þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011
|
||
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Texas
(State or other jurisdiction of
incorporation or organization)
|
76-0579161
(I.R.S. Employer
Identification No.)
|
Large Accelerated Filer £
|
Accelerated Filer £
|
Non-accelerated Filer £ (Do not check if a smaller reporting company)
|
Smaller Reporting Company R
|
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
ASSETS
|
||||||||
Cash and due from banks
|
$
|
21,925
|
$
|
21,406
|
||||
Federal funds sold and other short-term investments
|
147,211
|
130,319
|
||||||
Total cash and cash equivalents
|
169,136
|
151,725
|
||||||
Securities available-for-sale, at fair value
|
137,461
|
134,369
|
||||||
Securities available-for-sale pledged with creditors’ right to repledge, at fair value
|
36,248
|
41,337
|
||||||
Total securities available-for-sale
|
173,709
|
175,706
|
||||||
Securities held-to-maturity (fair value $4,270 and $4,167 at June 30, 2011 and December 31, 2010, respectively)
|
4,045
|
4,045
|
||||||
Other investments
|
6,705
|
6,925
|
||||||
Loans, net of allowance for loan losses of $30,393 and $33,757 at June 30, 2011 and December 31, 2010, respectively
|
1,034,774
|
1,110,553
|
||||||
Accrued interest receivable
|
4,254
|
4,682
|
||||||
Premises and equipment, net
|
4,881
|
5,377
|
||||||
Goodwill
|
17,327
|
17,327
|
||||||
Core deposit intangibles
|
159
|
202
|
||||||
Deferred tax asset, net
|
16,209
|
17,781
|
||||||
Customers' liability on acceptances
|
3,440
|
4,708
|
||||||
Foreclosed assets, net
|
15,814
|
19,956
|
||||||
Cash value of bank owned life insurance
|
30,713
|
29,988
|
||||||
Prepaid FDIC assessment
|
6,295
|
7,610
|
||||||
Other assets
|
3,484
|
2,000
|
||||||
Total assets
|
$
|
1,490,945
|
$
|
1,558,585
|
||||
LIABILITIES AND SHAREHOLDERS' EQUITY
|
||||||||
Deposits:
|
||||||||
Noninterest-bearing
|
$
|
233,868
|
$
|
223,105
|
||||
Interest-bearing
|
1,006,934
|
1,071,079
|
||||||
Total deposits
|
1,240,802
|
1,294,184
|
||||||
Junior subordinated debentures
|
36,083
|
36,083
|
||||||
Other borrowings
|
36,352
|
56,804
|
||||||
Accrued interest payable
|
347
|
447
|
||||||
Acceptances outstanding
|
3,440
|
4,708
|
||||||
Other liabilities
|
10,299
|
7,592
|
||||||
Total liabilities
|
1,327,323
|
1,399,818
|
||||||
Commitments and contingencies
|
–
|
–
|
||||||
Shareholders' equity:
|
||||||||
Preferred stock, $1.00 par value, 2,000,000 shares authorized; 45,000 shares issued and outstanding at June 30, 2011 and December 31, 2010
|
45,498
|
45,427
|
||||||
Common stock, $1.00 par value, 50,000,000 shares authorized; 13,297,815 and 13,230,315 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively
|
13,298
|
13,230
|
||||||
Additional paid-in-capital
|
33,550
|
33,178
|
||||||
Retained earnings
|
72,447
|
69,168
|
||||||
Accumulated other comprehensive loss
|
(1,171
|
)
|
(2,236
|
)
|
||||
Total shareholders' equity
|
163,622
|
158,767
|
||||||
Total liabilities and shareholders' equity
|
$
|
1,490,945
|
$
|
1,558,585
|
For the Three Months
|
For the Six Months
|
|||||||||||||||
Ended June 30,
|
Ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Interest income:
|
||||||||||||||||
Loans
|
$
|
15,330
|
$
|
18,571
|
$
|
31,332
|
$
|
37,757
|
||||||||
Securities:
|
||||||||||||||||
Taxable
|
1,160
|
823
|
2,388
|
1,613
|
||||||||||||
Tax-exempt
|
99
|
118
|
197
|
239
|
||||||||||||
Other investments
|
42
|
75
|
84
|
150
|
||||||||||||
Federal funds sold and other short-term investments
|
106
|
102
|
187
|
158
|
||||||||||||
Total interest income
|
16,737
|
19,689
|
34,188
|
39,917
|
||||||||||||
Interest expense:
|
||||||||||||||||
Time deposits
|
1,974
|
3,201
|
4,200
|
6,547
|
||||||||||||
Demand and savings deposits
|
927
|
1,475
|
1,847
|
3,096
|
||||||||||||
Junior subordinated debentures
|
325
|
520
|
649
|
1,040
|
||||||||||||
Subordinated debentures and other borrowings
|
263
|
272
|
544
|
511
|
||||||||||||
Total interest expense
|
3,489
|
5,468
|
7,240
|
11,194
|
||||||||||||
Net interest income
|
13,248
|
14,221
|
26,948
|
28,723
|
||||||||||||
Provision for loan losses
|
1,245
|
2,430
|
1,575
|
10,328
|
||||||||||||
Net interest income after provision for loan losses
|
12,003
|
11,791
|
25,373
|
18,395
|
||||||||||||
Noninterest income:
|
||||||||||||||||
Service fees
|
1,034
|
1,123
|
2,090
|
2,162
|
||||||||||||
Loan-related fees
|
82
|
119
|
179
|
214
|
||||||||||||
Letters of credit commissions and fees
|
165
|
186
|
349
|
385
|
||||||||||||
Gain (loss) on securities, net
|
(24
|
)
|
59
|
(74
|
)
|
45
|
||||||||||
Total other-than-temporary impairments (“OTTI”) on securities
|
(78
|
)
|
(97
|
)
|
(183
|
)
|
(283
|
)
|
||||||||
Less: Noncredit portion of “OTTI”
|
(1
|
)
|
(2
|
)
|
(18
|
)
|
(87
|
)
|
||||||||
Net impairments on securities
|
(77
|
)
|
(95
|
)
|
(165
|
)
|
(196
|
)
|
||||||||
Other noninterest income
|
391
|
391
|
851
|
777
|
||||||||||||
Total noninterest income
|
1,571
|
1,783
|
3,230
|
3,387
|
||||||||||||
Noninterest expenses:
|
||||||||||||||||
Salaries and employee benefits
|
5,243
|
4,907
|
10,488
|
10,357
|
||||||||||||
Occupancy and equipment
|
1,847
|
1,937
|
3,649
|
3,898
|
||||||||||||
Foreclosed assets, net
|
844
|
3,442
|
1,519
|
4,279
|
||||||||||||
FDIC assessment
|
523
|
779
|
1,384
|
1,590
|
||||||||||||
Goodwill impairment
|
—
|
—
|
—
|
2,000
|
||||||||||||
Other noninterest expense
|
1,566
|
2,118
|
4,746
|
4,089
|
||||||||||||
Total noninterest expenses
|
10,023
|
13,183
|
21,786
|
26,213
|
||||||||||||
Income (loss) before provision for income taxes
|
3,551
|
391
|
6,817
|
(4,431
|
)
|
|||||||||||
Provision (benefit) for income taxes
|
1,188
|
307
|
2,328
|
(1,137
|
)
|
|||||||||||
Net income (loss)
|
$
|
2,363
|
$
|
84
|
$
|
4,489
|
$
|
(3,294
|
)
|
|||||||
Dividends and discount – preferred stock
|
(605
|
)
|
(602
|
)
|
(1,210
|
)
|
(1,200
|
)
|
||||||||
Net income (loss) available to common shareholders
|
$
|
1,758
|
$
|
(518
|
)
|
$
|
3,279
|
$
|
(4,494
|
)
|
||||||
Earnings (loss) per common share:
|
||||||||||||||||
Basic
|
$
|
0.13
|
$
|
(0.04
|
)
|
$
|
0.25
|
$
|
(0.39
|
)
|
||||||
Diluted
|
$
|
0.13
|
$
|
(0.04
|
)
|
$
|
0.25
|
$
|
(0.39
|
)
|
||||||
Weighted average shares outstanding:
|
||||||||||||||||
Basic
|
13,142
|
11,874
|
13,139
|
11,399
|
||||||||||||
Diluted
|
13,234
|
11,874
|
13,215
|
11,399
|
||||||||||||
Dividends per common share
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
–
|
For the Three Months
|
For the Six Months
|
|||||||||||||||
Ended June 30,
|
Ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Net income (loss)
|
$
|
2,363
|
$
|
84
|
$
|
4,489
|
$
|
(3,294
|
)
|
|||||||
Other comprehensive income (loss), net of taxes:
|
||||||||||||||||
Change in accumulated loss on effective cash flow hedging derivatives
|
(241
|
)
|
(556
|
)
|
(92
|
)
|
(801
|
)
|
||||||||
Unrealized loss on investment securities, net:
|
||||||||||||||||
Securities with OTTI charges during the period
|
(50
|
)
|
(62
|
)
|
(117
|
)
|
(181
|
)
|
||||||||
Less: OTTI charges recognized in net income
|
(49
|
)
|
(61
|
)
|
(105
|
)
|
(126
|
)
|
||||||||
Net unrealized losses on investment securities with OTTI
|
(1
|
)
|
(1
|
)
|
(12
|
)
|
(55
|
)
|
||||||||
Unrealized holding gain arising during the period
|
1,584
|
1,163
|
1,122
|
1,922
|
||||||||||||
Less: reclassification adjustment for gain (loss) included in net income
|
(15
|
)
|
38
|
(47
|
)
|
29
|
||||||||||
Net unrealized gains on investment securities
|
1,599
|
1,125
|
1,169
|
1,893
|
||||||||||||
Other comprehensive income
|
1,357
|
568
|
1,065
|
1,037
|
||||||||||||
Total comprehensive income (loss)
|
$
|
3,720
|
$
|
652
|
$
|
5,554
|
$
|
(2,257
|
)
|
Preferred
Stock
|
Common
Stock
|
Additional
paid-in
|
Retained
|
Accumulated
other
compre-
hensive
income
|
||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
capital
|
earnings
|
(loss)
|
Total
|
|||||||||||||||||||||||||
Balance at December 31, 2010
|
45
|
$
|
45,427
|
13,230
|
$
|
13,230
|
$
|
33,178
|
$
|
69,168
|
$
|
(2,236
|
)
|
$
|
158,767
|
|||||||||||||||||
Issuance of common stock
|
–
|
–
|
68
|
68
|
329
|
–
|
–
|
397
|
||||||||||||||||||||||||
Stock-based compensation expense related to stock options recognized in earnings
|
–
|
–
|
–
|
–
|
43
|
–
|
–
|
43
|
||||||||||||||||||||||||
Net income
|
–
|
–
|
–
|
–
|
–
|
4,489
|
–
|
4,489
|
||||||||||||||||||||||||
Amortization of preferred stock discount
|
–
|
71
|
–
|
–
|
–
|
(71
|
)
|
–
|
–
|
|||||||||||||||||||||||
Other comprehensive income
|
–
|
–
|
–
|
–
|
–
|
–
|
1,065
|
1,065
|
||||||||||||||||||||||||
Dividends – preferred stock
|
–
|
–
|
–
|
–
|
–
|
(1,139
|
)
|
–
|
(1,139
|
)
|
||||||||||||||||||||||
Balance at June 30, 2011
|
45
|
$
|
45,498
|
13,298
|
$
|
13,298
|
$
|
33,550
|
$
|
72,447
|
$
|
(1,171
|
)
|
$
|
163,622
|
For the Six Months Ended
June 30,
|
||||||||
2011
|
2010
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income (loss)
|
$
|
4,489
|
$
|
(3,294
|
)
|
|||
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
||||||||
Depreciation
|
723
|
840
|
||||||
Provision for loan losses
|
1,575
|
10,328
|
||||||
Impairment on securities
|
165
|
196
|
||||||
Goodwill impairment
|
—
|
2,000
|
||||||
Gain (loss) on securities transactions, net
|
74
|
(45
|
)
|
|||||
Loss on writedown and sale of foreclosed assets
|
698
|
2,454
|
||||||
Gain on sale of premises and equipment
|
—
|
(7
|
)
|
|||||
Amortization of premiums and discounts on securities, net
|
39
|
(1
|
)
|
|||||
Amortization of deferred loan fees and discounts
|
(576
|
)
|
(635
|
)
|
||||
Amortization of core deposit intangibles
|
43
|
63
|
||||||
Stock-based compensation
|
43
|
117
|
||||||
Changes in:
|
||||||||
Accrued interest receivable
|
428
|
116
|
||||||
Other assets
|
425
|
(2,391
|
)
|
|||||
Accrued interest payable
|
(100
|
)
|
(42
|
)
|
||||
Other liabilities
|
2,614
|
1,956
|
||||||
Net cash provided by operating activities
|
10,640
|
11,655
|
||||||
Cash flows from investing activities:
|
||||||||
Purchases of securities available-for-sale
|
(35,922
|
)
|
(67,308
|
)
|
||||
Purchases of securities held-to-maturity
|
—
|
—
|
||||||
Purchases of other investments
|
(1
|
)
|
(47
|
)
|
||||
Proceeds from sales of securities available-for-sale
|
186
|
—
|
||||||
Proceeds from maturities, calls, and principal paydowns of securities available-for-sale
|
39,263
|
26,707
|
||||||
Proceeds from sales and maturities of other investments
|
221
|
4,386
|
||||||
Net change in loans
|
64,984
|
33,644
|
||||||
Proceeds from sale of foreclosed assets
|
13,240
|
13,593
|
||||||
Proceeds from sale of premises and equipment
|
—
|
9
|
||||||
Purchases of premises and equipment
|
(227
|
)
|
(679
|
)
|
||||
Net cash provided by investing activities
|
81,744
|
10,305
|
||||||
Cash flows from financing activities:
|
||||||||
Net change in:
|
||||||||
Deposits
|
(53,382
|
)
|
(7,248
|
)
|
||||
Other borrowings
|
(20,452
|
)
|
31,508
|
|||||
Proceeds from issuance of common stock
|
—
|
4,037
|
||||||
Cash dividends paid on preferred stock
|
(1,139
|
)
|
(561
|
)
|
||||
Net cash (used in) provided by financing activities
|
(74,973
|
)
|
27,736
|
|||||
Net increase in cash and cash equivalents
|
17,411
|
49,696
|
||||||
Cash and cash equivalents at beginning of period
|
151,725
|
108,093
|
||||||
Cash and cash equivalents at end of period
|
$
|
169,136
|
$
|
157,789
|
Supplemental information:
|
||||||||
Interest paid
|
$
|
7,340
|
$
|
11,235
|
||||
Income taxes paid
|
692
|
2,000
|
||||||
Noncash investing and financing activities:
|
||||||||
Issuance of common stock pursuant to incentive plan
|
397
|
322
|
||||||
Foreclosed assets acquired
|
9,796
|
12,239
|
||||||
Loans originated to finance foreclosed assets
|
2,676
|
3,505
|
1.
|
BASIS OF PRESENTATION
|
2.
