-----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, D22ZDEbG9dOWaqNi4dqPu7ra6lghG/3wB2csNiJ+Ln+qFftMVlHHmpkmMwzjln+P z0FA5rbcBLki8pgE5Qt9aw== /in/edgar/work/20000814/0000902789-00-000005/0000902789-00-000005.txt : 20000921 0000902789-00-000005.hdr.sgml : 20000921 ACCESSION NUMBER: 0000902789-00-000005 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCB FINANCIAL CORP CENTRAL INDEX KEY: 0000902789 STANDARD INDUSTRIAL CLASSIFICATION: [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: 697455 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 0001.txt 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 June 30, 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: August 9, 2000 Class Common stock, no par value 2,043,146 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS: MCB FINANCIAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS Dollar amounts in thousands December 31, June 30, 1999 2000 ASSETS (Unaudited) Cash and due from banks $ 6,556 $ 11,358 Federal funds sold 10,400 10,900 Total cash and cash equivalents 16,956 22,258 Interest-bearing deposits with banks 286 286 Investment securities available for sale at fair value 34,118 26,228 Investment securities held to maturity at cost; fair values of $1,979 in 1999 and $1,979 in 2000 2,000 2,000 Loans held for investment (net of allowance for possible credit losses of $1,492 in 1999 and $1,742 in 2000 136,474 145,885 Premises and equipment - net 2,791 2,935 Accrued interest receivable 1,077 1,131 Deferred income taxes 1,068 1,040 Other assets 1,349 745 Total assets $ 196,119 $ 202,508 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits: Noninterest-bearing $ 41,011 $ 48,635 Interest-bearing: Transaction accounts 112,742 108,561 Time certificates, $100,000 and over 14,471 16,313 Savings and other time deposits 11,560 11,284 Total interest-bearing deposits 138,773 136,158 Total deposits 179,784 184,793 Other borrowings 750 750 Accrued interest payable and other liabilities 1,188 1,622 Total liabilities 181,722 187,165 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) (478) Retained earnings 4,165 5,309 Total shareholders' equity 14,397 15,343 Total liabilities and shareholders' equity $ 196,119 $ 202,508 See notes to condensed consolidated financial statements. MCB FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Six Months Ended Dollar amounts in thousands, June 30, June 30, except per share amounts 1999 2000 1999 2000 (Unaudited) (Unaudited) INTEREST INCOME: Loans, including fees $ 3,165 $ 3,814 $ 6,029 $ 7,387 Federal funds sold 55 183 89 317 Investment securities 417 434 955 917 Total interest income 3,637 4,431 7,073 8,621 INTEREST EXPENSE: Interest-bearing transaction, savings and other time deposits 889 1,119 1,765 2,189 Time certificates, $100,000 and over 150 200 305 379 Other interest 14 9 23 16 Total interest expense 1,053 1,328 2,093 2,584 NET INTEREST INCOME 2,584 3,103 4,980 6,037 PROVISION FOR POSSIBLE CREDIT LOSSES 35 100 125 220 NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE CREDIT LOSSES 2,549 3,003 4,855 5,817 OTHER INCOME: Gain on sale of loans 30 20 82 35 Service fees on deposit accounts 153 116 316 245 Loan servicing fees 15 14 26 27 Gain (loss) on sale of investment securities - net (7) 12 (2) Other 51 87 97 143 Total other income 242 237 533 448 OTHER EXPENSES: Salaries and employee benefits 1,037 1,118 2,012 2,187 Occupancy expense 238 273 465 527 Furniture and equipment expense 98 114 199 224 Professional services 44 72 174 126 Supplies 75 79 134 150 Promotional expenses 55 19 168 148 Data processing fees 85 89 195 177 Regulatory assessments 10 15 19 30 Other 101 155 192 283 Total other expenses 1,743 1,934 3,558 3,852 INCOME BEFORE INCOME TAXES 1,048 1,306 1,830 2,413 INCOME TAX PROVISION 433 545 754 999 NET INCOME $ 615 $ 761 $ 1,076 $ 1,414 BASIC EARNINGS PER SHARE $ 0.30 $ 0.37 $ 0.52 $ 0.69 DILUTED EARNINGS PER SHARE $ 0.29 $ 0.36 $ 0.49 $ 0.66 See notes to condensed consolidated financial statements MCB FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended Dollar amounts in thousands June 30, 1999 2000 (Unaudited) Net income $ 615 $ 761 Other comprehensive income (loss) Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period, net of tax (304) 57 Reclassification adjustment