LOS ANGELES, Oct. 5, 2006 (PRIMEZONE) -- National Mercantile Bancorp (Nasdaq:MBLA), the holding company for Mercantile National Bank and South Bay Bank, N.A., today reported record profits from core operations for the second quarter and first half of 2006, with strong loan growth and continued excellent asset quality. A change in interpretation of accounting for derivatives resulted in a non-cash charge during the first and second quarters of 2006 and increased earnings in the second quarter and first half of 2005.
Net income from operations was $1.1 million, or $0.19 per diluted share in the second quarter of 2006, including a $216,000 non-cash, after-tax charge, related to the change in accounting treatment for derivatives. In the second quarter of 2005, net income increased to $1.4 million, or $0.23 per diluted share, including a $340,000 non-cash, after-tax increase, related to the FASB 133 restatement.
During the first half of 2006, net income was $2.2 million, or $0.37 per share, including a non-cash charge of $478,000 for derivative accounting, compared to the first six months of 2005, when the adjustments increased net income by $221,000 to $2.2 million, or $0.38 per share. The per share figures reflect the 5- for 4-stock split paid April 14, 2006, and the conversion of the Series A Preferred stock into common stock in June 2005.
"Our momentum continues to build and is most apparent in our top-line results, with net interest income up 20% in the quarter and first six months of 2006. We continue to generate strong momentum and are on track to post record operating results again in the third quarter, which we anticipate reporting in a timely manner now that the hedge accounting issues have been resolved," said Scott A. Montgomery, President and Chief Executive Officer. Net income for the first half of 2006 was unchanged from a year ago, despite the reduction of income after taxes by $700,000 from the adjustment in value of the interest rate swap caused by the change in accounting for derivatives.
"In addition to our strong profitability, we announced the signing of a merger of equals agreement with FCB Bancorp of Camarillo, which will double the size of our franchise and significantly expand our geographic footprint in the Southern California market. The company will grow to over a billion dollars in assets with 12 branches and three loan production offices in the key Los Angeles, Ventura and Orange Counties," Montgomery added.
"The robust middle-market business sector and population influx in these counties continues to provide excellent opportunities for growth. With the consolidation of operations and increased products and services we expect to enhance earnings and increase shareholder value. In addition, our legal lending limits will more than double, further expanding our market opportunities and contributing growth opportunities for our officers and employees. We look forward to joining forces with FCB Bancorp and expect the transaction to close late in 2006 or early in 2007, after obtaining shareholder and regulatory approvals," Montgomery noted.
"Based on the new treatment for accounting for derivatives, we have determined that canceling the interest rate swap related to our trust preferred securities will reduce the volatility in our quarterly results and allow for more meaningful quarter to quarter comparisons," said David R. Brown, Chief Financial Officer. "During the third quarter, we liquidated the interest rate swap and booked a gain of $325,000 after tax, which will further boost profits during the third quarter. The results for the third quarter will be released in a few weeks."
The net interest margin for the second quarter was 5.26%, compared to 5.69% a year ago, remaining well above most peers despite the reduction caused by the impact of the hedge accounting change. "We have implemented various strategies over the last year to protect our net interest income in the event of a decline in interest rates," said Brown. "This strategy has included active purchases of securities with limited prepayment risk, financed with adjustable rate funding sources. These transactions have relatively narrow margins compared to our core balance sheet, but position us well for an end to the rate tightening cycle.
"We utilize interest rate swaps and floors as part of our interest rate risk management, and we will continue to use these tools to mitigate our exposure when it makes economic sense to do so," Brown said.
REVIEW OF OPERATIONS
Revenue, including the non-cash accounting changes for derivatives, (net interest income before provision for credit losses plus non-interest income) was $5.9 million in 2Q06 compared to $6.0 million in 2Q05. Year-to-date revenue was $11.5 million compared to $10.9 million in the first half of 2005. Second quarter net interest income before provision for credit losses increased 20% to $6.0 million, with interest income up 52%. In the first half of 2006, net interest income grew 20% to $11.7 million, with interest income rising 45%.
The primary effect of the change in derivative accounting was on operating income, reflecting the unrealized gains and losses on economic derivatives. In the second quarter of 2006, an unrealized loss of $369,000 resulted in an other operating loss of $76,000. In the second quarter of 2005, unrealized gains contributed $582,000, bringing total other operating income up to $981,000.
The provision for loan losses was $40,000 in the second quarter and totaled $72,000 in the first six months of 2006. National Mercantile's allowance for credit losses was 1.32% of gross loans at June 30, 2006, and 1.35% a year ago.
