-----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, LljiPt1nrjy29TrdBCQz28sETHp0Uww1Y3J66/uIuLIgV8AvryAU8oFYyl55NQ+5 2FtY5qAbbXNS7ZwTBpdgYw== 0000902789-00-000004.txt : 20000516 0000902789-00-000004.hdr.sgml : 20000516 ACCESSION NUMBER: 0000902789-00-000004 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: 001-15479 FILM NUMBER: 633382 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 March 31, 2000 [ ] 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: May 9, 2000 Class Common stock, no par value 2,030,181 PART I - FINANCIAL INFORMATION Item 1. Financial Statements: MCB FINANCIAL CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS Dollar amounts in thousands December 31, March 31, 1999 2000 ASSETS (Unaudited) Cash and due from banks $ 6,556 $ 16,678 Federal funds sold 10,400 14,900 Total cash and cash equivalents 16,956 31,578 Interest-bearing deposits with banks 286 286 Investment securities available for sale at fair value 34,118 26,144 Investment securities held to maturity; fair values of $1,979 in 1999 and $1,975 in 2000 2,000 2,000 Loans held for investment (net of allowance for possible credit losses of $1,492 in 1999 and $1,642 in 2000 136,474 143,733 Premises and equipment, net 2,791 2,853 Accrued interest receivable 1,077 1,124 Deferred income taxes 1,068 1,081 Other assets 1,349 1,389 Total assets $ 196,119 $ 210,188 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits: Noninterest-bearing $ 41,011 $ 50,014 Interest-bearing: Transaction accounts 112,742 117,117 Time certificates, $100,000 and over 14,471 14,724 Savings and other time deposits 11,560 11,551 Total interest-bearing deposits 138,773 143,392 Total deposits 179,784 193,406 Other borrowings 750 750 Accrued interest payable and other liabilities 1,188 1,487 Total liabilities 181,722 195,643 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; issued and outstanding 2,078,501 shares in 1999 and 2,030,181 shares in 2000 10,750 10,512 Accumulated other comprehensive income (518) (535) Retained earnings 4,165 4,568 Total shareholders' equity 14,397 14,545 Total liabilities and shareholders' equity $ 196,119 $ 210,188 See notes to condensed consolidated financial statements. MCB FINANCIAL CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Dollar amounts in thousands, March 31, except per share amounts 1999 2000 (Unaudited) INTEREST INCOME: Loans, including fees $ 2,864 $ 3,573 Federal funds sold 34 134 Investment securities 538 483 Total interest income 3,436 4,190 INTEREST EXPENSE: Interest-bearing transaction, savings and other time deposits 876 1,070 Time certificates, $100,000 and over 155 179 Other interest 9 7 Total interest expense 1,040 1,256 NET INTEREST INCOME 2,396 2,934 PROVISION FOR POSSIBLE CREDIT LOSSES 90 120 NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE CREDIT LOSSES 2,306 2,814 OTHER INCOME: Gain on sale of loans 52 15 Service fees on deposit accounts 163 129 Loan servicing fees 11 13 Gain on sale of investment securities 19 (2) Other 46 56 Total other income 291 211 OTHER EXPENSES: Salaries and employee benefits 975 1,069 Occupancy expense 227 254 Furniture and equipment expense 101 110 Professional services 130 54 Supplies 59 71 Promotional expenses 113 129 Data processing fees 110 88 Regulatory assessments 9 15 Other 91 128 Total other expenses 1,815 1,918 INCOME BEFORE INCOME TAXES 782 1,107 INCOME TAX PROVISION 321 454 NET INCOME $ 461 $ 653 BASIC EARNINGS PER SHARE $ 0.22 $ 0.32 DILUTED EARNINGS PER SHARE $ 0.21 $ 0.30 See notes to condensed consolidated financial statements MCB FINANCIAL CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended Dollar amounts in thousands March 31, 1999 2000 (Unaudited) Net income $ 461 $ 653 Other comprehensive income (loss) Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period, net of tax (280) (16) Reclassification adjustment for gains (losses) included in net income, net of tax 11 (1) Other comprehensive income (loss) (269) (17) Comprehensive income $ 192 $ 636 See notes to condensed consolidated financial statements. MCB FINANCIAL CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Dollar amounts in thousands Ended March 31, 1999 2000 CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) Net income $ 461 $ 653 Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible credit losses 90 120 Depreciation and amortization 130 23 (Gain) loss on sale of investment securities, net (19) 2 Decrease (increase) in accrued interest receivable 97 (47) Increase in other assets (106) (40) Increase in accrued interest payable and other liabilities 370 305 Net cash provided by operating activities 1,023 1,016 CASH FLOWS FROM INVESTING ACTIVITIES: Held to maturity securities: Calls 1,000 Available for sale securities: Maturities 263 3,000 Purchases (6,925) Sales 4,117 11,957 Net increase in loans held for investment (5,375) (7,379) Purchases of premises and equipment (193) (179) Net cash used by investing activities (188) 474 CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in noninterest-bearing demand deposits 816 9,003 Net increase in interest-bearing transaction, savings and other time deposits 396 4,619 Net increase in other borrowings 148 Cash dividends paid (21) Proceeds from the exercise of stock options 128 12 Purchases of common stock (338) (481) Net cash provided by financing activities 1,150 13,132 NET INCREASE IN CASH AND CASH EQUIVALENTS 1,985 14,622 CASH AND CASH EQUIVALENTS: Beginning of period 12,004 16,956 End of period $ 13,989 $ 31,578 CASH PAID DURING THE PERIOD FOR: Interest on deposits and other borrowings $ 1,041 $ 1,214 Income taxes 180 $ 95 See notes to condensed consolidated financial statements. MCB FINANCIAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 1. BASIS OF PRESENTATION - 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, 1999. 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 three months ended March 31, 2000 may not be indicative of operating results for the year ending December 31, 2000. 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. 2. EARNINGS PER SHARE - Basic earnings per share is computed by dividing net income by the number of weighted average common shares outstanding. Diluted earnings per share reflects potential dilution from outstanding stock options, using the treasury stock method. The number of weighted average shares used in computing basic and diluted earnings per share are as follows: In thousands Three months ended March 31, 1999 2000 Basic shares 2,096 2,054 Dilutive effect of stock options 110 118 Diluted shares 2,206 2,172 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 months ended March 31, 2000 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 and liquidity risks. 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, 1999. OVERVIEW EARNINGS SUMMARY. The Company reported net income of $653,000, or $0.32 per share basic and $0.30 per share diluted, for the first quarter of 2000. This compares to net income of $461,000, or $0.22 per share basic and $0.21 per share diluted, for the same period in 1999. Growth in average loans as a percentage of earning assets contributed to a 22% increase in interest income and an increase in the net interest margin to 6.38%. Return on average assets and return on average equity for the first quarter of 2000 were 1.32% and 17.91%, respectively, as compared to 1.11% and 13.86%, respectively, for the same period of 1999. FINANCIAL CONDITION SUMMARY. Total assets of the Company increased by $14.1 million, or 7.2%, from the end of 1999 to reach $210.2 million at March 31, 2000. LOANS HELD FOR INVESTMENT. Net loans held for investment increased by $7.3 million, or 5.3%, during the first three months of 2000 as demand for commercial real estate loans increased. The following table sets forth the amount of total loans outstanding by category as of the dates indicated (dollar amounts in thousands): Total Loans December 31, March 31, 1999 2000 Commercial $ 23,413 $ 22,878 Real estate: Commercial 83,737 92,421 Construction 23,546 21,236 Land 4,440 5,924 Home equity 1,289 1,434 Loans to consumers and individuals 1,672 1,617 Total 138,097 145,510 Deferred loan fees (131) (135) Allowance for possible credit losses (1,492) (1,642) Total net loans $ 136,474 $ 143,733 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 $121.5 million, or 83.5% of the total portfolio as of March 31, 2000. 