-----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, JIkZd49eUbFumIB5BJe4WHu8v7CUSiecmbfoWj8EeBDzcdqLaVZAHXqkVPUZogXq 1ILIxo5wsDoeIL4EpipXwg== 0001092306-01-500052.txt : 20010516 0001092306-01-500052.hdr.sgml : 20010516 ACCESSION NUMBER: 0001092306-01-500052 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 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: 1636564 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 frm10-qsb1q.txt FORM 10-QSB FIRST QUARTER 2001 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, 2001 [ ] 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 8, 2001 CLASS Common stock, no par value 1,633,516 1 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS:
MCB FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS Dollar amounts in thousands March 31, 2001 December 31, 2000 -------------- ----------------- (unaudited) ASSETS Cash and due from banks $ 11,936 $ 12,040 Federal funds sold 10,800 250 -------- -------- Total cash and cash equivalents 22,736 12,290 Interest-bearing deposits with banks 286 286 Investment securities available for sale at fair value 25,508 25,100 Investment securities held to maturity at cost; fair value $1,999 in 2000 2,000 Loans held for investment (net of allowance for loan losses of $2,039 in 2001 and $1,939 in 2000) 161,329 162,884 Premises and equipment, net 3,592 3,470 Accrued interest receivable 1,152 1,276 Deferred income taxes 844 1,019 Other assets 921 929 -------- -------- Total assets $216,368 $209,254 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits: Noninterest-bearing $ 54,218 $ 47,383 Interest-bearing Transaction accounts 103,909 105,284 Time certificates, $100,000 and over 26,859 25,153 Savings and other time deposits 11,148 10,765 -------- -------- Total interest-bearing deposits 141,916 141,202 -------- -------- Total deposits 196,134 188,585 Other borrowings 626 750 Accrued interest payable and other liabilities 1,710 1,813 -------- -------- Total liabilities 198,470 191,148 Company obligated mandatorily redeemable cumulative trust preferred securities 3,000 3,000 SHAREHOLDERS' EQUITY Preferred stock, no par value: authorized 20,000,000 shares; non issued or outstanding Common stock, no par value: authorized 20,000,000 shares; issued and outstanding 1,775,182 shares in 2001 and 1,834,877 shares in 2000 9,139 9,501 Accumulated other comprehensive income 293 47 Retained earnings 5,466 5,558 -------- -------- Total shareholders' equity 14,898 15,106 -------- -------- Total liabilities and shareholders' equity $216,368 $209,254 ======== ======== See notes to condensed consolidated financial statements.
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MCB FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Dollar amounts in thousands, except per share amounts March 31, ----------------------- 2001 2000 (Unaudited) INTEREST INCOME: Loans, including fees $ 4,067 $ 3,573 Federal funds sold 62 134 Investment securities 377 483 ----------- ---------- Total interest income 4,506 4,190 ----------- ---------- INTEREST EXPENSE: Interest-bearing transaction, savings and other time deposits 1,018 1,070 Time certificates, $100,000 and over 389 179 Other interest 25 7 ----------- ---------- Total interest expense 1,432 1,256 ----------- ---------- NET INTEREST INCOME 3,074 2,934 ----------- ---------- PROVISION FOR LOAN LOSSES 100 120 ----------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,974 2,814 ----------- ---------- OTHER INCOME: Gain on sale of loans 24 15 Service fees on deposit accounts 123 129 Loan servicing fees 15 13 Gain (loss) on sale of investment securities (2) Other 96 56 ----------- ---------- Total other income 258 211 ----------- ---------- OTHER EXPENSES: Salaries and employee benefits 1,110 1,069 Occupancy expense 284 254 Furniture and equipment expense 113 110 Professional services 46 54 Supplies 58 71 Promotional expenses 101 129 Data processing fees 101 88 Regulatory assessments 15 15 Other 124 128 ----------- ---------- Total other expenses 1,952 1,918 ----------- ---------- INCOME BEFORE INCOME TAXES AND DIVIDENDS PAID ON TRUST PREFERRED SECURITIES 1,280 1,107 INCOME TAX PROVISION 491 454 ----------- ---------- INCOME BEFORE DIVIDENDS PAID ON TRUST PREFERRED SECURITIES 789 653 DIVIDENDS PAID ON TRUST PREFERRED SECURITIES 78 ----------- ---------- NET INCOME $ 711 $ 653 =========== ========== BASIC EARNINGS PER SHARE $ 0.40 $ 0.32 =========== ========== DILUTED EARNINGS PER SHARE $ 0.39 $ 0.30 =========== ==========
See notes to condensed consolidated financial statements. 3
MCB FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended Dollar amounts in thousands March 31, ---------------------- 2001 2000 (Unaudited) Net income $ 711 $ 653 Other comprehensive income (loss) Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period, net of taxes of $171 in 2001 and $(11) in 2000) 246 (16) Less: reclassification adjustment for gains (losses) included in net income, (net of taxes of $(1) in 2000) (1) ---------- ---------- Other comprehensive income (loss) 246 (17) ---------- ---------- Comprehensive income $ 957 $ 636 ========== ==========
