UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
ý Quarterly report under section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended March 31, 2004
o Transition report under section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from to .
Commission File Number 0-15982
NATIONAL MERCANTILE BANCORP | ||
(Exact name of small business issuer in its charter) | ||
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California |
| 95-3819685 |
(State or other jurisdiction of |
| (I.R.S. Employer Identification No.) |
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1880 Century Park East |
| 90067 |
(Address to principal executive offices) |
| (Zip Code) |
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Issuer’s telephone number, including area code: (310) 277-2265 |
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 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. ý Yes o No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. o Yes o No
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable dat: The number of shares of Common Stock, no par value, of the issuer outstanding as of May 12, 2004 was 2,910,403.
Transitional Small Business Disclosure Format (Check one): o Yes ý No
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
2
NATIONAL MERCANTILE BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
| March 31, |
| December 31, |
| ||
|
| (Unaudited) |
|
|
| ||
|
| (Dollars in thousands) |
| ||||
ASSETS |
|
|
|
|
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Cash and due from banks-demand |
| $ | 25,373 |
| $ | 24,556 |
|
Due from banks-interest bearing |
| 4,325 |
| 4,728 |
| ||
Federal funds sold and securities purchased under agreements to resell |
| 18,000 |
| 10,000 |
| ||
Cash and cash equivalents |
| 47,698 |
| 39,284 |
| ||
Securities available-for-sale, at fair value; aggregate amortized cost of $36,030 and $30,756 at March 31, 2004 and December 31, 2003, respectively |
| 36,182 |
| 30,877 |
| ||
Securities held-to-maturity, at amortized cost |
| 4,374 |
| 4,597 |
| ||
FRB and other stock, at cost |
| 1,872 |
| 1,872 |
| ||
Loans receivable |
| 265,079 |
| 260,249 |
| ||
Allowance for credit losses |
| (3,633 | ) | (3,635 | ) | ||
Net loans receivable |
| 261,446 |
| 256,614 |
| ||
Premises and equipment, net |
| 5,349 |
| 5,444 |
| ||
Other real estate owned |
| 968 |
| 925 |
| ||
Deferred tax asset |
| 6,749 |
| 6,950 |
| ||
Goodwill |
| 3,225 |
| 3,225 |
| ||
Intangible assets, net |
| 1,798 |
| 1,854 |
| ||
Accrued interest receivable and other assets |
| 3,352 |
| 3,564 |
| ||
Total assets |
| $ | 373,013 |
| $ | 355,206 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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|
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Deposits: |
|
|
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|
| ||
Noninterest-bearing demand |
| $ | 127,411 |
| $ | 119,998 |
|
Interest-bearing demand |
| 31,582 |
| 29,349 |
| ||
Money market |
| 70,480 |
| 55,422 |
| ||
Savings |
| 40,121 |
| 38,925 |
| ||
Time certificates of deposit: |
|
|
|
|
| ||
$100,000 or more |
| 26,378 |
| 27,308 |
| ||
Under $100,000 |
| 21,266 |
| 27,715 |
| ||
Total deposits |
| 317,238 |
| 298,717 |
| ||
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|
|
| ||
Federal funds purchased and securities sold under agreements to repurchase |
| — |
| 399 |
| ||
Other borrowings |
| 7,500 |
| 7,500 |
| ||
Junior subordinated deferrable interest debentures |
| 15,464 |
| 15,464 |
| ||
Accrued interest payable and other liabilities |
| 770 |
| 1,405 |
| ||
Total liabilities |
| 340,972 |
| 323,485 |
| ||
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| ||
Shareholders’ equity: |
|
|
|
|
| ||
Preferred stock, no par value - authorized 1,000,000 shares: |
|
|
|
|
| ||
Series A non-cumulative convertible perpetual preferred stock; |
| 5,442 |
| 5,959 |
| ||
Series B non-cumulative convertible perpetual preferred stock; |
| 1,000 |
| 1,000 |
| ||
Common stock, no par value; authorized 10,000,000 shares; outstanding 2,900,553 shares and 2,772,279 shares at March 31, 2004 and December 31, 2003, respectively |
| 39,131 |
| 38,602 |
| ||
Accumulated deficit |
| (13,621 | ) | (13,911 | ) | ||
Accumulated other comprehensive income |
| 89 |
| 71 |
| ||
Total shareholders’ equity |
| 32,041 |
| 31,721 |
| ||
Total liabilities and shareholders’ equity |
| $ | 373,013 |
| $ | 355,206 |
|
See accompanying notes to consolidated financial statements.
3
NATIONAL MERCANTILE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
| For the Three Months Ended |
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|
| 2004 |
| 2003 |
| ||
|
| (Dollars in thousands, |
| ||||
Interest income: |
|
|
|
|
| ||
Loans, including fees |
| $ | 3,785 |
| $ | 4,117 |
|
Securities |
| 299 |
| 250 |
| ||
Due from banks - interest bearing |
| 15 |
| — |
| ||
Federal funds sold and securities purchased under agreements to resell |
| 42 |
| 43 |
| ||
Total interest income |
| 4,141 |
| 4,410 |
| ||
Interest expense: |
|
|
|
|
| ||
Interest-bearing demand |
| 17 |
| 61 |
| ||
Money market and savings |
| 163 |
| 301 |
| ||
Time certificates of deposit: |
|
|
|
|
| ||
$100,000 or more |
| 83 |
| 147 |
| ||
Under $100,000 |
| 113 |
| 282 |
| ||
Total interest expense on deposits |
| 376 |
| 791 |
| ||
Federal funds purchased and securities sold under agreements to repurchase |
| — |
| 8 |
| ||
Junior subordinated deferrable interest debentures |
| 226 |
| — |
| ||
Other borrowings |
| 88 |
| 89 |
| ||
Total interest expense |
| 690 |
| 888 |
| ||
Net interest income before provision for credit losses |
| 3,451 |
| 3,522 |
| ||
Provision for credit losses |
| — |
| 110 |
| ||
Net interest income after provision for credit losses |
| 3,451 |
| 3,412 |
| ||
Other operating income: |
|
|
|
|
| ||
Net gain on sale of securities available-for-sale |
| 19 |
| 100 |
| ||
International services |
| 14 |
| 8 |
| ||
Investment division |
| 12 |
| 22 |
| ||
Deposit-related and other customer services |
| 420 |
| 305 |
| ||
Total other operating income |
| 465 |
| 435 |
| ||
Other operating expenses: |
|
|
|
|
| ||
Salaries and related benefits |
| 1,868 |
| 1,827 |
| ||
Net occupancy |
| 291 |
| 329 |
| ||
Furniture and equipment |
| 136 |
| 109 |
| ||
Printing and communications |
| 133 |
| 129 |
| ||
Insurance and regulatory assessments |
| 117 |
| 111 |
| ||
Client services |
| 132 |
| 178 |
| ||
Computer data processing |
| 261 |
| 216 |
| ||
Legal services |
| 103 |
| 143 |
| ||
Other professional services |
| 182 |
| 225 |
| ||
Amortization of core deposit intangible |
| 56 |
| 56 |
| ||
Retirement of fixed assets and leasehold improvements |
| 43 |
| — |
| ||
Promotion and other expenses |
| 101 |
| 87 |
| ||
Total other operating expenses |
| 3,423 |
| 3,410 |
| ||
Income before income tax provision and minority interest |
| 493 |
| 437 |
| ||
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Minority interest in the Company’s income of the: |
|
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Guaranteed preferred beneficial interests in the Company’s junior subordinated deferrable interest debentures, net |
| — |
| 233 |
| ||
|
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Income before income tax provision |
| 493 |
| 204 |
| ||
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| ||
Income tax provision |
| 202 |
| 107 |
| ||
Net income |
| $ | 291 |
| $ | 97 |
|
Earnings per share: |
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|
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|
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Basic |
| $ | 0.10 |
| $ | 0.04 |
|
Diluted |
| $ | 0.06 |
| $ | 0.02 |
|
See accompanying notes to consolidated financial statements.