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 March 31, 2000 the two largest industry concentrations within the loan portfolio were real estate and related services at 30.1% and the services - personal/business industry at 21.7% 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 March 31, 2000, the Company had nonperforming assets in the amount of $1,747,000, of which $1,707,000 represented two nonaccrual loans. Had these nonaccrual loans performed under their contractual terms, approximately $42,000 in additional interest income would have been recognized during 2000. In April, 2000 the nonaccrual loan balance was reduced from $1,707,000 to $126,000 due to the close of escrow on one of the properties securing one of the nonaccrual loans. At March 31, 2000, the Company had one loan 90 days or more past due and still accruing in the aggregate 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 December 31, March 31, 1999 2000 Nonaccrual loans $ 1,707 $ 1,707 Loans 90 days or more past due and still accruing 40 40 $ 1,747 $ 1,747 As a percent of total loans 1.27% 1.20% As a percent of total assets 0.89% 0.83% No specific allowance for possible credit losses was applied to the nonaccrual loans because they were adequately collateralized. At March 31, 2000, the Company had loans identified as impaired in the amount of $1,747,000. At March 31, 2000, 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 March 31, 2000, the APCL of $1,642,000, or 1.13% 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): At and For At and For the the Year Ended Three Months Ended December 31, March 31, 1999 2000 Balances: Average loans during period $125,035 $139,943 Loans at end of period 137,966 145,375 Allowance for Possible Credit Losses: Balance at beginning of period 1,117 1,492 Actual credit losses: Commercial 62 Consumer Total 62 0 Actual credit recoveries: Commercial loans 72 30 Consumer Total 72 30 Net credit losses (recoveries) (10) (30) Provision charged to operating expenses 365 120 Balance at end of period $ 1,492 $ 1,642 Ratios: Net credit losses (recoveries) to average loans (0.01)% (0.02)% Allowance for possible credit losses to loans at end of period 1.08% 1.13% Net credit losses (recoveries) to beginning of period allowance for credit losses (0.90)% (2.01)% The Company provided $120,000 to the allowance for possible credit losses during the first quarter of 2000 as compared to $90,000 during the first quarter of 1999. The provision during the first quarter of 2000 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): December 31, 1999 March 31, 2000 % of % of Category Category to Total to Total APCL Loans APCL Loans Commercial loans $ 904 47.87% $ 897 44.79% Real estate loans 260 48.98% 287 51.80% Consumer loans 30 3.15% 32 3.41% Not allocated 298 N/A 426 N/A Total $ 1,492 100.00% $ 1,642 100.00% 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 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 March 31, 2000: Cost Gains Losses Value Value Held to maturity securities: U.S. Government agencies $ 2,000 $ (25) $ 1,975 $ 2,000 Total held to maturity 2,000 (25) 1,975 2,000 Available for sale securities: U.S. Treasury 13,988 $ 10 (299) 13,699 13,699 U.S. Government agencies 11,127 (591) 10,536 10,536 Corporate securities 1,945 (36) 1,909 1,909 Total available for sale 27,060 10 (926) 26,144 26,144 Total investment securities $29,060 $ 10 $ (951) $28,119 $28,144 Gross Gross Estimated Amortized Unrealized Unrealized Fair Carrying December 31, 1999: Cost Gains Losses Value Value Held to maturity securities: U.S. Government agencies $ 2,000 $ (21) $ 1,979 $ 2,000 Total held to maturity 2,000 (21) 1,979 2,000 Available for sale securities: U.S. Treasury 21,920 (320) 21,600 21,600 U.S. Government agencies 11,134 (537) 10,597 10,597 Corporate securities 1.950 (29) 