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CST: 08/12/2019 03:15:47   

Pacific Mercantile Bancorp Reports Second Quarter Operating Results

138 Days ago

Second Quarter Summary

  • Net income of $2.7 million, or $0.12 per fully diluted share
  • Total new loan commitments of $83.7 million and loan fundings of $52.7 million
  • Total loans increased $14.5 million from March 31, 2019
  • Noninterest-bearing deposits increased $14.0 million from March 31, 2019, and $37.7 million from December 31, 2018
  • Stable non-performing assets and no provision for loan and lease losses during the three months ended June 30, 2019

COSTA MESA, Calif., July 22, 2019 (GLOBE NEWSWIRE) -- Pacific Mercantile Bancorp (Nasdaq: PMBC), the holding company of Pacific Mercantile Bank (the “Bank”), a wholly owned banking subsidiary, today reported its financial results for the three and six months ended June 30, 2019.

For the second quarter of 2019, the Company reported net income of $2.7 million, or $0.12 per fully diluted share. This compares to net income of $882 thousand, or $0.04 per fully diluted share, in the first quarter of 2019, and net income of $15.4 million, or $0.65 per fully diluted share, in the second quarter of 2018. The increase in net income, as compared to the three months ended March 31, 2019, is primarily attributable to a decrease in our provision for loan and lease losses as a result of one large charge off related to a single loan relationship during the previous quarter and increased net interest income, partially offset by higher operating expenses. The decrease in net income, as compared to the three months ended June 30, 2018, is primarily attributable to an increase in our provision for income taxes as a result of the release of the valuation allowance on our deferred tax asset during the three months ended June 30, 2018 compared to a provision for income taxes during the three months ended June 30, 2019, combined with higher operating expenses attributable to increased legal fees that are included in our professional fees.

Commenting on the results, Tom Vertin, President & CEO of Pacific Mercantile Bancorp, said, “We continue to execute well on our strategies to improve our deposit mix and funding profile.  During the second quarter, we had further growth in total deposits driven primarily by checking accounts.  Our success in gathering lower-cost deposits has enabled us to reduce our reliance on non-core time deposits and more effectively manage our cost of funds.  We also had a strong quarter of loan production and new client acquisition activity.  We added 39 new operating company relationships through the first half of the year, which puts us ahead of last year’s pace.  Our strong new loan production is being offset by a significant increase in payoffs resulting from aggressive pricing and credit terms being offered by competitors.  We have a growing loan pipeline that should result in continued strong loan production, although the headwind of elevated payoffs presents a challenge for generating a higher level of loan growth.  We expect that our near-term earnings growth will be largely tied to our ability to offset payoffs in the loan portfolio and generate higher levels of net interest income.”

Results of Operations

The following table shows our operating results for the three and six months ended June 30, 2019, as compared to the three months ended March 31, 2019 and the three and six months ended June 30, 2018. 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, 2019   March 31, 2019   June 30, 2018   2019   2018
                                       
  ($ in thousands)
   
Total interest income $ 16,466     $ 16,167     $ 15,914     $ 32,632     $ 30,929  
Total interest expense 4,247     4,116     3,467     8,362     6,297  
Net interest income 12,219     12,051     12,447     24,270     24,632  
Provision for loan and lease losses     3,300         3,300      
Total noninterest income 1,386     1,490     1,136     2,876     2,191  
Total noninterest expense 9,707     8,983     9,299     18,691     18,832  
Income tax (benefit) provision 1,170     376     (11,085 )   1,545     (11,085 )
Net income $ 2,728     $ 882     $ 15,369     $ 3,610     $ 19,076  

Net Interest Income

Q2 2019 vs Q1 2019. Net interest income increased $168 thousand, or 1.4%, for the three months ended June 30, 2019 as compared to the three months ended March 31, 2019 primarily as a result of:

  • An increase in interest income of $299 thousand, or 1.8%, primarily attributable to an increase in interest earned on short-term investments as a result of a higher average balances during the three months ended June 30, 2019 as  compared to the three months ended March 31, 2019; partially offset by
  • An increase in interest expense of $131 thousand, or 3.2%, primarily attributable to an increase in interest paid on our deposits as a result of higher average balances during the three months ended June 30, 2019 as compared to the three months ended March 31, 2019, which was primarily the result of an increase in the number of new operating company relationships.

