SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
California 33-0898238
--------------------------------- ------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
949 South Coast Drive, Suite 300,
Costa Mesa, California 92626
-------------------------------------- -----
(Address of principal executive offices) (Zip Code)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
6,332,020 shares of Common Stock as of July 31, 2001
PACIFIC MERCANTILE BANCORP
QUARTERLY REPORT ON FORM 10Q
FOR
THE QUARTER ENDED JUNE 30, 2001
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements...................................... 3
Consolidated Statements of Financial Condition
June 30, 2001 and December 31, 2000....................... 3
Consolidated Statements of Operations
Three months and six months ended June 30, 2001 and 2000.. 4
Consolidated Statements of Comprehensive Income (Loss)
Three months and six months ended June 30, 2001 and 2000.. 5
Consolidated Statements of Cash Flows
Three months and six months ended June 30, 2001 and 2000.. 6
Notes to Consolidated Financial Statements................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 10
Item 3. Market Risk............................................... 17
Forward Looking Statements and Uncertainties Regarding Future
Performance........................................................ 17
Part II. Other Information.................................................. 19
Item 4. Submission of Matters to a Vote of Security Holders....... 19
Item 6. Exhibits and Reports on Form 8-K.......................... 20
Signatures
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Exhibit Index
PART I. ITEM 1. FINANCIAL STATEMENTS
PACIFIC MERCANTILE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, December 31,
2001 2000
------------ ------------
(Unaudited)
ASSETS
Cash and due from banks $ 12,550,100 $ 9,023,300
Federal funds sold 34,705,000 38,565,000
------------ ------------
Cash and cash equivalents 47,255,100 47,588,300
Interest bearing deposits with financial institutions 1,486,000 1,188,000
Securities available for sale, at fair value ($8,522,000 pledged as
collateral for repurchase agreements at June 30, 2001) 9,385,000 12,987,900
Loans held for sale, at lower of cost or market 26,219,600 11,084,400
Loans (net of allowances of $1,345,500 and $1,145,500, respectively) 102,428,300 87,260,800
Accrued interest receivable 771,300 782,400
Premises and equipment, net 1,629,100 1,336,300
Other assets 751,900 388,800
------------ ------------
Total assets $189,926,300 $162,616,900
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 53,200,600 $ 48,553,100
Interest bearing 94,294,800 75,733,400
------------ ------------
Total deposits 147,495,400 124,286,500
Securities sold under agreements to repurchase 5,705,100 2,679,800
Accrued interest payable 99,500 94,300
Other liabilities 1,042,200 867,700
------------ ------------
Total liabilities 154,342,200 127,928,300
------------ ------------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, no par value, 2,000,000 shares authorized; none issued -- --
Common stock, no par value, 20,000,000 shares authorized; 6,332,020 shares
issued and outstanding at June 30, 2001 and December 31, 2000 37,547,400 37,547,400
Accumulated deficit (1,976,200) (2,865,700)
Accumulated other comprehensive income 12,900 6,900
------------ ------------
Total stockholders' equity 35,584,100 34,688,600
------------ ------------
Total liabilities and stockholders' equity $189,926,300 $162,616,900
============ ============
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The accompanying notes are an integral part of these consolidated financial statements.
Part I. Item 1. (continued)
PACIFIC MERCANTILE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Interest income:
Loans, including fees $2,323,000 $1,754,300 $4,494,000 $2,954,900
Federal funds sold 372,200 292,600 967,900 835,800
Securities available for sale 115,300 45,900 257,900 86,900
Interest earning deposits with financial institutions 14,600 16,500 32,700 38,300
---------------------------------------------------------------------------------------------------------------------------------
Total interest income 2,825,100 2,109,300 5,752,500 3,915,900
---------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 848,500 798,000 1,827,300 1,572,700
Other borrowings 35,100 - 72,100 -
---------------------------------------------------------------------------------------------------------------------------------
Total interest expense 883,600 798,000 1,899,400 1,572,700
---------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,941,500 1,311,300 3,853,100 2,343,200
Provision for loan losses 100,000 100,000 200,000 200,000
---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,841,500 1,211,300 3,653,100 2,143,200
---------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Service charges and fees 58,900 36,600 112,600 52,400
Net gains on sales of loans held for sale 204,600 70,400 375,600 114,300
Mortgage banking 377,500 123,900 562,800 207,000
Merchant income 71,400 36,100 124,500 63,700
Other 58,100 17,700 88,500 25,200
---------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 770,500 284,700 1,264,000 462,600
---------------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 1,119,400 1,036,400 2,064,100 1,767,400
Occupancy 193,600 126,700 358,300 233,400
Depreciation 135,700 103,000 256,300 194,500
Equipment 42,100 24,800 64,700 53,800
Data processing 75,100 63,000 145,300 111,700
Professional fees 99,900 57,000 197,300 122,000
Other loan related 132,300 29,100 163,200 53,500
Stationery and supplies 46,200 39,000 90,200 61,500
Courier 51,700 25,500 90,600 46,600
Advertising 41,800 42,600 110,100 86,400
Correspondent bank service charges 36,500 35,200 68,200 60,200
Other operating expense 217,500 149,100 419,300 292,500
---------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 2,191,800 1,731,400 4,027,600 3,083,500
---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 420,200 $ (235,400) $ 889,500 $ (477,700)
=================================================================================================================================
Weighted average number of shares outstanding 6,332,020 3,994,915 6,332,020 3,857,538
=================================================================================================================================
Basic and fully diluted income (loss) per share $ 0.07 $ (0.06) $ 0.14 $ (0.12)
=================================================================================================================================
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The accompanying notes are an integral part of these consolidated financial statements.