|
SECURITIES
|
As of June 30, 2011
|
||||||||||||||||||||
Amortized
|
Unrealized |
Fair
|
||||||||||||||||||
Cost
|
Gains | Losses |
OTTI
|
Value
|
||||||||||||||||
Securities available-for-sale
|
(In thousands)
|
|||||||||||||||||||
Debt Securities
|
||||||||||||||||||||
U.S. Treasury and other U.S. government corporations and agencies
|
$ | 104,903 | $ | 165 | $ | (593 | ) | $ |
─
|
$ | 104,475 | |||||||||
Obligations of state and political subdivisions
|
4,352 | 108 |
─
|
─
|
4,460 | |||||||||||||||
Mortgage-backed securities and collateralized mortgage obligations
|
||||||||||||||||||||
Government issued or guaranteed
|
49,896 | 645 | (78 | ) |
─
|
50,463 | ||||||||||||||
Privately issued residential
|
1,081 | 311 | (27 | ) | (465 | ) | 900 | |||||||||||||
Asset backed securities
|
263 | 57 |
─
|
(192 | ) | 128 | ||||||||||||||
Equity Securities
|
─
|
|||||||||||||||||||
Investment in CRA funds
|
13,417 |
─
|
(134 | ) |
─
|
13,283 | ||||||||||||||
Total available-for-sale securities
|
$ | 173,912 | $ | 1,286 | $ | (832 | ) | $ | (657 | ) | $ | 173,709 | ||||||||
Securities held-to-maturity
|
||||||||||||||||||||
Obligations of state and political subdivisions
|
$ | 4,045 | $ | 225 | $ |
─
|
$ |
─
|
$ | 4,270 | ||||||||||
Total held-to-maturity securities
|
$ | 4,045 | $ | 225 | $ |
─
|
$ |
─
|
$ | 4,270 | ||||||||||
Other investments
|
||||||||||||||||||||
FHLB/Federal Reserve Bank stock (1)
|
$ | 5,622 | $ |
─
|
$ |
─
|
$ |
─
|
$ | 5,622 | ||||||||||
Investment in subsidiary trust (1)
|
1,083 |
─
|
─
|
─
|
1,083 | |||||||||||||||
Total other investments
|
$ | 6,705 | $ |
─
|
$ |
─
|
$ |
─
|
$ | 6,705 |
As of December 31, 2010
|
||||||||||||||||||||
Amortized
|
Unrealized
|
Fair
|
||||||||||||||||||
Cost
|
Gains | Losses | OTTI |
Value
|
||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Securities available-for-sale
|
||||||||||||||||||||
Debt Securities
|
||||||||||||||||||||
U.S. Treasury and other U.S. government corporations and agencies
|
$ | 112,959 | $ | 196 | $ | (1,554 | ) | $ |
─
|
$ | 111,601 | |||||||||
Obligations of state and political subdivisions
|
4,356 | 57 | (42 | ) |
─
|
4,371 | ||||||||||||||
Mortgage-backed securities and collateralized mortgage obligations
|
||||||||||||||||||||
Government issued or guaranteed
|
45,285 | 476 | (377 | ) |
─
|
45,384 | ||||||||||||||
Privately issued residential
|
1,564 | 289 | (65 | ) | (558 | ) | 1,230 | |||||||||||||
Asset backed securities
|
342 | 67 |
─
|
(231 | ) | 178 | ||||||||||||||
Equity Securities
|
||||||||||||||||||||
Investment in CRA funds
|
13,210 |
─
|
(268 | ) | 12,942 | |||||||||||||||
Total available-for-sale securities
|
$ | 177,716 | $ | 1,085 | $ | (2,306 | ) | $ | (789 | ) | $ | 175,706 | ||||||||
Securities held-to-maturity
|
||||||||||||||||||||
Obligations of state and political subdivisions
|
$ | 4,045 | $ | 122 | $ |
─
|
$ |
─
|
$ | 4,167 | ||||||||||
Total held-to-maturity securities
|
$ | 4,045 | $ | 122 | $ |
─
|
$ |
─
|
$ | 4,167 | ||||||||||
Other investments
|
||||||||||||||||||||
FHLB/Federal Reserve Bank stock (1)
|
$ | 5,842 | $ |
─
|
$ |
─
|
$ |
─
|
$ | 5,842 | ||||||||||
Investment in subsidiary trust (1)
|
1,083 |
─
|
─
|
─
|
1,083 | |||||||||||||||
Total other investments
|
$ | 6,925 | $ |
─
|
$ |
─
|
$ |
─
|
$ | 6,925 |
June 30, 2011
|
||||||||||||||||||||||||
Less Than 12 Months
|
Greater Than 12 Months
|
Total
|
||||||||||||||||||||||
Fair
Value
|
Gross
Unrealized
Losses
|
Fair
Value
|
Gross
Unrealized
Losses
|
Fair
Value
|
Gross
Unrealized
Losses
|
|||||||||||||||||||
(In thousands)
|
||||||||||||||||||||||||
Securities available-for-sale
|
||||||||||||||||||||||||
Debt securities
|
||||||||||||||||||||||||
U.S. Treasury and other U.S. government corporations and agencies
|
$
|
68,057
|
$
|
(593
|
)
|
$
|
-
|
$
|
-
|
$
|
68,057
|
$
|
(593
|
)
|
||||||||||
Mortgage-backed securities and collateralized mortgage obligations
|
||||||||||||||||||||||||
Government issued or guaranteed
|
12,281
|
(78
|
)
|
-
|
-
|
12,281
|
(78
|
)
|
||||||||||||||||
Privately issued residential
|
-
|
-
|
230
|
(27
|
)
|
230
|
(27
|
)
|
||||||||||||||||
Equity Securities
|
||||||||||||||||||||||||
Investment in CRA funds
|
13,283
|
(134
|
)
|
-
|
-
|
13,283
|
(134
|
)
|
||||||||||||||||
Total available-for-sale securities
|
$
|
93,621
|
$
|
(805
|
)
|
$
|
230
|
$
|
(27
|
)
|
$
|
93,851
|
$
|
(832
|
)
|
December 31, 2010
|
||||||||||||||||||||||||
Less Than 12 Months
|
Greater Than 12 Months
|
Total
|
||||||||||||||||||||||
Fair
Value
|
Gross
Unrealized
Losses
|
Fair Value | Gross Unrealized Losses |
Fair
Value
|
Gross
Unrealized
Losses
|
|||||||||||||||||||
(In thousands)
|
||||||||||||||||||||||||
Securities available-for-sale
|
||||||||||||||||||||||||
Debt securities
|
||||||||||||||||||||||||
U.S. Treasury and other U.S. government corporations and agencies
|
$ | 77,784 | $ | (1,554 | ) | $ |
─
|
$ |
─
|
$ | 77,784 | $ | (1,554 | ) | ||||||||||
Obligations of state and political subdivisions
|
2,220 | (42 | ) |
─
|
─
|
2,220 | (42 | ) | ||||||||||||||||
Mortgage-backed securities and collateralized mortgage obligations
|
||||||||||||||||||||||||
Government issued or guaranteed
|
22,674 | (377 | ) |
─
|
─
|
22,674 | (377 | ) | ||||||||||||||||
Privately issued residential
|
─
|
─
|
398 | (65 | ) | 398 | (65 | ) | ||||||||||||||||
Equity Securities
|
||||||||||||||||||||||||
Investment in CRA funds
|
12,942 | (268 | ) |
─
|
─
|
12,942 | (268 | ) | ||||||||||||||||
Total available-for-sale securities
|
$ | 115,620 | $ | (2,241 | ) | $ | 398 | $ | (65 | ) | $ | 116,018 | $ | (2,306 | ) |
Impairment related to credit losses
|
||||||||
Three months ended
June 30, 2011
|
Six months ended
June 30, 2011
|
|||||||
(In thousands)
|
||||||||
Credit losses at beginning of period
|
$
|
1,489
|
$
|
1,600
|
||||
Addition of OTTI that was not previously recognized
|
-
|
-
|
||||||
Additions to OTTI that were previously recognized when there is no intent to sell and no requirement to sell before recovery of amortized cost basis
|
18
|
18
|
||||||
Transfers from accumulated other comprehensive income to OTTI related to credit losses
|
59
|
147
|
||||||
Reclassifications from OTTI to realized losses on sales of securities
|
(2
|
)
|
(201
|
)
|
||||
Credit losses at end of period
|
$
|
1,564
|
$
|
1,564
|
Six Months Ended
June 30,
|
||||||||
2011
|
2010
|
|||||||
Amortized cost
|
$
|
292
|
$
|
—
|
||||
Proceeds
|
186
|
—
|
||||||
Gross realized gains
|
—
|
—
|
||||||
Gross realized losses
|
(105
|
)
|
—
|
Securities
|
Securities
|
|||||||||||||||
Available-for-sale
|
Held-to-maturity
|
|||||||||||||||
Amortized
Cost
|
Fair
Value
|
Amortized
Cost
|
Fair
Value
|
|||||||||||||
Within one year
|
$
|
498
|
$
|
504
|
$
|
—
|
$
|
—
|
||||||||
Within two to five years
|
25,559
|
25,533
|
—
|
—
|
||||||||||||
Within six to ten years
|
80,438
|
80,070
|
—
|
—
|
||||||||||||
After ten years
|
3,023
|
2,956
|
4,045
|
4,270
|
||||||||||||
Mortgage-backed securities and collateralized mortgage obligations
|
50,977
|
51,363
|
—
|
—
|
||||||||||||
Total debt securities
|
$
|
160,495
|
$
|
160,426
|
$
|
4,045
|
$
|
4,270
|
3.
|
LOANS
|
As of June 30, 2011
|
As of December 31, 2010
|
|||||||||||||||
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||
(Dollars in thousands)
|
||||||||||||||||
Commercial and industrial
|
$
|
334,489
|
31.35
|
%
|
$
|
349,891
|
30.52
|
%
|
||||||||
Real estate mortgage
|
||||||||||||||||
Residential
|
40,498
|
3.80
|
38,667
|
3.37
|
||||||||||||
Commercial
|
681,406
|
63.86
|
718,795
|
62.69
|
||||||||||||
721,904
|
67.66
|
757,462
|
66.06
|
|||||||||||||
Real estate construction
|
||||||||||||||||
Residential
|
6,700
|
0.62
|
10,983
|
0.96
|
||||||||||||
Commercial
|
-
|
0.00
|
24,291
|
2.12
|
||||||||||||
6,700
|
0.62
|
35,274
|
3.08
|
|||||||||||||
Consumer and other
|
3,943
|
0.37
|
3,928
|
0.34
|
||||||||||||
Gross loans
|
1,067,036
|
100.00
|
%
|
1,146,555
|
100.00
|
%
|
||||||||||
Unearned discounts, interest and deferred fees
|
(1,869
|
)
|
(2,245
|
)
|
||||||||||||
Total loans
|
1,065,167
|
1,144,310
|
||||||||||||||
Allowance for loan losses
|
(30,393
|
)
|
(33,757
|
)
|
||||||||||||
Loans, net
|
$
|
1,034,774
|
$
|
1,110,553
|
June 30, 2011
|
Gross Loan
Balance
|
Deferred Loan
Fees
|
Accrued Interest
Receivable
|
Recorded Investment in Loans
|
||||||||||||
Commercial and industrial
|
$
|
334,489
|
$
|
(881
|
)
|
$
|
1,038
|
$
|
334,646
|
|||||||
Real estate-mortgage
|
721,904
|
(984
|
)
|
2,391
|
723,311
|
|||||||||||
Real estate-construction
|
6,700
|
(4
|
)
|
21
|
6,717
|
|||||||||||
Consumer and other
|
3,943
|
-
|
8
|
3,951
|
||||||||||||
Total
|
$
|
1,067,036
|
$
|
(1,869
|
)
|
$
|
3,458
|
$
|
1,068,625
|
December 31, 2010
|
Gross Loan
Balance
|
Deferred Loan
Fees
|
Accrued Interest
Receivable
|
Recorded Investment in Loans
|
||||||||||||
Commercial and industrial
|
$
|
349,891
|
$
|
(932
|
)
|
$
|
1,116
|
$
|
350,075
|
|||||||
Real estate-mortgage
|
757,462
|
(1,091
|
)
|
2,653
|
759,024
|
|||||||||||
Real estate-construction
|
35,274
|
(21
|
)
|
94
|
35,347
|
|||||||||||
Consumer and other
|
3,928
|
(201
|
)
|
8
|
3,735
|
|||||||||||
Total
|
$
|
1,146,555
|
$
|
(2,245
|
)
|
$
|
3,871
|
$
|
1,148,181
|
As of June 30, 2011
|
Commercial and industrial
|
Real estate-mortgage
|
Real estate - construction
|
Consumer and other
|
Total
|
|||||||||||||||
Grade:
|
||||||||||||||||||||
1-6 - “Pass”
|
$
|
292,820
|
$
|
566,898
|
$
|
2,447
|
$
|
3,950
|
$
|
866,115
|
||||||||||
7 - “Special Mention”/ “Watch”
|
5,699
|
22,112
|
-
|
-
|
27,811
|
|||||||||||||||
8 - “Substandard”
|
36,127
|
134,077
|
4,270
|
1
|
174,475
|
|||||||||||||||
9 -“Doubtful"
|
-
|
224
|
-
|
-
|
224
|
|||||||||||||||
Total
|
$
|
334,646
|
$
|
723,311
|
$
|
6,717
|
$
|
3,951
|
$
|
1,068,625
|
As of December 31, 2010
|
Commercial and industrial
|
Real estate-mortgage
|
Real estate - construction
|
Consumer and other
|
Total
|
|||||||||||||||
Grade:
|
||||||||||||||||||||
1-6 - “Pass”
|
$
|
301,919
|
$
|
563,003
|
$
|
12,831
|
$
|
3,732
|
$
|
881,485
|
||||||||||
7 - “Special Mention”/ “Watch”
|
8,063
|
45,776
|
3,536
|
-
|
57,375
|
|||||||||||||||
8 - “Substandard”
|
40,093
|
149,988
|
18,980
|
3
|
209,064
|
|||||||||||||||
9 -“Doubtful"
|
-
|
257
|
-
|
-
|
257
|
|||||||||||||||
Total
|
$
|
350,075
|
$
|
759,024
|
$
|
35,347
|
$
|
3,735
|
$
|
1,148,181
|
As of June 30, 2011
|
30-59 Days
Past Due
|
60-89 Days
Past Due
|
Greater Than
90 Days
|
Total Past
Due
|
Current
|
Total Recorded Investment in Loans
|
Recorded Investment 90 Days and Accruing
|
|||||||||||||||||||||
Commercial and industrial
|
$
|
2,177
|
$
|
2,945
|
$
|
11,942
|
$
|
17,064
|
$
|
317,582
|
$
|
334,646
|
$
|
-
|
||||||||||||||
Real estate mortgage:
|
||||||||||||||||||||||||||||
Residential
|
-
|
15
|
5,838
|
5,853
|
34,720
|
40,573
|
-
|
|||||||||||||||||||||
Commercial
|
5,479
|
5,862
|
15,485
|
26,826
|
655,912
|
682,738
|
126
|
|||||||||||||||||||||
Real estate construction:
|
||||||||||||||||||||||||||||
Residential
|
-
|
-
|
-
|
-
|
6,717
|
6,717
|
-
|
|||||||||||||||||||||
Commercial
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||
Consumer and other
|
6
|
11
|
-
|
17
|
3,934
|
3,951
|
-
|
|||||||||||||||||||||
Total
|
$
|
7,662
|
$
|
8,833
|
$
|
33,265
|
$
|
49,760
|
$
|
1,018,865
|
$
|
1,068,625
|
$
|
126
|
Recorded investment in nonaccrual loans
|
June 30, 2011
|
December 31, 2010
|
||||||
Commercial and industrial
|
$
|
15,864
|
$
|
16,614
|
||||
Real estate mortgage:
|
||||||||
Residential
|
266
|
286
|
||||||
Commercial
|
44,889
|
48,592
|
||||||
Real estate construction:
|
||||||||
Residential
|
—
|
196
|
||||||
Commercial
|
—
|
5,193
|
||||||
Consumer and other
|
—
|
3
|
||||||
Total
|
$
|
61,019
|
$
|
70,884
|
June 30, 2011
|
December 31, 2010
|
|||||||
Nonaccrual loans (1)
|
$
|
39,628
|
$
|
50,985
|
||||
Accruing loans 90 days or more past due (1)
|
121
|
334
|
||||||
Troubled debt restructurings – accruing (1)
|
132
|
1,314
|
||||||
Troubled debt restructurings – nonaccruing (1)
|
21,534
|
20,198
|
||||||
Other real estate (“ORE”)
|
15,814
|
19,956
|
||||||
Total nonperforming assets
|
$
|
77,229
|
$
|
92,787
|
As of June 30, 2011
|
Recorded Investment
|
Unpaid Principal Balance
|
Related Allowance
|
Average Recorded Investment
|
||||||||||||
Impaired loans with no allowance
|
||||||||||||||||
Commercial and industrial
|
$
|
9,697
|
$
|
9,738
|
$
|
—
|
$
|
15,073
|
||||||||
Real estate mortgage:
|
||||||||||||||||
Residential
|
266
|
266
|
—
|
278
|
||||||||||||
Commercial
|
30,765
|
30,821
|
—
|
35,035
|
||||||||||||
Real estate construction:
|
||||||||||||||||
Residential
|
—
|
—
|
—
|
98
|
||||||||||||
Commercial
|
—
|
—
|
—
|
2,848
|
||||||||||||
Impaired loans with an allowance
|
||||||||||||||||
Commercial and industrial
|
$
|
6,299
|
$
|
6,305
|
$
|
462
|
$
|
1,749
|
||||||||
Real estate mortgage:
|
||||||||||||||||
Residential
|
—
|
—
|
—
|
—
|
||||||||||||
Commercial
|
14,124
|
14,164
|
794
|
11,390
|
||||||||||||
Real estate construction:
|
||||||||||||||||
Residential
|
—
|
—
|
—
|
—
|
||||||||||||
Commercial
|
—
|
—
|
—
|
—
|
||||||||||||
Total:
|
||||||||||||||||
Commercial and industrial
|
$
|
15,996
|
$
|
16,043
|
$
|
462
|
$
|
16,822
|
||||||||
Real estate mortgage
|
45,155
|
45,251
|
794
|
46,703
|
||||||||||||
Real estate construction
|
—
|
—
|
—
|
2,946
|
As of December 31, 2010
|
Recorded Investment
|
Unpaid Principal Balance
|
Related Allowance
|
Average Recorded Investment
|
||||||||||||
Impaired loans with no allowance
|
||||||||||||||||
Commercial and industrial
|
$
|
17,940
|
$
|
18,004
|
$
|
—
|
$
|
14,385
|
||||||||
Real estate mortgage:
|
||||||||||||||||
Residential
|
286
|
286
|
—
|
265
|
||||||||||||
Commercial
|
41,012
|
41,093
|
—
|
31,663
|
||||||||||||
Real estate construction:
|
||||||||||||||||
Residential
|
197
|
197
|
—
|
2,279
|
||||||||||||
Commercial
|
5,205
|
5,213
|
—
|
6,330
|
||||||||||||
Impaired loans with an allowance
|
||||||||||||||||
Commercial and industrial
|
$
|
98
|
$
|
98
|
$
|
57
|
$
|
1,037
|
||||||||
Real estate mortgage:
|
||||||||||||||||
Residential
|
—
|
—
|
—
|
—
|
||||||||||||
Commercial
|
7,581
|
7,606
|
483
|
13,713
|
||||||||||||
Real estate construction:
|
||||||||||||||||
Residential
|
—
|
—
|
—
|
238
|
||||||||||||
Commercial
|
—
|
—
|
—
|
828
|
||||||||||||
Total:
|
||||||||||||||||
Commercial and industrial
|
$
|
18,038
|
$
|
18,102
|
$
|
57
|
$
|
15,422
|
||||||||
Real estate mortgage
|
48,879
|
48,985
|
483
|
45,641
|
||||||||||||
Real estate construction
|
5,402
|
5,410
|
—
|
9,675
|
As of and for the three months ended
June 30, 2011
|
Commercial and industrial
|
Real estate-mortgage
|
Real estate - construction
|
Consumer and other
|
Unallocated
|
Total
|
||||||||||||||||||
Allowance for loan losses at beginning of period
|
$
|
8,218
|
$
|
20,668
|
$
|
1,012
|
$
|
247
|
$
|
1,738
|
$
|
31,883
|
||||||||||||
Provision for loan losses
|
1,282
|
286
|
(522
|
)
|
(88
|
)
|
287
|
1,245
|
||||||||||||||||
Charge-offs
|
(2,493
|
)
|
(418
|
)
|
—
|
(10
|
)
|
—
|
(2,921
|
)
|
||||||||||||||
Recoveries
|
129
|
54
|
—
|
3
|
—
|
186
|
||||||||||||||||||
Allowance for loan losses at end of period
|
$
|
7,136
|
$
|
20,590
|
$
|
490
|
$
|
152
|
$
|
2,025
|
$
|
30,393
|
||||||||||||
Ending allowance for loan losses balance for loans individually evaluated for impairment
|
$
|
462
|
$
|
794
|
$
|
—
|
$
|
—
|
$
|
1,256
|
||||||||||||||
Ending allowance for loan losses balance for loans collectively evaluated for impairment
|
$
|
6,674
|
$
|
19,796
|
$
|
490
|
$
|
152
|
$
|
27,112
|
||||||||||||||
Loans:
|
||||||||||||||||||||||||
Recorded investment in loans
|
$
|
334,646
|
$
|
723,311
|
$
|
6,717
|
$
|
3,951
|
$
|
1,068,625
|
||||||||||||||
Recorded investment in loans individually evaluated for impairment
|
$
|
15,996
|
$
|
45,154
|
$
|
—
|
$
|
—
|
$
|
61,150
|
||||||||||||||
Recorded investment in loans collectively evaluated for impairment
|
$
|
318,650
|
$
|
678,157
|
$
|
6,717
|
$
|
3,951
|
$
|
1,007,475
|
As of and for the six months ended
June 30, 2011
|
Commercial and industrial
|
Real estate-mortgage
|
Real estate - construction
|
Consumer and other
|
Unallocated
|
Total
|
||||||||||||||||||
Allowance for loan losses at beginning of period
|
$
|
8,187
|
$
|
22,016
|
$
|
1,993
|
$
|
194
|
$
|
1,367
|
$
|
33,757
|
||||||||||||
Provision for loan losses
|
1,339
|
1,832
|
(2,219
|
)
|
(35
|
)
|
658
|
1,575
|
||||||||||||||||
Charge-offs
|
(2,625
|
)
|
(3,323
|
)
|
—
|
(31
|
)
|
—
|
(5,979
|
)
|
||||||||||||||
Recoveries
|
235
|
65
|
716
|
24
|
—
|
1,040
|
||||||||||||||||||
Allowance for loan losses at end of period
|
$
|
7,136
|
$
|
20,590
|
$
|
490
|
$
|
152
|
$
|
2,025
|
$
|
30,393
|
||||||||||||
Ending allowance for loan losses balance for loans individually evaluated for impairment
|
$
|
462
|
$
|
794
|
$
|
—
|
$
|
—
|
$
|
1,256
|
||||||||||||||
Ending allowance for loan losses balance for loans collectively evaluated for impairment
|
$
|
6,674
|
$
|
19,796
|
$
|
490
|
$
|
152
|
$
|
27,112
|
||||||||||||||
Loans:
|
||||||||||||||||||||||||
Recorded investment in loans
|
$
|
334,646
|
$
|
723,311
|
$
|
6,717
|
$
|
3,951
|
$
|
1,068,625
|
||||||||||||||
Recorded investment in loans individually evaluated for impairment
|
$
|
15,996
|
$
|
45,154
|
$
|
—
|
$
|
—
|
$
|
61,150
|
||||||||||||||
Recorded investment in loans collectively evaluated for impairment
|
$
|
318,650
|
$
|
678,157
|
$
|
6,717
|
$
|
3,951
|
$
|
1,007,475
|
As of and for the three months ended
June 30, 2010
|
As of and for the six months ended
June 30, 2010
|
|||||||
(Dollars in thousands)
|
||||||||
Allowance for loan losses at beginning of period
|
$ | 34,732 | $ | 29,403 | ||||
Provision for loan losses
|
2,430 | 10,328 | ||||||
Charge-offs
|
(1,492 | ) | (4,285 | ) | ||||
Recoveries
|
334 | 558 | ||||||
Allowance for loan losses at end of period
|
36,004 | 36,004 | ||||||
Reserve for unfunded lending commitments at beginning of period
|
988 | 1,043 | ||||||
Provision for unfunded lending commitments
|
(166 | ) | (221 | ) | ||||
Reserve for unfunded lending commitments at end of period
|
822 | 822 | ||||||
Allowance for credit losses
|
$ | 36,826 | $ | 36,826 |
4.
