22,918  1.5%
Ratios from continuing operations(1):                            
Return on average assets0.86% 0.64% (1.71)%     0.75% (0.82)%  
Return on average equity9.60% 7.02% (13.96)%     8.32% (6.57)%  
Efficiency ratio78.31% 83.43% 95.17%     80.79% 92.80%  

____________________

(1) Ratios and net interest margin for the three and six months ended June 30, 2017, March 31, 2017 and June 30, 2016 have been annualized.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share and book value data)
(Unaudited)
 
  
ASSETSJune 30,
2017
 December 31,
2016
 Increase/
(Decrease)
 
   
Cash and due from banks$14,071  $16,789  (16.2)% 
Interest bearing deposits with financial institutions(1)101,783  122,056  (16.6)% 
Interest bearing time deposits3,669  3,669  % 
Investment securities (including stock)49,298  51,650  (4.6)% 
Loans (net of allowances of $17,178 and $16,801, respectively)1,027,890  931,525  10.3% 
Other assets15,786  15,000  5.2% 
Total assets$1,212,497  $1,140,689  6.3% 
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Non-interest bearing deposits$343,956  $332,573  3.4% 
Interest bearing deposits      
Interest checking103,136  75,366  36.8% 
Savings/money market328,469  335,453  (2.1)% 
Certificates of deposit291,143  257,908  12.9% 
  Total interest bearing deposits722,748  668,727  8.1% 
  Total deposits1,066,704  1,001,300  6.5% 
Other borrowings15,000  15,000  % 
Other liabilities7,214  7,143  1.0% 
Junior subordinated debentures17,527  17,527  % 
Total liabilities1,106,445  1,040,970  6.3% 
Shareholders’ equity106,052  99,719  6.4% 
Total Liabilities and Shareholders’ Equity$1,212,497  $1,140,689  6.3% 
Tangible book value per share$4.57  $4.33  5.5% 
Tangible book value per share, as adjusted(2)$4.62  $4.41  4.8% 
Shares outstanding$23,193,909  $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
 June 30, 2017 March 31, 2017 June 30, 2016
 Average
Balance
 Interest
Earned/
Paid
 Average
Yield/
Rate
 Average
Balance
 Interest
Earned/
Paid
 Average
Yield/
Rate
 Average
Balance
 Interest
Earned/
Paid
 Average
Yield/
Rate
Interest earning assets                 
Short-term investments(1)$117,482  $305  1.04% $129,200  $264  0.83% $169,633  $212  0.50%
Securities available for sale and stock(2)50,144  283  2.26% 50,938  342  2.72% 58,365  369  2.54%
Loans(3)980,987  11,544  4.72% 943,439  10,998  4.73% 843,406  9,254  4.41%
Total interest-earning assets1,148,613  12,132  4.24% 1,123,577  11,604  4.19% 1,071,404  9,835  3.69%
Noninterest-earning assets                 
Cash and due from banks14,598      14,501      16,611     
All other assets(1,887)     (1,135)     18,632     
Total assets1,161,324      1,136,943      1,106,647     
Interest-bearing liabilities:                 
Interest-bearing checking accounts$95,543  $85  0.36% $77,569  $65  0.34% $55,768  $45  0.32%
Money market and savings accounts343,445  689  0.80% 354,459  631  0.72% 332,304  505  0.61%
Certificates of deposit277,264  797  1.15% 256,698  680  1.07% 262,491  636  0.97%
Other borrowings209    % 333    % 10,066  25  1.00%
Junior subordinated debentures17,527  165  3.78% 17,527  157  3.63% 17,527  144  3.30%
Total interest bearing liabilities733,988  1,736  0.95% 706,586  1,533  0.88% 678,156  1,355  0.80%
Noninterest bearing liabilities                 
Demand deposits315,483      320,679      286,966     
Accrued expenses and other liabilities7,314      6,792      5,836     
Shareholders' equity104,539      102,886      135,689     
Total liabilities and shareholders' equity1,161,324      1,136,943      1,106,647     
Net interest income  $10,396      $10,071      8,480   
Net interest income/spread    3.29%     3.31%     2.89%
Net interest margin    3.63%     3.64%     3.18%

____________________

(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.

 Six Months Ended
 June 30, 2017 June 30, 2016
 Average
Balance
 Interest
Earned/
Paid
 Average
Yield/
Rate
 Average
Balance
 Interest
Earned/
Paid
 Average
Yield/
Rate
Interest earning assets           
Short-term investments(1)$123,308  $569  0.93% $145,871  $369  0.51%
Securities available for sale and stock(2)50,539  625  2.49% 59,220  719  2.44%
Loans(3)962,317  22,542  4.72% 842,803  18,702  4.46%
Total interest-earning assets1,136,164  23,736  4.21% 1,047,894  19,790  3.80%
Noninterest-earning assets           
Cash and due from banks14,550      16,190     
All other assets(1,513)     19,186     
Total assets1,149,201      1,083,270     
Interest-bearing liabilities:           
Interest-bearing checking accounts$86,606  $150  0.35% $53,667  $67  0.25%
Money market and savings accounts348,921  1,319  0.76% 322,987  961  0.60%
Certificates of deposit267,038  1,478  1.12% 262,873  1,245  0.95%
Other borrowings271    % 10,033  50  1.00%
Junior subordinated debentures17,527  322  3.70% 17,527  284  3.26%
Total interest bearing liabilities720,363  3,269  0.92% 667,087  2,607  0.79%
Noninterest bearing liabilities           
Demand deposits318,066      274,686     
Accrued expenses and other liabilities7,055      9,098     
Shareholders' equity103,717      135,399     
Total liabilities and shareholders' equity1,149,201      1,086,270     
Net interest income  $20,467      $17,183   
Net interest income/spread    3.29%     3.01%
Net interest margin    3.63%     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

Primary Logo

Source: Pacific Mercantile Bank