Non-interest expense in the second quarter of 2006 was $3.8 million compared to $3.6 million in the second quarter a year ago. Year-to-date non-interest expense was $7.6 million compared to $7.1 million in the first half a year ago. "Overhead expenses grew 6% in the second quarter of 2006 and 7% year-to-date, reflecting additions to our business development staff in the second half of 2005. With minimal problem loans and the sale of the only property in our Real Estate Owned category early in the year, our legal fees declined substantially in the quarter and year-to-date," said Robert Bartlett, Chief Credit Officer.
Operating efficiencies continued to improve during the quarter and year-to-date, reflecting top-line growth and cost control efforts. Excluding the impact of the change in hedge accounting, the efficiency ratio in 2Q06 improved to 61.0% from 67.0% in 2Q05. In the first half of 2006, the efficiency ratio improved to 61.2% from 67.1% in the first half of 2005. The efficiency ratio, calculated by dividing non-interest expense by net interest income and non-interest income, measures overhead costs as a percentage of total revenues.
BALANCE SHEET PERFORMANCE
Total assets increased 21% to $491.4 million at June 30, 2006, from $406.9 million a year ago. The loan portfolio grew 13% to $351.2 million at June 30, 2006, compared to $307.6 million at June 30, 2005. "Demand for new adjustable rate commercial loans and new construction loans during the second quarter remained strong," said Bartlett. "Although we are seeing some completed homes remain on the market somewhat longer than they were last year, we expect continued home price appreciation in our market."
LOAN PORTFOLIO COMPOSITION:
(Dollars in thousands) June 30, 2006 June 30, 2005
Amount % Amount %
-------- ---- -------- ----
Commercial loans -
secured and unsecured $ 91,485 26% $ 94,117 31%
Real estate loans:
Secured by commercial
real properties 137,177 39% 126,081 41%
Secured by multifamily
residential properties 18,786 5% 17,532 6%
Secured by one to four
family residential
properties 8,432 2% 9,953 3%
-------- ---- -------- ----
Total real estate
loans 164,394 47% 153,566 50%
Construction and land
development loans 88,717 25% 56,843 18%
Consumer: installment,
home equity and unsecured 7,686 2% 4,203 1%
-------- --- -------- ----
Total loans outstanding $352,282 100% $308,729 100%
======== ==== ======== ====
Total deposits increased 6% to $372.6 million at June 30, 2006, compared to $350.3 million a year earlier. Money market accounts grew 48% year-over-year and now represent 26% of total deposits. Core deposits, excluding time certificates, accounted for 78% of total deposits at June 30, 2006.
Shareholders' equity increased 7% to $39.0 million, or a book value per share of $6.89, at June 30, 2006, compared to $36.5 million, or $6.49 per share, at June 30, 2005. Tangible book value increased 8% to $6.18 per share at June 30, 2006, from $5.73 per share at June 30, 2005.
"We have done an excellent job of managing credit risk while growing the loan portfolio," noted Montgomery. At quarter-end, non-performing assets totaled $360,000, or 0.07% of total assets, down from $1.4 million, or 0.34% of total assets at June 30, 2005. Net charge-offs were just $1,000 year-to-date. Total delinquencies at June 30, 2006 were $6,000.
ABOUT NATIONAL MERCANTILE BANCORP
National Mercantile Bancorp is the holding company for Mercantile National Bank and South Bay Bank, with offices located in Century City, Encino, Torrance, El Segundo, Costa Mesa and Beverly Hills, all among California's highest value markets. The banks' focus is on business banking with specialty lending expertise in the entertainment, healthcare, professional services, real estate escrow, business and residential construction, property management industries and community-based non-profit organizations. The company is building a premier business banking franchise with experienced loan officers providing highly personalized service.
This press release contains forward-looking statements about the Company. Forward-looking statements consist of descriptions of plans or objectives for future operations, products or services, forecasts of revenues, earnings or other measures of economic performance and assumptions underlying or relating to any of the foregoing. Because forward-looking statements discuss future events or conditions and not historical facts, they often include words such as "believe," "potential," "confident," "encourage or encouraging," "will be," "anticipate," "estimate" or similar expressions. Do not rely unduly on forward-looking statements. They give the Company's expectations about the future and are not guarantees or predictions of future events, conditions or results. Forward-looking statements speak only as of the date they are made, and the Company does not undertake to update them to reflect changes that occur after that date. Many factors, most beyond the company's control, could cause actual results to differ significantly from the Company's expectations. These factors include, among other things, changes in interest rates, which affect margins, impact funding sources or alter loan demand; increased competitive pressures; changes in national and local economic conditions; fluctuations in the California real estate markets; changes in fiscal policy, monetary policy, legislative or regulatory environments; changes in the credit quality of the Company's loan portfolio, the Company's abilities to realize further efficiencies and achieve growth targets, and finalization of year-end audit results. These and other factors are discussed in greater detail in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2005.
