COSTA MESA, Calif., Aug. 12, 2013 (GLOBE NEWSWIRE) -- Pacific Mercantile Bancorp (Nasdaq:PMBC) today reported its results of operations for the second quarter and six months ended June 30, 2013.
In the three months ended June 30, 2013, we incurred a net loss of $3.1 million, or $0.18 per diluted share, as compared to net income of $5.8 million, or $0.35 per diluted share in the same three months of 2012. In the six months ended June 30, 2013, we incurred a net loss of $6.3 million, or $0.38 per share, as compared to net income of $7.2 million, or $0.47 per diluted share. The net losses were primarily attributable to decreases in noninterest income of $7.7 million, or 84.7%, and $11.8 million, or 77.4%, respectively, and declines in net interest income of $700,000, or 8.6%, and $1.4 million, or 8.4%, respectively, in the three and six month periods ended June 30, 2013, in each case as compared to the same respective periods of 2012.
The declines in noninterest income were primarily due to decreases in mortgage banking revenues of $6.8 million, or 79.7%, in the three months ended June 30, 2013 and $9.7 million, or 74.5%, in the six months ended June 30, 2013, which were primarily attributable to our exit from the wholesale residential mortgage loan business in late August 2012. The declines in net interest income were due primarily to decreases in interest income of $1.6 million, or 14.8%, and $2.9 million, or 13.8%, in the three and six months ended June 30, 2013, respectively, partially offset by decreases of $827,000, or 37.4%, and $1.5 million, or 33.2%, respectively, in interest expense.
Partially offsetting the decreases in noninterest income and net interest income were decreases in noninterest expense of $1.7 million, or 12.5%, and $605,000, or 2.3%, in the three and six months ended June 30, 2013, as compared to the same respective periods of 2012. Those decreases were attributable to, among other things, decreases in the carrying costs of and other expenses we incurred in connection with foreclosed real properties and reductions in contingency reserves due to the resolution of certain lawsuits.
Additionally, non-performing loans declined to $8.7 million at June 30, 2013, down from $17.7 million at December 31, 2012 and $20.9 million at June 30, 2012.
"We are pleased with the continuing progress in the reduction of problem loans," stated Chief Executive Officer Steven K. Buster of Pacific Mercantile Bank and Pacific Mercantile Bancorp. "The substantial reduction in the total non-performing loans by 58% at June 30, 2013, as compared to June 30, 2012, reflects the hard work and disciplined approach to problem loan resolution taken by our team. Moreover, we expect that we will be able to further reduce our nonperforming assets during the balance of 2013, which should positively impact our future operating results."
"At the same time, we have invested in a number of important new hires in the commercial banking division and the related personnel expenses are not yet offset by commensurate revenue. However, these additions to the team have positioned the Bank for profitable growth through increases in outstanding commercial loans and in low cost deposits."
Results of Operation
Net Interest Income.
The declines in net interest income were due to decreases in interest income of $1.6 million, or 14.8%, and $2.9 million, or 13.8%, respectively, in the three and six months ended June 30, 2013, partially offset by decreases of $827,000, or 37.4%, and $1.5 million, or 33.2%, respectively, in interest expense. These decreases in interest income were due primarily to a decline in interest earned on loans as a result of actions taken by the Federal Reserve Board to keep interest rates low and a decline in the average outstanding loan volume, as compared to the same respective periods of 2012. Also contributing to the decrease in interest income in the six months ended June 30, 2013 was a decline in the volume of securities held for sale. The decreases in interest expense in the three and six months ended June 30, 2013 were due primarily to a combination of declines in the rates of interest paid on higher priced time deposits and on money market and savings deposits and decreases in the volume of higher priced time deposits and in Federal Home Loan Bank ("FHLB") borrowings.
Provision for Loan Losses. We did not record a provision for loan losses during this year's second quarter due primarily to an improvement in the performance of our loan portfolio and the decrease in loan volume. By comparison, we recorded a provision for loan losses of $1.9 million in the three months ended June 30, 2012. During the six months ended June 30,2013, we made provisions for loan losses of $1.2 million, as compared to $1.5 million in the same six months of 2012. At June 30, 2013, the ALL totaled $11.1 million, which was approximately $3.5 million less than at June 30, 2012. The ALL activity in the first six months of 2013 included net charge-offs of $900,000, which were more than offset by a $1.2 million provision that we made for loan losses. The ratio of the ALL-to-total loans outstanding as of June 30, 2013 was 1.53% as compared to 2.07% as of June 30, 2012.
Non-interest income. Noninterest income decreased by $7.7 million, or 84.7%, in the three months ended June 30, 2013, due primarily to a $6.8 million, or 79.7%, decrease in mortgage banking revenues. In the six months ended June 30, 2013, noninterest income decreased by $11.8 million, or 77.4%, primarily as a result of a $9.7 million, or 74.5%, decrease in mortgage banking revenues and a $1.2 million, or 98.1%, decrease in net gains on sales of securities available for sale.
