http://www.businesswire.com/news/home/20091112006126/en
COSTA MESA, Calif.--(Business Wire)--
Pacific Mercantile Bancorp (NASDAQ: PMBC) today reported its results of
operations for the third quarter and nine months ended September 30, 2009.
Overview
Operating Results. The effects of what has become the worst economic recession
and credit crisis in the past 80 years continued to adversely affect our results
of operations in the third quarter ended September 30, 2009, during which we
incurred a net loss of $1.9 million, or $0.18 per diluted share, as compared to
net income of $354,000, or $0.03 per diluted share, in the same quarter of 2008.
On the other hand, our third quarter 2009 operating results were considerably
improved as compared to the second quarter of 2009, when we incurred a net loss
of $4.5 million, or $0.44 per diluted share. That improvement was attributable
to a number of factors, including (i) a significant slowing of the
deterioration, experienced in the first six months of 2009, in the overall
quality of our loan portfolio and a modest decline in total loan delinquencies,
which enabled us to reduce the provision we made for loan losses to $470,000 in
this year`s third quarter, down from $6.6 million in the second quarter of 2009,
(ii) an increase of $968,000, or nearly 22%, in net interest income to $5.4
million in this year`s third quarter, as compared to $4.4 million in the second
quarter of 2009, primarily as a result of a reduction in interest expense, and
(iii) an increase of $815,000, or 123%, in non-interest income in this year`s
third quarter to $1.5 million from $660,000 in this year`s second quarter, which
includes a $473,000, or 706%, increase in the income generated by our new
mortgage banking group, as compared to the second quarter of the current year,
and gains of $359,000 on sales of securities. These improvements were partially
offset by a $1.6 million, or 21%, increase in non-interest expense in this
year`s third quarter as compared to the second quarter of 2009. For the nine
months ended September 30, 2009, we incurred a net loss of $8.6 million, or
$0.82 per diluted share, as compared to net income of $525,000, or $0.05 per
diluted share, reflecting in large part the significant losses we incurred in
the first six months of 2009.
Financial Condition. Notwithstanding the losses we incurred in the nine months
ended September 30, 2009, we had total regulatory capital on a consolidated
basis of more than $101 million and Pacific Mercantile Bank, our wholly owned
banking subsidiary, had total capital of approximately $98 million at September
30, 2009. Moreover, 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 10.7% 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.
Nevertheless, we believe that it is prudent, in these uncertain times, to
increase our capital and, therefore, as previously reported, we have commenced a
private offering, to a limited number of accredited investors (as defined in
Regulation D under the Securities Act of 1933, as amended), of up to $15.5
million of a new issue of Series A Convertible 10% Cumulative Preferred Stock
(the "Series A Shares"). Each Series A Share that we sell in the private
placement will be convertible, at the option of its holder, at a conversion
price of $7.65 per share, into approximately 13.07 shares of our common stock
(subject to adjustment under certain anti-dilution provisions applicable to the
Series A Shares).
"Our number one priority is to return the Company to sustained profitability. We
have already taken a number of actions to accomplish this objective and,
although we incurred a loss in this year`s third quarter, our results of
operation showed improvements and we experienced a significant slowing in the
deterioration of the quality of our loan portfolio in this year`s third quarter
as compared to the previous three quarters going back to the fourth quarter of
2008. As a result, we believe that we can return to profitability, if not in the
fourth quarter this year, then in the first half of 2010, assuming that the
economy shows further improvement during the next six months," stated Raymond E.
Dellerba, President and Chief Executive Officer.
"As we move into the final quarter of what has been a difficult year, we want to
express our appreciation to our employees for their hard work and dedication to
improving our performance and for the continued trust and confidence of our
customers and our shareholders. The hard work of recovery continues. We are
resolved to restore sustainable profitability in 2010," concluded Mr. Dellerba.
Results of Operations
Net Interest Income. In the three months ended September 30, 2009, net interest
income declined by 23% to $5.4 million from nearly $7.0 million in the same
three months. In the nine months ended September 30, 2009, net interest income
declined by approximately 26% to 15.2 million from $20.4 million in the same
nine months of 2008. Those declines were primarily attributable to declines in
interest income resulting from (i) an increase in nonperforming loans to $59.6
million at September 30, 2009, from $20.3 million at September 30, 2008, which
required us to cease accruing interest income on those loans, and (ii)
reductions in interest rates implemented by the Federal Reserve Board in an
effort to mitigate the severity of the economic recession, which reduced the
interest we were able to earn on our interest earning assets. These decreases in
interest income were partially offset by reductions in our interest expense of
9.1% and 8.7%, respectively, in the three and nine months ended September 30,
2009 due primarily to those same interest rate reductions by the Federal Reserve
Board, which enabled us to reduce the interest we were paying on deposits and
other interest bearing liabilities.
