-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BimUA/NAeJB68kIcwib7FjJ52BS+NCGD9FfK85ol84oJtMWNq1DMyFKggkCw/uLY 9s/KBzuZsXwikb8TC0yFJQ== 0000902789-98-000012.txt : 19981116 0000902789-98-000012.hdr.sgml : 19981116 ACCESSION NUMBER: 0000902789-98-000012 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCB FINANCIAL CORP CENTRAL INDEX KEY: 0000902789 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 680300300 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 033-76832 FILM NUMBER: 98747832 BUSINESS ADDRESS: STREET 1: 1248 FIFTH AVE CITY: SAN RAFAEL STATE: CA ZIP: 94901 BUSINESS PHONE: 4154592265 MAIL ADDRESS: STREET 1: 1248 FIFTH AVENUE CITY: SAN RAFAEL STATE: CA ZIP: 94901 10QSB 1 FORM 10-QSB U.S. Securities and Exchange Commission Washington, D.C. 20549 (Mark One) [X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from _________________ to _____________________ Commission file number: 033-76832 MCB FINANCIAL CORPORATION (exact name of small business issuer) California 68-0300300 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 1248 Fifth Avenue, San Rafael, California 94901 (Address of principal executive offices) (415) 459-2265 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: November 6, 1998 Class Common stock, no par value 2,013,471 PART I - FINANCIAL INFORMATION Item 1. Financial Statements: MCB FINANCIAL CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS Dollar amounts in thousands September 30, December 31, 1998 1997 ASSETS (Unaudited) Cash and due from banks $ 8,989 $ 6,557 Federal funds sold 5,000 4,900 Total cash and cash equivalents 13,989 11,457 Interest-bearing deposits with banks 286 286 Investment securities available for sale at fair value 32,704 10,314 Investment securities held to maturity; fair values of $10,617 in 1998 and $25,197 in 1997 10,553 25,242 Loans held for investment (net of allowance for possible credit losses of $1,062 in 1998 and $1,007 in 1997 103,914 87,179 Premises and equipment - net 2,517 2,586 Accrued interest receivable 1,174 1,070 Deferred income taxes 255 568 Other assets 1,170 1,175 Total assets $ 166,562 $ 139,877 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits: Noninterest-bearing $ 33,026 $ 29,151 Interest-bearing: Transaction accounts 94,868 75,488 Time certificates, $100,000 and over 13,325 11,565 Savings and other time deposits 10,212 9,928 Total interest-bearing deposits 118,405 96,981 Total deposits 151,431 126,132 Other borrowings 306 750 Accrued interest payable and other liabilities 1,134 1,028 Total liabilities 152,871 127,910 SHAREHOLDERS' EQUITY Preferred stock, no par value: authorized 20,000,000 shares; none issued or outstanding Common stock, no par value: authorized 20,000,000 shares; 2,076,763 issued and outstanding at September 30, 1998 2,054,715 issued and outstanding at December 31, 1997 10,400 10,310 Accumulated other comprehensive income 440 1 Retained earnings 2,851 1,656 Total shareholders' equity 13,691 11,967 Total liabilities and shareholders' equity $ 166,562 $ 139,877 See notes to condensed consolidated financial statements. MCB FINANCIAL CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended For the Nine Months In thousands, September 30, Ended September 30, except per share amounts 1998 1997 1998 1997 (Unaudited) (Unaudited) INTEREST INCOME: Loans, including fees $ 2,788 $ 2,235 $ 7,790 $ 6,340 Federal funds sold 154 80 370 250 Investment securities 511 687 1,576 1,895 Total interest income 3,453 3,002 9,736 8,485 INTEREST EXPENSE: Interest-bearing transaction, savings and other time deposits 1,050 948 2,943 2,742 Time certificates, $100,000 and over 173 142 492 392 Other interest 7 6 18 21 Total interest expense 1,230 1,096 3,453 3,155 NET INTEREST INCOME 2,223 1,906 6,283 5,330 PROVISION FOR POSSIBLE CREDIT LOSSES 35 20 70 60 NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE CREDIT LOSSES 2,188 1,886 6,213 5,270 OTHER INCOME: Gain on sale of loans 18 26 137 116 Service fees on deposit accounts 129 125 373 361 Loan servicing fees 11 8 32 23 Other 45 56 192 125 Total other income 203 215 734 625 OTHER EXPENSES: Salaries and employee benefits 922 709 2,707 2,255 Occupancy expense 214 201 648 583 Furniture and equipment expense 99 74 313 248 Professional services 101 166 214 268 Supplies 66 49 215 151 Promotional expenses 57 47 247 152 Data processing fees 80 106 242 253 Regulatory assessments 18 16 49 45 Other 97 87 340 275 Total other expenses 1,654 1,455 4,975 4,230 INCOME BEFORE INCOME TAXES 737 646 1,972 1,665 INCOME TAX PROVISION 299 267 807 684 NET INCOME $ 438 $ 379 $ 1,165 $ 981 BASIC EARNINGS PER SHARE $ 0.21 $ 0.19 $ 0.56 $ 0.49 DILUTED EARNINGS PER SHARE $ 0.20 $ 0.18 $ 0.53 $ 0.47 See notes to condensed consolidated financial statements MCB FINANCIAL CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended Nine Months Ended Dollar amounts in thousands September 30, September 30, 1998 1997 1998 1997 (Unaudited) (Unaudited) Net income $ 438 $ 379 $1,165 $ 981 Other comprehensive income, net of tax: Unrealized gain (loss) on available for sale investments: Unrealized holding gain (loss) arising during period 422 48 439 27 Comprehensive income $ 860 $ 427 $1,604 $1,008 See notes to condensed consolidated financial statements. MCB FINANCIAL CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Dollar amounts in thousands Ended September 30, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) Net income $ 1,165 $ 981 Adjustments to reconcile net income to net cash provided by operating activities: Settlement of mortgage loans sold 647 Provision for possible credit losses 70 60 Depreciation and amortization 347 242 Change in deferred income taxes (59) (Increase) decrease in accrued interest receivable (104) 63 Increase in other assets (6) (56) Increase in accrued interest payable and other liabilities 149 76 Net cash provided by operating activities 1,621 1,954 CASH FLOWS FROM INVESTING ACTIVITIES: Held to maturity securities: Calls 16,750 2,000 Purchases (2,055) (3,000) Available for sale securities: Maturities 2,880 3,997 Calls 1,000 2,000 Purchases (25,547) (8,017) Decrease in interest-bearing deposits with banks 98 Net increase in loans held for investment (16,805) (5,869) Purchases of premises and equipment (257) (409) Net cash used by investing activities (24,034) (9,200) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in noninterest-bearing demand deposits 3,875 3,584 Net increase in interest-bearing transaction, savings and other time deposits 21,424 6,864 Net (decrease) increase in other borrowings (444) 289 Cash dividends paid (2) Proceeds from the exercise of stock options 90 249 Net cash provided by financing activities 29,945 10,984 NET INCREASE IN CASH AND CASH EQUIVALENTS 2,532 3,738 CASH AND CASH EQUIVALENTS: Beginning of period 11,457 10,380 End of period $ 13,989 $ 14,118 CASH PAID DURING THE PERIOD FOR: Interest on deposits and other borrowings $ 3,497 $ 3,167 Income taxes 596 $ 720 NONCASH INVESTING AND