United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
Commission File Number 000-54116
MANHATTAN BANCORP
(Exact name of registrant as specified in its charter)
California |
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20-5344927 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
2141 Rosecrans Avenue, Suite 1160
El Segundo, California 90245
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (310) 606-8000
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 or Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company x |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
As of April 30, 2010, there were 3,987,631 shares of the issuers common stock outstanding.
Manhattan Bancorp
QUARTERLY REPORT ON FORM 10-Q
FOR
THE QUARTER ENDED MARCH 31, 2011
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Item 1. |
FINANCIAL STATEMENTS |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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36 |
PART I FINANCIAL INFORMATION
Manhattan Bancorp and Subsidiaries
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(Unaudited) |
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(Audited) |
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March 31, 2011 |
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December 31, 2010 |
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Assets |
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Cash and due from banks |
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$ |
2,856,830 |
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$ |
1,845,808 |
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Federal funds sold/interest-bearing demand funds |
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37,918,718 |
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37,249,872 |
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Total cash and cash equivalents |
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40,775,548 |
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39,095,680 |
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Time deposits-other financial institutions |
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2,670,000 |
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2,868,000 |
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Investments securities-available for sale |
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13,216,397 |
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14,875,814 |
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Investments securities-held to maturity |
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498,430 |
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497,521 |
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Loans held for sale |
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5,099,573 |
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3,512,417 |
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Loans |
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80,906,005 |
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89,236,265 |
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Allowance for loan losses |
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(1,881,632 |
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(1,877,133 |
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Net loans |
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79,024,373 |
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87,359,132 |
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Property and equipment, net |
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1,264,132 |
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1,259,457 |
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Nonmarketable securities |
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1,545,800 |
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1,580,600 |
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Accrued interest receivable and other assets |
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1,864,500 |
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1,899,602 |
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Total assets |
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$ |
145,958,753 |
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$ |
152,948,223 |
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Liabilities and Stockholders Equity |
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Deposits: |
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Non-interest bearing demand |
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$ |
47,817,708 |
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$ |
52,893,770 |
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Interest bearing: |
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Demand |
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2,759,496 |
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3,165,267 |
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Savings and money market |
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26,817,942 |
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28,556,155 |
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Certificates of deposit equal to or greater than $100,000 |
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35,799,944 |
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33,934,109 |
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Certificates of deposit less than $100,000 |
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3,461,193 |
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3,696,069 |
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Total deposits |
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116,656,283 |
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122,245,370 |
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FHLB advances |
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4,500,000 |
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4,500,000 |
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Accrued interest payable and other liabilities |
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1,962,491 |
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1,872,820 |
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Total liabilities |
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123,118,774 |
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128,618,190 |
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Commitments and contingencies |
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Stockholders equity |
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Manhattan Bancorp stockholders equity: |
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Serial preferred stock-no par value; 10,000,000 shares authorized: issued and outstanding, none in 2011 and 2010 |
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Common stock-no par value; 30,000,000 shares authorized; issued and outstanding, 3,987,631 in 2011 and 2010 |
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38,977,282 |
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38,977,282 |
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Additional paid in capital |
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2,201,670 |
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2,162,124 |
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Unrealized gain on available-for-sale securities |
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344,976 |
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334,773 |
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Accumulated deficit |
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(18,793,311 |
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(17,347,612 |
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Total Manhattan Bancorp stockholders equity |
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22,730,617 |
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24,126,567 |
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Noncontrolling interest |
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109,362 |
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203,466 |
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Total equity |
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22,839,979 |
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24,330,033 |
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Total liabilities and stockholders equity |
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$ |
145,958,753 |
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$ |
152,948,223 |
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The accompanying notes are an integral part of this financial statement.
Manhattan Bancorp and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
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For the three months |
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ended March 31, |
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2011 |
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2010 |
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(unaudited) |
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(audited) |
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Interest income |
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Interest and fees on loans |
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$ |
1,271,531 |
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$ |
1,249,140 |
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Interest on investment securities |
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190,137 |
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299,886 |
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Interest on federal funds sold |
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16,525 |
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15,583 |
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Interest on time deposits-other financial institutions |
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19,446 |
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11,150 |
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Total interest income |
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1,497,639 |
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1,575,759 |
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Interest expense |
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Interest on NOW, money market and savings |
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43,804 |
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65,405 |
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Interest on time deposits |
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123,715 |
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173,894 |
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Interest on FHLB advances |
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49,275 |
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49,300 |
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Total interest expense |
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216,794 |
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288,599 |
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Net interest income |
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1,280,845 |
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1,287,160 |
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Provision for loan losses |
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370,000 |
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Net interest income after provision for loan losses |
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1,280,845 |
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917,160 |
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Non-interest income |
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Non-bank related income |
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1,773,849 |
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1,675,091 |
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Bank-related fees |
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335,495 |
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69,200 |
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Non-interest income |
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2,109,344 |
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1,744,291 |
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Non-interest expense |
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Compensation and benefits |
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3,537,925 |
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2,575,145 |
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Technology and communication |
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413,945 |
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273,426 |
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Occupancy and equipment |
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299,570 |
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273,390 |
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Professional expenses |
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264,209 |
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483,300 |
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Administrative expenses |
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188,860 |
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161,467 |
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Other non-interest expenses |
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220,283 |
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134,830 |
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Total non-interest expenses |
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4,924,792 |
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3,901,558 |
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Loss before income taxes |
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(1,534,603 |
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(1,240,107 |
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Provision for income taxes |
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5,200 |
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800 |
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Net loss |
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(1,539,803 |
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(1,240,907 |
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Less: Net (loss) gain attributable to the noncontrolling interest |
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(94,104 |
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77,088 |
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Net loss attributable to Manhattan Bancorp |
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$ |
(1,445,699 |
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$ |
(1,317,995 |
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Weighted average number of shares outstanding (basic and diluted) |
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3,987,631 |
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3,987,631 |
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Basic and diluted loss per share |
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$ |
(0.36 |
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$ |
(0.33 |
) |
The accompanying notes are an integral part of this financial statement.
Manhattan Bancorp and Subsidiaries
Consolidated Statements of Changes in Stockholders Equity
March 31, 2011 and 2010
(Unaudited)
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-in |
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Comprehensive |
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Accumulated |
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Comprehensive |
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Noncontrolling |
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Shares |
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Amount |
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Capital |
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Income (Loss) |
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Deficit |
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Income (Loss) |
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Interest |
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Total |
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Balance at December 31, 2009 |
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3,987,631 |
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$ |
38,977,282 |
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$ |
1,566,396 |
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$ |
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$ |
(12,737,537 |
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$ |
305,152 |
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$ |
290,910 |
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$ |
28,402,203 |
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Share-based compensation expense |
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141,697 |
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141,697 |
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Unrealized loss on investment securities |
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(18,903 |
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(18,903 |
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(18,903 |
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Net (loss) gain |
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(1,317,995 |
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$ |
(1,317,995 |
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$ |
77,088 |
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(1,240,907 |
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Total comprehensive loss |
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$ |
(1,336,898 |
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Balance at March 31, 2010 |
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3,987,631 |
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$ |
38,977,282 |
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$ |
1,708,093 |
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$ |
(14,055,532 |
) |
$ |
286,249 |
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$ |
367,998 |
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$ |
27,284,090 |
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Balance at December 31, 2010 |
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3,987,631 |
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$ |
38,977,282 |
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$ |
2,162,124 |
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$ |
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$ |
(17,347,612 |
) |
$ |
334,773 |
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$ |
203,466 |
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$ |
24,330,033 |
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Share-based compensation expense |
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39,546 |
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39,546 |
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Unrealized gain on investment securities |
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10,203 |
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10,203 |
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10,203 |
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Net (loss) |
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(1,445,699 |
) |
(1,445,699 |
) |
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(94,104 |
) |
(1,539,803 |
) | |||||||
Total comprehensive loss |
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$ |
(1,435,496 |
) |
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Balance at March 31, 2011 |
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3,987,631 |
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$ |
38,977,282 |
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$ |
2,201,670 |
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$ |
(18,793,311 |
) |
$ |
344,976 |
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$ |
109,362 |
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$ |
22,839,979 |
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The accompanying notes are an integral part of this financial statement.
Manhattan Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
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For the |
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For the |
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three months |
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three months |
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ended |
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ended |
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March 31, 2011 |
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March 31, 2010 |
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(unaudited) |
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(audited) |
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Cash flows from operating activities |
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Net loss |
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$ |
(1,539,803 |
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$ |
(1,240,907 |
) |
Net amortization of discounts and premiums on securities |
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(62,878 |
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(108,710 |
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Depreciation and amortization |
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93,516 |
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108,294 |
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Provision for loan losses |
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370,000 |
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Share-based compensation |
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39,546 |
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141,697 |
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Decrease(Increase) in accrued interest receivable and other assets |
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35,102 |
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(636,390 |
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Increase in accrued interest payable and other liabilities |
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89,671 |
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562,410 |
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Net cash used in operating activities |
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(1,344,846 |
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(803,606 |
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Cash flows from investing activities |
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Net decrease (increase) in loans |
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6,743,104 |
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(5,339,358 |
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Allowance for loan and less loss recoveries |
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4,499 |
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12,525 |
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Decrease in time deposits - other financial institutions |
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198,000 |
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396,000 |
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Proceeds from repayment and maturities from investment securities |
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1,731,589 |
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4,014,236 |
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Purchase of investments |
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(13,814,783 |
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Redemption of stock in other financial institutions |
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34,800 |
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31,150 |
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Purchase of premises and equipment |
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(98,191 |
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(23,747 |
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Net cash provided (used in) investing activities |
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8,613,801 |
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(14,723,977 |
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Cash flows from financing activities |
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Net increase (decrease) in: |
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Demand deposits |
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(5,076,062 |
) |
1,162,953 |
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Interest bearing demand deposits |
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(405,771 |
) |
(1,416,067 |
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Savings and money market deposits |
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(1,738,213 |
) |
7,630,629 |
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Certificates of deposit equal to or greater than $100,000 |
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1,955,835 |
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(17,246,615 |
) | ||
Certificates of deposit less than $100,000 |
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(324,876 |
) |
(29,917 |
) | ||
Increase (decrease) from borrowings |
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(7,500,000 |
) | ||
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Net cash used in financing activities |
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(5,589,087 |
) |
(17,399,017 |
) | ||
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Net increase (decrease) in cash and cash equivalents |
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1,679,868 |
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(32,926,600 |
) | ||
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Cash and cash equivalents at beginning of period |
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39,095,680 |
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51,455,292 |
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Cash and cash equivalents at end of period |
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$ |
40,775,548 |
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$ |
18,528,692 |
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Supplementary information |
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Interest paid on deposits |
|
$ |
166,852 |
|
$ |
240,307 |
|
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| ||
Income taxes paid |
|
$ |
4,800 |
|
$ |
800 |
|
The accompanying notes are an integral part of this financial statement.
MANHATTAN BANCORP
MARCH 31, 2011
Note 1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of Manhattan Bancorp (the Bancorp) and its wholly-owned subsidiaries, Bank of Manhattan, N.A. (the Bank) and MBFS Holdings, Inc. (MBFS), together referred to as the Company have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. On October 1, 2009, the Bancorp, through its wholly-owned subsidiary, MBFS, acquired a 70% interest in BOM Capital, LLC (formerly Bodi Capital LLC) (BOMC), a full-service mortgage-centric broker-dealer. On November 30, 2010, a recapitalization and restructuring was completed whereby a newly-formed limited liability company, Manhattan Capital Markets LLC (MCM), acquired 100% of BOMC in a multi-step transaction. MBFS holds a 70% interest in MCM. References throughout the remainder of this Quarterly Report on Form 10-Q to MCM shall be deemed to include BOMC and MCMs other direct and indirect subsidiaries. As this is a condensed interim presentation, certain information and notes required by accounting principles generally accepted in the United States of America (U.S. GAAP) for annual financial statements are not included herein. In the opinion of Management, all adjustments considered necessary for a fair presentation of results for the interim periods presented have been included. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and related notes contained in the Companys 2010 Annual Report on Form 10-K.
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires Management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. All material intercompany accounts and transactions have been eliminated.
Certain amounts in prior presentations may have been reclassified to conform to the current presentation. These reclassifications, if any, had no effect on stockholders equity, net loss or loss-per-share amounts.
Note 2. RECENT ACCOUNTING PRONOUNCEMENTS
EXPANDED DISCLOSURE ON CREDIT QUALITY: In July 2010, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 is intended to provide additional information to assist financial statement users in assessing an entitys credit risk exposures and evaluating the adequacy of its allowance for credit losses. To achieve those objectives, ASU 2010-20 requires additional disclosures that facilitate the evaluation of the nature of credit risk inherent in the entitys portfolio of financing receivables, enhance the understanding of how that risk is analyzed and assessed in arriving at the allowance for credit losses, and discuss the changes and reasons for those changes in the allowance for credit losses. A reporting entity should provide disclosures on a disaggregated basis, including portfolio segment and class of financing receivable. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for
credit losses. Classes of financing receivables generally are a disaggregation of portfolio segment. For public entities, including the Company, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. Since ASU 2010-20 affects only disclosure requirements for credit quality and the allowance for loan and lease losses, the adoption of this update is not expected to have a material impact on the Companys results of operations or financial position.
LOAN MODIFICATION-EFFECT ON SINGLE ASSET POOLS: In April 2010, the FASB issued ASU No. 2010-18, Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset. ASU No. 2010-18 provides guidance on the accounting for loan modifications when the loan is part of a pool of loans accounted for as a single asset, such as acquired loans that have evidence of credit deterioration upon acquisition and are accounted for under the guidance in The FASB Accounting Standards Codification ( ASC) 310-30. ASU No. 2010-18 addresses diversity in practice on whether a loan that is part of a pool of loans accounted for as a single asset should be removed from that pool upon a modification that would constitute a troubled debt restructuring, or should remain in the pool after modification. ASU No. 2010-18 clarifies that modifications of loans that are accounted for within a pool under ASC 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if the expected cash flows for the pool change. The amendments in this update do not require any additional disclosures and are effective for modifications of loans accounted for within pools under ASC 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The adoption of ASU 2010-18 for the third quarter of 2010 did not have a material impact on the Companys results of operations, financial position or disclosures.
SUBSEQUENT EVENTS AMENDMENT: In February 2010, the FASB issued ASU No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. The amendments remove the requirement for an SEC registrant to disclose the date through which subsequent events were evaluated as this requirement would have potentially conflicted with SEC reporting requirements. Removal of the disclosure requirement is not expected to affect the nature or timing of subsequent events evaluations performed by the Company. This ASU became effective upon issuance.