4
NATIONAL MERCANTILE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| For the three Months Ended March 31, |
| ||||
|
| 2004 |
| 2003 |
| ||
|
| (Dollars in thousands) |
| ||||
Cash flows from operating activities: |
|
|
|
|
| ||
Net income |
| $ | 291 |
| $ | 97 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
| 158 |
| 143 |
| ||
Provision for credit losses |
| — |
| 110 |
| ||
Gain on sale of securities available for sale |
| (19 | ) | (100 | ) | ||
Net amortization of premium on securities available-for-sale |
| 25 |
| 71 |
| ||
Net amortization of premium on securities held-to-maturity |
| 13 |
| — |
| ||
Net amortization of core deposit intangible |
| 56 |
| 56 |
| ||
Net amortization of premium on loans purchased |
| 50 |
| 72 |
| ||
Decrease (increase) in accrued interest receivable and other assets |
| 355 |
| (2,293 | ) | ||
Decrease in accrued interest payable and other liabilities |
| (635 | ) | (1,213 | ) | ||
Net cash provided by (used in) operating activities |
| 294 |
| (3,057 | ) | ||
Cash flows from investing activities: |
|
|
|
|
| ||
Purchase of securities available-for-sale |
| (8,607 | ) | (2,250 | ) | ||
Proceeds from sales of securities available-for-sale |
| 2,019 |
| 2,757 |
| ||
Proceeds from repayments and maturities of securities available-for-sale |
| 1,309 |
| 7,512 |
| ||
Proceeds from repayments and maturities of securities held-to-maturity |
| 210 |
| — |
| ||
Loan originations and principal collections, net |
| (4,882 | ) | 3,708 |
| ||
Purchases of premises and equipment |
| (63 | ) | (17 | ) | ||
Net cash (used in) provided by investing activities |
| (10,014 | ) | 11,710 |
| ||
Cash flows from financing activities: |
|
|
|
|
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Net increase in demand deposits, money market and savings accounts |
| 25,900 |
| 11,342 |
| ||
Net decrease in time certificates of deposit |
| (7,379 | ) | (7,481 | ) | ||
Net decrease in securities sold under agreements to repurchase and federal funds purchased |
| (399 | ) | (684 | ) | ||
Net proceeds from exercise of stock options |
| 12 |
| 33 |
| ||
Net cash provided by financing activities |
| 18,134 |
| 3,210 |
| ||
Net increase in cash and cash equivalents |
| 8,414 |
| 11,863 |
| ||
Cash and cash equivalents, January 1 |
| 39,284 |
| 37,576 |
| ||
Cash and cash equivalents, March 31 |
| $ | 47,698 |
| $ | 49,439 |
|
|
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|
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Supplemental disclosures of cash flow information: |
|
|
|
|
| ||
Cash paid for interest |
| $ | 802 |
| $ | 1,400 |
|
Transfers to OREO from loans receivable, net |
| — |
| 535 |
| ||
Cash paid for income taxes, net |
| $ | 3 |
| $ | — |
|
See accompanying notes to consolidated financial statements.
5
NATIONAL MERCANTILE BANCORP AND SUBSIDIARIES
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 subsidiaries, Mercantile National Bank and South Bay Bank, N.A. The Company adopted FASB Interpretation No. 46 Consolidation of Variable Interest Entities effective July 1, 2003 and accordingly the accounts of National Mercantile Capital Trust I are not included in the consolidated balance sheet at March 31, 2004 or the consolidated statement of operations for the three months then ended. The unaudited consolidated financial statements reflect all interim adjustments, 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 results of operations and cash flows for such interim periods. The results for the three months ended March 31, 2004 are not necessarily indicative of the results expected for any subsequent period or for the full year ending December 31, 2004. 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, 2003.
NOTE 2—EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. The weighted average number of common shares outstanding used in computing basic earnings per share and diluted earnings per share for the three months ended March 31, 2004 was 2,810,522 and 4,664,397, respectively. The weighted average number of common shares outstanding used in computing basic earnings per share for the three months ended March 31, 2003 was 2,687,560. The weighted average number of common shares and common share equivalents outstanding used in computing diluted earnings per share for the three months ended March 31, 2003 was 4,350,008.
The following table is a reconciliation of income and shares used in the computation of basic and diluted loss per share:
6
|
| Earnings |
| Weighted |
| Per share |
| ||
|
| (in thousands) |
|
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For the three months ended March 31, 2004: |
|
|
|
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|
|
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Basic earnings per share |
| $ | 291 |
| 2,810,522 |
| $ | 0.10 |
|
|
|
|
|
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|
|
| ||
Effect of diultive securities: |
|
|
|
|
|
|
| ||
Options |
|
|
| 351,563 |
|
|
| ||
Convertible preferred stock |
|
|
| 1,502,312 |
|
|
| ||
Diluted earnings per share |
| $ | 291 |
| 4,664,397 |
| $ | 0.06 |
|
|
|
|
|
|
|
|
| ||
For the three months ended March 31, 2003: |
|
|
|
|
|
|
| ||
Basic earnings per share |
| $ | 97 |
| 2,687,560 |
| $ | 0.04 |
|
|
|
|
|
|
|
|
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Effect of diultive securities: |
|
|
|
|
|
|
| ||
Options |
|
|
| 39,219 |
|
|
| ||
Convertible preferred stock |
|
|
| 1,623,229 |
|
|
| ||
Diluted earnings per share |
| $ | 97 |
| 4,350,008 |
| $ | 0.02 |
|
NOTE 3—CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash, due from banks-demand, due from banks-interest-bearing and federal funds sold.
NOTE 4—ALLOWANCE FOR CREDIT LOSSES
Provisions for credit losses charged to operations reflect management’s judgment of the adequacy of the allowance for credit losses and are determined through periodic analysis of the loan portfolio. This analysis includes a detailed review of the classification and categorization of problem loans and loans to be charged off; an assessment of the overall quality and collectibility of the portfolio; and consideration of the loan loss experience, trends in problem loan concentrations of credit risk, as well as current and expected future economic conditions (particularly Southern California). Management performs a periodic risk and credit analysis, the results of which are reported to the Board of Directors.
The following table sets forth information concerning the Company’s allowance for credit losses for the periods indicated.
7
Analysis of Changes in Allowance for Credit Losses
|
| Three months ended |
| ||||
|
| March 31, |
| March 31, |
| ||
|
| (Dollars in thousands) |
| ||||
|
|
|
|
|
| ||
Balance, beginning of period |
| $ | 3,635 |
| $ | 4,846 |
|
Loans charged off: |
|
|
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|
| ||
Real estate loans: |
|
|
|
|
| ||
Secured by one to four family residential properties |
| — |
| 23 |
| ||
Secured by multifamily residential properties |
| — |
| — |
| ||
Secured by commercial real properties |
| — |
| — |
| ||
Real estate construction and land development |
| — |
| — |
| ||
Commercial - secured and unsecured |
| 31 |
| 379 |
| ||
Consumer installment, home equity lines of credit and unsecured loans to individuals |
| 4 |
| — |
| ||
|
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|
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|
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Total loans charged-off |
| 35 |
| 402 |
| ||
|
|
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|
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| ||
Recoveries of loans previously charged off: |
|
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|
|
| ||
Real estate loans: |
|
|
|
|
| ||
Secured by one to four family residential properties |
| — |
| — |
| ||
Secured by multifamily residential properties |
| — |
| — |
| ||
Secured by commercial real properties |
| — |
| — |
| ||
Real estate construction and land development |
| 6 |
| — |
| ||
Commercial - secured and unsecured |
| 11 |
| 87 |
| ||
Consumer installment, home equity lines of credit and unsecured loans to individuals |
| 16 |
| 53 |
| ||
|
|
|
|
|
| ||
Total recoveries of loans previously charged off |
| 33 |
| 140 |
| ||
Net charge-offs |
| 2 |
| 262 |
| ||
Provision for credit losses |
| — |
| 110 |
| ||
|
|
|
|
|
| ||
Balance, end of period |
| $ | 3,633 |
| $ | 4,694 |
|
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 that adversely affect the likelihood of repayment of various loans in the loan portfolio and realization of 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 Office of the Comptroller of the Currency, as an integral part of its examination process, periodically reviews the allowance for credit losses and could require additional provisions for credit losses.
NOTE 5—GOODWILL AND OTHER INTANGIBLE ASSETS
As of March 31, 2004 and December 31, 2003, the Company had goodwill of $3.2 million, and net core deposit intangibles of $1.8 million and $1.9 million, respectively, from its acquisition of South Bay Bank in December 2001. The
8
gross carrying amount of core deposit intangibles was $2.3 million at March 31, 2004 and December 31, 2003, and accumulated amortization was $502,000 and $447,000, respectively, at such dates. The core deposit intangibles are estimated to have a life of 10 years and 4 months. Amortization for intangibles for 2004 and each of the next four years is estimated to be $223,000 per year. In accordance with SFAS No. 142 goodwill is not amortized. The Company has no other indefinite-lived intangible assets.
NOTE 6—INCOME TAXES
Income tax provisions of $202,000 and $107,000 were recorded for the three months ended March 31, 2004 and 2003, respectively.
At March 31, 2004, the Company had: (i) federal net operating loss carry forwards (“NOLS”) of approximately $18.4 million, which begin to expire in the year 2009; (ii) California NOLS of $273,000 which will expire in 2005; (iii) a federal alternative minimum tax “AMT” credit of $298,000; and (iv) a California AMT of $16,000. The California NOLS were scheduled to expire in 2002; the state legislature suspended NOLS utilization and extended the related carry forwards expiration. The AMT credits carry forward indefinitely.