|
GOODWILL
|
As of and for the
six months ended
June 30, 2011
|
As of and for the
year ended
December 31, 2010
|
|||||||
Balance as of January 1
|
||||||||
Goodwill
|
$
|
17,327
|
$
|
21,827
|
||||
Accumulated impairment losses
|
—
|
(2,500
|
)
|
|||||
17,327
|
19,327
|
|||||||
Impairment losses
|
—
|
(2,000
|
)
|
|||||
Balance as of end of period
|
$
|
17,327
|
$
|
17,327
|
||||
Accumulated impairment losses
|
$
|
(4,500
|
)
|
$
|
(4,500
|
)
|
5.
|
EARNINGS PER COMMON SHARE
|
As of and for the Three Months
|
As of and for the Six Months
|
|||||||||||||||
Ended June 30,
|
Ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands, except per share amounts)
|
||||||||||||||||
Net income (loss) available to common shareholders
|
$
|
1,758
|
$
|
(518)
|
$
|
3,279
|
$
|
(4,494
|
)
|
|||||||
Weighted average common shares in basic EPS
|
13,142
|
11,874
|
13,139
|
11,399
|
||||||||||||
Effect of dilutive securities
|
92
|
—
|
76
|
—
|
||||||||||||
Weighted average common and potentially dilutive common shares used in diluted EPS
|
13,234
|
11,874
|
13,215
|
11,399
|
||||||||||||
Earnings (loss) per common share:
|
||||||||||||||||
Basic
|
$
|
0.13
|
$
|
(0.04)
|
$
|
0.25
|
$
|
(0.39
|
)
|
|||||||
Diluted
|
$
|
0.13
|
$
|
(0.04)
|
$
|
0.25
|
$
|
(0.39
|
)
|
6.
|
COMMITMENTS AND CONTINGENCIES
|
As of
June 30, 2011
|
As of
December 31, 2010
|
|||||||
(Dollars in thousands)
|
||||||||
Unfunded loan commitments including unfunded lines of credit
|
$
|
72,004
|
$
|
63,967
|
||||
Standby letters of credit
|
5,991
|
5,137
|
||||||
Commercial letters of credit
|
8,345
|
5,019
|
||||||
Operating leases
|
8,503
|
8,698
|
||||||
Total financial instruments with off-balance sheet risk
|
$
|
94,483
|
$
|
82,821
|
7.
|
SHAREHOLDERS’ EQUITY
|
8.
|
REGULATORY MATTERS
|
Actual
|
Minimum
Required For
Capital Adequacy
Purposes
|
To be Categorized
as Well Capitalized
under Prompt
Corrective Action
Provisions
|
||||||||||||||||||||||
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||||||||
As of June 30, 2011
|
||||||||||||||||||||||||
Total risk-based capital ratio
|
||||||||||||||||||||||||
MetroCorp Bancshares, Inc.
|
$
|
190,339
|
16.74
|
%
|
$
|
90,971
|
8.00
|
%
|
$
|
N/A
|
N/A
|
%
|
||||||||||||
MetroBank, N.A.
|
139,580
|
16.64
|
67,105
|
8.00
|
83,881
|
10.00
|
||||||||||||||||||
Metro United Bank
|
47,738
|
16.04
|
23,811
|
8.00
|
29,764
|
10.00
|
||||||||||||||||||
Tier 1 risk-based capital ratio
|
||||||||||||||||||||||||
MetroCorp Bancshares, Inc.
|
175,912
|
15.47
|
45,485
|
4.00
|
N/A
|
N/A
|
||||||||||||||||||
MetroBank, N.A.
|
128,931
|
15.37
|
33,552
|
4.00
|
50,329
|
6.00
|
||||||||||||||||||
Metro United Bank
|
43,967
|
14.77
|
11,906
|
4.00
|
17,859
|
6.00
|
||||||||||||||||||
Leverage ratio
|
||||||||||||||||||||||||
MetroCorp Bancshares, Inc.
|
175,912
|
11.83
|
59,489
|
4.00
|
N/A
|
N/A
|
||||||||||||||||||
MetroBank, N.A.
|
128,931
|
11.63
|
44,330
|
4.00
|
55,412
|
5.00
|
||||||||||||||||||
Metro United Bank
|
43,967
|
11.51
|
15,282
|
4.00
|
19,103
|
5.00
|
||||||||||||||||||
As of December 31, 2010
|
||||||||||||||||||||||||
Total risk-based capital ratio
|
||||||||||||||||||||||||
MetroCorp Bancshares, Inc.
|
$
|
184,573
|
15.13
|
%
|
$
|
97,599
|
8.00
|
%
|
$
|
N/A
|
N/A
|
%
|
||||||||||||
MetroBank, N.A.
|
133,737
|
14.92
|
71,727
|
8.00
|
89,658
|
10.00
|
||||||||||||||||||
Metro United Bank
|
46,141
|
14.28
|
25,840
|
8.00
|
32,300
|
10.00
|
||||||||||||||||||
Tier 1 risk-based capital ratio
|
||||||||||||||||||||||||
MetroCorp Bancshares, Inc.
|
169,087
|
13.86
|
48,799
|
4.00
|
N/A
|
N/A
|
||||||||||||||||||
MetroBank, N.A.
|
122,366
|
13.65
|
35,863
|
4.00
|
53,795
|
6.00
|
||||||||||||||||||
Metro United Bank
|
42,031
|
13.01
|
12,920
|
4.00
|
19,380
|
6.00
|
||||||||||||||||||
Leverage ratio
|
||||||||||||||||||||||||
MetroCorp Bancshares, Inc.
|
169,087
|
10.75
|
62,893
|
4.00
|
N/A
|
N/A
|
||||||||||||||||||
MetroBank, N.A.
|
122,366
|
10.64
|
46,003
|
4.00
|
57,503
|
5.00
|
||||||||||||||||||
Metro United Bank
|
42,031
|
9.84
|
17,089
|
4.00
|
21,361
|
5.00
|
9.
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
|
Gains (Losses) on Effective Cash Hedging Derivatives
|
Net Unrealized Losses on Investments with OTTI
|
Net Unrealized Investment Gains (Losses)
|
Total Accumulated Other Comprehensive Income (Loss)
|
|||||||||||||
Balance December 31, 2010
|
$
|
(949
|
)
|
$
|
(977
|
)
|
$
|
(310
|
)
|
$
|
(2,236
|
)
|
||||
Current period change
|
(92
|
)
|
(12
|
)
|
1,169
|
1,065
|
||||||||||
Balance June 30, 2011
|
$
|
(1,041
|
)
|
$
|
(989
|
)
|
$
|
859
|
$
|
(1,171
|
)
|
10.
|
DERIVATIVE FINANCIAL INSTRUMENTS
|
June 30, 2011
|
December 31, 2010
|
|||||||||||||||
Notional Amount
|
Estimated Fair Value
|
Notional Amount
|
Estimated Fair Value
|
|||||||||||||
Interest rate derivative contract designated as a hedge of cash flows
|
$ | 17,500 | $ | (1,627 | ) | $ | 17,500 | $ | (1,483 | ) | ||||||
Interest rate derivative contract not designated as a hedge of cash flows
|
$ | 15,000 | $ | 594 | $ | — | $ | — |
Gains/(losses) recorded in income and other comprehensive income (loss) (in thousands)
|
||||||||||||||||||||
Three months ended June 30, 2011
|
Derivative
effective portion
reclassified from
AOCI into income
|
Hedge
ineffectiveness
recorded directly
in income
|
Total income
statement
impact
|
Derivative
effective portion
recorded in OCI
|
Total change
in OCI
for period
|
|||||||||||||||
Interest rate derivative designated as a hedge of cash flows:
|
||||||||||||||||||||
Interest rate swap
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
(378
|
)
|
$
|
(378
|
)
|
||||||||
Three months ended June 30, 2010
|
||||||||||||||||||||
Interest rate derivative designated as a hedge of cash flows:
|
||||||||||||||||||||
Interest rate swap
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
(868
|
)
|
$
|
(868
|
)
|
Gains/(losses) recorded in income and other comprehensive income (loss) (in thousands)
|
||||||||||||||||||||
Six months ended June 30, 2011
|
Derivative
effective portion
reclassified from
AOCI into income
|
Hedge
ineffectiveness
recorded directly
in income
|
Total income
statement
impact
|
Derivative
effective portion
recorded in OCI
|
Total change
in OCI
for period
|
|||||||||||||||
Interest rate derivative designated as a hedge of cash flows:
|
||||||||||||||||||||
Interest rate swap
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
(144
|
)
|
$
|
(144
|
)
|
||||||||
Six months ended June 30, 2010
|
||||||||||||||||||||
Interest rate derivative designated as a hedge of cash flows:
|
||||||||||||||||||||
Interest rate swap
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
(1,251
|
)
|
$
|
(1,251
|
)
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Non-hedging interest rate derivative:
|
||||||||||||||||
Other non-interest income
|
$ | 11 | $ | — | $ | 11 | $ | — |
11.
|
OPERATING SEGMENT INFORMATION
|
For the three months ended June 30, 2011
|
For the three months ended June 30, 2010
|
|||||||||||||||||||||||||||||||
MetroBank
|
Metro
United
|
Other
|
Consolidated
Company
|
MetroBank
|
Metro
United
|
Other
|
Consolidated
Company
|
|||||||||||||||||||||||||
(In thousands)
|
||||||||||||||||||||||||||||||||
Total interest income
|
$ | 12,628 | $ | 4,103 | $ | 6 | $ | 16,737 | $ | 14,282 | $ | 5,391 | $ | 16 | $ | 19,689 | ||||||||||||||||
Total interest expense
|
2,357 | 794 | 338 | 3,489 | 3,643 | 1,293 | 532 | 5,468 | ||||||||||||||||||||||||
Net interest income
|
$ | 10,271 | $ | 3,309 | $ | (332 | ) | $ | 13,248 | 10,639 | 4,098 | (516 | ) | 14,221 | ||||||||||||||||||
Provision for loan losses
|
1,200 | 45 | - | 1,245 | 2,400 | 30 | — | 2,430 | ||||||||||||||||||||||||
Net interest income after provision for loan losses
|
9,071 | 3,264 | (332 | ) | 12,003 | 8,239 | 4,068 | (516 | ) | 11,791 | ||||||||||||||||||||||
Noninterest income
|
1,836 | 66 | (331 | ) | 1,571 | 2,016 | 83 | (316 | ) | 1,783 | ||||||||||||||||||||||
Noninterest expenses
|
7,496 | 2,528 | (1 | ) | 10,023 | 10,386 | 2,748 | 49 | 13,183 | |||||||||||||||||||||||
Income (loss) before income tax provision
|
3,411 | 802 | (662 | ) | 3,551 | (131 | ) | 1,403 | (881 | ) | 391 | |||||||||||||||||||||
Provision (benefit) for income taxes
|
1,099 | 311 | (222 | ) | 1,188 | (25 | ) | 591 | (259 | ) | 307 | |||||||||||||||||||||
Net income (loss)
|
$ | 2,312 | $ | 491 | $ | (440 | ) | $ | 2,363 | $ | (106 | ) | $ | 812 | $ | (622 | ) | $ | 84 |
For the six months ended June 30, 2011
|
For the six months ended June 30, 2010
|
|||||||||||||||||||||||||||||||
MetroBank
|
Metro
United
|
Other
|
Consolidated
Company
|
MetroBank
|
Metro
United
|
Other
|
Consolidated
Company
|
|||||||||||||||||||||||||
(In thousands)
|
||||||||||||||||||||||||||||||||
Total interest income
|
$ | 25,690 | $ | 8,486 | $ | 12 | $ | 34,188 | $ | 29,116 | $ | 10,769 | $ | 32 | $ | 39,917 | ||||||||||||||||
Total interest expense
|
4,928 | 1,638 | 674 | 7,240 | 7,260 | 2,875 | 1,059 | 11,194 | ||||||||||||||||||||||||
Net interest income
|
$ | 20,762 | $ | 6,848 | $ | (662 | ) | $ | 26,948 | 21,856 | 7,894 | (1,027 | ) | 28,723 | ||||||||||||||||||
Provision for loan losses
|
1,500 | 75 | — | 1,575 | 6,000 | 4,328 | — | 10,328 | ||||||||||||||||||||||||
Net interest income after provision for loan losses
|
19,262 | 6,773 | (662 | ) | 25,373 | 15,856 | 3,566 | (1,027 | ) | 18,395 | ||||||||||||||||||||||
Noninterest income
|
3,749 | 143 | (662 | ) | 3,230 | 3,837 | 182 | (632 | ) | 3,387 | ||||||||||||||||||||||
Noninterest expenses
|
16,498 | 5,245 | 43 | 21,786 | 18,145 | 8,003 | 65 | 26,213 | ||||||||||||||||||||||||
Income before income tax provision
|
6,513 | 1,671 | (1,367 | ) | 6,817 | 1,548 | (4,255 | ) | (1,724 | ) | (4,431 | ) | ||||||||||||||||||||
Provision (benefit) for income taxes
|
2,093 | 693 | (458 | ) | 2,328 | 314 | (942 | ) | (509 | ) | (1,137 | ) | ||||||||||||||||||||
Net income (loss)
|
$ | 4,420 | $ | 978 | $ | (909 | ) | $ | 4,489 | $ | 1,234 | $ | (3,313 | ) | $ | (1,215 | ) | $ | (3,294 | ) |
As of June 30, 2011
|
As of June 30, 2010
|
|||||||||||||||||||||||||||||||
MetroBank
|
Metro
United
|
Other
|
Consolidated
Company
|
MetroBank
|
Metro
United
|
Other
|
Consolidated
Company
|
|||||||||||||||||||||||||
(In thousands)
|
||||||||||||||||||||||||||||||||
Net loans
|
$ | 742,139 | $ | 292,635 | $ | — | $ | 1,034,774 | $ | 852,695 | $ | 336,323 | $ | — | $ | 1,189,018 | ||||||||||||||||
Total assets
|
1,096,543 | 396,575 | (2,173 | ) | 1,490,945 | 1,167,310 | 461,904 | (5,055 | ) | 1,624,159 | ||||||||||||||||||||||
Deposits
|
926,204 | 323,055 | (8,457 | ) | 1,240,802 | 998,532 | 370,628 | (12,241 | ) | 1,356,919 |
12.
|
FAIR VALUE
|
·
|
Level 1 – Quoted prices in active markets for identical assets or liabilities.