for gains (losses) included in net income, net of tax (4) Other comprehensive income (loss) (308) 57 Comprehensive income $ 307 $ 818 MCB FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Six Months Ended Dollar amounts in thousands June 30, 1999 2000 (Unaudited) Net income $ 1,076 $ 1,414 Other comprehensive income (loss) Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period, net of tax (584) 41 Reclassification adjustment for gains (losses) included in net income, net of tax 7 (1) Other comprehensive income (loss) (577) 40 Comprehensive income $ 499 $ 1,454 See notes to condensed consolidated financial statements. MCB FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Dollar amounts in thousands Ended June 30, 1999 2000 CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) Net income $ 1,076 $ 1,414 Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible credit losses 125 220 Depreciation and amortization 253 154 (Gain) loss on sale of investment securities, net (12) 2 Change in deferred income taxes 90 Decrease (increase) in accrued interest receivable 142 (54) (Increase) decrease in other assets (131) 604 Increase in accrued interest payable and other liabilities 285 445 Net cash provided by operating activities 1,828 2,785 CASH FLOWS FROM INVESTING ACTIVITIES: Held to maturity securities: Calls 4,055 Available for sale securities: Maturities 695 3,000 Purchases (6,925) Sales 11,183 11,957 Net increase in loans held for investment (16,807) (9,631) Purchases of premises and equipment (773) (383) Net cash used in investing activities (1,647) (1,982) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in noninterest-bearing demand deposits 1,305 7,624 Net increase in interest-bearing transaction, savings and other time deposits 2,634 (2,615) Net increase in other borrowings 394 Cash dividends paid (41) Proceeds from the exercise of stock options 207 12 Purchases of common stock (559) (481) Net cash provided by financing activities 3,981 4,499 NET INCREASE IN CASH AND CASH EQUIVALENTS 4,162 5,302 CASH AND CASH EQUIVALENTS: Beginning of period 12,004 16,956 End of period $ 16,166 $ 22,258 CASH PAID DURING THE PERIOD FOR: Interest on deposits and other borrowings $ 2,139 $ 2,539 Income taxes 646 $ 825 See notes to condensed consolidated financial statements. MCB FINANCIAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 1. BASIS OF PRESENTATION - The unaudited condensed consolidated financial information included herein has been prepared in conformity with generally accepted accounting principles and practices in MCB Financial Corporation's (the "Company") consolidated financial statements included in the Annual Report on Form 10-KSB for the year ended December 31, 1999. The interim condensed 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 and six months ended June 30, 2000 may not be indicative of operating results to be expected 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 June 30, 1999 2000 Basic shares 2,065 2,030 Dilutive effect of stock options 86 92 Diluted shares 2,151 2,122 In thousands Six months ended June 30, 1999 2000 Basic shares 2,080 2,042 Dilutive effect of stock options 99 105 Diluted shares 2,179 2,147 3. RECENTLY ISSUED ACCOUNTING STANDARDS - Statement of Financial Accounting Standards (SFAS) No. 133,"Accounting for Derivative Instruments and Hedging Activities," was issued June 1998 and amended by SFAS No. 138, issued in June 2000. The standard defines derivatives, requires that all derivatives be carried at fair value, and provides for hedge accounting when certain conditions are met. The requirements of SFAS No. 133 as amended by SFAS No. 138 will be effective for the Company in the first quarter of the fiscal year beginning January 1, 2001. Management does not expect the adoption of SFAS No. 133 as amended by SFAS No. 138 to have a significant impact on the Company's financial statements. 