Pacific Mercantile Bancorp Reports Third Quarter 2015 Operating Results

Third Quarter Highlights

  • Net income from continuing operations of $321 thousand, or $0.02 per share
  • Total loan commitments of $54.9 million and loan fundings of $34.9 million
  • Continued improvement in credit quality resulted in no provision for loan and lease losses
  • Completion of the exchange of preferred stock and warrants simplifies capital structure

COSTA MESA, Calif., Oct. 23, 2015 (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 months ended September 30, 2015.

For the third quarter of 2015, the Company reported net income of $321 thousand, or $0.02 per share. This compares with net income of $138 thousand, or $0.01 per share, in the second quarter of 2015, and a net loss of $385 thousand, or $(0.02) per share, in the third quarter of 2014. The increase in earnings as compared to the second quarter of 2015 is primarily attributable to a decrease in our noninterest expense for the third quarter of 2015.

During the third quarter of 2015, the Company exchanged an aggregate of 112,000 shares of the Company’s Series B Convertible 8.4% Noncumulative Preferred Stock (the “Series B Shares”), 35,225 shares of the Series C 8.4% Noncumulative Preferred Stock (the “Series C Shares”) and warrants to purchase 761,278 shares of the Company’s common stock (the “Warrants”) for an aggregate of 3,009,148 shares of the Company’s common stock (the “Exchange Transaction”). The Series B Shares, Series C Shares and Warrants exchanged in the Exchange Transaction comprised all of the Company’s outstanding shares of preferred stock and warrants to purchase common stock. The Exchange Transaction eliminated our quarterly preferred stock dividend accrual and simplified our capital structure.

Commenting on the results, Steve Buster, President & CEO of Pacific Mercantile Bancorp, said, “We had another profitable quarter highlighted by strong growth in core deposits, disciplined expense management, and further improvement in asset quality. Significantly, the Exchange Transaction we completed during the quarter eliminated our preferred stock dividend accrual, frees up additional capital for reinvestment in the business, and simplifies our overall capital structure. We have excellent liquidity, a strong capital position, and solid asset quality, which provides a good foundation for growing the Bank going forward. As we increase loan production, the increased operating leverage should drive further improvement in our profitability.”

Results of Operations

The following table shows our operating results for the three and nine months ended September 30, 2015, as compared to the three months ended June 30, 2015 and the three and nine months ended September 30, 2014. The discussion below highlights the key factors contributing to the changes shown on the following table.

  Three Months Ended Nine Months Ended September 30,
  September 30, 2015 June 30, 2015 September 30, 2014 2015 2014
  ($ in thousands)
Total interest income $9,653 $9,813 $9,664 $28,939 $28,085
Total interest expense 1,342 1,324 1,353 3,989 4,305
Net interest income 8,311 8,489 8,311 24,950 23,780
Provision for loan and lease losses 450 1,500
Total noninterest income 562 616 854 2,060 3,017
Total noninterest expense 8,552 8,967 9,029 26,635 27,112
Income tax benefit
Net income (loss) from continuing operations 321 138 (314) 375 (1,815)
Net (loss) income from discontinued operations (71) 1,885
Net income (loss) $321 $138 $(385) $375 $70

Net Interest Income

Q3 2015 vs Q2 2015. Net interest income decreased $178 thousand, or 2.1%, for the three months ended September 30, 2015 as compared to the three months ended June 30, 2015 resulting from a decrease in interest income of $160 thousand, or 1.6%, primarily attributable to a decrease in the yield on securities available-for-sale and stock to 2.42% for the three months ended September 30, 2015 from 3.38% for the three months ended June 30, 2015. The yield on securities available-for-sale and stock during the three months ended June 30, 2015 was positively impacted by a one-time dividend from the Federal Home Loan Bank (“FHLB”) totaling $174 thousand.

Our net interest margin decreased to 3.22% for the three months ended September 30, 2015 from 3.35% for the three months ended June 30, 2015, primarily attributable to the decrease in our yield on securities available-for-sale and stock described above, partially offset by an increase in our yield on loans to 4.48% for the three months ended September 30, 2015 from 4.46% for the three months ended June 30, 2015.

Q3 2015 vs Q3 2014. Net interest income remained flat for the three months ended September 30, 2015 as compared to the three months ended September 30, 2014.