See notes to condensed consolidated financial statements. 4
MCB FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Dollar amounts in thousands Ended March 31, ---------------------------- 2001 2000 (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 711 $ 653 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 100 120 Depreciation and amortization 152 23 Loss on sale of investment securities, net 2 Gain on sale of loans (24) (15) Deferred income taxes 89 Changes in: Accrued interest receivable 124 (47) Other assets 8 (40) Accrued interest payable and other liabilities (89) 305 ------------ ------------ Net cash provided by operating activities 982 1,001 CASH FLOWS FROM INVESTING ACTIVITIES: Held to maturity securities: Calls 2,000 Available for sale securities: Maturities 3,000 Purchases (14,913) (6,925) Sales 11,957 Net decrease (increase) in loans held for investment 1,479 (7,364) Purchases of premises and equipment, net (261) (179) ------------ ------------ Net cash used in investing activities 3,218 489 CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in noninterest-bearing demand deposits 6,835 9,003 Net increase (decrease) in interest-bearing transaction, savings and other time deposits 714 4,619 Net increase in other borrowings (124) Cash dividends paid (17) (21) Proceeds from the exercise of stock options 243 12 Repurchases of common stock (1,405) (481) ------------ ------------ Net cash provided by financing activities 6,246 13,132 ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 10,446 14,622 CASH AND CASH EQUIVALENTS: Beginning of period 12,290 16,956 ------------ ------------ End of period $ 22,736 $ 31,578 ============ ============ CASH PAID DURING THE PERIOD FOR: Interest on deposits and other borrowings $ 1,361 $ 1,214 Income taxes $ 264 $ 95
See notes to condensed consolidated financial statements. 5 MCB FINANCIAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES MCB Financial Corporation (the "Company" on a consolidated basis) is a bank holding company with one bank subsidiary: Metro Commerce Bank (the "Bank"). MCB Statutory Trust I (the "Trust"), which is a Connecticut statutory trust formed for the exclusive purpose of issuing and selling trust preferred securities, is also a subsidiary of the Company. The unaudited condensed consolidated financial information included herein was prepared on the same basis as the audited financial statements for the year ended December 31, 2000. The interim condensed consolidated financial statements contained herein are not audited. However, in the opinion of the Company, all adjustments, consisting only 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, 2001 should not be considered indicative of operating results to be expected for the year ending December 31, 2001. 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. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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:
Three months ended March 31, -------------------------------------------------------------------------------------- 2001 2000 -------------------------------------------------------------------------------------- Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- --------- ----------- ------------- --------- Basic EPS Income available to common shareholders $711 1,757 $ 0.40 $653 2,054 $0.32 Effect of Dilutive Securities Stock options 90 118 ----------- ------------- --------- ----------- ------------- --------- Diluted EPS Income available to common shareholders plus assumed conversions $711 1,847 $ 0.39 $653 2,172 $0.30
3. ACCOUNTING PRONOUNCEMENTS 6 Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," was adopted by the Company effective January 1, 2001. SFAS 133 as amended establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The adoption of SFAS No. 133 did not have a significant impact on the financial position or results of operations, or cash flows of the Company. SFAS No. 140,"Accounting for Transfers and Servicing of Financial Assets and Extinquishments of Liabilities," was issued in September 2000. SFAS No. 140 is a replacement of SFAS No. 125,"Accounting for Transfers and Servicing of Financial Assets and Extinquishments of Liabilities". Most of the provisions of SFAS No. 125 were carried forward to SFAS No. 140 without reconsideration by the Financial Standards Board ("FASB"), and some were changed only in minor ways. In issuing SFAS No.140, the FASB included issues and decisions that had been addressed and determined since the original publication of SFAS No. 125. SFAS No. 140 is effective for transfers after March 31, 2001. Management does not expect the adoption of SFAS No. 140 to have a significant impact on the financial position or results of operations of the Company. 