FAIR VALUE MEASUREMENTS: In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This update added disclosure requirements for significant transfers into and out of Levels 1 and 2, clarified existing fair value disclosure requirements about the appropriate level of disaggregation, and clarified that a description of the valuation techniques was required for recurring and nonrecurring Level 2 and 3 fair value measurements. The Company adopted these provisions of the ASU in preparing the Consolidated Financial Statements for the period ended March 31, 2010. The adoption of these provisions only affected the disclosure requirements for fair value measurements and as a result had no impact on the Companys statements of income and condition. An additional requirement of this ASU is that activity within Level 3, including purchases, sales, issuances, and settlements, be presented on a gross basis rather than as a net number as currently permitted. This provision of the ASU is effective for the Companys reporting period ending March 31, 2011. As this provision amends only the disclosure requirements for fair value measurements, the adoption will have no impact on the Companys statements of income and condition.
Note 3. INTEREST-EARNING ASSETS WITH OTHER FINANCIAL INSTITUTIONS
At March 31, 2011, the Company had interest-earning deposits with other financial institutions of $2.7 million, with a weighted average yield of 1.21%, and an average weighted remaining life of approximately 6.1 months. At December 31, 2010, the Company had interest-earning deposits with other financial institutions of $2.9 million, with a weighted average yield of 1.36%, and an average weighted remaining life of approximately 5.2 months.
Note 4. INVESTMENT SECURITIES
Investment securities have been classified in the balance sheet according to managements intent. The following table sets forth the investment securities at their amortized cost and estimated fair value with gross unrealized gains and losses as of March 31, 2011, and December 31, 2010.
|
|
|
|
Gross |
|
Gross |
|
|
| ||||
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Fair |
| ||||
March 31, 2011 (unaudited) |
|
Cost |
|
Gains |
|
Losses |
|
Value |
| ||||
|
|
(in thousands) |
| ||||||||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
| ||||
U.S. government and agency securities |
|
$ |
1,500 |
|
$ |
|
|
$ |
45 |
|
$ |
1,455 |
|
Mortgage-backed securities |
|
3,881 |
|
255 |
|
|
|
4,136 |
| ||||
Asset-backed securities |
|
7,490 |
|
186 |
|
51 |
|
7,625 |
| ||||
Total available-for-sale securities |
|
$ |
12,871 |
|
$ |
441 |
|
$ |
96 |
|
$ |
13,216 |
|
|
|
|
|
|
|
|
|
|
| ||||
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
| ||||
State and municipal securities |
|
$ |
498 |
|
$ |
4 |
|
$ |
|
|
$ |
502 |
|
|
|
|
|
Gross |
|
Gross |
|
|
| ||||
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Fair |
| ||||
December 31, 2010 (audited) |
|
Cost |
|
Gains |
|
Losses |
|
Value |
| ||||
|
|
(in thousands) |
| ||||||||||
Available-for-sale securities: |
|
|
|
|
|
|
|
|
| ||||
U.S. government and agency securities |
|
$ |
1,500 |
|
$ |
|
|
$ |
51 |
|
$ |
1,449 |
|
Mortgage-backed securities |
|
4,317 |
|
268 |
|
|
|
4,585 |
| ||||
Asset-backed securities |
|
8,724 |
|
195 |
|
77 |
|
8,842 |
| ||||
Total available-for-sale securities |
|
$ |
14,541 |
|
$ |
463 |
|
$ |
128 |
|
$ |
14,876 |
|
|
|
|
|
|
|
|
|
|
| ||||
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
| ||||
State and municipal securities |
|
$ |
498 |
|
$ |
6 |
|
$ |
|
|
$ |
504 |
|
The fair value of these securities is based upon quoted market prices. At March 31, 2011, there were no holdings of securities of any one issuer in an amount greater than 10% of shareholders equity.
There were no realized gains or losses during the three-month period ended March 31, 2011.
The net unrealized gain on available-for-sale securities included in accumulated other comprehensive income was approximately $10 thousand for the three-month period ended March 31, 2011. Available-for-sale securities with an amortized cost of approximately $4.5 million (fair value of approximately $4.7 million) were pledged as collateral for Federal Home Loan Bank (FHLB) advances as of March 31, 2011.
Management does not believe that any of the Companys investment securities are impaired due to reasons of credit quality. Declines in the fair value of available-for-sale securities below their cost, that are deemed to be other-than-temporary, are reflected in earnings as realized losses. In estimating other-than-temporary losses, management considers among other things: (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the
issuer and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
The following table reflects unrealized losses for securities that were in a continual loss position for as of March 31, 2011 as of the dates indicated:
|
|
Less than 12 Months |
|
12 months or longer |
|
Total |
| ||||||||||||||||||
At March 31, 2011 |
|
|
|
|
|
Gross |
|
|
|
|
|
Gross |
|
|
|
|
|
Gross |
| ||||||
(unaudited) |
|
Number of |
|
Fair |
|
Unrealized |
|
Number of |
|
Fair |
|
Unrealized |
|
Number of |
|
Fair |
|
Unrealized |
| ||||||
Description of securities |
|
Securities |
|
Value |
|
Losses |
|
Securities |
|
Value |
|
Losses |
|
Securities |
|
Value |
|
Losses |
| ||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Government and agency securities |
|
1 |
|
$ |
1,455 |
|
$ |
45 |
|
|
|
|
|
$ |
|
|
1 |
|
$ |
1,455 |
|
$ |
45 |
| |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Asset-backed securities |
|
6 |
|
710 |
|
2 |
|
6 |
|
2,012 |
|
49 |
|
12 |
|
2,722 |
|
51 |
| ||||||
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
State and municipal securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total imparied securities |
|
7 |
|
$ |
2,165 |
|
$ |
47 |
|
6 |
|
$ |
2,012 |
|
$ |
49 |
|
13 |
|
$ |
4,177 |
|
$ |
96 |
|
Any intra-period decline in market values were attributable to changes in market rates of interest rather than credit quality; and because the Company has the ability and intent to hold all of its investments until a recovery of fair value, which may be at maturity, the Company considers none of its investments to be temporarily impaired at March 31, 2011.
The amortized cost, estimated fair value and average yield of debt securities at March 31, 2011 are shown below. In the case of available-for-sale securities, the average yields are based on effective rates of book balances at year end. Yields are derived by dividing interest income, adjusted for amortization of premiums and accretion of discounts, by total amortized cost. Mortgage-backed securities are classified in accordance with estimated lives. Expected maturities may differ from contractual maturities because borrowers have the right to prepay obligations.
|
|
Available-for-Sale Securities |
|
Held-to Maturity Securities |
| ||||||||||||
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
| ||||
|
|
Amortized |
|
Fair |
|
Average |
|
Amortized |
|
Fair |
|
Average |
| ||||
(unaudited) |
|
Cost |
|
Value |
|
Yield |
|
Cost |
|
Value |
|
Yield |
| ||||
|
|
(dollars in thousands) |
| ||||||||||||||
Due in One Year or Less |
|
$ |
3,285 |
|
$ |
3,357 |
|
3.76 |
% |
$ |
498 |
|
$ |
502 |
|
4.55 |
% |
Due from One Year to Five Years |
|
7,303 |
|
7,443 |
|
4.90 |
% |
|
|
|
|
|
| ||||
Due from Five Years to Ten Years |
|
515 |
|
551 |
|
4.87 |
% |
|
|
|
|
|
| ||||
Due after Ten Years |
|
1,768 |
|
1,865 |
|
4.17 |
% |
|
|
|
|
|
| ||||
|
|
$ |
12,871 |
|
$ |
13,216 |
|
4.51 |
% |
$ |
498 |
|
$ |
502 |
|
4.55 |
% |
Note 5. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are summarized as follows:
|
|
March 31, 2011 (unaudited) |
|
December 31, 2010 (audited) |
| ||||||
|
|
Amount |
|
Percentage of |
|
Amount |
|
Percentage of |
| ||
(dollars in thousands) |
|
Outstanding |
|
Total |
|
Outstanding |
|
Total |
| ||
Commercial loans |
|
$ |
25,667 |
|
31.7 |
% |
$ |
28,697 |
|
32.2 |
% |
Real estate loans |
|
47,168 |
|
58.3 |
% |
52,184 |
|
58.5 |
% | ||
Other loans |
|
8,071 |
|
10.0 |
% |
8,355 |
|
9.3 |
% | ||
Total loans, including net loan costs |
|
80,906 |
|
100.0 |
% |
89,236 |
|
100.0 |
% | ||
Less : allowance for loan losses |
|
(1,882 |
) |
|
|
(1,877 |
) |
|
| ||
Net loans |
|
$ |
79,024 |
|
|
|
$ |
87,359 |
|
|
|
The Company has had no impaired or non-accrual loans and there were no loans past due 90 days or more in either interest or principal as of March 31, 2011 and December 31, 2010.
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a monthly basis. The Company uses the following definitions for risk ratings:
Special Mention: Loans classified as special mention have a potential weakness that deserves managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institutions credit position at some future date.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.
As of March 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
|
|
(unaudited) |
| ||||||||||
|
|
|
|
Special |
|
|
|
|
| ||||
(Dollars in Thousands) |
|
Pass |
|
Mention |
|
Substandard |
|
Doubtful |
| ||||
Commercial loans |
|
$ |
19,894 |
|
$ |
541 |
|
$ |
3,968 |
|
$ |
|
|
Commericial real estate |
|
44,023 |
|
1,878 |
|
|
|
|
| ||||
Construction |
|
2,749 |
|
|
|
|
|
|
| ||||
Other loans |
|
7,804 |
|
|
|
245 |
|
|
| ||||
Total Loans |
|
$ |
74,470 |
|
$ |
2,419 |
|
$ |
4,213 |
|
$ |
|
|
As of December 31, 2010, the risk category of loans was as follows:
|
|
(audited) |
| ||||||||||
|
|
|
|
Special |
|
|
|
|
| ||||
(Dollars in Thousands) |
|
Pass |
|
Mention |
|
Substandard |
|
Doubtful |
| ||||
Commercial loans |
|
$ |
25,065 |
|
$ |
2,000 |
|
$ |
1,632 |
|
$ |
|
|
Commericial real estate |
|
41,547 |
|
1,884 |
|
|
|
|
| ||||
Construction |
|
8,753 |
|
|
|
|
|
|
| ||||
Other loans |
|
8,110 |
|
|
|
245 |
|
|
| ||||
Total Loans |
|
$ |
83,475 |
|
$ |
3,884 |
|
$ |
1,877 |
|
$ |
|
|
The following table presents an analysis of changes in the allowance for loan losses during the periods indicated:
|
|
(unaudited) |
| ||||||||||||||||
|
|
|
|
Commercial |
|
|
|
All Other |
|
|
|
|
| ||||||
|
|
Commercial |
|
Real Estate |
|
Construction |
|
Loans |
|
Unallocated |
|
Total |
| ||||||
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Beginning balance |
|
$ |
553 |
|
$ |
1,059 |
|
$ |
131 |
|
$ |
134 |
|
$ |
|
|
$ |
1,877 |
|
Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Recoveries |
|
5 |
|
|
|
|
|
|
|
|
|
5 |
| ||||||
Provision |
|
238 |
|
(143 |
) |
(90 |
) |
(5 |
) |
|
|
|
| ||||||
Ending balance |
|
$ |
796 |
|
$ |
916 |
|
$ |
41 |
|
$ |
129 |
|
$ |
|
|
$ |
1,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ending balance: individually evaluated for impairment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ending balance: loans acquired with deteriorated credit quality |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based upon impairment method as of the date indicated:
|
|
General Allowance |
| ||||
|
|
(unaudited) |
|
(audited) |
| ||
(Dollars in Thousands) |
|
Mar 31, 2011 |
|
Dec 31, 2010 |
| ||
Commercial loans |
|
$ |
796 |
|
$ |
553 |
|
Commericial real estate |
|
916 |
|
1,059 |
| ||
Construction |
|
41 |
|
131 |
| ||
Other loans |
|
129 |
|
134 |
| ||
Total Loans |
|
$ |
1,882 |
|
$ |
1,877 |
|
Note 6. SHARE-BASED COMPENSATION
During the three-month period ended March 31, 2011, the Company recorded approximately $40 thousand of stock-based compensation expense. At March 31, 2011, unrecorded compensation expense related to non-vested stock option grants totaled approximately $277 thousand and is expected to be recognized as follows:
|
|
Share-Based |
| |
|
|
Compensation |
| |
(unaudited) |
|
Expense |
| |
|
|
(in thousands) |
| |
Remainder of 2011 |
|
$ |
129 |
|
2012 |
|
82 |
| |
2013 |
|
62 |
| |
2014 |
|
4 |
| |
Total |
|
$ |
277 |
|
The Company uses the Black-Scholes option valuation model to determine the fair value of options. The Company utilizes assumptions on expected life, risk-free rate, expected volatility and dividend yield to determine such values. As grants occur, the Company estimates the life of the options by calculating the average of the vesting period and the contractual life. The risk-free rate would be based upon treasury instruments in effect at the time of the grant whose terms are consistent with the expected life of the Companys stock options. Expected volatility would be based on historical volatility of other financial institutions within the Companys operating area as the Company has limited market history.
The following table summarizes the weighted average assumptions utilized for stock options granted for the period presented:
|
|
Period Ended |
| ||||
|
|
March 31, |
| ||||
(unaudited) |
|
2011 |
|
2010 |
| ||
Risk-free rate |
|
2.31 |
% |
2.90 |
% | ||
Expected term |
|
6 years |
|
6 years |
| ||
Expected volatility |
|
28.21 |
% |
28.12 |
% | ||
Dividend yield |
|
0.00 |
% |
0.00 |
% | ||
Fair value per share |
|
$ |
1.46 |
|
$ |
2.25 |
|
The following table summarizes the stock option activity under the plan for the periods indicated:
|
|
|
|
|
|
Weighted Average |
|
Aggregate |
| ||
|
|
|
|
Weighted Average |
|
Remaining |
|
Intrinsic |
| ||
(unaudited) |
|
Shares |
|
Exercise Price |
|
Contractual Life |
|
Value |
| ||
2010 |
|
|
|
|
|
|
|
|
| ||
Outstanding at December 31, 2009 |
|
686,942 |
|
$ |
9.42 |
|
|
|
|
| |
Granted |
|
40,000 |
|
$ |
6.79 |
|
|
|
|
| |
Exercised |
|
|
|
$ |
|
|
|
|
|
| |
Expired |
|
|
|
$ |
|
|
|
|
|
| |
Forfeited |
|
|
|
$ |
|
|
|
|
|
| |
Outstanding at March 31, 2010 |
|
726,942 |
|
$ |
9.27 |
|
7.93 |
|
$ |
|
|
Options exercisable at March 31, 2010 |
|
379,481 |
|
$ |
9.66 |
|
7.63 |
|
$ |
|
|
Options unvested at March 31, 2010 |
|
347,461 |
|
$ |
8.85 |
|
8.23 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||
2011 |
|
|
|
|
|
|
|
|
| ||
Outstanding at December 31, 2010 |
|
564,491 |
|
$ |
8.81 |
|
|
|
|
| |
Granted |
|
90,000 |
|
$ |
6.02 |
|
|
|
|
| |
Exercised |
|
|
|
$ |
|
|
|
|
|
| |
Expired |
|
|
|
$ |
|
|
|
|
|
| |
Forfeited |
|
|
|
$ |
|
|
|
|
|
| |
Outstanding at March 31, 2011 |
|
654,491 |
|
$ |
8.42 |
|
7.66 |
|
$ |
|
|
Options exercisable at March 31, 2011 |
|
414,022 |
|
$ |
9.45 |
|
6.77 |
|
$ |
|
|
Options unvested at March 31, 2011 |
|
240,469 |
|
$ |
6.65 |
|
9.18 |
|
$ |
|
|
Note 7. FAIR VALUE MEASUREMENTS
Current accounting literature defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The literature describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a Companys own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The following table summarizes the Companys assets and liabilities, if any, which were measured at fair value on a recurring basis during the period, with dollars reported in thousands:
|
|
|
|
Quoted Price in |
|
Significant |
|
|
| ||||
|
|
|
|
Active Markets |
|
Other |
|
Significant |
| ||||
|
|
|
|
for Identical |
|
Observable |
|
Unobservable |
| ||||
(unaudited) |
|
March 31, |
|
Assets |
|
Inputs |
|
Inputs |
| ||||
Description of Assets/Liabiltity |
|
2011 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
| ||||
Available-for-sale securities |
|
$ |
13,216 |
|
$ |
|
|
$ |
13,216 |
|
$ |
|
|
Available-for-sale securities are valued based upon inputs derived principally from observable market data. Changes in fair market value are recorded in other comprehensive income as the securities are available for sale.