|
·
|
Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
·
|
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
|
Fair Value Measurements, using
|
||||||||||||||||
(In thousands)
|
||||||||||||||||
June 30, 2011
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
Significant Other Observable Inputs (Level 2)
|
Significant Unobservable Inputs (Level 3)
|
Fair Value Measurements
|
||||||||||||
Securities available-for-sale
|
||||||||||||||||
U.S. Treasury and other U.S. government corporations and agencies
|
$
|
–
|
$
|
104,475
|
$
|
–
|
$
|
104,475
|
||||||||
Obligations of state and political subdivisions
|
–
|
4,460
|
–
|
4,460
|
||||||||||||
Mortgage-backed securities and collateralized mortgage obligations
|
||||||||||||||||
Government issued or guaranteed
|
–
|
50,463
|
–
|
50,463
|
||||||||||||
Privately issued residential
|
–
|
900
|
–
|
900
|
||||||||||||
Asset backed securities
|
–
|
128
|
–
|
128
|
||||||||||||
Investment in CRA funds
|
13,283
|
–
|
–
|
13,283
|
||||||||||||
Total available-for-sale securities
|
13,283
|
160,426
|
–
|
173,709
|
||||||||||||
Derivative assets
|
||||||||||||||||
Interest rate cap
|
–
|
594
|
–
|
594
|
||||||||||||
Total assets measured at fair value on a recurring basis
|
$
|
13,283
|
$
|
161,020
|
$
|
–
|
$
|
174,303
|
||||||||
Derivative liabilities
|
||||||||||||||||
Interest rate swap
|
$
|
–
|
$
|
(1,627
|
)
|
$
|
–
|
$
|
(1,627
|
)
|
||||||
December 31, 2010
|
||||||||||||||||
Securities available-for-sale
|
||||||||||||||||
U.S. Treasury and other U.S. government corporations and agencies
|
$
|
–
|
$
|
111,601
|
$
|
–
|
$
|
111,601
|
||||||||
Obligations of state and political subdivisions
|
–
|
4,371
|
–
|
4,371
|
||||||||||||
Mortgage-backed securities and collateralized mortgage obligations
|
||||||||||||||||
Government issued or guaranteed
|
–
|
45,384
|
–
|
45,384
|
||||||||||||
Privately issued residential
|
–
|
1,230
|
–
|
1,230
|
||||||||||||
Asset backed securities
|
–
|
178
|
–
|
178
|
||||||||||||
Investment in CRA funds
|
12,942
|
—
|
–
|
12,942
|
||||||||||||
Total available-for-sale securities
|
$
|
12,942
|
$
|
162,764
|
$
|
–
|
$
|
175,706
|
||||||||
Derivative liabilities
|
||||||||||||||||
Interest rate swap
|
$
|
–
|
$
|
(1,483
|
)
|
$
|
–
|
$
|
(1,483
|
)
|
As of June 30, 2011
|
As of December 31, 2010
|
|||||||||||||||
Level 2
|
Level 3
|
Level 2
|
Level 3
|
|||||||||||||
Assets
|
||||||||||||||||
Goodwill
|
$ | - | $ | 17,327 | $ | - | $ | 17,327 | ||||||||
Foreclosed assets
|
- | 15,814 | - | 19,956 | ||||||||||||
Impaired loans (1)
|
19,080 | - | 7,121 | - |
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Losses related to:
|
||||||||||||||||
Goodwill
|
$ | — | $ | — | $ | — | $ | 2,000 | ||||||||
Foreclosed assets (1)
|
452 | 2,107 | 643 | 2,627 | ||||||||||||
Impaired loans (2)
|
1,940 | — | 3,536 | 1,295 |
As of June 30, 2011
|
As of December 31, 2010
|
|||||||||||||||
Carrying or Contract Amount
|
Estimated Fair Value
|
Carrying or Contract Amount
|
Estimated Fair Value
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Financial Assets
|
||||||||||||||||
Cash and cash equivalents
|
$
|
169,136
|
$
|
169,136
|
$
|
151,725
|
$
|
151,725
|
||||||||
Investment securities available-for-sale
|
173,709
|
173,709
|
175,706
|
175,706
|
||||||||||||
Investment securities held-to-maturity
|
4,045
|
4,270
|
4,045
|
4,167
|
||||||||||||
Other investments
|
6,705
|
6,705
|
6,925
|
6,925
|
||||||||||||
Loans held-for-investment, net
|
1,034,774
|
939,940
|
1,110,553
|
990,818
|
||||||||||||
Cash value of bank owned life insurance
|
30,713
|
30,713
|
29,988
|
29,988
|
||||||||||||
Accrued interest receivable
|
4,254
|
4,254
|
4,682
|
4,682
|
||||||||||||
Interest rate cap
|
594
|
594
|
—
|
—
|
||||||||||||
Financial Liabilities
|
||||||||||||||||
Deposits
|
||||||||||||||||
Transaction accounts
|
706,778
|
706,778
|
707,000
|
707,000
|
||||||||||||
Time deposits
|
534,024
|
532,248
|
587,184
|
586,342
|
||||||||||||
Total deposits
|
1,240,802
|
1,239,026
|
1,294,184
|
1,293,342
|
||||||||||||
Other borrowings
|
36,352
|
38,556
|
56,804
|
59,028
|
||||||||||||
Junior subordinated debentures
|
36,083
|
36,083
|
36,083
|
36,083
|
||||||||||||
Interest rate swap
|
1,627
|
1,627
|
1,483
|
1,483
|
||||||||||||
Accrued interest payable
|
347
|
347
|
447
|
447
|
||||||||||||
Off-balance sheet financial instruments
|
||||||||||||||||
Unfunded loan commitments, including unfunded lines of credit
|
—
|
224
|
—
|
179
|
||||||||||||
Standby letters of credit
|
—
|
21
|
—
|
13
|
||||||||||||
Commercial letters of credit
|
—
|
—
|
—
|
—
|
13.
|
INCOME TAXES
|
14.
|
NEW AUTHORITATIVE ACCOUNTING GUIDANCE
|
•
|
changes in the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations resulting in, among other things, a deterioration in credit quality or a reduced demand for credit, including the resultant effect on the Company's loan portfolio and allowance for loan losses;
|
•
|
changes in interest rates and market prices, which could reduce the Company’s net interest margins, asset valuations and expense expectations;
|
•
|
changes in the levels of loan prepayments and the resulting effects on the value of the Company’s loan portfolio;
|
•
|
changes in local economic and business conditions which adversely affect the ability of the Company’s customers to transact profitable business with the Company, including the ability of borrowers to repay their loans according to their terms or a change in the value of the related collateral;
|
•
|
increased competition for deposits and loans adversely affecting rates and terms;
|
•
|
the concentration of the Company’s loan portfolio in loans collateralized by real estate;
|
•
|
the Company’s ability to raise additional capital;
|
•
|
the effect of MetroBank’s compliance, or failure to comply within stated deadlines, of the provisions of the formal agreement with the OCC;
|
•
|
the effect of Metro United's compliance, or failure to comply within stated deadlines, of the provisions of the consent order issued by the FDIC and CDFI;
|
|
•
|
the timing, impact and other uncertainties of the Company’s ability to enter new markets successfully and capitalize on growth opportunities;
|
•
|
increased credit risk in the Company’s assets and increased operating risk caused by a material change in commercial, consumer and/or real estate loans as a percentage of the total loan portfolio;
|
•
|
incorrect assumptions underlying the establishment of and provisions made to the allowance for loan losses;
|
•
|
increases in the level of nonperforming assets;
|
•
|
the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on the results of operations;
|
•
|
changes in the availability of funds resulting in increased costs or reduced liquidity;
|
•
|
an inability to fully realize the Company’s net deferred tax asset;
|
•
|
a deterioration or downgrade in the credit quality and credit agency ratings of the securities in the Company’s securities portfolio;
|
•
|
increased asset levels and changes in the composition of assets and the resulting impact on the Company’s capital levels and regulatory capital ratios;
|
•
|
potential environmental risk and associated cost on the Company's foreclosed real estate assets;
|
•
|
the Company’s ability to acquire, operate and maintain cost effective and efficient systems without incurring unexpectedly difficult or expensive but necessary technological changes;
|
•
|
increases in FDIC deposit insurance assessments;
|
•
|
government intervention in the U.S. financial system;
|
•
|
the loss of senior management or operating personnel and the potential inability to hire qualified personnel at reasonable compensation levels; and
|
•
|
changes in statutes and government regulations or their interpretations applicable to bank holding companies and the Company’s present and future banking and other subsidiaries, including changes in tax requirements and tax rates.
|
For The Three Months Ended June 30,
|
||||||||||||||||||||||
2011
|
2010
|
|||||||||||||||||||||
Average
Outstanding
Balance
|
Interest
Earned/
Paid
|
Average
Yield/
Rate(1)
|
Average
Outstanding
Balance
|
Interest
Earned/
Paid
|
Average
Yield/
Rate(1)
|
|||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||
Assets
|
||||||||||||||||||||||
Interest-earning assets:
|
||||||||||||||||||||||
Loans
|
$
|
1,073,549
|
$
|
15,330
|
5.73
|
%
|
$
|
1,240,611
|
$
|
18,571
|
6.00
|
%
|
||||||||||
Taxable securities
|
167,400
|
1,160
|
2.78
|
98,602
|
823
|
3.35
|
||||||||||||||||
Tax-exempt securities
|
8,398
|
99
|
4.73
|
10,184
|
118
|
4.65
|
||||||||||||||||
Other investments (2)
|
6,760
|
42
|
2.49
|
17,277
|
75
|
1.74
|
||||||||||||||||
Federal funds sold and other short-term investments
|
157,077
|
106
|
0.27
|
155,999
|
102
|
0.26
|
||||||||||||||||
Total interest-earning assets
|
1,413,184
|
16,737
|
4.75
|
1,522,673
|
19,689
|
5.19
|
||||||||||||||||
Allowance for loan losses
|
(32,235
|
)
|
(35,281
|
)
|
||||||||||||||||||
Total interest-earning assets, net of allowance for loan losses
|
1,380,949
|
1,487,392
|
||||||||||||||||||||
Noninterest-earning assets
|
129,797
|
148,352
|
||||||||||||||||||||
Total assets
|
$
|
1,510,746
|
$
|
1,635,744
|
||||||||||||||||||
Liabilities and shareholders' equity
|
||||||||||||||||||||||
Interest-bearing liabilities:
|
||||||||||||||||||||||
Interest-bearing demand deposits
|
$
|
62,885
|
$
|
67
|
0.43
|
%
|
$
|
56,151
|
$
|
72
|
0.51
|
%
|
||||||||||
Savings and money market accounts
|
410,271
|
860
|
0.84
|
463,925
|
1,403
|
1.21
|
||||||||||||||||
Time deposits
|
546,822
|
1,974
|
1.45
|
652,752
|
3,201
|
1.97
|
||||||||||||||||
Junior subordinated debentures
|
36,083
|
325
|
3.56
|
36,083
|
520
|
5.76
|
||||||||||||||||
Other borrowings
|
42,271
|
263
|
2.50
|
48,046
|
272
|
2.27
|
||||||||||||||||
Total interest-bearing liabilities
|
1,098,332
|
3,489
|
1.27
|
1,256,957
|
5,468
|
1.74
|
||||||||||||||||
Noninterest-bearing liabilities:
|
||||||||||||||||||||||
Noninterest-bearing demand deposits
|
231,918
|
203,640
|
||||||||||||||||||||
Other liabilities
|
17,846
|
18,400
|
||||||||||||||||||||
Total liabilities
|
1,348,096
|
1,478,997
|
||||||||||||||||||||
Shareholders' equity
|
162,650
|
156,747
|
||||||||||||||||||||
Total liabilities and shareholders' equity
|
$
|
1,510,746
|
$
|
1,635,744
|
||||||||||||||||||
Net interest income
|
$
|
13,248
|
$
|
14,221
|
||||||||||||||||||
Net interest spread
|
3.48
|
%
|
3.45
|
%
|
||||||||||||||||||
Net interest margin
|
3.76
|
%
|
3.75
|
%
|
(1)
|
Annualized.
|
(2)
|
Other investments include Federal Reserve Bank stock, Federal Home Loan Bank stock and investment in subsidiary trust.
|
For The Six Months Ended June 30,
|
||||||||||||||||||||||
2011
|
2010
|
|||||||||||||||||||||
Average
Outstanding
Balance
|
Interest
Earned/
Paid
|
Average
Yield/
Rate(1)
|
Average
Outstanding
Balance
|
Interest
Earned/
Paid
|
Average
Yield/
Rate(1)
|
|||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||
Assets
|
||||||||||||||||||||||
Interest-earning assets:
|
||||||||||||||||||||||
Loans
|
$
|
1,099,546
|
$
|
31,332
|
5.75
|
%
|
$
|
1,257,042
|
$
|
37,757
|
6.06
|
%
|
||||||||||
Taxable securities
|
169,089
|
2,388
|
2.85
|
94,657
|
1,613
|
3.44
|
||||||||||||||||
Tax-exempt securities
|
8,399
|
197
|
4.73
|
10,213
|
239
|
4.72
|
||||||||||||||||
Other investments (2)
|
6,838
|
84
|
2.48
|
17,470
|
150
|
1.73
|
||||||||||||||||
Federal funds sold and other short-term investments
|
144,591
|
187
|
0.26
|
123,609
|
158
|
0.26
|
||||||||||||||||
Total interest-earning assets
|
1,428,463
|
34,188
|
4.83
|
1,502,991
|
39,917
|
5.36
|
||||||||||||||||
Allowance for loan losses
|
(33,427
|
)
|
(33,342
|
)
|
||||||||||||||||||
Total interest-earning assets, net of allowance for loan losses
|
1,395,036
|
1,469,649
|
||||||||||||||||||||
Noninterest-earning assets
|
129,660
|
145,080
|
||||||||||||||||||||
Total assets
|
$
|
1,524,696
|
$
|
1,614,729
|
||||||||||||||||||
Liabilities and shareholders' equity
|
||||||||||||||||||||||
Interest-bearing liabilities:
|
||||||||||||||||||||||
Interest-bearing demand deposits
|
$
|
60,086
|
$
|
127
|
0.43
|
%
|
$
|
55,233
|
$
|
141
|
0.51
|
%
|
||||||||||
Savings and money market accounts
|
410,608
|
1,720
|
0.84
|
466,643
|
2,955
|
1.28
|
||||||||||||||||
Time deposits
|
564,369
|
4,200
|
1.50
|
645,702
|
6,547
|
2.04
|
||||||||||||||||
Junior subordinated debentures
|
36,083
|
649
|
3.58
|
36,083
|
1,040
|
5.76
|
||||||||||||||||
Other borrowings
|
49,390
|
544
|
2.22
|
37,154
|
511
|
2.77
|
||||||||||||||||
Total interest-bearing liabilities
|
1,120,536
|
7,240
|
1.30
|
1,240,815
|
11,194
|
1.82
|
||||||||||||||||
Noninterest-bearing liabilities:
|
||||||||||||||||||||||
Noninterest-bearing demand deposits
|
227,129
|
201,477
|
||||||||||||||||||||
Other liabilities
|
15,652
|
15,163
|
||||||||||||||||||||
Total liabilities
|
1,363,317
|
1,457,455
|
||||||||||||||||||||
Shareholders' equity
|
161,379
|
157,274
|
||||||||||||||||||||
Total liabilities and shareholders' equity
|
$
|
1,524,696
|
$
|
1,614,729
|
||||||||||||||||||
Net interest income
|
$
|
26,948
|
$
|
28,723
|
||||||||||||||||||
Net interest spread
|
3.53
|
%
|
3.54
|
%
|
||||||||||||||||||
Net interest margin
|
3.80
|
%
|
3.85
|
%
|
(1)
|
Annualized.
|
(2)
|
Other investments include Federal Reserve Bank stock, Federal Home Loan Bank stock and investment in subsidiary trust.
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||||||||||
2011 vs 2010
|
2011 vs 2010
|
|||||||||||||||||||||||
Increase (Decrease)
|
Increase (Decrease)
|
|||||||||||||||||||||||
Due to
|
Due to
|
|||||||||||||||||||||||
Volume
|
Rate
|
Total
|
Volume
|
Rate
|
Total
|
|||||||||||||||||||
(In thousands)
|
||||||||||||||||||||||||
Interest-earning assets:
|
||||||||||||||||||||||||
Loans
|
$
|
(2,501
|
)
|
$
|
(740
|
)
|
$
|
(3,241
|
)
|
$
|
(4,731
|
)
|
$
|
(1,694
|
)
|
$
|
(6,425
|
)
|
||||||
Taxable securities
|
574
|
(237
|
)
|
337
|
1,268
|
(493
|
)
|
775
|
||||||||||||||||
Tax-exempt securities
|
(21
|
)
|
2
|
(19
|
)
|
(42
|
)
|
-
|
(42
|
)
|
||||||||||||||
Other investments
|
(46
|
)
|
13
|
(33
|
)
|
(91
|
)
|
25
|
(66
|
)
|
||||||||||||||
Federal funds sold and other short-term investments
|
1
|
3
|
4
|
27
|
2
|
29
|
||||||||||||||||||
Total decrease in interest income
|
(1,993
|
)
|
(959
|
)
|
(2,952
|
)
|
(3,569
|
)
|
(2,160
|
)
|
(5,729
|
)
|
||||||||||||
Interest-bearing liabilities:
|
||||||||||||||||||||||||
Interest-bearing demand deposits
|
9
|
(14
|
)
|
(5
|
)
|
12
|
(26
|
)
|
(14
|
)
|
||||||||||||||
Savings and money market accounts
|
(162
|
)
|
(381
|
)
|
(543
|
)
|
(355
|
)
|
(880
|
)
|
(1,235
|
)
|
||||||||||||
Time deposits
|
(519
|
)
|
(708
|
)
|
(1,227
|
)
|
(825
|
)
|
(1,522
|
)
|
(2,347
|
)
|
||||||||||||
Junior subordinated debentures
|
-
|
(195
|
)
|
(195
|
)
|
-
|
(391
|
)
|
(391
|
)
|
||||||||||||||
Other borrowings
|
(33
|
)
|
24
|
(9
|
)
|
168
|
(135
|
)
|
33
|
|||||||||||||||
Total decrease in interest expense
|
(705
|
)
|
(1,274
|
)
|
(1,979
|
)
|
(1,000
|
)
|
(2,954
|
)
|
(3,954
|
)
|
||||||||||||
Increase (decrease) in net interest income
|
$
|
(1,288
|
)
|
$
|
315
|
$
|
(973
|
)
|
$
|
(2,569
|
)
|
$
|
794
|
$
|
(1,775
|
)
|
As of June 30, 2011
|
As of December 31, 2010
|
|||||||||||||||
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||
(Dollars in thousands)
|
||||||||||||||||
Commercial and industrial
|
$
|
334,489
|
31.35
|
%
|
$
|
349,891
|
30.52
|
%
|
||||||||
Real estate mortgage
|
||||||||||||||||
Residential
|
40,498
|
3.80
|
38,667
|
3.37
|
||||||||||||
Commercial
|
681,406
|
63.86
|
718,795
|
62.69
|
||||||||||||
721,904
|
67.66
|
757,462
|
66.06
|
|||||||||||||
Real estate construction
|
||||||||||||||||
Residential
|
6,700
|
0.62
|
10,983
|
0.96
|
||||||||||||
Commercial
|
-
|
-
|
24,291
|
2.12
|
||||||||||||
6,700
|
0.62
|
35,274
|
3.08
|
|||||||||||||
Consumer and other
|
3,943
|
0.37
|
3,928
|
0.34
|
||||||||||||
Gross loans
|
1,067,036
|
100.00
|
%
|
1,146,555
|
100.00
|
%
|
||||||||||
Unearned discounts, interest and deferred fees
|
(1,869
|
)
|
(2,245
|
)
|
||||||||||||
Total loans
|
1,065,167
|
1,144,310
|
||||||||||||||
Allowance for loan losses
|
(30,393
|
)
|
(33,757
|
)
|
||||||||||||
Loans, net
|
$
|
1,034,774
|
$
|
1,110,553
|
As of
|
As of
|
|||||||
June 30,
2011
|
December 31,
2010
|
|||||||
(Dollars in thousands)
|
||||||||
Nonaccrual loans (1)
|
$
|
39,628
|
$
|
50,985
|
||||
Accruing loans 90 days or more past due (1)
|
121
|
334
|
||||||
Troubled debt restructurings – accruing (1)
|
132
|
1,314
|
||||||
Troubled debt restructurings – nonaccruing (1)
|
21,534
|
20,198
|
||||||
Other real estate (“ORE”)
|
15,814
|
19,956
|
||||||
Total nonperforming assets
|
77,229
|
92,787
|
||||||
Total nonperforming assets to total assets
|
5.18
|
%
|
5.95
|
%
|
||||
Total nonperforming assets to total loans and ORE
|
7.14
|
%
|
7.97
|
%
|
As of June 30, 2011
|
Recorded Investment
|
Unpaid Principal Balance
|
Related Allowance
|
Average Recorded Investment
|
||||||||||||
(Dollars in thousands)
|
||||||||||||||||
Impaired loans with no allowance
|
||||||||||||||||
Commercial and industrial
|
$
|
9,697
|
$
|
9,738
|
$
|
—
|
$
|
15,073
|
||||||||
Real estate mortgage:
|
||||||||||||||||
Residential
|
266
|
266
|
—
|
278
|
||||||||||||
Commercial
|
30,765
|
30,821
|
—
|
35,035
|
||||||||||||
Real estate construction:
|
||||||||||||||||
Residential
|
—
|
—
|
—
|
98
|
||||||||||||
Commercial
|
—
|
—
|
—
|
2,848
|
||||||||||||
Impaired loans with an allowance
|
||||||||||||||||
Commercial and industrial
|
$
|
6,299
|
$
|
6,305
|
$
|
462
|
$
|
1,749
|
||||||||
Real estate mortgage:
|
||||||||||||||||
Residential
|
—
|
—
|
—
|
—
|
||||||||||||
Commercial
|
14,124
|
14,164
|
794
|
11,390
|
||||||||||||
Real estate construction:
|
||||||||||||||||
Residential
|
—
|
—
|
—
|
—
|
||||||||||||
Commercial
|
—
|
—
|
—
|
—
|
||||||||||||
Total:
|
||||||||||||||||
Commercial and industrial
|
$
|
15,996
|
$
|
16,043
|
$
|
462
|
$
|
16,822
|
||||||||
Real estate mortgage
|
45,155
|
45,251
|
794
|
46,703
|
||||||||||||
Real estate construction
|
—
|
—
|
—
|
2,946
|
As of December 31, 2010
|
Recorded Investment
|
Unpaid Principal Balance
|
Related Allowance
|
Average Recorded Investment
|
||||||||||||
(Dollars in thousands)
|
||||||||||||||||
