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Pacific Mercantile Bancorp Reports Fourth Quarter and Fiscal 2014 Operating Results

Fourth Quarter Highlights

  • Net income of $0.02 per share
  • Commercial loans increase 14% from the prior quarter
  • Core deposits increase 27% from the prior quarter
  • Net recoveries, along with nominally improved asset quality, results in no provision for loan and lease losses

COSTA MESA, Calif., Jan. 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., a wholly owned non-bank subsidiary, today reported its financial results for the three months and year ended December 31, 2014.

For the fourth quarter of 2014, the Company reported net income of $390 thousand, or $0.02 per share. This compares with a net loss of $385 thousand, or $(0.02) per share, in the third quarter of 2014, and a net loss of $14.8 million, or $(0.78) per share, in the fourth quarter of 2013. The increase in earnings as compared to the third quarter of 2014 is primarily attributable to a decrease in the provision for loan and lease losses as a result of significant recoveries during the fourth quarter, an increase in net gain on sale of small business administration ("SBA") loans, and a decrease 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").

For the year ended December 31, 2014, the Company reported net income of $460 thousand, or $0.02 per share. This compares with a net loss of $22.2 million, or $(1.22) per share, for the year ended December 31, 2013.

Commenting on the results, Steve Buster, President & CEO of Pacific Mercantile Bancorp, said, "During the fourth quarter, we continued to execute well on our transition to a relationship-oriented commercial banking model, as evidenced by a 14% increase in commercial loans, an 8% increase in owner-occupied commercial real estate loans, and a 15% increase in non-interest bearing deposits compared to the prior quarter. We are seeing steady growth in our commercial customer base, due in part to the strong positions we have developed in entertainment financing and asset-based lending. We are also making good progress on shifting our deposit base away from higher-cost certificates of deposit, which declined by approximately 19% during the quarter compared to the prior quarter.

"Looking ahead to 2015, we see a number of catalysts that we expect to drive further improvement in our financial results. Our goal is to deliver double-digit loan growth and modest expansion in our net interest margin resulting from a lower cost of deposits. Our credit quality is showing steady improvement, which we believe will result in only modest provisions for loan and lease losses for the year. We also expect to keep our expense levels relatively flat, which should provide good operating leverage as we grow our revenues," said Mr. Buster.

Results of Operations

The following table shows our operating results for the three months ended December 31, 2014, as compared to the three months ended September 30, 2014 and the three months ended December 31, 2013, as well as for the year ended December 31, 2014 as compared to the year ended December 31, 2013. The discussion below highlights the key factors contributing to the changes shown on the following table.

Three Months Ended Year Ended December 31,
December 31, 2014 September 30, 2014 December 31, 2013 2014 2013
($ in thousands)
Total interest income $ 10,205 $ 9,664 $ 9,285 $ 38,290 $ 35,651
Total interest expense 1,524 1,353 1,179 5,829 5,317
Net interest income 8,681 8,311 8,106 32,461 30,334
Provision for loan and lease losses 450 3,355 1,500 4,505
Total noninterest income 1,391 854 687 4,370 1,193
Total noninterest expense 9,735 9,029 8,124 36,808 36,346
Income tax benefit 7,100 5,610
Net income (loss) from continuing operations 337 (314) (9,786) (1,477) (14,934)
Net income (loss) from discontinued operations 53 (71) (5,011) 1,937 (7,282)
Net income (loss) $ 390 $ (385) $ (14,797) $ 460 $ (22,216)

Net Interest Income

Q4 2014 vs Q3 2014. Net interest income increased $370 thousand, or 4.5%, for the three months ended December 31, 2014 as compared to the three months ended September 30, 2014, primarily as a result of:

  • An increase in interest income of $541 thousand, or 5.6%, primarily attributable to an increase in the yield on loans during the three months ended December 31, 2014 as compared to the three months ended September 30, 2014 and a slightly higher average loan balance over the same period; partially offset by
  • An increase in interest expense of $171 thousand, or 12.6%, due to an interest accrual during the fourth quarter of 2014 related to our junior subordinated debentures and an increase in the rates of interest paid on our savings and money market accounts, partially offset by a decrease in the volume of certificates of deposit in the three months ended December 31, 2014 as compared to the three months ended September 30, 2014.

