<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999 Commission File Number: 0-15982
NATIONAL MERCANTILE BANCORP
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
California 95-3819685
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1840 Century Park East, Los Angeles, California 90067
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (310) 277-2265
Indicate by check mark whether the issuer (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:
The number of shares outstanding of the issuer's Common Stock, no par value,
as of May 1, 1999 was 677,048.
<PAGE>
NATIONAL MERCANTILE BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks-demand.................................................. $ 6,458 $ 5,405
Federal funds sold and securities purchased
under agreements to resell................................................. 6,600 6,800
---------- ----------
Cash and cash equivalents............................................... 13,058 12,205
Securities available-for-sale, at fair value;
aggregate amortized cost of $68,435 and $70,247
at March 31, 1999 and December 31, 1998,
respectively............................................................... 68,639 70,458
FRB and other stock, at cost.................................................... 1,693 1,391
Loans receivable................................................................ 57,374 56,972
Allowance for credit losses................................................ (2,021) (2,144)
---------- ----------
Net loans receivable.................................................... 55,353 54,828
Premises and equipment, net..................................................... 719 726
Other real estate owned, net.................................................... 417 417
Accrued interest receivable and other assets.................................... 1,624 1,598
---------- ----------
Total assets............................................................ $ 141,503 $ 141,623
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand................................................. $ 46,883 $ 47,375
Interest-bearing demand.................................................... 6,194 6,835
Money market............................................................... 21,474 21,652
Savings.................................................................... 1,768 2,063
Time certificates of deposit:
$100,000 or more........................................................ 14,490 14,966
Under $100,000.......................................................... 12,379 14,081
---------- ----------
Total deposits....................................................... 103,188 106,972
Federal funds purchased and securities sold
under agreements to repurchase............................................. - 1,000
Other borrowings................................................................ 24,000 19,300
Accrued interest payable and other
liabilities................................................................ 988 1,093
---------- ----------
Total liabilities....................................................... 128,176 128,365
Shareholders' equity:
Preferred stock: (10,000 shares undesignated)
Series A non-cumulative convertible perpetual preferred stock;
authorized 990,000 shares; issued and outstanding 900,000
shares.................................................................. 7,350 7,350
Common stock, no par value; authorized 10,000,000
shares; issued and outstanding 677,048 shares
at March 31, 1999 and December 31,
1998.................................................................... 24,613 24,613
Accumulated deficit........................................................ (18,840) (18,916)
Accumulated other comprehensive income..................................... 204 211
---------- ----------
Total shareholders' equity.............................................. 13,327 13,258
---------- ----------
Total liabilities and shareholders' equity.............................. $ 141,503 $ 141,623
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
NATIONAL MERCANTILE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
ended March 31,
1999 1998
------------- -------------
(Dollars in Thousands Except
Per Share Amounts)
<S> <C> <C>
Interest income:
Loans, including fees................................................ $ 1,317 $ 1,504
Securities held-to-maturity.......................................... - 134
Securities available-for-sale......................................... 1,070 524
Federal funds sold and securities purchased under agreements to resell 42 187
Interest-bearing deposits with other financial institutions - 4
------------- ------------
Total interest income.............................................. 2,429 2,353
Interest expense:
Interest-bearing demand.............................................. 21 1
Money market and savings............................................. 152 210
Time certificate of deposits:
$100,000 or more................................................... 187 179
Under $100,000..................................................... 185 279
------------- ------------
Total interest expense on deposits................................. 545 689
Federal funds purchased and securities sold under agreements to repurchase 1 59
Other borrowings.................................................... 269 50
------------- ------------
Total interest expense............................................. 815 798
------------- ------------
Net interest income before provision for credit losses............ 1,614 1,555
Provision for credit losses............................................ - -
------------- ------------
Net interest income after provision for credit losses............... 1,614 1,555
Other operating income:
Net gain on sale of securities available-for-sale.................. - 17
International services.............................................. 17 26
Investment division................................................. 14 7
Deposit-related and other customer services......................... 128 122
Gain on sale of other real estate owned............................. - 59
------------- ------------
Total other operating income...................................... 159 231
Other operating expenses:
Salaries and related benefits....................................... 838 763
Net occupancy....................................................... 250 195
Furniture and equipment............................................. 55 60
Printing and communications......................................... 62 55
Insurance and regulatory assessments................................ 75 79
Customer services................................................... 176 189
Computer data processing............................................ 78 74
Legal services...................................................... 40 38
Other professional services......................................... 72 72
Other real estate owned expenses.................................... - 5
Promotion and other expenses........................................ 46 61
------------- ------------
Total other operating expenses.................................... 1,692 1,591
------------- ------------
Net income before income tax provision ............................. 81 195
Income tax provision .................................................. 5 -
------------- ------------
Net income.......................................................... $ 76 $ 195
------------- ------------
------------- ------------
Earnings per share:
Basic.............................................................. $ 0.11 $ 0.29
------------- ------------
------------- ------------
Diluted............................................................ $ 0.03 $ 0.08
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
NATIONAL MERCANTILE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three-months
Ended March 31,
------------------------------
1999 1998
------------- -------------
(Dollars in Thousands)
<S> <C> <C>
Net cash flow from operating activities:
Net income........................................................... $ 76 $ 195
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization.................................... 48 52
Gain on sale of other real estate owned.......................... - (59)
Net gain on sale of securities available-for-sale................ - (17)
Net amortization of premiums on securities....................... 30 8
Net accretion of discounts on loans purchased.................... (8) (28)
(Increase) decrease in accrued interest receivable and other assets... (26) 12
Decrease in accrued interest payable and other liabilities............ (105) (240)
------------- -------------
Net cash provided by (used in) operating activities................ 15 (77)
Cash flows from investing activities:
Purchase of securities available-for-sale............................. (2,304) (26,422)
Proceeds from sales of securities available-for-sale.................. - 3,005
Proceeds from repayments and maturities of securities available-for-sale 3,784 4,740
Proceeds from repayments and maturities of secutiries-held-to-maturity - 14,000
Loan originations and principal collections, net...................... (517) 1,968
Proceeds from sale of other real estate owned......................... - 319
Net purchases of premises and equipment............................... (41) (1)
------------- -------------
Net cash provided by (used in) investing activities................ 922 (2,391)
Cash flows from financing activities:
Net (decrease) increase in demand deposits, money market and savings accounts (1,606) 6,259
Net decrease in time certificates of deposit.......................... (2,178) (112)
Net decrease in securities sold under agreements to repurchase
and federal funds purchased.......................................... (1,000) (2,050)
Net increase in other borrowings..................................... 4,700 -
------------- -------------
Net cash (used in) provided by financing activities............... (84) 4,097
------------- -------------
Net increase in cash and cash equivalents.............................. 853 1,629
Cash and cash equivalents, January 1................................... 12,205 16,086
------------- -------------
Cash and cash equivalents, March 31.................................... $ 13,058 $ 17,715
------------- -------------
------------- -------------
Supplemental cash flow information:
Cash paid for interest................................................ $ 738 $ 765
Decrease in unrealized gain on securities
available-for-sale................................................... $ (7) $ (169)
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
NATIONAL MERCANTILE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Accumulated
-------------------------- ---------------------------
Shares Amount Shares Amount Deficit
------------ ------------ ------------- ----------- -----------
(Dollars in Thousands Except Share Data)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999..... 900,000 7,350 677,048 24,613 (18,916)
Comprehensive income:
Other comprehensive income:
Unrealized holding losses during
the period
Net income................. 76
Comprehensive income.....
------------ ------------ ------------- ----------- -----------
Balance at March 31, 1999....... 900,000 $ 7,350 677,048 $ 24,613 $ (18,840)
------------ ------------ ------------- ----------- -----------
------------ ------------ ------------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income Total
-------------- ------------
<S> <C> <C>
Balance at January 1, 1999..... 211 13,258
Comprehensive income:
Other comprehensive income:
Unrealized holding losses during
the period (7) (7)
Net income................. 76
------------
Comprehensive income..... 69
-------------- ------------
Balance at March 31, 1999....... $ 204 $ 13,327
-------------- ------------
-------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
NATIONAL MERCANTILE BANCORP AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION AND MANAGEMENT REPRESENTATIONS
The unaudited consolidated financial statements include the accounts of
National Mercantile Bancorp (the "Company") and its wholly owned subsidiary,
Mercantile National Bank (the "Bank"). The unaudited consolidated financial
statements reflect the interim adjustments, all of which are of a normal
recurring nature and which, in management's opinion, are necessary for the fair
presentation of the Company's consolidated financial position and the results of
its operations and cash flows for such interim periods. The results for the
quarter ended March 31, 1999 are not necessarily indicative of the results
expected for any subsequent period or for the full year ending December 31,
1999. The unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998
("1998 Form 10-KSB").
NOTE 2--EARNINGS (LOSS) PER SHARE
Beginning with year end 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128 "Earnings Per Share" which required the
computation and disclosures of two new earnings per share ("EPS") calculations,
"basic" EPS and "diluted" EPS. EPS disclosures presented herein have been
calculated in accordance with SFAS No. 128, and restated for comparative
periods.
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. The weighted average numbers of
common shares outstanding used in computing basic earnings per share for the
three months ended March 31, 1999 and 1998 were 677,048 and 677,100,
respectively. The weighted average numbers of common shares and common share
equivalents outstanding used in computing diluted earnings per share for the
three months ended March 31, 1999 and 1998 were 2,477,048 and 2,555,886,
respectively. All periods presented were restated to reflect the 9:09 to 1
reverse stock split effective June 20, 1997 and the 100% common stock dividend
in February 1998. The 100% stock dividend was accounted for as a 2 for 1 stock
split.
6
<PAGE>
The following table is a reconciliation of income and shares used in the
computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Per Share
Net Income Shares Amount
------------ ---------- -----------
(In Thousands)
<S> <C> <C> <C>
FOR THE THREE MONTHS ENDED MARCH 31, 1999:
Basic EPS ........................... $ 76 677,048 $ 0.11
---------
---------
Effect of dilutive securities:
Options and warrants ............. --
Convertible preferred stock ...... 1,800,000
--------- ---------
Diluted EPS ......................... $ 76 2,477,04 0.03
--------- --------- ---------
--------- --------- ---------
FOR THE THREE MONTHS ENDED MARCH 31, 1998:
Basic EPS ........................... $ 195 677,100 0.29
---------
---------
Effect of dilutive securities:
Options and warrants ............. 78,786
Convertible preferred stock ...... 1,800,000
--------- ---------
Diluted EPS ......................... $ 195 2,555,88 0.08
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 3--SECURITIES
Securities available-for-sale are carried at estimated fair value.
Unrealized gains or losses on available-for-sale securities are excluded from
earnings and reported as accumulated other comprehensive income in a separate
component of shareholders' equity until realized. Because the Company has net
operating loss carryforwards, no tax expense (benefit) has been recorded from
unrealized gains (losses). Premiums or discounts on held-to maturity and
available-for-sale securities are amortized or accreted into income using the
effective interest method. Realized gains or losses on sales of held-to-maturity
or available-for-sale securities are recorded using the specific identification
method.
NOTE 4--CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks - demand, federal funds sold and securities sold under
agreements to resell.
NOTE 5--COMPREHENSIVE INCOME
In September 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes standards for the reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. All items
that are required to be recognized under accounting standards as components of
comprehensive income are to be reported in a financial statement that is
7
<PAGE>
displayed with the same prominence as other financial statements. Comprehensive
income is defined as change in equity during a period from transactions and
other events and circumstances from nonowner sources. The accumulated balance of
other comprehensive income is not required to be displayed separately from
retained earnings and additional capital paid in the consolidated balance sheet.
SFAS No. 130 is effective for the fiscal years beginning after December 15,
1997.