Note 8. OTHER BORROWINGS
At March 31, 2011, the Company had a collateralized line of credit with FHLB totaling $20.6 million against which it had outstanding $4.5 million consisting of a FHLB five-year fixed rate advance at 4.38% maturing on June 27, 2013.
Note 9. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share represents income available (loss reported) to common stock divided by the weighted average number of common shares outstanding during the period reported on the Statement of Operations. Diluted earnings (loss) per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed conversion. There were no dilutive potential common shares outstanding for any periods reported on the Statement of Operations. The weighted average number of shares for the three-month periods ended March 31, 2011 and March 31, 2010 was 3,987,631.
Note 10. SEGMENT INFORMATION
The Company segregates its operations into three primary segments: The Banking Operation (Bank of Manhattan, N.A.), the Non-Bank Financial Operations (MCM) and Other, which includes the Parent Company, MBFS Financial Holding, Inc. along with the eliminations between segments. The Company determines the operating results of each segment based upon internal management systems. There are no modifications in the segmentation of the Company from the structure reported in the last annual report. Accounting policies for segments are the same as those described in Note 1. Segment performance is evaluated using operating income. Transactions among segments are made at fair value.
The following table provides a comparison between periods indicated:
|
|
Three Months ended |
|
|
|
|
| |||||
(unaudited) |
|
March 31, |
|
$ Change in |
|
% Change in |
| |||||
(Dollars in thousands) |
|
2011 |
|
2010 |
|
Contribution |
|
Contribution |
| |||
Net interest income, after loan loss provision |
|
|
|
|
|
|
|
|
| |||
Bank |
|
$ |
1,271 |
|
$ |
917 |
|
$ |
354 |
|
39 |
% |
MCM |
|
10 |
|
|
|
10 |
|
0 |
% | |||
Other |
|
|
|
|
|
|
|
0 |
% | |||
Total net interest income |
|
$ |
1,281 |
|
$ |
917 |
|
$ |
364 |
|
40 |
% |
|
|
|
|
|
|
|
|
|
| |||
Non-interest income: |
|
|
|
|
|
|
|
|
| |||
Bank |
|
$ |
335 |
|
$ |
69 |
|
$ |
266 |
|
386 |
% |
MCM |
|
1,774 |
|
1,716 |
|
58 |
|
3 |
% | |||
Other |
|
|
|
(41 |
) |
41 |
|
0 |
% | |||
Total non-interest income |
|
$ |
2,109 |
|
$ |
1,744 |
|
$ |
365 |
|
21 |
% |
|
|
|
|
|
|
|
|
|
| |||
Net revenue |
|
|
|
|
|
|
|
|
| |||
Bank |
|
$ |
1,606 |
|
$ |
986 |
|
$ |
620 |
|
63 |
% |
MCM |
|
1,784 |
|
1,716 |
|
68 |
|
4 |
% | |||
Other |
|
|
|
(41 |
) |
41 |
|
0 |
% | |||
Total net revenue |
|
$ |
3,390 |
|
$ |
2,661 |
|
$ |
729 |
|
27 |
% |
|
|
|
|
|
|
|
|
|
| |||
Segment profit (loss): |
|
|
|
|
|
|
|
|
| |||
Bank |
|
$ |
(963 |
) |
$ |
(609 |
) |
$ |
(354 |
) |
58 |
% |
MCM |
|
(313 |
) |
257 |
|
(570 |
) |
-222 |
% | |||
Other |
|
(259 |
) |
(889 |
) |
630 |
|
-71 |
% | |||
Total segment profit (loss) before taxes |
|
$ |
(1,535 |
) |
$ |
(1,241 |
) |
$ |
(294 |
) |
24 |
% |
|
|
|
|
|
|
|
|
|
| |||
Segment assets: |
|
|
|
|
|
|
|
|
| |||
Bank |
|
$ |
143,858 |
|
$ |
132,952 |
|
$ |
10,906 |
|
8 |
% |
MCM |
|
2,184 |
|
2,565 |
|
(381 |
) |
-15 |
% | |||
Other |
|
(83 |
) |
(1,157 |
) |
1,074 |
|
-93 |
% | |||
Total segment assets |
|
$ |
145,959 |
|
$ |
134,360 |
|
$ |
11,599 |
|
9 |
% |
Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Manhattan Bancorp and its subsidiaries (collectively, the Company) intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these provisions. All statements other than statements of historical fact are forward-looking statements for purposes of Federal and state securities laws. Words such as will likely result, aims, anticipates, believes, could, estimates, expects, hopes, intends, may, plans, projects, seeks, should, will, and variations of these words and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are based on the Companys current expectations and assumptions regarding its business, the regulatory environment, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. The Companys actual results may differ materially from those contemplated by the forward-looking statements. The Company cautions you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the following: the impact of changes in interest rates; continuing uncertain economic conditions; continued competition among financial service providers; the Companys ability to attract deposit and loan customers; the quality of the Companys earning assets; government regulation; and managements ability to manage the Companys operations. For further discussion of these and other risk factors, see Item 1A. Risk Factors in the Companys Annual Report on Form 10-K for the year ended December 31, 2010.
Forward-looking statements speak only as of the date they are made, and the Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, whether as a result of new information, future developments or otherwise, except as may be required by law.
General
Manhattan Bancorp, a California corporation (Bancorp) was incorporated in August 2006. Bancorp has one banking subsidiary, Bank of Manhattan, N.A. (the Bank). The Bank is a nationally-chartered banking association organized under the laws of the United States, which commenced its banking operations on August 15, 2007. Bancorp operates primarily through the Bank, and the investment in the Bank is its principal asset. The Bank is located in El Segundo, California and at March 31, 2011 had $144 million in assets, $84 million in net loans receivable and $123 million in deposits.
On October 1, 2009, Bancorp, through its wholly-owned subsidiary, MBFS Holdings, Inc. (MBFS), acquired a 70% interest in BOM Capital, LLC (formerly Bodi Capital LLC) (BOMC), a full-service mortgage-centric broker/dealer. On November 30, 2010, a recapitalization and restructuring was completed whereby a newly-formed limited liability company, Manhattan Capital Markets LLC (MCM), acquired 100% of BOMC in a multi-step transaction. MBFS holds a 70% interest in MCM. MCM is located in Calabasas, California and at March 31, 2011 had $2 million in assets primarily in cash or cash equivalent balances. References throughout the remainder of this Quarterly Report on Form 10-Q to MCM shall be deemed to include BOMC and MCMs other direct and indirect subsidiaries.
Bancorp is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended, and is subject to examination and regulation by the Federal Reserve Board (the FRB). The Bank is subject to supervision, examination and regulation by the Office of the Comptroller of Currency (the OCC). As a nationally chartered financial institution, the Bank is a Federal Reserve Bank member. The Banks deposits are insured by the Federal Deposit Insurance Corporation (the FDIC) up to the maximum limits thereof.
Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the Company, we or us refers to Bancorp and its consolidated subsidiaries, the Bank and MBFS, and its subsidiary, MCM.
Managements discussion and analysis of financial condition and results of operation is intended to provide a better understanding of the significant changes in trends relating to the Companys financial condition, results of operation, liquidity and interest rate sensitivity. The following discussion and analysis should be read in conjunction with the unaudited financial statements contained within this report including the notes thereto.
Earnings and Financial Condition Overview
The Company recorded a net loss of $1.5 million (including the loss from the minority interest of $94 thousand) or $0.36 basic and fully-diluted loss per share of common stock for the shareholders of the Company for the three-month period ended March 31, 2011. This compares with a net loss of $1.2 million or $0.33 basic and fully-diluted loss per share of common stock for the three-month period ended March 31, 2010. The per-share values are based upon the loss attributable to the shareholders of the Bancorp and the related shares outstanding. Comparing the Companys prior years first quarter loss with the current quarter reflects an approximate increase of 24% in the reported quarterly losses. The first quarter loss for 2011 is due to a combination of both positive and negative trends.
The loss was favorably affected by:
· The reduction in the amount of the loan provision needed to cover reductions in the loan loss allowance due to charge-offs;
· The recognition of fee income from the Companys entrance into mortgage lending; and
· The reduction in consulting cost associated with executive management transition.
These benefits were offset by the following:
· The costs associated with the expansion of the operations of the MCM group, which affected Compensation and Benefit, Technology and Communications and Occupancy and Equipment; and
· The cost associated with the entrance of the Company into the mortgage lending business, which was principally in Compensation and Benefits.
The increase in the net interest income net of provisions for loan losses for the quarter ended March 31, 2011 as compared to the quarter ended March 31, 2010 was sufficient to counter much of the effect of the increase in net non-interest expense over the same periods.
The following provides a summary of operating results for the quarter ended March 31, 2011 as compared to the operating results for the quarter ended March 31, 2010:
· Interest income for the quarter ended March 31, 2011 was approximately $1.5 million, which represents a decrease of approximately $78 thousand or 5.0% compared to $1.6 million for the quarter ended March 31, 2010. While overall yields on earning assets between comparable periods were essentially the same, the reduction in the volume of the average total interest-earning assets is reflected in the recorded decrease.
· Interest expense for the quarter ended March 31, 2011 was approximately $217 thousand, which represents a decrease of approximately $72 thousand or 24.9%. This decrease in interest expense was achieved both by the decrease in the average outstanding balances in interest-bearing liabilities and the reduction of the effective costs of interest-bearing liabilities. The average outstanding balances in interest-bearing liabilities declined by $9.1 million or 11.6% between the first quarterly periods of 2011 and 2010. The effective interest cost declined by 23 basis points from 1.49% for the quarter ended March 31, 2010 to 1.26% for the quarter ended March 31, 2011.
· As a result of the items mentioned above, net interest income totaled approximately $1.3 million for the quarter ended March 31, 2011, which is approximately the same as the net interest income reported for the quarter ended March 31, 2010. The net interest margin reflects improvement between the quarters ended March 31, 2011 and March 31, 2010 with a 15 basis point increase from 3.99% to 4.14%. For a more detailed discussion regarding net interest income, please see Net-Interest Income below.
· For the quarter ended March 31, 2011, non-interest income totaled approximately $2.1 million, an increase of $365 thousand from the quarter ending March 31, 2010. This 20.9% increase is primarily the result of the Companys entrance into the mortgage lending business. For a more detailed discussion regarding non-interest income, please see Non-interest Income below.
· Non-interest expenses for the quarter ended March 31, 2011 was approximately $4.9 million, a net increase of $1.0 million from the quarter ended March 31, 2010. Most of the 26.2% increase is the result of an increase in Compensation and Benefits, which represents approximately 94.1% of the net growth in non-interest expenses quarter over quarter. For a more detailed discussion regarding non-interest expenses, please see Non-interest Expenses below.
The following provides a summary of significant quarterly changes in the financial condition of the Company as of March 31, 2011 compared to December 31, 2010:
· The balance in Cash and cash equivalents totaled $40.8 million at March 31, 2011, approximately $1.7 million higher than the balances reflected at December 31, 2010. Cash balances required to compensate for services increased during the quarter and are reflected in the $1.0 million increase.
The level of balances in Fed funds sold/interest-bearing demand funds reflect the volatility of certain large customer relationship and the increasing potential to fund the expansion in mortgage lending held-for-sale products. For a more detailed discussion regarding the sources of funds, please see Deposits and Borrowed Funds below.
· With the introduction of the Banks mortgage division, the December 31, 2010 balance sheet reflects approximately $3.5 million in loans held for sale. The March 31, 2011 balance sheet reflects an increase of $1.6 million to $5.1 million of loans held for sale.
· Gross loans not held for sale totaled approximately $80.9 million at March 31, 2011 or 9.3% lower than that reported at December 31, 2010. For a more detailed discussion regarding the net reduction in loans, please see Loans below.
· The Company has had no non-performing loans from its inception to March 31, 2011, although loans which were performing were charged-off when the full collectability became doubtful, prior to any default by the borrowers. The Companys allowance for loan losses was approximately $1.9 million or 2.33% of gross loans excluding loans held for sale at March 31, 2011 compared to approximately $1.9 million or 2.10% of gross loans excluding loans held for sale at December 31, 2010. For a more detailed discussion, please see Non-Performing Assets, Provision for Loan Losses, and Allowance for Loan Losses below.
· Total deposits were approximately $116.7 million at March 31, 2011, approximately 4.6% lower than that reported at December 31, 2010. There were short-term local funds included in the December 31, 2010 balances, particularly in the non-interest-bearing demand category. The same is true as of March 31, 2011. For a more detailed discussion regarding the sources of funds, please see Deposits and Borrowed Funds below.
· Shareholders equity totaled approximately $22.8 million at March 31, 2011, representing a decrease of approximately 6.1% over that reported at December 31, 2010.
