LOS ANGELES, Nov. 8, 2006 (PRIMEZONE) -- National Mercantile Bancorp (Nasdaq:MBLA), the holding company for Mercantile National Bank and South Bay Bank, N.A., today reported record profits for the third quarter and first nine months of 2006, with continued loan growth, improving operating efficiencies and lower overhead in the third quarter.
Net income for the third quarter of 2006 was $1.8 million, or $0.29 per diluted share, including a $322,000 after tax trading gain from the termination of a non-hedged interest rate swap. The company earned a return on average assets (ROAA) of 1.43% and a return on average equity of 17.05% during the third quarter. Excluding the nonrecurring gain, earnings increased 11% to a record $1.4 million, or $0.24 per diluted share, compared to $1.3 million, or $0.22 per diluted share, for the third quarter of 2005, excluding an after tax loss of $288,000 from the non-hedged swap.
Year-to-date net income was $4.0 million, or $0.66 per share, compared to $3.2 million, or $0.55 per share, for the 2005 period. An after-tax charge for non-hedge derivatives of $111,000 and $48,000 was recorded in the 2006 and 2005 periods, respectively.
Year-to-date core earnings increased 10% to $4.1 million, or $0.69 per diluted share, compared to $3.2 million, or $0.55 per diluted share during the first nine months of 2005. 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.
"The interest rate swap related to our trust preferred securities was terminated during the third quarter of 2006. As a result, the company recorded an after-tax gain of $322,000 during the quarter in addition to record core earnings. The sale eliminates the quarterly volatility associated with the changes in the fair value of the swap," said Scott A. Montgomery, President and CEO.
"The platform for profitable growth is now well established and gaining momentum in Southern California's healthy middle business market," Montgomery noted. "In its mid-year forecast, the Los Angeles County Economic Development Corporation predicted a 'quiet boom' with record levels of international trade and tourism. It also highlighted strong construction spending for infrastructure projects across the region and improvement in the entertainment industry with stronger domestic and international box office receipts. With housing and manufacturing stabilizing, the LAEDC forecast calls for 1.3% job growth in LA County, 1.4% job growth in Orange County and 1.8% job growth in Ventura County, for a total of more than 88,000 jobs in the three-county region."
(Source: www.laedc.org/newsroom/releases/2006/071206.pdf)
"Our merger of equals with FCB Bancorp of Camarillo is on track to close late this year or early next year. We have filed for required approvals, and will proceed with shareholder approval as soon as our proxy statement is cleared by the SEC. The combined banks are expected to have total assets of over $1 billion and a branch network of 12 full service offices and 3 loan production offices in Los Angeles, Ventura and Orange Counties," Montgomery added. "We continue to see opportunities for strong synergy in the combination of the two banking companies."
REVIEW OF OPERATIONS
With continued loan growth and higher securities balances, revenue (net interest income before provision for credit losses plus non-interest income) increased to $6.7 million in 3Q06 compared to $5.2 million in 3Q05. Third quarter core revenue grew 7% to $6.1 million from $5.7 million in 3Q05. Year-to-date revenue was $18.2 million compared to $16.2 million in the first nine months of 2005. Core revenue during the first nine months of 2006 grew 13% to $18.5 million from $16.3 million in the first nine months of 2005.
Third quarter net interest income before the provision for credit losses increased 9% to $5.9 million, compared to $5.4 million in 3Q05. Year-to-date, net interest income grew 16% to $17.5 million compared to $15.1 million a year ago.
The company produced a net interest margin of 5.09% in the third quarter of 2006, which is in the upper quartile of peer banks, although down from 5.26% in the second quarter of 2006 and 5.57% in the third quarter a year ago. Net interest margin was 5.22% year-to-date compared to 5.60% a year ago.
The provision for loan losses was $72,000 during the third quarter and totaled $144,000 for the first nine months of 2006. The recovery of a loan previously charged off produced a credit to the allowance for loan losses of $213,000 during the third quarter of 2005. National Mercantile's allowance for credit losses was 1.30% of gross loans at September 30, 2006, and 1.37% a year ago.
Operating (non-interest) expense declined 5% during the third quarter to $3.5 million compared to $3.7 million in the third quarter a year ago. Year-to-date operating expense was held to a 3% increase to $11.1 million as compared to $10.8 million during the first nine months a year ago. "We continue to carefully manage overhead expenses and have held the growth in operating costs well below that of revenue growth, with improved productivity and efficiencies," said David Brown, Chief Financial Officer. Operating expenses included an after-tax charge for stock options of $105,000 in 3Q06 and $290,000 year-to-date In 2005, these expenses were disclosed in footnotes to the financial statements and totaled $90,000 in 3Q05 and $190,000 in the first nine months of 2005.