Our net interest margin decreased to 3.26% for the three months ended December 31, 2014 from 3.30% for the three months ended September 30, 2014, primarily attributable to an increase in our cost of funds to 0.83% for the three months ended December 31, 2014 from 0.77% for the three months ended September 30, 2014.

Q4 2014 vs Q4 2013. Net interest income increased $575 thousand, or 7.1%, for the three months ended December 31, 2014 as compared to the three months ended December 31, 2013, primarily as a result of:

  • An increase in interest income of $920 thousand, or 9.9%, primarily attributable to an increase in interest earned on loans as a result of a higher average loan balance during the three months ended December 31, 2014 as compared to the three months ended December 31, 2013 and an increase in the yield on loans over the same period; partially offset by
  • An increase in interest expense of $345 thousand, or 29.3%, as a result of an interest accrual during the fourth quarter of 2014 related to our junior subordinated debentures and an increase in the rates of interest paid on our savings and money market accounts, partially offset by a decrease in the cost of our other borrowings as a result of our decision to decrease our Federal Home Loan Bank borrowings in the three months ended December 31, 2014 as compared to the three months ended December 31, 2013.

YTD 2014 vs YTD 2013. Net interest income increased $2.1 million, or 7.0%, for the year ended December 31, 2014 as compared to the year ended December 31, 2013, primarily as a result of:

  • An increase in interest income of $2.6 million, or 7.4%, attributable to an increase in interest earned on loans as a result of a higher average loan balance during the year ended December 31, 2014 as compared to the year ended December 31, 2013, partially offset by a decrease in yield on loans over the same period; partially offset by
  • An increase in interest expense of $512 thousand, or 9.6%, due primarily to an increase in the volume of certificates of deposit, partially offset by a decrease in the rates of interest paid on certificates of deposit in the year ended December 31, 2014 as compared to the year ended December 31, 2013.

Provision for Loan and Lease Losses

Q4 2014 vs Q3 2014. The provision for loan and lease losses decreased $450 thousand, or 100.0%, for the three months ended December 31, 2014 as compared to the three months ended September 30, 2014, as a result of no loan provision recorded during the three months ended December 31, 2014 which was attributable to a significant loan recovery during the three months ended December 31, 2014 that offset the growth in our loan portfolio and nominally improved asset quality. We had net recoveries of $663 thousand for the three months ended December 31, 2014 compared to net recoveries of $140 thousand for the three months ended September 30, 2014.

Q4 2014 vs Q4 2013. The provision for loan and lease losses decreased $3.4 million, or 100.0%, for the three months ended December 31, 2014 as compared to the three months ended December 31, 2013, primarily as a result of improving asset quality evidenced by declining loan delinquencies, lower levels of classified loans, net loan recoveries and generally positive asset quality trends which more than offset the portfolio growth.

YTD 2014 vs YTD 2013. The provision for loan and lease losses decreased $3.0 million, or 66.7%, for the year ended December 31, 2014 as compared to the year ended December 31, 2013, primarily as a result of improving asset quality evidenced by declining loan delinquencies, lower levels of classified loans, net loan recoveries and generally positive asset quality trends which more than offset the growth in our loan portfolio.

Noninterest Income

Q4 2014 vs Q3 2014. Noninterest income increased $537 thousand, or 62.9%, for the three months December 31, 2014 as compared to the three months ended September 30, 2014, primarily as a result of a $400 thousand, or 155.6%, increase in net gain on sale of SBA loans.

Q4 2014 vs Q4 2013. Noninterest income increased by $704 thousand for the three months ended December 31, 2014 as compared to the three months ended December 31, 2013 primarily as a result of a $657 thousand increase in net gain on sale of SBA loans.

YTD 2014 vs YTD 2013. Noninterest income increased $3.2 million, or 266.3%, for the year ended December 31, 2014 as compared to the year ended December 31, 2013, primarily as a result of:

  • An increase of $2.1 million in net gain on sale of SBA loans; and
  • No sales of loans in the year ended December 31, 2014 as compared to a net loss on the sale of loans of $448 thousand for the year ended December 31, 2013.