    Our net interest margin decreased to 3.58% for the three months ended June 30, 2019 as compared to 3.63% for the three months ended March 31, 2019. The decrease is primarily attributable to fluctuation in the mix of earning assets resulting from the increase in short-term investments, which caused the yield on earning assets to decrease even though the yield on loans increased.  Also contributing to the decrease in net interest margin was an increase in the cost of interest bearing liabilities resulting from an increase in prevailing interest rates on certificates of deposit, partially offset by decreases in interest rates on other interest bearing liabilities.

Q2 2019 vs Q2 2018. Net interest income decreased $228 thousand, or 1.8%, for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018 primarily as a result of:

  • An increase in interest expense of $780 thousand, or 22.5%, primarily attributable to an increase in the volume of and rates of interest paid on our non-maturing interest bearing deposits for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018, which was primarily the result of higher deposits due to new client acquisition, and our decision to increase the rate of interest paid on our non-maturing interest bearing deposits resulting from the rising interest rate environment, which was somewhat offset by a change in our mix of deposits from higher cost certificates of deposit to non-maturing interest and non-interest bearing deposits; partially offset by
  • An increase in interest income of $552 thousand, or 3.5%, primarily attributable to an increase in interest earned on  short-term investments as a result of higher average balances and an increase in  the average yield on earning assets as a result of  the rising interest rate environment  during the three months June 30, 2019 as compared to the three months ended June 30, 2018, which was partially offset by a decrease of $812 thousand in interest recoveries on loans that had been on nonaccrual status but were paid in full during the three months ended June 30, 2018.

YTD 2019 vs YTD 2018. Net interest income decreased $362 thousand, or 1.5%, for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018, primarily as a result of:

  • An increase in interest expense of $2.1 million, or 32.8%, primarily attributable to an increase in the volume of and rates of interest paid on our deposits and other borrowings for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018, which was primarily the result of higher deposits due to new client acquisition, our decision to increase the rate of interest paid on our non-maturity interest bearing deposits and our certificates of deposit resulting from the rising interest rate environment, and an increase in our FHLB borrowings; partially offset by
  • An increase in interest income of $1.7 million, or 5.5%, primarily attributable to an increase in interest earned on loans and short-term investments as a result of higher average balances and an increase in the average yields during the six months ended June 30, 2019 as compared to the six months ended June 30, 2018, which was primarily the result of the rising interest rate environment, which was partially offset by a decrease of $1.6 million in interest recoveries on loans that had been on nonaccrual status but were paid in full during the six months ended June 30, 2018.

Provision for Loan and Lease Losses

Q2 2019 vs Q1 2019. We recorded no provision for loan and lease losses during the three months ended June 30, 2019 as a result of a nominal increase in our loan portfolio during the quarter with a favorable change in the composition of loans.  We recorded a $3.3 million provision for loan and lease losses during the three months ended March 31, 2019 as a result of total charge offs of $5.7 million, which primarily related to one large credit, partially offset by a decline in the level of classified assets. During the three months ended June 30, 2019, we had net charge-offs of $40 thousand, compared to net charge-offs of $5.3 million for the three months ended March 31, 2019.

Q2 2019 vs Q2 2018.  We recorded no provision for loan and lease losses during the three months ended June 30, 2019 as a result of a nominal increase in our loan portfolio during the quarter with a favorable change in the composition of loans. We recorded no provision for loan and lease losses during the three months ended June 30, 2018 due primarily to a slight decrease in our loan portfolio during the quarter.

YTD 2019 vs YTD 2018. We recorded a $3.3 million provision for loan and lease losses during the six months ended June 30, 2019 as a result of total net charge-offs of $5.3 million, which primarily related to one large credit, partially offset by a decline in the level of classified assets. We recorded no provision for loan and lease losses during the six months ended June 30, 2018 primarily as a result of reserves for new loan growth being offset by a decline in the level of classified assets.