Impaired loans with no allowance
|
||||||||||||||||
Commercial and industrial
|
$
|
17,940
|
$
|
18,004
|
$
|
—
|
$
|
14,385
|
||||||||
Real estate mortgage:
|
||||||||||||||||
Residential
|
286
|
286
|
—
|
265
|
||||||||||||
Commercial
|
41,012
|
41,093
|
—
|
31,663
|
||||||||||||
Real estate construction:
|
||||||||||||||||
Residential
|
197
|
197
|
—
|
2,279
|
||||||||||||
Commercial
|
5,205
|
5,213
|
—
|
6,330
|
||||||||||||
Impaired loans with an allowance
|
||||||||||||||||
Commercial and industrial
|
98
|
98
|
57
|
1,037
|
||||||||||||
Real estate mortgage:
|
||||||||||||||||
Residential
|
—
|
—
|
—
|
—
|
||||||||||||
Commercial
|
7,581
|
7,606
|
483
|
13,713
|
||||||||||||
Real estate construction:
|
||||||||||||||||
Residential
|
—
|
—
|
—
|
238
|
||||||||||||
Commercial
|
—
|
—
|
—
|
828
|
||||||||||||
Total:
|
||||||||||||||||
Commercial and industrial
|
$
|
18,038
|
$
|
18,102
|
$
|
57
|
$
|
15,422
|
||||||||
Real estate mortgage
|
48,879
|
48,985
|
483
|
45,641
|
||||||||||||
Real estate construction
|
5,402
|
5,410
|
—
|
9,675
|
As of and for the
Three Months Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
(Dollars in thousands)
|
||||||||
Average total loans outstanding for the period
|
$ | 1,073,549 | $ | 1,240,611 | ||||
Total loans outstanding at end of period
|
$ | 1,065,167 | $ | 1,225,022 | ||||
Allowance for loan losses at beginning of period
|
$ | 31,883 | $ | 34,732 | ||||
Provision for loan losses
|
1,245 | 2,430 | ||||||
Charge-offs:
|
||||||||
Commercial and industrial
|
(2,493 | ) | (826 | ) | ||||
Real estate mortgage
|
(417 | ) | (538 | ) | ||||
Real estate construction
|
— | (27 | ) | |||||
Consumer and other
|
(11 | ) | (101 | ) | ||||
Total charge-offs
|
(2,921 | ) | (1,492 | ) | ||||
Recoveries:
|
||||||||
Commercial and industrial
|
128 | 181 | ||||||
Real estate mortgage
|
54 | 149 | ||||||
Real estate construction
|
— | — | ||||||
Consumer and other
|
4 | 4 | ||||||
Total recoveries
|
186 | 334 | ||||||
Net charge-offs
|
(2,735 | ) | (1,158 | ) | ||||
Allowance for loan losses at end of period
|
30,393 | 36,004 | ||||||
Reserve for unfunded lending commitments at beginning of period
|
1,703 | 988 | ||||||
Provision for unfunded lending commitments
|
(610 | ) | (166 | ) | ||||
Reserve for unfunded lending commitments at end of period
|
1,093 | 822 | ||||||
Allowance for credit losses at end of period
|
$ | 31,486 | $ | 36,826 | ||||
Ratio of net charge-offs to end of period total loans
|
(0.26 | ) % | (0.09 | ) % |
As of and for the
Six Months Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
(Dollars in thousands)
|
||||||||
Average total loans outstanding for the period
|
$ | 1,099,546 | $ | 1,257,042 | ||||
Total loans outstanding at end of period
|
$ | 1,065,167 | $ | 1,225,022 | ||||
Allowance for loan losses at beginning of period
|
$ | 33,757 | $ | 29,403 | ||||
Provision for loan losses
|
1,575 | 10,328 | ||||||
Charge-offs:
|
||||||||
Commercial and industrial
|
(2,625 | ) | (998 | ) | ||||
Real estate mortgage
|
(3,323 | ) | (2,127 | ) | ||||
Real estate construction
|
— | (994 | ) | |||||
Consumer and other
|
(31 | ) | (166 | ) | ||||
Total charge-offs
|
(5,979 | ) | (4,285 | ) | ||||
Recoveries:
|
||||||||
Commercial and industrial
|
235 | 391 | ||||||
Real estate mortgage
|
65 | 149 | ||||||
Real estate construction
|
716 | — | ||||||
Consumer and other
|
24 | 18 | ||||||
Total recoveries
|
1,040 | 558 | ||||||
Net charge-offs
|
(4,939 | ) | (3,727 | ) | ||||
Allowance for loan losses at end of period
|
30,393 | 36,004 | ||||||
Reserve for unfunded lending commitments at beginning of period
|
602 | 1,043 | ||||||
Provision for unfunded lending commitments
|
491 | (221 | ) | |||||
Reserve for unfunded lending commitments at end of period
|
1,093 | 822 | ||||||
Allowance for credit losses at end of period
|
$ | 31,486 | $ | 36,826 | ||||
Ratio of allowance for loan losses to end of period total loans
|
2.85 | % | 2.94 | % | ||||
Ratio of net charge-offs to end of period total loans
|
(0.46 | )% | (0.30 | )% | ||||
Ratio of allowance for loan losses to end of period total nonperforming loans (1)
|
49.49 | % | 58.63 | % |
As of and for the Six Months Ended
|
As of and for the Year
Ended
|
|||||||
June 30, 2011
|
December 31, 2010
|
|||||||
(Dollars in thousands)
|
||||||||
Federal Funds Purchased:
|
||||||||
at end of period
|
$
|
–
|
$
|
–
|
||||
average during the period
|
–
|
2
|
||||||
maximum month-end balance during the period
|
–
|
–
|
||||||
Interest rate at end of period
|
–
|
%
|
–
|
%
|
||||
Interest rate during the period
|
–
|
0.73
|
||||||
FHLB Notes and Advances:
|
||||||||
at end of period
|
$
|
10,000
|
$
|
30,000
|
||||
average during the period
|
22,818
|
20,466
|
||||||
maximum month-end balance during the period
|
30,000
|
30,000
|
||||||
Interest rate at end of period
|
0.35
|
%
|
0.49
|
%
|
||||
Interest rate during the period
|
0.47
|
0.49
|
||||||
Security Repurchase Agreements:
|
||||||||
at end of period
|
$
|
25,000
|
$
|
25,000
|
||||
average during the period
|
25,000
|
25,000
|
||||||
maximum month-end balance during the period
|
25,000
|
25,000
|
||||||
Interest rate at end of period
|
3.71
|
%
|
3.71
|
%
|
||||
Interest rate during the period
|
3.71
|
3.71
|
||||||
Unsecured debentures:
|
||||||||
at end of period
|
$
|
1,000
|
$
|
1,000
|
||||
average during the period
|
1,000
|
889
|
||||||
maximum month-end balance during the period
|
1,000
|
1,000
|
||||||
Interest rate at end of period
|
5.00
|
%
|
5.00
|
%
|
||||
Interest rate during the period
|
5.00
|
5.00
|
||||||
Federal Reserve TT&L:
|
||||||||
at end of period
|
$
|
352
|
$
|
804
|
||||
average during the period
|
573
|
660
|
||||||
maximum month-end balance during the period
|
742
|
1,075
|
Minimum Required For Capital Adequacy Purposes
|
To Be Categorized as Well Capitalized Under Prompt Corrective Action Provisions
|
Actual Ratio At June 30, 2011
|
||||||||||
The Company
|
||||||||||||
Leverage ratio
|
4.00
|
%
|
(1) |
N/A
|
%
|
11.83
|
%
|
|||||
Tier 1 risk-based capital ratio
|
4.00
|
N/A
|
15.47
|
|||||||||
Risk-based capital ratio
|
8.00
|
N/A
|
16.74
|
|||||||||
MetroBank
|
||||||||||||
Leverage ratio
|
4.00
|
%
|
(2) |
5.00
|
%
|
11.63
|
%
|
|||||
Tier 1 risk-based capital ratio
|
4.00
|
6.00
|
15.37
|
|||||||||
Risk-based capital ratio
|
8.00
|
10.00
|
16.64
|
|||||||||
Metro United
|
||||||||||||
Leverage ratio
|
4.00
|
%
|
(3) |
5.00
|
%
|
11.51
|
%
|
|||||
Tier 1 risk-based capital ratio
|
4.00
|
6.00
|
14.77
|
|||||||||
Risk-based capital ratio
|
8.00
|
10.00
|
16.04
|
Exhibit
|
||
Number
|
Identification of Exhibit
|
|
3.1
|
Amended and Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-62667) (the "Registration Statement")).
|
|
3.2
|
Articles of Amendment to Amended and Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007).
|
|
3.3
|
Statement of Designations establishing the terms of the Series A Preferred Stock of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on January 21, 2009).
|
|
3.4
|
Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 19, 2007).
|
|
4.1
|
Specimen form of certificate evidencing the Common Stock (incorporated herein by reference to Exhibit 4 to the Registration Statement).
|
|
4.2
|
Warrant, dated January 16, 2009, to purchase 771,429 shares of the Company's Common Stock (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on January 21, 2009).
|
|
4.3
|
Form of Certificate for the Company's Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $1.00 per share (incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on January 21, 2009).
|
|
11
|
Computation of Earnings Per Common Share, included as Note 5 to the unaudited Condensed Consolidated Financial Statements of this Form 10-Q.
|
|
31.1*
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
|
|
31.2*
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
|
|
32.1**
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2**
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101*
|
Interactive Data File.
|
METROCORP BANCSHARES, INC.
|
||||
By:
|
/s/ George M. Lee
|
|||
Date: August 9, 2011
|
George M. Lee
Executive Vice Chairman, President and
|
|||
Chief Executive Officer (principal executive officer)
|
||||
Date: August 9, 2011
|
By:
|
/s/ David C. Choi
|
||
David C. Choi
|
||||
Chief Financial Officer (principal financial officer/
principal accounting officer)
|
Exhibit
|
||
Number
|
Identification of Exhibit
|
|
3.1
|
Amended and Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-62667) (the "Registration Statement")).
|
|
3.2
|
Articles of Amendment to Amended and Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007).
|
|
3.3
|
Statement of Designations establishing the terms of the Series A Preferred Stock of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on January 21, 2009).
|
|
3.4
|
Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 19, 2007).
|
|
4.1
|
Specimen form of certificate evidencing the Common Stock (incorporated herein by reference to Exhibit 4 to the Registration Statement).
|
|
4.2
|
Warrant, dated January 16, 2009, to purchase 771,429 shares of the Company's Common Stock (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on January 21, 2009).
|
|
4.3
|
Form of Certificate for the Company's Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $1.00 per share (incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on January 21, 2009).
|
|
11
|
Computation of Earnings Per Common Share, included as Note 5 to the unaudited Condensed Consolidated Financial Statements of this Form 10-Q.
|
|
31.1*
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
|
|
31.2*
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
|
|
32.1**
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2**
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101*
|
Interactive Data File.
|
1.
|
I have reviewed this quarterly report on Form 10-Q of MetroCorp Bancshares, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ George M. Lee | |
George M. Lee
|
|
Executive Vice Chairman, President and Chief Executive Officer
|
1.
|
I have reviewed this quarterly report on Form 10-Q of MetroCorp Bancshares, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ David C. Choi
|
|
David C. Choi
|
|
Chief Financial Officer
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and operating results of the Company.
|
/s/ George M. Lee
|
|
George M. Lee
|
|
Executive Vice Chairman, President and Chief Executive Officer
|
|
August 9, 2011
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and operating results of the Company.
|
/s/ David C. Choi
|
|
David C. Choi
|
|
Chief Financial Officer
|
|
August 9, 2011
|
Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) (USD $)
In Thousands, except Share data |
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Fair value (in Dollars) | $ 4,270 | $ 4,167 |
Net of allowance for loan losses (in Dollars) | $ 30,393 | $ 33,757 |
Preferred stock, par value (in Dollars per share) | $ 1.00 | $ 1.00 |
Preferred stock, shares authorized | 2,000,000 | 2,000,000 |
Preferred stock, shares issued | 45,000 | 45,000 |
Preferred stock, outstanding | 45,000 | 45,000 |
Common stock, par value (in Dollars per share) | $ 1.00 | $ 1.00 |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, shares issued | 13,297,815 | 13,230,315 |
Common stock, shares outstanding | 13,297,815 | 13,230,315 |
Document And Entity Information
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Aug. 03, 2011
|
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | MetroCorp Bancshares, Inc. | |
Document Type | 10-Q | |
Current Fiscal Year End Date | --12-31 | |
Entity Common Stock, Shares Outstanding | 13,331,815 | |
Amendment Flag | false | |
Entity Central Index Key | 0001068300 | |
Entity Current Reporting Status | Yes | |
Entity Voluntary Filers | No | |
Entity Filer Category | Smaller Reporting Company | |
Entity Well-known Seasoned Issuer | No | |
Document Period End Date | Jun. 30, 2011 | |
Document Fiscal Year Focus | 2011 | |
Document Fiscal Period Focus | Q2 |
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Note 5 - Earnings Per Common Share
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Jun. 30, 2011
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Schedule of Earnings Per Share, Basic, by Common Class, Including Two Class Method [Table Text Block] |
Basic
earnings per common share (“EPS”) is computed by
dividing net income (after deducting dividends on preferred
stock) by the weighted-average number of common shares
outstanding during the period. Diluted EPS is computed by
dividing net income available to common shareholders by the
weighted-average number of common shares and potentially
dilutive common shares outstanding during the period. Stock
options, restricted common shares and warrants can be
dilutive common shares and are therefore considered in the
earnings per share calculation, if dilutive. Stock
options, restricted common shares and warrants that are
antidilutive are excluded from earnings per share
calculation. Stock options, restricted common
shares and warrants are antidilutive when the exercise price
is higher than the current market price of the
Company’s common stock. For the three months ended June
30, 2011 and 2010, there were 1,044,068 and 1,791,932
antidilutive stock options, respectively. For the
six months ended June 30, 2011 and 2010, there were 1,179,781
and 1,823,770 antidilutive stock options,
respectively. The number of potentially dilutive
common shares is determined using the treasury stock
method.
|
Note 10 - Derivative Financial Instruments
|
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
|
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Derivative Instruments and Hedging Activities Disclosure [Text Block] |
The
fair value of derivative financial instruments outstanding is
included in other assets and other liabilities in the
accompanying consolidated balance sheets and in the net
change in each of these financial statement line items in the
accompanying consolidated statements of cash flows.
Interest Rate
Derivatives. The Company uses derivatives (interest
rate swaps and caps) to mitigate exposure to interest rate
risk and the objectives of such are described below.
During
the third quarter of 2009, the Company entered into a
forward-starting interest rate swap contract on its junior
subordinated debentures with a notional amount of
$17.5 million. The interest rate swap contract was
designated as a hedging instrument in a cash flow hedge with
the objective of protecting the quarterly interest payments
on a portion of the Company’s $36.1 million of
junior subordinated debentures issued to the Company’s
unconsolidated subsidiary trust, MCBI Statutory Trust I,
throughout the five-year period beginning in December 2010
and ending in December 2015 from the risk of variability
of those payments resulting from changes in the three-month
LIBOR interest rate. Under the swap contract, beginning
December 2010, the Company will pay a fixed interest rate of
5.38% and receive a variable interest rate of three-month
LIBOR plus a margin of 1.55% on a total notional amount of
$17.5 million, with quarterly settlements which began in
March 2011.
The
Company applies hedge accounting to the interest rate swap
above. To qualify for hedge accounting, a
derivative must be highly effective at reducing the risk
associated with the exposure being hedged. In addition, for a
derivative to be designated as a hedge, the risk management
objective and strategy must be documented. Hedge
documentation must identify the derivative hedging
instrument, the asset or liability and type of risk to be
hedged, and how the effectiveness of the derivative will be
assessed prospectively and retrospectively. To assess
effectiveness, the Company compares the dollar-value of the
change in the fair value of the derivative to the change in
the fair value or cash flows of the hedged item. The extent
to which a derivative has been, and is expected to continue
to be, effective at offsetting changes in the fair value or
cash flows of the hedged item must be assessed and documented
at least quarterly. Any hedge ineffectiveness (i.e., the
amount by which the gain or loss on the designated derivative
instrument does not exactly offset the gain or loss on the
hedged item attributable to the hedged risk) must be reported
in current-period earnings. If it is determined that a
derivative is not highly effective at hedging the designated
exposure, hedge accounting is discontinued.
At
the end of the second quarter of 2011, the Company entered
into an interest rate cap with a notional amount of $15.0
million with the objective of mitigating the effect of
potential future interest rate increases. The
interest rate cap contract is not designated nor accounted
for as a hedging instrument. The interest rate cap
contract was effective July 1, 2011 for a five-year term.
Under the interest rate cap contract, beginning October 3,
2011 and ending July 1, 2016, the Company will receive
quarterly settlements for the difference between the
three-month LIBOR interest rate and the cap rate of 2.0%, if
the three-month LIBOR interest rate exceeds the cap rate on
the settlement date.
The
Company obtains dealer quotations to value its interest rate
derivative contract designated as a hedge of cash flows and
its non-hedging interest rate derivative. The
notional amounts and estimated fair values of interest rate
derivative contracts outstanding at June 30, 2011 and
December 31, 2010 are presented in the following table (in
thousands).
Gains, Losses
and Derivative Cash Flows. For
designated cash flow hedges, the effective portion of the
gain or loss due to changes in the fair value of the
derivative hedging instrument is included in other
comprehensive income in the Condensed Consolidated Statement
of Comprehensive Income, while the ineffective portion
(indicated by the excess of the cumulative change in the fair
value of the derivative over that which is necessary to
offset the cumulative change in expected future cash flows on
the hedge transaction) is included in other non-interest
income in the Condensed Consolidated Statement of Operations.