Noninterest Expense

Q4 2014 vs Q3 2014. Noninterest expense increased $706 thousand, or 7.8%, for the three months ended December 31, 2014 as compared to the three months ended September 30, 2014, primarily as a result of:

  • An increase of $458 thousand in salaries and employee benefits primarily related to an increase in the year-end incentive compensation accrual;
  • An increase of $320 thousand in professional fees attributable to an increase in our legal expenses; and
  • An increase of $158 thousand in loan-related expenses as a result of increased activity related to SBA loans; partially offset by
  • A decrease of $338 thousand in carrying costs and other expenses incurred in connection with OREO as a result of higher expenses during the three months ended September 30, 2014 as compared to the three months ended December 31, 2014 due to a write down taken on one OREO property in the third quarter of 2014.

Q4 2014 vs Q4 2013. Noninterest expense increased $1.6 million, or 19.8%, for the three months ended December 31, 2014 as compared to the three months ended December 31, 2013, primarily as a result of:

  • An increase of $727 thousand in salaries and employee benefits related to the hiring of key employees during 2014; and
  • An increase of $984 thousand in OREO expenses as a result of a $1.3 million gain on sale of OREO during the three months ended December 31, 2013, partially offset by lower carrying costs and other expenses related to OREO during the three months ended December 31, 2014 as compared to the same period in 2013.

YTD 2014 vs YTD 2013. Noninterest expense increased $462 thousand, or 1.3%, for the year ended December 31, 2014 as compared to the year ended December 31, 2013, primarily as a result of:

  • An increase of $3.0 million in salaries and employee benefits primarily related to the hiring of key employees during 2013 and 2014 and an increase in the year-end incentive compensation accrual for the year ended December 31, 2014;
  • An increase of $562 thousand in our provision for contingencies as a result of settlements of legal disputes during the year ended December 31, 2014 as compared to recoveries during the year ended December 31, 2013; partially offset by
  • A decrease of $1.3 million in OREO expenses attributable to the reduction in OREO properties during the year ended December 31, 2014;
  • A decrease of $1.1 million in professional fees related to decreased legal expenses due to the resolution of certain lawsuits and other disputes and a decline in legal costs related to nonperforming loans; and
  • A decrease of $433 thousand in our FDIC expense as a result of lower insurance required based upon improvement in the Bank's financial condition.

Income tax provision (benefit)

For the three months ended December 31, 2014 and September 30, 2014, we recorded no income tax provision or benefit, respectively. We recorded no income tax provision for the fourth quarter of 2014 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 $12.1 million valuation allowance as of December 31, 2014. We had no income tax benefit in the third quarter of 2014 as a result of the analysis performed at that time. 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. The income tax provision of $7.1 million for the three months ended December 31, 2013 was the result of positive and negative evidence that management evaluated and which resulted in an increase in the valuation allowance held against our deferred tax assets.

We had no income tax provision for the year ended December 31, 2014 as a result of positive and negative evidence that management evaluated. The income tax provision of $5.6 million for the year ended December 31, 2013 was the result of positive and negative evidence that management evaluated and which resulted in an increase in the valuation allowance held against our deferred tax assets.

Discontinued operations

For the three months ended December 31, 2014, we had net income related to our discontinued operations of $53 thousand, as compared to net losses from discontinued operations of $71 thousand and $5.0 million for the three months ended September 30, 2014 and December 31, 2013, respectively. The net income from discontinued operations for the three months ended December 31, 2014 was attributable to the recapture of a portion of our expenses related to the mortgage business. The net loss from discontinued operations for the three months ended September 30, 2014 was primarily attributable to the final write down of any outstanding items in discontinued operations during the quarter. The net loss from discontinued operations for the three months ended December 31, 2013 primarily related to our decision to discontinue our mortgage banking division and the associated reserves incurred with exiting a business, including severance and termination of existing contracts and leases.

For the year ended December 31, 2014, we had net income related to our discontinued operations of $1.9 million as compared to a net loss of $7.3 million for the year ended December 31, 2013. The net income from discontinued operations for the year ended December 31, 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. The net loss from discontinued operations for the year ended December 31, 2013 primarily related to our decision to discontinue our mortgage banking division and the associated reserves incurred with exiting a business, including severance and termination of existing contracts and leases.

