<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 18, 1996
REGISTRATION NO. 333-12381
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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METROPOLITAN FINANCIAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Ohio
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
6120
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
34-1109469
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
6001 Landerhaven Drive
Mayfield Heights, Ohio 44124
(216) 646-1111
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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ROBERT M. KAYE
6001 LANDERHAVEN DR.
MAYFIELD HEIGHTS, OHIO 44124
(216) 646-1111
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
Malvin E. Bank, Esq.
Thompson Hine & Flory LLP
3900 Key Center
127 Public Square
Cleveland, Ohio 44114-1216
(216) 566-5500
Thomas F. McKee, Esq.
Calfee, Halter & Griswold
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114-2688
(216) 622-8200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 18, 1996
PROSPECTUS
700,000 SHARES
METROPOLITAN FINANCIAL CORP.
COMMON STOCK
Of the 700,000 shares of Common Stock, without par value (the "Common
Stock") offered hereby, 400,000 shares are being sold by Metropolitan Financial
Corp. ("Metropolitan" or the "Corporation"), and 300,000 shares are being sold
by the sole shareholder of the Corporation (the "Selling Shareholder"). See
"Selling Shareholder and Beneficial Ownership." The Corporation will not receive
any of the proceeds from the sale of Common Stock by the Selling Shareholder.
After the offering, the Selling Shareholder will own 80.1% of the Corporation's
Common Stock (77.2% if the Underwriter's over-allotment option is exercised in
full) and as such will be able to control those matters requiring shareholder
approval. See "Selling Shareholder and Beneficial Ownership." Prior to this
offering, there has been no public market for the Corporation's Common Stock. It
is currently estimated that the initial public offering price will be between
$9.00 and $11.00 per share. See "Underwriting" for the factors considered in
determining the initial public offering price of the Common Stock.
The Corporation's Common Stock has been approved for listing, subject to
official notice of issuance, on the Nasdaq National Market under the symbol
"METF." There is no guarantee that an active public trading market for the
Common Stock will develop or be sustained.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SHARES OF COMMON STOCK OFFERED HEREBY.
------------------------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS
ASSOCIATION INSURANCE FUND, THE BANK INSURANCE FUND OR ANY GOVERNMENT
AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<S> <C> <C> <C> <C>
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<CAPTION>
<S> <C> <C> <C> <C>
PROCEEDS TO
UNDERWRITING PROCEEDS TO THE SELLING
PRICE TO PUBLIC DISCOUNT(1) THE CORPORATION(2) SHAREHOLDER
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Per Share............................... $ $ $ $
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Total(3)............................ $ $ $ $
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</TABLE>
(1) The Corporation and the Selling Shareholder have agreed to indemnify
McDonald & Company Securities, Inc. (the "Underwriter") against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $325,000 payable by the Corporation.
(3) The Selling Shareholder has granted the Underwriter a 30-day option to
purchase up to an additional 105,000 shares of Common Stock on the same
terms and conditions as set forth above to cover over-allotments. If such
option is exercised in full, the total Price to Public, Underwriting
Discount, and Proceeds to the Selling Shareholder will be $ ,
$ , and $ respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriter subject to receipt
and acceptance of the shares by it. The Underwriter reserves the right to reject
any order in whole or in part. It is expected that delivery of the shares of
Common Stock will be made against payment therefor through the facilities of the
Depository Trust Company on or about November , 1996.
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MCDONALD & COMPANY
SECURITIES, INC.
The date of this Prospectus is , 1996
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[METROPOLITAN SAVINGS BANK LOGO]
[MAP GRAPHIC]
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information
and financial statements appearing elsewhere herein. Unless otherwise indicated,
information in this Prospectus assumes no exercise of the Underwriter's
over-allotment option and reflects a 3,125,635-for-one stock split which
occurred prior to the completion of the offering. Prospective investors should
carefully consider the information set forth under the heading "Risk Factors"
beginning on page 6.
THE CORPORATION
Metropolitan is the holding company for Metropolitan Savings Bank of
Cleveland (the "Bank"), an Ohio chartered stock savings association
headquartered in Mayfield Heights, Ohio. Metropolitan had total assets of $672.8
million at June 30, 1996. The Bank operates 14 full service retail offices
serving primarily the eastern suburbs of Cleveland, Ohio and is the sixth
largest savings association headquartered in Ohio. The Bank's deposits are
insured up to applicable limits by the Federal Deposit Insurance Corporation
("FDIC").
Metropolitan is wholly-owned by Robert M. Kaye, the Selling Shareholder. In
recent years, Metropolitan has pursued a strategy of maximizing long term
profitability by pursuing balance sheet growth designed to enhance the franchise
value of the Bank, its primary operating subsidiary. Metropolitan seeks to
maintain strong growth through (i) increasing total interest-earning assets by
continuing to focus on multifamily, commercial real estate and residential loan
origination while maintaining a high level of asset quality and "adequately
capitalized" status pursuant to FDIC guidelines, (ii) growing time and core
deposits at a rate that is consistent with the overall level of growth of
interest-earning assets, (iii) increasing non-interest income as a non-credit
based source of income that requires a lower commitment of capital than credit
based products, and (iv) increasing the capital of the Bank through retained
earnings.
As a result of this strategy, Metropolitan's assets have increased from
$249.6 million at December 31, 1991 to $672.8 million at June 30, 1996. Net
income for the Corporation has increased from $1.2 million for the year ended
December 31, 1991 to $3.5 million for the year ended December 31, 1995. The
Corporation's net income was $1.6 million for the six-month period ended June
30, 1996.
Metropolitan is primarily engaged in originating and purchasing multifamily
and commercial real estate loans in Ohio, Southeastern Michigan, Central and
Northern New Jersey, Northern Kentucky, and Western Pennsylvania and residential
real estate loans in Northeastern Ohio. Metropolitan has expanded its
multifamily lending beyond its primary retail banking market of Northeastern
Ohio into other areas of the Midwest and Northeastern United States to markets
that it believes are similar in nature to Northeastern Ohio in order to benefit
from management's expertise in multifamily lending. Management believes that a
certain degree of geographic diversity serves to enhance Metropolitan's asset
quality.
At June 30, 1996, Metropolitan's loan portfolio totalled $563.9 million, of
which $270.0 million, or 47.9%, was in multifamily loans. Management intends to
continue to focus on originating and purchasing variable rate multifamily, as
well as commercial real estate and residential mortgages in its primary lending
markets. Management believes that multifamily loans offer attractive
risk-adjusted yields and favorable asset/liability management characteristics.
Metropolitan believes that, despite growing competition for multifamily real
estate loans from other lenders, it will continue to benefit from management's
experience and relationships with various sources of multifamily lending
developed over the years.
At June 30, 1996, commercial real estate loans comprised 21.6% of
Metropolitan's total loan portfolio. Over the past three years, this portion of
Metropolitan's portfolio has increased mainly through purchases. A majority of
these loans were part of larger packages of loans that included multifamily
residential loans and exhibited the yield and term characteristics sought by
Metropolitan and met the underwriting criteria established by Metropolitan.
Metropolitan plans to continue to add commercial real estate loans to its
portfolio through these types of purchases and to a lesser extent, through
origination. Due to regulatory limitations, Metropolitan expects that although
the level of commercial real estate loans in its portfolio will continue to
increase, the percentage of its loan portfolio consisting of commercial real
estate loans will remain stable.
Metropolitan originates one- to four-family residential loans in its
primary market of Northeastern Ohio. Metropolitan originates fixed rate
residential loans primarily for sale in the secondary market and originates
3
<PAGE> 5
adjustable rate residential loans to hold in its portfolio. At June 30, 1996,
16.3% of Metropolitan's total loan portfolio was made up of residential real
estate loans secured by one- to four-family residences. When Metropolitan sells
its fixed rate residential loans into the secondary market, it retains the
servicing rights on the loans, thereby increasing the amount of non-interest
income to the Corporation.
In addition to retaining servicing rights on the residential loans that it
sells, Metropolitan increases its loan servicing portfolio through purchases of
servicing rights. At June 30, 1996, Metropolitan's overall servicing portfolio
was $1.5 billion. Of such amount, $1.1 billion represented loans serviced for
others. Loan servicing income, net, which was $632,000 in the six months ended
June 30, 1996, represents a significant source of fee income to Metropolitan.
Management believes that the market value of the servicing portfolio exceeds the
amount reflected on the balance sheet.
Maintaining a high level of asset quality is one of management's top
priorities. Net charge-offs have averaged 0.06% for the five years ended
December 31, 1995, and net charge-offs were only $13,000 in the six months ended
June 30, 1996. At June 30, 1996, nonperforming loans represented 1.03% of total
loans and nonperforming assets represented 0.90% of total assets.
Metropolitan plans to fund its asset growth primarily through growth in
time and core deposits. Deposits have grown at a compound annual rate of 21.1%
from December 31, 1991 to June 30, 1996, while assets have grown at the rate of
24.5%. As deposit growth has lagged asset growth, Federal Home Loan Bank
("FHLB") advances have been used by the Bank to fund asset growth. Metropolitan
targets growing communities with demographic and market characteristics which
can support new retail sales office locations and plans to open two de novo
offices per year. In addition to providing a source of core deposit funding,
these retail sales offices will enable the Corporation to continue to increase
residential, consumer and business lending in its primary Ohio markets.
In recent years, Metropolitan has put in place several initiatives designed
to make the Bank a full service bank. Metropolitan has created a trust
department, which manages investment assets for individuals and institutional
clients. In addition, the Bank has business lending and consumer loan
departments and personnel. Recently, the Bank instituted a credit card program.
These initiatives have been undertaken despite the short-term detrimental impact
on earnings as Metropolitan believes that such additional products and services
will enhance its competitive position and profitability in future years.
Although these activities constitute a relatively small part of Metropolitan's
business strategy at the present time, management expects these lines of
business to continue to grow and to become a more significant part of the
business of the Bank in the future.
The Corporation was incorporated in Ohio in 1972. Its corporate
headquarters is located at 6001 Landerhaven Drive, Mayfield Heights, Ohio 44124
and its telephone number is (216) 646-1111.
THE OFFERING
Common Stock offered by the
Corporation........................... 400,000
Common Stock offered by the Selling
Shareholder........................... 300,000(1)
Common Stock outstanding after the
offering.............................. 3,525,635
Use of proceeds....................... The Corporation anticipates that all
of the proceeds to the Corporation
will be contributed as paid-in
capital to the Bank. See "Use of
Proceeds."
Nasdaq National Market symbol......... METF
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(1) 405,000 shares assuming full exercise of the Underwriter's over-allotment
option.
4
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth certain summary consolidated financial and
other data of the Corporation at or for the dates indicated. The information
with respect to the six month periods ended June 30, 1996 and 1995 has been
derived from Metropolitan's unaudited financial statements. In the opinion of
management, all adjustments (which consist of normal recurring accruals)
necessary for a fair presentation have been included. This information should be
read in conjunction with the Consolidated Financial Statements and notes
thereto, and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere herein. The results of operations for
the six month period ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the entire year.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
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1996 1995 1995 1994 1993 1992 1991
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(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets........................... $ 672,786 $ 555,274 $ 590,095 $479,384 $372,390 $300,500 $249,587
Loans receivable, net.................. 563,883 462,424 478,345 424,944 284,288 216,688 164,983
Loans held for sale.................... 10,686 16,739 1,504 84 10,391 5,082 11,839
Mortgage-backed securities............. 41,821 24,874 39,156 16,785 13,412 23,322 33,040
Securities............................. 12,136 12,333 22,806 7,641 10,168 19,740 20,040
Cost in excess of fair value of net
assets acquired...................... 3,079 3,298 3,188 3,409 3,631 3,853 4,098
Cost of loan servicing rights.......... 8,693 8,910 9,130 4,825 2,295 1,541 358
Deposits............................... 558,794 454,822 503,742 436,198 332,549 269,159 228,331
Borrowings............................. 77,074 64,674 46,874 15,504 15,745 11,820 5,910
Shareholder's equity................... 26,614 23,021 25,466 20,280 17,750 13,111 10,157
SELECTED OPERATIONS DATA:
Total interest income.................. $ 24,988 $ 20,368 $ 43,127 $ 31,389 $ 24,448 $ 22,100 $ 20,942
Total interest expense................. (15,449) (12,388) (26,816) (15,992) (11,215) (12,285) (14,851)
---------- ---------- ---------- -------- -------- -------- --------
Net interest income.................... 9,539 7,980 16,311 15,397 13,233 9,815 6,091
Provision for loan losses.............. (685) (479) (959) (766) (740) (367) (45)
---------- ---------- ---------- -------- -------- -------- --------
Net interest income after provision for
loan losses.......................... 8,854 7,501 15,352 14,631 12,493 9,448 6,046
Loan servicing income, net............. 632 391 1,068 642 601 490 226
Gain on sales of loans and
securities........................... 36 113 833 86 1,712 719 261
Other non-interest income.............. 1,378 1,458 2,631 1,123 1,067 578 465
Non-interest expense................... (8,363) (6,752) (14,187) (11,058) (8,274) (6,339) (5,032)
---------- ---------- ---------- -------- -------- -------- --------
Income before income taxes and
cumulative effect of change in
accounting methods................... 2,537 2,711 5,697 5,424 7,599 4,896 1,966
Income tax expense..................... (956) (1,032) (2,155) (1,987) (2,829) (1,773) (715)
Cumulative effect on prior years of
change in accounting method.......... -- -- -- -- (300) -- --
---------- ---------- ---------- -------- -------- -------- --------
Net income............................. $ 1,581 $ 1,679 $ 3,542 $ 3,437 $ 4,470 $ 3,123 $ 1,251
========== ========== ========== ======== ======== ======== ========
PER SHARE DATA:(1)
Net income............................. $ 0.51 $ 0.54 $ 1.13 $ 1.10 $ 1.43 $ 1.00 $ 0.40
Book value............................. 8.51 7.37 8.15 6.49 5.68 4.19 3.25
Tangible book value.................... 7.46 6.20 7.04 5.26 4.32 2.71 1.63
PERFORMANCE RATIOS:(2)
Return on average assets............... 0.50% 0.66% 0.65% 0.82% 1.34% 1.13% 0.54%
Return on average equity............... 12.17 15.59 16.19 17.83 29.30 27.01 13.32
Interest rate spread................... 2.89 2.97 2.92 3.65 4.05 3.86 2.82
Net interest margin(3)................. 3.19 3.27 3.18 3.87 4.26 3.88 2.82
Average interest-earning assets to
average interest-bearing
liabilities.......................... 105.22 105.11 105.13 105.53 105.62 100.33 100.04
Non-interest expense to average
assets............................... 2.63 2.64 2.61 2.64 2.49 2.30 2.17
Efficiency ratio(4).................... 71.24 66.80 68.28 62.95 49.42 52.51 67.51
ASSET QUALITY RATIOS:
Non-performing loans to total
loans(5)............................. 1.03 0.69 0.68 0.55 1.08 0.44 0.26
Non-performing assets to total
assets(5)............................ 0.90 0.60 0.60 0.51 1.08 0.40 0.24
Allowance for losses on loans to total
loans(5)............................. 0.59 0.57 0.57 0.45 0.43 0.32 0.28
Net charge-offs to average loans(2).... 0.00 0.02 0.02 0.03 0.09 0.07 0.10
CAPITAL RATIOS:(5)
Shareholder's equity to total assets... 3.96 4.15 4.32 4.23 4.77 4.36 4.07
Tier 1 capital to total assets......... 5.89 5.26 5.77 5.34 5.81 4.47 4.18
Tier 1 capital to risk-weighted
assets............................... 8.22 7.47 8.20 7.60 8.33 6.75 7.00
OTHER DATA:
Loans serviced for others.............. $1,135,615 $1,181,349 $1,182,216 $739,425 $504,677 $396,703 $208,899
Number of full service offices......... 14 11 13 11 9 8 10
Number of loan production offices...... 6 4 5 4 1 -- --
</TABLE>
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(1) Per share data has been calculated to reflect the 3,125,635-for-one stock
split which occurred prior to the completion of the offering.
(2) Ratios for interim periods are stated on an annualized basis.
(3) Represents the ratio of net interest income to average interest-earning
assets.
(4) Equals non-interest expense less amortization of intangible assets divided
by net interest income plus non-interest income (excluding gains or losses
on securities transactions).
(5) Ratios are calculated based on period end balances.
5
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RISK FACTORS
Prospective investors should carefully consider the following factors,
together with the information set forth in this Prospectus, prior to purchasing
any shares of Common Stock offered hereby.
CONTROL BY ROBERT M. KAYE
The Corporation is currently wholly-owned by Robert M. Kaye of Rumson, New
Jersey. Mr. Kaye is also Chairman of the Corporation, Chairman of the Bank and
the Selling Shareholder. Following the offering, Mr. Kaye will continue to own
80.1% of the Corporation's outstanding Common Stock (77.2% if the Underwriter's
over-allotment option is exercised in full), will control the outcome of various
matters submitted to the shareholders for approval, will have the ability to
elect or remove all of the directors of the Corporation and will have ultimate
control of the Corporation and the Bank. See "Selling Shareholder and Beneficial
Ownership."
DIVIDEND POLICY
The Corporation has paid no cash dividends on its Common Stock since 1987.
Furthermore, the Corporation anticipates that future earnings will be retained
to finance the Corporation's operations and support the continued growth of the
Bank. Accordingly, the Corporation does not currently anticipate paying cash
dividends on its Common Stock in the foreseeable future. In addition, the terms
of the Corporation's 10% subordinated debt maturing December 31, 2001 and
outstanding in the amount of $4.9 million (the "1993 Subordinated Notes")
prohibit the Corporation from paying any cash dividend while the 1993
Subordinated Notes are outstanding. The Indenture dated as of December 1, 1995
between the Corporation and Boatmen's Trust Company (the "Indenture") covering
the 9 5/8% subordinated debt maturing January 1, 2005 and outstanding in the
amount of $14.0 million (the "1995 Subordinated Notes") and the restated loan
agreement between the Corporation and The Huntington National Bank, dated
October 16, 1996 (the "Huntington Loan Agreement") prohibit the Corporation from
paying a dividend or other distribution on its equity securities unless the
Corporation's ratio of tangible equity to total assets is in excess of 7.0%. For
these purposes, both the Indenture and the Huntington Loan Agreement define
tangible equity as Consolidated Net Worth less goodwill. See "Dividend Policy"
and "Description of Subordinated Notes."
REAL ESTATE LENDING
At June 30, 1996, approximately 90.7% of Metropolitan's loans were secured
by real estate. Therefore, Metropolitan's ability to conduct its mortgage
lending business and the value of Metropolitan's real estate collateral could be
adversely affected by adverse changes in the real estate markets in which
Metropolitan conducts its business. At June 30, 1996, approximately 61.7% of the
principal amount of Metropolitan's real estate loans was secured by properties
located in Ohio. A decline in real estate values in Ohio would increase the risk
that losses would be incurred should borrowers default on their loans.
At June 30, 1996, approximately 44.4% of the principal amount of
Metropolitan's loans was secured by multifamily properties. Multifamily
properties include residential apartment buildings of five or more units.
Metropolitan focuses on this segment of the market more than many other
financial institutions, and it believes that this emphasis gives Metropolitan
certain competitive advantages. Loans secured by multifamily properties,
however, are generally higher in principal amount and are considered to entail a
higher level of risk of loss than loans secured by one- to four-family
residences. Potential significant sources of losses are that the cash flows from
the properties securing the loans may become inadequate to service the loan
payments and that the value of the collateral may not be sufficient to repay the
loan. See "Business -- Loan Originations and Purchases -- Multifamily
Residential Lending."
At June 30, 1996, approximately 20.1% of the principal amount of
Metropolitan's loans was secured by commercial real estate. Commercial real
estate loans generally present a higher level of risk than loans secured by one-
to four-family residences due to the concentration of principal in a limited
number of loans and borrowers, the effects of general economic conditions on
commercial properties and the increased difficulty of evaluating and monitoring
these types of loans. In addition, the repayment of loans secured by commercial
real estate is typically dependent upon the successful operation of the related
business activities. See "Business -- Loan Originations and
Purchases -- Commercial Real Estate Lending."
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<PAGE> 8
ALLOWANCE FOR LOSSES ON LOANS
Metropolitan's allowance for losses on loans is maintained at a level
considered adequate by management to cover losses that are currently anticipated
based on past loss experience, general economic conditions, information about
specific borrowing situations, including financial position and collateral
values and other factors and estimates that are subject to change over time. The
amount of future losses is susceptible to changes in economic, operating and
other conditions, including changes in interest rates, that may be beyond
Metropolitan's control, and such losses may exceed Metropolitan's current
allowance for losses on loans. At June 30, 1996, Metropolitan had total
non-performing loans of $5.8 million. At the same date, Metropolitan's allowance
for losses on loans was $3.4 million, or 0.59% of total loans and 59.0% of total
non-performing loans. There can be no assurance, however, that such allowance
will be adequate to cover actual losses. See "Business -- Loan Delinquencies and
Non-Performing Assets and -- Allocation of Allowance for Losses on Loans."
ASSET GROWTH STRATEGY
Metropolitan's primary strategy is to maximize long-term profitability by
pursuing balance sheet growth designed to enhance the franchise value of the
Bank. This growth strategy may present special risks. One potential risk is that
shareholders may incur dilution of book value and earnings per share in the
event that the Corporation makes an acquisition using Common Stock as the
consideration. In addition, in accordance with this growth strategy, the
Corporation's objective has been to maintain "adequately capitalized" status (as
opposed to "well capitalized" status) under Federal regulatory guidelines. In
the event that the Corporation's operating performance would be adversely
affected by losses on loans or other circumstances, the Bank's capital status
could be reclassified as "undercapitalized." An undercapitalized institution is
subject to "prompt corrective action" by its primary regulator and may be
required to comply with certain mandatory or discretionary supervisory actions.
Prompt corrective action includes increased restrictions on dividends and other
capital distributions by the Bank to its holding company and can require the
creation of a written capital restoration plan which must be submitted to and
approved by regulators. Institutions like the Bank which operate with capital at
or close to the required levels may be more likely to be reclassified to the
next lower capital category. See "Regulation and Supervision -- The
Bank -- Prompt Corrective Action and -- Restrictions on Dividends and Other
Capital Distributions."
LEVERAGE; CAPITAL DISTRIBUTION REGULATIONS
As a result of the Corporation's asset growth strategy and its use of
long-term debt to help fund its growth, the Corporation is highly leveraged and
its debt service requirements are substantial. As of June 30, 1996, the
Corporation had long term indebtedness (excluding FHLB advances) of $18.9
million and shareholder's equity of $26.6 million. The ability of the
Corporation to satisfy its obligations is dependent upon the Bank's ability to
generate profits and pay dividends to the Corporation as well as the
Corporation's ability to renew or refinance borrowings or to raise additional
equity capital. Each of these alternatives is dependent upon financial,
business, regulatory and other general factors affecting the Corporation. There
can be no assurance that any such alternatives would be accomplished on
satisfactory terms. See "Capitalization."
The Office of Thrift Supervision's ("OTS") capital distribution regulations
limit the Bank's ability to pay dividends to Metropolitan based on the Bank's
capital level and supervisory condition. Under the regulations, a savings
institution that meets the OTS capital requirements is generally permitted to
make capital distributions during a year up to the greater of (i) 100% of its
net income during that year, plus the amount that would reduce by one-half its
"surplus capital ratio" at the beginning of the calendar year (the excess
capital over its capital requirements), or (ii) 75% of its net income over the
most recent four-quarter period. In addition, an insured depository institution
is prohibited from declaring any dividend, making any other capital
distribution, or paying a management fee to its holding company if, following
the distribution or payment, the institution would be classified as
"undercapitalized" or lower. See "Regulation and Supervision -- The
Bank -- Prompt Corrective Action." As of June 30, 1996, the Bank met the OTS
capital requirements and under the above regulations, the Bank had approximately
$3.5 million available for the payment of dividends in the aggregate to
Metropolitan. There can be no assurance that the Bank will continue to meet its
capital requirements or that its net income and surplus capital in the future
will be sufficient to permit the payment of dividends by the
7
<PAGE> 9
Bank to Metropolitan. In the event that the capital of the Bank falls below its
capital requirements or the OTS notifies the Bank that it is in need of more
than normal supervision, the ability of the Bank to pay dividends could be
further restricted. See "Regulation and Supervision -- The Bank -- Restrictions
on Dividends and Other Capital Distributions" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Capital."
FLUCTUATIONS IN QUARTERLY RESULTS
The Corporation has experienced and expects to continue to experience
fluctuations in quarterly results of operations. The Corporation's sources of
non-interest income such as loan option income may provide fluctuating amounts
of non-interest income from quarter to quarter. In these option transactions
Metropolitan purchases loans and sells nonrefundable options to a third party to
purchase these same loans at a specified price within a specified time period.
The third party is a loan broker and the loan option fee is negotiated based on
the principal amount of the loans involved. These option transactions provide
the loan broker a period of time to find a buyer who is willing to pay a higher
price for the loans. See "Business -- Loan Option Income."
Loan option income is dependent on the availability of suitable loans for
purchase as well as the willingness of the potential optionee to negotiate an
option fee with the Corporation. As a result, the Corporation believes that
period-to-period comparisons of its operating results should not necessarily be
relied upon to predict future performance. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
GOVERNMENT REGULATION
As a savings and loan holding company, Metropolitan is subject to
regulation, examination and supervision by the OTS. The Bank is subject to
regulation and examination by the OTS, the FDIC and by agencies of the State of
Ohio. Applicable laws and regulations relate to such matters as capital
standards, mergers, establishment of branch offices, subsidiary investments and
activities and general investment authority.
As a savings and loan association, the Bank is insured by the Savings
Association Insurance Fund ("SAIF"). State commercial banks and national banks
are insured by the Bank Insurance Fund ("BIF"). Although both the BIF and the
SAIF are administered by the FDIC, BIF and SAIF insurance premium assessment
rates have not remained comparable. Under the current assessment rate structure,
BIF members generally pay lower premiums than SAIF-insured institutions, placing
SAIF-insured institutions, including Metropolitan, at a competitive disadvantage
to institutions whose deposits are exclusively or primarily BIF-insured. The
disparity between BIF and SAIF assessment rates was created after BIF reached
its required reserve ratio during May 1995 resulting in a reduction of BIF
assessment rates. At the time assessment rates were determined for the period
beginning January 1, 1996 and effective through December 31, 1996, SAIF was not
predicted to reach its required reserve ratio until the year 2001. As a result,
the SAIF rates were not adjusted.
As a result of this disparity in insurance premium rates, on September 30,
1996, President Clinton signed into law an omnibus budget reconciliation bill
(the "Omnibus Bill") which includes provisions designed to recapitalize the SAIF
and to mitigate the BIF/SAIF premium disparity. The Omnibus Bill requires the
FDIC to impose a special assessment on SAIF-insured deposits held by
institutions as of March 31, 1995. The FDIC has announced that the special
assessment rate will be set at 65.7 basis points. Based upon insured deposits on
March 31, 1995 and an assessment rate of 0.657%, Metropolitan will pay an
assessment of $2.9 million on November 27, 1996 from the working capital of the
Bank. When the SAIF reaches its required reserve ratio following the one-time
assessment, the FDIC has indicated that it will reduce the annual assessment
rates for SAIF-insured institutions. See "Recent Developments."
In addition, the Omnibus Bill requires the merger of the BIF and SAIF into
a single insurance fund no later than January 1, 1999. In connection with the
merger of the funds, it is possible that SAIF-insured institutions will be
required to convert their charters into state bank charters or national bank
charters. If such proposal became law, the Corporation could be subject to
capital requirements. The Corporation is not currently subject to such
requirements. See "Regulation and Supervision -- The Bank -- Insurance of
Accounts and Regulation by the FDIC."
8
<PAGE> 10
EXPOSURE TO CHANGES IN INTEREST RATES
The consolidated net income of Metropolitan depends to a substantial extent
on its net interest income, which reflects the difference between the interest
income Metropolitan receives from loans, securities and other interest-earning
assets, and the interest expense it pays to obtain deposits and other
liabilities. During periods of rising interest rates, Metropolitan's net
interest income could be adversely affected, because in such an environment,
rates paid on deposits tend to rise more quickly than rates received on loans.
These rates are highly sensitive to many factors including competition, general
economic conditions and the policies of various governmental and regulatory
authorities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Asset/Liability Management."
COMPETITION
Metropolitan faces strong competition, both in originating real estate and
other loans and in attracting deposits. Competition in originating loans comes
primarily from other savings institutions, commercial banks, mortgage companies,
credit unions, finance companies and insurance companies. Competition in
deposits comes primarily from other savings institutions, commercial banks,
credit unions, mutual funds and brokerage companies. Some of the Bank's
competitors have higher lending limits and substantially greater financial
resources than the Bank. See "Business -- Competition."
NO PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; DILUTION
Prior to the offering, there has been no public market for the shares of
the Corporation's Common Stock. Although the Corporation's Common Stock has been
approved for listing on the Nasdaq National Market, there can be no assurance
that an active market for the Common Stock will develop or be sustained after
the offering. The initial public offering price will be determined through
negotiations among the Corporation, the Selling Shareholder and the Underwriter
and may not be indicative of the market price for the shares of Common Stock
after the offering. In addition, the stock market has from time-to-time
experienced extreme price and volume volatility. These fluctuations may be
unrelated to the operating performance of particular companies whose shares are
traded. Generally, market fluctuations may adversely affect the market price of
the Common Stock. A variety of events, including quarter to quarter variations
in operating results, news announcements, trading volume, general market trends
and other factors, could result in fluctuations in the price of the Common Stock
and there can be no assurance that the market price of the Common Stock will not
decline below the initial public offering price. Based on financial information
of the Corporation as of June 30, 1996, purchasers of the Common Stock offered
hereby will experience an immediate and substantial dilution of $2.42 in the net
tangible book value per share of their investment. In the event the Corporation
issues additional Common Stock in the future, purchasers of Common Stock in this
offering may experience further dilution in the net tangible book value per
share of the Common Stock. See "Underwriting" and "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market following the offering, or the perception that such sales could occur,
could have an adverse effect on the price of the shares of Common Stock. The
shares of Common Stock offered hereby will be freely transferable by persons who
are not affiliates of the Corporation without restriction or further
registration under the Securities Act of 1933 (the "Securities Act"). Following
the completion of the offering, the Selling Shareholder will own 80.1% of the
Corporation's outstanding Common Stock (77.2% if the Underwriter's
over-allotment option is exercised in full). In addition, the Underwriter has
agreed to reserve a maximum of 120,000 shares of Common Stock offered by this
Prospectus for sale to officers, directors and employees of the Corporation. The
Selling Shareholder and the directors and executive officers of the Corporation
have agreed not to offer or sell any shares of Common Stock or securities
convertible into or exchangeable for Common Stock, for a period of 180 days from
the date of this Prospectus without the prior written consent of the
Underwriter. The Underwriter, in its sole discretion, and at any time without
prior notice, may release all or any portion of the Common Stock subject to the
lockup arrangement described herein. All shares of Common Stock held by such
affiliates of the Corporation, including the Selling Shareholder, are subject to
certain restrictions on resale under the Securities Act, but
9
<PAGE> 11
may be resold upon the expiration of the lockup period in accordance with the
volume and manner of sale restrictions of Rule 144 promulgated under the
Securities Act. See "Shares Eligible for Future Sale" and "Underwriting."
ANTITAKEOVER PROVISIONS
Certain provisions of the Corporation's Amended and Restated Articles of
Incorporation (the "Articles") and Amended and Restated Code of Regulations (the
"Regulations") and of the Ohio General Corporation Law (the "OGCL"), together or
separately, could discourage potential acquisition proposals, delay or prevent a
change in control of the Corporation and limit the price that certain investors
might be willing to pay in the future for the Common Stock. Among other things,
these provisions (i) require certain supermajority votes; (ii) establish certain
advance notice procedures for nomination of candidates for election as directors
and for shareholder proposals to be considered at shareholders' meetings; and
(iii) provide for a classified Board of Directors, and for the removal of
directors by the shareholders only upon the affirmative vote of the holders of
three-quarters of the shares entitled to vote.
Pursuant to the Corporation's Articles, upon the closing of the offering,
the Board of Directors of the Corporation will have authority to issue up to ten
million preferred shares without further shareholder approval. Such preferred
shares could have dividend, liquidation, conversion, voting and other rights and
privileges that are superior or senior to the shares of Common Stock. Issuance
of preferred shares could result in the dilution of the voting power of the
shares of Common Stock, adversely affect holders of the Common Stock in the
event of liquidation of the Corporation or delay, defer or prevent a change in
control of the Corporation. See "Description of Capital Stock -- Potential
Anti-Takeover Effects of Articles, Regulations and OGCL."
10
<PAGE> 12
RECENT DEVELOPMENTS
The following tables set forth certain selected financial data for
Metropolitan as of September 30, 1996, June 30, 1996 and December 31, 1995, and
for the three and nine months ended September 30, 1996 and 1995. In the opinion
of management, all adjustments (which consist of normal recurring accruals)
necessary for a fair presentation have been included. The results of operations
and other data for the three and nine months ended September 30, 1996, are not
necessarily indicative of the results of operations that may be expected for any
other period.
<TABLE>
<CAPTION>
AT AT AT
SEPTEMBER 30, JUNE 30, DECEMBER 31,
1996 1996 1995
------------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets......................................... $ 719,968 $672,786 $590,095
Loans receivable, net................................ 602,736 563,883 478,345
Loans held for sale.................................. 6,877 10,686 1,504
Mortgage-backed securities........................... 42,255 41,821 39,156
Securities........................................... 12,186 12,136 22,806
Cost in excess of fair value of net assets
acquired.......................................... 3,029 3,079 3,188
Cost of loan servicing rights........................ 8,363 8,693 9,130
Deposits............................................. 584,749 558,794 503,742
Borrowings........................................... 90,424 77,074 46,874
Shareholder's equity................................. 25,536 26,614 25,466
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- ---------------------
1996 1995 1996 1995
------- ------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
SELECTED OPERATIONS DATA:
Total interest income........................... $14,008 $11,403 $ 38,996 $ 31,771
Total interest expense.......................... (8,619) (7,217) (24,068) (19,605)
------- ------- -------- --------
Net interest income............................. 5,389 4,186 14,928 12,166
Provision for loan losses....................... (650) (240) (1,335) (719)
------- ------- -------- --------
Net interest income after provision for loan
losses....................................... 4,739 3,946 13,593 11,447
Loan servicing income, net...................... 307 354 939 745
Gain on sale of loans and securities............ 104 131 140 244
Other non-interest income....................... 955 360 2,333 1,818
SAIF assessment................................. (2,928) -- (2,928) --
Other non-interest expense...................... (4,822) (3,641) (13,185) (10,393)
------- ------- -------- --------
Income (loss) before income taxes............... (1,645) 1,150 892 3,861
Income tax (expense) benefit.................... 516 (435) (440) (1,467)
------- ------- -------- --------
Net income (loss)............................... $(1,129) $ 715 $ 452 $ 2,394
======= ======= ======== ========
PER SHARE DATA:(1)
Net income (loss)............................... $(0.36) $0.23 $0.14 $0.77
Book value...................................... 8.17 7.59 8.17 7.59
Tangible book value............................. 7.14 6.46 7.14 6.46
</TABLE>
- ---------------
(1) Per share data has been calculated to reflect the 3,125,635-for-one stock
split which occurred prior to completion of the offering.
11
<PAGE> 13
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Return on average assets(1).............. (0.64)% 0.50% 0.09% 0.60%
Return on average equity(1).............. (17.51) 12.24 2.33 14.49
Interest rate spread(1).................. 3.04 2.71 2.97 2.92
Net interest margin(1)(2)................ 3.27 3.08 3.23 3.22
Average interest-earning assets to
average interest-bearing
liabilities........................... 104.43 106.84 104.94 105.72
Non-interest expense to average
assets(1)............................. 4.39 2.54 3.27 2.61
Efficiency ratio(3)...................... 113.99 71.28 86.99 68.30
Non-performing loans to total loans(4)... 0.77 0.69 0.77 0.69
Non-performing assets to total
assets(4)............................. 0.87 0.58 0.87 0.58
Allowance for losses on loans to total
loans(4).............................. 0.66 0.58 0.66 0.58
Net charge-offs to average loans(1)...... 0.02 0.01 0.01 0.02
Loans serviced for others................ $1,115,550 $1,209,012 $1,115,550 $1,209,012
Number of full service offices........... 14 12 14 12
Number of loan production offices........ 6 4 6 4
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996 AT JUNE 30, 1996
---------------------- ----------------------
PERCENT OF PERCENT OF
AMOUNT ASSETS AMOUNT ASSETS
------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
REGULATORY CAPITAL COMPLIANCE:
Tangible Capital:
Actual......................................... $38,192 5.35% $39,279 5.89%
Required....................................... 10,712 1.50 10,003 1.50
------- ---- ------- ----
Excess......................................... $27,480 3.85% $29,276 4.39%
======= ==== ======= ====
Core Capital:
Actual......................................... $38,390 5.37% $39,571 5.93%
Required....................................... 28,574 4.00 26,687 4.00
------- ---- ------- ----
Excess......................................... $ 9,816 1.37% $12,884 1.93%
======= ==== ======= ====
Risk-based Capital:
Actual......................................... $41,550 8.25% $42,462 8.82%
Required....................................... 40,284 8.00 38,500 8.00
------- ---- ------- ----
Excess......................................... $ 1,266 0.25% $ 3,962 0.82%
======= ==== ======= ====
</TABLE>
- ---------------
(1) Annualized.
(2) Represents the ratio of net interest income to average interest-earning
assets.
(3) Equals non-interest expense less amortization of intangible assets divided
by net interest income plus non-interest income (excluding gains or losses
on securities transactions).
(4) Ratios are calculated based on period end balances.
Financial Condition. Total assets amounted to $720.0 million at September
30, 1996, as compared to $672.8 million at June 30, 1996, an increase of $47.2
million, or 7.0%. During the three month period ended September 30, 1996,
Metropolitan continued to experience loan growth which was funded by increased
retail deposits and other borrowings.
Loans receivable including loans held for sale increased $35.0 million, or
6.1%, to $609.6 million, during the three months ended September 30, 1996. This
increase was primarily due to a $23.6 million increase in loans secured by one-
to four-family real estate loans, a $5.6 million increase in construction and
land loans
12
<PAGE> 14
(net of loans in process) and a $5.3 million increase in commercial real estate
loans. The 25.6% increase in one- to four-family real estate loans reflected a
continuation of the high demand for adjustable rate loans which Metropolitan
holds in its portfolio.
Mortgage-backed securities increased by $434,000, or 1.0%, to $42.3
million, during the three months ended September 30, 1996. Securities increased
by $50,000, or 0.4%, to $12.2 million, during the three months ended September
30, 1996.
Deposits increased by $26.0 million, or 4.6%, to $584.7 million, during the
three months ended September 30, 1996. This increase was primarily due to
management's marketing efforts and growth at newer retail sales offices.
Other borrowings increased by $13.4 million, or 17.3%, to $90.4 million,
during the three months ended September 30, 1996. Based on the lower cost of
wholesale funds as compared to comparable maturity retail deposits, management
chose to fund a portion of the loan growth discussed above with FHLB advances
and reverse repurchase agreements.
Shareholder's equity decreased by $1.1 million, or 4.1%, to $25.5 million,
during the three months ended September 30, 1996. This decrease was due to the
net loss recorded for the three months ended September 30, 1996. The net loss
was a result of the SAIF assessment recorded in the third quarter of 1996 and is
described further below.
Net income/loss. The Corporation incurred a net loss of $1.1 million for
the three months ended September 30, 1996, a decrease in net income of $1.8
million from net income of $715,000 for the same period in 1995. The reason for
the decline in net income was the special assessment on SAIF-insured deposits of
$2.9 million ($1.9 million after tax) imposed by the FDIC which was recorded by
Metropolitan on September 30, 1996.
On September 30, 1996, President Clinton signed into law the Omnibus Bill
which includes provisions designed to recapitalize the SAIF and to mitigate the
BIF/SAIF premium disparity. The Omnibus Bill requires the FDIC to impose a
special assessment on SAIF-insured deposits which were held at March 31, 1995.
The FDIC has announced that the special assessment rate will be set at 65.7
basis points. The assessment will be paid on November 27, 1996 from working
capital of the Bank. When the SAIF reaches its required reserve ratio following
the one-time assessment, the FDIC has indicated that it will reduce the annual
assessment rates for SAIF insured institutions to bring them in line with BIF
assessment rates.
Net income was $452,000 for the nine months ended September 30, 1996, a
decrease of $1.9 million from the same period in 1995. Similar to the
three-month decrease, the decline in net income was due to the $1.9 million
after-tax effect of the SAIF assessment recorded during the third quarter of
1996.
Interest income. Total interest income increased $2.6 million and $7.2
million in the three and nine months ended September 30, 1996, respectively. The
increase in interest income resulted primarily from an increase in average
earning assets and was also affected by a slight increase in the yield on
interest earning assets.
Interest expense. Total interest expense increased $1.4 million and $4.5
million in the three and nine months ended September 30, 1996, respectively.
Interest expense increased due to a higher average balance of interest-bearing
liabilities outstanding and due to a slightly higher cost of funds during the
three and nine months ended September 30, 1996.
Provision for loan losses. The provision for loan losses increased $410,000
and $616,000 for the three and nine months ended September 30, 1996,
respectively. While net charge-offs to average loans for the three and nine
months ended September 30, 1996 were only 0.02% and 0.01%, respectively,
management increased the provision for loan losses due to continued loan growth.
Non-performing loans as a percentage of total loans declined from 1.03% at June
30, 1996 to 0.77% at September 30, 1996, while the allowance for loan losses as
a percentage of total loans increased from 0.59% at June 30, 1996 to 0.66% at
September 30, 1996. The ratio of allowance for loan losses to non-performing
loans increased from 59.01% at June 30, 1996 to 65.31% at September 30, 1996.
13
<PAGE> 15
Non-interest income. Non-interest income increased $521,000 and $605,000
for the three and nine months ended September 30, 1996, respectively. The
increase was due to various factors including an increase in loan option income,
an increase in fee income earned on checking accounts due primarily to the
increased size and number of business checking accounts, an increase in ATM fees
due to an increase in transaction fees and number of ATM transactions, an
increase in credit card fees due to the increase in the credit card portfolio
and increased credit card transactions and an increase in other miscellaneous
fee income due to the increased size and number of retail sales offices.
Non-interest expense. Non-interest expense increased $4.1 million and $5.7
million for the three and nine months ended September 30, 1996, respectively.
The increase was substantially due to the $2.9 million SAIF assessment
previously discussed. In addition, other non-interest expenses increased due to
increases in personnel related expenses, occupancy costs and other non-interest
expenses related to the increased size and number of retail sales offices.
Income tax expense. Income tax expense decreased $951,000 and $1.0 million
for the three and nine months ended September 30, 1996, respectively. The
decrease was due to the reduction in taxable income primarily due to the SAIF
assessment.
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Corporation from the sale of the Common Stock are
estimated to be $3.4 million after deduction of the underwriting discount and
estimated expenses. The Corporation anticipates that all of the proceeds to the
Corporation will be contributed as paid-in capital to the Bank and will be added
to the Bank's funds to be used for general corporate purposes, thereby
increasing the level of its regulatory capital.
DIVIDEND POLICY
The Corporation anticipates that future earnings will be retained to
finance the Corporation's operations and to support the continued growth of the
Bank. Accordingly, the Corporation does not currently anticipate paying cash
dividends on its Common Stock in the foreseeable future. The payment of future
dividends will be subject to the discretion of the Board of Directors of the
Corporation and will depend on the Corporation's results of operations,
financial position and capital requirements, general business conditions,
restrictions imposed by financing arrangements and legal restrictions on the
payment of dividends. The terms of the 1993 Subordinated Notes prohibit the
Corporation from paying any cash dividend while any of the 1993 Subordinated
Notes are outstanding. In addition, both the Indenture covering the 1995
Subordinated Notes and the Huntington Loan Agreement prohibit the Corporation
from paying a dividend or other distribution on its equity securities unless the
Corporation's ratio of tangible equity to total assets is in excess of 7.0%. For
these purposes, both the Indenture and the Huntington Loan Agreement define
tangible equity as Consolidated Net Worth less goodwill. See "Description of
Subordinated Notes."
DILUTION
The net tangible book value of the Corporation at June 30, 1996 was $23.3
million, or $7.46 per share of Common Stock, after giving effect to the
3,125,635-for-one stock split which was effected prior to the closing of this
offering. Net tangible book value per share is equal to the Corporation's total
tangible assets and cost of loan servicing rights less total tangible
liabilities, divided by the total number of shares of Common Stock outstanding.
Net tangible book value dilution per share represents the difference between the
amount per share paid by purchasers of shares of Common Stock in this offering
and the net tangible book value per share of Common Stock immediately after
completion of this offering. After giving effect to the sale by the Corporation
of the 400,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $10.00 per share (the midpoint of the assumed initial
public offering range), and after deducting the estimated underwriting discount
and offering expenses, the pro forma net tangible book value of the Corporation
as of June 30, 1996 would have been $26.7 million, or $7.58 per share of Common
Stock. This represents an immediate increase in pro forma net tangible book
value of $0.12 per share to the Selling Shareholder and an immediate dilution of
$2.42 per share to new investors purchasing shares in this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share............................ $10.00
Net tangible book value per share as of June 30, 1996............ $7.46
Increase per share attributable to new investors................. 0.12
-----
Pro forma net tangible book value per share as of June 30, 1996.... 7.58
------
Net tangible book value dilution per share to new investors........ $ 2.42
======
</TABLE>
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Corporation,
including deposits and borrowings, as of June 30, 1996, and as adjusted to
reflect the sale of 400,000 shares of Common Stock offered by the Corporation
hereby and the application of the net proceeds therefrom as described under "Use
of Proceeds." The historical data has been derived from the Corporation's
Consolidated Financial Statements included elsewhere in this Prospectus and
should be read in conjunction with such financial statements and the notes
thereto.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Deposits............................................................. $ 558,794 $ 558,794
FHLB advances........................................................ 58,200 58,200
1993 Subordinated Notes.............................................. 4,874 4,874
1995 Subordinated Notes.............................................. 14,000 14,000
-------- --------
Total borrowings................................................ 77,074 77,074
-------- --------
Total deposits and borrowings................................... $ 635,868 $ 635,868
======== ========
Shareholder's equity:
Common stock, no par value, 250,000 shares authorized, one share
issued and outstanding at June 30, 1996 and 10,000,000 shares
authorized, 3,525,635 shares issued and outstanding, as
adjusted........................................................ -- --
Additional paid-in capital......................................... $ 7,801 $ 11,196
Retained earnings.................................................. 18,510 18,510
Unrealized gain on securities available for sale................... 303 303
-------- --------
Total shareholder's equity...................................... $ 26,614 $ 30,009
======== ========
</TABLE>
Minimum capital requirements to determine whether an institution is "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized" define adequately
capitalized institutions as having a total risk-based capital ratio of 8% or
greater; a Tier 1 risk-based capital ratio of 4% or greater and either (i) a
leverage ratio of 4% or greater or (ii) a leverage ratio of 3% or greater and a
rating of composite 1 under the MACRO rating system. The Bank's ratios at June
30, 1996 were 8.82%, 8.22% and 5.89% respectively. As a result, the Bank meets
the capital requirements of an adequately capitalized institution. See
"Regulation and Supervision -- The Bank -- Prompt Corrective Action."
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain selected consolidated financial and
other data of the Corporation at or for the dates indicated. The information
with respect to the six month periods ended June 30, 1996 and 1995 has been
derived from Metropolitan's unaudited financial statements. In the opinion of
management, all adjustments (which consist of normal recurring accruals)
necessary for a fair presentation have been included. This information should be
read in conjunction with the Consolidated Financial Statements and notes
thereto, and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere herein. The results of operations for
the six month period ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the entire year.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ ----------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets........................... $ 672,786 $ 555,274 $ 590,095 $479,384 $372,390 $300,500 $249,587
Loans receivable, net.................. 563,883 462,424 478,345 424,944 284,288 216,688 164,983
Loans held for sale.................... 10,686 16,739 1,504 84 10,391 5,082 11,839
Mortgage-backed securities............. 41,821 24,874 39,156 16,785 13,412 23,322 33,040
Securities............................. 12,136 12,333 22,806 7,641 10,168 19,740 20,040
Cost in excess of fair value of net
assets acquired...................... 3,079 3,298 3,188 3,409 3,631 3,853 4,098
Cost of loan servicing rights.......... 8,693 8,910 9,130 4,825 2,295 1,541 358
Deposits............................... 558,794 454,822 503,742 436,198 332,549 269,159 228,331
Borrowings............................. 77,074 64,674 46,874 15,504 15,745 11,820 5,910
Shareholder's equity................... 26,614 23,021 25,466 20,280 17,750 13,111 10,157
SELECTED OPERATIONS DATA:
Total interest income.................. $ 24,988 $ 20,368 $ 43,127 $ 31,389 $ 24,448 $ 22,100 $ 20,942
Total interest expense................. (15,449) (12,388) (26,816) (15,992) (11,215) (12,285) (14,851)
---------- ---------- ---------- -------- -------- -------- --------
Net interest income.................... 9,539 7,980 16,311 15,397 13,233 9,815 6,091
Provision for loan losses.............. (685) (479) (959) (766) (740) (367) (45)
---------- ---------- ---------- -------- -------- -------- --------
Net interest income after provision for
loan losses.......................... 8,854 7,501 15,352 14,631 12,493 9,448 6,046
Loan servicing income, net............. 632 391 1,068 642 601 490 226
Gain on sales of loans and
securities........................... 36 113 833 86 1,712 719 261
Other non-interest income.............. 1,378 1,458 2,631 1,123 1,067 578 465
Non-interest expense................... (8,363) (6,752) (14,187) (11,058) (8,274) (6,339) (5,032)
---------- ---------- ---------- -------- -------- -------- --------
Income before income taxes and
cumulative effect of change in
accounting methods................... 2,537 2,711 5,697 5,424 7,599 4,896 1,966
Income tax expense..................... (956) (1,032) (2,155) (1,987) (2,829) (1,773) (715)
Cumulative effect on prior years of
change in accounting method.......... -- -- -- -- (300) -- --
---------- ---------- ---------- -------- -------- -------- --------
Net income............................. $ 1,581 $ 1,679 $ 3,542 $ 3,437 $ 4,470 $ 3,123 $ 1,251
========== ========== ========== ======== ======== ======== ========
PER SHARE DATA:(1)
Net income............................. $ 0.51 $ 0.54 $ 1.13 $ 1.10 $ 1.43 $ 1.00 $ 0.40
Book value............................. 8.51 7.37 8.15 6.49 5.68 4.19 3.25
Tangible book value.................... 7.46 6.20 7.04 5.26 4.32 2.71 1.63
PERFORMANCE RATIOS:(2)
Return on average assets............... 0.50% 0.66% 0.65% 0.82% 1.34% 1.13% 0.54%
Return on average equity............... 12.17 15.59 16.19 17.83 29.30 27.01 13.32
Interest rate spread................... 2.89 2.97 2.92 3.65 4.05 3.86 2.82
Net interest margin(3)................. 3.19 3.27 3.18 3.87 4.26 3.88 2.82
Average interest-earning assets to
average interest-bearing
liabilities.......................... 105.22 105.11 105.13 105.53 105.62 100.33 100.04
Non-interest expense to average
assets............................... 2.63 2.64 2.61 2.64 2.49 2.30 2.17
Efficiency ratio(4).................... 71.24 66.80 68.28 62.95 49.42 52.51 67.51
ASSET QUALITY RATIOS:
Non-performing loans to total
loans(5)............................. 1.03 0.69 0.68 0.55 1.08 0.44 0.26
Non-performing assets to total
assets(5)............................ 0.90 0.60 0.60 0.51 1.08 0.40 0.24
Allowance for losses on loans to total
loans(5)............................. 0.59 0.57 0.57 0.45 0.43 0.32 0.28
Net charge-offs to average loans(2).... 0.00 0.02 0.02 0.03 0.09 0.07 0.10
CAPITAL RATIOS:(5)
Shareholder's equity to total assets... 3.96 4.15 4.32 4.23 4.77 4.36 4.07
Tier 1 capital to total assets......... 5.89 5.26 5.77 5.34 5.81 4.47 4.18
Tier 1 capital to risk-weighted
assets............................... 8.22 7.47 8.20 7.60 8.33 6.75 7.00
OTHER DATA:
Loans serviced for others.............. $1,135,615 $1,181,349 $1,182,216 $739,425 $504,677 $396,703 $208,899
Number of full service offices......... 14 11 13 11 9 8 10
Number of loan production offices...... 6 4 5 4 1 -- --
</TABLE>
- ---------------
(1) Per share data has been calculated to reflect the 3,125,635-for-one stock
split which occurred prior to the completion of the offering.
(2) Ratios for interim periods are stated on an annualized basis.
(3) Represents the ratio of net interest income to average interest-earning
assets.
(4) Equals non-interest expense less amortization of intangible assets divided
by net interest income plus non-interest income (excluding gains or losses
on securities transactions).
(5) Ratios are calculated based on period end balances.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For a comprehensive understanding of Metropolitan's financial condition and
performance, this discussion should be considered in conjunction with the
Consolidated Financial Statements, accompanying notes, and other information
contained herein.
OVERVIEW
The reported results of Metropolitan primarily reflect the operations of
the Bank. Metropolitan's results of operations are dependent on a variety of
factors, including the general interest rate environment, competitive conditions
in the industry, governmental policies and regulations and conditions in the
markets for financial assets. Like most financial institutions, the primary
contributor to Metropolitan's income is net interest income, the difference
between the interest Metropolitan earns on interest-earning assets, such as
loans and securities, and the interest Metropolitan pays on interest-bearing
liabilities, such as deposits and borrowings. Metropolitan's operations are also
affected by non-interest income, such as loan servicing fees, gains or losses
from sales of loans and securities and loan option income. Metropolitan's
principal operating expenses, aside from interest expense, consist of
compensation and employee benefits, occupancy costs, federal deposit insurance
premiums, and other general and administrative expenses.
Average Balances and Yields. The following table presents, for the periods
indicated, the total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed both in dollars and
rates, and the net interest margin. Net interest margin refers to net interest
income divided by total interest-earning assets and is influenced by the level
and relative mix of interest-earning assets and interest-bearing liabilities.