Management believes that it is more likely than not that the deferred tax asset will be realized. Accordingly, no valuation allowance has been established against the deferred tax asset.
NOTE 7—BENEFIT PLANS
The estimated per share weighted average fair value of options granted was $7.28 and $4.85 for the three months ended March 31, 2004 and 2003, respectively. The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations in accounting for its stock incentive plans. SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. Accordingly, no compensation cost has been recognized for the options. Had compensation cost for the options granted been determined based on the fair value at the grant dates for awards consistent with the method of SFAS No. 123, the Company’s net income for the three months ended March 31, 2004 and 2003 would have decreased by $28,000 and $26,000 respectively. Basic and diluted earnings per share would have decreased by $0.01 for the three months ended March 31, 2004 and 2003.
9
The fair values of options granted during the three months ended March 31, 2004 and 2003 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used: 2004— no dividend yield, expected volatility of 62%, risk-free interest rate of 3.85%, and an expected life of 10 years; 2003— no dividend yield, expected volatility of 60%, risk-free interest rate of 3.82%, and an expected life of 10 years.
NOTE 8—COMPREHENSIVE NET INCOME
Comprehensive income is comprised of net income and all changes to shareholders’ equity except those changes resulting from investments by shareholders and distributions to shareholders. Total comprehensive income is as follows:
|
| For the three months ended |
| ||||
|
| 2004 |
| 2003 |
| ||
|
| (in thousands) |
| ||||
|
|
|
|
|
| ||
Net income |
| $ | 291 |
| $ | 97 |
|
|
|
|
|
|
| ||
Other comprehensive income, (loss) before tax, and unrealized losses on securities: |
|
|
|
|
| ||
Unrealized gain (loss) on securities available for sale |
| 31 |
| (188 | ) | ||
Other comprehensive income (loss), before tax |
| 31 |
| (188 | ) | ||
|
|
|
|
|
| ||
Income tax benefit (expense) related to items of other comprehensive income |
| (13 | ) | 78 |
| ||
Other comprehensive income, (loss) |
| 18 |
| (110 | ) | ||
Total comprehensive income, (loss) |
| $ | 309 |
| $ | (13 | ) |
NOTE 9—JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
In 2001, the Company, through National Mercantile Capital Trust I (the “Trust”), issued 15,000 of 10.25% fixed-rate preferred securities due July 25, 2031 (the “Trust Preferred Securities”), with a liquidation amount of $1,000 per Trust Preferred Security and an aggregate liquidation amount of $15.0 million. The Trust Preferred Securities represent undivided beneficial interests in the assets of the Trust and are unconditionally guaranteed by the Company with respect to distributions and payments upon liquidation, redemption and otherwise pursuant to the terms of a guarantee agreement.
The primary assets of the Trust are $15.5 million aggregate principal amount of the Company’s 10.25% fixed-rate junior subordinated deferrable interest debentures due July 25, 2031, (the “Junior Subordinated Debentures”) that pay interest each
10
January 25 and July 25. The interest is deferrable, at the Company’s option, for a period up to ten consecutive semi-annual payments, but in any event not beyond June 25, 2031. The debentures are redeemable, in whole or in part, at the Company’s option on or after five years from issuance at declining premiums to maturity.
The Company adopted FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46) as of July 1, 2003 resulting in the deconsolidation of the Trust. Accordingly, the Junior Subordinated Debentures have been classified in liabilities at March 31, 2004 and the related interest was classified as interest expense for the three months then ended. For dates and periods prior to the adoption of FIN 46, the Trust Preferred Securities, net of the cost of issuance, were recorded as a minority interest and the related interest was recorded as a minority interest in the Company’s income.
NOTE 10—DERIVATIVE FINANCIAL INSTRUMENTS
In January 2003, the Company entered into an interest rate swap agreement pursuant to which it exchanged a fixed rate payment obligation of 10.25% on a notional principal amount of $15.0 million for a floating rate interest based on the six-month London InterBank Offered Rate plus 458 basis points for a 29-year period ending July 25, 2031. The interest rate swap agreement results in the Company paying or receiving the difference between the fixed and floating rates at specified intervals calculated based on the notional amounts. The differential paid or received on the interest rate swap is recognized as an adjustment to interest expense. At March 31, 2004, the Company was paying an interest rate of 5.75% under the terms of the swap. The counter party to the swap has the option to call the swap under a declining premium schedule beginning July 2006.
The interest rate swap reduces the adverse impact of the 10.25% fixed-rate Junior Subordinated Debentures in a low interest rate environment. The Company does not utilize derivatives for speculative purposes. Under Statement of Financial Accounting Standards No. 133 this swap transaction is designated as a fair value hedge. Accordingly, the ineffective portion of the change in the fair value of the swap transaction is recorded each period in current income. The terms of the swap are symmetrical with the terms of the Junior Subordinated Debentures, including the payment deferral terms, and considered highly effective in offsetting changes in fair value of the Junior Subordinated Debentures. A $43,000 increase in the fair value of the swap was recorded in income for the three-month period ended March 31, 2004 with an offsetting charge to earnings to reflect a similar decrease in the fair value of the Junior Subordinated Debentures. No ineffectiveness was recorded to current earnings related to the interest rate swap.
The terms of the Swap require the Company to provide collateral to support its contract obligations and varies based upon the Swap contract value. At March 31, 2004, $1.6 million in securities were pledged as collateral.
11
NOTE 11— CONVERSION OF PREFERRED STOCK
In the three months ended March 31, 2004, 63,312 shares of Series A non-cumulative convertible perpetual
preferred stock were converted to 126,624 shares of common stock.
NOTE 12—RECLASSIFICATIONS
Certain prior year data have been reclassified to conform to current year presentation.
NOTE 13—ACCOUNTING PRONOUNCEMENTS
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires than an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. The Company adopted SFAS 150 effective July 1, 2003, which had no effect on the Company’s financial statements.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
National Mercantile Bancorp (“National Mercantile” on a parent-only basis, and the ‘‘Company’’ on a consolidated basis) is the holding company for two subsidiary banks, Mercantile National Bank (“Mercantile”) and South Bay Bank, N.A. (“South Bay”) (collectively, “the Banks”). National Mercantile’s principal assets are the capital stock of Mercantile and South Bay.
In July 2001, National Mercantile formed National Mercantile Capital Trust (the “Trust”) as a Delaware statutory business trust formed for the exclusive purpose of issuing and selling trust preferred securities (the “Trust Preferred Securities”). The Trust issued those securities and utilized the proceeds to purchase from National Mercantile, its junior subordinated deferrable interest debentures (the “Junior Subordinated Debentures”). Through June 30, 2003, the Company’s financial statements reflected the Trust as a consolidated subsidiary, with the effect that the Trust Preferred Securities of the Trust were reflected on the balance sheet as mezzanine equity and payments on the Trust Preferred Securities were set forth as expenses classified as
12
minority interest in the Company’s income of the guaranteed preferred beneficial interest in the Junior Subordinated Debentures.
The Company implemented FIN 46 effective July 1, 2003 with the effect that since that date the Trust has not been a consolidated subsidiary of the Company for financial reporting purposes. As a result: (i) the Company’s balance sheets as of dates on or after July 1, 2003 no longer reflect the Trust Preferred Securities as mezzanine equity but instead reflect the Junior Subordinated Debentures as liabilities, and (ii) the Company’s statements of operations incorporating periods on or after July 1, 2003, reflect from July 1, 2003 forward interest payments on the Junior Subordinated Debentures as interest expense and do not reflect payments on the Trust Preferred Securities as expenses classified as minority interest in the Company’s income of the guaranteed preferred beneficial interest in the Company’s Junior Subordinated Debentures. As discussed below, this has a significant effect on comparisons of net interest income between periods including and not including periods on and after July 1, 2003.
RESULTS OF OPERATIONS
The Company recorded net income of $291,000, or $0.10 basic earnings per share and $0.06 diluted earning per share, for the three months ended March 31, 2004 compared to net income of $97,000, or $0.04 basic earnings per share and $.02 diluted earnings per share, for the same period of 2003. The increase in net income for the 2004 period was primarily due to a $415,000 reduction in interest expense on deposits and a $110,000 reduction in the provision for credit losses. This was partially offset by a reduction in total interest income of $269,000 and a $95,000 increase in income tax provisions. Net interest income before provision for credit losses for the three months ended March 31, 2004 reflects a $71,000 decline from the same period in 2003. This decline, however, includes $226,000 in interest expense related to the Company’s Junior Subordinated Debentures in the 2004 period. During the 2003 period, this interest was reported as minority interest in the Company’s income of the Junior Subordinated Debentures. As discussed above, this reclassification was due to the implementation of Financial Accounting Standards Board Interpretation 46 (“Fin 46”).