Balance Sheet Information

Loans

As indicated in the table below, at December 31, 2014 gross loans totaled approximately $838.0 million, which represented an increase of $17.9 million, or 2.2%, from gross loans outstanding at September 30, 2014, and an increase of $61.1 million, or 7.9%, from the gross loans outstanding at December 31, 2013. The following table sets forth the composition, by loan category, of our loan portfolio at December 31, 2014, September 30, 2014 and December 31, 2013.

December 31, 2014 September 30, 2014 December 31, 2013

Amount
Percent of
Total Loans

Amount
Percent of
Total Loans

Amount
Percent of
Total Loans
($ in thousands)
Commercial loans 301,746 36.0% 264,898 32.3% 226,450 29.2%
Commercial real estate loans - owner occupied 212,515 25.4% 197,145 24.0% 174,221 22.4%
Commercial real estate loans - all other 146,676 17.5% 178,297 21.8% 177,884 22.9%
Residential mortgage loans - multi-family 95,276 11.4% 93,579 11.4% 96,565 12.4%
Residential mortgage loans - single family 64,326 7.7% 67,463 8.2% 75,660 9.7%
Land development loans 7,745 0.9% 12,555 1.5% 18,458 2.4%
Consumer loans 9,687 1.2% 6,156 0.8% 7,599 1.0%
Gross loans 837,971 100.0% 820,093 100.0% 776,837 100.0%

Deposits

December 31, 2014 September 30, 2014 December 31, 2013
Type of Deposit ($ in thousands)
Noninterest-bearing checking accounts $ 237,491 $ 206,915 $ 203,942
Interest-bearing checking accounts 39,123 39,666 50,248
Money market and savings deposits 278,973 191,589 147,366
Certificates of deposit 360,722 444,229 378,669
Totals $ 916,309 $ 882,399 $ 780,225

The increase in our total deposits from September 30, 2014 to December 31, 2014 is primarily attributable to an increase of $87.4 million in money market and savings deposits and an increase of $30.0 million in demand deposits. As a result, our lower priced core deposits increased to 61%, and higher priced time deposits decreased to 39%, of total deposits at December 31, 2014, as compared to 50% and 50% of total deposits, respectively, at September 30, 2014.

The decrease in certificates of deposit from December 31, 2013 to December 31, 2014 was primarily the result of our decision to increase our core deposit base and decrease our loan-to-deposit ratio. Due primarily to that decision and the resulting decrease in certificates of deposit, lower priced core deposits increased to 61%, and higher priced time deposits decreased to 39%, of total deposits at December 31, 2014, as compared to 51% and 49% of total deposits, respectively, at December 31, 2013.

Asset Quality

Nonperforming Assets

2014 2013
December 31 September 30 June 30 March 31 December 31
($ in thousands)
Total non-performing loans $ 24,053 $ 24,694 $ 11,645 $ 8,036 $ 11,526
Other real estate owned 1,592 3,461 16,072 15,784 12,291
Other non-performing assets 1,619 1,312
Total non-performing assets $ 25,645 $ 28,155 $ 27,717 $ 25,439 $ 25,129
90-day past due loans $ 2,766 $ 3,028 $ 4,309 $ 2,383 $ 4,309
Total classified assets $ 43,059 $ 50,807 $ 57,313 $ 64,907 $ 64,907
Allowance for loan and lease losses $ 13,833 $ 13,170 $ 12,580 $ 11,940 $ 11,358
Allowance for loan and lease losses /gross loans (excluding loans held for sale) 1.65% 1.61% 1.56% 1.53% 1.46%
Allowance for loan and lease losses /total assets 1.26% 1.23% 1.24% 1.13% 1.14%
Ratio of allowance for loan and lease losses to nonperforming loans 57.51% 53.33% 108.03% 148.58% 98.54%
Ratio of nonperforming assets to total assets 2.33% 2.63% 2.74% 2.41% 2.52%
Net quarterly charge-offs to gross loans (0.08)% (0.02)% —% (0.02)% 0.36%

Nonperforming assets at December 31, 2014 decreased $2.5 million from September 30, 2014 as a result of a $641 thousand decrease in non-performing loans and a decrease of $1.9 million in OREO in the fourth quarter of 2014. OREO decreased to $1.6 million at December 31, 2014 from $3.5 million at September 30, 2014, which was primarily due to the sale of one OREO property during the quarter, for which we recorded a loss of $658 thousand during the three months ended September 30, 2014, and an additional loss of $20 thousand during the three months ended December 31, 2014. At December 31, 2014, the Bank had no OREO and 100% of the balance was held at the Company's non-bank subsidiary.