The components of other comprehensive income together with total
comprehensive income are reported in the consolidated statement of changes in
shareholders' equity. The accumulated balance of other comprehensive income is
not reported as a net amount after taxes due to the size and availability of the
Company's net operating loss carry forwards.
NOTE 6--INCOME TAXES
No income tax provision was recorded during the first quarters of 1999 and
1998 (other than alternative minimum tax) due to the utilization of previously
unrecognized tax benefits to offset the current period tax liability.
For tax purposes at December 31, 1998, the Company had: (i) federal net
operating loss carryforwards of $21.2 million, which begin to expire in the year
2007; (ii) California net operating loss carryforwards of $9.8 million, of which
$5.0 million will expire in 1999, $3.2 million expire in 2000, $1.3 million will
expire in 2001, and $300,000 will expire in 2002; and (iii) an Alternative
Minimum Tax credit at December 31, 1998 of $230,000 which may be carried forward
indefinitely.
NOTE 7--RECLASSIFICATIONS
Certain prior year data have been reclassified to conform with current year
presentation.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
National Mercantile Bancorp (the "Company") is the holding company for
Mercantile National Bank (the "Bank"). In light of the fact that the Bank
constitutes substantially all of the business of the Company, references to the
Company in this Item 2 reflect the consolidated activities of the Company and
the Bank.
RESULTS OF OPERATIONS
The Company recorded net income of $76,000, or $0.03 diluted earnings per
share, for the first quarter of 1999, compared to net income of $195,000, or
$0.08 diluted earnings per share, for the first quarter of 1998. Net income per
basic share was $0.11 and $0.29 for the first quarter of 1999 and 1998,
respectively. The decrease in net income resulted primarily from a $101,000
increase in other operating expense and to a lesser extent nonrecurring items
realized during 1998, specifically a $59,000 gain on sale of other real estate
owned and a $17,000 net gain on sale of securities available for sale. These
changes were partially offset by a $59,000 increase in net interest income
during the first quarter of 1999 compared to 1998.
Return on average assets during the first quarter of 1999 was 0.22%
compared with 0.65% during the first quarter of 1998. Return on average equity
during the first quarter of 1999 was 2.32% compared to 6.22% during the first
quarter of 1998.
The increase in net interest income resulted primarily from the 13.4%
increase in average interest earning assets ($129.7 million as compared to
$114.3 million) offset partially by a decrease in the net yield on interest
earning assets (net interest margin) to 5.05% from 5.52%. The increase in
average interest earning assets was a result of the Company's plan to grow
following its recapitalization in 1997 which raised net proceeds of $7.35
million. Growth occurred primarily through the purchase of U.S. Treasury and
Agency securities using the excess liquidity provided by the recapitalization
and resulting increase in deposits and borrowings. The decrease in net interest
margin resulted primarily from (i) investment securities, which typically yield
less than Company's loans, representing a higher proportion of the Company's
interest earning assets during the first quarter of 1999 compared to the first
quarter of 1998; (ii) a decline in the market interest rates, which had a
greater short-term impact on the Company's interest earning assets than on its
interest bearing liabilities; (iii) the replacement of investment securities
redeemed by the issuers due to declining market interest rates with investment
securities with lower yields reflecting then-current market conditions. During
the latter part of 1998, the composition of the Company's investment securities
portfolio shifted from one which was primarily comprised of fixed-rate callable
federal agency securities to a portfolio primarily comprised of fixed-rate
mortgage-backed securities ("MBS"), collateralized mortgage obligations ("CMO")
and real estate mortgage investment conduits ("REMIC"). At March 31, 1999 the
Company held no investment securities with a call
9
<PAGE>
option feature other than the embedded prepayment option associated with
mortgage-related securities. Further, during the latter part of 1998 and the
first quarter of 1999, the Company invested approximately $19.5 million in
securities that bear interest at rates which adjust monthly or quarterly based
on the London Inter-Bank Offer Rate ("LIBOR") interest rate index.
The weighted average cost of interest-bearing liabilities decreased to
4.17% during the first quarter of 1999 from 4.42% the during the first quarter
of 1998. This was due primarily to lower average amount of higher-cost time
certificates of deposit ($27.6 million as compared to $32.0 million) and a
decrease in rates paid on deposits reflecting the overall downward trend in
market interest rates.
Average loans receivable decreased $4.3 million or 7.2% to $55.8 million
during the quarter ended March 31, 1999 compared to $60.1 million during the
quarter ended March 31, 1998. This decrease reflected higher than average loan
payoffs during the fourth quarter of 1998 resulting from the payoff of one
nonperforming loan with a balance of $5.4 million which was fully collected.
Total average securities available for sale increased by $38.3 million to
$70.4 million at March 31, 1999 compared to $32.1 million at March 31, 1998,
while average securities held to maturity decreased $8.2 million during the same
period. This increase in the overall security portfolio was a result of the
investment of excess liquidity provided by the net proceeds from the
recapitalization along with the resulting growth of deposits and borrowings.
Total average deposits increased $1.5 million or 1.5% during the first quarter
of 1999 compared to the first quarter of 1998. Total average securities sold
under agreements to repurchase and other borrowings increased $14.4 million to
$21.9 million at March 31, 1999 compared to $7.5 million at March 31, 1998. This
increase was caused by a need to increase liquidity as a result of a reduction
in average deposits during the first quarter of 1999 compared to the fourth
quarter of 1998.
There was no provision for credit losses for the quarters ended March 31,
1999 and 1998. Loan charged offs during the first quarter of 1999 were $175,000,
compared to $88,000 during the first quarter of 1998. Recoveries were $52,000
during the first quarter of 1999, compared to $18,000 during the first quarter
of 1998.
Other operating income excluding gains and losses on the sale of securities
and assets totaled $159,000 during the first quarter of 1999, up $4,000 or 2.6%
from the first quarter of 1998. Service charges on deposit accounts increased
$6,000 or 4.9% for the quarter ended March 31, 1999 compared to the first
quarter of 1998 due primarily to increased amount of demand deposit accounts.
10
<PAGE>
The net gain on sale of securities totaled $17,000 during the first quarter
of 1998 compared to zero during the first quarter of 1999. Additionally, the
Bank recorded a gain of $59,000 on the sale of OREO during the first quarter of
1998, a single family home acquired through foreclosure during 1997, compared to
zero during the same quarter of 1999.
Other operating expense increased by $101,000 to $1.7 million in the first
quarter of 1999 from $1.6 million during first quarter of 1998. Salaries and
related benefits increased $75,000 or 9.8% due primarily to the Company's
continued expansion of the business banking and entertainment loan production
staff to augment growth. In addition occupancy expense increased $55,000 caused
primarily by increased escalation and operating costs associated with the
Company's corporate and retail premises lease.
11
<PAGE>
The following table presents the components of net interest income for the
quarters ended March 31, 1999 and 1998.
AVERAGE BALANCE SHEET AND
ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------
March 31, 1999 March 31, 1998
---------------------------------- ----------------------------------
Weighted Weighted
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Amount Expense Rate Amount Expense Rate
--------- --------- -------- --------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Federal funds sold and securities purchased
under agreements to resell ............... $ 3,513 $ 42 4.79% $ 13,700 $ 187 5.54%
Interest-bearing deposits with other
financial institutions ................... -- -- -- 250 4 6.49%
Securities held-to-maturity ............... -- -- -- 8,188 134 6.64%
Securities available-for-sale ............. 70,384 1,070 6.17% 32,058 524 6.63%
Loans receivable (1) (2) .................. 55,767 1,31 9.58% 60,106 1,504 10.15%
--------- --------- --------- ---------
Total interest earning assets ............ 129,664 $ 2,429 7.60% 114,302 $ 2,353 8.35%
--------- ---------
--------- ---------
Noninterest earning assets:
Cash and due from banks - demand ......... 6,972 5,193
Other assets ............................. 2,829 3,286
Allowance for credit losses .............. (2,139) (1,984)
--------- ---------
Total assets .............................. $ 137,326 $ 120,797
--------- ---------
--------- ---------
Liabilities and shareholders' equity:
Interest-bearing deposits:
Demand ................................... 6,579 $ 21 1.29% $ 6,770 $ 21 1.26%
Money market and savings ................. 23,149 153 2.68% 26,952 210 3.16%
Time certificates of deposit:
$100,000 or more ....................... 14,133 187 5.37% 12,727 179 5.70%
Under $100,000 ......................... 13,451 184 5.55 19,227 279 5.88%
--------- --------- --------- ---------
Total time certificates of deposit ....... 27,584 371 5.45% 31,954 458 5.81%
--------- --------- --------- ---------
Total interest-bearing deposits .......... 57,312 54 3.86% 65,676 689 4.25%
Federal funds purchased and securities sold
under agreements to repurchase ........... 50 1 5.68% 4,049 59 5.91%
Other borrowings .......................... 21,854 269 5.00% 3,500 50 5.79%
--------- --------- --------- ---------
Total interest-bearing liabilities ....... 79,216 $ 815 4.17% 73,225 $ 798 4.42%
--------- ---------
--------- ---------
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits ...... 43,890 34,065
Other liabilities ........................ 923 930
Shareholders' equity ...................... 13,297 12,577
--------- ---------
Total liabilities and shareholders' equity $ 137,326 $ 120,797
--------- ---------
--------- ---------
Net interest income (spread) .............. $ 1,614 3.42% $ 1,555 3.93%
--------- ---------
--------- ---------
Net yield on earning assets (2) ....... 5.05% 5.52%
</TABLE>
- ----------
(1) Includes average balance of nonperforming loans of $1.4 million and $7.0
million for 1999 and 1998, respectively.
(2) Yields and amounts earned on loans receivable include loan fees of $59,000
and $50,000 for the three months ended March 31, 1999 and 1998,
respectively.
12
<PAGE>
The following tables set forth, for the periods indicated, the changes in
interest earned and interest paid resulting from changes in volume and changes
in rates. Average balances in all categories in each reported period were used
in the volume computations Average yields and rates in each reported period were
used in rate computations.
INCREASE (DECREASE) IN INTEREST INCOME/EXPENSE DUE TO CHANGE IN
AVERAGE VOLUME AND AVERAGE RATE
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
1999 VS 1998
-----------------------------------------
INCREASE (DECREASE) DUE TO(1) NET
----------------------------- INCREASE
VOLUME RATE (DECREASE)
------- ------- ----------
<S> <C> <C> <C>
Interest Income:
Federal funds sold and securities purchased
under agreements to resell .................. $ (123) $ (22) $ (145
Interest-bearing deposits with other financial
institutions ................................ (4) -- (4)
Securities held-to-maturity .................. (134) -- (134)
Securities available-for-sale ................ 595 (49) 546
Loans receivable (2) ......................... (105) (82) (187)
------- ------- -------
Total interest-earning assets .............. $ 229 $ (153) $ 76
------- ------- -------
------- ------- -------
Interest Expense:
Interest-bearing deposits:
Demand ..................................... $ (1) $ 1 $ --
Money market and savings ................... (24) (34) (58)
Time certificates of deposit:
$100,000 or more ........................ 19 (11 8
Under $100,000 .......................... (80) (14) (94)
------- ------- -------
Total time certificates of deposit ......... (61 (25) (86)
------- ------- -------
Total interest-bearing deposits ............ (86) (58) (144)
Federal funds purchased and securities sold
under agreements to repurchase .............. (57) (1) (58)
Other borrowings ............................. 226 (7) 219
------- ------- -------
Total interest-bearing liabilities ...... $ 83 $ (66) $ 17
------- ------- -------
------- ------- -------
Net interest income ........................ $ 146 $ (87) $ 59
------- ------- -------
------- ------- -------
</TABLE>
- ---------
(1) The change in interest income or interest expense that is attributable to
both changes in average volume and average rate has been allocated to the
changes due to (i) average volume and (ii) average rate in proportion to
the relationship of the absolute amounts of changes in each.