FINANCING ACTIVITIES: Stock dividends paid on common stock $ 591 See notes to condensed consolidated financial statements. MCB FINANCIAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 1. Significant Accounting Policies The unaudited consolidated financial information included herein has been prepared in conformity with the accounting principles and practices in MCB Financial Corporation's (the "Company") consolidated financial statements included in the Annual Report for the year ended December 31, 1997. The accompanying interim consolidated financial statements contained herein are unaudited. However, in the opinion of the Company, all adjustments, consisting of normal recurring items necessary for a fair presentation of the operating results for the periods shown, have been made. The results of operations for the nine months ended September 30, 1998 may not be indicative of operating results for the year ending December 31, 1998. Certain prior year and prior quarter amounts have been reclassified to conform to current classifications. Cash and cash equivalents consists of cash, due from banks, and federal funds sold. Stock Split In February 1998, the Company's outstanding shares of common stock were split four-for-three. In August 1998, the Company's outstanding shares of common stock were split three-for-two. All shares and per share amounts reported have been restated to reflect the splits. Recently Issued Accounting Pronouncements The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." This statement establishes standards for all entities for reporting comprehensive income and its components in financial statements. This statement requires that all items which are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income is equal to net income plus the change in "other comprehensive income," as defined by SFAS No. 130. The only component of other comprehensive income currently applicable to the Company is the net unrealized gain or loss on available for sale investments. SFAS No. 130 requires that an entity: (a) classify items of other comprehensive income by their nature in a financial statement, and (b) report the accumulated balance of other comprehensive income separately from common stock and retained earnings in the equity section of the balance sheet. This statement is effective for financial statements issued for fiscal years beginning after December 15, 1997. In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas, and major customers. Adoption of this statement will not impact the Company's consolidated financial position, results of operations or cash flows, and any effect will be limited to the form and content of its disclosures. This statement is effective with the year-end 1998 financial statements. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company formally document, designate and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after 6/15/99. Initial application of SFAS No. 133 would be as of the beginning of an entity's fiscal quarter. On that date, hedging relationships must be designated anew and documented pursuant to the provisions of SFAS No. 133. Earlier application of all of the provisions of SFAS No. 133 is encouraged, but it is permitted only as of the beginning of any fiscal quarter that begins after issuance. SFAS No. 133 should not be applied retroactively to financial statements of prior periods. The Company has no derivative or hedged instruments and therefore the implementation of this statement is not expected to have a material impact on the Company's financial position or results of operations. 2. Earnings Per Share The following is a reconciliation of basic earnings per share (EPS) to diluted EPS for the three and nine month periods ended September 30, 1998 and 1997. Three months ended September 30, 1998: Net Per Share Income Shares Amount In thousands, except per share amounts (Unaudited) (Unaudited) (Unaudited) Basic EPS: Income available to common shareholders $438 2,077 $0.21 Effect of Dilutive Securities: Stock options 142 Diluted EPS: Income available to common shareholders plus assumed conversions $438 2,219 $0.20 Nine months ended September 30, 1998: Net Per Share Income Shares Amount In thousands, except per share amounts (Unaudited) (Unaudited) (Unaudited) Basic EPS: Income available to common shareholders $1,165 2,071 $0.56 Effect of Dilutive Securities: Stock options 144 Diluted EPS: Income available to common shareholders plus assumed conversions $1,165 2,215 $0.53 Three months ended September 30, 1997: Net Per Share Income Shares Amount In thousands, except per share amounts (Unaudited) (Unaudited) (Unaudited) Basic EPS: Income available to common shareholders $379 2,016 $0.19 Effect of Dilutive Securities: Stock options 92 Diluted EPS: Income available to common shareholders plus assumed conversions $379 2,108 $0.18 Nine months ended September 30, 1997: Net Per Share Income Shares Amount In thousands, except per share amounts (Unaudited) (Unaudited) (Unaudited) Basic EPS: Income available to common shareholders $981 2,000 $0.49 Effect of Dilutive Securities: Stock options 83 Diluted EPS: Income available to common shareholders plus assumed conversions $981 2,083 $0.47 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. MCB Financial Corporation (the "Company") is the holding company for Metro Commerce Bank in San Rafael, California. This discussion focuses primarily on the results of operations of the Company on a consolidated basis for the three and nine months ended September 30, 1998 and the financial condition of the Company as of that date. The following discussion presents information pertaining to the financial condition and results of operations of the Company and its subsidiary and should be read in conjunction with the financial statements and notes thereto presented in this 10-QSB. Average balances, including balances used in calculating certain financial ratios, are generally comprised of average daily balances. Certain matters discussed in this report are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the competitive environment and its impact on the Company's net interest margin, changes in interest rates, asset quality risks, concentrations of credit and the economic health of the San Francisco Bay Area and Southern California, volatility of rate sensitive deposits, asset/liability matching risks, the dilutive impact which might occur upon the issuance of new shares of common stock, liquidity risks, and the impact of the Year 2000 problem. Therefore, the matters set forth below should be carefully considered when evaluating the Company's business and prospects. For additional information concerning these risks and uncertainties, please refer to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997. OVERVIEW Earnings Summary. The Company reported net income of $438,000, or $0.21 per share basic and $0.20 per share diluted, for the third quarter of 1998. This compares