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 3Q06 improved to 57.6% from 65.1% in 3Q05. During the first nine months of 2006, the core efficiency ratio improved to 60.0% from 65.1% in the first nine months 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.
"For the third quarter results, we have included GAAP financial results reflecting the restated prior periods and non-GAAP data that reflects the core operating results excluding the non-hedged swap. The loss of hedge accounting treatment as a result of the recent technical interpretations of SFAS 133 results in the changes in the fair value of the swap to be recorded in current income. Considering that the economic effect of the swap is not affected by the accounting treatment, we determined that a side by side presentation of core earnings for the current periods compared to year ago periods provides additional meaningful information to our GAAP results."
Core Earnings (a)
(in 000's except per share) 3Q06 3Q05 YTD 06 YTD 05
------- ------- ------- -------
GAAP net income $ 1,756 $ 1,009 $ 3,958 $ 3,207
Provision for income taxes 1,328 715 3,026 2,276
------- ------- ------- -------
Income before tax 3,084 1,724 6,984 5,483
Less: Trading gains (loss)
on non-hedge derivatives 550 (493) (267) (115)
------- ------- ------- -------
Pre-tax core earnings 2,534 2,217 7,251 5,598
Provision for income taxes (1,092) (956) (3,125) (2,413)
------- ------- ------- -------
Core earnings $ 1,442 $ 1,261 $ 4,126 $ 3,185
======= ======= ======= =======
Core diluted earnings
per share (a) $ 0.24 $ 0.21 $ 0.69 $ 0.55
GAAP diluted earnings
per share $ 0.29 $ 0.22 $ 0.66 $ 0.55
GAAP Return on Equity 17.0% 10.8% 13.3% 11.8%
Core Return on Equity 14.1% 13.5% 13.8% 11.5%
GAAP Return on Assets 1.43% 0.99% 1.10% 1.09%
Core Return on Assets 1.19% 1.24% 1.14% 0.99%
GAAP Efficiency Ratio 52.8% 71.2% 60.9% 66.9%
Core Efficiency Ratio 57.6% 65.1% 60.0% 65.1%
GAAP Revenue $ 6,689 $ 5,241 $18,212 $16,174
Core Revenue $ 6,139 $ 5,734 $18,479 $16,289
(a) Defined as reported net income excluding after-tax trading gains
and losses on non-hedge derivatives.
BALANCE SHEET PERFORMANCE
Total assets increased 15% to $494.2 million at September 30, 2006, from $428.3 million a year ago. The loan portfolio grew 9% to $358.8 million at September 30, 2006, compared to $331.3 million at September 30, 2005.
Loan Portfolio Composition:
---------------------------------------------------------------------
September 30,
(Dollars in thousands) 2006 2005
Amount % Amount %
-------- --- -------- ---
Commercial loans - secured
and unsecured $100,757 28% $ 88,281 27%
Real estate loans:
Secured by commercial real
properties 135,577 38% 128,555 39%
Secured by multifamily
residential properties 10,170 3% 11,697 3%
Secured by one to four
family residential
properties 16,490 4% 18,891 6%
-------- --- -------- ---
Total real estate loans 162,237 45% 159,143 48%
Construction and land
development loans 88,407 25% 79,097 24%
Consumer: installment, home
equity and unsecured 7,434 2% 4,786 1%
-------- --- -------- ---
Total loans outstanding $358,835 100% $331,307 100%
======== === ======== ===
Total deposits increased 7% to $379.4 million at September 30, 2006, compared to $354.6 million a year earlier. Money market accounts grew 45% year-over-year and now represent 29% of total deposits, up from 21% a year earlier. Core deposits, excluding time certificates, accounted for 73% of total deposits at September 30, 2006, up from 71% a year ago.
Shareholders' equity increased 16% to $42.8 million, or a book value per share of $7.45, at September 30, 2006, compared to $36.9 million, or $6.61 per share, at September 30, 2005. Tangible book value increased 15% to $6.75 per share at September 30, 2006, from $5.87 per share at September 30, 2005.
"Credit quality has improved significantly this year, with the sale of the only piece of other real estate owned and only one small non-performing loan in the portfolio," said Robert Bartlett, Chief Credit Officer. At quarter-end, non-performing assets totaled $338,000 or 0.07% of total assets, down from $1.4 million, or 0.32% of total assets at September 30, 2005. Net charge-offs were just $23,000 year-to-date. There were no loan delinquencies at September 30, 2006.
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. has filed 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.