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 six months ended June 30, 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 $761,000, or $0.37 per share basic and $0.36 per share diluted, for the second quarter of 2000. This compares to net income of $615,000, or $0.30 per share basic and $0.29 per share diluted, for the same period in 1999. For the six months ended June 30, 2000, the Company reported net income of $1,414,000, or $0.69 per share basic and $0.66 per share diluted. This compares to net income of $1,076,000, or $0.52 per share basic and $0.49 per share diluted for the same period in 1999. For the six months ended June 30, 2000, 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 6.50%. The growth in average loans was largely due to the continuation of favorable economic conditions in the Company's market areas. Return on average assets and return on average equity for the second quarter of 2000 were 1.52% and 20.16%, respectively, as compared to 1.45% and 18.51%, respectively, for the same period of 1999. Return on average assets and return on average equity for the six months ended June 30, 2000 were 1.42% and 19.00%, respectively, as compared to 1.28% and 16.26%, respectively, for the same period of 1999. FINANCIAL CONDITION SUMMARY. Total assets of the Company increased by $6.4 million, or 3.3%, from the end of 1999 to reach $202.5 million at June 30, 2000. LOANS HELD FOR INVESTMENT. Net loans held for investment increased by $9.4 million, or 6.9%, during the first six 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, June 30, 1999 2000 Commercial $ 23,413 $ 24,043 Real estate: Commercial 83,737 95,697 Construction 23,546 21,076 Land 4,440 3,600 Home equity 1,289 1,602 Loans to consumers and individuals 1,672 1,721 Total 138,097 147,739 Deferred loan fees (131) (112) Allowance for possible credit losses (1,492) (1,742) Total net loans $ 136,474 $ 145,885 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 $122.9 million, or 83.2% of the total portfolio as of June 30, 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 underwriting standards for real estate secured loans are prudent and 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 June 30, 2000 the two largest industry concentrations within the loan portfolio were real estate and related services at 31.9% and the services - personal/business industry at 20.9% 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 June 30, 2000, the Company had nonperforming assets in the amount of $166,000, of which $126,000 represented two nonaccrual loans. Had these nonaccrual loans performed under their contractual terms, approximately $5,000 in additional interest income would have been recognized during the six months ended June 30, 2000. At June 30, 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, June 30, 1999 2000 Nonaccrual loans $ 1,707 $ 126 Loans 90 days or more past due and still accruing 40 40 $ 1,747 $ 166 As a percent of total loans 1.27% 0.11% As a percent of total assets 0.89% 0.08% Nonaccrual loans decreased by $1.6 million during the six months ended June 30, 2000. The decrease was due to the sale of a property securing one of the loans. No specific allowance for possible credit losses was applied to the nonaccrual loans because they were adequately collateralized. At June 30, 2000, the Company had loans identified as impaired in the amount of $166,000. At June 30, 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 by the provision to the APCL which is 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 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 June 30, 2000, the APCL of $1,742,000, or 1.18% 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 Six Months Ended December 31, June 30, 1999 2000 Balances: Average loans during period $125,035 $143,341 Loans at end of period 137,966 147,627 Allowance for Possible Credit Losses: Balance at beginning of period 1,117 1,492 Actual credit losses: Commercial 62 Total 62 0 Actual credit recoveries: Commercial loans 72 30 Total 72 30 Net credit losses (recoveries) (10) (30) Provision charged to operating expenses 365 220 Balance at end of period $ 1,492 $ 1,742 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% 1.18% Net credit losses (recoveries) to beginning of period allowance for credit losses (0.90)% (2.01)% The Company provided $100,000 to the allowance for possible credit losses during the second quarter of 2000 as compared to $35,000 during the second quarter of 1999. For the six months ended June 30, 2000, the Company provided $220,000 to the allowance for possible credit losses as compared to $125,000 during the