Return on average assets during the first quarter 2004 was 0.32%, compared to 0.11% during the first quarter of 2003. Return on average equity during the first quarter of 2004 was 3.63%, compared to a 1.26% during the first quarter of 2003.
13
NET INTEREST INCOME
Net interest income before the provision for credit losses decreased $71,000 for the first quarter of 2004 compared to the first quarter of 2003 due to the inclusion of interest on the Junior Subordinated Debentures in the 2004 quarter. This accounting change also resulted in a 0.25% reduction in the interest margin (net yield on interest earning assets) from 4.60% to 4.35%. Income and expenses on interest earning assets and interest bearing liabilities during these periods were affected by declining market interest rates as a result of the Federal Reserve Board’s reduction in the federal funds rate in response to the slow economy.
Interest income decreased as the 0.54% decline in the weighted average yield on interest earning assets more than offset the $8.9 million increase in average interest earning assets. The reduction in the weighted average yield on interest earning assets was due to: (i) a decline in market interest rates, resulting in a repricing of adjustable rate assets (primarily loans) and lower yields on newly originated or purchased assets and (ii) lower yielding assets comprising a greater portion of our interest earning assets, due to a decline in average loans and an increase in average securities and other assets, as we invested funds from deposits and loan payoffs in securities and other short-term assets pending deployment into loans. Loan yields declined less than other earning assets due to the fixed rate loans in the portfolio. The increase in average interest earning assets reflects management’s growth strategy.
Interest expense decreased as well due to a 0.49% decline in the weighted average rates on interest bearing liabilities, which more than offset a $10.1 million increase in average interest-bearing liabilities. The reduction in the weighted average rate was due to: (i) a decline in market interest rates and (ii) an increase in lower-cost demand, savings and money market deposits and reduction in higher-costs certificates of deposit. This was offset in part by the inclusion of interest on the higher cost Junior Subordinated Debentures as interest expense, which also resulted in the increase in average interest bearing liabilities, as the average interest bearing deposits decreased by $5.5 million.
Average loans receivable decreased $10.0 million or 3.7% for the three months ended March 31, 2004 compared to the same period in 2003 primarily due to a decline in construction loans in the 2004 period. Due to the nature of construction loans, the outstanding balance of newly originated loans increases gradually during the life of the loan and repays in a lump sum. The weighted average yield on loans receivable declined 33 basis points to 5.86% for the first quarter 2004. The lower yields on loans receivable are due to the sustained decline in interest rates over the past two years affecting the yields on adjustable rate loans tied to rate indices as well as the yields on newly originated fixed rate loans and existing fixed rate loans upon renewal at maturity.
14
Average securities available-for-sale increased to $32.9 million for the three months ended March 31, 2004 compared to $26.2 million for the period ended March 31, 2003. The weighted average yield on securities available-for-sale was 3.12% and 3.87% for the three months ended March 31, 2004 and 2003, respectively, representing a 75 basis point decline. The decline in yield was due to purchases of securities in the declining rate environment during 2003 and to a lesser extent, adjustable rate securities in the portfolio. Securities held-to-maturity averaged $4.5 million for the period ended March 31, 2004. The weighted average yield on securities held-for-maturity was 3.73% for the three months ended March 31, 2004. There were no securities held-for-maturity during the three months ended March 31, 2003.
Average total deposits increased $12.1 million or 4.1% to $304.2 million during the first quarter of 2004 compared to $292.1 million during the first quarter of 2003. This was due to an increase of $17.5 million in average non-interest bearing deposits, as interest bearing deposits declined due to the continued fun-off of time certificates of deposit. This change in mix of the deposits reflects management’s continued emphasis on business banking at South Bay and replacing certificates of deposit with transaction accounts.
The following table presents the components of net interest income for the three months ended March 31, 2004 and 2003.
15
Average Balance Sheet and
Analysis of Net Interest Income
|
| Three months ended |
| ||||||||||||||
|
| March 31, 2004 |
| March 31, 2003 |
| ||||||||||||
|
| Average |
| Interest |
| Weighted |
| Average |
| Interest |
| Weighted |
| ||||
|
| (Dollars in thousands) |
| ||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Federal funds sold and securities purchased under agreements to resell |
| $ | 17,436 |
| 42 |
| 0.97 | % | $ | 14,511 |
| $ | 43 |
| 1.20 | % | |
Due from banks-interest bearing |
| 4,697 |
| 15 |
| 1.28 | % | — |
| — |
| — |
| ||||
Securities available-for-sale |
| 32,920 |
| 257 |
| 3.12 | % | 26,192 |
| 250 |
| 3.87 | % | ||||
Securities held-to-maturity |
| 4,509 |
| 42 |
| 3.73 | % | — |
| — |
| — |
| ||||
Loans receivable (1) (2) |
| 259,664 |
| 3,785 |
| 5.86 | % | 269,644 |
| 4,117 |
| 6.19 | % | ||||
Total interest earning assets |
| 319,226 |
| 4,141 |
| 5.22 | % | 310,347 |
| 4,410 |
| 5.76 | % | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Noninterest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and due from banks - demand |
| 22,963 |
|
|
|
|
| 20,823 |
|
|
|
|
| ||||
Other assets |
| 21,491 |
|
|
|
|
| 20,157 |
|
|
|
|
| ||||
Allowance for credit losses and net unrealized gain on sales of securities available-for-sale |
| (3,527 | ) |
|
|
|
| (4,626 | ) |
|
|
|
| ||||
Total assets |
| $ | 360,153 |
|
|
|
|
| $ | 346,701 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities and shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand |
| $ | 29,927 |
| 17 |
| 0.23 | % | $ | 27,651 |
| $ | 61 |
| 0.89 | % | |
Money market and savings |
| 100,537 |
| 163 |
| 0.65 | % | 88,976 |
| 301 |
| 1.37 | % | ||||
Time certificates of deposit: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
$100,000 or more |
| 24,141 |
| 83 |
| 1.38 | % | 28,845 |
| 147 |
| 2.07 | % | ||||
Under $100,000 |
| 26,373 |
| 113 |
| 1.72 | % | 40,958 |
| 282 |
| 2.79 | % | ||||
Total time certificates of deposit |
| 50,514 |
| 196 |
| 1.56 | % | 69,803 |
| 429 |
| 2.49 | % | ||||
Total interest-bearing deposits |
| 180,978 |
| 376 |
| 0.84 | % | 186,430 |
| 791 |
| 1.72 | % | ||||
Other borrowings |
| 7,500 |
| 88 |
| 4.72 | % | 7,500 |
| 89 |
| 4.81 | % | ||||
Junior subordinated debentures |
| 15,464 |
| 226 |
| 5.88 | % | — |
| — |
| — |
| ||||
Federal funds purchased and securities sold under agreements to repurchase |
| 232 |
| — |
| 0.00 | % | 1,134 |
| 8 |
| 2.86 | % | ||||
Total interest-bearing liabilities |
| 204,174 |
| 690 |
| 1.36 | % | 195,064 |
| 888 |
| 1.85 | % | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Noninterest-bearing demand deposits |
| 123,195 |
|
|
|
|
| 105,683 |
|
|
|
|
| ||||
Other liabilities |
| 612 |
|
|
|
|
| 225 |
|
|
|
|
| ||||
Guaranteed preferred beneficial interests in the Company’s junior subordinated deferrable interest debentures, net |
| — |
|
|
|
|
| 14,532 |
|
|
|
|
| ||||
Shareholders’ equity |
| 32,172 |
|
|
|
|
| 31,197 |
|
|
|
|
| ||||
Total liabilities and shareholders’ equity |
| $ | 360,153 |
|
|
|
|
| $ | 346,701 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net interest income (spread) |
|
|
| $ | 3,451 |
| 3.86 | % |
|
| $ | 3,522 |
| 3.91 | % | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net yield on earning assets (2) |
|
|
|
|
| 4.35 | % |
|
|
|
| 4.60 | % | ||||
(1) The average balance of nonperforming loans has been included in loans receivable.
(2) Yields and amounts earned on loans receivable include loan fees of $293,000 and $190,000 for the three months ended March 31, 2004 and 2003, respectively.