Noninterest Income

Q2 2019 vs Q1 2019. Noninterest income decreased $104 thousand, or 7.0%, for the three months ended June 30, 2019 as compared to the three months ended March 31, 2019, primarily resulting from a decrease in loan servicing fees.

Q2 2019 vs Q2 2018. Noninterest income increased by $250 thousand, or 22.0%, for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018, primarily as a result of an increase of $300 thousand in gain on sale of SBA loans during the second quarter of 2019 as compared to the same period in 2018.

YTD 2019 vs YTD 2018. Noninterest income increased $685 thousand, or 31.3%, for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018, primarily as a result of:

  • An increase of $600 thousand in gain on sale of SBA loans during the six months ended June 30, 2019 as compared to the same period in 2018; and
  • An increase in deposit related fees, credit card fees and loan service fees during the six months ended June 30, 2019 as compared to the same period in 2018; partially offset by
  • A gain of $48 thousand on the sale of securities available for sale during the six months ended June 30, 2018 that did not occur in the same period in 2019.

Noninterest Expense

Q2 2019 vs Q1 2019. Noninterest expense increased $724 thousand, or 8.1%, for the three months ended June 30, 2019 as compared to the three months ended March 31, 2019, primarily as a result of:

  • An increase of $296 thousand in salaries and employee benefits primarily related to an increase in the incentive compensation accrual during the second quarter of 2019 and an annual increase in employee salaries; and
  • An increase of  $394 thousand in our professional fees primarily related to higher legal fees during the second quarter of 2019; partially offset by
  • A decrease of $67 thousand in our other real estate owned expense during the three months ended June 30, 2019 as compared to the three months ended March 31, 2019.

Q2 2019 vs Q2 2018. Noninterest expense increased $408 thousand, or 4.4%, for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018, primarily as a result of:

  • An increase of $554 thousand in our professional fees primarily related to higher legal fees during the second quarter of 2019 and the recovery of legal fees attributable to the payoff of a loan relationship during the second quarter of 2018 that was previously on nonaccrual status;  and
  • An increase of $146 thousand in our data processing fees primarily related to a higher credit card and deposit volume in the second quarter of 2019; partially offset by
  • A decrease of $179 thousand in salaries and employee benefits primarily related to employee benefits;
  • A decrease of $73 thousand in our FDIC insurance expenses primarily related to a decrease in our premium; and
  • A decrease in various expense accounts related to the normal course of operating, including expenses related to loan production and business development during the three months ended June 30, 2019 as compared to the three months ended June 30, 2018;

YTD 2019 vs YTD 2018. Noninterest expense decreased $141 thousand, or 0.7%, for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018, primarily as a result of:

  • A decrease of $899 thousand in salaries and employee benefits primarily related to a decrease in employee benefits and incentive compensation;
  • A decrease of $191 thousand in our FDIC insurance expenses primarily related to a decrease in our premium; and
  • A decrease in  various expense accounts related to the normal course of operating, including expenses related to loan production and business development; partially offset by
  • An increase of $600 thousand in our professional fees primarily related to higher legal fees in 2019 and the recovery of legal fees attributable to the payoff of a loan relationship in the second quarter of 2018 that was previously on nonaccrual status;
  • An increase of $104 thousand in occupancy and equipment expense related to building and equipment maintenance; and
  • An increase $272 thousand in data processing fees primarily related to a higher credit card and deposit volume.

Income tax provision (benefit)

For the three and six months ended June 30, 2019, we had an income tax expense of $1.2 million and $1.5 million, respectively. The income tax expense during the three and six months ended June 30, 2019 is a result of our operating income. Accounting rules specify that management must evaluate the deferred tax asset on a recurring basis to determine whether enough positive evidence exists to determine whether it is more-likely-than-not that the deferred tax asset will be available to offset or reduce future taxes.  The tax code allows net operating losses incurred prior to December 31, 2017 to be carried forward for 20 years from the date of the loss, and based on its evaluation, management believes that the Company will be able to realize the deferred tax asset within the period that our net operating losses may be carried forward.  Due to the hierarchy of evidence that the accounting rules specify, management determined that there continued to be enough positive evidence to support no valuation allowance on our deferred tax asset at June 30, 2019. The value of our deferred tax asset at June 30, 2019 was computed based on an estimate of taxable income for the full year of 2019.