"The Bank has moved aggressively to restructure loans to clients who have
expressed a willingness to work with the Bank," stated Mr. Robert Bartlett, Sr.
Executive Vice President and Chief Operating Officer. "As a result, $19.8
million, or 33%, of the loans classified as non-performing as of September 30,
2009 have been restructured. If the clients perform under the modified terms,
the loans will be moved back to a performing status which will enable us to
resume recognizing interest income on those loans," continued Mr. Bartlett.
Provision for Loan Losses. As discussed above, we were able to reduce the
provision we made for loan losses in the three months ended September 30, 2009
by 71% to $470,000 from $1.6 million in the same three months of 2008.
Notwithstanding that decline, the provision for loan losses increased by 93% to
$10.5 million in the nine months ended September 30, 2009 from $5.4 million in
the same nine months of 2008, primarily due to the increased provisions for loan
losses that we made in the first six months of 2009 in response to increased
loan losses and loan delinquencies during that period that were primarily
attributable to the continuing economic recession and credit crisis.
Non-Interest Income. Partially offsetting the declines in net interest income in
both the three and nine months ended September 30, 2009, were increases in
non-interest income of $771,000, or 110%, and $2.0 million, or 77%,
respectively, as compared to the respective corresponding periods of 2008.
Contributing to those increases were increases in fees and service charges on
deposit account transactions in both the three and nine months ended September
30, 2009, and gains recognized on sales of securities held for sale and, income
generated by our mortgage banking operations, which we commenced in the second
quarter of 2009.
Non-Interest Expense. Contributing to the net losses incurred in the three and
nine months ended September 30, 2009, were increases in non-interest expense of
$3.9 million, or 70.9%, and $7.1 million, or 41.8%, respectively, as compared to
the same respective periods of 2008. Those increases were primarily attributable
to (i) increases of $968,000, or 30%, and $2.2 million, or 24%, respectively, in
compensation expense, primarily due to the hiring of personnel for our new
mortgage banking division and, to a lesser extent, for our credit administration
department in response to the difficult conditions in the lending markets, (ii)
increases of $1.1 million, or 437%, and $1.9 million, or 230%, respectively, in
professional fees expenses incurred primarily in connection with the collection
of impaired loans and foreclosures of non-performing loans, (iii) increases of
$1.1 million and $1.2 million, respectively, in the carrying costs of properties
acquired on foreclosure of defaulted loans (iv) increases of $517,000, or 311%,
and $1.5 million, or 304%, respectively, in FDIC insurance premiums, as the FDIC
increased those premiums on all FDIC-insured banks as a means of replenishing
its bank deposit insurance fund. Whenever any new business, such as our mortgage
banking business, is commenced, compensation expense and other startup costs
must be incurred well in advance of the time the new business will be able to
generate revenues sufficient to offset those costs. That was the case in both
the third quarter and nine months ended September 30, 2009.
Balance Sheet Information
Loans (excludes Loans Held for Sale). At September 30, 2009, gross loans totaled
nearly $835 million, a decrease of $5 million, or 0.6%, as compared to $840
million at September 30, 2008. That decline is primarily attributable to our
establishment and implementation of more stringent loan underwriting standards
in response to, and the effects on loan demand of, the economic recession.
Other Real Estate Owned (OREO). At September 30, 2009, other real estate owned,
which consisted of five real properties acquired on foreclosure of
non-performing loans, increased to $14 million, from $6 million at September 30,
2008, when we held three such properties.
"We continue to actively manage sales of foreclosed real estate assets," stated
Ms. Nancy Gray, Sr. Executive Vice President and Chief Financial Officer. Ms.
Gray continued, "On October 15, 2009, we completed the sale of an OREO property
with a carrying value of $1.5 million and we have entered into an agreement to
sell another property with a carrying value, at September 30, 2009, of $4.2
million that is scheduled to close on or before November 30, 2009. If that sale
is consummated on its present terms, we will not incur a material additional
loss on that property." "In addition, as of September 30, 2009, we were in the
process of foreclosing on two other properties with an estimated current market
value totaling approximately $2.1 million," added Ms. Gray.
Deposits. Deposits increased by $67 million, or 9%, to $858 million at September
30, 2009, from $791 million at September 30, 2008, as we increased demand
deposit accounts (non-interest bearing and low cost interest checking) by $18
million to $208 million, or 9%, at September 30, 2009 from $190 million at
September 30, 2008, and time deposits by $55 million, or 11%, to $548 million at
September 30, 2009, from $493 million at September 30, 2008, primarily to pay
off $97 million of borrowings bearing higher interest rates.
