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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1 
(Mark One)
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
Commission file number 0-30777
PACIFIC MERCANTILE BANCORP
(Exact name of Registrant as specified in its charter)
California 33-0898238
(State or other jurisdiction of
incorporation or organization)		 (I.R.S. Employer
Identification No.)
949 South Coast Drive, Suite 300, Costa Mesa, California
 92626
(Address of principal executive offices) (Zip Code)
(714) 438-2500
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, without par valuePMBCNasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     
Yes  ¨   No  x.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of 15(d) of the Act.     
Yes  ¨    No  x.

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of 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 such files).    Yes  x    No  ¨.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o  Accelerated filer o
Non-accelerated filer x  Smaller reporting company ☒
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  ☐    No  x
The aggregate market value of voting and non-voting common equity held by non-affiliates of registrant as of June 30, 2020, the last business day of the registrant's most recently completed second fiscal quarter, was approximately $76,418,330.
As of April 15, 2021, there were 22,320,230 shares of Common Stock and 1,467,155 shares of Non-Voting Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.

EXPLANATORY NOTE
We are filing this Amendment No. 1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (“Amendment No. 1”), for the purpose of reporting the information required by Part III of Form 10-K. Our Annual Report on Form 10-K was originally filed with the Securities and Exchange Commission (“SEC”) on March 15, 2021 (“Original Filing”). The Original Filing incorporated the Part III information by reference to our definitive proxy statement for our 2021 annual meeting of shareholders. We are filing this Amendment No. 1 to provide the information required in Part III of Form 10-K because we will not file a definitive proxy statement containing such information within 120 days after the end of the fiscal year covered by the Form 10-K.

In addition, this Amendment No. 1 is reporting an update to the Report of Independent Registered Public Accounting Firm (report) issued by RSM US LLP (“RSM”). The report provided by RSM in the Original Filing described the audit procedures performed on our internal control over financial reporting in accordance with auditing standards generally accepted in the United States of America relative to the requirements under the FDIC Improvement Act (“FDICIA”), which should not have been included in the Original Filing. The financial statements and data included in Item 8 are unchanged from those in the Original Filing.

Other than as specifically set forth herein, this Amendment No. 1 does not change any of the information contained in the Original Filing, and we have not updated or amended the disclosures contained in the Original Filing to reflect events that have occurred since the date thereof. Accordingly, this Amendment No. 1 should be read in conjunction with our Original Filing.

Table of Contents
PACIFIC MERCANTILE BANCORP
FORM 10-K/A
FOR THE YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
 
  Page No.
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PART II

 
ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Page No.

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Report of Independent Registered Public Accounting Firm
 
To the Shareholders and the Board of Directors of
Pacific Mercantile Bancorp   
 
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Pacific Mercantile Bancorp and its
subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of
operations, other comprehensive income (loss), shareholders’ equity and cash flows for each of the three
years in the period ended December 31, 2020, and the related notes to the consolidated financial
statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the
results of its operations and its cash flows for each of the three years in the period ended December 31,
2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits
we are required to obtain an understanding of internal control over financial reporting, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the Audit Committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan and Lease Losses
As described in Notes 2 and 5 to the financial statements, the Company’s allowance for loan and lease
losses (ALLL) totaled $17.4 million at December 31, 2020. The ALLL is an amount established by
management to absorb probable losses on existing loans that may become uncollectible. Management
determines the adequacy of the ALLL by monitoring of economic conditions, the loan portfolio by
category, the financial condition of borrowers and the history of the performance of the loan portfolio. The
ALLL is comprised of two components: the valuation allowance for loans individually evaluated for
impairment (specific reserves), representing $2.7 million; and the valuation allowance for loans
collectively evaluated for impairment (general reserves), representing $14.7 million. The general reserves
include a quantitative reserve based on the Company’s historical charge-off experience and a qualitative
reserve based on management’s evaluation of several internal and external factors (qualitative factors).
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These qualitative factors are based on external economic conditions and trends and internal
assessments.

We identified the qualitative factors of the general reserves as a critical audit matter because of the
significant assumptions that management makes in determining the estimate. Auditing these assumptions
involved a high degree of auditor judgment and an increase in audit effort because changes in these
assumptions could have a material effect on the Company’s financial results.

Our audit procedures related to management’s evaluation and establishment of the qualitative factors of
the ALLL included the following, among others:
•We obtained an understanding of the relevant controls related to the qualitative factors applied to the general reserves of the ALLL and tested such controls for design and operating effectiveness, including controls related to management’s establishment, review and approval of the qualitative factors and the completeness and accuracy of the data used in determining the qualitative factors.
•We tested management’s process and evaluated its judgments and assumptions in the determination of the qualitative factors, which included:
◦Evaluating the reasonableness of management’s selection of data inputs used as a basis for the adjustments related to the qualitative factors, and testing the completeness and accuracy of the data utilized by comparing them to internal and external source data.
◦Evaluating the reasonableness of the qualitative factors assessed by management, including the directional consistency and magnitude of the resulting qualitative component of the ALLL, as compared to internal and external source data.


/s/ RSM US LLP
We have served as the Company’s auditor since 2014.

Irvine, CA
March 12, 2021

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PACIFIC MERCANTILE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except for per share data)
 December 31,
 20202019
ASSETS
Cash and due from banks$12,024 $17,409 
Interest bearing deposits with financial institutions274,245 202,729 
Cash and cash equivalents286,269 220,138 
Interest-bearing time deposits with financial institutions1,597 2,420 
Federal Reserve Bank of San Francisco and Federal Home Loan Bank Stock, at cost7,910 7,910 
Securities available for sale, at fair value42,183 28,344 
Loans (net of allowances of $17,452 and $13,611, respectively)
1,209,587 1,117,511 
Accrued interest receivable5,666 4,095 
Premises and equipment, net779 1,117 
Net deferred tax assets8,502 8,434 
Intangible assets389 266 
Other assets24,708 25,919 
Total assets$1,587,590 $1,416,154 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing$647,115 $397,000 
Interest-bearing736,232 802,570 
Total deposits1,383,347 1,199,570 
Borrowings10,000 30,000 
Accrued interest payable188 398 
Other liabilities17,779 19,611 
Junior subordinated debentures17,527 17,527 
Total liabilities1,428,841 1,267,106 
Commitments and contingencies (Note 16)
Shareholders’ equity:
Common stock, no par value, 85,000,000 shares of voting common stock and 2,000,000 shares of non-voting common stock authorized; 22,191,260 and 22,106,374 voting shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively; 1,467,155 non-voting shares issued and outstanding at December 31, 2020 and December 31, 2019
154,454 153,570 
Retained earnings (Accumulated deficit)4,379 (3,955)
Accumulated other comprehensive income (loss)(84)(567)
Total shareholders’ equity158,749 149,048 
Total liabilities and shareholders’ equity$1,587,590 $1,416,154 

The accompanying notes are an integral part of these consolidated financial statements.
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PACIFIC MERCANTILE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except for per share data)
 Year Ended December 31,
 202020192018
Interest income:
Loans, including fees$58,699 $59,348 $57,626 
Securities available for sale and stock940 1,065 1,160 
Interest-bearing deposits with financial institutions959 5,264 3,756 
Total interest income60,598 65,677 62,542 
Interest expense:
Deposits7,529 14,282 12,070 
Borrowings1,087 1,839 1,550 
Total interest expense8,616 16,121 13,620 
Net interest income51,982 49,556 48,922 
Provision for loan and lease losses9,050 9,150 — 
Net interest income after provision for loan and lease losses42,932 40,406 48,922 
Noninterest income
Service fees on deposits and other banking services3,137 1,782 1,549 
Net gain on sale of securities available for sale171 — 48 
Net gain on sale of Small Business Administration loans547 1,029 — 
Net loss on sale of other assets(147)(42)(4)
Other noninterest income2,629 2,819 3,042 
Total noninterest income6,337 5,588 4,635 
Noninterest expense
Salaries and employee benefits22,429 23,411 23,749 
Occupancy2,677 2,553 2,388 
Equipment and depreciation2,024 1,884 1,802 
Data processing2,568 2,184 1,681 
FDIC expense 954 427 927 
Other real estate owned expense, net— 69 123 
Professional fees2,956 3,982 2,468 
Business development619 803 946 
Loan related expense592 639 769 
Insurance256 245 248 
Other operating expense1,772 1,982 1,869 
Total noninterest expense36,847 38,179 36,970 
Income before income taxes12,422 7,815 16,587 
Income tax provision (benefit)4,088 2,135 (10,752)
Net income allocable to common shareholders$8,334 $5,680 $27,339 
Basic income per common share:
Net income allocable to common shareholders$0.35 $0.24 $1.17 
Diluted income per common share:
Net income allocable to common shareholders$0.35 $0.24 $1.16 
Weighted average number of common shares outstanding:
Basic23,507,081 22,811,215 22,788,164 
Diluted23,716,144 23,631,879 23,527,183 


The accompanying notes are an integral part of these consolidated financial statements.
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PACIFIC MERCANTILE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)
 Year Ended December 31,
 202020192018
Net income $8,334 $5,680 $27,339 
Other comprehensive income (loss), net of tax:
Change in unrealized holding (loss) gain on securities available for sale654 577 (50)
Less: Reclassification adjustment for change in accounting principle— — (97)
Less: Reclassification adjustment for net gains included in net income171 — 48 
Net unrealized holding gain on securities available for sale483 577 (1)
Total comprehensive income $8,817 $6,257 $27,338 

The accompanying notes are an integral part of these consolidated financial statements.

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PACIFIC MERCANTILE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Shares and dollars in thousands)
For the Three Years Ended December 31, 2020
  
Series A Non-Voting
Preferred stock		Common stockRetained
earnings
(accumulated
deficit)		Accumulated
other
comprehensive
income (loss)		Total
Number
of shares		AmountNumber
of shares		Amount
Balance at December 31, 2017— $— 23,233 $150,689 $(36,670)$(1,143)$112,876 
Exchange common stock for Series A Non-Voting Preferred Stock1,467 8,480 (1,467)(8,480)— — — 
Implementation of ASU 2016-01
— — — — (97)— (97)
Issuance of restricted stock, net— — 75 — — — — 
Common stock based compensation expense— — — 885 — — 885 
Common stock options exercised— — 75 372 — — 372 
Net income— — — — 27,339 — 27,339 
Other comprehensive income— — — — — (1)(1)
Balance at December 31, 20181,467 $8,480 21,916 $143,466 $(9,428)$(1,144)$141,374 
Exchange Series A Non-Voting Preferred Stock to Non-Voting Common Stock(1,467)(8,480)1,467 8,480 — — — 
Implementation of ASU 2016-02
— — — — (207)— (207)
Issuance of restricted stock, net— — 105 — — — — 
Common stock based compensation expense— — — 1,057 — — 1,057 
Common stock options exercised— — 86 567 — — 567 
Net income— — — — 5,680 — 5,680 
Other comprehensive loss— — — — — 577 577 
Balance at December 31, 2019— $— 23,574 $153,570 $(3,955)$(567)$149,048 
Issuance of restricted stock, net— — 48 — — — — 
Restricted stock exchanged for common stock— — 25 — — — — 
Common stock based compensation expense— — — 834 — — 834 
Common stock options exercised— — 11 50 — — 50 
Net income— — — — 8,334 — 8,334 
Other comprehensive income— — — — — 483 483 
Balance at December 31, 2020— $— 23,658 $154,454 $4,379 $(84)$158,749 

The accompanying notes are an integral part of these consolidated financial statements.
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PACIFIC MERCANTILE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in thousands)
Year Ended December 31,
 202020192018
Cash Flows From Operating Activities:
Net income $8,334 $5,680 $27,339 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization373 419 405 
Provision for loan and lease losses9,050 9,150 — 
Amortization of premium on securities128 150 179 
Net gain on sale of securities available for sale(171)— (48)
Unrealized gain/loss on other investments— — 59 
Net amortization (accretion) of deferred fees and unearned income on loans(5,290)(663)50 
Net loss (gain) on sales of other real estate owned— 66 (29)
Net loss on sale of other assets147 42 4 
Net gain on sale of Small Business Administration loans(547)(1,029)— 
Small Business Administration loan originations(5,790)(12,009)— 
Proceeds from sale of Small Business Administration loans6,393 13,173 — 
Write down of other real estate owned— — 102 
Stock-based compensation expense834 1,057 885 
Changes in operating assets and liabilities:
Net increase in accrued interest receivable(1,571)(92)(131)
Net decrease (increase) in other assets793 5,940 (3,193)
Net (increase) decrease in deferred taxes(271)2,259 (11,077)
Net (increase) decrease in income taxes receivable(191)188 226 
Net (decrease) increase in accrued interest payable(210)37 (36)
Net (decrease) increase in other liabilities(1,832)(7,347)2,529 
Net cash provided by operating activities10,179 17,021 17,264 
Cash Flows From Investing Activities:
Net decrease in interest-bearing time deposits with financial institutions823 — 500 
Maturities of and principal payments received on securities available for sale and other stock6,079 8,580 5,978 
Purchase of securities available for sale and other stock(22,693)(5,024)(5,215)
Proceeds from sale of securities available for sale and other stock3,504 912 6,883 
Principal payments received on other investments— — 17 
Purchase of other investments(556)(876)(364)
Proceeds from sale of other real estate owned— 1,107 827 
Net increase in loans(95,310)(42,993)(32,316)
Proceeds from sale of other assets580 55 32 
Purchases of premises and equipment(302)(497)(350)
Net cash used in investing activities(107,875)(38,736)(24,008)
Cash Flows From Financing Activities:
Net increase (decrease) in deposits183,777 63,568 (3,391)
Proceeds from borrowings113,962 95,000 71,000 
Payments of borrowings(133,962)(105,000)(71,727)
Proceeds from exercise of common stock options50 567 372 
Net cash provided by (used in) financing activities163,827 54,135 (3,746)
Net increase in cash and cash equivalents66,131 32,420 (10,490)
Cash and Cash Equivalents, beginning of period220,138 187,718 198,208 
Cash and Cash Equivalents, end of period$286,269 $220,138 $187,718 
Supplementary Cash Flow Information:
Cash paid for interest on deposits and other borrowings$8,826 $16,084 $13,656 
Cash paid for income taxes$4,166 $62 $99 
 The accompanying notes are an integral part of these consolidated financial statements.
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(Dollars in thousands)Year Ended December 31,
 202020192018
Noncash Investing Activities:
Transfer of loans into other real estate owned$— $— $1,346 
Transfer of loans into other assets$693 $161 $15 
Impact of change in accounting principle$— $— $97 
Assumption of debt upon foreclosure of property$— $— $727 
Right of use assets$— $12,677 $— 
Noncash Financing Activities:
Exchange of common stock for non-voting preferred stock$— $— $8,480 
Exchange of non-voting preferred stock for non-voting common stock$— $8,480 $— 
The accompanying notes are an integral part of these consolidated financial statements.

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1. Nature of Business
Organization
Pacific Mercantile Bancorp (“PMBC”) is a bank holding company which, through its wholly owned subsidiary, Pacific Mercantile Bank (the “Bank”), is engaged in the commercial banking business in Southern California. PMBC is registered as a one bank holding company under the United States Bank Holding Company Act of 1956, as amended, and, as such, is regulated by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and the Federal Reserve Bank of San Francisco (“FRBSF”) under delegated authority from the Federal Reserve Board. Substantially all of our operations are conducted and substantially all of our assets are owned by the Bank, which accounts for substantially all of our consolidated revenues, expenses, and income. The Bank provides a full range of banking services to middle-market businesses and professionals primarily in Orange, Los Angeles, San Bernardino and San Diego counties in Southern California and is subject to competition from, among other things, other banks and financial institutions and from financial services organizations conducting operations in those same markets. The Bank is chartered by the California Department of Financial Protection and Innovation under the Division of Financial Institutions and is a member of the FRBSF. In addition, the deposit accounts of the Bank’s customers are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to the maximum amount allowed by law.
During the third quarter of 2018, PMBC dissolved its wholly-owned subsidiary, PM Asset Resolution, Inc. ("PMAR"), which was established for the purpose of purchasing certain non-performing loans and other real estate from the Bank and thereafter collecting or disposing of those assets. Prior to PMAR being dissolved, all assets were liquidated and returned to PMBC.
PMBC, the Bank and PMAR are sometimes referred to, together, on a consolidated basis, as the “Company” or as “we”, “us” or “our”.