to net income of $379,000, or $0.19 per share basic and $0.18 per share diluted, for the same period in 1997. For the nine months ended September 30, 1998, the Company reported net income of $1,165,000, or $0.56 per share basic and $0.53 per share diluted. This compares to net income of $981,000, or $0.49 per share basic and $0.47 per share diluted for the same period in 1997. Growth in average loans as a percentage of earning assets continued to positively impact the net interest margin during the three and nine month periods ended September 30, 1998. Return on average assets and return on average equity for the third quarter of 1998 were 1.09% and 13.11%, respectively, as compared to 1.06% and 13.49%, respectively, for the same period of 1997. Return on average assets and return on average equity for the nine months ended September 30, 1998 were 1.02% and 12.17%, respectively, as compared to 0.96% and 12.12%, respectively, for the same period of 1997. FINANCIAL CONDITION Summary. Total assets of the Company increased by $26.7 million, or 19.1%, from the end of 1997 to reach $166.6 million at September 30, 1998. This increase resulted primarily from growth in existing operations, largely due to improved economic conditions in the Company's market areas. Loans Held for Investment. Net loans held for investment increased by $16.7 million, or 19.2%, during the first nine months of 1998 as demand for commercial real estate and construction loans continued to increase. The following table sets forth the amount of total loans outstanding by category as of the dates indicated (dollar amounts in thousands): Total Loans September 30, December 31, 1998 1997 Commercial $ 21,523 $ 21,217 Real estate: Commercial 68,064 57,385 Construction 10,571 3,757 Land 908 1,307 Home equity 1,718 2,314 Loans to consumers and individuals 2,241 2,331 Total 105,025 88,311 Deferred loan fees (49) (125) Allowance for possible credit losses (1,062) (1,007) Total net loans $ 103,914 $ 87,179 In the normal practice of extending credit, the Company accepts real estate collateral for loans which have primary sources of repayment from commercial operations. The total amount of loans secured by real estate equaled $87.1 million, or 82.9% of the total portfolio as of September 30, 1998. Due to the Company's limited marketing areas, its real estate collateral is primarily concentrated in the San Francisco Bay Area and Southern California. The Company believes that its prudent underwriting standards for real estate secured loans provide an adequate safeguard against declining real estate prices which may effect a borrower's ability to liquidate the property and repay the loan. However, no assurance can be given that real estate values will not decline and impair the value of the security for loans held by the Company. The Company focuses its portfolio lending on commercial, commercial real estate, and construction loans. These loans generally carry a higher level of risk than conventional real estate loans; accordingly, yields on these loans are typically higher than those of other loans. The performance of commercial and construction loans is generally dependent upon future cash flows from business operations (including the sale of products, merchandise and services) and the successful completion or operation of large real estate projects. Risks attributable to such loans can be significantly increased, often to a greater extent than other loans, by regional economic factors, real estate prices, the demand for commercial and retail office space, and the demand for products and services of industries which are concentrated within the Company's loan portfolio. As of September 30, 1998, the two largest industry concentrations within the loan portfolio were real estate and related services at 26.1% and the business/personal service industry at 22.9% of the portfolio. Because credit concentrations increase portfolio risk, the Company places significant emphasis on the purpose of each loan and the related sources of repayment. The Company generally limits unsecured commercial loans to maturities of three years and secured commercial loans to maturities of five years. Nonperforming Assets. The Company carefully monitors the quality of its loan portfolio and the factors that affect it, including regional economic conditions, employment stability, and real estate values. The accrual of interest on loans is discontinued when the payment of principal or interest is considered to be in doubt, or when a loan becomes contractually past due by 90 days or more with respect to principal or interest, except for loans that are well secured and in the process of collection. As of September 30, 1998, the Company had nonperforming assets in the amount of $584,000, of which $544,000 represented three nonaccrual loans. Had these nonaccrual loans performed under their contractual terms approximately $22,237 in additional interest income would have been recognized during 1998. Also, as of September 30, 1998, the Company had one loan 90 days or more past due and still accruing in the amount of $40,000. This loan is well secured and in the process of collection. The following table sets forth the balance of nonperforming assets as of the dates indicated (dollar amounts in thousands): Nonperforming Assets September 30, December 31, 1998 1997 Nonaccrual loans $ 544 $ 69 Loans 90 days or more past due and still accruing 40 40 Other real estate owned 0 0 $ 584 $ 109 As a percent of total loans 0.56% 0.12% As a percent of total assets 0.35% 0.08% At September 30, 1998, the Company had loans identified as impaired in the amount of $584,000. At September 30, 1998, no specific allowance for possible credit losses was required for these impaired loans because they were adequately collateralized. Allowance for Possible Credit Losses. The Company maintains an allowance for possible credit losses ("APCL") which is reduced by credit losses and increased by credit recoveries and provisions to the APCL charged against operations. Provisions to the APCL and the total of the APCL are based, among other factors, upon the Company's credit loss experience, current and projected economic conditions, the performance of loans within the portfolio, evaluation of loan collateral value, and the prospects or worth of respective borrowers and guarantors. In determining the adequacy of its APCL and after carefully analyzing each loan individually, the Company segments its loan portfolio into pools of homogeneous loans that share similar risk factors. Each pool is given a risk assessment factor which largely reflects the expected future losses from each category. These risk assessment factors change as economic conditions shift and actual loan losses are recorded. As of September 30, 1998, the APCL of $1,062,000, or 1.01% of total loans was determined by management to be adequate against foreseeable future losses. No assurance can be given that nonperforming loans