same period of 1999. The provisions during both periods were 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): June 30, 1999 December 31, 1999 June 30, 2000 % of % of % of Category Category Category to Total to Total to Total APCL Loans APCL Loans APCL Loans Commercial loans $ 659 47.78% $ 904 47.87% $ 636 43.22% Real estate loans 260 48.69% 260 48.98% 294 53.37% Consumer loans 37 3.53% 30 3.15% 32 3.41% Not allocated 345 N/A 298 N/A 780 N/A Total $ 1,301 100.00% $ 1,492 100.00% $ 1,742 100.00% 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 June 30, 2000: 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 13,987 $ 27 (265) 13,749 13,749 U.S. Government agencies 11,120 (546) 10,574 10,574 Corporate securities 1,939 (34) 1,905 1,905 Total available for sale 27,046 27 (845) 26,228 26,228 Total investment securities $29,046 $ 27 $ (866) $28,207 $28,228 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 $5.0 million, or 2.8%, during the six months ended June 30, 2000. Rates paid on deposits increased during the six months ended June 30, 2000 contributing to the increase in the cost of funds to 2.82% for the six months ended June 30, 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 Six Months Ended December 31, 1999 June 30, 2000 Average Average Average Average Balance Rate Balance Rate Noninterest-bearing demand deposits $ 40,290 $ 46,086 Interest-bearing demand deposits (includes money market deposit accounts) 98,954 3.42% 109,688 3.56% Savings deposits 2,259 1.90% 2,088 1.92% Time deposits, $100,000 and over 13,477 4.85% 14,792 5.12% Other time deposits 8,816 4.41% 9,290 4.69% Total interest-bearing 123,506 3.62% 135,858 3.78% Total deposits $163,796 2.73% $181,944 2.82% 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, June 30, Time remaining to maturity 1999 2000 Three months or less 5,719 8,447 After three months to six months 3,229 4,594 After six months to one year 4,766 2,862 After twelve months 757 410 Total 14,471 16,313 RESULTS OF OPERATIONS NET INTEREST INCOME / NET INTEREST MARGIN. Net interest income for the quarter ended June 30, 2000 was $3,103,000, an increase of 20.1% over the net interest income of $2,584,000 during the same period of 1999. Net interest income for the six months ended June 30, 2000 was $6,037,000, and increase of 21.2% over the net interest income of $4,980,000 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 June 30, 1999 2000 Average Average Balance Interest Rate Balance Interest Rate ASSETS Federal funds sold $ 4,751 $ 55 4.63% $ 11,744 $ 183 6.23% Interest-bearing deposits with banks 286 3 4.20% 286 4 5.59% Investment securities 29,732 414 5.57% 28,652 430 6.00% Loans (1) 123,844 3,165 10.22% 146,740 3,814 10.40% Total earning assets 158,613 3,637 9.17% 187,422 4,431 9.46% Total non-earning assets 11,380 13,448 Total assets $169,993 $200,870 LIABILITIES & SHAREHOLDERS' EQUITY Demand deposits $ 37,488 $ 46,065 Interest-bearing transaction accounts 93,624 $ 789 3.37% 110,639 $ 997 3.60% Time deposits, $100,000 or more 12,153 150 4.94% 15,376 200 5.20% Savings and other time 10,801 100 3.70% 11,323 122 4.31% Total interest-bearing deposits 116,578 1,039 3.56% 137,338 1,319 3.84% Other borrowings 1,252 14 4.47% 650 9 5.54% Total interest-bearing Liabilities 117,830 1,053 3.57% 137,988 1,328 3.85% Other liabilities 1,386 1,716 Shareholders' equity 13,289 15,101 Total liabilities and shareholders' equity $169,993 $200,870 Net interest income $2,584 $3,103 Net interest margin 6.52% 6.62% (1) Nonaccrual loans are included in the average balance. For the six months ended June 30, 1999 2000 Average Average Balance Interest Rate Balance Interest Rate ASSETS Federal funds sold $ 3,888 $ 89 4.58% $ 10,625 $ 317 5.97% Interest-bearing deposits with banks 286 7 4.90% 286 8 5.59% Investment securities 34,368 948 5.53% 31,457 909 5.78% Loans (1) 118,216 6,029 10.20% 143,341 7,387 10.31% Total earning assets 156,758 7,073 9.03% 185,709 8,621 9.28% Total non-earning assets 11,315 13,279 Total assets $168,073 $198,988 LIABILITIES & SHAREHOLDERS' EQUITY Demand deposits $ 36,571 $ 46,086 Interest-bearing transaction accounts 92,786 $1,558 3.36% 109,688 $1,951 3.56% Time deposits, $100,000 or more 12,406 305 4.92% 14,792 379 5.12% Savings and other time 10,665 207 3.88% 