Allowance for loan and lease losses

2014 2013
December 31 September 30 June 30 March 31 December 31
($ in thousands)
Balance at beginning of quarter $ 13,170 $ 12,580 $ 11,940 $ 11,358 $ 10,795
Charge offs (248) (27) (168) (210) (2,982)
Recoveries 911 167 208 342 190
Provision 450 600 450 3,355
Balance at end of quarter $ 13,833 $ 13,170 $ 12,580 $ 11,940 $ 11,358

At December 31, 2014, the allowance for loan and lease losses ("ALLL") totaled $13.8 million, which was approximately $663 thousand more than at September 30, 2014 and $3.0 million more than at December 31, 2013. The ALLL activity during the three months ended December 31, 2014 included net recoveries of $663 thousand and no provision for loan and lease losses as a result of the significant net recoveries during the quarter. The ALLL activity during the year ended December 31, 2014 included net recoveries of $975 thousand, combined with a $1.5 million provision that we made for loan and lease losses. The ratio of the ALLL-to-total loans outstanding as of December 31, 2014 was 1.65% as compared to 1.61% and 1.39% as of September 30, 2014 and December 31, 2013, respectively.

Capital Resources

At December 31, 2014, we had total regulatory capital on a consolidated basis of approximately $142.1 million, and the Bank had total regulatory capital of approximately $122.9 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 14.8% 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 December 31, 2014, as compared to the regulatory requirements that must be met for a banking institution to be rated as a well-capitalized institution.

Actual Federal Regulatory Requirement
At December 31, 2014 to be Rated Well-Capitalized
Amount Ratio Amount Ratio
($ in thousands)
Total Capital to Risk Weighted Assets:
Company $ 142,142 17.0% N/A N/A
Bank 122,930 14.8% $ 83,155 At least 10.0
Tier 1 Capital to Risk Weighted Assets:
Company $ 131,635 15.7% N/A N/A
Bank 112,485 13.5% $ 49,893 At least 6.0
Tier 1 Capital to Average Assets:
Company $ 131,635 12.2% N/A N/A
Bank 112,485 10.5% $ 53,508 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; uncertainties and risks with respect to the effects that our compliance with the written agreement (the "FRBSF Agreement") with the Federal Reserve Bank of San Francisco (the "FRBSF") will have on our business and results of operations because, among other things, that Agreement imposes restrictions on our operations and our ability to grow our banking franchise, and the risk of potential future supervisory action against us or the Bank by the FRBSF or if we are unable to meet the requirements of the FRBSF Agreement; the risk that our results of operations in the future will continue to be adversely affected by our exit from the wholesale residential mortgage lending business and the risk that our commercial banking business will not generate the additional revenues needed to fully offset the decline in our mortgage banking revenues within the next two to three years; 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 and a productive SBA lending group 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, 2013, and our Quarterly Reports on Form 10-Q for the three months ended September 30, 2014, June 30, 2014 and March 31, 2014, which are on file with the Securities and Exchange Commission ("SEC"). Additional information will be set forth in our Annual Report on Form 10-K for the year ended December 31, 2014 that we intend to file with the SEC during the first 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 Year Ended