16
The following table sets 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 (1)
|
| Three months ended March 31, |
| |||||||
|
|
|
|
|
| Net |
| |||
|
| Increase (decrease) due to: |
|
| ||||||
|
| Volume |
| Rate |
|
| ||||
|
| (Dollars in thousand) |
| |||||||
Interest Income: |
|
|
|
|
|
|
| |||
Federal funds sold and securities purchased under agreement to resell |
| $ | 9 |
| $ | (10 | ) | $ | (1 | ) |
Interest-bearing deposits with other financial institutions |
| 15 |
| — |
| 15 |
| |||
Securities available-for-sale |
| 67 |
| (60 | ) | 7 |
| |||
Securities held-to-maturity |
| 42 |
| — |
| 42 |
| |||
Loans receivable (2) |
| (140 | ) | (192 | ) | (332 | ) | |||
Total interest-earning assets |
| (7 | ) | (262 | ) | (269 | ) | |||
|
|
|
|
|
|
|
| |||
Interest Expense: |
|
|
|
|
|
|
| |||
Interest-bearing deposits: |
|
|
|
|
|
|
| |||
Demand |
| $ | 5 |
| $ | (49 | ) | $ | (44 | ) |
Money market and savings |
| 39 |
| (177 | ) | (138 | ) | |||
Time certificates of deposit: |
|
|
|
|
|
|
| |||
$100,000 or more |
| (24 | ) | (40 | ) | (64 | ) | |||
Under $100,000 |
| (99 | ) | (70 | ) | (169 | ) | |||
Total time certificates of deposit |
| (123 | ) | (110 | ) | (233 | ) | |||
Total interest-bearing deposits |
| (79 | ) | (336 | ) | (415 | ) | |||
Other borrowings |
| — |
| (1 | ) | (1 | ) | |||
Junior subordinated debentures |
| 226 |
| — |
| 226 |
| |||
Federal funds purchased and securities sold under agreements to repurchase |
| (6 | ) | (2 | ) | (8 | ) | |||
Total interest-bearing liabilities |
| 141 |
| (339 | ) | (198 | ) | |||
|
|
|
|
|
|
|
| |||
Net interest income |
| $ | (148 | ) | $ | 77 |
| $ | (71 | ) |
(1) The change in interest income or interest expense that is attributable to both changes in average balance, average rate and days in the quarter has been allocated to the changes due to (i) average balance 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.
17
PROVISION FOR CREDIT LOSSES
Provisions for credit losses were $0 and $110,000 for the three months ended March 31, 2004, and 2003, respectively. The decrease in provisions for credit losses during the first quarter 2004 was due to the current adequacy of the allowance for credit losses based upon our analysis. See Note 4 of Notes to Consolidated Financial Statements.
OTHER OPERATING INCOME
Other operating income increased to $465,000 during the first quarter of 2004 from $435,000 during the first quarter of 2003 primarily due to an increase in deposit-related and other customer service income due to increased fees and new product introduction, partially offset by a decrease in net gain on sale of securities available-for-sale.
Net gains on sales of securities are generated primarily in declining interest rate environments. Accordingly, gains or losses from sales of securities may fluctuate significantly from period to period, and the results in any period are not necessarily indicative of the results, which may be obtained in future periods.
OTHER OPERATING EXPENSES
Other operating expenses were nearly unchanged at $3.4 million for the three months ended March 31, 2004 and for the same period in 2003. Variances within operating expenses were reflected as follows; (i) salaries and related benefits expense increased $41,000 or 2.2%; (ii) net occupancy expense decreased $38,000 or 11.6%; (iii) furniture and equipment expense increased $27,000 or 24.8%; (iv) customer serivces expense decreased $46,000, or 25.8%; (v) computer data processing expense increased $46,000 or 21.4%; (vi) legal services expense decreased $40,000 or 28.0%; (vii) other professional services expense decreased $43,000 or 19.1%; and (viii) retirement of fixed assets and leasehold improvements expenses increased $43,000.
The increase in salary and related expense in the first quarter of 2004 is due to greater commission payments on increased loan production. The officer and staff salary expense increased but was offset by the decrease in temporary help expense. The decrease in occupancy expense was due to a decrease in rent expense from the move of the corporate headquarters in January 2004. The increase in furniture and equipment expense is due to an increase in maintenance and repairs of computers primarily due to the temporary moves of the corporate headquarters and the Beverly Hills loan production office. The decrease in client services is primarily related to the decrease in services for the escrow customers. Data processing expense increased due to increased volume of accounts and activity. Legal expenses decreased for the collection of loans due to fewer past due loans and fewer other real estate owned properties. Professional services expense decreased due to a reduction
18
in professional services for nonperforming assets at South Bay. The increase of promotional and other expenses is due to the move of the corporate headquarters prior to the end of the lease.
MINORITY INTEREST IN THE COMPANY’S INCOME
The minority interest in the Company’s income of the guaranteed beneficial interest in the Company’s Junior Subordinated Debentures was $233,000 for the three months ended March 31, 2003. As a result of the reclassification pursuant to FIN 46 effective July 1, 2003, no such minority interest expense was recorded for the three months ended March 31, 2004.
BALANCE SHEET ANALYSIS
INVESTMENT SECURITIES
The following comparative period-end table sets forth certain information concerning the estimated fair values and
unrealized gains and losses of securities available-for-sale and securities held-to-maturity.
19
Estimated Fair Values of and Unrealized
Gains and Losses on Securities
|
| March 31, 2004 |
| ||||||||||
|
| Total |
| Gross |
| Gross |
| Estimated |
| ||||
|
| (Dollars in thousands) |
| ||||||||||
Available-for-Sale: |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury securities |
| $ | 704 |
| $ | — |
| $ | — |
| $ | 704 |
|
GNMA-issued/guaranteed mortgage pass through certificates |
| 281 |
| 11 |
| — |
| 292 |
| ||||
Other U.S. Government and federal agency securities |
| 19,063 |
| 91 |
| — |
| 19,154 |
| ||||
FHLMC/FNMA-issued mortgage pass through certificates |
| 4,848 |
| 155 |
| — |
| 5,003 |
| ||||
CMO’s and REMIC’s issued by U.S. government-sponsored agencies |
| 50 |
| 2 |
| — |
| 52 |
| ||||
Mutual funds |
| 10,000 |
| — |
| 109 |
| 9,891 |
| ||||
Privately issued corporate bonds, CMO and REMIC securities |
| 1,084 |
| 2 |
| — |
| 1,086 |
| ||||
|
| $ | 36,030 |
| $ | 261 |
| $ | 109 |
| $ | 36,182 |
|
|
|
|
|
|
|
|
|
|
| ||||
FRB and other equity stocks |
| $ | 1,872 |
| — |
| — |
| $ | 1,872 |
| ||
|
|
|
|
|
|
|
|
|
| ||||
Held-to-Maturity: |
|
|
|
|
|
|
|
|
| ||||
FHLMC/FNMA-issued mortgage pass through certificates |
| $ | 4,374 |
| $ | 49 |
| $ | — |
| $ | 4,423 |
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ | 4,374 |
| $ | 49 |
| $ | — |
| $ | 4,423 |
|
|
| December 31, 2003 |
| ||||||||||
|
| Total |
| Gross |
| Gross |
| Estimated |
| ||||
|
| (Dollars in thousands) |
| ||||||||||
Available-For-Sale: |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury securities |
| $ | 600 |
| $ | — |
| $ | 1 |
| $ | 599 |
|
GNMA-issued/guaranteed mortgage pass through certificates |
| 351 |
| 12 |
| — |
| 363 |
| ||||
Other U.S. government and federal agency securities |
| 12,758 |
| 45 |
| 4 |
| 12,799 |
| ||||
FHLMC/FNMA-issued mortgage pass through certificates |
| 3,828 |
| 161 |
| — |
| 3,989 |
| ||||
CMO’s and REMIC’s issued by U.S. government-sponsored agencies |
| 56 |
| 1 |
| — |
| 57 |
| ||||
Mortgage mutual funds |
| 10,000 |
| — |
| 98 |
| 9,902 |
| ||||
Privately issued corporate bonds, CMO and REMIC securities |
| 3,163 |
| 5 |
| — |
| 3,168 |
| ||||
|
| $ | 30,756 |
| $ | 224 |
| $ | 103 |
| $ | 30,877 |
|
|
|
|
|
|
|
|
|
|
| ||||
FRB and other equity stocks |
| $ | 1,872 |
| — |
| — |
| $ | 1,872 |
| ||
|
|
|
|
|
|
|
|
|
| ||||
Held-to-Maturity: |
|
|
|
|
|
|
|
|
| ||||
FHLMC/FNMA-issued mortgage pass through certificates |
| $ | 4,597 |
| $ | 43 |
| $ | — |
| $ | 4,640 |
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ | 4,597 |
| $ | 43 |
| $ | — |
| $ | 4,640 |
|
20
As of March 31, 2004 the Company did not hold securities of any issuer, other than U.S. government agencies and corporations, the aggregate book value of which exceeded 10% of the Company’s shareholders’ equity. At March 31, 2004, the Company held $9.9 million of an adjustable rate mortgage mutual fund in which the funds holdings are primarily comprised of U.S. Agency securities, agency mortgage pools and U.S. Treasury securities. The Company had $4.4 million and $4.6 million securities classified as held-to-maturity at March 31, 2004 and December 31, 2003, respectively.
