Pacific Mercantile Bancorp is a California corporation that owns 100% of the
stock of Pacific Mercantile Bank, a California state chartered commercial bank
(which, for convenience, will sometimes be referred to in this report as the
“Bank”). The capital stock of the Bank is our principal asset and
substantially all of our business operations are conducted and substantially
all of our assets are owned by the Bank which, as a result, accounts for substantially
all of our revenues, expenses and income. As the owner of a commercial bank,
Pacific Mercantile Bancorp is registered as a bank holding company under the
Bank Holding Company Act of 1956, as amended (the “Bank Holding Company
Act”), and, as such, our operations are regulated by the Board of Governors
of the Federal Reserve System (the “Federal Reserve Board” or the
“FRB”) and the Federal Reserve Bank of San Francisco (“FRBSF”)
under delegated authority from the FRB.
The Bank, which is headquartered in Orange County, California, approximately
40 miles south of Los Angeles, conducts a commercial banking business in Orange,
Los Angeles, San Bernardino and San Diego counties in Southern California. The
Bank is also a member of the Federal Reserve System and its deposits are insured,
to the maximum extent permitted by law, by the Federal Deposit Insurance Corporation
(the “FDIC”).
The Bank commenced business in March 1999, with the opening of its first financial
center, located in Newport Beach, California, and in April 1999 it launched
its online banking site at www.pmbank.com. Between August 1999 and July 2005,
we opened six additional financial centers as part of an expansion of our banking
franchise into Los Angeles, San Diego and San Bernardino counties in Southern
California.
We plan to expand our business by adhering to a business plan that is focused
on building and growing a banking organization offering our customers the best
attributes of a community bank, which are personalized and responsive service,
while also offering the more sophisticated services of the big banks.
We will continue to focus our services and offer products primarily to small
to mid-size businesses in order to achieve internal growth of our banking franchise.
We believe this focus will enable us to grow our loan portfolio and other earning
assets and increase our core deposits (consisting of non-interest bearing demand,
and lower cost savings and money market deposits), with a goal to increase our
net interest margin and improve our profitability. We also believe that, with
our technology systems in place, we have the capability to significantly increase
the volume of banking transactions without having to incur the cost or disruption
of a major computer enhancement program.
Following our transition to a commercial banking model, it has become clear
that our current client base is well served through our treasury management
tools and rarely makes use of full-service branches. We are exploring opportunities
to reduce the size of certain branches and redeploy the cost savings to expand
our business development team. As we add more relationship managers, we believe
we can better penetrate our core markets and accelerate the growth of our commercial
customer base.
Our Commercial Banking Operations
We seek to meet the banking needs of small and mid-size businesses and professional
firms by providing our customers with:
A broad range of loan and deposit products and banking and financial services,
more typically offered by larger banks, in order to gain a competitive advantage
over independent or community banks that do not provide the same range or breadth
of services that we are able to provide to our customers; and
A high level of personal service and responsiveness, more typical of independent
and community banks, which we believe gives us a competitive advantage over
large out-of-state and other large multi-regional banks that are unable, or
unwilling, due to the expense involved, to provide that same level of personal
service to this segment of the banking market.
Deposit Products
Deposits are a bank’s principal source of funds for making loans and acquiring
other interest earning assets. Additionally, the interest expense that a bank
must incur to attract and maintain deposits has a significant impact on its
operating results. A bank’s interest expense, in turn, will be determined
in large measure by the types of deposits that it offers to, and is able to
attract from, its customers. Generally, banks seek to attract “core deposits”
which consist of demand deposits that bear no interest and low cost interest-bearing
checking, savings and money market deposits. By comparison, time deposits (also
sometimes referred to as “certificates of deposit”), including those
in denominations of $100,000 or more, usually bear much higher interest rates
and are more interest-rate sensitive and volatile than core deposits.
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