All average balances are daily average balances. Non-accruing loans are
considered in average loan balances.
18
<PAGE> 20
AVERAGE BALANCES AND YIELDS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------------
1996 1995
(DOLLARS IN THOUSANDS)
------------------------------- -------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
INTEREST-EARNING ASSETS: BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- -------
Loans receivable............................................ $538,347 $ 23,040 8.56% $453,516 $ 19,317 8.52%
Mortgage-backed securities available for sale(1)............ 38,301 1,265 6.61 20,684 656 6.34
Other(1).................................................... 21,720 683 6.29 13,604 395 5.81
-------- ------- -------- -------
Total interest-earning assets............................. 598,368 24,988 8.35 487,804 20,368 8.35
------- -------
Nonearning assets........................................... 36,781 24,597
-------- --------
Total assets.............................................. $635,149 $512,401
======== ========
INTEREST-BEARING LIABILITIES:
Deposits.................................................... $507,053 13,345 5.29 $424,215 10,951 5.21
Other borrowings............................................ 61,624 2,104 6.87 39,890 1,437 7.26
-------- ------- -------- -------
Total interest-bearing liabilities........................ 568,677 15,449 5.46 464,105 12,388 5.38
------- -------
Noninterest-bearing liabilities............................. 40,480 26,750
Shareholder's equity........................................ 25,992 21,546
-------- --------
Total liabilities and shareholder's equity................ $635,149 $512,401
======== ========
Net interest income and interest rate spread................ $ 9,539 2.89 $ 7,980 2.97
======= =======
Net interest margin......................................... 3.19 3.27
Average interest-earning assets to average interest-bearing
liabilities............................................... 105.22% 105.11%
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------
1995 1994 1993
(DOLLARS IN THOUSANDS)
------------------------------- ------------------------------- -------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- ------- -------- -------- -------
INTEREST-EARNING ASSETS:
Loans receivable......... $458,423 $ 39,655 8.65 % $361,627 $ 29,762 8.23 % $267,120 $ 22,584 8.45 %
Mortgage-backed
securities available
for sale(1)(2)......... 39,342 2,493 6.34 13,636 693 5.08 23,181 1,143 4.93
Other(1)................. 14,610 979 6.70 22,261 934 4.20 20,179 721 3.57
-------- ------- -------- ------- -------- -------
Total interest-earning
assets............... 512,375 43,127 8.42 397,524 31,389 7.90 310,480 24,448 7.87
------- ------- -------
Nonearning assets........ 31,881 21,986 22,241
-------- -------- --------
Total assets........... $544,256 $419,510 $332,721
======== ======== ========
INTEREST-BEARING
LIABILITIES:
Deposits................. $439,286 23,522 5.35 $363,553 14,918 4.10 $287,173 10,778 3.76
Other borrowings......... 48,066 3,294 6.85 13,146 1,074 8.17 6,778 437 6.45
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities.......... 487,352 26,816 5.50 376,699 15,992 4.25 293,951 11,215 3.82
------- ------- -------
Noninterest-bearing
liabilities............ 35,032 23,533 23,516
Shareholder's equity..... 21,872 19,278 15,254
-------- -------- --------
Total liabilities and
shareholder's equity
..................... $544,256 $419,510 $332,721
======== ======== ========
Net interest income and
interest rate spread... $ 16,311 2.92 $ 15,397 3.65 $ 13,233 4.05
======= ======= =======
Net interest margin...... 3.18 3.87 4.26
Average interest-earning
assets to average
interest-bearing
liabilities............ 105.13% 105.53% 105.62%
</TABLE>
- ---------------
(1) The average balances of mortgage-backed securities and securities available
for sale are presented at historical cost.
(2) Mortgage-backed securities were classified as held for sale in 1993, prior
to the adoption of Statement of Financial Accounting Standards ("SFAS") No.
115. The average balances of mortgage-backed securities held for sale are
reported at historical cost.
19
<PAGE> 21
Rate and Volume Variances. Net interest income is affected by changes in
the level of interest-earning assets and interest-bearing liabilities and
changes in yields earned on assets and rates paid on liabilities. The following
table sets forth, for the periods indicated, a summary of the changes in
interest earned and interest paid resulting from changes in average asset and
liability balances and changes in average rates. Changes attributable to the
combined impact of volume and rate have been allocated proportionately to change
due to volume and change due to rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ------------------------------------------------------
JUNE 30, 1996 VS. 1995 1995 VS. 1994 1994 VS. 1993
INCREASE (DECREASE) INCREASE (DECREASE) INCREASE (DECREASE)
-------------------------- ------------------------- ------------------------
(IN THOUSANDS)
CHANGE CHANGE CHANGE CHANGE CHANGE CHANGE
TOTAL DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL DUE TO DUE TO
CHANGE VOLUME RATE CHANGE VOLUME RATE CHANGE VOLUME RATE
------ ------ ------ ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME ON:
Loans receivable.............. $3,723 $3,630 $ 93 $ 9,893 $7,966 $1,927 $7,178 $7,990 $ (812)
Mortgage-backed securities.... 609 581 28 1,800 1,306 494 (450) (471) 21
Other......................... 288 253 35 45 (321) 366 213 75 138
------ ------ ---- ------- ------ ------ ------ ------ ------
Total interest income .......... 4,620 $4,464 $156 11,738 $8,951 $2,787 6,941 $7,594 $ (653)
------ ====== ==== ------- ====== ====== ------ ====== ======
INTEREST EXPENSE ON:
Deposits...................... 2,394 $2,205 $189 8,604 $3,108 $5,496 4,140 $2,867 $1,273
Other borrowings.............. 667 742 (75) 2,220 2,853 (633) 637 411 226
------ ------ ---- ------- ------ ------ ------ ------ ------
Total interest expense.......... 3,061 $2,947 $114 10,824 $5,961 $4,863 4,777 $3,278 $1,499
------ ====== ==== ------- ====== ====== ------ ====== ======
Increase in net interest
income........................ $1,559 $ 914 $2,164
====== ======= ======
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net Income. Net income was $1.6 million for the six months ended June 30,
1996, a decrease of 5.8% as compared to $1.7 million for the same period in
1995. Net interest income and non-interest income increased 19.5% and 4.3%,
respectively, in the six month period ended June 30, 1996 as compared to the
same period in 1995; however, the provision for loan losses and non-interest
expense increased 43.1% and 23.9%, respectively, in the six months ended June
30, 1996.
Metropolitan's net interest margin declined eight basis points to 3.19% for
the six month period ended June 30, 1996, as compared to 3.27% for the same
period in 1995, largely as a result of an increase in the costs paid for
deposits as compared to the first half of 1995. Rates paid on deposits increased
in response to slightly higher market interest rates and as a result of
Metropolitan's efforts to increase deposits in order to fund the significant
growth in loans.
Interest Income. Total interest income increased 22.7% to $25.0 million in
the six month period ended June 30, 1996, as compared to $20.4 million in the
same period in 1995. This increase resulted primarily from a 22.7% increase in
average interest-earning assets between the two respective periods. The average
balance of loans increased $84.8 million, which was a result of Metropolitan's
consistent strategy of increasing assets so long as quality loans with
acceptable yield and term characteristics are available. Metropolitan originated
$103.1 million and purchased $81.8 million in loans in the six months ended June
30, 1996, as compared to $72.1 million and $53.0 million, respectively, for the
same period in 1995. The weighted average yield on interest-earning assets
remained flat at 8.35% during the six month period ended June 30, 1996, as
compared to the same period in 1995.
Interest Expense. Total interest expense increased 24.7% to $15.4 million
for the six month period ended June 30, 1996, as compared to $12.4 million for
the same period in 1995. Interest expense increased due to a higher average
balance of interest-bearing liabilities outstanding and due to a higher cost of
funds for the six month period ending June 30, 1996 compared to the same period
in 1995. In accordance with Metropolitan's strategy of increasing time and core
deposits at a rate consistent with the increase in interest-earning assets, the
average balance of deposit accounts increased $82.8 million, or 19.5%, during
the six months ended June 30, 1996 compared to 1995. Metropolitan's cost of
funds increased to 5.46% in the six months ended
20
<PAGE> 22
June 30, 1996, as compared to 5.38% in the same period in 1995, due primarily to
increases in the rates paid on deposits.
Provision for Loan Losses. The provision for loan losses increased 43.1% to
$685,000 in the six month period ended June 30, 1996, as compared to $479,000
for the comparable period in 1995. The increase was related to the increase in
total loans and management's estimate of the adequacy of the allowance for
losses on loans. Total loans (including loans held for sale) increased 19.8% to
$578.0 million at June 30, 1996 from $482.6 million at December 31, 1995. The
allowance for losses on loans at June 30, 1996 was $3.4 million or 0.59% of
total loans, as compared to $2.8 million, or 0.57% of total loans, at December
31, 1995, while net charge-offs were only $13,000 during the six month period.
Management's estimate of the adequacy of the allowance for losses on loans is
based upon an analysis of such factors as historical loan loss experience, the
status of impaired loans, economic conditions affecting real estate markets,
regulatory considerations and other matters.
Non-Interest Income. Total non-interest income increased 4.3% to $2.0
million in the six months ended June 30, 1996, as compared to the same period in
1995. The following table sets forth Metropolitan's non-interest income for the
periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------ ------------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loan servicing income, net............. $ 632 $ 391 $1,068 $ 642 $ 602
Gain on sale of loans.................. 36 113 444 52 1,394
Gain on sale of securities............. -- -- 389 34 318
Loan option income..................... 406 420 559 -- --
Loan credit discount income............ -- 406 640 -- --
Other.................................. 972 632 1,432 1,123 1,067
------ ------ ------ ------ ------
Total.................................. $2,046 $1,962 $4,532 $1,851 $3,381
====== ====== ====== ====== ======
</TABLE>
Net loan servicing income increased 61.9% to $632,000 in the six month
period ended June 30, 1996, as compared to $391,000 in the same period in 1995
due to the increase in the portfolio being serviced for others. The increase in
net loan servicing fees was a result of Metropolitan's strategy of increasing
non-credit based fee income. Although the portfolio of loans serviced for others
declined to $1.1 billion at June 30, 1996 compared to $1.2 billion at June 30,
1995, servicing rights for $371.2 million were acquired in June 1995, and had
not been serviced long enough to contribute to loan servicing income during the
first half of 1995. The benefit of this acquisition did not begin to be realized
until the third quarter of 1995. Metropolitan remains committed to this business
and continues to evaluate new acquisitions; however, Metropolitan will only
acquire the rights to service portfolios where the loan characteristics and
pricing are consistent with management's long-term profitability objectives.
Gain on sale of loans was $36,000 in the six months ended June 30, 1996, as
compared to a gain of $113,000 in the same six month period in 1995. This income
was dependent upon both the amount of loans sold, secondary market pricing, and
the value allocated to mortgage servicing rights, and these variables in turn
were directly affected by prevailing interest rates. The proceeds from sale of
loans decreased $2.6 million to $24.6 million during the six month period ended
June 30, 1996, as compared to $27.2 million in the same period in 1995.
Loan option income was $406,000 in the six month period ended June 30,
1996, as compared to $420,000 in the same period in 1995. Loan option income has
been a source of non-interest income for Metropolitan since the second quarter
of 1995. In these option transactions Metropolitan purchased loans and sold
nonrefundable options to a third party to purchase these same loans at a
specified price within a specified time period. The third party was a loan
broker and the loan option fee was negotiated based on the principal amount of
the loans involved. These option transactions provided the loan broker a period
of time to find a buyer who was willing to pay a higher price for the loans.
Loan credit discount income was $406,000 during the six month period ended
June 30, 1995. Metropolitan frequently purchases multifamily and commercial real
estate loans in the secondary market.
21
<PAGE> 23
These loans are often purchased at a discount based on a comparison of loan
rates to market interest rates. The discount attributable to interest rate is
accreted to interest income over the life of the loan. From time to time,
however, Metropolitan purchases loans at a discount due to Metropolitan's
assessment of credit risk and the value of the underlying collateral. These
collateral discounts are not recognized in income over the life of the loan.
When these loans pay off, if Metropolitan receives the full contractual
principal due, any discount related to management's initial assessment of the
deficiency in collateral values is recognized as non-interest income.
Metropolitan had no loan credit discount income in the six months ended June 30,
1996 and does not expect this source of non-interest income to be recurring.
Other non-interest income increased $340,000 or 54.0% for the six months
ended June 30, 1996 compared to the same period in the previous year. This
increase was primarily due to fee income earned on checking accounts and from
ATM transactions as both the number of retail sales offices and the number of
checking accounts were up in 1996 compared with 1995.
Non-Interest Expense. Total non-interest expense increased to $8.4 million
in the six month period ended June 30, 1996, as compared to $6.8 million for the
same period in 1995, or an increase of 23.9%. The following table sets forth
Metropolitan's non-interest expense for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------ --------------------------------
1996 1995 1995 1994 1993
------ ------ ------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Personnel related costs.............. $4,071 $3,259 $ 6,819 $ 5,349 $3,834
Occupancy costs...................... 1,124 1,025 2,135 1,488 1,130
Federal deposit insurance............ 640 548 1,132 929 794
Data processing expense.............. 295 328 586 381 361
State franchise tax.................. 232 152 307 284 178
Marketing expense.................... 285 226 543 392 256
Amortization of intangibles.......... 109 111 220 222 222
Other operating expenses............. 1,607 1,103 2,445 2,013 1,499
------ ------ ------- ------- ------
Total................................ $8,363 $6,752 $14,187 $11,058 $8,274
====== ====== ======= ======= ======
</TABLE>
Personnel related expenses increased $812,000, which represented 50.4% of
the increase in total non-interest expense in the six month period ended June
30, 1996, over the same period in 1995. The increase was a result of having two
additional full service retail sales offices open in the 1996 period, the
payment of incentives for loan and deposit production, the addition to staff of
loan production officers, the full effect of additions to staff in various
departments late in 1995 and the effects of merit increases. Other operating
expenses, which include miscellaneous general and administrative costs such as
loan servicing, loan processing, business development, check processing and ATM
expenses, increased $504,000, which represented 31.2% of the increase in total
non-interest expense in the six month period ended June 30, 1996, over the same
period in 1995. This increase was a result of the overall increase in business
levels, including an increase in loans, deposits and servicing. Occupancy costs
increased $99,000, which represented 6.2% of the increase in total non-interest
expense in the six month period ended June 30, 1996, over the same period in
1995, generally as a result of an increase in the number of full service retail
sales offices.
Provision for Income Taxes. The provision for income taxes decreased 7.4%
to $956,000 in the six month period ended June 30, 1996, as compared to $1.0
million in the same period in 1995. The effective tax rate was 37.7% for the six
month period ended June 30, 1996, as compared to 38.1% for the same period in
1995.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994.
Net Income. Net income for 1995 was $3.5 million as compared to $3.4
million for 1994, a 3.1% increase. Net interest income and non-interest income
increased 5.9% and 144.9%, respectively, in 1995, as compared to 1994; however,
in 1995 the provision for loan losses and non-interest expense increased 25.2%
and 28.3%, respectively.
22
<PAGE> 24
Interest Income. Total interest income increased 37.4% to $43.1 million in
1995 as compared to $31.4 million in 1994. This increase primarily resulted from
a 28.9% increase in average interest-earning assets between the two periods. The
average balance of loans increased $96.8 million which was a result of
Metropolitan's consistent strategy of increasing assets so long as quality loans
with acceptable yield and term characteristics are available. Metropolitan
originated $161.9 million and purchased $103.7 million in loans in 1995, as
compared to $186.5 million and $74.1 million, respectively, for 1994. In
addition, as a result of the generally higher interest rate environment, the
weighted average yield on interest-earning assets increased to 8.42% during 1995
as compared to 7.90% during 1994.
Metropolitan's net interest margin declined 69 basis points to 3.18% for
1995 as compared to 3.87% for 1994, largely as a result of market-driven
increases in interest rates and the interest sensitivity of the Bank's balance
sheet. Rates paid on deposits increased in response to higher market interest
rates and in order to fund the significant growth in loans, resulting in
increased cost of funds. The rate earned on interest-earning assets increased
more slowly during the period because (i) the portfolio of fixed rate loans
increased from 22.2% of the portfolio at December 31, 1994 to 31.4% of the
portfolio at December 31, 1995; and (ii) increases in rates of adjustable rate
mortgages generally lag the market due to contractual timing of adjustments
(i.e., monthly, annually).
Interest Expense. Total interest expense increased 67.7% to $26.8 million
for 1995 as compared to $16.0 million for 1994. Interest expense increased due
to a higher average balance of interest-bearing liabilities outstanding and due
to a higher cost of funds during 1995 as compared to 1994. In accordance with
Metropolitan's strategy of increasing time and core deposits at a rate
consistent with the increase in interest-earning assets, the average balance of
deposit accounts increased $75.7 million, or 20.8%, from December 31, 1994 to
December 31, 1995.
Metropolitan's cost of funds increased to 5.50% in 1995 as compared to
4.25% in 1994, due to the higher level of market interest rates and
Metropolitan's pursuit of higher deposit growth in order to fund the significant
growth in loans.
Provision for Loan Losses. The provision for loan losses increased 25.2%
to $959,000 in 1995 as compared to $766,000 in 1994. The increase was related to
the increase in total loans and management's estimate of the adequacy of the
allowance for losses on loans. Total loans (including loans held for sale)
increased 13.2% to $482.6 million at December 31, 1995 from $426.5 million at
the same date in 1994. The allowance for losses on loans at December 31, 1995
was $2.8 million, or 0.57% of total loans, as compared to $1.9 million, or 0.45%
of total loans, at the same date in 1994. Management's estimate of the adequacy
of the allowance for losses on loans is based upon an analysis of such factors
as historical loan loss experience, the status of impaired loans, economic
conditions affecting real estate markets, regulatory considerations, and other
matters.
Non-Interest Income. Total non-interest income increased 144.9% to $4.5
million in 1995 as compared to $1.9 million in 1994. Net loan servicing income
increased 66.4% to $1.1 million in 1995 as compared to $642,000 in 1994 due to
the increase in the portfolio being serviced for others. The increase in the
servicing portfolio and related net loan servicing fees was a result of
Metropolitan's strategy of increasing non-credit based fee income. In that
regard, the portfolio of loans serviced for others was increased to $1.2 billion
at December 31, 1995 from $739.4 million at December 31, 1994.
Gain on sale of loans was $444,000 in 1995 as compared to $52,000 in 1994.
This income was dependent upon both the amount of loans sold and secondary
market pricing, and these variables in turn were directly affected by prevailing
interest rates. The proceeds from sale of loans increased 17.4% to $59.8 million
during 1995 as compared to $51.0 million in the same period in 1994. The pricing
achieved in the 1995 period was more favorable due to the general stability of
interest rates even at higher levels. In addition, during 1995 the gain on sale
of loans was favorably affected by the adoption of SFAS No. 122, "Accounting for
Mortgage Servicing Rights," which requires lenders who sell originated loans and
retain the servicing rights to recognize the rights to service mortgage loans
for others as separate assets. Modest gains on loan sales during the last half
of 1994 partially offset losses which were incurred in the early months of 1994
as interest rates were increasing sharply.
23
<PAGE> 25
Gain on sale of securities was $389,000 in 1995 as compared to $34,000 in
1994. During 1995, Metropolitan elected to securitize certain of its one- to
four-family loans into mortgage-backed securities guaranteed by FNMA, in order
to reduce the risk-based capital requirements, to reduce credit risk by
acquiring the investor guarantee, and to create collateral that is a more
efficient source of funds in the market place. These securities were classified
as held-to-maturity upon securitization. On November 15, 1995, the Financial
Accounting Standards Board ("FASB") issued a special report entitled "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities -- Questions and Answers" ("Special Report"). The Special
Report primarily provided additional guidance for implementation of SFAS No.
115, based upon inquiries made to the FASB since the statement was issued in May
1993. The Special Report allowed an enterprise to reassess the appropriateness
of the classifications of all securities held at that time. In light of the
guidance provided in the Special Report, Metropolitan reclassified all the FNMA
securities created through securitization of the Bank originated one- to
four-family loans to available-for-sale. In addition $29.2 million of those
securities, representing the greatest degree of interest rate risk, were sold at
a gain of $389,000.
Loan option income was $559,000 in 1995. This represented a new source of
non-interest income for the Bank in 1995. In these option transactions
Metropolitan purchased loans and sold nonrefundable options to a third party to
purchase these same loans at a specified price within a specified time period.
The third party was a loan broker and the loan option fee was negotiated based
on the principal amount of loans involved. These option transactions provided
the loan broker a period of time to find a buyer who was willing to pay a higher
price for the loans.
Loan credit discount income was $640,000 in 1995. Since 1993, Metropolitan
has purchased multifamily and commercial real estate loans in the secondary
market. These loans are often purchased at a discount based on a comparison of
loan rates to market interest rates. The discount attributable to interest rate
is accreted to interest income over the life of the loan. From time to time,
however, Metropolitan purchases loans at a discount due to Metropolitan's
assessment of credit risk and the value of the underlying collateral. These
collateral discounts are not recognized in income over the life of the loan.
When these loans pay off, if Metropolitan receives the full contractual
principal due, any discount related to management's initial assessment of the
deficiency in collateral values is recognized as non-interest income.
Non-Interest Expense. Total non-interest expense increased 28.3% to $14.2
million in 1995 as compared to $11.1 million in 1994. Personnel related expenses
increased $1.5 million, which represented 47.0% of the increase in 1995 over
1994. The increase was primarily a result of having three additional full
service retail sales offices open in 1995. In addition, during 1995 Metropolitan
staffed a business lending department, a trust department and a facilities
maintenance department, none of which existed during 1994. Occupancy costs
increased $647,000, which represented 20.7% of the increase in 1995 over 1994,
generally as a result of an increase in the number of full service retail sales
offices. Other operating expenses, which include miscellaneous general and
administrative costs such as loan servicing, loan processing, business
development, check processing and ATM expenses, increased $432,000, which
represented 13.8% of the increase in 1995 over 1994. This increase was a result
of the overall increase in business levels, including an increase in loans,
deposits and servicing.
Provision for Income Taxes. The provision for income taxes was $2.2
million in 1995 as compared to $2.0 million in 1994. The effective tax rate was
37.8% for 1995 and 36.6% for 1994. The higher effective tax rate in the 1995
period was largely due to premium payments for a key man life insurance policy,
which are not deductible for income tax purposes.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
Net Income. Net income for 1994 was $3.4 million as compared to $4.5
million for 1993. This 23.1% decrease was primarily a result of a 45.3% decline
in non-interest income. Non-interest income decreased due to a sharp decline in
gains on sale of loans. Net interest income increased 16.4% in 1994 as compared
to 1993; however, the significant decline in non-interest income and increases
in the provision for loan losses and non-interest expense of 3.5% and 33.6%,
respectively, more than offset the increase in interest income.
24
<PAGE> 26
Interest Income. Total interest income increased 28.4% to $31.4 million
for 1994 as compared to $24.4 million for 1993. This increase primarily resulted
from a 28.0% increase in average interest-earning assets between the years. The
average balance of loans increased $94.5 million, which was a result of
Metropolitan's strategy of increasing assets when quality loans with acceptable
portfolio characteristics are available. Metropolitan originated $186.5 million
and purchased $74.1 million in loans in 1994. The weighted average yield on
interest-earning assets increased to 7.90% during 1994 as compared to 7.87%
during 1993.
Metropolitan's net interest margin declined 39 basis points to 3.87% for
1994 as compared to 4.26% for 1993, largely as a result of market-driven
increases in interest rates and the interest sensitivity of the Bank's balance
sheet. Rates paid on deposits increased in response to higher market interest
rates and in order to fund the significant growth in loans, resulting in
increased cost of funds. The rate earned on interest-earning assets increased
more slowly during the period because (i) the fixed rate loan portfolio
increased from 17.6% of the portfolio at December 31, 1993 to 22.2% of the
portfolio at December 31, 1994; (ii) the proportion of adjustable rate one- to
four-family loans, which have the smallest spread to their market index of all
adjustable rate loans in the portfolio, increased from 6.1% at December 31, 1993
to 14.8% at December 31, 1994; and (iii) increases in rates of adjustable rate
mortgages generally lag the market due to contractual timing of adjustments
(i.e., monthly, annually).
Interest Expense. Total interest expense increased 42.6% to $16.0 million
for 1994 as compared to $11.2 million for 1993. Interest expense increased due
to a higher average balance of interest-bearing liabilities outstanding and due
to a higher cost of funds during 1994. The average balance of deposit accounts
increased $76.4 million in 1994 compared to 1993 as a result of Metropolitan's
strategy of increasing time and core deposits at a rate consistent with the
increase in interest-earning assets.
Metropolitan's cost of funds increased to 4.25% in 1994 as compared to
3.82% in 1993 generally due to the higher overall level of interest rates as
well as a shift in mix of deposits toward higher cost time deposits. At December
31, 1994, Metropolitan's percentage of deposits held as certificates was 60.0%
compared to 50.0% a year earlier.
Provision for Loan Losses. The provision for loan losses increased 3.5% to
$766,000 in 1994 as compared to $740,000 in 1993. The modest increase reflected
management's assessment that the improvement in the level of non-performing
assets during 1994 offset the increase in total loans. The allowance for losses
on loans at December 31, 1994 was $1.9 million, or 0.45% of total loans, as
compared to $1.2 million, or 0.43% of total loans, at the same date in 1993.
Non-Interest Income. Total non-interest income decreased 45.3% to $1.9
million in 1994 as compared to $3.4 million in 1993 due to a sharp decline in
gain on sale of loans. Gain on sale of loans was $52,000 in 1994 as compared to
$1.4 million in 1993. This income was dependent upon both the amount of loans
sold and secondary market pricing, and these variables were in turn directly
affected by prevailing interest rates. The proceeds of loans sold were $51.0
million during 1994 as compared to $132.3 million in 1993. The generally higher
interest rate environment of 1994 affected both the volume of loans which could
be originated for sale and the pricing available in the secondary market. Losses
were incurred in the early months of 1994 as interest rates were increasing
sharply, while gains were enhanced in 1993 during that period of slowly falling
interest rates.
Net loan servicing income increased 6.7% to $642,000 in 1994 as compared to
$602,000 in 1993. The increase in net loan servicing fees was a result of
Metropolitan's strategy of increasing non-credit based fee income. During 1994,
the portfolio of loans serviced for others was increased from $504.7 million to
$739.4 million.
Non-Interest Expense. Total non-interest expense increased 33.6% to $11.1
million in 1994 as compared to $8.3 million in 1993. Personnel related expenses
increased $1.5 million, which represented 54.4% of the increase in 1994 over
1993. The increase was largely due to retail sales office expansion. One office,
opened late in 1993, had a full year of staff in 1994 and two additional offices
were staffed and opened in the last half of 1994. In addition, during 1994 a
residential loan production office was established in Westlake, Ohio and staffed
with commissioned loan officers. Also during 1994, a construction loan
production office was opened in
25
<PAGE> 27
Columbus, Ohio and multifamily/commercial real estate loan production offices
were opened in Detroit, Michigan and Covington, Kentucky, each with one loan
officer.
Occupancy costs increased $357,000, which represented 12.8% of the increase
of non-interest expense in 1994 over 1993, as a result of the retail sales
office expansion and loan origination office expansion discussed above. Other
operating expenses, which include miscellaneous general and administrative
costs, loan servicing, loan processing, business development, check processing
and ATM expenses, increased $514,000, which represented 18.5% of the increase in
non-interest expense in 1994 over 1993. This increase was a result of the
overall increase in business levels including an increase in loans, deposits and
servicing.
Provision for Income Taxes. The provision for income taxes decreased 29.8%
to $2.0 million in 1994 as compared to $2.8 million in 1993 because income
before taxes declined. The effective tax rate was 36.6% for 1994 and 37.2% for
1993. The higher effective tax rate in 1993 was due to a capital loss on the
sale of a mutual fund investment which was not deductible for income tax
purposes.
ASSET QUALITY
Non-Performing Assets. Metropolitan's goal is to maintain the above
average asset quality of its loan portfolio through conservative lending
policies and prudent underwriting. Detailed reviews of the loan portfolio are
undertaken regularly to identify potential problem loans or trends early and to
provide for adequate estimates of potential losses. In performing these reviews,
Metropolitan's management considers, among other things, current economic
conditions, portfolio characteristics, delinquency trends, and historical loss
experiences. Metropolitan normally considers loans to be non-performing when
payments are 90 days or more past due or when the loan review analysis indicates
that repossession of the collateral may be necessary to satisfy the loan. In
addition, Metropolitan considers loans to be impaired when, in management's
opinion, it is probable that the borrower will be unable to meet the contractual
terms of the loan. When loans are classified as non-performing, an assessment is
made as to the collectibility of the unpaid interest. Interest determined to be
uncollectible is reversed from interest income and future interest income is
recorded only if the loan principal and interest due is considered collectible
and is less than the estimated fair value of the underlying collateral.
The table below sets forth the amounts and categories of Metropolitan's
non-performing assets as of the dates indicated. At June 30, 1996, all loans
classified by management as impaired were also classified as non-performing.
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT JUNE 30, ----------------------------
1996 1995 1994 1993
----------- ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Non-accrual loans.................................... $ 4,750 $3,103 $2,240 $2,819
Loans past due greater than 90 days or impaired,
still accruing..................................... 1,074 204 128 277
----- ----- ----- -----
Total non-performing loans........................... 5,824 3,307 2,368 3,096
Real estate owned.................................... 219 258 53 941
----- ----- ----- -----
Total non-performing assets.......................... $ 6,043 $3,565 $2,421 $4,037
===== ===== ===== =====
Non-performing loans to total loans.................. 1.03% 0.68% 0.55% 1.08%
Non-performing assets to total assets................ 0.90 0.60 0.51 1.08
</TABLE>
Non-performing loans at June 30, 1996 increased $2.5 million, or 72.2%, to
$5.8 million as compared to $3.3 million at December 31, 1995. The increase was
due to four large credits, two secured by multifamily properties and two secured
by retail strip shopping centers. The loans secured by multifamily properties
have principal amounts of $1.3 million and $631,000, respectively, and the
underlying collateral is located in Southern California and Northeastern Ohio,
respectively. The loans secured by retail strip shopping centers have principal
amounts of $1.1 million and $925,000, respectively, and the underlying
collateral is located in Eastern Pennsylvania and Central New Jersey,
respectively. The multifamily loan located in Northeastern Ohio was current but
management elected to classify it as non-performing because the debt service
coverage ratio was below 1.0. Management will likely move to foreclose on the
remaining three properties and therefore
26
<PAGE> 28
expects the status of those loans to remain non-performing through the rest of
1996 and into 1997. Management considers all four of these loans to be impaired
because it does not expect that all principal and interest amounts will be
collected according to the loan contract. Based upon recent appraisals of the
underlying collateral, the loans are adequately secured by the collateral value
and no material losses are anticipated.
Non-performing loans at December 31, 1995 and 1994 included a $1.5 million
loan secured by an apartment building in Southern California which was damaged
in the January 1994 earthquake. The apartment building has been reconstructed.
Under the terms of a loan workout agreement the borrower has resumed regular
principal and interest payments, and is also repaying interest accrued during
the reconstruction period. Management expects that deferred interest and
principal will be fully collected and therefore this loan was no longer
considered impaired by management at June 30, 1996.
Allowance for Losses on Loans. The provision for loan losses and allowance
for losses on loans is based on an analysis of individual loans, prior loss
experience, growth in and trends in the performance of the loan portfolio,
changes in the mix of the loan portfolio and other factors including current
economic conditions. See Note 1 of Notes to Consolidated Financial Statements.
The following table sets forth an analysis of Metropolitan's allowance for
losses on loans at the dates indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED --------------------------------
JUNE 30, 1996 1995 1994 1993
---------------- ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period............ $2,765 $1,911 $1,239 $ 725
CHARGE-OFFS:
One- to four-family..................... -- (23) (23) (50)
Multifamily............................. -- (64) (64) (100)
Commercial real estate.................. -- (27) -- (74)
Construction and land................... -- -- -- --
Consumer................................ (14) (56) (14) (5)
Business................................ -- -- -- --
----- ----- ----- -----
Total charge-offs............... (14) (106) (101) (229)
----- ----- ----- -----
RECOVERIES:
One- to four-family..................... 1 1 1 3
Multifamily............................. -- -- 6 --
Commercial real estate.................. -- -- -- --
Construction and land................... -- -- -- --
Consumer................................ -- -- -- --
Business................................ -- -- -- --
----- ----- ----- -----
Total recoveries................ 1 1 7 3
----- ----- ----- -----
Net charge-offs........................... (13) (105) (94) (226)
Provision for loan losses................. 685 959 766 740
----- ----- ----- -----
Balance at end of period........ $3,437 $2,765 $1,911 $1,239
===== ===== ===== =====
Net charge-offs to average loans(1)....... 0.00% 0.02% 0.03% 0.09%
Provision for loan losses to average
loans(1)................................ 0.25 0.21 0.21 0.29
Allowance for losses on loans to total
non-performing loans at end of period... 59.01 83.61 80.70 40.02
Allowance for losses on loans to total
loans at end of period.................. 0.59 0.57 0.45 0.43
</TABLE>
- ---------------
(1) Ratio for the interim period is stated on an annualized basis.
The allowance for losses on loans as a percentage of total loans was 0.59%
at June 30, 1996 as compared to 0.57% at December 31, 1995 and 0.45% at December
31, 1994. In each period, the provision for loan losses and allowance for losses
on loans were based on an analysis of individual credits, prior and current loss
27
<PAGE> 29
experience, overall growth in the portfolio and current economic conditions.
Based on such analysis, Metropolitan increased the allowance for losses on loans
in excess of net charge-offs by $672,000, $854,000 and $672,000, during the
periods ended June 30, 1996, and December 31, 1995 and 1994, respectively.
COMPARISON OF JUNE 30, 1996 AND DECEMBER 31, 1995 FINANCIAL CONDITION
Total assets amounted to $672.8 million at June 30, 1996, as compared to
$590.1 million at December 31, 1995, an increase of $82.7 million, or 14.0%. The
increase in assets was funded with deposit growth of $55.1 million and an
increase in FHLB advances and other borrowings of $30.2 million.
Cash and cash equivalents decreased $5.8 million, or 32.1%, to $12.3
million at June 30, 1996. The decline was due to a lower volume of transactions
in process at month end June 30, 1996. Such balances normally fluctuate from day
to day.
Securities decreased $10.7 million, or 46.8%, to $12.1 million at June 30,
1996. The decline was largely due to a reduction in excess short-term liquidity
which was used to fund loan purchases early in 1996.
Net loans receivable increased $85.5 million, or 17.9%, to $563.9 million
at June 30, 1996. This increase was consistent with Metropolitan's overall
strategy of increasing assets while adhering to prudent underwriting standards
and preserving its adequately capitalized status. The mix of loan types did not
change significantly from December 31, 1995 to June 30, 1996. The following
increases by loan category were experienced: multifamily loans -- $38.6 million;
one- to four-family loans -- $15.8 million; commercial real estate loans --
$12.6 million; consumer loans -- $9.6 million; business loans -- $6.3 million;
and construction and land loans (net of loans in process) -- $3.4 million.
Loans held for sale increased $9.2 million, to $10.7 million at June 30,
1996. The increase was attributable to loans purchased for sale for which
Metropolitan had outstanding contracts providing a third party the option to
purchase these loans.
Cost of loan servicing rights decreased $437,000, or 4.8%, to $8.7 million
at June 30, 1996. The decline occurred when amortization of existing rights
exceeded the amount capitalized for new acquisitions during the period.
Metropolitan assesses the fair value of the capitalized mortgage servicing
rights for impairment quarterly and carries these rights on the balance sheet at
the lower of cost or fair value. Although purchases of loan servicing rights
decreased, Metropolitan remains committed to this line of business and continues
to evaluate new acquisitions.
Deposits totalled $558.8 million at June 30, 1996, an increase of $55.1
million, or 10.9%, over the balance at December 31, 1995. The increase resulted
from management's marketing efforts and growth at newer retail sales offices.
Other borrowings increased $30.2 million to $77.1 million at June 30, 1996,
as compared to $46.9 million at December 31, 1995. Based on the lower cost of
wholesale funds as compared to comparable maturity retail deposits, management
chose to fund a portion of the loan growth discussed above with wholesale funds.
FHLB advances were the source of borrowings.
COMPARISON OF DECEMBER 31, 1995 AND DECEMBER 31, 1994 FINANCIAL CONDITION
Total assets amounted to $590.1 million at December 31, 1995, as compared
to $479.4 million at December 31, 1994, an increase of $110.7 million, or 23.1%.
The increase in assets was funded with deposit growth of $67.5 million and an
increase in FHLB advances and other borrowings of $31.4 million and an increase
in shareholder's equity of $5.2 million.
Securities increased by $15.2 million, or 198.5%, to $22.8 million.
Securities available for sale are primarily maintained by Metropolitan to meet
the 5.0% regulatory liquidity requirement and were increased in response to the
increase in average daily balance of withdrawable accounts and short-term
borrowings during the period. See "-- Liquidity and Capital Resources." In
addition, at December 31, 1995, liquid assets were higher than required in
anticipation of a loan purchase completed in early 1996.
Mortgage-backed securities increased $22.3 million, to $39.2 million. The
increase was primarily due to the securitization of bank originated one- to
four-family loans into FNMA mortgage-backed securities.
28
<PAGE> 30
Loans receivable increased $53.4 million, or 12.6%, to $478.3 million at
December 31, 1995. One- to four-family loans decreased $36.6 million due to the
securitization of loans. During 1995, Metropolitan elected to securitize certain
of its one- to four-family loans into mortgage-backed securities guaranteed by
FNMA. The loans selected for securitization included only loans which were
originated by Metropolitan and which met investor requirements for pooling loans
(e.g., maturity date, consistent adjustment terms, caps, floors and margins for
adjustable rate loans, and range of interest rates for fixed rate loans). By
securitizing these loans, Metropolitan reduced its risk-based capital
requirement, reduced credit risk by acquiring the investor guarantee, and
created collateral that is a more efficient source of funds in the market place.
The cost of securitizing loans is the investor guarantee fee, which is
negotiated for each transaction but averaged 31 basis points on the loans
securitized by Metropolitan in 1995. In addition, the service fee earned by
Metropolitan on loans that it securitizes, which ranges from 25 basis points for
fixed rate loans to 37.5 basis points for adjustable rate loans, was previously
reported in interest income but is subsequently reported in non-interest income.
The average service fee on the loans securitized by Metropolitan was 34 basis
points. The effect on interest income of securitizing these loans was to lower
the yield on this portion of interest-earning assets approximately 65 basis
points. In categories other than one- to four-family loans, the following
increases were experienced: commercial real estate loans -- $26.0 million;
construction and land loans (net of loans in process ) -- $5.9 million; business
loans -- $8.5 million; consumer loans -- $6.3 million; and multifamily
loans -- $43.5 million. These increases were consistent with Metropolitan's
overall strategy of increasing assets while adhering to prudent underwriting
standards and preserving its adequately capitalized status. See "-- Liquidity
and Capital Resources -- Capital."
Premises and equipment increased $4.4 million, or 138.1%, to $7.5 million.
This increase was directly a result of retail sales office expansion. In 1995,
Metropolitan embarked on a strategy of building and owning new retail sales
offices, rather than leasing. In that regard, land and a building were acquired
in Mayfield Heights for an office which opened in September 1995. Land was
acquired and construction completed for an office in Macedonia, which opened in
November 1995. Land was also acquired in Auburn, Aurora and Twinsburg for
construction of future retail sales offices.
Cost of loan servicing rights increased $4.3 million, or 89.2%, to $9.1
million. This asset includes both purchased mortgage servicing rights ("PMSRs")
and originated mortgage servicing rights ("OMSRs"). PMSRs increased as a result
of Metropolitan's strategy of increasing non-interest income by focusing on non-
credit products. The portfolio of loans serviced for others underlying this
asset increased to $872.7 million at December 31, 1995 from $481.5 million at
December 31, 1994. In May 1995, the FASB issued SFAS No. 122, "Accounting for
Mortgage Servicing Rights." This statement requires lenders who sell originated
loans and retain the servicing rights to recognize as separate assets the rights
to service mortgage loans for others. It also requires that capitalized mortgage
servicing rights be assessed for impairment based on the fair value of those
rights. Management elected to adopt this statement effective January 1, 1995. At
December 31, 1995, the value of these OMSRs on the balance sheet was $542,000.
The fair value of such rights was in excess of that amount.
Deposits totalled $503.7 million at December 31, 1995, an increase of $67.5
million, or 15.5%, over the balance at December 31, 1994. The increase resulted
from management's marketing efforts, continued growth at newer retail sales
offices and increased custodial checking balances, which are maintained for the
benefit of investors in the loan servicing segment of the business.
Other borrowings increased $31.4 million, to $46.9 million at December 31,
1995, as compared to $15.5 million at December 31, 1994. Based on the lower cost
of these funds, management chose to fund a large portion of the asset growth
discussed above with wholesale funds. FHLB advances were the predominant source
of borrowings. During 1995 Metropolitan issued $14.0 million in principal amount
of 1995 Subordinated Notes. See "Description of Subordinated Notes."
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. The term "liquidity" refers to Metropolitan's ability to
generate adequate amounts of cash to meet its needs, typically for funding loan
originations and purchases. Metropolitan's primary sources of internally
generated funds are principal repayments and payoffs of loans receivable, cash
flows from operations
29
<PAGE> 31
and proceeds from sales of loans. External sources of funds include increases in
deposits, FHLB advances, and reverse repurchase agreements.
While principal repayments and FHLB advances are fairly stable sources of
funds, deposit flows and loan prepayments are greatly influenced by prevailing
interest rates, economic conditions, and competition. Metropolitan regularly
reviews cash flow needed to fund its operations and believes that the
aforementioned resources are adequate for its foreseeable requirements.
The Bank is required by regulation to maintain a liquidity ratio (average
daily balance of liquid assets to average daily balance of net withdrawable
accounts and short-term borrowings) of 5%. See "Regulation and
Supervision -- The Bank -- Liquidity." The Bank's liquidity ratio for June 1996
was 5.74%. Historically, Metropolitan has maintained its liquidity close to the
required minimum since the yield available on qualifying investments is lower
than alternative uses of funds and is generally not at an attractive spread over
incremental cost of funds.
The Corporation's primary source of funds currently is dividends from the
Bank, which are subject to restrictions imposed by federal bank regulatory
agencies. See "Risk Factors -- Capital Distribution Regulations" and "Regulation
and Supervision -- The Bank -- Restrictions on Dividends and Other Capital
Distributions." The Corporation's primary use of funds is for interest payments
on its existing debt. See "Business -- Sources of Funds." At June 30, 1996, the
Corporation, excluding the Bank, had cash of $756,000.
Metropolitan's liquidity, represented by cash equivalents, is a result of
its operating, investing, and financing activities. These activities are
summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
--------------------- ----------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash from operating
activities........................ $ (8,745) $(10,751) $ 8,204 $ 15,552 $ (545)
Net cash used for investing
activities........................ (82,289) (57,546) (100,338) (146,949) (49,508)
Net cash provided by financing
activities........................ 85,206 67,707 98,739 103,234 67,143
-------- -------- -------- -------- --------
Net change in cash and cash
equivalents....................... (5,828) (590) 6,605 (28,163) 17,090
Cash and cash equivalents at
beginning of period............... 18,170 11,565 11,565 39,728 22,638
-------- -------- -------- -------- --------
Cash and cash equivalents at end of
period............................ $ 12,342 $ 10,975 $ 18,170 $ 11,565 $ 39,728
======== ======== ======== ======== ========
</TABLE>
Cash provided or used by operating activities is determined largely by
changes in the level of loans held for sale. The level of loans held for sale
depends on the level of loan originations and the time until an investor funds
the purchase of the loan from the Bank.
Cash provided from investing activities consists primarily of principal
payments on loans and mortgage-backed securities. The level of these payments
increases and decreases depending on the size of the loan and mortgage-backed
securities portfolios and the general trend and level of interest rates, which
influences the level of refinancings and mortgage repayments. During the 1993,
1994 and 1995 years and during the six months ended June 30, 1996, net cash was
used in investing activities, primarily to fund and purchase new loans.
At June 30, 1996, $43.8 million, or 7.8%, of Metropolitan's deposits were
in the form of certificates of deposit of $100,000 and over. If a large number
of these certificates of deposits matured at approximately the same time and
were not renewed there could be an adverse effect on Metropolitan's liquidity.
Metropolitan monitors maturities to attempt to minimize the potential adverse
effect on liquidity. See "Business -- Sources of Funds."
When evaluating sources of funds Metropolitan considers the cost of various
alternatives such as local retail deposits, FHLB advances and other wholesale
borrowings. One option considered and utilized in the past has been the
acceptance of out-of-state time deposits from individuals and entities,
predominantly credit
30
<PAGE> 32
unions. These deposits, which are not accepted through brokers, typically have
balances of $90,000 to $100,000 and have a term of one year or more. At June 30,
1996, approximately $43.2 million of time deposits, or 7.7% of Metropolitan's
total deposits, were held by these individuals and entities. Of that amount,
$4.4 million were in the form of certificates of deposit of $100,000 and over.
If Metropolitan were unable to replace these deposits upon maturity, it could
have an adverse effect on Metropolitan's liquidity.
Capital. The OTS imposes capital requirements on savings associations.
Savings associations are required to meet three minimum capital standards: (i) a
leverage requirement, (ii) a tangible capital requirement, and (iii) a
risk-based capital requirement. Such standards must be no less stringent than
those applicable to national banks. In addition, the OTS is authorized to impose
capital requirements in excess of these standards on individual associations on
a case-by-case basis.
The OTS leverage requirement expressly requires that core capital be
maintained in an amount not less than 3% of adjusted total assets. The OTS has
taken the position, however, that the Prompt Corrective Action regulatory scheme
has effectively raised the leverage ratio requirement for all but the most
highly rated savings associations to 4%. Core capital is defined to include
shareholders' equity less intangibles other than qualifying supervisory goodwill
and certain qualifying intangibles, less investments in subsidiaries engaged in
activities not permissible for national banks. See "Regulation and
Supervision -- The Bank -- Regulatory Capital Requirements and -- Prompt
Corrective Action."
Under the tangible capital requirement, tangible capital (defined as core
capital less all intangible assets, except a limited amount of qualifying
PMSRs), must be maintained in an amount equal to at least 1.5% of adjusted total
assets. Adjusted total assets, for the purpose of the tangible capital ratio,
include total assets less all intangible assets except qualifying PMSRs.
The risk-based capital ratio is calculated based on the risk weight
assigned to on-balance sheet assets and off-balance sheet commitments, which
ranges from 0% to 100% of the book value of the asset and is based upon the risk
inherent in the asset. The risk weights assigned by the OTS for principal
categories of assets are (i) 0% for cash and securities issued by the U.S.
Government or unconditionally backed by the full faith and credit of the U.S.
Government; (ii) 20% for securities (other than equity securities) issued by
U.S. Government sponsored agencies and mortgage-backed securities issued by, or
fully guaranteed as to principal and interest by, FNMA or FHLMC except for those
classes with residual characteristics or stripped mortgage-related securities;
(iii) 50% for prudently underwritten permanent one- to four-family first lien
mortgage loans not more than 90 days delinquent and having a loan to value ratio
of not more than 80% at origination unless insured to such ratio by an insurer
approved by FNMA or FHLMC, certain qualifying multifamily first lien mortgage
loans and residential construction loans; and (iv) 100% for all other loans and
investments, including consumer loans, commercial loans, repossessed assets and
loans more than 90 days delinquent. The risk-based capital requirement mandates
total capital of 8.0% of risk-weighted assets. Total capital consists of core
capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital.
The Bank's regulatory capital ratios at June 30, 1996 were in excess of the
capital requirements specified by OTS regulations as shown by the following
table:
<TABLE>
<CAPTION>
TANGIBLE RISK-BASED
CAPITAL CORE CAPITAL CAPITAL
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Capital amount
Actual.......................... $39,279 5.89% $39,571 5.93% $42,462 8.82%
Required........................ 10,003 1.50 26,687 4.00 38,500 8.00
------- ---- ------- ---- ------- ----
Excess.......................... $29,276 4.39% $12,884 1.93% $ 3,962 0.82%
======= ==== ======= ==== ======= ====
</TABLE>
The permissible level of investment in loans secured by non-residential
real property is 400% of "total capital" (defined to include general loan loss
reserves). For purposes of this limitation, non-residential loans exclude loans
secured by apartments, condominiums and improved one- to four-family building
lots. At
31
<PAGE> 33
June 30, 1996, Metropolitan had $122.7 million of non-residential loans
(including those held for sale) which represented 289% of total capital.
Savings associations must deduct from capital the amount of investments in
subsidiaries which are engaged in activities not permitted for national banks.
The Bank's subsidiaries are not engaged in activities which are not permitted
for national banks.
ASSET/LIABILITY MANAGEMENT
Metropolitan, like other financial institutions, is subject to interest
rate risk to the extent that its interest-earning assets reprice differently
than its interest-bearing liabilities. The Bank's Asset and Liability Committee,
which includes representatives of senior management, monitors the level and
relative mix of its interest-earning assets and interest-bearing liabilities.
The steps being taken by the Bank to manage interest rate risk include: (i)
continuing to focus on originating and purchasing adjustable rate assets for
portfolio; (ii) selling fixed rate one- to four-family loans with servicing
retained; (iii) focusing on shortening the term of fixed rate lending by
increasing the percent of the fixed rate loan portfolio represented by consumer
loans; (iv) increasing business lending which will generally result in loans
with adjustable rates and shorter terms; (v) increasing the loan servicing
portfolio; (vi) emphasizing transaction account deposit products which are less
susceptible to repricing in a rising interest rate environment; (vii)
maintaining competitive pricing on longer term certificates of deposit; and
(viii) utilizing term advances and other borrowings rather than short-term
funds.
At June 30, 1996, 66.2% of the total loan portfolio had adjustable rates.
In order to remain competitive in the mortgage loan market and meet customer
needs, Metropolitan also offers a variety of fixed rate products. Metropolitan
has managed its investment in fixed rate loans in several ways in order to
minimize interest rate risk. It has long been Metropolitan's policy to sell the
majority of its fixed rate one- to four-family loan production in the secondary
market. At June 30, 1996, Metropolitan had 6.5% of its total loans comprised of
fixed rate residential one- to four-family loans. The fixed rate residential
loans held in the loan portfolio typically have maturities of 15 years. Within
the remaining fixed rate portfolio, Metropolitan has focused on short-term loan
types. Fixed rate multifamily and commercial real estate loans comprised 16.5%
of total loans at June 30, 1996, and had a weighted average contractual term to
maturity of approximately five years. Fixed rate consumer loans, with a weighted
average contractual term of maturity of approximately seven years, comprised
5.8% of total loans at June 30, 1996. In both cases the effective term to
maturity is anticipated to be less than the contractual term.
At June 30, 1996, Metropolitan had a portfolio of mortgage loan servicing
of $1.1 billion comprised of predominantly fixed rate loans. In periods of
rising interest rates these loans prepay at a slower rate which results in a
stable source of fee income, thereby increasing the economic value of this
portfolio.
As part of its effort to monitor and manage interest rate risk, the Bank
uses the NPV methodology adopted by the OTS. Generally, NPV is the discounted
present value of the difference between incoming cash flows on interest-earning
and other assets and outgoing cash flows on interest-bearing and other
liabilities. The application of the methodology attempts to quantify interest
rate risk as the change in NPV which would result from theoretical instantaneous
and sustained parallel shifts of 100 basis points in market interest rates.
32
<PAGE> 34
Presented below, as of June 30, 1996 and 1995, is an analysis of the Bank's
interest rate risk measured by the NPV methodology. The table also contains the
policy limits set by the Board of Directors of the Bank established with
consideration of the dollar impact of various rate changes and the Bank's
capital position.
<TABLE>
<CAPTION>
CHANGES IN JUNE 30, 1996 JUNE 30, 1995
INTEREST RATE ---------------------- ----------------------
(BASIS BOARD LIMIT CHANGE IN % CHANGE CHANGE IN % CHANGE
POINTS) % CHANGE NPV IN NPV NPV IN NPV
- ------------- ----------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
+400 (75)% $(23,339) (43)% $(26,493) (61)%
+300 (50) (17,235) (32) (19,072) (44)
+200 (25) (11,114) (21) (11,864) (28)
+100 (10) (5,205) (10) (5,268) (12)
-100 (10) 4,164 8 4,883 11
-200 (25) 9,387 17 9,866 23
-300 (50) 18,071 33 15,741 37
-400 (75) 30,127 56 22,287 52
</TABLE>
As illustrated in the table, the Bank's NPV is unfavorably affected in the
rising rate scenarios. This occurs principally because the interest rates paid
on deposits would increase more rapidly than interest rates earned on assets
because deposits generally have shorter periods to repricing. In addition, the
fixed rate assets in portfolio will only reprice as the loans are repaid and new
loans at higher rates are made. Furthermore, even for the adjustable rate
assets, repricing may lag behind the rate change due to contractual time frames.
The Bank's sensitivity to rising rates at June 30, 1996 was improved
compared to the sensitivity at the same point in time in 1995 due to the
increased capital level and the changing mix of assets. At June 30, 1996, the
Bank was within the Board established limits for various changes in interest
rates.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, as a result of
competition, the interest rates on certain assets and liabilities may fluctuate
in advance of changes in market interest rates, while interest rates on other
types of assets and liabilities may lag behind changes in market rates. Further,
in the event of a change in interest rates, expected rates of repayment on
assets and early withdrawal levels from certificates of deposit would likely
deviate from those scheduled. Despite its limitations, management considers NPV
the best method for monitoring interest rate risk since core repricing and
maturity relationships are very clearly seen. The clarity of the risk relations
is enhanced by the simplicity of the rate changes and the fact that all rates,
short-term and long-term, change by the same degree.
ACCOUNTING DEVELOPMENTS
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities based on a financial
components approach that focuses on control. SFAS No. 125 is effective for
transfers and servicing of financial assets and extinguishment of liabilities
occurring after December 31, 1996 and is to be prospectively applied. Management
is currently evaluating the impact of adoption of SFAS No. 125 on its financial
position and results of operations.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights." This statement requires lenders who sell originated loans and
retain the servicing rights to recognize as separate assets the rights to
service mortgage loans for others. It also requires that capitalized mortgage
servicing rights be assessed for impairment based on the fair value of those
rights. The provisions of this statement were adopted effective January 1, 1995.