2. Significant Accounting Policies
The accompanying consolidated financial statements have been prepared in accordance with the instructions of the U.S. Securities and Exchange Commission (the “SEC”) to Form 10-K and in accordance with generally accepted accounting principles in effect in the United States (“GAAP”), on a basis consistent with prior periods.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires us to make certain estimates and assumptions that could affect the reported amounts of certain of our assets, liabilities, and contingencies at the date of the financial statements and the reported amounts of our revenues and expenses during the reporting periods. Material estimates that are particularly susceptible to changes in the near term relate primarily to our determinations of the allowance for loan and lease losses (“ALLL”), the fair values of securities available for sale, and the determination of a valuation allowance pertaining to deferred tax assets. If circumstances or financial trends on which those estimates were based were to change in the future or there were to occur any currently unanticipated events affecting the amounts of those estimates, our future financial position or results of operations could differ, possibly materially, from those expected at the current time.
Principles of Consolidation
Our consolidated financial statements for the years ended December 31, 2020, 2019 and 2018 include the accounts of PMBC, the Bank and PMAR. All significant intercompany balances and transactions were eliminated in consolidation. 
Cash and Cash Equivalents
For purposes of the statements of cash flow, cash and cash equivalents consist of cash and due from banks, interest bearing demand deposits with the FRBSF, federal funds sold and interest-bearing deposits, with original maturities of 90 days or less, with financial institutions. Generally, federal funds are sold for one-day periods. As of December 31, 2020 and 2019, the Bank maintained required reserves with FRBSF of approximately $0 and $3,856,000, respectively, which are included in cash and due from banks in the accompanying consolidated statements of financial condition.
Federal Home Loan Bank Stock and Federal Reserve Bank Stock
The Bank, as a member of the Federal Home Loan Bank System, is required to maintain an investment in capital stock of the Federal Home Loan Bank of San Francisco (“FHLB”) in varying amounts based on asset size and on amounts borrowed
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from the FHLB. Because no ready market exists and there is no quoted market value for this stock, the Bank’s investment in this stock is carried at cost.
The Bank also maintains an investment in capital stock of the FRBSF, which is carried at cost because no ready market exists and there is no quoted market value for this stock.
Securities Available for Sale, at Fair Value
Securities available for sale are those which we intend to hold for an indefinite period of time, but which may be sold in response to changes in liquidity needs, changes in interest rates, changes in prepayment risks and other similar factors. These securities are recorded at fair value, with unrealized gains and losses excluded from earnings and reported as other comprehensive income or loss, net of taxes. Purchased premiums and discounts are recognized as interest income using the interest method over the term of these securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
Declines in the fair value of these securities below their cost which are other-than-temporary are reflected in earnings as realized losses. In determining other-than-temporary losses, we consider a number of factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether we have the intent to sell the security or it is more likely than not that we will be required to sell the security before its anticipated recovery. A high degree of subjectivity and judgment is involved in assessing whether an other-than-temporary decline exists and such assessments are based on information available to us at the time we make such assessments. We recognize other-than-temporary impairments (“OTTI”) to our available-for-sale debt securities in accordance with FASB ASC 320-10. When there are credit losses associated with, but we have no intention to sell, an impaired debt security, and it is more likely than not that we will not have to sell the security before recovery of its cost basis, we will separate the amount of impairment, or OTTI, between the amount that is credit-related and the amount that is related to non-credit factors. Credit-related impairments are recognized in our consolidated statements of operations. Any non-credit-related impairments are recognized and reflected in other comprehensive income in our consolidated statements of financial condition.
Loans and Allowance for Loan and Lease Losses
Loans that we intend and have the ability to hold for the foreseeable future or until maturity or pay-off are stated at their respective principal amounts outstanding, net of unearned income. Interest is accrued daily as earned, except where reasonable doubt exists as to collectability of the loan. A loan with principal or interest that is 90 days or more past due, based on its contractual payment due dates, is placed on nonaccrual status, in which case accrual of interest is discontinued, except that we may elect to continue the accrual of interest when the estimated net realizable value of collateral securing the loan is expected to be sufficient to enable us to recover both principal and accrued interest and those loans are in the process of collection. Generally, interest payments received on nonaccrual loans are applied to principal. Once all principal has been received by us, any additional interest payments are recognized as interest income on a cash basis.
An ALLL is established by means of a provision for loan and lease losses that is charged against income. If we conclude that the collection, in full, of the carrying amount of a loan has become unlikely, the loan, or the portion thereof that is believed to be uncollectible, is charged against the ALLL. We carefully monitor changing economic conditions, the loan portfolio by category, the financial condition of borrowers and the history of the performance of the loan portfolio in determining the adequacy of the ALLL. Additionally, as the volume of loans increases, additional provisions for loan losses may be required to maintain the allowance at levels deemed adequate. Moreover, if economic conditions were to deteriorate, causing the risk of loan losses to increase, it would become necessary to increase the allowance to an even greater extent, which would necessitate additional provisions that would be charged to income. We also evaluate the unfunded portion of loan commitments and establish a loss reserve, included in other liabilities, for such unfunded commitments through a charge against noninterest expense. The loss reserve for unfunded loan commitments was $350,000 at December 31, 2020 and 2019.
The ALLL is based on estimates, and ultimate loan losses may vary from current estimates. These estimates are reviewed periodically and, as adjustments become necessary, they are recorded in earnings in the periods in which they become known.
Impaired Loans
A loan is generally classified as impaired when, in management’s opinion, the principal or interest will not be collectible in accordance with its contractual terms. We measure and reserve for impairment on a loan-by-loan basis using
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either the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral if the loan is collateral dependent. We exclude smaller, homogeneous loans, such as consumer installment loans and lines of credit, from these impairment calculations. Also, loans that experience insignificant payment delays or shortfalls are generally not considered impaired.
Restructured Loans
We sometimes modify or restructure loans when the borrower is experiencing financial difficulties by making a concession to the borrower in the form of changes in the amortization terms, reductions in the interest rates, the acceptance of interest only payments and, in limited cases, concessions to the outstanding loan balances. These loans are classified as troubled debt restructurings (“TDRs”) and considered impaired loans. TDRs are loans modified for the purpose of alleviating temporary impairments to the borrower’s financial condition or cash flows. A workout plan between us and the borrower is designed to provide a bridge for borrower cash flow shortfalls in the near term. A TDR loan may be returned to accrual status when the loan is brought current, has performed in accordance with the contractual restructured terms for a time frame of at least six months and the ultimate collectability of the total contractual restructured principal and interest in no longer in doubt. These loans, while no longer considered a TDR, are still considered impaired loans.
The CARES Act, passed by Congress during the first quarter of 2020 in response to COVID-19, allows us to provide assistance in the form of loan modifications to our borrowers negatively impacted by the pandemic. These loans are not classified as TDRs or considered impaired if the borrowers were current as of December 31, 2019 and their ability to pay was impacted by COVID-19. The loan modifications provided were limited to payment deferrals and the majority of borrowers that received loan deferrals earlier in the year have now returned to normal payment schedules. As of December 31, 2020, we had 16 loans with an outstanding balance of $20.4 million that were under a payment deferral.
Loan Origination Fees and Costs
Loan origination fees and related direct costs for loans held for investment are deferred and amortized to interest income as an adjustment to yield over the respective lives of the loans using the effective interest method, except for loans that are revolving or short-term in nature for which the straight line method is used, which approximates the interest method.
Investment in Unconsolidated Subsidiaries
Investment in unconsolidated subsidiaries is stated at cost. The unconsolidated subsidiaries are comprised of two grantor trusts established in 2002 and 2004 in connection with our issuance of subordinated debentures in each of those years. Prior to 2004, we organized two business trusts, under the names PMB Statutory Trust III and PMB Capital Trust III, to facilitate our issuance of $7.2 million and $10.3 million, respectively, principal amount of junior subordinated debentures with maturity dates in 2032 and 2034, respectively. The principal amounts remain outstanding as of December 31, 2020.
Other Real Estate Owned
Other real estate owned (“OREO”) consists of real properties acquired by us through foreclosure or in lieu of foreclosure in satisfaction of loans. OREO is recorded at fair value less estimated selling costs at the time of acquisition or foreclosure. Loan balances in excess of fair value, less selling costs, are charged to the ALLL prior to foreclosure. Any subsequent operating expenses or income, reductions in estimated fair values and gains or losses on disposition of such properties are charged or credited to current operations.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and amortization which are charged to expense on a straight-line basis over the estimated useful lives of the assets or, in the case of leasehold improvements, over the term of the leases, whichever is shorter. For income tax purposes, accelerated depreciation methods are used. Maintenance and repairs are charged directly to expense as incurred. Improvements to premises and equipment that extend their useful lives are capitalized.
When such an asset is disposed of, the applicable costs and accumulated depreciation thereon are removed from the accounts and any resulting gain or loss is included in current operations. Rates of depreciation and amortization are based on the following estimated useful lives:
Furniture and equipment
Three to seven years
Leasehold improvementsLesser of the lease term or estimated useful life
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Income Taxes
Deferred income taxes and liabilities are determined using the asset and liability method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.
We record as a deferred tax asset on our balance sheet an amount equal to the tax credit and tax loss carryforwards and tax deductions ("tax benefits") that we believe will be available to us to offset or reduce the amount of our income taxes in future periods. Under applicable federal and state income tax laws and regulations, such tax benefits will expire if not used within specified periods of time. Accordingly, the ability to fully use our deferred tax asset depends on the amount of taxable income that we generate during those time periods. At least once each year, or more frequently, if warranted, we make estimates of future taxable income that we believe we are likely to generate during those future periods. If we conclude, on the basis of those estimates and the amount of the tax benefits available to us, that it is more likely than not that we will be able to fully utilize those tax benefits prior to their expiration, we recognize the deferred tax asset in full on our balance sheet. On the other hand, if we conclude on the basis of those estimates and the amount of the tax benefits available to us that it has become more likely than not that we will be unable to utilize those tax benefits in full prior to their expiration, then, we would establish (or increase any existing) valuation allowance to reduce the deferred tax asset on our balance sheet to the amount which we believe we are more likely than not to be able to utilize. Such a reduction is implemented by recognizing a non-cash charge that would have the effect of increasing the provision, or reducing any credit, for income taxes that we would otherwise have recorded in our statement of operations. The determination of whether and the extent to which we will be able to utilize our deferred tax asset involves significant management judgments and assumptions that are subject to period to period changes as a result of changes in tax laws, changes in market or economic conditions that could affect our operating results or variances between our actual operating results and our projected operating results, as well as other factors.
Uncertain tax positions that meet the more likely than not recognition threshold are measured to determine the amount of benefit to recognize. An uncertain tax position is measured at the largest amount of benefit that management believes has a greater than 50% likelihood of realization upon settlement.
Earnings (Loss) Per Share
Basic income (loss) per share for any fiscal period is computed by dividing net income (loss) allocable to our common shareholders for such period by the weighted average number of common shares outstanding during that period. Fully diluted income (loss) per share reflects the potential dilution that could have occurred assuming the conversion of any convertible securities into common stock at conversion prices, and the exercise of all outstanding options and warrants to purchase shares of our common stock at exercise prices, that were less than the market price of our shares, thereby increasing the number of shares outstanding during the period, and is determined using the treasury method. Although accumulated undeclared dividends on our preferred stock are not recorded in the accompanying consolidated statement of operations, such dividends are included for purposes of computing earnings (loss) per share available to our common shareholders.
Stock Option Plans
We follow Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 718-10, Share-Based Payment, which requires entities that grant stock options or other equity compensation awards to employees to recognize in their financial statements the fair values of those options or share awards as compensation cost over their requisite service (vesting) periods of those options or share awards. Since stock-based compensation cost that is recognized in the statements of operations is to be determined based on the equity compensation awards that we expect will ultimately vest, that compensation expense is reduced for any forfeitures of unvested options or unvested share awards that typically occur due primarily to terminations of employment of optionees or recipients of such share awards. In accordance with Accounting Standard Update (“ASU”) 2016-09, forfeitures are recognized as they occur instead of applying an estimated forfeiture rate to each grant, which was the previous practice. For purposes of the determination of stock-based compensation expense for the year ended December 31, 2020, we recognized actual forfeitures of 15,906, 28,402 and zero shares subject to the stock option, restricted stock, and stock unit awards, respectively, that were granted to officers and other employees.
Comprehensive Income (Loss)
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. However, certain changes in assets and liabilities, such as unrealized gains and losses on securities available for sale, are reported as a separate component of the equity in the accompanying consolidated statement of financial condition, net of income taxes, and such items, along with net income, are components of comprehensive income (loss).
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Segment Reporting
During the years ended December 31, 2020, 2019 and 2018, we had one reportable segment, which was our commercial banking division, and one non-reportable segment which was our discontinued operations related to our mortgage banking division. In connection with our exit from the mortgage banking business in 2013, the revenues and expenses of our mortgage banking division have been classified as discontinued operations for all periods presented.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires the measurement of all expected credit losses for financial assets held at the reporting date, based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions will now use forward-looking information to better inform their credit loss estimates. Additionally, the ASU amends the accounting guidance for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. On November 15, 2019, the FASB issued ASU 2019-10, "Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates" which finalizes various effective date delays for private companies, not-for-profit organizations, and smaller reporting companies applying the credit losses (CECL), leases, and hedging standards. The effective date for smaller reporting companies has been delayed from the interim and annual periods beginning after December 15, 2020 to the interim and annual periods beginning after December 15, 2022. Early adoption is permitted for interim and annual periods beginning after December 15, 2018. Upon issuance of the final ASU, we plan to adopt this guidance on January 1, 2023 and expect that it will have a material impact on the determination of our ALLL. We are unable to estimate the expected impact to the ALLL upon adoption due to various factors, primarily the fine tuning of our qualitative assumptions used within our preliminary model, uncertainty regarding economic conditions and the size and mix of our loan portfolio at the time of adoption, which could impact our historical loss factors. We are currently working with our existing ALLL software provider on further developing the model to perform the ALLL calculations upon adoption and we believe that we currently have in place the internal team capable of handling this implementation.
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes," which eliminates certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance is effective for public business entities for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. We adopted this guidance on January 1, 2021, and do not expect any material impact related to this pronouncement.
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides temporary optional expedients to ease the financial reporting burdens of the expected market transition from London Interbank Offered Rate (LIBOR) to an alternative reference rate such as Secured Overnight Financing Rate (SOFR). The guidance was effective upon issuance and generally can be applied through December 31, 2022. We are currently evaluating this guidance to determine the date of adoption and the impact on the Company.
In October 2020, the FASB issue ASU 2020-08, "Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs," which clarified that for each reporting period, an entity should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 of the FASB’s Accounting Standards Codification. This guidance is effective for public business entities for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. We adopted this guidance on January 1, 2021.
Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. The Company recognizes in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing the financial statements. The Company’s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before financial statements are available to be issued.
The Company has evaluated events subsequent to the balance sheet date through the date these consolidated financial statements were filed with the SEC.
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3. Fair Value Measurements
Under FASB ASC 820-10, we group assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
Risks with Fair Value Measurements
Fair value estimates are made at a discrete point in time based on relevant market information and other information about the financial instruments. Because no active market exists for a significant portion of our financial instruments, fair value estimates are based in large part on judgments we make primarily regarding current economic conditions, risk characteristics of various financial instruments, prepayment rates, and future expected loss experience. These estimates are subjective in nature and invariably involve some inherent uncertainties. Additionally, the occurrence of unexpected events or changes in circumstances can occur that could require us to make changes to our assumptions and which, in turn, could significantly affect and require us to make changes to our previous estimates of fair value.
In addition, the fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of existing and anticipated future client relationships and the value of assets and liabilities that are not considered financial instruments, such as premises and equipment and OREO.
Measurement Methodology
Cash and Cash Equivalents. The fair value of cash and cash equivalents approximates its carrying value.
Interest-Bearing Deposits with Financial Institutions. The fair values of interest-bearing deposits maturing within one year approximate their carrying values.
FHLB and FRBSF Stock. The Bank is a member of the Federal Home Loan Bank of San Francisco (“FHLB”) and the FRBSF. As members, we are required to own stock of the FHLB and the FRBSF, the amount of which is based primarily on the level of our borrowings from those institutions. We also have the right to acquire additional shares of stock in either or both of the FHLB and the FRBSF. During the year ended December 31, 2020, we purchased no FHLB or FRBSF stock. No shares of FHLB or FRBSF stock were called during the year ended December 31, 2020. During the year ended December 31, 2019, we purchased no FHLB or FRBSF stock. No shares of FHLB stock or FRBSF stock were called during the year ended December 31, 2019. The fair values of the FHLB and FRBSF stock are equal to their respective carrying amounts, are classified as restricted securities and are periodically evaluated for impairment based on our assessment of the ultimate recoverability of our investments in that stock. Any cash or stock dividends paid to us on such stock are reported as income.
Investment Securities Available for Sale. Fair value measurement for our investment securities available for sale is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 investment securities include those traded on an active exchange, such as the New York Stock Exchange, and U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets. Level 2 investment securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.
Equity Investments Without Readily Determinable Fair Value. Equity investments without readily determinable fair value are accounted for under the measurement alternative method of accounting. These investments are measured at cost, less any impairment, plus or minus any changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Any cash or stock dividends paid to us on such investments are reported as noninterest income.
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Impaired Loans. Loans measured for impairment are measured at an observable market price (if available), or the fair value of the loan’s collateral (if the loan is collateral dependent). The fair value of an impaired loan may be estimated using one of several methods, including collateral value, market value of similar debt, liquidation value and discounted cash flows. Those impaired loans not requiring a specific loan loss reserve represent loans for which the fair value of the expected repayments or collateral exceeds the recorded investments in such loans. When the fair value of the collateral is based on an observable market price or a current appraised value, we record the impaired loan at Level 2. When an appraised value is not available or we determine that the fair value of the collateral is further impaired below the appraised value and there is no observable market price, we record the impaired loan at Level 3.
Loans. The fair value for loans with variable interest rates less a credit discount is the carrying amount. The fair value of fixed rate loans is derived by calculating the present value of expected future cash flows discounted at the loan’s original interest rate by the various homogeneous categories of loans. All loans have been adjusted to reflect changes in credit risk and represent the exit price of the loans. Changes are not recorded directly as an adjustment to current earnings or comprehensive income, but rather as an adjustment component in determining the overall adequacy of the loan loss reserve.
Other Real Estate Owned. OREO is reported at its net realizable value (fair value less estimated costs to sell) at the time any real estate collateral is acquired by the Bank in satisfaction of a loan. Subsequently, OREO is carried at the lower of carrying value or fair value less estimated costs to sell. Fair value is determined based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, we record the foreclosed asset at Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, we record the foreclosed asset at Level 3.
Other Foreclosed Assets. Other foreclosed assets are reported at their net realizable value (fair value less estimated costs to sell) at the time any collateral other than real estate is acquired by the Bank in satisfaction of a loan. Subsequently, other foreclosed assets are carried at the lower of carrying value or fair value less estimated costs to sell. Fair value is determined based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, we record the foreclosed asset at Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, we record the foreclosed asset at Level 3.

Deposits. Deposits are carried at historical cost. The carrying amounts of deposits from savings and money market accounts are deemed to approximate fair value as they either have no stated maturities or short-term maturities. Certificates of deposit are estimated utilizing discounted cash flow techniques. The interest rates applied are rates currently being offered for similar certificates of deposit.
Borrowings. The fair value of borrowings is the carrying amount for those borrowings that mature on a daily basis. The fair value of term borrowings is derived by calculating the discounted value of future cash flows expected to be paid out by the Company. We classify our borrowings in Level 2 of the fair value hierarchy.
Junior Subordinated Debentures. The fair value of the junior subordinated debentures is based on quoted market prices of the underlying securities. These securities are variable rate in nature and repriced quarterly. We classify our junior subordinated debentures in Level 2 of the fair value hierarchy.
Commitments to Extend Credit and Standby Letters of Credit. The fair value of commitments to extend credit and standby letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.
Interest Receivable and Interest Payable. The carrying amounts of our accrued interest receivable and accrued interest payable are deemed to approximate fair value.

Assets Recorded at Fair Value on a Recurring Basis
The following tables show the recorded amounts of assets and liabilities measured at fair value on a recurring basis at December 31, 2020 and 2019.
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 At December 31, 2020
TotalLevel 1Level 2Level 3
(Dollars in thousands)
Assets at Fair Value:
Debt securities available for sale
Commercial mortgage backed securities issued by U.S. Agencies$20,673 $— $20,673 $— 
Residential mortgage backed securities issued by U.S. agencies14,436 — 14,436 — 
Corporate subordinated debt7,074 — 7,074 — 
Total debt securities available for sale at fair value$42,183 $— $42,183 $— 

 
 At December 31, 2019
TotalLevel 1Level 2Level 3
(Dollars in thousands)
Assets at Fair Value:
Debt securities available for sale
Commercial mortgage backed securities issued by U.S. Agencies$9,229 $— $9,229 $— 
Residential mortgage backed securities issued by U.S. agencies19,115 — 19,115 — 
Total debt securities available for sale$28,344 $— $28,344 $— 
Assets Recorded at Fair Value on a Nonrecurring Basis
We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets. Information regarding assets measured at fair value on a nonrecurring basis is set forth in the table below.
 At December 31, 2020At December 31, 2019
TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
Assets at Fair Value:(Dollars in thousands)
Impaired loans$39,916 $— $— $39,916 $15,682 $— $— $15,682 
Other foreclosed assets
231 — 231 — 164 — 164 — 
Total$40,147 $— $231 $39,916 $15,846 $— $164 $15,682 
 
Significant Unobservable Inputs and Valuation Techniques of Level 3 Fair Value Measurements
    For our fair value measurements classified in Level 3 of the fair value hierarchy as of December 31, 2020, a summary of the significant unobservable inputs and valuation techniques is as follows:
Fair Value Measurement as of December 31, 2020Valuation TechniquesUnobservable InputsRangeWeighted Average
(Dollars in thousands)
Assets
Impaired loans39,916 Third-Party PricingDiscounted cash flow
N/A (2)
$39,916 
(1)As part of our process, we obtain appraisals for our various properties included within impaired loans which primarily rely upon market comparisons. These market comparisons support our assumption that the carrying value of the respective loans either requires or does not require additional impairment.
(2)As of December 31, 2020, there has been no change to our valuation techniques or the types of unobservable inputs used in the calculation of fair value from December 31, 2019.
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Fair Value Measurements for Other Financial Instruments
The table below provides estimated fair values and related carrying amounts of our financial instruments as of December 31, 2020 and December 31, 2019, excluding financial assets and liabilities which are recorded at fair value on a recurring basis.
Estimated Fair Value
At December 31, 2020At December 31, 2019
Carrying ValueTotalLevel 1Level 2Level 3Carrying ValueTotalLevel 1Level 2Level 3
(Dollars in thousands)
Financial assets:
Cash and cash equivalents$286,269 $286,269 $286,269 — — $220,138 $220,138 $220,138 — — 
Interest-bearing deposits with financial institutions1,597 1,597 1,597 — — 2,420 2,420 2,420 — — 
Federal Reserve Bank of San Francisco and Federal Home Loan Bank stock7,910 7,910 7,910 — — 7,910 7,910 7,910 — — 
Loans, net1,209,587 1,218,096 — — 1,218,096 1,117,511 1,120,096 — — 1,120,096 
Accrued interest receivable5,666 5,666 5,666 — — 4,095 4,095 4,095 — — 
Financial liabilities:
Noninterest bearing deposits647,115 647,115 647,115 — — 397,000 397,000 397,000 — — 
Interest-bearing deposits736,232 737,888 — 737,888 — 802,570 803,549 — 803,549 — 
Borrowings6,038 10,009 — 10,009 — 30,000 29,974 — 29,974 — 
Junior subordinated debentures17,527 17,527 — 17,527 — 17,527 17,527 — 17,527 — 
Accrued interest payable188 188 188 — — 398 398 398 — — 
 

4. Investments
Securities Available For Sale, at Fair Value
The following table sets forth the major components of securities available for sale and compares the amortized costs and estimated fair market values of, and the gross unrealized gains and losses on, these securities at December 31, 2020 and December 31, 2019:
December 31, 2020December 31, 2019
Amortized
Cost		Gross UnrealizedEstimated
Fair Value		Amortized
Cost		Gross UnrealizedEstimated
Fair Value
GainLossGainLoss
(Dollars in thousands)
Securities Available for Sale
Commercial mortgage backed securities issued by U.S. Agencies(1)
20,585 214 (126)20,673 9,147 128 (46)9,229 
Residential mortgage backed securities issued by U.S. Agencies(2)
14,061 379 (4)14,436 19,380 12 (277)19,115 
Corporate subordinated debt7,035 42 (3)7,074 — — — — 
Total$41,681 $635 $(133)$42,183 $28,527 $140 $(323)$28,344 
(1)Secured by first liens on commercial apartment building mortgages.
(2)Secured by closed-end first liens on 1-4 family residential mortgages.
At December 31, 2020 and 2019, U.S. agency mortgage backed securities and collateralized mortgage obligations with an aggregate fair market value of $2.0 million and $9.2 million, respectively, were pledged to secure FHLB borrowings, repurchase agreements, local agency deposits and treasury, tax and loan accounts.
The amortized cost and estimated fair values of securities available for sale at December 31, 2020 and December 31, 2019 are shown in the tables below by contractual maturities taking into consideration historical prepayments based on the prior twelve months of principal payments. Expected maturities will differ from contractual maturities and historical prepayments, particularly with respect to collateralized mortgage obligations, primarily because prepayment rates are affected by changes in conditions in the interest rate market and, therefore, future prepayment rates may differ from historical prepayment rates.
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 At December 31, 2020 Maturing in
One year
or less		Over one
year through
five years		Over five
years through
ten years		Over ten
Years		Total
(Dollars in thousands)
Securities available for sale, amortized cost$5,657 $19,953 $6,368 $9,703 $41,681 
Securities available for sale, estimated fair value5,770 20,353 6,422 9,638 42,183 
Weighted average yield1.27 %2.27 %1.27 %1.38 %1.77 %
 At December 31, 2019 Maturing in
One year
or less		Over one
year through
five years		Over five
years through
ten years		Over ten
Years		Total
(Dollars in thousands)
Securities available for sale, amortized cost$5,286 $13,032 $6,842 $3,367 $28,527 
Securities available for sale, estimated fair value5,230 12,887 6,849 3,378 28,344 
Weighted average yield1.58 %1.66 %2.22 %2.53 %1.88 %
 
During the years ended December 31, 2020 and 2019, we purchased $22.5 million and $5.0 million, respectively, of securities available for sale. Securities available for sale of $4.5 million were purchased during the year ended December 31, 2018. We sold $3.5 million of securities available for sale during the year ended December 31, 2020, for a total net gain on sale of $171 thousand. We had no sales of securities available for sale during the year ended December 31, 2019. During the year 2018, we had $2.1 million of proceeds from sales of securities available for sale for a total net loss of $53 thousand.
The tables below indicate, as of December 31, 2020 and December 31, 2019, the gross unrealized losses and fair values of our investments, aggregated by investment category, and length of time that the individual securities have been in a continuous unrealized loss position.
 Securities with Unrealized Loss at December 31, 2020
 Less than 12 months12 months or moreTotal
Fair ValueUnrealized
Loss		Fair ValueUnrealized
Loss		Fair ValueUnrealized
Loss
(Dollars in thousands)
Commercial mortgage backed securities issued by U.S. Agencies7,483 (126)— — 7,483 (126)
Residential mortgage backed securities issued by U.S. Agencies68 (1)126 (3)194 (4)
Corporate subordinated debt4,032 (3)— — 4,032 (3)
Total$11,583 $(130)$126 $(3)$11,709 $(133)
  
Securities with Unrealized Loss at December 31, 2019
 Less than 12 months12 months or moreTotal
Fair ValueUnrealized
Loss		Fair ValueUnrealized
Loss		Fair ValueUnrealized
Loss
(Dollars in thousands)
Commercial mortgage backed securities issued by U.S. Agencies4,472 (46)— — 4,472 (46)
Residential mortgage backed securities issued by U.S. Agencies76 (1)15,965 (276)16,041 (277)
Total$4,548 $(47)$15,965 $(276)$20,513 $(323)
We regularly monitor investments for significant declines in fair value. We have determined that declines in the fair values of these investments below their respective amortized costs, as set forth in the tables above, are temporary because (i) those declines were due to interest rate changes and not to a deterioration in the creditworthiness of the issuers of those investment securities, and (ii) we have the ability to hold those securities until there is a recovery in their values or until their maturity.
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Through the impairment assessment process, we determined that there were no available-for-sale debt securities that were other-than-temporarily impaired at December 31, 2020. We recorded no impairment credit losses on available-for-sale debt securities in our consolidated statements of operations for the year ended December 31, 2020 and 2019.
We have made a determination that the remainder of our securities with respect to which there were unrealized losses as of December 31, 2020 are not other-than-temporarily impaired, because we have concluded that we have the ability to continue to hold those securities until their respective fair market values increase above their respective amortized costs or, if necessary, until their respective maturities. In reaching that conclusion we considered a number of factors and other information, which included: (i) the significance of each such security, (ii) the amount of the unrealized losses attributable to each such security, (iii) our liquidity position, (iv) the impact that retention of those securities could have on our capital position and (v) our evaluation of the expected future performance of these securities (based on the criteria discussed above).
Equity Investments Without Readily Determinable Fair Value
As of December 31, 2020, we had three investments in limited partnerships without a readily determinable fair value. As of December 31, 2020, we owned less than 3% of the total investment in each partnership. Under ASU 2016-01, we elected to measure these equity investments using the measurement alternative, which requires that these investments are measured at cost, less any impairment, plus or minus any changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. During the year ended December 31, 2020, these investments were not impaired and there were no observable price changes. As a result, the balance shown below as of December 31, 2020 represents the cost of the investments and is included within other assets on the consolidated statements of financial condition. During the year ended December 31, 2020, we had $556 thousand of capital contributions to these investments, and no return of principal. We had $876 thousand of capital contributions to these investments during the year ended December 31, 2019, and no return of principal. As of December 31, 2020 and December 31, 2019, our equity investments without readily determinable fair value were as follows:
December 31, 2020December 31, 2019
(Dollars in thousands)
Equity investments without readily determinable fair value$2,673 $2,117 

5. Loans and Allowance for Loan and Lease Losses
The loan portfolio consisted of the following at:
 December 31, 2020December 31, 2019
AmountPercentAmountPercent
(Dollars in thousands)
Commercial loans, excluding PPP$337,427 27.6 %$409,420 36.2 %
Commercial loans - PPP229,728 18.8 %— — %
Commercial real estate loans – owner occupied197,336 16.1 %219,483 19.5 %
Commercial real estate loans – all other194,893 15.9 %208,283 18.5 %
Residential mortgage loans – multi-family159,182 13.0 %176,523 15.7 %
Residential mortgage loans – single family12,766 1.0 %18,782 1.7 %
Construction and land development loans11,766 1.0 %2,981 0.3 %
Consumer loans80,759 6.6 %90,867 8.1 %
Gross loans1,223,857 100.0 %1,126,339 100.0 %
Deferred loan fees and costs, net3,182 4,783 
Allowance for loan and lease losses(17,452)(13,611)
Loans, net$1,209,587 $1,117,511 

At December 31, 2020, we had $229.7 million of commercial loans originated through the Paycheck Protection Program ("PPP"), which is administered by the Small Business Administration ("SBA") and was established by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), and subsequently modified by the Paycheck Protection Program Flexibility Act ("PPPFA"). The PPP loans are 100% guaranteed by the SBA and the principal and interest may be forgiven by
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the SBA if the borrower demonstrates that the loan proceeds were used as prescribed by the governing legislation and regulations during either an 8-week or 24-week period following funding (the "Covered Period"). Borrowers began submitting applications for forgiveness in the third quarter of 2020 and have until 10 months following the end of their Covered Period to apply. As of December 31, 2020, $51.3 million of the $281.0 million originated PPP loans have been forgiven by the SBA.
At December 31, 2020 and 2019, real estate loans of approximately $434 million and $278 million, respectively, were pledged to secure borrowings obtained from the FHLB. At December 31, 2020 and 2019, commercial and consumer loans of $146 million and $210 million, respectively, were pledged to secure borrowings from the FRB to support our unfunded borrowing capacity. During the year ended December 31, 2020, we sold $5.8 million of Small Business Administration (SBA) loans at a premium for a net gain on sale of $547 thousand. During the year ended December 31, 2019, we sold $12.0 million of Small Business Administration (SBA) loans at a premium for a net gain on sale of $1.0 million. During the year ended December 31, 2018, we sold $15.1 million of commercial real estate loans at par value. During the year ended December 31, 2020, we purchased $10.4 million of commercial real estate - all other loans. During the year ended December 31, 2019, we purchased loans totaling $121.0 million, of which $81.0 million were multi-family mortgage and $39.9 million were consumer loans. We purchased $10.0 million of performing commercial real estate loans during the year ended December 31, 2018.
Allowance for Loan and Lease Losses
The ALLL represents our estimate of credit losses in our loan and lease portfolio that are probable and estimable at the balance sheet date. We employ economic models that are based on bank regulatory guidelines, industry standards and our own historical loan loss experience, as well as a number of more subjective qualitative factors, to determine both the sufficiency of the ALLL and the amount of the provisions that are required to increase or replenish the ALLL.
 
