Costa Mesa-based Pacific Mercantile Bank has raised $11.2 million in a stock sale that provides enough of a capital cushion to satisfy an order from the California Department of Financial Institutions.
Pacific Mercantile is the largest bank based in Orange County, with assets of about $1 billion.
Opus Bank, which has its on-the-books headquarters in Redondo Beach but operates from offices in Irvine, recently reached $2.2 billion in assets and is expected to grow to about $3 billion when its pending acquisition of Fullerton Community Bank closes later this year.
Pacific Mercantile’s parent, Pacific Merc-antile Bancorp, last week sold 112,000 shares of a newly created Series B convert-ible preferred stock at $100 per share to three investors: Irvine-based Carpenter Com-munity BancFund LP and Carpenter Community BancFund-A LP, as well as New York-based SBAV LP.
The Carpenter funds combined to purchase 37,000 shares.
SBAV, an affiliate of the Clinton Group, purchased 75,000 Series B shares.
The order to increase capital came in August 2010. Regulators required Pacific Mercantile to boost shareholder’s equity to 9% of assets by Jan. 31, 2011.
Regulators allowed Pacific Mercantile extra time to meet the mark. The recent stock sale took the ratio from about 6.5% to the 9% mark or higher.
The Series B stock includes an option to convert the preferred shares into a fixed number of common shares at a conversion price of $5.32 per share. That’s 39% over the $3.83 closing price of the stock on the day before the sale was completed.
Pacific Mercantile also struck an agreement to raise an additional $27.3 million in two separate transactions.
One calls for the sale of another $11.8 million worth of Series B shares to the same three investors at $100 in cash per share.
The other is a sale of $15.5 million in common stock to the Carpenter funds at either $5.31 per share or the book value at the end of the quarter that immediately precedes the close of the sale, whichever is bigger.
The bank will also grant the three investors warrants to purchase more shares of common stock.
• Headquarters: Costa Mesa
• Business: banking
• Founded: 1998
• Ticker symbol: PMBC (Nasdaq)
• Market value: about $52 million
• Notable: Sales of preferred shares expected to raise total of $38.5 million, take ratio of shareholder equity to assets past 9% minimum set by state regulators
The Carpenter Funds would be the largest shareholder, with 29% of the bank’s stock, if all sales are completed and warrants exercised.
Pacific Mercantile recently regained profitability after spending the better part of the last year ridding itself of troubled loans tied to real estate.
It earned $1.2 million in the second quarter, swinging from a loss of about $12 million for the same period a year earlier.
“We’ve trimmed the balance sheet,” Pacific Mercantile Chief Executive Ray Dellerba said earlier this year. “You can see the turn has been made.”
Carrying bad assets was costly for the bank as legal expenses on its real estate portfolio eclipsed $4 million in each of the past two years, Dellerba said.
“Ninety-seven percent of our problems were in real estate,” he said.
Now most of those assets have worked their way through the system, have been foreclosed and are being sold.
The bank has millions of dollars worth of properties under contract or in escrow, Dellerba said.