Part I. Item 1. (continued)
PACIFIC MERCANTILE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
-------- --------- -------- ---------
Net income (loss) $420,200 $(235,400) $889,500 $(477,700)
Other comprehensive gain (loss), net of tax:
Change in unrealized gain (loss) on
securities available for sale, net of tax effect (10,600) (2,900) 6,000 (1,600)
---------------------------------------------------------------------------------------------------------
Total comprehensive income (loss) $409,600 $(238,300) $895,500 $(479,300)
=========================================================================================================
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The accompanying notes are an integral part of these consolidated financial statements.
Part I. Item 1. (continued)
PACIFIC MERCANTILE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
---------------------------------------------------------------------------------------------------------
2001 2000
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 889,500 $ (477,700)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization 256,300 194,500
Provision for loan losses 200,000 200,000
Net amortization (accretion) of premiums (discounts) on securities (106,500) (900)
Net gains on sales of loans held for sale (375,600) (114,300)
Mark to market loans held for sale 14,600 -
Proceeds from sales of loans held for sale 135,494,500 35,069,300
Originations and purchases of loans held for sale (150,268,700) (47,294,500)
Net change in accrued interest receivable 11,100 (436,100)
Net change in other assets (363,100) (139,500)
Net change in accrued interest payable 5,200 10,300
Net change in other liabilities 174,600 337,400
---------------------------------------------------------------------------------------------------------
Net cash used in operating activities (14,068,100) (12,651,500)
---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest bearing deposits with financial
institutions (298,000) 297,000
Proceeds from maturities of securities available for sale 14,700,000 -
Purchase of securities available for sale (10,984,600) (2,264,600)
Net increase in loans (15,367,500) (29,265,900)
Purchase of premises and equipment (549,100) (345,800)
---------------------------------------------------------------------------------------------------------
Net cash used in investing activities (12,499,200) (31,579,300)
---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 23,208,800 21,802,500
Proceeds from sale of common stock, net of offering expenses - 17,799,600
Proceeds from exercise of stock options - 1,000
Net increase in securities sold under agreement to repurchase 3,025,300 -
---------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 26,234,100 39,603,100
---------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (333,200) (4,627,700)
Cash and cash equivalents, beginning of period 47,588,300 38,498,200
---------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 47,255,100 $ 33,870,500
=========================================================================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Cash paid for interest on deposits and other borrowings $ 1,894,200 $ 1,569,000
Cash paid for income taxes $ 27,800 $ 800
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The accompanying notes are an integral part of these consolidated financial statements.
Part I. Item 1. (continued)
PACIFIC MERCANTILE BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
1. Nature of Business and Significant Accounting Policies
Organization
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all footnotes as would be necessary for a fair presentation of financial
position, results of operations, changes in cash flows and comprehensive income
(loss) in conformity with generally accepted accounting principles. However,
these interim financial statements reflect all normal recurring adjustments
which, in the opinion of the management, are necessary for a fair presentation
of the results for the interim periods presented. All such adjustments were of
a normal recurring nature. These unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles on a basis consistent with the Company's audited financial
statements, and these interim financial statements should be read in conjunction
with the Company's audited financial statements as of and for the year ended
December 31, 2000 and the notes thereto included in the Company's Form 10-K
filed under the Securities Act of 1934. The financial position at June 30,
2001, and the results of operations for the six month period ended June 30, 2001
are not necessarily indicative of the results of operations that may be expected
for any other interim period or for the full year ending December 31, 2001.
The consolidated financial statements include the accounts of Pacific Mercantile Bancorp and its wholly owned subsidiary Pacific Mercantile Bank (which together shall be referred to as the "Company"). The Company is a bank holding company which was incorporated on January 7, 2000 in the State of California. Pacific Mercantile Bank (the "Bank") is a banking company which was formed on May 29, 1998, incorporated November 18, 1998 in the State of California and commenced operations on March 1, 1999. The Bank is chartered by the California Department of Financial Institutions (the "DFI") and is a member of the Federal Reserve Bank of San Francisco ("FRB"). In addition, its customers' deposit accounts are insured by the Federal Deposit Insurance Corporation ("FDIC") up to the maximum amount allowed by Federal Regulations.
Pacific Mercantile Bancorp was organized to acquire all of the outstanding shares of the Bank and, on June 12, 2000, it consummated that acquisition by means of a merger as a result of which the Bank became a wholly-owned subsidiary of the Company and the Bank's shareholders became the Company's shareholders, owning the same number and percentage of the Company's shares as they had owned in the Bank (the "Reorganization"). Prior to the Reorganization, the Company had only nominal assets and had not conducted any business. All financial information included herein has been restated as if the Reorganization was effective for all periods presented. Additionally, the number of common shares outstanding gives retroactive effect to a two-for-one stock split of the Bank's outstanding shares that became effective on April 14, 2000.
Use of Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Loans
At June 30, 2001, the Company had no nonaccrual, impaired, or restructured loans and had no loans with principal more than 90 days past due that were still accruing interest.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.-)
Income (Loss) Per Share
Basic income (loss) per share for each of the periods presented was computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during each such period. The weighted average numbers of shares used in the basic income (loss) per share computations for the six month periods ended June 30, 2001 and 2000 were 6,332,020 and 3,857,538, respectively. The weighted average numbers of shares used in the basic income (loss) per share computations for the three month periods ended June 30, 2001 and 2000 were 6,332,020 and 3,994,915, respectively. The weighted average numbers of shares used in the fully diluted income (loss) per share computations for the three months and the six months ended June 30, 2001 were 6,475,695 and 6,481,003, respectively. The Company's common stock equivalents are anti-dilutive for both the three months and the six months ended June 30, 2000 and are therefore not included in the income (loss) per share calculation.
Comprehensive Income (Loss)
Components of comprehensive income (loss) include non-ownership related revenues, expenses, gains, and losses that under generally accepted accounting principles are included in equity but excluded from net income.