The ALLL is first determined by (i) analyzing all classified loans (graded as “Substandard” or “Doubtful” under our internal asset quality grading parameters) on non-accrual status for loss exposure and (ii) establishing specific reserves as needed. ASC 310-10 defines loan impairment as the existence of uncertainty concerning collection of all principal and interest in accordance with the contractual terms of a loan. For collateral dependent loans, impairment is typically measured by comparing the loan amount to the fair value of collateral, less estimated costs to sell, with any “shortfall” amount charged off. Other methods can be used in estimating impairment, including market price and the present value of expected future cash flows discounted at the loan’s original interest rate. We are an active lender with the U.S. Small Business Administration and collection of a percentage of the loan balance of many of the loans originated is guaranteed.  The ALLL reserves are calculated against the non-guaranteed loan balances. 
On a quarterly basis, we utilize a classification based loan loss migration model as well as review individual loans in determining the adequacy of the ALLL for homogenous pools of loans that are not subject to specific reserve allocations. Our loss migration analysis utilizes a series of nineteen staggered 16-quarter migration periods of loan loss history and industry loss factors to determine historical losses by classification category for each loan type, except certain consumer loans (automobile, mortgage and credit cards). We then apply these calculated loss factors, together with qualitative factors based on external economic conditions and trends and internal assessments, to the outstanding loan balances in each homogenous group of loans, and then, using our internal asset quality grading parameters, we grade the loans as “Pass,” “Special Mention,” “Substandard” or “Doubtful”. We analyze impaired loans individually. This grading is based on the credit classifications of assets as prescribed by government regulations and industry standards and is separated into the following groups:
•Pass: Loans classified as pass include current loans performing in accordance with contractual terms, installment/consumer loans that are not individually risk rated, and loans which exhibit certain risk factors that require greater than usual monitoring by management.
•Special Mention: Loans classified as special mention, while generally not delinquent, have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank’s credit position at some future date.
•Substandard: Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
•Doubtful: Loans classified as doubtful have all the weaknesses inherent in a substandard loan, and may also be at delinquency status and have defined weaknesses based on currently existing facts, conditions and values making collection or liquidation in full highly questionable and improbable.
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Set forth below is a summary of the activity in the ALLL, by portfolio type, during the years ended December 31, 2020, 2019 and 2018. Commercial - PPP loans are 100% guaranteed by the SBA and carry no allowance.
Commercial (excl PPP)Commercial PPPReal  EstateConstruction and Land
Development		Consumer and
Single Family
Mortgages		UnallocatedTotal
(Dollars in thousands)
ALLL in the year ended December 31, 2020:
Balance at beginning of year$8,883 $— $2,897 $34 $1,797 $— $13,611 
Charge offs(6,223)— — — (95)— (6,318)
Recoveries1,067 — — — 42 — 1,109 
Provision7,528 — 1,067 103 352 — 9,050 
Balance at end of year$11,255 $— $3,964 $137 $2,096 $— $17,452 
ALLL in the year ended December 31, 2019:
Balance at beginning of year$8,071 $— $3,643 $426 $1,290 $76 $13,506 
Charge offs(9,903)— (42)— (39)— (9,984)
Recoveries918 — — — 21 — 939 
Provision9,797 — (704)(392)525 (76)9,150 
Balance at end of year$8,883 $— $2,897 $34 $1,797 $— $13,611 
ALLL in the year ended December 31, 2018:
Balance at beginning of year$9,155 $— $2,906 $650 $1,043 $442 $14,196 
Charge offs(2,757)— — — (8)— (2,765)
Recoveries1,959 — 69 — 47 — 2,075 
Provision(286)— 668 (224)208 (366)— 
Balance at end of year$8,071 $— $3,643 $426 $1,290 $76 $13,506 
Set forth below is information regarding loan balances and the related ALLL, by portfolio type, as of December 31, 2020 and December 31, 2019.
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Commercial (excl PPP)Commercial PPPReal  EstateLand
Development		Consumer and
Single Family
Mortgages		UnallocatedTotal
(Dollars in thousands)
ALLL balance at December 31, 2020 related to:
Loans individually evaluated for impairment$2,711 $— $— $— $— $— $2,711 
Loans collectively evaluated for impairment8,544 — 3,964 137 2,096 — 14,741 
Total$11,255 $— $3,964 $137 $2,096 $— $17,452 
Loans balance at December 31, 2020 related to:
Loans individually evaluated for impairment$30,886 $— $6,661 $— $— $— $37,547 
Loans collectively evaluated for impairment306,541 229,728 544,751 11,766 93,525 — 1,186,310 
Total$337,427 $229,728 $551,412 $11,766 $93,525 $— $1,223,857 
ALLL balance at December 31, 2019 related to:
Loans individually evaluated for impairment$561 $— $— $— $— $— $561 
Loans collectively evaluated for impairment8,322 — 2,897 34 1,797 — 13,050 
Total$8,883 $— $2,897 $34 $1,797 $— $13,611 
Loans balance at December 31, 2019 related to:
Loans individually evaluated for impairment$9,056 $— $6,507 $— $— $— $15,563 
Loans collectively evaluated for impairment400,364 — 597,782 2,981 109,649 — 1,110,776 
Total$409,420 $— $604,289 $2,981 $109,649 $— $1,126,339 

Credit Quality
The amounts of nonperforming assets and delinquencies that occur within our loan portfolio factors in our evaluation of the adequacy of the ALLL.
The following table provides a summary of the delinquency status of loans by portfolio type at December 31, 2020 and 2019:
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30-59 Days Past Due60-89 Days Past Due90 Days and GreaterTotal Past DueCurrentTotal Loans OutstandingLoans >90 Days and Accruing
(Dollars in thousands)
At December 31, 2020
Commercial loans, excluding PPP$5,281 $3,646 $9,670 $18,597 $318,830 $337,427 $5,675 
Commercial loans - PPP— — — — 229,728 229,728 — 
Commercial real estate loans – owner-occupied— — — — 197,336 197,336 — 
Commercial real estate loans – all other— — 1,837 1,837 193,056 194,893 — 
Residential mortgage loans – multi-family— — — — 159,182 159,182 — 
Residential mortgage loans – single family— — — — 12,766 12,766 — 
Land development loans— — — — 11,766 11,766 — 
Consumer loans— 65 — 65 80,694 80,759 — 
Total$5,281 $3,711 $11,507 $20,499 $1,203,358 $1,223,857 $5,675 
At December 31, 2019
Commercial loans$354 $1,361 $533 $2,248 $407,172 $409,420 $— 
Commercial real estate loans – owner-occupied749 — — 749 218,734 219,483 — 
Commercial real estate loans – all other— — — — 208,283 208,283 — 
Residential mortgage loans – multi-family— — — — 176,523 176,523 — 
Residential mortgage loans – single family— — — — 18,782 18,782 — 
Land development loans— — — — 2,981 2,981 — 
Consumer loans312 3 — 315 90,552 90,867 — 
Total$1,415 $1,364 $533 $3,312 $1,123,027 $1,126,339 $— 
Generally, the accrual of interest on a loan is discontinued when principal or interest payments become more than 90 days past due, unless we believe that the loan is adequately collateralized and it is in the process of collection. There were $5.7 million of loans 90 days or more past due and still accruing interest at December 31, 2020 and zero outstanding at December 31, 2019. In certain instances, when a loan is placed on non-accrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received, except when the ultimate collectability of principal is probable, in which case such payments are applied to accrued and unpaid interest, which is credited to income. Non-accrual loans may be restored to accrual status when principal and interest become current and full repayment becomes expected.
The following table provides information with respect to loans on nonaccrual status, by portfolio type, as of December 31, 2020 and 2019:
 December 31,
20202019
(Dollars in thousands)
Nonaccrual loans:
Commercial loans$30,928 $9,101 
Commercial real estate loans – owner occupied6,978 6,507 
Commercial real estate loans – all other1,836 — 
Consumer loans174 74 
Total(1)
$39,916 $15,682 
(1)    Nonaccrual loans may include loans that are currently considered performing loans.

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 We classify our loan portfolio using internal credit quality ratings. The following table provides a summary of loans by portfolio type and our internal credit quality ratings as of December 31, 2020 and 2019, respectively.
 December 31,
20202019Increase
(Decrease)
(Dollars in thousands)
Pass:
Commercial loans, excluding PPP$263,616 $357,079 $136,265 
Commercial loans - PPP229,728 — 229,728 
Commercial real estate loans – owner occupied162,250 206,589 (44,339)
Commercial real estate loans – all other192,264 208,283 (16,019)
Residential mortgage loans – multi family158,816 176,523 (17,707)
Residential mortgage loans – single family12,766 18,782 (6,016)
Construction and land development loans11,766 2,981 8,785 
Consumer loans80,576 90,793 (10,217)
Total pass loans$1,111,782 $1,061,030 $50,752 
Special Mention:
Commercial loans, excluding PPP$13,763 $21,894 $(8,131)
Commercial real estate loans – owner occupied6,882 6,387 495 
Commercial real estate loans – all other793 — 793 
Residential mortgage loans – multi family366 — 366 
Total special mention loans$21,804 $28,281 $(6,477)
Substandard:
Commercial loans, excluding PPP$59,408 $30,447 $28,961 
Commercial real estate loans – owner occupied28,203 6,507 21,696 
Commercial real estate loans – all other1,837 — 1,837 
Consumer loans182 74 108 
Total substandard loans$89,630 $37,028 $52,602 
Doubtful:
Commercial loans, excluding PPP$641 $— $641 
Total doubtful loans$641 $— $641 
Total Loans:$1,223,857 $1,126,339 $97,518 
Impaired Loans
A loan generally is classified as impaired and placed on nonaccrual status when, in our opinion, principal or interest is not likely to be collected in accordance with the contractual terms of the loan agreement. We measure for impairments on a loan-by-loan basis, using either the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral if the loan is collateral dependent.
The following table sets forth information regarding impaired loans, at December 31, 2020 and December 31, 2019:
 December 31,
20202019
(Dollars in thousands)
Impaired loans:
Nonaccruing loans$33,204 $15,682 
Nonaccruing restructured loans6,712 — 
Total impaired loans$39,916 $15,682 
Impaired loans less than 90 days delinquent and included in total impaired loans$34,085 $15,149 

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The table below contains additional information with respect to impaired loans, by portfolio type, as of December 31, 2020 and 2019:
December 31, 2020December 31, 2019
Recorded InvestmentUnpaid Principal BalanceRelated Allowance (1)Recorded InvestmentUnpaid Principal BalanceRelated Allowance (1)
(Dollars in thousands)
No allowance recorded:
Commercial loans, excluding PPP$10,970 $19,530 $— $7,996 $12,090 $— 
Commercial real estate loans – owner occupied6,978 7,633 — 6,507 6,784 — 
Commercial real estate loans – all other1,836 1,837 — — — — 
Consumer loans174 197 — 74 101 — 
Total$19,958 $29,197 $— $14,577 $18,975 $— 
With allowance recorded:
Commercial loans, excluding PPP$19,958 $20,040 $2,711 $1,105 $1,122 $561 
Total$19,958 $20,040 $2,711 $1,105 $1,122 $561 
Total
Commercial loans, excluding PPP$30,928 $39,570 $2,711 $9,101 $13,212 $561 
Commercial real estate loans – owner occupied6,978 7,633 — 6,507 6,784 — 
Commercial real estate loans – all other1,836 1,837 — — — — 
Consumer loans174 197 — 74 101 — 
Total$39,916 $49,237 $2,711 $15,682 $20,097 $561 
(1)When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, then specific reserves are not required to be set aside for the loan within the ALLL. This typically occurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied to the balance of the principal outstanding.
 
At December 31, 2020 and December 31, 2019, there were $20.0 million and $14.6 million, respectively, of impaired loans for which no specific reserves had been allocated because these loans, in our judgment, were sufficiently collateralized. Of the impaired loans at December 31, 2020 for which no specific reserves were allocated, $8.7 million had been deemed impaired in the prior year.
Average balances and interest income recognized on impaired loans, by portfolio type, for the year ended December 31, 2020, 2019 and 2018 were as follows:
Year Ended December 31,
202020192018
Average BalanceInterest Income RecognizedAverage BalanceInterest Income RecognizedAverage BalanceInterest Income Recognized
(Dollars in thousands)
No allowance recorded:
Commercial loans, excluding PPP$9,307 $534 $3,828 $581 $4,289 $101 
Commercial real estate loans – owner occupied5,216 53 3,038 267 856 — 
Commercial real estate loans – all other367 36 — — 370 — 
Residential mortgage loans – single family— — — — — — 
Consumer loans138 5 69 3 48 — 
Total15,028 628 6,935 851 5,563 101 
With allowance recorded:
Commercial loans, excluding PPP$5,032 $930 $221 $53 $96 $— 
Total$5,032 $930 $221 $53 $96 $— 
Total
Commercial loans, excluding PPP$14,339 $1,464 $4,049 $634 $4,385 $101 
Commercial real estate loans – owner occupied5,216 53 3,038 267 856 — 
Commercial real estate loans – all other367 36 — — 370 — 
Residential mortgage loans – single family— — — — — — 
Consumer loans138 5 69 3 48 — 
Total$20,060 $1,558 $7,156 $904 $5,659 $101 
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The interest that would have been earned had the impaired loans remained current in accordance with their original terms was $1.8 million in 2020, $416 thousand in 2019 and $362 thousand in 2018.
Troubled Debt Restructurings
Pursuant to the FASB's ASU No. 2011-2, A Creditor's Determination of whether a Restructuring is a Troubled Debt Restructuring, the Company had $6.7 million TDRs at December 31, 2020 and zero at December 31, 2019. TDRs consist of loans to which modifications have been made for the purpose of alleviating temporary impairments of the borrower's financial condition and cash flows. Those modifications have come in the forms of changes in amortization terms, reductions in interest rates, interest only payments and, in limited cases, concessions to outstanding loan balances. The modifications are made as part of workout plans we enter into with the borrower that are designed to provide a bridge for the borrower's cash flow shortfalls in the near term. If a borrower works through the near term issues, then in most cases, the original contractual terms of the borrower's loan will be reinstated. TDRs do not include short term loan modifications made on a good faith basis in response to COVID-19.
The following table presents loans restructured as TDRs during the years ended December 31, 2020, 2019 and 2018:
Year Ended December 31,
 202020192018
Number of
loans		Pre-Modification
Outstanding
Recorded
Investment		Post-Modification
Outstanding
Recorded
Investment		Number of
loans		Pre-Modification
Outstanding
Recorded
Investment		Post-Modification
Outstanding
Recorded
Investment		Number of
loans		Pre-Modification
Outstanding
Recorded
Investment		Post-Modification
Outstanding
Recorded
Investment
(Dollars in thousands)
Nonperforming
Commercial loans4 3,298 2,085 — — — — — — 
Commercial real estate – owner occupied1 3,851 4,627 — — — — — — 
  Total nonperforming5 7,149 6,712 — — — — — — 
Total troubled debt restructurings(1)
5 $7,149 $6,712 — $— $— — $— $— 
(1)No loans were restructured during the years ended December 31, 2019 or December 31, 2018.
During the years ended December 31, 2020, 2019 and 2018, there were no TDRs that were modified within the preceding 12-month period which subsequently defaulted.


6. Premises and Equipment
The major classes of premises and equipment are as follows:
December 31,
20202019
(Dollars in thousands)
Furniture and equipment$2,380 $2,424 
Leasehold improvements1,192 1,112 
3,572 3,536 
Accumulated depreciation and amortization(2,793)(2,419)
Total$779 $1,117 
The amount of depreciation and amortization included in operating expense was $373,000, $419,000 and $405,000 for the years ended December 31, 2020, 2019 and 2018, respectively.

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7. Deposits
Asset
At December 31, 2020, we had $274.2 million in interest bearing deposits at other financial institutions, as compared to $202.7 million at December 31, 2019. The weighted average percentage yields on these deposits for each of the years ended December 31, 2020 and December 31, 2019 was 0.34% and 2.22%, respectively. Interest bearing deposits with financial institutions can be withdrawn on demand and are considered cash equivalents for purposes of the consolidated statements of cash flows.
At December 31, 2020 and December 31, 2019, we had $1.6 million and $2.4 million, respectively, of interest-bearing time deposits at other financial institutions, which were scheduled to mature within one year or had no stated maturity date. The weighted average percentage yields on these deposits were 1.54% and 2.04% for the years ended December 31, 2020 and December 31, 2019, respectively.
Liability
The aggregate amount of time deposits in denominations of $250,000 or more at December 31, 2020 and 2019 was $91.0 million and $112 million, respectively.
The scheduled maturities of time deposits in denominations of $250,000 or more at December 31, 2020 were as follows:
At December 31, 2020
(Dollars in thousands)
2021$80,764 
20228,703 
2023341 
20241,212 
2024 and beyond— 
Total$91,020 

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8. Leases
    We have historically entered into a number of lease arrangements under which we are the lessee.  Specifically, all of our physical locations are subject to operating leases.  In addition, we have elected the short-term lease practical expedient related to operating leases. 
    Two of our office leases, including our corporate headquarters, include multiple optional renewal periods.  To the extent we conclude that it is reasonably certain that a renewal option will be exercised, that renewal period is then included in the lease term, and the related payments are reflected in the ROU asset and lease liability.  We did not consider any additional renewal periods to be reasonably certain of being exercised for our corporate headquarters because of the length of the lease term to renewal.
    All of our leases include fixed rental payments.  We commonly enter into leases under which the lease payments increase at pre-determined dates.  While the majority of our leases are gross leases, we also have a number of leases in which we make separate payments to the lessor based on the lessor’s property and casualty insurance costs and the property taxes assessed on the property, as well as a portion of the common area maintenance associated with the property. 
    During the year ended December 31, 2020 and 2019, we recognized rent expense associated with our leases as follows:
Year Ended December 31,
20202019
(Dollars in thousands)
Lease cost:
Operating lease cost$2,432 $2,271 
Short-term lease cost(1)
144 158 
Total lease cost$2,576 $2,429 
Weighted-average remaining lease term—operating leases (in years)4.375.37
(1)    Includes leases that are less than 12 months and equipment leases that are accounted for on a cash basis.
    Because we generally do not have access to the rate implicit in the lease, we utilize our borrowing rate with the FHLB as the discount rate.  The weighted average discount rate associated with operating leases as of December 31, 2020 and December 31, 2019 is 2.31% and 1.57%, respectively.
    Supplemental balance sheet information related to leases was as follows:
Financial Statement ClassificationDecember 31, 2020December 31, 2019
(Dollars in thousands)
Operating right-of-use assetsOther assets$10,002 $12,159 
Operating lease liabilitiesOther liabilities$10,933 $13,020 
    During the year ended December 31, 2020 and 2019, we had the following cash and non-cash activities associated with our leases:
Year Ended December 31,
20202019
(Dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases (fixed payments)$2,363 $2,031 
Noncash activities:
Right-of-use assets obtained in exchange for new operating lease liabilities$— $12,677 
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    Maturities of operating lease liabilities as of December 31, 2020 are as follows:
Amount
(Dollars in thousands)
For the years ending December 31,
2021$2,490 
20222,575 
20232,662 
20242,750 
2025 and beyond1,020 
Total11,497 
Less: Imputed interest(564)
Total Lease liabilities$10,933 

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9. Borrowings and Contractual Obligations
At December 31, 2020 and 2019, our borrowings and contractual obligations consisted of the following:
 December 31,
20202019
(Dollars in thousands)
FHLB advances—short-term$10,000 $30,000 
Total$10,000 $30,000 
 
The table below sets forth the amounts of, the interest rates we pay on, and the maturity dates of these FHLB borrowings. These borrowings had a weighted-average annualized interest rate of 1.62% for the year ended December 31, 2020.
Principal AmountsInterest RateMaturity Dates
(Dollars in thousands)
$10,0001.62%January 25, 2021

At December 31, 2020, $434 million of loans were pledged to support our FHLB borrowings and our unfunded borrowing capacity. As of December 31, 2020, we had unused borrowing capacity of $242 million with the FHLB. The highest amount of borrowings outstanding at any month-end during the year ended December 31, 2020 was $124 million.
As of December 31, 2019, we had $30.0 million of outstanding short-term borrowings and no outstanding long-term borrowings that we had obtained from the FHLB. These borrowings had a weighted-average annualized interest rate of 1.82% for the year ended December 31, 2019. As of December 31, 2019 we had unused borrowing capacity of $172 million with the FHLB. The highest amount of borrowings outstanding at any month-end during the year ended December 31, 2019 was $55 million.
These FHLB borrowings were obtained in accordance with the Company’s asset/liability management objective to reduce the Company’s exposure to interest rate fluctuations and increase our contingent funding.
Junior Subordinated Debentures. We formed two grantor trusts to sell and issue to institutional investors floating junior trust preferred securities ("trust preferred securities"). The net proceeds from the sales of the trust preferred securities was used in exchange for our issuance to the grantor trusts for the principal amount of our junior subordinated floating rate debentures (the "Debentures"). The payment terms of the Debentures are used by the grantor trusts to make the payments that come due to the holders of the trust preferred securities pursuant to the terms of those securities. The Debentures also were pledged by the grantor trusts as security for the payment obligations of the grantor trusts under the trust preferred securities.
Set forth below are the respective principal amounts, and certain other information regarding the terms of the Debentures that remained outstanding as of December 31, 2020 and 2019:
Original Issue DatesPrincipal Amount
Interest Rate(1)
Maturity Dates
 (Dollars in thousands)  
September 2002$7,217 
LIBOR plus 3.40%
September 2032
October 200410,310 
LIBOR plus 2.00%
October 2034
Total$17,527 
(1)Interest rate resets quarterly.
These Debentures require quarterly interest payments, which are used to make quarterly distributions required to be paid on the corresponding trust preferred securities. Subject to certain conditions, we have the right, at our discretion, to defer those interest payments, and the corresponding distributions on the trust preferred securities, for up to five years. Exercise of this deferral right does not constitute a default of our obligations to pay the interest on the Debentures or the corresponding distributions that are payable on the trust preferred securities. As of December 31, 2020, we were current on all interest payments. We have committed to obtaining approval from the FRB and the CDFPI prior to making any distributions representing interest, principal or other sums on subordinated debentures or trust preferred securities. There can be no assurance that our regulators will approve such payments in the future.

10. Related Party Transactions
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    Per ASC 850-10-20, a related party is defined under GAAP to include: affiliates, principal owners and their immediate family members, management and their immediate families, other parties with which the entity may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests, and other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. GAAP requires disclosure of all material related party transactions, excluding compensation arrangements, expense allowances, and items eliminated in consolidation. Occasionally, we participate in loans with our affiliates through the ordinary course of business. These loan participations are not considered material transactions. Excluding these loan participations, the equity transactions described in Note 15, Shareholders' Equity, and the transactions noted below, we have no other related party transactions.
Deposits maintained by members of the Board of Directors and executive officers at the Bank totaled $67 thousand and $93 thousand at December 31, 2020 and 2019, respectively.