The balance capitalized with respect to originated mortgage servicing rights was
$667,000 and $542,000 at June 30, 1996 and December 31, 1995, respectively. The
fair value of those rights exceeded the amount capitalized at both dates.
In October 1994, the FASB issued SFAS No. 119, "Disclosure About Derivative
Financial Instruments and Fair Value of Financial Instruments," which requires
disclosures about derivative financial instruments
33
<PAGE> 35
including futures, forward, swap and option contracts, and other financial
instruments with similar characteristics. This statement, which is effective for
fiscal years ending after December 15, 1994, has limited applicability to
Metropolitan, since it has no off-balance sheet derivative financial instruments
other than the loan commitments disclosed in the notes to the financial
statements.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." This statement was amended in October 1994 by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures." SFAS No. 114 requires that impaired loans be measured at the
present value of expected future cash flows discounted at the loan's effective
interest rate, or as a practical expedient, at the loan's observable market
price or at the fair value of the collateral if the loan is collateral
dependent. SFAS No. 118 amends certain accounting and disclosure requirements
set forth in SFAS No. 114. The provisions of these statements were adopted
effective January 1, 1995. Under this standard, loans considered to be impaired
are reduced to the present value of expected future cash flows or to the fair
value of collateral, by allocating a portion of the allowance for loan losses to
such loans. If these allocations require an increase in the allowance for loan
losses, such increase is reported as bad debt expense. Based on the analysis
prepared, no bad debt expense was recorded by Metropolitan in connection with
adopting this standard. As allowed, management excludes all consumer loan and
residential single family loans with balances less than $200,000 from possible
classification as impaired.
Effective January 1, 1994, Metropolitan adopted the provisions of SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS
No. 115 requires the classification of debt and equity securities as held to
maturity, trading or available for sale upon their acquisition. Securities
classified as trading would be carried at market value with the unrealized
holding gain or loss recorded in the statement of operations. Securities
available for sale are carried at their estimated market value with the
unrealized holding gain or loss reflected as a separate component of
shareholders' equity. The cumulative effect on Metropolitan's shareholder's
equity at January 1, 1994, of adopting SFAS No. 115, is included as a separate
component of shareholder's equity in the consolidated statement of financial
condition and represents the after-tax effect of adjusting securities available
for sale to fair value. Securities classified as held to maturity are carried at
amortized cost unless there is a permanent impairment in value.
In February 1992, the FASB issued SFAS No. 109, "Accounting for Income
Taxes." This Statement calls for a balance sheet approach in calculating current
and deferred taxes based on the difference between financial statement balances
and the tax basis of assets and liabilities at currently enacted tax rates. This
Statement superseded SFAS No. 96 by which the Corporation calculated its
provision for income taxes during 1990, 1991 and 1992. SFAS No. 109 became
effective for fiscal years beginning after December 15, 1992 and Metropolitan
implemented it in early 1993. The impact on Metropolitan as a result of adopting
this statement was a reduction of $300,000 in net income for the year ended
December 31, 1993.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and notes included herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the changes in relative purchasing power
of money over time due to inflation. The impact of inflation is reflected in and
a component of the increased cost of Metropolitan's operations.
In management's opinion, changes in interest rates affect the financial
condition of a financial institution to a far greater degree than changes in the
inflation rate. While interest rates are influenced by changes in the inflation
rate, they do not change at the same rate or in the same magnitude as the
inflation rate. Rather, interest rate volatility is based on changes in the
expected rate of inflation, as well as changes in monetary and fiscal policies.
Metropolitan's ability to match the interest rate sensitivity of its financial
assets to the interest sensitivity of its financial liabilities in its
asset/liability management may tend to minimize the effect of changes in
interest on its financial performance.
34
<PAGE> 36
BUSINESS
GENERAL
Metropolitan is a savings and loan holding company incorporated in 1972
that is engaged in the principal business of originating and purchasing mortgage
and other loans through its wholly-owned subsidiary, the Bank. Funds for lending
and other investment activities are obtained primarily from savings deposits,
principal repayments on loans, wholesale borrowings and the sale of loans. The
activities of the Corporation are limited and have no significant impact on the
results of operations on a consolidated basis. Unless otherwise noted, all of
the activities discussed below are of the Bank. Metropolitan's corporate
headquarters is located at 6001 Landerhaven Drive, Mayfield Heights, Ohio 44124.
The Bank is a state chartered savings association established in 1958. The
Bank operates 14 full service retail offices throughout Eastern Cuyahoga, Lake,
Summit, Portage and Geauga Counties. An additional full service retail office is
currently under construction in Summit County which will open in the first
quarter of 1997 and land has been acquired for three additional full service
retail office locations in Summit and Geauga Counties. The Bank also maintains
six residential, construction and multifamily loan production offices. At June
30, 1996, Metropolitan had total assets of $672.8 million, total deposits of
$558.8 million and shareholder's equity of $26.6 million. The deposits of the
Bank are insured by the FDIC up to applicable limits.
In addition to the Bank, Metropolitan has four other subsidiaries, each of
which are either directly or indirectly wholly-owned by Metropolitan. These
subsidiaries include: MetroCapital Corporation; Kimberly Construction Company,
Incorporated ("Kimberly Construction"); Metropolitan Savings Service
Corporation; and Metropolitan Securities Corporation. Each of these
subsidiaries, with the exception of Kimberly Construction, is inactive.
Currently, Kimberly Construction's sole business function is to serve as a
principal party to various construction contracts entered into in connection
with the construction of Bank premises.
METROPOLITAN'S OPERATING STRATEGY
In recent years, Metropolitan has pursued a strategy of maximizing long
term profitability by pursuing balance sheet growth designed to enhance the
franchise value of the Bank. Metropolitan has experienced significant growth in
terms of total assets, total deposits, and shareholder's equity over the last
five years. Metropolitan's total assets have grown by a 24.5% compound annual
rate, total deposits have increased by a 21.1% compound annual rate and
shareholder's equity has grown by a 23.9% compound annual rate from December 31,
1991 to June 30, 1996. Metropolitan seeks to maintain strong growth through (i)
increasing total interest-earning assets by continuing to focus on multifamily,
commercial real estate and residential loan origination while maintaining a high
level of asset quality and adequately capitalized status pursuant to FDIC
guidelines, (ii) growing time and core deposits at a rate that is consistent
with the overall level of growth of interest-earning assets, (iii) increasing
non-interest income as a non-credit based source of income that requires a lower
commitment of capital than credit-based products, and (iv) increasing the
capital of the Bank through retained earnings.
Multifamily Origination. With a total multifamily loan portfolio of $270.0
million, at June 30, 1996, Metropolitan was one of the largest multifamily
lenders in Ohio. Approximately 43.8% of the growth in total loans from December
31, 1991 to June 30, 1996 has been in the category of multifamily lending.
However, the dynamics of this market have changed in recent years due to
experienced developers and managers of multifamily properties returning to the
market because of increasingly attractive returns, and stabilization of property
values. In order to continue its growth and in response to increased
competition, Metropolitan has been expanding its market area. The Bank now has
multifamily loan production offices in Detroit, Cincinnati and Pittsburgh.
Metropolitan intends to continue penetration of its primary lending markets
for variable rate multifamily mortgage lending, including Ohio, Central and
Northern New Jersey, Northern Kentucky, Southeastern Michigan, and Western
Pennsylvania, by capitalizing on management's collective knowledge of these
specific markets and its relationships with existing and potential sources of
multifamily mortgages. Metropolitan has longstanding relationships with owners
of multifamily units in all of its primary lending markets, and
35
<PAGE> 37
management believes that a certain degree of geographic diversity serves to
enhance Metropolitan's asset quality.
One- to Four-family ARM Origination. Metropolitan currently originates
one- to four-family adjustable rate mortgages ("ARMs") in its primary Ohio
markets of Cuyahoga, Lorain, Lake, Summit, Portage and Geauga Counties. As part
of its overall strategy to expand interest-earning assets with primarily
variable rate mortgages, Metropolitan has and will continue to increase the
origination of ARMs by (i) maintaining price competitiveness through offering
variable rate mortgages consistent with the local market, (ii) expanding the
number of loan originators, and (iii) continuing to market its mortgage
products, including Metropolitan's mortgage preapproval program and its five-day
unconditional loan approval program for new purchasers.
Approximately 12.9% of the growth in total loans from December 31, 1991 to
June 30, 1996, has been in one- to four-family lending. Adjustable rate one- to
four-family loans have increased from 5.2% of total loans at December 31, 1991
to 8.7% at June 30, 1996.
One- to Four-family and Multifamily ARM Purchases. In addition to
increasing the origination of ARMs, as part of its goal to increase total
earning assets, Metropolitan from time to time purchases seasoned one- to
four-family and multifamily ARMs that are underwritten by a process similar to
the underwriting process for its own originations.
Commercial Real Estate Lending and Purchases. Metropolitan originates
commercial real estate loans secured by strip shopping centers and small office
buildings. In addition, over the past three years, this segment of the loan
portfolio has significantly increased mainly through purchases of commercial
real estate loans. Approximately 23.3% of the growth in total loans from
December 31, 1991 to June 30, 1996 has been in commercial real estate lending.
Business Lending. Metropolitan expanded its lending activities beginning
in late 1994 by adding experienced commercial lenders to originate business
loans in Metropolitan's Ohio markets. These loans may be secured or unsecured
term loans or lines of credit. At June 30, 1996, Metropolitan had $15.0 million
of business loans outstanding and unfunded commitments of $3.6 million.
Consumer Lending. Metropolitan's consumer lending activities include the
origination of home equity loans and lines of credit and installment loans
secured by automobiles, boats, recreational vehicles, mobile homes, and
motorcycles. In addition, Metropolitan purchases automobile and second mortgage
loans through brokers and in March 1996, a $4.6 million credit card portfolio
was acquired. Approximately 9.4% of the growth in total loans from December 31,
1991 to June 30, 1996, has been in consumer loans.
Retail Deposits. One of the elements of Metropolitan's strategy is to
increase deposits at a rate that is consistent with its growth in earning assets
and to maintain a stable ratio of core deposits to time deposits so that
Metropolitan can obtain a stable and reasonably priced source of funds. The Bank
has opened three new full service retail sales offices over the past eighteen
months and seeks to maintain this rate of growth in coming years to expand its
depositor base. In September 1995, a new office was opened in Mayfield Heights
and in November 1995, another new full service retail sales office was opened in
Macedonia. In July 1996, a full service retail office was opened in Aurora. An
additional full service retail office is under construction in Hudson which is
scheduled to open in early 1997. The Bank has purchased land in Auburn, Stow and
Twinsburg in anticipation of opening full service retail offices in these cities
within the next two years.
Non-Interest Income Growth. One of Metropolitan's long-term objectives is
to increase the ratio of non-interest income to non-interest expense.
Metropolitan intends to achieve this objective through an increased emphasis on
fee-based/non-credit products, which are expected to increase non-interest
income at a greater rate than the increase in overhead to support such growth.
A significant source of fee income for Metropolitan is revenue generated
through its loan servicing portfolio. Accordingly, Metropolitan has
significantly increased its servicing portfolio, increasing its servicing income
from $226,000 in 1991 to $1.1 million in 1995. In the six months ended June 30,
1996, servicing income was $632,000. Metropolitan competes regionally to
purchase mortgage loan servicing rights for loan pools generally under $100
million. Management believes that it is successful in purchasing these servicing
rights at attractive prices because it seeks to purchase smaller size loan
pools, which typically attract less competition among bidders, and because of
its ability to expedite the transaction and transfer process.
36
<PAGE> 38
Metropolitan retains servicing rights on the fixed rate loans it sells.
Metropolitan is also working to increase the number of fixed rate mortgages it
originates for sale by hiring additional loan production officers and expanding
its retail sales office delivery network.
Metropolitan generates fees from a variety of other sources including ATM
transactions, money orders, travelers checks, consumer loans and credit cards.
In 1995, Metropolitan established a trust department and began offering trust
services. Metropolitan anticipates that, as this line of business becomes
established, it will also contribute to the growth of non-interest income.
In 1995, Metropolitan also began a program to generate loan option income.
In these transactions Metropolitan purchases loans and issues a nonrefundable
option to a third party to purchase these same loans at a later date. The loan
option fee is recognized in income when it is collected.
LENDING ACTIVITIES
General. Metropolitan primarily originates and purchases mortgage loans
secured by multifamily residential real estate. Metropolitan also originates
one- to four-family residential, construction and commercial real estate loans,
and to a lesser extent, consumer and business loans. In order to minimize
interest rate risk, the majority of the residential real estate loans retained
by Metropolitan in its portfolio are ARMs.
Loan Portfolio Composition. The following information presents the
composition of Metropolitan's loan portfolio, including loans held for sale, in
dollar amounts and in percentages (before deductions for loans in process,
deferred fees, premiums and discounts, net, and allowance for losses) as of the
dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------------------------------
JUNE 30, 1996 1995 1994 1993 1992 1991
--------------- --------------- --------------- ---------------- ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REAL
ESTATE
LOANS:
One-to
four-family... $ 92,055 15.1% $ 76,259 15.0% $112,840 25.2% $ 39,510 12.7% $ 36,351 15.3% $ 37,758 20.3%
Multifamily..... 270,049 44.4 231,459 45.8 187,928 41.9 166,221 53.2 129,599 54.7 84,974 45.8
Commercial...... 122,006 20.1 109,403 21.5 83,354 18.6 54,819 17.5 36,717 15.5 23,610 12.7
Construction
and land...... 56,323 9.3 48,210 9.5 38,270 8.5 30,894 9.9 24,255 10.2 25,386 13.7
Held for sale... 10,686 1.8 1,504 0.2 84 0.0 10,391 3.3 5,082 2.2 11,839 6.4
------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total real
estate
loans....... 551,119 90.7 466,835 92.0 422,476 94.2 301,835 96.6 232,004 97.9 183,567 98.9
CONSUMER
LOANS............ 41,787 6.9 32,214 6.3 25,946 5.8 10,687 3.4 5,022 2.1 2,068 1.1
BUSINESS
AND OTHER
LOANS.......... 15,034 2.4 8,703 1.7 171 0.0 50 0.0 50 0.0 50 0.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total
loans...... 607,940 100.0% 507,752 100.0% 448,593 100.0% 312,572 100.0% 237,076 100.0% 185,685 100.0%
===== ===== ===== ===== ===== =====
LESS:
Loans
in process..... 28,095 23,373 19,338 14,656 11,222 6,982
Deferred
fees, premiums
and discounts,
net............ 1,839 1,764 2,317 1,998 3,359 1,386
Allowance
for losses
on loans....... 3,437 2,765 1,911 1,239 725 495
-------- -------- -------- -------- -------- --------
Total loans
receivable,
net......... $574,569 $479,850 $425,027 $294,679 $221,770 $176,822
======== ======== ======== ======== ======== ========
</TABLE>
Metropolitan had commitments to originate or purchase loans of $42.6
million and $29.7 million at June 30, 1996 and December 31, 1995, respectively.
In addition, Metropolitan had firm commitments to sell loans of $1.5 million and
$2.0 million and optional commitments to sell loans of $10.0 million and
$458,000 at June 30, 1996 and December 31, 1995, respectively.
37
<PAGE> 39
The following table shows the composition of Metropolitan's loan portfolio,
including loans held for sale, by fixed and adjustable rate at the dates
indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------------
JUNE 30, 1996 1995 1994 1993 1992 1991
-------------- -------------- -------------- -------------- -------------- --------------
PER- PER- PER- PER- PER- PER-
AMOUNT CENT AMOUNT CENT AMOUNT CENT AMOUNT CENT AMOUNT CENT AMOUNT CENT
-------- ---- -------- ---- -------- ---- -------- ---- -------- ---- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIXED-RATE LOANS:
Real estate:
One- to four-family.. $ 39,386 6.5% $ 35,042 6.9% $ 46,418 10.4% $ 20,448 6.5% $ 19,571 8.3% $ 28,127 15.2%
Multifamily.......... 100,307 16.5 71,909 14.2 19,852 4.4 5,281 1.7 10,370 4.4 10,574 5.7
Commercial........... 18,546 3.0 17,615 3.5 7,948 1.8 8,325 2.7 8,291 3.5 8,478 4.6
Construction and
land................ 96 0.0 39 0.0 -- -- -- -- -- -- -- --
Held for sale........ 8,868 1.5 1,504 0.3 84 0.0 10,391 3.3 5,082 2.1 79 0.0
-------- ---- -------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total fixed rate
real estate
loans............... 167,203 27.5 126,109 24.9 74,302 16.6 44,445 14.2 43,314 18.3 47,258 25.5
Consumer............... 35,305 5.8 30,817 6.0 25,228 5.6 10,687 3.4 5,022 2.1 2,068 1.1
Business and other..... 3,273 0.5 2,744 0.5 20 0.0 -- -- -- -- -- --
------- ---- -------- ---- ------- ---- ------ ----- ------ ---- ------- ----
Total fixed rate
loans............. 205,781 33.8% 159,670 31.4% 99,550 22.2% 55,132 17.6% 48,336 20.4% 49,326 26.6%
-------- ==== -------- ==== -------- ==== -------- ==== -------- ==== -------- ====
ADJUSTABLE-RATE LOANS:
Real estate:
One- to four-family.. 52,669 8.7% 41,217 8.1% 66,422 14.8% 19,062 6.1% 16,780 7.1% 9,631 5.2%
Multifamily.......... 169,742 27.9 159,550 31.4 168,076 37.5 160,940 51.5 119,229 50.3 74,400 40.1
Commercial........... 103,460 17.1 91,788 18.1 75,406 16.8 46,494 14.9 28,426 12.0 15,132 8.1
Construction and
land................ 56,227 9.2 48,171 9.5 38,270 8.5 30,894 9.9 24,255 10.2 25,386 13.7
Held for sale........ 1,818 0.3 -- -- -- -- -- -- -- -- 11,760 6.3
------- ---- -------- ---- ------- ---- ------ ----- ------ ---- ------- ----
Total adjustable-rate
real estate loans.. 383,916 63.2 340,726 67.1 348,174 77.6 257,390 82.4 188,690 79.6 136,309 73.4
Consumer................. 6,482 1.1 1,397 0.3 718 0.2 -- -- -- -- -- --
Business and Other....... 11,761 1.9 5,959 1.2 151 0.0 50 0.0 50 0.0 50 0.0
------- ---- ------- ---- ------ ---- ------- ----- ------- ---- ------- ----
Total adjustable-rate
loans.............. 402,159 66.2% 348,082 68.6% 349,043 77.8% 257,440 82.4% 188,740 79.6% 136,359 73.4%
-------- ==== -------- ==== -------- ==== -------- ==== -------- ==== -------- ====
LESS:
Loans in process......... 28,095 23,373 19,338 14,656 11,222 6,982
Deferred fees, premiums
and discounts, net...... 1,839 1,764 2,317 1,998 3,359 1,386
Allowance for losses
on loans................ 3,437 2,765 1,911 1,239 725 495
-------- -------- -------- -------- -------- --------
Total loans
receivable, net.... $574,569 $479,850 $425,027 $294,679 $221,770 $176,822
======== ======== ======== ======== ======== ========
</TABLE>
38
<PAGE> 40
The following table illustrates the contractual maturities of
Metropolitan's loan portfolio at June 30, 1996. Loans that have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract is due. The schedule does not reflect the effects of possible
prepayments, enforcements of due-on-sale clauses, or the effect of the
amortization of deferred loan fees.
<TABLE>
<CAPTION>
DUE IN ONE DUE AFTER ONE YEAR DUE AFTER
YEAR OR LESS(1) THROUGH FIVE YEARS FIVE YEARS TOTAL
---------------------- ----------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AMOUNT AVERAGE RATE AMOUNT AVERAGE RATE AMOUNT AVERAGE RATE AMOUNT AVERAGE RATE
------- ------------ -------- ------------ -------- ------------ -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REAL ESTATE:
One- to
four-family........ $ 516 6.67% $ 2,121 8.00% $ 93,021 7.57% $ 95,658 7.58%
Multifamily.......... 7,125 9.16 85,573 8.94 183,696 8.26 276,394 8.50
Commercial........... 13,230 9.65 58,509 9.27 51,006 8.83 122,744 9.13
Construction and
land............... 47,604 9.27 8,719 9.33 -- -- 56,323 9.28
CONSUMER............... 7,370 11.02 15,081 8.99 19,335 9.94 41,787 9.79
BUSINESS............... 8,197 9.86 3,246 9.56 3,591 9.76 15,034 9.77
------- -------- -------- --------
Total.................. $84,042 9.52 $173,249 9.07 $350,649 8.27 $607,940 8.67
======= ======== ======== ========
</TABLE>
- ---------------
(1) Includes demand loans, loans having no stated maturity and overdraft loans.
The total amount of loans due after June 30, 1997 which have predetermined
interest rates is $205.7 million, while the total amount of loans due after that
date which have floating or adjustable rates is $318.2 million.
LOAN ORIGINATIONS AND PURCHASES
Metropolitan's strategy in recent years has been to increase
interest-earning assets, primarily by increasing the total loan portfolio, as
long as quality assets with the necessary portfolio characteristics are
available. Specifically, Metropolitan has sought to add (i) adjustable rate
loans or (ii) fixed rate loans with higher yields and shorter terms to maturity.
Both of these types of loans must continue to meet the underwriting criteria
that have resulted in Metropolitan's low level of charge-offs. Over 70% of loan
additions in each of the last three years have been a result of internal
origination efforts. The remaining loans are purchased, seasoned loans which
have been subjected to a similar underwriting and approval process.
39
<PAGE> 41
The following table sets forth loan origination, purchase, sale and
repayment activities of Metropolitan for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------
1996 1995 1995 1994 1993
-------- -------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ORIGINATIONS BY TYPE
ADJUSTABLE RATE:
Real estate:
One- to four-family........................... $ 17,640 $ 15,382 $ 22,503 $ 47,136 $ 3,034
Multifamily................................... 12,891 13,847 24,542 20,588 43,961
Commercial.................................... 2,679 2,452 5,919 8,486 1,375
Construction and land......................... 23,165 22,363 41,559 44,053 35,376
Consumer........................................ 58 -- -- -- --
Business........................................ 5,866 2,665 6,814 20 --
--------- --------- --------- --------- ---------
Total adjustable rate......................... 62,299 56,709 101,337 120,283 83,746
--------- --------- --------- --------- ---------
FIXED RATE:
Real estate:
One- to four-family........................... 30,788 5,732 24,230 37,030 112,048
Multifamily................................... 4,233 -- 13,957 8,745 8,322
Commercial.................................... -- 1,200 4,400 3,220 --
Construction and land......................... 30 38 37 -- --
Consumer........................................ 3,762 7,748 15,048 17,124 7,401
Business........................................ 1,977 728 2,915 101 --
--------- --------- --------- --------- ---------
Total fixed rate.............................. 40,790 15,446 60,587 66,220 127,771
--------- --------- --------- --------- ---------
Total loans originated........................ 103,089 72,155 161,924 186,503 211,517
--------- --------- --------- --------- ---------
PURCHASES BY TYPE
ADJUSTABLE RATE:
Real estate:
One- to four-family........................... 1,835 -- -- 4,939 9,140
Multifamily................................... 30,882 2,955 3,694 10,129 21,651
Commercial.................................... 6,112 12,480 13,939 23,632 32,777
Construction and land......................... -- -- -- -- --
Consumer........................................ 5,018 -- -- -- --
Business........................................ -- -- -- -- --
--------- --------- --------- --------- ---------
Total adjustable rate......................... 43,847 15,435 17,633 38,700 63,568
--------- --------- --------- --------- ---------
FIXED RATE:
Real estate:
One- to four-family........................... 1,125 19,345 19,381 13,079 5,798
Multifamily................................... 14,838 9,920 50,420 12,218 --
Commercial.................................... 15,326 8,234 15,879 3,904 283
Construction and land......................... -- -- -- -- --
Consumer........................................ 6,692 86 387 6,213 616
Business........................................ -- -- -- -- --
--------- --------- --------- --------- ---------
Total fixed rate.............................. 37,981 37,585 86,067 35,414 6,697
--------- --------- --------- --------- ---------
Total loans purchased......................... 81,828 53,020 103,700 74,114 70,265
--------- --------- --------- --------- ---------
REDUCTIONS
SALES:
Real estate:
One- to four-family........................... (25,697) (2,700) (35,770) (23,000) (103,788)
Multifamily................................... (5,312) (16,835) (27,094) (22,082) (22,138)
Commercial.................................... -- -- (1,835) (6,285) (7,425)
Construction and land......................... -- -- -- -- --
Consumer........................................ -- -- -- -- --
Business........................................ -- -- -- -- --
--------- --------- --------- --------- ---------
Total loan sales.............................. (31,009) (19,535) (64,699) (51,367) (133,351)
Loans securitized............................... -- (7,803) (53,795) -- --
Principal repayments............................ (53,720) (37,477) (87,972) (73,229) (72,930)
--------- --------- --------- --------- ---------
Total reductions.............................. (84,729) (64,815) (206,466) (124,596) (206,281)
Decrease in other items, net.................... (5,469) (6,224) (4,336) (5,673) (2,592)
--------- --------- --------- --------- ---------
Net increase.................................... $ 94,719 $ 54,136 $ 54,822 $ 130,348 $ 72,909
========= ========= ========= ========= =========
</TABLE>
40
<PAGE> 42
Multifamily Residential Lending. Metropolitan focuses its primary
portfolio lending efforts on multifamily residential real estate loans.
Multifamily loans are originated by Metropolitan from referrals by present
customers of the Bank and mortgage and real estate brokers. Through its existing
referral network and advertising efforts, Metropolitan has become known for
multifamily lending in its primary multifamily lending markets of Ohio, Northern
Kentucky, Southeastern Michigan, Western Pennsylvania, and Northern and Central
New Jersey. Although Metropolitan operates full service retail sales offices
solely in Northeastern Ohio, it has origination offices in Southern Ohio,
Southeastern Michigan and Western Pennsylvania to pursue opportunities in
growth-oriented communities.
At June 30, 1996, Metropolitan's multifamily loans totaled $270.0 million,
with an average loan size of approximately $672,000. Of this amount, $152.4
million, or 56.4%, were originated by Metropolitan. Currently, Metropolitan
emphasizes the origination of ARMs with principal amounts of less than $2.0
million and maturities of 10 years. The loans are adjustable on a one-, three-
or five-year schedule with an amortization of 25 or 30 years. Rate adjustments
are based on the appropriate term U.S. Treasury securities plus a margin. The
loans are subject to a maximum individual aggregate interest rate adjustment as
well as a maximum aggregate adjustment over the life of the loan (generally 6%).
Due to increasing demand for fixed rate loans, Metropolitan has allocated some
funds for fixed rate programs, typically those with 7- to 10-year maturities.
The maximum loan to value ratio of Metropolitan's multifamily residential loans
is 75%.
Metropolitan recognizes that multifamily residential property loans
generally involve a higher degree of risk than the financing of one- to
four-family residential real estate because they typically involve larger loan
balances to single borrowers or groups of related borrowers. The payment
experience on these loans is typically dependent upon the successful operation
of the related real estate project and is subject to certain risks including
excessive vacancy rates or inadequate rental income levels. In order to manage
and reduce these risks, Metropolitan uses strict underwriting standards in its
multifamily residential lending process.
The loans originated in this area are typically less than $2.0 million in
principal amount and are secured by garden-style apartments with generally under
75 residential units. The underwriting process includes a site evaluation which
considers such factors as location, access by roadways, condition of the
apartments and amenities. In addition, a Metropolitan employee visits each
location before a loan approval is made. The underwriting process also involves
an evaluation of the borrower, whether the borrower is an individual or a group
of individuals acting as a separate entity. The financial statements of each of
the individual borrowers are reviewed and personal guarantees in an amount equal
to the original principal amount of the loan are generally obtained. The
financial statements of individual guarantors are reviewed by senior officers of
Metropolitan. Another important aspect of Metropolitan's underwriting of its
multifamily residential loans is the debt service coverage test of the property.
Debt service coverage requirements are determined based upon the individual
characteristics of each loan, and are typically at least 1.15. In order to
factor in the adjustable rate of the multifamily loans, the debt service
coverage is calculated at a rate in excess of the initial interest rate of the
loan.
At June 30, 1996, $117.6 million, or 43.6%, of Metropolitan's multifamily
residential loan portfolio was purchased. The loans purchased are selected
seasoned loans and are obtained from a variety of sources. Prior to purchasing
these loans, Metropolitan utilizes a similar underwriting process with
substantially the same standards as for its originated loans. Real estate
located in Northeastern Ohio secures 61.7% of Metropolitan's multifamily
residential loan portfolio. Underlying real estate for these loans is also
located primarily in Eastern Pennsylvania, Michigan and New Jersey. In addition,
at June 30, 1996, 9.7% of the multifamily residential loan portfolio was secured
by real estate in California. This percentage has been steadily declining since
1990, and these loans are primarily a result of purchases by the Bank prior to
1990.
Commercial Real Estate Lending. Although Metropolitan has always held a
limited investment in loans secured by commercial real estate, this portion of
the portfolio has increased mainly through purchases in the last three years.
These loans were part of larger packages of loans that included multifamily
residential loans or had the yield and term requirements and underwriting
criteria sought by Metropolitan. At June 30, 1996, Metropolitan's loans secured
by commercial real estate totalled $122.0 million, or 20.1%, of Metropolitan's
41
<PAGE> 43
total portfolio, with an average loan size of $439,000. Of this amount, $32.3
million, or 26.5%, was originated by Metropolitan and $89.7 million, or 73.5%,
represented seasoned loans purchased from a variety of sources.
Loans secured by commercial real estate are purchased by Metropolitan when
they are in the primary lending markets being targeted by Metropolitan, are
secured by retail strip shopping centers or office buildings, and meet
Metropolitan's yield and term requirements. The $89.7 million of purchased
commercial real estate loans were acquired by Metropolitan from 1993 to 1996.
To a much lesser extent Metropolitan originates commercial real estate
loans secured by strip shopping centers and small office buildings. Through
customer referrals and real estate brokers, Metropolitan lends on commercial
real estate in Northern and Central Ohio, Northern Kentucky, and Southeastern
Michigan. These loans are adjustable on a one-, three- or five-year schedule
with amortization of 25 or 30 years at a margin over the appropriate term
treasuries. The maximum loan to value ratio is 75%.
The following table presents information as to the locations and types of
properties securing Metropolitan's multifamily and commercial real estate
portfolio as of June 30, 1996:
<TABLE>
<CAPTION>
NUMBER
OF LOANS % PRINCIPAL %
-------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Ohio:
Multifamily............................. 240 35.3% $166,507 42.5%
Office buildings........................ 58 8.6 23,801 6.0
Retail centers.......................... 39 5.7 27,757 7.1
Other................................... 49 7.2 10,922 2.8
--- ----- ------- -----
Total................................ 386 56.8 228,987 58.4
--- ----- ------- -----
Michigan:
Multifamily............................. 22 3.3 31,858 8.1
Office buildings........................ 1 0.1 1,014 0.3
Retail centers.......................... 3 0.4 3,502 0.9
Other................................... 13 1.9 24,106 6.1
--- ----- ------- -----
Total................................ 39 5.7 60,480 15.4
--- ----- ------- -----
California:
Multifamily............................. 41 6.1 26,275 6.7
Office buildings........................ -- -- -- --
Retail centers.......................... -- -- -- --
Other................................... 7 1.0 6,075 1.6
--- ----- ------- -----
Total................................ 48 7.1 32,350 8.3
--- ----- ------- -----
New Jersey:
Multifamily............................. 26 3.8 9,499 2.4
Office buildings........................ 28 4.1 5,191 1.3
Retail centers.......................... 23 3.4 5,860 1.5
Other................................... 26 3.8 4,042 1.1
--- ----- ------- -----
Total................................ 103 15.1 24,592 6.3
--- ----- ------- -----
Other states:(1)
Multifamily............................. 73 10.7 35,910 9.2
Office buildings........................ 8 1.2 2,081 0.5
Retail centers.......................... 6 0.9 4,200 1.1
Other................................... 17 2.5 3,455 0.8
--- ----- ------- -----
Total................................ 104 15.3 45,646 11.6
--- ----- ------- -----
680 100.0% $392,055 100.0%
=== ===== ======= =====
</TABLE>
- ---------------
(1) Properties securing loans in other states are located in seven other states,
none of which exceed 5.0% of the outstanding principal balance of the total
multifamily and commercial real estate portfolio.
42
<PAGE> 44
The following table presents aggregate information as to the type of
security within the multifamily and commercial real estate portfolio as of June
30, 1996:
<TABLE>
<CAPTION>
NUMBER AVERAGE BALANCE
OF LOANS PER LOAN PRINCIPAL %
-------- --------------- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Multifamily.................................... 402 $ 672 $270,049 63.0%
Office buildings............................... 95 338 32,087 10.8
Retail centers................................. 71 582 41,319 16.1
Other.......................................... 112 434 48,600 10.1
--- -------- -----
Total........................................ 680 577 $392,055 100.0%
=== ======== =====
</TABLE>
One- to Four-family Residential Lending. About 50% of Metropolitan's one-
to four-family residential loans are originated through its full service retail
sales offices. The remainder are originated by commissioned loan officers.
Metropolitan has focused its one- to four-family residential lending efforts
primarily on the origination of loans secured by first mortgages on
owner-occupied residences. As of June 30, 1996, Metropolitan's one- to
four-family residential mortgages totaled $92.1 million or 15.1% of
Metropolitan's loan portfolio.
Metropolitan emphasizes the origination of conventional ARM loans for
retention in Metropolitan's portfolio and fixed rate loans suitable for sale in
the secondary market. In addition, Metropolitan offers fixed rate end loan
financing to purchasers building homes with Metropolitan's approved construction
loan builders. Metropolitan retains only a limited dollar amount of this fixed
rate end loan financing in its portfolio. The amount being originated and
subsequently retained is monitored very closely. Substantially all of
Metropolitan's one- to four-family residential mortgage loans originated for
retention in Metropolitan's portfolio are secured by property located in its
Northeastern Ohio market area. At June 30, 1996, Metropolitan's fixed rate
residential mortgage loan portfolio totaled $39.4 million, or 6.5% of
Metropolitan's total loan portfolio.
Metropolitan is presently originating three types of ARM products for
retention in its portfolio. The first product is a one-year adjustable ARM, the
interest rate being subject to change annually. The adjustments are based upon
the weekly average yield on U.S. Treasury securities adjusted to a constant
maturity of one year, and are generally limited to a 2% maximum annual interest
rate adjustment, as well as a maximum lifetime adjustment of 6%. The second
product, known as a five/one ARM, has the same index and caps as the one year
ARM; the five/one ARM, however, retains its initial interest rate for the first
five years of the loan and then begins to adjust annually in the sixth year. The
third product, the three-year ARM, allows for interest rate adjustments every
three years. The adjustments are based upon the weekly average yield on U.S.
Treasury securities adjusted to a constant maturity of three years, and are
generally limited to a 2% maximum interest rate adjustment per change, as well
as a maximum lifetime adjustment of 6%.
Metropolitan's originated ARMs do not permit negative amortization of
principal and most of them are convertible into fixed rate mortgages. If
converted, they are typically sold in the secondary market. ARMs are originated
with terms to maturity of up to 30 years, and borrowers are qualified based upon
secondary market requirements.
Construction Lending and Land Development. Metropolitan originates
construction loans on single family homes to small, local builders (who
typically build less than fifteen homes per year) in Metropolitan's primary
lending market and to individual borrowers on owner-occupied properties.
Metropolitan also makes loans to builders for the purchase of fully-improved
single family lots and to developers for the purpose of developing land into
single family lots. Metropolitan's market area for construction lending is in
Ohio and primarily in Cuyahoga County, but loans are also made in Lake, Geauga,
Summit, Medina, Portage, and Lorain counties. Metropolitan has a loan
origination office in the high volume Columbus, Ohio construction market to
originate single family construction loans and improved lot loans.
43
<PAGE> 45
The following table presents the number, amount, and type of properties
securing Metropolitan's construction and land development loans at June 30,
1996:
<TABLE>
<CAPTION>
PRINCIPAL
BALANCE
NUMBER ---------------------
OF LOANS
-------- (DOLLARS IN
THOUSANDS)
<S> <C> <C>
RESIDENTIAL CONSTRUCTION LOANS:
Owner-occupied.................................. 2 $ 970
Builder presold................................. 44 7,326
Builder spec/model.............................. 72 14,238
Allocated construction loans (LOC).............. 19 17,480
Lot loans....................................... 46 5,727
Development loans............................... 17 8,156
COMMERCIAL CONSTRUCTION LOAN...................... 1 2,325
LAND LOANS........................................ 6 101
--- -------
Total........................................... 207 $56,323
=== =======
</TABLE>
Metropolitan's risk of loss on a construction loan is largely dependent
upon the accuracy of the initial estimate of the property's value upon
completion of the project and the estimated cost of the project. The application
process includes a submission of the cost, specifications and plans.
Metropolitan also reviews the borrower's financial position and requires a
personal guarantee on all builder loans. All loans are based upon the appraised
value of the underlying collateral, as completed. Appraisals are completed by
qualified outside fee appraisers who have been approved by Metropolitan's Board
of Directors.
Each type of loan has a maximum loan to value ratio which is established by
the contract price, cost estimate or appraised value, whichever is less. The
maximum loan to value ratio for each type of construction loan is as follows:
owner-occupied homes-80%; builder presold homes-80%; builder models or
speculative homes-75%; lot loans-75%; development loans-70% (development of
single-family home lots for resale to builders) and 75% (development of land for
cluster or condominium projects which will be part of an allocated construction
loan).
All of Metropolitan's construction loans that are made to builders are made
for relatively short terms (six to 24 months) and are made with an adjustable
rate of interest. Owner-occupied loans are initially adjustable rate loans with
the option to convert to a fixed rate product only upon the completion of the
home. These loans increase the yield on, and the proportion of interest rate
sensitive loans in, Metropolitan's portfolio.
Lines of credit or allocated construction loans are used to build single
family homes only and cannot be used for any other purpose. All lines of credit
are secured by the homes that are built with the draws under such credit
agreements. Most of the homes built with the line of credit funds are presold
homes, and the number of spec and model homes allowed to be built is limited by
the financial strength of the builder. Lines of credit can only be utilized
where a builder owns a specific number of lots in a development. Draws are based
upon the percentage of completion, and at all times, funds remain to complete
the home. Disbursements are only made after receipt of a property inspection and
a mechanic's lien update from the title company.
To a much lesser extent, Metropolitan originates construction loans secured
by commercial real estate. One such loan in the amount of $2.3 million was
outstanding at June 30, 1996 and was made for development of an art gallery.
Consumer Lending. Since 1990, Metropolitan has instituted a controlled
growth strategy for its consumer loan portfolio, increasing the size of its
portfolio each year, while ensuring an acceptable level of delinquency. This
strategy has been successfully accomplished through the introduction of new
products on a gradual basis, and through purchases of seasoned portfolios. As
new products are introduced to the mix of existing products, Metropolitan
expects to gain the benefits of increased loan volume.
The underwriting standards employed by Metropolitan for consumer loans
include a determination of the applicant's payment history on other debts and an
assessment of the applicant's ability to meet existing obligations and payments
on the proposed loan. Although creditworthiness of the applicant is a primary
44
<PAGE> 46
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or are secured by
rapidly depreciable assets, such as automobiles. At June 30, 1996, $33.2 million
or 79.4% of Metropolitan's $41.8 million consumer loan portfolio was secured.
However, even in the case of secured loans, repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment of the
outstanding loan balance due to the higher likelihood of damage, loss or
depreciation. In addition, consumer loan collections are dependent upon the
borrower's continuing financial stability, and thus are more likely to be
affected by adverse personal circumstances. Furthermore, the application of
various federal and state laws, including bankruptcy and insolvency laws, may
limit the amount that can be recovered on such loans.
In 1994, Metropolitan introduced credit cards to its offering of consumer
credit products. At December 31, 1995 the outstanding balance was $1.4 million
with $4.8 million in unused credit lines. In March 1996, Metropolitan acquired a
$4.6 million existing portfolio from a Chicago lender and consequently increased
the outstanding balance of credit cards at June 30, 1996 to $6.5 million with
$17.9 million in unused credit lines. Metropolitan plans to continue to review
credit card portfolios which are available for sale and may, from time to time,
purchase additional credit card portfolios.
Business Lending. Metropolitan began offering business loans in late 1994.
At June 30, 1996, Metropolitan had $15.0 million of business loans outstanding,
or 2.4% of Metropolitan's total loan portfolio, against available lines and
letters of credit on existing business loans totaling $18.6 million.
Metropolitan's business lending activities encompass loans with a variety of
purposes and security, including loans to finance accounts receivable, inventory
and equipment. Generally, Metropolitan's business lending has been limited to
borrowers headquartered, or doing business in, Metropolitan's retail market
area.
The following table sets forth information regarding the number and amount
of Metropolitan's business loans as of June 30, 1996:
<TABLE>
<CAPTION>
TOTAL OUTSTANDING
NUMBER LOAN PRINCIPAL
OF LOANS COMMITMENT BALANCE
-------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
LOANS SECURED BY:
Accounts receivable, inventory and
equipment................................ 75 $ 7,542 $ 4,926
Certificates of deposit..................... 3 208 44
Stand-by letters of credit.................. 1 61 --
Stocks and bonds............................ 3 127 123
First lien on real estate................... 14 4,241 4,023
Second lien on real estate.................. 9 6,137 5,815
UNSECURED LOANS............................... 3 255 53
--- ------- -------
Total business loans.......................... 108 $ 18,571 $14,984
=== ======= =======
</TABLE>
Unlike residential mortgage loans, which generally are made on the basis of
the borrower's ability to make repayment from his or her employment and other
income and which are secured by real property whose value tends to be more
easily ascertainable, business loans are of higher risk and typically are made
on the basis of the borrower's ability to make repayment from the cash flow of
the borrower's business. As a result, the availability of funds for the
repayment of business loans may be substantially dependent upon the success of
the business itself. Furthermore, the collateral securing the loans may
depreciate over time, may be difficult to appraise and may fluctuate in value
based on the success of the business.
SECONDARY MARKET ACTIVITIES
In addition to originating loans for its own portfolio, Metropolitan
participates in secondary mortgage market activities by selling whole loans to
FNMA and FHLMC. Secondary market sales allow Metropolitan to make loans during
periods when deposit flows decline, or are not otherwise available, and at times
when customers prefer loans with long-term fixed interest rates which
Metropolitan does not choose to originate for
45
<PAGE> 47
its own portfolio. Metropolitan's primary focus in its mortgage banking
operations is on the sale of fixed rate one- to four-family residential mortgage
loans.
The secondary market for mortgage loans is comprised of institutional
investors who purchase loans meeting certain underwriting specifications with
respect to loan-to-value ratios, maturities and yields. Subject to market
conditions, Metropolitan tailors certain real estate loan programs to meet the
specifications of FHLMC and FNMA, two of the largest institutional investors.
Metropolitan may retain a portion of the loan origination fee paid by the
borrower and receive annual servicing fees as compensation for retaining
responsibility for and performing the servicing of all loans sold to
institutional investors. See "--Loan Servicing Activities." The sale of
substantially all loans to FHLMC and FNMA is nonrecourse to Metropolitan.
The terms and conditions under which such sales are made depend upon, among
other things, the specific requirements of each institutional investor, the type
of loan, the interest rate environment and Metropolitan's relationship with the
institutional investor. In the case of single-family residential loans,
Metropolitan periodically obtains formal commitments primarily with FHLMC.
Pursuant to these commitments, FHLMC is obligated to purchase a specific dollar
amount of whole loans over a specified period of time. The terms of the
commitments range from ten to sixty days. The pricing will vary, depending upon
the length of each commitment. Management expects to enter into additional
formal commitments in the future as it develops working relationships with
additional institutional investors. Loans are classified as held for sale while
Metropolitan is negotiating for the sale of specific loans that meet selected
criteria to a specific investor.
Metropolitan also sells multifamily and commercial real estate loans to
private investors. The majority of Metropolitan's sales of multifamily and
commercial real estate loans are made pursuant to individually negotiated whole
loan or participation sales agreements for individual loans or for a package of
such loans.
LOAN SERVICING ACTIVITIES
At June 30, 1996, Metropolitan's overall servicing portfolio was $1.5
billion. Of such amount, loans serviced for others totalled $1.1 billion. The
following table summarizes the portfolio by investor and source:
<TABLE>
<CAPTION>
ORIGINATED PURCHASED
SERVICING SERVICING TOTAL
---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
ONE- TO FOUR-FAMILY:
Metropolitan portfolio........................... $ 73,187 -- $ 73,187
FHLMC............................................ 158,728 $563,584 722,312
FNMA............................................. 65,955 234,451 300,406
Private investors................................ -- 12,475 12,475
-------- -------- ----------
Total one- to four-family..................... 297,870 810,510 1,108,380
-------- -------- ----------
MULTIFAMILY AND COMMERCIAL:
Metropolitan portfolio........................... 321,171 -- 321,171
FHLMC............................................ 17,024 9,949 26,973
FNMA............................................. 28,313 25,642 53,955
Private investors................................ 19,047 447 19,494
-------- -------- ----------
Total multifamily and commercial.............. 385,555 36,038 421,593
-------- -------- ----------
Total......................................... $683,425 $846,548 $1,529,973
======== ======== ==========
</TABLE>
Metropolitan services the loans that it originates. When Metropolitan sells
loans to an investor, such as FHLMC or FNMA, it retains the servicing rights for
the loans. Servicing fee income is generated from the loans sold to investors.
In order to further increase Metropolitan's servicing fee income, the Bank has
aggressively pursued purchases of servicing portfolios from other originating
institutions. These purchased servicing portfolios are primarily FHLMC and FNMA
single family loans that are geographically located within the eastern half of
the nation. Metropolitan's purchasing activities began in 1992 and have steadily
increased through the present. Metropolitan increased its purchased servicing
portfolio from $261.2 million at December 31, 1993 to $846.5 million as of June
30, 1996. During the same period, the Corporation's PMSRs increased from $2.3
million at December 31, 1993 to $8.0 million as of June 30, 1996.
46
<PAGE> 48
Approximately 74% of the overall servicing portfolio (by dollar volume) is
comprised of loans sold to investors, primarily FHLMC and FNMA. Metropolitan
receives fee income for servicing these sold loans, ranging from 0.125% on
multifamily loans to 0.250% on fixed rate or 0.375% on adjustable rate
residential loans (percentage based upon unpaid principal balances of the loans
serviced). Servicing fees are collected and retained by Metropolitan out of
monthly mortgage payments.
Loan servicing functions include collecting and remitting loan payments,
accounting for principal and interest, holding escrow (impound) funds for
payment of taxes and insurance, making rate and payment changes to contractually
adjustable loans, managing loans in payment default, processing foreclosure and
other litigation activities to recover mortgage debts, conducting property
inspections and risk assessment for investment loans in addition to general
administration of loans for the investors to whom they are sold, or for
Metropolitan as mortgagee.
LOAN OPTION INCOME
During 1995, Metropolitan developed a program to purchase loans and sell
loan options in order to take advantage of its underwriting capabilities,
increase net interest income and increase non-interest income. In these
transactions, Metropolitan purchases loans and sells nonrefundable options to a
third party to purchase these same loans at a specified price within a specified
time period. The Bank, prior to purchasing the loans that will be subject to the
options, utilizes a similar underwriting process with substantially the same
standards as in its origination process. In the event the option is not
exercised, Metropolitan would sell the underlying loans or transfer them to the
Bank's portfolio at its fair value at the date of the transfer. A nonrefundable
option fee is negotiated based on a percentage of the principal amount of the
loans involved. The third party acquiring the option is a loan broker who
markets the loans to potential buyers who may be willing to pay a higher price
for the loans. To date, Metropolitan has entered into these option transactions
with one loan broker. At June 30, 1996, loans with a carrying value of $10.0
million were held for sale in connection with outstanding options and $406,000
had been recognized in income in the six month period then ended.
LOAN DELINQUENCIES AND NON-PERFORMING ASSETS
When a borrower fails to make a required payment on a loan, Metropolitan
attempts to cause the delinquency to be cured by contacting the borrower. In the
case of real estate loans, a late notice is sent 15 days after the due date. If
the delinquency is not cured by the 30th day, contact with the borrower is made
by phone. Additional written and verbal contacts are made with the borrower
between 30 and 90 days after the due date. If the delinquency continues for a
period of 90 days, Metropolitan usually institutes appropriate action to
foreclose on the property. If foreclosed, the property is sold at public auction
and may be purchased by Metropolitan. Delinquent consumer loans are handled in a
generally similar manner, except that initial contacts are made when the payment
is 10 days past due and appropriate action may be taken to collect any loan
payment that is delinquent for more than 30 days. Metropolitan's procedures for
repossession and sale of consumer collateral are subject to various requirements
under state consumer protection laws.
The following table sets forth information concerning delinquent loans at
June 30, 1996, in dollar amounts and as a percentage of each category of
Metropolitan's loan portfolio. The amounts presented represent the total
remaining principal balances of the related loans, rather than the actual
payment amounts which are overdue.
<TABLE>
<CAPTION>
LOANS DELINQUENT FOR
-------------------------------------------------------------
60-89 DAYS 90 DAYS AND OVER TOTAL DELINQUENT LOANS
----------------------------- ----------------------------- -----------------------------
PERCENT PERCENT PERCENT
OF LOAN OF LOAN OF LOAN
NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY
------ ------ ----------- ------ ------ ----------- ------ ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate
One- to four-family...... 4 $557 0.57% 5 $ 525 0.54% 9 $1,082 1.11%
Multifamily.............. -- -- -- 4 1,981 0.71 4 1,981 0.71
Commercial............... 2 49 0.04 2 2,065 1.68 4 2,114 1.72
Construction and land.... 1 172 0.61 1 15 0.05 2 187 0.66
Consumer................... 32 116 0.28 151 517 1.24 183 633 1.51
Business................... -- -- -- 1 90 0.60 1 90 0.60
--
---- --- ------ ------
Total.................... 39 $894 0.15 164 $5,193 0.89 203 $6,087 1.04
== ==== === ====== ======
</TABLE>
47
<PAGE> 49
Non-performing assets include all non-accrual loans, loans past due greater
than 90 days still accruing and real estate acquired in foreclosure. Interest is
not accrued on loans contractually past due 90 days or more as to interest or
principal payments unless in the judgment of management the loan is well
secured, and no loss in principal or interest is expected.
When a loan reaches non-accrual status, interest accruals are discontinued
and prior accruals are reversed. The classification of a loan on non-accrual
status does not necessarily indicate that the principal is uncollectible in
whole or in part. A determination as to collectibility is made by management of
Metropolitan on a case-by-case basis. Metropolitan considers both the adequacy
of the collateral and the other resources of the borrower in determining the
steps to be taken to collect non-accrual loans. The final determination as to
these steps is made on a case-by-case basis. Alternatives that are considered
are commencing foreclosure, collecting on guarantees, restructuring the loan or
instituting collection lawsuits.
The following table summarizes non-performing assets by category as of the dates
indicated.
<TABLE>
<CAPTION>
AT JUNE AT DECEMBER 31,
30, ------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- ------ ------ ------ ------ ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-accruing loans
One- to four-family............... $ 233 $ 293 $ 337 $ 475 $ 258 $197
Multifamily....................... 1,981 2,138 1,585 549 180 --
Commercial real estate............ 2,065 391 150 691 -- 244
Construction and land
development.................... 15 15 15 1,051 518 --
Consumer.......................... 367 266 153 53 21 19
Business.......................... 90 -- -- -- -- --
------ ------ ------ ------ ------ ----
Total non-accruing loans....... 4,751 3,103 2,240 2,819 977 460
Loans past due greater than 90 days
or impaired, still accruing....... 1,073 204 128 277 -- --
------ ------ ------ ------ ------ ----
Total non-performing loans.......... 5,824 3,307 2,368 3,096 977 460
Real estate owned................... 219 258 53 941 230 147
------ ------ ------ ------ ------ ----
Total non-performing assets......... $6,043 $3,565 $2,421 $4,037 $1,207 $607
====== ====== ====== ====== ====== ====
Non-performing loans to total
loans............................. 1.03% 0.68% 0.55% 1.08% 0.44% 0.26%
Non-performing assets to total
assets............................ 0.90 0.60 0.51 1.08 0.40 0.24
</TABLE>
For the six months ended June 30, 1996, and for the year ended December 31,
1995, gross interest income which would have been recorded had the non-accruing
loans been current in accordance with their original terms amounted to $72,000
and $86,000, respectively. The amounts that were included in interest income on
such loans were $45,000 and $10,000 for the six months ended June 30, 1996 and
for the year ended December 31, 1995, respectively.
Non-performing assets were $6.0 million at June 30, 1996, an increase of
$2.4 million from $3.6 million at December 31, 1995, primarily due to two retail
strip shopping centers and two multifamily properties. Based upon current
appraisals the fair value of each property exceeds the investment and no loss is
anticipated. The loans secured by multifamily properties have principal amounts
of $1.3 million and $631,000, respectively, and the underlying collateral is
located in Southern California and Northeastern Ohio, respectively. The loans
secured by retail strip shopping centers have principal amounts of $1.1 million
and $925,000, respectively, and the underlying collateral is located in Eastern
Pennsylvania and Central New Jersey, respectively. The multifamily loan located
in Northeastern Ohio was current but management elected to classify it as non-
performing because the debt service coverage ratio was below 1.0. Management
will likely foreclose on the remaining three properties and therefore expects
the status of these loans to remain non-performing through the rest of 1996 and
1997. During the same time period net loans receivable increased $85.5 million
to $563.9 million at June 30, 1996. Non-performing assets at December 31, 1995,
increased $1.1 million from December 31, 1994, primarily in the multifamily and
consumer loan categories. Non-performing assets at December 31, 1994 decreased
$1.5 million from December 31, 1993, primarily due to the sale of real estate
48
<PAGE> 50
owned. Non-performing assets increased in 1993 as a result of five multifamily
loans to one troubled borrower, one commercial construction loan and two
residential construction projects. All three situations were resolved in a
timely manner. At June 30, 1996, all loans classified by management as impaired
were included in non-performing loans.