These decreases in mortgage banking revenue were primarily attributable to our exit from the wholesale residential mortgage business in August 2012, which, as we previously reported, was expected to result in a significant decrease in our mortgage banking revenues during 2013. The $1.2 million decline in net gains on sales of securities in the first six months of 2013 was due primarily to a decrease to $6 million in volume of sales of such securities, from approximately $135 million in the six months ended June 30, 2012. Sales of securities available for sale can vary, sometimes materially, from period to period primarily in response to changes in market rates of interest.
Non-interest expense. Noninterest expense decreased by $1.7 million, or 12.5%, in the three months ended June 30, 2013, and by $605,000, or 2.3%, in the six months ended June 30, 2013, as compared to the same respective periods of 2012. These decreases were attributable to a number of factors including (i) decreases in carrying costs and other expenses incurred in connection with real properties acquired by or in lieu of loan foreclosures (commonly referred to as other real estate owned or "OREO"), due primarily to a significant reduction in those real properties between June 30, 2012 and June 30, 2013 and the decline in nonperforming loans; (ii) reductions in contingency reserves and professional fees due in large part to the resolution of certain ongoing lawsuits; and (iii) decreases in in mortgage related expenses due primarily to our exit from the wholesale mortgage lending business in August 2012. These decreases were partially offset by increases in compensation expense due primarily to increases in staffing in the Bank's commercial lending division and an increase in equipment expense incurred primarily in connection with infrastructure upgrades during this year's first quarter.
Income tax provision (benefit). We did not record any provision for or benefit from income taxes in the three months ended June 30, 2013. For the six months ended June 30, 2013 we recorded a $1.9 million tax benefit which was primarily attributable to a pre-tax loss we incurred in this year's first quarter. By comparison, we recorded income tax benefits of $4.1 million and $3.2 million, respectively, for the three and six months ended June 30, 2012 due primarily to the release of the remainder of a valuation allowance, in the amount of $5.0 million, which we had established against our deferred tax asset by means of non-cash charges to the provision for income taxes in prior years.
Balance Sheet Information
Loans. As indicated in the table below, at June 30, 2013 gross loans totaled approximately $729.2 million, which represented an increase of $20.8 million from the gross loans outstanding at June 30, 2012. The following table sets forth, in thousands of dollars, the composition, by loan category, of our loan portfolio at June 30, 2013 and June 30, 2012.
|June 30, 2013||June 30, 2012|
| Percent of |
| Percent of |
|Commercial loans||$ 195,439||26.8%||$ 173,637||24.5%|
|Commercial real estate loans - owner occupied||156,215||21.4%||158,039||22.3%|
|Commercial real estate loans - all other||158,179||21.7%||155,118||21.9%|
|Residential mortgage loans - multi-family||97,383||13.4%||74,930||10.6%|
|Residential mortgage loans - single family||75,241||10.3%||87,227||12.3%|
|Land development loans||19,653||2.7%||27,488||3.9%|
|Gross loans||$ 729,216||100.0%||$ 708,398||100.0%|
Deposits. Total deposits declined by $108.0 million to $749.0 million at June 30, 2013, from $857.0 million at June 30, 2012, primarily as a result of (i) a $110.5 million reduction in higher-cost time deposits to $380.5 million at June 30, 2013, from $491.0 million at June 30, 2012 and (ii) a $22.9 million decrease in savings and money market deposit accounts to $146.0 million at June 30, 2013 from $168.9 million at June 30, 2012, partially offset by an increase in demand deposits by $25.5 million, or 12.9%, to $222.6 million at June 30, 2013 from $197.1 million at June 30, 2012. The reduction in higher cost time deposits was primarily the result of our decision not to seek the renewal of some of those deposits in order to reduce interest expense. Due primarily to that decision and resulting reduction in time deposits, lower-cost core deposits increased to 49%, and higher cost-time deposits decreased to 51%, of total deposits at June 30, 2013, as compared to 43% and 57%, respectively, at June 30, 2012.
Non-performing assets consist primarily of non-performing loans and OREO and, to a lesser extent, non-performing securities. As the table below indicates, non-performing loans decreased by $12.2 million to $8.7 million at June 30, 2013, as compared to $20.9 million at June 30, 2012 and a decrease of $16.8 million in other real estate owned to $17.3 million at June 30, 2013 from $34.1 million at June 30, 2012, as a result of our foreclosures of additional properties that had collateralized some of the non-performing loans in our loan portfolio.