December 31, 2014


September 30, 2014


December 31, 2013
Dec '14 vs
Sept '14
% Change
Dec '14 vs
Dec '13
% Change


December 31, 2014


December 31, 2013


% Change
Total interest income 10,205 9,664 9,285 5.6% 9.9% 38,290 35,651 7.4%
Total interest expense 1,524 1,353 1,179 12.6% 29.3% 5,829 5,317 9.6%
Net interest income 8,681 8,311 8,106 4.5% 7.1% 32,461 30,334 7.0%
Provision for loan and lease losses 450 3,355 (100.0)% 100.0% 1,500 4,505 (66.7)%
Net interest income after provision for loan losses 8,681 7,861 4,751 10.4% 82.7% 30,961 25,829 19.9%
Non-interest income:
Service fees on deposits and other banking services 263 207 203 27.1% 29.6% 896 801 11.9%
Net gains on sales of securities available for sale —% —% 44 (100.0)%
Net gain on sale of small business administration loans 657 257 155.6% 100.0% 2,074 100.0%
Other non-interest income 471 390 484 20.8% (2.7)% 1,400 348 302.3%
Total non-interest income 1,391 854 687 62.9% 102.5% 4,370 1,193 266.3%
Non-interest expense:
Salaries & employee benefits 6,003 5,545 5,276 8.3% 13.8% 22,571 19,585 15.2%
Occupancy and equipment 1,066 1,043 958 2.2% 11.3% 4,040 3,843 5.1%
Professional Fees 757 437 854 73.2% (11.4)% 2,434 3,498 (30.4)%
OREO expenses 302 640 (682) (52.8)% (144.3)% 1,962 3,233 (39.3)%
FDIC Expense 347 336 287 3.3% 20.9% 1,336 1,769 (24.5)%
Other non-interest expense 1,260 1,028 1,431 22.6% (11.9)% 4,465 4,418 1.1%
Total non-interest expense 9,735 9,029 8,124 7.8% 19.8% 36,808 36,346 1.3%
Income (loss) from continuing operations before income taxes 337 (314) (2,686) (207.3)% (112.5)% (1,477) (9,324) (84.2)%
Income tax expense 7,100 —% (100.0)% 5,610 (100.0)%
Net income (loss) from continuing operations 337 (314) (9,786) (207.3)% (103.4)% (1,477) (14,934) (90.1)%
Discontinued Operations
Income (loss) from discontinued operations before income taxes 53 (71) (5,011) (174.6)% (101.1)% 1,937 (7,721) (125.1)%
Income tax benefit —% —% (439) (100.0)%
Net income (loss) from discontinued operations 53 (71) (5,011) (174.6)% (101.1)% 1,937 (7,282) (126.6)%
Net income (loss) 390 (385) (14,797) (201.3)% (102.6)% 460 (22,216) (102.1)%
Accumulated declared dividends on preferred stock —% —% (547) (538) 1.7%
Accumulated undeclared dividends on preferred stock (251) (308) (270) (18.5)% (7.0)% (616) (544) 13.2%
Net income (loss) allocable to common shareholders 139 (693) (15,067) (120.1)% (100.9)% (703) (23,298) (97.0)%
Basic income (loss) per common share:
Net income (loss) from continuing operations $ 0.01 $ (0.03) $ (0.53) (133.3)% (101.9)% $ (0.14) $ (0.88) (84.1)%
Net income (loss) available to common shareholders $ 0.01 $ (0.04) $ (0.79) (125.0)% (101.3)% $ (0.04) $ (1.28) (96.9)%
Diluted income (loss) per common share:
Net income (loss) from continuing operations $ 0.01 $ (0.03) $ (0.53) (133.3)% (101.9)% $ (0.14) $ (0.88) (84.1)%
Net income (loss) available to common shareholders $ 0.01 $ (0.04) $ (0.79) (125.0)% (101.3)% $ (0.04) $ (1.28) (96.9)%
Weighted average number of common shares outstanding:
Basic 19,439 19,291 18,994 0.8% 2.3% 19,231 18,241 5.4%
Diluted 19,599 19,291 18,994 1.6% 3.2% 19,231 18,241 5.4%
Ratios from continuing operations(1):
Return on average assets 0.03% (0.03)% (1.04)% (0.14)% (1.59)%
Return on average equity 0.28% (0.27)% (7.54)% (1.26)% (11.47)%
Efficiency ratio 96.65% 98.52% 92.39% 99.94% 115.29%
_____________
(1) Ratios and net interest margin for the three months ended December 31, 2014, September 30, 2014 and December 31, 2013 have been annualized.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share and book value data)
(Unaudited)
ASSETS December 31,
2014
December 31,
2013
Increase/
(Decrease)
Cash and due from banks $ 9,997 $ 13,489 (25.9)%
Interest bearing deposits with financial institutions(1) 167,138 93,451 78.9%
Interest bearing time deposits 4,668 2,423 92.7%