Non-performing loans at December 31, 1995 and 1994 included a $1.5 million
loan secured by an apartment building in Southern California which was damaged
in the January 1994 earthquake. The apartment building has been reconstructed.
Under the terms of a loan workout agreement the borrower has resumed regular
principal and interest payments, and is also repaying interest accrued during
the reconstruction period. This loan is no longer considered impaired.
Metropolitan adopted SFAS No. 114 and SFAS No. 118 effective January 1,
1995. All loans identified as impaired by Metropolitan were also classified as
non-performing loans at June 30, 1996 and therefore the adoption of SFAS No. 114
and SFAS No. 118 had no effect on the comparability of non-performing assets at
June 30, 1996 to prior periods.
ALLOCATION OF ALLOWANCE FOR LOSSES ON LOANS
Because some loans may not be repaid in full, an allowance for losses on
loans is maintained. The allowance is maintained by management at a level
considered adequate to cover possible losses that are currently anticipated
based on past loss experience, general economic conditions, information about
specific borrower situations, including their financial position and collateral
values, and other factors and estimates which are subject to change over time.
While management may periodically allocate portions of the allowance for
specific problem loans, the whole allowance is available for any loan
charge-offs that occur. A loan is charged off against the allowance by
management as a loss when deemed uncollectible, although collection efforts
continue and future recoveries may occur.
The following table sets forth an allocation of the allowance for losses on
loans among categories as of the dates indicated. Management believes that any
allocation of the allowance for losses on loans into categories lends an
appearance of precision which does not exist. The allowance is utilized as a
single unallocated allowance available for all loans. The following allocation
table should not be interpreted as an indication of the specific amounts or the
relative proportion of future charges to the allowance.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------------------------------
AT JUNE 30,
1996 1995 1994 1993 1992
---------------- ----------------- ---------------- ----------------- -----------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family..... $ 191 15.7% $ 172 15.2% $ 189 25.2% $ 93 16.0% $ 50 17.5%
Multifamily............. 1,008 45.5 887 45.8 733 41.9 494 53.2 361 54.7
Commercial real estate.. 839 20.2 676 21.5 358 18.6 314 17.5 195 15.5
Construction and land... 172 9.3 167 9.5 99 8.5 90 9.9 56 10.2
Consumer................ 761 6.9 512 6.3 340 5.8 124 3.4 53 2.1
Business................ 140 2.4 74 1.7 1 0.0 -- -- -- --
Unallocated............. 326 -- 277 -- 191 -- 124 -- 11 --
------ ----- ------ ----- ------ ----- ------ ----- ---- -----
Total................. $3,437 100.0% $2,765 100.0% $1,911 100.0% $1,239 100.0% $726 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ==== =====
<CAPTION>
AT DECEMBER 31,
-----------------
1991
-----------------
PERCENT
OF LOANS
IN EACH
CATEGORY
TO TOTAL
AMOUNT LOANS
------ --------
<S> <C> <C>
One- to four-family..... $ 27 26.7%
Multifamily............. 175 45.8
Commercial real estate.. 229 12.7
Construction and land... 27 13.7
Consumer................ 23 1.1
Business................ -- --
Unallocated............. 14 --
---- -----
Total................. $495 100.0%
==== =====
</TABLE>
With the uncertainties that could adversely impact the overall quality of
Metropolitan's loan portfolio, Metropolitan's management considers an adequate
allowance for losses on loans essential. The unallocated allowance is considered
adequate to cover losses from the existing loans that have not demonstrated
problems such as late payments, financial difficulty of the borrower or
deterioration of collateral values. The risks associated with off-balance sheet
commitments are insignificant in the opinion of Metropolitan's management and
therefore, no allowance for such commitments is provided.
At June 30, 1996, management had allocated $175,000 of the allowance for
losses on loans to impaired loans with balances of $1.9 million. The remaining
$2.6 million of impaired loan balances did not require an allocation of the
allowance for losses on loans in the opinion of management. The adoption of SFAS
No. 114
49
<PAGE> 51
had no impact on the comparability of the June 30, 1996 allowance for losses on
loans allocation to prior periods.
The following table provides an analysis of Metropolitan's allowance for
losses on loans for the periods indicated. In each period, the provision for
loan losses was based on an analysis of individual credits, prior and current
loss experience, overall growth in the portfolio and current economic
conditions.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED --------------------------------------------------
JUNE 30, 1996 1995 1994 1993 1992 1991
---------------- ------ ------ ------ ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period........ $2,765 $1,911 $1,239 $ 725 $495 $617
CHARGE-OFFS:
One- to four-family................. -- (23) (23) (50) (6) --
Multifamily......................... -- -- (64) (100) -- --
Commercial real estate.............. -- (27) -- (74) (174) --
Construction and land............... -- -- -- -- -- (167)
Consumer............................ (14) (56) (14) (5) (8) --
Business............................ -- -- -- -- -- --
------ ------ ------ ------ ----- -----
Total charge-offs................. (14) (106) (101) (229) (188) (167)
------ ------ ------ ------ ----- -----
RECOVERIES:
One- to four-family................. -- 1 1 3 -- --
Multifamily......................... -- -- 6 -- -- --
Commercial real estate.............. -- -- -- -- -- --
Construction and land............... -- -- -- -- 51 --
Consumer............................ 1 -- -- -- -- --
Business............................ -- -- -- -- -- --
------ ------ ------ ------ ----- -----
Total recoveries.................. 1 1 7 3 51 --
------ ------ ------ ------ ----- -----
Net charge-offs....................... (13) (105) (94) (226) (137) (167)
Provision for loan losses........... 685 959 766 740 367 45
------ ------ ------ ------ ----- -----
Balance........................... $3,437 $2,765 $1,911 $1,239 $725 $495
====== ====== ====== ====== ===== =====
Net charge-offs to average loans(1)... 0.00% 0.02% 0.03% 0.09% 0.07% 0.10%
Provision for loan losses to average
loans(1)............................ 0.25 0.21 0.21 0.29 0.19 0.03
Allowance for losses on loans to total
non-performing loans................ 59.01 83.61 80.70 40.02 74.21 107.61
Allowance for losses on loans to total
loans............................... 0.59 0.57 0.45 0.43 0.32 0.28
</TABLE>
- ---------------
(1) Ratio for the interim period is stated on an annualized basis.
INVESTMENT PORTFOLIO
Metropolitan maintains its investment portfolio based on regulatory
requirements and restrictions which dictate the type of securities that can be
held. As a member of the FHLB System, the Bank is required to hold a minimum
amount of FHLB stock based upon asset size and mix. As the Bank grows, this
investment will increase.
50
<PAGE> 52
The following table summarizes the amounts and the distribution of
Metropolitan's securities held as of the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT JUNE 30, --------------------------------
1996 1995 1994 1993(1)
----------- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities available for sale:
Mutual funds.................................. $ 1,131 $10,364 -- --
U.S. Treasury securities...................... 6,030 12,442 $7,641 $10,168
FNMA preferred stock.......................... 4,975 -- -- --
FHLB stock.................................... 3,852 3,569 2,311 2,139
------- ------- ------- -------
Total...................................... $15,988 $26,375 $9,952 $12,307
======= ======= ======= =======
Other interest-earning assets:
U.S. Treasury securities...................... -- -- -- $14,950
Interest-bearing deposits with banks.......... $ 300 $ 4,788 $1,080 1,375
Overnight repurchase agreements............... -- -- -- 9,900
Federal funds sold............................ -- -- -- 1,000
------- ------- ------- -------
Total...................................... $ 300 $ 4,788 $1,080 $27,225
======= ======= ======= =======
</TABLE>
- ---------------
(1) Securities classified as held for sale.
The following table sets forth the contractual maturities and approximate
weighted average yields of Metropolitan's securities available for sale at June
30, 1996.
<TABLE>
<CAPTION>
DUE IN
---------------------------------------------
ONE YEAR OR LESS ONE YEAR TO FIVE YEARS TOTAL
---------------- ---------------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Mutual funds................................. $1,131 -- $ 1,131
U.S. Treasury securities..................... -- $6,030 6,030
FNMA preferred stock......................... 4,975 -- 4,975
FHLB stock................................... 3,852 -- 3,852
------ ------ -------
Total........................................ $9,958 $6,030 $15,988
====== ====== =======
Weighted average yield....................... 6.54% 6.61% 6.57%
</TABLE>
MORTGAGE-BACKED SECURITIES PORTFOLIO
The FNMA pass-through certificates represent securitization of the Bank's
single family loans. These securities, in addition to having a lower risk-based
capital requirement, are available as collateral for wholesale borrowings. The
FHLMC participation certificates are held to meet regulatory liquidity needs.
The following table sets forth Metropolitan's mortgage-backed securities
portfolio at the dates indicated. All securities are classified as available for
sale, or prior to 1994, held for sale.
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT JUNE 30, -----------------------------------
1996 1995 1994 1993
----------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FNMA pass-through certificates.............. $20,123 $22,549 -- --
GNMA pass-through certificates.............. 10,460 11,348 $11,274 $12,642
FHLMC participation certificates............ 10,748 4,715 4,956 --
Sears Mortgage Corporation obligations...... 490 544 555 673
Collateralized mortgage obligations......... -- -- -- 17
------- ------- ------- -------
Total..................................... $41,821 $39,156 $16,785 $13,412
======= ======= ======= =======
</TABLE>
51
<PAGE> 53
The following table sets forth the contractual maturities and approximate
weighted average yields of Metropolitan's mortgage-backed securities at June 30,
1996.
<TABLE>
<CAPTION>
DUE IN
----------------------------------------
ONE TO FIVE TO OVER BALANCE
FIVE YEARS TEN YEARS TEN YEARS OUTSTANDING
---------- --------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
FNMA pass-through certificates............... -- $ 1,190 $18,933 $20,123
GNMA pass-through certificates............... -- 200 10,260 10,460
FHLMC participation certificates............. $ 10,748 -- -- 10,748
Sears Mortgage Corporation obligations....... -- -- 490 490
------- ------- ------- -------
Total available for sale................ $ 10,748 $ 1,390 $29,683 $41,821
======= ======= ======= =======
Weighted average yield.................. 6.98% 6.51% 6.51% 6.63%
</TABLE>
SOURCES OF FUNDS
The Bank's primary sources of funds are deposits, amortization and
repayment of loan principal, borrowings, sales of mortgage loans, sales or
maturities of mortgage-backed securities, securities, and short-term
investments.
Deposits are the principal source of Metropolitan's funds for lending and
investment purposes. The following paragraphs provide a brief description of the
types of accounts offered by Metropolitan:
Passbook and Statement Savings Accounts. Savings may be invested in and
withdrawn from regular passbook, tiered passbook and statement savings accounts
without restriction. Interest on tiered passbook accounts is compounded monthly
and credited monthly. Interest on regular passbook and statement savings
accounts is compounded quarterly and credited quarterly.
Checking Accounts. Metropolitan offers two interest-bearing checking and
one noninterest-bearing checking account. The non-interest checking requires no
minimum balance and has no monthly service fees. The rate paid on the interest
checking account is dependent upon the balance in the account. Monthly service
charges can be waived on the interest-bearing checking accounts by maintaining
either a $1,000 minimum balance or greater than $3,000 minimum balance in
another deposit account. All accounts have no minimum maturity or prepayment
penalty and no restrictions on the size and frequency of the withdrawals or
additional deposits. Metropolitan regularly reviews the interest rate paid on
the interest-bearing checking accounts and adjusts the rate based on cash flow
projections and market interest rates.
IRA Accounts. Metropolitan offers Individual Retirement Accounts. Funds
may be invested in a passbook account or any Certificate of Deposit offered by
Metropolitan.
Certificates of Deposit. Metropolitan offers fixed rate, fixed term
certificates of deposit. Terms are from seven days to five years, and there are
no regulatory rate ceilings. Certificates of deposit require a penalty for
withdrawal prior to maturity dates. These accounts are the highest cost deposit
product offered by Metropolitan. Interest rates offered on certificates of
deposit are regularly reviewed and adjusted based on cash flow projections and
market interest rates.
52
<PAGE> 54
The following table sets forth information regarding trends in
Metropolitan's average deposits for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1996 1995 1994
---------------------------- ---------------------------- ----------------------------
(DOLLARS IN THOUSANDS)
AVERAGE PERCENT RATE AVERAGE PERCENT RATE AVERAGE PERCENT RATE
AMOUNT OF TOTAL PAID AMOUNT OF TOTAL PAID AMOUNT OF TOTAL PAID
-------- -------- ---- -------- -------- ---- -------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand
deposits(1)............. $ 33,308 6.2% -- $ 24,636 5.3% -- $ 18,388 4.8% --
Interest-bearing demand
deposits................ 35,949 6.7 2.63% 37,695 8.1 2.57% 57,124 15.0 2.52%
Savings deposits.......... 161,733 29.9 4.79 118,475 25.5 4.76 88,723 23.2 3.57
Time deposits............. 309,371 57.2 5.85 283,186 61.1 5.98 217,706 57.0 4.74
-------- ----- -------- ----- -------- -----
Total average deposits.... $540,361 100.0% 4.96 $463,992 100.0% 5.07 $381,941 100.0% 3.91
======== ===== ======== ===== ======== =====
<CAPTION>
1993
----------------------------
AVERAGE PERCENT PAID
AMOUNT OF TOTAL RATE
-------- -------- ----
<S> <<C> <C> <C>
Noninterest-bearing demand
deposits(1)............. $ 16,257 5.4% --
Interest-bearing demand
deposits................ 88,987 29.3 2.95%
Savings deposits.......... 63,707 21.0 2.96
Time deposits............. 134,479 44.3 4.66
-------- -----
Total average deposits.... $303,430 100.0% 3.55
======== =====
</TABLE>
- ---------------
(1) Includes principal and interest custodial accounts and taxes and insurance
custodial accounts for loans serviced for FHLMC, FNMA and private investors.
Deposits have increased steadily from December 31, 1993 to June 30, 1996
consistent with the overall growth of the Bank. The composition over this time
period shows a shift toward increased time deposits. Non-interest checking was
also increased during this time period as a result of principal and interest
custodial accounts and taxes and insurance custodial accounts for the loan
servicing portfolio. The tiered passbook savings account, because of its tiered
pricing structure, attracted funds away from the interest checking product.
The following table shows rate and maturity information for Metropolitan's
certificates of deposit as of June 30, 1996.
<TABLE>
<CAPTION>
2.00- 5.00- 6.00- PERCENT
4.99% 5.99% 7.99% TOTAL OF TOTAL
------- -------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CERTIFICATE ACCOUNTS MATURING IN QUARTER
ENDING:
September 30, 1996....................... $21,857 $ 41,600 $14,676 $ 78,133 24.8%
December 31, 1996........................ 4,277 42,982 3,970 51,229 16.2
March 31, 1997........................... 8,810 58,493 8,895 76,198 24.1
June 30, 1997............................ 56 38,043 11,356 49,455 15.7
September 30, 1997....................... 4 7,566 5,701 13,271 4.2
December 31, 1997........................ 71 4,095 3,593 7,759 2.5
March 31, 1998........................... 61 4,606 4,426 9,093 2.9
June 30, 1998............................ 51 1,673 761 2,485 0.8
September 30, 1998....................... 18 879 238 1,135 0.4
December 31, 1998........................ 19 1,052 210 1,281 0.4
March 31, 1999........................... 1,585 148 459 2,192 0.7
June 30, 1999............................ 24 285 367 676 0.2
Thereafter............................... 4 4,218 18,351 22,573 7.1
------- -------- ------- -------- -----
Total............................... $36,837 $205,640 $73,003 $315,480 100.0%
======= ======== ======= ======== =====
Percent of total.................... 11.7% 65.2% 23.1% 100.0%
</TABLE>
53
<PAGE> 55
The following table sets forth the remaining maturity for time deposits of
$100,000 or more at the date indicated.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------
(IN THOUSANDS)
<S> <C>
Three months or less........................................... $ 8,925
Over three through six months.................................. 4,624
Over six through twelve months................................. 18,651
Over twelve months............................................. 11,632
-------
Total..................................................... $ 43,832
=======
</TABLE>
In addition to deposits, Metropolitan relies on borrowed funds. The
following describes Metropolitan's current borrowings:
Line of Credit. The Huntington Loan Agreement is a revolving line of
credit for the first 24 month period and then it converts to a 36 month term
note. The maximum permitted borrowing amount is $4.0 million. The terms of the
Huntington Loan Agreement require interest only payments for 24 months, then
quarterly principal payments based on a 60-month amortization with a balloon
payment due in May 2001. The interest rate during the first 24 months is tied to
LIBOR or Huntington National Bank prime at Metropolitan's option. After
conversion to a term loan in May 1998, the interest rate is prime. In connection
with the completion of the offering, Metropolitan renegotiated the terms of its
existing revolving credit agreement with The Huntington National Bank. As
collateral for the Huntington Loan Agreement, Mr. Kaye will pledge a portion of
his shares of Common Stock of Metropolitan in an amount at least equal in value
to 200% of any outstanding balance. At June 30, 1996, there was no outstanding
balance under the Huntington Loan Agreement.
Subordinated Note Offerings. In 1993 and early 1994, Metropolitan issued
the 1993 Subordinated Notes with an aggregate principal balance of $4.9 million
through a private placement offering. The interest rate on the notes is 10%,
which is paid quarterly, and principal will be repaid when the notes mature on
December 31, 2001. The 1993 Subordinated Notes are unsecured. The Corporation
may redeem the 1993 Subordinated Notes, in whole or in part, at any time from
time to time, by paying the outstanding principal amount plus accrued interest
and a prepayment premium. The prepayment premium is 10% of the principal amount
prepaid if such prepayment is made during the first year following the issuance
of the 1993 Subordinated Notes and the prepayment premium is reduced by 1% for
each year the 1993 Subordinated Notes are outstanding. If the 1993 Subordinated
Notes are prepaid more than seven years after issuance, the prepayment premium
is 3%. The 1993 Subordinated Notes may also be repurchased in privately
negotiated transactions. See "Description of Subordinated Notes."
In December 1995, Metropolitan issued the 1995 Subordinated Notes with an
aggregate principal balance of $14.0 million through a public offering. The
interest rate on the 1995 Subordinated Notes is 9 5/8%, which is paid monthly
and principal will be repaid when the notes mature January 1, 2005. The 1995
Subordinated Notes are unsecured. The 1995 Subordinated Notes are not
redeemable, in whole or in part, by the Corporation prior to December 1, 1998.
After December 1, 1998, the 1995 Subordinated Notes may be redeemed by the
Corporation at a declining premium which begins at 3% of the prepaid principal
amount. After December 1, 2000, the 1995 Subordinated Notes may be prepaid at
par plus accrued interest. The 1995 Subordinated Notes may also be repurchased
in privately negotiated or open market transactions. See "Description of
Subordinated Notes."
FHLB Advances. The FHLB makes funds available for housing finance to
eligible financial institutions like Metropolitan. The FHLB generally limits
advances to 25% of assets with a total borrowing limit of 40% of assets from all
borrowing sources. Advances are collateralized by any combination of the
following assets and collateralization rates: one- to four-family first mortgage
loans, not past due greater than 90 days, pledged on a blanket basis at 150% of
the advance amount, specifically identified mortgage loans at 125% of the
advance amount and various types of investment and mortgage backed securities at
rates ranging from 101-110% of the advance amount. FHLB stock owned by the Bank
is pledged as additional collateral but is not available as primary collateral.
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<PAGE> 56
Reverse Repurchase Agreements. From time to time the Bank borrows funds by
using its investment or mortgage-backed securities to issue reverse repurchase
agreements. This type of borrowing provides an alternative source of funds to
FHLB borrowings and at times, more favorable rates. At June 30, 1996, there were
no borrowings under reverse repurchase agreements.
The following table sets forth the maximum month-end balance and average
balance of other borrowings during the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
MAXIMUM BALANCE:
FHLB advances................................. $58,200 $45,000 $51,000 $23,000 $7,000
Term loan..................................... -- 3,280 3,280 3,640 3,820
Qualifying subordinated debt.................. -- 1,200 1,200 1,600 2,000
1993 Subordinated Notes....................... 4,874 4,874 4,874 4,874 3,505
1995 Subordinated Notes....................... 14,000 -- 14,000 -- --
Line of credit................................ -- 5,000 5,000 -- --
Reverse repurchase agreements................. -- 9,000 9,000 -- --
AVERAGE BALANCE:
FHLB advances................................. $42,750 $24,026 $28,467 $ 3,914 $1,069
Term loan..................................... -- 997 485 3,420 3,712
Qualifying subordinated debt.................. -- 1,085 923 1,220 1,610
1993 Subordinated Notes....................... 4,874 4,874 4,874 4,593 387
1995 Subordinated Notes....................... 14,000 -- 690 -- --
Line of credit................................ -- 2,908 3,834 -- --
Reverse repurchase agreements................. -- 6,000 7,591 -- --
</TABLE>
The following table sets forth the end of period balances and interest
rates at the dates indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------
1996 1995 1994 1993
-------- ------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE:
FHLB advances.......................................... $58,200 $28,000 $6,150 $7,000
Term loan.............................................. -- -- 3,280 3,640
Qualifying subordinated debt........................... -- -- 1,200 3,505
1993 Subordinated Notes................................ 4,874 4,874 4,874 1,600
1995 Subordinated Notes................................ 14,000 14,000 -- --
Line of credit......................................... -- -- -- --
Reverse repurchase agreements.......................... -- -- -- --
WEIGHTED AVERAGE INTEREST RATE:
FHLB advances.......................................... 5.70 % 5.75% 7.00% 3.60%
Term loan.............................................. N/A N/A 8.50 6.00
Qualifying subordinated debt........................... N/A N/A 10.75 9.00
1993 Subordinated Notes................................ 10.00 10.00 10.00 10.00
1995 Subordinated Notes................................ 9.63 9.63 N/A N/A
Line of credit......................................... N/A N/A N/A N/A
Reverse repurchase agreements.......................... N/A N/A N/A N/A
</TABLE>
RETAIL SALES OFFICES
Metropolitan's goal is to open two de novo retail sales offices per year in
growing communities in Northeastern Ohio with demographic and market
characteristics that can support new retail sales offices. Prior to 1995,
Metropolitan's strategy had been to lease retail sales offices. In 1995,
Metropolitan embarked on a new strategy. Although the characteristics of the
communities targeted are the same, the strategy now employed is to build and own
retail sales offices. The facilities are constructed larger than initially
required to
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<PAGE> 57
provide the option to expand as needed. Until that time, Metropolitan may lease
excess space reducing the overall cost of retail sales office occupancy.
The planned new retail sales offices are expanding Metropolitan's primary
market south toward Akron, Ohio, and increasing Metropolitan's presence in
Geauga, Portage and Summit counties. It is anticipated that these new retail
sales offices will provide new opportunities for residential, consumer and
business lending, in addition to increasing retail deposits to fund asset
growth.
TRUST DEPARTMENT
In June 1995, the Bank received all of the necessary regulatory approvals
to enable it to establish a Trust Services Department to manage investment
assets for individual and institutional clients. Services offered through the
Trust Department include investment management for individuals, families, other
fiduciaries and corporations, acting as trustee for revocable and irrevocable
living trusts, acting as executor, guardian and conservator of estates, cash
management for corporations, trustees and non-profit entities, and management of
corporate and self-employed employee benefit programs. At June 30, 1996, there
were $3.7 million of assets under administration.
COMPETITION
Metropolitan faces strong competition, both in originating real estate and
other loans and in attracting deposits. Competition in originating loans comes
primarily from other savings institutions, commercial banks, mortgage companies,
credit unions, finance companies and insurance companies. The Bank competes for
loans principally on the basis of the interest rates and loan fees it charges,
the type of loans it originates and the quality of services it provides to
borrowers. Some of the Bank's competitors, however, have higher lending limits
and substantially greater financial resources than the Bank.
The Bank attracts its deposits through its retail sales offices, primarily
from the communities in which those retail sales offices are located; therefore,
competition for those deposits is principally from other savings institutions,
commercial banks, credit unions, mutual funds and brokerage companies located in
the same communities. The Bank competes for these deposits by offering a variety
of deposit accounts at competitive rates, convenient business hours and
convenient branch locations.
EMPLOYEES
At June 30, 1996, Metropolitan had a total of 247 employees, including
part-time employees. The Corporation's employees are not represented by any
collective bargaining group. Management considers its employee relations to be
excellent.
PROPERTIES
Metropolitan's corporate headquarters, which is leased under a long-term
lease agreement, is located at 6001 Landerhaven Drive, Mayfield Heights, Ohio
44124. The Bank operates 14 retail sales office locations, eight of which are
leased under long-term lease agreements with various parties. The other six
retail sales offices, located in Cleveland, Willoughby Hills, Mayfield Heights,
Cleveland Heights, Macedonia and Aurora, are owned by Metropolitan. In addition,
Metropolitan owns land in Twinsburg, Auburn and Stow and land and a building in
Hudson. Each of Twinsburg, Auburn, Stow and Hudson are planned sites for future
full service retail sales offices. The Bank also leases office space for its
loan production offices in Detroit, Cincinnati, Pittsburgh, Strongsville, North
Olmsted and Columbus.
LEGAL PROCEEDINGS
The Corporation is involved in various legal proceedings incidental to the
conduct of its business. The Corporation does not expect that any such
proceedings will have a material adverse effect on the Corporation's financial
position or results of operations.
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<PAGE> 58
REGULATION AND SUPERVISION
INTRODUCTION
Metropolitan is registered as a savings and loan holding company within the
meaning of the Home Owners' Loan Act (the "HOLA"). As a savings and loan holding
company, Metropolitan is subject to the regulations, examination, supervision
and reporting requirements of the OTS. The Bank is an Ohio-chartered savings and
loan association, is a member of the FHLB System, and its deposits are insured
by the FDIC through the SAIF. The Bank is subject to examination and regulation
by the OTS, the FDIC and the Ohio Superintendent of Savings and Loan
Associations and to regulations regarding such matters as capital standards,
mergers, establishment of branch offices, subsidiary investments and activities,
and general investment authority. Such examination and regulation is intended
primarily for the protection of depositors.
Legislation in recent years has significantly changed laws and regulations
applicable to savings associations. Such legislation includes the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") and
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). The
descriptions of the statutes and regulations which are applicable to
Metropolitan and the Bank and the effects thereof, which are set forth below and
elsewhere in this document, do not purport to be a complete description of such
statutes and regulations and their effects on Metropolitan or the Bank or to
identify every statute and regulation that may apply to Metropolitan or the
Bank.
METROPOLITAN
As a savings and loan holding company, Metropolitan is subject to certain
restrictions with respect to its activities and investments. Among other things,
Metropolitan is generally prohibited, either directly or indirectly, from
acquiring control of any other savings association or savings and loan holding
company, absent prior approval of the OTS, and from acquiring more than 5% of
the voting stock of any savings association or savings and loan holding company
that is not a subsidiary of Metropolitan.
Similarly, OTS approval must be obtained prior to any person's acquiring
control of the Bank or Metropolitan. Control is conclusively presumed to exist
if, among other things, a person acquires more than 25% of any class of voting
stock of the institution or holding company or controls in any manner the
election of a majority of the directors of the institution or the holding
company. Control is rebuttably presumed to exist if, among other things, a
person acquires more than 10% of any class of voting stock (or 25% of any class
of stock) and is subject to any of certain specified "control factors."
Savings and loan holding companies that control only one savings
association that is a qualified thrift lender ("QTL") (as defined below) are
exempt from certain restrictions on the conduct of unrelated business activities
applicable to other savings and loan holding companies and similar restrictions
on the conduct of unrelated business activities applicable to bank holding
companies. Although Metropolitan currently has no significant unrelated business
activities, as long as Metropolitan controls only the Bank and the Bank remains
a QTL, Metropolitan will be exempt from such restrictions and could pursue such
activities. Some of the activities permitted as a result of such exemption may
involve risks different from, or greater than, the risks generally associated
with owning a savings association.
THE BANK
General. The OTS also has enforcement authority over all savings
associations. This enforcement authority includes the ability to impose
penalties for and to seek correction of violations of laws and regulations and
unsafe or unsound practices by assessing civil money penalties, issuing cease
and desist or removal and prohibition orders against an institution, its
directors, officers or employees and other persons, or initiating injunctive
actions.
As a lender and a financial institution, the Bank is subject to various
regulations promulgated by the Federal Reserve Board including, without
limitation, Regulation B (Equal Credit Opportunity), Regulation D (Reserves),
Regulation E (Electronic Fund Transfers), Regulation F (Interbank Liabilities),
Regulation Z (Truth in Lending), Regulation CC (Availability of Funds) and
Regulation DD (Truth in Savings). As lenders under loans secured by real
property, and as owners of real property, financial institutions, including
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<PAGE> 59
the Bank, are subject to compliance with various statutes and regulations
applicable to property owners generally, including statutes and regulations
relating to the environmental condition of the property.
Insurance of Accounts and Regulation by the FDIC. The Bank is a member of
the SAIF, which is administered by the FDIC. Deposits are insured up to
applicable limits by the FDIC and such insurance is backed by the full faith and
credit of the United States Government. As insurer, the FDIC imposes deposit
insurance premiums and is authorized to conduct examinations of and to require
reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured
institution from engaging in any activity the FDIC determines by regulation or
order to pose a serious risk to the FDIC. The FDIC also has the authority to
initiate enforcement actions against savings associations, after giving the OTS
an opportunity to take such action, and may terminate the deposit insurance if
it determines that the institution has engaged or is engaging in unsafe or
unsound practices, or is in an unsafe or unsound condition.
Under the FDIC risk-based deposit insurance assessment system, all insured
depository institutions are placed into one of nine categories and assessed
insurance premiums based upon their level of capital and supervisory evaluation.
Under the system, institutions classified as well-capitalized and requiring
little supervision would pay the lowest premium while institutions that are
classified as undercapitalized and considered of substantial supervisory concern
would pay the highest premium. Risk classification of all insured institutions
is made by the FDIC for each semi-annual assessment period.
With respect to the SAIF, the FDIC is authorized to increase assessment
rates, on a semi-annual basis, if it determines that the reserve ratio of the
SAIF will be less than the designated reserve ratio of 1.25% of SAIF-insured
deposits. In setting these increased assessments, the FDIC must seek to restore
the reserve ratio to that designated reserve level, or such higher reserve ratio
as established by the FDIC. In addition, under FDICIA, the FDIC may impose
special assessments on SAIF members to repay amounts borrowed from the United
States Treasury or for any other reason deemed necessary by the FDIC.
Similarly, with respect to deposits insured by the BIF, the FDIC is
authorized to adjust the assessment rates in order to maintain the reserve ratio
at 1.25% of BIF-insured deposits. In setting the BIF assessment rates, the FDIC
must maintain the reserve ratio at that designated reserve level, or such higher
reserve ratio as established by the FDIC.
BIF and SAIF assessment rates, however, have not remained comparable. Under
the current assessment rate structure, BIF members generally pay lower premiums
than SAIF-insured institutions, placing SAIF-insured institutions, including
Metropolitan, at a competitive disadvantage to institutions whose deposits are
exclusively or primarily BIF-insured. The disparity between BIF and SAIF
assessment rates was created after BIF reached its required reserve ratio during
May 1995, resulting in a reduction of BIF assessment rates. Beginning January 1,
1996 and effective through December 31, 1996, the BIF assessment rate for "well
capitalized" institutions without any significant supervisory concerns was
reduced to the statutory minimum of $2,000 annually. BIF assessment rates were
reduced for other BIF-insured institutions to rates ranging from 0.03% to 0.27%
of deposits.
At the time assessment rates were determined for the period beginning
January 1, 1996 and effective through December 31, 1996, SAIF was not predicted
to reach its required reserve ratio until the year 2001. As a result, the SAIF
rates were not adjusted. The FDIC determined that, for the period beginning
January 1, 1996 and effective through December 31, 1996, SAIF-insured
institutions should continue to pay assessments at rates ranging from 0.23% to
0.31% of deposits.
As a result of this disparity in insurance premium rates, on September 30,
1996 President Clinton signed into law the Omnibus Bill which includes
provisions designed to recapitalize the SAIF and to mitigate the BIF/SAIF
premium disparity. The Omnibus Bill requires the FDIC to impose a special
assessment on SAIF-insured deposits held by institutions as of March 31, 1995.
The FDIC has announced that the special assessment rate will be set at 65.7
basis points. The assessment will be paid on November 27, 1996 from working
capital of the Bank.
When the SAIF reaches its required reserve ratio following the one-time
assessment, the FDIC has indicated that it will reduce the annual assessment
rates for SAIF-insured institutions to bring them in line with BIF assessment
rates.
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<PAGE> 60
In addition, the Omnibus Bill requires the merger of the BIF and SAIF into
a single insurance fund no later than January 1, 1999. In connection with the
merger of the BIF and the SAIF, SAIF-insured institutions could be forced to
convert to state bank charters or national bank charters. If such a proposal
became law, the Corporation would become a bank holding company and be subject
to regulation by the Federal Reserve Board, which imposes capital requirements
on bank holding companies. The Corporation is not currently subject to capital
requirements.
FIRREA and FDICIA generally imposed a moratorium on conversions from SAIF
membership to BIF membership before the later of August 9, 1994 or the date on
which the SAIF meets its designated reserve ratio. Subject to certain
limitations, however, a savings association may convert to a bank charter if the
resulting bank remains a member of the SAIF. FDICIA lessened the restrictions on
bank and savings institution mergers and acquisitions by permitting any insured
depository institution to participate in merger transactions, with the resulting
merged institution being subject to proportionate assessments by the BIF and the
SAIF. Acquisitions of state-chartered institutions, however, continue to be
subject to state law restrictions.
Regulatory Capital Requirements. FIRREA and the capital regulations of the
OTS issued thereunder (the "Capital Regulations") established a "leverage
limit," a "tangible capital requirement" and a "risk-based capital requirement."
These capital standards are required by FIRREA to be generally no less stringent
than the capital standards applicable to national banks. The OTS may establish,
on a case by case basis, individual minimum capital requirements for a savings
association that vary from the requirements that would otherwise apply under the
Capital Regulations. The OTS has not established such individual minimum capital
requirements for the Bank.
A savings association that fails to meet one or more of the applicable
capital requirements is subject to various regulatory limitations and sanctions,
including a prohibition on growth and the issuance of a capital directive by the
OTS requiring the following: an increase in capital, reduction of rates paid on
savings accounts; cessation of or limitations on deposit-taking and lending,
limitations on operational expenditures, an increase in liquidity, and such
other actions deemed necessary or appropriate by the OTS. In addition, a
conservator or receiver may be appointed under certain circumstances.
The leverage limit currently requires a savings association to maintain
"core capital" of not less than 3% of adjusted total assets. The OTS has taken
the position, however, that the prompt corrective action regulatory scheme (See
"--Prompt Corrective Action") has effectively raised the leverage ratio
requirement for all but the most highly-rated institutions to 4% since an
institution is "undercapitalized" for such purpose if, among other things, its
leverage ratio is less than 4% (3% for MACRO 1 rated institutions).
The tangible capital requirement requires a savings association to maintain
"tangible capital" in an amount not less than 1.5% of adjusted total assets.
The risk-based capital requirement generally provides that a savings
association must maintain total capital in an amount at least equal to 8.0% of
its risk-weighted assets. The risk-based capital regulations are similar to
those applicable to national banks. The regulations assign each asset and
certain off-balance sheet assets held by a savings association to one of four
risk-weighting categories, based upon the degree of credit risk associated with
the particular type of asset.
Savings associations are required to incorporate interest rate risk in
their capital calculations for determining compliance with capital requirements.
Interest rate risk is measured by the decline in "net portfolio value" that
would result from a hypothetical 200 basis point increase or decrease in market
interest rates, whichever is lower, divided by the estimated economic value of
assets. An institution whose measured interest rate exposure exceeds 2% must
deduct an amount equal to one-half of the difference between its measured
interest rate risk and 2%, multiplied by the estimated economic value of its
total assets, from total capital in determining whether it meets its risk-based
capital requirement.
Banking regulators continue to indicate their desire to raise capital
requirements applicable to financial institutions beyond their current levels.
No prediction can be made as to whether and when higher capital requirements
would be imposed and, if so, to what levels and on what schedule.
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<PAGE> 61
For purposes of determining compliance with the capital standards, a
savings association's investments in and extensions of credit to any subsidiary
engaged in activities not permissible for national banks are generally deducted
from the savings association's capital. The assets and liabilities of each of a
savings association's subsidiaries generally are consolidated with the assets
and liabilities of the savings association for capital purposes unless all of
the investments in and extensions of credit to such subsidiary are deducted from
capital.
FDICIA also directs each bank regulatory agency and the OTS to review each
of their capital standards every two years to determine whether those standards
require sufficient capital to facilitate prompt corrective action to prevent or
minimize loss to the deposit insurance funds. This provision also requires that
each bank regulatory agency and the OTS revise each of their risk-based capital
standards to ensure that those standards take adequate account of interest rate
risk, concentration of credit risk and the risk of non-traditional activities,
and reflect the actual performance and expected risk of loss of multifamily
mortgages.
At June 30, 1996, the Bank complied with each of the tangible capital, the
minimum leverage and the risk-based capital requirements. The following table
presents the Bank's regulatory capital position at June 30, 1996.
<TABLE>
<CAPTION>
PERCENT OF
REGULATORY
AMOUNT ASSETS(1)
------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Tangible capital.................................... $39,279 5.89%
Tangible capital requirement........................ 10,003 1.50
------- ----
Excess.............................................. $29,276 4.39%
======= ====
Core capital........................................ $39,571 5.93%
Core capital requirement(2)......................... 26,687 4.00
------- ----
Excess.............................................. $12,884 1.93%
======= ====
Risk-based capital.................................. $42,462 8.82%
Risk-based capital requirement...................... 38,500 8.00
------- ----
Excess.............................................. $ 3,962 0.82%
======= ====
</TABLE>
- ---------------
(1) Represents the percentage of adjusted total assets for tangible and core
capital purposes and the percentage of risk-weighted assets for risk-based
capital purposes.
(2) The "prompt corrective action" regulatory scheme (See "--Prompt Corrective
Action") has effectively raised the leverage requirement to 4% for all but
the most highly-rated institutions since an institution is considered
"undercapitalized" for such purposes if, among other things, it has a
leverage ratio of under 4% (3% for MACRO 1 rated institutions).
Prompt Corrective Action. FDICIA contains "prompt corrective action"
provisions pursuant to which banks and savings associations are classified into
one of five categories based upon capital adequacy, ranging from
"well-capitalized" to "critically undercapitalized" and require (subject to
certain exceptions) the appropriate federal banking agency to take prompt
corrective action with respect to an institution which becomes
"undercapitalized" and to take additional actions if the institution becomes
"significantly undercapitalized" or "critically undercapitalized."
The federal banking agencies have issued a joint rule for this purpose
under which, in general, an institution is: "well-capitalized" if it has total
risk-based capital of 10% or greater, Tier 1 risk-based capital of 6% or
greater, a leverage ratio of 5% or greater, and is not subject to an order or
other supervisory directive to meet and maintain a specific capital level for
any capital measure; "adequately capitalized" if it has total risk-based capital
of 8% or greater, Tier 1 risk-based capital of 4% or greater, and a leverage
ratio of 4% or greater (3% or greater if rated Composite 1 under the MACRO
rating system); "undercapitalized" if it has total risk-based capital of less
than 8%, Tier 1 risk-based capital of less than 4%, or a leverage ratio of less
than 4% (3% if rated Composite 1 under the MACRO rating system); "significantly
undercapitalized" if it has total risk-based capital of less than 6%, Tier 1
risk-based capital of less than 3%, or a leverage ratio of less than 3%; and
"critically undercapitalized" if it has a ratio of tangible equity to total
assets equal to or less than 2%. Based on these requirements, the Bank is an
"adequately capitalized" institution.
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<PAGE> 62
The appropriate federal banking agency has the authority to reclassify a
well-capitalized institution as adequately capitalized, and to treat an
adequately capitalized or undercapitalized institution as if it were in the next
lower capital category, if it is determined, after notice and an opportunity for
a hearing, to be in an unsafe or unsound condition or to have received and not
corrected a less-than-satisfactory rating for any of the categories of asset
quality, management, earnings or liquidity in its most recent examination. As a
result of such reclassification or determination, the appropriate federal
banking agency may require an adequately capitalized or under-capitalized
institution to comply with certain mandatory or discretionary supervisory
actions. A significantly undercapitalized savings association may not be
reclassified, however, as critically undercapitalized.
Restrictions on Dividends and Other Capital Distributions. Savings
association subsidiaries of holding companies generally are required to provide
their OTS District Director not less than thirty days' advance notice of any
proposed declaration of a dividend on the association's stock. Any dividend
declared within the notice period, or without giving the prescribed notice, is
invalid.
OTS regulations impose limitations upon certain "capital distributions" by
savings associations, including cash dividends, payments to repurchase or
otherwise acquire an association's shares, payments to shareholders of another
institution in a cash-out merger and other distributions charged against
capital. The regulation establishes a three-tiered system of regulation, with
the greatest flexibility being afforded to well-capitalized associations.
An association that has capital immediately prior to, and on a pro forma
basis after giving effect to, a proposed capital distribution that is at least
equal to its capital requirement is considered a Tier 1 institution ("Tier 1
Institution"). An association that has capital immediately prior to, and on a
pro forma basis after giving effect to, a proposed capital distribution that is
at least equal to its minimum regulatory capital requirement but less than its
fully phased-in capital requirement, is considered a Tier 2 institution ("Tier 2
Institution"). An association that does not meet its minimum regulatory capital
requirement immediately prior to, or on a pro forma basis after giving effect
to, a proposed capital distribution is considered a Tier 3 institution ("Tier 3
Institution"). The OTS retains discretion to treat a Tier 1 Institution as a
Tier 2 or Tier 3 Institution if the OTS determines that the institution is in
need of more than normal supervision and has provided the institution with
notice to that effect.
A Tier 1 Institution may, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year up to the higher of:
(i) 100% of its net income to date during the calendar year plus the amount that
would reduce the association's "surplus capital ratio" (the excess over its
fully phased-in capital requirement) to one-half of its surplus capital ratio at
the beginning of the calendar year or (ii) 75% of its net income over the most
recent four-quarter period. Any additional capital distributions would require
prior regulatory non-objection. A Tier 2 Institution may, after prior notice but
without the approval of the OTS, make capital distributions in accordance with
the following schedule: if the association's capital satisfies the risk-based
capital standard applicable to the association as of January 1, 1993, the
association may make distributions up to 75% of its net income over the most
recent four-quarter period, and, if the association's capital satisfies the
risk-based capital standard applicable as of January 1, 1991, it may make
distributions up to 50% of its net income over the most recent four-quarter
period. A Tier 3 Institution is not authorized under the regulation to make any
capital distributions unless it receives prior written approval from the OTS or
in accordance with the express terms of an approved capital plan.
The OTS retains the authority to prohibit any capital distribution
otherwise authorized under the regulation if the OTS determines that the capital
distribution would constitute an unsafe or unsound practice. The regulation also
states that the capital distribution limitations apply to direct and indirect
distributions to affiliates, including those occurring in connection with
corporate reorganizations.
Under the "prompt corrective action" provisions of FDICIA (See "--Prompt
Corrective Action"), an FDIC-insured institution may not make a "capital
distribution" (which includes, among other things, cash dividends and stock
purchases) if, after making the distribution, the institution would be
"undercapitalized" for such purposes.
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The OTS has proposed regulations that would revise the current capital
distribution restrictions. The proposal eliminates the current tiered structure
and the safe-harbor percentage limitations. In their current form, the proposed
regulations would not apply to the Bank as it is owned by a holding company.
Under the proposal, a savings association may make a capital distribution
without notice to the OTS provided that it has a MACRO 1 or 2 rating, is not in
troubled condition, and would remain adequately capitalized (as defined in the
OTS prompt corrective action regulations) following the proposed distribution.
Savings associations that would remain adequately capitalized following the
proposed distribution but do not meet the other noted requirements must notify
the OTS 30 days prior to declaring a capital distribution. The OTS stated it
will generally regard as permissible that amount of capital distributions that
do not exceed 50% of the institution's excess regulatory capital plus net income
to date during the calendar year. A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. A savings
association will be considered in troubled condition if it has a MACRO rating of
4 or 5, is subject to an enforcement action relating to its safety and soundness
or financial viability, or has been informed in writing by the OTS that it is in
troubled condition. As under the current rule, the OTS may object to a capital
distribution if it would constitute an unsafe or unsound practice. No assurance
may be given as to whether or in what form the regulations may be adopted.
Liquidity. Federal regulations currently require savings associations to
maintain, for each calendar month, an average daily balance of liquid assets
(including cash, certain time deposits, bankers' acceptances, and specified
United States Government, state or federal agency obligations) equal to at least
5% of the average daily balance of its net withdrawable accounts plus short-term
borrowings during the preceding calendar month. This liquidity requirement may
be changed from time to time by the OTS to an amount within a range of 4% to 10%
of such accounts and borrowings depending upon economic conditions and the
deposit flows of savings associations. Federal regulations also require each
savings association to maintain, for each calendar month, an average daily
balance of short-term liquid assets (generally those having maturities of 12
months or less) equal to at least 1% of the average daily balance of its net
withdrawable accounts plus short-term borrowings during the preceding calendar
month. Monetary penalties may be imposed for failure to meet liquidity ratio
requirements. At June 30, 1996, the liquidity and short-term liquidity ratios of
the Bank were 5.74% and 2.94%, respectively, which exceeded the applicable
requirements.
Qualified Thrift Lender Test. Pursuant to the Qualified Thrift Lender test,
a savings institution must invest at least 65% of its portfolio assets in
"qualified thrift investments" on a monthly average for nine out of twelve
months on a rolling "look-back" basis. Portfolio assets are an institution's
total assets less goodwill and other intangible assets, the institution's
business property, and a limited amount of the institution's liquid assets.
A savings association's failure to remain a QTL may result in: (i)
limitations on new investments and activities; (ii) imposition of branching
restrictions; (iii) loss of FHLB borrowing privileges; and (iv) limitations on
the payment of dividends. If a savings institution that is a subsidiary of a
savings and loan holding company fails to regain QTL status within one year of
its loss of such status, the holding company must register as and will be deemed
to be a bank holding company subject to, among other things, the business
activity restrictions of the Bank Holding Company Act.
The Bank's qualified thrift investments comprised 76.4% of its portfolio
assets as of June 30, 1996.
Classification of Assets. Savings associations are required to review their
assets on a regular basis and classify them as "substandard," "doubtful" or
"loss," if warranted. Adequate valuation allowances, consistent with generally
accepted accounting principles, are required to be established for classified
assets. If an asset is classified as a loss, the association must either
establish a specific valuation allowance equal to the amount classified as loss
or charge off such amount. An asset which does not currently warrant
classification as substandard but which possesses potential weaknesses deserving
close attention is required to be designated as "special mention." The
association's OTS District Director has the authority to approve, disapprove or
modify any asset classification and amount established as an allowance pursuant
to such classification.
Loans to One Borrower. Savings associations are generally subject to the
loans to one borrower limitations that are applicable to national banks. With
certain limited exceptions, the maximum amount that a savings association may
lend to one borrower (including certain related entities of such borrower) is an
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<PAGE> 64
amount equal to 15% of the savings association's unimpaired capital and
unimpaired surplus, plus an additional 10% for loans fully secured by readily
marketable collateral. Real estate is not included within the definition of
"readily marketable collateral." At June 30, 1996, the maximum amount which the
Bank could have loaned to any one borrower (and related entities) was $6.4
million. At such date, the largest aggregate amount of loans which the Bank had
outstanding to any one borrower was $5.6 million.
Additional Limitations on Activities. FIRREA generally provides that
state-chartered savings associations may not engage as principal in any type of
activity, or in any activity in an amount, not permitted for federally-chartered
associations, or directly acquire or retain any equity investment of a type or
in an amount not permitted for federally-chartered associations. The FDIC has
authority to grant exceptions from these prohibitions (other than with respect
to non-service corporation equity investments) if it determines no significant
risk to the insurance fund is posed by the amount of the investment or the
activity to be engaged in if the association is and continues to be in
compliance with fully phased-in capital standards.
FIRREA generally prohibits any savings association (state or Federal) from
directly or indirectly acquiring or retaining any corporate debt security that
is not of investment grade. FIRREA also generally requires any savings
association that proposes to establish or acquire a new subsidiary, or to
conduct new activities through an existing subsidiary, to notify the FDIC and
the OTS at least 30 days prior to the establishment or acquisition of any such
subsidiary, or at least 30 days prior to conducting any such new activity. Any
such activities must be conducted in accordance with the regulations and orders
of the OTS.
Ohio Regulation. As a savings and loan association organized under the laws
of the State of Ohio, the Bank is subject to regulation by the Ohio Division of
Financial Institutions (the "Division"). Regulation by the Division affects the
Bank's internal organization as well as its savings, mortgage lending, and other
investment activities. Periodic examinations by the Division are usually
conducted on a joint basis with the OTS. Ohio law requires that the Bank
maintain federal deposit insurance as a condition of doing business.
Under Ohio law and regulations, an Ohio association may invest in loans and
interests in loans, secured or unsecured, of any type or amount and for any
purpose, subject to certain requirements including but not limited to: loans
secured by liens on income-producing real estate may not exceed 20% of an
association's assets; all loans for educational purposes may not exceed 5% of an
association's assets; consumer loans, commercial paper and corporate debt
securities may not exceed 20% of an association's assets; and loans for
commercial, corporate, business or agricultural purposes may not exceed 10% of
an association's assets (subject to certain exceptions). In addition, no
association may make loans for the acquisition and development of undeveloped or
partially developed land for primarily residential use to one borrower in excess
of 2% of assets of the association. The total investment in commercial paper or
corporate debt of any issuer cannot exceed 1% of an association's assets, with
certain exceptions.
Ohio law authorizes Ohio-chartered associations to, among other things: (i)
invest up to 15% of assets in the capital stock, obligations and other
securities of service corporations organized under the laws of Ohio, and an
additional 20% of net worth may be invested in loans to majority owned service
corporations; (ii) invest up to 10% of assets in corporate equity securities,
bonds, debentures, notes, or other evidence of indebtedness; (iii) exceed limits
otherwise applicable to certain types of investments (other than investments in
service corporations) by between 3% and 10% of assets, depending upon the level
of the institution's permanent stock, general reserves, surplus and undivided
profits; and (iv) invest up to 15% of assets in any loans or investments not
otherwise specifically authorized or prohibited, subject to authorization by the
institution's board of directors.
An Ohio association may invest in such real property or interests therein
as its board of directors deems necessary or convenient for the conduct of the
business of the association, but the amount so invested may not exceed the net
worth of the association at the time the investment is made. Additionally, an
association may invest an amount equal to 10% of its assets in any other real
estate. This limitation does not apply, however, to real estate acquired by
foreclosure, conveyance in lieu of foreclosure or other legal proceedings in
relation to loan security interests.
Notwithstanding the above powers authorized under Ohio law and regulation,
a state-chartered savings association, such as the Bank, is subject to certain
limitations on its permitted activities and investments under
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federal law which may restrict the ability of an Ohio-chartered association to
engage in activities and make investments otherwise authorized under Ohio law.
See "--Additional Limitations on Activities."
Ohio has adopted a statutory limitation on the acquisition of control of an
Ohio savings and loan association which requires the written approval of the
Division prior to the acquisition by any person or entity of a controlling
interest in an Ohio association. Control exists, for purposes of Ohio law, when
any person or entity, either directly or indirectly, or acting in concert with
one or more other persons or entities, owns, controls, holds with power to vote,
or holds proxies representing, 15% or more of the voting shares or rights of an
association, or controls in any manner the election or appointment of a majority
of the directors.
Under certain circumstances, interstate mergers and acquisitions involving
associations incorporated under Ohio law are permitted by Ohio law. A savings
and loan association or savings and loan holding company with its principal
place of business in another state may acquire a savings and loan association or
savings and loan holding company incorporated under Ohio law if the laws of such
other state permit an Ohio savings and loan association or an Ohio holding
company reciprocal rights.
Ohio law requires prior written approval of the Ohio Superintendent of a
merger of an Ohio association with another savings and loan association or a
holding company affiliate.
FEDERAL AND STATE TAXATION
The following discussion of tax matters is intended only as a summary and
does not purport to be a comprehensive description of the tax rules applicable
to the Corporation or the Bank.
Savings associations such as the Bank are generally taxed in the same
manner as other corporations. For taxable years beginning prior to January 1,
1996, savings associations such as the Bank which met certain definitional tests
primarily relating to their assets and the nature of their supervision and
business operations ("qualifying thrifts") were permitted to establish a reserve
for bad debts and to make annual additions thereto, which additions may, within
specified formula limits, have been deducted in arriving at their taxable
income. The Bank's deduction with respect to "qualifying real property loans,"
which are generally loans secured by certain interests in real property, may
have been computed using an amount based on the Bank's actual loss experience,
or a percentage equal to 8% of the Bank's taxable income, computed with certain
modifications and reduced by the amount of any permitted additions to the
reserve for nonqualifying loans (the "percentage of taxable income method"). The
Bank's deduction with respect to nonqualifying loans was computed under the
experience method, which essentially allows a deduction based on the Bank's
actual loss experience over a period of several years. Each year the Bank
selected the most favorable way to calculate the deduction attributable to an
addition to the tax bad debt reserve.
Recently enacted legislation repealed the existing reserve method of
accounting for bad debt reserves for tax years beginning after December 31,
1995. As a result, savings associations will no longer be able to calculate
their deduction for bad debts using the percentage of taxable income method.
Instead, savings associations will be required to compute their deduction based
on specific charge offs during the taxable year or, if the savings association
or its controlled group had assets of not more than $500 million, based on
actual loss experience over a period of years. This legislation also requires a
savings association (or its controlled group) with assets of more than $500
million to recapture into income over a six-year period their post-1987
additions to their bad debt tax reserves for qualifying real property loans and
nonqualifying loans, thereby generating additional tax liability. A savings
association (or its controlled group) with assets of not more than $500 million
are required to recapture their bad debt tax reserve to the extent it exceeds
the greater of (i) the applicable bad debt tax reserve as of the close of the
last taxable year beginning before January 1, 1988, or (ii) what the savings
association's applicable bad debt tax reserve would have been at the close of
its last taxable year beginning before January 1, 1996 under the experience
method. At December 31, 1995, the Bank's post-1987 reserves totalled
approximately $3.9 million. The recapture may be suspended for up to two years
if, during those years, the savings association satisfies a residential loan
requirement.