For the three months ended March 31, 2019, we had an income tax expense of $376 thousand. The income tax expense during the three months ended March 31, 2019 is a result of our operating income.

For the three and six months ended June 30, 2018, we had an income tax benefit of $11.1 million, as a result of the release of our full valuation allowance of $11.1 million on our net deferred tax asset.  During the three and six months ended June 30, 2018, management determined that the valuation allowance that was previously established on the balance of our deferred tax asset was no longer required at June 30, 2018 and released the entire $11.1 million during the three months ended June 30, 2018.

Balance Sheet Information

Loans

As indicated in the table below, at June 30, 2019, gross loans totaled approximately $1.1 billion, which represented an increase of $14.5 million, or 1.4%, compared to gross loans outstanding at March 31, 2019. The following table sets forth the composition, by loan category, of our loan portfolio at June 30, 2019, March 31, 2019, and December 31, 2018.

  June 30, 2019   March 31, 2019   December 31, 2018
  Amount   Percent of Total Loans   Amount   Percent of Total Loans   Amount   Percent of
Total
Loans
                                         
  ($ in thousands)
   
Commercial loans $ 441,850     40.7 %   $ 448,021     41.9 %   $ 444,441     40.7 %
Commercial real estate loans - owner occupied 214,233     19.7 %   213,334     19.9 %   211,645     19.3 %
Commercial real estate loans - all other 221,437     20.4 %   220,106     20.5 %   226,441     20.7 %
Residential mortgage loans - multi-family 83,966     7.7 %   91,856     8.6 %   97,173     8.9 %
Residential mortgage loans - single family 21,294     2.0 %   19,776     1.8 %   21,176     1.9 %
Construction and land development loans 12,230     1.1 %   29,261     2.7 %   38,496     3.5 %
Consumer loans 91,442     8.4 %   49,549     4.6 %   54,514     5.0 %
Gross loans $ 1,086,452     100.0 %   $ 1,071,903     100.0 %   $ 1,093,886     100.0 %

The increase of $14.5 million in gross loans during the second quarter of 2019 was primarily a result of total new organic loan fundings of $52.7 million, along with loan portfolio purchases and participations including a $39.9 million specialty automobile loan portfolio purchase, $2.2 million in commercial real estate loan participations, and $4.3 million in commercial loan participations, partially offset by loan payments and payoffs of $84.5 million, and charge offs of $127 thousand.  The specialty automobile loan portfolio acquisition, which approximately doubled the size of the Bank’s existing specialty auto portfolio, was made in light of the favorable performance of this asset class, including high asset quality and attractive yield, but does not reflect a change in the bank’s overall C&I market strategy.

During the second quarter of 2019, we secured new client relationships with commercial loan commitments of $37.9 million, of which $19.7 million were funded at June 30, 2019. Our total commercial loan commitments increased to $729.9 million at June 30, 2019 from $701.3 million at March 31, 2019, while the utilization rate of commercial loan commitments decreased to 60.1% at June 30, 2019 from 63.3% at March 31, 2019.

Deposits

  June 30, 2019   March 31, 2019   December 31, 2018
                       
Type of Deposit ($ in thousands)
   
Noninterest-bearing checking accounts $ 378,063     $ 364,083     $ 340,406  
Interest-bearing checking accounts 112,626     100,294     64,144  
Money market and savings deposits 450,057     450,003     460,355  
Certificates of deposit 258,884     266,970     271,097  
Totals $ 1,199,630     $ 1,181,350     $ 1,136,002  

The increase in our total deposits from March 31, 2019 to June 30, 2019 is primarily attributable to an increase of $26.3 million in our checking accounts, partially offset by a decrease of $8.1 million in our certificates of deposit. The increase in our core deposits is the result of new client acquisition, which has resulted in relationships with growing operating companies that are attracting capital investment to fund that growth. The decrease in our certificates of deposit is primarily the result of our decision to improve our deposit mix by replacing higher cost certificates of deposit with lower priced core deposits. Lower priced core deposits increased to 78.4% of total deposits, while higher priced certificates of deposit decreased to 21.6% of total deposits at June 30, 2019, as compared to 77.4% and 22.6% of total deposits, respectively, at March 31, 2019.