The following table provides selected financial data that highlights the Companys financial performance for each of the last six full quarters. Dollars are in thousands, except per share amounts.
|
|
For the three months ended |
| ||||||||||||||||
|
|
3/31/2011 |
|
12/31/2010 |
|
9/30/2010 |
|
6/30/2010 |
|
3/31/2010 |
|
12/31/2009 |
| ||||||
Statements of Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest income |
|
$ |
1,498 |
|
$ |
1,639 |
|
$ |
1,644 |
|
$ |
1,659 |
|
$ |
1,576 |
|
$ |
1,338 |
|
Interest expense |
|
217 |
|
228 |
|
242 |
|
243 |
|
289 |
|
251 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net interest income |
|
1,281 |
|
1,411 |
|
1,402 |
|
1,416 |
|
1,287 |
|
1,087 |
| ||||||
Provision for loan losses |
|
|
|
|
|
150 |
|
207 |
|
370 |
|
84 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net interest income after provision |
|
1,281 |
|
1,411 |
|
1,252 |
|
1,209 |
|
917 |
|
1,003 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Non-interest income |
|
2,109 |
|
1,878 |
|
2,480 |
|
1,646 |
|
1,744 |
|
921 |
| ||||||
Non-interest expense |
|
4,930 |
|
4,603 |
|
4,596 |
|
4,129 |
|
3,902 |
|
3,009 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net loss from operations excluding minority interest |
|
$ |
(1,446 |
) |
$ |
(1,206 |
) |
$ |
(876 |
) |
$ |
(1,210 |
) |
$ |
(1,318 |
) |
$ |
(1,076 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Per Share and Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic and diluted loss per share |
|
$ |
(0.36 |
) |
$ |
(0.30 |
) |
$ |
(0.22 |
) |
$ |
(0.30 |
) |
$ |
(0.33 |
) |
$ |
(0.27 |
) |
Book value per common share- period end |
|
$ |
5.70 |
|
$ |
6.05 |
|
$ |
6.35 |
|
$ |
6.49 |
|
$ |
6.75 |
|
$ |
7.05 |
|
Weighted average shares outstanding basic and diluted |
|
3,988 |
|
3,988 |
|
3,988 |
|
3,988 |
|
3,988 |
|
3,988 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Investments and fed funds sold |
|
$ |
54,304 |
|
$ |
55,491 |
|
$ |
46,215 |
|
$ |
27,735 |
|
$ |
43,288 |
|
$ |
67,558 |
|
Loans, net |
|
$ |
84,124 |
|
$ |
90,872 |
|
$ |
81,478 |
|
$ |
84,574 |
|
$ |
83,870 |
|
$ |
78,914 |
|
Assets |
|
$ |
145,959 |
|
$ |
152,948 |
|
$ |
134,608 |
|
$ |
119,161 |
|
$ |
134,360 |
|
$ |
152,315 |
|
Deposits |
|
$ |
116,656 |
|
$ |
122,245 |
|
$ |
102,158 |
|
$ |
86,706 |
|
$ |
101,021 |
|
$ |
110,920 |
|
Shareholders equity |
|
$ |
22,840 |
|
$ |
24,127 |
|
$ |
25,644 |
|
$ |
25,876 |
|
$ |
26,916 |
|
$ |
28,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Selected Financial Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net loss as a percentage of average assets |
|
-4.46 |
% |
-3.73 |
% |
-2.65 |
% |
-3.74 |
% |
-3.90 |
% |
-3.57 |
% | ||||||
Net loss as a percentage of average equity |
|
-25.15 |
% |
-19.00 |
% |
-13.45 |
% |
-18.03 |
% |
-19.16 |
% |
-14.79 |
% | ||||||
Dividend payout ratio |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Equity to asset ratio |
|
15.65 |
% |
15.91 |
% |
19.05 |
% |
21.97 |
% |
20.31 |
% |
18.65 |
% | ||||||
Net interest margin |
|
4.14 |
% |
4.59 |
% |
4.46 |
% |
4.84 |
% |
3.99 |
% |
3.79 |
% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Credit Quality |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Allowance for loan losses |
|
$ |
1,882 |
|
$ |
1,877 |
|
$ |
1,863 |
|
$ |
1,693 |
|
$ |
1,484 |
|
$ |
1,202 |
|
Allowance /total loans |
|
2.33 |
% |
2.10 |
% |
2.24 |
% |
1.96 |
% |
1.74 |
% |
1.50 |
% | ||||||
Non-performing loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Net (recoveries) charge-offs |
|
$ |
5 |
|
$ |
52 |
|
$ |
(20 |
) |
$ |
(1 |
) |
$ |
88 |
|
$ |
(24 |
) |
RESULTS OF OPERATIONS
Net Interest Income
The Companys ability to produce earnings is directly tied to its net interest income, which is the difference between the income we earn on interest-bearing assets, such as loans and other interest-earning assets, and the interest we pay on deposits and borrowed funds. Net interest income is related to (i) the relative amounts of interest-earning assets and liabilities and (ii) the interest rates earned and paid on these balances. Total interest income can fluctuate based upon the mix of earning assets amongst loans, investments and federal funds sold and the related rates associated with their balances. Some of the funding sources for these assets also have an interest cost which can fluctuate based upon the mix of interest-bearing liabilities and the related rates associated with their balances. The net number between interest income and interest expense is called net interest income and is often expressed as interest rate spread and net interest margin.
The interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities. The interest rate spread increased from 3.40% for the three-month period ended March 31, 2010 to 3.59% for the three-month period ended March 31, 2011, due primarily to the decline in effective interest rates associated with interest-bearing liabilities.
Net interest margin is net interest income expressed as a percentage of average total interest-earning assets, allowing the sources of funding as factors in the calculation. While the interest rate spread increased by 19 basis points, net interest margin increased by only 15 basis points. The percentage of average interest-bearing liabilities to average interest earning assets decreased from 60.3% to 55.6% for the three-month periods ended March 31, 2010 and 2011, respectively.
Net interest margin is affected by changes in the yields earned on assets and rates paid on liabilities, referred to as rate changes, and changes in the relative amounts of interest-earning assets and interest- bearing liabilities, referred to as volume changes. Interest rates earned and paid are affected principally by our competition, general economic conditions and other factors beyond the Companys control, such as federal economic policies, the general supply of money in the economy, legislative tax policies, governmental budgetary matters and the actions of the FRB.
The following table sets forth interest income, interest expense, net interest income before provision for loan losses and net interest margin for the periods presented:
|
|
Three Months Ended |
| ||||||
|
|
March 31, |
|
Percent |
| ||||
|
|
2011 |
|
2010 |
|
Change |
| ||
|
|
(Dollars in thousands) |
| ||||||
Interest income |
|
$ |
1,498 |
|
$ |
1,576 |
|
-4.95 |
% |
Interest expense |
|
217 |
|
289 |
|
-24.91 |
% | ||
Net interest income before provision for loan losses |
|
$ |
1,281 |
|
$ |
1,287 |
|
-0.47 |
% |
Net interest margin |
|
4.14 |
% |
3.99 |
% |
3.76 |
% |
The following table presents the weighted average yield on each specified category of interest-earning assets, the weighted average rate paid on each specified category of interest-bearing liabilities, the resulting interest rate spread, and the net interest margin for the periods indicated:
ANALYSIS OF NET INTEREST INCOME
|
|
Three months ended March 31, |
| ||||||||||||||
|
|
2011 |
|
2010 |
| ||||||||||||
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
| ||||
|
|
|
|
Interest |
|
Average |
|
|
|
Interest |
|
Average |
| ||||
|
|
Average |
|
Income/ |
|
Rate |
|
Average |
|
Income/ |
|
Rate |
| ||||
|
|
Balance |
|
Expense |
|
Earned/Paid |
|
Balance |
|
Expense |
|
Earned/Paid |
| ||||
|
|
(Dollars in thousands) |
| ||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Federal funds sold |
|
$ |
28,768 |
|
$ |
17 |
|
0.24 |
% |
$ |
27,077 |
|
$ |
16 |
|
0.24 |
% |
Deposits with other financial institutions |
|
3,223 |
|
19 |
|
2.39 |
% |
2,876 |
|
11 |
|
1.55 |
% | ||||
Investments |
|
14,707 |
|
190 |
|
5.24 |
% |
20,207 |
|
300 |
|
6.02 |
% | ||||
Loans(1) |
|
78,673 |
|
1,272 |
|
6.56 |
% |
80,579 |
|
1,249 |
|
6.29 |
% | ||||
Total interest-earning assets |
|
125,371 |
|
1,498 |
|
4.85 |
% |
130,739 |
|
1,576 |
|
4.89 |
% | ||||
Non-interest-earning assets |
|
6,251 |
|
|
|
|
|
6,353 |
|
|
|
|
| ||||
Total assets |
|
$ |
131,622 |
|
|
|
|
|
$ |
137,092 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand |
|
$ |
2,706 |
|
1 |
|
0.10 |
% |
$ |
2,570 |
|
1 |
|
0.10 |
% | ||
Savings and money market |
|
25,820 |
|
43 |
|
0.68 |
% |
24,825 |
|
65 |
|
1.06 |
% | ||||
Certificates of deposit |
|
36,637 |
|
124 |
|
1.37 |
% |
46,643 |
|
174 |
|
1.51 |
% | ||||
FHLB advances |
|
4,500 |
|
49 |
|
4.36 |
% |
4,750 |
|
49 |
|
4.13 |
% | ||||
Total interest-bearing liabilities |
|
69,663 |
|
217 |
|
1.26 |
% |
78,788 |
|
289 |
|
1.49 |
% | ||||
Non-interest-bearing demand deposits |
|
37,351 |
|
|
|
|
|
29,252 |
|
|
|
|
| ||||
Total funding sources |
|
107,014 |
|
|
|
0.82 |
% |
108,040 |
|
|
|
1.08 |
% | ||||
Non-interest-bearing liabilities |
|
1,295 |
|
|
|
|
|
1,154 |
|
|
|
|
| ||||
Shareholders equity |
|
23,313 |
|
|
|
|
|
27,898 |
|
|
|
|
| ||||
Total liabilities and shareholders equity |
|
$ |
131,622 |
|
|
|
|
|
$ |
137,092 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Excess of interest-earning assets over funding sources |
|
$ |
18,357 |
|
|
|
|
|
$ |
22,699 |
|
|
|
|
| ||
Net interest income |
|
|
|
$ |
1,281 |
|
|
|
|
|
$ |
1,287 |
|
|
| ||
Net interest rate spread |
|
|
|
|
|
3.59 |
% |
|
|
|
|
3.40 |
% | ||||
Net interest margin |
|
|
|
|
|
4.14 |
% |
|
|
|
|
3.99 |
% |
(1) The average balance of loans is calculated net of deferred loan fees/cost, but would include non-accrual loans, if any, with a zero yield. Loan fees net of amortized costs included in total net income were approximately $25 thousand for the three-month period ended March 31, 2011. Loan fees net of amortized costs included in total net income were approximately $21 thousand for the three-month period ended March 31, 2010.
The table below sets forth changes for the three-month periods ended March 31, 2011 and March 31, 2010 for average interest-earning assets, average interest-bearing liabilities, and their respective rates:
|
|
VARIANCE IN BALANCES AND RATES |
|
|
|
|
| |||||||||||
|
|
Average Balance for the three months ended |
|
Variance |
|
Average Yield/Rate |
|
|
| |||||||||
(dollars in thousands) |
|
2011 |
|
2010 |
|
dollar |
|
percent |
|
2011 |
|
2010 |
|
Variance |
| |||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Federal funds sold |
|
$ |
28,768 |
|
$ |
27,077 |
|
$ |
1,691 |
|
6.25 |
% |
0.24 |
% |
0.24 |
% |
0.00 |
% |
Deposits with other financial institutions |
|
3,223 |
|
2,876 |
|
347 |
|
12.07 |
% |
2.39 |
% |
1.55 |
% |
0.84 |
% | |||
Investments |
|
14,707 |
|
20,207 |
|
(5,500 |
) |
-27.22 |
% |
5.24 |
% |
6.02 |
% |
-0.78 |
% | |||
Loans |
|
78,673 |
|
80,579 |
|
(1,906 |
) |
-2.37 |
% |
6.56 |
% |
6.29 |
% |
0.27 |
% | |||
Total interest-earning assets |
|
$ |
125,371 |
|
$ |
130,739 |
|
$ |
(5,368 |
) |
-4.11 |
% |
4.85 |
% |
4.89 |
% |
-0.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Interest-bearing demand |
|
$ |
2,706 |
|
$ |
2,570 |
|
$ |
136 |
|
5.29 |
% |
0.10 |
% |
0.10 |
% |
0.00 |
% |
Savings and money market |
|
25,820 |
|
24,825 |
|
995 |
|
4.01 |
% |
0.68 |
% |
1.06 |
% |
-0.38 |
% | |||
Certificates of deposit |
|
36,637 |
|
46,643 |
|
(10,006 |
) |
-21.45 |
% |
1.37 |
% |
1.51 |
% |
-0.14 |
% | |||
FHLB advances |
|
4,500 |
|
4,750 |
|
(250 |
) |
-5.26 |
% |
4.36 |
% |
4.13 |
% |
0.23 |
% | |||
Total interest-bearing liabilities |
|
$ |
69,663 |
|
$ |
78,788 |
|
$ |
(9,125 |
) |
-11.58 |
% |
1.26 |
% |
1.49 |
% |
-0.22 |
% |
A volume and rate variance table is provided below, which sets forth the dollar differences in interest earned and paid for each major category of interest-earning assets and interest-bearing liabilities for the three-month periods ended March 31, 2011 and March 31, 2010:
|
|
For the three months ended |
| |||||||
|
|
Volume |
|
Rate |
|
Total |
| |||
Interest income: |
|
|
|
|
|
|
| |||
Federal funds sold |
|
$ |
1 |
|
$ |
|
|
$ |
1 |
|
Deposits with other financial institutions |
|
1 |
|
7 |
|
8 |
| |||
Investments |
|
(82 |
) |
(28 |
) |
(110 |
) | |||
Loans |
|
(30 |
) |
53 |
|
23 |
| |||
Net increase (decrease) |
|
(110 |
) |
32 |
|
(78 |
) | |||
|
|
|
|
|
|
|
| |||
Interest expense: |
|
|
|
|
|
|
| |||
Interest bearing demand |
|
|
|
|
|
|
| |||
Savings and money market |
|
3 |
|
(25 |
) |
(22 |
) | |||
Certificates of deposit |
|
(37 |
) |
(13 |
) |
(50 |
) | |||
FHLB advances |
|
(3 |
) |
3 |
|
|
| |||
Net increase (decrease) |
|
(37 |
) |
(35 |
) |
(72 |
) | |||
Total net increase (decrease) |
|
$ |
(73 |
) |
$ |
67 |
|
$ |
(6 |
) |
A review of the above tables shows that the overall decrease in net interest income is approximately $6 thousand between the two quarters ended at March 31, 2011 and March 31, 2010. The decline in interest income was substantially matched by a decline in interest expense.
Among the factors affecting the modest decrease in net interest income is the overall reduction in earning assets, down approximately $5.4 million or 4.1% between March 31, 2011 and March 31, 2010.
This decrease was primarily a result of the reduction in average investments, down approximately $5.5 million, with the negative volume variance of approximately $82 thousand augmented by the negative rate variance of approximately $28 thousand. The overall effective yield also declined by 78 basis points between the three-month periods ended March 31, 2011 and March 31, 2010.
While the percentage of average loan dollars outstanding, as a percentage of interest-earning assets, improved slightly from 61.6% as of March 31, 2010 to 62.8% as of March 31, 2011, the actual average volume outstanding declined by $1.9 million with the negative volume variance of approximately $30 thousand softening the positive rate variance of $53 thousand. The overall yield on outstanding loans increased from 6.29% for the three-month period ended March 31, 2010 to 6.56% for the three-month period ended March 31, 2011.