will not increase or that future losses will not exceed the amount of the APCL. The following table summarizes, for the periods indicated, loan balances at the end of each period and average balances during the period, changes in the APCL arising from credit losses, recoveries of credit losses previously incurred, additions to the APCL charged to operating expense, and certain ratios relating to the APCL (dollar amounts in thousands): Nine Months Year Ended Ended September 30, December 31, 1998 1997 Balances: Average loans during period (net of unearned income) $ 97,395 $ 82,893 Loans at end of period (net of unearned income) 104,976 88,186 Allowance for Possible Credit Losses: Balance at beginning of period 1,007 944 Actual credit losses: Commercial loans 17 105 Loans to consumers and individuals 3 Total 17 108 Actual credit recoveries: Commercial loans 1 51 Loans to consumers and individuals 1 Total 2 51 Net credit losses 15 57 Provision charged to operating expenses 70 120 Balance at end of period $ 1,062 $ 1,007 Ratios: Net credit losses to average loans 0.02% 0.07% Allowance for possible credit losses to loans at end of period 1.01% 1.14% Net credit losses to beginning of period allowance for credit losses 1.49% 6.04 The Company provided $35,000 to the allowance for possible credit losses during the third quarter of 1998 as compared to $20,000 during the third quarter of 1997. For the nine months ended September 30, 1998, the Company provided $70,000 to the allowance for possible credit losses as compared to $60,000 during the same period of 1997. The $35,000 provision in the third quarter of 1998 was recorded as a prudent measure, based upon growth in the loan portfolio. The following table sets forth the allocation of the APCL as of the dates indicated (dollar amounts in thousands): September 30, 1998 December 31, 1997 % of % of Category Category to Total to Total APCL Loans APCL Loans Commercial loans $ 600 43.75% $ 570 41.79% Real estate loans 227 52.00% 245 52.39% Consumer loans 40 4.25% 43 5.82% Not allocated 195 N/A 149 N/A Total $ 1,062 100.00% $ 1,007 100.00% The APCL is available to absorb losses from all loans, although allocations have been made for certain loans and loan categories. The allocation of the APCL as shown above should not be interpreted as an indication that charge-offs in future periods will occur in these amounts or proportions, or that the allocation indicates future charge-off trends. In addition to the most recent analysis of individual loans and pools of loans, management's methodology also places emphasis on historical loss data, delinquency and nonaccrual trends by loan classification category and expected loan maturity. This analysis, management believes, identifies potential losses within the loan portfolio and therefore results in allocation of a large portion of the allowance to specific loan categories. Investments. The Company continues to invest in callable U.S. government agency securities. These securities offer above market yields, but may be called if interest rates fall below certain levels. If these securities are called, the Company may not be able to reinvest the proceeds to obtain the same yield. The following tables set forth the amortized cost and approximate market value of investment securities as of the dates indicated (dollar amounts in thousands): Gross Gross Estimated Amortized Unrealized Unrealized Fair Carrying September 30, 1998: Cost Gains Losses Value Value Held to maturity securities: U.S. Government agencies $10,553 $ 64 $ $10,617 $10,553 Total held to maturity 10,553 64 10,617 10,553 Available for sale securities: U.S. Treasury 13,313 390 13,703 13,703 U.S. Government Agencies 15,224 282 15,506 15,506 Mortgage-backed Securities 1,338 12 1,350 1,350 Corporate securities 1,976 68 2,044 2,044 Municipal bonds 100 1 101 101 Total available for sale 31,951 753 32,704 32,704 Total investment securities $42,504 $ 817 $ $43,321 $43,257 Gross Gross Estimated Amortized Unrealized Unrealized Fair Carrying December 31, 1997: Cost Gains Losses Value Value Held to maturity securities: U.S. Government agencies $25,242 $ 44 $ (89) $25,197 $25,242 Total held to maturity 25,242 44 (89) 25,197 25,242 Available for sale securities: U.S. Treasury 5,004 29 5,033 5,033 U.S. Government agencies 1,000 (2) 998 998 Mortgage-backed Securities 2,176 (30) 2,146 2,146 Corporate securities 1.992 5 (1) 1,996 1,996 Municipal bonds 140 1 141 141 Total available for sale 10,312 35 (33) 10,314 10,314 Total investment securities $35,554 $ 79 $ (122) $35,511 $35,556 Deposits. Total consolidated deposits increased by $25.3 million, or 20.1%, during the nine months ended September 30, 1998. This increase was primarily the result of growth in existing operations, largely due to improved economic conditions in the Company's market areas. Rates paid on time deposits decreased during the nine months ended September 30, 1998 contributing to the decrease in the cost of funds to 3.33% during the nine months ended September 30, 1998 from 3.36% for the year ended December 31, 1997. The following table summarizes the distribution of average deposits and the average rates paid for the periods indicated (dollar amounts in thousands): Nine Months Ended Year Ended September 30, 1998 December 31, 1997 Average Average Average Average Balance Rate Balance Rate Noninterest-bearing demand deposits $ 30,010 $ 27,019 Interest-bearing demand deposits (includes money market deposit accounts) 85,402 4.07% 78,521 4.10% Savings deposits 1,772 1.92% 1,928 1.93% Time deposits, $100,000 and over 12,306 5.33% 10,214 5.42% Other time deposits 8,065 5.09% 8,080 5.13% Total interest-bearing 107,545 4.26% 98,743 4.28% Total deposits $137,555 3.33% $125,762 3.36% The following table sets forth the time remaining to maturity of the Company's time deposits in amounts of $100,000 or more as of the dates indicated below (dollar amounts in thousands): September 30, December 31, Time remaining to maturity 1998 1997 Three months or less $ 3,280 $ 4,359 After three months to six months 3,380 3,388 After six months to one year 5,965 3,388 After twelve months 700 430 Total $ 13,325 $ 11,565 RESULTS OF OPERATIONS Net Interest Income / Net Interest Margin. Net interest income for the quarter ended September 30, 1998 was $2,223,000, an increase of 16.6% over the net interest income of $1,906,000 during the same period of 1997. Net interest income for the nine months ended September 30, 1998 was $6,283,000, an increase of 17.9% over the net interest income of $5,330,000 during the same period of 1997. The increase in both periods was primarily due to the growth in average loans, largely due to improved economic conditions in the Company's market areas. The following table sets forth average assets, liabilities, and shareholders' equity; the amount of interest income or interest expense; and the average yield or rate for each category of interest-bearing assets and interest-bearing