YTD 2015 vs YTD 2014. Net interest income increased $1.2 million, or 4.9%, for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014, primarily as a result of:

  • An increase in interest income of $854 thousand, or 3.0%, attributable to an increase in interest earned on loans as a result of a higher average loan balance during the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014 and an increase in our yield on securities available-for-sale and stock over the same period; and
  • A decrease in interest expense of $316 thousand, or 7.3%, as a result of a decrease in the volume of certificates of deposit in the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014 and a decrease in the cost of our other borrowings as a result of our decision to decrease our FHLB borrowings over the same period, partially offset by an increase in the rates of interest paid on our savings and money market accounts.

Provision for Loan and Lease Losses

Q3 2015 vs Q2 2015. There was no provision for loan and lease losses recorded for the three months ended September 30, 2015 or the three months ended June 30, 2015 due to the relatively stable level of loans, along with general improvement in asset quality.

For the three months ended September 30, 2015, we had net charge-offs of $64 thousand. For the three months ended June 30, 2015, we had net charge-offs of $296 thousand. Charge-offs during the three months ended September 30, 2015 were legacy workout credits with specific reserves, and a collateral dependent loan that required a write down to properly margin the loan against the net realizable value of the collateral.

Q3 2015 vs Q3 2014. The provision for loan and lease losses decreased $450 thousand for the three months ended September 30, 2015 as compared to the three months ended September 30, 2014, primarily as a result of improving asset quality evidenced by lower levels of classified loans and generally positive asset quality trends which more than offset the portfolio growth.

YTD 2015 vs YTD 2014. The provision for loan and lease losses decreased $1.5 million for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014, primarily as a result of improving asset quality evidenced by lower levels of classified loans and generally positive asset quality trends which more than offset the portfolio growth.

Noninterest Income

Q3 2015 vs Q2 2015. Noninterest income decreased $54 thousand, or 8.8%, for the three months ended September 30, 2015 as compared to the three months ended June 30, 2015, primarily as a result of a gain on sale of premises and equipment during the second quarter of 2015.

Q3 2015 vs Q3 2014. Noninterest income decreased by $292 thousand for the three months ended September 30, 2015 as compared to the three months ended September 30, 2014, primarily as a result of a $257 thousand decrease in net gain on sale of small business administration (“SBA loans”), partially offset by an increase in loan servicing and referral fees.

YTD 2015 vs YTD 2014. Noninterest income decreased $957 thousand, or 31.7%, for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014, primarily as a result of:

  • A decrease of $1.4 million in net gain on sale of SBA loans in the nine months ended September 30, 2015 as compared to the same period in 2014; partially offset by
  • A $200 thousand recovery during the nine months ended September 30, 2015 on a charged off loan in excess of the amount previously charged off against the allowance for loan and lease losses (“ALLL”); and
  • An increase in loan servicing and referral fees during the nine months ended September 30, 2015 as compared to the same period in 2014.

Noninterest Expense

Q3 2015 vs Q2 2015. Noninterest expense decreased $415 thousand, or 4.6%, for the three months ended September 30, 2015 as compared to the three months ended June 30, 2015, primarily as a result of:

  • A decrease of $94 thousand in salaries and employee benefits primarily related to a decrease in our personnel expense as a result of decreases in hiring expenses and temporary staffing expenses in the third quarter of 2015 as compared to the second quarter of 2015;
  • A decrease of $206 thousand in professional fees primarily attributable to the recapture of fees related to a legal settlement during the third quarter of 2015; and
  • A decrease of $70 thousand in loan-related expenses as a result of an adjustment to our repurchase reserves in the second quarter of 2015.

Q3 2015 vs Q3 2014. Noninterest expense decreased $477 thousand, or 5.3%, for the three months ended September 30, 2015 as compared to the three months ended September 30, 2014, primarily as a result of:

  • A decrease of $572 thousand in the carrying costs and other costs associated with real properties acquired by or in lieu of loan foreclosures (commonly referred to as other real estate owned or “OREO”) during the three months ended September 30, 2015 as compared to the same period in 2014; partially offset by
  • An increase in various expense accounts related to the normal course of operating, including expenses related to an increase in the square footage of our leased premises, the implementation of our mobile banking platform and the roll out of our new credit card platform.