Under prior law, if the Bank failed to satisfy the qualifying thrift
definitional tests in any taxable year, it would be unable to make additions to
its bad debt reserve. Instead, the Bank would be required to deduct bad debts as
they occur and would additionally be required to recapture its bad debt reserve
deductions ratably over a multi-year period. At December 31, 1995, the Bank's
total bad debt reserve for tax purposes was
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approximately $6.8 million. Among other things, the qualifying thrift
definitional tests required the Bank to hold at least 60% of its assets as
"qualifying assets." Qualifying assets generally include cash, obligations of
the United States or any agency or instrumentality thereof, certain obligations
of a state or political subdivision thereof, loans secured by interests in
improved residential real property or by savings accounts, student loans and
property used by the Bank in the conduct of its banking business. Under current
law, a savings association will not be required to recapture its pre-1988 bad
debt reserves if it ceases to meet the qualifying thrift definitional tests.
To the extent that a savings association has (i) pre-1988 bad debt reserves
or (ii) supplemental reserves for losses on loans ("Excess"), such Excess may
not, without adverse tax consequences, be utilized for the payment of cash
dividends or other distributions to a shareholder (including distributions on
redemption, dissolution or liquidation) or for any other purpose (except to
absorb bad debt losses). Distributions of a cash dividend by a savings
association to a shareholder is treated as made: first out of the savings
association's current and post-1951 accumulated earnings and profits; second out
of the pre-1988 bad debt reserves; third out of the supplemental reserve for
losses on loans; and fourth out of such other accounts as may be proper.
Distributions in redemption of stock and distributions in partial or complete
liquidation are treated as first made out of the pre-1988 bad debt reserves,
then out of the supplemental reserve for losses on loans, then out of post-1951
accumulated earnings and profits and finally out of such other accounts as may
be proper. To the extent a distribution to the Corporation by the Bank is deemed
paid out of the Excess under these rules, the Excess would be reduced and the
Bank's gross income for tax purposes would be increased by the amount of the
distribution plus a "gross-up" reflecting the tax attributable to the
distribution. Additionally, there are certain regulatory restrictions on the
Bank's ability to pay dividends to the Corporation.
In addition to the regular income tax, corporations, including savings
associations such as the Bank, generally are subject to an alternative minimum
tax. An alternative minimum tax is imposed at a tax rate of 20% on alternative
minimum taxable income ("AMTI"), which is the sum of a corporation's regular
taxable income (with certain adjustments) and tax preference items, less any
available exemption. Adjustments and preferences include depreciation deductions
in excess of those allowable for alternative minimum tax purposes, tax-exempt
interest on most private activity bonds issued after August 7, 1986 (reduced by
any related interest expense disallowed for regular tax purposes), and, for 1990
and succeeding years, 75% of the excess of adjusted current earnings ("ACE")
over AMTI. ACE equals pre-adjustment AMTI (i) increased or decreased by certain
ACE adjustments, which include tax-exempt interest on municipal bonds,
depreciation deductions in excess of those allowable for ACE purposes and, in
certain cases, the dividend received deduction, and (ii) determined without
regard to the ACE adjustment and the alternative tax net operating loss. The
alternative minimum tax is imposed to the extent it exceeds the corporation's
regular income tax, and alternative tax net operating losses can offset no more
than 90% of AMTI. The payment of alternative minimum tax will give rise to a
minimum tax credit which will be available with an indefinite carry forward
period to reduce federal income taxes in future years (but not below the level
of alternative minimum tax arising in each of the carry forward years). For
taxable years beginning after 1986 and before 1996, corporations, including
savings associations such as the Bank, were also subject to an environmental tax
equal to 0.12% of the excess of AMTI for the taxable year (determined without
regard to alternative tax net operating losses and the deduction for the
environmental tax) over $2 million.
The Corporation, the Bank and other includable subsidiaries file
consolidated federal income tax returns on a December 31 calendar year basis
using the accrual method of accounting. The Corporation, the Bank and other
includable subsidiaries have been audited by the Internal Revenue Service
through December 31, 1994.
The Bank is subject to the Ohio corporate franchise tax. As a financial
institution, the Bank computes its franchise tax based on its net worth. Under
this method, the Bank will compute its Ohio corporate franchise tax by
multiplying its net worth (as determined under generally accepted accounting
principles) as specifically adjusted pursuant to Ohio law, by the applicable tax
rate, which is currently 1.5%. As an Ohio-chartered savings and loan
association, the Bank also receives a credit against the franchise tax for a
portion of the state supervisory fees paid by it.
The Corporation is subject to an Ohio corporation franchise tax payable in
an amount equal to the greater of a specified percentage of net income
(currently 5.1% of the first $50,000 and 8.9% of the remainder, with an
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additional add-on tax not to exceed $5,000) or a specified percentage of net
worth (currently approximately 0.6%, plus an add-on tax). In calculating net
income for this purpose, dividends from wholly-owned subsidiaries, such as the
Bank, would be excluded. In addition, in calculating net worth, the
Corporation's investment and intercompany deposit in the Bank would be excluded
for this purpose.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF METROPOLITAN
The name and age of the directors and executive officers of Metropolitan
and their position with Metropolitan and the Bank, are set forth in the
following table. All persons who serve as directors of the Corporation also
serve as directors of the Bank.
<TABLE>
<CAPTION>
POSITIONS WITH CORPORATION
NAME AGE AND BANK
- ------------------------------------- -------- --------------------------------------------
<S> <C> <C>
Robert M. Kaye....................... 59 Chairman of Corporation and Chairman of Bank
David G. Lodge....................... 57 President, Assistant Secretary, Assistant
Treasurer and Director of Corporation and
President of Bank
Malvin E. Bank....................... 66 Secretary, Assistant Treasurer and Director
of Corporation and Secretary of Bank
David P. Miller...................... 64 Treasurer, Assistant Secretary and Director
of Corporation
Ralph D. Ketchum..................... 70 Director of Corporation
James A. Karman...................... 59 Director of Corporation
Robert R. Broadbent.................. 75 Director of Corporation
Marjorie M. Carlson.................. 55 Director of Corporation
Lois K. Goodman...................... 62 Director of Corporation
Marguerite B. Humphrey............... 54 Director of Corporation
Alfonse M. Mattia.................... 54 Director of Corporation
Patrick W. Bevack.................... 50 Executive Vice President, Treasurer and
Assistant Secretary of Bank
</TABLE>
Upon consummation of the offering, the Corporation's Regulations will
provide for the Board of Directors to be divided into three classes of directors
to be as nearly equal in number as possible. Class I will consist of Ms.
Goodman, Ms. Humphrey and Mr. Mattia and their term of office will expire at the
next annual meeting of shareholders; Class II will consist of Messrs. Ketchum,
Karman, Broadbent and Ms. Carlson and their term of office will expire one year
thereafter; and Class III will consist of Messrs. Kaye, Lodge, Bank and Miller
and their term of office will expire two years thereafter; and at each annual
shareholders' meeting, that class of directors whose term has expired shall be
elected for a term of three years. Upon the consummation of the offering, the
Regulations will provide that the number of directors shall be determined from
time to time only by a vote of the majority of the Board of Directors. See
"Description of the Capital Stock" and "Risk Factors -- Antitakeover
Provisions." All of the officers listed will hold office until successors are
appointed by the Board of Directors. There are no arrangements or understandings
between any of the directors or officers or any other persons, pursuant to which
any of the above directors have been selected as directors, or officers have
been selected as officers. If any of the directors holds a directorship in a
company or institution subject to the reporting requirements of the Securities
Exchange Act of 1934 ("Exchange Act"), that fact is noted below. There are no
family relationships between the directors and executive officers of
Metropolitan.
Metropolitan's Board of Directors has established certain committees,
including an Audit Committee consisting of Messrs. Bank, Miller, Ketchum, Karman
and Broadbent, and a Compensation Committee consisting of Messrs. Kaye, Bank,
Ketchum and Karman. The committees meet periodically during the intervals
between meetings of the entire authorized Board of Directors.
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During the past five years, the business experience of each of the
directors and executive officers has been as follows:
Mr. Kaye has served as Chairman of Metropolitan and the Bank since 1987. He
has also served as President of Planned Residential Communities, Inc. since
1960. Planned Residential Communities, Inc. is actively engaged in every aspect
of multifamily housing from new construction and rehabilitation to acquisition
and management. He has also been a member of the Corporate Council of the
Cleveland Museum of Art since its inception in 1993 and has been a member of the
Board of Trustees of The Peddie School since 1988. Mr. Kaye has a BS from the
University of Connecticut.
Mr. Lodge joined Metropolitan in December 1988 as Executive Vice President.
He has served as President of the Corporation and the Bank since August 1991.
Mr. Lodge has also served as a Director of the Corporation and the Bank since
1991. Mr. Lodge has also served as Assistant Secretary and Assistant Treasurer
of the Corporation since 1992. Mr. Lodge has served as a Director of University
Circle Incorporated and Vocational Guidance Services since 1994 and became a
member of the Board of Trustees of The Cleveland Play House in June 1995.
Mr. Bank has served as a Director and as Secretary of the Corporation and
the Bank since 1991. Mr. Bank also serves as Assistant Treasurer of the
Corporation. Mr. Bank is a senior partner with the Cleveland law firm of
Thompson Hine & Flory LLP. Mr. Bank also serves as a Director of Oglebay Norton
Company. He has a BA from Pennsylvania State University and an LLB from Yale Law
School.
Mr. Miller has served as a Director of the Corporation and the Bank since
1992. Mr. Miller also serves as Treasurer and Assistant Secretary of the
Corporation. Since 1986, Mr. Miller has been the Chairman and Chief Executive
Officer of Columbia National Group, Inc., a Cleveland-based scrap and waste
materials wholesaler and steel manufacturer. He has also been a member of the
Board of Trustees of The Cleveland Play House since 1992, and is currently
commissioner of the Ohio Lottery. Mr. Miller has a BA from Ohio Wesleyan
University.
Mr. Ketchum has served as a Director of the Corporation and the Bank since
1991. Since 1987, Mr. Ketchum has been President of RDK Capital Inc., a general
partner in a partnership formed for the purposes of acquiring and managing
companies serving the aircraft industry. Prior thereto, he was a Senior Vice
President and Group Executive for the General Electric Company, Lighting Group.
Mr. Ketchum is also a member of the Board of Directors of Oglebay Norton
Company, Thomas Industries, Pacific Scientific and Lithium Technology Corp. Mr.
Ketchum has a BNS and BMSE from Tufts University.
Mr. Karman has served as a Director of the Corporation and the Bank since
1992. Mr. Karman has been affiliated with RPM, Inc. since 1963, and in 1978 he
became President of RPM, Inc., a manufacturer of protective coatings, sealants
and specialty chemicals. Mr. Karman serves as a member of the Board of Directors
of RPM, Inc., McDonald & Company Investments, Inc., A. Schulman, Inc., Shiloh
Industries, Inc. and Sudbury, Inc. He has a BA from Miami University (Ohio) and
an MBA from the University of Wisconsin.
Mr. Broadbent has served as a Director of the Corporation and the Bank
since 1992. From 1984 to 1989, Mr. Broadbent served as Chairman and Chief
Executive Officer of The Higbee Company, a Cleveland-based clothing and
housewares retailer. Mr. Broadbent served as the Chairman of the Rock and Roll
Hall of Fame Museum, Inc. until May 1994 and is now on the advisory board. Mr.
Broadbent also serves as a Director of Cardinal American and Physician Insurance
Co. as well as a Trustee of the Murphy Foundation and a Trustee of Kent State
University. Mr. Broadbent has a BS from the University of Akron.
Ms. Carlson has served as a Director of the Corporation and the Bank since
1994. She also is the Director of Donor Relations for the Cleveland Foundation.
Ms. Carlson is a member of the Board of Trustees for the College of Wooster, the
Musical Arts Association, Judson Park Retirement Community, the Playhouse Square
Foundation, and the Northern Planned Giving Council. Ms. Carlson has a BA from
the College of Wooster and an MA from Case Western Reserve University.
Ms. Goodman has served as a Director of the Corporation and the Bank since
1994. Since 1991, she has been President of the Work and Family Group, Inc., a
consulting service for employers on managing working families. Ms. Goodman is
also a member of the Board of Trustees for the Cleveland Opera, WomanSpace,
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and the Jewish Community Federation. Ms. Goodman has a BA from the University of
Michigan and an MA from Case Western Reserve University.
Ms. Humphrey has served as a Director of the Corporation and the Bank since
1994. Ms. Humphrey has been developing and implementing workshops for trustee
education for the Cultural Arts Trustee Forum at the Cleveland Mandel Center
from 1992 to 1995 and is a trustee for the American Symphony Orchestra League,
the Cleveland Institute of Music, the Musical Arts Association, and Rainbow
Babies and Children's Hospital. Ms. Humphrey has a BA from Vassar College.
Mr. Mattia has served as a consultant to the Bank since 1987 and as a
Director of the Corporation and the Bank since 1996. Mr. Mattia is a CPA and a
founding partner of Amper, Politziner & Mattia, a New Jersey-based accounting
and consulting firm. Mr. Mattia serves as an advisor to Rutgers University and
has a BS from Rider University. He has also completed the OPM program at Harvard
Business School.
Mr. Bevack has been Executive Vice President of the Bank since May 1992.
Mr. Bevack became Treasurer and Assistant Secretary of the Bank in 1993. Prior
to joining Metropolitan, Mr. Bevack was Executive Vice President of TransOhio
Savings Bank. He has a BA and an MBA from Cleveland State University and is a
CPA in the State of Ohio.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to
compensation provided by Metropolitan during the year ended December 31, 1995,
to its Chief Executive Officer and Metropolitan's other executive officers whose
annual salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FISCAL ANNUAL COMPENSATION
NAME AND YEAR ENDED ------------------- ALL OTHER
PRINCIPAL POSITION DECEMBER 31 SALARY BONUS COMPENSATION(1)
- -------------------------------------------- ------------ -------- ------- ---------------
<S> <C> <C> <C> <C>
Robert M. Kaye,
Chairman of the Board..................... 1995 $253,654 -- $ 4,620
1994 218,846 -- 3,150
David G. Lodge,
President................................. 1995 175,757 $50,000 4,571
1994 151,078 40,000 3,150
Patrick W. Bevack,
Executive Vice President(2)............... 1995 128,740 7,000 4,620
1994 117,403 4,000 2,549
</TABLE>
- ---------------
(1) Represents the Bank's contribution to the Metropolitan Savings Bank of
Cleveland 401(k) Plan.
(2) Mr. Bevack is Executive Vice President, Treasurer and Assistant Secretary of
the Bank.
DIRECTOR COMPENSATION
For their services as directors, each member of the Board of Directors of
the Bank who is not an employee of the Corporation or the Bank receives a
monthly consulting fee of $1,000. The Chairman of the Board of the Bank and all
other members of the Board of the Bank, who are not employees of the Corporation
or the Bank, receive a $250 attendance fee for each meeting of the Board
attended. Members of the Board of Directors of the Corporation receive no fees
for their services as such.
COMPENSATION COMMITTEE INTERLOCKS, INSIDER PARTICIPATION AND CERTAIN
TRANSACTIONS
The Compensation Committee of Metropolitan's Board of Directors consists of
Robert M. Kaye, Malvin E. Bank, Ralph D. Ketchum and James A. Karman.
Mr. Kaye, the Selling Shareholder, is the sole shareholder of Planned
Residential Communities, Inc. which receives a $96,000 annual fee for employee
benefit related services and multifamily property consulting services provided
to Metropolitan. Mr. Kaye was reimbursed by the Corporation for certain expenses
incurred during 1994 and 1995 which were subsequently determined not to be
deductible business expenses. Mr. Kaye has repaid the Corporation for these
expenses and the Corporation has clarified its expense reporting policies.
The law firm of Thompson Hine & Flory LLP, of which Malvin E. Bank is a
partner, provided legal services to the Corporation in 1995 and during the
current fiscal year.
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<PAGE> 70
The accounting firm of Amper, Politziner & Mattia, of which Alfonse M.
Mattia is a partner, provided tax services to the Corporation in 1995 and during
the current fiscal year.
Several of the directors and executive officers of the Corporation
purchased 1993 Subordinated Notes from Metropolitan during the private offering
of the 1993 Subordinated Notes. These purchases were made on the same terms and
at the same prices offered to unaffiliated investors. The 1993 Subordinated
Notes earn interest at the rate of 10% per annum and mature on December 31,
2001. The directors and executive officers of the Corporation who are also
holders of more than $60,000 principal amount of 1993 Subordinated Notes are set
forth below.
<TABLE>
<S> <C>
Robert M. Kaye.................................................................... $515,000
Ralph D. Ketchum.................................................................. 200,000
David P. Miller................................................................... 200,000
</TABLE>
In addition, the Metropolitan Savings Bank of Cleveland 401(k) Plan and the
Planned Residential Communities Management Co. Inc. and Affiliates 401(k) Plan
jointly own $400,000 principal amount of 1993 Subordinated Notes. Also, the
Amper, Politziner & Mattia Profit Sharing Trust, of which Alfonse M. Mattia is a
trustee, owns $200,000 principal amount of 1993 Subordinated Notes.
The Bank has had, and expects to have in the future, banking transactions
in the ordinary course of business with Metropolitan's and the Bank's directors,
officers, shareholders and associates on substantially the same terms, including
interest rates and collateral on loans, as those prevailing at the time for
comparable transactions with other persons, and that do not involve more than
the normal risk of collectibility or present other unfavorable terms.
SELLING SHAREHOLDER AND BENEFICIAL OWNERSHIP
The following table sets forth certain information with respect to the
Selling Shareholder, Robert M. Kaye and his beneficial ownership of the Common
Stock. Mr. Kaye currently owns all of the outstanding capital stock of the
Corporation and following completion of the offering, Mr. Kaye will continue to
own approximately 80.1% of the outstanding Common Stock of the Corporation
(77.2% if the Underwriter's over-allotment option is exercised in full). No
other director or executive officer currently has any beneficial ownership of
the Corporation's Common Stock. However, the Underwriter has agreed to reserve a
maximum of 120,000 shares of Common Stock for offering and sale at the public
offering price to certain directors, officers and employees of the Corporation.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK SHARES OF SHARES OF COMMON STOCK
BENEFICIALLY COMMON STOCK BENEFICIALLY
OWNED PRIOR TO THE TO OWNED AFTER THE
OFFERING BE SOLD OFFERING
-------------------- IN THE -----------------------
NAME AND ADDRESS NUMBER PERCENT OFFERING NUMBER PERCENT
- ----------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Robert M. Kaye..................... 3,125,635(1) 100% 300,000(2) 2,825,635(3) 80.1%(3)
21 Sheraton Lane
Rumson, NJ 07760
</TABLE>
- ---------------
(1) After giving effect to the Corporation's 3,125,635-for-one stock split which
occurred prior to the completion of the offering.
(2) 405,000 shares if the Underwriter's over-allotment option is exercised in
full.
(3) 2,720,635 shares, or 77.2%, of the Corporation's outstanding Common Stock if
the Underwriter's over-allotment option is exercised in full.
As collateral for the Huntington Loan Agreement, Mr. Kaye will pledge a
portion of his shares of Common Stock of Metropolitan in an amount at least
equal in value to 200% of any outstanding balance. At June 30, 1996, there was
no outstanding balance under the Huntington Loan Agreement. If an Event of
Default (as defined in the Huntington Loan Agreement), would occur, there could
be a change in control of the Corporation. See "Business -- Sources of
Funds -- Line of Credit."
69
<PAGE> 71
DESCRIPTION OF THE CAPITAL STOCK
Prior to the closing of the offering, the Corporation will amend and
restate its Articles to increase the number of authorized shares of Common
Stock, no par value, to 10,000,000 shares and authorize 10,000,000 shares of
Preferred Stock, no par value. The amendment will also effect a
3,125,635-for-one stock split of the single share of Common Stock currently
outstanding. Upon the completion of the offering, the Corporation will have
3,525,635 shares of Common Stock issued and outstanding and no shares of
Preferred Stock issued and outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders. See "Potential
Anti-Takeover Effects of Articles, Regulations and OGCL." Subject to preferences
that may be applicable to any outstanding Preferred Stock, holders of shares of
Common Stock are entitled to receive dividends ratably if, as, and when,
declared by the Board out of funds legally available therefor. In the event of a
liquidation, dissolution, or winding up of the Corporation, holders of shares of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preferences of any outstanding Preferred
Stock. Holders of shares of Common Stock have no preemptive rights and no right
to convert their shares of Common Stock into any other securities. There are no
redemption or sinking fund provisions applicable to the shares of Common Stock.
All outstanding shares of Common Stock are, and all shares of Common Stock to be
outstanding upon completion of the offering will be, fully paid and
nonassessable.
PREFERRED STOCK
The Board has the authority, without further action by the shareholders, to
issue up to 5,000,000 shares of Class A Preferred Stock, without par value, and
5,000,000 shares of Class B Preferred Stock, without par value. The Class A
Preferred Stock and the Class B Preferred Stock may be issued in one or more
series, and the Board may fix the rights, designations, preferences, privileges,
qualifications and restrictions thereof, including dividend rights, conversion
rights, rights and terms of redemption, liquidation preferences, and sinking
fund terms, any or all of which may be greater than the rights of the Common
Stock. The Board, without shareholder approval, can issue Class A Preferred
Stock and Class B Preferred Stock with voting, conversion, and other rights
which could adversely affect the voting power and other rights of the holders of
Common Stock, including the likelihood that such holders will receive dividend
payments and payments upon liquidation. Holders of Class A Preferred Stock would
be entitled to one vote per share for each share of Class A Preferred Stock held
by them. Holders of Class B Preferred Stock would not be entitled to vote upon
matters presented to the shareholders except in limited circumstances. Class A
Preferred Stock and Class B Preferred Stock could thus be issued quickly with
terms calculated to delay or prevent a change in control of the Corporation or
to make removal of management more difficult. Such issuance could have the
effect of decreasing the market price of the Common Stock. The issuance of Class
A Preferred Stock and Class B Preferred Stock may have the effect of delaying,
deterring, or preventing a change in control of the Corporation without any
further action by the shareholders. The Corporation has no present plans to
issue any Class A Preferred Stock or Class B Preferred Stock.
POTENTIAL ANTI-TAKEOVER EFFECTS OF ARTICLES, REGULATIONS AND OGCL
As an Ohio corporation, the Corporation is subject to certain provisions of
Ohio law which may discourage or render more difficult an unsolicited takeover
of the Corporation. Among these are provisions that prohibit any person who owns
10% or more of a corporation's stock from engaging in mergers, consolidations,
majority share acquisitions, asset sales, loans and certain other transactions
with the corporation for a three-year period after acquiring the 10% ownership,
unless approval is first obtained from the corporation's board of directors.
After the three-year waiting period, the 10% shareholder can complete the
transaction only if, among other things: (i) approval is received from
two-thirds of all voting shares and from a majority of shares not held by the
10% shareholder or certain affiliated persons; or (ii) the transaction meets
certain criteria designed to ensure fairness to all remaining shareholders.
In addition, under Ohio law, the acquisition of shares entitling the holder
to exercise certain levels of voting power of a corporation (one-fifth or more,
one-third or more, or a majority) can be made only with the
70
<PAGE> 72
prior authorization of (i) the holders of at least a majority of the total
voting power and (ii) the holders of at least a majority of the total voting
power held by shareholders other than the proposed acquirer, officers of the
corporation elected or appointed by the directors, and directors of the
corporation who are also employees and excluding certain shares that are
transferred after the announcement of the proposed acquisition and prior to the
vote with respect to the proposed acquisition. In light of the fact that, upon
completion of the offering, the Selling Shareholder will own approximately 80.1%
of the Corporation's outstanding Common Stock (77.2% if the Underwriter's
over-allotment option is exercised in full), acquisitions of the foregoing
levels of voting power by third parties will not be possible unless the Selling
Shareholder votes in favor thereof.
Upon consummation of the offering, the Corporation's Regulations will
require reasonable advance notice by a shareholder of a proposal or director
nomination that such shareholder desires to present at any annual meeting of
shareholders. In addition, the Regulations will provide that vacancies created
by an increase in the size of the Board of Directors may be filled by the
affirmative vote of a majority of the directors in office, although less than a
quorum. Only vacancies resulting from an increase in the size of the Board due
to action by the shareholders may be filled by holders of a majority of the
Corporation's voting stock.
The Corporation's Regulations will also require the holders of at least 75%
of the voting stock to approve any amendment to certain provisions of the
Regulations, including the provisions regarding the number and classification of
directors, filling of Board vacancies, the removal of directors, advance notice
of shareholder proposals, and nominations. See "Management -- Directors and
Executive Officers of Metropolitan."
It is possible that these provisions, as well as the classification of the
Board of Directors provided for in the Articles and the ability of the Board of
Directors to issue Preferred Stock, may have the effect of deterring hostile
takeovers or delaying or preventing changes in control or management of the
Corporation. See "Risk Factors -- Antitakeover Provisions."
TRANSFER AGENT AND REGISTRAR
Fifth Third Bank has been appointed as the transfer agent and registrar for
the Corporation's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Corporation will have 3,525,635 shares
of Common Stock outstanding. All shares of Common Stock sold in the offering
will be freely transferable without restriction under the Securities Act, except
for any such shares which may be acquired by an affiliate of the Corporation (as
that term is defined in Rule 144 under the Securities Act). The remaining
2,825,635 outstanding shares of Common Stock (2,720,635 if the Underwriter's
over-allotment option is exercised in full) held by Mr. Kaye constitute
"restricted securities," within the meaning of Rule 144 and are eligible for
sale in the open market after the offering subject to the contractual lockup
provisions and applicable requirements of Rule 144 described below.
In general, under Rule 144, as currently in effect, beginning 90 days after
the date of this Prospectus, if a period of at least two years has elapsed since
the later of the date on which restricted securities were acquired from the
Corporation and the date on which they were acquired from an affiliate, then the
holder of such restricted securities (including an affiliate) is entitled to
sell a number of shares of Common Stock within any three-month period that does
not exceed the greater of (i) one percent of the then outstanding shares of
Common Stock (approximately 35,256 shares immediately after the offering) or
(ii) the average weekly reported volume of trading of the shares of Common Stock
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain requirements pertaining to the manner of such sales,
notices of such sales and the availability of current public information
concerning the Corporation. Affiliates also must sell shares of Common Stock not
constituting restricted securities in accordance with the foregoing volume
limitations and other requirements but without regard to the two-year holding
period. Under Rule 144(k), if a period of at least three years has elapsed
between the later of the date on which restricted securities were acquired from
the Corporation and the date on which they were acquired from an affiliate, a
holder of such restricted securities who is not an affiliate at the time of the
sale and has not been an affiliate for
71
<PAGE> 73
at least three months prior to the sale would be entitled to sell the shares of
Common Stock immediately without regard to the volume limitations and other
conditions described above.
Sales of a significant number of shares of Common Stock could have an
adverse impact on the market price of the shares of Common Stock. The
Corporation, the Selling Shareholder, and all of the Corporation's executive
officers and directors have agreed not to offer, sell or otherwise dispose of,
any shares of Common Stock or securities convertible into or exchangeable or
exercisable for such shares, for a period of 180 days after the date of this
Prospectus, without the prior written consent of the Underwriter.
DESCRIPTION OF SUBORDINATED NOTES
By Private Placement Memorandum dated October 25, 1993, Metropolitan sold
$4.9 million principal amount of 1993 Subordinated Notes for an aggregate
purchase price of $4.9 million. The 1993 Subordinated Notes will mature on
December 31, 2001. Interest on the 1993 Subordinated Notes accrues at the rate
of 10% per annum and is payable quarterly in arrears on the last day of each
March, June, September and December. The terms of the 1993 Subordinated Notes
prohibit the Corporation from paying any cash dividend while any of the 1993
Subordinated Notes are outstanding. The Corporation may redeem the 1993
Subordinated Notes, in whole or in part, at any time and from time to time, by
paying the outstanding principal amount plus accrued interest and a prepayment
premium. The prepayment premium is 10% of the principal amount prepaid during
the first year following the issuance of the 1993 Subordinated Notes and is
reduced by 1% for each year thereafter. If the 1993 Subordinated Notes are
prepaid more than seven years after issuance, the prepayment premium is 3%. The
1993 Subordinated Notes may also be repurchased in privately negotiated
transactions.
If Robert M. Kaye desires to sell, transfer, or exchange a majority
interest in the capital stock of the Corporation to any other person or entity
while any of the 1993 Subordinated Notes are outstanding, each holder will have
the option to have its 1993 Subordinated Notes redeemed at the outstanding
principal amount plus accrued interest. In addition, upon the death of Robert M.
Kaye, if Mr. Kaye continues to own a majority interest in the capital stock of
the Corporation immediately prior thereto, each holder of the 1993 Subordinated
Notes will have the option to have a fraction of the principal amount of the
holder's 1993 Subordinated Notes redeemed.
In December 1995, $14.0 million of the 1995 Subordinated Notes were issued
in a public offering pursuant to the Indenture. The 1995 Subordinated Notes will
mature on January 1, 2005. Interest on the 1995 Subordinated Notes accrues at
the rate of 9 5/8% per annum and is payable monthly. The 1995 Subordinated Notes
are not redeemable, in whole or in part, by the Corporation prior to December 1,
1998. After December 1, 1998, the 1995 Subordinated Notes may be redeemed by the
Corporation according to the following schedule:
<TABLE>
<CAPTION>
IF REDEEMED DURING THE REDEMPTION
12 MONTHS BEGINNING PRICE
- ---------------------------------- ----------
<S> <C>
December 1, 1998.................. 103%
December 1, 1999.................. 101 1/2%
December 1, 2000 and thereafter... 100%
</TABLE>
The 1995 Subordinated Notes may also be repurchased in privately negotiated
or open market transactions.
The terms of the 1995 Subordinated Notes are governed by the Indenture. The
Indenture limits the amount of Funded Indebtedness of the Corporation and all of
its subsidiaries to 80% of Consolidated Net Worth. "Funded Indebtedness" and
"Consolidated Net Worth" are defined in the Indenture. In addition, the
Indenture prohibits the Corporation from paying dividends on its equity
securities (except in the form of those securities) unless the Corporation's
ratio of tangible equity to total assets is in excess of 7.0%. For purposes of
the Indenture "tangible equity" is Consolidated Net Worth (as defined in the
Indenture) less goodwill.
The terms of the Indenture further state that in the event of a Fundamental
Structural Change or a Significant Subsidiary Disposition (both as defined in
the Indenture), each holder of the 1995 Subordinated Notes will have the right
to have the Corporation purchase the holder's 1995 Subordinated Notes at the
72
<PAGE> 74
outstanding principal amount plus accrued interest. The right of the holders is
not exercisable if within 40 days after the occurrence of such event the 1995
Subordinated Notes have received a specified rating from a nationally recognized
statistical rating organization. This offering does not constitute a Fundamental
Structural Change for purposes of the Indenture.
UNDERWRITING
McDonald & Company Securities, Inc. has agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase 400,000 shares of Common
Stock from the Corporation and 300,000 shares of Common Stock from the Selling
Shareholder.
The Underwriter has advised the Corporation and the Selling Shareholder
that the Underwriter proposes to offer the Common Stock to the public initially
at the public offering price set forth on the cover page of this Prospectus. The
Underwriter may allow selected dealers a concession not exceeding $ per
share, and the Underwriter may allow, and such selected dealers may re-allow, a
concession not exceeding $ per share to certain other dealers. After
the initial public offering, the public offering price and the concession to
dealers may be changed by the Underwriter.
The Selling Shareholder has granted to the Underwriter an option,
exercisable within 30 days of the date of this Prospectus, to purchase up to an
additional 105,000 shares of Common Stock at the public offering price, less the
underwriting discount, as set forth on the cover page of this Prospectus. The
Underwriter may exercise such option only to cover over-allotments, if any, made
in connection with the sale of the shares of Common Stock offered hereby.
The nature of the Underwriter's obligation under the Underwriting Agreement
is such that all shares of Common Stock being offered, excluding shares covered
by the over-allotment option granted to the Underwriter, must be purchased if
any shares of Common Stock are purchased.
Prior to this offering, there has been no public market for any class of
the Corporation's capital stock. The initial public offering price for the
shares of Common Stock offered hereby has been determined by negotiations among
the Corporation, the Selling Shareholder, and the Underwriter. Among the factors
considered in determining the initial public offering price were prevailing
market and general economic conditions, the price-to-earnings ratio of publicly
traded companies that the Corporation and the Underwriter believed to be
somewhat comparable to the Corporation, the revenues and earnings of the
Corporation in recent periods, the current financial condition of the
Corporation, estimates of the business potential of the Corporation, the present
state of the Corporation's development, and other factors deemed relevant.
Additionally, consideration was given to the general status of the securities
market, the market conditions for new issues of securities, and the demand for
securities of comparable companies at the time the offering is made.
The Corporation and the Selling Shareholder have agreed to indemnify the
Underwriter against certain liabilities which may be incurred in connection with
the offering including liabilities under the Securities Act.
The Underwriter has agreed to reserve a maximum of 120,000 shares of Common
Stock for offering and sale at the public offering price to certain directors,
officers and employees of the Corporation.
The Corporation and its directors and officers, who will, upon completion
of this offering, in the aggregate hold at least 2,720,635 shares of Common
Stock, have agreed that they will not offer, sell or otherwise dispose of any
shares of Common Stock, or any securities convertible into or exchangeable for
shares of Common Stock, owned directly by such holders or with respect to which
they have the power of disposition, for a period of 180 days from the date of
this Prospectus without the prior written consent of McDonald & Company
Securities, Inc.
73
<PAGE> 75
LEGAL MATTERS
Thompson Hine & Flory LLP, 3900 Key Center, 127 Public Square, Cleveland,
Ohio will render an opinion on the legality of the Common Stock being offered
hereby. No members of the law firm currently own stock of Metropolitan or the
Bank, but members of the law firm may own shares of Common Stock as a result of
the offering. Malvin E. Bank, a partner of Thompson Hine & Flory LLP, is a
member of Metropolitan's and the Bank's Board of Directors. The law firm is not
employed on a contingent basis. Calfee, Halter & Griswold, 1400 McDonald
Investment Center, 800 Superior Avenue, Cleveland, Ohio will pass upon certain
legal matters for the Underwriter.
EXPERTS
The financial statements of Metropolitan as of December 31, 1995 and 1994
and for each of the three years in the period ended December 31, 1995 included
in this Prospectus have been audited by Crowe, Chizek and Company LLP
independent auditors, as stated in their report appearing herein, and have been
so included in reliance upon their authority as experts in accounting and
auditing.
AVAILABLE INFORMATION
Metropolitan is subject to the informational requirements of the Exchange
Act and the rules and regulations thereunder and, in accordance therewith, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed with the Commission may be inspected, without charge, at the offices of
the Commission at Room 1024 Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 or at its regional offices at Seven World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material may be obtained at
prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site at http://www.sec.gov that contains reports, proxy
statements and other information regarding registrants that file electronically
with the Commission, including Metropolitan.
This Prospectus does not contain all of the information set forth in the
Registration Statement which Metropolitan has filed with the Commission under
the Securities Act of which this Prospectus is a part, and to which reference is
made for further information with respect to Metropolitan and the shares of
Common Stock offered hereby.
74
<PAGE> 76
METROPOLITAN FINANCIAL CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors....................................................... F-2
Consolidated Financial Statements
Consolidated Statements of Financial Condition as of June 30, 1996, (unaudited)
December 31, 1995 and 1994...................................................... F-3
Consolidated Statements of Operations for the Six Months Ended June 30, 1996 and
1995 (unaudited) and for the Years Ended December 31, 1995, 1994 and 1993....... F-4
Consolidated Statements of Shareholder's Equity for the Six Months Ended June 30,
1996 (unaudited) and for the Years Ended December 31, 1995, 1994 and 1993....... F-5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and
1995 (unaudited) and for the Years Ended December 31, 1995, 1994 and 1993....... F-6
Notes to Consolidated Financial Statements........................................... F-8
</TABLE>
F-1
<PAGE> 77
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Metropolitan Financial Corp.
Cleveland, Ohio
We have audited the accompanying consolidated statements of financial
condition of Metropolitan Financial Corp. as of December 31, 1995 and 1994, and
the related consolidated statements of operations, shareholder's equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Metropolitan
Financial Corp. as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Corporation changed
its method of accounting for mortgage servicing rights and impaired loans in
1995 and for certain investment securities in 1994 to comply with new accounting
guidance.
Crowe, Chizek and Company LLP
Cleveland, Ohio
February 23, 1996
F-2
<PAGE> 78
METROPOLITAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------------
1996 1995 1994
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents....................... $ 12,342,110 $ 18,170,473 $ 11,565,524
Securities available for sale (Note 2).......... 12,136,190 22,806,178 7,640,625
Mortgage-backed securities available for sale
(Notes 2, 3 and 9)............................ 41,820,903 39,155,500 16,785,141
Loans held for sale............................. 10,686,026 1,504,348 83,500
Loans receivable, net (Notes 4 and 9)........... 563,883,170 478,345,398 424,943,995
Federal Home Loan Bank stock, at cost (Note
9)............................................ 3,852,000 3,568,700 2,311,200
Accrued interest receivable (Note 5)............ 4,239,664 3,707,742 2,707,826
Premises and equipment, net (Note 6)............ 8,791,012 7,499,939 3,149,733
Real estate owned, net.......................... 218,821 257,593 53,283
Cost in excess of fair value of net assets
acquired...................................... 3,079,295 3,188,412 3,408,527
Cost of loan servicing rights (Note 7).......... 8,692,737 9,129,558 4,824,586
Prepaid expenses and other assets............... 3,043,688 2,761,156 1,909,841
------------ ------------ ------------
Total assets............................. $672,785,616 $590,094,997 $479,383,781
=========== =========== ===========
LIABILITIES
Deposits (Note 8)............................... $558,793,688 $503,742,420 $436,197,716
Other borrowings (Note 9)....................... 77,073,673 46,873,673 15,503,673
Accrued interest payable........................ 3,126,741 4,551,061 1,713,803
Official check float account.................... 3,778,038 2,778,632 1,313,176
Other liabilities............................... 3,399,954 6,682,796 4,375,436
------------ ------------ ------------
Total liabilities........................ 646,172,094 564,628,582 459,103,804
------------ ------------ ------------
Commitments (Notes 10 and 13)
SHAREHOLDER'S EQUITY (Note 14)
Common stock, no par value, 250,000 shares
authorized, 1 share issued and outstanding.... 100 100 100
Additional paid-in capital...................... 7,801,283 7,801,283 7,801,283
Retained earnings............................... 18,509,139 16,928,083 13,385,664
Unrealized gain (loss) on securities available
for sale, net of tax.......................... 303,000 736,949 (907,070)
------------ ------------ ------------
Total shareholder's equity............... 26,613,522 25,466,415 20,279,977
------------ ------------ ------------
Total liabilities and shareholder's
equity.............................. $672,785,616 $590,094,997 $479,383,781
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 79
METROPOLITAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------- ---------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans............. $23,040,268 $19,316,433 $39,654,779 $29,762,338 $22,584,198
Interest on mortgage-backed
securities.......................... 1,264,530 655,955 2,492,744 692,673 1,142,744
Interest and dividends on other
investments......................... 682,824 395,160 979,566 933,594 720,999
----------- ----------- ----------- ----------- -----------
Total interest income............... 24,987,622 20,367,548 43,127,089 31,388,605 24,447,941
----------- ----------- ----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits (Note 8).......... 13,345,349 10,950,522 23,521,751 14,917,447 10,777,828
Interest on other borrowings (Note
9).................................. 2,103,413 1,436,982 3,294,520 1,074,344 437,457
----------- ----------- ----------- ----------- -----------
Total interest expense.............. 15,448,762 12,387,504 26,816,271 15,991,791 11,215,285
----------- ----------- ----------- ----------- -----------
NET INTEREST INCOME...................... 9,538,860 7,980,044 16,310,818 15,396,814 13,232,656
Provision for loan losses (Note 4)....... 685,559 479,026 958,573 765,664 739,921
----------- ----------- ----------- ----------- -----------
Net interest income after provision for
loan losses............................ 8,853,301 7,501,018 15,352,245 14,631,150 12,492,735
----------- ----------- ----------- ----------- -----------
NON-INTEREST INCOME
Loan servicing income, net............... 632,387 390,645 1,067,767 641,625 601,595
Gain on sale of loans.................. 35,710 113,381 444,313 52,443 1,393,451
Net gain on sale of mortgage-backed
securities and mutual funds......... 388,581 34,204 318,279
Loan option income (Note 13)........... 406,296 420,000 559,256
Loan credit discount income (Note 4)... 406,205 640,262
Other operating income................. 972,190 631,483 1,431,946 1,122,460 1,067,274
----------- ----------- ----------- ----------- -----------
Total non-interest income........... 2,046,583 1,961,714 4,532,125 1,850,732 3,380,599
----------- ----------- ----------- ----------- -----------
NON-INTEREST EXPENSE
Salaries and related personnel costs... 4,071,117 3,258,984 6,819,383 5,348,509 3,834,309
Occupancy and equipment expense........ 1,124,386 1,024,821 2,134,862 1,487,558 1,130,121
Federal deposit insurance premiums..... 639,455 548,040 1,132,125 928,969 793,684
Data processing expense................ 295,069 327,816 586,260 381,431 360,644
Marketing expense...................... 284,682 225,515 542,838 392,481 256,231
State franchise taxes.................. 232,193 151,671 306,518 283,503 177,884
Amortization of intangibles............ 109,117 110,998 220,115 221,996 221,996
Other operating expenses............... 1,606,679 1,103,756 2,445,150 2,013,503 1,499,233
----------- ----------- ----------- ----------- -----------
Total non-interest expense.......... 8,362,698 6,751,601 14,187,251 11,057,950 8,274,102
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
CHANGE IN ACCOUNTING PRINCIPLE......... 2,537,186 2,711,131 5,697,119 5,423,932 7,599,232
Provision for income taxes (Note 11)..... 956,130 1,032,200 2,154,700 1,987,143 2,829,200
----------- ----------- ----------- ----------- -----------
INCOME BEFORE CUMULATIVE CHANGE IN
ACCOUNTING PRINCIPLE................... 1,581,056 1,678,931 3,542,419 3,436,789 4,770,032
Cumulative change in accounting principle
(Note 1)............................... (300,000)
----------- ----------- ----------- ----------- -----------
NET INCOME............................... $ 1,581,056 $ 1,678,931 $ 3,542,419 $ 3,436,789 $ 4,470,032
=========== =========== =========== =========== ===========
EARNINGS PER SHARE (NOTE 1).............. $ 0.51 $ 0.54 $ 1.13 $ 1.10 $ 1.43
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE SHARES (NOTE 1)......... 3,125,635 3,125,635 3,125,635 3,125,635 3,125,635
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 80
METROPOLITAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
UNREALIZED
UNREALIZED GAIN/
LOSS ON (LOSS) ON
ADDITIONAL MARKETABLE SECURITIES TOTAL
COMMON PAID-IN RETAINED EQUITY AVAILABLE SHAREHOLDER'S
STOCK CAPITAL EARNINGS SECURITIES FOR SALE EQUITY
------ ---------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993.............. $100 $7,801,283 $ 5,478,843 $ (169,244) $ 13,110,982
Recovery of unrealized loss on
marketable equity securities........ 169,244 169,244
Net income............................ 4,470,032 4,470,032
---- ---------- ----------- ---------- ------------
Balance, December 31, 1993............ 100 7,801,283 9,948,875 -0- 17,750,258
Unrealized gain on securities
available for sale upon adoption of
SFAS No. 115 on January 1, 1994
(Note 1)............................ $ 16,255 16,255
Net income............................ 3,436,789 3,436,789
Change in unrealized gain/ (loss) on
securities available for sale, net
of tax.............................. (923,325) (923,325)
----- ---------- ----------- ---------- ---------- ------------
Balance, December 31, 1994............ 100 7,801,283 13,385,664 -0- (907,070) 20,279,977
Net income............................ 3,542,419 3,542,419
Change in unrealized gain/ (loss) on
securities available for sale, net
of tax.............................. 1,644,019 1,644,019
----- ---------- ----------- ---------- ---------- ------------
Balance, December 31, 1995............ 100 7,801,283 16,928,083 -0- 736,949 25,466,415
Net income............................ 1,581,056 1,581,056
Change in unrealized gain/ (loss) on
securities available for sale, net
of tax.............................. (433,949) (433,949)
----- ---------- ----------- ---------- ---------- ------------
Balance, June 30, 1996................ $100 $7,801,283 $18,509,139 $ -0- $ 303,000 $ 26,613,522
===== ========== =========== ========== ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 81
METROPOLITAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
--------------------------- ------------------------------------------
1996 1995 1995 1994 1993
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................ $ 1,581,056 $ 1,678,931 $ 3,542,419 $ 3,436,789 $ 4,470,032
Adjustments to reconcile net income to
net cash provided by operating
activities:
Net amortization and
depreciation................. 1,634,172 1,062,799 2,036,614 1,737,049 875,887
Gain on sale of mortgage-backed
securities and mutual
funds........................ (388,581) (34,204) (318,279)
Provision for loan losses...... 685,559 479,026 958,573 765,664 739,921
Deferred taxes................. 206,692 (454,764) (9,326) (121,000) 95,200
Loans originated for sale...... (22,716,870) (28,421,143) (45,327,774) (41,059,540) (138,660,080)
Loans purchased for sale....... (10,044,889) (15,476,148) (16,210,821)
Proceeds from sale of loans.... 24,561,840 27,242,098 59,830,616 50,965,820 132,256,830
Gain on sale of real estate
owned........................ (2,131) (11,693) 3,307 28,887 (248,017)
FHLB stock dividend............ (127,500) (93,600) (216,200) (126,900) (91,100)
Changes in:
Prepaid expenses and other
assets.................... (814,454) (2,566,187) (2,603,437) (1,634,617) 493,840
Other liabilities............ (3,708,930) 5,809,753 6,588,239 1,594,937 (159,672)
------------ ------------ ------------ ------------ ------------
Net cash provided by operating
activities................... (8,745,455) (10,750,928) 8,203,629 15,552,885 (545,438)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities, calls
and repayments of securities
available for sale............. 2,000,000 2,000,000
Purchases of securities available
for sale....................... (9,122,338) (4,101,250) (23,464,948) (10,167,902)
Proceeds from sale of securities
available for sale............. 19,405,161 7,000,000 19,759,740
Disbursement of loan proceeds..... (118,419,780) (41,572,713) (117,432,139) (143,508,572) (69,253,170)
Purchases of loans................ (33,584,461) (33,771,897) (86,134,911) (71,704,818) (69,988,227)
Proceeds from loan principal
repayments..................... 59,599,244 30,193,976 96,163,166 73,780,215 71,652,634
Purchase of mortgage-backed
securities available for
sale........................... (6,540,625) (6,078,881) (11,163,168)
Proceeds from mortgage-backed
security principal repayments
and maturities................. 3,607,371 3,525,478 706,239 5,218,546
Proceeds from sale of
mortgage-backed securities..... 29,142,705 1,245,585 16,224,114
Proceeds from sale of loans....... 4,914,956
Proceeds from sales of real estate
owned and premises and
equipment...................... 40,903 64,976 102,678 1,308,418 478,396
Purchase of premises and
equipment...................... (1,588,457) (2,632,197) (4,869,739) (1,135,060) (611,499)
Purchase of FHLB stock............ (155,800) (1,041,300) (1,041,300) (45,800) (223,100)
Purchase of mortgage loan
servicing rights............... (445,445) (4,685,882) (5,329,415) (3,516,570) (1,434,484)
------------ ------------ ------------ ------------ ------------
Net cash used for investing
activities................... (82,289,271) (57,546,287) (100,338,425) (146,949,244) (49,508,120)
------------ ------------ ------------ ------------ ------------
</TABLE>
(Continued)
F-6
<PAGE> 82
METROPOLITAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
--------------------------- -----------------------------------------
1996 1995 1995 1994 1993
------------ ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposit accounts..... $ 55,006,363 $ 18,536,809 $ 67,369,745 $103,475,533 $63,217,915
Proceeds from borrowings........... 120,650,000 217,800,000 340,700,000 118,718,388 59,605,285
Repayment of borrowings............ (90,450,000) (168,630,000) (309,330,000) (118,960,000) (55,680,000)
------------ ------------ ------------ ------------ -----------
Net cash provided by financing
activities.................... 85,206,363 67,706,809 98,739,745 103,233,921 67,143,200
------------ ------------ ------------ ------------ -----------
Net change in cash and cash
equivalents........................ (5,828,363) (590,406) 6,604,949 (28,162,438) 17,089,642
Cash and cash equivalents at
beginning of year.................. 18,170,473 11,565,524 11,565,524 39,727,962 22,638,320
------------ ------------ ------------ ------------ -----------
Cash and cash equivalents at end of
year............................... $ 12,342,110 $ 10,975,118 $ 18,170,473 $ 11,565,524 $39,727,962
============ ============ ============ ============ ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest........................ $ 14,024,442 $ 11,582,151 $ 23,979,013 $ 15,156,138 $11,117,774
Income taxes.................... 895,000 804,000 2,749,000 1,751,200 2,857,318
Transfer from loans receivable to
other real estate............... 45,722 326,709 442,689 941,130
Securities classified as available
for sale upon adoption of SFAS
No. 115......................... 23,584,000
Loans securitized.................. 7,802,987 53,795,086
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 83
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Metropolitan Financial Corp. (the "Corporation") is an Ohio corporation
organized for the operation of a savings and loan holding company. The
accounting policies of the Corporation conform to generally accepted accounting
principles and prevailing practices within the banking and thrift industry. A
summary of the more significant accounting policies follows:
Consolidation Policy: The Corporation and its subsidiaries, MetroCapital
Corporation and Metropolitan Savings Bank (the "Bank"), and its wholly-owned
subsidiaries, Kimberly Construction Company, Incorporated, and Metropolitan
Savings Service Corporation and its wholly-owned subsidiary Metropolitan
Securities Corporation are included in the accompanying consolidated financial
statements. All significant intercompany balances have been eliminated.
Industry Segment Information: Metropolitan Financial Corp. is a savings and
loan holding company engaged in the business of originating and purchasing
multifamily and commercial real estate loans in Ohio, Central and Northern New
Jersey, Michigan, Kentucky and Western Pennsylvania and residential real estate
loans in Northeastern Ohio. The majority of the Corporation's income is derived
from commercial and retail lending activities.
Use of Estimates in Preparation of Financial Statements: In preparing
financial statements, management must make estimates and assumptions. These
estimates and assumptions affect the amounts reported for assets, liabilities,
revenues and expenses as well as affecting the disclosures provided. Future
results could differ from current estimates. Areas involving the use of
management's estimates and assumptions primarily include the allowance for
losses on loans, the valuation of loan servicing rights, the value of loans held
for sale, fair value of certain securities, the carrying value and amortization
of intangibles, the determination and carrying value of impaired loans, and the
fair value of financial instruments. Estimates that are more susceptible to
change in the near term include the allowance for losses on loans, the valuation
of servicing rights, the value of loans held for sale and the fair value of
securities.
Statement of Cash Flows: For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from depository institutions,
interest bearing deposits, investments purchased with an initial maturity of
three months or less, overnight repurchase agreements and federal funds sold.
Generally, federal funds and overnight repurchase agreements are sold for
one-day periods. The Corporation reports net cash flows for deposit transactions
and deposits made with other financial institutions.
Securities: Effective January 1, 1994, the Corporation adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities." This
accounting guidance requires the Corporation to classify debt and marketable
equity securities as held to maturity, trading or available for sale. The
cumulative effect on shareholder's equity at January 1, 1994, of adopting SFAS
No. 115, is included as a separate component of shareholder's equity in the
consolidated statement of financial condition and represents the after tax
effect of adjusting securities available for sale to fair value. Prior to the
adoption of SFAS No. 115, the Corporation classified investment securities as
held for sale.
Securities classified as held to maturity are those that management has the
positive intent and ability to hold to maturity. Securities held to maturity are
stated at cost, adjusted for amortization of premiums and accretion of
discounts.
Securities classified as available for sale are those that management
intends to sell or that could be sold for liquidity, investment management, or
similar reasons, even if there is not a present intention for such a sale.
Securities available for sale are carried at fair value with unrealized gains
and losses included as a separate
F-8
<PAGE> 84
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
component of shareholder's equity, net of tax. Gains or losses on dispositions
are based on net proceeds and the adjusted carrying amount of securities sold,
using the specific identification method.
Loans: Loans held for investment are stated at the principal amount
outstanding adjusted for amortization of premium and accretion of discount using
the interest method. Sales of loans are dependent upon various factors,
including interest rate movements, deposit flows, the availability and
attractiveness of other sources of funds, loan demand by borrowers, and
liquidity and capital requirements. The Bank re-evaluates its intent to hold
loans at each balance sheet date based on the then current environment and, if
appropriate, reclassifies loans as held for sale and records them at the lower
of cost or market. For multifamily and commercial real estate loans held for
sale, the Bank enters into a sales agreement concurrent with loan origination.
As such, these loans are recorded at cost, which approximates market. At June
30, 1996 and December 31, 1995 and 1994, management had the intent and the Bank
had the ability to hold all loans being held for investment purposes for the
foreseeable future. Gains and losses on the sale of loans are determined by the
identified loan method and are reflected in operations at the time of sale.
Allowance for Losses on Loans: Because some loans may not be repaid in
full, an allowance for losses on loans is maintained. Increases to the allowance
are recorded by a provision for loan losses charged to expense. Estimating the
risk of loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the allowance is maintained by management at a level considered
adequate to cover possible losses that are currently anticipated based on past
loss experience, general economic conditions, information about specific
borrower situations including their financial position and collateral values,
and other factors and estimates which are subject to change over time. While
management may periodically allocate portions of the allowance for specific
problem loans, the whole allowance is available for any loan charge-offs that
occur. A loan is charged off against the allowance by management as a loss when
deemed uncollectible, although collection efforts continue and future recoveries
may occur.