National Mercantile Bancorp and Subsidiaries
Selected Statement of Operations Data and Ratios:
(Unaudited)
(In thousands, except share data)
For the Three Months Ended
---------------------------------------------------------------------
Sept. 30, June 30, March 31,
2006 2006 2006(b)
----------------------------------
Interest income $ 9,248 $ 8,913 $ 8,051
Interest expense 3,387 2,947 2,335
---------- ---------- ----------
Net interest income before
provision for credit
losses 5,861 5,966 5,716
Provision for credit losses 72 40 32
---------- ---------- ----------
Net interest income after
provision for credit
losses 5,789 5,926 5,684
Other operating income:
Deposit-related and other
customer services 255 234 232
Other operating income 573 (310) (315)
Other operating expenses 3,533 3,819 3,732
---------- ---------- ----------
Income before provision for
income taxes 3,084 2,031 1,869
Provision for income taxes 1,328 885 813
---------- ---------- ----------
Net income $ 1,756 $ 1,146 $ 1,056
---------- ---------- ----------
Earnings per share:
Basic $ 0.32 $ 0.21 $ 0.19
Diluted $ 0.29 $ 0.19 $ 0.18
Weighted average shares
outstanding:
Basic 5,545,903 5,542,441 5,518,383
Diluted 5,985,837 6,035,527 6,002,461
RATIOS
Return on quarterly average
assets 1.43% 0.94% 0.93%
Return on quarterly average
equity 17.05% 11.66% 10.82%
Net interest margin - average
earning assets 5.09% 5.26% 5.49%
Operating expense ratio 2.88% 3.14% 3.30%
Efficiency ratio (c) 52.82% 64.84% 66.25%
For the Three Months Ended
---------------------------------------------------------------------
Dec. 31, Sept. 30, Annual %
2005(b) 2005(b) Change
----------------------------------
Interest income $ 7,585 $ 6,754 36.9%
Interest expense 1,907 1,368 147.6%
---------- ----------
Net interest income before
provision for credit losses 5,678 5,386 8.8%
Provision for credit losses 40 (213) n/a
---------- ----------
Net interest income after
provision for credit losses 5,638 5,599 3.4%
Other operating income:
Deposit-related and other
customer services 242 252 1.2%
Other operating income (194) (397) -244.3%
Other operating expenses 3,561 3,730 -5.3%
---------- ----------
Income before provision for
income taxes 2,125 1,724 78.9%
Provision for income taxes 883 715 85.7%
---------- ----------
Net income $ 1,242 $ 1,009 74.0%
---------- ----------
Earnings per share:
Basic $ 0.23 $ 0.19 68.4%
Diluted $ 0.21 $ 0.17 70.3%
Weighted average shares
outstanding:
Basic 5,459,528 5,408,969
Diluted 5,925,829 5,925,830
RATIOS
Return on quarterly average assets 1.12% 0.99%
Return on quarterly average equity 12.95% 10.72%
Net interest margin - average
earning assets 5.51% 5.57%
Operating expense ratio 3.22% 3.65%
Efficiency ratio (c) 62.19% 71.17%
---------------------------------------------------------------------
(b) As restated
(c) Other operating expense divided by net interest income and other
operating income.
National Mercantile Bancorp and Subsidiaries
Selected Statement of Operations Data and Ratios:
(Unaudited) For the Nine Months Ended
------------------------------------
(In thousands, except
share data) Sept. 30, Sept. 30, Annual %
2006 2005(b) Change
------------------------------------
Interest income $ 26,212 18,680 40.3%
Interest expense 8,669 3,576 142.4%
---------- ----------
Net interest income
before provision for
credit losses 17,543 15,104 16.1%
Provision for credit
losses 144 (124) -216.1%
---------- ----------
Net interest income
after provision for
credit losses 17,399 15,228 14.3%
Other operating income:
Net gain on sale of
securities
Deposit-related and other
customer services 721 818 -11.9%
Other operating income (52) 252 -584.6%
Other operating expenses 11,084 10,815 2.5%
---------- ----------
Income before provision
for income taxes 6,984 5,483 27.4%
Provision for income
taxes 3,026 2,276 33.0%
---------- ----------
Net income $ 3,958 3,207 23.4%
---------- ----------
Earnings per share:
Basic $ 0.71 0.74 -4.1%
Diluted $ 0.66 0.55 20.0%
Weighted average shares
outstanding:
Basic 5,535,676 4,350,700
Diluted 6,008,042 5,873,871
Total shares outstanding 5,801,391 5,484,843
RATIOS
Return on average assets 1.10% 1.09%
Return on average equity 13.27% 11.83%
Net interest margin -
average earning assets 5.22% 5.60%
Operating expense ratio 3.08% 3.66%
Efficiency ratio (c) 60.86% 66.87%
(b) As restated
(c) Other operating expense divided by net interest income and other
operating income.