YTD 2015 vs YTD 2014. Noninterest expense decreased $477 thousand, or 1.8%, for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014, primarily as a result of:

  • A decrease of $1.5 million in OREO as a result of lower carrying costs and other expenses related to OREO during the nine months ended September 30, 2015 as compared to the same period in 2014; partially offset by
  • An increase in various expense accounts related to the normal course of operating, including expenses related to an increase in the square footage of our leased premises, the implementation of our mobile banking platform and the roll out of our new credit card platform.

Income tax provision (benefit)

For the three months ended September 30, 2015, we recorded no income tax provision or benefit. We recorded no income tax provision for the third quarter of 2015 as a result of positive and negative evidence that management evaluated. Based on the analysis performed, management determined that no increase in the $10.8 million valuation allowance as of September 30, 2015 was needed. For the three months ended June 30, 2015, we recorded no income tax provision or benefit. We recorded no income tax provision for the second quarter of 2015 as a result of positive and negative evidence that management evaluated. Based on the analysis performed, management chose not to release any portion of the $11.4 million valuation allowance as of June 30, 2015. We had no income tax provision or benefit for the three months ended September 30, 2014 as a result of the positive and negative evidence that management evaluated. As a result of some of the positive evidence evaluated, management determined that no increase in the valuation allowance was needed in the third quarter of 2014. 

We had no income tax provision or benefit for the nine months ended September 30, 2015 and 2014 as a result of positive and negative evidence that management evaluated. As a result, management determined that no increase or decrease to the valuation allowance was needed during the respective periods.

Discontinued operations

For the three months ended September 30, 2015 and June 30, 2015, we had no income or loss related to our discontinued operations, as compared to a loss from discontinued operations of $71 thousand for the three months ended September 30, 2014. We had no income from discontinued operations for the three months ended September 30, 2015 and June 30, 2015 as a result of the final wind down of the mortgage business in 2014. The loss from discontinued operations for the three months ended September 30, 2014 primarily related to the final write down of any outstanding items in discontinued operations during the quarter.

For the nine months ended September 30, 2015, we had no income or loss related to our discontinued operations, as compared to income from discontinued operations of $1.9 million for the nine months ended September 30, 2014. We had no income from discontinued operations for the nine months ended September 30, 2015 as a result of the final wind down of the mortgage business in 2014. The income from discontinued operations for the nine months ended September 30, 2014 was attributable to the gain on the sale of the mortgage servicing rights in connection with the closure of our mortgage banking business, and the partial reversal of our repurchase reserve as a result of our sale of the mortgage servicing rights.

Balance Sheet Information

Loans

As indicated in the table below, at September 30, 2015 gross loans totaled approximately $828.6 million, which represented a decrease of $4.7 million, or 0.6%, from gross loans outstanding at June 30, 2015, and a decrease of $9.4 million, or 1.1%, from gross loans outstanding at December 31, 2014. The following table sets forth the composition, by loan category, of our loan portfolio at September 30, 2015, June 30, 2015 and December 31, 2014.

  September 30, 2015 June 30, 2015 December 31, 2014
 
Amount
Percent of
Total Loans

Amount
Percent of
Total Loans

Amount
Percent of
Total Loans
  ($ in thousands)
Commercial loans 321,696 38.8% 323,241 38.8% 301,746 36.0%
Commercial real estate loans – owner occupied 197,671 23.9% 203,445 24.4% 212,515 25.4%
Commercial real estate loans – all other 137,108 16.5% 135,966 16.3% 146,676 17.5%
Residential mortgage loans – multi-family 84,295 10.2% 84,976 10.2% 95,276 11.4%
Residential mortgage loans – single family 57,620 7.0% 60,191 7.2% 64,326 7.7%
Land development loans 6,908 0.8% 5,575 0.7% 7,745 0.9%
Consumer loans 23,313 2.8% 19,907 2.4% 9,687 1.2%
Gross loans 828,611 100.0% 833,301 100.0% 837,971 100.0%

Deposits

  September 30, 2015 June 30, 2015 December 31, 2014
Type of Deposit ($ in thousands)
Noninterest-bearing checking accounts $262,508 $236,361 $237,491
Interest-bearing checking accounts 40,056 32,619 39,123
Money market and savings deposits 326,226 285,369 278,973
Certificates of deposit 298,522 317,601 360,722
Totals $927,312 $871,950 $916,309