SFAS No. 114 was adopted January 1, 1995. Under this standard, loans
considered to be impaired are reduced to the present value of expected future
cash flows or to the fair value of collateral, by allocating a portion of the
allowance for losses on loans to such loans. If these allocations cause the
allowance for losses on loans to require an increase, such increase is reported
as a provision for loan losses. Based on the analysis prepared, no provision for
loan losses was recorded in connection with adopting this standard. As allowed,
management excludes all consumer loans and residential single family loans with
balances less than $200,000 from classification as impaired.
SFAS No. 118 was adopted January 1, 1995. Under this standard a creditor is
allowed to use existing methods for income recognition on an impaired loan. All
impaired loans for purposes of SFAS No. 114 are placed on non-accrual status.
Real Estate Owned: Real estate owned is comprised of properties acquired
through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure.
These properties are recorded at fair value, less estimated selling costs. Any
reduction from carrying value of the related loan to fair value at the time of
acquisition is accounted for as a loan loss. Any subsequent reduction in fair
value is reflected in a valuation allowance account through a charge to income.
Expenses to carry real estate owned are charged to operations as incurred.
Premises and Equipment: Premises and equipment are recorded at cost less
accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets for
financial reporting purposes. For tax purposes, depreciation on certain assets
is computed using accelerated methods. Maintenance and repairs are charged to
expense as incurred and improvements are capitalized.
F-9
<PAGE> 85
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
Cost in Excess of Fair Value of Net Assets Acquired: The cost in excess of
fair value of the net assets acquired resulting from the acquisition of the Bank
is being amortized to expense on a straight-line basis over a period of 25 years
beginning in July 1987. This amount is a reduction from shareholder's equity in
calculating tangible capital for regulatory purposes.
Loan-Servicing Rights: The cost of loan-servicing rights acquired is
amortized in proportion to, and over the period of, estimated net servicing
revenues. The cost of loan-servicing rights purchased and the amortization
thereon is periodically evaluated in relation to estimated future net servicing
revenues. The Bank evaluates the carrying value of the servicing portfolio by
estimating the future net servicing income of the portfolio based on
management's best estimate of remaining loan lives.
Effective January 1, 1995 the Corporation adopted SFAS No. 122, "Accounting
for Mortgage Servicing Rights." SFAS No. 122 requires lenders who sell or
securitize originated loans and retain the servicing rights to recognize as
separate assets the rights to service mortgage loans for others. SFAS No. 122
also requires that capitalized mortgage servicing rights be assessed for
impairment based on the fair value of those rights. For purposes of measuring
impairment, management stratifies loans by loan type, interest rate and
investor.
Purchase Accounting Adjustment: The purchase accounting adjustment, which
was recorded as a result of the 1990 acquisition of Independent Share Corp. and
Independent Savings Bank approximated $1.4 million. It is being amortized on a
straight line basis over the expected lives of the deposits; five years for
demand deposits and ten years for savings deposits.
Interest Income on Loans: Interest on loans is accrued over the term of
the loans based upon the principal outstanding. Management reviews loans
delinquent 90 days or more to determine if interest accrual should be
discontinued based on the estimated fair market value of the collateral. Under
SFAS No. 114, as amended by SFAS No. 118, the carrying values of impaired loans
are periodically adjusted to reflect cash payments, revised estimates of future
cash flows and increases in the present value of expected cash flows due to the
passage of time. Cash payments representing interest income are reported as such
and other cash payments are reported as reductions in carrying value. Increases
or decreases in carrying value due to changes in estimates of future payments or
the passage of time are reported as reductions or increases in the provision for
loan losses.
Loan Fees and Costs: Origination and commitment fees received for loans,
net of direct origination costs, are deferred and amortized to interest income
over the contractual life of the loan using the level yield method. The net
amount deferred is reported in the consolidated statements of financial
condition as a reduction of loans.
Income Taxes: The Corporation and its subsidiaries are included in the
consolidated federal income tax return of the Corporation. Income taxes are
provided on a consolidated basis and allocated to each entity based on its
proportionate share of consolidated income. Deferred income taxes are provided
on items of income or expense that are recognized for financial reporting
purposes in periods different than when such items are recognized for income tax
purposes.
Effective January 1, 1993, the Corporation adopted SFAS No. 109,
"Accounting For Income Taxes." The statement requires, among other things, a
change from the deferred method to the liability method of accounting for
deferred income taxes. The cumulative effect of adopting SFAS No. 109 was to
reduce 1993 income by $300,000 and is included in the consolidated statements of
operations as a "cumulative effect of change in accounting principle."
Earnings Per Share: In connection with the initial public offering of
stock, the Board of Directors will approve a 3,125,635-for-one stock split,
effected in the form of a stock dividend during October 1996. All per share
information has been retroactively adjusted to reflect the effect of the stock
dividend.
F-10
<PAGE> 86
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
Concentration of Credit Risk: The Bank originates and purchases commercial
real estate loans, residential real estate loans, consumer loans and business
loans. At June 30, 1996, real estate loans secured by residential apartments
approximated 47% of the Bank's total loan portfolio. The remainder of the
portfolio was comprised of one- to four-family residential loans (16%)
commercial real estate loans (19%), residential construction and land
acquisition and development loans (9%), consumer loans (7%), and business loans
(2%). Additionally, at June 30, 1996, 62% of the Bank's total real estate loans
are secured by real estate in the State of Ohio, 12% in the State of Michigan,
6% in the state of California and 5% in the state of New Jersey. At December 31,
1995, real estate loans secured by residential apartments approximated 46% of
the Bank's total loan portfolio. The remainder of the portfolio was comprised of
one- to four-family residential loans (15%), commercial real estate (21%),
residential construction and land acquisition and development loans (10%),
consumer loans (6%) and business loans (2%). Additionally, 63% of the Bank's
total real estate loans are secured by real estate in the State of Ohio, 12% in
the State of Michigan and 8% in the States of New Jersey and California,
respectively. At December 31, 1994, real estate loans secured by residential
apartments approximated 44% of the Bank's total loan portfolio. The remainder of
the portfolio was comprised of one- to four-family residential loans (30%),
commercial real estate and land acquisition and development loans (20%), and
consumer loans (6%). Additionally, at December 31, 1994, 65% of the Bank's total
real estate loans were secured by real estate in the State of Ohio and 7% in the
State of California.
Loan Option Income: The Bank purchases real estate loans for sale and
simultaneously writes an option giving the holder the option to purchase those
loans at a specified price within a specified time period. At the time the
transaction is complete the Bank recognizes a non-refundable fee in income.
Trust Department Assets and Income: Property held by the Corporation in a
fiduciary or other capacity for its trust customers is not included in the
accompanying consolidated financial statements since such items are not assets
of the Corporation.
Interim Financial Statements: The interim financial statements as of June
30, 1996 and for the six months ended June 30, 1996 and 1995, are unaudited. The
interim financial statements reflect all adjustments, consisting of normal
recurring accruals, in the opinion of management which are necessary for a fair
presentation of the interim periods presented.
NOTE 2 -- SECURITIES
The amortized cost, gross unrealized gains and losses and fair values of
investment securities available for sale at June 30, 1996, are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities.......... $ 6,112,385 $ 28,925 $ (111,790) $ 6,029,520
Mutual funds...................... 1,131,670 1,131,670
FNMA preferred stock.............. 5,000,000 (25,000) 4,975,000
----------- ---------- ---------- -----------
Totals....................... 12,244,055 28,925 (136,790) 12,136,190
Mortgage-backed securities........ 41,235,914 624,169 (39,180) 41,820,903
----------- ---------- ---------- -----------
Totals....................... $53,479,969 $ 653,094 $ (175,970) $53,957,093
========== ======== ========= ==========
</TABLE>
F-11
<PAGE> 87
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
The amortized cost and fair value of debt securities available for sale at
June 30, 1996, by contractual maturity are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Due after one year through five years..... $ 6,112,385 $ 6,029,520
Mortgage-backed securities................ 41,235,914 41,820,903
----------- -----------
Total debt securities available for
sale............................... $47,348,299 $47,850,423
=========== ===========
</TABLE>
The amortized cost, gross unrealized gains and losses and fair values of
investment securities available for sale at December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1995
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities......... $12,195,274 $ 277,102 $ (29,896) $12,442,480
Mutual fund...................... 10,363,698 10,363,698
----------- ---------- ---------- -----------
Total investment securities.. 22,558,972 277,102 (29,896) 22,806,178
Mortgage-backed securities....... 38,286,116 869,384 39,155,500
----------- ---------- ---------- -----------
Totals....................... $60,845,088 $1,146,486 $ (29,896) $61,961,678
=========== ========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
1994
----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities........ $ 8,168,505 $ (527,880) $ 7,640,625
Mortgage-backed securities...... 17,581,330 (796,189) 16,785,141
----------- ----------- -----------
Totals...................... $25,749,835 $(1,324,069) $24,425,766
=========== =========== ===========
</TABLE>
The amortized cost and fair value of debt securities available for sale at
December 31, 1995, by contractual maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Due after one year through five years........... $12,195,274 $12,442,480
Mortgage-backed securities...................... 38,286,116 39,155,500
----------- -----------
Total debt securities available for sale.... $50,481,390 $51,597,980
=========== ===========
</TABLE>
Proceeds from the sale of securities available for sale were $19.4 million
for the six months ended June 30, 1996. Gross gains of $60,000 and gross losses
of $61,000 were realized on those sales. Proceeds from the sale of
mortgage-backed securities available for sale were $29.1 million in 1995, $1.2
million in 1994 and $16.2 million in 1993. Gross gains realized on those sales
were $476,000 in 1995, $38,000 in 1994 and $467,000 in 1993. Gross losses of
$87,000 and $3,000 were realized in 1995 and 1994, respectively. Proceeds from
the sale of mutual funds were $7 million in 1995 and $19.8 million in 1993. No
gain or loss was realized in 1995 and a gross loss of $149,000 was realized on
the sale in 1993.
On November 17, 1995, the Corporation transferred securities with an
amortized cost of $51,345,071 previously classified as held to maturity to
available for sale. The unrealized gain on the securities transferred totaled
$771,664. On November 17, 1995, the Corporation's equity increased $509,298 as a
result of the transfer.
F-12
<PAGE> 88
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
NOTE 3 -- MORTGAGE-BACKED SECURITIES
Mortgage-backed securities available for sale at June 30, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
PRINCIPAL UNEARNED AMORTIZED FAIR
BALANCE DISCOUNTS COST VALUE
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
GNMA pass-through certificates....... $10,369,238 $ (51,382) $10,317,856 $10,460,072
FHLMC participation certificates..... 10,710,487 22,071 10,732,558 10,747,899
FNMA pass-through certificates....... 20,080,958 (385,919) 19,695,039 20,122,471
Sears Mortgage Corporation
pass-through certificates.......... 490,461 490,461 490,461
----------- --------- ----------- -----------
Totals.......................... $41,651,144 $(415,230) $41,235,914 $41,820,903
========== ========= ========== ==========
</TABLE>
Mortgage-backed securities available for sale at December 31, 1995 and 1994
are summarized as follows:
<TABLE>
<CAPTION>
1995
---------------------------------------------------
PRINCIPAL UNEARNED AMORTIZED FAIR
BALANCE DISCOUNTS COST VALUE
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
GNMA pass-through certificates....... $11,220,448 $ (55,923) $11,164,525 $11,348,122
FHLMC participation certificates..... 4,638,552 (21,012) 4,617,540 4,715,366
FNMA pass-through certificates....... 22,356,699 (395,468) 21,961,231 22,549,192
Sears Mortgage Corporation
pass-through certificates.......... 542,820 542,820 542,820
----------- --------- ----------- -----------
Totals.......................... $38,758,519 $(472,403) $38,286,116 $39,155,500
========== ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1994
---------------------------------------------------
PRINCIPAL UNEARNED AMORTIZED FAIR
BALANCE DISCOUNTS COST VALUE
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
GNMA pass-through certificates....... $12,032,366 $ (61,671) $11,970,695 $11,274,437
FHLMC participation certificates..... 5,088,007 (32,039) 5,055,968 4,956,037
Sears Mortgage Corporation
pass-through certificates.......... 554,667 554,667 554,667
----------- --------- ----------- -----------
Totals.......................... $17,675,040 $ (93,710) $17,581,330 $16,785,141
========== ========= ========== ==========
</TABLE>
F-13
<PAGE> 89
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
NOTE 4 -- LOANS RECEIVABLE
The composition of the loan portfolio at June 30, 1996 is as follows:
<TABLE>
<CAPTION>
ORIGINATED PURCHASED TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Real estate loans
Construction loans
Residential single family........... $ 39,424,251 $ 39,424,251
Commercial.......................... 2,325,000 2,325,000
Land................................ 14,472,855 14,472,855
Loans in process.................... (28,094,952) (28,094,952)
------------ ------------
Construction loans, net........... 28,127,154 28,127,154
Permanent loans
Residential single family........... 67,190,265 $ 24,864,437 92,054,702
Multifamily......................... 152,363,721 117,686,029 270,049,750
Commercial.......................... 32,302,917 89,703,000 122,005,917
Other............................... 95,302 5,617 100,919
------------ ------------ ------------
Total real estate loans........... 280,079,359 232,259,083 512,338,442
Consumer loans........................... 31,085,639 10,700,374 41,786,013
Business and other loans................. 15,034,386 15,034,386
------------ ------------ ------------
Total loans....................... $326,199,384 $242,959,457 569,158,841
============ ============
Discount on loans, net................... (84,309)
Deferred loan fees, net.................. (1,755,036)
Allowance for losses on loans............ (3,436,326)
------------
$563,883,170
============
</TABLE>
The composition of the loan portfolio at December 31, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
1995
----------------------------------------------
ORIGINATED PURCHASED TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Real estate loans
Construction loans
Residential single family........... $ 37,118,087 $ 37,118,087
Commercial.......................... 440,000 440,000
Land................................ 10,613,217 10,613,217
Loans in process.................... (23,373,232) (23,373,232)
------------ ------------
Construction loans, net........... 24,798,072 24,798,072
Permanent loans
Residential single family........... 47,821,816 $ 28,437,082 76,258,898
Multifamily......................... 118,441,339 113,017,691 231,459,030
Commercial.......................... 24,303,645 85,098,474 109,402,119
Other............................... 36,415 2,394 38,809
------------ ------------ ------------
Total real estate loans........... 215,401,287 226,555,641 441,956,928
Consumer loans........................... 27,243,050 4,970,535 32,213,585
Business and other loans................. 8,703,794 8,703,794
------------ ------------ ------------
Total loans....................... $251,348,131 $231,526,176 482,874,307
============ ============
Discount on loans, net................... (543,770)
Deferred loan fees, net.................. (1,220,475)
Allowance for losses on loans............ (2,764,664)
------------
$478,345,398
============
</TABLE>
F-14
<PAGE> 90
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1994
----------------------------------------------
ORIGINATED PURCHASED TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Real estate loans
Construction loans
Residential single family........... $ 31,691,460 $ 31,691,460
Commercial.......................... 440,000 440,000
Land................................ 6,138,884 6,138,884
Loans in process.................... (19,338,158) (19,338,158)
------------ ------------
Construction loans, net........... 18,932,186 18,932,186
Permanent loans
Residential single family........... 80,922,018 $ 31,917,896 112,839,914
Multifamily......................... 105,788,151 82,139,355 187,927,506
Commercial.......................... 18,790,480 64,563,886 83,354,366
------------ ------------ ------------
Total real estate loans........... 224,432,835 178,621,137 403,053,972
Consumer loans........................... 20,272,898 5,673,573 25,946,471
Business and other loans................. 171,400 171,400
------------ ------------ ------------
Total loans....................... $244,877,133 $184,294,710 429,171,843
============ ============
Discount on loans, net................... (836,530)
Deferred loan fees, net.................. (1,480,604)
Allowance for losses on loans............ (1,910,714)
------------
$424,943,995
============
</TABLE>
Loans with adjustable rates, included above, totaled $402,159,000,
$348,082,000 and $349,043,000 at June 30, 1996 and December 31, 1995 and 1994,
respectively. Substantially all such loans have contractual interest rates that
increase or decrease at periodic intervals of one month to five years.
During 1995, the Bank received payoffs on loans originally purchased at
discounts. The purchase discounts recorded were attributable to collectibility
concerns and at payoff, the unamortized discounts totaling $406,205 and $640,262
were recorded as income at June 30, 1995 and December 31, 1995, respectively.
Activity in the allowance for losses on loans is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------------- ------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year......... $2,764,664 $1,910,714 $1,910,714 $1,239,147 $ 725,462
Provision for loan losses............ 685,559 479,026 958,573 765,664 739,921
Net charge-offs...................... (13,897) (39,981) (104,623) (94,097) (226,236)
---------- ---------- ---------- ---------- ----------
$3,436,326 $2,349,759 $2,764,664 $1,910,714 $1,239,147
========== ========== ========== ========== ==========
</TABLE>
Effective January 1, 1995, the Bank adopted the provisions of SFAS Nos.
114, "Accounting by Creditors for Impairment of a Loan" and 118, "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures." SFAS No.
114 specifies that allowances for losses on impaired loans be determined using
the present value of estimated future cash flows of the loan, discounted using
the loan's effective interest rate. Management analyzes loans on an individual
basis and considers a loan to be impaired when it is probable that all principal
and interest amounts will not be collected according to the loan contract. Loans
which are past
F-15
<PAGE> 91
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
due two payments or less and that management feels are probable of being paid
current within 90 days are not considered to be impaired loans. SFAS No. 118
allows a creditor to use existing methods for income recognition on an impaired
loan.
Information regarding impaired loans at June 30, 1996 and December 31, 1995
is as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
Balance of impaired loans....................................... $4,583,255 $3,569,074
Less portion for which no allowance for losses on loans is
allocated..................................................... 2,650,591 3,569,074
---------- ----------
Portion of impaired loan balance for which an allowance for
losses on loans is allocated.................................. $1,932,664 $ 0
========== ==========
Portion of allowance for losses on loans allocated to the
impaired loan balance......................................... $ 175,164 $ 0
========== ==========
</TABLE>
Information regarding impaired loans is as follows for the six months ended
June 30, 1996 and the year ended December 31, 1995:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
Average investment in impaired loans during the period.......... $4,958,205 $2,144,138
========== ==========
Interest income recognized on impaired loans including interest
income recognized on cash basis during the period............. $ 44,867 $ 35,884
========== ==========
</TABLE>
Loans on non-accrual status at December 31, 1994 approximated $2,240,000.
If interest had been accrued on non-accrual loans, interest income would have
increased by approximately $204,000 and $201,000 for the years ended December
31, 1994 and 1993, respectively.
NOTE 5 -- ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Loans receivable............................... $3,753,638 $3,210,849 $2,474,152
Mortgage-backed securities..................... 226,468 204,658 78,751
Other.......................................... 259,558 292,235 154,923
---------- ---------- ----------
$4,239,664 $3,707,742 $2,707,826
========== ========== ==========
</TABLE>
F-16
<PAGE> 92
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
NOTE 6 -- PREMISES AND EQUIPMENT
Premises and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Land........................................... $2,208,105 $2,223,354 $ 177,506
Office buildings............................... 2,271,134 1,617,812 660,890
Leasehold improvements......................... 2,287,875 2,239,329 1,919,851
Furniture, fixtures and equipment.............. 4,189,403 3,684,568 2,727,057
Construction in progress....................... 720,556 351,979 107,222
---------- ---------- ----------
Total..................................... 11,677,073 10,117,042 5,592,526
Accumulated depreciation....................... 2,886,061 2,617,103 2,442,793
---------- ---------- ----------
$8,791,012 $7,499,939 $3,149,733
========= ========= =========
</TABLE>
Depreciation expense was $297,384 and $282,262 for the six months ended
June 30, 1996 and 1995, respectively. Depreciation expense was $519,533,
$369,946, and $304,020 for the years ended December 31, 1995, 1994 and 1993,
respectively.
NOTE 7 -- LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances of
these loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------------
1996 1995 1994
-------------- -------------- ------------
<S> <C> <C> <C>
Mortgage loans underlying pass-through
securities
FNMA................................ $ 128,374,060 $ 112,657,048 $ 41,796,403
Mortgage loan portfolios serviced for
FHLMC............................... 749,284,480 781,402,395 507,758,889
FNMA................................ 225,987,229 224,544,952 150,662,382
Other............................... 31,969,759 63,611,413 39,207,397
-------------- -------------- ------------
$1,135,615,528 $1,182,215,808 $739,425,071
============= ============= ===========
</TABLE>
Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $13,413,000, $14,198,000, and $5,600,000 at June
30, 1996 and December 31, 1995 and 1994, respectively.
Following is an analysis of the changes in loan servicing rights acquired:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, -------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of period................ $8,587,831 $4,824,586 $2,295,017
Additions..................................... 445,446 5,329,415 3,516,570
Amortization.................................. (1,007,814) (1,566,170) (987,001)
---------- ---------- ----------
Balance at end of period...................... $8,025,463 $8,587,831 $4,824,586
========== ========= =========
</TABLE>
F-17
<PAGE> 93
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
Following is an analysis of the changes in loan servicing rights
originated:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
Balance at beginning of period.......................... $541,727 $ 0
Additions............................................... 172,870 558,940
Amortization............................................ (47,323) (17,213)
-------- --------
Balance at end of period................................ $667,274 $541,727
======== ========
</TABLE>
NOTE 8 -- DEPOSITS
Deposits consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
JUNE 30, 1996 1995 1994
---------------------- ---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------ ------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing checking
accounts..................... $ 28,777,902 5% $ 27,036,735 5% $ 19,526,478 5%
Interest-bearing checking
accounts -- 2.00% to 3.20%... 36,328,125 7 36,097,363 7 44,721,534 10
Passbook savings and statement
savings -- 2.75% to 5.73%.... 178,423,865 32 140,834,310 28 108,412,494 25
Certificates of deposit:
4.00% or less................ 22,619 -- 12,978,221 3
4.01% through 6.00%.......... 242,476,882 43 159,599,187 32 219,403,246 50
6.01% through 7.00%.......... 37,700,718 7 66,373,748 13 28,188,441 6
7.01% through 8.00%.......... 35,302,537 6 74,039,703 15 3,359,056 1
Greater than 8.00%........... 44,450
------------ --- ------------ --- ------------ ---
Total certificates of
deposit................... 315,480,137 56 300,035,257 60 263,973,414 60
------------ --- ------------ --- ------------ ---
Total deposits before premium
and purchase accounting
adjustment................ 559,010,029 100% 504,003,665 100% 436,633,920 100%
=== === ===
Premium on deposits............ 376
Purchase accounting
adjustment................... (216,341) (261,245) (436,580)
------------ ------------ ------------
$558,793,688 $503,742,420 $436,197,716
============ ============ ============
</TABLE>
The weighted average interest rate on deposits at June 30, 1996 and
December 31, 1995 and 1994 was 4.96%, 5.11% and 4.37%, respectively.
F-18
<PAGE> 94
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
At June 30, 1996, scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INTEREST
AMOUNT RATE
------------ --------
<S> <C> <C>
Six months ended December 31, 1996.......................... $129,360,974 5.54%
Year ended December 31, 1997................................ 146,683,377 5.76%
Year ended December 31, 1998................................ 13,995,409 5.98%
Year ended December 31, 1999................................ 5,905,107 6.20%
Year ended December 31, 2000................................ 15,306,870 7.28%
Thereafter.................................................. 4,228,400 5.96%
------------
$315,480,137 5.76%
============
</TABLE>
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was approximately $43,832,000 at June 30, 1996.
At December 31, 1995, scheduled maturities of certificates of deposit are
as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
YEAR INTEREST
ENDED AMOUNT RATE
----- ------------ --------
<S> <C> <C>
1996........................................ $235,484,349 6.03%
1997........................................ 36,597,071 5.94%
1998........................................ 7,864,953 6.27%
1999........................................ 4,084,951 6.78%
2000........................................ 14,313,721 7.27%
Thereafter.................................. 1,690,212 6.04%
------------
$300,035,257 6.10%
============
</TABLE>
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was approximately $41,930,000 and $12,657,000 at December 31, 1995
and 1994, respectively.
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NOW and interest-bearing
checking...................... $ 470,045 $ 490,867 $ 969,489 $ 1,441,566 $ 2,622,093
Passbook savings and statement
savings....................... 3,855,640 2,561,122 5,632,861 3,164,059 1,887,931
Certificates of deposit......... 9,019,664 7,898,533 16,919,401 10,311,822 6,267,804
----------- ----------- ----------- ----------- -----------
$13,345,349 $10,950,522 $23,521,751 $14,917,447 $10,777,828
=========== =========== =========== =========== ===========
</TABLE>
F-19
<PAGE> 95
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
NOTE 9 -- OTHER BORROWINGS
Other borrowings consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Federal Home Loan Bank advances (5.7%, 5.75%
and 7.0% at June 30, 1996, December 31,
1995 and 1994, respectively).............. $58,200,000 $28,000,000 $ 6,150,000
Qualifying subordinated debt maturing May
31, 1997 (10.75% variable rate)........... 1,200,000
Subordinated debt maturing December 31, 2001
(10% fixed rate).......................... 4,873,673 4,873,673 4,873,673
Subordinated debt maturing January 1, 2005
(9.625% fixed rate)....................... 14,000,000 14,000,000
Term loan maturing July, 1995 (8.5% variable
rate)..................................... 3,280,000
----------- ----------- -----------
$77,073,673 $46,873,673 $15,503,673
=========== =========== ===========
</TABLE>
Federal Home Loan Bank advances outstanding at June 30, 1996, mature as
follows: $38,200,000 in 1996, $5,000,000 in 1997, and $15,000,000 in 1998. All
advances outstanding at December 31, 1995 mature in 1996. Federal Home Loan Bank
advances are collateralized by FHLB stock, first mortgage loans and
mortgage-backed securities with an aggregate carrying value of $117,000,000,
$42,000,000 and $9,225,000 at June 30, 1996 and December 31, 1995 and 1994.
On May 31, 1990, the Bank issued a $2 million subordinated term note to
Robert M. Kaye due May 31, 1997. Mr. Kaye is the sole shareholder of the
Corporation. Interest accrued at a rate of 3% in excess of the prime rate
adjustable quarterly. The outstanding balance was paid in full during 1995.
In 1993 and early 1994, the Corporation issued subordinated notes totaling
$4,873,673. Interest on the notes is paid quarterly and principal will be repaid
when the notes mature December 31, 2001. Total issuance costs of approximately
$185,000 were incurred and will be amortized on a straight line basis over the
life of the notes. The notes are unsecured.
In December 1995, the Corporation issued subordinated notes totaling
$14,000,000. Interest on the notes is paid monthly and principal will be repaid
when the notes mature January 1, 2005. Total issuance costs of approximately
$1,170,000 will be amortized on a straight line basis over the life of the
notes. The notes are unsecured.
The term loan outstanding at December 31, 1994 was with another savings
bank. Interest on the loan was payable quarterly at the lender's prime rate. The
loan was secured by the stock of the Corporation and a personal guarantee of its
sole shareholder, Robert M. Kaye. The outstanding balance was paid in full
during 1995.
On February 22, 1995, the Corporation entered into an agreement for a
$5,000,000 variable rate 18-month revolving credit converting to a 30-month
variable rate term note. The terms of the loan require interest only payments
for eighteen months, then quarterly principal payments based on an 84-month
amortization with a balloon payment at maturity. The loan, which is guaranteed
by the Corporation's sole shareholder, Robert M. Kaye, and collateralized by
stock of the Corporation and the Bank, was paid in full during 1995. In May,
1996, the Corporation renegotiated certain terms of this agreement. The maximum
borrowing was decreased to $4,000,000, the revolving term was extended to May,
1998, at which time any then outstanding
F-20
<PAGE> 96
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
balance converts to a term loan with quarterly principal payments based on a
60-month amortization with a balloon payment due at maturity in May, 2001. At
June 30, 1996, there were no borrowings outstanding under this agreement.
Interest expense on borrowings is summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- ----------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Term loan............................. $ 42,640 $ 42,640 $ 246,076 $226,510
FHLB advances......................... $1,113,100 744,871 1,758,800 203,413 26,142
Qualifying subordinated debt.......... 62,170 108,773 121,192 152,877
Subordinated debt maturing December
31, 2001............................ 272,951 253,215 510,435 499,734 27,807
Subordinated debt maturing December
31, 2005............................ 710,904 73,263
Line of credit........................ 3,333 124,571 332,466
Reverse repurchase agreement.......... 207,515 462,848
Interest on escrows/impounds.......... 3,125 2,000 5,295 3,929 4,121
---------- ---------- ---------- ---------- --------
$2,103,413 $1,436,982 $3,294,520 $1,074,344 $437,457
========= ========= ========= ========= ========
</TABLE>
NOTE 10 -- LEASE COMMITMENTS
The Bank leases certain of its branches under lease agreements whose
initial lease terms are renewable periodically. Rent expense for the six months
ended June 30, 1996 and 1995, and the years ended December 31, 1995, 1994 and
1993 was $406,038, $442,130, $839,849, $539,636 and $351,839, respectively.
The future minimum annual rental commitments as of June 30, 1996 for all
noncancelable leases are as follows:
<TABLE>
<S> <C>
Six months ended December 31, 1996......................... $ 459,544
Year ended December 31, 1997............................... 839,752
Year ended December 31, 1998............................... 363,194
Year ended December 31, 1999............................... 293,243
Year ended December 31, 2000............................... 284,970
Year ended December 31, 2001............................... 171,802
Thereafter................................................. 462,585
----------
$2,875,090
=========
</TABLE>
F-21
<PAGE> 97
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
The future minimum annual rental commitments as of December 31, 1995 for
all noncancelable leases are as follows:
<TABLE>
<S> <C>
1996................................................... $ 820,253
1997................................................... 794,782
1998................................................... 318,223
1999................................................... 287,320
2000................................................... 284,970
Thereafter............................................. 634,388
----------
$3,139,936
==========
</TABLE>
NOTE 11 -- INCOME TAXES
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- ------------------------------------
1996 1995 1995 1994 1993
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Current expense....................... $749,438 $1,486,964 $2,164,026 $2,108,143 $2,734,000
Deferred expense (benefit)............ 206,692 (454,764) (9,326) (121,000) 95,200
-------- ---------- ---------- ---------- ----------
$956,130 $1,032,200 $2,154,700 $1,987,143 $2,829,200
======== ========== ========== ========== ==========
</TABLE>
Deferred income taxes are provided for temporary differences. The
components of the Corporation's net deferred tax asset (liability) consist of
the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- ---------------------------------
1996 1995 1995 1994 1993
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Deferred tax assets
Deferred loan fees................. $ 232,765 $ 129,700 $ 283,118 $ 186,971 $ 327,584
Loan servicing rights.............. 252,978 159,129 6,801 1,701
Investments recorded at market
value for tax purposes.......... 26,829
Other.............................. 10,218 13,409 2,576 4,181 5,174
----------- --------- --------- --------- ---------
495,961 143,109 444,823 197,953 361,288
----------- --------- --------- --------- ---------
Deferred tax liabilities
Debt issuance costs................ (353,222) (373,738)
Bad debt deduction................. (272,497) (136,006) (54,465) (116,557) (459,268)
Employment contract................ (99,495) (114,906) (102,605) (108,823) (115,042)
Depreciation expense............... (46,800) (32,468) (25,666) (25,960) (31,389)
Other.............................. (109,989) (567) (67,699) (135,289) (9,080)
----------- --------- --------- --------- ---------
(882,003) (283,947) (624,173) (386,629) (614,779)
----------- --------- --------- --------- ---------
Net deferred tax liability...... $ (386,042) $(140,838) $(179,350) $(188,676) $(253,491)
=========== ========= ========= ========= =========
</TABLE>
F-22
<PAGE> 98
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
A reconciliation from income taxes at the statutory rate to the effective
provision for income taxes is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statutory rate................ 34% 34% 34% 34% 34%
Income taxes at statutory
rate........................ $ 862,643 $ 921,785 $1,937,020 $1,844,137 $2,583,739
Officer's life premium........ 27,592 27,592 55,185 27,833
Amortization of purchased
intangibles................. 52,230 67,608 134,414 135,028 134,424
Tax exempt income............. (16,974) (43,248) (31,063)
Writedown of mutual fund...... 50,736
Other......................... (30,639) 15,215 28,081 23,393 91,364
---------- ---------- ---------- ---------- ----------
Provision for income
taxes.................... $ 956,130 $1,032,200 $2,154,700 $1,987,143 $2,829,200
========== ========== ========== ========== ==========
</TABLE>
Taxes attributable to security's gains totaled $121,548, $10,699 and
$99,558 for the years ended December 31, 1995, 1994 and 1993, respectively.
NOTE 12 -- SALARY DEFERRAL -- 401(K) PLAN
The Corporation maintains a 401(k) plan covering substantially all
employees who have attained the age of 21 and have completed one year of service
with the Corporation. This is a salary deferral plan, which calls for matching
contributions by the Corporation based on a percentage (50%) of each
participant's voluntary contribution (limited to a maximum of eight percent (8%)
of a covered employee's annual compensation). In addition to the Corporation's
required matching contribution, a contribution to the plan may be made at the
discretion of the Board of Directors. Employee voluntary contributions are
vested at all times, whereas employer contributions vest 20% per year through
year five at which time employer contributions are fully vested. The
Corporation's matching contributions were $60,775, $47,842, $96,902, $81,214 and
$59,105 for the six months ended June 30, 1996 and 1995, and the years ended
December 31, 1995, 1994 and 1993, respectively. No discretionary contributions
have been made by the Corporation for the periods presented.
The 401(k) plan has invested $400,000 in the 10% subordinated debt maturing
December 31, 2001, which was issued by the Corporation in late 1993 and early
1994.
NOTE 13 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank can be a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet financing needs of its customers.
These financial instruments include commitments to make loans. The Bank's
exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to make loans is represented by the
contractual amount of those instruments. The Bank follows the same credit policy
to make such commitments as is followed for those loans recorded in the
financial statements.
As of June 30, 1996, the Bank had fixed and variable rate commitments to
originate and/or purchase loans (at market rates) of approximately $18,891,000
and $23,724,000, respectively. In addition, the Bank had commitments to sell
loans totaling $1,483,000 at June 30, 1996.
As of December 31, 1995, the Bank had fixed and variable rate commitments
to originate and/or purchase loans (at market rates) of approximately
$18,543,000 and $11,152,000, respectively. In addition, the Bank had commitments
to sell loans totaling $2,006,500 at December 31, 1995.
F-23
<PAGE> 99
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
During the first six months of 1996, the Bank purchased approximately
$10,000,000 of real estate loans and sold non-refundable options to a third
party to purchase these same loans at a later date. A gain of $406,296 was
recognized on the sale of these options. All of these loans were held for sale
at June 30, 1996.
During 1995, the Corporation purchased approximately $16,000,000 of real
estate loans and sold non-refundable options to a third party to purchase these
same loans at a later date. Substantially all of the options had been exercised
at December 31, 1995 and the Corporation recognized a gain of $559,256 on the
sale of these options during the year ended December 31, 1995. At December 31,
1995, loans with a carrying value of $458,146 were held for sale in connection
with an outstanding purchase option.
NOTE 14-RESTRICTIONS ON RETAINED EARNINGS AND CAPITAL REQUIREMENTS
Under the Internal Revenue Code, the Bank is permitted to determine taxable
income after deducting a provision for bad debts in excess of such provision
recorded in the financial statements. Accordingly, retained earnings at June 30,
1996 and December 31, 1995 and 1994, includes approximately $2,883,000, for
which no provision for federal income taxes has been made. If this portion of
retained earnings is used in the future for any purpose other than to absorb bad
debts, it will be added to future taxable income.
Savings institutions insured by the Federal Deposit Insurance Corporation
are required to meet three regulatory capital requirements. If a requirement is
not met, regulatory authorities may take legal or administrative actions,
including restrictions on growth or operations or, in certain cases, seizure.
Institutions not in compliance may submit a recapitalization plan.
Under these capital requirements, at June 30, 1996, the subsidiary Bank
had:
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
----------- ----------- -----------
<S> <C> <C> <C>
GAAP capital................................ $42,821,678 $42,821,678 $42,821,678
Nonallowable assets
Goodwill.................................. (2,947,902) (2,947,902) (2,947,902)
Unrealized gain on securities available
for sale............................... (303,000) (303,000) (303,000)
Purchase accounting adjustment............ (216,245)
Other identifiable intangibles............ (75,559)
Additional capital items
General valuation allowance............... 2,891,000
----------- ----------- -----------
Regulatory capital.......................... 39,278,972 39,570,776 42,461,776
Minimum capital requirement................. 10,003,000 26,687,000 38,500,000
----------- ----------- -----------
Regulatory capital-excess................... $29,275,972 $12,883,776 $ 3,961,776
=========== =========== ===========
</TABLE>
F-24
<PAGE> 100
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
Under these capital requirements, at December 31, 1995, the subsidiary Bank
had:
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
----------- ----------- -----------
<S> <C> <C> <C>
GAAP capital................................ $37,549,253 $37,549,253 $37,549,253
Nonallowable assets
Goodwill.................................. (3,040,023) (3,040,023) (3,040,023)
Nonqualifying PMSR........................ (715,519) (715,519) (715,519)
Unrealized gain on securities available
for sale............................... (736,949) (736,949) (736,949)
Purchase accounting adjustment............ (261,245)
Other identifiable intangibles............ (90,809)
Additional capital items
General valuation allowance............... 2,473,202
----------- ----------- -----------
Regulatory capital.......................... 32,704,708 33,056,762 35,529,964
Minimum capital requirement................. 8,747,000 23,361,000 32,892,000
----------- ----------- -----------
Regulatory capital-excess................... $23,957,708 $ 9,695,762 $ 2,637,964
========== ========== ==========
</TABLE>
The Bank is required to maintain certain minimum capital levels. Minimum
capital requirement ratios for tangible, core and risk-based capital are 1.5%,
4.0% and 8.0%, respectively. Actual tangible core and risk-based capital ratios
were 5.89%, 5.93%. and 8.82%, respectively, at June 30, 1996. Therefore, the
Bank had excess tangible core and risk-based capital ratios at June 30, 1996 of
4.39%, 1.93%, and 0.82%, respectively. Actual tangible, core and risk-based
capital ratios were 5.6%, 5.7% and 8.6%, respectively, at December 31, 1995.
Therefore, the Bank had excess tangible, core and risk-based capital ratios at
December 31, 1995 of 4.1%, 1.7% and 0.6%, respectively.
The subordinated debt maturing December 31, 2001 prohibits the payment of
any dividends by the Corporation until the notes are retired. The subordinated
debt maturing January 1, 2005 prohibits the payment of dividends when the Bank's
tangible equity to total assets is less than 7%. At June 30, 1996 and December
31, 1995 the Corporation was precluded from paying dividends based on these
restrictions.
NOTE 15 -- RELATED PARTY TRANSACTIONS
In the six months ended June 30, 1996 and 1995, the Corporation expensed
$48,000 for management fees relating to services provided by an affiliate. In
each of the years ended December 31, 1995, 1994 and 1993 the Corporation
expensed $96,000 for management fees relating to services provided by an
affiliate.
Certain directors and executive officers of the Corporation and its
subsidiaries were loan customers of the Corporation. The aggregate borrowings of
related parties totaled $1,385,639, $1,136,770 and $390,524 at June 30, 1996 and
December 31, 1995 and 1994, respectively.
Certain directors and executive officers of the Corporation and its
subsidiaries hold an interest in the subordinated debt maturing December 31,
2001. The aggregate interest in the subordinated debt held by related parties
totaled $1,065,284 at June 30, 1996, and December 31, 1995 and 1994. In
addition, the Corporation's 401(k) salary deferral plan held a $400,000 interest
in the subordinated debt at June 30, 1996, and December 31, 1995 and 1994.
NOTE 16 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires that the Corporation disclose the estimated fair values of its
financial instruments. The following table shows those values and the related
carrying values. Items which are not financial instruments are not included.
F-25
<PAGE> 101
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
----------------------------- ----------------------------- -----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash and equivalents.......... $ 12,342,110 $ 12,342,110 $ 18,170,473 $ 18,170,473 $ 11,565,524 $ 11,565,524
Securities.................... 12,136,190 12,136,190 22,806,178 22,806,178 7,640,625 7,640,625
Mortgage-backed securities.... 41,820,903 41,820,903 39,155,500 39,155,500 16,785,141 16,785,141
Loans, net.................... 574,569,196 571,221,419 479,849,746 483,330,240 425,027,495 418,725,605
Federal Home Loan Bank
stock....................... 3,852,000 3,852,000 3,568,700 3,568,700 2,311,200 2,311,200
Loan servicing rights......... 8,692,737 9,977,724 9,129,558 9,294,631 4,824,586 5,758,220
Accrued interest receivable... 4,239,664 4,239,664 3,707,742 3,707,742 2,707,826 2,707,826
Demand and savings deposits... (243,313,551) (243,313,551) (203,707,163) (203,707,163) (172,224,302) (172,224,302)
Time deposits................. (315,480,137) (317,971,737) (300,035,257) (302,230,363) (263,973,414) (261,001,496)
Other borrowings.............. (77,073,673) (75,664,181) (46,873,673) (46,983,664) (15,503,673) (15,503,673)
Official check float
account..................... (3,778,038) (3,778,038) (2,778,632) (2,778,632) (1,313,176) (1,313,176)
Accrued interest payable...... (3,126,741) (3,126,741) (4,551,061) (4,551,061) (1,713,803) (1,713,803)
</TABLE>
While these estimates of fair value are based on management's judgment of
the most appropriate factors, there is no assurance that were the Corporation to
have disposed of such items at June 30, 1996 or December 31, 1995 or 1994, the
estimated fair values would necessarily have been achieved at that date, since
market values may differ depending on various circumstances. The estimated fair
values at June 30, 1996 or December 31, 1995 or 1994 should not necessarily be
considered to apply at subsequent dates.
For purposes of the above disclosures of estimated fair value, the
following assumptions were used. The estimated fair value for cash and
equivalents, the official check float account, accrued interest receivable and
accrued interest payable is considered to approximate cost due to the short term
nature of these instruments. The estimated fair value for securities and
mortgage-backed securities is based on quoted market values for the individual
securities or for equivalent securities. Loans were segregated into three main
groups: those with adjustable rates, those with fixed rates and those which are
held for sale. For the loans held for sale, the carrying value was considered a
reasonable estimate of fair value. The fixed and adjustable rate loans held for
investment were further divided between those secured by one- to four-family
real estate and those secured by multifamily and commercial real estate. For
these loans, estimated fair value was determined using a discounted cash flow
analysis. The estimated fair value of Federal Home Loan Bank stock is considered
to approximate cost since it may be redeemed at par under certain circumstances.
Loan servicing rights includes loan servicing rights acquired and loan servicing
rights originated after the adoption of SFAS No. 122. The estimated fair value
of the servicing rights is based on a discounted cash flow analysis. The
estimated fair value of demand and savings deposits, which have no stated
maturity, is equal to the amount payable. The estimated fair value for
certificates of deposit, Federal Home Loan Bank advances and the fixed rate
subordinated debt is based on estimates of the rate the Corporation would pay on
such deposits, advances and debt, applied for the time period until maturity
using a discounted cash flow analysis. The estimated fair value of subordinated
debt with variable interest rate is based on the carrying value. The estimated
fair value of commitments is not material.
In addition, other assets and liabilities of the Corporation that are not
defined as financial instruments are not included in the above disclosures, such
as property and equipment. Also, nonfinancial instruments typically not
recognized in financial statements nevertheless may have value but are not
included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the earnings potential of
loan servicing rights, the trained work force, customer goodwill and similar
items.
NOTE 17 -- CONDENSED FINANCIAL INFORMATION
Below is condensed financial information of Metropolitan Financial Corp.
(parent company only). In this information, the parent's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of the
F-26
<PAGE> 102
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
subsidiaries since acquisition. This information should be read in conjunction
with the consolidated financial statements.
PARENT COMPANY ONLY
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------
1996 1995 1994
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash........................................ $ 755,796 $ 4,790,234 $ 613,942
Securities available for sale............... 1,131,670 1,102,243
Loans receivable, net....................... 50,000 50,000 50,000
Investment in Metropolitan Savings Bank..... 42,821,678 37,549,253 27,826,334
Cost in excess of fair value of net assets
acquired.................................. 55,835 57,580 61,069
Prepaid expenses and other assets........... 1,207,324 1,253,500 212,020
----------- ----------- -----------
$46,022,303 $44,802,810 $28,763,365
=========== =========== ===========
LIABILITIES
Other borrowings............................ $18,873,673 $18,873,673 $ 8,153,673
Other liabilities........................... 535,108 462,722 329,715
----------- ----------- -----------
19,408,781 19,336,395 8,483,388
----------- ----------- -----------
SHAREHOLDER'S EQUITY
Common stock................................ 100 100 100
Additional paid-in capital.................. 7,801,283 7,801,283 7,801,283
Retained earnings........................... 18,509,139 16,928,083 13,385,664
Unrealized gains(losses) on securities
available for sale, net of tax............ 303,000 736,949 (907,070)
----------- ----------- -----------
26,613,522 25,466,415 20,279,977
----------- ----------- -----------
$46,022,303 $44,802,810 $28,763,365
=========== =========== ===========
</TABLE>
F-27
<PAGE> 103
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
PARENT COMPANY ONLY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------------- ------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest on loans and securities.... $ 31,757 $ 2,479 $ 7,211 $ 4,191 $ 3,500
Interest on other borrowings........ 987,188 420,425 958,804 745,810 254,317
---------- ---------- ---------- ---------- ----------
Net interest expense................ (955,431) (417,946) (951,593) (741,619) (250,817)
Non-interest income
Equity in net income of
Metropolitan Savings Bank...... 2,356,375 2,077,380 4,408,900 4,070,421 4,733,184
Other operating income............ 2,957 2,911 47,859 18,226 (35,801)
---------- ---------- ---------- ---------- ----------
2,359,332 2,080,291 4,456,759 4,088,647 4,697,383
---------- ---------- ---------- ---------- ----------
Non-interest expense
Amortization of intangibles....... 1,745 1,745 3,490 3,490 3,490
State franchise taxes............. 12,336 700 4,833 1,794 2,170
Other operating expenses.......... 165,764 142,969 315,424 186,955 104,674
---------- ---------- ---------- ---------- ----------
179,845 145,414 323,747 192,239 110,334
---------- ---------- ---------- ---------- ----------
Income before income taxes.......... 1,224,056 1,516,931 3,181,419 3,154,789 4,336,232
Federal income tax benefit..... (357,000) (162,000) (361,000) (282,000) (133,800)
---------- ---------- ---------- ---------- ----------
Net income.......................... $1,581,056 $1,678,931 $3,542,419 $3,436,789 $4,470,032
========== ========== ========== ========== ==========
</TABLE>
F-28
<PAGE> 104
METROPOLITAN FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995, 1994 AND 1993
PARENT COMPANY ONLY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------- ---------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income................... $ 1,581,056 $ 1,678,931 $ 3,542,419 $ 3,436,789 $ 4,470,032
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Equity in net income of
Metropolitan Savings
Bank................. (2,356,375) (2,077,380) (4,408,900) (4,070,421) (4,733,184)
Dividends received from
Metropolitan Savings
Bank................. 650,000 375,000 850,000 375,000 180,000
Amortization............ 1,745 1,745 3,490 3,490 3,490
Change in other assets
and liabilities...... 89,136 29,003 (908,474) (154,990) 106,119
----------- ----------- ----------- ----------- -----------
Net cash from
operating
activities...... (34,438) 7,299 (921,465) (410,132) 26,457
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of securities
available for sale........ (1,102,243)
Capital contributions to
subsidiary bank........... (4,000,000) (1,720,000) (4,520,000) (3,475,000)
----------- ----------- ----------- ----------- -----------
Net cash from investing
activities........... (4,000,000) (1,720,000) (5,622,243) (3,475,000)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from borrowings..... 5,000,000 19,000,000 1,368,388 3,505,285
Repayment of borrowings...... (3,280,000) (8,280,000) (360,000) (180,000)
----------- ----------- ----------- ----------- -----------
Net cash from financing
activities................ 1,720,000 10,720,000 1,008,388 3,325,285
----------- ----------- ----------- ----------- -----------
Net change in cash and
cash equivalents........ (4,034,438) 7,299 4,176,292 598,256 (123,258)
Cash and cash equivalents at
beginning of year............ 4,790,234 613,942 613,942 15,686 138,944
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at
end of year.................. $ 755,796 $ 621,241 $ 4,790,234 $ 613,942 $ 15,686
=========== =========== =========== =========== ===========
</TABLE>
F-29
<PAGE> 105
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
CORPORATION, THE SELLING SHAREHOLDER OR THE UNDERWRITER. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
CORPORATION SINCE THE DATE HEREOF OR THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Recent Developments................... 11
Use of Proceeds....................... 15
Dividend Policy....................... 15
Dilution.............................. 15
Capitalization........................ 16
Selected Consolidated Financial
Information......................... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 35
Regulation and Supervision............ 57
Management............................ 66
Selling Shareholder and Beneficial
Ownership........................... 69
Description of the Capital Stock...... 70
Shares Eligible for Future Sale....... 71
Description of Subordinated Notes..... 72
Underwriting.......................... 73
Legal Matters......................... 74
Experts............................... 74
Available Information................. 74
Index to Consolidated Financial
Statements.......................... F-1
- ---------------------------------------------
- ---------------------------------------------
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
700,000 SHARES
METROPOLITAN
FINANCIAL CORP.
COMMON STOCK
------------------------
Prospectus
------------------------
MCDONALD & COMPANY
SECURITIES, INC.
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 106
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the amount of fees and expenses (other
than underwriting discount) payable by the Corporation in connection with the
sale of the shares of Common Stock being registered. The Corporation is paying
the expenses of the Selling Shareholder, other than the underwriting discount.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................... $ 3,054
National Association of Securities Dealers, Inc. filing fee....................... $ 1,386
Nasdaq National Market application fee............................................ $ 22,628
Legal fees and expenses........................................................... $150,000
Transfer agent fees and expenses.................................................. $ 3,000
Accounting fees and expenses...................................................... $ 50,000
Printing expenses................................................................. $ 75,000
Blue Sky fees and expenses........................................................ $ 15,000
Miscellaneous..................................................................... $ 4,932
--------
TOTAL........................................................................ $325,000
========
</TABLE>
- ---------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Ohio law, Ohio corporations are authorized to indemnify directors,
officers, employees, and agents within prescribed limits and must indemnify them
under certain circumstances. Ohio law does not provide statutory authorization
for a corporation to indemnify directors, officers, employees, and agents for
settlements, fines, or judgments in the context of derivative suits. However, it
provides that directors (but not officers, employees, and agents) are entitled
to mandatory advancement of expenses, including attorneys' fees, incurred in
defending any action, including derivative actions, brought against the
director, provided the director agrees to cooperate with the corporation
concerning the matter and to repay the amount advanced if it is proved by clear
and convincing evidence that his act or failure to act was done with deliberate
intent to cause injury to the corporation or with reckless disregard for the
corporation's best interests.
Ohio law does not authorize payment of judgments to a director, officer,
employee, or agent after a finding of negligence or misconduct in a derivative
suit absent a court order. Indemnification is required, however, to the extent
such person succeeds on the merits. In all other cases, if a director, officer,
employee, or agent acting in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation,
indemnification is discretionary except as otherwise provided by a corporation's
articles, code of regulations, or by contract except with respect to the
advancement of expenses of directors.
Under Ohio law, a director is not liable for monetary damages unless it is
proved by clear and convincing evidence that his action or failure to act was
undertaken with deliberate intent to cause injury to the corporation or with
reckless disregard for the best interests of the corporation. There is, however,
no comparable provision limiting the liability of officers, employees, or agents
of a corporation. The statutory right to indemnification is not exclusive in
Ohio, and Ohio corporations may, among other things, procure, insurance for such
persons.
Metropolitan's Regulations provide that Metropolitan shall indemnify,
subject to certain limitations, any person (and the heirs, executors and
administrators of each such person) made or threatened to be made a party to any
action, suit, proceeding or claim by reason of the fact that he is or was a
director or officer of Metropolitan or of another corporation for which he was
serving as a director or officer at the request of Metropolitan for all expenses
and liabilities incurred by him in connection with the defense of any such
action, suit or proceeding or claim.
Under a directors' and officers' liability insurance policy, directors and
officers of the Registrant are insured against certain liabilities, including
certain liabilities under the Securities Act.
II-1
<PAGE> 107
Pursuant to the terms of the Underwriting Agreement, the Underwriter agrees
to indemnify Metropolitan, the Bank, the Selling Shareholder and other officers
and directors for certain liabilities arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
No securities of the Corporation that were not registered under the
Securities Act have been issued or sold by the Corporation within the last three
years, except as follows: by Private Placement Memorandum dated October 25,
1993, Metropolitan sold $4,873,673 principal amount of 1993 Subordinated Notes
for an aggregate purchase price of $4,873,673. The 1993 Subordinated Notes bear
interest at the rate of 10% per annum and mature in 2001. The 1993 Subordinated
Notes were sold only to purchasers who were familiar with either Metropolitan,
its directors, executive officers, or sole shareholder. The private placement
was made pursuant to the exemption from registration found at Rule 506 of the
Securities Act. The Corporation relied on the facts that the 1993 Subordinated
Notes were acquired by no more than 35 persons other than accredited investors
and that each non-accredited investor, either alone or together with his
purchaser representative(s), was capable of evaluating the investment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C> <C>
(a) Exhibits:
1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of Metropolitan Financial Corp.
to be effective prior to completion of the offering (filed as Exhibit 2 to
Metropolitan's Form 8-A, filed October 15, 1996 and incorporated herein by
reference).
3.2 Amended and Restated Code of Regulations of Metropolitan Financial Corp. to be
effective prior to completion of the offering (filed as Exhibit 3 to
Metropolitan's Form 8-A, filed October 15, 1996 and incorporated herein by
reference).
4.1 Form of stock certificate representing the Corporation's Common Stock, without
par value (filed as Exhibit 1 to Metropolitan's Form 8-A, filed October 15,
1996 and incorporated herein by reference).
4.2 Metropolitan Financial Corp. agrees to provide the Commission, upon request,
copies of any agreement defining rights of long-term debt holders.
5 Form of Opinion of Thompson Hine & Flory LLP with respect to the legality of
the securities being registered.