LOAN PORTFOLIO
The following comparative period-end table sets forth certain information concerning the composition of the loan portfolio.
Loan Portfolio Composition
|
| March 31, |
| December 31, |
| ||||||
|
| Amount |
| Percent |
| Amount |
| Percent |
| ||
|
| (Dollars in thousands) |
| ||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
| ||
Secured by one to four family residential properties |
| $ | 7,811 |
| 3 | % | $ | 8,167 |
| 3 | % |
Secured by multifamily residential properties |
| 13,070 |
| 5 | % | 13,071 |
| 5 | % | ||
Secured by commercial real properties |
| 137,601 |
| 52 | % | 132,320 |
| 52 | % | ||
Real estate construction and land development |
| 26,632 |
| 10 | % | 27,210 |
| 10 | % | ||
Commercial loans - secured and unsecured |
| 78,020 |
| 29 | % | 76,699 |
| 29 | % | ||
Consumer installment, home equity and unsecured loans to individuals |
| 2,726 |
| 1 | % | 3,510 |
| 1 | % | ||
Total loans outstanding |
| 265,860 |
| 100 | % | 260,977 |
| 100 | % | ||
|
|
|
|
|
|
|
|
|
| ||
Deferred net loan origination fees and purchased loan discount |
| (781 | ) |
|
| (728 | ) |
|
| ||
Loans receivable, net |
| $ | 265,079 |
|
|
| $ | 260,249 |
|
|
|
Total loans outstanding increased by $4.8 million to $265.1 million at March 31, 2004 compared to $260.2 million at December 31, 2003 as loan originations exceeded loan payoffs. The loan originations were primarily in real estate loans secured by commercial real property.
21
NONPERFORMING ASSETS
The following comparative period-end table sets forth certain information concerning nonperforming assets.
Nonperforming Assets
|
| March 31, |
| December 31 |
| ||
|
| (Dollars in thousands) |
| ||||
|
|
|
|
|
| ||
Nonaccrual loans |
| $ | 319 |
| $ | 438 |
|
Troubled debt restructurings |
| — |
| — |
| ||
Loans contractually past due ninety or more days with respect to either principal or interest and still accruing interest |
| — |
| — |
| ||
Nonperforming loans |
| 319 |
| 438 |
| ||
Other real estate owned |
| 968 |
| 925 |
| ||
Other nonperforming assets |
| — |
| — |
| ||
Total nonperforming assets |
| $ | 1,287 |
| $ | 1,363 |
|
|
|
|
|
|
| ||
Allowance for credit losses as a percent of nonaccrual loans |
| 1139.5 | % | 829.9 | % | ||
Allowance for credit losses as a percent of nonperforming loans |
| 1139.5 | % | 829.9 | % | ||
Total nonperforming assets as a percent of loans receivable |
| 0.5 | % | 0.5 | % | ||
Total nonperforming assets as a percent of total shareholders’ equity |
| 4.0 | % | 4.3 | % |
Nonaccrual loans decreased $119,000 at March 31, 2004 to $319,000 from $438,000 at December 31, 2003 due primarily to collection of nonaccrual loans and loan charge offs. There were no loans past due 90 days or more and still accruing interest at March 31, 2004 and December 31, 2003. Other real estate owned increased $43,000 at March 31, 2004 to $968,000 form $925,000 at December 31, 2003 due to capitalization of expenditures for improvements. The amount of nonperforming assets at March 31, 2004 decreased to $1.3 million from $1.4 million at December 31, 2003.
ALLOWANCE FOR CREDIT LOSSES
Provisions for credit losses charged to operations reflect management’s judgment of the adequacy of the allowance for credit losses and are determined through periodic analysis of the loan portfolio. This analysis includes a detailed review of the classification and categorization of problem loans and loans to be charged off; an assessment of the overall quality and collectibility of the portfolio; and consideration of the loan loss experience, trends in problem loan concentrations of credit risk, as well as current and expected future economic conditions (particularly Southern California). Management, in conjunction with an outside advisory firm, performs a periodic risk and credit analysis, the results of which are reported to the Board of Directors.
22
Loans charged off during the first quarter of 2004 were $35,000, compared to $402,000 during the first quarter of 2003. Recoveries of loans previously charged off were $33,000 during the first quarter of 2004 compared to $140,000 during the first quarter of 2003. See Note 4 of Notes to Consolidated Financial Statements.
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 that adversely affect the likelihood of repayment of various loans in the loan portfolio and realization of 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 Office of the Comptroller of the Currency (“OCC”), as an integral part of its examination process, periodically reviews the allowance for credit losses and could require additional provisions for credit losses.
DEPOSITS
Total deposits were $317.2 million and $298.7 million at March 31, 2004 and December 31, 2003, respectively. Noninterest-bearing demand deposits and money market deposits were $127.4 million and $70.5 million, respectively, at March 31, 2004 compared to $120.0 million and $55.4 million, respectively, at December 31, 2003. Interest-bearing demand deposits, which are largely limited to individuals, increased to $31.6 million at March 31, 2004 from $29.3 million at December 31, 2003. The increase in these accounts is attributable to an emphasis on growing business banking through the hiring of commercial lending officers, which generates transaction deposit accounts. Savings deposits increased to $40.1 million at March 31, 2004 compared to $38.9 million at December 31, 2003 reflecting the relative higher yields being paid on this deposit type. Time certificates of deposit (“TCDs”) decreased to $47.6 million at March 31, 2004 from $55.0 million at December 31, 2003. This decrease is due to an emphasis on growing lower cost transaction accounts. There were no brokered TCDs at March 31, 2004 and $5.0 million brokered TCDs at December 31, 2003.
FEDERAL FUNDS SOLD AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
There were no federal funds sold and securities sold under agreements to repurchase at March 31, 2004 compared to $399,000 at December 31, 2003. The decline is due to the planned runoff of the higher costing liabilities at South Bay.
23
OTHER BORROWINGS
Other borrowings were $7.5 million at March 31, 2004 and December 31, 2003 representing advances from the Federal Home Loan Bank.
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
Junior Subordinated Debentures were $15.5 million at March 31, 2004, reflecting the reclassification of trust preferred securities formerly reflected as minority interest. See Note 9 of Notes to Consolidated Financial Statements.
SHAREHOLDERS’ EQUITY
Shareholders’ equity increased from $31.7 million at December 31, 2003 to $32.0 million at March 31, 2004 due to the income for the three months ended March 31, 2004 and the increases in market value of securities available-for-sale.
CAPITAL ADEQUACY REQUIREMENTS
At March 31, 2004 the Company and the Banks were in compliance with all applicable regulatory capital requirements and the Banks were “well capitalized” under the Prompt Corrective Action rules of the OCC. The following table sets forth the regulatory capital standards for well-capitalized institutions, and the capital ratios for the Company and the Banks as of March 31, 2004 and December 31, 2003.
24
Regulatory Capital Information
of the National MercantileBancorp and Banks
|
| Minimum |
| Well |
| March 31, |
| December 31, |
|
National Mercantile Bancorp: |
|
|
|
|
|
|
|
|
|
Tier 1 leverage |
| 4.00 | % | N/A |
| 9.00 | % | 8.69 | % |
Tier 1 risk-based capital |
| 4.00 | % | N/A |
| 10.60 | % | 11.02 | % |
Total risk-based capital |
| 8.00 | % | N/A |
| 13.28 | % | 13.84 | % |
|
|
|
|
|
|
|
|
|
|
Mercantile National Bank: |
|
|
|
|
|
|
|
|
|
Tier 1 leverage |
| 4.00 | % | 5.00 | % | 8.46 | % | 8.13 | % |
Tier 1 risk-based capital |
| 4.00 | % | 6.00 | % | 10.69 | % | 10.88 | % |
Total risk-based capital |
| 8.00 | % | 10.00 | % | 11.94 | % | 12.13 | % |
|
|
|
|
|
|
|
|
|
|
South Bay Bank, NA: |
|
|
|
|
|
|
|
|
|
Tier 1 leverage |
| 4.00 | % | 5.00 | % | 9.92 | % | 9.44 | % |
Tier 1 risk-based capital |
| 4.00 | % | 6.00 | % | 10.64 | % | 11.18 | % |
Total risk-based capital |
| 8.00 | % | 10.00 | % | 11.76 | % | 12.37 | % |
LIQUIDITY
The Company manages its liquidity through a combination of core deposits, federal funds purchased, repurchase agreements, collateralized borrowing lines, and a portfolio of securities available for sale. Liquidity is also provided by maturing investment securities and loans.