"We continue to participate in the FDIC insurance program called Transaction
Account Guarantee or "TAG". Under this program, which will continue through June
2010, the FDIC insures 100% of noninterest bearing transaction accounts and up
to $250,000 of deposits in all other deposit accounts," said Ms. Gray. "This
program has increased the Bank`s FDIC Insurance Premiums, but offers our
customers additional security on their deposits in the Bank," continued Ms.
Gray.
Mortgage Banking Operations
We commenced a new mortgage lending business during the second quarter of 2009.
So far this year, the primary focus of our mortgage group has been to establish
the mortgage loan platform as the foundation to support the growth of our
mortgage lending business. Our new mortgage lending business originates, for
sale into the secondary market, residential mortgage loans primarily consisting
of conventional and FHA/VA approved single family mortgages. From inception of
this mortgage lending business in May 2009 to September 30, 2009, we originated
single family mortgage loans totaling $41 million.
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 eight financial centers in Southern California,
four of which are located in Orange County, two of which are located in Los
Angeles County, one of which is located in San Diego County and the other of
which is located 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 two financial centers in Los Angeles County
are located, respectively, in the cities of Beverly Hills and Long Beach. 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) and close to the Ontario Airport. In addition to the Bank's physical
locations, it offers comprehensive banking services over its Internet Bank,
which is accessible 24/7 worldwide at www.pmbank.com.
Forward-Looking Statements
This news release contains statements regarding our expectations, beliefs,
intentions and views about our future financial performance and our business and
trends and expectations regarding the markets in which we operate. Those
statements, which 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 use of
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." Due to a number of risks and
uncertainties to which our business and our markets are subject, 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) may differ, possibly significantly, from our expectations as set forth
in the forward-looking statements contained in this news release.
These risks and uncertainties include, but are not limited to, the following:
The risk that economic recession and current market conditions will worsen in
2009 or that any economy recovery will be weak, as a result of which we could
incur additional loan losses that would adversely affect our results of
operations and cause us to incur losses in the future; the risk that economic
activity in the United states will decline even further as a result of the
economic recession, which could lead to reductions in loan demand and,
therefore, cause our interest income, net interest income and margins to decline
in the future; the possibility that the Federal Reserve Board will keep interest
rates low in an effort to stimulate the economy, which could reduce our net
interest margins and net interest income and, therefore, adversely affect our
operating results; the prospect that government regulation of banking and other
financial services organizations will increase, which could increase our costs
of doing business and restrict our ability to take advantage of business and
growth opportunities; and the risk that our re-entry in the wholesale mortgage
loan business may cause us to incur additional operating expenses and may not
prove to be profitable or may even cause us to incur losses.
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 for
our fiscal year ended December 31, 2008, which we filed with the Securities and
Exchange Commission on March 17, 2009 and in our Quarterly Report on Form 10-Q
for the quarter ended September 30, 2009 which we filed with the Securities and
Exchange Commission on November 9, 2009. Due to those risks and uncertainties,
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 future financial performance based solely on our historical
financial performance. We also 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.
INTERIM CONSOLIDATED RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
Percent Percent
2009 2008 Change 2009 2008 Change
Total interest income $ 12,879 $ 15,230 (15.4)% $ 38,814 $ 46,262 (16.1)%
Total interest expense 7,495 8,246 (9.1)% 23,621 25,879 (8.7)%
Net interest income 5,384 6,984 (22.9)% 15,193 20,383 (25.5)%
Provision for loan losses 470 1,625 (71.1)% 10,513 5,441 93.2%
Net interest income after 4,914 5,359 (8.3)% 4,680 14,942 (68.7)%
provision for loan losses
Non-interest income
Service charges & fees on deposits 352 326 8.0% 1,101 823 33.8%
Mortgage banking (including net gains 540 ─ N/M 607 ─ N/M
on sales of loans held for sale)
Net gains/losses on sales of securities 363 127 185.8% 2,251 1,259 78.8%
Net gains/losses on OREO (147) ─ N/M (145) (40) 262.5
Other non-interest income 367 251 46.2% 776 547 41.9%
Total non-interest income 1,475 704 109.5% 4,590 2,589 77.3%
Non-interest expense
Salaries & employee benefits 4,194 3,226 30.0% 11,580 9,348 23.9%
Occupancy and equipment 995 937 6.2% 2,906 2,882 0.8%
Professional Fees 1,338 249 437.3% 2,740 831 229.7%
OREO expenses 1,170 65 N/M 1,689 494 241.9%
FDIC Expense 683 166 311.4% 1,933 478 304.4%
Other non-interest expense 1,132 923 22.6% 3,195 2,922 9.3%
Total non-interest expense 9,512 5,566 70.9% 24,043 16,955 41.8%
Income (loss) before income taxes (3,123) 497 (728.4) (14,773) 576 N/M
Income tax provision (benefit) (1,211) 143 (946.9)% (6,180) 51 N/M
Net income (loss) $ (1,912) $ 354 (640.1)% $ (8,593) $ 525 N/M
Net income (loss) per share-basic $ (0.18) $ 0.03 $ (0.82) $ 0.05
Net income (loss) per share-diluted $ (0.18) $ 0.03 $ (0.82) $ 0.05
Dividends paid per share ─ ─ ─ $ 0.10
Weighted average shares outstanding(1)
Basic 10,435 10,475 10,435 10,482
Diluted 10,435 10,479 10,435 10,595
Ratios from continuing operations(2)
ROA (0.64)% 0.13% (0.96)% 0.06%
ROE (9.82)% 1.51% (13.58)% 0.74%
Efficiency ratio 138.7% 72.4% 121.53% 73.8%
Net interest margin(2) 1.88% 2.56% 1.76% 2.52%
(1) In thousands.