Recent Accounting Pronouncements
SFAS 133:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which was subsequently amended by SFAS No. 137 and SFAS No. 138. SFAS No. 137 and SFAS No. 138 deferred the effective date of the pronouncement from fiscal years that began June 15, 1999 to fiscal years that began June 30, 2000 and amended the reporting and accounting standards for derivative instruments and for hedging activities. SFAS No. 133 requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives are accounted for depending on the purpose of the derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. The adoption of SFAS No. 133, SFAS No. 137, and SFAS No. 138 has not had a material impact on the Company's results of operations or financial condition.
SFAS 140:
Effective April 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 140"). SFAS 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain additional disclosures. Adoption of SFAS 140 did not have a material impact to the Company's consolidated financial statements.
SFAS 141 and SFAS 142:
Most recently, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 and SFAS 142 eliminate the "pooling of interests" method of accounting, except for business combinations initiated prior to July 1, 2001. They require that the acquirer's cost for an acquisition be allocated among the various assets acquired, in proportion to their relative fair market values, and any unallocated cost is assigned to the "residue," or goodwill. Certain intangible assets that are determined to have an indefinite useful life shall not be amortized. Additionally, goodwill shall no longer be amortized, but will be tested for impairment at least annually.
These two statements must be adopted in fiscal years beginning after December 15, 2001. The Company is currently analyzing the potential impact of the implementation of SFAS 141 and SFAS 142 to its financial statements
upon adoption on January 1, 2002. Adoption of these two pronouncements is not expected to have a material impact to the Company's consolidated financial statements.
2. Commitments and Contingencies
In order to meet the financing needs of its customers in the normal course of business, the Company is party to financial instruments with off-balance sheet risk, which consist of commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements. At June 30, 2001, we were committed to fund certain loans amounting to approximately $64,539,900. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. Commitments generally have fixed expiration dates; however, since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon an extension of credit, is based on management's credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, residential real estate and income-producing commercial properties.
We are subject to legal actions normally associated with financial institutions. At June 30, 2001, we did not have any pending contingencies that would be material to the consolidated financial condition or results of operations of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Background. The following discussion presents information about our consolidated results of operations, financial condition, liquidity and capital resources. Substantially all of our operations are conducted by the Bank and the Bank accounts for substantially all of our revenues and expenses. This information should be read in conjunction with the Company's quarterly unaudited consolidated financial statements, and the notes thereto, contained earlier in this Report.
Forward-Looking Information. This discussion contains information regarding operating trends and expectations regarding our future performance (which is referred to as "forward-looking information"). That information is subject to the uncertainties and risks described below in the Section of this Report entitled "Forward Looking Information and Uncertainties Regarding Future Financial Performance" and readers of this Report are urged to read that Section in its entirety.
Recent Operating Results. We generated net income of $420,200 or $0.07 basic and diluted income per share for the second quarter of 2001 as compared to a net loss of $235,400 or $0.06 basic and diluted loss per share for the second quarter of 2000 and net income of $889,500 or $0.14 basic and diluted income per share for the first six months of 2001, as compared to a net loss of $477,700 or $0.12 basic and diluted loss per share for the same period of 2000. This improvement was due largely to increases in interest income that were primarily attributable to the increases in the volume of our loans and other interest earning assets, and to increases in noninterest income that were primarily attributable to the expansion of our mortgage banking division. Those per share figures are based on weighted average shares outstanding of 6,332,020 in the second quarter and first six months of 2001, as compared to 3,994,915 for the second quarter of 2000 and 3,857,538 for the first six months of 2000, an increase that was due to the completion of a public offering in June 2000 in which we sold a total of 2,611,608 shares of our common stock.
Set forth below are key financial performance ratios for the periods indicated:
Three months ended Six months ended
June 30, June 30,
-----------------------------------------------------------------------------------------
2001 2000 2001 2000
-----------------------------------------------------------------------------------------
Return on average assets (1) 0.94% (0.83)% 1.02% (0.87)%
Return on average stockholders' equity (1) 4.74% (5.46)% 5.05% (5.76)%
Net interest margin 4.56% 4.91 % 4.67% 4.49 %
Basic and fully diluted income (loss)
per share $0.07 $(0.06) $0.14 $(0.12)
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Results of Operations
Net Interest Income. Net interest income, the primary determinant of our operating income, represents the difference between interest earned on interest earning assets and the interest paid on interest bearing liabilities. Net interest income, when expressed as a percentage of total average interest earning assets, is referred to as "net interest margin."
We generated net interest income of $1,941,500 and $3,853,100, respectively, in the quarter and six months ended June 30, 2001 as compared to net interest income of $1,311,300 and $2,343,200, respectively, for the corresponding quarter and six months of 2000. These increases in net interest income were largely attributable to increases in interest income of $715,800 and $1,836,600, respectively, in the quarter and six months ended June 30, 2001, which more than offset increases in our interest expense in that same period of $85,600 and $326,700, respectively. The increases in interest income were largely attributable to an increase of approximately $42,274,500 and $45,421,600, respectively, in our average loans outstanding for those two periods which
generated $568,700 and $1,539,100, respectively, of additional interest and fee income from loans in the quarter and six months ended June 30, 2001 as compared to the same periods of 2000. The increase in interest expense was primarily attributable to an increase of approximately $25,684,200 and $21,748,600, respectively, in average interest bearing deposits during the quarter and six months ended June 30, 2001 compared to the corresponding periods of 2000. Our ratio of net interest income to average earning assets ("net interest margin") for the quarter and six months ended June 30, 2001 changed from 4.56% and 4.67%, respectively, as compared to 4.91% and 4.49%, respectively, for the corresponding periods of 2000. These changes were attributable to declines in the average prime lending rate for the quarter and six months ended June 30, 2001 of 0.66% and 1.52%, respectively and an increase in the average prime lending rate for the quarter and six months ended June 30, 2000 of .25% and .47%, respectively. As described below in the Subsection entitled "Asset/Liability Management," our balance sheet was shown to be in a positive gap position at June 30, 2001. This implies that our earnings would increase in the short-term if interest rates rise and would decline in the short-term if interest rates were to fall.