The Company’s cash and due from banks was $25.4 million on March 31, 2004 compared to $24.6 million on December 31, 2003. Due from banks-interest-bearing was $4.3 million and $4.7 million at March 31, 2004 and December 31, 2003, respectively. Federal funds sold were $18.0 million and $10.0 million for March 31, 2004 and December 31, 2003, respectively. Mercantile had $5.0 million and South Bay had $12.0 million in Federal funds lines with correspondent banks as of March 31, 2004.
National Mercantile is a legal entity separate and distinct from the Banks, and therefore it must provide for its own liquidity. National Mercantile’s principal sources of funds are proceeds from the sales of securities and dividends or capital distributions from the Banks. In addition to its own operating expenses, National Mercantile is responsible for the payment of the interest on the outstanding Junior Subordinated Debentures. The semi-annual interest payments on the Junior Subordinated Debentures, under the terms of the indenture, are deferrable at the Company’s option, for a period up to ten consecutive semi-annual payments, but in any event not beyond June 25, 2031.
25
National Mercantile’s cash and due from banks was $677,000 on March 31, 2004 compared to $1.2 million at December 31, 2003.
Dividends and capital distributions from the Banks constitute the principal ongoing source of cash to National Mercantile. National Mercantile is a legal entity separate and distinct from the Banks, and as such has separate and distinct financial obligations including debt service and operating expenses. The Banks are subject to various statutory and regulatory restrictions on their ability to pay dividends and capital distributions to National Mercantile.
OCC approval is required for a national bank to pay a dividend if the total of all dividends declared in any calendar year exceeds the total of the bank’s net profits (as defined) for that year combined with its retained net profits for the preceding two calendar years, less any required transfer to surplus or a fund for the retirement of any preferred stock. A national bank may not pay any dividend that exceeds its retained net earnings, as defined by the OCC. The OCC and the Federal Reserve have also issued banking circulars emphasizing that the level of cash dividends should bear a direct correlation to the level of a national bank’s current and expected earnings stream, the bank’s need to maintain an adequate capital base and other factors.
National banks that are not in compliance with regulatory capital requirements generally are not permitted to pay dividends. The OCC also can prohibit a national bank from engaging in an unsafe or unsound practice in its business. Depending on the bank’s financial condition, payment of dividends could be deemed to constitute an unsafe or unsound practice. Excepts under certain circumstances, and with prior regulatory approval, a bank may not pay a dividend if, after so doing, it would be undercapitalized. The Bank’s ability to pay dividends in the future is, and could be, further influenced by regulatory policies or agreements and by capital guidelines.
Mercantile has a substantial accumulated deficit and does not anticipate having positive retained earnings for the foreseeable future. South Bay has an accumulated surplus of $130,000 as of December 31, 2003. Mercantile and South Bay may from time to time be permitted to make capital distributions to National Mercantile with the consent of the OCC. It is not anticipated that such consent could be obtained unless the distributing bank were to remain “well capitalized” following such distribution.
The payment of dividends by National Mercantile is limited by the terms of the Trust Preferred Securities indenture. National Mercantile may not declare or pay any dividends or other distributions on its common stock or preferred stock if it is in default under the terms of the indenture or if it has elected to defer payments of interest on the Trust Preferred Securities.
26
ASSET LIABILITY MANAGEMENT
The following table shows that the Company’s cumulative one-year interest rate sensitivity gap indicated an asset sensitive position of $82.3 million at March 31, 2004, a $3.6 million decrease from an asset sensitive position of $85.9 million at December 31, 2003. This change resulted primarily from an increase in demand, money market and savings deposits repricing in less than three months, partially offset by an increase in adjustable loans receivable and federal funds sold.
The Company’s asset sensitive position during a period of slowly 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 bearing demand, savings and money market deposits historically have not changed proportionately with changes in interest rates. However, since the Company is in an asset sensitive position, in a period of rapidly declining rates, such as the environment that was experienced during 2001 and 2002, the rapid decline will have a negative effect on the Company’s net interest income as changes in the rates of interest bearing deposits historically have not changed in similar magnitude to changes in market interest rates. Additionally, in relatively low and declining interest rate environments, the interest rates paid on funding liabilities may begin to reach floors preventing further downward adjustments while rates on earning assets continue to adjust downward.
27
Rate-Sensitive Assets and Liabilities
|
| March 31, 2004 |
| |||||||||||||
|
| Maturing or repricing in |
| |||||||||||||
|
| Less |
| After three |
| After one |
| After |
| Total |
| |||||
|
| (Dollars in thousands) |
| |||||||||||||
Rate-Sensitive Assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Federal funds sold and securities purchased under agreements to resell |
| $ | 18,000 |
| $ | — |
| $ | — |
| $ | — |
| $ | 18,000 |
|
Securities at amortized cost |
| 10,977 |
| 704 |
| 14,311 |
| 14,563 |
| 40,555 |
| |||||
Due from banks - interest bearing |
| — |
| 4,325 |
| — |
| — |
| 4,325 |
| |||||
FRB and other stock, at cost |
| — |
| — |
| — |
| 1,872 |
| 1,872 |
| |||||
Loans receivable (1) |
| 224,678 |
| 9,488 |
| 26,695 |
| 3,899 |
| 264,760 |
| |||||
Total rate-sensitive assets |
| 253,655 |
| 14,517 |
| 41,006 |
| 20,334 |
| 329,512 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Rate-Sensitive Liabilities: (2) |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest bearing deposits: |
|
|
|
|
|
|
|
|
|
|
| |||||
Demand, money market and savings |
| 142,183 |
| — |
| — |
| — |
| 142,183 |
| |||||
Time certificates of deposit |
| 16,759 |
| 21,376 |
| 8,126 |
| 383 |
| 46,644 |
| |||||
Other borrowings |
| — |
| 5,500 |
| 2,000 |
| — |
| 7,500 |
| |||||
Total rate-sensitive liabilities |
| 158,942 |
| 26,876 |
| 10,126 |
| 383 |
| 196,327 |
| |||||
Interest rate-sensitivity gap |
| 94,713 |
| (12,359 | ) | 30,880 |
| 19,951 |
| 133,185 |
| |||||
Cumulative interest rate-sensitivity gap |
| $ | 94,713 |
| $ | 82,354 |
| $ | 113,234 |
| $ | 133,185 |
|
|
| |
Cumulative ratio of rate sensitive assets to rate-sensitive liabilities |
| 160 | % | 144 | % | 158 | % | 168 | % |
|
| |||||
(1) Loans receivable excludes nonaccrual loans.
(2) 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.
28
Rate-Sensitive Assets and Liabilities
|
| December 31, 2003 |
| |||||||||||||
|
| Maturing or repricing in |
| |||||||||||||
|
| Less |
| After three |
| After one |
| After |
| Total |
| |||||
|
| (Dollars in thousands) |
| |||||||||||||
Rate-Sensitive Assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Federal funds sold and securities purchased under agreements to resell |
| $ | 10,000 |
| $ | — |
| $ | — |
| $ | — |
| $ | 10,000 |
|
Securities available-for-sale, at amortized cost |
| 10,507 |
| 4,186 |
| 4,875 |
| 11,309 |
| 30,877 |
| |||||
Securities held-to-maturity |
| — |
| — |
| — |
| 4,597 |
| 4,597 |
| |||||
Due from banks - interest bearing |
| — |
| 4,728 |
| — |
| — |
| 4,728 |
| |||||
FRB and other stock, at cost |
| — |
| — |
| — |
| 1,872 |
| 1,872 |
| |||||
Loans receivable (1) |
| 221,578 |
| 6,647 |
| 27,973 |
| 4,341 |
| 260,539 |
| |||||
Total rate-sensitive assets |
| 242,085 |
| 15,561 |
| 32,848 |
| 22,119 |
| 312,613 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Rate-Sensitive Liabilities: (2) |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest bearing deposits: |
|
|
|
|
|
|
|
|
|
|
| |||||
Demand, money market and savings |
| 123,696 |
| — |
| — |
| — |
| 123,696 |
| |||||
Time certificates of deposit |
| 28,427 |
| 19,263 |
| 7,333 |
| — |
| 55,023 |
| |||||
Other borrowings |
| — |
| 399 |
| — |
| — |
| 399 |
| |||||
Total rate-sensitive liabilities |
| 152,123 |
| 19,662 |
| 7,333 |
| — |
| 179,118 |
| |||||
Interest rate-sensitivity gap |
| 89,962 |
| (4,101 | ) | 25,515 |
| 22,119 |
| 133,495 |
| |||||
Cumulative interest rate-sensitivity gap |
| $ | 89,962 |
| $ | 85,861 |
| $ | 111,376 |
| $ | 133,495 |
|
|
| |
Cumulative ratio of rate sensitive assets to rate-sensitive liabilities |
| 159 | % | 150 | % | 162 | % | 175 | % |
|
| |||||
(1) Loans receivable excludes nonaccrual loans.