11,378 238 4.18% Total interest-bearing deposits 115,857 2,070 3.57% 135,858 2,568 3.78% Other borrowings 1,027 23 4.48% 615 16 5.20% Total interest-bearing Liabilities 116,884 2,093 3.58% 136,473 2,584 3.79% Other liabilities 1,385 1,545 Shareholders' equity 13,233 14,884 Total liabilities and shareholders' equity $168,073 $198,988 Net interest income $4,980 $6,037 Net interest margin 6.35% 6.50% (1) Nonaccrual loans are included in the average balance. The net interest margin increased to 6.62% during the second quarter of 2000 from 6.52% in the same quarter of 1999. For the six months ended June 30, 2000, the net interest margin increased to 6.50% from 6.35% during the same period of 1999. The increase was primarily attributable to growth in average earnings assets exceeding growth in average interest-bearing liabilities. 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 Six Months Ended June 30, 1999 June 30, 1999 Compared to Compared to Quarter Ended Six Months Ended June 30, 2000 June 30, 2000 Change in Change in Rate/ Rate/ Volume Rate Volume Total Volume Rate Volume Total Interest Income: Federal funds sold $81 $19 $28 $128 $154 $27 $47 $228 Interest-bearing deposits with banks 0 1 0 1 0 1 0 1 Investment securities (15) 32 (1) 16 (78) 43 (4) (39) Loans 583 56 10 649 1,279 65 14 1,358 Total Interest Income 649 108 37 794 1,355 136 57 1,548 Interest Expense: Interest-bearing transaction accounts 144 54 10 208 283 93 17 393 Time deposits, $100,000 or more 40 8 2 50 60 12 2 74 Savings and other time 5 16 1 22 14 16 1 31 Other borrowings (6) 3 (2) (5) (10) 4 (1) (7) Total Interest Expense 183 81 11 275 347 125 19 491 Net Interest Income $466 $27 $26 $519 $1,008 $11 $38 $1,057 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 Six Months Ended June 30, June 30, Components of Noninterest Income 1999 2000 1999 2000 Gain on sale of loans $ 30 $ 20 $ 82 $ 35 Service fees on deposit accounts 153 116 316 245 Loan servicing fees 15 14 26 27 Gain (loss) on sale of investment securities - net (7) 12 (2) Other 51 87 97 143 Total $ 242 $ 237 $ 533 $ 448 As a Percentage of Average Assets (Annualized) Gain on sale of loans 0.07% 0.04% 0.10% 0.03% Service fees on deposit accounts 0.36% 0.23% 0.38% 0.25% Loan servicing fees 0.04% 0.03% 0.03% 0.03% Gain (loss) on sale of investment securities - net (0.02)% 0.01% 0.00% Other 0.12% 0.17% 0.11% 0.14% Total 0.57% 0.47% 0.63% 0.45% 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 Six Months Ended June 30, June 30, Components of Noninterest Expense 1999 2000 1999 2000 Salaries and employee benefits $ 1,037 $ 1,118 $ 2,012 $ 2,187 Occupancy expense 238 273 465 527 Furniture and equipment expense 98 114 199 224 Professional services 44 72 174 126 Supplies 75 79 134 150 Promotional expenses 55 19 168 148 Data processing fees 85 89 195 177 Regulatory assessments 10 15 19 30 Other 101 155 192 283 Total $ 1,743 $ 1,934 $ 3,558 $ 3,852 Average full-time equivalent employees 55 59 55 58 As a Percentage of Average Assets (Annualized) Salaries and employee benefits 2.44% 2.22% 2.39% 2.20% Occupancy expense 0.56% 0.54% 0.55% 0.53% Furniture and equipment expense 0.23% 0.23% 0.24% 0.22% Professional services 0.10% 0.14% 0.21% 0.13% Supplies 0.18% 0.16% 0.16% 0.15% Promotional expenses 0.13% 0.04% 0.20% 0.15% Data processing fees 0.20% 0.18% 0.23% 0.18% Regulatory assessments 0.02% 0.03% 0.02% 0.03% Other 0.24% 0.31% 0.23% 0.28% Total 4.10% 3.85% 4.23% 3.87% Noninterest expense increased to $1.9 million during the second quarter of 2000 from $1.7 million during the same period of the prior year. For the six months ended June 30, 2000, noninterest expense increased to $3.9 million from $3.6 million during the same period of the prior year. Growth in existing operations and the addition of the Petaluma branch office in July 1999 contributed to the increase. INCOME TAXES. The Company's effective tax rate was 41.7% for the quarter ended June 30, 2000 compared to 41.3% in the same period of the prior year. For the six months ended June 30, 2000, the effective tax rate was 41.4% compared to 41.2% 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 six months ended June 30, 2000, federal funds sold averaged $10.6 million, or 5.3% 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 June 