21 Subsidiaries of Metropolitan Financial Corp. (filed as Exhibit 21 to
Metropolitan's Amendment No. 1 to Registration Statement on Form S-1, filed
November 13, 1995 and incorporated herein by reference).
23.1 Consent of Thompson Hine & Flory LLP (included as part of Exhibit 5).
23.2 Consent of Crowe, Chizek and Company LLP.
24 Powers of Attorney.*
27 Financial Data Schedule.*
99.1 Specimen Subordinated Note relating to the 9 5/8% Subordinated Notes due
January 1, 2005 (found at Sections 2.2 and 2.3 of the Form of Indenture filed
as Exhibit 4.1 to Metropolitan's Amendment No. 1 to Registration Statement on
Form S-1, filed November 13, 1995 and incorporated herein by reference).
99.2 Form of Indenture entered into on December 1, 1995 between the Corporation and
Boatmen's Trust Company (filed as Exhibit 4.1 to Metropolitan's Amendment No.
1 to Registration Statement on Form S-1, filed November 13, 1995 and
incorporated herein by reference).
99.3 Specimen Subordinated Note relating to the 10% Subordinated Notes due December
31, 2001 (filed as Exhibit 99.1 to Metropolitan's Registration Statement on
Form S-1, filed October 20, 1995 and incorporated herein by reference).
</TABLE>
II-2
<PAGE> 108
<TABLE>
<S> <C> <C>
99.4 The Restated Loan Agreement by and between The Huntington National Bank and
the Corporation dated as of October 16, 1996.
</TABLE>
- ---------------
*Previously filed in Metropolitan's Registration Statement on Form S-1 filed
September 20, 1996.
<TABLE>
<S> <C> <C>
(b) Financial Statement Schedules:
The financial statement schedules for Metropolitan have been included in the
consolidated financial statements or the related footnotes, or they are either
inapplicable or not required. The financial statements filed as part of this
Registration Statement are listed in the Index to Financial Statements on page
F-1.
</TABLE>
ITEM 17. UNDERTAKINGS
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and it will be governed by the final adjudication
of such issue.
(2) The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 109
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Mayfield Heights, State of Ohio, on October 17, 1996.
METROPOLITAN FINANCIAL CORP.
Registrant
By: DAVID G. LODGE
David G. Lodge, President, Assistant
Secretary,
Assistant Treasurer, and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed below by the following persons
in the capacities and on the date indicated.
By: DAVID G. LODGE
David G. Lodge, President, Assistant
Secretary,
Assistant Treasurer, and Director
(Principal Financial and Accounting
Officer)
October 17, 1996
Robert M. Kaye, Chairman of the Board and Director (Principal Executive and
Operating Officer); Malvin E. Bank, Secretary, Assistant Treasurer, and
Director; David P. Miller, Treasurer, Assistant Secretary and Director; Ralph D.
Ketchum, Director; James A. Karman, Director; Robert R. Broadbent, Director;
Marjorie M. Carlson, Director; Lois K. Goodman, Director; Marguerite B.
Humphrey, Director; Alfonse M. Mattia, Director
By: DAVID G. LODGE
David G. Lodge
Attorney-in Fact
October 17, 1996
II-4
<PAGE> 110
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of Metropolitan Financial Corp. to be
effective prior to completion of the offering (filed as Exhibit 2 to Metropolitan's
Form 8-A, filed October 15, 1996 and incorporated herein by reference).
3.2 Amended and Restated Code of Regulations of Metropolitan Financial Corp. to be
effective prior to completion of the offering (filed as Exhibit 3 to Metropolitan's
Form 8-A, filed October 15, 1996 and incorporated herein by reference).
4.1 Form of stock certificate representing the Corporation's Common Stock, without par
value (filed as Exhibit 1 to Metropolitan's Form 8-A, filed October 15, 1996 and
incorporated herein by reference).
4.2 Metropolitan Financial Corp. agrees to provide the Commission, upon request, copies
of any agreement defining rights of long-term debt holders.
5 Form of Opinion of Thompson Hine & Flory LLP with respect to the legality of the
securities being registered.
21 Subsidiaries of Metropolitan Financial Corp. (filed as Exhibit 21 to Metropolitan's
Amendment No. 1 to Registration Statement on Form S-1, filed November 13, 1995 and,
incorporated herein by reference).
23.1 Consent of Thompson Hine & Flory LLP (included as part of Exhibit 5).
23.2 Consent of Crowe, Chizek and Company LLP.
24 Powers of Attorney.*
27 Financial Data Schedule.*
99.1 Specimen Subordinated Note relating to the 9 5/8% Subordinated Notes due January 1,
2005 (found at Sections 2.2 and 2.3 of the Form of Indenture filed as Exhibit 4.1 to
Metropolitan's Amendment No. 1 to Registration Statement on Form S-1, filed November
13, 1995 and incorporated herein by reference).
99.2 Form of Indenture entered into on December 1, 1995 between the Corporation and
Boatmen's Trust Company (filed as Exhibit 4.1 to Metropolitan's Amendment No. 1 to
Registration Statement on Form S-1, filed November 13, 1995 and incorporated herein
by reference).
99.3 Specimen Subordinated Note relating to the 10% Subordinated Notes due December 31,
2001 (filed as Exhibit 99.1 to Metropolitan's Registration Statement on Form S-1,
filed October 20, 1995 and, incorporated herein by reference).
99.4 The Restated Loan Agreement by and between The Huntington National Bank and the
Corporation, dated as of October 16, 1996.
</TABLE>
- ---------------
* Previously filed in Metropolitan's Registration Statement on Form S-1 filed
September 20, 1996.
<PAGE> 1
Exhibit 1
DRAFT: 10/17/96
METROPOLITAN FINANCIAL CORP.
700,000 SHARES OF COMMON STOCK*
UNDERWRITING AGREEMENT
October___, 1996
McDonald & Company Securities, Inc.
McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114-2603
Ladies and Gentlemen:
Metropolitan Financial Corp., an Ohio corporation (the "Company"),
proposes, subject to the terms and conditions set forth in this Underwriting
Agreement (the "Agreement"), to issue and sell 400,000 of its shares of Common
Stock, no par value (the "Common Stock"), which are authorized but unissued, and
Robert M. Kaye (the "Selling Shareholder") proposes, subject to the terms and
conditions set forth in this Agreement, to sell an aggregate of 300,000
outstanding shares of Common Stock, to you as the underwriter (the
"Underwriter"). The 700,000 shares of Common Stock to be purchased from the
Company and the Selling Shareholder are hereinafter referred to as the "Firm
Stock." The Selling Shareholder also proposes to sell to the Underwriter, at the
Underwriter's option, an aggregate of not more than 105,000 additional shares of
Common Stock, which are hereinafter referred to as the "Option Stock." The Firm
Stock and the Option Stock are hereinafter collectively referred to as the
"Stock" and are more fully described in the Registration Statement and the
Prospectus (as hereinafter defined).
The Company and the Selling Shareholder hereby confirm the
following agreements with you as the Underwriter relating to the purchase and
sale of the Stock.
1. REGISTRATION STATEMENT AND PROSPECTUS. A registration statement on
Form S-1 (File No. 333-12381) with respect to the Stock, including a preliminary
form of prospectus, has been prepared by the Company in conformity in all
material respects with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the applicable Rules and Regulations (as defined below)
of the Securities and Exchange Commission (the "Commission") and has been filed
with the Commission, and such amendments to such registration statement as may
have been required prior to the date hereof have been similarly prepared and
filed with the Commission. Copies of such registration statement and amendment
or amendments and of each related prospectus have
- -----------------------
*Plus an option to purchase up to 105,000 additional shares to cover
over-allotments.
<PAGE> 2
been delivered to you. Such registration statement, including the prospectus,
Part II, and all financial statements and schedules thereto, as amended up to
and including the time when it initially became effective is herein referred to
as the "Registration Statement," and the prospectus included as part of the
Registration Statement on file with the Commission that discloses all the
information that was omitted from the prospectus on the date the Registration
Statement initially became effective with any changes contained in any
prospectus filed with the Commission by the Company with your consent after the
date the Registration Statement initially became effective is herein referred to
as the "Prospectus." The term "preliminary prospectus" means any preliminary
prospectus (as described in Rule 430 of the Rules and Regulations) with respect
to the Stock that omits information in reliance on Rule 430A of the Rules and
Regulations. For purposes of this Agreement, "Rules and Regulations" means the
rules and regulations adopted by the Commission under either the Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
2. SALE, PURCHASE AND DELIVERY OF STOCK.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company and the Selling Shareholder, severally and not jointly, hereby agree to
sell to the Underwriter, and the Underwriter agrees to purchase 400,000 shares
of Firm Stock from the Company and 300,000 Shares of Firm Stock from the Selling
Shareholder, at a price of $________ per share.
(b) The Company and the Selling Shareholder will deliver the Firm Stock
at the office of McDonald & Company Securities, Inc., McDonald Investment
Center, 800 Superior Avenue, Cleveland, Ohio 44114, at 10:00 A.M., Cleveland
time, or to your designee at a specified place at the same time, against payment
of the purchase price in immediately available funds by wire transfer, in
accordance with the instructions provided in Exhibit A attached hereto, to the
Company and the Selling Shareholder on the third full business day after the
effective date of the Registration Statement (or, if the Firm Stock is priced
after 4:30 p.m., Cleveland time on the effective date of the Registration
Statement, the fourth full business day after the effective date of the
Registration Statement), or at such other time not later than ten full business
days thereafter as shall be agreed upon by the Underwriter, the Selling
Shareholder and the Company (such time and place being herein referred to as the
"Closing Date"). The certificates for the Firm Stock so to be delivered will be
in such denominations and registered in such names as you may specify in writing
at or before 9:00 A.M., Cleveland time, on the second full business day prior to
the Closing Date. Such certificates will be made available for checking and
packaging at the offices
2
<PAGE> 3
of the Depository Trust Company, New York, New York at least 24 hours prior to
the Closing Date.
(c) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the Selling
Shareholder hereby grants an option to the Underwriter to purchase all or any
portion of the Option Stock at the purchase price set forth in Section 2(a)
hereof, for use solely in covering any over-allotments made by the Underwriter
in the sale and distribution of the Firm Stock. The option granted hereunder may
be exercised at any time (but not more than once) within 30 days after the date
the Registration Statement becomes effective, upon written notice by you to the
Selling Shareholder with a copy to the Company setting forth the aggregate
number of shares of the Option Stock as to which the Underwriter is exercising
the option and the time and place at which certificates will be delivered, such
time (which, unless otherwise determined by you and the Selling Shareholder,
shall not be earlier than three nor later than ten full business days after the
exercise of said option) being herein called the "Second Closing Date." The
Selling Shareholder will deliver certificates for the shares of the Option Stock
being purchased by the Underwriter to you on the Second Closing Date at the
place and time of such closing, or to your designee at a specified place at the
same time, against payment of the purchase price in immediately available funds
by wire transfer, in accordance with the instructions provided in Exhibit A
attached hereto, to the Selling Shareholder. The certificates for the Option
Stock so to be delivered will be in such denominations and registered in such
names as you may specify at or before 9:00 A.M., Cleveland time, on the second
full business day prior to the Second Closing Date. Such certificates will be
made available for checking and packaging at the offices of the Depository Trust
Company, New York, New York at least 24 hours prior to the Second Closing Date.
The option granted hereby may be canceled by you, as to the shares of the Option
Stock for which the option is unexercised, at any time prior to the expiration
of the 30-day period, upon notice to the Selling Shareholder with a copy to the
Company.
3. TERMS OF PUBLIC OFFERING. The Company and the Selling Shareholder
are advised by you that the Underwriter has agreed (i) to make a public offering
of the Stock as soon after the Registration Statement has become effective as in
your judgment is advisable and to first offer the Stock upon the terms set forth
in the Prospectus and (ii) to offer and sell the Stock to the public only in
those jurisdictions, and in such amounts, where due qualification and/or
registration has been effected or an exemption from such qualification and/or
registration is available under the applicable securities or Blue Sky laws of
such jurisdiction; it being understood, however, that such agreement only covers
the initial sale of the Stock by the Underwriter and
3
<PAGE> 4
not any subsequent sale of such Stock in any trading market which may develop
after the public offering.
4. AGREEMENTS OF THE COMPANY. The Company covenants and agrees with
the Underwriter as follows:
(a) If the Registration Statement is not already effective, then the
Company will use its reasonable best efforts to cause the Registration Statement
to become effective. The Company will promptly advise the Underwriter, and if
requested by the Underwriter will confirm such advice in writing, (i) when the
Registration Statement or any post-effective amendment thereto has become
effective, (ii) of any request by the Commission for amendments or supplements
to the Registration Statement or Prospectus or for additional information, (iii)
of the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or of the receipt of notice of suspension of
qualification of the Stock for offering or sale in any jurisdiction, or the
initiation or contemplation known to the Company of any proceeding for such
purposes, and (iv) within the period of time referred to in paragraph (f) below,
of the happening of any event known to the Company which in the judgment of the
Company after consultation with the Underwriter makes any statement made in the
Registration Statement or Prospectus untrue in any material respect or which
requires the making of any additions to or changes in the Registration Statement
or Prospectus in order to make the statements therein not misleading or the
necessity to amend or supplement the Prospectus to comply with the Act or any
other law. If at any time the Commission shall issue any stop order suspending
the effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal of such order as soon as possible.
(b) If the Registration Statement has become or becomes effective
pursuant to Rule 430A under the Act, or filing of the Prospectus is otherwise
required under Rule 424(b) of the Rules and Regulations, the Company will
prepare and file the Prospectus, properly completed, pursuant to Rule 424(b) of
the Rules and Regulations within the time period therein prescribed and will,
upon request of the Underwriter, provide evidence satisfactory to the
Underwriter of such timely filing.
(c) The Company will furnish to you one signed copy of the
Registration Statement, including exhibits and all amendments thereto.
(d) The Company will not file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus of which you
shall not previously have been advised or to which you shall promptly after
being so advised reasonably object in writing.
4
<PAGE> 5
(e) Prior to the Effective Date, the Company has delivered or will
deliver to the Underwriter, without charge, in such quantities as it has
reasonably requested or may hereafter reasonably request, copies of each form of
preliminary prospectus. The Company consents to the use, in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Stock is offered by the Underwriter and by dealers,
prior to the Effective Date, of each preliminary prospectus so furnished by the
Company.
(f) On the Effective Date and thereafter from time to time during such
period as in the opinion of counsel for the Underwriter a Prospectus is required
by law to be delivered in connection with offers or sales of the Stock by the
Underwriter or a dealer, the Company will deliver to the Underwriter and dealer,
without charge, as many copies of the Prospectus (and of any amendment or
supplement thereto) as they may reasonably request. During such period, if any
event occurs which in the judgment of the Company, or in the opinion of counsel
for the Underwriter, should be set forth in the Prospectus in order to ensure
that no part of the Prospectus contains an untrue statement of a material fact
or omits a material fact necessary to make the statements therein, in the light
of the circumstances at the time the Prospectus is delivered to a purchaser, not
misleading, the Company will forthwith prepare, submit to you, file with the
Commission and deliver, without charge to the Underwriter and dealers (whose
names and addresses will be furnished by you to the Company) to whom Stock has
been sold by the Underwriter or to other dealers upon request, either amendments
or supplements to the Prospectus so that the statements in the Prospectus, as so
amended or supplemented, comply with the standards set forth in this sentence.
The Company consents to the use of such Prospectus (and of any amendments or
supplements thereto) in accordance with the provisions of the Act and with the
securities or Blue Sky laws of the jurisdictions described in the Preliminary
Blue Sky Memorandum in which the Stock is lawfully offered by the Underwriter
and by all dealers to whom Stock may be sold, both in connection with the
offering or sale of the Stock and for such period of time thereafter as the
Prospectus is required by law to be delivered in connection therewith. In case
the Underwriter is required to deliver a Prospectus more than nine months after
the first date upon which the Stock is offered to the public, the Company will,
upon your request but at the expense of the Underwriter, furnish the Underwriter
with reasonable quantities of a Prospectus complying with Section 10(a)(3) of
the Act.
(g) The Company will cooperate with you and counsel for the Underwriter
in connection with the registration or qualification of the Stock for offer and
sale by the Underwriter and by dealers under the securities or Blue Sky laws of
such jurisdictions of the United States as you may designate and the
continuation in effect of such registration or qualification as long as required
for the
5
<PAGE> 6
distribution of the Stock in accordance with this Agreement; provided that in no
event shall the Company be obligated to register or qualify as a foreign
corporation or as a broker or dealer in securities, or to qualify to do business
in any jurisdiction where it is not now so qualified or to take any action which
would subject it to the service of process in suits in any jurisdiction where it
is not now so subject.
(h) The Company will make generally available to its security holders
an earnings statement of the Company and its subsidiaries, which need not be
audited, covering a twelve-month period commencing after the Effective Date and
ending not later than 15 months thereafter, as soon as practicable after the end
of such period, which earnings statement shall satisfy the provisions of Section
11(a) of the Act (including, at the option of the Company, Rule 158 of the Rules
and Regulations).
(i) For a period of three years from the date of the Prospectus, the
Company will furnish to the Underwriter (i) as soon as available, a copy of all
such proxy statements and other reports as the Company shall mail or make
available to any class of its security holders, (ii) other than items or
portions thereof filed on a confidential basis, copies of all annual or periodic
reports and current reports filed with the Commission on Forms 10-K, 10-Q and
8-K (including the annual report to shareholders and financial statements) or
such other similar forms as may be designated by the Commission, or any material
reports filed in connection with the Company's listing on any stock exchange or
in connection with qualifying to have quotations reported on the Nasdaq National
Market and (iii) from time to time, such other information of a public nature
concerning the Company as the Underwriter may reasonably request.
During the period of time described above, if the Company shall have
active subsidiaries, the financial statements referred to above shall be
consolidated to the extent the accounts of the Company and such subsidiaries are
consolidated, and separate financial statements shall be furnished for each
significant subsidiary, as defined in Regulation S-X of the Commission, whose
accounts are not so consolidated.
(j) The Company will pay, or reimburse if paid by you, whether or not
the transactions contemplated hereby are consummated or this Agreement is
terminated, all costs and expenses incident to the performance by it of its
obligations under this Agreement, including, without limiting the generality of
the foregoing, (i) costs and expenses in connection with the preparation,
printing, filing and distribution (including postage, air freight charges and
charges for counting and packaging) of the Registration Statement, each
preliminary prospectus, the Prospectus, each amendment and/or supplement to any
of them, (ii) the cost of furnishing to the Underwriter and dealers copies of
6
<PAGE> 7
the foregoing materials (provided, however, that any such copies furnished by
the Company more than nine months after the first date upon which the Stock is
offered to the public shall be at the expense of the Underwriter or dealers so
requesting as provided in paragraph (f) above), (iii) the registrations or
qualifications referred to in paragraph (g) above including the reasonable fees
of the Underwriter's counsel, (iv) filings made by the Underwriter with the
National Association of Securities Dealers, Inc. (the "NASD") in connection with
the offering of the Stock, (v) the performance by the Company of its other
obligations under this Agreement, including the fees of Company counsel and
accountants, (vi) costs and expenses in connection with the issuance of the
Stock and the preparation and printing of the Stock, including any stamp taxes
payable in connection with the original issuance of the Stock, and (vii)
furnishing to the Underwriter copies of all reports and information required by
paragraph (i) above, including costs of shipping and mailing.
(k) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than by notice given by you terminating this
Agreement pursuant to Section 10(a) or pursuant to Sections 11(iii), (iv) or (v)
hereof), the Company agrees to reimburse the Underwriter for all out-of-pocket
expenses reasonably incurred by it in reviewing the Registration Statement, any
preliminary prospectus, and the Prospectus and otherwise preparing to market or
marketing the Stock (including reasonable fees and expenses of counsel for the
Underwriter to the extent reasonably incurred therewith) but without any further
obligation of the Company for lost profits or otherwise. If this Agreement is
terminated by notice given by you pursuant to Section 10(a) or pursuant to
Sections 11(iii), (iv) or (v) hereof, the Underwriter shall itself bear any such
out-of-pocket expenses incurred by it.
(l) The Company will apply the net proceeds from the sale of the Stock
to be sold by it under this Agreement in accordance in all material respects
with the disclosure set forth in the Prospectus under the caption "Use of
Proceeds."
(m) The Company will file with the NASD all documents and notices
required of companies that have issued securities that are traded in the
over-the-counter market and quotations for which are reported by the Nasdaq
National Market.
(n) For a period of 180 days from the date of the Prospectus, the
Company will not, without your prior written consent, directly or indirectly,
sell, offer to sell, contract to sell, grant any option for the sale, transfer,
distribute or otherwise dispose of by any means (or publicly announce any
intention to do any of the foregoing) any shares of Common Stock, any other
equity security of the Company or any security convertible into or exchangeable
or exercisable for Common Stock.
7
<PAGE> 8
(o) After the Closing Dates, the Company and its subsidiaries will be
in compliance with the financial record-keeping requirements and internal
accounting control requirements of Section 13(b)(2) of the Exchange Act.
5. AGREEMENT OF THE SELLING SHAREHOLDER. The Selling Shareholder
covenants and agrees with Underwriter that the Selling Shareholder will not,
without your prior written consent, directly or indirectly, sell, offer to sell,
grant an option for the sale, transfer, distribute or otherwise dispose of by
any means (or publicly announce any intention to do any of the foregoing) any
shares of Common Stock, any securities convertible into or exchangeable for
Common Stock for a period of 180 days from the date of the Prospectus, provided,
however, that nothing contained herein shall prevent the Selling Shareholder
from: (i) pledging shares of Common Stock as security under the Huntington Loan
Agreement (as defined in the Registration Statement); (ii) transferring or
otherwise disposing of any Common Stock by will or by the laws of descent and
distribution; (iii) transferring or otherwise disposing of any Common Stock to a
member of the Selling Shareholder's immediate family if the family member
agrees, in writing, to be bound by these terms; or (iv) transferring or
otherwise disposing of any Common Stock to a revocable trust of which the
Selling Shareholder and/or a member of his immediate family are the sole
beneficiary(ies) if the trustee of such trust agrees, in writing, to be bound by
these terms. In order to document the Underwriter's compliance with the
reporting and withholding provisions of the Internal Revenue Code of 1986, as
amended, with respect to the transactions herein contemplated, the Selling
Shareholder agrees to deliver to you prior to or on the Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and covenants with the Underwriter that:
(a) On the Effective Date, the date the Prospectus is first filed with
the Commission pursuant to Rule 424(b) (if required), at all times subsequent
thereto to and including the Closing Date, and when any post-effective amendment
to the Registration Statement becomes effective or any amendment or supplement
to the Prospectus is filed with the Commission, the Registration Statement and,
if filed at such time, the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment or supplement
thereto) complied or will comply in all material respects with the applicable
provisions of the Act and the Rules and Regulations, and did not or will not
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to
8
<PAGE> 9
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading. When any preliminary
prospectus was first filed with the Commission (whether filed as part of the
Registration Statement or an amendment thereof or pursuant to Rule 424(a) of the
Rules and Regulations) and when any amendment thereof or supplement thereto was
first filed with the Commission, such preliminary prospectus and any amendments
thereof and supplements thereto complied in all material respects with the
applicable provisions of the Act and the Rules and Regulations and did not
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
Commission has not issued any order preventing or suspending the use of any
preliminary prospectus. No representation and warranty is made under this
subsection (a), however, with respect to any information contained in or omitted
from the Registration Statement or the Prospectus or any related preliminary
prospectus or any amendment thereof or supplement thereto in reliance upon and
in conformity with information furnished in writing to the Company by or on
behalf of the Underwriter expressly for use in connection with the preparation
thereof. The information set forth in the last paragraph on the outside front
cover, in the stabilization paragraph on the inside front cover and under
"Underwriting" in any preliminary prospectus and in the Prospectus constitutes
the only information furnished by the Underwriter to the Company for inclusion
in any preliminary prospectus, the Prospectus or the Registration Statement.
(b) Crowe, Chizek and Company, who are certifying the financial
statements and schedules included in the Registration Statement and the
Prospectus, are independent public accountants within the meaning of the Act,
the Code of Professional Ethics of the American Institute of Certified Public
Accountants, the Rules and Regulations, and Regulation S-X promulgated by the
Commission.
(c) The financial statements and schedules of the Company, included or
incorporated by reference in the Registration Statement and the Prospectus,
present fairly the financial position of the Company (including, without
limitation, the allowance for losses on loans) as of the dates indicated, and
the results of operations, cash flows and changes in financial position of the
Company for the periods specified. Such financial statements and schedules have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the entire period involved except to
the extent disclosed therein.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Ohio with corporate
power and authority to own its
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property and conduct its business as described in the Registration Statement and
the Prospectus. The Company does not own or lease property or transact business
in any jurisdiction where the ownership of such property or the transaction of
such business would require it to qualify as a foreign corporation under the
laws of such jurisdiction and in which the failure to so qualify could,
individually or in the aggregate, have a material adverse effect on the
financial condition, earnings, capital (regulatory and otherwise), business,
properties, prospects or results of operations of the Company, Metropolitan
Savings Bank of Cleveland, a federally insured stock savings and loan
association chartered under the laws of the State of Ohio (the "Bank"), and the
Other Subsidiaries (as hereinafter defined) taken as a whole. The Bank is a
federally insured stock savings and loan association chartered under the laws of
the State of Ohio and whose charter is in full force and effect and which is
duly authorized and has full power to own its properties and carry on its
business as described in the Registration Statement and the Prospectus.
(e) The Company has an authorized and outstanding capitalization as set
forth in the Registration Statement and the Prospectus. The Stock to be issued
and sold by the Company hereunder has been duly authorized and, when issued,
delivered and paid for pursuant to this Agreement, will be validly issued, fully
paid and non-assessable and will conform in all material respects to the
description thereof contained in the Registration Statement and the Prospectus.
No preemptive rights of security holders of the Company exist with respect to
the issuance and sale of the Stock by the Company pursuant hereto. All of the
issued and outstanding shares of Common Stock of the Company (including the
Stock to be sold by the Selling Shareholder hereunder) have been duly
authorized, validly issued and are fully paid and non-assessable and, except as
described herein and in the Registration Statement and the Prospectus and the
financial statements and schedules thereto, there are no options, agreements,
contracts or other rights, including contractual or statutory preemptive rights,
in existence to acquire from the Company any Common Stock. The Company has no
Preferred Stock issued or outstanding as of the date hereof. The Company has no
direct or indirect subsidiaries other than the Bank, MetroCapital Corporation
("MetroCapital"), Kimberly Construction Company, Incorporated ("Kimberly"),
Metropolitan Savings Service Corporation ("Service Corporation") and
Metropolitan Securities Corporation ("Metropolitan Securities") (MetroCapital,
Kimberly, Service Corporation and Metropolitan Securities shall sometimes be
collectively referred to hereinafter as the "Other Subsidiaries"). The Bank has
an authorized capitalization of 10,000 shares of stock, $100.00 par value (the
"Bank Stock"), of which one share of Bank Stock was issued and outstanding on
the date hereof. MetroCapital has an authorized capitalization of 750 shares of
no par value common stock (the "MetroCapital Stock"), of which 100 shares of
MetroCapital Stock were issued and outstanding on the date hereof.
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<PAGE> 11
Kimberly has an authorized capitalization of 750 shares of stock, without par
value (the "Kimberly Stock"), of which two shares of Kimberly Stock were issued
and outstanding on the date hereof. Service Corporation has an authorized
capitalization of 500 common shares, without par value (the "Service Corporation
Stock"), of which 50 shares of Service Corporation Stock were issued and
outstanding on the date hereof. Metropolitan Securities has an authorized
capitalization of 750 shares of no par value common stock (the "Metropolitan
Securities Stock"), of which 100 shares of Metropolitan Securities Stock were
issued and outstanding on the date hereof. All of the Bank Stock, the
MetroCapital Stock, the Kimberly Stock, the Service Corporation Stock and the
Metropolitan Securities Stock has been duly and validly authorized and issued
and is fully paid and nonassessable. The Company owns of record and
beneficially, free and clear of any liens, claims, encumbrances or rights of
others, all of the issued and outstanding shares of the Bank Stock and the
MetroCapital Stock; the Bank owns of record and beneficially, free and clear of
any liens, claims, encumbrances or rights of others, all of the issued and
outstanding shares of the Kimberly Stock and the Service Corporation Stock; and
Service Corporation owns of record and beneficially, free and clear of any
liens, claims, encumbrances or rights of others, all of the issued and
outstanding shares of the Metropolitan Securities Stock. There are no options,
agreements, contracts or other rights in existence to purchase or acquire from
the Company, the Bank or any of the Other Subsidiaries any issued and
outstanding shares of the Bank Stock, the MetroCapital Stock, the Kimberly
Stock, the Service Corporation Stock or the Metropolitan Securities Stock.
(f) Each of the Other Subsidiaries has been duly organized and is now,
and at the Closing Date, will be, validly existing as a corporation in good
standing under the laws of the state of its incorporation and duly qualified as
a foreign corporation in good standing in every jurisdiction in which the
conduct of its business or ownership or lease of its properties requires such
qualification and in which failure to so qualify could, individually or in the
aggregate, have a material adverse effect on the financial condition, earnings,
capital (regulatory and otherwise), business, properties, prospects or results
of operations of the Company, the Bank and the Other Subsidiaries taken as a
whole. The activities of the Other Subsidiaries are permitted to subsidiaries of
a savings and loan holding company under all applicable laws, rules and
regulations and resolutions and the practice and policies of the OTS and the
Federal Deposit Insurance Corporation and the Company's investment in its
subsidiaries has either been approved by the OTS or is otherwise permitted under
applicable laws and regulations.
(g) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as otherwise stated
therein, there has not been
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<PAGE> 12
(i) any material adverse change, individually or in the aggregate, in the
financial condition, earnings, capital (regulatory and otherwise), business,
properties, prospects or results of operations of the Company, the Bank and the
Other Subsidiaries taken as a whole, (ii) any transaction that is material to
the financial condition, earnings, capital (regulatory and otherwise), business
properties, prospects or results of operations of the Company, the Bank and any
of the Other Subsidiaries taken as a whole, not arising in the ordinary course
of business, (iii) incurred any direct or contingent obligation that is material
to the financial condition, earnings, capital (regulatory and otherwise),
business, properties, prospects or results of operations of the Company, the
Bank and the Other Subsidiaries taken as a whole, (iv) any change that is
material to the Company or the Bank, in their respective capital stock or (v)
any dividend or distribution of any kind declared, paid or made on the capital
stock of the Company.
(h) The Company, the Bank and each of the Other Subsidiaries have good
and marketable title to all properties and assets described in the Registration
Statement and the Prospectus as owned by them, free and clear of all liens,
charges, encumbrances or restrictions, except such as do not materially
adversely affect the value of such properties and assets and do not interfere
with the use made or proposed to be made of such properties and assets by the
Company, the Bank or any of the Other Subsidiaries and except such as are
referred to in the Prospectus or are not materially significant in relation to
the respective businesses of the Company, the Bank and the Other Subsidiaries;
all of the leases and subleases material to the business of the Company (on a
consolidated basis) or the Bank, or under which the Company, the Bank or any of
the Other Subsidiaries hold properties described in the Prospectus are in full
force and effect; and such leases conform to the description thereof, if any,
set forth in the Prospectus.
(i) Neither the Company, the Bank nor any of the Other Subsidiaries is
in default (i) in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which it is a party or by which it
or any of its properties may be bound, which could, individually or in the
aggregate, have a material adverse effect on the financial condition, earnings,
capital (regulatory and otherwise), business, properties, prospects or results
of operations of the Company, the Bank and the Other Subsidiaries taken as a
whole, or (ii) in the observance of any provision of its certificate of
incorporation or charter (as the case may be).
(j) The execution and delivery of this Agreement, the issuance and
delivery of the Stock, the consummation of the transactions contemplated herein
and in the Registration Statement
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<PAGE> 13
and the Prospectus and compliance with the terms of this Agreement have been
duly authorized by all necessary corporate action and (i) will not conflict with
or result in a breach of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company, the Bank or any of the
Other Subsidiaries under any contract, indenture, mortgage, loan agreement,
note, lease or other agreement or instrument to which the Company, the Bank or
any of the Other Subsidiaries is a party or by which the Company, the Bank or
any of the Other Subsidiaries, or any of their respective properties, is bound,
or any existing applicable law, rule, regulation, judgment, order or decree of
any government, governmental instrumentality or court, domestic or foreign,
having jurisdiction over the Company, the Bank or any of the Other Subsidiaries
or any of their respective properties, which could, individually or in the
aggregate, have a material adverse effect on the financial condition, earnings,
capital (regulatory and otherwise), business, properties, prospects or results
of operations of the Company, the Bank and the Other Subsidiaries taken as a
whole, and (ii) will not result in any violation of the articles of
incorporation or code of regulations of the Company.
(k) No approval, authorization or consent of any court, governmental
authority or agency having jurisdiction over the Company, the Bank or any of the
Other Subsidiaries is required in connection with the sale of the Stock to the
Underwriter except such as may be required under the Act, state securities or
Blue Sky laws and the NASD.
(l) Except as disclosed in the Registration Statement and the
Prospectus, there is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, or any arbitrator or
arbitration panel now pending or, to the knowledge of the Company, threatened
against the Company, the Bank or any of the Other Subsidiaries which (i) would,
individually or in the aggregate, have a material adverse effect on the
financial condition, earnings, capital (regulatory and otherwise), business,
properties, prospects or results of operations of the Company, the Bank and the
Other Subsidiaries taken as a whole, (ii) that could prevent consummation of the
transactions contemplated hereby or (iii) that is required to be disclosed in
the Registration Statement or the Prospectus; and there is no decree, judgment
or order of any court or any regulatory decree or order specific to the Company,
the Bank or any of the Other Subsidiaries in existence against or restraining
the Company, the Bank or any of the Other Subsidiaries, or any of their
officers, employees or directors, from taking any actions of any kind in
connection with the business of the Company, the Bank or any of the Other
Subsidiaries.
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<PAGE> 14
(m) The Company is a savings and loan holding company duly registered
with the OTS under the Home Owners' Loan Act. The Company, the Bank and each of
the Other Subsidiaries own or possess or have obtained all material governmental
licenses, permits, consents, orders, approvals and other authorizations
necessary to lease or own, as the case may be, and to operate their properties
and to carry on their business in all material respects as presently conducted,
and neither the Company, the Bank nor any of the Other Subsidiaries has received
any notice of any actions or proceedings that, if successful, would limit,
revoke or modify, or require the Company, the Bank or any of the Other
Subsidiaries to cease and desist from any activity relating to, any such
licenses, permits, consents, orders, approvals or authorizations which,
singularly or in the aggregate, if the subject of an unfavorable ruling or
finding, would have a material adverse effect on the financial condition,
earnings, capital (regulatory and otherwise), business, properties, prospects or
results of operations of the Company, the Bank and the Other Subsidiaries taken
as a whole.
(n) The Company, the Bank and each of the Other Subsidiaries are in
compliance with all federal and state laws and regulations that regulate or are
concerned in any way with the business of a savings association or the business
of any of the Other Subsidiaries, including, without limitation, Financial
Institution Reform, Recovery, and Enforcement Act, the Home Owners' Loan Act,
the Federal Deposit Insurance Act, the National Housing Act, the Federal Deposit
Insurance Corporation Improvement Act of 1991, the Real Estate Settlement
Procedures Act and all other applicable laws and regulations where the failure
to comply would, individually or in the aggregate, have a material adverse
effect on the financial condition, earnings, capital (regulatory and otherwise),
business, properties, prospects or results of operations of the Company, the
Bank and the Other Subsidiaries taken as a whole.
(o) Other than with respect to the Underwriter, the Company has not
incurred any liability for finder's or broker's fees or agent's commissions in
connection with the execution and delivery of this Agreement, the offer and sale
of the Stock or the transactions hereby contemplated.
(p) The Company, the Bank and each of the Other Subsidiaries own or
possess the material trademarks, service marks and trade names necessary to
conduct the business as described in the Prospectus, and neither the Company,
the Bank nor any of the Other Subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to any
trademarks, service marks or trade names which, singularly or in the aggregate,
if the subject of any unfavorable decision, ruling or finding, would have a
material adverse effect on the financial condition, earnings, capital
(regulatory and otherwise), business,
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<PAGE> 15
properties, prospects or results of operations of the Company, the Bank and the
Other Subsidiaries taken as a whole.
(q) There are no contracts or documents of the Company, the Bank or any
of the Other Subsidiaries that are required to be described in the Registration
Statement and the Prospectus or to be filed as exhibits to the Registration
Statement by the Act and the Rules and Regulations that have not been accurately
described in all material respects in the Registration Statement and the
Prospectus or filed as exhibits to the Registration Statement.
(r) The Company has filed all federal, state and local tax returns
required to be filed and is not in default in the payment of any taxes which are
due pursuant to said returns or pursuant to any law or any assessments, other
than which the Company is contesting in good faith.
(s) The Company has furnished the Underwriter letters from each of the
executive officers and directors of the Company pursuant to which such persons
have agreed that for a period of 180 days from the date of the Prospectus, such
persons will not, without your prior written consent, and subject to the
exceptions set forth in such letters, directly or indirectly, sell, offer to
sell, contract to sell, grant any options for the sale, transfer, distribute or
otherwise dispose of, any shares of Common Stock, any securities convertible
into or exchangeable for shares of Common Stock or any securities which such
persons have or will have the right to acquire through options, warrants,
subscription or other rights.
(t) The Company's Common Stock has been registered under Section 12(g)
of the Exchange Act, as amended, and has been authorized for trading on the
Nasdaq National Market subject to official notice of issuance.
7. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDER. The
Selling Shareholder represents and warrants to and covenants with the
Underwriter that:
(a) The Selling Shareholder now has and on the Closing Dates (as
hereinafter defined) will have good and valid title to all the shares of the
Stock to be sold by such Selling Shareholder hereunder, free and clear of all
liens, encumbrances, equities, security interests and claims whatsoever, with
full legal right, power and authority to enter into this Agreement and that upon
the delivery of and payment for such shares of the Stock hereunder, the
Underwriter will receive good and valid title to the shares of the Stock to be
sold by the Selling Shareholder, free and clear of all liens, encumbrances,
equities, security interests and claims whatsoever.
15
<PAGE> 16
(b) The Selling Shareholder has not taken and will not take, directly
or indirectly, any action designed to stabilize or manipulate, or which has
constituted or which might in the future reasonably be expected to cause or
result in stabilization or manipulation of, the price of the Stock of the
Company in order to facilitate the sale or resale of the Stock or otherwise.
(c) The Selling Shareholder is disposing of shares of the Stock for his
own account. The Selling Shareholder is not selling shares of the Stock,
directly or indirectly, for the benefit of the Company or the Underwriter, and
no part of the proceeds of the sale to be received by the Selling Shareholder
will inure, either directly or indirectly, to the benefit of the Company.
(d) This Agreement has been duly authorized, executed and delivered by
or on behalf of the Selling Shareholder and this Agreement is a valid and
binding obligation of the Selling Shareholder enforceable in accordance with its
terms.
(e) All information furnished to the Company by the Selling Shareholder
and included in the Preliminary Prospectus and the Prospectus or any amendment
or supplement thereto, under the captions "Compensation Committee Interlocks,
Insider Participation and Certain Transactions" and "Selling Shareholder and
Beneficial Ownership" is true and correct and does not contain any untrue
statement of a material fact nor does it omit to state any material fact
required to be stated therein or necessary to make such information not
misleading.
(f) To the best knowledge of the Selling Shareholder, without
independent investigation, neither the Registration Statement nor the Prospectus
nor any amendment or supplement thereto, will include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(g) The execution and performance of this Agreement and the
consummation of the transactions herein and therein contemplated and the
fulfillment of the terms hereof and thereof will not conflict with, result in a
breach of, or constitute a default under any will, trust (constructive or
other), agreement, indenture, mortgage, note, deed, rule, regulation, order,
injunction, judgment, decree or other instrument to which the Selling
Shareholder is a party or by which he is bound.
(h) All consents, approvals, authorizations and orders necessary for
the execution and delivery by the Selling Shareholder of this Agreement and for
the sale and delivery of the Stock to be sold by the Selling Shareholder
hereunder, have been obtained.
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<PAGE> 17
(i) Without independent investigation, the Selling Shareholder is not
aware that any of the representations and warranties of the Company set forth in
Section 6 hereof is untrue or inaccurate in any material respect.
8. Indemnification and Contribution.
(a) The Company and the Selling Shareholder agree to jointly and
severally indemnify and hold harmless the Underwriter from and against any and
all losses, claims, damages, liabilities and expenses to which it may become
subject under the Act or otherwise, insofar as such losses, claims, damages,
liabilities and expenses arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus or the Registration Statement or the Prospectus or in any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and agree to reimburse
the Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or expense; provided however that the Company and the Selling
Shareholder shall not be liable in any such case to the extent that any such
losses, claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or allegation thereof which has been made
therein or omitted therefrom in reliance upon and in conformity with information
relating to the Underwriter furnished in writing to the Company by or on behalf
of the Underwriter expressly for use therein; provided, however, that the
indemnification contained in this paragraph with respect to any preliminary
prospectus shall not inure to the benefit of the Underwriter with respect to any
action or claim arising from the sale of the Stock by the Underwriter brought by
any person who purchased Stock from the Underwriter to the extent that the
action or claim results from the fact that (i) a copy of the Prospectus (as
amended or supplemented if any amendments or supplements thereto shall have been
furnished to the Underwriter prior to the written confirmation of the sale
involved) shall not have been given or sent to such person by or on behalf of
the Underwriter with or prior to the written confirmation of the sale involved
and (ii) the untrue statement or omission of a material fact contained in the
preliminary prospectus was corrected in the Prospectus (as amended or
supplemented if amended or supplemented as aforesaid). Notwithstanding the
foregoing, the liability of the Selling Shareholder under this Section 8(a)
shall not exceed the product of the number of shares of Stock sold by the
Selling Shareholder times the initial public offering price per share appearing
on the cover page of the Prospectus. In addition to their other obligations
under this Section 8(a), the Company and the Selling Shareholder agree that, as
an interim measure during the pendency of any such claim, action, investigation,
inquiry or other
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<PAGE> 18
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in this Section 8(a), the Company and
the Selling Shareholder will promptly reimburse the Underwriter for all
reasonable legal expenses as they are incurred in connection with investigating
or defending such claim, action, investigation, inquiry or other proceeding. To
the extent that any such interim reimbursement payment is held by a court of
competent jurisdiction to have been improper, each recipient thereof will
promptly return to the Company and the Selling Shareholder their respective
payments. The information set forth in the last paragraph on the outside front
cover, in the stabilization paragraph on the inside front cover and under
"Underwriting" in any preliminary prospectus and in the Prospectus constitutes
the only information furnished by the Underwriter to the Company for inclusion
in any preliminary prospectus, the Prospectus or the Registration Statement.
(b) The Underwriter agrees to indemnify and hold harmless the Company,
its directors, its officers who sign the Registration Statement, the Selling
Shareholder and any person controlling the Company to the same extent as the
foregoing indemnity from the Company to the Underwriter, but only with respect
to information relating to the Underwriter furnished in writing to the Company
by or on behalf of the Underwriter expressly for use in the Registration
Statement, the Prospectus or any preliminary prospectus, or any amendment
thereof or supplement thereto.
(c) For purposes of this Section 8, the term "Underwriter" shall
include each person, if any who controls the Underwriter within the meaning of
the Act.
(d) If any action or claim shall be brought against any indemnified
party under this Section 8, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8,
promptly notify the indemnifying party in writing of the commencement thereof.
No indemnification provided for in Sections 8(a) or 8(b) shall be available to
any party who shall fail to give notice as provided in this Section 8(d) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was prejudiced by the failure to give such notice,
but the omission to so notify the indemnifying party will not relieve it from
any liability that it may have to an indemnified party under this Section 8. In
case any such action is brought against an indemnified party, and it notifies
the indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein, and to the extent that it may elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof,
with counsel satisfactory to such indemnified party. Upon receipt of notice
from the indemnifying party to such indemnified party of its election to
assume the
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<PAGE> 19
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under Section 8
for any legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof unless (i) the indemnifying party has
agreed in writing to pay such fees and expenses, (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the named parties to any such action
(including any impleaded party) include such indemnified party and the
indemnifying party and such indemnified party shall have been advised by counsel
that there may be one or more legal defenses available to it which are different
from or additional to those available to the indemnifying party (in which case
if such indemnified party notifies the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action on behalf of
such indemnified party, it being understood, however, that the indemnifying
party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of not more than one separate firm of attorneys for all such
indemnified parties). The indemnifying party shall not be liable for any
settlement of any such action effected without its written consent, but if
settled with its written consent, or if there shall be a final judgment for the
plaintiff in any such action and the time for filing all appeals has expired,
the indemnifying party agrees to indemnify and hold harmless the indemnified
party from and against any loss or liability by reason of such settlement or
judgment.
(e) (i) If the indemnification of the Underwriter, the Selling
Shareholder or the Company provided for in this Section 8 is unavailable as a
matter of law to the Underwriter, the Selling Shareholder or the Company, as the
case may be, in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the indemnifying party who would otherwise have been
required to indemnify the indemnified party, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
damages, liabilities or expenses (a) in such proportion as is appropriate to
reflect the relative benefits received by such indemnified party from the
offering of the Stock or (b) if the allocation provided by clause (a) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (a) above but also the
relative fault of such indemnified party in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company, the Selling Shareholder and the Underwriter
shall be deemed to be in the same
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<PAGE> 20
proportion, in the case of the Company and the Selling Shareholder as the total
price paid to each for the Stock sold by them to the Underwriter (net of
underwriting discounts and commissions but before deducting expenses), and in
the case of the Underwriter as the underwriting discounts and commissions
received by it, bears to the total of such amounts paid to the Company and the
Selling Shareholder and received by the Underwriter as underwriting discounts
and commissions. The relative fault of the Company and the Selling Shareholder
and of the Underwriter shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Shareholder or by the Underwriter and the
party's relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(ii) The Company, the Selling Shareholder and the Underwriter
agree that it would not be just and equitable if contribution pursuant to this
Section 8 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities and
expenses referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth in this Section 8, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8, the Underwriter shall not be required to
contribute any amount in excess of the amount of the total underwriting
discounts and commissions received by the Underwriter in connection with the
Stock underwritten by it and distributed to the public. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this Section
8 and the representations and warranties of the Company and the Selling
Shareholder set forth in this Agreement shall remain operative and in full force
and effect, regardless of (i) any investigation made by or on behalf of the
Underwriter or any person controlling the Underwriter, the Company or its
directors or officers (or any person controlling the Company) or the Selling
Shareholder, (ii) acceptance of any Stock and payment therefor hereunder and
(iii) any termination of this Agreement. A successor or assign of the
Underwriter, the Company or its directors or officers and their legal and
personal representatives (or of any person controlling the Underwriter or the
Company) and the Selling Shareholder shall be entitled to the benefits of the
20
<PAGE> 21
indemnity, contribution and reimbursement agreements contained in this Section
8.
9. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations of the
Underwriter to purchase the Stock shall be subject to the accuracy of the
representations and warranties of the Company and the Selling Shareholder herein
contained, as of the date hereof and the Closing Date, to the performance by the
Company and the Selling Shareholder of their obligations hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 pm., Cleveland time, on the date hereof, or at such later date and
time as shall be consented to in writing by you, and, if you and the Company
have elected to rely upon Rule 430A, the price of the Stock and any price
related or other information previously omitted from the Registration Statement
pursuant to such Rule 430A shall have been transmitted to the Commission for
filing pursuant to Rule 424(b) within the prescribed time period, and on or
prior to the Closing Date the Company shall have provided evidence satisfactory
to the Underwriter of such timely filing, or a post-effective amendment
providing such information shall have been promptly filed and declared effective
in accordance with the requirements of Rule 430A.
(b) You shall have received from Thompson, Hine & Flory LLP, counsel
for the Company, a favorable opinion dated the applicable Closing Date and
satisfactory to you and your counsel to the effect that:
(i) The Company is a corporation duly organized and validly
existing in good standing under the laws of Ohio, with corporate power
and authority to own, lease and operate its property and conduct its
business as described in the Registration Statement, and does not own
or lease property or transact business in any jurisdiction where the
ownership of such property or the transaction of such business would
require the Company to qualify as a foreign corporation under the laws
of such jurisdiction, except where the failure to so qualify would,
individually or in the aggregate, not have a material adverse effect on
the financial condition, earnings, capital (regulatory and otherwise),
business, properties, prospects or results of operations of the
Company, the Bank and the Other Subsidiaries taken as a whole.
(ii) The authorized capital stock of the Company is as set
forth in the Registration Statement and the Prospectus; all issued and
outstanding shares of Common Stock of the Company (including the Stock
to be sold by the Selling Shareholder hereunder) have been duly
authorized, validly issued and are fully paid and nonassessable and,
except as
21
<PAGE> 22
described in the Registration Statement and the Prospectus, there are
no options, agreements, contracts or other rights, including
contractual or statutory preemptive rights, in existence to acquire
from the Company any Common Stock. The Company has no Preferred Stock
issued or outstanding as of the date hereof.
(iii) The Stock to be issued and sold by the Company hereunder
has been duly authorized, and, when issued, delivered and paid for
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable and will conform in all material respects to the
description thereof contained in the Registration Statement and the
Prospectus. No preemptive rights of security holders of the Company
exist with respect to the issuance and sale of the Stock by the Company
pursuant hereto. The certificates for the Common Stock of the Company
(including the Stock) are in due and proper form and comply with all
applicable statutory requirements.
(iv) The Company has no direct or indirect subsidiaries other
than the Bank and the Other Subsidiaries. The Bank is a federally
insured stock savings and loan association duly chartered under the
laws of the State of Ohio to transact business as a state savings and
loan association and whose charter is in full force and effect and
which is duly authorized and has full power to own its properties and
carry on its business as described in the Registration Statement. The
Bank has an authorized capitalization of 10,000 shares of stock,
$100.00 par value (the "Bank Stock"), of which one share of Bank Stock
was issued and outstanding on the date hereof. MetroCapital has an
authorized capitalization of 750 shares of no par value common stock
(the "MetroCapital Stock"), of which 100 shares of MetroCapital Stock
were issued and outstanding on the date hereof. Kimberly has an
authorized capitalization of 750 shares of stock, without par value
(the "Kimberly Stock"), of which two shares of Kimberly Stock were
issued and outstanding on the date hereof. Service Corporation has an
authorized capitalization of 500 common shares, without par value (the
"Service Corporation Stock"), of which 50 shares of Service Corporation
Stock were issued and outstanding on the date hereof. Metropolitan
Securities has an authorized capitalization of 750 shares of no par
value common stock (the "Metropolitan Securities Stock"), of which 100
shares of Metropolitan Securities Stock were issued and outstanding on
the date hereof. All of the Bank Stock, the MetroCapital Stock, the
Kimberly Stock, the Service Corporation Stock and the Metropolitan
Securities Stock has been duly and validly authorized and issued and is
fully paid and nonassessable. To the best knowledge of such counsel,
after inquiry of the Company and the Bank: (i) the Company owns of
record and beneficially, free and clear of
22
<PAGE> 23
of any liens, claims, encumbrances or rights of others, all of the
issued and outstanding shares of the Bank Stock and the MetroCapital
Stock; (ii) the Bank owns of record and beneficially, free and clear of
any liens, claims, encumbrances or rights of others, all of the issued
and outstanding shares of the Kimberly Stock and the Service
Corporation Stock; (iii) Service Corporation owns of record and
beneficially, free and clear of any liens, claims, encumbrances or
rights of others, all of the issued and outstanding shares of the
Metropolitan Securities Stock; and (iv) there are no options,
agreements, contracts or other rights in existence to purchase or
acquire from the Company, the Bank or any of the Other Subsidiaries any
issued and outstanding shares of the Bank Stock, the MetroCapital
Stock, the Kimberly Stock, the Service Corporation Stock or the
Metropolitan Securities Stock.
(v) Each of the Other Subsidiaries are corporations duly
organized, and validly existing and in good standing under the laws of
their respective states of incorporation and duly qualified as a
foreign corporation in good standing in every jurisdiction in which the
conduct of its business or ownership or lease of its properties
requires such qualification and in which failure to so qualify could,
individually or in the aggregate, have a material adverse effect on the
financial condition, earnings, capital (regulatory and otherwise),
business, properties, prospects or results of operations of the
Company, the Bank and the Other Subsidiaries taken as a whole. The
activities of the Other Subsidiaries are permitted to subsidiaries of a
savings and loan holding company under all applicable laws, rules and
regulations and resolutions and the practice and policies of the OTS
and the Federal Deposit Insurance Corporation and the Company's
investment in its subsidiaries has either been approved by the OTS or
is otherwise permitted under applicable laws and regulations.
(vi) The statements in the Prospectus under the caption
"Description of the Capital Stock," insofar as they constitute
statements of law or legal conclusions, are correct in all material
respects.
(vii) The Registration Statement has become effective under
the Act and, to the best of the knowledge of such counsel, no stop
order suspending the effectiveness of the Registration Statement has
been issued nor has any proceeding for the issuance of such an order
been initiated or, to the knowledge of such counsel, threatened.
(viii) The Registration Statement and the Prospectus comply as
to form in all material respects to the requirements of Form S-1 under
the Act (except that such
23
<PAGE> 24
counsel need express no opinion as to numerical, financial data,
statistical data, ratios, financial statements and notes thereto and
related schedules therein).
(ix) Such counsel does not know of any statutes or
regulations or any pending or threatened litigation or governmental
proceedings of any kind against the Company required to be described in
the Prospectus which are not so described.
(x) No approval, authorization or consent of any court,
governmental authority or agency having jurisdiction over the Company,
the Bank or the Other Subsidiaries is required in connection with the
sale of the Stock to the Underwriter except such as may be required
under the Act, state securities or Blue Sky laws or by the NASD.
(xi) To the best knowledge of such counsel, (i) neither the
Company, the Bank nor any of the Other Subsidiaries is in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which it is a party or by
which it or any of its properties may be bound, which could,
individually or in the aggregate, have a material adverse effect on the
financial condition, earnings, capital (regulatory and otherwise),
business, properties, prospects or results of operations of the
Company, the Bank and the Other Subsidiaries taken as a whole, or (ii)
neither the Company nor the Bank is in default in the observance of any
provision of its articles of incorporation or charter (as the case may
be) or code of regulations or bylaws (as the case may be).
