Pacific Mercantile Bancorp (PMBC)

[56Chevy]

[an article from last Sept. 2010]

http://www.ocbj.com/news/2010/sep/07/pacific-mercantile-strikes-deal-regulators-shore-b/

The parent of Costa Mesa’s Pacific Mercantile Bank, the largest homegrown bank in the county by assets, has struck a consent order with federal and state regulators to reduce problem loans and assets while strengthening capital reserves.

The written agreement with the Federal Reserve Bank of San Francisco and order from the California Department of Financial Institutions went into affect Aug. 31. It wasn’t published by regulators until Tuesday.

The directive comes less than two weeks after Pacific Mercantile took a major writedown in the second quarter, pushing its losses to $12 million in the quarter.

The operational and compliance requirements announced Tuesday are intended to “address the adverse consequences that the economic recession has had on the quality of our loan portfolio and our operating results,” and “increase our capital to strengthen our ability to weather any further adverse conditions,” bank officials said in a released statement Tuesday morning.

In addition the bank may not pay or declare dividends, repurchase shares, make payments on trust preferred securities or incur or guarantee debt without regulatory approval.

Chief Executive Raymond Dellerba said in a press release the bank and its holding company have made progress on several of the consent order requirements and is committed to achieving all of them.

The bank remains “well capitalized” by regulator standards with a ratio of total capital-to-risk weighted assets at 10.6%, slightly above the 10% threshold that marks financial strength of banks.

Nevertheless, Pacific Mercantile must submit an approved capital plan for the bank and holding company to regulators and then implement it.

It also must raise additional capital, generate earnings or reduce tangible assets—or a combination of the three—by Jan. 31, 2011.

The bank raised $12.6 million in the second quarter by selling preferred shares.

Like other banks, PMBC is working through some loan issues, according to an analysis for the Business Journal by Anaheim-based Findley Reports Inc.

Pacific Mercantile, which controls $1.1 billion in assets, scored 66% on what’s known as a Texas ratio, a measurement of bank health that compares bad loans to how much shareholders would be owed if the bank failed.

The lower the score, the better, with a score higher than 100% indicating a bank could be teetering. Anything higher than 50% starts to get the attention of regulators and other bank watchers.

Pacific Mercantile has about $16 million in noncurrent loans, or those 90 days or more past due.

Through the first half off the year, the bank set aside $23.3 million for bad loans.