Noninterest Income. Noninterest income consists of service charges and fees on deposit accounts, net gains on sales of loans held for sale, mortgage banking income, merchant income, and other noninterest income. Noninterest income for the quarter ended June 30, 2001 consisted primarily of loan origination and processing fees and yield spread premium generated by the mortgage banking division, which originates conforming and non-conforming, agency quality, residential first and home equity mortgage loans. Mortgage banking income, including net gains on sales of loans held for sale, increased to $582,100 and $938,400, respectively for the quarter and six months ended June 30, 2001 as compared to $194,300 and $321,300, respectively, for the corresponding quarter and six months of 2000 due to increases of $67 million and $101 million, respectively, in mortgage loan volume from the corresponding periods of 2000.
Noninterest Expense. Total noninterest expense for the quarter and six months ended June 30, 2001 was $2,191,800 and $4,027,600, respectively, as compared to $1,731,400 and $3,083,500, respectively, for the corresponding periods of 2000. Salaries and employee benefits constitute the largest components of noninterest expense. The increases in noninterest expense in the first six months of 2001 were attributable primarily to increased staffing, occupancy and equipment costs in connection with the opening of two new banking centers in Costa Mesa and Beverly Hills, California, respectively, and a new headquarters also in Costa Mesa. Loan-related expenses increased as a result of the increase in our mortgage banking operation noted above. Other operating expense primarily consists of telephone expense, check charges for customers, and insurance expense.
Noninterest expense as a percentage of net revenue (the "efficiency ratio") improved to 80.8% for the quarter ended June 30, 2001 as compared to 108.5% for the corresponding period of 2000. This improvement indicated that a proportionately smaller amount of net revenue was required to provide for noninterest expenses. This improvement was attributable to the increases in interest income and noninterest income, which more than offset the increases in noninterest expense in the quarter ended June 30, 2001. Noninterest expense as a percentage of average assets for the three months ended June 30, 2001 and 2000 was 4.89% and 6.45%, respectively.
We anticipate that there will be increases in noninterest expense during the balance of 2001, as compared to the corresponding period of the prior year, due to the relocation of our headquarters offices to a larger office facility, the opening of two new banking offices and the addition of bank personnel to staff those two new offices.
Asset/Liability Management
The objective of asset/liability management is to reduce our exposure to interest rate fluctuations, which can affect our net interest margins and, therefore, also our net interest income and net earnings. We seek to achieve this objective by matching interest-rate sensitive assets and liabilities, and maintaining the maturity and repricing of these assets and liabilities at appropriate levels given the interest rate environment. Generally, if rate sensitive assets exceed rate sensitive liabilities, the net interest income will be positively impacted during a rising rate environment and negatively impacted during a declining rate environment. When rate sensitive liabilities exceed rate sensitive assets, the net interest income will generally be positively impacted during a declining rate environment and negatively impacted during a rising rate environment. However, because interest rates for different asset and liability products offered by depository institutions respond differently to changes in the interest rate environment, the gap is only a general indicator of interest rate sensitivity.
The table below sets forth information concerning our rate sensitive assets and rate sensitive liabilities as of June 30, 2001. The assets and liabilities are classified by the earlier of maturity or repricing date in accordance with their contractual terms. Certain shortcomings are inherent in the method of analysis presented in the following table. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees and at different times to changes in market interest rates. Rates on some assets and liabilities change in advance of changes in market rates of interest, while rates on other assets or liabilities may lag behind changes in market rates of interest. Also, loan prepayments and early withdrawals of certificates of deposit could cause the interest sensitivities to vary from those which appear in the table.
Over Three Over One
Three Through Year Over Non-
Months Twelve Through Five Interest
or Less Months Five Years Years Bearing Total
------------ ----------- ----------- ----------- ------------ ------------
Assets
------
Interest earning deposits in
other financial institutions $ 495,000 $ 991,000 $ -- $ -- $ -- $ 1,486,000
Securities available for sale 2,269,200 3,425,200 2,576,900 263,600 -- 8,534,900
Federal Reserve Bank stock -- -- -- 850,100 -- 850,100
Federal funds sold 34,705,000 -- -- -- -- 34,705,000
Loans, gross 106,757,500 12,122,200 9,159,400 1,954,300 -- 129,993,400
Noninterest earning assets -- -- -- -- 14,356,900 14,356,900
------------ ----------- ----------- ----------- ------------ ------------
Total assets 144,226,700 16,538,400 11,736,300 3,068,000 14,356,900 189,926,300
------------ ----------- ----------- ----------- ------------ ------------
Liabilities and Stockholders' Equity:
------------------------------------
Noninterest bearing deposits -- -- -- -- 53,200,600 53,200,600
Interest bearing deposits 78,604,200 14,178,300 1,512,300 -- -- 94,294,800
Repurchase agreements 5,705,100 -- -- -- -- 5,705,100
Other liabilities -- -- -- -- 1,141,700 1,141,700
Stockholders' equity -- -- -- -- 35,584,100 35,584,100
------------ ----------- ----------- ----------- ------------ ------------
Total liabilities and
stockholders' equity 84,309,300 14,178,300 1,512,300 -- 89,926,400 189,926,300
------------ ----------- ----------- ----------- ------------ ------------
Interest rate sensitivity gap $ 59,917,400 $ 2,360,100 $10,224,000 $ 3,068,000 $(75,569,500) $ -
============ =========== =========== ============ ============ ============
Cumulative interest rate
sensitivity gap $ 59,917,400 $62,277,500 $72,501,500 $75,569,500 $ -- $ -
============ =========== =========== ============ ============ ============
Cumulative % of rate sensitive
assets in maturity period 75.94% 84.65% 90.83% 92.44% 100.00%
============ =========== =========== ============ ============
Rate sensitive assets to rate
sensitive liabilities 1.71 1.17 7.76 N/A N/A
============ =========== =========== ============ ============
Cumulative ratio 1.71 1.63 1.73 1.76 N/A
============ =========== =========== ============ ============
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At June 30, 2001, our rate sensitive balance sheet was shown to be in a positive gap position. This implies that our net interest margin would increase in the short-term if interest rates rise and would decline in the short-term if interest rates were to fall. And, during the quarter ended June 30, 2001, our net interest margin was lower than in the same quarter of 2000, due to a decline in prevailing market rates of interest. However, as noted above, the extent to which our net interest margin will be impacted by changes in prevailing interest rates will depend on a number of factors, including how quickly rate sensitive assets and liabilities react to interest rate changes.