The increase in our total deposits from June 30, 2015 to September 30, 2015 is primarily attributable to an increase of $33.6 million in demand deposits and an increase of $40.9 million in money market and savings deposits, partially offset by a decrease in our certificates of deposit of $19.1 million over the same period. The increase in our demand deposits is primarily attributable to the development and implementation of new products. The decrease in certificates of deposit from June 30, 2015 to September 30, 2015 was primarily the result of our decision to decrease our reliance on certificates of deposit as a result of our excess liquidity. Due primarily to that decision and the resulting decrease in certificates of deposit, lower priced core deposits increased to 68%, and higher priced time deposits decreased to 32%, of total deposits at September 30, 2015, as compared to 64% and 36% of total deposits, respectively, at June 30, 2015.

The increase in our total deposits from December 31, 2014 to September 30, 2015 is primarily attributable to an increase of $26.0 million in demand deposits and an increase of $47.3 million in money market and savings deposits, partially offset by a decrease of $62.2 million in our certificates of deposit. The increase in our demand deposits is primarily attributable to the development and implementation of new products. The decrease in certificates of deposit from December 31, 2014 to September 30, 2015 was primarily the result of our decision to increase our core deposit base, which included the transition of a portion of our certificates of deposit customers to savings account customers. Due primarily to that decision and the resulting decrease in certificates of deposit, lower priced core deposits increased to 68%, and higher priced time deposits decreased to 32%, of total deposits at September 30, 2015, as compared to 61% and 39% of total deposits, respectively, at December 31, 2014.

 Asset Quality

Nonperforming Assets

  2015 2014
  September 30 June 30 March 31 December 31 September 30
  ($ in thousands)
Total non-performing loans $19,226 $21,784 $22,403 $24,053 $24,694
Other real estate owned 1,872 1,872 1,872 1,592 3,461
Other non-performing assets
Total non-performing assets $21,098 $23,656 $24,275 $25,645 $28,155
90-day past due loans $15,137 $14,580 $733 $2,766 $3,028
Total classified assets $32,429 $35,452 $36,950 $43,837 $51,636
Allowance for loan and lease losses $12,279 $12,343 $12,639 $13,833 $13,170
Allowance for loan and lease losses /gross loans (excluding loans held for sale) 1.48% 1.48% 1.50% 1.65% 1.61%
Allowance for loan and lease losses /total assets 1.13% 1.18% 1.19% 1.26% 1.23%
Ratio of allowance for loan and lease losses to nonperforming loans 63.87% 56.66% 56.42% 57.51% 53.33%
Ratio of nonperforming assets to total assets 1.95% 2.26% 2.29% 2.33% 2.63%
Net quarterly charge-offs to gross loans 0.01% 0.04% 0.14% (0.08)% (0.02)%

Nonperforming assets at September 30, 2015 decreased $2.6 million from June 30, 2015 as a result of a decrease in non-performing loans in the third quarter of 2015. The decrease in our non-performing loans related to paydowns and charge-offs on our classified loans. We had no change in our OREO balance from June 30, 2015 and as of September 30, 2015, 100% of the balance was held at PMAR.

Allowance for loan and lease losses  

  2015 2014
  September 30 June 30 March 31 December 31 September 30
  ($ in thousands)
Balance at beginning of quarter $12,343 $12,639 $13,833 $13,170 $12,580
Charge offs (574) (881) (1,472) (248) (27)
Recoveries 510 585 278 911 167
Provision 450
Balance at end of quarter $12,279 $12,343 $12,639 $13,833 $13,170

At September 30, 2015, the ALLL totaled $12.3 million, which was approximately $64 thousand less than at June 30, 2015 and $891 thousand less than at September 30, 2014. The ALLL activity during the three months ended September 30, 2015 included net charge-offs of $64 thousand after recoveries of approximately $500 thousand. There was no provision for loan and lease losses as loan payoffs exceeded our loan growth during the period and, with the exception of a previously identified loan relationship, asset quality continued to improve. The ratio of the ALLL-to-total loans outstanding as of September 30, 2015 was 1.48% as compared to 1.48% and 1.61% as of June 30, 2015 and September 30, 2014, respectively. 