Asset Quality

Nonperforming Assets

  2019   2018
June 30   March 31   June 30
 
  ($ in thousands)
   
Total non-performing loans  $ 1,344     $ 1,321     $ 5,325  
                 
Other real estate owned         2,073  
Other non-performing assets 82     96      
Total non-performing assets $ 1,426     $ 1,417     $ 7,398  
90-day past due loans(1) $     $     $ 2,669  
Total classified assets $ 5,174     $ 4,079     $ 14,757  
Allowance for loan and lease losses $ 11,474     $ 11,514     $ 13,369  
Allowance for loan and lease losses /gross loans 1.06 %   1.07 %   1.26 %
Allowance for loan and lease losses /total assets 0.81 %   0.82 %   0.98 %
Ratio of allowance for loan and lease losses to nonperforming loans 853.72 %   871.61 %   251.06 %
Ratio of nonperforming assets to total assets 0.10 %   0.10 %   0.54 %
Net quarterly charge-offs (recoveries) to gross loans %   0.49 %   %

(1) No loans were 90 days or more past due at June 30, 2019.

Nonperforming assets at June 30, 2019 increased $9 thousand from March 31, 2019 as a result of an increase in non-performing loans, partially offset by a decrease in our other non-performing assets owned. The increase in our non-performing loans resulted from the addition of $309 thousand of commercial and consumer loans during the three months ended June 30, 2019, partially offset by principal payments of $159 thousand, charge-offs of $104 thousand and the transfer to other assets of $23 thousand,  during the same period.

Our classified assets increased by $1.1 million from $4.1 million at March 31, 2019 to $5.2 million at June 30, 2019, and has decreased by $9.6 million from $14.8 million at June 30, 2018.  The increase this quarter is primarily related to additions of $1.4 million during the three months ended June 30, 2019, partially offset by principal payments of $165 thousand, charge-offs of $112 thousand, and the transfer to other assets of $24 thousand, during the same period.

Allowance for loan and lease losses

  2019   2018
June 30   March 31   December 31   September 30   June 30
                                     
  ($ in thousands)
   
Balance at beginning of quarter $ 11,514     $ 13,506     $ 13,463     $ 13,369     $ 13,405  
Charge offs (127 )   (5,698 )   (922 )   (419 )   (355 )
Recoveries 87     406     965     513     319  
Provision     3,300              
Balance at end of quarter $ 11,474     $ 11,514     $ 13,506     $ 13,463     $ 13,369  


At June 30, 2019, the allowance for loan and lease losses (“ALLL”) totaled $11.5 million, which was approximately $40 thousand less than at March 31, 2019 and $1.9 million less than at June 30, 2018.  The ALLL activity during the three months ended June 30, 2019 included net charge-offs of $40 thousand. There was no provision for loan and lease losses during the period, primarily attributable to nominal growth in the total loan portfolio and favorable change in the composition of loan categories during the three months ended June 30, 2019. The ratio of the ALLL-to-total loans outstanding as of June 30, 2019 was 1.06% as compared to 1.07% and 1.26% as of March 31, 2019 and June 30, 2018, respectively.

Capital Resources

At June 30, 2019, the Bank had total regulatory capital of $166.2 million.  The ratio of the Bank’s total capital-to-risk weighted assets, which is a principal federal bank regulatory measure of the financial strength of banking institutions, was 13.5% which exceeds the minimum for a bank to be classified under federal bank regulatory guidelines as a “well-capitalized” banking institution, which is the highest of the capital standards established by federal banking regulatory authorities.