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11. Income Taxes
The CARES Act, passed by Congress during the first quarter of 2020 in response to the outbreak of COVID-19, provides for assistance in the form of income tax related relief measures, including temporary changes to income tax laws such as the ability to carryback NOLs for a period of five years, which does not apply to our Company. Management performed an evaluation of the tax relief measures available, and determined there was no significant impact to our Company, and therefore, no tax relief provisions were applied.
The components of income tax (benefit) expense from continuing operations consisted of the following for the years ended December 31:
202020192018
(Dollars in thousands)
Current taxes:
Federal$2,665 $— $— 
State1,694 48 97 
Total current taxes4,359 48 97 
Deferred taxes:
Federal(77)1,469 (6,065)
State(194)618 (4,784)
Total deferred taxes(271)2,087 (10,849)
Total income tax (benefit) expense $4,088 $2,135 $(10,752)
 
The reasons for the differences between the statutory federal income tax rates and our effective tax rates are summarized in the following table:
 Year Ended December 31,
202020192018
Federal income tax based on statutory rate21.0 %21.0 %21.0 %
State franchise tax net of federal income tax benefit8.6 8.6 8.6 
Permanent differences0.5 0.6 (0.3)
Other2.8 (3.8)2.0 
Valuation allowance— — (96.1)
Total effective tax rate32.9 %26.4 %(64.8)%
At December 31, 2020 and December 31, 2019, we have a net deferred tax asset of $8.5 million and $8.4 million, respectively. Adjustments to our deferred tax valuation allowance could be required in the future if we were to conclude, on the basis of our assessment of the realizability of the deferred tax asset, that the amount of that asset which is more-likely-than-not, to be available to offset or reduce future taxes has decreased. Any such decrease would result in income tax expense. The components of our net deferred tax asset are as follows at:
 
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December 31,
20202019
(Dollars in thousands)
Deferred tax asset:
Allowance for loan and lease losses$5,160 $4,025 
State taxes356 18 
Deferred compensation528 503 
Litigation reserve964 — 
Other accrued expenses5 539 
Charitable contributions— 161 
Reserve for unfunded commitments103 103 
Tax credits— 227 
Net operating loss carry forward2,458 3,699 
Stock based compensation168 448 
Unrealized losses on securities— 54 
Lease liability3,232 3,849 
Total deferred tax assets12,974 13,626 
Deferred tax liabilities:
Depreciation and amortization(179)(185)
ROU Lease asset(2,957)(3,595)
Unrealized gain on securities(148)— 
Other(1,188)(1,414)
Total deferred tax liabilities(4,472)(5,194)
Total net deferred tax asset$8,502 $8,432 
During the year ended December 31, 2018, we had an income tax benefit of $10.8 million. The income tax benefit for the year ended December 31, 2018 is a result of our net income during the year and the release of our full valuation allowance of $11.1 million on our net deferred tax asset during the second quarter of 2018, discussed further below. Accounting rules specify that management must evaluate the deferred tax asset on a recurring basis to determine whether enough positive evidence exists to determine whether it is more-likely-than-not that the deferred tax asset will be available to offset or reduce future taxes. The tax code allows net operating losses incurred prior to December 31, 2017 to be carried forward for 20 years from the date of the loss, and based on its evaluation, management believes that the Company will be able to realize the deferred tax asset within the period that our net operating losses may be carried forward. Due to the hierarchy of evidence that the accounting rules specify, management determined that there continued to be enough positive evidence to support no valuation allowance on our deferred tax asset at December 31, 2018. Significant positive evidence included our three-year cumulative income position, continued improvement in asset quality, and the expectation that we will continue to have positive earnings based on nine trailing quarters of positive income and our forecast. Negative evidence included our accumulated deficit. Due to the hierarchy of evidence that the accounting rules specify, management determined that there continued to be enough positive evidence to support no valuation allowance on our deferred tax asset at December 31, 2018.
During the year ended December 31, 2019, we had an income tax expense of $2.1 million. The income tax expense during the year ended December 31, 2019 is as a result of our net income during the year and an adjustment to our deferred tax asset during the fourth quarter to true up stock based compensation. The income tax benefit during the three months ended December 31, 2019 is the result of an adjustment to our deferred tax asset related to the true up of stock based compensation. The income tax expense during the year ended December 31, 2019 is primarily a result of our operating income partially offset by the adjustment made in the fourth quarter. Accounting rules specify that management must evaluate the deferred tax asset on a recurring basis to determine whether enough positive evidence exists to determine whether it is more-likely-than-not that the deferred tax asset will be available to offset or reduce future taxes. The tax code allows net operating losses incurred prior to December 31, 2017 to be carried forward for 20 years from the date of the loss, and based on its evaluation, management believes that the Company will be able to realize the deferred tax asset within the period that our net operating losses may be carried forward. Due to the hierarchy of evidence that the accounting rules specify, management determined that there continued to be enough positive evidence to support no valuation allowance on our deferred tax asset at December 31, 2019. Significant positive evidence included our three-year cumulative income position and the expectation that we will continue to have positive earnings based on twelve trailing quarters of positive income and our forecast. Negative evidence included our
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accumulated deficit and deterioration in asset quality. Due to the hierarchy of evidence that the accounting rules specify, management determined that there continued to be enough positive evidence to support no valuation allowance on our deferred tax asset at December 31, 2019.
During the year ended December 31, 2020, we had an income tax expense of $4.1 million. The income tax expense during the year ended December 31, 2020 is as a result of our net income during the year and an adjustment to our deferred tax asset during the fourth quarter to true up stock based compensation. Accounting rules specify that management must evaluate the deferred tax asset on a recurring basis to determine whether enough positive evidence exists to determine whether it is more-likely-than-not that the deferred tax asset will be available to offset or reduce future taxes. The tax code allows net operating losses incurred prior to December 31, 2017 to be carried forward for 20 years from the date of the loss, and based on its evaluation, management believes that the Company will be able to realize the deferred tax asset within the period that our net operating losses may be carried forward. Due to the hierarchy of evidence that the accounting rules specify, management determined that there continued to be enough positive evidence to support no valuation allowance on our deferred tax asset at December 31, 2020. Significant positive evidence included our three-year cumulative income position, the expectation that we will continue to have positive earnings based on positive income in eleven of the last twelve trailing quarters, and a shift from accumulated deficit to retained earnings during the year. Negative evidence included our net loss for the first quarter of 2020 and deterioration in asset quality. Due to the hierarchy of evidence that the accounting rules specify, management determined that there continued to be enough positive evidence to support no valuation allowance on our deferred tax asset at December 31, 2020.
As of December 31, 2020, we had net operating loss carryforwards of zero and $28.7 million for federal and state tax purposes, respectively, which are available to offset future taxable income. If not used, these carryforwards begin expiring in 2032 and would fully expire in 2036. Refer to the table below for the amount and expiration of our net operating loss carryforwards:
FederalStateExpiration
(Dollars in thousands)
2010(1)
$— $4,472 12/31/2032
2012— 774 12/31/2032
2013— 8,727 12/31/2033
2015— 280 12/31/2035
2016— 14,453 12/31/2036
$— $28,706 
(1)California net operating loss carryforwards were suspended by the Franchise Tax Board during these periods and the carryover was extended.
(2)As a result of the Tax Cuts and Jobs Act, federal net operating loss carryforwards do not expire starting with any losses sustained during 2018 or later. California net operating loss carryforwards begin to expire on the date listed.
We file income tax returns with the U.S. federal government and the State of California. As of December 31, 2020, we were subject to examination by the Internal Revenue Service with respect to our U.S. federal tax returns for the 2017 to 2019 tax years and the Franchise Tax Board for California state income tax returns for the 2016 to 2019 tax years. Net operating losses on our U.S. federal and California state income tax returns may be carried forward up to 20 years. In June 2020, the State of California suspended the use of net operating losses for the years 2020, 2021, and 2022, and extended the carryover periods for these years. As of December 31, 2020, we do not have any unrecognized tax benefits.
Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of tax expense. We did not have any accrued interest or penalties associated with any unrecognized tax benefits, and no interest expense was recognized during the three months and year ended December 31, 2020 and 2019.

12. Stock-Based Employee Compensation Plans
In May 2010, our shareholders approved the adoption of our 2010 Equity Incentive Plan, which was amended at the Annual Shareholders meeting held in May 2013 (the “2010 Incentive Plan”), and which superseded our shareholder-approved 2008 and 2004 Equity Incentive Plans (the “Previously Approved Plans”). As of December 31, 2020, there were no options to purchase shares of our common stock granted under the Previously Approved Plans. As of December 31, 2020, there were options to purchase a total of 339,587 shares of our common stock and 55,093 shares of our unvested restricted stock grants under the 2010 Incentive Plan.
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In May 2019, our shareholders approved the adoption of our 2019 Equity Incentive Plan (the “2019 Incentive Plan”), which authorized and set aside a total of 2,000,000 shares of our common stock for issuance on the exercise of stock options or the grant of restricted stock or other equity incentives to our officers, and other key employees and directors. There were 250,000 options to purchase shares of our common stock granted under the 2019 Incentive Plan and outstanding at December 31, 2020. Since approval of the 2019 Incentive Plan, no additional awards will be issued under the 2010 Incentive Plan, although awards outstanding under the 2010 Incentive Plan will remain outstanding and will continue to be governed by the terms of the 2010 Incentive Plan and any applicable award agreements. Under the terms of the 2019 Incentive Plan, any forfeited options or unvested restricted stock grants that had been issued under the Previously Approved Plans or the 2010 Incentive Plan will not be available for future equity incentive grants. Each restricted stock option or restricted stock unit issued under the terms of the 2019 Incentive Plan will be counted against the share limit as 2.5 shares, while each stock option or Stock Appreciation Right ("SAR") issued will be counted as one share against the share limit. As of December 31, 2020, there were outstanding options to purchase a total of 250,000 shares of our common stock, 75,000 shares of our unvested restricted stock units, and 68,072 shares of our unvested restricted stock grants under the 2019 Incentive Plan. As of December 31, 2020, there remain 1,322,255 shares available for future grants under the 2019 Incentive Plan.
A stock option entitles the recipient to purchase shares of our common stock at a price per share that may not be less than 100% of the fair market value of the Company’s shares on the date the option is granted. Restricted shares may be granted at such purchase prices and on such other terms, including restrictions and Company repurchase or reacquisition rights, as are fixed by the Compensation Committee at the time rights to purchase such restricted shares are granted. SARs entitle the recipient to receive a cash payment in an amount equal to the difference between the fair market value of the Company’s shares on the date of vesting and a “base price” (which, in most cases, will be equal to the fair market value of the Company’s shares on the date the SAR is granted), subject to the right of the Company to make such payment in shares of its common stock at their then fair market value. Stock units may be payable in cash or shares of common stock, or a combination of the two. A stock unit is a bookkeeping entry representing the equivalent of one common share. Options, restricted shares, SARs, and stock units may vest immediately or in installments over various periods generally ranging up to five years, subject to the recipient’s continued employment or service or the achievement of specified performance goals, as determined by the Compensation Committee at the time it grants or awards the options, the restricted shares, the SARs or the stock units. Stock options, SARs and stock units may be granted for terms of up to 10 years after the date of grant, but will terminate sooner upon or shortly after a termination of service occurring prior to the expiration of the term of the option, SAR or stock unit. The Company will become entitled to repurchase any unvested restricted shares, at the same price that was paid for the shares by the recipient, or to cancel those shares in the event of a termination of employment or service of the holder of such shares or if any performance goals specified in the award are not satisfied. To date, the Company has not granted any SARs.
Under FASB ASC 718-10, we are required to recognize, in our financial statements, the fair value of the options, restricted shares, SARs and stock units that we grant as compensation cost over their respective service periods. The fair values of the options that were outstanding at December 31, 2020 under the 2010 Incentive Plan and the 2019 Incentive Plan were estimated as of their respective dates of grant using the Black-Scholes option-pricing model. The Company, under the 2010 Incentive Plan and the 2019 Incentive Plan, has also granted restricted stock and stock units for the benefit of its employees and directors. These restricted shares vest over a period ranging from three to five years for employees and one year for directors while the stock units vest over a period of one to five years. The recipients of restricted shares have the right to vote all shares subject to such grant and receive all dividends with respect to such shares whether or not the shares have vested. The recipients of stock units have no rights of a stockholder. The recipients do not pay any cash consideration for the shares or stock units.
Stock Options
The table below summarizes the weighted average assumptions used to determine the fair values of the options granted during the following periods:
 Year Ended December 31,
Assumptions with respect to:202020192018
Expected volatility— %28 %30 %
Risk-free interest rate— %1.35 %2.69 %
Expected dividends— %— %— %
Expected term (years)0.05.15.8
Weighted average fair value of options granted during period$— $1.99 $2.81 
The following table summarizes the stock option activity under the Company’s equity incentive plans during the years ended December 31, 2020, 2019 and 2018, respectively.
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Number of
Shares		Weighted-
Average
Exercise
Price
Per Share		Number of
Shares		Weighted-
Average
Exercise
Price
Per Share		Number of
Shares		Weighted-
Average
Exercise
Price
Per Share
 202020192018
Outstanding – January 1,1,009,466 $6.98 864,330 $6.86 792,577 $6.41 
Granted— — 250,000 7.33 154,011 8.20 
Exercised(10,728)4.66 (86,229)6.57 (75,108)4.95 
Forfeited/Canceled(409,151)6.99 (18,635)8.15 (7,150)6.47 
Outstanding – December 31,589,587 7.01 1,009,466 6.98 864,330 6.86 
Options Exercisable – December 31,356,480 6.74 675,144 6.72 588,873 6.49 
Options Vested – December 31,356,480 $6.74 675,144 $6.72 588,873 $6.49 
Options to purchase 10,728, 86,229, and 75,108 shares of our common stock were exercised during the years ended December 31, 2020, 2019 and 2018, respectively. The aggregate intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018, was $29 thousand, $62 thousand and $356 thousand, respectively. The fair values of options vested during the years ended December 31, 2020, 2019 and 2018 were $198 thousand, $483 thousand and $360 thousand, respectively.
The following table provides additional information regarding the vested and unvested options that were outstanding at December 31, 2020.
Options Outstanding as of December 31, 2020
Options Exercisable
as of December 31, 2020(1)
 VestedUnvestedWeighted
Average
Exercise
Price		Weighted
Average
Remaining
Contractual
Life (Years)		SharesWeighted
Average
Exercise Price
$2.97 – $3.99
12,000 — $3.74 1.0712,000 $3.74 
$4.00 – $5.99
16,000 — 4.34 0.3016,000 4.34 
$6.00– $6.99
202,189 5,450 6.61 4.12202,189 6.60 
$7.00– $7.99
84,157 200,000 7.30 8.1384,157 7.24 
$8.00-$8.40
42,134 27,657 8.21 7.1442,134 8.19 
356,480 233,107 $7.01 6.24356,480 $6.74 
(1)The weighted average remaining contractual life of the options that were exercisable as of December 31, 2020 was 4.82 years.
The aggregate intrinsic values of options that were outstanding and exercisable at December 31, 2020 and 2019 was $30 thousand and $952 thousand, respectively.
 
A summary of the status of the unvested options outstanding as of December 31, 2020, 2019 and 2018, and changes in the weighted average grant date fair values of the unvested options during the years ended December 31, 2020, 2019 and 2018, are set forth in the following table.
For the year ended
202020192018
Number of
Shares Subject
to Options		Weighted
Average
Grant Date
Fair Value		Number of
Shares Subject
to Options		Weighted
Average
Grant Date
Fair Value		Number of
Shares Subject
to Options		Weighted
Average
Grant Date
Fair Value
Unvested at the beginning of the year334,322 $2.19 275,457 $2.79 255,348 $2.80 
Granted— — 250,000 1.99 154,011 2.81 
Vested(85,309)2.32 (173,160)2.79 (126,752)2.84 
Forfeited/Canceled(15,906)2.81 (17,975)2.81 (7,150)2.66 
Unvested at the end of the year233,107 $2.10 334,322 $2.19 275,457 $2.79 
At December 31, 2020, the weighted average period over which nonvested awards were expected to be recognized was 3.48 years.
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Restricted Stock
We issued 77,560 shares of restricted stock under the 2019 Incentive Plan and no shares of restricted stock under the 2010 Incentive Plan during the year ended December 31, 2020, at a price of $5.41. Shares issued to directors vest after one year, and all other shares issued vest on an annual prorated basis over three years. The following table summarizes the activity related to restricted stock granted, vested and forfeited under our equity incentive plans during the years ended December 31, 2020, 2019 and 2018.
For the year ended
202020192018
Number of SharesAverage Grant Date Fair ValueNumber of SharesAverage Grant Date Fair ValueNumber of SharesAverage Grant Date Fair Value
Outstanding at the beginning of the year124,202 $8.44 115,031 $8.04 103,508 $7.33 
Granted77,560 5.41 126,976 8.58 82,217 8.33 
Vested(50,195)8.45 (94,779)8.07 (64,204)7.29 
Forfeited(28,402)7.99 (23,026)8.66 (6,490)7.92 
Outstanding at the end of the year123,165 $6.63 124,202 $8.44 115,031 $8.04 

    Stock Units
    The following table summarizes the activity related to stock units granted, vested and forfeited under our equity incentive plans during the year ended December 31, 2020 and 2019.
For the twelve months ended December 31,
20202019
Number of SharesAverage Grant Date Fair Value Per ShareNumber of SharesAverage Grant Date Fair Value Per Share
Outstanding at the beginning of the period100,000 $7.33 — $— 
Granted— — 100,000 7.33 
Vested(25,000)7.33 — — 
Forfeited— — — — 
Outstanding at the end of the period75,000 $7.33 100,000 $7.33 


Compensation Expense
We expect that the compensation expense that will be recognized during the periods presented below in respect of stock options, restricted stock, and stock units outstanding at December 31, 2020, will be as follows:
Estimated Stock Based Compensation Expense
 Stock OptionsRestricted StockStock UnitsTotal
(Dollars in thousands)
For the years ending December 31,
2021$123 $264 $244 $631 
2022109 127 164 400 
2023101 61 — 162 
202467 22 — 89 
2024 and beyond— 11 — 11 
$400 $485 $408 $1,293 
    
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    The aggregate amounts of stock based compensation expense recognized in our consolidated statements of operations for the years ended December 31, 2020, 2019 and 2018 were $588 thousand, $745 thousand and $623 thousand, respectively, in each case net of taxes.

13. Employee Benefit Plans
The Company has a 401(k) plan that covers substantially all full-time employees. That plan permits voluntary contributions by employees, a portion of which are sometimes matched by the Company. The Company’s expenses relating to its contributions to the 401(k) plan for the years ended December 31, 2020, 2019 and 2018 were $363 thousand, $411 thousand, and $365 thousand, respectively.
In January 2001, the Company established an unfunded Supplemental Retirement Plan (“SERP”) for our former CEO who retired from that position in April 2013. The SERP was amended and restated in April 2006 to comply with the requirements of new Section 409A of Internal Revenue Code. The SERP provides for 180 equal successive monthly retirement payments, each in an amount equal to 60% of the average monthly base salary during the three years immediately preceding reaching 65 years old (the “Monthly SERP Benefit”), subject to meeting certain vesting requirements. These monthly benefit payments commenced on February 1, 2013.
The Company follows FASB ASC 715-30-35, which requires us to recognize in our balance sheet the funded status of any post-retirement plans that we maintain and to recognize, in other comprehensive income, changes in funded status of any such plans in any year in which changes occur.
 
The changes in the projected benefit obligations under the SERP during 2020, 2019 and 2018, its funded status at December 31, 2020, 2019 and 2018, and the amounts recognized in our consolidated statements of financial condition at each of those dates were as follows:
 At December 31,
202020192018
(Dollars in thousands)
Change in benefit obligation:
Benefit obligation at beginning of period$1,982 $2,169 $2,345 
Service cost— — — 
Interest cost110 120 131 
Actuarial loss/(gain)— — — 
(Benefits paid)(307)(307)(307)
Benefit obligation at end of period$1,785 $1,982 $2,169 
Funded status:
Amounts recognized in the Statement of Financial Condition
Unfunded accrued SERP liability—current$(299)$(299)$(299)
Unfunded accrued SERP liability—noncurrent(1,486)(1,683)(1,870)
Total unfunded accrued SERP liability$(1,785)$(1,982)$(2,169)
Net amount recognized in accumulated other comprehensive income
Prior service cost/(benefit)$— $— $— 
Net actuarial loss/(gain)— — — 
Total net amount recognized in accumulated other comprehensive income$— $— $— 
Accumulated benefit obligation$1,785 $1,982 $2,169 
Components of net periodic SERP cost year to date:
Service cost$— $— $— 
Interest cost110 120 131 
Amortization of prior service cost/(benefit)— — — 
Amortization of net actuarial loss/(gain)— — — 
Net periodic SERP cost$110 $120 $131 
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As of December 31, 2020, $1.5 million benefits are expected to be paid in the next five years and a total of $639 thousand of benefits are expected to be paid from year 2026 through year 2028. In 2021, $97 thousand is expected to be recognized in net periodic benefit cost.

14. Earnings Per Share (“EPS”)
Basic EPS excludes dilution and is computed by dividing net income or loss allocable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock that would then share in our earnings.

The following table shows how we computed basic and diluted EPS for the year ended December 31, 2020, 2019, and 2018. 
For the Year Ended December 31,
202020192018
(Dollars and amounts in thousands, except per share data)
Basic EPS:
Net income (loss)$8,334 $5,680 $27,339 
Less dividends on preferred stock— — — 
Less dividends on common stock — — — 
Less dividends on unvested shares— — — 
Net income allocable to common shareholders$8,334 $5,680 $27,339 
Less earnings allocated to participating securities72 166 648 
Earnings allocated to common shareholders$8,262 $5,514 $26,691 
Weighted average common shares outstanding23,507 22,811 22,788 
Basic earnings per common share$0.35 $0.24 $1.17 
Diluted EPS:
Earnings allocated to common shareholders$8,334 $5,680 $27,339 
Weighted average common shares outstanding23,507 22,811 22,788 
Add dilutive effects of restricted stock grants115 149 115 
Add dilutive effects of restricted stock units91 — — 
Add dilutive effects for assumed conversion of Series A preferred stock— 539 438 
Add dilutive effects for stock options3 133 186 
Weighted average diluted common shares outstanding23,716 23,632 23,527 
Diluted earnings per common share$0.35 $0.24 $1.16 
(1)The basic and diluted earnings per share amounts for the years ended December 31, 2020, 2019 and 2018 are the same under both the Treasury Stock Method and the Two-Class Method as prescribed in FASB ASC 260-10, Earnings Per Share.
    The weighted average shares that have an antidilutive effect in the calculation of diluted net income (loss) per share and have been excluded from the computations above were as follows:
For the Year Ended December 31,
202020192018
Stock options(1)
672,827 265,093 138,608 
(1)Stock options were excluded from the computation of diluted earnings per common share for the years ended December 31, 2020, 2019 and 2018 because the options were either “out-of-the-money” or the effect of exercise would have been antidilutive.

15. Shareholders’ Equity
    Preferred Stock
At December 31, 2020 and 2019 we did not have any shares of preferred stock outstanding. Effective as of the close of business on May 15, 2019, the Company filed an amendment to the Articles of Incorporation to authorize a class of Non-Voting Common Stock after obtaining shareholder approval on that same date. As a result, each share of the then outstanding
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Series A Non-Voting Preferred Stock was automatically converted into one share of Non-Voting Common Stock as of the effective date. The Non-Voting Common Stock has the same relative rights as, and is identical in all respects with, each other share of Common Stock of the Company, except that holders of Non-Voting Common Stock are not entitled to vote on any matter other than where required under California law.
During the year ended December 31, 2018, Carpenter Community BancFund, LP and Carpenter Community BancFund-A, LP ("the Carpenter Funds"), the largest shareholders of PMBC, the holding company of the Bank, sold all of their equity interest in PMBC to certain accredited investors in privately negotiated transactions (the "Carpenter Disposition Transactions"). The Carpenter Disposition Transactions included the sale of 1,467,155 shares of a new series of non-voting preferred stock designated as Series A Non-Voting Preferred Stock (the Series A Non-Voting Preferred Stock) that PMBC issued to the Carpenter Funds in exchange (the Exchange) for 1,467,155 shares of PMBC’s common stock owned by the Carpenter Funds. At the time of and after giving effect to the Exchange, PMBC had 21,917,995 shares of common stock issued and outstanding and 1,467,155 shares of Series A Non-Voting Preferred Stock issued and outstanding. The shares of Series A Non-Voting Preferred Stock were issued to the Carpenter Funds to facilitate the Carpenter Disposition Transactions with substantially the same rights, preferences and privileges of the common stock, except that the Series A Non-Voting Preferred Stock is not entitled to vote on any matter other than where required under California law and that each share of Series A Non-Voting Preferred Stock has a liquidation preference of $0.0001 per share over the common stock. The shares of common stock and Series A Non-Voting Preferred Stock purchased by investors from the Carpenter Funds in the Carpenter Disposition Transactions were at the time of the transaction restricted securities subject to trading restrictions under the federal securities laws.
    The lead investor in the Carpenter Disposition Transactions, Patriot Financial Partners III, L.P., a Delaware limited partnership ("Patriot"), acquired 3,636,363 total common-equivalent shares of PMBC, comprised of 2,169,208 shares of common stock (9.9% of the total voting shares outstanding after giving effect to the Exchange) and 1,467,155 shares of the Series A Non-Voting Preferred Stock. At the time of and after giving effect to the Carpenter Disposition Transactions (including the Exchange), Patriot held a 15.6% equity interest in the PMBC.
Accumulated Other Comprehensive Income, net
    Accumulated other comprehensive income, net as of December 31, 2020, 2019 and 2018 was as follows:
Unrealized Gain (Loss) on Securities Available-for-Sale, net of taxAccumulated Other Comprehensive Income, Net
(Dollars in thousands)
Beginning balance as of January 1, 2018$(1,143)$(1,143)
Other comprehensive income before reclassifications, net of tax of $142 thousand
(50)(50)
Amounts reclassified from accumulated other comprehensive loss(1)
49 49 
Other comprehensive loss, net of tax of $142 thousand
(1)(1)
Ending balance as of December 31, 2018$(1,144)$(1,144)
Other comprehensive loss, net of tax of $62 thousand
577 577 
Ending balance as of December 31, 2019$(567)$(567)
Other comprehensive loss, net of tax of $202 thousand
483 483 
Ending balance as of December 31, 2020$(84)$(84)
(1)This balance consists of the $48 thousand net gain on sale of available for sale debt securities included in our consolidated statement of operations offset by $97 thousand included in our consolidated statement of shareholders' equity as an adjustment to our beginning retained earnings.