4. SUBSEQUENT EVENT In April, 2001 the Company entered into a stock purchase agreement with John Cavallucci and his family to purchase the remaining 229,251 shares of the Company's common stock owned by them at a price of $12.00 per share. The sale will include any additional shares which the Cavallucci family acquires upon exercise of vested options prior to July 3, 2001, the final closing of the sale of the shares. The board of directors believes that the transaction is appropriate and in the best interests of the Company and its shareholders to allow Mr. Cavallucci to effect an orderly disposition of his holdings as he transitions out of his positions with the Company. The Company expects to fund the purchases from its operating income. As part of the agreement, Mr. Cavallucci will resign from the board of directors upon the closing of the sale. As of May 9, 2001, Mr. Cavallucci had sold 141,666 shares back to the Company and 44,574 shares to members of the Company's board of directors and the Company's Employee Stock Ownership Plan. The Company is obligated to purchase the remaining 43,011 shares from Mr. Cavallucci on July 3, 2001 at a price of $12.00 per share. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The condensed consolidated financial statements include the accounts of MCB Financial Corporation (the "Company" on a consolidated basis) and its wholly owned subsidiaries, Metro Commerce Bank and MCB Statutory Trust I (the "Trust"). This discussion focuses primarily on the results of operations of the Company on a consolidated basis for the three months ended March 31, 2001 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 subsidiaries 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 7 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, 2000. RESULTS OF OPERATIONS The Company reported net income of $711,000, or $0.40 per share basic and $0.39 per share diluted, for the first quarter of 2001. This compares to net income of $653,000, or $0.32 per share basic and $0.30 per share diluted, for the same period in 2000. Return on average assets and return on average equity for the first quarter of 2001 were 1.36% and 19.09%, respectively, as compared to 1.32% and 17.91%, respectively, for the same period of 2000. The 8.9% increase in net income during the first quarter of 2001 as compared to the first quarter of 2000 was largely due to the 17% growth in average loans. Net income during the first quarter of 2001 included a $78,000 charge for dividends paid on trust preferred securities issued in September 2000. Earnings per share diluted increased 30% to $0.39 reflecting share repurchases over the past year. The weighted average number of shares outstanding for the three months ended March 31, 2001 was 1,756,867 as compared to 2,054,135 for the three months ended March 31, 2000. NET INTEREST INCOME Net interest income for the quarter ended March 31, 2001 was $3,074,000, an increase of 4.8% over the net interest income of $2,934,000 during the same period of 2000. The increase was primarily due to the 17% growth in average loans. 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): 8
For the quarter ended March 31, ------------------------------------------------------------------- 2001 2000 ------------------------------------------------------------------- Average Average Balance Interest Rate Balance Interest Rate ------- -------- ------ ------- -------- ------ ASSETS Federal funds sold $ 4,724 $ 62 5.25% $ 9,506 $ 134 5.64% Interest-bearing deposits with banks 286 4 5.59 286 4 5.59% Investment securities 26,378 373 5.66% 34,242 479 5.60% Loans(1) 163,560 4,067 9.95% 139,942 3,573 10.21% ------- -------- ------ -------- -------- ------ Total earning assets 194,948 4,506 9.25% 183,976 4,190 9.11% Total non-earning assets 14,609 13,115 -------- ------- Total assets $209,557 $197,091 ======== ======= LIABILITIES & SHAREHOLDERS' EQUITY Demand deposits $ 46,478 $ 46,108 Interest-bearing transaction accounts 103,568 $ 895 3.46% 108,821 $ 954 3.51% Time deposits, $100,000 or more 27,456 389 5.66% 14,207 179 5.04% Savings and other time 10,686 123 4.60% 11,434 116 4.06% ------- -------- ------ ------- -------- ------ Total interest-bearing deposits 141,710 1,407 3.97% 134,462 1,249 3.72% ------- -------- ------ ------- -------- ------ Other borrowings 1,760 25 5.68% 581 7 4.82% ------- -------- ------ ------- -------- ------ Total interest-bearing liabilities 143,470 1,432 3.99% 135,043 1,256 3.72% Other liabilities 1,714 1,361 Trust preferred securities 3,000 Shareholders' equity 14,895 14,579 Total liabilities -------- -------- and shareholders' equity $209,557 $197,091 ======== ======== -------- -------- Net interest income $3,074 $2,934 ======== ======== Net interest margin 6.31% 6.38% (1) Nonaccrual loans are included in the average balance.