 Capital Resources

At September 30, 2015, we had total regulatory capital on a consolidated basis of approximately $159.8 million, and the Bank had total regulatory capital of approximately $128.9 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 14.7% 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, 2015, as compared to the regulatory requirements that must be met for a banking institution to be rated as a well-capitalized institution. The following ratios are based on the Basel III capital rules that went into effect on January 1, 2015.

  Actual
At September 30, 2015
Federal Regulatory Requirement
to be Rated Well-Capitalized
  Amount Ratio Amount Ratio
  ($ in thousands)
Total Capital to Risk Weighted Assets:        
Company $159,806 18.4% N/A N/A
Bank 128,943 14.7% $87,530 At least 10.0
Common Equity Tier 1 Capital to Risk Weighted Assets:        
Company $121,084 13.9% N/A N/A
Bank 117,943 13.5% $56,895 At least 6.5
Tier 1 Capital to Risk Weighted Assets:        
Company $148,865 17.1% N/A N/A
Bank 117,943 13.5% $70,024 At least 8.0
Tier 1 Capital to Average Assets:        
Company $148,865 14.0% N/A N/A
Bank 117,943 11.2% $52,615 At least 5.0

About Pacific Mercantile Bancorp

Pacific Mercantile Bancorp 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 through its combination of traditional banking financial centers and comprehensive, sophisticated electronic banking services.

The Bank operates a total of seven financial centers in Southern California, four in Orange County and one each in Los Angeles and San Diego County, and another in San Bernardino County. The four Orange County financial centers are located in the cities of Newport Beach, Costa Mesa, La Habra and San Juan Capistrano. Our Los Angeles County financial center is located in the city of Beverly Hills. Our San Diego County financial center is located in La Jolla and our San Bernardino County financial center is located in the city of Ontario. In addition, the Bank offers 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, 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 economic recovery in the United States, which is still relatively fragile, will be adversely affected by 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 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. Additional information regarding these and other risks and uncertainties to which our business is subject are contained in our Annual Report on Form 10-K for the year ended December 31, 2014, which is on file with the Securities and Exchange Commission (“SEC”). Additional information will be set forth in our Quarterly Report on Form 10-Q for the three months ended September 30, 2015 that we intend to file with the SEC during the fourth quarter of 2015, and readers of this report are urged to review the additional information that will be contained in that report and in any subsequent Quarterly Reports on Form 10-Q that we file with the SEC.

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 INCOME
(Dollars and numbers of shares in thousands, except per share data)
(Unaudited)
 