(2) Table does not include interest income that would have been earned on
nonaccrual loans.
13
<PAGE>
BALANCE SHEET ANALYSIS
LOAN PORTFOLIO
The following comparative period-end table sets forth certain information
concerning the composition of the loan portfolio.
Loan Portfolio Composition
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------------- ----------------------
Amount Percent Amount Percent
-------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial loans:
Secured by one to four family
residential properties ................. $ 4,811 8% $ 5,005 9%
Secured by multifamily
residential properties ................. 3,096 5 3,111 5
Secured by commercial real properties 22,655 39 20,839 36
Other - secured and unsecured 24,021 42 24,337 43
Home equity lines of credit 347 1 271 0
Consumer installment and
unsecured loans to individuals ........... 2,804 5 3,707 7
-------- ---- -------- ----
Total loans outstanding ................ 57,734 100% 57,270 100%
---- ----
---- ----
Deferred net loan origination
fees and purchased loan discount ......... (360) (298)
-------- --------
Loans receivable, net ..................... $ 57,374 $ 56,972
-------- --------
-------- --------
</TABLE>
Total loans outstanding increased slightly by $464,000 to $57.7 million at
March 31, 1999 compared to $57.3 million at December 31, 1998. As indicated in
the table above, the composition of the loan portfolio has remained relatively
unchanged at March 31, 1999 compared to December 31, 1998.
14
<PAGE>
The following comparative period-end table sets forth certain information
concerning nonperforming assets.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans ............................... $ 1,335 $ 1,505
Troubled debt restructurings ................... -- --
Loans contractually past due ninety or more
days with respect to either principal or
interest and still accruing interest .......... -- --
------- -------
Nonperforming loans ............................ 1,335 1,505
Other real estate owned ........................ 417 417
Other assets-SBA guaranteed loan ............... 176 176
------- -------
Total nonperforming assets ..................... $ 1,928 $ 2,098
------- -------
------- -------
Allowance for credit losses as a percent of
nonaccrual loans .............................. 151.4% 142.5%
Allowance for credit losses as a percent of
nonperforming loans ......................... 151.4% 142.5%
Total nonperforming assets as a percent of
loans receivable .............................. 3.4% 3.7%
Total nonperforming assets as a percent of total
shareholders' equity ........................ 14.5% 15.8%
</TABLE>
Nonaccrual loans decreased by $170,000 during the first quarter of 1999 to
$1.3 million compared with $1.5 million at December 31, 1998, due to loan
charge-offs of $175,000 during the first quarter of 1999.
Other real estate owned ("OREO") at March 31, 1999 consisted of two
properties totaling $417,000 representing three undeveloped commercially zoned
parcels and a undeveloped multi-family zoned parcel. Other assets - SBA
guaranteed loan is represented by one developed commercial retail property.
As a result of these changes, the amount of nonperforming assets at March
31, 1999 decreased 8.1% from the level at December 31, 1998.
Loan delinquencies greater than 30 days past due decreased to $250,000 or
0.4% of loans outstanding at March 31, 1999 from $570,000 or 1.0% of loans
outstanding at December 31, 1998. This decrease in loan delinquencies during the
first quarter of 1999 was primarily the result of the loan charge-offs discussed
above.
15
<PAGE>
ALLOWANCE FOR CREDIT LOSSES
The following table sets forth information concerning the Company's
allowance for credit losses for the periods indicated.
ANALYSIS OF CHANGES IN ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
MARCH 31, MARCH 31,
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance, beginning of period ................... $ 2,144 $ 2,023
Loan charged off:
Commercial loans:
Secured by one to four family
residential properties .................... -- 4
Secured by commercial real properties ...... 128 --
Other - secured and unsecured .............. 42 --
Consumer installment and unsecured loans
to individuals ............................. 5 84
------- -------
Total loan charge-offs ...................... 175 88
Recoveries of loans previously charged off:
Commercial loans:
Other - secured and unsecured .............. 38 4
Consumer installment and unsecured loans
to individuals ............................. 14 14
------- -------
Total recoveries of loans previously
charged off ................................ 52 18
------- -------
Net charge-offs ............................. 123 70
Provision for credit losses ................. -- --
------- -------
Balance, end of period ...................... $ 2,021 $ 1,953
------- -------
------- -------
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. This
Statement is effective for fiscal years beginning after June 15, 1999. The
Company currently does not own any derivative instruments. Therefore, management
does not believe that this statement will have a significant impact on the
Company.
CAPITAL ADEQUACY REQUIREMENTS
At March 31, 1999 the Company and the Bank were in compliance with all
applicable regulatory capital requirements and the Bank was "well capitalized"
under the Prompt Corrective Action rules of the Office of the Comptroller of the
Currency. The following table sets forth the regulatory capital standards for
well capitalized institutions, and the capital ratios for the Company and the
Bank as of March 31, 1999 and December 31, 1998.
16
<PAGE>
REGULATORY CAPITAL INFORMATION OF THE COMPANY AND BANK
<TABLE>
<CAPTION>
WELL CAPITALIZED MARCH 31, DECEMBER 31,
STANDARDS 1999 1998
---------------- --------- ------------
<S> <C> <C> <C>
COMPANY:
Tier 1 leverage .............. N/A 9.56% 8.78%
Tier 1 risk-based capital .... N/A 17.07% 17.38%
Total risk-based capital ..... N/A 17.07% 17.38%
BANK:
Tier 1 leverage .............. 5.00% 7.27% 6.69%
Tier 1 risk-based capital .... 6.00% 13.13% 13.48%
Total risk-based capital ..... 10.00% 14.40% 14.75%
</TABLE>
LIQUIDITY
The Company continues to manage its liquidity through a combination of core
deposits, federal funds purchased, repurchase agreements, collateralized
borrowing lines at the Federal Home Loan Bank of San Francisco, and a portfolio
of securities available for sale. Liquidity is also provided by maturing
investment securities and loans.
Average core deposits (excludes money desk and escrow deposits) and
shareholders' equity comprised 67.2% of total funding in the first quarter of
1999, compared to 72.7% in the fourth quarter of 1998.
ASSET LIABILITY MANAGEMENT
The following table shows that the Company's cumulative one year interest
rate sensitivity gap indicated an asset sensitive position of $1.3 million at
March 31, 1999, a change from the liability sensitive position of $7.6 million
at December 31, 1998. This change resulted from the Company's continuing effort
to minimize its exposure to changes in net interest income due to rapid
movements in interest rates. During the last three months, the Company has
decreased its available-for-sale investment securities portfolio that reprice
after one year to $40.1 million at March 31, 1999 from $53.2 million at December
31, 1998, increased its portfolio of loans that reprice after one year to $18.3
million at March 31, 1999 from $17.0 million at December 31, 1998, and increased
its interest bearing transaction deposit accounts and borrowed funds to $53.4
million from $50.9 million during this same period. The Company's asset
sensitive position during a period of slowly rising or declining interest rates
is not expected to have a significant negative impact on net interest income
since rates paid on the Company's large base of interest demand savings and
money market deposit accounts historically have not increased proportionately
with increases in interest rates and decrease more rapidly with decreases in
interest rates.
17
<PAGE>
RATE-SENSITIVE ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------------------------------
MATURING OR REPRICING IN
-------------------------------------------------------------
LESS AFTER THREE AFTER ONE
THAN MONTHS YEAR
THREE BUT WITHIN BUT WITHIN AFTER
MONTHS ONE YEAR 5 YEARS 5 YEARS TOTAL
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Rate-Sensitive Assets:
Federal funds sold and securities
purchased under agreements to resell .... $ 6,600 $ -- $ -- $ -- $ 6,600
Securities available-for-sale .............. 18,879 9,677 36,513 3,570 68,639
FRB and other stock, at cost ............... -- -- -- 1,693 1,693
Loans receivable ........................... 25,523 13,570 10,578 7,703 57,374
-------- -------- -------- -------- --------
Total rate-sensitive assets ............. 51,002 23,247 47,091 12,966 134,306
Rate-Sensitive Liabilities: (1)
Interest bearing deposits:
Demand, money market and savings ........ 29,436 -- -- -- 29,436
Time certificates of deposit ............ 8,819 10,674 6,828 548 26,869
Federal funds purchased and securities
sold under agreements to repurchase ..... -- -- -- -- --
Other borrowings ........................... 24,000 -- -- -- 24,000
-------- -------- -------- -------- --------
Total rate-sensitive liabilities ........ 62,255 10,674 6,828 548 80,305
Interest rate-sensitivity gap .............. (11,253) 12,573 40,263 12,418 54,001
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Cumulative interest rate-sensitivity gap ... $(11,253) $ 1,320 $ 41,583 $ 54,001
-------- -------- -------- --------
-------- -------- -------- --------
Cumulative ratio of rate sensitive assets to
rate-sensitive liabilities .............. 82% 102% 152% 167%
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
(1) Deposits which are subject to immediate withdrawal are presented as
repricing within three months or less. The distribution of other time
deposits is based on scheduled maturities.
18
<PAGE>
RATE-SENSITIVE ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------------------
MATURING OR REPRICING IN
-------------------------------------------------------------
LESS AFTER THREE AFTER ONE
THAN MONTHS YEAR
THREE BUT WITHIN BUT WITHIN AFTER
MONTHS ONE YEAR 5 YEARS 5 YEARS TOTAL
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Rate-Sensitive Assets:
Federal funds sold and securities
purchased under agreements to resell .... $ 6,800 $ -- $ -- $ -- $ 6,800
Securities held-to-maturity
Securities available-for-sale .............. 15,881 1,414 2,183 50,980 70,458
FRB and other stock, at cost ............... -- -- -- 1,391 1,391
Loans receivable ........................... 23,562 16,391 11,738 5,281 56,972
-------- -------- -------- -------- --------
Total rate-sensitive assets ............. 46,243 17,805 13,921 57,652 135,621
Rate-Sensitive Liabilities: (1)
Interest bearing deposits:
Demand, money market and savings ........ 30,550 -- -- -- 30,550
Time certificates of deposit ............ 9,743 11,089 7,668 547 29,047
Federal funds purchased and securities
sold under agreements to repurchase ..... 1,000 -- -- -- 1,000
Other borrowings ........................... 15,800 3,500 -- -- 19,300
-------- -------- -------- -------- --------
Total rate-sensitive liabilities ........ 57,093 14,589 7,668 547 79,897
Interest rate-sensitivity gap .............. (10,850) 3,216 6,253 57,105 55,724
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Cumulative interest rate-sensitivity gap ... $(10,850) $ (7,634) $ (1,381) $ 55,724
-------- -------- -------- --------
-------- -------- -------- --------
Cumulative ratio of rate sensitive assets to
rate-sensitive liabilities .............. 81% 89% 98% 170%
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
(1) Deposits which are subject to immediate withdrawal are presented as
repricing within three months or less. The distribution of other time
deposits is based on scheduled maturities.
19
<PAGE>
YEAR 2000 MATTERS
THE FOLLOWING CONSTITUTES A "YEAR 2000 READINESS" DISCLOSURE UNDER THE YEAR 2000
INFORMATION AND READINESS DISCLOSURE ACT.
As the Year 2000 approaches, a critical issue has emerged regarding how
existing application software programs and operating systems can accommodate
this date value. In brief, many existing application software products were
designed to only accommodate a two-digit date position, which represents the
year (e.g., `95' is stored on the system and represents the year 1995). As a
result, the year 1999 (i.e., '99') could be the maximum date value these systems
will be able to accurately process.
Addressing the risks posed by the Year 2000 problem is among the Company's
highest priorities. The Company has established a comprehensive program
comprised of numerous individual projects which address the following broad
areas: data processing systems, telecommunications and data networks, physical
facilities and security systems, vendor risk, customer risk, liquidity risk,
contingency planning, testing and communications. The goal of the Company's Year
2000 program is to assure that the Company will be able to conduct normal
business before, during and after the century date change.
