Pacific Mercantile Bancorp (PMBC)

[Enterprising Investor]

Pacific Mercantile Bancorp Reports Fourth Quarter and Full Year 2013 Operating Results (3/07/14)

COSTA MESA, Mar 07, 2014 (GLOBE NEWSWIRE via COMTEX) -- Pacific Mercantile Bancorp today reported its results of operations for the fourth quarter and year ended December 31, 2013.

Overview

Financial results for the three months ended December 31, 2013 include the following items:

-- A $5.0 million charge related to our exit from the mortgage banking business, which primarily includes severance and fees related to contract and lease terminations;

-- A $3.4 million provision for loan and lease losses primarily reflecting the impact of a credit quality downgrade of one legacy commercial loan relationship; and

-- A $7.1 million tax provision related to an increase in the valuation allowance held against our deferred tax assets.

In the three months ended December 31, 2013, we incurred a net loss of $15.1 million, or $0.79 per share, as compared to net income of $1.1 million, or $0.06 per diluted share in the same three months of 2012. During the year ended December 31, 2013, we incurred a net loss of $23.3 million, or $1.28 per share, as compared to net income of $8.7 million, or $0.55 per diluted share for the year ended December 31, 2012. The net losses were primarily attributable to increases in our provision for loan losses, increases in noninterest expense, an increase in our income tax provision, and a charge related to the discontinuation of our mortgage banking business. Another factor contributing to our net loss for the year ended December 31, 2013 was the operating loss we suffered from operations of our mortgage banking business during 2013, which is discussed further under Results of Operations -- Discontinued Operations.

Additionally, non-performing loans declined to $11.5 million at December 31, 2013, down from $17.7 million at December 31, 2012. This decrease was primarily attributable to, among other things, restoration to accrual status of a commercial real estate loan, the foreclosure of certain nonperforming loans and their transfer to other real estate owned, and impairment write downs based on our loan impairment analyses.

"Our fourth quarter results reflect steps we took to exit the mortgage banking business and address a legacy commercial loan relationship, which are steps we believe will help us towards our goal to become a prominent community business bank in Southern California," said Steve Buster, President & CEO of Pacific Mercantile Bancorp. "We continue to make excellent progress on transitioning to a business bank and building our commercial lending platform. During the fourth quarter, we increased our commercial loans outstanding by 21% as we continued to attract more commercial customers to the Bank. With our strong capital position, our new state-of-the-art treasury products, and the experienced talent we have added to our banking team, we believe we are well positioned to continue growing our commercial relationships and deliver improved financial performance in 2014."

Results of Operation

Net Interest Income. Net interest income increased $0.9 million, or 12.0%, for the three months ended December 31, 2013 as compared to the three months ended December 31, 2012, primarily as a result of an increase in interest income of $0.2 million, or 2.6%, and a decrease in interest expense of $0.6 million, or 34.8%. The increase in interest income was primarily attributable to an increase in interest earned on loans as a result of a higher average loan balance during the three months ended December 31, 2013 as compared to the three months ended December 31, 2012. The decrease in interest expense for the three months ended December 31, 2013 was due primarily to a combination of declines in the rates of interest paid on deposits and decreases in the volume of higher priced time deposits.

Net interest income remained relatively flat for the year ended December 31, 2013 as compared to the year ended December 31, 2012, primarily as a result of offsetting decreases in interest income of $2.8 million and interest expense of $2.7 million. The decrease in interest income was primarily attributable to a decline in interest earned on loans as a result of actions taken by the Federal Reserve Board ("FRB") to keep interest rates low partially offset by the increase in the average loan balance. Also contributing to the decrease in interest income for the year ended December 31, 2013 was a decline in the volume of securities available for sale as a result of sales and maturities of, and payments on, securities we did not fully replace. The decrease in interest expense for the year ended December 31, 2013 was due primarily to a combination of declines in the rates of interest paid on deposits and decreases in the volume of higher priced time deposits.