Net cash flows from the interest rate swap on junior
subordinated debentures designated as a hedging instrument in
an effective hedge of cash flows are included in interest
expense on junior subordinated debentures in the Condensed
Consolidated Statement of Operations.
For
interest rate derivatives not designated as a hedging
instrument, gains or losses due to changes in fair value are
included in other non-interest income in the Condensed
Consolidated Statement of Operations.
Amounts
included in the Condensed Consolidated Statements of
Operations and in the Condensed Consolidated Statement of
Comprehensive Income for the period related to the interest
rate derivative designated as a hedge of cash flows were as
follows. There were no interest rate derivatives
designated as hedges of fair value at June 30, 2011.
Amounts
included in the consolidated statements of operations for the
period related to non-hedging interest rate derivatives were
as follows (in thousands).
Counterparty
Credit Risk. Derivative contracts involve the risk of
dealing with institutional derivative counterparties and
their ability to meet contractual terms. Derivative contracts
are generally executed with a Credit Support Annex,
(“CSA”), which is a bilateral ratings-sensitive
agreement that requires collateral postings at established
credit threshold levels. CSA agreements protect
the interests of the Company and its counterparties, should
either party suffer a credit rating deterioration.
Institutional counterparties must have an investment grade
credit rating. There was no CSA on the interest rate cap
contract because the counterparty was the FHLB of Dallas, a
government sponsored enterprise. The Company’s credit
exposure on interest rate swaps is limited to the net
favorable value and interest payments of all swaps by each
counterparty. The Company’s credit exposure on the
interest rate cap is the value of the expected interest
payments that would be collected over the life of the cap
contract. Credit exposure may be reduced by
the amount of collateral pledged by the counterparty. There
are no credit-risk-related contingent features associated
with any of the Company’s derivative
contracts. The Company had no credit exposure
relating to the interest rate swap at June 30,
2011. The amount of cash collateral posted by the
Company related to derivative contracts was $1.9 million and
$2.1 million at June 30, 2011 and December 31, 2010,
respectively.
|
Note 1 - Basis of Presentation
|
3 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
|
|||
Significant Accounting Policies [Text Block] |
The
unaudited condensed consolidated financial statements include
the accounts of MetroCorp Bancshares, Inc. (the
“Company”) and wholly-owned subsidiaries,
MetroBank, National Association (“MetroBank”) and
Metro United Bank (“Metro United”), in Texas and
California, respectively (collectively, the
“Banks”). MetroBank is engaged in
commercial banking activities through its thirteen branches
in the greater Houston and Dallas, Texas metropolitan areas,
and Metro United is engaged in commercial banking activities
through its six branches in the San Diego, Los Angeles and
San Francisco, California metropolitan areas. All significant
intercompany accounts and transactions have been eliminated
in consolidation. Certain principles which significantly
affect the determination of financial position, results of
operations and cash flows are summarized below.
A
legal entity is referred to as a Variable Interest Entity
(“VIE”) if any of the following conditions exist:
(1) the total equity at risk is insufficient to permit the
legal entity to finance its activities without additional
subordinated financial support from other parties, or (2) the
entity has equity investors that cannot make significant
decisions about the entity’s operations or that do not
absorb their proportionate share of the expected losses or
receive the expected returns of the entity. In
addition, as specified in VIE accounting guidance, a VIE must
be consolidated by the Company if it is deemed to be the
primary beneficiary of the VIE. The primary beneficiary is
the party that has both (1) the power to direct the
activities of an entity that most significantly impact the
VIE’s economic performance, and (2) through its
interests in the VIE, the obligation to absorb losses or the
right to receive benefits from the VIE that could potentially
be significant to the VIE. All facts and
circumstances are taken into consideration when determining
whether the Company has variable interest that would deem it
the primary beneficiary and, therefore, require consolidation
of the related VIE or otherwise rise to the level where
disclosure would provide useful information to the users of
the Company’s financial statements. In the
case of the Company’s sole VIE, MCBI Statutory Trust
I, it is qualitatively clear based on the extent
of the Company’s involvement that the Company is not
the primary beneficiary of the VIE. Accordingly,
the accounts of this entity are not consolidated in the
Company’s financial statements.
The
accompanying unaudited condensed consolidated financial
statements were prepared in accordance with U.S. generally
accepted accounting principles for interim financial
information and with the instructions for Form 10-Q. In the
opinion of management, the unaudited condensed consolidated
financial statements reflect all adjustments, consisting only
of normal and recurring adjustments, necessary for a fair
statement of the Company’s financial position at June
30, 2011, results of operations for the three and six months
ended June 30, 2011 and 2010, and cash flows for the six
months ended June 30, 2011 and 2010. Interim period results
are not necessarily indicative of results for a full year
period. The year-end condensed balance sheet data was derived
from audited financial statements, but does not include all
disclosures required by U.S. generally accepted accounting
principles.
These
unaudited financial statements and the notes thereto should
be read in conjunction with the Company’s Annual Report
on Form 10-K for the year ended December 31,
2010.
|
Note 7 - Shareholders' Equity
|
3 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
|
|||
Stockholders' Equity Note Disclosure [Text Block] |
In
connection with the Company’s participation in the
Capital Purchase Program (“CPP”), on
January 16, 2009, the Company issued and sold to the
U.S. Treasury (i) 45,000 shares of its Fixed Rate
Cumulative Perpetual Preferred Stock, Series A, par value
$1.00 per share, with a liquidation value of $1,000 per share
(the “Series A Preferred Stock”), and (ii) a
warrant (“Warrant”) to purchase 771,429 shares of
the Company’s Common Stock, at an exercise price of
$8.75 per share, subject to certain anti-dilution and other
adjustments, for an aggregate purchase price of $45.0 million
in cash. Approximately $44.3 million was allocated to
the initial carrying value of the preferred stock and
$711,000 to the warrant based on their relative estimated
fair values on the issue date. The fair value of the warrant
was determined using a valuation model which incorporates
assumptions including the Company’s Common Stock price,
dividend yield, stock price volatility and the risk-free
interest rate. The fair value of the preferred stock was
determined based on assumptions regarding the discount rate
for the Company which was estimated to be approximately 8% at
the date of issuance. The difference between the initial
carrying value of the preferred stock and the
$45 million full redemption value is accreted over five
years using a straight-line method over the expected life of
the preferred stock. The total capital raised through this
issue qualifies as Tier 1 regulatory capital and can be
used in calculating all regulatory capital ratios.
The
Series A Preferred Stock pays cumulative dividends at a rate
of 5% per year for the first five years and thereafter
at a rate of 9% per year. Pursuant to Section 111
of the Emergency Economic Stabilization Act of 2008, as
amended, the Company may, at its option, subject to the
necessary bank regulatory approval, redeem the Series A
Preferred Stock at par value plus accrued and unpaid
dividends.
The
Company may not declare or pay dividends on its common stock
or, with certain exceptions, repurchase common stock without
first having paid all accrued cumulative preferred dividends
that are due. For three years from the issue date, the
Company also may not increase its common stock dividend rate
above a quarterly rate of $0.04 per share or repurchase its
common shares without Treasury’s consent, unless
Treasury has transferred all the preferred shares to third
parties or the preferred stock has been redeemed.
The
Company’s Board of Directors elected to suspend its
common stock dividend indefinitely in April 2009 and to defer
the dividend on the Series A Preferred Stock for the second
quarter of 2010. The Board of Directors of the Company
later elected to resume payment of dividends on the Series A
Preferred Stock, but continued to defer the one dividend
payment from the second quarter of 2010. The payment of
future dividends paid by the Company will be made at the
discretion of the Company's Board of Directors and will be
subject to any regulatory restrictions imposed by the Federal
Reserve Board. Additionally, future determination
of dividends will depend on a number of factors, including
but not limited to current and prospective earnings, capital
requirements, financial condition, and other factors that the
Board of Directors may deem relevant to the Company and its
subsidiary banks.
The
Company paid no common dividends for the six months ended
June 30, 2011 and 2010. Preferred dividends paid
for the six months ended June 30, 2011 and 2010 were $1.1
million and $561,000, respectively.
|
Note 12 - Fair Value
|
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Jun. 30, 2011
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Fair Value Disclosures [Text Block] |
Fair
value is the exchange price that would be received to sell an
asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or
liability in an orderly transaction between market
participants on the measurement date. Fair value
is reported based on a hierarchy which requires an entity to
maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The
three levels of inputs that may be used to measure fair value
are:
Financial
assets measured at fair value on a recurring basis are as
follows:
Securities.
Where quoted prices are available in an active market,
securities are reported at fair value utilizing Level 1
inputs. Level 1 securities are comprised of bond funds. If
quoted market prices are not available, the Company obtains
fair values from an independent pricing service. The fair
value measurements consider data that may include proprietary
pricing models, quoted prices of securities with similar
characteristics or discounted cash flows. Level 2 securities
are comprised of highly liquid government bonds, and
collateralized mortgage and debt obligations. Market values
provided by the pricing service are compared with prices from
other sources for reasonableness. The Company has not
adjusted the values from the pricing service.
Interest Rate
Derivatives. The Company’s derivative positions
are classified within Level 2 in the fair value hierarchy and
are valued using models generally accepted in the financial
services industry that use actively quoted or observable
market input values from external market data providers
and/or non-binding broker-dealer quotations. The fair value
of the derivatives are determined using discounted cash flow
models. These models’ key assumptions include the
contractual terms of the respective contract, along with
significant observable inputs, including interest rates,
yield curves, non-performance risk and volatility. Derivative
contracts, with counterparties other than government
sponsored enterprises, are executed with a Credit Support
Annex, which is a bilateral ratings-sensitive agreement that
requires collateral postings at established credit threshold
levels. These agreements protect the interests of the Company
and its counterparties, should either party suffer a credit
rating deterioration. Derivative contracts with a
government sponsored enterprise as the counterparty are
assumed to have low risk of credit rating deterioration for
the counterparty.
The
following table presents the financial instruments carried at
fair value on a recurring basis by caption on the
consolidated balance sheets and by valuation hierarchy (as
described above) at June 30, 2011 and December 31,
2010:
There were no
transfers between Level 1 and Level 2 financial instruments
carried at fair value on a recurring basis.
Certain
non-financial assets measured at fair value on a recurring
basis include reporting units measured at fair value in the
first step of a goodwill impairment test. Certain
non-financial assets measured at fair value on a
non-recurring basis include non-financial assets and
non-financial liabilities measured at fair value in the
second step of a goodwill impairment test, and intangible
assets measured at fair value for impairment assessment, as
well as foreclosed assets. Certain financial
assets are measured at fair value on a non-recurring basis;
that is, the instruments are not measured at fair value on an
ongoing basis but are subject to fair value adjustments in
certain circumstances (for example, when there is evidence of
impairment).
Non-financial
and financial assets measured at fair value on a
non-recurring basis include the following:
Goodwill. Goodwill
is measured at fair value on a non-recurring basis using
Level 3 inputs. In the first step of a
goodwill impairment test, the Company primarily uses a review
of the valuation of recent guideline bank acquisitions, if
available, as well as discounted cash flow
analysis. If the second step of a goodwill
impairment test is required, the implied fair value of
goodwill is determined in the same manner as goodwill is
recognized in a business combination. See Note 4
“Goodwill”
for additional information.
Foreclosed
Assets. Foreclosed assets are carried at
fair value less costs to sell. The fair value
measurements of foreclosed assets can include Level 2
measurement inputs such as real estate appraisals and
comparable real estate sales information, in conjunction with
Level 3 measurement inputs such as cash flow projections,
qualitative adjustments, sales cost estimates,
etc. As a result, the categorization of foreclosed
assets is Level 3 of the fair value hierarchy. In
connection with the measurement and initial recognition of
certain foreclosed assets, the Company may recognize
charge-offs through the allowance for loan losses.
Impaired
Loans. Certain impaired loans with a valuation reserve
are measured for impairment using the practical expedient,
whereby fair value of the loan is based on the fair value of
the loan’s collateral, provided the loan is collateral
dependent. The fair value measurements of loan
collateral can include real estate appraisals, comparable
real estate sales information, cash flow projections,
realization estimates, etc., all of which can include
observable and unobservable inputs. As a result,
the categorization of collateral dependent impaired loans can
be either Level 2 or Level 3 of the fair value hierarchy,
depending on the nature of the inputs used for measuring the
related collateral’s fair value.
The
following presents assets carried at fair value on a
nonrecurring basis by caption on the condensed consolidated
balance sheets and by valuation hierarchy (as described
above) at June 30, 2011 and December 31, 2010 (in
thousands):
(1)
Impaired loans represent collateral dependent impaired loans
with a specific valuation reserve.
The
following presents losses related to fair value adjustments
that are included in the Consolidated Statements of
Operations for the three months ended June 30, 2011 and 2010
related to assets held at those dates (in thousands):
(1)
Losses represent related losses on foreclosed properties that
were written down subsequent to their initial classification
as foreclosed properties.
(2)
Losses on impaired loans represent charge-offs which are
netted against the allowance for loan losses.
Fair
Value of Financial Instruments
The
following table summarizes the carrying value and estimated
fair values of financial instruments as of June 30, 2011 and
December 31, 2010:
The
following methodologies and assumptions were used to estimate
the fair value of the Company’s financial instruments
as disclosed in the table:
Assets for Which
Fair Value Approximates Carrying Value. The
fair values of certain financial assets and liabilities
carried at cost, including cash and due from banks, deposits
with banks, federal funds sold, cash value of bank owned life
insurance, certificates of deposit with banks denominated in
a foreign currency, due from customers on acceptances and
accrued interest receivable, are considered to approximate
their respective carrying values due to their short-term
nature and/or negligible credit losses.
Investment
Securities. Fair
values are based primarily upon quoted market prices obtained
from an independent pricing service.
Loans. The
fair value of loans originated by the Banks is estimated by
discounting the expected future cash flows using the current
interest rates at which similar loans with similar terms
would be made. The presence of floors on a large portion of
the variable rate loans has supported the yields above
current market levels and is the key factor causing the fair
value of the variable rate loans with floors to exceed the
book value. The fair value of the remainder of the variable
rate loans approximates the carrying value while fixed rate
loans are generally above the carrying values. Using these
results, valuation adjustments are made for specific credit
risks as well as general portfolio credit and market risks to
arrive at the fair value.
Liabilities for
Which Fair Value Approximates Carrying Value. The
estimated fair value for transactional deposit liabilities
with no stated maturity (i.e., demand, savings, and money
market deposits) approximates the carrying value. The
estimated fair value of deposits does not take into account
the value of the Company’s long-term relationships with
depositors, commonly known as core deposit intangibles, which
are separate intangible assets, and not considered financial
instruments. Nonetheless, the company would likely
realize a core deposit premium if its deposit portfolio were
sold in the principal market for such deposits.
Interest Rate
Derivatives. The fair value was estimated using
discounted cash flow models that use actively quoted or
observable market input values from external market data
providers and/or non-binding broker-dealer quotations.
The
fair value of acceptances outstanding, accounts payable and
accrued liabilities are considered to approximate their
respective carrying values due to their short-term
nature.
Time
Deposits. Fair
values for fixed-rate time deposits are estimated using a
discounted cash flow calculation that applies interest rates
currently being offered on time deposits to a schedule of
aggregated expected monthly maturities on time
deposits.
Other
Borrowings. The
carrying amounts of federal funds purchased, borrowings under
repurchase agreements, and other borrowings maturing within
fourteen days approximate their fair values. Fair values of
other borrowings are estimated using discounted cash flow
analyses based on the Company’s current incremental
borrowing rates for similar types of borrowing
arrangements.
Junior
Subordinated Debentures. The
fair value of the junior subordinated debentures was
estimated by discounting the cash flows through maturity
based on the prevailing market rate.
Interest Rate
Derivatives. The fair value was estimated using
discounted cash flow models that use actively quoted or
observable market input values from external market data
providers and/or non-binding broker-dealer quotations.
Commitments to
Extend Credit and Letters of Credit. The
fair value of such instruments is estimated using fees
currently charged for similar arrangements in the market. The
estimated fair values of these instruments are not material
as of the reporting dates.
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Note 8 - Regulatory Matters
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Jun. 30, 2011
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Regulatory Capital Requirements under Banking Regulations [Text Block] |
The
Banks are subject to regulations and, among others things,
may be limited in their ability to pay dividends or otherwise
transfer funds to the holding company. Under applicable
restrictions as of June 30, 2011, no dividends could be paid
by the Company, or by MetroBank and Metro United to the
Company without regulatory approval. In addition, dividends
paid by the Banks to the holding company would be prohibited
if the effect thereof would cause the Banks’ capital to
be reduced below applicable minimum capital
requirements.
On
August 10, 2009, MetroBank entered into a written
agreement (the “Agreement”) with the OCC. The
Agreement is based on the findings of the OCC during the
annual on-site examination of MetroBank performed in the
first quarter of 2009 and is primarily focused on matters
related to MetroBank’s asset quality. Pursuant to the
Agreement, the Board of Directors of MetroBank has appointed
a compliance committee to monitor and coordinate
MetroBank’s performance under the Agreement. The
Agreement provides for, among other things, the development
and implementation of written programs to reduce
MetroBank’s credit risks, monitor and reduce the level
of criticized assets and manage commercial real estate loan
concentrations in light of current adverse commercial real
estate market conditions generally and in its market areas.
During and since the completion of the examination,
management of MetroBank has proactively made adjustments to
policies and procedures in an effort to alleviate the effects
of the credit challenge caused by the economic deterioration
and market conditions generally and in its market
areas.
On
July 22, 2010, Metro United entered into a Stipulation to the
Issuance of a Consent Order ("Stipulation") with the FDIC and
the CDFI. Pursuant to the Stipulation, Metro
United has consented to the issuance of a Consent Order
("Order") by the FDIC and CDFI, also effective as of July 22,
2010. The Order is based on the findings during
the annual on-site examination of Metro United performed in
the first quarter of 2010 utilizing financial information as
of December 31, 2009. The Order represents the
agreements between Metro United, the FDIC and the CDFI as to
areas of Metro United's operations that warrant improvement
and requires the submission of plans for making those
improvements. The Order imposes no fines or penalties on
Metro United.
Under
the terms of the Order, Metro United cannot declare or pay
cash dividends and shall not establish any new branches or
other offices without the prior written consent of certain
officials of the FDIC and the CDFI. In addition,
pursuant to the Order, Metro United developed and submitted a
written capital plan to achieve and maintain ratios of
Tier 1 capital to average total assets (leverage) of at
least 9% and total capital to total risk-weighted assets of
at least 13% by December 31, 2010. As of June 30, 2011,
Metro United's Tier 1 leverage ratio was 11.51% and its
total risk-based capital ratio was 16.04%. The Order requires
certain corrective steps, imposes limits on activities (such
as payment of dividends), prescribes regulatory parameters
(such as asset management) and requires the adoption of new
or revised policies, procedures and controls on Metro
United's operations. In many cases, Metro United
must adopt or revise the policies and submit them to the FDIC
and CDFI for approval within the time frames
prescribed.