  Three Months Ended Nine Months Ended
 
September
30, 2015

June 30, 2015

September
30, 2014
Sept ’15 vs
Jun ’15

% Change
Sept ’15 vs
Sept ’14

% Change

September
|30, 2015

September
30, 2014

%
Change
Total interest income $9,653 $9,813 $9,664 (1.6)% (0.1)% $28,939 $28,085 3.0%
Total interest expense 1,342 1,324 1,353 1.4% (0.8)% 3,989 4,305 (7.3)%
Net interest income 8,311 8,489 8,311 (2.1)% —% 24,950 23,780 4.9%
Provision for loan and lease losses 450 —% (100.0)% 1,500 (100.0)%
Net interest income after provision for loan losses 8,311 8,489 7,861 (2.1)% 5.7% 24,950 22,280 12.0%
Non-interest income:                
Service fees on deposits and other banking services 230 234 207 (1.7)% 11.1% 676 633 6.8%
Net gain on sale of small business administration loans 257 —% (100.0)% 1,416 (100.0)%
Other non-interest income 332 382 390 (13.1)% (14.9)% 1,384 968 43.0%
Total non-interest income 562 616 854 (8.8)% (34.2)% 2,060 3,017 (31.7)%
Non-interest expense:                
Salaries & employee benefits 5,329 5,423 5,545 (1.7)% (3.9)% 16,659 16,568 0.5%
Occupancy and equipment 1,138 1,182 1,043 (3.7)% 9.1% 3,374 2,974 13.4%
Professional Fees 538 744 439 (27.7)% 22.6% 1,910 1,677 13.9%
OREO expenses 68 59 640 15.3% (89.4)% 229 1,698 (86.5)%
FDIC Expense 329 339 336 (2.9)% (2.1)% 1,021 989 3.2%
Other non-interest expense 1,150 1,220 1,026 (5.7)% 12.1% 3,442 3,206 7.4%
Total non-interest expense 8,552 8,967 9,029 (4.6)% (5.3)% 26,635 27,112 (1.8)%
Income (loss) from continuing operations before income taxes 321 138 (314) 132.6% (202.2)% 375 (1,815) (120.7)%
Income tax expense —% —% —%
Net income (loss) from continuing operations 321 138 (314) 132.6% (202.2)% 375 (1,815) (120.7)%
Discontinued Operations                
Income from discontinued operations before income taxes (71) —% (100.0)% 1,885 (100.0)%
Income tax benefit —% —% —%
Net income from discontinued operations (71) —% (100.0)% 1,885 (100.0)%
Net income (loss) 321 138 (385) 132.6% (183.4)% 375 70 435.7%
Accumulated declared dividends on preferred stock —% —% (592) (100.0)%
Accumulated undeclared dividends on preferred stock (309) (308) (100.0)% (100.0)% (320) (100.0)%
Dividends on preferred stock (309)     (927) 100.0%
Inducements for conversion of the preferred stock (512)     (512) 100.0%
Net income (loss) allocable to common shareholders $(500) $(171) $(693) 192.4% (27.8)% $(1,064) $(842) 26.4%
Basic income (loss) per common share:                
Net income (loss) from continuing operations $(0.03) $(0.01) $(0.03) 200.0% —% $(0.05) $(0.14) (64.3)%
Net income (loss) available to common shareholders $(0.03) $(0.01) $(0.04) 200.0% (25.0)% $(0.05) $(0.04) 25.0%
Diluted income (loss) per common share:                
Net income (loss) from continuing operations $(0.03) $(0.01) $(0.03) 200.0% —% $(0.05) $(0.14) (64.3)%
Net income (loss) available to common shareholders $(0.03) $(0.01) $(0.04) 200.0% (25.0)% $(0.05) $(0.04) 25.0%
Weighted average number of common shares outstanding:                
Basic 19,824 19,774 19,291 0.3% 2.8% 19,739 19,231 2.6%
Diluted 19,824 19,774 19,291 0.3% 2.8% 19,739 19,231 2.6%
Ratios from continuing operations(1):                
Return on average assets 0.12% 0.05% (0.12)%     0.05% (0.24)%  
Return on average equity 1.05% 0.46% (1.06)%     0.41% (2.08)%  
Efficiency ratio 96.38% 98.48% 98.52%     98.61% 101.18%  
 
(1) Ratios and net interest margin for the three months ended September 30, 2015, June 30, 2015 and September 30, 2014 and six months ended September 30, 2015 and September 30, 2014 have been annualized.
 

 

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share and book value data)
(Unaudited)
 
ASSETS September 30,
2015
December 31,
2014
Increase/
(Decrease)
Cash and due from banks $12,329 $9,997 23.3%
Interest bearing deposits with financial institutions(1) 164,424 167,138 (1.6)%
Interest bearing time deposits 4,916 4,668 5.3%
Investment securities (including stock) 62,676 69,063 (9.2)%
Loans (net of allowances of $12,279 and $13,833, respectively) 816,715 824,197 (0.9)%
Other real estate owned 1,872 1,592 17.6%
Net deferred tax assets 5,804 5,933 (2.2)%
Other assets 14,934 17,022 (12.3)%
Total Assets $1,083,670 $1,099,610 (1.4)%
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Non-interest bearing deposits $262,508 $237,491 10.5%
Interest bearing deposits      
Interest checking 40,056 39,123 2.4%
Savings/money market 326,226 278,973 16.9%
Certificates of deposit 298,522 360,722 (17.2)%
Total interest bearing deposits 664,804 678,818 (2.1)%
Total deposits 927,312 916,309 1.2%
Other borrowings 10,000 39,500 (74.7)%
Other liabilities 7,022 6,993 0.4%
Junior subordinated debentures 17,527 17,527 —%
Total liabilities 961,861 980,329 (1.9)%
Shareholders’ equity 121,809 119,281 2.1%
Total Liabilities and Shareholders’ Equity $1,083,670 $1,099,610 (1.4)%
Tangible book value per share $5.34 $5.47 (2.4)%
Tangible book value per share, as adjusted(2) $5.36 $5.50 (2.5)%
Shares outstanding $22,811,075 $19,462,561 17.2%
 