During 1997, the Company formed a Year 2000 team, consisting of the senior
managers from each operational area of the Company. The team first evaluated the
overall issue and identified risks posed by the century date change and
established a plan to address these risks. Pursuant to the plan, the following
steps were taken:
- - Assessment - Systems have been inventoried, evaluated and prioritized in
importance to client service operations.
- - Renovation - The Company determined that internal systems did not require
renovation. The plans of vendors are being monitored to assure that their
system changes are completed within acceptable timeframes.
- - Validation - The testing and validation phase is nearing completion. Each
critical system provided by external vendors has been tested to ensure
processing and reporting accuracy. Each mission critical systems testing is
complete. Our plan calls for completion of all testing and validation of
all non-mission critical systems and contingency plan by June 30, 1999.
The Company is attempting to obtain certification of Year 2000 compliance
from 19 external service bureau or software providers, of which two have been
assessed as mission critical. At March 31, 1999, nine, or 47%, of these 19
service providers (including one mission critical provider) certified Year 2000
compliance.
20
<PAGE>
The Company is attempting to obtain certification of Year 2000 compliance
from 43 other vendors or suppliers. As of March 31, 1999, 36, or 84%, of these
43 vendors or suppliers certified Year 2000 compliance. None of these 36 are
defined as mission critical vendors/suppliers.
The Company's approach to evaluating potential Year 2000 issues pertaining
to its borrowers was first to determine the level of loans dependent on borrower
cash flow versus collateral such as real estate, and second, to make an
assessment of loans, over a certain dollar volume, which may have exposure to
Year 2000 issues. The Company has determined that loans representing
approximately 43% of the dollar volume of its loan portfolio are not
collateralized by real estate, and further determined it is not aware of any
pending issues that would cause the Company not to extend credit to the
borrowers where loan repayment is more dependent on cash flows than on possibly
sale of collateral. The Company specifically reviewed approximately 80% of the
dollar volume of its loan portfolio to assess the potential Year 2000 issues by
first determining whether the borrower was exposed to Year 2000 date changes
(e.g. individual versus commercial) and second, completing an assessment of
those borrowers it determined may have potential exposure to Year 2000 issues.
Based on this assessment the Company is not aware of any pending issues that
would cause it not to extend credit to these borrowers. However, the Company's
credit risk associated with loans may increase as reliance on third party
responses is subject to both the borrower's understanding of the potential Year
2000 issues and the borrowers determination of the impact on its ability to
fulfill contractual loan obligations. As a result, there may be increases in the
Company's problem loans and credit losses in future years. Although it is not
possible to quantify the complete potential impact of such losses at this time,
management has no current information which would lead it to believe that these
potential losses would be material.
The financial impact of making the required systems testing and enhancement
described above is expected to be approximately $75,000. Approximately $36,000
has been expended as of March 31, 1999.
The Company is developing contingency plans for implementation in the event
that mission critical service bureaus, software providers, vendors, suppliers or
other significant third parties fail to adequately address Year 2000 issues.
Such plans principally involve identifying alternate sources. The Company is
also enhancing its existing business resumption plans to reflect Year 2000
issues and is developing plans designed to coordinate the efforts of its
personnel and resources in addressing Year 2000 problems that become evident
after December 31, 1999. There can be no assurance that any such plans will
fully mitigate any such failures or problems. Furthermore, there may be certain
mission critical third parties, such as utilities or telecommunication
companies, where alternative arrangements or sources are limited or unavailable.
21
<PAGE>
If Year 2000 issues are not adequately addressed by the Company and third
parties, the Company's business, results of operations and financial position
could be materially adversely affected.
The foregoing Year 2000 discussion contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs, the dates by which
the Company expects to substantially complete programming changes, remediation
and testing of systems and the impact of the redeployment of existing staff, are
based on management's best current estimates, which were derived utilizing
numerous assumptions about future events, including continued availability of
certain resources, representations received from third party service providers
and other factors. However, there can be no guarantee that these estimates will
be achieved, and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to identify and convert all relevant computer systems, results of Year
2000 testing, adequate resolution of Year 2000 issues by governmental agencies,
business or other third parties who are service providers, suppliers, borrowers
or customers of the Company, unanticipated system costs, the need to replace
hardware, the adequacy of and ability to implement contingency plans and similar
uncertainties. The forward-looking statements made in the foregoing Year 2000
discussion speak only as of the date on which such statements are made, and the
Company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such statement is made
or to reflect the occurrence of unanticipated events.
22
<PAGE>
FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS
The Company's results of operations and financial condition are affected by
many factors, including the following.
CHANGING ECONOMIC CONDITIONS
The Company's results of operation and financial condition are strongly
influenced by economic conditions in its market area (principally the Los
Angeles metropolitan area) as well as regional and national economic conditions
and in its niche markets, including the entertainment industry in Southern
California. During the past several years economic conditions in these areas
have been favorable. A deterioration in these economic conditions could affect
the financial condition and cash flows of its borrowers, which could lead to
higher levels of loan defaults, a decline in the value of collateral for the
loans. In addition, an unfavorable economy could reduce the demand for the
Company's loans and other products and services.
INTEREST RATE RISK
The Company's operating results depend to a large extent on its net
interest income. Changes in market interest rates can affect the Company's net
interest income by affecting the spread between its interest-earning assets and
interest-bearing liabilities. This may be due to the different maturities of its
interest-earning assets and interest-bearing liabilities, as well as an increase
in the general level of interest rates. Changes in market interest rates also
affect, among other things:
- - The Company's ability to originate loans;
- - The ability of borrowers to make payments on loans;
- - The value of its interest-earning assets and its ability to realize gains
from the sale of these assets;
- - The average life of its interest-earning assets; and
- - The Company's ability to obtain deposits instead of other available
investment alternatives.
Interest rates are highly sensitive to many factors, including governmental
monetary policies, domestic and international economic and political conditions
and other factors beyond its control.
RISK OF DECLINES IN ASSET QUALITY
The Company's results of operations depend significantly on the quality of
its assets. While the Company has developed and implemented underwriting
policies and procedures in connection with the making of loans, compliance with
these policies and procedures in making loans does not guarantee repayment of
the loans. High levels of non-performing assets will adversely affect the
Company's results of operations and financial condition. A borrower's ability to
pay its loan in accordance with its terms can be adversely affected by a number
of factors, such as a decrease in the borrower's revenues and cash flows due to
adverse changes in economic conditions or a decline in the demand for the
borrower's products and/or services. The Company
23
<PAGE>
has devoted and continues to devote substantial time and resources to the
identification, collection and workout of non-performing assets, which has
resulted in a significant decrease in its nonperforming assets from $12.4
million, or 5.2%, of total assets at December 31, 1994 to $2.1 million, or 1.5%,
of total assets at December 31, 1998. However, no assurance can be given that
the Company will not have material additional non-performing assets in the
future.
ADEQUACY OF ALLOWANCES FOR LOSSES
The Company establishes allowances for credit losses against each
segment of its loan portfolio. At March 31, 1999, its allowance for credit
losses equaled 3.4% of loans receivable and 151.4% of nonperforming loans.
Although the Company believes that it had established adequate allowances for
credit losses as of December 31, 1998, credit quality is affected by many
factors beyond the control of the Company, including local and national
economies, and facts may exist which are not known to the Company which
adversely affect the likelihood of repayment of various loans in the loan
portfolio and realization of the collateral upon a default. Accordingly, no
assurance can be given that the Company will not sustain loan losses
materially in excess of the allowance for credit losses. In addition, the
OCC, as an integral part of its examination process, periodically reviews its
allowance for credit losses and could require additional provisions for
credit losses. Material future additions to the allowance for loan losses may
also be necessary due to increases in the size of the loan portfolio.
Increases in the provisions for credit losses would adversely affect its
results of operations.
COMPETITION
The banking business is highly competitive. The Company's primary service
area is dominated by a relatively small number of major banks which have many
offices over a wide geographic area and much greater name recognition.
Increasing competition in the markets for the Company's products and services
can reduce the demand for the Company's products and services and require the
Company to originate those products and services on less favorable terms.
REGULATION
Both the Company, as a bank holding company, and the Bank, as a national
bank, are subject to significant governmental supervision and regulation, which
is intended primarily for the protection of depositors. Statutes and regulations
affecting it may be changed at any time, and the interpretation of these
statutes and regulations by examining authorities also may change. The Company
cannot assure you that future changes in applicable statutes and regulations or
in its interpretation will not adversely affect its business.
24
<PAGE>
PART II--OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On April 29, 1999, the Company held its annual meeting of
shareholders.
(b) At the annual meeting, the following directors were elected: Donald E.
Benson, Joseph N. Cohen, Robert E. Gipson, Antoinette Hubenette, M.D.,
Alan Grahm, Joseph W. Kiley III, Scott A. Montgomery , Dion G. Morrow,
Carl R. Terzian and Robert E. Thomson.
(c) The following proposals were considered at the annual meeting and the
number of shares voting for or against such proposals are listed
below.
Election of Directors
<TABLE>
<CAPTION>
VOTES
NAME VOTES FOR WITHHELD
---- --------- --------
<S> <C> <C>
Donald E. Benson .................. 1,896,188 225,162
Joseph N. Cohen ................... 1,896,188 225,162
Robert E. Gipson .................. 1,896,188 225,162
Alan Grahm ........................ 1,896,188 225,162
Antoinette Hubenette, M.D ......... 1,896,188 225,162
Joseph W. Kiley III ............... 1,896,188 225,162
Scott A. Montgomery ............... 1,896,188 225,162
Dion G. Morrow .................... 1,896,188 225,162
Carl R. Terzian ................... 1,896,188 225,162
Robert E. Thomson ................. 1,896,188 225,162
</TABLE>
25
<PAGE>
Approval of amendments to the 1996 Stock Incentive Plan to increase the
number of shares authorized under the Plan from 283,510 shares to 348,510 shares
and make directors eligible to participate under the Plan.
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTENTIONS BROKER NON-VOTES
--------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
1,365,997 230,361 8,972 516,020
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
10.1 National Mercantile Bancorp Amended 1996 Stock Incentive Plan
10.2 Employment Agreement dated January 1, 1999 with Scott A. Montgomery
27 Financial Data Schedule
(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.
NATIONAL MERCANTILE BANCORP
(Registrant)
DATE: MAY 14, 1999 /S/ SCOTT A. MONTGOMERY
-------------------------- --------------------------------------
SCOTT A. MONTGOMERY
Chief Executive Officer
DATE: MAY 14, 1999 /S/ JOSEPH W. KILEY III
-------------------------- --------------------------------------
JOSEPH W. KILEY, III
Chief Financial Officer
26
<PAGE>
NATIONAL MERCANTILE BANCORP
AMENDED 1996 STOCK INCENTIVE PLAN
Section 1. PURPOSE
The purpose of the 1996 Stock Incentive Plan (the "1996 Plan") of National
Mercantile Bancorp, a California corporation and a registered bank holding
company under the Bank Holding Company Act of 1956, as amended (the "Company"),
is to enable the Company to attract, retain and motivate its employees and
independent contractors by providing for or increasing the proprietary interests
of such employees and independent contractors in the Company, and to enable the
Company to attract, retain and motivate its nonemployee directors and further
align their interest with those of the shareholders of the Company by providing
for or increasing the proprietary interest of such directors in the Company.
2. PERSONS ELIGIBLE
Each director, officer, employee or independent contractor of the Company
or any of its subsidiaries (each, a "Participant") shall be eligible to be
considered for the grant of an Award (as hereinafter defined) under the 1996
Plan. Directors who are not employees ("Nonemployee Directors") may receive
awards in addition to those described under Section 10 of the 1996 Plan.