liabilities and the net interest margin (net interest income divided by average earning assets) for the periods indicated (dollar amounts in thousands): For the quarter ended September 30, 1998 1997 Average Average Balance Interest Rate Balance Interest Rate ASSETS Federal funds sold $ 11,382 $ 154 5.41% $ 5,801 $ 80 5.52% Interest-bearing deposits with banks 286 4 5.59% 338 5 5.92% Investment securities 34,289 507 5.92% 42,168 682 6.47% Loans 103,558 2,788 10.77% 83,380 2,235 10.72% Total earning assets 149,515 3,453 9.24% 131,687 3,002 9.12% Total non-earning assets 11,937 11,051 Total assets $161,452 $142,738 LIABILITIES & SHAREHOLDERS' EQUITY Demand deposits $ 30,899 $ 27,957 Interest-bearing transaction accounts 92,480 $ 936 4.05% 81,569 $ 836 4.10% Time deposits, $100,000 or more 12,722 173 5.44% 10,292 143 5.56% Savings and other time 10,168 114 4.48% 9,780 111 4.54% Total interest-bearing deposits 115,370 1,223 4.24% 101,641 1,090 4.29% Other borrowings 514 7 5.45% 484 6 4.96% Total interest-bearing liabilities 115,884 1,230 4.25% 102,125 1,096 4.29% Other liabilities 1,308 1,414 Shareholders' equity 13,361 11,242 Total liabilities and shareholders' equity $161,452 $142,738 Net interest income $2,223 $1,906 Net interest margin 5.95% 5.79% For the nine months ended September 30, 1998 1997 Average Average Balance Interest Rate Balance Interest Rate ASSETS Federal funds sold $ 9,216 $ 370 5.35% $ 6,214 $ 250 5.36% Interest-bearing deposits with banks 286 13 6.06% 369 17 6.14% Investment securities 34,293 1,563 6.09% 39,059 1,878 6.42% Mortgage loans held for sale 87 5 7.66% Loans 96,379 7,790 10.78% 80,354 6,335 10.51% Total earning assets 140,174 9,736 9.26% 126,083 8,485 8.98% Total non-earning assets 11,827 10,840 Total assets $152,001 $136,923 LIABILITIES & SHAREHOLDERS' EQUITY Demand deposits $ 30,010 $ 26,069 Interest-bearing transaction accounts 85,402 2,609 4.07% 78,476 2,403 4.08% Time deposits, $100,000 or more 12,306 492 5.33% 9,692 392 5.39% Savings and other time 9,837 334 4.53% 10,041 339 4.50% Total interest-bearing deposits 107,545 3,435 4.26% 98,209 3,134 4.25% Other borrowings 481 18 4.99% 597 21 4.69% Total interest-bearing liabilities 108,026 3,453 4.26% 98,806 3,155 4.26% Other liabilities 1,197 1,260 Shareholders' equity 12,768 10,788 Total liabilities and shareholders' equity $152,001 $136,923 Net interest income $6,283 $5,330 Net interest margin 5.98% 5.64% The net interest margin increased to 5.95% during the third quarter of 1998 from 5.79% in the same quarter of 1997. For the nine months ended September 30, 1998, the net interest margin increased to 5.98% from 5.64% during the same period of 1997. The increase in both periods was primarily attributable to growth in average loans as a percentage of earning assets. The increase in average loans was largely due to the improved economic conditions in the Company's market areas. The following table presents the dollar amount of changes in interest earned and interest paid for each major category of interest-earning asset and interest-bearing liability and the amount of change attributable to average balances (volume) fluctuations and average rate fluctuations for the periods indicated. The variance attributable to both balance and rate fluctuations is allocated to a combined rate/volume variance (dollar amounts in thousands): Quarter Ended Nine Months Ended Septmeber 30, 1998 September 30, 1998 Compared to Compared to Quarter Ended Nine Months Ended September 30, 1997 September 30, 1997 Change in Change in Rate/ Rate/ Volume Rate Volume Total Volume Rate Volume Total Interest Income: Federal funds sold $77 ($2) ($2) $73 $121 $0 $0 $121 Interest-bearing deposits with banks (1) 0 0 (1) (4) 0 0 (4) Investment securities (127) (58) 11 (174) (229) (97) 12 (314) Mortgage loans held for sale (5) 0 0 (5) Loans 540 10 3 553 1,258 163 32 1,453 Total Interest Income 489 (50) 12 451 1,141 66 44 1,251 Interest Expense: Interest-bearing transaction accounts 111 (10) (1) 100 211 (6) (1) 204 Time deposits, $100,000 or more 34 (3) (1) 30 105 (4) (1) 100 Savings and other time 4 (1) 0 3 (5) 2 0 (3) Other borrowings 0 1 0 1 (4) 1 0 (3) Total Interest Expense 149 (13) (2) 134 307 (7) (2) 298 Net Interest Income $340 ($37) $14 $317 $834 $73 $46 $953 Noninterest Income. The following table summarizes noninterest income for the periods indicated and expresses the amounts as a percentage of average assets (dollar amounts in thousands): Quarter Ended Nine Months Ended September 30, September 30, Components of Noninterest Income 1998 1997 1998 1997 Gain on sale of loans $ 18 $ 26 $ 137 $ 116 Service fees on deposit accounts 129 125 373 361 Loan servicing fees 11 8 32 23 Other 45 56 192 125 Total $ 203 $ 215 $ 734 $ 625 As a Percentage of Average Assets (Annualized) Gain on sale of loans 0.04% 0.07% 0.12% 0.11% Service fees on deposit accounts 0.32% 0.35% 0.32% 0.35% Loan servicing fees 0.03% 0.02% 0.03% 0.02% Other 0.11% 0.16% 0.17% 0.12% Total 0.50% 0.60% 0.64% 0.60% Noninterest Expense. The following table summarizes noninterest expenses and the associated ratios to average assets for the periods indicated (dollar amounts in thousands): Quarter Ended Nine Months Ended September 30, September 30, Components of Noninterest Expense 1998 1997 1998 1997 Salaries and employee benefits $ 922 $ 709 $ 2,707 $ 2,255 Occupancy expense 214 201 648 583 Furniture and equipment expense 99 74 313 248 Professional services 101 166 214 268 Supplies 66 49 215 151 Promotional expenses 57 47 247 152 Data processing fees 80 106 242 253 Regulatory assessments 18 16 49 45 Other 97 87 340 275 Total $ 1,654 $ 1,455 $ 4,975 $ 4,230 Average full-time equivalent employees 56 46 55 48 As a Percentage of Average Assets (Annualized) Salaries and employee benefits 2.28% 1.99% 2.37% 2.20% Occupancy expense 0.53% 0.56% 0.57% 0.57% Furniture and equipment expense 0.25% 0.21% 0.27% 0.24% Professional services 0.25% 0.47% 0.19% 0.26% Supplies 0.16% 0.14% 0.19% 0.15% Promotional expenses 0.14% 0.13% 0.22% 0.15% Data processing fees 0.20% 0.30% 0.21% 0.25% Regulatory assessments 0.05% 0.04% 0.04% 0.04% Other 0.24% 0.24% 0.30% 0.27% Total 4.10% 4.08% 4.36% 4.13% Noninterest expense increased to $1.7 million during the third quarter of 1998 from $1.5 million during the same period of the prior year. For the nine months ended September 30, 1998, noninterest expense increased to $5.0 million from $4.2 million during the same period of the prior year. In January, 1998, the Company opened a branch office in San Francisco which contributed to the increase in noninterest expense during the third quarter of 1998 and for the nine months ended September 30, 1998. Year 2000. The Year 2000 creates challenges with respect to the automated systems used by financial institutions and other companies. Many software programs are not able to recognize the year 2000, since most programs and systems were designed to store calendar years in the 1900's by assuming the "19" and storing