Dividends
Payment of Cash Dividends by the Company. California laws place restrictions on the ability of California corporations to pay cash dividends on preferred or common stock. Subject to certain limited exceptions, a California corporation may pay cash dividends only to the extent of (i) the amount of its retained earnings or (ii) the amount by which the fair value of the corporation’s assets exceeds its liabilities. We have committed to obtaining approval from the FRB and the CDFPI prior to paying any dividends. The Company's ability to pay dividends is also limited by the ability of the Bank to pay cash dividends to the Company. See “—Payment of Dividends by the Bank to the Company” below.
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Payment of Dividends by the Bank to the Company. Generally, the principal source of cash available to a bank holding company consists of cash dividends from its bank subsidiaries. Under California law, the Board of Directors of the Bank may declare and pay cash dividends to the Company, which is its sole shareholder, subject to the restriction that the amount available for the payment of cash dividends may not exceed the lesser of (i) the Bank’s retained earnings or (ii) its net income for its last three fiscal years (less the amount of any dividends paid during such period). Cash dividends by the Bank to the Company in excess of that amount may be made only with the prior approval of the California Commissioner of Financial Institutions (“Commissioner”). If the Commissioner finds that the shareholders’ equity of the Bank is not adequate, or that the payment by the Bank of cash dividends to the Company would be unsafe or unsound for the Bank, the Commissioner can order the Bank not to pay such dividends.
The ability of the Bank to pay dividends is further restricted under the Federal Deposit Insurance Corporation Improvement Act of 1991, which prohibits an FDIC-insured bank from paying dividends if, after making such payment, the bank would fail to meet any of its minimum capital requirements. Under the Financial Institutions Supervisory Act and Federal Financial Institutions Reform, Recovery and Enforcement Act of 1989, federal banking regulators also have authority to prohibit FDIC-insured financial institutions from engaging in business practices which are considered to be unsafe or unsound. Under the authority of these acts, federal bank regulatory agencies, as part of their supervisory powers, generally require FDIC insured banks to adopt dividend policies which limit the payment of cash dividends. We have agreed that the Bank will not, without the FRB and CDFPI's prior written approval, pay any dividends to Bancorp.
16. Commitments and Contingencies
    Commitments
To meet the financing needs of our clients in the normal course of business, we are a party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements. At December 31, 2020 and 2019, we were committed to fund certain loans including letters of credit amounting to approximately $347 million and $316 million, respectively. The contractual amounts of a credit-related financial instrument, such as a commitment to extend credit, a credit-card arrangement or a letter of credit, represents the amount of potential accounting loss should the commitment be fully drawn upon, the client were to default, and the value of any existing collateral securing the client’s payment obligation becomes worthless. The loss reserve for unfunded loan commitments was $350 thousand and $350 thousand at December 31, 2020 and 2019, respectively.
As a result, we use the same credit policies in making commitments to extend credit and conditional obligations as we do for on-balance sheet instruments. Commitments generally have fixed expiration dates; however, since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each client’s creditworthiness on a case-by-case basis, using the same credit underwriting standards that are employed in making commercial loans. The amount of collateral obtained, if any, upon an extension of credit is based on our evaluation of the creditworthiness of the client. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, residential real estate and income-producing commercial properties.
We are required to purchase stock in the FRBSF in an amount equal to 6% of our capital, one-half of which must be paid currently with the balance due upon request.
The Bank is a member of the FHLB and therefore, is required to purchase FHLB stock in an amount equal to the lesser of 1% of the Bank’s real estate loans that are secured by residential properties, or 5% of total advances.
Litigation, Claims and Assessments
We are a defendant in or a party to a number of legal actions or proceedings that arise in the ordinary course of business. In some of these actions and proceedings, claims for monetary damages are asserted against us.
In accordance with applicable accounting guidance, we establish an accrued liability for lawsuits or other legal proceedings when they present loss contingencies that are both probable and estimable. We estimate any potential loss based upon currently available information and significant judgments and a variety of assumptions, and known and unknown uncertainties. Moreover, the facts and circumstances on which such estimates are based will change over time. Therefore, the amount of any losses we might incur in any lawsuits or other legal proceedings may exceed amounts which we had accrued
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based on our estimates and those estimates do not represent the maximum loss exposure that we may have in connection with any lawsuits or other legal proceedings.
    Based on our evaluation of the remaining lawsuits and other proceedings that were pending against us as of December 31, 2020, the outcomes in those suits or other proceedings are not expected to have, either individually or in the aggregate, a material adverse effect on our consolidated financial position, results of operations or cash flows. However, in light of the inherent uncertainties involved, some of which are beyond our control, and the very large or indeterminate damages often sought in such legal actions or proceedings, an adverse outcome in one or more of these suits or proceedings could be material to our results of operations or cash flows for any particular reporting period.
Risks and Uncertainties
The outbreak of the novel coronavirus (“COVID-19”) and the Federal Reserve's response to the economic challenges during the year 2020 has resulted in an uncertain and rapidly evolving economy. Governmental response to combat this pandemic have resulted in approximately 25% of our staff to shift to work remotely. Our business continuity plans have been activated by COVID-19 and we have been able to fully support our remote workforce and have the ability to support all employees in a remote work environment. These remote work arrangements have not adversely impacted our ability to serve our clients, and have not had an impact on our financial reporting systems or the internal controls we have over financial reporting, disclosures and related procedures.
    The most significant impact of COVID-19 on our business has been to the quality of our loan portfolio and to net interest income as short-term interest rates sharply declined. We have increased the qualitative factors used in the determination of the adequacy of our allowance for loan and lease loss in anticipation of the impact that COVID-19 will have on our clients and their ability to fulfill their obligations. We have no certainty that the provisions we made during the year will be sufficient to absorb the losses that stem from the impact of COVID-19 on our clients. As the longer term effects on our clients from the COVID-19 pandemic become more apparent, we may need to charge-off some or all of the balance on certain loans and make further provisions to increase our allowance for loan and lease losses. These potential additional provisions for loan and lease losses will have a direct impact upon our capital, including the potential need to reevaluate the need for a valuation allowance on our deferred tax asset. At this time, we don't expect that there would be any material impairment to the valuation of other long-lived assets, right of use assets, or our investment securities.
    The Bank is currently Well Capitalized under federal banking regulations that apply to all United States-based banks, with approximately $68 million of capital in excess of what is required for the Bank to be Well Capitalized using the ratio of Total Capital to Risk Weighted Assets. The Company has approximately $10 million of capital that it could contribute to the Bank should it be needed. In the event that future loan and leases loss and/or tax provisions reduce our capital surplus, we would be required to undertake measures to return the Bank's capital ratios to Well Capitalized levels, which could include but not be limited to raising additional capital or reducing the Bank's asset size. We believe that we would have access to equity and debt markets to secure additional capital for the Bank should the need arise, but we have no certainty regarding the extent of the availability of these markets at the time such need would arise.
    Increased demand for liquidity by our clients is another impact that we anticipate could occur should the COVID-19 effects be prolonged. As of December 31, 2020 the Company and the Bank's on-balance sheet liquidity was very strong and combined with our contingent liquidity resources, we believe that the Bank has sufficient resources to meet the liquidity needs of our clients. In response to COVID-19, the Federal Reserve has made other provisions that could assist the Bank in satisfying its liquidity needs, such as reducing our reserve requirement to zero, expanding access to the discount window through collateral pledging and extension of term borrowings.



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17. Capital/Operating Plans
Under federal banking regulations that apply to all United States-based bank holding companies over $3 billion in total assets and all federally insured banks, the Bank (on a stand-alone basis) must meet specific capital adequacy requirements that, for the most part, involve quantitative measures, primarily in terms of the ratios of their capital to their assets, liabilities, and certain off-balance sheet items, calculated under regulatory accounting practices. The Company (on a consolidated basis) is below the reporting threshold of $3 billion in total assets and therefore is not subject to the same capital adequacy requirements. Under those regulations, each federally insured bank is determined by its primary federal bank regulatory agency to come within one of the following capital adequacy categories on the basis of its capital ratios:
•well-capitalized
•adequately capitalized
•undercapitalized
•significantly undercapitalized; or
•critically undercapitalized
Certain qualitative assessments also are made by a banking institution’s primary federal regulatory agency that could lead the agency to determine that the banking institution should be assigned to a lower capital category than the one indicated by the quantitative measures used to assess the institution’s capital adequacy. At each successive lower capital category, a banking institution is subject to greater operating restrictions and increased regulatory supervision by its federal bank regulatory agency.
The actual capital amounts and ratios of the Bank at December 31, 2020 and December 31, 2019 are presented in the following tables:
   Applicable Federal Regulatory Requirement
At December 31, 2020Actual CapitalFor Capital Adequacy PurposesTo be Categorized As Well Capitalized
 AmountRatioAmountRatioAmountRatio
 (Dollars in thousands)
Total Capital to Risk Weighted Assets:
Bank$183,698 15.8 %$136,864 
At least 8.625%
$116,161 
At least 10.0%
Common Equity Tier 1 Capital to Risk Weighted Assets:
Bank$169,138 14.6 %$59,532 
At least 5.125%
$75,504 
At least 6.5%
Tier 1 Capital to Risk Weighted Assets:
Bank$169,138 14.6 %$76,956 
At least 6.625%
$92,929 
At least 8.0%
Tier 1 Capital to Average Assets:
Bank$169,138 10.7 %$63,473 
At least 4.0%
$79,341 
At least 5.0
   Applicable Federal Regulatory Requirement
At December 31, 2019Actual CapitalFor Capital Adequacy
Purposes		To be Categorized
As Well Capitalized
 AmountRatioAmountRatioAmountRatio
 (Dollars in thousands)
Total Capital to Risk Weighted Assets:
Bank$171,613 13.8 %$123,451 
At least 8.625%
$123,938 
At least 10.0%
Common Equity Tier 1 Capital to Risk Weighted Assets:
Bank$157,652 12.7 %$63,518 
At least 5.125%
$80,560 
At least 6.5%
Tier 1 Capital to Risk Weighted Assets:
Bank$157,652 12.7 %$82,109 
At least 6.625%
$99,151 
At least 8.0%
Tier 1 Capital to Average Assets:
Bank$157,652 11.0 %$57,253 
At least 4.0%
$71,566 
At least 5.0%
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    As the above tables indicate, at December 31, 2020 and 2019, the Bank (on a stand-alone basis) qualified as a “well—capitalized” institution under federally mandated capital standards and federally established prompt corrective action regulations. Since December 31, 2020, there have been no events or circumstances known to us which have changed or which are expected to result in a change in the Bank’s classification as a well-capitalized institution.
In early July 2013, the Federal Reserve Board and the FDIC issued final rules implementing the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act changes. The rules revise minimum capital requirements and adjust prompt corrective action thresholds.  The final rules revise the regulatory capital elements, add a new common equity Tier 1 capital ratio, increase the minimum Tier 1 capital ratio requirement, and implement a new capital conservation buffer. The rules also permit certain banking organizations to retain, through a one-time election, the existing treatment for accumulated other comprehensive income. The final rules took effect for community banks on January 1, 2015, subject to a transition period for certain parts of the rules. At December 31, 2020, the Bank (on a stand-alone basis) continued to qualify as a well-capitalized institution under the capital adequacy guidelines described above.

18. Parent Company Only Information
Condensed Statements of Financial Condition
 December 31,
20202019
(Dollars in thousands)
Assets:
Due from banks and interest-bearing deposits with financial institutions$15,427 $15,717 
Investment in subsidiaries171,571 160,302 
Other assets146 630 
Total assets$187,144 $176,649 
Liabilities and shareholders’ equity:
Liabilities$51 $93 
Junior subordinated debentures17,527 17,527 
Shareholders’ equity169,566 159,029 
Total liabilities and shareholders’ equity$187,144 $176,649 


Condensed Statements of Operations
 Year Ended December 31,
202020192018
(Dollars in thousands)
Interest income$4 $6 $4 
Interest expense(623)(893)(845)
Other income26 27 25 
Other expenses(1,126)(1,608)(1,302)
Equity in undistributed earnings (loss) of subsidiaries9,952 7,359 29,889 
Income tax (expense) benefit101 789 (432)
Net income (loss)$8,334 $5,680 $27,339 
 





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Condensed Statements of Cash Flows
 Year Ended December 31,
202020192018
(Dollars in thousands)
Cash Flows from Operating Activities:
Net income (loss)$8,334 $5,680 $27,339 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Net decrease (increase) in other assets585 (65)9 
Net decrease in deferred taxes(101)(851)331 
Stock-based compensation expense834 1,057 885 
Undistributed (income) loss of subsidiary(9,952)(7,359)(29,889)
Net increase (decrease) in interest payable(40)(10)26 
Net (decrease) increase in other liabilities— — (1)
Net cash used in operating activities(340)(1,548)(1,300)
Cash Flows from Investing Activities:
Net cash provided by investing activities— — — 
Cash Flows from Financing Activities:
Common stock options exercised50 566 372 
Return of capital from subsidiaries— — 3,711 
Net cash provided by financing activities50 566 4,083 
Net increase (decrease) in cash and cash equivalents(290)(982)2,783 
Cash and Cash Equivalents, beginning of period15,717 16,699 13,916 
Cash and Cash Equivalents, end of period$15,427 $15,717 $16,699 

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19. Business Segment Information
We have one reportable business segment, commercial banking. The commercial banking segment provides middle-market businesses, professional firms and individuals with a diversified range of products and services such as various types of deposit accounts, various types of commercial and consumer loans, cash management services, and online banking services.
Since our operating segment derives all of its revenues from interest and noninterest income and interest expense constitutes its most significant expense, this segment is reported below using net interest income (interest income less interest expense) and noninterest income (primarily net gains on sales of Small Business Administration loans and fee income). We do not allocate general and administrative expenses or income taxes to our operating segment.
The following table sets forth information regarding the net interest income (expense) and noninterest income for our commercial banking and other segments, respectively, for the years ended December 31, 2020, 2019 and 2018.
Commercial
Other(1)
Total
(Dollars in thousands)
Net interest income for the year ended December 31,
2020$52,600 $(618)$51,982 
2019$50,443 $(887)$49,556 
2018$48,150 $772 $48,922 
Noninterest income for the year ended December 31,
2020$6,311 $26 $6,337 
2019$5,561 $27 $5,588 
2018$4,610 $25 $4,635 
Segment Assets at:
December 31, 2020$1,586,916 $674 $1,587,590 
December 31, 2019$1,414,996 $1,158 $1,416,154 
(1)Represents net interest income and noninterest income for PMAR and PMBC.

20. Unaudited Quarterly Information
    Unaudited quarterly information for each of the three months in the years ended December 31, 2020 and 2019 was as follows:
Three Months Ended
December 31, 2020September 30, 2020June 30, 2020March 31, 2020
(Dollars in thousands, except per share data)
Total interest income$14,234 $16,016 $15,580 $14,769 
Total interest expense1,297 1,762 2,262 3,296 
Net interest income12,937 14,254 13,318 11,473 
Provision for loan and lease losses— — 2,850 6,200 
Net interest income after provision for loan and lease losses12,937 14,254 10,468 5,273 
Total noninterest income1,827 2,245 1,171 1,095 
Total noninterest expense8,921 9,275 8,934 9,720 
Income before income taxes5,843 7,224 2,705 (3,352)
Income tax (benefit) provision2,140 2,138 800 (991)
Net income allocable to common shareholders$3,703 $5,086 $1,905 $(2,361)
Per share data-basic:
Net income allocable to common shareholders$0.16 $0.21 $0.08 $(0.10)
Per share data-diluted:
Net income allocable to common shareholders$0.16 $0.21 $0.08 $(0.10)
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Three Months Ended
December 31, 2019September 30, 2019June 30, 2019March 31, 2019
(Dollars in thousands, except per share data)
Total interest income$16,277 $16,767 $16,466 $16,167 
Total interest expense3,734 4,024 4,247 4,116 
Net interest income12,543 12,743 12,219 12,051 
Provision for loan and lease losses3,750 2,100 — 3,300 
Net interest income after provision for loan and lease losses8,793 10,643 12,219 8,751 
Total noninterest income1,369 1,342 1,386 1,490 
Total noninterest expense9,790 9,697 9,707 8,983 
Income before income taxes372 2,288 3,898 1,258 
Income tax (benefit) provision(68)658 1,170 376 
Net income allocable to common shareholders$440 $1,630 $2,728 $882 
Per share data-basic:
Net income allocable to common shareholders$0.02 $0.07 $0.12 $0.04 
Per share data-diluted:
Net income allocable to common shareholders$0.02 $0.07 $0.12 $0.04 

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PART III
 
ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
BOARD OF DIRECTORS
Name of Director
Age
Director Since
James F. Deutsch652018
Brad R. Dinsmore572019
Manish Dutta452019
Shannon F. Eusey512019
Michael P. Hoopis702012
Denis P. Kalscheur702015
Anne McCallion662020
Michele S. Miyakawa512019
David J. Munio762015
Stephen P. Yost752013
Set forth below is information relating to the principal occupations, recent business experience and qualifications of each of our current directors.
James F. Deutsch has served as a member of our Board of Directors since November 2018. Mr. Deutsch has more than 40 years of experience in the banking industry and currently is a partner at Patriot Financial Partners, L.P., a private equity firm focused on investing in community banks, thrifts and financial services- related companies throughout the United States. Prior to joining Patriot Financial Partners in 2011, Mr. Deutsch was one of the founders and served as the President and CEO of Team Capital Bank, a private institution headquartered in Bethlehem, PA. Prior to Team Capital, Mr. Deutsch spent 25 years managing various lending groups including community bank lending, regional lending and national lending programs at Commerce Bancorp, Inc., Brown Brothers Harriman and Summit Bancorp. Mr. Deutsch was also responsible for managing and establishing investment banking, corporate finance, syndication and specialty lending groups at Commerce Bancorp. Mr. Deutsch has served on the boards of many civic and professional organizations during his career including serving as the Chair of The State Theatre, Valley Youth House, The Bethlehem YMCA and the Hugh Moore Historical Parks and Museums. He currently serves on the board of the Minsi Trails Boy Scout Council and the board of Enterprise Financial Services Corp, a public company whose common stock trades on NASDAQ. Mr. Deutsch received his B.S. degree in Finance and his MBA from Lehigh University. Mr. Deutsch was elected to our Board of Directors and nominated for election pursuant to an Investor Rights Agreement with Patriot, which grants Patriot the right to designate one individual for election to our Board of Directors, subject to the terms and conditions of the agreement. We entered into the Investor Rights Agreement with Patriot in connection with Patriot's purchase of 2,169,208 shares of our common stock and 1,467,155 shares of our Series A Preferred Stock from the Carpenter Funds. Mr. Deutsch's more than 40 years in the banking industry, which includes years of experience as an executive officer and in various director positions, brings extensive leadership and community banking experience to our Board, including executive management, risk, credit experience, risk assessment skills and public company expertise. As a Partner of Patriot Financial Partners, he also provides the perspective of a significant investor in the Company.
Brad R. Dinsmore joined Pacific Mercantile Bancorp in September 2019 as President and Chief Executive Officer of the Company and its subsidiary, Pacific Mercantile Bank. Mr. Dinsmore has 32 years of banking experience and most recently served as Corporate Executive Vice President for SunTrust Banks in Atlanta, Georgia. During his tenure at SunTrust, Mr. Dinsmore had responsibility for Consumer Banking, Small Business Banking, Private Wealth Management and Digital Banking. At SunTrust, Mr. Dinsmore was part of the executive leadership team that led the turnaround of one of the largest banks in the United States. Mr. Dinsmore was previously Head of U.S. Retail Banking for Citigroup based out of New York City. Earlier in his career, Mr. Dinsmore served in numerous senior roles at Bank of America including having responsibility for delivering products and services to more than 12 million consumers and businesses in the Western half of the United States. Mr. Dinsmore earned his bachelor's degree in Business Administration from California Polytechnic State University and completed additional studies at the University of Washington's Pacific School of Banking. Mr. Dinsmore's extensive business banking experience and proven leadership abilities are an asset to our Board of Directors.
Manish Dutta has served as a member of our Board of Directors since November 2019. Mr. Dutta is the Co-Founder and since January 2019 has served as the Chief Executive Officer of Alpha Ledger Technologies, a company which leverages distributed ledger technology to connect all people to fundamental positive impact municipal investment opportunities that
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strengthen communities and improve quality of life. Mr. Dutta has over 22 years of experience in the investment management industry, with a focus on business operations, technology, strategic planning and implementing complex and scalable solutions. Prior to founding Alpha Ledger Technologies, Mr. Dutta spent 20 years with PIMCO where he most recently was a Senior Vice President and Senior Manager, managing various teams of developers, analysts and consultants supporting PIMCO’s global client facing operations, business operations and strategic initiatives for the executive office. Mr. Dutta joined PIMCO as a Senior Developer leading teams and managing platform projects working both domestically and internationally, and steadily rose through the management ranks over time. Prior to joining PIMCO, Mr. Dutta held programmer and developer positions at The Capital Group Companies, Inc. and GDI/Compuflex International, respectively. Mr. Dutta received his Bachelor’s degree in Business Studies from Delhi University, India. Mr. Dutta's strong technology background and expertise within the financial industry adds valuable insight and experience to our Board of Directors.
Shannon F. Eusey has served as a member of our Board of Directors since May 2019. Ms. Eusey is a Co-Founder of Beacon Pointe Advisors, LLC and has served as its Chief Executive Officer and President since 2002. Previously, Ms. Eusey served as Managing Director and Portfolio Manager at Roxbury Capital Management, LLC. She was responsible for the socially responsible investments for several years at Roxbury. She served as Vice Chairman on the Board of Directors for the National Network to End Domestic Violence, as a Trustee for the Friends of the Girl Scouts Council of Orange County, and as a board member of the UCI Athletic Fund. She is a member of Orange County’s Young President Organization, sits on the CNBC Financial Advisors Council, and is part of ScratchWorks - a FinTech accelerator. She graduated from the University of California Irvine where she Played Division I Volleyball. She received her MBA from the University of California, Los Angeles Anderson School of Business. Ms. Eusey's leadership experience in building Beacon Pointe Advisors into a $10 billion registered investment advisory firm brings a unique skill set to our Board of Directors where she provides keen insights into talent management, operations, marketing, business development, and FinTech.
Michael P. Hoopis has served as a member of our Board of Directors since 2012. Since March 2016, Mr. Hoopis is Chief Executive Officer and Founder of 4 Cornrs Business Advisory, LLC, a consulting company focusing on advising businesses, Boards and executives on strategic planning and value creation. Previously, Mr. Hoopis served as President, Chief Executive Officer and a member of the Board of Directors of Targus Group International, Inc. (“Targus Group”), a worldwide leader in the manufacture and marketing of cases and accessories for laptop computers, tablets and e-readers, from 2006 to February 2016. In February 2016, Mr. Hoopis served as President, Chief Executive Officer and a member of the Board of Directors of Targus Cayman Holdco Limited, the ultimate parent of Targus International LLC (“Targus International”), a newly formed operating company for the ongoing Targus assets. Prior to joining Targus Group, Mr. Hoopis served as the President and Chief Executive Officer of Water Pik Technologies, Inc. for seven years and was responsible for overseeing the spin-off and transition of Water Pik from a segment of Allegheny Teledyne to a public company in 1999. Prior to joining Water Pik, Mr. Hoopis held several executive management positions at Black & Decker from 1989 to1998, including President of Worldwide Household Products, Price Pfister, Inc. and Kwikset Corporation. Prior to joining Black & Decker, Mr. Hoopis held several management positions with Beatrice Foods Inc. Mr. Hoopis earned his B.S. degree from the University of Rhode Island. Mr. Hoopis was initially elected to our Board of Directors pursuant to an agreement granting the Carpenter Funds the right to designate three individuals for election to our Board of Directors, which terminated on September 14, 2018. Mr. Hoopis's extensive leadership and managerial experience enables him to provide valuable insights to our Board of Directors into how to manage risk in a business environment.