3. AWARDS
(a) The Committee (as hereinafter defined) responsible for administration
of the 1996 Plan is authorized to enter into any type of arrangement on behalf
of the Company with a Participant that is not inconsistent with the provisions
of the 1996 Plan and that, by its terms, involves or might involve the issuance
of (i) shares of common stock of the Company ("Common Shares") or (ii)
Derivative Security (as such term is defined in Rule 16a-1 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as such rule
may be amended from time to time) with an exercise or conversion privilege at a
price related to the Common Shares or with a value derived from the value of the
Common Shares. The entering into of any such arrangement is referred to herein
as the grant of an "Award."
(b) Awards are not restricted to any specified form or structure and may
include, without limitation, sales or bonuses of stock, restricted stock, stock
options, reload stock options, stock purchase warrants, other rights to acquire
stock, securities convertible into or redeemable for stock, stock appreciation
rights, phantom stock, dividend equivalents, performance units or
1
<PAGE>
performance shares, and an Award may consist of one such security or benefit,
or two or more of them in tandem or in the alternative.
(c) Awards may be issued, and Common Shares may be issued pursuant to an
Award, for any lawful consideration as determined by the Committee, including,
without limitation, services rendered by the recipient of such Award.
(d) Subject to the provisions of the 1996 Plan, the Committee, in its sole
and absolute discretion, shall determine all of the terms and conditions of each
Award granted hereunder, which terms and conditions may include, among other
things:
(i) a provision permitting the recipient of such Award,
including any recipient who is a director or officer of the Company,
to pay the purchase price of the Common Shares or other property
issuable pursuant to such Award, or such recipient's tax withholding
obligation with respect to such issuance, in whole or in part, by any
one or more of the following:
(A) the delivery of cash;
(B) the delivery of other property deemed acceptable by the
Committee;
(C) the delivery of previously owned shares of capital stock of
the Company (including "pyramiding"); or
(D) a reduction in the amount of Common Shares or other
property otherwise issuable pursuant to such Award.
(ii) a provision conditioning or accelerating the receipt of
benefits pursuant to such Award, either automatically or in the
discretion of the Committee, upon the occurrence of specified events,
including, without limitation, a change of control of the Company (as
defined by the Committee), an acquisition of a specified percentage of
the voting power of the Company, the dissolution or liquidation of the
Company, a sale of substantially all of the property and assets of the
Company or an event of the type described in Section 7 hereof; or
(iii) a provision required in order for such Award to qualify as
an incentive stock option (an "Incentive Stock Option") under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code");
provided, however, that no Award issued to any Nonemployee Director or
any independent contractor of the Company shall qualify as an
Incentive Stock Option.
Section 4. STOCK SUBJECT TO THE 1996 PLAN
2
<PAGE>
(a) At any time, the aggregate number of Common Shares issued or issuable
pursuant to all Awards (including all Incentive Stock Options) granted under the
1996 Plan shall not exceed 348,510 shares subject to adjustment as provided in
Section 7 hereof.
(b) For purposes of Section 4(a) hereof, the aggregate number of Common
Shares issued or issuable pursuant to Awards granted under the 1996 Plan shall
at any time be deemed to be equal to the sum of the following:
(i) the number of Common Shares that were issued prior to such
time pursuant to Awards granted under the 1996 Plan, other than Common
Shares that were subsequently reacquired by the Company pursuant to
the terms and conditions of such Awards and with respect to which the
holder thereof received no benefits of ownership such as dividends;
plus
(ii) the number of Common Shares that were otherwise issuable
prior to such time pursuant to Awards granted under the 1996 Plan, but
that were withheld by the Company as payment of the purchase price of
the Common Shares issued pursuant to such Awards or as payment of the
recipient's tax withholding obligation with respect to such issuance;
plus
(iii) the maximum number of Common Shares that are or may be
issuable at or after such time pursuant to Awards granted under the
1996 Plan prior to such time.
Section 5. DURATION
Unless sooner terminated pursuant to Section 8 below, the 1996 Plan shall
terminate on March 28, 2006. No Awards shall be granted under the 1996 Plan
while the 1996 Plan is suspended or after it is terminated.
Section 6. ADMINISTRATION
(a) The 1996 Plan shall be administered by a committee (the "Committee")
of the Board of Directors of the Company (the "Board") consisting of two or more
directors, each of whom: (i) is a "disinterested person" (as such term is
defined in Rule 16b-3 promulgated under the Exchange Act, as such Rule may be
amended from time to time); and (ii) is an "outside director" within the meaning
of Section 162(m) of the Code. Members of the Committee shall serve at the
pleasure of the Board, and the Board may from time to time remove members from
or add members to, the Committee.
(b) Subject to the provisions of the 1996 Plan, the Committee shall be
authorized and
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empowered to do all things necessary or desirable in connection with the
administration of the 1996 Plan, including, without limitation, the following:
(i) adopt, amend and rescind rules and regulations relating to
the 1996 Plan;
(ii) determine which persons are Participants and to which of
such Participants, if any, Awards shall be granted hereunder;
(iii) grant Awards to Participants and determine the terms and
conditions thereof, including the number of Common Shares issuable
pursuant thereto;
(iv) determine the terms and conditions of the Nonemployee
Director Options that are automatically granted hereunder, other than
the terms and conditions specified in Section 10 hereof;
(v) determine whether, and the extent to which adjustments are
required pursuant to Section 7 hereof; and
(vi) interpret and construe the 1996 Plan and the terms and
conditions of any Award granted hereunder.
Section 7. ADJUSTMENTS
If the outstanding shares of the class of Company stock then subject to the
1996 Plan are increased, decreased or exchanged for or converted into cash,
property or a different number or kind of securities, or if cash, property or
securities are distributed in respect of such outstanding securities, in either
case as a result of a reorganization, merger, consolidation, recapitalization,
restructuring, reclassification, dividend (other than a regular cash dividend)
or other distribution, stock split, reverse stock split or the like, or if
substantially all of the property and assets of the Company are sold, then,
unless the terms of such transaction shall provide otherwise, the Committee
shall make appropriate and proportionate adjustments in: (i) the number and
type of shares or other securities or cash or other property that may be
acquired pursuant to Awards theretofore granted under the 1996 Plan; and (ii)
the maximum number and type of shares or other securities that may be issued
pursuant to Awards thereafter granted under the 1996 Plan. The determination of
the Committee as to what adjustments shall be made pursuant to this section, and
the extent thereof, shall be final and conclusive. No fractional shares of
stock shall be issued under the 1996 Plan on account of any such adjustment.
Section 8. AMENDMENT AND TERMINATION
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The Board may suspend or terminate the 1996 Plan at any time; provided,
however, that no such suspension or termination shall deprive the recipient of
any Award theretofore granted under the 1996 Plan, without the consent of such
recipient, of any of his or her rights thereunder or with respect thereto.
The Board may amend the 1996 Plan at any time and in any manner subject to
the following limitations:
(a) No such amendment shall deprive the recipient of any Award theretofore
granted under the 1996 Plan, without the consent of such recipient, of any of
his or her rights thereunder or with respect thereto;
(b) Except as otherwise provided in Section 7 relating to adjustments upon
changes in stock, no such amendment shall be effective unless approved by the
affirmative vote of the holders of a majority of the outstanding shares of the
Company present, represented and entitled to vote at a shareholders meeting or
by the written consent of a majority of the outstanding shares of the Company
where such shareholder approval is required by law or pursuant to the Articles
of Incorporation or Bylaws of the Company; and
(c) Section 10 hereof shall not be amended more than once every six (6)
months, other than to comport with changes in the Code, the Employee Retirement
Income Security Act, or the rules and regulations thereunder.
Section 9. EFFECTIVE DATE
The 1996 Plan shall be effective as of June 18, 1997, the date upon which
it was approved by the shareholders of the Company; provided, however, that no
Common Shares may be issued under this Plan until it has been approved, director
or indirectly, by the affirmative vote of the holders (the "Shareholders") of a
majority of the outstanding shares of the Company present, or represented, and
entitled to vote at a meeting duly held in accordance with the laws of the State
of California.
Section 10. NONEMPLOYEE DIRECTOR OPTIONS
(a) Any person elected or appointed to serve as a Nonemployee Director who
has not previously served as a Nonemployee Director of the Company on or prior
to October 1, 1996, shall be granted, on the first business day following the
later of the date of such election or appointment or the date the 1996 Plan is
approved by the Shareholders, an option to purchase 1,100 Common Shares without
the requirement of any further action by the Committee. On the first business
day following the date of the annual meeting of shareholders of the Company held
in 1998, or any adjournment thereof (the "1998 Meeting"), any person who was a
Nonemployee
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Director on or after the effective date of the 1996 Plan and who is
re-elected to the Board at the 1998 Meeting shall be granted an option to
purchase 550 Common Shares without the requirement of any further action by
the Committee. Options that may be granted to newly-elected Nonemployee
Directors or to re-elected Nonemployee Directors under this Section 10 shall
be referred to collectively as the "Nonemployee Director Options." The date
on which a Nonemployee Director Option is granted shall be the Date of Grant
for such option.
(b) If, on any date upon which Nonemployee Director Options are to be
automatically granted pursuant to this Section 10, the number of Common Shares
remaining available for options under the 1996 Plan is insufficient for the
grant to each Nonemployee Director entitled thereto of a Nonemployee Director
Option to purchase the entire number of Common Shares specified in this Section
10, then a Nonemployee Director Option to purchase a proportionate amount of
such available number of Common Shares (rounded to the nearest whole share)
shall be granted to each Nonemployee Director entitled thereto on such date.
(c) Each Nonemployee Director Option granted under the 1996 Plan shall
become fully exercisable one year from the Date of Grant, provided that in the
event that a Change of Control (as defined below) shall occur, such granted
Nonemployee Director Option shall be immediately exercisable.
(d) Each Nonemployee Director Option granted under the 1996 Plan shall
expire upon the sixth anniversary of the Date of Grant.
(e) Each Nonemployee Director Option shall have an exercise price equal to
the aggregate Fair Market Value on the Date of Grant of the Common Shares
subject thereto.
(f) Payment of the exercise price of any Nonemployee Director Option
granted under the 1996 Plan shall be made in full in cash concurrently with the
exercise of such option; provided however, that, in the discretion of the Board,
the payment of such exercise price may instead be made:
(i) in whole or in part, with Common Shares delivered
concurrently with such exercise (such shares to be valued on the basis
of the Fair Market Value of such shares on the date of such exercise),
provided that the Company is not then prohibited from purchasing or
acquiring Common Shares; or
(ii) in whole or in part, by the delivery, concurrently with
such exercise and in accordance with Section 220.3(e)(4) of Regulation
T promulgated under the Exchange Act, of a properly executed exercise
notice for such option and irrevocable instructions to a broker
promptly to deliver to the Company a specified dollar amount of the
proceeds of a sale of or a loan secured by the Common Shares issuable
upon exercise of such option.
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(g) For purposes of this Section 10, the "Fair Market Value" of a Common
Share or other security on any date (the "Determination Date") shall be equal to
the average of the high bid and low asked prices per Common Share or unit of
such other security on the business day immediately preceding the Determination
Date in the market where the security is traded, or, if the Common shares or
such other security were not quoted by any such organization on such immediately
preceding business day, as determined by the Board. for purposes of this
Section 10, the term "Change of Control" shall mean the occurrence of either of
the following events: (a) the Company consolidates with or merges with or into
any person or conveys, transfers or leases all or substantially all of its
assets to any person, or any corporation consolidates with or merges into or
with the Company in any event pursuant to a transaction in which the outstanding
voting stock or units of the Company is changed into or exchanged for cash,
securities or other property, other than any such transaction where the
outstanding voting stock or units of the Company is not changed or exchanged at
all (except to the extent necessary to reflect a change in the jurisdiction of
incorporation or organization of the Company) or where the outstanding voting
stock or units of the Company is changed into or exchanged for voting stock or
units of the surviving corporation or organization which is not redeemable, or
no "person" or "group" owns immediately after such transaction, directly or
indirectly, an amount of outstanding voting stock or units necessary to effect
the change of control of, or influence over, the surviving corporation or
organization, as the case may be, or (b) the Company is liquidated or dissolved
or adopts a plan of liquidation or dissolution.