only the last two digits of the year. For example, these automated systems would recognize a year stored as "00" as the year "1900", rather than as the year "2000". If these automated systems are not appropriately re-coded, updated or replaced before the year 2000, they will likely crash or fail in some manner. In addition, many software programs and automated systems will fail to recognize the year 2000 as a leap year. The problem is not limited to computer systems. Year 2000 issues will potentially affect every system that has an embedded microchip, such as automated teller machines, elevators and vaults. The year 2000 challenge is especially problematic for financial institutions, since many transactions such as interest accruals and payments are date sensitive. It also may affect the operations of third parties with whom the Company does business, including the Company's vendors, suppliers, utility companies and customers. The Company's State of Readiness. The Company is committed to addressing these year 2000 challenges in a prompt and responsible manner and has dedicated resources to do so. Management has completed an assessment of its automated systems and has implemented a plan to resolve these issues, including purchasing appropriate computer technology. The Company's year 2000 compliance plan ("Plan") has five phases. These phases are (1) project management, (2) awareness, (3) assessment, (4) testing, and (5) renovation and implementation. The Company has substantially completed phases one through four, although appropriate follow-up activities are continuing to occur. The Company is currently involved in the renovation and implementation phase of the Plan. Project Management. The Company's senior management provides periodic reports to its board of directors in order to assist them in overseeing the Company's year 2000 readiness. Awareness. The Company has completed several projects designed to promote awareness of year 2000 issues throughout the Company and the Company's customer base. These projects include mailing information to deposit and loan customers, providing training for lending officers and other staff, and responding to vendor, customer, and shareholder inquiries. Assessment. Assessment is the process of identifying all mission-critical applications that could potentially be negatively affected by dates in the year 2000 and beyond. The Company's assessment phase is substantially complete. Systems examined during this phase included telecommunications systems, account- processing applications, and other software and hardware used in connection with customer accounts. The Company's operations, like those of many other companies, are intertwined with the operations of certain of its business partners. Accordingly, the Company's operations could be materially affected if the operations of those companies who provide the Company with mission critical applications, systems, and services are materially affected. For example, the Company depends upon vendors who provide equipment, technology, and software to it in connection with its business operations. Failure of these software vendors to achieve year 2000 readiness could substantially affect the operations of the Company. In addition, lawsuits and other financial challenges materially affecting the financial viability of these vendors could materially affect the Company. In response to this concern, the Company has identified and contacted those vendors who provide our mission-critical applications. The Company has assessed their year 2000 compliance efforts and will continue to monitor their progress as the year 2000 approaches. Testing. Updating and testing of the Company's mission-critical automated systems is substantially complete. Testing of modified or new systems will continue throughout 1998 and 1999. Renovation and Implementation. This phase involves obtaining and implementing renovated software applications provided by our vendors. As these applications are received and implemented, the Company will test them for year 2000 compliance. This phase also involves upgrading and replacing automated systems where appropriate and will continue throughout 1998 and 1999. Although this phase will be substantially complete before the end of 1999, additional follow-up activities may take place in the year 2000 and beyond. The Costs to Address the Company's Year 2000 Issues. The total financial effect of these year 2000 challenges on the Company cannot be predicted with certainty at this time. In fact, in spite of all efforts being made to rectify these problems, the success of these efforts cannot be predicted until the year 2000 actually arrives. The Company upgraded and replaced its data processing and network system in 1997. The Company spent a total of approximately $500,000 on this conversion. The Company will continue to upgrade or replace certain automated systems before the year 2000; however some of these systems would have been replaced before the year 2000 without regard to year 2000 compliance issues, due to technology updates and Company expansion. Management does not believe that future expenses related to meeting the Company's year 2000 challenges will have a material effect on the operations or financial performance of the Company. However, factors beyond the control of management, such as the effects on vendors of our mission-critical software and systems, the effects of year 2000 issues on the economy, and the development of the risks identified below under "The Risks of the Company's Year 2000 Issues," among other things, could have a material effect on the operations or financial performance of the Company. The Risks of the Company's Year 2000 Issues. The year 2000 presents certain risks to the Company and its operations. Some of these risks are present because the Company purchases technology applications from other parties who face year 2000 challenges. Other of these risks are inherent in the business of banking or are risks faced by many other companies in other industries. Although it is impossible to identify every possible risk that the Company may face moving into the new millennium, management has to date identified the following potential risks: 1. Commercial banks, such as the Company, may experience a contraction in their deposit base if a significant amount of deposited funds are withdrawn by customers prior to the year 2000. Also, interest rates may increase in the latter part of 1999. This potential deposit contraction could make it necessary for the Company to change its sources of funding and could materially impact future earnings. The Company is currently developing a contingency plan for addressing this situation, should it occur. 2. The Company lends significant amounts to businesses in its market area. If these businesses are adversely affected by year 2000 issues, their ability to repay loans could be impaired. This increased credit risk could affect the Company's financial performance. As part of the Company's Plan, its primary borrowers were identified and the assessment of their year 2000 readiness and risk to the Company is in progress. 