The net interest margin decreased to 6.31% during the first quarter of 2001 from 6.38% in the same quarter of 2000 as the 14 basis point increase in the yield on earning assets was offset by the 27 basis point increase in the rate paid on interest-bearing liabilities. The following table presents the dollar amount of changes in interest earned and interest paid for each major category of interest-earning asset and interest-bearing liability and the amount of change attributable to average balances (volume) fluctuations and average rate fluctuations for the periods indicated. The variance attributable to both balance and rate fluctuations is allocated to a combined rate/volume variance (dollar amounts in thousands): 9 Quarter Ended March 31, 2001 Compared to Quarter Ended March 31, 2000 Change in ----------------------------------- Rate/ Volume Rate Volume Total ----------------------------------- Interest Income: Federal funds sold ($ 68) ($9) $5 ($72) Interest-bearing deposits with banks 0 0 0 0 Investment securities ( 110) 5 (1) (106) Loans 600 (91) (15) 494 ----------------------------------- Total Interest Income 422 (95) (11) 316 ----------------------------------- Interest Expense: Interest-bearing transaction accounts (46) (14) 1 (59) Time deposits, $100,000 or more 167 22 21 210 Savings and other time (8) 16 (1) 7 Other borrowings 14 1 3 18 ----------------------------------- Total Interest Expense 127 25 24 176 ----------------------------------- Net Interest Income $295 ($120) ($35) $140 =================================== 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 2001 2000 - -------------------------------------------------------------------------------- Gain on sale of loans $ 24 $ 15 Service fees on deposit accounts 123 129 Loan servicing fees 15 13 Loss on sale of investment securities-net (2) Other 96 56 --------------------------- Total $258 $211 =========================== As a Percentage of Average Assets (Annualized) - ----------------------------------------------------- Gain on sale of loans 0.05% 0.03% Service fees on deposits accounts 0.23% 0.26% Loan servicing fees 0.03% 0.03% Gain (loss) on sale of investment securities-net 0.00% Other 0.18% 0.11% --------------------------- Total 0.49% 0.43% =========================== 10 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 Income 2001 2000 - -------------------------------------------------------------------------------- Salaries and employee benefits $1,110 $1,069 Occupancy expense 284 254 Furniture and equipment expense 113 110 Professional services 46 54 Supplies 58 71 Promotional expenses 101 129 Data processing fees 101 88 Regulatory assessments 15 15 Other 124 128 --------------------------- Total $1,952 $1,918 =========================== Average full-time equivalent employees 58 58 As a Percentage of Average Assets (Annualized) - ----------------------------------------------------- Salaries and employee benefits 2.12% 2.17% Occupancy expense 0.54% 0.52% Furniture and equipment expense 0.22% 0.22% Professional services 0.09% 0.11% Supplies 0.11% 0.14% Promotional expenses 0.19% 0.26% Data processing fees 0.19% 0.18% Regulatory assessments 0.03% 0.03% Other 0.24% 0.26% --------------------------- Total 3.73% 3.89% =========================== INCOME TAXES. The Company's effective tax rate was 40.8% for the quarter ended March 31, 2001 compared to 41.0% in the same period of the prior year. FINANCIAL CONDITION Total assets of the Company increased by $7.1 million, or 3.4%, from the end of 2000 to reach $216.4 million at March 31, 2001. 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): 11
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING MARCH 31, 2000: COST GAINS LOSSES VALUE VALUE - ----------------------------------------------------------------------------------------------------- Available for sale securities: U.S. Treasury 13,982 $ 350 14,332 14,332 U.S. Government agencies 9,101 121 9,222 9,222 Corporate securities 1,923 31 1,954 1,954 -------- ------- -------- -------- -------- Total investment securities $ 25,006 $ 502 $ 25,508 $ 25,508 ======== ======= ======== ======== ========
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING DECEMBER 31, 2000 COST GAINS LOSSES VALUE VALUE - ----------------------------------------------------------------------------------------------------- Held to maturity securities: U.S. Government agencies $ 2,000 $ ( 1) $ 1,999 $ 2,000 -------- ------- -------- -------- -------- Total held to maturity 2,000 ( 1) 1,999 2,000 -------- ------- -------- -------- -------- Available for sale securities: U.S. Treasury 13,983 188 (42) 14,129 14,129 U.S. Government agencies 9,108 5 (75) 9,038 9,038 Corporate securities 1,929 4 (29) 1,933 1,933 -------- ------- -------- -------- -------- Total available for sale 25,020 197 (117) 25,100 25,100 -------- ------- -------- -------- -------- Total investment securities $ 27,020 $ 197 $ (118) $27,099 $ 27,100 ======== ======= ======== ======== ========
The maturities and weighted average yields of investment securities at March 31, 2001 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 $2,006 5.58% $17,028 5.68% $4,049 5.61% $23,083 5.66% Corporate securities 811 6.33% 1,112 6.30% 1,923 6.32% ------ ----- ------- ----- ------ ----- ------- ----- Total $2,817 5.80% $18,140 5.72% $4,049 5.61% $25,006 5.71% ====== ===== ======= ===== ====== ===== ======= =====