The following table sets forth the changes in our non-performing assets over the five quarters ended June 30, 2013.
|June 30||March 31||December 31||September 30||June 30|
|Non-Performing Assets:||(Dollars in thousands)|
|Total non-performing loans||$ 8,725||$ 13,762||$ 17,655||$ 17,086||$ 20,894|
|Total other real estate owned||17,331||17,618||17,710||30,177||34,086|
|Total other non-performing assets||775||858||900||248||238|
|Total non-performing assets||$ 26,831||$ 32,238||$ 36,265||$ 47,511||$ 55,218|
|Loans 90 days past due||$ 2,873||$ 8,713||$ 10,799||$ 8,938||$ 10,794|
|Loans 30 days past due||9,384||11,358||2,736||2,943||12,908|
|Total loans past due 30 days or more||$ 12,257||$ 20,071||$ 13,535||$ 11,881||$ 23,702|
|Allowance for loan losses||$ 11,123||$ 11,079||$ 10,881||$ 12,659||$ 14,648|
|Ratio of allowance to total loans outstanding.||1.53%||1.54%||1.49%||1.83%||2.07%|
At June 30, 2013, we had total capital on a consolidated basis of approximately $150.1 million and Pacific Mercantile Bank, our wholly owned banking subsidiary, had total capital of approximately $128.0 million. The ratio of the Bank's total capital-to-risk weighted assets, which is the principal federal bank regulatory measure of the financial strength of banking institutions, was 16.9% and, as a result, the Bank continued to be classified, under federal bank regulatory guidelines, as a "well-capitalized" banking institution, which is the highest of the capital standards established by federal banking regulatory authorities.
The following table sets forth the capital and capital ratios of the Company (on a consolidated basis) and the Bank (on a stand-alone basis) at June 30, 2013, as compared to the regulatory requirements that must be met for a banking institution to be rated as a well-capitalized institution.
| Actual |
At June 30, 2013
| Federal Regulatory Requirement |
to be Rated Well-Capitalized
|(Dollars in thousands)|
|Total Capital to Risk Weighted Assets:|
|Bank||127,957||16.9%||$ 75,539||At least 10.0%|
|Tier 1 Capital to Risk Weighted Assets:|
|Bank||118,492||15.7%||$ 45,324||At least 6.0%|
|Tier 1 Capital to Average Assets:|
|Bank||118,492||12.2%||$ 48,559||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 Counties, and another in the Inland Empire in San Bernardino County. The four Orange County financial centers are located, respectively, in the cities of Newport Beach, Costa Mesa (which is visible from the 405 and 73 Freeways), La Habra and San Juan Capistrano (which is our South County financial center that is visible from the Interstate 5 Freeway). Our Los Angeles County financial center is located in the city of Beverly Hills. Our San Diego financial center is located in La Jolla and our Inland Empire financial center is located in the city of Ontario (visible from the Interstate 10 Freeway). In addition, the Bank offers comprehensive banking services over its Internet Bank, which is accessible 24/7 worldwide at www.pmbank.com.
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 constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), 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 significantly, 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 Federal Reserve Bank regulatory agreement (the "FRB Agreement") and regulatory order of the California Division of Financial Institutions (the "DFI Order") will have on our business and results of operations because, among other things, that Agreement and that Order impose 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 FRB or the DFI if we are unable to meet the requirements of the FRB Agreement or the DFI Order; the risk that our results of operations in the future will continue to be adversely affected by our exit from the wholesale 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, including the additional interest rate risks associated with our residential mortgage lending business, 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. Additional information regarding these and other risks and uncertainties to which our business is subject is contained in our Annual Report on Form 10-K that we filed with the SEC on March 20, 2013, as updated and modified by the discussion of risk factors contained in our Quarterly Reports on Form 10-Q for the quarter ended March 31, 2013 which we filed with the SEC on May 14, 2013, and readers of this report are urged to review the additional information contained in those reports.
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 or NASDAQ rules.