Denis P. Kalscheur has served as the Chairman of the Board since May 2020 and a member of our Board of Directors since February 2015. Mr. Kalscheur has since April 2020 served as an advisory director for the Board of Directors of ORIX Corporation USA, the wholly-owned privately held subsidiary of ORIX Corporation, including serving as Chairman of its Audit Committee.  From January 2017 to November 2018, he served as a member of the Board of Directors for Avolon Holdings Limited, the third largest commercial jet aircraft leasing company in the world.  From January 2016 to January 2017, Mr. Kalscheur served as Vice Chairman of Aviation Capital Group (“ACG”), a global commercial jet aircraft leasing firm and wholly-owned subsidiary of Pacific Life, a Fortune 500 life insurance enterprise.  He served as ACG’s CEO and a member of ACG's Board of Directors from January 2013 to December 2016. Mr. Kalscheur served as SVP and Treasurer of Pacific Life from 2010 through 2012. Mr. Kalscheur also had significant board roles with College Savings Bank, a New Jersey chartered savings bank and wholly owned subsidiary of Pacific Life, including serving as a Director (2002-2012), Audit Committee Chairman (2003-2007) and Chairman of the Board (2010-2012). Prior to joining Pacific Life, he was a senior insurtech executive and held a number of executive officer roles in the airline and aerospace industry. Mr. Kalscheur served as President and CEO of Elsinore Aerospace, a global aviation engineering and certification, maintenance, modification and quality management company. He served as CFO of U.S. passenger airline AirCal and its parent, ACI Holdings. Mr. Kalscheur also served as VP and Treasurer of Tiger International, a global diversified transportation company and its wholly owned subsidiary The Flying Tiger Line, a global cargo airline. He began his career in commercial banking as a corporate banking officer of both First Wisconsin National Bank and Continental Illinois National Bank and Trust Company of Chicago.  Mr. Kalscheur graduated with an MBA and BBA in finance, investments and banking from the University of Wisconsin-Madison where he is
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an emeritus member of the Dean's Advisory Board.  Mr. Kalscheur's extensive finance background and his decade of experience as a director of College Savings Bank adds sound industry experience to our Board of Directors.
Anne McCallion has served as a member of our Board of Directors since September 2020. Ms. McCallion has nearly 30 years of experience in the financial services industry, with a focus in the areas of finance and operations. Since 2018, Ms. McCallion has served on the board of PennyMac Financial Services, Inc., a public company whose stock trades on the New York Stock Exchange. She served as PennyMac’s Chief Enterprise Operations Officer from 2017 to 2019 and prior to that served as its Chief Financial Officer from 2009 to 2016, holding similar positions at PennyMac Mortgage Investment Trust. Prior to joining PennyMac, Ms. McCallion served for over 17 years at Bank of America/Countrywide Financial (“BofA”) where she held various finance and operations positions. Prior to her tenure at BofA, Ms. McCallion was an audit senior manager with Deloitte & Touche, and prior to that had been on the technical staff of the Financial Accounting Standards Board. A Certified Public Accountant (Inactive), Ms. McCallion received her Master in Business Administration from Ashland University and received her Bachelor in Science degree with an emphasis in Accounting from Gannon University. We appointed Ms. McCallion to our Board of Directors based on her extensive experience in finance, operations and accounting in the financial services industry. She also qualifies as an "audit committee financial expert" under SEC rules, bringing valuable industry knowledge to the team.
Michele S. Miyakawa has served as a member of our Board of Directors since May 2019. Ms. Miyakawa is a founding member of Moelis & Company, where she has served as a Managing Director since June 2007. At Moelis & Company, Ms. Miyakawa has served in multiple roles including COO of Global Advisory and most recently as Global Head of Human Resources, Head of Investor Relations and Marketing and Communications. Previously, Ms. Miyakawa was an investment banker with UBS, focusing on the technology, media and telecom sectors where she led assignments in merger and acquisition, recapitalization and restructuring, IPOs and capital financing. Prior to UBS, she was an investment banker with Donaldson, Lufkin & Jenrette. She has served as a Director at the Children’s Bureau of Southern California and was a Trustee for the Center for Early Education. Ms. Mikyakawa graduated from The Wharton School at the University of Pennsylvania where she received her Bachelor of Science in Economics, and subsequently obtained her MBA from Harvard University. Ms. Miyakawa has over 25 years of experience in the finance industry as an investment banker and human resources leader, which brings valuable industry and management experience to our Board of Directors.
David J. Munio has served as a member of our Board of Directors since December 2015. Mr. Munio has more than 40 years of experience in the banking industry. After many years in senior executive positions at First Interstate Bank, Mr. Munio's banking career culminated with five years of service as the Chief Credit Officer of Wells Fargo & Company. Following his retirement from Wells Fargo, he served as director and Chairman of the Credit Policy Committee of CapitalSource Bank prior to its merger in 2014 with Pacific Western Bancorp. Mr. Munio joined Wells Fargo in 1996 and served as Executive Vice President and Chief Credit Officer from 2001 until his retirement in 2006. In this role, he was responsible for all credit policy and oversight for the bank, and also served on the board of directors at Wells Fargo Bank, N.A. Mr. Munio joined Wells Fargo as a result of its acquisition of First Interstate Bank in 1996. During his 20-year career at First Interstate Bank, Mr. Munio served in a number of senior management positions including Executive Vice President - Credit Policy and Administration Manager from 1987-1996. Mr. Munio attended the University of California, Los Angeles where he earned an MBA and a Bachelor of Science degree in Business Economics. Mr. Munio's extensive finance background and management experience assist us in understanding the banking environment and will help us better serve our customers.
Stephen P. Yost has served as a member of our Board of Directors since 2013. He established Kestrel Advisors, a consulting firm that focuses on credit risk management for the banking and financial communities following his retirement from Comerica Bank in 2006. During his 40 plus years in banking, the vast majority of Mr. Yost’s career was in credit administration. He was a Regional Chief Credit Officer for Comerica Bank and the Executive in charge of its Special Assets Group for the Western Region. Mr. Yost was the Chief Credit Officer of Imperial Bank prior to its merger with Comerica. He was also a Senior Credit Officer with First Interstate Bank and Mellon Bank, N.A. Mr. Yost is a past director for Heritage Oaks Bancorp and subsidiaries, for Manhattan Bancorp (2006-2015) and subsidiaries, and Mission Community Bancorp (2010-2014). Mr. Yost chairs the directors’ Credit Policy Committee of Pacific Mercantile Bank and is a member of several other standing committees. Mr. Yost holds an MBA from the University of Santa Clara. Due to his extensive knowledge of bank lending and credit issues, Mr. Yost is a valuable addition to the Board and to the Board’s Credit Policy Committee, which is responsible for establishing lending policies, providing oversight of the Bank’s lending and credit functions and approving the larger loans made by the Bank.




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EXECUTIVE OFFICERS
    The names of our current executive officers, their ages as of April 6, 2021 and their positions with the Company and the Bank are set forth below.
Name and AgePositions with the Company and the Bank
Brad R. Dinsmore, 57President and Chief Executive Officer of the Company and the Bank
Curt A. Christianssen, 60Executive Vice President and Chief Financial Officer of the Company and the Bank
Robert S. Anderson, 51Executive Vice President and Chief Credit Officer
Maxwell G. Sinclair, 56Executive Vice President and Chief Compliance Officer of the Company and the Bank
Sean M. Foley, 56Executive Vice President and Chief Banking Officer
Philipp Garcia, 46Executive Vice President and Chief Information Officer
Shamara Vizcarra, 41Executive Vice President and Head of Operations and Client Experience
Cindy S. Verity, 58Executive Vice President and Head of Cash Management
Tom Wagner, 62Executive Vice President, Business Development Officer
        
Set forth below is additional biographical information regarding our executive officers, other than Mr. Dinsmore, whose biographical information is provided above under “BOARD OF DIRECTORS".
    Curt A. Christianssen joined Pacific Mercantile Bancorp and the Bank as Chief Financial Officer effective January 1, 2015, a role in which he had served on an interim basis since December, 2013. Through October 2018, he also served as Executive Vice President and Chief Financial Officer of the Carpenter Community BancFund, a private equity-funded bank holding company, CCFW, Inc. d/b/a Carpenter & Company, a bank consulting firm, and Seapower Carpenter Capital, Inc., a broker/dealer subsidiary of CCFW. Prior to beginning in the interim role, Mr. Christianssen served in a similar interim role at Manhattan Bancorp and the Bank of Manhattan since 2012.  He had served as Executive Vice President and Chief Financial Officer of the Carpenter Community BancFund since 1999. From 1996 to 1999, Mr. Christianssen served as Chief Financial Officer and Director of Corporate Development for Dartmouth Capital Group and Eldorado Bancshares, Inc. From 1993 until its acquisition in 1996 by Eldorado Bancshares, Mr. Christianssen served as Chief Financial Officer of Liberty National Bank. Mr. Christianssen had previously served as Chief Financial Officer of Olympic National Bank from 1991 to 1993, as Chief Financial Officer of two financial institutions under the control of the Resolution Trust Corporation and as a Senior Management Consultant with the Ernst & Young firm. In addition, Mr. Christianssen served in a variety of financial positions with Continental Ministries and Colorado National Bancshares.
    Robert S. Anderson has served as the Chief Credit Officer since October 2019. Mr. Anderson joined Pacific Mercantile Bank in 2013 as Executive Vice President/Asset Based Lending and was later promoted to Head of Product and Market Development in January 2016 and to Chief Banking Officer in January 2017. During Mr. Anderson’s time at the Bank, he has helped to build our asset-based lending division and has helped to pursue new growth opportunities through the development of new products and services and the entrance into new markets. Prior to joining the Bank, Mr. Anderson spent 17 years with Silicon Valley Bank, where he started his banking career. Mr. Anderson has held various positions at Silicon Valley Bank, most recently overseeing the Orange County office, at which he was responsible for their banking and lending relationships in the technology, life science and clean tech markets.
Maxwell G. Sinclair has served as Executive Vice President and Chief Compliance Officer of the Company and the Bank since January 2011. Prior to joining Pacific Mercantile Bank, Mr. Sinclair served as Vice President/Compliance and BSA Manager at Zions Bancorporation subsidiary California Bank & Trust from December 2005 to January 2011. During his five years at Zions Bancorporation (California Bank & Trust), Mr. Sinclair held various positions in compliance and risk management. Mr. Sinclair also held various positions in management with several other banks in Southern California, Mr. Sinclair has more than 25 years of experience in the banking industry, with most of his years of experience in compliance, audit, bank secrecy act/anti-money laundering and risk management.
Sean M. Foley joined Pacific Mercantile Bank in April 2020 as Executive Vice President and Chief Banking Officer and is responsible for the profitable growth of the Bank's Small Business Administration, Asset Based Lending and Commercial Banking businesses. Mr. Foley has over 30 years of banking experience and most recently served as the Commercial Banking Executive of KeyBank in the state of Washington from 2016 to 2019. Prior to KeyBank, he spent 10 years as Regional President of US Bank's Southern California market, leading the commercial teams while coordinating the bank's overall effort in the community. Mr. Foley earned his Bachelor of Science degree in Accounting and Business from the University of Pittsburgh.
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    Philipp Garcia joined Pacific Mercantile Bank in January 2002 and served as Senior Vice President and Chief Information Officer for 15 years before being promoted to Executive Vice President and Chief Information Officer in March 2020. Prior to joining the Bank, Mr. Garcia was a Co-Founder of eFunds Corporation, now part of Fidelity Information Services (FIS), where he served as a Senior Software Engineer and Senior Consultant from 1993 to 2002. Mr. Garcia is a Certified Information Systems Security Professional (CISSP) and an Accredited ACH Professional (AAP).
    Shamara Vizcarra joined Pacific Mercantile Bank in 2015 and after serving multiple Treasury Management leadership roles at the Bank, was promoted in 2020 to Executive Vice President, Head of Operations and Client Experience, where she oversees the Bank's Deposit and Loan Operations, Treasury Management and Customer Services. Prior to joining Pacific Mercantile Bank, Shamara held various positions at community and commercial banks across Southern California, focusing on operations, sales, service, risk management and treasury management.
    Cindy S. Verity has served as Executive Vice President and Head of Cash Management since 2012. Ms. Verity, as Head of Cash Management, is focused on developing a strategy to position products and services to our clients, deployment of a solution-based sales training, client retention through improved product offerings and creation of a roadmap for developing new products that meet our client’s specific needs. Prior to joining Pacific Mercantile Bank, Ms. Verity spent 11 years with Silicon Valley Bank in domestic cash management and global treasury management including Head of Global Treasury Sales.
    Tom Wagner has served as Executive Vice President of Corporate Finance since January 2017. Mr. Wagner joined the Bank in 2013 as Manager of the Bank's Northern Division and was later promoted to Chief Strategy Officer in January 2016. During Mr. Wagner’s tenure with the Bank, he has led the commercial banking team’s Horizon Analytics practice and helped develop strategies, approaches and products to better serve the Bank’s target customers and further differentiate Pacific Mercantile Bank from competitors. Prior to joining the Bank in 2013 Mr. Wagner served in a variety of capacities with Silicon Valley Bank from 1999 through 2011, finally as the Head of Corporate Banking.
CORPORATE GOVERNANCE
The Role of the Board of Directors
In accordance with our Bylaws and California law, the Board of Directors oversees the management of the business and affairs of the Company. The members of the Board also are members of the Board of Directors of the Bank, which accounts for substantially all of the Company’s consolidated operating results. The members of the Board keep informed about our business through discussions with senior management and other officers and managers of the Company and the Bank, by reviewing analyses and reports sent to them by management and outside consultants, and by participating in Board and in Board committee meetings.
During 2020, our Board of Directors held a total of six meetings and each director attended at least 75% of the total number of those meetings and the meetings of the Board committees on which they served during their term of office as a director in 2020. We encourage our directors to attend our annual meeting of shareholders. All of our then-current directors attended our 2020 Annual Meeting of Shareholders.
Board Leadership Structure
Our Board of Directors has chosen to separate the positions of chief executive officer and chairman of our Board of Directors. Our Board of Directors believes that it is advisable to separate the two positions because combining both positions in the same individual might concentrate too much power in the hands of a single executive. Having an independent Chairman of our Board of Directors also facilitates communications and relations between our Board of Directors and the Company’s officers.
Term of Office of Directors
All of our directors are elected to serve for a term of one year and until their respective successors are elected and qualify to serve on the Board. If a vacancy occurs on the Board between annual meetings, the Board may fill the vacancy by electing a new director. The Board may also increase the size of the Board, subject to our Bylaws, and elect a director to hold the newly created vacancy for a term ending at the next annual meeting of shareholders.
Communications with the Board
Shareholders interested in communicating with members of the Board of Directors or the non-management directors as a group may do so by writing to the Chairman of the Board of Directors, c/o Corporate Secretary, Pacific Mercantile Bancorp, 949 South Coast Drive, Third Floor, Costa Mesa, California 92626. The Corporate Secretary will review and forward to the appropriate members of the Board copies of all such correspondence that, in the opinion of the Corporate Secretary, deals with the functions of the Board or its committees or that she otherwise determines requires their attention. Concerns relating to
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accounting, internal controls or auditing matters will be brought promptly to the attention of the Chairman of the Audit Committee and will be handled in accordance with procedures established by that committee.
Corporate Governance Guidelines
Our Board of Directors has adopted Corporate Governance Guidelines, which provide the framework for the governance of our Company and represent our Board’s current views with respect to selected corporate governance issues considered to be of significant to our shareholders. The Corporate Governance Guidelines direct the actions of our Board of Directors with respect to, among other things, Board composition, director nomination procedures and qualifications, director orientation and continuing education, management succession planning, expectations of our directors, and annual performance evaluations of our Board and committees. A copy of our Corporate Governance Guidelines can be found at the Investor Relations section of our website at www.pmbank.com.
Code of Business and Ethical Conduct
We have adopted a Code of Business and Ethical Conduct for our officers and employees that also includes specific ethical policies and principles that apply to our Chief Executive Officer, Chief Financial Officer, the Bank’s Chief Operating Officer and other key accounting and financial personnel. A copy of our Code of Business and Ethical Conduct can be found at the Investor Relations section of our website at www.pmbank.com. We intend to disclose, to the extent required by the applicable rules of the SEC and Nasdaq, at this location on our website, any amendments to that code and any waivers of the requirements of that code that may be granted to our executive officers, including our principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions.
Committees of the Board of Directors
The Board has four standing committees: an Audit Committee, a Human Resources and Compensation Committee (the “HR and Compensation Committee”), a Risk and Finance Committee and a Nominating and Governance Committee. Information regarding the current members and the responsibilities of each of those Committees and the respective number of meetings held in 2020 by those Committees is set forth below.
Audit Committee. The members of the Audit Committee are Anne McCallion, its Chairman, and James Deutsch, Manish Dutta, Denis P. Kalscheur, and Stephen P. Yost. All of these individuals are independent directors within the meaning of the Nasdaq listed company rules and meet the enhanced independence requirements for audit committee members contained in Rule 10A-3 under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Our Board of Directors has determined that Ms. McCallion and Mr. Kalscheur meet the definition of “audit committee financial expert” as defined in regulations adopted by the SEC and qualifies as financially sophisticated in accordance with Nasdaq’s rules for listed companies. The Audit Committee has a written charter that sets forth the Audit Committee’s responsibilities, which include oversight of the financial reporting process and system of internal accounting controls of the Company, and the appointment and oversight of the independent registered public accounting firm engaged to audit the Company’s financial statements. Our Board of Directors, upon the recommendation of the Audit Committee, approved that charter, a copy of which can be viewed under “Governance” in the Investor Relations section of our website at www.pmbank.com. The Audit Committee held four meetings during 2020. To encourage frank discussion and effective communication of information at those meetings, that Committee meets with our outside accountants without management present, and with members of management without the outside accountants present.
Human Resources and Compensation Committee. This committee is comprised of the following four directors, all of whom are independent (as defined in the applicable Nasdaq listed company rules): Shannon F. Eusey, its Chairman, and James F. Deutsch, Denis Kalscheur, and Michele S. Miyakawa. The HR and Compensation Committee reviews and approves the salaries and the incentive compensation and other benefit plans for our executive officers. In addition, the HR and Compensation Committee evaluates the performance of the Chief Executive Officer and based on this evaluation recommends to the independent members of the Board of Directors for their approval the Chief Executive Officer's compensation levels. The HR and Compensation Committee also administers the granting of options or other equity incentives under our equity incentive plans. Our Board of Directors has adopted a charter setting forth the role and responsibilities of the HR and Compensation Committee. A copy of that charter can be viewed under “Governance” in the Investor Relations section of our website at www.pmbank.com. The HR and Compensation Committee held three meetings in 2020.
The Company’s President and Chief Executive Officer also advises the HR and Compensation Committee on the performance of the other executive officers and their respective contributions to the achievement of Company’s financial objectives and makes recommendations to the HR and Compensation Committee with respect to the compensation to be paid to them. Pursuant to its charter, the HR and Compensation Committee may delegate its authority to subcommittees when appropriate. The HR and Compensation Committee has not delegated, and has no current intention to delegate, any of its authority to any subcommittee.
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In 2020, the HR and Compensation Committee engaged Blanchard Consulting Group ("Blanchard") to evaluate the overall design and effectiveness of the Company’s executive, management and commercial annual cash-based incentive plans and to recommend plan design changes accordingly. Additionally, the HR and Compensation Committee engaged Blanchard to gather executive and Board compensation data from a group of peer banks of similar asset sizes that operated in California and Washington. The Blanchard compensation study and the 2020 peer group was used to evaluate and assess the total compensation of the Company's directors, named executive officers and other executive officers in 2020.
Risk and Finance Committee. The members of the Risk and Finance Committee are Michele S. Miyakawa, its Chairman, and James F. Deutsch, Brad R. Dinsmore, Shannon F. Eusey, Michael P. Hoopis, and David J. Munio. The Risk and Finance Committee’s primary responsibilities include oversight of the Company’s (i) enterprise risk management policies and processes, including the identification of enterprise risks and the measures being implemented to mitigate those risks, (ii) compliance management processes, including the process for compliance with applicable bank regulatory requirements, and (iii) technology related processes, cybersecurity and controls. This Committee also exercises oversight of the Bank’s investment portfolio, liquidity, capital policies and related processes and controls and Community Reinvestment Act policies and processes. The Risk and Finance Committee held six meetings in 2020.
Nominating and Governance Committee. The members of the Nominating and Governance Committee are: Denis Kalscheur, its Chairman, Shannon F. Eusey, and Michael P. Hoopis. The Nominating and Governance Committee identifies and screens new candidates for Board membership and oversees the Company’s governance policies and processes. Each of the Committee members is an “independent director” within the meaning of the Nasdaq listed company rules. Our Board of Directors has approved a charter setting forth the responsibilities of the Nominating and Governance Committee. A copy of that charter can be found under “Governance” in the Investor Relations section of our website at www.pmbank.com. The Nominating and Governance Committee held three meetings during 2020.
Annual Board Evaluation Process
    The Nominating and Governance Committee overseas an annual evaluation of the Board's and each Board committee's performance. The Nominating and Governance Committee also conducts an individual director self-assessment process annually in advance of the annual director nomination process.
Role of the Board in Risk Management
The Board’s responsibilities in overseeing the Company’s management and business include oversight of the Company’s key risks and management’s processes and controls to manage them appropriately. Management, in turn, is responsible for the day-to-day management of risk and implementation of appropriate risk management controls and procedures.
The risk of incurring losses on the loans we make is an inherent feature of the banking business and, if not effectively managed, such risks can materially affect our results of operations. As a result, the Board as a whole exercises oversight responsibility over the processes that our management employs to manage those risks. The Board fulfills that oversight responsibility by:
•Monitoring trends in the Company’s loan portfolio and the Company’s allowance for loan and lease losses;
•Establishing internal limits related to the Company’s lending exposure and reviewing and determining whether or not to approve loans in amounts exceeding certain specified limits;
•Reviewing and discussing, at least quarterly and more frequently, if deemed necessary, reports from the Bank’s chief credit officer relating to such matters as (i) risks in the Company’s loan portfolio, (ii) economic conditions or trends that could reasonably be expected to affect (positively or negatively) the performance of the loan portfolio or require increases in the allowance for loan and lease losses and (iii) specific loans that have been classified as “special mention,” “substandard” or “doubtful” and, therefore, require increased attention of management;
•Reviewing, at least quarterly, management’s determination of the allowance for loan and lease losses and any provisions required to be made to replenish or increase that allowance;
•Reviewing management reports regarding collection efforts with respect to non-performing loans; and
•Authorizing the retention and reviewing the reports of external loan review consultants with respect to the risks in and the quality of the loan portfolio.
Although risk oversight permeates many elements of the work of the full Board and its committees, the Audit Committee and the Risk and Finance Committee of the Board have direct and systematic responsibility for overseeing other significant risk management processes.
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Audit Committee Oversight Responsibilities. The Audit Committee’s responsibilities in overseeing risk management processes include:
•Oversight of the internal audit function, with the internal auditor reporting directly to the Audit Committee;
•Oversight of the Company’s independent registered public accounting firm; and
•Review of reports from management and the internal auditor regarding the adequacy and effectiveness of various internal controls.
Risk and Finance Committee Oversight Responsibilities. The Risk and Finance Committee’s oversight of risk management processes include the review of policies and guidelines with respect to risk assessment and the processes employed by management in identifying the Company’s major risk exposures and the actions being taken by management to monitor and control such exposures. The Committee also oversees management’s implementation of measures that are designed to minimize to the extent practicable the risks of non-compliance with applicable federal and state banking laws and regulations by, among other things, (i) reviewing with the Bank’s chief compliance officer (who reports directly to the Committee) and consulting with the Bank’s legal counsel with respect to regulatory matters and issues that could have a significant impact on the Company or the Bank or could present emerging areas of risk, and (ii) overseeing regulatory compliance programs. The Committee also reviews significant reports from regulatory agencies relating to risk issues, and management's responses, except to the extent they are subject to the jurisdiction of another committee of the Board pursuant to that committee's charter.
In performing their oversight responsibilities, the Board of Directors and the Audit and Risk and Finance Committees regularly receive reports from management and internal and external auditors, and periodically receive reports from outside consultants, regarding the Company’s enterprise risk management programs, compliance programs, cyber/information security and business continuity programs, and any extraordinary claims or losses.
Our Board of Directors believes that the processes it has established for overseeing risk would be effective under a variety of leadership frameworks and therefore do not materially affect its choice of leadership structure as described under “Board Leadership Structure” above.
Compensation and Risk Management. The Company’s HR and Compensation Committee and Board of Directors have reviewed the Company’s executive and employee compensation practices to analyze whether or not they create improper incentives that would result in a material risk to the Company. Based on this review and analysis, the HR and Compensation Committee and the Board of Directors have determined that none of the Company’s compensation practices for its executive officers or employees is reasonably likely to have a material adverse effect on the Company.
    Anti-Hedging and Pledging Policies. The Company recognizes that hedging, derivative and other speculative transactions by Company insiders could disturb the alignment between shareholders and Company insiders or create other risks involving transactions in the Company's securities. Accordingly, we maintain a policy that limits our directors, executive officers and other Company insiders from engaging in these types of transactions. Specifically, in addition to the prohibition on engaging in short sales by our executive officers and directors under applicable securities laws, we strongly discourage insiders from engaging in short sales or derivative transactions and we require all Company insiders to pre-clear any proposed hedging or monetization transaction. We also prohibit Company insiders from holding Company stock in a margin account or pledging Company stock as collateral for a loan.
Environmental, Social and Governance Practices
    We are committed to excellence in our environmental, social and governance (“ESG”) practices, with our Nominating and Governance Committee assuming primary oversight of our efforts in ESG matters. We regularly assess our practices to ensure we are meeting industry and peer standards and we seek opportunities to enhance the communities where we serve through our efforts to meet our obligations under the Community Reinvestment Act (“CRA”), which includes CRA qualified lending, corporate giving, and employee volunteering. We further look for community enhancement opportunity through development of our staff, participation in the political and public policy process, and environmental sustainability programs.
    We recognize that it is increasingly important for our shareholders, customers, and employees to have a good understanding of our efforts to improve ESG practices. We have included some highlights below to share our ongoing commitments in these areas.
    Community Development Lending. As a financial institution that strives to help more businesses succeed, Pacific Mercantile Bank is an active participant in various community development lending initiatives that aim to help the local communities thrive. The Bank actively seeks opportunities to make loans that provide and maintain affordable housing. The Bank has longstanding partnerships with non-profit organizations such as Accion and Clearinghouse CDFI that provide micro‑loans and lending alternatives to small businesses, entrepreneurs and start-up companies that otherwise may not have
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access to traditional banking products, as well as assistance in financing affordable housing projects that bring opportunities to underserved communities. In 2020, the Bank originated and purchased multifamily loans of approximately $17 million, which provided approximately 120 affordable housing units in Central and Southern California. Additionally, the Bank has been a Member Bank of the Federal Home Loan Bank of San Francisco (FHLB) since 2011 and, through our participation in FHLB’s Workforce Initiative Subsidy for Homeownership Program (WISH) and Affordable Housing Program (AHP) and partnership with community non-profit organizations, we have helped working families achieve the American Dream of affordable homeownership. These FHLB programs provide matching grants through FHLB members that are used for down payment and closing cost assistance to eligible first-time home buyers. In 2020, the Bank provided AHP-assisted funding grants for three (3) affordable housing units, totaling $67,000. Following the passage of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) the Bank was quick to provide our support to businesses within and outside our local communities. We launched and actively participated in the Small Business Administration (SBA) Paycheck Protection Program (PPP). The Bank quickly established our PPP loan application process to begin accepting and processing applications on April 3, 2020, the first day of the program’s implementation by the SBA. In 2020, the Bank originated PPP loans of over $291 million, which provided assistance to over 700 businesses and their employees. Additionally, the Bank created a full suite of resources to assist small business PPP applicants with the application process as well as the loan forgiveness process. As the pandemic intensified in 2020, the Bank remained focused on supporting our communities through our lending and banking activities as well as other initiatives discussed below.
    Education Initiatives. As part of its CRA efforts, the Bank strives to provide free financial literacy education that is accessible to those in our communities that need it most. We have a partnership with EVERFI, an online platform that brings invaluable financial literacy lessons to elementary and high school classrooms through interactive games that build healthy financial habits. During the 2019-2020 school year, the Bank sponsored four (4) schools to receive access to EVERFI’s online platform. This relationship resulted in financial literacy education to 165 elementary school and high school learners for a total of 350 total hours of financial literacy. We also offer small business educational resources to those looking to start, or those currently running a small business, which is also provided through our partnership with EVERFI. In addition to our financial literacy outreach, the Bank also supports local non-profit organizations such as Junior Achievement of Orange County, Child Creativity Lab, Youth Employment Service along with many others that provide additional financial, technical, job-readiness and educational services to the local community. The Bank also sponsors and mentors students at the Teen Entrepreneur Academy at Concordia University-Irvine, including scholarships that provide financial assistance for low-income families.
    Giving Programs. One of our core values is to “Make a Difference Every Day.” Although the COVID-19 pandemic limited in-person participation in various programs in which the Bank has participated in 2020, we continued to support this value by encouraging our employees to remain active in serving their community through various Bank-sponsored volunteer events and/or participation on local non-profit boards and committees via virtual event meetings and activities. In 2020, our employees collectively volunteered over 660 hours within Orange and Los Angeles counties, and the surrounding regional area primarily through virtual events. The Bank also believes in giving back by investing in our local non-profit organizations, providing grants and donations for various community outreach initiatives. In 2020, the Bank provided approximately $112,000 in donations to local non-profit organizations, in addition to investments of $11 million in community multifamily housing projects. Additionally, the Bank offers interest on the Lawyers Trust Account (IOLTA) checking accounts to attorneys and law firms that maintain escrow funds for their clients. The interest remitted on these accounts goes directly to the Legal Services Trust Fund Program at the State Bar of California, which provides funding to non-profit organizations providing critical legal services to their communities.
    Diversity and Inclusion. At Pacific Mercantile Bank, we recognize the valuable asset we have in our employees, and we are committed to fostering, cultivating and preserving a culture of diversity and inclusion. We value diversity and respect individual differences. Valuing diversity is about building relationships, being committed to a practice of inclusiveness that views differences as attributes and strengths, and recognizing the talents that diverse individuals bring to the workplace facilitates learning and creates a competitive advantage.
    Our diverse workforce comes from many different backgrounds, with different identities, life experiences, knowledge, unique capabilities, talent, and beliefs. Embracing the things that make each of us unique strengthens our ability to better serve our clients and stakeholders. It helps us understand what matters to our clients so we can help get things done. The diversity in which we have invested and our employees demonstrate in their daily work represents a significant part of not only our culture, but our reputation and Company’s achievement.
    Some of the ways we are striving to be an inclusive workplace for our employees include:

•Setting the tone at the top with our Board of Directors and Executive Management - Our Board and its committees have a key role in the oversight of our culture by holding management accountable for maintaining
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high ethical standards. Additionally, our Board Chairman also chairs the Nominating & Governance Committee - the governing committee for our diversity and inclusion strategy.
•Promoting a diverse and inclusive workforce -We have a policy of equal employment opportunity, prohibiting discrimination and harassment in the workplace on the basis of any protected category under federal or state law. At all levels of our company, we focus on attracting, retaining and developing our diverse talent. Over 50% of our workforce are women with approximately 53% of our workforce being people of color. Additionally, 20% of our Board of Directors are women.
•Recognizing and rewarding performance - From our equal pay for equal work commitment to how we competitively compensate our teammates, we are focused on delivering our pay-for-performance philosophy.
•Supporting employees’ physical, emotional and financial wellness - We are committed to supporting the financial, emotional and physical wellbeing of our employees and their families. Through a range of innovative, industry-leading and flexible programs and benefits including employee assistance programs, we support our employees through everyday challenges-so they can be their best at work and at home. In furtherance of the support for our employees’, the Bank’s culture includes:
◦Respectful communication and cooperation between all employees;
◦Teamwork and employee participation, permitting the representation of all groups and employee perspectives;
◦Work/life balance through flexible work schedules to accommodate employees’ varying needs;
◦Employer and employee contributions to the communities we serve to promote a greater understanding and respect for diversity.
    We are proud of our diverse and inclusive culture, because when you create a workplace where all employees can thrive, everyone benefits. Pacific Mercantile Bank is honored to have received the Orange County Register Top Workplaces award for 2018, 2019, and 2020.
    Environmental Sustainability. We have invested in environmental sustainability by implementing energy efficiencies internally to reduce carbon emissions and promote sustainable practices in certain of our workplaces. For example, we have chosen to lease our headquarters and branch locations from building management companies that are committed to environmental stewardship. Several of our leased office locations are owned by a property company that is the number one owner of Leadership in Energy & Environmental Design (LEED)-certified buildings, and holds the number one ranking nationwide by the Environmental Protection Agency for energy-efficient buildings. We seek to serve client companies that manufacture and/or distribute energy and resource efficiency solutions. For example, we have several clients that are involved in industries providing LED lighting systems, water filtration systems, materials recycling, and sustainable food products. In addition, we have made loans to finance projects for commercial solar energy installations.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC. The SEC requires executive officers, directors and greater than 10% shareholders to furnish to us copies of all Section 16(a) forms they file.
Based solely on our review of these reports and of certifications furnished to us, we believe that, during the fiscal year ended December 31, 2020, all executive officers, directors and greater than 10% beneficial owners complied with all applicable Section 16(a) filing requirements, except for one late filing on Form 4 that was filed on December 22, 2020, relating to the acquisition of 1,604 shares of common stock by our director Anne McCallion.




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ITEM 11.     EXECUTIVE COMPENSATION
Executive Summary
The HR and Compensation Committee establishes and administers the compensation and benefit programs for the "named executive officers", i.e., the persons identified in the Summary Compensation Table below, and other senior executives. The HR and Compensation Committee consists entirely of independent directors. The HR and Compensation Committee carefully establishes the components of the executive compensation programs in light of the goals of attracting and retaining high quality executives and incentivizing behavior that creates long-term shareholder value.
Compensation Paid to Named Executive Officers
The following table provides information regarding the compensation of our Chief Executive Officer and our other two most highly compensated executive officers during 2020 (the "named executive officers").
Summary Compensation Table
Name and Principal PositionYearSalary ($)Bonus ($)Stock Awards
($) (1)		Option Awards ($) (2)All Other Compensation ($) (3)(4)(5)Total ($)
Brad R. Dinsmore (6)
2020425,000 141,652 — — 16,449 583,101 
President and Chief Executive Officer2019141,667 — 733,000 497,549 5,578 1,377,794 
2018— — — — — — 
Curt A. Christianssen(7)
2020322,500 96,750 — — 20,771 440,021 
Executive Vice President and Chief Financial Officer2019316,875 50,000 88,150 — 20,621 475,646 
2018245,925 88,153 40,620 40,625 20,471 435,794 
Sean M. Foley(8)
2020194,792 50,000 136,400 — 17,246 398,438 
Executive Vice President and Chief Banking Officer2019— — — — — — 
2018— — — — — — 
 
(1)    The amounts reported in this column represent the aggregate grant date fair value of restricted stock awards in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) No. 718-10. These values have been determined under the principles used to calculate the grant date fair value of equity awards for purposes of the Company’s financial statements. For additional information regarding this valuation methodology and the assumptions used to arrive at the estimates, please refer to Note 11, “Stock-Based Employee Compensation Plans” to the Company’s consolidated financial statements included in the Company’s Annual Report to Shareholders for the year ended December 31, 2020.
(2)    The amounts reported in this column represent the aggregate grant date fair values of stock option awards in accordance with FASB ASC No. 718-10. These values have been determined under the principles used to calculate the grant date fair value of equity awards for purposes of the Company’s financial statements. For additional information regarding this valuation methodology and the assumptions used to arrive at the estimates, please refer to Note 11, “Stock-Based Employee Compensation Plans” to the Company’s consolidated financial statements included in the Company’s Annual Report to Shareholders for the year ended December 31, 2020.
(3)    The 2020 amount in this column for Mr. Dinsmore includes a $9,600 car allowance, $6,028 for the employer 401(k) match, and $821 for additional life/accidental death insurance.
(4)    The 2020 amount in this column for Mr. Christianssen includes a $11,400 car allowance, $8,550 for the employer 401(k) match, and $821 for additional life/accidental death insurance.
(5)    The 2020 amount in this column for Mr. Foley includes a $10,625 car allowance, $5,800 for the employer 401(k) match, and $821 for additional life/accidental death insurance.    
(6)    Mr. Dinsmore was appointed to the position of President and Chief Executive Officer of the Company and the Bank on September 3, 2019.
(7)    Mr. Christianssen also served as the Chief Financial Officer of CCFW, Inc., an entity that was affiliated with us and controlled by the Carpenter Funds through October 2018. We were reimbursed by CCFW, Inc. for the costs of the services provided by Mr. Christianssen to it, as Mr. Christianssen is solely employed and compensated by us, thus his reported salary is net of this reimbursement amount for 2018.
(8)    Mr. Foley was appointed to the position of Chief Banking Officer of the Company on April 16, 2020.    

Grants of Plan Based Awards for period ending December 31, 2020
The following table provides information regarding the restricted stock and stock option awards that were granted to our named executive officers in 2020. Mr. Dinsmore and Mr. Christianssen did not receive restricted stock or stock option awards
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in 2020.
NameGrant DateAward TypeAll Other Stock Awards: Number of Shares of Stock or Units (#) (1)All Other Option Awards: Number of Securities Underlying Options (#) (1)Exercise or Base Price of Option Awards
($/Sh)		Grant Date Fair Value of Stock and Option Awards ($)
Sean M. Foley5/20/2020Restricted Stock Award20,000 — $3.46 $69,200 
Outstanding Equity Awards at Fiscal Year-End
The following table provides information regarding the outstanding equity awards held by each of our named executive officers as of December 31, 2020, including the vesting dates for the portions of these awards that had not vested as of that date.
 
Option Awards
Stock Awards
NameNumber of Shares Underlying Unexercised Options (#) - ExercisableNumber of Shares Underlying Unexercised Options (#) - UnexercisableOption Exercise Price ($)Option Expiration DatesNumber of Shares or Units of Stock That Have Not Vested (#)Market Value of Shares or Units of Stock That Have Not Vested ($)
Brad R. Dinsmore50,000 200,000 (3)7.33 9/3/202975,000 (4)385,500 
Curt A. Christianssen— — — 2/20/20296,739 (2)34,638 
9,701 4,851 (1)8.15 2/21/20281,661 (1)8,538 
7,778 — 6.77 2/16/2026
7,855 — 7.09 3/6/2025
Sean M. Foley— — — 5/20/202320,000 (5)102,800 
______________________ 
(1)    Stock options and stock awards vest at a rate of 33.333% per year, until fully vested on February 21, 2021.
(2)    Stock options and stock awards vest at a rate of 33.333% per year, until fully vested on February 20, 2022.
(3)    Stock options vest at a rate of 20.0% per year, until fully vested on September 3, 2024.
(4)    25.0% of Mr. Dinsmore's stock units will vest on September 3, 2020, the remaining 75.0% will vest on September 3, 2022.
(5)    Stock options and stock awards vest at a rate of 33.333% per year, until fully vested on May 20, 2023.
Option Exercises and Stock Vested
    The following table provides information regarding the options exercised and stock vested for each of our named executive officers during the fiscal year ended December 31, 2020.
Option AwardsStock Awards
NameNumber of Shares Acquired on Exercise (#)Value Realized on Exercise ($)Number of Shares Acquired on Vesting (#)Value Realized on Vesting ($)
Brad R. Dinsmore——25,00092,500
Curt A. Christianssen——5,03234,990
Sean M. Foley————
Defined Contribution Plan
As part of our overall compensation program, we provide all full-time employees, including our named executive officers, with the opportunity to participate in a defined contribution 401(k) plan. Our 401(k) plan is intended to qualify under Section 401 of the Internal Revenue Code so that employee contributions and income earned on such contributions are not taxable to employees until withdrawn. Employees may elect to defer a portion of their eligible compensation not to exceed the statutorily prescribed annual limit in the form of elective deferral contributions to our 401(k) plan. Our 401(k) plan also has a “catch-up contribution” feature for employees aged 50 or older (including those who qualify as “highly compensated” employees) who can defer amounts over the statutory limit that applies to all other employees. We also provide matching contributions of up to $0.50 per $1.00 of participant deferral up to a maximum per participant deferral amount equivalent to 6% of eligible compensation, with a maximum matching contribution of 3% of eligible compensation per participant per plan year. Our employees are allowed to participate in the 401(k) and to receive employer matching contributions on the first day of the
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calendar quarter following 90 days of employment. Participants are always vested in their personal contributions to the 401(k) plan, and company-matching contributions under the plan vest at a rate of 20% per year of service in which they work 1,000 or more hours.
Except as described above with respect to our 401(k) plan and with respect to a nonqualified retirement plan maintained for a former employee, we do not currently maintain any additional retirement plans, tax-qualified or nonqualified, for our executives or other employees.
Potential Payments upon Termination or Change in Control
    For our named executive officers, the following section describes the benefits that may become payable to these named executive officers in connection with a termination of their employment with us, including a termination in connection with or following a change in control. These benefits are provided under the named executive officers’ employment agreements or under the Change in Control Severance Plan as applicable in the circumstances-- executives are not entitled to receive severance benefits under both arrangements under any circumstances. All of the benefits described below would be provided by us.
Severance Benefits—Employment Agreements.
    Each named executive officer, other than Mr. Foley, is party to an employment agreement with us. Under the terms of the employment agreement with Mr. Christianssen, in the event that Mr. Christianssen’s employment is terminated by us without cause or by him for “good reason,” Mr. Christianssen would be entitled to receive a lump sum payment equal to eighteen months of his base salary. Under the terms of the employment agreement with Mr. Dinsmore, in the event that Mr. Dinsmore’s employment is terminated by us without cause or by him for “good reason,” Mr. Dinsmore would be entitled to receive a lump sum payment equal to twenty-four months of his base salary. In the event that any such named executive officer’s employment is terminated by us due to a permanent disability, each such executive will be entitled to compensation until the date of such termination.
    Each named executive officer’s receipt of the severance benefits described above is subject to the executive’s execution of an effective general release of claims, and to the executive’s compliance with the restrictive covenants contained in the executive’s employment agreement. The severance benefits payable under each such named executive officer’s employment agreement are also subject to reduction or “cut back” to the extent the benefits would result in the payment of a parachute payment within the meaning of Section 280G of the Code.
Good Reason under the employment agreements is generally defined to mean either (1) a material diminution in the executive’s title, duties, responsibilities or, in some cases, authorities, (2) a material failure by us to provide the compensation and benefits provided under the employment agreement, (3) a material breach by us of any material terms of the employment agreement, or (4) a required relocation of the executive’s principal place of employment, subject in each case to our right to a 30-day cure period.
Severance Benefits—Change in Control Severance Plan.
Each named executive officer, other than Mr. Dinsmore, is a participant in the Change in Control Severance Plan. A participating named executive officer will be eligible for benefits under the Change in Control Severance Plan if the executive’s employment is terminated by us without cause or by the executive for “good reason” during the period (a) commencing on the earlier of (i) the occurrence of a change in control and (ii) public announcement of an intended or anticipated change in control, provided that such change in control actually occurs; and (b) ending on the date one year following a change in control. The benefits under the Change in Control Severance Plan will include: (i) a lump sum cash payment equal to the executive’s monthly base salary multiplied by the “change in control benefits period” (as such term is defined in the Change in Control Severance Plan); (ii) a lump sum cash payment of a prorated annual bonus for the Change in Control Severance Plan year in which the termination occurs; (iii) a lump sum cash payment equal to the value of the executive’s monthly welfare benefits multiplied by the lesser of the change in control benefits period and 12 months; and (iv) certain outplacement services. The cash severance benefits are to be paid on the first regular payroll period following the sixtieth day after the effective date of the executive’s termination of employment.
Each participating named executive officer’s receipt of the severance benefits described above is subject to the executive’s execution of an effective general release of claims. The severance benefits payable under the Change in Control Severance Plan are subject to reduction or “cut back” to the extent the benefits would result in the payment of a parachute payment within the meaning of Section 280G of the Code.    
Each participant in the Change in Control Severance Plan is required to execute a Participation Agreement under the Change in Control Severance Plan, pursuant to which he or she will acknowledge and agree, among other things, (i) to certain confidentiality and non-solicitation requirements; and (ii) that the Change in Control Severance Plan supersedes entirely any prior agreement, arrangement, plan or program (including, without limitation, the severance payments under the employment
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agreements described above) for the payment of severance, change in control, salary continuation or the provision of other benefits in connection with a change in control. Payment of the severance benefits under the Change in Control Severance Plan is subject to the executive’s compliance with all applicable restrictive covenants.
Modifications or amendments to, or termination of, the Change in Control Severance Plan can occur only in writing through official action of the Board or the HR and Compensation Committee, or a designee of either. Any modifications or amendments to the Change in Control Severance Plan that adversely affect rights of participants in the Change in Control Severance Plan will not be effective until one year following the adoption of such modification or amendment. Following a change in control, the Change in Control Severance Plan cannot be modified, amended or terminated, or the eligibility of a participant revoked for one year following such change in control.
Good Reason under the Change in Control Severance Plan is generally defined to mean either (1) a change in position that results in a material reduction in the executive’s duties, responsibilities or authorities, (2) a reduction in base salary of more than 10%, or (3) a required relocation of the executive’s principal place of employment, subject in each case to our right to a 30-day cure period.
Estimated Amount of Potential Payments Upon Termination or Change in Control
    The table below summarizes the potential benefits that would become payable to each of our named executive officers as of December 31, 2020 under their employment agreements and the Change in Control Severance Plan, as applicable. The table below also reflects the value of outstanding unvested stock option and stock awards that would vest in connection with a change in control.
ExecutiveCash Severance Payment ($)Equity Acceleration ($)Continued Benefits ($)
Outplacement ($) (1)
Brad R. Dinsmore
Involuntary Termination$850,000 $— $— $— 
Involuntary Termination in Connection with Change in Control$874,960 $385,500 $— $— 
Curt A. Christianssen
Involuntary Termination$322,500 $— $— $— 
Involuntary Termination in Connection with Change in Control$502,470 $43,176 $— $20,000 
Sean M. Foley
Involuntary Termination$275,000 $— $— $— 
Involuntary Termination in Connection with Change in Control$431,220 $102,800 $— $20,000 
(1)    Represents an assumed cost of the outplacement benefits.