(h) Each Nonemployee Director Option shall be nontransferable by the
optionee other than by will or the laws of descent and distribution, and shall
be exercisable during the optionee's lifetime only by the optionee or the
optionee's guardian or legal representative.
(i) Nonemployee Director Options are not intended to qualify as Incentive
Stock Options.
(j) Any options granted to Nonemployee Directors in addition to the
automatic options granted under Section 10(a) shall be considered "Nonemployee
Director Options" for purposes of this Section 10.
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the
1st day of January, 1999 (the "Effective Date"), between MERCANTILE NATIONAL
BANK, a National Banking Association organized and existing under the laws of
the United States (the "Bank"), and SCOTT A MONTGOMERY ("Montgomery").
WITNESSETH:
A. The Bank hereby retains Montgomery's exclusive services as its
President and Chief Executive Officer subject to the terms and conditions set
forth in this Agreement.
B. Montgomery accepts such employment and enters into this Agreement
subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of mutual promises of the parties set
forth in this Agreement, the Bank and Montgomery hereby agree as follows:
1. EMPLOYMENT - The Bank hereby employs Montgomery, and Montgomery
accepts employment, as President and Chief Executive Officer of the Bank, to
perform such duties as may from time to time be appropriate, subject at all
times to the control and direction of the Board of Directors of the Bank and the
terms and conditions of this Agreement. It is understood and agreed that
Montgomery shall at all times report solely to the Board of Directors of the
Bank and that Montgomery's responsibilities shall at all times be consistent
with those which would normally be assigned to the chief executive officer of a
commercial bank in size and condition similar to the Bank.
1.1 EXCLUSIVE EMPLOYMENT - During the term of this Agreement,
Montgomery shall devote his time, attention and energies to the business and
affairs of the Bank and to the performance of his duties hereunder and shall
not, without the prior written consent of the Bank, participate in any other
business activity or render services for any other person, firm, corporation or
for-profit organization for compensation, or for any non-profit organization
where such service is or would be related to Montgomery's employment under this
Agreement.
1.2 PERFORMANCE OF DUTIES OF BANCORP - Montgomery agrees to
perform duties for National Mercantile ("Bancorp") as may be delegated or
assigned to him by Bancorp and are not inconsistent with his duties as President
and Chief Executive Officer of the Bank. Montgomery shall hold the title of
President and Chief Executive Officer of Bancorp, but Montgomery shall not be
deemed an employee of Bancorp, and shall receive no additional remuneration for
duties he performs pursuant to this paragraph.
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1.3 DIRECTORSHIPS OF BANK AND BANCORP - Montgomery shall be
elected a member of the respective Boards of Directors of the Bank and Bancorp,
but shall receive no director's fees or other additional remuneration for his
services as a member of said Boards of Directors.
1.4 PERSONAL INVESTMENTS - Montgomery may from time to time
engage in normal personal investments which do not conflict with or detract from
the performance of his duties hereunder.
1.5 NON-COMPETITION DURING EMPLOYMENT TERM - During the term of
his employment hereunder, Montgomery shall not, directly or indirectly, either
as an employee, employer, consultant, agent, principal, partner, shareholder,
corporate officer or director, or in any other individual or representative
capacity, engage or participate in any business or activity within the Bank's
primary service area that is in competition with any business in which the Bank
or Bancorp is then presently engaged, or in which Montgomery has knowledge that
the Bank or Bancorp then contemplates becoming engaged, without first obtaining
the written consent of the Bank or Bancorp.
2. TERM Montgomery's employment under this Agreement shall commence
on January 1, 1999, and shall expire on December 31, 2004; unless terminated
sooner as hereinafter provided (the "term" or "term of employment"). This
Agreement supersedes and replaces the Employment Agreement dated June 21, 1996.
3. COMPENSATION AND BENEFITS - In consideration of Montgomery's
performance of his duties and responsibilities as set forth in this Agreement,
Montgomery shall receive the following compensation and benefits:
3.1 BASE SALARY - From January 1, 1999 until December 31, 2004,
the Bank shall pay Montgomery a semi-monthly salary at an annualized rate of
$250,000, less applicable withholding. After three years of the term have
passed, the Board of Directors of the Bank and Bancorp shall review Montgomery's
compensation and if, in the opinion of the Board of Directors, the success of
the Bank and the operating profit be appropriate, the Board shall adjust his
compensation upward.
3.2 INCENTIVE COMPENSATION - In the event the Bank achieves a
pretax net profit during any calendar (January 1 - December 31) year during the
term of Montgomery's employment, Montgomery shall receive an incentive bonus in
an amount equivalent to five percent (5%) of the Bank's pretax net profit for
that calendar year, less applicable withholding. Such incentive bonus shall be
paid, if earned, on or before April 1 of the year following the year during
which the applicable pretax net profit was earned. Additionally, in the event
the Bank achieves a pretax net profit AND a return ratio of at least one and
one-half percent (1.5%) of pretax net profit to assets during a calendar year,
the Board of Directors shall award Montgomery an additional incentive bonus in
an amount equivalent to two percent (2%) of the Bank's pretax
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net profit for that calendar year, less applicable withholding. Such
additional incentive bonus shall be paid, if earned, on or before April 1 of
the year following the year during which the applicable pretax net profit was
earned. Montgomery understands and agrees that nothing in this Agreement is
intended to create or imply any right on his part to receive, or duty on the
part of the Bank to pay, a bonus or incentive compensation for any calendar
year in which the Bank FAILS to achieve a pretax net profit; provided,
however, that in the event the Bank fails to achieve a pretax net profit or
suffers a pretax net loss during any calendar year during the term of
Montgomery's employment, the Bank's Board of Directors may, in its sole and
absolute discretion, award Montgomery a discretionary incentive bonus in an
amount it deems appropriate under the circumstances, taking into account such
factors as Montgomery's performance of his duties hereunder, the Bank's net
profit for that calendar year, and the economic climate within which the Bank
is operating. However, in no event shall such annual bonuses, whether
incentive or discretionary, exceed an amount which, when added to
Montgomery's base compensation for the calendar year for which the applicable
pretax profit (or loss) is calculated, bring Montgomery's total compensation
for the calendar year to an amount in excess of $400,000.
3.3 STOCK OPTIONS - In the discretion of the Board of
Directors, Montgomery shall be awarded options and participate in the National
Mercantile Bancorp 1990 Stock Option Plan and the 1996 Stock Incentive Plan and
the National Mercantile Bancorp Amended 1996 Stock Incentive Plan according to
the terms thereof and as they may, from time to time, be amended by action of
the Board of Directors.
3.3.1 Stock Options may not be exercised by Montgomery to
the extent that the exercise of such Stock Options will cause an ownership
change to occur pursuant to Section 382 of the Internal Revenue Code. Section
382 provides, among other things, that utilization of net operating losses will
be restricted if there is a change in ownership of the loss corporation Changes
in ownership are determined by reference to five percent (5%) shareholders.
3.3.2 Stock Options shall not be considered for the
purposes of Paragraph 3.2 of this Agreement when determining whether
Montgomery's total compensation for any calendar year exceeds the salary caps
set forth in Paragraph 3.2.
3.4 STOCK APPRECIATION RIGHTS - Pursuant to a separate stock
rights agreement and pursuant to shareholder approval of the 1996 Stock
Incentive Plan, Bancorp granted Montgomery a non-qualified stock option
("Option") and tandem stock appreciation right ("Tandem SAR") with respect to
16,500 shares of Bancorp common stock (the "Option and Tandem SAR") under the
1996 Plan. Such stock rights agreement, which was executed by Montgomery and
Bancorp, includes, among others, the following terms and conditions:
3.4.1 The Option and Tandem SAR were granted on the first
business day immediately following shareholder approval of the 1996 Plan
described in Paragraph 3.4.5, below.
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3.4.2 Subject to the terms of Paragraph 3.4.8, below, the
Option and Tandem SAR with respect to 16,500 of said shares shall have vested
and become exercisable on June 30, 1998, and shall expire ninety (90) days after
the term hereof or Montgomery's discharge without cause.
3.4.3 Any portion of the Option and Tandem SAR which is
vested but has not been exercised at the time Montgomery ceases to be employed
by the Bank for any reason shall expire ninety (90) days after the date
Montgomery ceases to be employed by the Bank.
3.4.4 The exercise price for each Option under the Option
and Tandem SAR were equal to the fair market value of a share of Bancorp common
stock on the date of grant. "Fair market value" shall mean the average of the
bid and asked prices of Bancorp common stock as quoted on the NASDAQ stock
markets on the applicable date. If, for any reason, no such price is available,
"fair market value" shall mean the fair market value of a share of Bancorp
common stock as determined by the Stock Option Committee of Bancorp's Board of
Directors in their sole discretion.
3.4.5 In accordance with the terms of the 1996 Plan,
Montgomery may exercise the Option and Tandem SAR by either (i) exercising the
Option portion of the Option and Tandem SAR and paying the exercise price with
respect to the shares of Bancorp common stock underlying the exercised Option
and receiving such shares of Bancorp common stock or (ii) exercising the Tandem
SAR portion of the Option and Tandem SAR in which case Bancorp shall pay to
Montgomery an amount equal to the excess, if any, of the fair market value of a
share of the stock on the exercise date over the fair market value of the stock
on the date of grant, multiplied by the number of shares of stock for which the
Option and Tandem SAR is exercised, which amount may, in the sole discretion of
the Stock Option Committee of the Board of Directors of Bancorp, be paid to
Montgomery in cash or in Bancorp common stock, subject to all other terms and
conditions of the 1996 Plan. In the event Montgomery elects to exercise the
Option with respect to any portion of the Option and Tandem SAR, Montgomery
shall be deemed to have forfeited the Tandem SAR with respect to that portion of
the Option and Tandem SAR. In the event Montgomery elects to exercise the
Tandem SAR with respect to any portion of the Option and Tandem SAR, Montgomery
shall be deemed to have forfeited the Option with respect to that portion of
Option and Tandem SAR.
3.4.6 The Option and Tandem SAR issued pursuant to
paragraph 3.4 of this Agreement shall be subject to all terms and conditions,
including the anti-dilution provisions, contained in the 1996 Plan.
3.4.7 Notwithstanding the foregoing provisions, no portion
of the Option and Tandem SAR may be exercised by Montgomery to the extent that
the exercise of such Option and Tandem SAR will cause an ownership change to
occur pursuant to Section 382 of the Internal Revenue Code. Section 382
provides, among other things, that utilization of net
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operating losses will be restricted if there is a change in ownership of the
loss corporation. Changes in ownership are determined by reference to 5%
shareholders.
3.4.8 The Option and Tandem SAR, and amounts received by
Montgomery as a consequence of partial or total exercise of the Option and
Tandem SAR, shall not be considered for the purposes of Paragraph 3.2 of this
Agreement when determining whether Montgomery's total compensation for any
calendar year exceeds the salary caps set forth in Paragraph 3.2.
3.5 VACATION - Montgomery shall be entitled to vacation time at
an annualized rate of twenty (20) days per year, during which time compensation
hereunder shall be paid in full. Montgomery shall take ten (10) days of such
vacation consecutively during each calendar year. However, Montgomery shall not
take MORE than ten (10) business days of vacation consecutively without prior
approval of the Chairman of the Bank's Board of Directors. Montgomery shall make
every effort to utilize his vacation time during the calendar year in which it
was earned. In the event that Montgomery does not utilize all of his
vacation~time during the calendar year in which it was earned, such vacation
time shall carry over to the next calendar year; provided, however, that in the
event that Montgomery's vacation carryover from prior years together with the
current year's accrual reaches 30 days, no further vacation shall accrue until
Montgomery has taken a vacation and his accrued vacation account has dropped
below his maximum 30 day entitlement. No vacation days will be earned for the
period during which Montgomery has accumulated 30 days of vacation.