Financial Condition
Assets. Assets totaled $189,926,300 at June 30, 2001, as compared to $162,616,900 at December 31, 2000. The increase is largely attributable to increases in the volume of loans and loans held for sale during the six months ended June 30, 2001.
Loans Held for Sale. Loans intended for sale in the secondary market totaled $26,219,600 at June 30, 2001 and $11,084,400 at December 31, 2000. This increase was attributable primarily to the increase in outstanding loans originated or purchased by our mortgage banking division. Purchased loans are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.
Loans. Loans outstanding at December 31, 2000 and June 30, 2001 (exclusive of loans held for sale) were made to customers in Southern California, the primary market areas being Orange and Los Angeles Counties. The greatest concentration of our loans are in real estate loans and commercial loans, which represented 53% and 38%, respectively, of the loan portfolio at both June 30, 2001 and December 31, 2000.
The loan portfolio consisted of the following at June 30, 2001 and December 31, 2000:
June 30, December 31,
2001 Percent 2000 Percent
------------ --------- ----------- ----------
Real estate loans $ 54,295,500 52.5% $46,882,000 53.1%
Commercial loans 39,111,900 37.7% 33,732,400 38.2%
Construction loans 4,792,600 4.6% 3,238,900 3.7%
Consumer loans 5,415,300 5.2% 4,393,700 5.0%
------------ --------- ----------- ----------
Gross loans 103,615,300 100.0% 88,247,000 100.0%
========= ==========
Deferred loan origination costs, net 158,500 159,300
Allowance for loan losses (1,345,500) (1,145,500)
------------ -----------
Loans, net $102,428,300 $87,260,800
============ ===========
|
Commercial loans are loans to businesses to finance capital purchases or improvements, or to provide cash flow for operations. Real estate loans are loans secured by trust deeds on real property, including property under construction, commercial property and single family and multifamily residences. Consumer loans include installment loans to consumers as well as home equity loans and other loans secured by junior liens on real property.
The following table sets forth the maturity distribution of the Bank's loan portfolio (excluding consumer loans) at June 30, 2001:
Over One
Year
One Year Through Over Five
Or Less Five Years Years Total
----------- ------------ ----------- -----------
Real estate loans
Floating rate $ 2,979,500 $ 5,917,400 $41,880,200 $50,777,100
Fixed rate 863,600 435,500 2,219,300 3,518,400
Commercial loans
Floating rate 21,111,400 12,344,800 72,800 33,529,000
Fixed rate 2,596,600 2,565,800 420,500 5,582,900
Construction loans
Floating rate 3,043,700 -- -- 3,043,700
Fixed rate 1,748,900 -- -- 1,748,900
----------- ----------- ----------- -----------
Total $32,343,700 $21,263,500 $44,592,800 $98,200,000
=========== =========== =========== ===========
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Allowance for Loan Losses. The risk that borrowers will fail or be unable to repay their loans is an inherent part of the banking business. In order to recognize on a timely basis, to the extent practicable, losses that can result from such failures, banks establish an allowance for loan losses by means of periodic charges to income known as
"provisions for loan losses." Loans are charged against the allowance for loan losses when management believes that collection of the carrying amount of the loan, either in whole or in part, has become unlikely. Periodic additions are made to the allowance (i) to replenish and thereby maintain the adequacy of the allowance following the occurrence of loan losses, and (ii) to increase the allowance in response to increases in the volume of outstanding loans and deterioration in economic conditions or in the financial condition of borrowers. The Bank evaluates the adequacy of and makes provisions in order to maintain or increase the allowance for loan losses on a quarterly basis. As a result, provisions for loan losses will normally represent a recurring expense.
The allowance for loan losses at December 31, 2000 was $1,145,500, which represented 1.3% of outstanding loans at that date. At June 30, 2001, the allowance had been increased to $1,345,500, in order to maintain the allowance at approximately 1.3% of outstanding loans. The Bank carefully monitors changing economic conditions, the loan portfolio by category, borrowers' financial condition and the history of the portfolio in determining the adequacy of the allowance for loan losses. We are not currently aware of any information indicating that there will be material deterioration in our loan portfolio, and we believe that the allowance for loan losses at June 30, 2001 is adequate to provide for losses inherent in the portfolio. However, the allowance was established on the basis of estimates developed primarily from historical industry loan loss data because the Bank commenced operations in March 1999 and lacks any long-term historical data relating to the performance of loans in its loan portfolio. As a result, ultimate losses may vary from the estimates used to establish the allowance. As the volume of loans increases, additional provisions for loan losses will be required to maintain the allowance at adequate levels. Additionally, if economic conditions were to deteriorate, it would become necessary to increase the provision to a greater extent.