1,921 1,921 Total available for sale 35,004 (886) 34,118 34,118 Total investment securities $37,004 $ $ (907) $36,097 $36,118 DEPOSITS. Total consolidated deposits increased by $13.6 million, or 7.6%, during the three months ended March 31, 2000. Approximately $7 million in short-term deposits were received from a customer in March, 2000 and subsequently withdrawn in April, 2000. The remaining increase in deposits was due to growth in the Company's existing operations. Rates paid on deposits increased during the three months ended March 31, 2000 contributing to the increase in the cost of funds to 2.77% for the three months ended March 31, 2000 as compared to 2.73% for the year ended December 31, 1999. The following table summarizes the distribution of average deposits and the average rates paid for the periods indicated (dollar amounts in thousands): Year Ended Three Months Ended December 31, 1999 March 31, 2000 Average Average Average Average Balance Rate Balance Rate Noninterest-bearing demand deposits $ 40,290 $ 46,108 Interest-bearing demand deposits (includes money market deposit accounts) 98,954 3.42% 108,821 3.51% Savings deposits 2,259 1.90% 2,233 1.91% Time deposits, $100,000 and over 13,477 4.85% 14,207 5.05% Other time deposits 8,816 4.41% 9,201 4.57% Total interest-bearing 123,506 3.62% 134,462 3.72% Total deposits $163,796 2.73% $180,570 2.77% 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): December 31, March 31, Time remaining to maturity 1999 2000 Three months or less 5,719 6,063 After three months to six months 3,229 4,268 After six months to one year 4,766 3,736 After twelve months 757 657 Total 14,471 14,724 RESULTS OF OPERATIONS NET INTEREST INCOME / NET INTEREST MARGIN. Net interest income for the quarter ended March 31, 2000 was $2,934,000, an increase of 22.5% over the net interest income of $2,396,000 during the same period of 1999. The increase was primarily due to the growth in average loans, largely due to the continuation of favorable 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 March 31, 1999 2000 Average Average Balance Interest Rate Balance Interest Rate ASSETS Federal funds sold $ 3,016 $ 34 4.51% $ 9,506 $ 134 5.64% Interest-bearing deposits with banks 286 4 5.59% 286 4 5.59% Investment securities 39,065 534 5.47% 34,242 479 5.60% Loans 112,509 2,864 10.18% 139,942 3,573 10.21% Total earning assets 154,876 3,436 8.88% 183,976 4,190 9.11% Total non-earning assets 11,244 13,115 Total assets $166,120 $197,091 LIABILITIES & SHAREHOLDERS' EQUITY Demand deposits $ 35,645 $ 46,108 Interest-bearing transaction accounts 91,807 769 3.35% 108,821 954 3.51% Time deposits, $100,000 or more 12,661 155 4.90% 14,207 179 5.04% Savings and other time 10,528 107 4.07% 11,434 116 4.06% Total interest-bearing deposits 114,996 1,031 3.59% 134,462 1,249 3.72% Other borrowings 800 9 4.50% 581 7 4.82% Total interest-bearing Liabilities 115,796 1,040 3.59% 135,043 1,256 3.72% Other liabilities 1,379 1,361 Shareholders' equity 13,300 14,579 Total liabilities and shareholders' equity $166,120 $197,091 Net interest income $2,396 $2,934 Net interest margin 6.19% 6.38% The net interest margin increased to 6.38% during the first quarter of 2000 from 6.19% in the same quarter of 1999. The increase was primarily attributable to growth in average loans as a percentage of earning assets. The increase in average loans was largely due to the continuation of favorable 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 March 31, 1999 Compared to Quarter Ended March 31, 2000 Change in Rate/ Volume Rate Volume Total Interest Income: Federal funds sold $73 $9 $18 $100 Interest-bearing deposits with banks 0 0 0 0 Investment securities (66) 13 (2) (55) Loans 699 8 2 709 Total Interest Income 706 30 18 754 Interest Expense: Interest-bearing transaction accounts 141 37 7 185 Time deposits, $100,000 or more 19 4 1 24 Savings and other time 9 0 0 9 Other borrowings (3) 1 0 (2) Total Interest Expense 166 42 8 216 Net Interest Income $540 ($12) $10 $538 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 March 