Orange County Business Journal

PacMerc Profits Up; Plans to Exit Wholesale Mortgages

Jane Yu Monday, August 13, 2012

Pacific Mercantile Bancorp reported $5.8 million in net income in the second quarter and announced plans to exit the wholesale mortgage banking market.

Its quarterly profit was up nearly five times from the same period last year.

Shares rose more than 3% during a generally down session of morning trading.

Mortgage banking revenue was key in boosting quarterly income for the Costa Mesa-based bank. The segment brought $8.5 million in the latest quarter, a jump of more than $7 million from the year-ago quarter. That helped increase total noninterest income to $9.1 million, an almost five-fold growth from a year earlier.

Pacific Mercantile said it will focus mortgage operations “entirely on our direct-to-consumer retail channel” and cut its dependence on other mortgage brokers. It will stop taking mortgage submissions from brokers after Aug. 31, while continuing to fund broker-originated loans that were made before that date.

The bank said it expects “a significant reduction in mortgage loan originations” but expects higher margins over the long term.

Pacific Mercantile’s gains in noninterest income last quarter were partially offset by a 5% decline in net interest income to $8.1 million. The drop came as the bank set aside $1.9 million more in provisions for loan losses compared with a year ago.

Pacific Mercantile had $708.4 million in loans at the end of the quarter, down 2% from a year ago.

Total nonperforming loans dropped by 23% to $20.9 million. Other real estate owned rose 36% to $34.1 million.

Much of those assets are “in escrow, and [we] anticipate a substantial other real estate owned reduction in the third quarter,” Chief Executive Raymond Dellerba said.

Pacific Mercantile saw deposits grow 2% to $857 million. Its total assets grew 9% to $1.08 billion.

Pacific Mercantile now has the No. 3 spot among the largest OC-based banks, closely following Irvine-based First PacTrust Bancorp Inc., which had $1.12 billion in assets at the end of June. Costa Mesa-based Pacific Premier Bancorp Inc. is right behind Pacific Mercantile with $1.07 billion in assets. The largest bank based here, according to the Business Journal’s rankings, is Opus Bank in Irvine, which had $2.47 billion in assets at the end of June.