The following table sets forth the regulatory capital and capital ratios of the Bank at June 30, 2019, 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, 2019
  Federal Regulatory Requirement
to be Rated Well-Capitalized
  Amount   Ratio   Amount   Ratio
                         
  ($ in thousands)
   
               
Total Capital to Risk Weighted Assets $ 166,176     13.5 %   $ 123,269     At least 10.0
               
Common Equity Tier 1 Capital to Risk Weighted Assets $ 154,352     12.5 %   $ 80,125     At least 6.5
               
Tier 1 Capital to Risk Weighted Assets $ 154,352     12.5 %   $ 98,615     At least 8.0
               
Tier 1 Capital to Average Assets $ 154,352     11.0 %   $ 70,416     At least 5.0


About Pacific Mercantile Bancorp

Pacific Mercantile Bancorp (Nasdaq: PMBC) is the parent holding company of Pacific Mercantile Bank, which opened for business March 1, 1999. The Bank, which is an FDIC insured, California state-chartered bank and a member of the Federal Reserve System, provides a wide range of commercial banking services to businesses, business professionals and individual clients. The Bank is headquartered in Orange County and operates a total of seven offices in Southern California, located in Orange, Los Angeles, San Diego, and San Bernardino counties. The Bank offers tailored flexible solutions for its clients including an array of loan and deposit products, sophisticated cash management services, and comprehensive online banking services accessible at www.pmbank.com.

Forward-Looking Information

This news release contains statements regarding our expectations, beliefs and views about our future financial performance and our business, trends and expectations regarding the markets in which we operate, and our future plans. 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 of increases in our 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, 2018, 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 June 30, 2019, which we expect to file with the SEC during the third quarter of 2019, and readers of this release are urged to review the additional information that will be contained in that report.

Due to these and other risks and uncertainties to which our business is subject, you are cautioned not to place undue reliance on the forward-looking statements contained in this news release, which speak only as of its date, or to make predictions about our future financial performance based solely on our historical financial performance. We disclaim any obligation to update or revise any of the forward-looking statements as a result of new information, future events or otherwise, except as may be required by law.

  Three Months Ended   Six Months Ended
  June 30, 2019   March 31, 2019   June 30, 2018   Jun '19 vs Mar '19
% Change
  Jun '19 vs Jun '18
% Change
  June 30, 2019   June 30, 2018   % Change
Total interest income $ 16,466     $ 16,167     $ 15,914     1.8 %   3.5 %   $ 32,632     $ 30,929     5.5 %
Total interest expense 4,247     4,116     3,467     3.2 %   22.5 %   8,362     6,297     32.8 %
Net interest income 12,219     12,051     12,447     1.4 %   (1.8 )%   24,270     24,632     (1.5 )%
Provision for loan and lease losses     3,300         (100.0 )%   100.0 %   3,300         %
Net interest income after provision for loan and lease losses 12,219     8,751     12,447     39.6 %   (1.8 )%   20,970     24,632     (14.9 )%
Non-interest income:                              
Service fees on deposits and other banking services 443     398     407     11.3 %   8.8 %   840     794     5.8 %
Net gain (loss) on sale of securities available for sale             %   %       48     (100.0 )%
Net gain on sale of small business administration loans 300     300         %   100.0 %   600         %
Net loss on sale of other assets (11 )   (25 )       (56.0 )%   %   (36 )   (4 )   800.0 %
Other non-interest income 654     817     729     (20.0 )%   (10.3 )%   1,472     1,353     8.8 %
Total non-interest income 1,386     1,490     1,136     (7.0 )%   22.0 %   2,876     2,191     31.3 %
Non-interest expense:                              
Salaries and employee benefits 5,737     5,441     5,916     5.4 %   (3.0 )%   11,177     12,076     (7.4 )%
Occupancy and equipment 1,127     1,088     1,047     3.6 %   7.6 %   2,215     2,111     4.9 %
Professional Fees 1,190     796     636     49.5 %   87.1 %   1,986     1,386     43.3 %
OREO expenses, net 1     68     8     (98.5 )%   (87.5 )%   69     8     100.0 %
FDIC Expense 193     164     266     17.7 %   (27.4 )%   357     548     (34.9 )%
Other non-interest expense 1,459     1,426     1,426     2.3 %   2.3 %   2,887     2,703     6.8 %
Total non-interest expense 9,707     8,983     9,299     8.1 %   4.4 %   18,691     18,832     (0.7 )%
Income before income taxes 3,898     1,258     4,284     209.9 %   (9.0 )%   5,155     7,991     (35.5 )%
Income tax expense 1,170     376     (11,085 )   211.2 %   (110.6 )%   1,545     (11,085 )   (113.9 )%
Net income (loss) from continuing operations 2,728     882     15,369     209.3 %   (82.2 )%   3,610     19,076     (81.1 )%
Net income $ 2,728     $ 882     $ 15,369     209.3 %   (82.2 )%   $ 3,610     $ 19,076     (81.1 )%
Net income (loss) allocable to common shareholders $ 2,728     $ 882     $ 15,369     209.3 %   (82.2 )%   $ 3,610     $ 19,076     (81.1 )%
Basic income per common share:                              
Net income available to common shareholders $ 0.12     $ 0.04     $ 0.66     200.0 %   (81.8 )%   $ 0.15     $ 0.82     (81.7 )%
Diluted income per common share:                              
Net income available to common shareholders $ 0.12     $ 0.04     $ 0.65     200.0 %   (81.5 )%   $ 0.15     $ 0.81     (81.5 )%
Weighted average number of common shares outstanding:                              
Basic 22,620     21,824     23,332     3.6 %   (3.1 )%   22,224     23,299     (4.6 )%
Diluted 23,616     23,547     23,558     0.3 %   0.2 %   23,581     23,502     0.3 %
Ratios from continuing operations(1):                              
Return on average assets 0.78 %   0.26 %   4.57 %           0.52 %   2.89 %    
Return on average equity 7.57 %   2.50 %   51.01 %           5.06 %   32.45 %    
Efficiency ratio 71.35 %   66.34 %   68.46 %           68.85 %   70.21 %    