12 LOANS HELD FOR INVESTMENT Net loans held for investment decreased by $1.6 million, or 1.0%, during the first three months of 2001 as repayments of commercial loans exceeded originations during the period. The following table sets forth the amount of total loans outstanding by category as of the dates indicated (dollar amounts in thousands): March 31, December 31, 2001 2000 --------- ----------- Total Loans $ 23,477 $ 27,137 Commercial Real estate: Commercial 108,823 108,557 Construction 25,900 24,157 Land 2,032 1,675 Home equity 1,423 1,581 Loans to consumers and individuals 1,905 1,936 --------- --------- Total 163,560 165,043 Deferred loan fees (192) (220) Allowance for loan losses (2,039) (1,939) --------- --------- Total net loans $ 161,329 $ 162,884 ========= ========= 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 $138.2 million, or 84.5% of the total portfolio as of March 31, 2001. 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 March 31, 2001 the two largest industry concentrations within the loan portfolio were real estate and related services at 28.2% and the services - personal/business industry at 23.4% 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. Maturities of Loans at March 31, 2001 (dollar amounts in thousands): 13
Time remaining to maturity Fixed rate Adjustable rate Total ----------------- ------------------------------------ One year or less $ 7,778 $ 37,409 $ 45,187 After one year to five years 60,586 19,891 80,477 After five years 12,943 24,953 37,896 ----------------- ----------------- ----------------- Total $ 81,307 $ 82,253 $ 163,560 ================= ================= =================
As of March 31, 2001, the percentage of loans held for investment with fixed and floating interest rates was 49.7% and 50.3%, respectively. 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, 2001, the Company had nonperforming assets in the amount of $40,000. The following table sets forth the balance of nonperforming assets as of the dates indicated (dollar amounts in thousands): Nonperforming Assets March 31, December 31, 2001 2000 ------------------ ------------------ Nonaccrual loans $ 0 $ 0 Loans 90 days or more past due and still accruing 40 40 ------------------ ------------------ $ 40 $ 40 ================== ================== As a percent of total loans 0.02% 0.02% As a percent of total assets 0.02% 0.02% At March 31, 2001, the Company had loans identified as impaired in the amount of $40,000. At March 31, 2001, no specific allowance for loan losses was required for these impaired loans because they were adequately collateralized. ALLOWANCE FOR LOAN LOSSES The Company maintains an allowance for loan losses ("ALL") which is reduced by credit losses and increased by credit recoveries and by the provision to the ALL which is charged against operations. Provisions to the ALL and the total of the ALL 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 ALL 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, 14 2001, the ALL of $2,039,000, or 1.25% 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 ALL. 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 ALL arising from credit losses, recoveries of credit losses previously incurred, additions to the ALL charged to operating expense, and certain ratios relating to the ALL (dollar amounts in thousands):
At and For At and For The Three Months The Year Ended March 31, 2001 December 31, 2000 ----------------- ----------------- Balances: Average loans during period $163,560 $149,645 Loans at end of period 163,368 164,823 Allowance for Loan Losses: Balance at beginning of period 1,939 1,492 Charge-offs: Commercial 9 Consumer 1 -------- -------- Total charge-offs Recoveries: Commercial 37 -------- -------- Total charge-offs 0 37 -------- -------- Net charge-offs (recoveries) 0 (27) -------- -------- Provision charged to operating expenses 100 420 -------- -------- Balance at end of period $ 2,039 $ 1,939 ======== ======== Ratios: Net charge-offs(recoveries) to average loans 0.00% -0.02% Allowance for loan losses to loans at end of period 1.25% 1.18% Net charge-offs (recoveries) to beginning of period allowance for loan losses 0.00% -1.81
The Company provided $100,000 to the allowance for loan losses during the first quarter of 2001 as compared to $120,000 during the first quarter of 2000. The provision in the first quarter of 2001 was recorded in view of the increasing uncertainties regarding general economic and business conditions in our primary market areas and the provision in 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 ALL as of the dates indicated (dollar amounts in thousands): 15 March 31, 2001 December 31, 2000 March 31, 2000 ---------------------------------------------------------- % of % of % of Category Category Category to Total to Total to Total All Loans All Loans All Loans Commercial loans $ 805 43.48% $ 793 43.34% $ 897 44.79% Real estate loans 982 53.03% 978 53.47% 287 51.80% Consumer loans 72 3.49% 65 3.19% 32 3.41% Not allocated 180 N/A 103 N/A 426 N/A ------ ------- ------ ------- ------ ------- Total $2,039 100.00% $1,939 100.00% $1,642 100.00% ====== ======= ====== ======= ====== ======= The ALL is available to absorb losses from all loans, although allocations have been made for certain loans and loan categories. The allocation of the ALL 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. 16 DEPOSITS Total consolidated deposits increased by $7.5 million, or 4.0%, during the three months ended March 31, 2001. Rates paid on deposits remained the same during the three months ended March 31, 2001 as compared to the year ended December 31, 2000. The following table summarizes the distribution of average deposits and the average rates paid for the periods indicated (dollar amounts in thousands):