Although
Metro United meets the capital levels deemed to be
“well-capitalized”, due to the capital
requirement within the Order, it cannot be considered better
than "adequately capitalized" for capital adequacy purposes,
even if it exceeds the levels of capital set forth in the
Order. As an adequately capitalized institution,
Metro United may not pay interest rates on deposits that are
more than 75 basis points above the rate of the applicable
market of Metro United as determined by the
FDIC. Additionally, neither MetroBank nor Metro
United may accept, renew or roll over brokered deposits
without prior approval of the OCC or the FDIC and CDFI,
respectively.
Management
and the Boards of Directors of the Company, MetroBank and
Metro United have taken steps to address the findings of the
respective exams and are working with the OCC to comply with
the requirements of the Agreement and the FDIC and CDFI to
comply with the requirements of the Order. Failure
by MetroBank and Metro United to meet the requirements and
conditions imposed by the Agreement and Order, respectively,
could result in more severe regulatory enforcement actions
such as capital directives to raise additional capital, civil
money penalties, cease and desist or removal orders,
injunctions, and public disclosure of such actions against
MetroBank and Metro United. Any such failure and
resulting regulatory action could have a material adverse
effect on the financial condition and results of operations
of the Company, MetroBank and Metro United.
The
Company and the Banks are subject to various regulatory
capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company’s
financial statements. The regulations require the Company to
meet specific capital adequacy guidelines that involve
quantitative measures of the Company’s assets,
liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The
Banks’ capital classification is also subject to
qualitative judgments by the regulators about components,
risk weightings and other factors. Quantitative measures
established by regulation to ensure capital adequacy require
the Company and the Banks to maintain minimum amounts and
ratios of total and Tier 1 capital to risk-weighted assets,
and of Tier 1 capital to average assets. Management believes,
as of June 30, 2011, that the Company and the Banks met all
capital adequacy requirements to which they were
subject.
As
of June 30, 2011, the most recent notifications from the OCC
with respect to MetroBank categorized MetroBank as
“well capitalized” under the regulatory framework
for prompt corrective action. There are no conditions or
events since the notifications that management believes have
changed MetroBank’s level of capital adequacy.
Although
regulatory standards require the ratios stated below, as a
result of the Order, Metro United is required to maintain a
leverage ratio at least 9.0% and a total risk-based capital
ratio of at least 13.0%. Due to the capital
requirement within Metro United's Order, Metro United cannot
be considered to be any better than "adequately capitalized"
for capital adequacy purposes even if it exceeds the capital
levels set forth in the Order.
The
following table provides a comparison of the Company’s
and each of the Banks’ leverage and risk-weighted
capital ratios as of June 30, 2011 to the minimum and
well-capitalized regulatory standards:
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Note 6 - Commitments and Contingencies
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Jun. 30, 2011
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Commitments and Contingencies Disclosure [Text Block] |
The
Company is party to financial instruments with off-balance
sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
include various guarantees, commitments to extend credit and
standby letters of credit. Additionally, these instruments
may involve, to varying degrees, credit risk in excess of the
amount recognized in the statement of financial condition.
The Company’s maximum exposure to credit loss under
such arrangements is represented by the contractual amount of
those instruments. The Company applies the same credit
policies and collateralization guidelines in making
commitments and conditional obligations as they do for
on-balance sheet instruments. Off-balance sheet financial
instruments include commitments to extend credit and
guarantees under standby and other letters of credit.
The
contractual amount of the Company’s financial
instruments with off-balance sheet risk at June 30, 2011 and
December 31, 2010 is presented below:
Litigation.
The Company is involved in various litigation that arises
from time to time in the normal course of
business. In the opinion of management, after
consultations with its legal counsel, such litigation is not
expected to have a material adverse effect of the
Company’s consolidated financial position, result of
operations or cash flows.
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Condensed Consolidated Statements of Changes in Shareholders' Equity For the Six Months Ended June 30, 2010 (Unaudited) (USD $)
In Thousands |
Total
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Preferred Stock [Member]
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Common Stock [Member]
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Additional Paid-in Capital [Member]
|
Retained Earnings [Member]
|
Accumulated Other Comprehensive Income (Loss) [Member]
|
---|---|---|---|---|---|---|
Balance at December 31, 2010 at Dec. 31, 2010 | $ 158,767 | $ 45,427 | $ 13,230 | $ 33,178 | $ 69,168 | $ (2,236) |
Balance at December 31, 2010 (in Shares) at Dec. 31, 2010 | 45 | 13,230 | ||||
Issuance of common stock (in Shares) | 68 | |||||
Issuance of common stock | 397 | 68 | 329 | |||
Stock-based compensation expense related to stock options recognized in earnings | 43 | 43 | ||||
Net income | 4,489 | 4,489 | ||||
Amortization of preferred stock discount | 71 | (71) | ||||
Other comprehensive income | 1,065 | 1,065 | ||||
Dividends – preferred stock | (1,139) | (1,139) | ||||
Balance at June 30, 2011 at Jun. 30, 2011 | $ 163,622 | $ 45,498 | $ 13,298 | $ 33,550 | $ 72,447 | $ (1,171) |
Balance at June 30, 2011 (in Shares) at Jun. 30, 2011 | 45 | 13,298 |
Note 2 - Securities
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Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block] |
The
amortized cost and approximate fair value of securities is as
follows:
(1)
Represents securities with restrictions and limited
marketability and are carried at cost.
The
following table displays the gross unrealized losses and fair
value of securities available-for-sale as of June 30, 2011
for which other-than-temporary impairments
(“OTTI”) have not been recognized, that were in a
continuous unrealized loss position for the periods
indicated. There were no securities
held-to-maturity in a continuous unrealized loss position as
of June 30, 2011 or December 31, 2010.
As
of June 30, 2011, management does not have the intent to sell
any of the securities classified as available-for-sale in the
table above and believes it is not more likely than not that
the Company will have to sell any such securities before a
recovery of the cost. The unrealized losses are
largely due to price declines in privately issued mortgage
securities related to overall market weakness in the real
estate sector. The fair value is expected to
recover as the securities approach their maturity date or
repricing date or if market yields for such securities
decline. Management does not believe that any of
the unrealized losses above are due to credit
quality. Accordingly, management believes the
$832,000 of gross unrealized losses is temporary and the
remaining $657,000 of OTTI represents an unrealized loss for
which an impairment has been recognized in other
comprehensive loss.
Other-Than-Temporary
Impairments (OTTI)
The
following table presents a rollforward for the three and six
months ended June 30, 2011, of the credit loss component of
OTTI losses that have been recognized in income related to
debt securities that the Company does not intend to
sell.
For
the six months ended June 30, 2011, credit-related losses of
$132,000 on 11 non-agency residential mortgage-backed
securities and $33,000 on two asset-backed securities were
recognized. To measure credit losses, external credit ratings
and other relevant collateral details and performance
statistics on a security-by-security basis were considered.
Securities exhibiting significant deterioration are subjected
to further analysis. Assumptions were developed for
prepayment speed, default rate, and loss severity for each
security using third party sources and based on the
collateral history. The resulting projections of future cash
flows of the underlying collateral were then discounted by
the underlying yield before any write-downs were considered
to determine the net present value of the cash flows
(“NPV”). The difference between the
cost basis and the NPV was taken as a credit loss in the
current period to the extent that these losses have not been
previously recognized. The difference between the NPV and the
quoted market price is considered a noncredit related loss
and was included in other comprehensive loss.
Other
Securities Information
The
following sets forth information concerning sales (excluding
calls and maturities) of available-for-sale securities (in
thousands). There were no sales or transfers of
held-to-maturity securities.
At
June 30, 2011, future contractual maturities of debt
securities were as follows (in thousands):
The
Company holds mortgage-backed securities which may mature at
an earlier date than the contractual maturity due to
prepayments. The Company also holds certain securities which
may be called by the issuer at an earlier date than the
contractual maturity date.
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Note 3 - Loans
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Loans, Notes, Trade and Other Receivables Disclosure [Text Block] |
The
loan portfolio is classified by major type as follows:
The
recorded investment in loans is the face amount increased or
decreased by applicable accrued interest and unamortized
premium, discount, or finance charges, and may also reflect a
previous direct write-down of the loan.
The
recorded investment in loans at the dates indicated is
determined as follows (in thousands):
Loan
Origination/Risk Management
The
Company selectively extends credit for the purpose of
establishing long-term relationships with its customers. The
Company mitigates the risks inherent in lending by focusing
on businesses and individuals with demonstrated payment
history, historically favorable profitability trends and
stable cash flows. In addition to these primary sources of
repayment, the Company looks to tangible collateral and
personal guarantees as secondary sources of repayment.
Lending officers are provided with detailed underwriting
policies covering all lending activities in which the Company
is engaged and that require all lenders to obtain appropriate
approvals for the extension of credit. The Company also
maintains documentation requirements and extensive credit
quality assurance practices in order to identify credit
portfolio weaknesses as early as possible so any exposures
that are discovered may be reduced.
The
Company has certain lending procedures in place that are
designed to maximize loan income within an acceptable level
of risk. These procedures include the approval of lending
policies and underwriting guidelines by the Board of
Directors of each bank, and separate policy, administrative
and approval oversight by the Directors’ Loan Committee
of MetroBank, and by the Directors’ Credit Committee of
Metro United. Additionally, MetroBank’s loan
portfolio is reviewed by its internal loan review department,
and Metro United's loan portfolio is reviewed by an external
third-party company. These procedures also serve to identify
changes in asset quality in a timely manner and to ensure
proper recording and reporting of nonperforming
assets.
Inherent
in all lending is the risk of nonpayment. The types of
collateral required, the terms of the loans and the
underwriting practices discussed under each loan category
below are all designed to minimize the risk of nonpayment. In
addition, as further risk protection, the Banks rarely make
loans at their respective legal lending limits. MetroBank
generally does not make loans larger than $12 million to one
borrower and Metro United generally does not make loans
larger than $6 million to one borrower. Loans greater than
the Banks’ lending limits are subject to participation
with other financial institutions, including with each other.
Loans originated by MetroBank are approved by the Chief
Credit Officer, Chief Lending Officer, Senior Credit Officer,
MetroBank’s Loan Committee, or the
Director’s Credit Committee based on the size of
the loan relationship and its risk rating. Loans originated
by Metro United are approved by the Director’s Credit
Committee except for certain consumer loans. Control systems
and procedures are in place to ensure all loans are approved
in accordance with credit policies. The Company
also uses interest rate floors on a majority of its variable
rate loans to control interest rate risk within the
commercial and real estate loan portfolios.
Commercial and
Industrial Loans. Generally, the Company’s
commercial loans are underwritten on the basis of the
borrower’s ability to service such debt as reflected by
cash flow projections. Commercial loans are generally
collateralized by business assets, which may include real
estate, accounts receivable and inventory, certificates of
deposit, securities, guarantees or other collateral. The
Company also generally obtains personal guarantees from the
principals of the business. Working capital loans are
primarily collateralized by short-term assets, whereas term
loans are primarily collateralized by long-term assets. As a
result, commercial loans involve additional complexities,
variables and risks and require more thorough underwriting
and servicing than other types of loans. Indigenous to
individuals in the Asian business community is the desire to
own the building and land which house their businesses.
Accordingly, while a loan may be principally driven and
classified by the type of business operated, real estate is
frequently the primary source of collateral.
Real Estate
Mortgage - Commercial and Residential Mortgage
Loans. The Company makes commercial mortgage loans to
finance the purchase of real property, which generally
consists of developed real estate. The Company’s
commercial mortgage loans are collateralized by first liens
on real estate. For MetroBank, these loans typically have
variable rates and amortize over a 15 to 20 year period, with
balloon payments due at the end of five to seven years. For
Metro United, these loans have both variable and fixed rates
and amortize over a 25 to 30 year period, with balloon
payments due at the end of five to ten years. Payments on
loans collateralized by such properties are dependent on the
successful operation or management of the properties.
Accordingly, repayment of these loans may be subject to
adverse conditions in the real estate market or the economy
to a greater extent than other types of loans. In
underwriting commercial mortgage loans, consideration is
given to the property’s historical cash flow, current
and projected occupancy, location and physical condition. The
underwriting analysis also includes credit checks,
appraisals, environmental impact reports and a review of the
financial condition of the borrower. The Company also
originates two to seven year balloon residential mortgage
loans with a 15 to 30-year amortization primarily
collateralized by owner occupied residential properties,
which are retained in the Company’s residential
mortgage portfolio.
Real Estate
Construction Loans. The Company makes loans to finance
the construction of residential and non-residential
properties. The majority of the Company’s residential
construction loans in Texas are for single-family dwellings
that are pre-sold or are under earnest money contracts. The
Company also originates loans to finance the construction of
commercial properties such as multi-family, office,
industrial, warehouse and retail centers. Construction loans
involve additional risks attributable to the fact that loan
funds are advanced upon the security of a project under
construction, and the project is of uncertain value prior to
its completion. Because of uncertainties inherent in
estimating construction costs, the market value of the
completed project and the effects of governmental regulation
on real property, it can be difficult to accurately evaluate
the total funds required to complete a project and the
related loan to value ratio. As a result of these
uncertainties, construction lending often involves the
disbursement of substantial funds with repayment dependent,
in part, on the success of the ultimate project rather than
the ability of a borrower or guarantor to repay the loan. If
the Company is forced to foreclose on a project prior to
completion, there is no assurance that the Company will be
able to recover the entire unpaid portion of the loan. In
addition, the Company may be required to fund additional
amounts to complete a project and may have to hold the
property for an indeterminable period of time. While the
Company has underwriting procedures designed to identify what
it believes to be acceptable levels of risks in construction
lending, no assurance can be given that these procedures will
prevent losses from the risks described above.
Consumer
Loans. The Company, through its subsidiary Metro
United, offers a wide variety of loan products to retail
customers through its branch network. Loans to retail
customers include automobile loans, lines of credit and other
personal loans. The terms of these loans typically range from
12 to 60 months depending on the nature of the collateral and
the size of the loan.
Loan review
process. In addition to MetroBank’s loan
portfolio review by its internal loan review department and
Metro United's loan portfolio review by an external
third-party company, other ongoing reviews are performed by
loan officers and involves the grading of each loan by its
respective loan officer. Depending on the grade, a loan will
be aggregated with other loans of similar grade and a loss
factor is applied to the total loans in each group to
establish the required level of allowance for loan losses.
For both Banks, grades of 1-10 are applied to each loan, with
loans graded 7-10 requiring the most allowance for loan
losses. Factors utilized in the grading process include but
are not limited to historical performance, payment status,
collateral value, and financial strength of the borrower.
Oversight of the loan review process is the responsibility of
the Loan Review/Compliance Officer. Differences of opinion
are resolved among the loan officer, compliance officer, and
the Chief Credit Officer. See “Allowance for Loan
Losses and Reserve for Unfunded Lending Commitments”
for additional discussion on loan grades.
MetroBank’s
credit department reports credit risk grade changes on a
monthly basis to its management and the Board of Directors.
MetroBank and Metro United perform monthly and quarterly
concentration analyses based on industries, collateral types
and business lines. Findings are reported to the
Director’s Loan Committee of MetroBank and the
Directors’ Credit Committee of Metro United. Loan
concentration reports based on type are prepared, monitored
and reviewed quarterly and presented to the Directors’
Loan Committee for MetroBank, the Directors’ Credit
Committee for Metro United and the Board of Directors of each
respective bank.
In
addition, the Company reviews the real estate values, and
when necessary, orders new appraisals on loans collateralized
by real estate when loans are renewed, prior to foreclosure
and at other times as necessary, particularly in problem loan
situations. In instances where updated appraisals reflect
reduced collateral values, an evaluation of the
borrower’s overall financial condition is made to
determine the need, if any, for possible charge-offs or
appropriate additions to the allowance for loan losses. The
Company records other real estate at fair value at the time
of acquisition less estimated costs to sell.
The
following table presents the recorded investment in loans by
credit risk profile, and which were updated as of the date
indicated (in thousands):
There
can be no assurance, however, that the Company’s loan
portfolio will not become subject to increasing pressures
from deteriorating borrowers’ financial condition due
to general economic and other factors. While future
deterioration in the loan portfolio is possible, management
is continuing its risk assessment and resolution program. In
addition, management is focusing its attention on minimizing
the Company’s credit risk through
diversification.
Nonperforming
Assets
The
Company generally places a loan on nonaccrual status and
ceases accruing interest when, in the opinion of management,
full payment of loan principal or interest is in doubt. All
loans past due 90 days are placed on nonaccrual status unless
the loan is both well collateralized and in the process of
collection. Cash payments received while a loan is classified
as nonaccrual are recorded as a reduction of principal as
long as significant doubt exists as to collection of the
principal. Loans are restored to accrual status only when
interest and principal payments are brought current and, in
management’s judgment, future payments are reasonably
assured. In addition to nonaccrual loans, the Company
evaluates on an ongoing basis other loans which are potential
problem loans as to risk exposure in determining the adequacy
of the allowance for loan losses.
A
loan is considered impaired based on current information and
events if it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when
due according to the contractual terms of the loan agreement.
Impairment is evaluated in total for smaller-balance loans of
a similar nature and on an individual basis for other
loans. The measurement of impaired loans is based
on the present value of expected future cash flows discounted
at the loan’s effective interest rate or the
loan’s observable market price or based on the fair
value of the collateral if the loan is
collateral-dependent.
Loans
are classified as a troubled debt restructuring in cases
where a borrower is experiencing financial difficulty and the
Banks make concessionary modifications to contractual
terms. Restructured loans typically involve a
modification of terms such as a reduction of the stated
interest rate and/or an extension of the maturity date(s).
Generally, a nonaccrual loan that is restructured remains on
nonaccrual for a minimum period of six months to demonstrate
that the borrower can meet the restructured terms. Once
performance has been demonstrated the loan may be returned to
performing status after the calendar year end.
The
Company requires that nonperforming assets be monitored by
the special assets department or senior lenders for
MetroBank, and the special asset team consisting of internal
credit personnel with the assistance of third party
consultants and attorneys for Metro United. All nonperforming
assets are actively managed pursuant to the Company’s
loan policy. Senior management is apprised on a weekly basis
of the workout endeavors and provides assistance as necessary
to determine the best strategy for problem loan resolution
and maximizing repayment on nonperforming assets.
In
addition to the Banks’ loan review process described in
the preceding paragraphs, the Office of the Comptroller of
the Currency (“OCC”) periodically examines and
evaluates MetroBank, while the Federal Deposit Insurance
Corporation (“FDIC”) and California Department of
Financial Institutions (“CDFI”) periodically
examine and evaluate Metro United. Based upon such
examinations, the regulators may revalue the assets of the
institution and require that it charge-off certain assets,
establish specific reserves to compensate for the difference
between the regulators-determined value and the book value of
such assets or take other regulatory action designed to
lessen the risk in the asset portfolio.