National Mercantile Bancorp and Subsidiaries
Selected Financial Condition Ratios:
(Unaudited)
(In thousands, except ratios and shares)
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2006 2006 2006 2005 2005
-------- -------- -------- -------- --------
Average quarterly
assets $486,336 $487,372 $458,881 $438,715 $405,572
Nonperforming
assets
Nonaccrual loans 338 343 300 319 313
Loans 90 days
past due and
still accruing -- -- -- -- --
Other real
estate owned -- -- -- 1,056 1,056
-------- -------- -------- -------- --------
Total nonper-
forming assets 338 343 300 1,375 1,369
Loan to deposit
ratio 94.58% 94.55% 87.45% 93.50% 93.44%
Allowance for
credit losses to
total loans 1.30% 1.32% 1.29% 1.32% 1.37%
Allowance for credit
losses to nonper-
forming assets 1379.03% 1355.10% 1520.67% 324.95% 330.61%
National Mercantile Bancorp and Subsidiaries
Selected Financial Condition Data:
(Unaudited)
(In thousands, except share data)
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2006 2006 2006 2005 2005
-------- -------- -------- -------- --------
ASSETS
Cash and due from
banks-demand $ 10,709 $ 15,002 $ 15,211 $ 13,507 $ 15,113
Due from banks-
interest bearing 2,000 2,263 2,000 2,000 2,000
Federal funds
sold and
securities
purchased under
agreements to
resell -- 600 2,790 685 3,110
Investment
securities 105,478 103,970 88,263 74,370 59,177
Loans
Commercial 100,757 91,485 93,517 89,474 88,281
Real estate 162,237 164,394 159,724 150,802 159,143
Construction and
land development 88,407 88,717 96,121 92,077 79,097
Consumer and
other loans 7,434 7,686 5,133 7,239 4,786
-------- -------- -------- -------- --------
Total loans
outstanding 358,835 352,282 354,495 339,592 331,307
Deferred net
loan fees (615) (1,053) (995) (1,034) (1,128)
-------- -------- -------- -------- --------
Loans receivable,
net 358,220 351,229 353,500 338,558 330,179
Allowance for
loan and lease
losses (4,661) (4,648) (4,562) (4,468) (4,526)
-------- -------- -------- -------- --------
Net loans
receivable 353,559 346,581 348,938 334,090 325,653
Goodwill and
intangible assets 4,464 4,520 4,576 4,632 4,688
Accrued interest
receivable and
other assets 17,987 18,466 17,554 19,175 18,569
-------- -------- -------- -------- --------
Total assets $494,197 $491,402 $479,332 $448,459 $428,310
======== ======== ======== ======== ========
LIABILITIES & CAPITAL
Deposits:
Noninterest-
bearing demand $115,740 $115,650 $122,638 $115,924 $124,053
Interest-bearing
demand deposits 27,768 30,973 31,716 36,018 31,583
Money market
accounts 109,210 97,578 91,885 76,334 75,377
Savings 24,435 24,102 26,336 28,208 30,180
Time certificates
of deposit:
$100,000 or more 84,094 86,756 114,296 87,468 72,845
Under $100,000 18,171 17,516 18,481 19,256 20,518
-------- -------- -------- -------- --------
Total deposits 379,418 372,575 405,352 363,208 354,556
Other borrowings 52,600 57,250 16,400 28,337 19,000
Junior subordinated
deferrable interest
debentures 15,464 15,464 15,464 15,464 15,464
Accrued interest
and other
liabilities 3,939 7,077 3,414 3,288 2,376
-------- -------- -------- -------- --------
Total liabilities 451,421 452,366 440,630 410,297 391,396
Total shareholders'
equity 42,776 39,036 38,702 38,162 36,914
-------- -------- -------- -------- --------
Total liabilities
& shareholders'
equity $494,197 $491,402 $479,332 $448,459 $428,310
======== ======== ======== ======== ========
Book value per
common share (d) $ 7.45 $ 6.89 $ 6.69 $ 6.72 $ 6.61
Tangible book
value per common
share (e) $ 6.75 $ 6.18 $ 5.96 $ 5.99 $ 5.87
(d) Total common equity divided by fully-diluted shares
outstanding including common share equivalents.
(e) Total common equity, less goodwill and other intangible
assets; divided by fully-diluted shares outstanding.