30, 2000, the Company had cash, time deposits with banks, federal funds sold, and unpledged investment securities of approximately $40.1 million, or 19.8% 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 and its securities portfolio to absorb temporary fluctuations in deposit levels. At June 30, 2000, the loan-to-deposit ratio was 79.9% 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), or the liquidity ratio. The Company targets a minimum ratio of 5%. At June 30, 2000, this ratio was 7.6% as compared to 15.2% at December 31, 1999. As of June 30, 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 June 30, 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): June 30, 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 $10,900 $ 10,900 Interest-bearing deposits with other banks $ 196 $ 90 286 Investment securities 4,000 $20,023 $ 5,023 29,046 Loans, excluding allowance for possible losses 74,369 2,256 2,907 50,695 17,512 147,739 Total 89,269 2,452 2,997 70,718 22,535 187,971 Interest-Bearing Liabilities (Rate Sensitive): Interest-bearing transaction deposits 47,962 60,599 108,561 Time deposits, $100,000 or more 8,447 4,594 2,862 410 16,313 Savings and other time deposits 3,348 2,091 2,046 3,799 11,284 Other borrowings 750 750 Total 12,545 6,685 52,870 64,808 $136,908 Period GAP $76,724 $(4,233) $(49,873) $ 5,910 $22,535 Cumulative GAP $76,724 $72,491 $ 22,618 $28,528 $51,063 Interest Sensitivity GAP Ratio 85.95% (172.63%)(1664.10%) 8.36% 100.00% Cumulative Interest Sensitivity 85.95% 79.03% 23.88% 17.24% 27.17% 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. The maturities and weighted average yields of investment securities at June 30, 2000 are presented in the following table (at amortized cost) (dollar amounts in thousands): After 1 Year After 5 Years Within 1 Year Within 5 Years Within 10 Years Total Amount Yield Amount Yield Amount Yield Amount Yield U.S. Treasury and other U.S. Government agencies $4,000 5.88% $18,084 5.63% $5,023 5.80% $27,107 5.70% Corporate securities 1,939 6.32% 1,939 6.32% Total $4,000 5.88% $20,023 5.70% $5,023 5.80% $29,046 5.74% Maturities of Loans at June 30, 2000 (dollar amounts in thousands): Time remaining to maturity Fixed rate Adjustable rate Total One year or less $ 6,907 $ 35,274 $ 42,181 After one year to five years 49,867 14,787 64,654 After five years 17,511 23,393 40,904 Total $ 74,285 $ 73,454 $ 147,739 As of June 30, 2000, the percentage of loans held for investment with fixed and floating interest rates was 50.3% and 49.7%, respectively. 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. Six Months Ended Six Months Ended June 30, 1999 June 30, 2000 7.87% 7.48% In July 2000, the Company executed a letter of intent to issue approximately $3 million in trust preferred securites through a wholly owned trust subsidiary of the Company to be formed for the purpose of the offering. The securities issued in the offering are to be sold in a private transaction pursuant to an applicable exemption from registration under the Securities Act. Under applicable regulatory guidelines, the trust preferred securities are expected to qualifiy as Tier 1 capital. The trust preferred securities will bear a fixed rate of interest payable semi-annually. The interest rate will be determined during the closing of the transaction which is expected be in September 2000. Proceeds from the sale are expected to be used for general corporate purposes. 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 June 30, 2000, the Company's total capital was 10.96% and its Tier 1 capital ratio was 9.86%. 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 June 30, 2000, the Company's leverage ratio was 7.69%. 