(2) Ratios and net interest margin for the three and nine month periods ended
September 30, 2009 and 2008 have been annualized.
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share and book value data)
(Unaudited)
September 30, Increase/
ASSETS 2009 2008 (Decrease)
Cash and due from banks $ 11,051 $ 21,836 (49.4)%
Fed funds sold ─ 62,510 N/M
Interest bearing deposits with financial institutions (1) 79,995 ─ N/M
Total cash and cash equivalents 91,046 84,346 7.9%
Interest bearing time deposits 16,800 198 N/M
Investments (including stock) 130,086 223,913 (41.9)%
Loans held for sale, at fair value 10,598 ─ N/M
Core Loans, net 817,652 831,752 (1.7)%
OREO 13,992 5,957 134.9
Investment in unconsolidated trust subsidiaries 682 682 ─
Other assets 29,677 20,463 45.0%
Total Assets $ 1,110,533 $ 1,167,311 (4.9)%
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing deposits $ 179,270 $ 169,753 5.6%
Interest bearing deposits
Interest checking 28,253 20,602 37.1%
Savings/money market 101,625 107,653 (5.6)%
Certificates of deposit 548,390 492,690 11.3%
Total interest bearing deposits 678,268 620,945 9.2%
Total deposits 857,538 790,698 8.5%
Other borrowings 152,000 248,719 (38.9)%
Other liabilities 7,090 16,532 (57.1)%
Junior subordinated debentures 17,527 17,527 ─
Total liabilities 1,034,155 1,073,476 (36.6)%
Shareholders' equity 76,378 93,835 (18.6)%
Total Liabilities and Shareholders' Equity $ 1,110,533 $ 1,167,311 (4.9)%
Tangible book value per share(2) $ 7.47 $ 9.34 (20.0)%
Shares outstanding 10,434,665 10,475,471 (0.4)%
(1) Interest bearing deposits held in the Bank`s account maintained at the
Federal Reserve Bank.
(2) Excludes accumulated other comprehensive income/loss, which was included in
shareholders` equity.
Nine Months Ended September 30,
Average Balances (in thousands) 2009 2008
Average gross loans(*) $ 841,336 $ 796,929
Average loans held for sale(*) $ 4,027 $ ─
Average earning assets $ 1,157,125 $ 1,078,461
Average assets $ 1,195,726 $ 1,111,465
Average equity $ 84,578 $ 95,288
Average interest bearing deposits $ 735,661 $ 591,711
(*) Excludes loans held for sale and allowance for loan losses (ALL).
Credit Quality Data (dollars in thousands) At September 30,
2009 2008
Total non-performing loans $ 59,576 $ 20,294
Other real estate owned 13,992 5,957
Total non-performing assets $ 73,568 $ 26,251
Net charge-offs year-to-date $ 8,902 $ 3,196
90-day past due loans $ 31,568 $ 15,847
30-89 day past due loans $ 7,631 $ 8,703
Allowance for loan losses $ 17,180 $ 8,371
Allowance for loan losses /gross loans (excl. loans held for sale) 2.06% 1.00%
Allowance for loan losses /total assets 1.55% 0.72%
Pacific Mercantile Bancorp
Nancy Gray, SEVP & CFO, 714-438-2500
Barbara Palermo, EVP & IR, 714-438-2500
Copyright Business Wire 2009