We also measure and reserve for impairment on a loan by loan basis using either the present value of expected future cash flows discounted at the loan's effective interest rate, or the fair value of the collateral if the loan is collateral dependent. As of June 30, 2001, we had no loans classified as impaired. We exclude from our impairment calculations smaller, homogeneous loans such as consumer installment loans and lines of credit. Also, loans that experience insignificant payment delays or payment shortfalls are generally not considered impaired.
A summary of the transactions in the allowance for loan losses for the six months ended June 30, 2001 and the year ended December 31, 2000 is as follows:
June 30, December 31,
2001 2000
-------------------------------------
Balance, beginning of period $1,145,500 $ 750,000
Provision for loan losses 200,000 400,000
Recoveries -- --
Amounts charged off -- (4,500)
-------------------------------------
Balance, end of period $1,345,500 $1,145,500
=====================================
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Nonperforming Assets. There were no nonaccrual loans, restructured loans or loans which were considered impaired at June 30, 2001 or December 31, 2000.
Deposits. At June 30, 2001 deposits totaled $147,495,400, which included $30,099,800 of certificates of deposits of $100,000 or more. By comparison, deposits at December 31, 2000, totaled $124,286,500, which included $17,212,900 of certificates of deposit of $100,000 or more. Noninterest bearing demand deposits totaled $53,200,600, or 36.1% of total deposits at June 30, 2001. By comparison noninterest bearing demand deposits totaled $48,553,100, or 39.1% of total deposits, at December 31, 2000.
Set forth below is maturity schedule of domestic time certificates of deposits outstanding at June 30, 2001:
Certificates of Deposit Certificates of Deposit
Maturities Under $100,000 of $100,000 or more
-------------------------------- ----------------------- -----------------------
Three Months or Less $1,948,400 $18,547,800
Over Three and though Six Months 1,317,700 9,361,900
Over Six through Twelve Months 1,508,600 1,990,100
Over Twelve Months 1,312,300 200,000
--------------------------------------------------
$6,087,000 $30,099,800
==================================================
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Liquidity
The Company's liquidity needs are actively managed to insure sufficient funds are available to meet the ongoing needs of the Bank's customers. The Company projects the future sources and uses of funds and maintains sufficient liquid funds for unanticipated events. The primary sources of funds include payments on loans, the sale or maturity of investments and growth in deposits. The primary uses of funds includes funding new loans, making advances on existing lines of credit, purchasing investments, funding deposit withdrawals and paying operating expenses. The Bank maintains funds in overnight federal funds and other short-term investments to provide for short-term liquidity needs.
Cash flow provided by financing activities, primarily representing increases in deposits, totaled $26,234,100 for the six months ended June 30, 2001. Cash flow used in operating activities, primarily representing the net increase in loans held for sale, totaled $14,068,100. Cash flow used in investing activities, primarily representing increases in loans and purchases of securities available for sale, offset by proceeds from the maturities of securities available for sale, totaled $12,499,200 for the six months ended June 30, 2001.
At June 30, 2001, liquid assets, which included cash and due from banks, federal funds sold, interest earning deposits with financial institutions and unpledged securities available for sale (excluding Federal Reserve Bank stock) totaled $48,741,200 or 26% of total assets.
The Bank's primary uses of funds are loans and its primary sources of the funds that it uses to make loans are deposits. Accordingly, the relationship between gross loans and total deposits provides a useful measure of the Bank's liquidity. Since repayment of loans tends to be less predictable than the maturity of investments and other liquid resources, the higher the loan to deposit ratio the less liquid are the Bank's assets. On the other hand, since the Bank realizes greater yields and higher interest income on loans than it does on investments, a lower loan to deposit ratio can adversely affect interest income and the earnings of the Bank. As a result, management's goal is to achieve a loan to deposit ratio that appropriately balances the requirements of liquidity and the need to generate a fair return on assets. At June 30, 2001, the Company's loan to deposit ratio was 88.1%, compared to 80.0% at December 31, 2000.
As of June 30, 2001, we did have commitments for capital expenditures, currently estimated at $1 million, in conjunction with the opening of two new banking offices and the relocation of our headquarters offices to a larger office facility.
As of June 30, 2001, the Company had $5.7 million in securities sold under agreements to repurchase which are classified as secured borrowings and mature within one day from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the transaction. The Bank monitors the fair value of the underlying securities to ensure that sufficient collateral exists.
Investments and Investment Policy
The Bank's investment policy, as established by the Board of Directors, is to provide for the liquidity needs of the Bank and to generate a favorable return on investments without undue interest rate risk, credit risk or asset concentrations. The Bank is authorized to invest in obligations issued or fully guaranteed by the United States government, certain federal agency obligations, certain time deposits, certain municipal securities and federal funds sold. It is our policy that there will be no trading account. The weighted average maturity of U.S. government obligations, federal agency securities and municipal obligations cannot exceed five years. Time deposits must be
placed with federally insured financial institutions, cannot exceed $100,000 in any one institution and may not have a maturity exceeding twenty-four months.
Securities available for sale are those that we intend to hold for an indefinite period of time, but that may be sold in response to changes in liquidity needs, changes in interest rates, changes in prepayment risks or other similar factors. The securities are recorded at fair value. Any unrealized gains and losses are reported as "Other Comprehensive Income (Loss)" rather than included in or deducted from earnings.