The
following table provides an analysis of the age of the
recorded investment in loans by portfolio segment at the date
indicated (in thousands):
The
following table presents the recorded investment in
nonaccrual loans, including nonaccruing troubled debt
restructurings, by portfolio segment at the dates indicated
(in thousands):
The
following table presents information regarding nonperforming
assets at the dates indicated (in thousands):
(1)
Represents the unpaid principal balance.
Information
on impaired loans, which includes nonaccrual loans and
troubled debt restructurings, and the related specific
allowance for loan losses on such loans at June 30, 2011
and December 31, 2010, is presented below (in
thousands):
For
the six months ended June 30, 2011 and 2010, interest income
of $96,000 and $201,000 was recognized on impaired loans,
which consisted of nonaccrual loans that were paid in full
and accruing TDRs.
Allowance
for Loan Losses and Reserve for Unfunded Lending
Commitments
The
allowance for loan losses provides for the risk of losses
inherent in the lending process and the Company allocates the
allowance for loan losses according to management’s
assessments of risk inherent in the portfolio. The allowance
for loan losses is increased by provisions charged against
current earnings and is reduced by net charge-offs. Loans are
charged off when they are deemed to be uncollectible in whole
or in part. Recoveries are recorded when cash payments are
received. In developing the assessment, the Company relies on
estimates and exercises judgment regarding matters where the
ultimate outcome is uncertain. Circumstances may change and
future assessments of credit risk may yield materially
different results, resulting in an increase or decrease in
the allowance for credit losses.
The
allowance for credit losses consists of the allowance for
loan losses and the reserve for unfunded lending commitments
and is maintained at levels that the Company believes are
adequate to absorb probable losses inherent in the loan
portfolio and unfunded lending commitments as of the date of
the financial statements. The Company employs a systematic
methodology for determining the allowance for credit losses
that consists of four components: (1) a formula-based
general reserve based on historical average losses by loan
grade and grade migration, (2) specific reserves on
larger impaired individual credits that are based on the
difference between the current loan balance and the
loan’s collateral value, observable market price, or
discounted present value, (3) a qualitative component
that reflects current market conditions and other factors
precedent to losses different from historical averages, and
(4) a reserve for unfunded lending commitments.
In
setting the qualitative reserve portion of the allowance for
loan losses, the factors the Company may consider include,
but are not limited to, concentrations of credit, common
characteristics of known problem loans, potential problem
loans and other loans that exhibit weaknesses or
deterioration, the general economic environment in the
Company’s markets as well as the national economy,
particularly the real estate markets, changes in value of the
collateral securing loans, results of portfolio stress tests,
and changes in lending processes, procedures and personnel.
After the aforementioned assessment of the loan portfolio,
the general economic environment and other relevant factors,
management determines the appropriate allowance for loan loss
level and makes the provision necessary to achieve that
level. This methodology is consistently followed so that the
level of the allowance for loan losses is reevaluated on an
ongoing basis in response to changes in circumstances,
economic conditions or other factors.
The
Company follows a loan review program to evaluate the credit
risk in the loan portfolio as discussed under
“Nonperforming Assets.” Through the loan review
process, the Company maintains an internally classified loan
list which, along with the delinquency list of loans, helps
management assess the overall quality of the loan portfolio
and the adequacy of the allowance for loan losses. Loans
classified as “substandard” are risk-rated as
grade 8, and are those loans with well-defined weaknesses
such as a highly-leveraged position, unfavorable financial
ratios, uncertain repayment sources or poor financial
condition, which may jeopardize recoverability of the debt.
Loans classified as “doubtful” are risk-rated as
grade 9, and are those loans which have characteristics
similar to substandard loans but with an increased risk that
a loss may occur, or at least a portion of the loan may
require a charge-off if liquidated at present. Although loans
classified as substandard do not duplicate loans classified
as doubtful, both substandard and doubtful loans include some
loans that are delinquent at least 30 days or on nonaccrual
status. Loans classified as “loss” are risk-rated
as grade 10 and are those loans which are charged off.
In
addition to the internally classified loan list and
delinquency list of loans, the Company maintains a separate
“watch list” for loans risk-rated as grade 7,
which further aids the Company in monitoring loan portfolios.
Watch list loans show potential weaknesses where the present
status portrays one or more deficiencies that require
attention in the short-term or where pertinent ratios of the
loan account have weakened to a point where more frequent
monitoring is warranted. These loans do not have all of the
characteristics of a classified loan (substandard or
doubtful) but do show weakened elements compared with those
of a satisfactory credit. The Company reviews these loans to
assist in assessing the adequacy of the allowance for loan
losses.
Policies
and procedures have been developed to assess the adequacy of
the allowance for loan losses and the reserve for unfunded
lending commitments that include the monitoring of
qualitative and quantitative trends described above.
Management of both banks review and approve their respective
allowance for loan losses and the reserve for unfunded
lending commitments monthly and perform a comprehensive
analysis quarterly, which is also presented for approval by
each bank’s Board of Directors. The allowance for
credit losses is also subject to federal and California State
banking regulations. The Banks’ primary regulators
conduct periodic examinations of the allowance for credit
losses and make assessments regarding its adequacy and the
methodology used in its determination.
The
Company maintains a reserve for unfunded commitments to
provide for the risk of loss inherent in its unfunded lending
related commitments. The process used in determining the
reserve is consistent with the process used for the allowance
for loan losses discussed above.
The
following table presents the allowance for loan losses and
recorded investment in loans by portfolio segment at the date
indicated (in thousands):
Changes
in the allowance for loan losses and unfunded lending
commitments as of and for the three and six months ended June
30, 2010 are as follows:
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Note 11 - Operating Segment Information
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Jun. 30, 2011
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Segment Reporting Disclosure [Text Block] |
The
Company operates two community banks in distinct geographical
areas, and manages its operations and prepares management
reports and other information with a primary focus on these
geographical areas. Performance assessment and
resource allocation are based upon this geographical
structure. The operating segment identified as
“Other” includes the parent company and
eliminations of transactions between segments. The accounting
policies of the individual operating segments are the same as
those of the Company as described in Note 1. Transactions
between operating segments are primarily conducted at fair
value, resulting in profits that are eliminated for reporting
consolidated results of operations. Operating
segments pay for centrally provided services based upon
estimated or actual usage of those services.
The
following is a summary of selected operating segment
information as of and for the three and six months ended June
30, 2011 and 2010:
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Note 4 - Goodwill
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3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Goodwill and Intangible Assets Disclosure [Text Block] |
Changes
in the carrying amount of the Company’s goodwill for
the periods indicated below were as follows (in
thousands):
Goodwill
is recorded on the acquisition date of each entity, and
evaluated annually for possible impairment. Goodwill is
required to be tested for impairment on an annual basis or as
events occur or circumstances change that would more likely
than not reduce the fair value of a reporting unit below its
carrying amount. The Company’s only reporting unit with
assigned goodwill is Metro United.
Annual
Evaluation
The
Company completed its 2010 annual impairment testing based on
information as of August 31, 2010. The review utilized
guideline company and guideline transaction information where
available, discounted cash flow analysis, and quoted stock
prices for the Company and guideline banks to estimate the
fair value of Metro United.
Due
to the staleness of the bank transaction multiples and
fluctuations in market capitalization of peer banks used in
the market methods, management relied primarily on the income
approach for the step one evaluation. The Company also
performed a reconciliation of the estimated fair value to the
stock price of the Company. Because the step-one impairment
test failed, the Company performed the step-two analysis to
derive the implied fair value of goodwill.
Under
the step-two analysis, the implied fair value of goodwill is
determined in the same manner as the amount of goodwill
recognized in a business combination. The fair value of Metro
United’s assets and liabilities, including unrecognized
intangible assets, is individually evaluated. The excess of
the fair value of Metro United over the fair value of its net
assets is the implied fair value of goodwill. The Company
estimated the fair value of Metro United’s assets and
liabilities, including previously unrecognized intangible
assets, through a variety of valuation techniques that
incorporated interest rates, credit or nonperformance risk,
as well as market risk adjustments that are indicative of the
current economic environment. The estimated values are based
on an exit price and reflect management’s expectations
regarding how a market participant would value the assets and
liabilities. The implied goodwill was significantly affected
by the estimated fair value of the loans pertaining to Metro
United and the Company’s stock price. The significant
market risk adjustment that is a consequence of the current
distressed market conditions was a significant contributor to
the valuation discounts associated with these loans. To the
extent that market liquidity returns and the fair value of
the individual assets or loans of Metro United increases at a
faster rate than the fair value of Metro United as a whole,
that may cause the implied goodwill to be lower than the
carrying value of goodwill. Future potential changes in
valuation assumptions may also impact the estimated fair
value of Metro United, therefore resulting in additional
impairment of the goodwill.
In
the step-two analysis, the estimated implied fair value of
Metro United goodwill as of August 31, 2010
exceeded its respective carrying value; therefore, the
Company determined there was no impairment of goodwill as of
that date.
Second Quarter
Evaluation
As
of June 30, 2011, the Company’s stock price, although
improved significantly since the first quarter of 2011, had
continued to trade below the book value per share; therefore,
an additional goodwill impairment test was done.
The
review utilized guideline company and guideline transaction
information where available, discounted cash flow analysis,
and quoted stock prices for the Company and guideline banks
to estimate the fair value of Metro United. Under
the discounted cash flow method, the Company used an average
growth rate of 8.4% for the five-year period and discounted
Metro United’s terminal value using a 10% rate of
return. The Company also performed a sensitivity analysis
utilizing additional discount rates ranging from 8% to 15%.
An 8% discount rate indicated a fair value that was $12.8
million greater than carrying value, an 11% discount rate
indicated that fair value and carrying value were
approximately equal, and a 15% discount rate indicated a fair
value that was $7.5 million less than the carrying
value.
The
Company also considered the fair value of Metro United in
relation to the Company’s stock price and performed a
reconciliation to the market price, which was performed by
first using the Company’s market price on a minority
basis with an estimated control premium of 30%. The Company
then allocated the total fair value to both of its reporting
units, MetroBank and Metro United.
The
derived fair value of Metro United was compared with the
carrying value of its equity. The fair value at the
evaluation date exceeded the carrying value, therefore the
Company determined there was no impairment of goodwill as of
that date.
Goodwill
impairment if any is a noncash adjustment to the
Company’s financial statements. As goodwill and other
intangible assets are not included in the calculation of
regulatory capital, the Company’s well capitalized
regulatory ratios are not affected. Subsequent reversal of
goodwill impairment is prohibited.
|
Note 14 - New Authoritative Accounting Guidance
|
3 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
|
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Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block] |
Accounting
Standards Update (“ASU”) No. 2011-05,
“Comprehensive Income (Topic 220) – Presentation
of Comprehensive Income” amends Topic 220,
"Comprehensive Income," to require that all nonowner changes
in shareholders' equity be presented in either a single
continuous statement of comprehensive income or in two
separate but consecutive statements. Additionally, ASU
2011-05 requires entities to present, on the face of the
financial statements, reclassification adjustments for items
that are reclassified from other comprehensive income to net
income in the statement or statements where the components of
net income and the components of other comprehensive income
are presented. The option to present components of other
comprehensive income as part of the statement of changes in
shareholders' equity was eliminated. The
new authoritative accounting guidance under ASU 2011-03 will
be effective for the Company on January 1, 2012 and is not
expected to have an impact on the Company's financial
condition, results of operations, or cash
flows.
ASU No.
2011-04, “Fair Value Measurement (Topic 820)
- Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and
IFRSs” amends Topic 820, "Fair
Value Measurements and Disclosures," to converge the fair
value measurement guidance in U.S. generally accepted
accounting principles and International Financial Reporting
Standards. ASU 2011-04 clarifies the application of existing
fair value measurement requirements, changes certain
principles in Topic 820 and requires additional fair value
disclosures. The new authoritative accounting
guidance under ASU 2011-03 will be effective for the Company
on January 1, 2012 and is not expected to have a significant
impact on the Company's financial condition, results of
operations, or cash flows.
ASU
No. 2011-03, “Transfers and Servicing (Topic 860)
- Reconsideration of Effective Control for Repurchase
Agreements.” ASU 2011-03 removes from the
assessment of effective control (1) the criterion requiring
the transferor to have the ability to repurchase or redeem
the financial assets on substantially the agreed terms, even
in the event of default by the transferee, and (2) the
collateral maintenance implementation guidance related to
that criterion. The new authoritative accounting
guidance under ASU 2011-03 will be effective for the Company
on January 1, 2012 and is not expected to have an impact on
the Company's financial condition, results of operations, or
cash flows.
ASU
No. 2011-02, "A Creditor’s Determination of
Whether a Restructuring Is a Troubled Debt Restructuring
(Topic 310)." ASU 2011-02 provides
additional guidance for determining whether the creditor has
granted a concession and whether the debtor is experiencing
financial difficulty. The new authoritative
accounting guidance under ASU 2011-02 will be effective for
the Company on July 1, 2011 and will be applied
retrospectively to restructurings occurring on or after
January 1, 2011. At the same time the Company
adopts ASU 2011-002, it will be required to disclose the
activity-based information about troubled debt restructurings
that was previously deferred by ASU 2011-01 “Deferral
of the Effective Date of Disclosures about Troubled Debt
Restructurings in Update No.
2010-20”. The new authoritative
accounting guidance under ASU 2011-02 and ASU 2011-01 is not
expected to have a significant impact on the Company's
financial condition, results of operations, or cash
flows.
ASU
No. 2010-29, "Business Combinations (Topic
805)—Disclosure of Supplementary Pro Forma Information
for Business Combinations." ASU 2010-29 provides
clarification regarding the acquisition date that should be
used for reporting the pro forma financial information
disclosures required by Topic 805 when comparative financial
statements are presented. ASU 2010-29 also requires
entities to provide a description of the nature and amount of
material, nonrecurring pro forma adjustments that are
directly attributable to the business combination. The new
authoritative accounting guidance under ASU 2010-29 was
effective for the Company prospectively for business
combinations occurring after December 31, 2010.
ASU
No. 2010-28, "Intangibles—Goodwill and Other
(Topic 350)—When to Perform Step 2 of the Goodwill
Impairment Test for Reporting Units with Zero or Negative
Carrying Amounts." ASU 2010-28 modifies
Step 1 of the goodwill impairment test for reporting
units with zero or negative carrying amounts. For those
reporting units, an entity is required to perform Step 2
of the goodwill impairment test if it is more likely than not
that a goodwill impairment exists. In determining whether it
is more likely than not that a goodwill impairment exists, an
entity should consider whether there are any adverse
qualitative factors indicating that an impairment may exist
such as if an event occurs or circumstances change that would
more likely than not reduce the fair value of a reporting
unit below its carrying amount. The new authoritative
accounting guidance under ASU 2010-28 was effective for
the Company on January 1, 2011 and did not have a
significant impact on the Company's financial condition,
results of operations, or cash flows.
|
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (USD $)
In Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
Net income (loss) | $ 2,363 | $ 84 | $ 4,489 | $ (3,294) |
Other comprehensive income (loss), net of taxes: | ||||
Change in accumulated loss on effective cash flow hedging derivatives | (241) | (556) | (92) | (801) |
Securities with OTTI charges during the period | (50) | (62) | (117) | (181) |
Less: OTTI charges recognized in net income | (49) | (61) | (105) | (126) |
Net unrealized losses on investment securities with OTTI | (1) | (1) | (12) | (55) |
Unrealized holding gain arising during the period | 1,584 | 1,163 | 1,122 | 1,922 |
Less: reclassification adjustment for gain (loss) included in net income | (15) | 38 | (47) | 29 |
Net unrealized gains on investment securities | 1,599 | 1,125 | 1,169 | 1,893 |
Other comprehensive income | 1,357 | 568 | 1,065 | 1,037 |
Total comprehensive income (loss) | $ 3,720 | $ 652 | $ 5,554 | $ (2,257) |
Note 9 - Accumulated Other Comprehensive Income (Loss)
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Jun. 30, 2011
|
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Accumulated Other Comprehensive Income Loss [Text Block] |
The
balance of and changes in each component of accumulated other
comprehensive income as of and for the six months ended June
30, 2011 are as follows (net of taxes):
|
Note 13 - Income Taxes
|
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
|
|||
Income Tax Disclosure [Text Block] |
Income
tax expense for the three months ended June 30, 2011 was $1.2
million, compared with $307,000 for the same period in 2010.
The Company’s effective tax rate was 33.5% for the
three months ended June 30, 2011 compared with 78.5% for the
three months ended June 30, 2010. The decrease in the
effective income tax rate in 2011 as compared with 2010 was
primarily the result of the effect of state income taxes. The
Texas tax is based on the Company’s gross margin with
limited deductions. Because the Texas tax allows only limited
deductions the tax may not correlate, from year to year, with
pre-tax income. The California tax is based on the
unitary income of the consolidated group which can vary
disproportionately from pre-tax income depending on the
apportionment of income among members of the unitary group.
Income tax expense for the six months ended June 30, 2011 was
$2.3 million, compared with income tax benefit of $1.1
million for the same period in 2010. The Company’s
effective tax rate was 34.2% for the six months ended June
30, 2011 compared with 25.7% for the six months ended June
30, 2010. The increase in the effective income tax rate in
2011 as compared with 2010 was primarily the result of
non-deductible goodwill impairment and the effect of state
income taxes.
As
of June 30, 2011, the Company had approximately $16.2 million
in net deferred tax assets. Deferred tax assets
are subject to an evaluation of whether it is more likely
than not that they will be realized. The Company has not
provided a valuation allowance for the net deferred tax
assets at June 30, 2011 and 2010 due primarily to its ability
to offset reversals of net deductible temporary differences
against income taxes paid in previous years and expected to
be paid in future years. In making such judgments,
significant weight is given to evidence that can be
objectively verified. Because of historical losses
that were recorded by the Company for the years ended
December 31, 2009 and 2010, and if the Company is unable to
generate sufficient taxable income in the future, then the
Company may not be able to conclude it is more likely than
not that the benefits of the deferred tax assets will be
fully realized and may be required to recognize a valuation
allowance and a corresponding income tax expense equal to the
portion of the deferred tax asset that may not be
realized.
As
a result of the losses incurred in 2009 and 2010, the Company
is in a three-year cumulative pretax loss position at June
30, 2011. A cumulative loss position is considered
significant negative evidence in assessing the realizability
of a deferred tax asset. The Company has concluded
that there is sufficient positive evidence to overcome this
negative evidence. The Company forecasts
sufficient taxable income in the carryforward period,
exclusive of tax planning strategies to fully realize its
deferred tax asset. The Company has projected its
pretax earnings based upon business that the Company intends
to conduct going forward, which in the past has produced
steady and strong earnings. During 2009 and 2010,
earnings were negatively affected by the large increase in
provisions for loan losses during the sharp economic downturn
cycle. The Company reduced its cost structure, and
taking this into account, the Company projects that it will
generate sufficient pretax earnings within a five-year
period.
The
U.S. Federal and California State net operating loss
carryforward period of 20 years provides enough time to
utilize the deferred tax assets pertaining to the existing
net operating loss carryforwards and any net operating losses
that would be created by the reversal of the future net
deductions which have not yet been taken on a tax
return.
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