Interest expense decreased by $72 thousand, as a result of decreases in balances outstanding on interest-bearing liabilities and by the savings available on the repricing associated with the overall declining market rates.
The decrease in interest expense due to the change in outstanding average interest-bearing liabilities was $37 thousand with average outstanding interest-bearing balances for the three-month period ended March 31, 2010 of approximately $78.8 million declining to $69.7 million for the three-month period ended March 31, 2011. Most of the decrease in average outstanding interest-bearing liabilities is attributable to reduction in non-wholesale deposits. The benefit from rate reduction was most noticeable in the Savings and Money Market category with $25 thousand of the total $35 thousand rate variable reflected there with the effective cost falling from 1.51% for the three-month period ended March 31, 2010 to 1.37% for the three-month period ended March 31, 2011 For additional information regarding the Companys funding sources, see Deposits and Borrow Fund.
Provision for Loan Losses
The Company made provisions for loan losses of $370 thousand for the three-month period ended March 31, 2010. There was no provision made for the three-month period ended March 31, 2011. These provisions were determined based upon the periodic credit review of the loan portfolio, consideration of past loan loss experience, current and predicted economic conditions, and other pertinent factors. For further analysis of the adequacy of the loan loss reserve, see Asset Quality and Allowance for Loan Losses.
Non-Interest Income
The following table reflects the major components of the Companys non-interest income (dollars in thousands):
|
|
For the three months ended |
|
|
|
|
| |||||
|
|
March 31, |
|
Variance |
| |||||||
(dollars in thousands) |
|
2011 |
|
2010 |
|
Dollars |
|
Percent |
| |||
Service charges on deposit accounts |
|
$ |
34 |
|
$ |
30 |
|
$ |
4 |
|
13.33 |
% |
Other bank fees |
|
17 |
|
39 |
|
(22 |
) |
-56.41 |
% | |||
Mortgage-related fees |
|
284 |
|
|
|
284 |
|
0.00 |
% | |||
Riskless trading income |
|
1,160 |
|
987 |
|
173 |
|
17.53 |
% | |||
Whole loan sales |
|
562 |
|
258 |
|
304 |
|
117.83 |
% | |||
Advisory income |
|
52 |
|
430 |
|
(378 |
) |
-87.91 |
% | |||
Total non-interest income |
|
$ |
2,109 |
|
$ |
1,744 |
|
$ |
365 |
|
20.93 |
% |
Non-interest income for the three-month period ended March 31, 2010 consists of fees from two sources, the Bank and MCM.
Bank-related fee income includes Service charges on deposit account, Other bank fees and Mortgage-related fees. During the first quarter of 2010, the Company benefitted from a gain on sale of securities of approximately $20 thousand included in Other bank fees. There was no similar activity during the first quarter of 2011. The reported mortgage-related income generated during the first quarter of 2011 of $284 thousand has no comparable amount for the first quarter of 2010 as the Company had not yet commenced with the product.
Non-Bank related income totaled approximately $1.8 million for the first quarter of 2011 and was generated by MCM. The comparable number for the first quarter of 2010 is approximately $1.7 million.
The revenue from MCM came from three sources. The primary source is riskless trading. MCM also generated income from facilitating trades in whole loans between institutional clients. A third source of revenue came from advisory services regarding evaluation and packaging of other institutions bond portfolios.
Non-Interest Expense
The following table lists the major components of the Companys non-interest expense (dollars in thousands):
|
|
For the |
|
For the |
|
|
|
|
| |||
|
|
Year Ended |
|
Year Ended |
|
Variances |
| |||||
|
|
March 31 , 2011 |
|
March 31 , 2010 |
|
dollars |
|
percentage |
| |||
Compensation and benefits |
|
$ |
3,538 |
|
$ |
2,575 |
|
$ |
963 |
|
37.4 |
% |
Data processing |
|
349 |
|
233 |
|
116 |
|
49.8 |
% | |||
Occupancy and equipment |
|
300 |
|
273 |
|
27 |
|
9.9 |
% | |||
Legal services |
|
92 |
|
89 |
|
3 |
|
3.4 |
% | |||
Marketing and business development |
|
107 |
|
71 |
|
36 |
|
50.7 |
% | |||
Regulatory assessments |
|
70 |
|
100 |
|
(30 |
) |
-30.0 |
% | |||
Communication |
|
65 |
|
41 |
|
24 |
|
58.5 |
% | |||
Audits and examination |
|
103 |
|
72 |
|
31 |
|
43.1 |
% | |||
Recruiting fees |
|
4 |
|
116 |
|
(112 |
) |
-96.6 |
% | |||
Consulting fees |
|
20 |
|
63 |
|
(43 |
) |
-68.3 |
% | |||
Administrative expenses |
|
58 |
|
14 |
|
44 |
|
314.3 |
% | |||
Director fees |
|
61 |
|
59 |
|
2 |
|
3.4 |
% | |||
Other professional services |
|
46 |
|
132 |
|
(86 |
) |
-65.2 |
% | |||
Postage and Supplies |
|
43 |
|
21 |
|
22 |
|
104.8 |
% | |||
Other non-interest expenses |
|
69 |
|
43 |
|
26 |
|
60.5 |
% | |||
Total non-interest expenses |
|
$ |
4,925 |
|
$ |
3,902 |
|
$ |
1,023 |
|
26.2 |
% |
Compensation and Benefits
Compensation and Benefits represent the largest of the Companys non-interest expense categories, totaling $3.5 million for the three-months ended March 31, 2011, as compared to $2.6 million for the three-months ended March 31, 2010, and represent approximately 72% of the $4.9 million of total non-interest expense for the three-months ended March 31, 2011. Expenses in this category were significantly affected by the growth in the Company-wide employee base.
|
|
(dollars in thousands) |
| |||||||||
|
|
Three-month period ended |
|
Variance |
| |||||||
Operating Entities |
|
March 31, 2011 |
|
March 31, 2010 |
|
$ |
|
% |
| |||
MCM |
|
$ |
1,553 |
|
$ |
1,023 |
|
$ |
530 |
|
51.81 |
% |
Bancorp |
|
108 |
|
638 |
|
(530 |
) |
-83.07 |
% | |||
Bank including Mortage Division |
|
1,877 |
|
914 |
|
963 |
|
105.36 |
% | |||
Total |
|
$ |
3,538 |
|
$ |
2,575 |
|
$ |
963 |
|
37.40 |
% |
|
|
Three-month period ended |
|
Variance |
| ||||
Operating Entities (# of Employees - End of Period) |
|
March 31, 2011 |
|
March 31, 2010 |
|
# |
|
% |
|
MCM |
|
24 |
|
18 |
|
6 |
|
33.33 |
% |
Bancorp |
|
3 |
|
5 |
|
-2 |
|
-40.00 |
% |
Bank including Mortage Division |
|
56 |
|
27 |
|
29 |
|
107.41 |
% |
Total |
|
83 |
|
50 |
|
33 |
|
66.00 |
% |
The increase in compensation expense related to MCM and its subsidiaries for the three-month periods ending March 31, 2011 and 2010 represents approximately $530 thousand or 55.0% of the total increase in total Compensation and Benefits. While the number of employees increased by approximately 33% between comparable quarterly periods, much of the increase is associated with increased commissions related to increasing sales activity.
The compensation expense related to Bancorp for the comparable three-month periods ended March 31, 2011 and 2010 declined by approximately $530 thousand, or 55%, as the result of several factors. The most significant individual factor is the compensation cost associated with the efforts to commence mortgage lending activity, which were recorded by the Bancorp until the Bank was eligible to enter into this activity. The cost of this activity was approximately $256 thousand for the first quarter ended March 31, 2010 and a similar expense is not found in the first quarter ended March 31, 2011. Other factors are the reduction in compensation related to other executive activities at the Bancorp level and related stock option expense costs of approximately $150 thousand.
The compensation expense related to the Bank for the comparable three-month periods ending March 31, 2011 and 2010 increased by approximately $963 thousand, or 105.3%, and represents approximately 100% of the increase in total Compensation and Benefits for the three-month periods ending March 31, 2011 and 2010 The savings noted at the Bancorp level above were offset by the increase in costs at MCM, resulting in any remaining Company increase fully associated with the Bank. Of the several factors associated with this significant increase between the two first-quarter periods is the entrance of the Bank into the retail mortgage business, where the number of employees at the Bank level increased from zero as of March 31, 2010 to twenty as of March 31, 2011. The associated costs for the first quarter of 2011 are approximately $537 thousand or 55.8% of the noted increase. The remainder of the increase is related to the fully-loaded associated expense of the staff expansion of the non-mortgage Bank.
Data Processing
Expenses related to the data processing needs of the Company increased from approximately $233 thousand for the three-month period ended March 31, 2010 to approximately $349 thousand for the three-month period ended March 31, 2011, an increase of 49.8%.
The increase noted in Data Processing of approximately $116 thousand is related primarily to the increased cost at MCM of approximately $78 thousand, with the non-mortgage division of the Bank incurring approximately $22 thousand and the mortgage division accounting for the remaining $16 thousand. Substantially all increases are associated with increased business volume.
Administrative Expenses
Approximately 83% of the increase of $44 thousand in Administrative Expenses are miscellaneous administrative fees associated with MCM.
Recruiting Fees
During the first quarter of 2010, the Company engaged professional recruiting firms to assist in the selection of people for key positions within the organization. There was no corresponding expenditure during the first quarter of 2011.
Consulting Fees
During the first quarter of 2010, the Company engaged consultants to assist in the transition in executive management, and to augment systems and controls at MCM. There was no corresponding expenditure during the first quarter of 2011.
Other Professional Services
During the first quarter of 2010, MCM engaged the services of accountants and other professionals to augment their existing staff accounting for approximately $70 thousand. Similar services were not required during the first quarter of 2011.
FINANCIAL CONDITION
The Companys decrease in total assets to $146.0 million as of March 31, 2011 represents a 4.6% decline, or approximately $7.0 million, from total assets of $152.9 million as of December 31, 2010. The decline is principally the result of reductions in loans not held for sale, which decreased from $89.2 million as of December 31, 2010 to $80.9 million as of March 31, 2011.
Investments
Total investments decreased by approximately $1.7 million from $15.4 million as of December 31, 2010 to $13.7 million as of March 31, 2011. The following schedule provides an overview of the types of investments on the Companys books at the date noted and at their carrying value in thousands of dollars:
|
|
March 31, 2011 |
|
December 31, 2010 |
| ||||||
|
|
Amount |
|
Percentage of |
|
Amount |
|
Percentage of |
| ||
(dollars in thousands) |
|
Outstanding |
|
Total |
|
Outstanding |
|
Total |
| ||
Municipal obligations |
|
$ |
498 |
|
3.6 |
% |
$ |
498 |
|
3.2 |
% |
Non-mortgage-backed US Government Agency obligations |
|
1,455 |
|
10.6 |
% |
1,449 |
|
9.4 |
% | ||
Mortgage-backed securities |
|
4,136 |
|
30.2 |
% |
4,585 |
|
29.8 |
% | ||
Asset-backed securities |
|
7,625 |
|
55.6 |
% |
8,842 |
|
57.5 |
% | ||
Total investments |
|
$ |
13,714 |
|
100.0 |
% |
$ |
15,374 |
|
100.0 |
% |
The expected weighted life of the Companys investment portfolio is approximately four and a half years. Additional information regarding the composition, maturities, and yields of the security portfolio as of March 31, 2011 is found in Note 4 of the Companys financial statements included within this report.
Loans
Total gross loans not held for sale as of March 31, 2011 were $80.9 million, a decrease of approximately $8.3 million from $89.2 million at December 31, 2010. Outstanding loan balances decreased in all but the non-construction category, with the largest monetary decline occurring in real estate construction loans, where the total decreased by approximately $6.0 million or 68.6%. The Company experienced unusually high levels of early pay-offs along with reduced new loan production.
The table below sets forth the changes from December 31, 2010 to March 31, 2011 in the composition of the loan portfolio:
|
|
(Dollars in Thousands) |
|
(Dollars in Thousands) |
| ||||||
Commercial loans |
|
$ |
25,636 |
|
31.6 |
% |
$ |
28,662 |
|
32.0 |
% |
Real estate loans |
|
44,668 |
|
55.1 |
% |
43,682 |
|
48.8 |
% | ||
Real estate - construction |
|
2,749 |
|
3.4 |
% |
8,753 |
|
9.8 |
% | ||
Other loans |
|
8,049 |
|
9.9 |
% |
8,333 |
|
9.3 |
% | ||
Total Loans |
|
81,102 |
|
100.0 |
% |
89,430 |
|
100.0 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Add: Purchase Premium |
|
17 |
|
|
|
19 |
|
|
| ||
Add: Unamortized Costs |
|
90 |
|
|
|
96 |
|
|
| ||
Less: Purchase Discount |
|
(125 |
) |
|
|
(127 |
) |
|
| ||
Less: Deferred Fees |
|
(178 |
) |
|
|
(182 |
) |
|
| ||
Less - Allowance for loan losses |
|
(1,882 |
) |
|
|
(1,877 |
) |
|
| ||
Net loans |
|
79,024 |
|
|
|
87,359 |
|
|
|
Of the Banks total loans outstanding as of March 31, 2011, 27.7% were due in one year or less, 23.4% were due in one to five years, and 48.9% were due after five years. As is customary in the banking industry, loans can be renewed by mutual agreement between the borrower and the Bank. Because we are unable to accurately estimate the extent to which our borrowers will renew their loans, the following table is based on contractual maturities, reflecting gross outstanding loans without consideration of purchase premium, deferred fees or deferred costs:
Loan Maturity Schedule as of March 31, 2011
|
|
|
|
Maturing |
|
|
|
|
| ||||
|
|
Within One |
|
One to Five |
|
After Five |
|
|
| ||||
|
|
Year |
|
Years |
|
Year |
|
Total |
| ||||
|
|
(Dollars in thousands) |
| ||||||||||
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
$ |
17,144 |
|
$ |
6,448 |
|
$ |
2,044 |
|
$ |
25,636 |
|
Real Estate |
|
|
|
12,038 |
|
32,631 |
|
44,669 |
| ||||
Real Estate-Construction |
|
2,748 |
|
|
|
|
|
2,748 |
| ||||
Other Loans |
|
2,621 |
|
481 |
|
4,947 |
|
8,049 |
| ||||
Total |
|
$ |
22,513 |
|
$ |
18,967 |
|
$ |
39,622 |
|
$ |
81,102 |
|
|
|
|
|
|
|
|
|
|
| ||||
Loans with pre-determined interest rates |
|
$ |
745 |
|
$ |
5,958 |
|
$ |
5,460 |
|
$ |
12,163 |
|
Loans with floating or adjustable rates |
|
21,768 |
|
13,009 |
|
34,162 |
|
68,939 |
| ||||
Total |
|
$ |
22,513 |
|
$ |
18,967 |
|
$ |
39,622 |
|
$ |
81,102 |
|
Of the gross loan dollars outstanding as of March 31, 2011, approximately 85.0% had adjustable rates. 51.9% of the loan dollars of these adjustable rate loans have interest rates tied to the prime rate and are subject to changes in the rate index immediately when the prime rate is changed. The balance of the adjustable rate loans are tied to other indices subject to periodic adjustment prior to contract maturity.