Three Months Ended Year Ended March 31, 2001 December 31, 2000 ---------------------------------- ---------------------------------- Average Average Average Average Balance Rate Balance Rate -------------- ---------------- ------------ ------------------ Noninterest-bearing demand deposits $ 46,478 $ 47,329 Interest-bearing demand deposits (includes money market deposit accounts) 103,568 3.45% 108,708 3.70% Savings deposits 2,131 1.88% 2,146 1.95% Time deposits, $100,000 and over 27,456 5.66% 17,730 5.46% Other time deposits 8,555 5.28% 9,086 4.96% -------------- ---------------- ------------ ------------------ Total interest-bearing 141,710 3.97% 137,670 3.98% -------------- ---------------- ------------ ------------------ Total deposits $ 188,188 2.99% $ 184,999 2.96% ============== ================ ============ ==================
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): March 31, 2001 December 31, 2000 -------------- ----------------- Time remaining to maturity Three months or less $12,443 $14,456 After three months to six months 9,438 4,519 After six months to one year 3,378 5,678 After twelve months 1,600 500 ------- ------- Total $26,859 $25,153 ======= ======= LIQUIDITY 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, 2001, federal funds sold averaged $4.7 million, or 2.3% 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. 17 At March 31, 2001, the Company had cash, time deposits with banks, federal funds sold, and unpledged investment securities of approximately $34.9 million, or 16.1% 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 March 31, 2001, the loan-to-deposit ratio was 83.3% as compared to 87.4% at December 31, 2000. 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 March 31, 2001, this ratio was 7.1% as compared to 1.3% at December 31, 2000. As of March 31, 2001, the Company had no material commitments that were expected to adversely impact liquidity. INTEREST RATE RISK MANAGEMENT Net Income Simulation The Company's management utilizes the results of a net income simulation model to quantify the estimated exposure to net income of changes in interest rates. The various products in the Company's balance sheet are modeled to simulate their income (and cash flow) behavior in relation to interest rates. Income for the next 12 months is calculated for current interest rates and for immediate and sustained rate shocks. The income simulation model includes various assumptions regarding the repricing relationships for each product. Many of the Company's assets are floating rate loans, which are assumed to reprice immediately, and to the same extent as the change in market rates according to their contracted index. The Company's nonmaturity deposit products reprice more slowly, usually changing less than the change in market rates and at our discretion. As of March 31, 2001, the analysis indicates that our net income for the next 12 months would increase 8% if rates increased 200 basis points, and decrease by 7% if rates decreased 200 basis points. This analysis indicates the impact of the change in net income for a given set of rate changes and assumptions. It assumes no growth in the balance sheet and does not account for all the factors that impact this analysis including changes by management to mitigate the impact of interest rate changes or secondary impacts such as changes to our credit risk profile as interest rates change. Furthermore loan prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment rates that will differ from the estimates incorporated in the analysis. In addition, the proportion of adjustable-rate loans in the portfolio could decrease in future periods if market interest rates remain at or decrease below current levels. Changes that vary significantly from the assumptions may have significant effects on our net income. The results of this sensitivity analysis should not be relied upon as indicative of actual future results. Gap Analysis 18 In addition to the above analysis, the Company also performs a gap analysis as part of the overall interest rate risk management process. 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, 2001, 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):
Over 90 Over 180 After One After 90 days days to days to Year to Five or less 180 days 365 days Five Years Years Total ------- -------- -------- ---------- ------- -------- Earning Assets (Rate Sensitive): Federal funds sold $10,800 $ 10,800 Interest-bearing deposits with other banks 90 $ 196 286 Investment securities $ 2,817 $18,140 $ 4,049 25,006 Loans, excluding allowance for possible losses 83,856 2,405 2,488 61,868 12,943 163,560 ------- ------ -------- ------- ------- -------- Total 94,746 2,601 5,305 80,008 16,992 199,652 ------- ------ -------- ------- ------- -------- Interest-Bearing Liabilities (Rate Sensitive): Interest-bearing transaction deposits 45,230 58,679 103,909 Time deposits, $100,000 or more 12,443 9,438 3,378 1,600 26,859 Savings and other time deposits 3,727 2,529 1,118 3,774 11,148 Other borrowings 626 626 Trust preferred securities 3,000 3,000 ------- ------ -------- ------- ------- -------- Total 16,796 11,967 49,726 64,053 3,000 $145,542 ------- ------ -------- ------- ------- ------- Period GAP $77,950 $(9,366) $(44,421) $15,955 $13,992 ======= ======= ======== ======= ======= Cumulative GAP $77,950 $68,584 $ 24,163 $40,118 $54,110 ======= ======= ======== ======= ======= Interest Sensitivity GAP Ratio 82.27% (360.09%) (837.34%) 19.94% 82.34% ======= ======= ======== ======= ======= Cumulative Iterest Sensitivity 82.27% 70.45% 23.54% 21.96% 27.10% ======= ======= ======== ======= =======