(2) 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.
29
FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS
Our results of operations and financial condition are affected by many factors, including the following.
We face risk from changes in interest rates.
The success of our business depends, to a large extent, on our net interest income. Changes in market interest rates can affect our net interest income by affecting the spread between our interest-earning assets and interest-bearing liabilities. This may be due to the different maturities of our 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:
• Our ability to originate loans;
• The ability of our borrowers to make payments on their loans;
• The value of our interest-earning assets and our ability to realize gains from the sale of these assets;
• The average life of our interest-earning assets;
• Our ability to generate deposits instead of other available funding alternatives; and
• Our ability to access the wholesale funding market.
Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control.
We face risk from possible declines in the quality of our assets.
Our financial condition depends significantly on the quality of our assets. While we have developed and implemented underwriting policies and procedures to guide us in the making of loans, compliance with these policies and procedures in making loans does not guarantee repayment of the loans. If the level of our non-performing assets rises, our results of operations and financial condition will be affected. 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.
Our allowances for credit losses may be inadequate.
We establish allowances for credit losses against each segment of our loan portfolio. At March 31, 2004, our allowance for credit losses equaled 1.4% of loans receivable and 282.3% of nonperforming loans. Although we believed that we had established adequate allowances for credit losses as of March 31, 2004, the credit quality of our assets is affected by many factors beyond our control, including local and national economic conditions, and the possible existence of facts which are not
30
known to us which adversely affect the likelihood of repayment of various loans in our loan portfolio and realization of the collateral upon a default. Accordingly, we can give no assurance that we will not sustain loan losses materially in excess of the allowance for credit losses. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, periodically reviews our allowance for credit losses and could require additional provisions for credit losses. Material future additions to the allowance for credit losses may also be necessary due to increases in the size and changes in the composition of our loan portfolio. Increases in our provisions for credit losses would adversely affect our results of operations.
Economic conditions may worsen.
Our business is strongly influenced by economic conditions in our market area (principally, the Greater Los Angeles metropolitan area) as well as regional and national economic conditions and in our niche markets, including the entertainment industry in Southern California. During the past several years economic conditions in these areas have been generally unfavorable. Should the economic condition in these areas continue to be unfavorable, the financial condition of our borrowers could weaken, which could lead to higher levels of loan defaults or a decline in the value of collateral for our loans. In addition, an unfavorable economy could reduce the demand for our loans and other products and services.
Because a significant amount of the loans we make are to borrowers in California, our operations could suffer as a result of local recession or natural disasters in California.
At March 31, 2004, a large majority of our loans outstanding were collateralized by real properties located in California. Because of this concentration in California, our financial position and results of operations have been and are expected to continue to be influenced by general trends in the California economy and its real estate market. Real estate market declines may adversely affect the values of the properties collateralizing loans. If the principal balances of our loans, together with any primary financing on the mortgaged properties, equal or exceed the value of the mortgaged properties, we could incur higher losses on sales of properties collateralizing foreclosed loans. In addition, California historically has been vulnerable to certain natural disaster risks, such as earthquakes and erosion-caused mudslides, which are not typically covered by the standard hazard insurance policies maintained by borrowers. Uninsured disasters may adversely impact our ability to recover losses on properties affected by such disasters and adversely impact our results of operations.
Our business is very competitive.
There is intense competition in Southern California and elsewhere in the United States for banking customers. We experience competition for deposits from many sources, including credit unions, insurance companies and money market and other mutual funds, as well as other commercial banks and savings institutions. We compete for loans and deposits primarily
31
with other commercial banks, mortgage companies, commercial finance companies and savings institutions. In recent years out-of-state financial institutions have entered the California market, which has also increased competition. Many of our competitors have greater financial strength, marketing capability and name recognition than we do, and operate on a statewide or nationwide basis. In addition, recent developments in technology and mass marketing have permitted larger companies to market loans more aggressively to our small business customers. Such advantages may give our competitors opportunities to realize greater efficiencies and economies of scale than we can. We can provide no assurance that we will be able to compete effectively against our competition.
Our business is heavily regulated.
Both National Mercantile as a bank holding company, and Mercantile and South Bay, as national banks, are subject to significant governmental supervision and regulation, which is intended primarily for the protection of depositors. Statutes and regulations affecting us may be changed at any time, and the interpretation of these statutes and regulations by examining authorities also may change. We cannot assure you that future changes in applicable statutes and regulations or in their interpretation will not adversely affect our business.
We test goodwill annually and must record any impairment as a charge to earnings.
Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”), among other provisions, prescribes that goodwill and intangible assets that have indefinite useful lives will not be amortized but rather tested annually, or more frequently upon the occurrence of certain events, for impairment. SFAS No. 142 provides specific guidance for the testing of goodwill for impairment, which may require re-measurement of the fair value of the reporting unit. Impairment losses are to be reported as a charge to current period earnings.
We recorded goodwill of $3.2 million in connection with the South Bay acquisition in December 2001. During the fourth quarter of 2003, we completed the required impairment tests of goodwill. The tests determined that our goodwill was not considered impaired. No assurance can be given that our goodwill will not become impaired in the future.
We determine annually whether our deferred tax asset will be realized and must establish a valuation allowance if necessary to reduce it to its realizable value.
On a periodic basis, at least annually, we perform an analysis to determine if it is more likely than not that some or all of the gross deferred tax asset will not be realized. Factors used in the analysis that are reflective of the future realization of a deferred tax asset are:
32
• Future earnings are assured;
• Expected adequate future taxable income arising from the reversal of temporary differences to realize the tax asset;
A valuation allowance may be established to reduce the deferred tax asset to its realizable value. The determination of whether a valuation allowance is necessary involves considering the positive and negative factors related to whether the deferred tax asset is more likely than not to be realized. Any adjustment required to the valuation allowance is coupled with a related entry to income tax expense. A charge to earnings will be made in the event that we determine that a valuation allowance to the deferred tax asset is necessary.
ITEM 3. CONTROLS AND PROCEDURES
The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has conducted a valuation of the effectiveness of the Company’s disclosure controls and procedures pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer believe that the Company’s disclosure controls and procedures reasonable ensure that information required to be disclosed by the Company in this quarterly report has been made known to them in a timely manner.
There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonabley likely to materially affect, the Company’s internal control over financial reporting.
33
PART II—OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On April 22, 2004, 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. Gibson, W. Douglas Hile, Antoinette Hubenette, M.D., Scott A. Montgomery, Dion G. Morrow, Carl R. Terzian and Robert E. Thomson.
(c) The voting for election of directors is listed below.
Election of Directors
Name |
| Votes For |
| Votes |
|
|
|
|
|
|
|
Donald E. Benson |
| 2,553,218 |
| 0 |
|
|
|
|
|
|
|
Joseph N. Cohen |
| 2,553,218 |
| 0 |
|
|
|
|
|
|
|
Robert E. Gipson |
| 2,553,218 |
| 0 |
|
|
|
|
|
|
|
W. Douglas Hile |
| 2,553,218 |
| 0 |
|
|
|
|
|
|
|
Antoinette Hubenette, M.D. |
| 2,553,218 |
| 0 |
|
|
|
|
|
|
|
Scott A. Montgomery |
| 2,553,218 |
| 0 |
|
|
|
|
|
|
|
Dion G. Morrow |
| 2,553,218 |
| 0 |
|
|
|
|
|
|
|
Carl R. Terzian |
| 2,553,218 |
| 0 |
|
|
|
|
|
|
|
Robert E. Thomson |
| 2,553,218 |
| 0 |
|
Item 5. OTHER INFORMATION
None.
34
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
31.1 Certification of Scott A. Montgomery on disclosure controls.
31.2 Certification of David R. Brown on disclosure controls.
32.1 Certification of Scott A. Montgomery pursuant to section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of David R. Brown pursuant to section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
Form 8-K, reporting the Company’s press release regarding first quarter 2004 operating results was filed April 22, 2004.
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.
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| NATIONAL MERCANTILE BANCORP |
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| (Registrant) | ||
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DATE: | May 14 , 2004 |
| /s/ SCOTT A. MONTGOMERY |
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| Scott A. Montgomery | ||
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| Chief Executive Officer | ||
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DATE: | May 14, 2004 |
| /s/ DAVID R. BROWN |
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| David R. Brown | ||
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| Principal Financial and Principal Accounting | ||
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