Commercial Loans
The Bank offers a variety of commercial loans, including secured and unsecured term loans and revolving lines of credit, equipment loans and accounts receivable loans. As of March 31, 2011, approximately 92.5% of the commercial loans had adjustable rates. The Bank underwrites secured term loans and revolving lines of credit primarily on the basis of a borrowers cash flow, although we rely on the liquidation of the underlying collateral as a secondary payment source, where applicable. Should the borrower default and the Bank forecloses on the assets, we may not be able to recover the full amount of the loan.
Real Estate/ Construction Loans
The Banks real estate loans are secured primarily by commercial property, including a significant percentage in multi-family complexes. Approximately 78.9% of the real estate loans have interest rates that are adjustable during the term of the loan. Approximately 68.8% of the real estate loans have a remaining maturity between five and ten years. As of March 31, 2011, the weighted average ratio of the original loan amount to the underlying value of the property was approximately 48% with weighted average debt service coverage of 1.68. No individual loan-to-value ratio exceeded 79%.
Other Loans
The Bank offers other types of loans, including home equity lines of credit. Home equity lines of credit have adjustable interest rates and provide the borrower with a line of credit in an amount, which does not exceed 76% of the appraised value of the borrowers property at the time of origination.
Off-Balance Sheet Credit Commitments and Contingent Obligations
We enter into and may issue financial instruments with off-balance sheet credit risk in the normal course of business to meet the financial needs of our customers. In both 2010 and 2011, these had been limited to undisbursed commitments to extend credit to both businesses and individuals. To varying degrees, these instruments involve elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. The outstanding balance was approximately $88 thousand as of March 31, 2011. All commitments noted above were associated with loans and were therefore subject to the same credit underwriting policies and practices as those used for the loans reflected in the financial statements. When deemed advisable, the Bank obtains collateral to support such commitments.
Commitments to extend credit are agreements to lend up to a specific amount to a customer as long as there is no violation of any condition in the contract. Commitments generally have fixed expiration dates or other termination clauses, which may require payment of a fee. Since we expect some commitments to expire without being drawn upon, the total commitment amounts do not necessarily represent future loans. There was approximately $25.3 million in undisbursed loan commitments as of March 31, 2011, a decrease of approximately $893 thousand or 3.4% from the December 31, 2010 amount of approximately $26.2 million. Management is not aware of any other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Companys financial condition, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Non-Performing Assets
Non-performing assets consist of non-performing loans and other real estate owned (OREO). Non-performing loans are (i) loans which have been placed on non-accrual status; (ii) loans which are contractually past due 90 days or more with respect to principal or interest, have not been restructured or placed on non-accrual status, and are accruing interest; and (iii) troubled debt restructures ( TDRs). OREO is comprised of real estate acquired in satisfaction of a loan either through foreclosure or deed in lieu of foreclosure.
The Bank had no non-performing assets as of March 31, 2011 or December 31, 2010.
Asset Quality and Allowance for Loan Losses
The Company maintains an allowance for loan losses (ALLL) to provide for potential losses in its loan portfolio. Additions to the allowance are made by charges to operating expense in the form of a provision for loan losses. All loans that are judged to be uncollectible will be charged against the allowance, while recoveries would be credited to the allowance. We have instituted loan policies designed primarily for internal use, to adequately evaluate and assess the analysis of the risk factors associated with the Banks loan portfolio, to enable us to assess such risk factors prior to granting new loans and to assess the sufficiency of the allowance. We conduct an evaluation on the loan portfolio monthly.
The calculation of the adequacy of the ALLL necessarily includes estimates by management applied to known loan portfolio elements. We employ a 10-point loan grading system in an effort to more accurately track the inherent quality of the loan portfolio. The 10-point system assigns a value of 1 or 2 to loans that are substantially risk free. Modest, average and acceptable risk loans are assigned point values of 3, 4, and 5, respectively. Loans on the watch list are assigned a point value of 6. Point values of 7, 8, 9 and 10 are assigned, respectively, to loans classified as special mention, substandard, doubtful and loss. Using these risk factors, management conducts an analysis of the general reserves applying quantitative factors based upon different risk scenarios.
In addition, management considers other trends that are qualitative relative to our marketplace, demographic trends, the risk rating of the loan portfolios as discussed above, amounts and trends in non-performing assets and concentration factors.
Deposits and Borrowed Funds
Deposits are the Banks primary source of funds. The following table sets forth the amount of deposits outstanding by category at March 31, 2011 and December 31, 2010, and the net changes between the two periods.
|
|
March 31, |
|
December 31, |
|
Variance |
| |||||
(dollars in thousands) |
|
2011 |
|
2010 |
|
Dollars |
|
Percent |
| |||
Deposit Classifications: |
|
|
|
|
|
|
|
|
| |||
Non-interest bearing deposits |
|
$ |
47,818 |
|
$ |
52,894 |
|
$ |
(5,076 |
) |
-9.60 |
% |
Interest bearing demand |
|
2,759 |
|
3,165 |
|
(406 |
) |
-12.83 |
% | |||
Savings and money market |
|
26,818 |
|
28,556 |
|
(1,738 |
) |
-6.09 |
% | |||
Certificate of deposit $100,000 and over |
|
35,800 |
|
33,934 |
|
1,866 |
|
5.50 |
% | |||
Certificate of deposit less than $100,000 |
|
3,461 |
|
3,696 |
|
(235 |
) |
-6.36 |
% | |||
Total deposits |
|
$ |
116,656 |
|
$ |
122,245 |
|
$ |
(5,589 |
) |
-4.57 |
% |
As of March 31, 2011, 41.0% of the Companys deposits were non-interest-bearing demand deposits, a decrease of 2.3% from 43.3% at December 31, 2010. The balance of non-interest bearing demand deposits as of December 31, 2010 was favorably affected by large year-end deposits, which were short-term in nature. Similarly, the balances of non-interest bearing demand deposits as of March 31, 2011 were also favorably affected by large quarter-end deposits. The sources of both the aforementioned year-end and quarter-end deposits were local depositors, but not the same depositors. At March 31, 2011, the Bank held no brokered funds, but held other wholesale funds in the amount of approximately $21.8 million. At December 31, 2010, the Bank held no brokered funds, but held other wholesale funds in the amount of approximately $18.6 million.
Most funds have been placed with the Bank by local depositors at competitive rates within the Banks marketing area. While the goal of the Bank is to fund credit commitments using local funding sources, it is anticipated that some of the future funding sources may include both brokered and other wholesale funding sources.
The Analysis of Net Interest Income, found on page 22 of this document summarizes the distribution of the average deposit balances and the average rates paid on deposits during the Banks two quarters ended March 31, 2011 and 2010.
The following table shows the maturity of all of the Banks time deposits as of March 31, 2011:
Maturities |
|
Amounts |
| |
|
|
(in thousands) |
| |
Three months or less |
|
$ |
6,856 |
|
Over three and through twelve months |
|
20,257 |
| |
Over twelve months |
|
12,148 |
| |
Total |
|
$ |
39,261 |
|
The Bank has established borrowing lines with the FHLB. At December 31, 2010, the Bank had borrowed $4.5 million from the FHLB collateralized by securities. The average rate that was paid on FHLB borrowings was 4.38% for the quarter ended December 31, 2010. At March 31, 2011, the Bank had borrowed $4.5 million from the FHLB collateralized by securities. The average rate that was paid on FHLB borrowings was 4.38% for the quarter ended March 31, 2011.
Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can trigger mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a material effect on the Banks financial statements and operations. Under capital adequacy guidelines and regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Banks assets, liabilities, and certain off-balance sheet items as calculated under regulatory accepted accounting practices. The Banks capital amounts and classifications are also subject to qualitative judgments by the regulators such as components, risk-weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require both the Company and the Bank to maintain the following minimum amounts and ratios (set forth in the table below) of total and Tier 1 Capital to risk-weighted assets and Tier 1 Capital to average assets. As of March 31, 2011, the Company and the Bank exceeded all applicable capital adequacy requirements.
Under the Federal Reserve Boards guidelines, Bancorp is a small bank holding company, and thus qualifies for an exemption from the consolidated risk-based and leverage capital adequacy guidelines applicable to bank holding companies with assets of $500 million or more. However, while not required to do so under the Federal Reserve Boards capital adequacy guidelines, the Company still maintained levels of capital on a consolidated basis required to be considered well capitalized under generally applicable regulatory guidelines as of March 31, 2011.
The following table sets forth the Companys and the Banks regulatory capital ratios as of March 31, 2011:
|
|
|
|
|
|
To Be Adequately |
|
To Be Well |
| |||||||
|
|
Actual |
|
Capitalized |
|
Capitalized |
| |||||||||
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
| |||
|
|
(in thousands) |
| |||||||||||||
Company |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total Capital (risk-weighted assets) |
|
$ |
23,682 |
|
25.1 |
% |
$ |
7,538 |
|
8 |
% |
$ |
9,422 |
|
10 |
% |
Tier 1 Capital (risk-weighted assets) |
|
$ |
22,495 |
|
23.9 |
% |
$ |
3,769 |
|
4 |
% |
$ |
5,653 |
|
6 |
% |
Tier 1 Capital (average assets) |
|
$ |
22,495 |
|
17.1 |
% |
$ |
5,265 |
|
4 |
% |
$ |
6,581 |
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Bank |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total Capital (risk-weighted assets) |
|
$ |
21,194 |
|
23.0 |
% |
$ |
7,367 |
|
8 |
% |
$ |
9,209 |
|
10 |
% |
Tier 1 Capital (risk-weighted assets) |
|
$ |
20,033 |
|
21.8 |
% |
$ |
3,684 |
|
4 |
% |
$ |
5,526 |
|
6 |
% |
Tier 1 Capital (average assets) |
|
$ |
20,033 |
|
15.4 |
% |
$ |
5,211 |
|
4 |
% |
$ |
6,514 |
|
5 |
% |
Liquidity and Liquidity Management
Liquidity management for banks requires that funds always be available to pay anticipated deposit withdrawals, fund loan commitments, and meet other commitments on a timely and cost-effective basis. The acquisition of deposits is our primary source of funds. This relatively stable and low-cost source of funds has, along with the balances in stockholders equity, provided substantially all of our funding since the Banks inception.
We also have liquidity as a net seller of overnight federal funds at a level that would cushion in part any unexpected increase in demand for loans or decrease in funds deposited. During the three-month period ended March 31, 2011, we had an average balance of $28.8 million in overnight federal funds sold representing approximately 22% of our average assets. This ratio is far above the minimum guideline of 3% established in the Banks liquidity policy.
To meet liquidity needs, the Company maintains a portion of its funds in cash deposits in other banks, federal funds and investment securities. As of December 31, 2010, liquid assets (including cash, federal funds sold, interest-bearing deposits in other financial institutions and available-for-sale investment securities that have not been pledged as collateral), as a percentage of the Companys deposits, were 42%. As of March 31, 2011, liquid assets as a percentage of the Companys deposits were 45%.
While liquidity is not currently a concern in 2011 and was not a major concern in 2010, management has established and is seeking to establish secondary sources of liquidity. The Bank maintains a line of credit totaling $3 million with one correspondent bank for the purchase of overnight federal funds. The line is subject to availability of funds and has restrictions as to the number of days used during defined periods of time. Another method that the Bank currently has available for acquiring additional deposits is through the acceptance of brokered deposits (defined to include not only deposits acquired with deposit brokers, but also deposits bearing effective yield far above the prevailing local market rates), typically attracting large certificates of deposits at high interest rates. The Bank had no brokered deposits as of March 31, 2011 or December 31, 2010. The Bank has established a credit line with the Federal Home Loan Bank of San Francisco and has outstanding as of March 31, 2011 a five-year fixed rate advance of $4.5 million at 4.38%, which was established to stabilize the funding source of certain longer-term assets.
Item 3 Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commissions rules and forms.
The Companys management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commissions rules and forms, and is accumulated and communicated to management, including the Principal Executive Officer and the Principal Financial Officer, as appropriate, to allow form timely decisions regarding required disclosure.
Changes in Internal Control
There were no changes in the Companys internal control over financial reporting in the first quarter of 2011 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
To the best of our knowledge, there are no pending legal proceedings to which the Company is a party and which may have a materially adverse effect upon the Companys property, business or results of operations.
Management is not aware of any material changes to the risk factors discussed in Part 1, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2010. In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2010, which could materially and adversely affect the Companys business, financial condition and results of operations. The risks described in the Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not presently known to management or that management currently believes to be immaterial may also materially and adversely affect the Companys business, financial condition or results of operations.
Item 2 Unregistered Sale of Equity Securities and Use of Proceeds
None.
Item 3 Defaults upon Senior Securities
None.
Item 4 (Removed and Reserved)
(a) Additional Disclosures. None.
(b) Security Holder Nominations. There have been no material changes in the procedures by which security holders may recommend nominees to the board of directors during the three months ended March 31, 2010. Please see the discussion of these procedures in the most recent proxy statement on Schedule 14A filed with the SEC.
Exhibit |
|
Index to Exhibits |
10.1 |
|
Second Amendment to Lease Agreement |
31.1 |
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended |
31.2 |
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended |
32.1 |
|
Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as amended pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2 |
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as amended pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Pursuant to the requirement of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
MANHATTAN BANCORP |
|
|
|
|
|
|
Date: |
May 11, 2011 |
/s/ Terry L. Robinson |
|
|
Terry L. Robinson |
|
|
President and |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
Date: |
May 11, 2011 |
/s/ Dean Fletcher |
|
|
Dean Fletcher |
|
|
Executive Vice President and |
|
|
Chief Financial Officer |
|
|
(Principal Financial and |
|
|
Accounting Officer) |
Exhibit 10.1
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT (Amendment) is made and entered into as of January 25, 2011, by and between The Plaza CP LLC, a California limited liability company (Lessor), and Manhattan Bancorp, a California corporation (Lessee). Lessor and Lessee are hereinafter sometimes individually referred to as Party, or collectively referred to as Parties. Unless otherwise defined in this Amendment, all capitalized terms have the meanings ascribed to them in the Lease (as defined below).