3.6 ATHLETIC CLUB MEMBERSHIP - During the term of Montgomery's
employment, the Bank shall pay the initiation fee or other initial expense, and
any periodic dues, with respect to Montgomery's membership in an athletic club
of his choice, provided that Montgomery's membership in such club is deemed by
the Board of Directors of the Bank to be beneficial to the business interests of
the Bank. This provision shall not entitle Montgomery to membership in a golf
club or country club. It is understood and agreed by Montgomery that the Bank
shall have no liability to Montgomery or any third party for club dues, expenses
or any charges whatsoever relating to any period after the termination of
Montgomery's employment with the Bank
3.7 LUNCHEON OR DINING CLUB MEMBERSHIP - During the term of
Montgomery's employment, the Bank shall pay the initiation fee or other initial
expense, and any periodic dues, with respect to Montgomery's membership in a
luncheon or dining club of his choice, provided that Montgomery's membership in
such club is deemed by the Board of Directors of the Bank to be beneficial to
the business interests of the Bank. This provision shall not entitle Montgomery
to membership in a golf club or country club. It is understood and agreed by
Montgomery that the Bank shall have no liability to Montgomery or any third
party for club dues, expenses or any charges whatsoever relating to any period
after the termination of Montgomery's employment with the Bank.
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3.8 AUTOMOBILE - The Bank shall provide Montgomery with a 1998
BMW 740IL, or equivalent vehicle, to be leased or owned by the Bank at the
Bank's discretion. Upon the termination of his employment, Montgomery shall have
the right to purchase said automobile at the depreciated book value of the
automobile calculated on the effective date of his termination.
3.9 PERSONAL COMPUTER - The Bank shall purchase a portable
laptop computer for Montgomery's exclusive use during the term of his employment
with the Bank. Montgomery shall return said computer to the Bank upon the
termination of his employment with the Bank. Upon the termination of his
employment hereunder, Montgomery may purchase said computer at the depreciated
book value of the computer calculated on the effective date of his termination.
3.10 OTHER FRINGE BENEFITS - During the term of his employment,
Montgomery shall be entitled to and shall receive the benefits from the Bank's
group major medical insurance program as well as any other health, accident or
other insurance programs, any pension or other retirement programs, and any
other fringe benefits and perquisites that the Bank may from time to time
generally accord to its senior executives ("executive benefits programs"). The
Bank reserves the right to cancel or to alter or modify the terms, conditions
and/or scope of any of the executive benefit programs any time and from time to
time by substituting a plan of equal or greater value.
3.11 EXPENSES AND REIMBURSEMENT - The Bank shall pay directly or
shall reimburse Montgomery for all reasonable, ordinary and necessary business
expenses incurred or paid by Montgomery during the term of his employment and in
connection with the performance of his services pursuant to this Agreement,
provided that Montgomery presents to the Chairman of the Bank's Board of
Directors or the Chairman of the Audit Committee of the Bank's Board of
Directors expense statements or vouchers and such other supporting information
as the audit committee may from time to time reasonably request, and further
provided that, to the extent that such expenses exceed $2,500 in any month, the
Chairman of the Board or the Chairman of the Audit Committee approves such
expenses. The Bank shall reimburse Montgomery for reasonable business expenses
incurred in entertaining business guests at any club joined by Montgomery in
accordance with Paragraphs 4.6 and 4.7 of this Agreement. In the event any
month's expenses in excess of $2,500 are not approved by the Chairman of the
Board or the Chairman of the Audit Committee, Montgomery shall submit a summary
of those expenses to the Audit Committee, and Montgomery shall receive
reimbursement for those expenses only upon the approval of a majority of the
Audit Committee. In the event of the termination of Montgomery's employment for
any reason, whether by the Bank or by Montgomery, Montgomery shall be reimbursed
within thirty (30) days of termination for any reasonable, ordinary and
necessary documented business expenses incurred prior to termination, to the
extent that such expenses would otherwise be reimbursable pursuant to the terms
of this Paragraph, upon presentation of expense statements or vouchers and such
other supporting information as the Bank may reasonably request.
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3.12 WITHHOLDING - Bank shall have the right to withhold from
any payment otherwise due to Montgomery under this Agreement the amount of
income and any other taxes required to be withheld by Bank as employer by
applicable city, state or federal law.
4. INDEMNIFICATION - Montgomery shall be fully indemnified by the
Bank and Bancorp to the extent permitted by California law, and shall be
defended and held harmless absolutely and irrevocably by the Bank and Bancorp to
the extent permitted by California law, from and against all claims, demands,
liabilities, costs, expenses, damages and causes of action of any nature
whatsoever arising out of, relating to or incidental to Montgomery's good faith
execution of his duties under this Agreement and/or the good faith execution of
his duties as an officer, employee and/or director of the Bank or Bancorp,
provided that Montgomery shall advise the Bank and Bancorp immediately of any
such claim or litigation and cooperate fully with the Bank and Bancorp in
connection therewith, and provided further that the Bank and Bancorp shall have
the right to assume and control the defense of such action and to take whatever
action is necessary to discharge their obligations. The provisions hereof are in
addition to and do not limit any other right to indemnity that Montgomery has by
way of law or agreement.
5. LIFE INSURANCE - The Bank shall have the right, but not the
obligation, to take out insurance on the life of Montgomery at its sole cost and
expense and for its sole benefit, and Montgomery acknowledges that he shall have
no right in or to such insurance or the proceeds of that insurance. Montgomery
agrees to cooperate with the Bank in obtaining such insurance and to submit, at
his reasonable convenience, to the usual medical and other examinations required
in connection with obtaining such insurance.
6. PROPERTY RIGHTS.
6.1 CONFIDENTIAL OR PROPRIETARY INFORMATION - Montgomery
acknowledges that all information concerning or pertaining to the business,
plans and prospects, of the Bank, Bancorp, or any of their related or affiliated
entities, including but not limited to financial information, customer lists,
files, documents, records or specifications, which Montgomery may now possess or
may obtain during or after the term of this Agreement, is confidential and is
the property of the Bank, Bancorp and/or their affiliated entities. Montgomery
agrees that he shall not, without the prior written consent of the Bank or
Bancorp, cause or permit such information to be published, disclosed, divulged
or otherwise made accessible to any other firm, person or corporation either
during or after the term of his employment, and Montgomery further agrees that
such information will at no time be used by him except in connection with the
business of and for the exclusive benefit of the Bank or Bancorp. Montgomery
shall return to the Bank all documents, files, records or other tangible
evidence of such confidential or proprietary information, including all
photocopies, extracts or summaries, prior to the termination of his employment.
The provisions of this Paragraph 6.1 shall survive the expiration, suspension or
termination, for any reason, of this Agreement and/or Montgomery's employment
with the Bank.
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6.2 OWNERSHIP OF MATERIALS AND IDEAS/USE OF NAME - The Bank, as
Montgomery's employer, shall own, and Montgomery hereby transfers and assigns to
the Bank, all rights in and to any material and/or ideas written, suggested or
submitted by Montgomery in the course of his employment under this Agreement,
and all other results and proceeds of Montgomery's services under this
Agreement, all without the necessity of any additional compensation; provided,
however, that nothing in this Paragraph 6.2 shall be deemed in any manner to
restrict or qualify Montgomery's ownership or possession of personal notes,
memoranda, correspondence, books or records not constituting trade secrets or
other property of the Bank. During the term of Montgomery's employment, the Bank
and Bancorp shall also have the right (but not the obligation) to use
Montgomery's name without additional consideration in connection with his
services pursuant to this Agreement.
6.3 DELIVERY OF PROPERTY - Other than as provided in Sections
3.8 and 3.9, upon the termination of Montgomery's employment under this
Agreement, Montgomery shall immediately deliver to the Bank any and all property
in his possession or under his control belonging to the Bank or Bancorp, in good
condition, ordinary wear and tear and damage by any cause beyond his reasonable;
control excepted.
7. REPRESENTATION AND WARRANTY - Montgomery represents and warrants
that he will be breaching no contract with any other person or entity by
entering into this Agreement and/or by performing the services provided for in
this Agreement.
8. TERMINATION OF EMPLOYMENT - Notwithstanding any provision of this
Agreement to the contrary, Montgomery's employment hereunder may be terminated
prior to the expiration of the term of this Agreement under the following
circumstances:
8.1 Employment hereunder shall terminate automatically upon
Montgomery's death.
8.2 The Bank may terminate Montgomery's employment hereunder
upon the happening of any of the following events:
8.2.1 The Bank may terminate Montgomery's employment in the
event of Montgomery's permanent disability. For the purposes of this Agreement,
Montgomery shall be deemed to have become "permanently disabled" if (a) after
completing the sixty (60)-day waiting period for coverage under the Bank's
long-term disability program (the "LTD Program"), Montgomery, because of ill
health or physical or mental disability, shall have become entitled to immediate
disability payments under the LTD Program or (b) Montgomery, because of ill
health, physical or mental disability, incompetency or incapacity, shall have
been unable to perform his duties and responsibilities under this Agreement in
the ordinary and usual manner required of a person in his position either for
ninety (90) days consecutively, or ninety (90) days in any particular period of
one hundred twenty (120) consecutive days.
8
<PAGE>
8.2.2 The Bank may terminate Montgomery's employment
hereunder at any time for cause. For purposes of this Agreement, the term
"cause" shall mean , (a) any act of dishonesty, unauthorized disclosure of
confidential information or fraud by Montgomery in the performance of his duties
hereunder; (b) the commission of a felony ~ involving theft or fraud of any
kind; (c) the commission of a fraud or misappropriation or embezzlement of
property of the Bank, Bancorp or of any affiliate or customer of the Bank or
Bancorp; (d) a willful and material breach by Montgomery of obligations under
this Agreement, all (a, b, c and d) with or without prosecution or conviction,
(e) the inability of the Bank to secure a bond for the services of Montgomery,
or Montgomery engaging in conduct that would preclude the Bank's ability to bond
Montgomery; or (f) a written order or directive from the Office of the
Comptroller of the Currency or the Board of Governors of the Federal Reserve
System ordering the removal of Montgomery as an executive officer or director of
the Bank or Bancorp.
8.2.3 The Bank, by resolution of its Board of Directors, at
any time in its sole and absolute discretion, may terminate Montgomery's
employment hereunderwithout cause, for any reason.
8.3 Upon any termination pursuant to this Paragraph 8,
Montgomery shall be entitled to all salary and benefits to be paid or provided
by the Bank under this Agreement up to the date of such termination. In
addition, and in lieu of any and all other rights or remedies which Montgomery
may have, if this Agreement is terminated prior to the expiration of its term,
Montgomery shall have the following rights and remedies:
8.3.1 In the event of termination based on death or
permanent disability as set forth in Paragraphs 8.1 or 8.2.1 above, the Bank
shall not have any obligation to continue to pay salary, bonus and other
benefits provided for in Paragraph 3 and its subparts above, or any other sums
proposed hereunder, except that Montgomery shall be entitled to receive any
salary, bonus and benefits accrued but unpaid as of the date of termination, and
Montgomery, or his heirs in the event of his death, shall be entitled to all
benefits under any death or disability plans provided under Paragraph 3.10
above, to the extent the Bank adopts or establishes any such plan covering
Montgomery.
8.3.2 If Montgomery's employment is terminated for cause,
as set forth and defined in Paragraph 8.2.2 above, Montgomery shall be entitled
to receive all base salary and benefits accrued but unpaid or stock options
vested but not redeemed or exercised as of the date of termination. The Bank
shall have no further obligation to pay the salary and other benefits provided
for in Paragraph 3 and its subparts above, or any other sums provided hereunder,
except as may be required by applicable law. Such payment shall be made to
Montgomery within thirty (30) days after the date of his termination.