Investment securities (including stock) 69,063 74,520 (7.3)%
Loans (net of allowances of $13,833 and $11,358, respectively) 824,197 765,426 7.7%
Other real estate owned 1,592 12,291 (87.0)%
Net deferred tax assets 5,933 7,553 (21.4)%
Assets of discontinued operations 12,189 (100.0)%
Other assets 17,022 15,241 11.7%
Total Assets $ 1,099,610 $ 996,583 10.3%
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing deposits $ 237,491 $ 203,942 16.5%
Interest bearing deposits
Interest checking 39,123 50,248 (22.1)%
Savings/money market 278,973 147,366 89.3%
Certificates of deposit 360,722 378,669 (4.7)%
Total interest bearing deposits 678,818 576,283 17.8%
Total deposits 916,309 780,225 17.4%
Other borrowings 39,500 70,000 (43.6)%
Liabilities of discontinued operations 3,313 (100.0)%
Other liabilities 6,993 10,360 (32.5)%
Junior subordinated debentures 17,527 17,527 —%
Total liabilities 980,329 881,425 11.2%
Shareholders' equity 119,281 115,158 3.6%
Total Liabilities and Shareholders' Equity $ 1,099,610 $ 996,583 10.3%
Tangible book value per share $ 5.53 $ 5.47 1.1%
Tangible book value per share, as adjusted(2) $ 5.54 $ 5.50 0.7%
Shares outstanding $ 19,462,561 $ 19,135,169 1.7%
_____________
(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
December 31, 2014 September 30, 2014 December 31, 2013
Interest Average Interest Average Interest Average
Average Earned/ Yield/ Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
Interest earning assets
Short-term investments(1) $ 156,954 $ 96 0.24% $ 125,639 $ 82 0.26% $ 48,385 $ 30 0.25%
Securities available for sale and stock(2) 69,546 396 2.26% 69,661 397 2.26% 75,204 419 2.21%
Loans(3) 829,039 9,713 4.65% 802,912 9,185 4.54% 769,435 8,836 4.56%
Total interest-earning assets 1,055,539 10,205 3.84% 998,212 9,664 3.84% 893,024 9,285 4.12%
Interest-bearing liabilities:
Interest-bearing checking accounts $ 38,990 $ 25 0.25% $ 36,719 $ 25 0.27% $ 34,718 $ 26 0.30%
Money market and savings accounts 212,870 228 0.42% 149,372 106 0.28% 137,571 104 0.30%
Certificates of deposit 416,059 985 0.94% 445,108 1,073 0.96% 343,956 798 0.92%
Other borrowings 39,935 75 0.75% 47,337 80 0.67% 62,801 116 0.73%
Junior subordinated debentures 17,527 211 4.78% 17,527 69 1.56% 17,527 135 3.06%
Total interest bearing liabilities 725,381 1,524 0.83% 696,063 1,353 0.77% 596,573 1,179 0.78%
Net interest income $ 8,681 $ 8,311 $ 8,106
Net interest income/spread 3.01% 3.07% 3.34%
Net interest margin 3.26% 3.30% 3.60%
_____________
(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.
Year Ended
December 31, 2014 December 31, 2013
Interest Average Interest Average
Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Rate Balance Paid Rate
Interest earning assets
Short-term investments(1) $ 134,641 $ 333 0.25% $ 93,147 $ 233 0.25%
Securities available for sale and stock(2) 71,202 1,613 2.27% 81,493 1,599 1.96%
Loans(3) 799,900 36,344 4.54% 713,894 33,819 4.74%
Total interest-earning assets 1,005,743 38,290 3.81% 888,534 35,651 4.01%
Interest-bearing liabilities:
Interest-bearing checking accounts $ 36,281 $ 100 0.28% $ 33,447 $ 93 0.28%
Money market and savings accounts 170,047 585 0.34% 155,352 565 0.36%
Certificates of deposit 431,789 4,133 0.96% 354,720 3,763 1.06%
Other borrowings 52,031 437 0.84% 55,318 352 0.64%
Junior subordinated debentures 17,527 574 3.27% 17,527 544 3.10%
Total interest bearing liabilities 707,675 5,829 0.82% 616,364 5,317 0.86%
Net interest income $ 32,461 $ 30,334
Net interest income/spread 2.99% 3.15%
Net interest margin 3.23% 3.41%
_____________
(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.

CONTACT: For more information contact Curt Christianssen, CFO, 714-438-2500 Robert Sjogren, Chief Operating Officer, 714-438-2500

Source:Pacific Mercantile Bank

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