(1)      Ratios for the three months ended June 30, 2019, March 31, 2019 and June 30, 2018 have been annualized.


   
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share and book value data)
(Unaudited)
 
   
ASSETS June 30, 2019   December 31, 2018   Increase/ (Decrease)  
     
Cash and due from banks $ 17,561     $ 13,250     32.5 %  
Interest bearing deposits with financial institutions(1) 247,680     174,468     42.0 %  
Interest bearing time deposits 2,420     2,420     %  
Investment securities (including stock) 36,303     40,053     (9.4 )%  
Loans (net of allowances of $11,474 and $13,506, respectively) 1,077,595     1,083,240     (0.5 )%  
Other real estate owned     1,173     (100.0 )%  
Net deferred tax assets 8,795     10,935     (19.6 )%  
Other assets 28,763     23,799     20.9 %  
Total assets $ 1,419,117     $ 1,349,338     5.2 %  
LIABILITIES AND SHAREHOLDERS’ EQUITY            
Non-interest bearing deposits $ 378,063     $ 340,406     11.1 %  
Interest bearing deposits            
Interest checking 112,626     64,144     75.6 %  
Savings/money market 450,057     460,355     (2.2 )%  
Certificates of deposit 258,884     271,097     (4.5 )%  
Total interest bearing deposits 821,567     795,596     3.3 %  
Total deposits 1,199,630     1,136,002     5.6 %  
Other borrowings 40,000     40,000     %  
Other liabilities 16,044     14,435     11.1 %  
Junior subordinated debentures 17,527     17,527     %  
Total liabilities 1,273,201     1,207,964     5.4 %  
Shareholders’ equity 145,916     141,374     3.2 %  
Total Liabilities and Shareholders’ Equity $ 1,419,117     $ 1,349,338     5.2 %  
Book value per share $ 6.21     $ 6.06     2.5 %  
Shares outstanding, common 23,514,870     21,916,195     7.3 %  
  1.   Interest bearing deposits held in the Bank’s account maintained at the Federal Reserve Bank.