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 The annual meeting of shareholders of the Company was held on May 17, 2000. A quorum was established with the presence of 1,635,307 shares out of 2,030,181 shares of common stock outstanding. The following matters were voted upon at the annual meeting with the voting results as indicated: Proposal 1. - ELECTION OF DIRECTORS - The following persons were elected as directors: Name Votes For Votes Withheld John Cavallucci 1,625,546 9,761 Charles O. Hall 1,625,546 9,761 Timothy J. Jorstad 1,625,546 9,761 Catherine H. Munson 1,625,546 9,761 Gary T. Ragghianti 1,625,546 9,761 Michael J. Smith 1,625,546 9,761 Edward P. Tarrant 1,625,546 9,761 Randall J. Verrue 1,625,546 9,761 Proposal 2. - RATIFICATION OF INDEPENDENT AUDITORS - The firm of Deloitte & Touche LLP was ratified to serve as the Company's independent auditors for the fiscal year 2000. There were 1,629,251 votes cast for the proposal, 2,580 votes cast against the proposal, and 3,476 abstentions. Item 5. OTHER INFORMATION None Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: The Exhibit Index is incorporated by reference. (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: August 11, 2000 /s/ Patrick E. Phelan Patrick E. Phelan Chief Financial Officer (Principal Accounting Officer and officer authorized to sign on behalf of the registrant) Exhibit Index Exhibit Description 10 Severance Agreement, dated as of May 15, 2000, between MCB Financial Corporation, Metro Commerce Bank and Patrick E. Phelan 27 Financial Data Schedule EX-27 2 0002.txt
9 1,000 6-MOS DEC-31-2000 JUN-30-2000 11,358 286 10,900 0 26,228 2,000 1,979 147,627 1,742 202,508 184,793 750 1,622 0 0 0 10,512 4,831 202,508 7,387 917 317 8,621 2,568 2,584 6,037 220 (2) 3,852 2,413 2,413 0 0 1,414 0.69 0.66 9.28 126 40 0 0 1,492 0 30 1,742 962 0 780
EX-10 3 0003.txt EX - 10 Severance Agreement, dated as of May 15, 2000, between MCB Financial Corporation, Metro Commerce Bank and Patrick E. Phelan SEVERANCE AGREEMENT ARTICLE I PURPOSE MCB Financial Corporation and Metro Commerce Bank ("Company") hereby establish a Severance Agreement ("Agreement") to provide severance benefits to Patrick E. Phelan, Chief Financial Officer of MCB Financial Corporation and Executive Vice President/Chief Financial Officer of Metro Commerce Bank ("Executive"), in the event his employment terminates in accordance with the terms set forth hereunder. The intent of the Agreement is to ensure Executive has reasonable protection related to any event as specified in this Agreement. ARTICLE II DEFINITIONS 2.1 Effective Date means May 15, 2000. 2.2 Pay means Executive's current annual rate of regular salary or wages on his date of termination of employment with the Company and the average of the annual bonuses paid to Executive over the three years immediately preceding the date of his termination of employment. 2.3 Year of Service means a twelve (12) month period beginning on Executive's date of hire and each twelve (12) month period beginning on the anniversary of such hire date. ARTICLE III DUTIES From and after the Effective Date, Executive shall continue to be employed as and shall serve as the Executive Vice President and Chief Financial Officer of Metro Commerce Bank and Chief Financial Officer of MCB Financial Corporation. Executive's total annual compensation, including regular salary and annual bonus, shall be competitive with the compensation paid to chief financial officers at other companies of similar size and similar industry. If at any time Executive does not hold the titles of Executive Vice President and Chief Financial Officer of Metro Commerce Bank and Chief Financial Officer of MCB Financial Corporation, Executive shall be entitled to deem this Agreement terminated pursuant to Article IV hereof. ARTICLE IV TERMINATION; LIABILITY Executive's employment hereunder may be terminated as follows: 4.1 Without Cause. In the sole and absolute discretion of the Board of Directors for any cause or for no cause whatsoever; provided, however, that if such termination occurs and is for any cause other than any more particularly described in Sections 4.2 or 4.3 hereof, Executive shall receive within ten (10) days of such termination a Base Benefit equal to eighteen (18) months of Pay and an Added Benefit of two (2) weeks of Pay for each full Year of Service, provided, however, that the total Base Benefit and Added Benefit payable to Executive shall not exceed two (2) years of Pay. 4.2 Death, Disability or Voluntary Retirement. Upon Executive's death, medical disability which would preclude Executive from performing the duties as the Executive Vice President and Chief Financial Officer of Metro Commerce Bank and Chief Financial Officer of MCB Financial Corporation for a period of six months or voluntary retirement, Executive shall not be entitled to any severance payment; provided, however, that if such termination occurs as a result of such medical disability, Executive shall receive severance payment in an amount equal to twenty-five percent (25%) of the current annual rate of regular salary or wages then in effect. 