31, Components of Noninterest Income 1999 2000 Gain on sale of loans $ 52 $ 15 Service fees on deposit accounts 163 129 Loan servicing fees 11 13 Gain (loss) on sale of investment securities - net 19 (2) Other 46 56 Total $ 291 $ 211 As a Percentage of Average Assets (Annualized) Gain on sale of loans 0.13% 0.03% Service fees on deposit accounts 0.39% 0.26% Loan servicing fees 0.03% 0.03% Gain on sale of investment securities - net 0.05% 0.00% Other 0.11% 0.11% Total 0.71% 0.43% 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 March 31, Components of Noninterest Expense 1999 2000 Salaries and employee benefits $ 975 $ 1,069 Occupancy expense 227 254 Furniture and equipment expense 101 110 Professional services 130 54 Supplies 59 71 Promotional expenses 113 129 Data processing fees 110 88 Regulatory assessments 9 15 Other 91 128 Total $ 1,815 $ 1,918 Average full-time equivalent employees 55 58 As a Percentage of Average Assets (Annualized) Salaries and employee benefits 2.35% 2.17% Occupancy expense 0.55% 0.52% Furniture and equipment expense 0.24% 0.22% Professional services 0.31% 0.11% Supplies 0.14% 0.14% Promotional expenses 0.27% 0.26% Data processing fees 0.26% 0.18% Regulatory assessments 0.02% 0.03% Other 0.22% 0.26% Total 4.36% 3.89% Noninterest expense increased to $1.9 million during the first quarter of 2000 from $1.8 million during the same period of the prior year. Growth in existing operations and the addition of the Petaluma branch office contributed to the increase. YEAR 2000 DATA PROCESSING ISSUES. The Company and the Bank previously recognized the material nature of the business issues surrounding computer processing of dates into and beyond the Year 2000 and began taking corrective action as required pursuant to the interagency statements issued by the Federal Financial Institution Examination Council. Management believes the Company has completed all of the activities within their control to ensure that systems are Year 2000 compliant. The Company and the Bank have not experienced any material disruptions due to the start of the Year 2000 of the internal computer systems or software applications nor have they experienced any problems with the computer systems or software applications of their third party vendors, suppliers or service providers. The Company will continue to monitor these third parties to determine the impact, if any, on the business of the Company and the actions the Company must take, if any, in the event of non-compliance by any of these third parties. Based upon the Company's assessment of compliance by third parties, there does not appear to be any material business risk posed by any such non- compliance. Although the Company's Year 2000 rollover did not present any material business disruption, there are some remaining Year 2000 related risks. Management believes that appropriate actions have been taken to address these remaining Year 2000 issues and contingency plans are in place to minimize the financial impact to the Company. Management, however, cannot be certain that Year 2000 issues affecting customers, suppliers or service providers of the Company will not have a material adverse impact on the Company. INCOME TAXES. The Company's effective tax rate was 41.0% for the quarter ended March 31, 2000 compared to 41.0% 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 three months ended March 31, 2000, federal funds sold averaged $9.5 million, or 4.8% 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 March 31, 2000, the Company had cash, time deposits with banks, federal funds sold, and unpledged investment securities of approximately $49.3 million, or 23.5% of total assets. This represented all available liquid assets, excluding other 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 March 31, 2000, the loan-to-deposit ratio was 75.2% as compared to 76.7% at December 31, 1999. 