|CONSOLIDATED STATEMENTS OF INCOME|
|(Dollars and numbers of shares in thousands, except per share data)|
|Three Months Ended June 30,||Six Months Ended June 30,|
| Percent |
| Percent |
|Total interest income||$ 8,822||$ 10,353||(14.8)%||$ 17,806||$ 20,663||(13.8)%|
|Total interest expense||1,382||2,209||(37.4)%||3,008||4,504||(33.2)%|
|Net interest income||7,440||8,144||(8.6)%||14,798||16,159||(8.4)%|
|Provision for loan losses||—||1,850||N/M||1,150||1,450||(20.7)%|
|Net interest income after provision for loan losses||7,440||6,294||18.2%||13,648||14,709||(7.2)%|
|Service charges & fees on deposits||196||245||(20.0)%||392||478||(18.0)%|
|Mortgage banking (including net gains on sales of loans held for sale)||1,719||8,450||(79.7)%||3,308||12,981||(74.5)%|
|Net gains on sales of securities||—||—||N/M||23||1,186||(98.1)%|
|Other than temporary impairment of securities||—||—||N/M||—||(77)||N/M|
|Net gains/(losses) on OREO||1||130||N/M||1||111||N/M|
|Other non-interest income||(523)||301||(273.8)%||(298)||475||(162.7)%|
|Total non-interest income||1,393||9,126||(84.7)%||3,426||15,154||(77.4)%|
|Salaries & employee benefits||6,761||6,531||3.5%||12,878||12,148||6.0%|
|Occupancy and equipment||1,189||1,189||—||2,484||2,239||10.9%|
|Mortgage related loan expenses||317||925||(65.7)%||744||1,278||(41.8)%|
|Other non-interest expense||1,403||1,212||15.8%||2,574||2,765||(6.9)%|
|Total non-interest expense||11,975||13,682||(12.5)%||25,314||25,919||(2.3)%|
|Income before income taxes||(3,142)||1,738||(280.8)%||(8,240)||3,944||(308.9)%|
|Income tax provision (benefit)||—||(4,058)||—||(1,929)||(3,234)||(40.4)%|
|Net income (loss)||(3,142)||5,796||(154.2)%||(6,311)||7,178||(187.9)%|
|Undeclared dividends on Preferred Stock||(262)||(234)||12.0%||(524)||(468)||12.0%|
|Net income allocable to common shareholders||$ (3,404)||$ 5,562||(161.2)%||$ (6,835)||$ 6,710||(201.9)%|
|Net income per common share|
|Basic||$ (0.18)||$ 0.35||$(0.38)||$ 0.48|
|Diluted||$ (0.18)||$ 0.35||$(0.38)||$ 0.47|
|Weighted average number of shares outstanding|
|Ratios from continuing operations(1)|
|Net interest margin(1)||3.20%||3.24%||3.10%||3.29%|
|(1) Ratios and net interest margin for the three and six month periods ended June 30, 2013 and 2012 have been annualized.|
|CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 8|
|(Dollars in thousands, except share and book value data)|
|Cash and due from banks||$ 15,671||$ 11,969||30.9%|
|Interest bearing deposits with financial institutions (1.)||73,691||49,807||48.0%|
|Interest bearing time deposits||2,423||1,553||56.0%|
|Investments (including stock)||78,868||109,840||(28.2)%|
|Loans held for sale, at fair value||10,672||143,588||(92.6)%|
|Core Loans, net||717,818||693,115||3.6%|
|Investment in unconsolidated trust subsidiaries||682||682||—|
|Total Assets||$ 952,113||$ 1,076,123||(11.5)%|
|LIABILITIES AND SHAREHOLDERS' EQUITY|
|Non-interest bearing deposits||$ 188,149||$ 170,011||10.7%|
|Interest bearing deposits|
|Certificates of deposit||380,450||490,974||(22.5)%|
|Total interest bearing deposits||560,831||686,995||(18.4)%|
|Junior subordinated debentures||17,527||17,527||—|
|Total Liabilities and Shareholders' Equity||$ 952,113||$ 1,076,123||(11.5)%|
|Tangible book value per share||$ 6.36||$ 6.66||(4.5)%|
|Tangible book value per share, as adjusted(2)||$ 6.28||$ 6.39||(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.|
|Six Months Ended June 30,|
|Average Balances (in thousands)||2013||2012|
|Average gross loans (*)||$ 727,873||$ 702,212|
|Average loans held for sale||$ 22,167||$ 78,678|
|Average earning assets||$ 962,659||$ 985,818|
|Average assets||$ 1,013,754||$ 1,045,954|
|Average equity||$ 120,520||$ 84,033|
|Average interest bearing deposits||$ 627,299||$ 701,801|
|(*) Excludes loans held for sale and allowance for loan losses (ALL).|
|Credit Quality Data (dollars in thousands)||At June 30,|
|Total non-performing loans||$ 8,725||$ 20,894|
|Other real estate owned||17,331||34,086|
|Other non-performing assets||775||238|
|Total non-performing assets||$ 26,831||$ 55,218|
|Net charge-offs year-to-date||$ 908||$ 2,429|
|90-day past due loans||$ 2,873||$ 10,794|
|Allowance for loan losses||$ 11,123||$ 14,648|
|Allowance for loan losses /gross loans (excl. loans held for sale)||1.53%||2.07%|
|Allowance for loan losses /total assets||1.17 %||1.36%|
CONTACT: For more information contact Nancy Gray, SEVP & CFO, 714-438-2500 Barbara Palermo, EVP & IR, 714-438-2500
Source:Pacific Mercantile Bank