4.3 With Cause. In the event of Executive's willful breach or habitual neglect of his duties and obligations, dishonesty of Executive, the Company's inability to secure a bond for Executive, Executive's conviction of a felony, or the closing of Metro Commerce Bank or Executive's removal as Executive Vice President and Chief Financial Officer of Metro Commerce Bank and Chief Financial Officer of MCB Financial Corporation under order of any governmental regulator of competent jurisdiction, in which event Executive shall not be entitled to receive any additional compensation or severance payment. ARTICLE V MISCELLANEOUS 5.1 Time. Time is of the essence of this Agreement with respect to each and every provision of this Agreement in which time is a factor. 5.2 Entire Agreement. The recitals herein are represented by the parties to be true and shall be deemed a part of this Agreement. With the exception of any provisions set forth in stock option agreements between Executive and Company, this Agreement sets forth the entire agreement between Executive and Company pertaining to the subject matter hereof, fully supersedes any and all prior agreements or understandings between Executive and Company pertaining to the subject matter hereof, and no change in, modification of, or addition, amendment or supplement to this Agreement shall be valid unless set forth in writing and signed and dated by Executive and Company subsequent to the execution of this Agreement. 5.3 Further Assurances. Executive and Company, without the necessity of any further consideration, agree to execute and deliver such other documents and take such other action as may be necessary to consummate more effectively the purposes and subject matter of this Agreement. 5.4 Applicable Law. Except to the extent that the laws of the United States are applicable, the existence, validity, construction and operational effect of this Agreement, any and all of the covenants, agreements, representations, warranties, terms and conditions and the rights and obligations of Executive and Company hereunder shall be determined in accordance with the laws of the State of California; provided, however, that any provision of this Agreement which may be prohibited by law or otherwise held invalid shall be ineffective only to the extent of such prohibition or invalidity and shall not invalidate or otherwise render ineffective any or all of the remaining provisions of this Agreement. 5.5 Controversy. Any controversy between the parties hereto involving the construction or application of any of the terms, covenants, or conditions of this Agreement shall on written request of one party served on the other be submitted to binding arbitration in Marin County, California, and such arbitration shall comply with and be governed by the provisions of the California Arbitration Act, Sections 1280 through 1294.2 of the California Code of Civil Procedure. In the event of any arbitration, controversy, claim, or dispute between Executive and Company arising out of or relating to this Agreement, the prevailing party shall be entitled to recover from the nonprevailing party reasonable expenses, including, but not by way of limitation, attorneys' fees and accountants' fees. 5.6 Successors. The covenants, agreements, representations, warranties, terms and conditions contained in this Agreement shall be binding upon and inure to the benefit of the successors and assigns of Executive and Company. METRO COMMERCE BANK /s/ John Cavallucci John Cavallucci, Chairman of the Board /s/ Charles O. Hall Charles O. Hall, President & Chief Executive Officer Date: May 15, 2000 MCB FINANCIAL CORPORATION /s/ John Cavallucci John Cavallucci, Chairman of the Board /s/ Charles O. Hall Charles O. Hall, President & Chief Executive Officer Date: May 15, 2000 /s/ Patrick E. Phelan Patrick E. Phelan Chief Financial Officer of MCB Financial Corporation EVP / Chief Financial Officer of Metro Commerce Bank -----END PRIVACY-ENHANCED MESSAGE-----