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as well. The capital and credit markets have also experienced volatility and disruption over the past several years, at
times reaching unprecedented levels. In some cases, the markets have produced downward pressure on stock prices
and credit availability for certain issuers without regard to the issuers’ underlying financial strength.
We may pursue additional capital in the future, which may not be available on acceptable terms or at all,
could dilute the holders of our outstanding common stock, and may adversely affect the market price of our
common stock.
Our ability to raise additional capital, if needed, will depend on, among other things, conditions in
the capital markets at the time, which are outside of our control, and our financial performance. Furthermore, any
capital raising activity could dilute the holders of our outstanding common stock, and may adversely affect the
market price of our common stock and our performance measures such as return on equity and earnings per share.
The Company relies heavily on the payment of dividends from the Bank.
Other than $2.8 million in cash
available at the holding company level at December 31, 2014, the Company’s ability to meet debt service
requirements and to pay dividends depends on the Bank’s ability to pay dividends to the Company, as the Company
has no other source of significant income. However, the Bank is subject to regulations limiting the amount of
dividends it may pay. For example, the payment of dividends by the Bank is affected by the requirement to maintain
adequate capital pursuant to the capital adequacy guidelines issued by the Federal Deposit Insurance Corporation. If
(i) any capital ratio requirements are increased; (ii) the total risk-weighted assets of the Bank increase significantly;
and/or (iii) the Bank’s income declines significantly, the Bank’s Board of Directors may decide or be required to
retain a greater portion of the Bank’s earnings to achieve and maintain the required capital or asset ratios. This
would reduce the amount of funds available for the payment of dividends by the Bank to the Company. Further, one
or more of the Bank’s regulators could prohibit the Bank from paying dividends if, in their view, such payments
would constitute unsafe or unsound banking practices. The Bank’s ability to pay dividends to the Company is also
limited by the California Financial Code. Whether dividends are paid, and the frequency and amount of such
dividends will also depend on the financial condition and performance of the Bank and the decision of the Bank’s
Board of Directors. Information concerning the Company’s dividend policy and historical dividend practices is set
forth in Item 5 below under “Dividends.” However, no assurance can be given that our future performance will
justify the payment of dividends in any particular year.
Your investment may be diluted because of our ability to offer stock to others, and from the exercise of stock
options.
The shares of our common stock do not have preemptive rights. This means that you may not be entitled to
buy additional shares if shares are offered to others in the future. We are authorized to issue 24,000,000 shares of
common stock, and as of December 31, 2014 we had 13,689,181 shares of our common stock outstanding. Except
for certain limitations imposed by NASDAQ, nothing restricts our ability to offer additional shares of stock for fair
value to others in the future. Any issuances of common stock would dilute our shareholders’ ownership interests and
may dilute the per share book value of our common stock. In addition, when our directors and officers exercise in-
the-money stock options your ownership in the Company is diluted. As of December 31, 2014, there were
outstanding options to purchase an aggregate of 631,800 shares of our common stock with an average exercise price
of $15.34 per share. At the same date there were an additional 788,620 shares available for grant under our 2007
Stock Incentive Plan.
Shares of our preferred stock issued in the future could have dilutive and other effects on our common stock.
Our Articles of Incorporation authorize us to issue 10,000,000 shares of preferred stock, none of which is presently
outstanding. Although our Board of Directors has no present intent to authorize the issuance of shares of preferred
stock, such shares could be authorized in the future. If such shares of preferred stock are made convertible into
shares of common stock, there could be a dilutive effect on the shares of common stock then outstanding. In
addition, shares of preferred stock may be provided a preference over holders of common stock upon our liquidation
or with respect to the payment of dividends, in respect of voting rights or in the redemption of our common stock.
The rights, preferences, privileges and restrictions applicable to any series or preferred stock would be determined by
resolution of our Board of Directors.
The holders of our debentures have rights that are senior to those of our shareholders.
In 2004 we issued
$15,464,000 of junior subordinated debt securities due March 17, 2034, and in 2006 we issued an additional
$15,464,000 of junior subordinated debt securities due September 23, 2036 in order to supplement regulatory capital.
These junior subordinated debt securities are senior to the shares of our common stock. As a result, we must make
