Pacific Mercantile Takes Hit from Wholesale Exit

Low yields and the short-term impact of a strategy shift weighed on Pacific Mercantile Bancorp (PMBC) in the first quarter.

The $1 billion-asset company in Costa Mesa, Calif., lost $3.5 million for the three months that ended March 31 after earning $1.1 million a year earlier.

Net interest income fell 8.2% from the first quarter of 2012, to $7.4 million. The net interest margin narrowed 33 basis points, to 3.01%.

Noninterest income decreased 66.3% from a year earlier, to $2 million, primarily because of a falloff in income from loan sales following the company's decision last year to leave the wholesale mortgage business.

Noninterest expense rose 9% from a year earlier, to $13.3 million. The efficiency ratio deteriorated nearly 55 percentage points year over year, to 142%; Pacific Mercantile blamed the exit from wholesale mortgages and higher expenses.

Pacific Mercantile's loan book grew 4.2% year over year, to $703.6 million. Chargeoffs fell 37.5% from a year earlier, to roughly $1 million.

Steve Buster, Pacific Mercantile's chief executive, said in a news release that "the bank embarked on a new strategy in the fourth quarter of 2012, a strategy we are now putting into play by refocusing the bank, moving from disposing of problem loans and a workout management style" to improving the bank's lending to businesses, including companies in the import-export and entertainment industries.

In April, Pacific Mercantile raised $14.8 million by selling shares of common stock to Carpenter Funds, a private-equity firm. Pacific Mercantile contributed $11 million from the sale to an asset management unit that is buying nonperforming and foreclosed real estate from the bank.