W I T N E S S E T H :
WHEREAS, Lessor and Lessee entered into that certain Lease Agreement dated March 6, 2007, as amended by that certain First Amendment to Lease Agreement (First Amendment) dated May 14, 2010 (both documents collectively referred to hereafter as the Lease), whereby Lessor leased to Lessee, and Lessee leased from Lessor, Suites 1160 and 2360 in the building commonly known as 2141 Rosecrans Avenue, El Segundo, California, together with all improvements therein and appurtenances thereto (Suites 1160 and 2360 are collectively, the Current Premises); and
WHEREAS, Lessor and Lessee desire to further amend the Lease to, among other things, (i) expand the Current Premises to include those certain premises commonly known as Suite 1100 (which Lessor represents comprises 6,395 usable square feet and 7,482 rentable square feet), depicted on Exhibit A attached hereto, and Suite 1130 (which Lessor represents comprises 1,875 usable square feet and 2,194 rentable square feet), depicted on Exhibit B attached hereto (Suite 1100 and Suite 1130 are collectively, the Added Premises); (ii) extend the Lease Term for Suite 1160 and the Added Premises; and (iii) make certain other modifications to the Lease, as each are more particularly described below in this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Lessor and Lessee agree as follows:
1. EXTENDED LEASE TERM FOR SUITE 1160 AND THE ADDED PREMISES
a. Notwithstanding anything to the contrary contained in the Lease and solely with respect to Suite 1160 and the Added Premises (and not Suite 2360, which shall expire in accordance with the provisions of the First Amendment), the Lease Term is hereby extended seven (7) years commencing on the New Term Commencement Date. The New Term Commencement Date shall mean the date that is one hundred fifty (150) days following the Actual Delivery Date (as defined below). The period of time commencing on the New Term Commencement Date and expiring on the day immediately preceding the seventh (7th) anniversary of the New Term Commencement Date (the New Term Expiration Date), unless otherwise extended or sooner terminated as provided in the Lease (as amended by this Amendment), shall be referred to in this Amendment as the Extended Lease Term. Notwithstanding anything to the contrary set forth in this Amendment, the New Term Expiration Date shall always terminate on the last day of the eighty-fourth (84th) full calendar month following the New Term Commencement Date.
b. Lessor shall deliver possession of the Added Premises to Lessee in the condition required by Section 6 below on or before January 1, 2011 (the Anticipated Delivery Date). If Lessor fails to deliver possession of the Premises to Lessee in the required condition on or before the Anticipated Delivery Date, the failure will not affect the validity of this Amendment or the obligations of Lessee under it, but the New Term Commencement Date will be determined based on the date Lessor delivers possession of the Premises to Lessee in the condition required by this Amendment. Lessor shall use all commercially reasonable efforts to deliver possession of the Premises to Lessee as soon as reasonably possible. Lessor shall deliver to Lessee a Notice of Delivery Date confirming the date the Added Premises was delivered to Lessee in accordance with this Amendment (the Actual Delivery Date), which Lessee shall execute and return to Lessor within five (5) business days of
Reviewed: |
Lessors (Landlords) initials: |
Lessees (Tenants) initials: |
receipt thereof. Lessees failure to timely execute and deliver such Notice of Delivery Date shall constitute an acknowledgment by Lessee that the statements included in such notice are true and correct.
2. EXPANSION OF THE ORIGINAL PREMISES
a. The Parties agree that Lessee shall continue to occupy Suite 1160 (which Lessor represents comprises 6,506 usable square feet and 7,612 rentable square feet) pursuant to the terms and conditions set forth in the Lease. The Parties further agree that Lessee shall continue to occupy Suite 2360 (which Lessor represents comprises 2,535 usable square feet and 3,118 rentable square feet) pursuant to the terms and conditions set forth in the Lease, unless terminated in accordance with Section 2 of the First Amendment.
b. Effective as of the New Term Commencement Date, Lessee shall lease from Lessor, and Lessor shall lease to Lessee, the Added Premises, and all references in the Lease (as modified by this Amendment) to Premises shall be references, collectively, to Suites 1100, 1130, 1160 and 2360 (which Lessor represents comprise 17,311 usable square feet and 20,406 rentable square feet, in the aggregate); provided, however, that nothing contained in this Amendment shall prohibit Lessee from terminating its obligations with respect to Suite 2360 as set forth in the First Amendment; provided further, that if Lessee exercises its termination right with respect to Suite 2360, all references in the Lease (as modified by this Amendment) to Premises shall be references, collectively, to Suites 1100, 1130 and 1160.
3. BASE RENTAL FOR PREMISES
From the date of this Amendment until the New Term Commencement Date, Lessee shall continue to pay Lessor Base Rental for Suite 1160 pursuant to the terms and conditions of the Lease. Commencing on the New Term Commencement Date for the remainder of the Extended Lease term, Lessees monthly Base Rental for Suite 1160 and the Added Premises shall be, and the defined term. Base Rental Shall be amended to mean, the following:
Months |
|
Monthly Base Rentals |
| |
1-12 |
|
$ |
44,084.40 |
|
13-24 |
|
$ |
45,406.93 |
|
25-36 |
|
$ |
46,769.14 |
|
37-48 |
|
$ |
48,172.21 |
|
49-60 |
|
$ |
49,617.38 |
|
61-72 |
|
$ |
51,105.90 |
|
73-84 |
|
$ |
52,639.08 |
|
4. RENTAL ABATEMENT
Notwithstanding anything to the contrary set forth above in Section 3, Lessees Base Rental for the Premises shall be abated in the amount of one hundred percent (100%) of the Base Rental for the thirteenth (13th) and twenty-fifth (25th) months of the Extended Lease Term.
5. LESSEES PRO-RATA SHARE OF OPERTING EXPENSES; BASE YEAR
From the date of this Amendment until the New Term Commencement Date, Lessee shall continue to pay Lessor its Pro-Rata Share of Operating Expense Adjustments pursuant to the terms and conditions of the Lease. Effective on the New Term Commencement Date, Section 1.1(h) of the Lease shall be changed to reflect 3.7885% (calculated by dividing the rentable area of Suites 1100, 1130 and 1160 [i.e., 17,288] by the rentable area of the Building [i.e., 456,323]), and Section 1.1(m) of the Lease shall be changed to reflect the calendar year 2011 for the
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Base Year. Notwithstanding anything to the contrary set forth in the Lease or this Amendment, Lessee shall not be charged for any Operating Expense Adjustments for the first twelve (12) months of the Extended Lease Term. Additionally, Lessees Operating Expense Adjustments pursuant to Article 4 of the Lease shall be abated for the first (1st), second (2nd), thirteenth (13th), and twenty-fifth (25th) months of the Extended Lease Term.
6. AS-IS
Lessor shall deliver the Added Premises to Lessee AS-IS condition, but represents, warrants and covenants that the Premises (i) shall be in broom-clean condition and free of debris, (ii) shall have the heating, ventilating and air-conditioning, plumbing, mechanical, and electrical systems be in good working order, (iii) shall have fire, life safety, and sprinkler systems that are in good working order, and (iv) shall be free from violations of all Laws, including, without limitation, the Americans with Disabilities Act of 1990 (the ADA).
7. IMPROVEMENTS TO THE ADDED PREMISES
a. Notwithstanding anything to the contrary set forth in the Lease, Lessee shall construct and install improvements to Suite 1160 and the Added Premises pursuant to the provisions of the Construction Work Letter attached as Exhibit C to the Lease (the Construction Work Letter), subject to the following modifications to the Construction Work Letter:
(i) Section 1.1 is hereby modified by deleting in its entirety Lessor, at Lessors sole cost and expense, shall also provide Lessee with a glass door entry per Lessors design, dimension and specification shown on the drawing attached hereto as Exhibit C-5.
(ii) Section 2.1 is hereby modified by inserting the following new sentence immediately after the second sentence of such Section: Lessee shall include in the Schematic Drawings a depiction of the awning (with the banks name and logo), if any, Lessee wishes to fabricate and install at the entrance of the Premises storefront.
(iii) Section 2.1 is hereby further modified by deleting the fourth to the last sentence therein and inserting in its place and stead the following: Within five (5) days after Lessors receipt of the Schematic Drawings and Lessees Schematic Notice, Lessor shall either approve or disapprove thereof.
(iv) Section 2.1 is hereby further modified by deleting the last sentence of said Section in its entirety and inserting in its place and stead the following: Lessors failure to provide notice of its approval or disapproval of the Schematic Drawings and Lessees Schematic Notice within such five (5)-day period shall be deemed to be Lessors approval thereof. At Lessors request, upon completion of the revised Schematic Drawings, Lessor and Lessee shall initial the same, thereby acknowledging their approval of the form of such Schematic Drawings.
(v) Section 2.2 is hereby modified by deleting in its entirety the sentence commencing with Any and all modifications to the Base Building... and inserting in its place and stead the following: Within ten (10) days after Lessors receipt of the Final Plans and Lessees Final Notice, Lessor shall approve or disapprove thereof.
(vi) Section 3 is hereby modified by deleting the last three sentences of said Section and inserting in their place and stead the following: If such Permits are not obtained within ninety (90) days following Lessors or the Architects submission of the Final Plans for such Permits, then Lessor and Lessee shall each have the option of termination this Lease at any time thereafter upon at least ten (10) days prior written notice thereof to the other Party. In the event of such termination, the costs and expenses of the Architect relating to the preparation and completion of the Schematic Drawings and Final Plans for Permits, together with all fees and costs of submitting
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the Final Plans for Permits shall be borne equally by Lessor and Lessee, and each Party shall otherwise be released of all further liability arising under this Lease (except for those liabilities accruing prior to the termination). Except as provided above, Lessor and Lessee shall otherwise each bear its own costs to the date of such termination.
(vii) Section 5 is hereby modified by deleting in its entirety sub-clause (i) therein and inserting in its place and stead the following: (i) intentionally omitted.
(viii) Section 5 is hereby further modified by deleting the reference to $45.00 per usable square foot of Premises presently indicated therein as Lessors Construction Allowance and inserting in its place and stead the sum of $513,523.80, which amount represents an allowance of $47.50 per usable square foot of the Added Premises, $5.00 per usable square foot of Suite 1160 and two (2) months of rent (equal to the first (1st) and second (2nd) months of the Term).
(ix) Section 7 is hereby modified by deleting in its entirety the last sentence therein.
b. Further notwithstanding anything to the contrary set forth in the Lease, Lessor shall be solely responsible (without any deduction to Lessors Construction Allowance) for all costs and expenses relating to all other repairs, replacements, alterations or improvements needed to comply with all Laws. If, however, such compliance work is triggered by either Lessee improvements or Alterations that are for a use other than the use set forth in Section 1.1(n) hereof, Lessee shall bear all expense of such work.
8. OPTION TO EXTEND
Lessee shall have one (1) option to extend the term of the Lease (as modified by this Amendment) after the New Term Expiration Date, subject to all terms and conditions of Rider No. One of the Lease (the Rider); provided, however, that instead of an option to extend the term for five (5) years (as presently stated in the Rider), Lessee shall have one (1) option to extend the term for seven (7) years.
9. SECURITY DEPOSIT FOR THE ADDED PREMISES
Lessor acknowledges that Lessee has previously deposited with Lessor the sum of $23,631.73 as a Security Deposit under the Lease. On or before the New Term Commencement Date, Lessee shall pay Lessor the additional sum of $26,000.00 to increase the Security Deposit to $49,631.73.
10. ATM
Lessee shall be permitted to construct/install, at its sole cost (subject to reimbursement through Lessors Construction Allowance), an automated teller machine (ATM) on either the exterior wall of the Premises or in the parking garage at the pedestrian entry to the Building, which ATM shall be constructed/installed in accordance with all pertinent terms and conditions set forth in the Construction Work Letter. If an ATM is constructed/installed and for the duration of the Extended Lease Term (and the Option Term), Lessee shall pay Lessor the sum of $300.00 per month as the monthly rental fee for said ATM. Additionally, following review and approval by Lessor of the design and location of the sign (which shall not be unreasonably withheld, conditions or delayed), Lessee shall be permitted to install a sign on each level of the parking garage indicating the location of the ATM. Any approval request relative to the signs discussed in this Section 10 shall be made by Lessee separate and apart from any approval request relative to the improvements to the Added Premises set forth in Section 7 above, and shall be submitted for such approval separately.
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11. ATM PARKING
Lessee shall be provided, at the reserved parking permit rate set forth in the Lease, for customers of Lessee wishing to utilize the ATM at the Premises, with (a) one (1) parking space in the Valet Parking Area of the Building, or (b) one (1) additional reserved parking space in the parking garage (both spaces to be used as a 5-minute ATM parking location); provided, however, that in the event the parking space is provided in the Valet Parking Area and such use should become, in Lessors reasonable opinion, disruptive, a safety concern or an unreasonable interference with the operation of the valet parking service at the Building, then Lessor shall have the right to move the parking space to the parking garage adjacent to Lessees other reserved parking stalls.
12. PARKING
Effective on the New Term Commencement Date, Lessor agrees to provide Lessee with up to four (4) parking permits per 1,000 usable square feet of Premises leased at the reserved and non-reserved parking permit rate set forth in the Lease; provided, that reserved parking permits are subject to availability. Lessee must take at least two (2) parking permits per 1,000 usable square feet of Premises leased. Lessee shall be permitted to retain Lessors parking vendor to operate the Valet Parking Area for Lessees use. The Parties agree that once a new restaurant shall occupy the former Daily Grill Restaurant space in the Building, then Lessor shall cause the Valet Parking Area, and cost to operate valet parking, to be shared by Lessee and the new restaurant occupant on a pro rata basis based on the number of retail hours each establishment is open. All existing Lessee visitor parking spaces shall remain the same.
13. EYEBROW SIGN
On or prior to the New Term Commencement Date, Lessor at its sole cost and expense, shall (i) remove 2141 from the existing eyebrow sign from first position from the bottom and repair, patch and repaint any damage and discoloration caused by such removal or original installation, and (ii) install such 2141 sign in second position from the bottom. So long as Lessee complies with the terms, provisions and conditions of the Lease (as modified by this Amendment) and with this Section 13, Lessee shall be entitled to display its name on a sign affixed to the exterior of the Building in first position from the bottom (i.e., in the former location of the 2141 sign and to be immediately below the modified 2141 eyebrow sign) or at another equally or more prominent location selected by Lessor, and agreed upon by Lessee, on the first (1st) floor of the Building, facing Rosecrans or Apollo Street (the Eyebrow Sign). Lessees Eyebrow Sign must:
a. Comply with all applicable government laws, statutes, regulations, rules, codes and ordinances;
b. Comply with the provisions of the Lease and this Amendment;
c. Have been approved in advance by all appropriate government agencies;
d. Have been approved in advance by Lessor (Lessees vendor shall provide Lessor with a drawing depicting the Eyebrow Sign within thirty (30) days of Lessees execution of this Amendment); and
e. Comply with all instruments recorded against the Property as of the date of this Amendment.
The design, size, specifications, graphics, materials, colors and lighting (if applicable) of the Eyebrow Sign shall be approved by Lessor in Lessors reasonable discretion. Any approval request relative to the Eyebrow Sign shall be made by Lessee separate and apart from any approval request relative to the improvements to the Added Premises set forth in Section 7 above, and shall be submitted for such approval separately.