Additional Information
The proposed merger will be submitted to the shareholders of each of National Mercantile and FCB Bancorp for their consideration. First California Financial Group, Inc. will file a registration statement, which will include a joint proxy statement/prospectus to be sent to the shareholders of each of National Mercantile and FCB Bancorp, and each of First California Financial Group, National Mercantile and FCB Bancorp may file other relevant documents concerning the proposed merger with the SEC. Shareholders are urged to read the registration statement and the joint proxy statement/prospectus regarding the proposed merger when they become available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information. You will be able to obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about First California Financial Group, National Mercantile and FCB Bancorp, at the SEC's website (http://www.sec.gov). You will also be able to obtain these documents, free of charge, by accessing National Mercantile's website (http://www.mnbla.com) under the tab "Investor Relations", or by accessing FCB Bancorp's website (http://www.fcbank.com) under the tab "About Us."
National Mercantile and FCB Bancorp and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of National Mercantile and FCB Bancorp in connection with the proposed merger. Information about the directors and executive officers of National Mercantile is set forth in the proxy statement for its 2006 annual meeting of shareholders, as filed with the SEC on April 20, 2006. Information about the directors and executive officers of FCB Bancorp is set forth in its Annual Report on Form 10-K, as filed with the SEC on March 31, 2006. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the joint proxy statement/prospectus regarding the proposed merger when it becomes available. You may obtain free copies of these documents as described above.
Selected Statement of Operations Data and Ratios:
(Unaudited) For the Three Months Ended
(In thousands, -----------------------------------------------------
except share June 30, March 31, Dec. 31, Sept. 30, June 30,
data) 2006 2006(a) 2005(a) 2005(a) 2005(a)
--------- ---------- ---------- ---------- ----------
Interest
income $ 8,913 $ 8,051 $ 7,585 $ 6,754 $ 6,089
Interest
expense 2,947 2,335 1,907 1,368 1,116
--------- ---------- ---------- ---------- ----------
Net interest
income
before
provision for
credit losses 5,966 5,716 5,678 5,386 4,973
Provision for
credit losses 40 32 40 (213) 0
--------- ---------- ---------- ---------- ----------
Net interest
income after
provision for
credit losses 5,926 5,684 5,638 5,599 4,973
Other operating
income:
Deposit-related
and other
customer
services 234 232 242 252 269
Other operating
income (310) (315) (194) (397) 712
Other operating
expenses 3,819 3,732 3,561 3,730 3,599
--------- ---------- ---------- ---------- ----------
Income before
provision for
income taxes 2,031 1,869 2,125 1,724 2,355
Provision for
income taxes 885 813 883 716 978
--------- ---------- ---------- ---------- ----------
Net income $ 1,146 $ 1,056 $ 1,242 $ 1,008 $ 1,377
--------- ---------- ---------- ---------- ----------
Earnings per
share:
Basic $ 0.21 $ 0.19 $ 0.23 $ 0.19 $ 0.35
Diluted $ 0.19 $ 0.18 $ 0.21 $ 0.17 $ 0.23
Weighted average
shares
outstanding:
Basic 5,542,441 5,518,383 5,459,528 5,408,969 3,908,376
Diluted 6,035,527 6,002,461 5,962,200 5,925,829 5,879,355
RATIOS
Return on
quarterly
average assets 0.94% 0.93% 1.12% 0.99% 1.44%
Return on
quarterly
average
equity 11.66% 10.82% 12.95% 10.71% 15.46%
Net interest
margin -
average earning
assets 5.26% 5.49% 5.51% 5.57% 5.69%
Operating
expense ratio 3.14% 3.30% 3.22% 3.65% 3.77%
Efficiency
ratio (b) 64.84% 66.25% 62.19% 71.17% 60.45%
(a) As restated
(b) Other operating expense divided by net interest income and
other operating income.