Provision for Loan and Lease Losses. During the three months ended December 31, 2013, we made provisions for loan and lease losses of $3.4 million, as compared to no provision made during the three months ended December 31, 2012. The increase in the fourth quarter of 2013 was primarily the result of the write down of one commercial loan relationship. During the year ended December 31, 2013, we made provisions for loan and lease losses of $4.5 million, as compared to $2.0 million for the year ended December 31, 2012. At December 31, 2013, the allowance for loan and lease losses ("ALLL") totaled $11.4 million, which was approximately $0.5 million more than at December 31, 2012. The ALLL activity during the year ended December 31, 2013 included net charge-offs of $4.0 million, which were offset by a $4.5 million provision that we made for loan and lease losses. The ratio of the ALLL-to-total loans outstanding as of December 31, 2013 was 1.46% as compared to 1.49% as of December 31, 2012.

Non-interest income. Noninterest income increased by $1.8 million, or 629.7%, for the three months ended December 31, 2013 as compared to the three months ended December 31, 2012 primarily as a result of a $1.4 million, or 1,807.6%, increase in gains on sale of other real estate owned. For the year ended December 31, 2013, noninterest income decreased by $0.7 million, or 21.0%, as compared to the three months ended December 31, 2012, primarily as a result of a $2.1 million, or 97.9%, decrease in gains on sales of securities available for sale and a $0.4 million increase in net loss on sale of loans, partially offset by an increase of $1.9 million in gains on sale of other real estate owned.

Non-interest expense. Noninterest expense decreased by $0.2 million, or 2.3%, for the three months ended December 31, 2013 as compared to the three months ended December 31, 2012. The decrease was attributable to 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") as a result of a significant reduction in those real properties throughout 2013, a decrease in professional fees related to decreased legal expenses partially offset by an increase in compensation-related expenses as a result of the hiring of key employees during 2013. For the year ended December 31, 2013, noninterest expense increased by $1.8 million, or 4.9%, as compared to the year ended December 31, 2012, primarily as a result of an increase of $4.6 million in salaries and employee benefits related to the hiring of key employees during the year, partially offset by decreases of $1.9 million in OREO expenses attributable to the reduction in OREO properties during the year and a decrease of $0.8 million in professional fees related to a decrease in legal expenses due to the resolution of certain lawsuits and other disputes.

Income tax provision (benefit). For the three months ended December 31, 2013 and 2012, we recorded an income tax provision of $7.1 million and an income tax benefit of $1.7 million, respectively. The income tax provision was primarily attributable to pre-tax losses we incurred during the quarter which resulted in an increase in the valuation allowance held against our deferred tax assets. The tax benefit in 2012 was primarily related to the release of the remainder of a valuation allowance, which we had established against our deferred tax asset by means of non-cash charges to the provision for income taxes prior to the fourth quarter of 2012. For the year ended December 31, 2013 and 2012, we recorded an income tax provision of $5.6 million and an income tax benefit of $6.9 million, respectively. The tax provision was primarily attributable to pre-tax losses we incurred during the year which resulted in an increase in the valuation allowance held against our deferred tax assets. The tax benefit in 2012 was primarily related to the release of the remainder of a valuation allowance, which we had established against our deferred tax asset by means of non-cash charges to the provision for income taxes prior to 2012.

Discontinued operations. For the three months ended December 31, 2013, we had a net loss related to our discontinued operations of $5.0 million as compared to a net loss from discontinued operations of $0.4 million for the three months ended December 31, 2012. For the year ended December 31, 2013, we had a net loss of $7.3 million, as compared to net income of $7.0 million for the year ended December 31, 2012. The decreases primarily relate to our decision in December 2013 to discontinue our mortgage banking division and the associated reserves incurred with exiting a business, including severance and termination of existing contracts and leases.

http://www.marketwatch.com/story/pacific-mercantile-bancorp-reports-fourth-quarter-and-full-year-2013-operating-results-2014-03-07?reflink=MW_news_stmp