Executive Compensation Philosophy
    In 2013, based on the recommendations of the HR and Compensation Committee’s independent compensation consultant, we adopted a comprehensive Executive Compensation Philosophy statement. Decisions regarding total compensation program design, as well as individual pay decisions and adjustments, are made in the context of the Executive Compensation Philosophy. The compensation philosophy is reviewed and approved annually by the HR and Compensation Committee.
    The key features of our Executive Compensation Philosophy are summarized below.
Compensation Objectives
    We have determined that it is a critical function of the organization to attract and retain highly qualified executives to the Bank. It is also important that our executive compensation program is designed to motivate and reward these executives for high levels of performance that contribute to long-term shareholder value. Compensation plans are designed to provide total compensation and benefit programs that are competitive with the market and motivate executives to achieve long-term value creation for our shareholders.
    Our Executive Compensation Philosophy specifies our policy and targeted positioning with respect to each specific element of our executive compensation program in order to ensure that each compensation component, and the overall program itself, is appropriately designed to achieve our compensation objectives.
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Base Salary
     We target executive salaries in the range of the median or 50th percentile to the 65th percentile of the competitive market. Based upon executive experience, the actual salaries compared to market will vary for individual officers. For executives that are relatively inexperienced, salaries may be below the 50th percentile of the market. As an executive becomes fully acclimated to his/her position, the salary level should be in the range of the 50th to the 65th percentiles. Individual salary determinations are made based on the individual qualifications, experience and performance of the individual executives and value of the position to the organization.
Cash/Short-Term Incentives
    The Company has determined that the executive officers should have a portion of their total compensation package at risk and available through an annual cash incentive program. Rewarding the executives who are directly responsible for the performance of the Company is the goal of the annual cash incentive program. The annual award levels should be contingent on meeting predefined corporate, business unit and individual goals. The Company has determined that a portion of each executive’s total compensation opportunity should be tied to individual performance as well as company results, although bonus opportunities for our most senior executives may be 100% tied to company results in recognition of the fact that the individual performance of these executives has a more direct effect on Company performance than less senior executives.
Cash Compensation
    The combination of salary plus the annual cash incentive makes up cash compensation. As a result of annual expectations, the Company targets cash compensation at the 50th to 75th percentiles of the market for expected results. For maximum/high performance, the Company targets annual cash compensation at or above the 75th percentile of the market, while for below target performance, the Company expects that annual cash compensation would more closely approximate the 25th percentile of the market.
Equity/Long-Term Incentives
    We have determined that executive officers should have the opportunity to have a portion of their total compensation opportunity linked to long-term goals and delivering increasing shareholder value. The Company, therefore, provides executive officers with the opportunity to receive annual stock-based awards contingent upon individual performance and company results in the preceding calendar year. No stock-based awards were granted in 2020 based upon our performance in 2019, though we granted an equity award to Mr. Foley in connection with his appointment as Executive Vice President and Chief Banking Officer. In 2021, each of the named executive officers received a grant of stock-based awards as a result of our performance in 2020.
Total Compensation
    The Company targets total compensation at the 50th to 75th percentile of the market for expected results. For maximum/high performance, we target total compensation at or above the 75th percentile of the market, while for below target performance, the Company expects that total compensation would more closely approximate the 25th to 50th percentile of the market.
Other Compensation Programs
    It is our intention to assist our executives with meeting their retirement income, health care, survivor income, disability income, time-off and other needs through competitive, cost-effective, company-sponsored programs. The Company provides executive officers with competitive compensation programs to prepare for retirement and assist in wealth accumulation. These programs may vary by executive and be influenced by tenure, performance and position. The goal of the Company is to provide executives with a total compensation package that is competitive with the market, and encourages executives to remain with the organization and help to drive the Company to high levels of performance.
Process for Making Compensation Decisions
Role of the HR and Compensation Committee
    The Board of Directors of the Company has delegated to the HR and Compensation Committee responsibility for a range of compensation and benefit issues with the intent to assure the effectiveness of our compensation plans, policies and programs consistent with the strategic objectives of the Bank and shareholder interests. Each of the members of the HR and Compensation Committee is an independent director under applicable Nasdaq rules.
    Consistent with our Executive Compensation Philosophy, the principal responsibility of the HR and Compensation Committee in compensating executives, officers and employees is to attract and retain highly qualified executives and employees and align their incentives with the strategic plan of the Company and with actions that will enhance long-term shareholder value.
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Executive Compensation Components
    For the fiscal year ended December 31, 2020, the principal components of compensation for the named executive officers and executive management were: i) base salary, ii) performance-based incentive bonuses, iii) equity award opportunity, and iv) perquisites and retirement benefits. The Company's policies and practices for each of the principal compensation components are explained in the following paragraphs.
Base Salary
    We pay each named executive officer a base salary to provide each executive with a minimum, fixed level of cash compensation. Base salary is established pursuant to the principles of our Executive Compensation Philosophy described above.
Mr. Dinsmore's annual base salary was increased from $425,000 to $450,000 effective February 1, 2021 in connection with the HR and Compensation Committee's review of the market study provided by our compensation consultants.
Mr. Christianssen's annual base salary was increased from $322,500 to $340,000 effective February 1, 2021 in connection with the HR and Compensation Committee's review of the market study provided by our compensation consultants.
Mr. Foley's base salary was established at $275,000 effective as of his hire date of April 16, 2020.
Performance-Based Bonus
    Each of our named executive officers were eligible to earn an annual incentive bonus for 2020. The targeted amount of each executive’s annual cash bonus opportunity was established pursuant to the principles of our Executive Compensation Philosophy described above.
The following table illustrates each executive’s bonus opportunity for 2020:
NameTarget Bonus
(% of Salary)		Target Bonus
($)		Maximum Bonus
(% of Salary)		Maximum Bonus
($)
Brad R. Dinsmore33%141,65350%212,500
Curt A. Christianssen30%96,75045%145,125
Sean M. Foley (1)
35%68,17750%97,396
    (1) Mr. Foley's bonus was calculated as a percentage of his prorated salary according to his hire date of April 16, 2020.
Under our annual incentive plan design, the HR and Compensation Committee selected the following primary criteria to evaluate executive incentive performance in 2020: (1) net income of the Bank, (2) return on average assets ("ROAA") of the Bank, (3) efficiency ratio of the Bank, and (4) number of operating companies that are customers of the Bank. Each of the criteria was weighted based on the executive’s job responsibilities, and for each measure, threshold, target and maximum payout levels were established. The following table illustrates the weighting for each named executive officer:
NameNet IncomeROAAEfficiency RatioOperating Companies
Brad R. Dinsmore50%25%25%—%
—%
Curt A. Christianssen50%25%25%—%
Sean M. Foley50%25%—%25%
    
Net income of the Bank was included as the most heavily weighted performance measure for each named executive officer because the HR and Compensation Committee wanted to incentivize the entire team to drive improvements in our net income, which we believe will ultimately drive shareholder value creation. In addition to the established goals, any payout under our annual incentive plan design was overall contingent upon the Company's satisfactory regulatory ratings and the Compensation Committee also retained the discretion to adjust the final payouts based on any other factors that it determined to be appropriate based on either the Company or individual performance during the year.
The Bank’s net income for the 2020 calendar year was $10.0 million, which was below the target performance level of $11.7 million, but above the threshold level of $9.4 million, and reflected our increased profitability during 2020.
The other performance measures were less heavily weighted for each named executive officer, and the HR and Compensation Committee assigned different weightings for each named executive officer in order to create appropriate individually tailored incentives for each of the executives to execute on our business plan and create shareholder value. The Bank did not meet the ROAA target performance level of 0.82%, but exceeded the efficiency ratio target performance level of
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60.63% and the efficiency ratio max performance level of 64.8%. The individual goals for the named executive officers varied by executive and focused on strategic performance objectives associated with each executive’s position and responsibilities.
    The following table illustrates the amounts for each performance measure for the 2020 bonus payment for each executive:
NameNet IncomeROAAEfficiency RatioOperating CompaniesTotal
Brad R. Dinsmore$43,882$—$53,125$—$97,007
Curt A. Christianssen$29,967$—$36,281$—$66,248
Sean M. Foley$22,970$—$—$17,044$40,014

As shown in the table, each named executive officer's actual bonus payment was below the executive's target bonus amount with differences in the executive payouts driven by the individually tailored weightings for the performance measures and discretionary payments made by the Compensation Committee. We believe this result is consistent with our objective of paying for performance and rewarding the executives for actions that contribute to long-term value creation for our shareholders.
Equity Awards
    Equity awards are granted to allow executives to share in the growth and prosperity of the Company, to incentivize executives to increase shareholder value, to reward and retain executives over the long term and to maintain competitive levels of total compensation. The 2010 Equity Incentive Plan and the 2019 Equity Incentive Plan allow the Company to offer multiple equity vehicles as incentives, including options, restricted stock, and stock appreciation rights. Executives may be awarded a blend of equity incentives.
    Pursuant to the principles of our Executive Compensation Philosophy, equity award grants for the executive officers in any calendar year are contingent upon individual performance and company results in the preceding calendar year. The HR and Compensation Committee believes that equity grants should not automatically be granted to the executive officers each year, and instead believes that equity awards should only be granted to the executive officers if the awards have become earned based on performance in the prior year. As with our annual bonus payments, we believe this approach is consistent with our objective of paying for performance and rewarding the executives for actions that contribute to long-term value creation for our shareholders. No stock-based awards were granted in 2020 or 2021.
    Restricted stock awards are included as part of our long-term equity awards to provide an equity incentive linked to the value realized by our shareholders that becomes earned based on the executive’s continued employment with us. Each executive’s 2018, 2019, and 2020 restricted stock awards becomes vested in equal annual installments over a period of three years, in order to reinforce the long-term nature of the awards.
    In the past, option awards were included as part of our long-term equity awards to create an incentive for the executives to create and preserve long-term shareholder value, as the options will only have value if our share price increases following the grant date. Like the restricted stock awards, each executive’s 2018 option award becomes vested in equal annual installments over a period of three years, in order to reinforce the long-term nature of the awards. No option awards were granted during 2019 or 2020.

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Director Compensation
The following table sets forth the total compensation received by each of the Company’s non-management directors for their service on the Board and Board committees in 2020. The compensation paid to Mr. Dinsmore is presented in the Summary Compensation Table" and accompanying disclosure above. Mr. Dinsmore is not entitled to receive additional compensation for his service as a director.
Name of Director
Fees Earned or Paid in Cash ($)
Stock Awards(1) ($)
Option Awards(2) ($)
Total ($)
Stock Awards Outstanding as of 12/31/20 (#)
Edward J. Carpenter$24,792 $19,781 $— $44,573 — 
James F. Deutsch$60,000 $— $— $60,000 — 
Manish Dutta$42,000 $1,963 $— $43,963 2,575 
Shannon F. Eusey$42,000 $4,814 $— $46,814 2,575 
Michael P. Hoopis$43,750 $14,985 $— $58,735 2,682 
Denis P. Kalscheur$59,208 $16,784 $— $75,992 4,268 
Anne McCallion$14,000 $— $— $14,000 1,604 
Michele S. Miyakawa$42,000 $4,814 $— $46,814 2,575 
David J. Munio$43,750 $14,985 $— $58,735 2,682 
Stephen P. Yost$49,000 $16,784 $— $65,784 3,004 
______________________ 
(1)    The amounts reported in this column represent the aggregate grant date fair value of stock awards in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) No. 718-10. These values have been determined under the principles used to calculate the grant date fair value of equity awards for purposes of the Company's financial statements. For additional information regarding this valuation methodology and the assumptions used to arrive at the estimates, please refer to Note 11, “Stock-Based Employee Compensation Plans” to the Company's consolidated financial statements included in the Company's Annual Report to the Shareholders for the year ended December 31, 2020.
(2)    As of December 31, 2020, no non-employee director held any stock options.
In 2020, the Chairman of the Board of Directors received a monthly retainer of $7,916. The other directors who also served as directors of the Bank and as Chairman of either the Audit Committee or the Credit Policy Committee received a monthly retainer of $5,833. The other directors who also served as directors of the Bank and as Chairman of either the Nominating and Governance Committee, Finance and Risk Committee or HR and Compensation Committee received a monthly retainer of $5,208. Any member of the Company’s Board of Directors who was also a member of the Bank’s Board of Directors, but did not serve as a Chairman of any committee received a monthly retainer of $5,000. The amounts above represent the annual retainer paid to each director and was paid at a rate of 70% in cash on a monthly basis and 30% in shares of the Company's common stock pursuant to a written restricted stock agreement, with the exception of Mr. Deutsch who as a representative of Patriot receives 100% of the retainer in cash.
Non-management directors are, from time to time, granted stock options pursuant to the Company’s shareholder-approved equity incentive plans. No non-management directors were granted stock options in 2020.
Management directors do not receive any fees or other compensation for service as members of the Boards of Directors of the Company or the Bank.





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ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table provides information relating to the number of shares of our common stock that were exercisable pursuant to, and the weighted average exercise price of, the options that were outstanding under our employee stock incentive plans as of December 31, 2020. All of the plans were approved by the Company’s shareholders.
 
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights (1) 
Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights
Number of Securities Available for Future Issuance under Equity Compensation Plans
(Excluding Securities Reflected in Column A)(2)
(a)(b)(c)
Equity compensation plans approved by security holders(1)
589,587$7.011,322,255
______________________ 
(1)    Except for restricted stock awards and restricted stock units (which are not required to be reflected in this table), the only equity incentives granted under the plans have been stock options, each of which was granted at an exercise price equal to 100% of the closing price of the Company’s shares on the date of grant.
(2)    These shares may be used for any types of awards authorized under our 2019 Incentive Plan. The authority to grant new equity awards under our 2004, 2008 and 2010 Equity Plans has terminated.

Beneficial Ownership
Set forth below is certain information, as of March 25, 2021 (except where another date is indicated), regarding the shares of our common stock that were owned, beneficially by (i) each person (or group of affiliated persons) who is known by us to beneficially own more than 5% of the outstanding shares of any class of our voting securities; (ii) each of our current directors and each nominee standing for election to our Board of Directors at the Annual Meeting; (iii) each of our named executive officers and (iv) all of our directors and executive officers as a group. Unless otherwise indicated, we believe that the shareholders listed have sole voting and investment power with respect to all shares, subject to applicable community property laws.
As of March 25, 2021, there were outstanding 22,320,230 shares of common stock.
Unless otherwise noted below, the address of each beneficial owner listed in the table is c/o Pacific Mercantile Bancorp, 949 South Coast Drive, Third Floor, Costa Mesa, California 92626.
Name 
Number of Shares Owned Beneficially(1) 
Percent of Outstanding Common Stock(2)
Patriot Financial Partners III, L.P.2,515,308 (3)11.3 %
Four Radnor Corporate Center, 100 Matsonford Rd, Suite 210, Radnor, PA 19087  
Fourthstone LLC2,360,503 (4)10.6 %
13476 Clayton Road, St Louis, MO 63131
Endeavour Capital Advisors Inc. and affiliates2,083,844 (5)9.3 %
410 Greenwich Avenue, Greenwich, CT 06830
EJF Capital LLC and affiliates1,603,251 (6)7.2 %
2107 Wilson Boulevard, Suite 410, Arlington, VA 22201
FJ Capital Management LLC1,554,059 (7)7.0 %
1313 Dolley Madison Blvd, Ste 306, McLean, VA 22101
The Banc Funds Company, LLC1,407,512 (8)6.3 %
20 North Wacker Drive, Suite 3300, Chicago, IL 60606  
James F. Deutsch— (3)*
Brad R. Dinsmore184,205 (9)*
Manish Dutta5,694 *
Shannon F. Eusey6,571 *
Michael P. Hoopis16,969 *
Denis P. Kalscheur21,045 *
Anne McCallion4,299 *
Michele S. Miyakawa6,571 *
David J. Munio14,757 *
Stephen P. Yost28,189 *
Curt A. Christianssen154,595 (9)*
Sean M. Foley27,784 *
All directors and executive officers as a group (18 persons)996,635 (10)4.4 %
___________________________
*    Represents less than 1% of the shares outstanding as of March 25, 2021.
(1)    Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (“SEC”). Under those rules and for purposes of the table above (i) if a person has decision making power over either the voting or the disposition of any shares, that person is generally deemed to be a beneficial owner of those shares; and (ii) if two or more persons have decision making power over either the voting or the disposition of any shares, they will be deemed to share beneficial ownership of those shares. In addition, a person is deemed to own beneficially shares of common stock which that person was able to acquire on March 25, 2021 or will become entitled to acquire at any time within 60 days thereafter, on conversion of convertible securities or on exercise of options outstanding under our equity incentive plans, and those shares of common stock will be deemed to be outstanding for purposes of computing the percentage of the outstanding shares that are beneficially owned by that person (but not for purposes of computing the percentage of the outstanding shares that are beneficially owned by any other person).
(2)    Percentage ownership is based on 22,320,230 shares of common stock deemed to be outstanding as of March 25, 2021.
(3)    According to a report filed with the SEC on August 12, 2020, Patriot, Patriot Financial Partners GP III, L.P. (“Patriot III GP”), Patriot Financial Partners GP III, LLC (“Patriot III LLC”), James F. Deutsch, James J. Lynch and W. Kirk Wycoff may be deemed to share beneficial ownership of these shares. Patriot III GP is the general partner of Patriot and Patriot III LLC is the general partner of Patriot III GP. Mr. Deutsch, Mr. Wycoff and Mr. Lynch serve as general partners of Patriot Fund III and Patriot III GP, members of Patriot III LLC, and members of the investment committee of Patriot Fund III. Patriot III GP, Patriot III LLC, Mr. Deutsch, Mr. Lynch and Mr. Wycoff, have disclaimed beneficial ownership of the common stock owned by Patriot, except to the extent of its or his pecuniary interest therein. Excludes 1,467,155 shares of non-voting common stock owned by Patriot. Because the parties do not presently and will not within the next 60 days, have the right to acquire such common stock or have voting or investment power over such common stock, those underlying shares are not included in the parties’ beneficial ownership.    
(4)    According to a report filed with the SEC on February 17, 2021, as of December 31, 2020, Fourthstone LLC holds shared voting and dispositive power with respect to all 2,360,803 shares of these shares, Fourthstone Master Opportunity Fund Ltd holds shared and dispositive power with respect to 1,592,244 of these shares, Fourthstone GP LLC holds shared
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voting and dispositive power with respect to 714,184 of these shares, Fourthstone QP Opportunity Fund LP holds shared voting and dispositive power with respect to 652,152 of these shares, and Fourthston Small-Cap Financials Fund LP holds shared voting and dispositive power with respect to 62,032 of these shares.
(5)    According to a report filed with the SEC on February 16, 2021, as of December 31, 2020, Endeavour Capital Advisors Inc., Laurence M. Austin, Mitchell J. Katz, and Jonah Marcus share voting and dispositive power with respect to all 2,083,844 of these shares and Endeavour Regional Bank Opportunities Fund II L.P. shares voting and dispositive power with respect to 1,190,227 of these shares.
(6)    According to a report filed with the SEC on September 20, 2018, as of that date, EJF Capital LLC and Emanuel J. Friedman holds shared voting and dispositive power with respect to all 1,603,251 of these shares, EJF Sidecar Fund, Series LLC - Series E holds shared voting and dispositive power with respect to 978,251 of these shares, and EJF Sidecar Fund, Series LLC - Small Financial Equities Series holds shared voting and dispositive power with respect to 625,000 of these shares.
(7)    According to a report filed with the SEC on March 29, 2021, as of March 24, 2021, FJ Capital Managment LLC and Martin Friedman hold shared voting and dispositive power with respect to all 1,554,059 of these shares, Financial Opportunity Fund LLC holds shared voting and dispositive power with respect to 1,345,290 of these shares, and Financial Opportunity Fund Long/Short Fund LLC holds shared voting and dispositive power with respect to 65,322 of these shares.
(8)    According to a report filed with the SEC on February 16, 2021, as of December 31, 2020, BancFund X LP holds sole voting and sole dispositive power with respect to 612,318 shares and BancFund IX LP holds sole voting and sole dispositive power with respect to 795,194 shares.
(9)    Includes the following numbers of shares which may be purchased on exercise of stock options that were exercisable on or will become exercisable within 60 days of March 25, 2021: Mr. Dinsmore - 50,000 shares; and Mr. Christianssen - 30,185 shares.
(10)    Includes 339,962 shares of common stock which may be purchased on exercise of stock options that were exercisable on or will become exercisable within 60 days of March 25, 2021; but excludes the shares of common stock as to which directors or officers have disclaimed beneficial ownership, as described in the above footnotes.







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ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transactions
Our Board of Directors has adopted a written Related Party Transactions Policy.  The purpose of the policy is to describe the procedures used to identify, review, approve and disclose, if necessary, any transaction occurring since the beginning of our last fiscal year, or any currently proposed transaction, involving the Company where the amount involved exceeds $120,000 and in which any of the following persons had or will have a direct or indirect material interest:  (i) a director or director nominee; (ii) an executive officer; (iii) a person known by the Company to be the beneficial owner of more than 5% of the Company’s common stock; or (iv) a person known by the Company to be an immediate family member of any of the foregoing.  Each such transaction is referred to as a “Related Party Transaction.”
    Under the policy, each of our directors and executive officers is required to inform the Corporate Secretary of any potential Related Party Transaction.  In addition, on an annual basis, each director and executive officer completes a questionnaire designed to elicit information about any potential Related Party Transactions.  Once a transaction has been identified and is determined to constitute a Related Party Transaction, the Nominating and Governance Committee will be provided with details regarding the transaction, including the terms of the transaction, the business purpose of the transaction and the benefit of the transaction to the Company and the relevant related party.  The Nominating and Governance Committee is then required to review the transaction to determine whether it should be permitted or prohibited. In making its determination, the Nominating and Governance Committee will consider all relevant factors, including but not limited to (i) whether the terms of the Related Party Transaction are fair to the Company and on the same basis as would apply if the transaction did not involve a related party, (ii) whether there are business reasons for the Company to enter into the Related Party Transaction, (iii) whether the Related Party Transaction would impair the independence of an outside director, and (iii) whether the Related Party Transaction would present an improper conflict of interest for any director or executive officer of the Company. Any member of the Nominating and Governance Committee that has an interest in a Related Party Transaction will abstain from voting on approval of the transaction but, if requested, may participate in the committee’s discussions regarding the transaction.
    There were no related party transactions during the year ended December 31, 2020.
Director and Committee Independence
The Board has determined that each of our current directors Deutsch, Dutta, Eusey, Hoopis, Kalscheur, McCallion, Miyakawa, Munio and Yost are independent under the definition of independence set forth in the listed company rules of the Nasdaq Stock Market LLC (“Nasdaq”). Mr. Dinsmore is not an independent director because he is currently an executive officer of the Company. In reaching these conclusions, the Board determined that there are no relationships between the Company or the Bank and any of the non-management directors who were determined to be independent that would interfere with the exercise of such director's independent judgment in carrying out the responsibilities of a director.



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ITEM 14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES
RSM has served as the Company’s independent registered public accountants since 2014, and, in that capacity, audited the Company’s consolidated financial statements, for the fiscal years ended December 31, 2020, 2019, and 2018.
Audit and Non-Audit Services Pre-Approval Policy
The Audit Committee’s Charter provides that the Audit Committee must pre-approve all audit and non-audit services to be performed by the Company’s independent registered public accounting firm. In accordance with that requirement, the Audit Committee pre-approved the engagement of RSM pursuant to which it provided the services described below for the fiscal years ended December 31, 2020 and 2019.
In addition, one-hundred percent (100%) of audit and non-audit services performed by RSM in fiscal years 2020 and 2019 were pre-approved by the Audit Committee.
Audit and Other Fees Paid in Fiscal Years 2020 and 2019
RSM performed the following services for the Company relating to the years ended December 31, 2020 and December 31, 2019:
Audit Services Rendered by RSM. During the years ended December 31, 2020 and 2019, RSM rendered audit services to us which consisted of: (1) an audit of the Company's consolidated financial statements for the years then ended, and (ii) reviews of the Company's quarterly financial statements that were included in our Quarterly Reports on Form 10-Q filed with the SEC for the first three quarters of each year, and (iii) an audit of the effectiveness of the Company's internal control over financial reporting as of December 31, 2020 and 2019 pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended.
Audit Related Services Rendered by RSM. RSM did not render any audit related services to us during 2020 or 2019.
Tax Related Services. RSM did not render any tax related services to us during 2020 or 2019.
Other Services. RSM did not render any other services to us during 2020 or 2019.
The following table contains information regarding the fees billed by RSM for the services it rendered to us in 2020 and 2019.
 20202019
Audit Fees$454,984 $418,420 
Audit-Related Fees$— $— 
Tax Fees$— $— 
Other Fees$— $— 

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PART IV
 
ITEM 15.     EXHIBIT AND FINANCIAL STATEMENT SCHEDULES


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Exhibit No.Description of Exhibit
23.1*
31.1*
31.2*
32.1**
32.2**
101.INS+  XBRL Instance Document
101.SCH+  XBRL Taxonomy Extension Schema Document
101.CAL+  XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF+  XBRL Taxonomy Extension Definition Linkbase Document
101.LAB+  XBRL Taxonomy Extension Labels Linkbase Document
101.PRE+  XBRL Taxonomy Extension Presentation Linkbase Document
104The cover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2020 has been formatted in Inline XBRL.

*     Filed herewith.
**     Furnished herewith.
+     Previously filed.


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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on April 15, 2021.
 
PACIFIC MERCANTILE BANCORP
By:
/S/   BRAD R. DINSMORE 
Brad R. Dinsmore
President and Chief Executive Officer

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