Except as otherwise expressly set forth in this Section 13, Lessee shall bear all expenses relating to the Eyebrow Sign, subject to reimbursement through Lessors Construction Allowance, including the following:
a. The cost of fabricating the Eyebrow Sign;
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b. The cost of obtaining permits and approvals for the Eyebrow Sign;
c. The cost of installing, maintaining, repairing and replacing the Eyebrow Sign;
d. The cost of any electrical consumption illuminating the Eyebrow Sign;
e. The costs associated with the removal of the Eyebrow Sign, repair of any damage caused by such removal, and restoration of the site of the Eyebrow Sign on the Building to the condition in which that portion of the Building existed before the installation of the Eyebrow Sign, subject to reasonable wear and tear; and
f. Monthly rent for the Eyebrow Sign, payable to Lessor in advance, without prior notice, demand or billing statement, on or before the first day of each calendar month, commencing on the first day the Eyebrow Sign is installed on the Building, in an amount equal to eighty percent (80%) of the prevailing monthly rent (the Sign Rent) charged by Lessor for an Eyebrow Sign on the Building, which Sign Rent shall be subject to increase by Lessor, from time to time, following sixty (60) day advance written notice to Lessee, to an amount equal to eighty percent (80%) of the then prevailing monthly rate for such Eyebrow Sign uniformly applied to all tenants in the Building (however, the Sign Rent shall not increase more than one (1) time during any consecutive twelve (12) month period). Currently, the prevailing monthly Sign Rent is $500.00 per month. Accordingly, currently, Lessees monthly Sign Rent shall be $400.00 per month. Following the date the Eyebrow Sign is installed on the Building, Lessees obligation to pay for Sign Rent shall continue until the earlier to occur of (A) the termination of the Extended Lease Term, including all extensions thereof or (B) Lessees removal of the Eyebrow Sign (including any required remediation to the Building).
14. PARKING SIGNAL
Lessor shall, at Lessors sole cost and expense, modify the Monument Sign on Apollo Street near the valet parking drive adjacent to the Building to indicate Valet Parking for Restaurant & Bank of Manhattan and 5-Minute ATM Parking.
15. NEW MONUMENT SIGN
a. The Parties agree that use of the current Monument Sign located on Rosecrans Avenue shall be discontinued. Notwithstanding any provision of the Lease (including, without limitation, Section 35.30(f) thereof), Lessee shall have no responsibility to pay Lessor in respect of any expenses and costs incurred by Lessor in connection with the removal of the existing Monument Sign and possible repair of any damage to the Monument Sign that may result from such removal.
b. In addition, Lessor shall construct a New Monument Sign at the concrete pad location of the previous Daily Grill Restaurant sign, on the corner of Rosecrans Avenue and Apollo Street (the New Monument Sign). The New Monument Sign shall be limited to no more than two (2) companies (i.e., it will have a total of two (2) lessee slots of similar size) and Lessee shall have the right to use one (1) of the two (2) lessee slots on the New Monument Sign at all times during the Lease Term. The New Monument Sign shall list Bank of Manhattan on the top slot of the New Monument Sign. The New Monument Sign shall have bank and restaurant parking directions listed at the bottom. Lessee shall pay Lessor the sum of $300.00 per month as sign rent for Lessees listing on the New Monument Sign. Lessee shall be responsible for all costs and expenses related to Lessees listing on the New Monument Sign (i.e., one half (1/2) of the cost to construct the New Monument Sign and one hundred percent (100%) of the cost of the insert(s) on said sign). Lessor shall have the right to relocate (to an equally or more prominent location), redesign, and/or reconstruct the New Monument Sign from time to time as determined by Lessor in Lessors reasonable discretion. Upon termination (for reasons other than a Lessor default) and/or expiration of the Lease, Lessor shall permanently remove Lessees listing from the New Monument Sign, repair any damage to the New Monument Sign that may result from the removal of such listing, and charge Lessee for all
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reasonable expenses and costs incurred in connection with said removal and repair; provided, however, that if Lessor collects any amounts from a new tenant relating to repairs of the New Monument Sign, such amounts will offset the amounts Lessee shall be required to reimburse Lessor pursuant to this Section such that Lessor will not be reimbursed twice for such repairs. Lessor shall, at all times during the Lease Term, maintain adequate lighting on the New Monument Sign. Lessee shall pay Lessor fifty percent (50%) of all expenses incurred by Lessor for the lighting, maintenance, cleaning and repair costs of the New Monument Sign during the period of time that Lessees name is listed on the New Monument Sign.
16. ADDITIONAL AMENDMENTS TO LEASE
a. Effective as of the New Term Commencement Date and in addition to the other terms contained in this Amendment, the provisions of the Lease shall be amended as follows:
(i) Section 1.1(o) is hereby modified by deleting the second sentence therein in its entirety and inserting in its place and stead the following: Lessee must take at least two (2) parking permits per 1,000 usable square feet of Premises leased.
(ii) Section 3.3 is hereby modified by deleting ten percent (10%) on line 3 therein and inserting in its place and stead five percent (5%).
(iii) Section 4.1 is hereby modified by deleting the last sentence in its entirety and inserting in its place and stead the following: This Article shall survive the termination of this Lease for a period of one (1) year.
(iv) Section 5.2 is hereby modified by deleting such Section in its entirety and inserting in its place and stead the following: Intentionally Omitted. In furtherance of the immediately preceding sentence, the Parties shall do and cause to be done all commercially reasonable acts, matters and things, and shall execute and deliver all such documents and instruments, as shall be required to terminate the Letter of Credit in Lessors possession securing Lessees obligations under the Lease.
(v) Section 7.3 is hereby modified by deleting the first sentence in its entirety and inserting in its place and stead the following: All Alterations and Lessee Improvements made by Lessee or Lessor that are permanently affixed to the Premises, including, but not limited to, all air-conditioning or heating systems, paneling, decorations, cabling, partitions, railings (except furniture or movable trade fixtures, including, without limitation, vaults, safes, televisions, computers, IT equipment, signage, desks, computers and other similar items) shall become the property of the Lessor and shall remain upon, and be surrendered with, the Premises as a part thereof at the termination of this Lease, without compensation by Lessee.
(vi) Section 12.1(b) is hereby modified be deleting twelve (12) month on line 2 in its entirety and inserting in its place and stead three (3) month.
(vii) Section 12.2 is hereby modified by deleting /Lessors Recapture Rights from the subheading of such Section.
(viii) Section 15.1(b) is hereby modified by deleting the second sentence in its entirety and inserting in its place and stead the following: If Lessor does not elect to make the repairs, then either Lessor or Lessee may, by written notice to the other no later than ninety (90) days after the occurrence of such damage or destruction, elect to terminate this Lease.
(ix) Section 17.1(d) is hereby modified by deleting it in its entirety and inserting in its place and stead the following: The vacating or abandonment of the Premises by Lessee without providing a commercially
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reasonable level of security.
(x) Section 23.1 is hereby modified by deleting it in its entirety and inserting in its place and stead the following: Lessor may enter the Premises upon at least twenty-four (24) hours prior written notice at all reasonable hours by means of a master key or otherwise for any reasonable purposes.
(xi) Section 30.1 is hereby modified by deleting the last sentence in its entirety and inserting in its place and stead: The failure of Lessee to execute or deliver an estoppel certificate in the required time period shall constitute an acknowledgment by Lessee that the statements included in the estoppel certificate are true and correct.
(xii) Article 30 is hereby modified by inserting a new Section 30.2 at the end of such Article, as follows: Lessor shall, at any time and from time to time upon request of Lessee, within ten (10) days following notice of such request from Lessee, execute, acknowledge and deliver to Lessee an Estoppel Certificate in writing in a form as Lessee or any of its lenders, prospective purchasers, lienholders or assignees may reasonably deem appropriate and which does not waive any rights of Lessor hereunder. The failure of Lessor to execute or deliver an estoppel certificate in the required time period shall constitute an acknowledgment by the Party failing to provide the instrument that the statements included in the estoppel certificate are true and correct.
(xiii) Section 1 of the Rider is hereby modified by deleting two hundred seventy (270) days and inserting in its place and stead one hundred eighty (180) days.
(xiv) Section 2(c) of the Rider is hereby modified by deleting the last sentence of such Section and inserting in its place and stead the following: All costs of such appraisal shall be paid equally by Lessor and Lessee.
(xv) Section 4 of the Rider is hereby modified by inserting the following at the end of the first sentence: provided, however, that for purposes of this Section, space subject to any of the following shall not be deemed to be similarly situated: (i) sublease; (ii) another lessees expansion rights; (iii) space that is leased to a lessee that holds an ownership interest in lessor; and (iv) space that is leased to a lessee under a renewal or an extension of a lease.
(xvi) Section 4 of the Rider is hereby further modified by deleting etc. and inserting in its place and stead the following: , and all other monetary and nonmonetary concessions, if any, being granted to lessees in connection with such similarly situated space.
(xvii) Section 6 of the Rider is hereby modified by deleting it in its entirety and inserting in its place and stead the following: The option granted to Lessee herein is personal to Lessee and may not be exercised or assigned voluntarily or involuntarily, by or to any person or entity other than the original Lessee, its affiliated companies, or Qualified Financial Institution. The option herein granted to Lessee is not assignable separate and apart from the Lease. In the event that this Option is exercisable by Lessee, the Lease has been assigned, or a sublease exists as to fifty percent (50%) or more of the Premises (except for an assignment or sublease to affiliated companies or a qualified Financial Institution), this Option shall automatically terminate and become null and void and Lessee, and the assignee or any sublessee, shall not have the right to exercise the Renewal Option.
remainder of page intentionally left blank
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17. BROKERAGE
Lessor and Lessee represent to the other Party that neither Lessor nor Lessee has dealt with any broker in connection with this modification of the Lease, except for Cushman & Wakefield, and that insofar as Lessor or Lessee knows, no broker, except for Cushman & Wakefield, negotiated this modification of Lease or is entitled to any commission in connection therewith.
18. GENERAL TERMS
All of the terms, covenants, conditions, provisions and agreements of the Lease, except as amended herein, shall continue in full force and effect. Each Party herein shall be deemed to have been the draftsman of this Amendment and the language of this Amendment shall be construed according to its fair meaning and not strictly for or against any of the Parties hereto. This Amendment shall not be effective until Lessors lender on the Property shall have approved the Amendment (if lenders approval is required), and both Lessor and Lessee shall have executed and delivered the Amendment. All references to the Lease therein shall be deemed to be references to the Lease as amended by this Amendment. In the event of any conflict between the provisions of this Amendment and the provisions contained in the Lease (as in effect immediately prior to the execution hereof), the provisions of this Amendment shall control. This Amendment may be executed in any number of counterparts, including facsimile or electronic counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute only one instrument.
IN WITNESS WHEREOF, the Parties acknowledge that each has carefully read each and every provision of this Amendment and has entered into this Amendment of its own free will and volition.
LESSOR |
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LESSEE | |||
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The Plaza CP LLC |
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Manhattan Bancorp | |||
a California limited liability company |
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a California corporation | |||
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By: |
The Plaza CP Corporation |
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a Delaware corporation |
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By: |
/s/ Terry Robinson | |
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Its Managing member |
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Name: Terry Robinson | ||
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Title: President & CEO | |||
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By: |
/s/ Richard C. Lundquist |
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Richard C. Lundquist |
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President |
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By: |
/s/ Leonard E. Blakesley, Jr. |
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Leonard E. Blakesley, Jr. |
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Secretary |
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Reviewed:
NOTICE OF DELIVERY DATE
THIS NOTICE OF DELIVERY DATE is made and entered into as of January 26, 2011, by and between The Plaza CP LLC, a California limited liability company (Lessor), and Manhattan Bancorp, a California corporation (Lessee). Lessor and Lessee are hereinafter sometimes individually referred to as Party, or collectively referred to as Parties. Unless otherwise defined herein, all capitalized terms have the meanings ascribed to them in the Lease (as defined below).
WITNESSETH:
WHEREAS, Lessor and Lessee entered into that certain Lease Agreement dated March 6, 2007, as amended by that certain First Amendment to Lease Agreement (First Amendment) dated May 14, 2010, and Second Amendment to Lease Agreement (Second Amendment) dated January 25, 2011 (all three (3) documents collectively referred to hereafter as the Lease), whereby Lessor leased to Lessee, and Lessee leased from Lessor, premises in the building commonly known as 2141 Rosecrans Avenue, El Segundo, California; and
WHEREAS, Lessor delivered to Lessee possession of the Added Premises, as such term is defined in the Second Amendment, on January 1, 2011, and
WHEREAS, Lessor is required to deliver to Lessee, pursuant to section 1.b.of the Second Amendment, a Notice of Delivery Date confirming the date that the Added Premises were delivered to Lessee,
NOW, THEREFORE, Lessor and Lessee agree as follows:
1. NOTICE OF DELIVERY DATE
The Added Premises were delivered to Lessee in the condition required by Section 6 of the Second Amendment on January 1, 2011.
2. PREMISES
Effective January 1, 2011, Suites 1100, 1130 and 1160 shall hereafter be referred to as Suite 1160.
IN WITNESS WHEREOF, the Parties acknowledge that each has carefully read each and every provision of this Amendment and has entered into this Amendment of its own free will and volition.
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LESSEE | ||||
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The Plaza CP LLC |
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Manhattan Bancorp | ||||
a California limited liability company |
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a California corporation | ||||
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By: |
The Plaza CP Corporation |
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a Delaware corporation |
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Its Managing member |
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By: |
/s/ Richard C. Lundquist |
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By: |
/s/Rick Sowers | ||
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Richard C. Lundquist |
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President |
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Print Name: |
Rick Sowers | ||
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Title: |
COO | ||
Exhibit 31.1
CERTIFICATION
(Section 302 of Sarbanes-Oxley)
I, Terry Robinson, President and Chief Executive Officer of Manhattan Bancorp, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Manhattan Bancorp;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any changes in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 11, 2011 |
/s/ Terry L. Robinson |
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Terry Robinson |
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President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
(Section 302 of Sarbanes-Oxley)
I, Dean Fletcher, Executive Vice President and Chief Financial Officer of Manhattan Bancorp, certify that:
1. I have reviewed this quarterly report on Form 10-K of Manhattan Bancorp;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any changes in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
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Date: May 11, 2011 |
/s/ Dean Fletcher |
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Dean Fletcher | |
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Executive Vice President and | |
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Chief Financial Officer |
Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies the quarterly report on Form 10-Q (the Form 10-Q) for the quarter ended March 31, 2011 of Manhattan Bancorp (the Company).
I, Terry Robinson, President and Chief Executive Officer of the Company, certify that, to the best of my knowledge:
1. The Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
2. The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Bank as of the dates and for the periods presented in the financial statements included in such reports.
Dated: May 11, 2011
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/s/ Terry L. Robinson |
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Terry Robinson |
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President and |
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Chief Executive Officer |
Exhibit 32.2
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies the quarterly report on Form 10-Q (the Form 10-Q) for the quarter ended March 31, 2011 of Manhattan Bancorp (the Company).
I, Dean Fletcher, Executive Vice President and Chief Financial Officer of the Company, certify that, to the best of my knowledge:
1. The Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
2. The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Bank as of the dates and for the periods presented in the financial statements included in such reports.
Dated: May 11, 2011
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/s/ Dean Fletcher |
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Dean Fletcher |
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Executive Vice President |
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and Chief Financial Officer |