  Three Months Ended
  June 30, 2019   March 31, 2019   June 30, 2018
  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) $ 269,980     $ 1,620     2.41 %   $ 225,561     $ 1,355     2.44 %   $ 192,175     $ 864     1.80 %
Securities available for sale and stock(2) 36,880     260     2.83 %   39,203     292     3.02 %   38,633     262     2.72 %
Loans(3) 1,062,228     14,586     5.51 %   1,080,771     14,520     5.45 %   1,089,135     14,788     5.45 %
Total interest-earning assets 1,369,088     16,466     4.82 %   1,345,535     16,167     4.87 %   1,319,943     15,914     4.84 %
Noninterest-earning assets                                  
Cash and due from banks 15,573             15,084             16,617          
All other assets 26,052             29,231             12,970          
Total assets $1,410,713           $1,389,850           $1,349,530        
Interest-bearing liabilities:                                  
Interest-bearing checking accounts $ 108,530     181     0.67 %   $ 95,475     161     0.68 %   $ 56,906     63     0.44 %
Money market and savings accounts 460,935     2,106     1.83 %   457,975     2,114     1.87 %   434,294     1,670     1.54 %
Certificates of deposit 261,721     1,466     2.25 %   272,256     1,349     2.01 %   326,660     1,349     1.66 %
Other borrowings 40,220     262     2.61 %   40,000     258     2.62 %   36,934     171     1.86 %
Junior subordinated debentures 17,527     232     5.31 %   17,527     234     5.41 %   17,527     214     4.90 %
Total interest bearing liabilities 888,933     4,247     1.92 %   883,233     4,116     1.89 %   872,321     3,467     1.59 %
Noninterest bearing liabilities                                  
Demand deposits 360,597             341,134             346,553          
Accrued expenses and other liabilities 16,544             22,277             9,802          
Shareholders' equity 144,639             143,206             120,854          
Total liabilities and shareholders' equity $1,410,713           $1,389,850           $1,349,530        
Net interest income     $ 12,219             $ 12,051             $12,447    
Net interest income/spread         2.90 %           2.98 %           3.25 %
Net interest margin         3.58 %           3.63 %           3.78 %
  1. Short-term investments consist of federal funds sold and interest bearing deposits that we maintain at other financial institutions.
  2. Stock consists of FHLB stock and Federal Reserve Bank of San Francisco stock.
  3. Loans include the average balance of nonaccrual loans.


                       
  Six Months Ended
  June 30, 2019   June 30, 2018
  Average
Balance
  Interest
Earned/
Paid
  Average
Yield/
Rate
  Average
Balance
  Interest
Earned/
Paid
  Average
Yield/
Rate
Interest earning assets                      
Short-term investments(1) $ 247,893     $ 2,975     2.42 %   $ 186,422     $ 1,560     1.69 %
Securities available for sale and stock(2) 38,035     551     2.92 %   40,789     536     2.65 %
Loans(3) 1,071,449     29,106     5.48 %   1,076,109     28,833     5.40 %
Total interest-earning assets 1,357,377     32,632     4.85 %   1,303,320     30,929     4.79 %
Noninterest-earning assets                      
Cash and due from banks 15,330             16,228          
All other assets 27,632             10,051          
Total assets 1,400,339             1,329,599          
Interest-bearing liabilities:                      
Interest-bearing checking accounts $ 102,038     $ 342     0.68 %   $ 70,667     $ 177     0.51 %
Money market and savings accounts 459,463     4,220     1.85 %   392,046     2,654     1.37 %
Certificates of deposit 266,959     2,815     2.13 %   342,394     2,729     1.61 %
Other borrowings 40,110     520     2.61 %   38,489     337     1.77 %
Junior subordinated debentures 17,527     465     5.35 %   17,527     400     4.60 %
Total interest bearing liabilities 886,097     8,362     1.90 %   861,123     6,297     1.47 %
Noninterest bearing liabilities                      
Demand deposits 350,919             339,238          
Accrued expenses and other liabilities 19,397             10,706          
Shareholders' equity 143,926             118,532          
Total liabilities and shareholders' equity 1,400,339             1,329,599          
Net interest income     $ 24,270             $ 24,632      
Net interest income/spread         2.95 %           3.32 %
Net interest margin         3.61 %           3.81 %
  1. Short-term investments consist of federal funds sold and interest bearing deposits that we maintain at other financial institutions.
  2. Stock consists of FHLB stock and Federal Reserve Bank of San Francisco stock.
  3. Loans include the average balance of nonaccrual loans.
For more information contact 
Curt Christianssen, Chief Financial Officer, 714-438-2500 

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