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 Total shareholders' equity was $14.9 million as of March 31, 2001 compared to $15.1 million at December 31, 2000. The decrease was primarily due to the repurchase of common stock during the first quarter 19 of 2001. During the quarter, the Company repurchased 121,000 shares at a total cost of $1.4 million. The Company paid dividends of $0.01 per share during the three months ended March 31, 2001. The ratios of average equity to average assets for the periods indicated are set forth below. Three Months Ended Three Months Ended March 31, 2001 March 31, 2000 ------------------ ------------------ 7.11% 7.40% Trust Preferred Securities On September 7, 2000, the Company completed an offering of 10.60% capital securities in an aggregate amount of $3.0 million through the Trust, a wholly owned trust subsidiary formed for the purpose of the offering. The securities issued in the offering were sold by the Trust in a private transaction pursuant to an applicable exemption from registration under the Securities Act. The entire proceeds of the issuance were invested by the Trust in $3,000,000 of 10.60% Junior Subordinated Deferrable Interest Debentures due 2030 issued by the Company under a similar exemption from registration. The debentures represent the sole assets of the Trust. Interest on the debentures is payable semi-annually and the principal is redeemable by the Company at a premium beginning on or after September 7, 2010 through September 6, 2020 plus any accrued and unpaid interest to the redemption date. On or after September 7, 2020, the principal is redeemable by the Company at 100% of the principal amount. The trust preferred securities are subject to mandatory redemption to the extent of any early redemption of the debentures and upon maturity of the debentures on September 7, 2030. The debentures bear the same terms and interest rates as the trust preferred securities. The Company has guaranteed, on a subordinated basis, distributions and other payments due on the trust preferred securities. The debentures and related Trust investment in the debentures have been eliminated in consolidation and the trust preferred securities are reflected as outstanding in the accompanying condensed consolidated financial statements. Under applicable regulatory guidelines, the trust preferred securities currently qualify as Tier 1 capital up to a maximum of 25% of Tier I capital. Any additional portion of trust preferred securities would currently qualify as Tier 2 capital. As of March 31, 2001, the entire $3.0 million outstanding of trust preferred securities qualified as Tier I capital. Risk Based Capital 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 March 31, 2001, the Company's total capital was 11.16% and its Tier 1 capital ratio was 9.99%. In addition, the Company, under the guidelines established for 20 adequately capitalized institutions, must also maintain a minimum leverage ratio (Tier 1 capital divided by total assets) of 4%. As of March 31, 2001, the Company's leverage ratio was 8.24%. 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. 21 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) 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 22 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 14, 2001 /s/ PATRICK E. PHELAN ----------------------------------------------- Patrick E. Phelan Chief Financial Officer (Principal Accounting Officer and officer authorized to sign on behalf of the registrant) 23 Exhibit Index EXHIBIT DESCRIPTION 10.1 Stock Purchase Agreement, dated as of April 2, 2001, by and between John Cavallucci, John Cavallucci and Elizabeth L. Cavallucci as Trustees for The Cavallucci Family Trust and MCB Financial Corporation 24 EX-10.1 2 ex10-1.txt STOCK PURCHASE AGREEMENT EXHIBIT 10.1 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (the "Agreement") is entered into as of this 2nd day of April, 2001, by and between John Cavallucci, an individual, and John Cavallucci and Elizabeth L. Cavallucci as Trustees for The Cavallucci Family Trust (collectively "Seller") and MCB Financial Corporation, a California corporation ("Buyer"). In consideration of the mutual promises, representations, covenants and conditions set forth in this Agreement, the parties to this Agreement mutually agree as follows: 1. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions of --------------------------- this Agreement, Seller agrees to sell and Buyer agrees to buy, 229,251 shares of the Common Stock, no par value of MCB Financial Corporation (the "Shares") in the manner set forth in Section 3 of this Agreement. 2. PURCHASE PRICE. The purchase price for the Shares shall be $12.00 -------------- per share ("Purchase Price"). 3. CLOSING DATES. The purchase and sale of the Shares shall occur on ------------- the dates specified below: a. On April 13, 2001 (the "First Closing Date"), the Seller shall sell and transfer to Buyer 150,000 Shares and the Buyer shall buy and pay the Purchase Price to Seller for the Shares transferred to Buyer at this First Closing Date. b. At the election of Buyer, Seller may sell and Buyer may buy additional Shares on the First Closing Date as may be specified by Buyer. c. On July 3, 2001 (the "Second Closing Date") the Seller shall sell and transfer to Buyer all of Seller's remaining Shares and the Buyer shall buy and pay the Purchase Price to Seller for the Shares transferred at this Second Closing Date. d. In the event that on or before the Second Closing Date Seller has exercised any vested options to acquire additional MCB Financial Common Stock, at the election of Seller, Buyer shall be obligated to purchase the shares so acquired by Seller on the Second Closing Date at the Purchase Price and under the terms and conditions of this Agreement. e. Seller hereby designates Buyer or its assigns as Seller's proxy to vote any and all Shares sold and transferred to Buyer following an "of-record" date set for a meeting of MCB Financial shareholders where the relevant Closing Date occurs prior to the shareholder vote. This proxy is irrevocable in that it is coupled with an interest. 