Press Release


Pacific Mercantile Bancorp Reports Third Quarter 2017 Operating Results

Company Release - 10/23/2017 8:00 AM ET

Third Quarter Summary

  • Net income of $3.8 million, or $0.16 per share
  • Total new loan commitments of $70.6 million and loan fundings of $51.4 million
  • Average loans increased $38.3 million, or 15.6% annualized
  • Nonperforming assets decreased 54.0% from June 30, 2017
  • Classified assets decreased 39.6% from June 30, 2017 to 1.6% of total assets
  • Total past due loans decreased 72.8% from June 30, 2017

COSTA MESA, Calif., Oct. 23, 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 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 expense2,020  1,736  1,409  5,289  4,015 
Net interest income12,005  10,396  9,189  32,472  26,373 
Provision for loan and lease losses    10,730    19,870 
Total noninterest income964  1,431  1,054  3,364  2,671 
Total noninterest expense9,176  9,262  9,687  27,649  27,135 
Income tax provision37  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 occupied211,514  20.3% 209,724  20.1% 214,420  22.7%
Commercial real estate loans - all other235,319  22.6% 240,653  23.1% 173,223  18.3%
Residential mortgage loans - multi-family123,698  11.9% 126,061  12.1% 130,930  13.8%
Residential mortgage loans - single family27,983  2.7% 30,678  2.9% 34,527  3.6%
Construction and land development loans28,461  2.7% 21,601  2.1% 18,485  2.0%
Consumer loans48,801  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 accounts92,467  103,136  75,366 
Money market and savings deposits314,002  328,469  335,453 
Certificates of deposit327,803  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 assets95  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 loans1.45% 1.65% 1.77% 1.78% 1.91%
Allowance for loan and lease losses /total assets1.25% 1.42% 1.42% 1.47% 1.55%
Ratio of allowance for loan and lease losses to nonperforming loans146.40% 76.71% 65.45% 67.48% 61.46%
Ratio of nonperforming assets to total assets0.86% 1.86% 2.18% 2.18% 2.52%
Net quarterly charge-offs (recoveries) to gross loans0.20% (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)
Recoveries145  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.

 Actual
At September 30, 2017
 Federal Regulatory Requirement
to 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
Bank134,355  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
Bank119,799  10.3% $75,641 At least 6.5
Tier 1 Capital to Risk Weighted Assets:       
Company$127,839  11.0% N/A N/A
Bank119,799  10.3% $93,096 At least 8.0
Tier 1 Capital to Average Assets:       
Company$127,839  10.8% N/A N/A
Bank119,799  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 expense2,020  1,736  1,409  16.4% 43.4% 5,289  4,015  31.7%
Net interest income12,005  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 losses12,005  10,396  (1,541) 15.5% (879.0)% 32,472  6,503  399.3%
Non-interest income:               
Service fees on deposits and other banking services346  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 income634  1,099  775  (42.3)% (18.2)% 2,393  1,830  30.8%
Total non-interest income964  1,431  1,054  (32.6)% (8.5)% 3,364  2,671  25.9%
Non-interest expense:               
Salaries and employee benefits5,796  5,662  5,727  2.4% 1.2% 17,171  16,920  1.5%
Occupancy and equipment1,089  1,054  1,296  3.3% (16.0)% 3,206  3,706  (13.5)%
Professional Fees958  1,032  1,110  (7.2)% (13.7)% 3,100  2,435  27.3%
OREO expenses      % %   (70) (100.0)%
FDIC Expense294  262  229  12.2% 28.4% 859  675  27.3%
Other non-interest expense1,039  1,252  1,325  (17.0)% (21.6)% 3,313  3,469  (4.5)%
Total non-interest expense9,176  9,262  9,687  (0.9)% (5.3)% 27,649  27,135  1.9%
Income (loss) before income taxes3,793  2,565  (10,174) 47.9% (137.3)% 8,187  (17,961) (145.6)%
Income tax expense37  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:               
Basic23,193  23,187  22,996  % 0.9% 23,173  22,944  1.0%
Diluted23,331  23,296  22,996  0.2% 1.5% 23,290  22,944  1.5%
Ratios from continuing operations(1):               
Return on average assets1.26% 0.86% (10.66)%     0.93% (4.24)%  
Return on average equity13.82% 9.60% (92.18)%     10.22% (34.80)%  
Efficiency ratio70.75% 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)
 
ASSETSSeptember 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 deposits3,419  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 assets16,048  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 checking92,467  75,366  22.7% 
Savings/money market314,002  335,453  (6.4)% 
Certificates of deposit327,803  257,908  27.1% 
Total interest bearing deposits734,272  668,727  9.8% 
    Total deposits1,054,520  1,001,300  5.3% 
Other borrowings15,000  15,000  % 
Other liabilities7,655  7,143  7.2% 
Junior subordinated debentures17,527  17,527  % 
Total liabilities1,094,702  1,040,970  5.2% 
Shareholders’ equity110,259  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 outstanding23,188,650  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
 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)$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 assets1,173,254  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 banks13,801      14,598      14,462     
All other assets(2,099)     (1,887)     21,784     
Total assets1,184,956      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 accounts323,825  761  0.93% 343,445  689  0.80% 326,666  520  0.63%
Certificates of deposit304,404  980  1.28% 277,264  797  1.15% 267,590  679  1.01%
Other borrowings652  2  1.22% 209    % 9,293  24  1.03%
Junior subordinated debentures17,527  173  3.92% 17,527  165  3.78% 17,527  145  3.29%
Total interest bearing liabilities740,005  2,020  1.08% 733,988  1,736  0.95% 678,690  1,409  0.83%
Noninterest bearing liabilities                 
Demand deposits329,168      315,483      322,768     
Accrued expenses and other liabilities7,959      7,314      6,274     
Shareholders' equity107,824      104,539      131,737     
Total liabilities and shareholders' equity1,184,956      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
 Average
Balance
 Interest
Earned/
Paid
 Average
Yield/
Rate
 Average
Balance
 Interest
Earned/
Paid
 Average
Yield/
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 assets1,148,664  37,761  4.40% 1,066,472  30,388  3.81%
Noninterest-earning assets           
Cash and due from banks14,297      15,610     
All other assets(1,711)     20,057     
Total assets1,161,250      1,102,139     
Interest-bearing liabilities:           
Interest-bearing checking accounts$88,962  $254  0.38% $54,993  $108  0.26%
Money market and savings accounts340,464  2,080  0.82% 324,222  1,481  0.61%
Certificates of deposit279,630  2,458  1.18% 264,457  1,924  0.97%
Other borrowings399  3  1.01% 9,785  74  1.01%
Junior subordinated debentures17,527  494  3.77% 17,527  428  3.26%
Total interest bearing liabilities726,982  5,289  0.97% 670,984  4,015  0.80%
Noninterest bearing liabilities           
Demand deposits321,808      290,830     
Accrued expenses and other liabilities7,359      6,156     
Shareholders' equity105,101      134,169     
Total liabilities and shareholders' equity1,161,250      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

Primary Logo

Source: Pacific Mercantile Bancorp