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 March 31, 2000, this ratio was 8.8% as compared to 15.2% at December 31, 1999. As of March 31, 2000, 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 March 31, 2000, 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, 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): March 31, 2000 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 $14,900 $ 14,900 Interest-bearing deposits with other banks $ 286 286 Investment securities 2,000 $ 2,001 1,018 $18,006 $ 6,035 29,060 Loans, gross of allowance for possible losses 72,623 669 2,320 51,686 18,212 145,510 Total 89,523 2,670 3,624 69,692 24,247 189,756 Interest-Bearing Liabilities (Rate Sensitive): Interest-bearing transaction deposits 52,414 64,703 117,117 Time deposits, $100,000 or more 6,063 4,268 3,736 657 14,724 Savings and other time deposits 3,882 2,279 2,517 2,873 11,551 Other borrowings 750 750 Total 10,695 6,547 58,667 68,233 $144,142 Period GAP $78,828 $(3,877) $(55,043) $ 1,459 $24,247 Cumulative GAP $78,828 $74,951 $ 19,908 $21,367 $45,614 Interest Sensitivity GAP Ratio 88.05% (145.21%)(1518.85%) 2.09% 100.00% Cumulative Interest Sensitivity 88.05% 81.30% 20.78% 12.91% 24.04% 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. Three Months Ended Three Months Ended March 31, 1999 March 31, 2000 8.01% 7.40% 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. Total 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 total capital be 8% of risk-based assets, of which at least 4% must be Tier 1 capital. As of March 31, 2000, the Company's total capital was 10.35% and its Tier 1 capital ratio was 9.32%. 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 March 31, 2000, the Company's leverage ratio was 7.46%. 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. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) List of Exhibits: EXHIBITS: (2) -- Plan of acquisition, reorganization (incorporated by reference to the registrant's registration statement on Form S-4 (File No. 33- 76832). (3)(a) -- Restated Articles of Incorporation (incorporated by reference to the registrant's Quarterly Report on Form 10-QSB for its quarter ended September 30, 1998). (3)(b) -- By-laws (incorporated by reference to the registrant's registration statement on Form S-4 (File No. 33-76832). (4) -- Rights Agreement (incorporated by reference from the registrant's Form 8-A12G filed with the SEC on January 25, 1999). (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)(a)(3) -- 1999 Stock Option Plan (incorporated by reference to Exhibit A of registrant's Proxy Statement on Schedule 14A filed with the SEC on April 27, 1999). (10)(a)(4) -- Employee Stock Ownership Plan (incorporated by reference to Exhibit (10)(a)(4) of registrant's Form 10-KSB for its fiscal year ended December 31, 1999). (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 (353 Sacramento Street) (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). (10)(b)(6) -- Petaluma Office Lease (incorporated by reference to Exhibit (10)(b)(6) to the registrant's Annual Report on Form 10-KSB for its fiscal year ended December 31, 1998). (10)(b)(7) -- San Franciso Office Lease (650 Townsend Street) (incorporated by reference to Exhibit (10)(b)(7) to the registrant's Annual Report on Form 10-KSB for its fiscal year ended December 31, 1999). (11) -- Statement re: computation of per share earnings (the information required to be furnished pursuant to this exhibit is contained in the Consolidated Financial Statements and the Notes to Consolidated Financial Statements) (27) -- Financial Data Schedule (b) Reports on Form 8-K. The Company filed the following Current Reports on Form 8-K: None 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: May 10, 2000 /s/ Patrick E. Phelan Patrick E. Phelan Chief Financial Officer (Principal Accounting Officer and officer authorized to sign on behalf of the registrant) EX-27 2
9 1,000 3-MOS DEC-31-2000 MAR-31-2000 16,678 286 14,900 0 26,144 2,000 1,975 145,375 1,642 210,188 193,406 750 1,487 0 0 0 10,512 4,033 210,188 3,573 483 134 4,190 1,249 1,256 2,934 120 (2) 1,918 1,107 1,107 0 0 653 .32 .30 9.11 1,707 40 0 0 1,492 0 30 1,642 1,216 0 426
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