3. The Company's operations, like those of many other companies, can be affected by the year 2000 triggered failures of other companies upon whom the Company depends for the functioning of its automated systems. Accordingly, the Company's operations could be materially affected if the operations of those companies who provide the Company with mission critical systems and services are materially affected. As described above, the Company has identified its mission-critical vendors and is monitoring their year 2000 compliance progress. 4. All companies with publicly traded stock, including the Company, could experience a drop in stock price as investors change their investment portfolios or sell stock prior to the new millennium. At this time, it is impossible to predict whether or not this will in fact be the case with respect to the stock of the MCB Financial Corporation or any other company. 5. The Company's ability to operate effectively in the year 2000 could be affected by communications abilities and access to utilities, such as electricity, water and telephone. To the extent access is interrupted due to the effects of year 2000 issues on these and other utilities, the operations of the Company will be disrupted. The Company's Contingency Plans. The Company is currently developing a contingency plan to handle the most reasonably likely worst case scenarios related to year 2000 issues. This plan will range from obtaining mission- critical system back-up capabilities to funds management contingencies. Income Taxes. The Company's effective tax rate was 40.6% for the quarter ended September 30, 1998 compared to 41.3% in the same period of the prior year. For the nine months ended September 30, 1998, the effective tax rate was 40.9% compared to 41.1% in the same period of the prior year. Liquidity and Asset / Liability Management. Liquidity is the Company's ability to absorb fluctuations in deposits while simultaneously providing for the credit needs of its borrowers. The objective in liquidity management is to balance the sources and uses of funds. Primary sources of liquidity for the Company include payments of principal and interest on loans and investments, proceeds from the sale or maturity of loans and investments, growth in deposits, and other borrowings. The Company holds overnight federal funds as a cushion for temporary liquidity needs. During the nine months ended September 30, 1998, federal funds sold averaged $9.2 million, or 6.1% of total assets. In addition to its federal funds, the Company maintains various lines of credit with correspondent banks, the Federal Reserve Bank of San Francisco, and the Federal Home Loan Bank of San Francisco. At September 30, 1998, the Company had cash, time deposits with banks, federal funds sold, and unpledged investment securities of approximately $53.1 million, or 31.9% of total assets. This represented all available liquid assets. Several methods are used to measure liquidity. One method is to measure the balance between loans and deposits (gross loans divided by total deposits). In general, the closer this ratio is to 100%, the more reliant an institution becomes on its illiquid loan portfolio to absorb temporary fluctuations in deposit levels. At September 30, 1998, the loan-to-deposit ratio was 69.3% as compared to 69.9% at December 31, 1997. Another frequently used method is the relationship between short-term liquid assets (federal funds sold and investments maturing within one year) and short- term liabilities (total deposits and other borrowings) as measured by the liquidity ratio. The Company targets a minimum ratio of 5%. At September 30, 1998, this ratio was 3.85% as compared to 6.3% at December 31, 1997. Although the liquidity ratio was below target at September 30, 1998, the ratio increased after that date to 9.06% at October 31, 1998. As of September 30, 1998, the Company had no material commitments that were expected to adversely impact liquidity. Net interest income and the net interest margin are largely dependent on the Company's ability to closely match interest-earning assets with interest-bearing liabilities. As interest rates change, the Company must constantly balance maturing and repricing liabilities with maturing and repricing assets. This process is called asset/liability management and is commonly measured by the maturity/repricing gap. The maturity/repricing gap is the dollar difference between maturing or repricing assets and maturing or repricing liabilities at different intervals of time. The following table sets forth rate sensitive interest-earning assets and interest-bearing liabilities as of September 30, 1998, the interest rate sensitivity gap (i.e. interest sensitive assets minus interest sensitive liabilities), the cumulative interest rate sensitivity gap, the interest rate sensitivity gap ratio (interest sensitive assets divided by interest sensitive liabilities) and the cumulative interest rate sensitivity gap ratio. For the purposes of the following table, an asset or liability is considered rate sensitive within a specified period when it matures or can be repriced within that period pursuant to its original contractual terms (dollar amounts in thousands): September 30, 1998 After One Over 90 Over 180 Year After 90 days days to days to to Five Five or less 180 days 365 days Years Years Total Earning Assets (Rate Sensitive): Federal funds sold $ 5,000 $ 5,000 Interest-bearing deposits with other banks 196 $ 90 286 Investment securities 96 96 $ 389 $31,551 $10,372 42,504 Loans, gross of allowance for possible losses 44,604 757 4,432 40,296 14,887 104,976 Total 49,896 943 4,821 71,847 25,259 152,766 Interest-Bearing Liabilities (Rate Sensitive): Interest-bearing transaction deposits 41,032 53,836 94,868 Time deposits, $100,000 or more 3,280 3,380 5,965 700 13,325 Savings and other time deposits 2,531 1,395 3,586 2,700 10,212 Other borrowings 306 306 Total 6,117 4,775 50,583 57,236 $118,711 Period GAP $43,779 $(3,832) $(45,762) $14,611 $25,259 Cumulative GAP $43,779 $39,947 $ (5,815) $ 8,796 $34,055 Interest Sensitivity GAP Ratio 87.74% (406.36%) (949.22%) 20.34% 100.00% Cumulative Interest Sensitivity 87.74% 78.58% (10.45%) 6.90% 22.29% The Company classifies its interest-bearing transaction accounts and savings accounts into the over 180 days to 365 days time period as well as the after one year to five years time period. This is done to adjust for the insensitivity of these accounts to changes in interest rates. Although rates on these accounts can contractually be reset at the Company's discretion, historically these accounts have not demonstrated strong correlation to changes in the prime rate. Generally, a positive gap at one year indicates that net interest income and the net interest margin