Selected Financial Condition Ratios:
(Unaudited)
(In thousands, June 30, March 31, Dec. 31, Sept. 30, June 30,
except ratios 2006 2006 2005 2005 2005
and shares) --------- ---------- ---------- ---------- ----------
Average quarterly
assets $ 487,372 $ 458,881 $ 438,715 $ 405,572 $ 383,244
Nonperforming
assets
Nonaccrual loans 343 300 319 313 300
Loans 90 days
past due and
still accruing -- -- -- -- --
Other real
estate owned -- -- 1,056 1,056 1,056
--------- ---------- ---------- ---------- ----------
Total nonperforming
assets 343 300 1,375 1,369 1,356
Loan to deposit
ratio 94.55% 87.45% 93.50% 93.44% 88.13%
Allowance for
credit losses
to total loans 1.32% 1.29% 1.32% 1.37% 1.19%
Allowance for
credit losses
to nonperforming
assets 1355.10% 1520.67% 324.95% 330.61% 270.58%
Selected Statement of Operations Data and Ratios:
For the Six Months Ended
(Unaudited) --------------------------------------
(In thousands, June 30, June 30, Annual %
except share data) 2006 2005 Change
--------------------------------------
Interest income $ 16,964 $ 11,926 42.2%
Interest expense 5,282 2,208 139.2%
-------- --------
Net interest income
before provision for
credit losses 11,682 9,718 20.2%
Provision for credit
losses 72 89 -19.1%
-------- --------
Net interest income
after provision for
credit losses 11,610 9,629 20.6%
Other operating income:
Deposit-related and other
customer services 466 566 -17.7%
Other operating income (625) 649 -196.3%
Other operating expenses 7,551 7,085 6.6%
-------- --------
Income before provision
for income taxes 3,900 3,759 3.8%
Provision for income taxes 1,698 1,560 8.8%
-------- --------
Net income $ 2,202 $ 2,199 0.1%
-------- --------
Earnings per share:
Basic $ 0.40 $ 0.58 -31.0%
Diluted $ 0.37 $ 0.38 -2.6%
Weighted average shares outstanding:
Basic 5,530,479 3,812,796
Diluted 6,019,060 5,861,561
Total shares
outstanding (a) 6,386,632 6,267,727
RATIOS
Return on average assets 0.93% 1.13%
Return on average equity 11.17% 12.38%
Net interest margin -
average earning assets 5.35% 5.55%
Operating expense ratio 3.19% 3.00%
Efficiency ratio (b) 65.53% 64.80%
(a) includes assumed conversion of currently convertible Series A
preferred stock into common stock
(b) Other operating expense divided by net interest income and other
operating income.
Selected Financial Condition Data:
(Unaudited)
(In thousands,
except share June 30, March 31, Dec. 31, Sept. 30, June 30,
data) 2006 2006 2005 2005 2005
-----------------------------------------------------
ASSETS
Cash and due
from
banks-demand $ 15,002 $ 15,211 $ 13,507 $ 15,113 $ 19,294
Due from
banks-interest
bearing 2,263 2,000 2,000 2,000 2,000
Federal funds
sold and
securities
purchased
under agreements
to resell 600 2,790 685 3,110 9,000
Investment
securities 103,970 88,263 74,370 59,177 46,335
Loans
Commercial 91,485 93,517 89,474 88,281 94,117
Real estate 164,394 159,724 150,802 159,143 153,566
Construction
and land
development 88,717 96,121 92,077 79,097 56,843
Consumer and
other loans 7,686 5,133 7,239 4,786 4,203
--------- ---------- ---------- ---------- ----------
Total loans
outstanding 352,282 354,495 339,592 331,307 308,729
Deferred net
loan fees (1,053) (995) (1,034) (1,128) (1,201)
--------- ---------- ---------- ---------- ----------
Loans receivable,
net 351,229 353,500 338,558 330,179 307,528
Allowance for
loan and lease
losses (4,648) (4,562) (4,468) (4,526) (3,669)
--------- ---------- ---------- ---------- ----------
Net loans
receivable 346,581 348,938 334,090 325,653 303,859
Goodwill and
intangible
assets 4,520 4,576 4,632 4,688 4,744
Accrued interest
receivable and
other assets 18,466 17,554 19,175 18,569 19,044
--------- ---------- ---------- ---------- ----------
Total assets $491,402 $479,332 $448,459 $428,310 $404,753
========= ========== ========== ========== ==========
LIABILITIES & CAPITAL
Deposits:
Noninterest-
bearing
demand $115,650 $122,638 $115,924 $124,053 $145,997
Interest-
bearing
demand
deposits 30,973 31,716 36,018 31,583 31,284
Money market
accounts 97,578 91,885 76,334 75,377 65,894
Savings 24,102 26,336 28,208 30,180 30,555
Time
certificates
of deposit:
$100,000 or
more 86,756 114,296 87,468 72,845 56,079
Under
$100,000 17,516 18,481 19,256 20,518 20,501
--------- ---------- ---------- ---------- ----------
Total
deposits 372,575 405,352 363,208 354,556 350,310
Other borrowings 57,250 16,400 28,337 19,000 0
Junior
subordinated
deferrable
interest
debentures 15,464 15,464 15,464 15,464 15,464
Accrued interest
and other
liabilities 7,077 3,414 3,288 2,376 1,955
--------- ---------- ---------- ---------- ----------
Total
liabilities 452,366 440,630 410,297 391,396 367,729
Total shareholders'
equity 39,036 38,702 38,162 36,914 36,547
--------- ---------- ---------- ---------- ----------
Total liabilities &
shareholders'
equity $491,402 $479,332 $448,459 $428,310 $404,753
========= ========== ========== ========== ==========
Book value per
common share $6.89 $6.69 $6.72 $6.61 $6.49
Tangible book
value per
common share(a) $6.18 $5.96 $5.99 $5.87 $5.73
(a) Total common equity, less goodwill and other intangible assets;
divided by fully-diluted shares outstanding.