4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and ---------------------------------------- warrants to Buyer as follows: 1 a. TITLE TO SHARES. As of each Closing Date, Seller shall own --------------- beneficially and of record, free and clear of any lien, option or other encumbrance, and shall have full power and authority to convey, free and clear of any lien or other encumbrance, the Shares. Upon Buyer's purchase of the Shares, good and marketable title to the Shares will pass to Buyer subject to no lien, encumbrance or other right in any party other than Buyer. b. AUTHORITY TO EXECUTE AND PERFORM AGREEMENT. At the time of ------------------------------------------ execution of this Agreement and as of each Closing Date, Seller has the full legal right, power and authority to enter into, execute and deliver this Agreement and to perform fully Seller's obligations hereunder. This Agreement has been duly executed and delivered by Seller and is a valid and binding obligation of Seller enforceable in accordance with its terms. 5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and --------------------------------------- warrants to Seller as follows: a. AUTHORITY TO EXECUTE AND PERFORM AGREEMENT. At the time of ------------------------------------------ execution of this Agreement and as of each Closing Date, Buyer has the full legal right, power and authority to enter into, execute and deliver this Agreement and to perform fully Buyer's obligations hereunder. This Agreement has been duly executed and delivered by Buyer and is the valid and binding obligation of Buyer enforceable in accordance with its terms. 6. CONDITIONS TO THE OBLIGATIONS OF BUYER. The obligation of Buyer to -------------------------------------- buy the Shares is subject to satisfaction of the following conditions: a. On or before the First Closing Date Buyer shall have received a letter from Carpenter and Company advising Buyer and its Board of Directors that the terms of this Agreement are commercially reasonable. 7. SUCCESSORS AND ASSIGNS; ASSIGNMENT. The rights and obligations of ---------------------------------- this Agreement shall be binding upon and inure to the benefit of the successors, assigns, heirs and personal representatives of the parties hereto. Seller understands and consents to Buyer allocating a portion of the purchase of the Shares to other buyers provided that such assignees of Buyer shall be bound by the terms of this Agreement. 8. SEVERABILITY. If any provision of this Agreement, as applied to ------------ either party or to any circumstance, is judged by a court to be void or unenforceable, in whole or in part, the same shall, in no way affect any other provision of this Agreement, the application of such provision in any other circumstances, or the validity or enforceability of this Agreement. 9. APPLICABLE LAW; JURISDICTION AND VENUE. This Agreement and all -------------------------------------- matters or issues collateral hereto shall be governed by the laws of the State of California applicable to contracts performed entirely therein. 10. WAIVER. A waiver by either party of any of the terms or conditions ------ of this Agreement in any one instance shall not be deemed or construed to be a waiver of such terms and conditions for the future, or of any subsequent breach thereof. All remedies, rights, undertakings, obligations, and agreements contained in this Agreement shall be cumulative, and none of them shall be in limitation of any other remedy, right, undertaking, obligation or agreement of either party. 2 11. ATTORNEY'S FEES. If any legal action or other proceeding is brought --------------- for the enforcement of this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled. 12. HEADINGS. The headings in this Agreement are for convenience only -------- and shall not in any manner affect the interpretation or construction of the Agreement or any of its provisions. 13. RESIGNATION AS DIRECTOR. This Agreement shall serve as the written ----------------------- resignation of John Cavallucci from the Board of Directors of MCB Financial Corporation and from the Board of Directors of it subsidiary Metro Commerce Bank effective immediately following the Second Closing Date. 14. NOTICE. Any notice or other communication to be given under this ------ Agreement shall be in writing and shall be deemed to have been duly given on the date of service if personally served, or if mailed, upon deposit in the United States mail, first class postage prepaid, express or certified, return receipt requested, and properly addressed to the parties as follows: SELLER: BUYER: John Cavallucci MCB Financial 7740 Shelborne Drive 1248 Fifth Avenue Granite Bay, CA 95746 San Rafael, CA 94901 IN WITNESS WHEREOF, Buyer and Seller have hereunto set their hand as of the day and year first above written. SELLER: BUYER: The Cavallucci Family Trust MCB Financial Corporation By: /s/ JOHN CAVALLUCCI, Trustee By: /s/ TIMOTHY J. JORSTAD ---------------------------- ---------------------- Title: Chairman By: /s/ ELIZABETH L. CAVALLUCCI, Trustee ------------------------------------ /s/ JOHN CAVALLUCCI, an individual ---------------------------------- 3 -----END PRIVACY-ENHANCED MESSAGE-----