The following is a summary of the major components of securities available for sale and a comparison of the amortized cost, estimated fair values and gross unrealized gains and losses as of June 30, 2001 and December 31, 2000:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
June 30, 2001 Cost Gains (Losses) Value
-------------------------------------------- ----------- ---------- ---------- ----------
Available-For-Sale:
U.S. Agency Securities less than one year $ 5,431,000 $ 21,200 $ -- $ 5,452,200
Collateralized mortgage obligations 3,091,000 -- (8,300) 3,082,700
Federal Reserve Bank Stock 850,100 -- -- 850,100
----------- ---------- ---------- -----------
Total $ 9,372,100 $ 21,200 $ (8,300) $ 9,385,000
=========== ========== ========== ===========
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 2000 Cost Gains (Losses) Value
-------------------------------------------- ----------- ---------- ---------- ----------
Available-For-Sale:
U.S. Treasury Securities less than one year $ 2,204,300 $ -- $ -- $ 2,204,300
U.S. Agency Securities less than one year 9,955,000 6,900 -- 9,961,900
Federal Reserve Bank Stock 821,700 -- -- 821,700
----------- ---------- ---------- -----------
Total $12,981,000 $ 6,900 $ -- $12,987,900
=========== ========== ========== ===========
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At June 30, 2001, the Company had U.S. government agency securities and collateralized mortgage obligations with a carrying value of $8,522,000 that were pledged to secure repurchase agreements.
The contractual maturities of the U.S. government agency securities at June 30, 2001 were between two and ten months. Although the collateral mortgage obligations have contractual maturities through 2027, expected maturities will differ from contractual maturities because borrowers may have the right to prepay such obligations without penalty. The weighted average yield is 5.18% for U.S. government agency securities, 5.70% for collateral mortgage obligations and 6.0% for Federal Reserve Bank stock.
Capital Resources
The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can lead to certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's operating results or financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action that apply to all bank holding companies and FDIC insured banks in the United States, the Company (on a consolidated basis) and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's capital and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company (on a consolidated basis) and the Bank to maintain minimum amounts and ratios of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined).
Management believes that, as of June 30, 2001, the Company (on a consolidated basis) and the Bank met all capital adequacy requirements to which they are subject.
As of June 30, 2001, based on applicable capital regulations, Bancorp and the Bank are categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, Bancorp and the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following table which contains a comparison of Bancorp and Bank's capital and capital ratios at June 30, 2001 to the regulatory requirements applicable to them.
To be Well Capitalized Under
For Capital Prompt Corrective Action
Actual Adequacy Purposes Provisions
------------------- ------------------------------ ------------------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ----- ----------- ---------------- ----------- ----------------
Total Capital to Risk Weighted Assets:
Bank $30,054,200 17.0% $14,142,200 (Greater than or $17,677,700 (Greater than or
equal to) 8.0% equal to) 10.0%
Bancorp 36,916,600 20.9% 14,147,400 (Greater than or 17,684,300 (Greater than or
Tier I Capital to Risk Weighted Assets: equal to) 8.0% equal to) 10.0%
Bank 28,708,700 16.2% 7,071,100 (Greater than or 10,606,600 (Greater than or
equal to) 4.0% equal to) 6.0%
Bancorp 35,571,100 20.1% 7,073,700 (Greater than or 10,610,600 (Greater than or
equal to) 4.0% equal to) 6.0%
Tier I Capital to Average Assets:
Bank 28,708,700 16.0% 7,171,900 (Greater than or 8,964,900 (Greater than or
equal to) 4.0% equal to) 5.0%
Bancorp 35,571,100 19.8% 7,171,800 (Greater than or 8,964,700 (Greater than or
equal to) 4.0% equal to) 5.0%
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The Company intends to retain earnings to support future growth and, therefore, does not intend to pay dividends for at least the foreseeable future. In addition, the Bank has agreed with the FDIC to maintain a Tier 1 Capital to Average Assets ratio of at least eight percent until February 28, 2002.
ITEM 3. MARKET RISK
Market risk is the risk of loss to future earnings, to fair values of assets or to future cash flows that may result from changes in the price or value of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates and other market conditions. Market risk is attributed to all market risk sensitive financial instruments, including loans, investment securities, deposits and borrowings. We do not engage in trading activities or participate in foreign currency transactions for our own account. Accordingly, our exposure to market risk is primarily a function of our asset and liability management activities and of changes in market rates of interest. Changes in rates can cause or require increases in the rates we pay on deposits that may take effect more rapidly or may be greater than the increases in the interest rates we are able to charge on loans and the yields that we can realize on our investments. The extent of that market risk depends on a number of variables including the sensitivity to changes in market interest rates and the maturities of our interest earning assets and our deposits. See "Asset/Liability Management."
FORWARD LOOKING INFORMATION AND UNCERTAINTIES REGARDING FUTURE FINANCIAL PERFORMANCE
This Report, including Management's Discussion and Analysis of Financial Condition and Results of Operations, contains "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward- looking statements are estimates of or statements about our expectations or beliefs regarding our future financial performance that are based on current information and that are subject to a number of risks and uncertainties that could cause our actual operating results in the future to differ significantly from those expected at the current time. Those risks and uncertainties include, although they are not limited to, the following:
Increased Competition. Increased competition from other banks and financial service businesses, mutual funds and securities brokerage and investment banking firms that offer competitive loan and investment products could require us to reduce interest rates and loan fees to attract new loans or to increase interest rates that we offer on time deposits, either or both of which could, in turn, reduce interest income and net interest margins.
Possible Adverse Changes in Local Economic Conditions. Adverse changes in local economic conditions could (i) reduce loan demand which could, in turn, reduce interest income and net interest margins; (ii) adversely affect the financial capability of borrowers to meet their loan obligations which, in turn, could result in increases in loan losses and require increases in provisions made for possible loan losses, thereby adversely affecting operating results; and (iii) lead to reductions in real property values that, due to our reliance on real property to secure many of our loans, could make it more difficult for us to prevent losses from being incurred on non-performing loans through the sale of such real properties.