will increase if interest rates rise in the future. A negative gap at one year indicates that net interest income and the net interest margin will decrease if interest rates rise in the future. The Company neither currently utilizes financial derivatives to hedge its asset/liability position nor has any plans to employ such strategies in the near future. Capital Resources. The principal source of capital for the Company is and will continue to be the retention of operating profits. The ratios of average equity to average assets for the periods indicated are set forth below. Nine Months Ended Year Ended September 30, 1998 December 31, 1997 8.40% 7.96% Regulatory authorities have issued guidelines to implement risk-based capital requirements. The guidelines establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations. Capital is classified into two components: Tier 1 (primarily shareholder's equity) and Tier 2 (supplementary capital including allowance for possible credit losses, certain preferred stock, eligible subordinated debt, and other qualifying instruments). The guidelines require that qualifying capital be 8% of risk-based assets, of which at least 4% must be Tier 1 capital. As of September 30, 1998, the Company's qualifying capital ratio was 11.80% and its Tier 1 capital ratio was 10.90%. In addition, the Company, under the guidelines established for adequately capitalized institutions, must also maintain a minimum leverage ratio (Tier 1 capital divided by total assets) of 4%. As of September 30, 1998, the Company's leverage ratio was 7.99%. It is the Company's intention to maintain risk-based capital ratios at levels characterized as "well-capitalized" for banking organizations: Tier 1 risk-based capital of 6 percent or above and total risk- based capital at 10 percent or above. On October 8, 1998, the Company's Board of Directors authorized the Company to repurchase an additional $500,000 of the Company's common stock in addition to the $500,000 authorized pursuant to the existing repurchase program announced in 1994, of which $395,000 remained available at September 30, 1998. The new repurchase program authorizes the Company to repurchase and retire up to $500,000 of its common stock in open market and private transactions from time to time depending on market conditions and pursuant to the rules and regulations of the Securities and Exchange Commission. The Company's strong capital position and healthy profitability contributed to the initiation of this program, which is being implemented to optimize the Company's use of equity capital and enhance shareholder value. As of November 12, 1998, no amounts remained available under the repurchase program announced in 1994 and $268,000 remained available under the additional repurchase program authorized on October 8, 1998. PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities On July 23, 1998, the Company's Board of Directors declared a 3-for-2 stock split of the Company's common stock. On August 20, 1998, the Company amended and restated its Articles of Incorporation to effect this stock split. Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K. (a) List of Exhibits: (3)(a) -- Restated Articles of Incorporation (3)(b) -- By-laws (incorporated by reference to the registrant's registration statement on Form S-4 (File No. 33- 76832)) (10)(a)(1) -- Stock Option Plan (incorporated by reference to the registrant's registration statement on Form S-4 (File No. 33- 76832)) (10)(a)(2) -- Deferred Compensation Plan for Executives (incorporated by reference to Exhibit (10)(a)(2) to the registrant's Annual Report on Form 10-KSB for its fiscal year ended December 31, 1994). (10)(b) -- Leases (10)(b)(1) -- San Rafael Office Lease (incorporated by reference to Exhibit (10)(b)(1) to the registrant's Annual Report on Form 10-KSB for its fiscal year ended December 31, 1994). (10)(b)(2) -- South San Francisco Office Lease (incorporated by reference to Exhibit (10)(b)(2) to the registrant's Annual Report on Form 10-KSB for its fiscal year ended December 31, 1994). (10)(b)(3) -- Hayward Office Lease (incorporated by reference to Exhibit (10)(b)(3) to the registrant's Annual Report on Form 10-KSB for its fiscal year ended December 31, 1994). (10)(b)(4) -- Upland Office Lease (incorporated by reference to Exhibit (10)(b)(4) to the registrant's Annual Report on Form 10-KSB for its fiscal year ended December 31, 1994). (10)(b)(5) -- San Francisco Office Lease (incorporated by reference to Exhibit (10)(b)(5) to the registrant's Annual Report on Form 10-KSB for its fiscal year ended December 31, 1997). (27) -- Financial Data Schedule (b) Reports on Form 8-K. The Company filed the following Current Report on Form 8-K: (i) A Current Report on Form 8-K dated October 20, 1998, pertaining to an additional Common Stock Repurchase Program. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MCB FINANCIAL CORPORATION (Registrant) Date: November 13, 1998 /s/ Patrick E. Phelan Patrick E. Phelan Chief Financial Officer (Principal Accounting Officer and officer authorized to sign on behalf of the registrant) Exhibit 3(a) RESTATED ARTICLES OF INCORPORATION OF MCB FINANCIAL CORPORATION ARTICLE I The name of this corporation is: MCB FINANCIAL CORPORATION ARTICLE II The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. ARTICLE III (a) This corporation is authorized to issue two classes of shares designated "Preferred Stock" and "Common Stock," no par value per share, respectively. The number of shares of Preferred Stock authorized to be issued is 20,000,000 and the number of shares of Common Stock authorized to be issued is 20,000,000. Upon the amendment of this Article III as set forth herein, each outstanding share of Common Stock is divided into one and one-half shares of Common Stock. (b) The Preferred Stock may be divided into such number of series as the Board of Directors may determine. The Board of Directors is authorized to determine and alter the rights, preferences, privileges and restrictions granted to and imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. ARTICLE IV (a) The liability of directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. (b) The corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through Bylaw provisions, agreements with agents, vote of shareholders or disinterested directors, or otherwise, to the fullest extent permissible under California law. (c) Any amendment, repeal or modification of any provision of this Article IV shall not adversely affect any right or protection of an agent of this corporation existing at the time of such amendment, repeal or modification. EX-27 2
9 1,000 9-MOS DEC-31-1998 SEP-30-1998 8,989 286 5,000 0 32,704 10,553 10,617 104,976 1,062 166,562 151,431 306 1,134 0 0 0 10,400 3,291 166,562 7,790 1,576 370 9,736 3,435 3,453 6,283 0 0 4,975 1,972 1,972 0 0 1,165 .56 .53 9.26 544 40 0 0 1,007 17 2 1,062 867 0 195
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