8.3.3 If Montgomery is terminated by the Bank prior to the
expiration of this Agreement without cause, or if the Bank substantially and
adversely changes
9
<PAGE>
Montgomery's status, title, position or responsibilities as provided for in
this Agreement and Montgomery resigns as a consequence, or if the Bank
requires Montgomery to be based at any place outside a thirty (30) mile
radius from the Bank's current headquarters except for reasonably required
travel on the Bank's business and Montgomery resigns as a consequence,
Montgomery shall be entitled to receive as severance his base salary at the
then annual rate paid semi-monthly for eighteen (18) months from the date of
such termination, along with any unpaid bonus which Montgomery had been
awarded but not paid by the Bank's Board of Directors under the terms of
Paragraph 3.2 of this Agreement; provided, however, that such payments shall
cease and not be owing in the event that Montgomery breaches any part of
Paragraphs 6 or 9 of this Agreement.
8.3.4 If Montgomery terminates his employment with the Bank
for any reason other than those set forth in Paragraph 8.3.3 above, he shall be
entitled to no severance payments hereunder, and he shall have no greater rights
and obligations than if his employment was terminated for cause under Paragraph
8.2.2.
8.3.5 In the event Montgomery is terminated without cause,
is receiving severance hereunder, and is rehired by the Bank or Bancorp during
the period of his severance payments, such severance payments, if any remain,
shall be suspended during the term of such reemployment, and shall be
reinstituted at the expiration of such reemployment.
8.3.6 Regardless of the reason for his termination of
employment, Montgomery (and his dependents and beneficiaries, as applicable)
shall be entitled to continued coverage under the Bank's benefit programs to the
same extent as applicable generally to employees of the Bank who have terminated
employment. In the event Montgomery is entitled to severance pursuant to
Paragraph 8.3.3, above, Montgomery's benefits shall continue during the period
during which he is receiving such severance payments as though he were still
an employee of the Bank.
8.4 NOTICE OF NON-RENEWAL - The Bank shall give notice, no less
than one hundred eighty (180) days prior to the end of the term of this
Agreement, of its intention to renew or not to renew this Agreement. Such
notice shall not be a termination, and none of the rights or duties set forth
herein shall be affected thereby. If notice is not given, this contract shall
be extended on the same terms for one (1) year. If notice is given not to
extend, Montgomery shall receive as salary continuation twelve (12) months'
salary following the expiration date of the contract, but not participation in
net profit under Paragraph 3.2, above.
9. NO SOLICITATION OF CUSTOMERS OR EMPLOYEES - In the event of the
termination of Montgomery's employment for any reason, whether by the Bank or by
Montgomery, Montgomery agrees that he shall not, alone or as a member, employee,
or agent of any partnership, or as an officer, agent, employee, director, or
stockholder of any other corporation, whether directly or indirectly, for a
period of one (1) year after the effective date of such termination, (a) solicit
any then existing customer of the Bank or Bancorp for the opportunity to provide
any services of the kind offered to or provided to that customer by Bank
10
<PAGE>
or Bancorp, or (b) solicit for employment any person employed by the Bank or
Bancorp, or encourage or induce any such person to terminate his or her
employment by the Bank or Bancorp.
10. GENERAL
10.1 GOVERNING LAW - This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California
applicable to agreements made and to be performed entirely in California.
10.2 CAPTIONS - The paragraph headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement or define, limit or extend the scope
of this Agreement or of any particular article or paragraph of this Agreement.
10.3 ENTIRE AGREEMENT - This Agreement sets forth the entire
agreement and understanding of the parties relating to the subject matter of
this Agreement, and supersedes any and all prior agreements, arrangements and
understandings, written or oral, between the parties relating to the subject
matter, except that the Indemnity Agreement between the Bank and Montgomery
dated November 1, 1995, ("Indemnity Agreement") shall remain in full force and
effect. Other than the Indemnity Agreement, all prior understandings,
representations, negotiations or agreements, if any, between the parties hereto
relating to the employment of Montgomery by the Bank, including the CEO Term
Sheet between Montgomery and the Bank dated November 1, 1995, are hereby
terminated, rescinded and superseded by this Agreement, and Montgomery agrees
that any rights and remedies, if any, he may have under any such prior
understandings, representations, negotiations or agreements are hereby waived
and terminated.
10.4 NO OTHER REPRESENTATIONS - No representation, promise,
inducement or statement of intention has been made by a party that is not
embodied in this Agreement, and no party shall be bound by or liable for any
alleged representation, promise, inducement or statement of intention not so
set forth.
11
<PAGE>
10.5 ASSIGNMENT - This Agreement, and Montgomery's rights and
obligations under this Agreement, may not be assigned by Montgomery. The Bank
may assign its rights, together with its obligations, under this Agreement in
connection with any sale, transfer or other disposition of all or substantially
all of its business and assets; and such rights and obligations shall inure to,
and be binding upon, any successor to the business or substantially all of the
assets of the Bank or Bancorp, whether by merger, purchase of stock or assets or
otherwise. This Agreement shall be binding upon, and shall inure to the benefit
of, the respective successors and permitted assigns of the parties.
10.6 WAIVER AND MODIFICATION - This Agreement may not be
amended, modified, superseded, canceled, renewed or extended, and the terms,
conditions or covenants of this Agreement may not be waived, unless by a written
instrument executed by the parties to this Agreement. The failure of a party at
any time or times to require performance of any provision of this Agreement
shall in no manner affect its right at a later time to enforce the same. No
waiver by a party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or construed as, a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
this Agreement.
10.7 ACKNOWLEDGMENT - Montgomery hereby acknowledges that this
Agreement is, from the outset, without liability to, or recourse against, any
officer or director of either Bank or Bancorp, and that, except with respect to
Bancorp's indemnity under Paragraph 4, his sole recourse under this Agreement
shall be against Bank.
10.8 SEVERABILITY/CURTAILMENT - Nothing contained in this
Agreement shall be construed to require the commission of any act contrary to
law, and wherever there is any conflict between any provision of this Agreement
and any material statute, law, ordinance or regulation contrary to which the
parties have no legal right to contract, then the latter shall prevail, but in
any such event the provisions of this Agreement so affected shall be curtailed
and limited only to the minimum extent necessary to bring it within the legal
requirements. The remainder of the affected provision and the other provisions
of this Agreement shall continue in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties shall immediately employ
their best efforts in good faith to negotiate a valid provision to substitute
for the invalidated one.
10.9 FURTHER ASSURANCES - Montgomery and the Bank each agree,
without the necessity of any further consideration, to execute and deliver such
other documents and take such other actions as may be reasonably requested by
any other party in order to consummate more effectively and carry out more fully
the intent and subject matter of this Agreement.
10.10 DISPUTE RESOLUTION - Any controversy or claim arising out
of this Agreement or out of Montgomery's employment with the Bank or Bancorp,
whether based on
12
<PAGE>
contract, tort, statute or otherwise, including but not limited to federal
and state statutes proscribing age discrimination or any other form of
discrimination, shall be submitted exclusively to final and binding
arbitration in Los Angeles, California, to an arbitrator chosen in accordance
with the then existing labor arbitration rules of the American Arbitration
Association. Any such arbitration shall comply with and be governed by the
provisions of the California Arbitration Act, Paragraphs 1280 through 1294.2
of the California Code of Civil Procedure. Except as provided therein, each
party expressly waives any right it may have to seek-redress in any other
forum. The arbitrator chosen by the parties shall have all the powers granted
under the rules of the American Arbitration Association and the California
Arbitration Act including, without limitation, the power to grant any
monetary or other remedy which could be granted by a court of competent
jurisdiction considering such claim based on contract, tort, statutes or
otherwise, including, without limitation, any state, federal or local statute
or ordinance concerning employment. Any and all controversies or claims
arising out of this Agreement or out of Montgomery's employment by the Bank,
whether based on contract, tort, statute or otherwise, shall be asserted, if
at all, within six (6) months after the act or omission giving rise to such
controversy or claim unless otherwise agreed in writing by the Bank and
Montgomery.
10.11 INJUNCTION - Notwithstanding the dispute resolution
provision of Paragraph 11.10, in the event of a breach of the confidentiality
provisions of Paragraph 6.1 or the non-solicitation provisions of Paragraph 10
of this Agreement, or in the event of conduct injurious to the Bank or Bancorp
or either of their business reputations, Montgomery agrees that in addition to
any other rights the Bank or Bancorp may have, the Bank and/or Bancorp may seek
injunctive relief in an appropriate state or federal court to preclude further
violation or to seek to collect damages.
10.12 ATTORNEYS' FEES - Should Montgomery, the Bank or Bancorp
institute any action or proceeding to enforce any provision of this Agreement,
or for damages by reason of any alleged breach of any provision hereof, or for a
declaration of any party's rights or obligations hereunder, or to set aside any
provision hereof, or for any other remedy, the prevailing party shall be
entitled to be reimbursed by the losing party for all costs, expenses and
reasonable attorneys fees incurred in such action or proceeding.
10.13 MONTGOMERY'S ATTORNEYS' FEES - The Bank shall reimburse
Montgomery for his reasonable attorneys' fees and legal expenses incurred in
assisting in the preparation of this Agreement, provided however, that the Bank
shall not be obligated to reimburse Montgomery for attorneys' fees and legal
expenses in excess of $1,000.00.
10.14 LIMITATION ON PAYMENT - If all or any portion of the
payments payable to Montgomery pursuant to this Agreement, together with other
payments which Montgomery has the right to receive from the Bank or Bancorp,
would cause a deduction disallowance under Section 280G of the Internal Revenue
Code or would cause the imposition of an excise tax under Section 4999 of the
Internal Revenue Code, such payments shall reduced to the extent necessary to
make Section 280G and Section 4999 inapplicable. All payments to
13
<PAGE>
Montgomery from the Bank or Bancorp under this Agreement or any other
agreement between Montgomery and the Bank or Bancorp shall be subject to 12
U.S.C. Section 1828(k) and 12 C.F.R. part 359 and any other applicable
provision of law.
IN WITNESS WHEREOF, Mercantile National Bank caused this Agreement to be
executed by its duly authorized officers, and Scott A. Montgomery has duly
executed this Agreement, as of the date set forth against their respective
signatures.
MERCANTILE NATIONAL BANK
Dated: 3-11-99 By /s/ Dion G. Morrow
----------- -----------------------
Title: Chairman of the Board of Directors
-----------------------------------
Dated: 3-11-99 /s/ Scott A. Montgomery
----------- -----------------------------
Scott A. Montgomery
Agreed as to the obligations of National Mercantile Bancorp specified in
the foregoing Agreement.
NATIONAL MERCANTILE BANCORP
Dated: By /s/ Rober E. Gipson
------------------------
Title Chairman of the Board of Directors
------------------------------------
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
1999 CONSOLIDATED BALANCE SHEETS, STATEMENTS OF OPERATIONS, STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY AND RELATED SCHEDULES AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,458
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,600
<TRADING-ASSETS> 0
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<LOANS> 57,374
<ALLOWANCE> 2,021
<TOTAL-ASSETS> 141,503
<DEPOSITS> 103,188
<SHORT-TERM> 7,500
<LIABILITIES-OTHER> 988
<LONG-TERM> 14,500
0
7,350
<COMMON> 24,613
<OTHER-SE> (18,636)
<TOTAL-LIABILITIES-AND-EQUITY> 141,503
<INTEREST-LOAN> 1,317
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<INTEREST-TOTAL> 2,429
<INTEREST-DEPOSIT> 545
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<INCOME-PRETAX> 81
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<EPS-PRIMARY> 0.11
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