Possible Adverse Changes in National Economic Conditions and FRB Monetary Policies. Changes in national economic conditions, such as increases in inflation or declines in economic output often prompt changes in Federal Reserve Board monetary policies that could reduce interest income or increase the cost of funds to us, either of which could result in reduced earnings. In the past few months there has been a slowing in economic growth nationally, the duration and severity of which are difficult to predict at this time. The Federal Reserve Board has recently reduced interest rates to stimulate the economy and those reductions could result in a decline in interest income as compared to prior periods. If, on the other hand, there is a continuing downturn in the economy, loan losses could increase thereby adversely affecting operating results.
Changes in Regulatory Policies. Changes in federal and state bank regulatory policies, such as increases in capital requirements or in loan loss reserve or asset/liability ratio requirements, could adversely affect earnings by reducing yields on earning assets or increasing operating costs.
Effects of Growth. It is our intention to take advantage of opportunities to increase our business, either through acquisitions of other banks or the establishment of new banking offices. In particular, we have opened two new banking offices during the second and third quarters of 2001. The opening of those two offices are expected to cause us to incur additional operating costs that may adversely affect our operating results, at least on an interim basis, until the new banking offices are able to achieve profitability. Also, if we do open any additional new offices or acquire any other banks, we are likely to incur additional operating costs until those offices achieve profitability or the acquired banks are integrated into our operations.
Electricity Crisis in California. California is currently experiencing a tightening in the supply of electricity to the state and there are predictions that there will be rolling power outages or "blackouts" during the summer months when electricity usage is typically at its peak. Power outages could disrupt our operations, increase our operating costs and reduce the productivity of staff and operations. Among other things, power outages could cause a slowdown and delays in processing banking transactions, which are heavily dependent on the continued functioning of electronic and automated systems; and abrupt and unscheduled power outages could result in the shut down of information systems that could cause financial data to be lost. In addition, power outages could prevent customers from being able to access their accounts and effectuate banking transactions over the Internet. We have developed contingency plans to deal with such power outages that include the use of alternative energy generating equipment to provide power to essential systems and back up systems for effectuating banking transactions during the power outages. However, we do not know and cannot predict the frequency or duration of the power outages that may occur and, therefore, despite our contingency plans, such outages could adversely affect our future financial performance. In addition, the electricity crisis is expected to cause an increase in the cost of electricity we use in our operations and, consequently, will cause our noninterest expense to increase as compared to prior periods.
Other risks that could affect our future financial performance are described in the Section entitled "Risk Factors" in the Prospectus dated June 14, 2000, included in our S-1 Registration Statement filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and readers are urged to review those risks as well.
Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report, or to make predictions based solely on historical financial performance. We also disclaim any obligation to update forward-looking statements contained in this Report.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on May 15, 2001. In addition to the election of Directors to serve for a term of one year ending at the next Annual Meeting of Shareholders to be held in 2002, set forth below are the matters voted on by Shareholders at the Annual Meeting and the results of the voting.
Votes Cast
-----------------------
Nominee/Director For Withheld
---------------- --- --------
Raymond E. Dellerba 5,227,606 8,900
John J. McCauley 5,227,606 8,900
George H. Wells 5,227,606 8,900
Ronald W. Chrislip 5,227,606 8,900
Julia M. DiGiovanni 5,227,606 8,900
Warren T. Finley 5,227,606 8,900
John Thomas, M. D. 5,227,606 8,900
Richard M. Torre 5,195,150 41,356
Robert E. Williams 5,227,606 8,900
|
Votes Cast Shares Broker For Against Abstaining Non-Votes --- ------- ---------- --------- |
5,172,256 6,250 35,106 22,894
Votes Cast Shares Broker For Against Abstaining Non-Votes --- ------- ---------- --------- |
5,141,306 39,300 34,350 21,550
Votes Cast Shares Broker For Against Abstaining Non-Votes --- ------- ---------- --------- |
5,228,602 8,800 2,050 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 3.1 Certificate of Amendment of Articles of Incorporation
increasing the authorized number of shares of Common
Stock to 20 million Shares
|
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DATE: August 14, 2001 PACIFIC MERCANTILE BANCORP
By: /s/ DANIEL L. ERICKSON
--------------------------------------
Daniel L. Erickson, Executive Vice
President and Chief Financial Officer
|
INDEX TO EXHIBITS
Exhibit No. Exhibit
----------- -------
3.1 Certificate of Amendment of Articles of Incorporation increasing
the authorized number of shares of Common Stock to 20 million
Shares
|
Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
PACIFIC MERCANTILE BANCORP
Raymond E. Dellerba and Barbara Palermo hereby certify that:
1. They are the President and Secretary, respectively, of Pacific Mercantile Bancorp, a California corporation (the "Corporation").
2. The first paragraph of Article III of the Articles of Incorporation of this Corporation is amended to read, in its entirety, as follows:
"The Corporation is authorized to issue two classes of stock to be designated "Common Stock" and "Preferred Stock," respectively. The total number of shares that this Corporation is authorized to issue is twenty-two million (22,000,000) shares; twenty million (20,000,000) shares shall be Common Stock, no par value per share, and two million (2,000,000) shares shall be Preferred Stock, no par value per share."
3. The foregoing amendment of the Articles of Incorporation has been duly approved by the Board of Directors of the Corporation.
4. The foregoing Amendment of the Articles of Incorporation has been duly approved by the required vote of the shareholders of the Corporation in accordance with Section 902 of the California General Corporation Law. The total number of outstanding shares is 6,332,020 shares of Common Stock. The number of those shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50%.
Each of the undersigned declares under penalty of perjury that the matters set forth in this Certificate are true of his or her own knowledge.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of Amendment of Articles of Incorporation in Newport Beach, California on May 31, 2001.
/s/ RAYMOND E. DELLERBA ------------------------------ Raymond E. Dellerba, President /s/ BARBARA PALERMO ------------------------------ Barbara Palermo, Secretary |