(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, 2015 June 30, 2015 September 30, 2014
 
|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) $148,454 $98 0.26% $126,287 $80 0.25% $125,639 $82 0.26%
Securities available for sale and stock(2) 63,702 389 2.42% 66,132 558 3.38% 69,661 397 2.26%
Loans(3) 812,217 9,166 4.48% 824,712 9,175 4.46% 802,912 9,185 4.54%
Total interest-earning assets 1,024,373 9,653 3.74% 1,017,131 9,813 3.87% 998,212 9,664 3.84%
Interest-bearing liabilities:                  
Interest-bearing checking accounts $35,896 $24 0.27% $35,852 $25 0.28% $36,719 $25 0.27%
Money market and savings accounts 300,650 421 0.56% 291,758 419 0.58% 149,372 106 0.28%
Certificates of deposit 308,836 697 0.90% 317,443 700 0.88% 445,108 1,073 0.96%
Other borrowings 25,870 50 0.77% 30,022 55 0.73% 47,337 80 0.67%
Junior subordinated debentures 17,527 150 3.40% 17,527 125 2.86% 17,527 69 1.56%
Total interest bearing liabilities 688,779 1,342 0.77% 692,602 1,324 0.77% 696,063 1,353 0.77%
Net interest income   $8,311     $8,489     8,311  
Net interest income/spread     2.97%     3.10%     3.07%
Net interest margin     3.22%     3.35%     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.
   
   
  Nine Months Ended
  September 30, 2015 September 30, 2014
 
Average

Balance
Interest
Earned/
Paid
Average
Yield/
Rate

Average

Balance
Interest
Earned/
Paid
Average
Yield/
Rate
Interest earning assets            
Short-term investments(1) $133,497 $258 0.26% $129,665 $237 0.24%
Securities available for sale and stock(2) 66,032 1,321 2.67% 71,760 1,217 2.27%
Loans(3) 812,559 27,360 4.50% 790,081 26,631 4.51%
Total interest-earning assets 1,012,088 28,939 3.82% 991,506 28,085 3.79%
Interest-bearing liabilities:            
Interest-bearing checking accounts $36,987 $72 0.26% $37,778 $74 0.26%
Money market and savings accounts 294,003 1,245 0.57% 155,616 357 0.31%
Certificates of deposit 314,227 2,094 0.89% 439,473 3,142 0.96%
Other borrowings 31,611 177 0.75% 56,107 363 0.87%
Junior subordinated debentures 17,527 401 3.06% 17,527 369 2.81%
Total interest bearing liabilities 694,355 3,989 0.77% 706,501 4,305 0.81%
Net interest income   $24,950     $23,780  
Net interest income/spread     3.05%     2.98%
Net interest margin     3.30%     3.21%
 
(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.
 

 

EXPLANATION OF NET INCOME (LOSS) PER SHARE AND
DILUTED NET (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS PER SHARE CALCULATIONS
 
  Three Months Ended
  September 30,
2015
June 30,
2015
September 30,
2014
Net income (loss) $321 $138 $(385)
Diluted weighted average common stock and common stock equivalents 19,824 19,617 19,255
Net income (loss) per share $0.02 $0.01 $(0.02)
       
Accumulated undeclared dividends on preferred stock (309) (308)
Dividends on preferred stock (309)
Inducement for conversion of the preferred stock (512)
Total adjustments for diluted net (loss) income available to common shareholders (821) (309) (308)
Diluted weighted average common stock and common stock equivalents 19,824 19,617 19,255
Diluted net (loss) income attributable to preferred stock $(0.05) $(0.02) $(0.02)
       
Diluted net (loss) income available to common shareholders $(0.03) $(0.01) $(0.04)
CONTACT: For more information contact
         Curt Christianssen, CFO, 714-438-2500
         Member FDIC
         Equal Housing Lender
         Robert Sjogren, Chief Operating Officer, 714-438-2500

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