(xii) The execution and delivery of this Agreement, the
issuance and delivery of the Stock, the consummation of the
transactions contemplated herein and in the Registration Statement and
compliance with the terms of this Agreement have been duly authorized
by all necessary action of the Company and to the best knowledge of
such counsel, (i) will not conflict with or result in a breach of any
of the terms or provisions of, or constitute a default under, or result
in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company, the Bank or any of the Other
Subsidiaries under any contract, indenture, mortgage, loan agreement,
note, lease or other agreement or instrument to which the Company, the
Bank or any of the Other Subsidiaries is a party or by which the
Company, the Bank or any of the Other Subsidiaries or any of their
respective properties, is bound, or any existing applicable law, rule,
regulation, judgment, order or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over
the Company, the Bank or any of the
24
<PAGE> 25
Other Subsidiaries or any of their respective properties, which could,
individually or in the aggregate, have a material adverse effect on the
financial condition, earnings, capital (regulatory and otherwise),
business, properties, prospects or results of operations of the
Company, the Bank and the Other Subsidiaries taken as a whole and (ii)
will not result in any violation of the articles of incorporation or
code of regulations of the Company.
(xiii) The Selling Shareholder has, as of the Closing Date, good
title to the shares of the Stock sold by such Selling Shareholder
pursuant to this Agreement and full legal right and power required by
law to sell, transfer and deliver such shares in accordance with this
Agreement, and delivery of such shares against payment therefor as
provided in this Agreement will vest good title to such shares in the
purchasers thereof, free and clear of any liens, claims, equities or
encumbrances, assuming that such purchasers purchase the same in good
faith without notice of any adverse claims.
In rendering the foregoing opinion, such counsel may rely, to the
extent they deem such reliance proper (i) as to the matters involving the laws
of jurisdictions other than the state of Ohio and the federal laws of the United
States, on the opinions of other counsel reasonably acceptable to you and (ii)
as to all matters of fact, upon certifications and written statements of
government officials, the Selling Shareholder and of officers and employees of,
and accountants for, the Company or its subsidiaries, provided that copies of
all such opinions, statements or certificates shall be provided to counsel for
the Underwriter.
Such counsel shall state that they have participated in the preparation
of the Registration Statement and the Prospectus as counsel to the Company and
during the preparation of the Registration Statement and the Prospectus, they
participated in conferences with representatives of the independent public and
internal accountants for, and other representatives of, the Company and the
Bank, at which conferences the contents of the Registration Statement and the
Prospectus and related matters were discussed and, while they have not confirmed
the accuracy or completeness of or otherwise verified the information contained
in the Registration Statement or the Prospectus, based upon such preparation and
conferences and a review of documents deemed relevant for the purpose of
rendering their opinion, nothing has come to their attention that would lead
them to believe that (i) the Registration Statement, as of the time it became
effective under the Act, contained or contains as of the date of such opinion
any untrue statement of a material fact or omitted or omits as of the date of
such opinion to state any material fact required to be stated therein or
necessary to make the statements
25
<PAGE> 26
therein not misleading, and (ii) the Prospectus and any amendments thereof or
supplements thereto (other than numerical, financial data, statistical data,
ratios, financial statements and notes thereto and related schedules therein, as
to which such counsel need express no belief), as of its date, contained or
contains as of the date of such opinion any untrue statement of material fact or
omitted or omits as of the date of such opinion to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided,
however, such counsel need express no comment as to (i) the information in the
Prospectus under the caption "Underwriting," and (ii) the financial statements,
schedules and other numerical, financial, statistical data, or ratios contained
in the Registration Statement or the Prospectus.
(c) That you shall have received on the Closing Date an opinion dated
the Closing Date from Calfee, Halter & Griswold, counsel for the Underwriter,
with respect to the incorporation of the Company, the validity of the Stock, the
Registration Statement, the Prospectus as amended or supplemented and such other
matters as you may reasonably require.
(d) That you shall have received letters addressed to you and dated the
date hereof and the Closing Date from Crowe, Chizek and Company, independent
public accountants for the Company, substantially in the forms heretofore
approved by you.
(e) That (i) no stop order suspending the effectiveness of the
Registration Statement shall have been issued and not withdrawn and no
proceedings for that purpose shall have been taken or, to the knowledge of the
Company, but without independent inquiry of third parties, shall be contemplated
by the Commission at or prior to the Closing Date; (ii) there shall not have
been, since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as may otherwise be set forth
or contemplated in the Registration Statement and the Prospectus, any material
adverse change, individually or in the aggregate, in the financial condition,
earnings, capital (regulatory and otherwise), business, properties, prospects or
results of operations of the Company, the Bank and the Other Subsidiaries taken
as a whole; (iii) neither the Company, the Bank nor any of the Other
Subsidiaries shall have incurred any liabilities or obligations, direct or
contingent (not in the ordinary course of business), other than those reflected
in the Registration Statement and the Prospectus that would, individually or in
the aggregate, have a material adverse effect on the financial condition,
earnings, capital (regulatory and otherwise), business, properties, prospects or
results of operations of the Company, the Bank and the Other Subsidiaries taken
as a whole; and (iv) all of the representations and warranties of the Company
and the Selling Shareholder contained in this Agreement shall be true
26
<PAGE> 27
and correct on and as of the date hereof and the Closing Date as if made on and
as of such date, except for those which refer to a specific date and changes
permitted by this Agreement, and you shall have received certificates, dated as
of the Closing Date, (A) signed by the President, Vice President, Secretary or
Treasurer of the Company (or such other officers as are acceptable to you, as
the Underwriter) to the effect set forth in this Section 9(e) and in Section
9(g) hereof and (B) signed by the Selling Shareholder to the effect set forth in
this Section 9(e) and in Section 9(g) hereof.
(f) Within 24 hours after the Registration Statement becomes effective,
or within such longer period as to which you shall have consented, the Stock
shall have been qualified for sale or exempt from such qualification under the
securities laws of each jurisdiction in which the Stock is to be sold and such
qualification or exemption shall continue in effect to and including the Closing
Date.
(g) That the Company and the Selling Shareholder shall not have failed
at or prior to the Closing Date to have performed or complied in all material
respects with any of the agreements herein contained and required to be
performed or complied with by them at or prior to the Closing Date.
(h) At the Closing Date, counsel for the Underwriter shall have been
furnished with all such documents, certificates and opinions provided for in the
Closing Memorandum prepared by counsel for the Underwriter, for the purpose of
enabling them to pass upon the matters referred to in Section 9(c) and in order
to evidence the accuracy and completeness of any of the representations and
warranties or statements of the Company or the Selling Shareholder, the
performance of any of the covenants of the Company or the Selling Shareholder,
or the fulfillment of any of the conditions herein contained; and all
proceedings taken by the Company or the Selling Shareholder at or prior to the
Closing Date in connection with the authorization, issuance and sale of the
Stock as contemplated in this Agreement shall be satisfactory in form and
substance to you and to counsel for the Underwriter. The Company will furnish
you with such reasonable number of conformed copies of such opinion,
certificates, letters and documents as you shall request.
10. EFFECTIVE DATE OF AGREEMENT.
(a) This Agreement shall become effective immediately as to Sections 2,
8 and 10 and, as to all other provisions, (i) if at the time of execution and
delivery of this Agreement the Registration Statement has not become effective
at 9:00 a.m., Cleveland time, on the first full business day following the
effectiveness of the Registration Statement, or (ii) if at the time of
execution and delivery of this Agreement the Registration
27
<PAGE> 28
Statement has been declared effective, at 9:00 a.m., Cleveland time, on the
first full business day following the date of execution of this Agreement; but
this Agreement shall nevertheless become effective at such earlier time after
the Registration Statement becomes effective as you may determine by notice to
the Company or by release of any of the Stock to the public. For the purposes of
this Section 10(a), the Stock shall be deemed to have been so released upon the
release for publication of any newspaper advertisement relating to the Stock or
upon the release by you of telegrams (i) advising the Underwriter that the Stock
is released for public offering or (ii) offering the Stock for sale to
securities dealers, whichever may occur first. By giving notice in the manner
set forth in Section 12, before the time this Agreement becomes effective as to
all of its provisions, you, as the Underwriter, or the Company may prevent this
Agreement from becoming effective without liability of any party to any other
party, except that the Company shall remain obligated to pay costs and expenses
to the extent provided in Sections 4 and 8 hereof.
(b) Any notice under this Section 10 may be made by telegram, telephone
or facsimile but shall be subsequently confirmed by letter.
11. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without Liability on the part of the
Underwriter to the Company, by notice given to the Company, (i) if the Company
shall have failed, refused or been unable, at or prior to the Closing Date, to
perform any agreement on its part to be performed, or because any other
condition of the Underwriter's obligations hereunder required to be fulfilled by
the Company is not fulfilled, or (ii) if at or prior to the Closing Date, there
shall have been any material adverse change in the financial condition,
earnings, capital (regulatory and otherwise), business, properties, prospects or
results of operations of the Company, the Bank and the Other Subsidiaries taken
as a whole, and the Bank which, in your reasonable judgment, makes it
impracticable or inadvisable to offer or deliver the Stock, or (iii) if trading
in securities generally on the New York Stock Exchange, the American Stock
Exchange or the National Association of Securities Dealers Automated Quotation
System shall have been suspended, or minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for securities generally shall
have been required on either of such exchanges or on such market, by the
exchanges, market or by order of the Commission or any other governmental
authority having jurisdiction, or (iv) if a general moratorium on savings bank,
savings and loan association or commercial banking activities in the United
States or in New York or Ohio shall have been declared by either Federal or
state authorities or (v) if there shall have occurred any outbreak or escalation
of hostilities or other international or domestic calamity, crisis or change in
political, financial or economic
28
<PAGE> 29
conditions the effect of which on the financial markets of the United States is
such as to make it, in your reasonable judgment, impracticable or inadvisable to
market the Stock or to enforce contracts for the purchase of Stock. Notice of
such cancellation shall be given to the Company by telegraph, telephone or
facsimile but shall be subsequently confirmed by letter.
12. MISCELLANEOUS.
(a) Except as otherwise provided in Sections 9 and 10 hereof, notice
given pursuant to any of the provisions of this Agreement shall be in writing
and shall be delivered (a) if to the Company, at the offices of the Company at
6001 Landerhaven Drive, Mayfield Heights, Ohio 44124 (Attn: David G. Lodge),
with a copy to Thompson, Hine and Flory, 1100 National City Bank Building, 629
Euclid Avenue, Cleveland, Ohio 44114-3070 (Attn: Malvin E. Bank, Esq.), (b) if
to the Selling Shareholder, Robert M. Kaye, 6001 Landerhaven Drive, Mayfield
Heights, Ohio 44124 or (c) if to you, as the Underwriter, at the offices of
McDonald & Company Securities, Inc., McDonald Investment Center, 800 Superior
Avenue, Cleveland, Ohio 44114 (Attn: Financial Services Group) with a copy to
Calfee, Halter & Griswold, 1400 McDonald Investment Center, 800 Superior Avenue,
Cleveland, Ohio 44114 (Attn: Thomas F. McKee), or in either case to such other
address as the person to be notified may have requested in writing.
(b) The Agreement herein set forth is made solely for the benefit of
the Underwriter, the Selling Shareholder, the Company, its directors and
officers and other controlling persons referred to in Section 8 hereof and their
respective successors, assigns, and personal and legal representatives to the
extent provided herein, and no other person or entity shall acquire or have any
right under or by virtue of this Agreement. The term "successors and assigns" as
used in this Agreement shall not include a purchaser from the Underwriter of any
of the Stock in his status as such purchaser.
13. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
14. COUNTERPARTS. This Agreement may be signed in various
counterparts which together shall constitute one and the same instrument.
29
<PAGE> 30
Please confirm that the foregoing correctly sets forth the
agreement between the Company and the Underwriter.
Very truly yours,
METROPOLITAN FINANCIAL CORP.
By
--------------------------
Title
-----------------------
ROBERT M. KAYE,
the Selling Shareholder
----------------------------
Confirmed as of the date first
above mentioned, on behalf of
itself.
McDONALD & COMPANY SECURITIES, INC.
By
--------------------------
Title
------------------------
30
<PAGE> 1
Exhibit 5
[Thompson Hine & Flory LLP Letterhead]
October 17, 1996
Metropolitan Financial Corp.
6001 Landerhaven Drive
Mayfield Heights, Ohio 44124
Re: 805,000 Shares of Common Stock Registered
Pursuant to Metropolitan Financial Corp.'s
Registration Statement on Form S-1 No. 333-12381
Gentlemen:
In connection with the filing by Metropolitan Financial Corp. (the
"Corporation") with the Securities and Exchange Commission, under the provisions
of the Securities Act of 1933, as amended, of a Registration Statement on Form
S-1 and an Amendment No. 1 to Registration Statement on Form S-1 (collectively,
the "Registration Statement"), registering 805,000 shares of Common Stock,
without par value, of the Corporation (the "Common Shares"), we have examined
the following:
1. The Articles of Incorporation and Code of Regulations of the
Corporation as currently in effect and the Amended and Restated
Articles of Incorporation and Amended and Restated Code of
Regulations of the Corporation which will be effective prior to
completion of the offering contemplated by the Registration
Statement.
2. Such records of corporate proceedings and such other documents,
and such questions of law, as we deemed necessary to examine as a
basis for the opinions hereinafter expressed.
3. The form of Underwriting Agreement to be entered into by and
among McDonald & Company Securities, Inc. (the "Underwriter"),
the Corporation and Mr. Robert M. Kaye, who is both the sole
shareholder of the Corporation and the selling shareholder in the
offering, pursuant to which the Common Shares are to be purchased
by the Underwriter and resold.
4. The Registration Statement.
<PAGE> 2
Metropolitan Financial Corp.
October 17, 1996
Page 2
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
originals of all documents submitted to us as certified, photostatic or
conformed copies, and the authenticity of the originals of all such latter
documents. We have also assumed the due execution and delivery of all documents
where due execution and delivery are prerequisites to the effectiveness thereof.
Based on the foregoing and subject to effectiveness of the Registration
Statement with the Securities and Exchange Commission and to registration or
qualification under the securities laws of the states in which the securities
may be sold, we are of the opinion that when the 805,000 Common Shares
registered pursuant to the Registration Statement are sold in the manner
contemplated by the Registration Statement, they will be validly issued, fully
paid and nonassessable.
We express no opinion as to the applicability or effect of any laws, orders or
judgments of any state of jurisdiction other than federal securities laws and
the substantive laws of the State of Ohio. Further, our opinion is based solely
upon existing laws, rules and regulations, and we undertake no obligation to
advise you of any changes that may be brought to our attention after the date
hereof.
We consent to the use of our name under the caption "Legal Matters" in the
Prospectus, constituting part of the Registration Statement, and to the filing
of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Thompson Hine & Flory LLP
Thompson Hine & Flory LLP
<PAGE> 1
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
We consent to the inclusion in the Registration Statement on Form S-1 of
Metropolitan Financial Corp. of our report dated February 23, 1996 on the
consolidated financial statements of Metropolitan Financial Corp. as of December
31, 1995 and 1994 and for the three year period ended December 31, 1995. We also
consent to the reference to us under the heading "Experts" in the registration
statement.
/s/ Crowe, Chizek and Company LLP
---------------------------------
Crowe, Chizek and Company LLP
Cleveland, Ohio
October 15, 1996
<PAGE> 1
EXHIBIT 99.4
Entered into on the 16th day of October 1996
RESTATED LOAN AGREEMENT
THIS AGREEMENT is a Restatement of the Loan Agreement dated February
22, 1995, by and between METROPOLITAN FINANCIAL CORP., an Ohio corporation (the
"Borrower"), and THE HUNTINGTON NATIONAL BANK (the "Bank"), as amended by the
First Amendment dated as of February 2, 1995, the Second Amendment dated as of
January 22, 1996, the Third Amendment dated as of March 14, 1996, and the Fourth
Amendment dated as of June 3, 1996. The purpose of this Restatement is to
combine the provisions of the original Loan Agreement and the Amendments into
one (1) document and to reflect certain changes in the capital structure of the
Borrower relating to an initial public offering of common stock of the Borrower.
WITNESSETH:
BACKGROUND. The Borrower has requested that the Bank lend it up to the
sum of Four Million Dollars ($4,000,000.00) on a line of credit loan basis, to
be converted into a term loan in accordance with the terms and conditions of
this Agreement, and the Bank is willing to do so upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereby agree as follows:
SECTION I. DEFINITIONS
As used herein:
Accounting Terms. Any accounting terms not specifically defined herein
shall be construed in accordance with GAAP consistent with that applied in the
preparation of the "Financial Statements", as hereinafter defined, and all
financial data submitted pursuant to this Agreement shall be prepared in
accordance with such principles.
"Accounts," "Chattel Paper," "Contracts," "Documents," "Fixtures,"
"General Intangibles," "Goods," and "Instruments," shall have the same
respective meanings as are given to those terms in the Uniform Commercial Code
as presently adopted and in effect in the State of Ohio.
"Advance(s)" means one or more distributions of borrowed funds made by
the Bank, delivered to and made pursuant to requests of the Borrower under this
Agreement.
"Affiliate" means, as to any Person, each other Person that directly,
or indirectly through one or more intermediaries, controls, or is controlled by
or under common control with, such Person.
"Borrower's Collateral" means any land or real property owned
by a third party which becomes collateral in the future in
<PAGE> 2
connection with any agreement by and between such third party and the Borrower
and/or any of the Subsidiaries.
"Business Day" means a day other than a Saturday, a Sunday or a day on
which commercial banks in the State of Ohio are authorized to close.
"Capital Expenditure" means, for any fiscal year or portion thereof,
(i) all expenditures during such fiscal year or portion thereof for any fixed
assets or improvements, or for replacement or substitutions therefor or
additions thereto, that have a useful life of more than one year plus (ii) the
purchase price of assets acquired in connection with any Capital Lease entered
into during such fiscal year or portion thereof.
"Capital Lease" means all leases which have been or should be
capitalized on the books of the Borrower in accordance with GAAP.
"Closing" has the meaning provided in Section 3.01.
"Collateral" has the meaning provided in Section 4.01.
"Collateral Documents" means the Pledge Agreement, the Subordination
Agreement, and the UCC statements filed in connection therewith.
"Conversion Date" has the meaning provided for in Section
2.05(A)(2).
"Current Assets" and "Current Liabilities" mean, at any time, all
assets or liabilities, respectively, that should, in accordance with GAAP, be
classified as current assets or current liabilities, respectively, on the
balance sheet of the Borrower.
"Employee Pension Benefit Plan" and "Employee Benefit Plan" shall have
the same respective meanings as are given to those terms in ERISA.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as the same may, from time to time, be amended.
"Event of Default" has the meaning provided in Section 7.01.
"Environmental Laws" means any existing or hereafter enacted laws,
ordinances, orders, rules and regulations and other requirements of any
governmental authority affecting or regulating any hazardous, toxic or dangerous
waste, substance or material such as in (or for purposes of) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") as
amended 42 U.S.C. Sections 9601 et seq., Resource Conservation and Recovery Act
(RCRA) 42 U.S.C. Section 9601 et seq., Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C. Section 135 et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1801 et seq., Ohio Revised Code Sections
3734.01 et seq., Sections 3751.01 et seq., the Clean Air Act, 42 U.S.C. Section
7401
2
<PAGE> 3
et seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., the Toxic
Substances Control Act, 15 U.S.C. Section 2601 et seq., or any other federal,
state or local statute, law or common law, ordinance, code, rule, regulation,
order or decree regulating, relating to, or imposing liability or standards of
conduct concerning any hazardous or toxic waste, substance or material including
any material, waste or substance which is derived from or contains or is (A)
petroleum or a petroleum product, (B) asbestos, (C) polychlorinated biphenyls;
(D) flammable; (F) explosive; (G) corrosive or (H) radioactive. "Environmental
Laws" shall also include without limitation any liability theory under tort,
nuisance or absolute liability for impairment or diminution of or interference
with any personal or property right created or protected by Environmental Laws,
including, without limitation, damage to natural resources or wildlife or ground
or drinking water supplies, relating to or arising out of Borrower's Collateral.
"Financial Statements" means the consolidated balance sheet of the
Borrower as of December 31, 1994, and prepared by an independent certified
public accountant of recognized standing to present fairly the financial
position and results of operations of the businesses of the Borrower at such
date and for such periods in accordance with GAAP.
"Fiscal Year" means the Borrower's annual accounting period which
currently ends on December 31 of each calendar year.
"GAAP" means generally accepted accounting principles applied
consistently and used in the preparation of the Financial Statements, with such
changes or modifications thereto as may be approved in writing by the Bank.
"Guaranty" means the form of Guaranty attached hereto as Exhibit 'C' to
be signed by Robert M. Kaye, a shareholder of the Borrower.
"Indebtedness" means all items of indebtedness, obligation or
liability, whether matured or unmatured, liquidated or unliquidated, direct or
contingent, joint or several, (of the Borrower, including without implied
limitations):
(A) All indebtedness guaranteed, directly or indirectly, in
any manner, or endorsed (other than for collection or deposit in the
ordinary course of business) or discounted with recourse;
(B) All indebtedness in effect guaranteed, directly or
indirectly, through agreements, contingent or otherwise: (1) to
purchase such indebtedness; or (2) to purchase, sell, or lease (as
lessee or lessor) property, products, materials, or supplies or to
purchase or sell services, primarily for the purpose of enabling the
debtor to make payment of such indebtedness or to insure the owner of
the indebtedness against loss; or (3) to supply funds to, in any other
manner invest in, the debtor;
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(C) All indebtedness secured by (or for which the holder of
such indebtedness has a right, contingent or otherwise, to be secured
by) any mortgage, deed of trust, pledge, lien, security interest, or
other charge or encumbrance upon property owned by the Borrower or
acquired by the Borrower subject thereto, whether or not the
liabilities secured thereby have been assumed; and
(D) All indebtedness whether incurred under a Capital Lease or
otherwise, as the lessee of goods or services under leases that, in
accordance with GAAP, should not be reflected on the lessee's balance
sheet.
"Interest Period" means the period which shall begin on (and include)
the date on which the interest rate on the Loan is converted to the LIBO Rate
pursuant to Section 2.05, and, unless the final maturity of such fixed rate loan
is accelerated, shall end on (but exclude) the day which numerically corresponds
to the date ninety (90) days thereafter provided, however, that:
(A) If there exists no numerically corresponding day in such
month, such Interest Period shall end on the last Business Day of such
month; and
(B) If such Interest Period would otherwise end on a day which
is not a business day, such Interest Period shall end on the business
day next following such numerically corresponding day (unless such next
following business day is the first business day of a calendar month,
in which case such Interest Period shall end on the preceding business
day.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as the
same may from time to time be amended.
"Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs, or decrees of any government or political subdivision or
agency thereof, or any court or similar entity established by any thereof.
"Liabilities" means all Indebtedness that, in accordance with GAAP,
should be classified as liabilities on the balance sheet of the Borrower.
"LIBO Rate" means, relative to each applicable Interest Period the LIBO
Rate (Reserve Adjusted) per annum, determined by the Bank, at which dollar
deposits in immediately available funds are offered to the Bank two business
days prior to the beginning of such Interest Period by prime banks in the
interbank eurodollar market for delivery on the first day of such Interest
Period, for the number of days comprised therein and in an amount equal to the
amount of the Loan to be outstanding during such Interest Period.
"LIBO Rate (Reserve Adjusted)" means a rate per annum (rounded upwards,
if necessary, to the nearest 1/16 of 1%) determined pursuant to the following
formula:
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LIBO Rate = LIBO Rate
(Reserve Adjusted) 1 - LIBOR Reserve
Percentage
The Bank shall determine the LIBO Rate (Reserve adjusted) for each applicable
Interest Period (which determination shall, in the absence of manifest error, be
conclusive on the Borrower) and, if requested by the Borrower, deliver a
statement showing the computation used by the Bank in determining any such Rate.
"LIBOR Reserve Percentage" means, relative to each Interest Period, a
percentage (expressed as a decimal) equal to the daily average during such
Interest Period of the percentages in effect on each day of such Interest
Period, as prescribed by the F.R.S. Board, for determining reserve requirements
applicable to "Eurocurrency Liabilities" pursuant to Regulation D or any other
applicable regulation of the F.R.S. Board which prescribes reserve requirements
applicable to "Eurocurrency Liabilities" as presently defined in Regulation D as
applicable to any Bank or any participant of such Bank with respect to such
participation.
"Loan" means the loan to be made pursuant to Section II.
"Loan Documents" shall mean this Agreement, together with all exhibits
and schedules annexed hereto and all other papers now or hereafter executed by
or on behalf of the Borrower for the Bank in connection herewith and any and all
modifications or extensions or supplements to or replacement for, in whole or in
part, any of the above-described documents.
"Net Working Capital" means, at any time the amount by which Current
Assets exceed Current Liabilities.
"Note" means the promissory note referred to in Section 2.04, in the
form attached hereto as Exhibit "A".
"Obligations" means the obligations of the Borrower:
(A) To pay the principal of and interest on the Note in
accordance with the terms thereof and to satisfy all of their other
Liabilities (including, without limitation, fees and charges) due to
the Bank, whether hereunder or otherwise, whether now existing or
hereafter incurred, matured or unmatured, direct or contingent, joint
or several, including any extensions, modifications, renewals thereof
and substitutions therefor;
(B) To repay to the Bank all amounts advanced by the Bank
hereunder or otherwise on behalf of the Borrower, including, but
without limitation, Advances for principal or interest payments to
prior secured parties, mortgagees, or lienors, or for taxes, levies,
insurance, rent, or repairs to, or maintenance or storage of, any of
the Collateral;
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(C) To reimburse the Bank within a reasonable time after
demand, not to exceed thirty (30) days, (i) for all of the Bank's
itemized expenses and costs, including the reasonable fees and expenses
of its counsel, in connection with the preparation, amendment, or
modification, of this Agreement and the documents required hereunder as
provided for in Sections 3.03 and 2.10 hereof, including (without
implied limitation) any proceeding brought, or threatened, to enforce
payment of any of the obligations referred to in the foregoing
paragraphs (A) and (B); and
(D) To indemnify the Bank, within a reasonable time after
demand, not to exceed thirty (30) days, from and against any and all
claims, losses and liabilities growing out of or resulting from this
Agreement (including, without limitation, enforcement of this
Agreement), except claims, losses or liabilities resulting from the
Bank's negligence or willful misconduct.
"Permitted Liens" means:
(A) Liens for taxes, assessments, or similar charges, incurred
in the ordinary course of business that are not yet due and payable;
(B) Pledges or deposits made in the ordinary course of
business to secure payment of worker's compensation, or to participate
in any fund in connection with worker's compensation, unemployment
insurance, old-age pensions, or other social security programs;
(C) Liens of mechanics, materialmen, warehousemen, carriers,
or other like liens, securing obligations incurred in the ordinary
course of business that are not yet due and payable;
(D) Good faith pledges or deposits made in the ordinary course
of business to secure performance of bids, tenders, contracts (other
than for the repayment of borrowed money) or leases, or to secure
statutory obligations, or surety, appeal, indemnity, performance or
other similar bonds required in the ordinary course of business;
(E) Encumbrances consisting of zoning restrictions, easements,
or other restrictions on the use of real property, none of which
materially impairs the use of such property by the Borrower in the
operation of its business, and none of which is violated in any
material respect by existing or proposed structures or land use;
(F) Liens in favor of the Bank;
(G) Existing liens set forth or described on Schedule 1.01,
attached hereto and made a part hereof;
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(H) The following, if the validity or amount thereof is being
contested in good faith by appropriate and lawful proceedings, so long
as levy and execution thereon have been stayed and continue to be
stayed and they do not, in the aggregate, materially detract from the
value of the property of the Borrower, or materially impair the use
thereof in the operation of its business:
(1) Claims or liens for taxes, assessments, or
charges due and payable and subject to interest or penalty;
(2) Claims, liens, and encumbrances upon, and defects
of title to, real or personal property, including any
attachment of personal or real property or other legal process
prior to adjudication of a dispute on the merits;
(3) Claims or liens of mechanics, materialmen,
warehousemen, carriers, or other like liens; and
(4) Adverse judgments on appeal.
"Person" means any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, joint venture, court or
government, or political subdivision or agency thereof.
"Pledge Agreement" shall mean the Pledge and Collateral
Assignment Agreement attached hereto as Exhibit "E" to be entered
into by the Bank and Robert M. Kaye.
"Prime Rate" means the rate of interest periodically established by the
Bank as its prime rate as such rate may change from time to time.
"Rates" means the respective rates of interest specified in
Section 2.05.
"Records" means correspondence, memoranda, tapes, discs, papers, books,
and other documents, or transcribed information of any type, whether expressed
in ordinary or machine language.
"Reportable Event" and "Prohibited Transaction" shall have the meaning
given to those terms under ERISA.
"Stockholders' Equity" means, at any time, the aggregate of the sum of
the following accounts set forth on a balance sheet of the Borrower, prepared in
accordance with GAAP: (A) the par or stated value of all outstanding capital
stock; (B) capital surplus; and (C) retained earnings.
"Subordination Agreement" shall mean the Collateral Assignment and
Continuing Subordination Agreement attached hereto as Exhibit
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"D" to be entered into by the Bank, Metropolitan Savings Bank of Cleveland, and
Robert M. Kaye.
"Subsidiaries" means the wholly-owned subsidiaries of the Borrower and
their wholly-owned subsidiaries.
"Tangible Net Worth" means, at any time, Stockholders' Equity, less the
sum of:
(A) Any surplus resulting from any write-up of assets
subsequent to the Closing;
(B) Goodwill, including any amount, however designated on the
Borrower's balance sheet representing the excess of the purchase price
paid for assets or stock acquired over the value assigned thereto on
the books of the Borrower;
(C) The value of any patents, trademarks, trade names, and
copyrights;
(D) Any amount at which shares of capital stock of the
Borrower appear as an asset on the Borrower's balance sheet;
(F) Any other amount in respect to an intangible (except for
purchase mortgage servicing rights) that should be classified as an
asset on a balance sheet of the Borrower in accordance with GAAP.
SECTION II. THE LOAN
2.01 Purpose of the Loan. The Bank will cause certain of the proceeds
of the Loan to be used to pay off certain existing loans of the Borrower and the
balance of the proceeds of the Loan shall be available to the Borrower as
provided herein.
2.02 The Loan.
(A) Subject to the terms and conditions hereof, the Bank may
lend the Borrower, from time to time until the Conversion Date, such sums as the
Borrower may request, but which shall not exceed in the aggregate amount at any
one time outstanding the amount of Four Million Dollars ($4,000,000.00). Prior
to any Advance hereunder, and at any time that any Obligations remain
outstanding, Robert M. Kaye shall have delivered to the Bank certificates
representing shares of stock of the Borrower with a fair market value equal (at
all times) to not less than the greater of: (i) 200% of the balance of all
Obligations outstanding from time to time; or (ii) such higher percentage of
such Obligations as may be required from time to time under Regulation U of the
Board of Governors at the Federal Reserve System. These shares of stock shall be
pledged in accordance with the Pledge & Collateral Assignment Agreement of even
date herewith between Robert M. Kaye and the Bank. It is the intention of the
parties that the outstanding principal amount of the Loan shall at no time
exceed
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the amount of Four Million Dollars ($4,000,000.00) and if, at any time, an
excess shall for any reason exist, the Borrower shall repay to the Bank
forthwith such amounts as may be necessary to eliminate such excess. Subject to
this limitation and the limitations contained in Sections 2.02(b) and 2.03
below, the Borrower may borrow, prepay without penalty or premium, and reborrow
hereunder, from the date of this Agreement to the Conversion Date, the full
amount permitted hereunder. A fee equal to twenty-five (25) basis points of the
amount of the average unused portion of the principal amount of the Loan will be
payable quarterly commencing on August 31, 1996. For purposes of determining the
amount of such fee, the stated amount of unexpired letters of credit issued by
the Bank pursuant to Section 2.02(B) below shall be considered an Advance.
(B) Metropolitan Savings Bank of Cleveland, a wholly-owned
subsidiary of the Borrower, may from time to time request one or more letters of
credit from the Bank for the benefit of a customer of Metropolitan Savings Bank
of Cleveland, and the Bank shall issue letters of credit, provided, however,
that the Bank shall have no obligation to issue a letter of credit under
circumstances that would cause Bank to violate any applicable law or regulation
and/or to or for a beneficiary who or that is an insider or affiliate of the
Borrower. In no event will any further letter of credit be issued if the
outstanding amount of all Advances exceeds the amount of Three Million Seven
Hundred Fifty Thousand Dollars ($3,750,000.00) and/or if the stated amount of
all outstanding letters of credit (including any payments made by the Bank under
or on account of a letter of credit) would exceed the amount of Two Hundred
Fifty Thousand Dollars ($250,000.00). The letters of credit shall be in favor of
such beneficiaries and for such purposes as Metropolitan Savings Bank of
Cleveland specifies, shall have such expiration dates as the Bank and
Metropolitan Savings Bank of Cleveland agree (but in no event later than
February 28, 1998), and shall otherwise be in the standard form used by the
Bank. The applicant for any respective letter of credit, together with the
Borrower, which shall be a co-applicant for all letters of credit issued
hereunder, shall be fully responsible for all obligations under letters of
credit in accordance with the terms and conditions of the standard form of
letter of credit used by the Bank.
(1) In the event the Bank pays any amount under or on account
of a letter of credit (the payment by the Bank under or on account of a letter
of credit being herein called a "Draw"), immediately thereupon an Advance shall
be deemed to have been made to the Borrower in the amount of the Draw, and such
Advance shall be same as any other Advance under the Loan Agreement except that
it shall be payable on demand.
(2) All obligations and liabilities of the Borrower to the
Bank under or in connection with any and all letters of credit are secured from
and including the date such letters of credit are issued by all collateral
assigned, pledged or otherwise granted
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under or in connection with this Agreement as fully as if such letters of credit
were an Advance under this Agreement.
(3) The issuance fees to be charged for the issuance of the
letters of credit (including any charges due to reserve requirements) shall be
in such amounts as are customarily charged by the Bank.
(4) Metropolitan Savings Bank of Cleveland shall not be
entitled to request a letter of credit if at the time of the request for such
letter of credit any Event of Default shall then exist or immediately thereafter
would exist. Requests by Metropolitan Savings Bank of Cleveland, and
applications by the Borrower, for any letters of credit shall, each in and of
itself, constitute a continuing representation and warranty by the Borrower that
the representations and warranties in Article V continue to be accurate.
2.03 Subsequent Advances and Procedure for Borrowing Under the Loan. So
long as no Event of Default shall have occurred and be continuing, the Borrower
may request subsequent Advances hereunder from time to time until the Conversion
Date; provided that such Advances may be made or refused by the Bank in its
reasonable discretion and shall be in an amount not less than One Thousand
Dollars ($1,000.00) or an integral multiple thereof; and provided, further, that
in no event shall the Bank make any Advances under the Line of Credit Loan
unless the Borrower shall: (i) cause to be delivered to the Bank such
application documents and further Collateral as may be required by the Bank;
(ii) have complied with all conditions precedent required by this Agreement and
other applicable Loan Documents; and (iii) have delivered disbursement
instructions, which instructions shall be in such form as the Bank shall from
time to time prescribe. The Bank shall be entitled to rely on any oral or
telephonic communication requesting an Advance and/or providing disbursement
instructions hereunder, which shall be received by it in good faith from anyone
reasonably believed by the Bank to be the Borrower, or the Borrower's authorized
agent. The Borrower agrees that all Advances made by the Bank will be evidenced
by entries made by the Bank into its electronic data processing system and/or
internal memoranda maintained by the Bank. The Borrower further agrees that the
sum or sums shown on the most recent printout from the Bank's electronic data
processing system and/or such memoranda shall be rebuttably presumptive evidence
of the amount of the principal outstanding and of the amount of any accrued
interest.
2.04 Note. The Loan shall be evidenced by delivery to the Bank of the
Note in the form set forth in Exhibit "A" attached hereto, which shall be fully
executed by the Borrower.
2.05 Interest Rate and Repayment.
(A) Interest and principal shall be paid as follows:
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(1) Prior to May 1, 1998 (the "Conversion Date"),
interest on the principal balance of the Loan, from time to
time outstanding, will be payable monthly commencing on June
30, 1996, at either the Prime Rate in effect from time to
time, or the LIBO Rate in effect on the date the Bank receives
written notice from the Borrower of its election to convert
the interest rate to the LIBO Rate for a ninety (90) day
period, plus two hundred twenty-five (225) basis points.
Following the Conversion Date, interest on the principal
balance of the Loan shall, subject to applicable rate
increases provided for in Section 2.05(A)(3) below, be at the
Prime Rate in effect from time to time. After maturity,
(whether maturity is brought about by acceleration in the
Event of Default or otherwise) the interest rate shall be two
hundred (200) basis points in excess of the higher of: (i) the
interest rate in effect at the time of such maturity or
acceleration, as the case may be; or (ii) the Prime Rate in
effect from time to time.
(2) On the Conversion Date, the unpaid principal
amount of the Loan, together with interest at the rate
provided for in Section (1) above, shall be repaid by the
Borrower in thirty-six (36) equal monthly installments,
commencing thirty (30) days after the Conversion Date. The
amount of the installments shall be calculated by the Bank
based on the outstanding balance of the Loan as of the
Conversion Date and as if the Loan were being repaid on an
sixty (60) month amortization schedule. On the due date of the
thirty-sixth (36th) monthly installment, any principal,
interest, and other Obligations of the Borrower remaining
unpaid shall be paid in full by the Borrower, unless otherwise
provided by the terms of such Obligations.
(3) If the Return on Average Assets ("ROA") ratio of
Metropolitan Savings Bank of Cleveland, as determined as of
the end of each such calendar quarter in accordance with
Section 6.01(H) below shall be greater than .8% and less than
.9%, the applicable interest rate provided for in Section
2.05(A)(1) or (2) above, as the case may be, shall be reduced
by twenty-five (25) basis points, effective as of the day
after the end of such quarter. If, as of the end of each such
calendar quarter, such ROA ratio shall be equal to or greater
than .9% and less than 1.0%, the applicable interest rate
provided for in Section 2.05(A)(1) or (2) above, as the case
may be, shall be reduced by a second twenty-five (25) basis
points, effective as of the day after the end of such quarter.
If as of the end of each such calendar quarter, such ROA ratio
shall be greater than 1.0%, the applicable interest rate
provided for in Section 2.05(A)(1) or (2) above, as the case
may be, shall be reduced by a third additional twenty-five
(25) basis points. The basis point reductions provided for in
this section (3) shall
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occur only if the Borrower has elected to have the interest
rate be based on the LIBO Rate in accordance with 2.05(A)(1)
for the period during which such reductions would apply.
(4) Interest on all Advances and other Obligations
hereunder whether evidenced by the Note or otherwise shall be
calculated on the basis of a 360-day year, counting the actual
number of days elapsed, and shall be payable as set forth
above in this Section 2.05(A), to continue until all Advances
and other Obligations hereunder have been paid in full. The
Borrower hereby authorizes the Bank to charge any such
interest due from time to time against any account of the
Borrower with the Bank.
2.06 Prepayment. So long as no Event of Default has occurred and is
continuing and no event has occurred and is continuing that with the giving of
notice or the passage of time or both, would be an Event of Default, the
Borrower may, without the payment of penalty or premium, prepay the principal of
the Loan in whole or, from time to time, in part, any partial payment to be made
in the sum of One Thousand Dollars ($1,000.00) or an integral multiple thereof.
All such partial prepayments shall be applied against the installments of
principal as required by Section 2.08 pursuant to the terms thereof.
2.07 Method of Payment. The Borrower shall make each payment under this
Agreement and under the Note on the date when due in lawful money of the United
States to the Bank at the main office or any branch office of the Bank in
immediately available funds. The Borrower hereby authorizes the Bank, if and to
the extent payment is not made when due under this Agreement or under the Note,
to charge any amount so due from time to time against any account of the
Borrower with the Bank. Whenever any payment to be made under this Agreement or
under the Note shall be stated to be due on other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of the payment of
interest.
2.08 Application of Proceeds of Collateral and Optional Prepayments.
Upon the sale or other disposition by Borrower, with the Bank's prior written
consent when required under the terms of this Agreement, of any asset, or other
property, out of the ordinary course of business, all proceeds received by the
Borrower from such disposition, shall be paid directly to the Bank and the Bank
shall apply such amounts (i) first, to expenses due under Section 2.10; (ii)
second, to accrued and unpaid interest then owing on all Advances and
Obligations, (iii) third, to principal payments due under the Loan, (iv) then,
to any Obligations; except that the payments applied to the principal payments
due under the Loan shall be applied to the principal installments in the inverse
order of the installments due. All optional prepayments received pursuant to
Section 2.06 above shall be applied in the same manner.
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2.09 Termination of the Loan. If an Event of Default has occurred and
is continuing prior to the Conversion Date, the Loan may be terminated and
cancelled by the Bank demanding payment of all Advances and other amounts
outstanding under the Note.
2.10 Expenses. The Borrower shall pay reasonable legal fees up to a
maximum amount of Seven Thousand Dollars ($7,000.00) and all filing, recording
and other out-of-pocket fees expended by the Bank and/or its counsel in
connection with the Loan, and up to the amount of One Thousand Dollars
($1,000.00) for any amendment hereto.
2.11 Indemnity. The Borrower agrees to indemnify the Bank and to hold
the Bank harmless from and against any and all losses, liabilities, damages,
injuries, costs, expenses and claims of any and every kind whatsoever (including
attorneys fees), paid, incurred or suffered by, or asserted against, Bank for,
with respect to, or as a direct or indirect result of any of the following,
regardless of whether caused by, or within the control of Borrower except
claims, losses or liabilities resulting from the Bank's negligence or willful
misconduct:
(A) Which the Bank may sustain or incur as a consequence of
Default by the Borrower in payment of the principal amount of or
interest on the Advances; and
(B) Without limitation, any losses, liabilities, damages,
injuries, costs, expenses or claims asserted or arising under any
Environmental Laws in connection with Borrower's Collateral, or any
liens against Borrower's Collateral or any part thereof or any interest
or estate in any part thereof, created, permitted or imposed by the
Environmental Laws, or any actual or asserted liability of or
obligations of Borrower or any of the Subsidiaries under the
Environmental Laws.
Any costs or expenses reasonably incurred by Bank for which
Borrower is responsible or for which Borrower has indemnified Bank shall be paid
to Bank on demand, and failing prompt reimbursement, shall be added to the
indebtedness secured by this Loan Agreement and earn interest at the default
rate of interest specified in the Note until paid in full.
2.12 Taxes. All payments made by the Borrower under this Agreement
shall be made free and clear of, and without reduction for or on account of, any
present or future income or other taxes, levies, imposts, duties, charges, fees,
deductions, withholdings now or hereafter imposed, levied, collected, withheld
or assessed by any governmental authority (or by any taxing authority thereof or
therein) excluding income, franchise and similar taxes of the United States of
America or any taxing authority thereof or therein.
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SECTION III. CONDITIONS PRECEDENT.
The obligation of the Bank to make the Loan shall be subject to the
satisfaction of the following conditions prior to or concurrently with the
making of and/or any Advances hereunder:
3.01 Documents Required for the Closing. The Borrower shall have duly
delivered to the Bank, in form and substance satisfactory to the Bank and its
counsel, prior to the initial disbursement of the proceeds of the Loan (the
"Closing"), the following:
(A) The Loan Note;
(B) The Pledge Agreement;
(C) The Subordination Agreement and related UCC financing
statements, together with a satisfactory review by the Bank of any
existing subordinated Indebtedness of the Borrower;
(D) The Guaranty;
(E) A favorable opinion of counsel for the Borrower in form
and substance satisfactory to the Bank, substantially to the same
effect as the Borrower's representations and warranties in Sections
5.01(A), 5.01(B), 5.01(C), 5.01(E) (to its best knowledge as to the
last sentence), 5.01(F) (to its best knowledge), 5.01(K) (to its best
knowledge), 5.01(M) (to its best knowledge), 5.01(O) (to its best
knowledge), 5.01(R), and 5.01(S) (to its best knowledge). Such opinion
shall also include a favorable opinion as to such other matters
relative to the transactions contemplated by this Loan Agreement as the
Bank may reasonably request;
(F) The following certificates and related documentation, all
dated as of the Closing Date (or as of a date recent to the Closing
Date or, in the case of the recently opened sales offices of
Metropolitan Savings Bank of Cleveland in Kentucky and Michigan, as of
a date as close to the Closing Date as is reasonably possible):
(i) copies of the certificates of incorporation of the
Borrower and the Subsidiaries, certified by an authorized public
officer of the respective jurisdictions under which they are
incorporated;
(ii) certificates of good standing from the respective
jurisdictions under which they are incorporated, together with
certificates of good standing or authority to transact business or
similar certificates from each state or province referred to in
Schedule 5.01(B) where they have places of business or maintain
records, in all cases from the Secretary of State or comparable officer
of such jurisdiction;
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(iii) a copy of their respective Codes of Regulations
certified by their respective secretaries;
(iv) resolutions of their respective Boards of Directors
authorizing the execution, delivery and performance of the applicable
Loan Documents and the consummation of the transactions contemplated
thereby, certified by their respective secretaries; and
(v) an incumbency certificate certifying the names of
their respective officers and their signatures, certified by
their respective secretaries;
(G) A certificate, dated the date of the Closing, signed by
the Borrower's Secretary/Treasurer to the effect that:
(1) The representations and warranties set forth in
Section 5.01 are true as of the date of the Closing; and
(2) No Event of Default hereunder, and no event
which, with the giving of notice or passage of time or both,
could become such an Event of Default, has occurred as of such
date;
(H) A copy of the Monthly Management Report of Metropolitan
Savings Bank of Cleveland, an Ohio corporation and the principal
banking subsidiary of the Borrower, dated as of December 31, 1994,
including the information described in Exhibit "A" attached thereto;
(I) An analysis of the interest rate sensitivity of
Metropolitan Savings Bank, such analysis being satisfactory in form and
content to the Bank in its sole discretion, receipt of which is hereby
acknowledged by the Bank; and
(J) There shall have been no material adverse change in the
Borrower or any of the Subsidiaries subsequent to December 31, 1994, as
determined by the Bank in its sole discretion.
3.03 Payments. The Borrowers shall have paid, or reimbursed
the Bank for, the amounts required to be paid or reimbursed by the Borrower
pursuant to Section 2.10 of this Loan Agreement, including, without limitation,
the fees and expenses of Buckley King & Bluso Co., L.P.A. up to a maximum amount
of Seven Thousand Dollars ($7,000.00), together with expenses related thereto.
Such other certificates, opinions, agreements and documents as
the Bank shall reasonably request, and the Bank, in its sole discretion, shall
be satisfied with the condition, financial and otherwise, of the Borrower.
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3.04 Documents Required for Subsequent Disbursements. Prior to any
disbursements of Loan proceeds subsequent to the Closing, the Borrower shall
have duly delivered to the Bank the following:
(A) UCC financing statements and stock share certificates
related to the Pledge Agreement and/or documentation as to the
subsequent delivery of such certificates acceptable in form and
substance to the Bank and its counsel.
(B) A certificate, dated the date on which such disbursement
is to be made, signed by any of the authorized officers of the Borrower
and to the effect that:
(1) As of the date thereof, no Event of Default has
occurred and is continuing, and no event has occurred and is
continuing that, with the giving of notice or passage of time
or both, would be an Event of Default.
(2) No material adverse change has occurred in the
business prospects, financial condition, or results of
operations of the Borrower since the date of the then most
recent financial information provided to the Bank pursuant to
Section 6.01(C), below; and
(3) Each of the representations and warranties
contained in Section 5.01 is true and correct in all material
respects as if made on the date of such disbursement.
3.05 Certain Events. At the time of the Closing and each subsequent
disbursement of Loan proceeds:
(A) No Event of Default shall have occurred and be continuing,
and no event shall have occurred and be continuing that, with the
giving of notice or passage of time or both, would be an Event of
Default;
(B) No material adverse change as defined in Section 3.02(J)
shall have occurred in the Borrower's financial condition since the
date of the then most recent financial information provided to the Bank
pursuant to Section 6.01(C) below;
(C) This Agreement, the Note, and all of the other Loan
Documents shall have remained continuously in full force and effect
except as otherwise agreed to in writing by the Bank;
(D) The Bank shall have received evidence of the completion of
all recordings and filings pursuant to this Agreement as may be
necessary or, in the opinion of the Bank, desirable, to perfect the
security interest and liens created by this Agreement and the other
Loan Documents; and
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(E) The Bank shall have received evidence of public liability
insurance and any other insurance coverage required hereunder.
3.04 Legal Matters. At the time of the Closing and each subsequent
disbursement, all legal matters incidental thereto shall be satisfactory to
counsel for the Bank.
SECTION IV. COLLATERAL SECURITY
4.01 Composition of the Collateral. The property in which a security
interest is granted pursuant to the Pledge Agreement, the Subordination
Agreement, and Section 4.02 hereof is herein collectively referred to herein as
the "Collateral." The Collateral, together with all other property of the
Borrower of any kind held by the Bank, shall stand as one general, continuing
collateral security for all Obligations and may be retained by the Bank until
all Obligations have been satisfied in full.
4.02 Rights in Property Held by the Bank. As security for the prompt
satisfaction of all Obligations, the Borrower hereby assigns, transfers, and
sets over to the Bank all of its right, title, and interest in and to, and
grants the Bank a lien on and a security interest in, all amounts that may be
owing from time to time by the Bank to the Borrower in any capacity, including,
without limitation, any balance belonging to the Borrower or any deposit or
other account with the Bank, which lien and security interest shall be
independent of, and in addition to, any right of set-off that the Bank has under
Section 7.04 or otherwise.
4.03 Insecurity Clause. The Borrower agrees that if the Collateral
shall, at any time, be unsatisfactory to the Bank in exercising its reasonable
discretion, the Borrower shall, on demand, forthwith pledge and deposit with the
Bank as part of the Collateral additional property satisfactory to the Bank.
SECTION V. REPRESENTATIONS AND WARRANTIES
5.01 Original. To induce the Bank to enter into this Agreement, the
Borrower represents and warrants to the Bank as follows:
(A) The Borrower is a corporation duly organized, validly
existing, and in good standing under the Laws of the State of Ohio;
each of the Subsidiaries is wholly owned by the Borrower and is a
corporation duly organized, validly existing, and in good standing
under the Laws of the State of Ohio; the Borrower and the Subsidiaries
have the lawful power to own their respective properties and to engage
in the businesses they conduct, and neither the Borrower nor any of the
Subsidiaries are required to be qualified as a foreign corporation in
any other jurisdiction;
(B) Attached hereto as Schedule 5.01(B) is a true, correct and
complete list of the Borrower and the Subsidiaries, a summary of their
capital structure, including
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all capital stock of the Borrower and the Subsidiaries, and
the addresses and all places of business of the Borrower and
the Subsidiaries;
(C) The Borrower is not directly or indirectly controlled by,
or acting on behalf of, any Person which is an "Investment Company"
within the meaning of the Investment Company Act of 1940, as amended;
(D) Neither the Borrower nor any of the Subsidiaries are in
default with respect to any of their existing Indebtedness, and the
making and performance of this Agreement, the Note and the other Loan
Documents will not (immediately or with the passage of time, the giving
of notice, or both) result in the creation or imposition of any
security interest in, or lien or encumbrance upon, any of the assets of
the Borrower, except in favor of the Bank;
(E) The Borrower has taken all action necessary to authorize
the execution, delivery and performance by it of the Loan Documents.
This Loan Agreement is, and each of the other Loan Documents to be
executed by the Borrower, when executed and delivered, will be legal,
valid and binding upon the Borrower and enforceable against the
Borrower in accordance with their respective terms. No consent,
approval, or authorization of, or registration or declaration with, any
governmental authority or other Person is required in connection with
the execution, delivery and performance by the Borrower of any of the
Loan Documents.
(F) Except as disclosed in Schedule 5.01(F) or otherwise
disclosed to the Bank in writing, there is no pending order, notice,
claim, litigation, proceeding, or investigation against or affecting
the Borrower or any of the Subsidiaries, whether or not covered by
insurance, that would, to the best of the Borrower's knowledge, in the
aggregate involve the payment of One Hundred Thousand Dollars
($100,000.00) or more or would otherwise materially or adversely affect
the financial condition or business prospects of the Borrower or any of
the Subsidiaries if adversely determined;
(G) The Borrower has furnished to the Bank certain financial
data and reports concerning the Borrower. This data is complete and
correct in all material respects and fairly presents the financial
condition of the Borrower as of the date thereof, and, in the case of
such data concerning the future financial performance of the Borrower,
represents the Borrower's reasonable and good faith estimate of
projected future operations of the Borrower as of the date of this Loan
Agreement, based on the notes and assumptions stated therein (which the
Borrower believes to be currently valid assumptions), and the Borrower
does not presently anticipate any material deviations from such
projections.
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(H) As of the date of this Agreement, the Borrower has no
material amount of liabilities, contingent or otherwise, required to be
reflected in accordance with GAAP, which are not reflected in the
Financial Statements other than those liabilities arising in the
ordinary course of business. As of the Closing Date, neither the
Borrower nor any of the Subsidiaries have any outstanding or existing
commitments for the purchase of land, buildings, equipment, materials,
or supplies, or any contracts for services except for those made in the
ordinary course of business. Since December 31, 1994, there has been no
material adverse change in the condition, financial or otherwise, of
the Borrower or any of the Subsidiaries, and the business, operations,
and properties of the Borrower and the Subsidiaries have not been
substantially and adversely affected in any way as a result of any
fire, explosion, earthquake, accident, labor disturbance, requisition
or taking of property by any governmental authority, flood, riot, or
act of God.
(I) As of the date hereof, the Borrower does not know or have
reasonable ground to know of any basis for the assertion against it or
any of the Subsidiaries of any Indebtedness (other than amounts
deposited by customers) as of the date of the Closing except as
disclosed on Schedule 5.01(I) or otherwise disclosed to the Bank in
writing;
(J) Except as otherwise permitted herein, the Borrower and
each of the Subsidiaries have filed all federal, state, and local tax
returns and other reports required by any applicable Laws to have been
filed prior to the date hereof, has paid or cause to be paid all taxes,
assessments, and other governmental charges that are due and payable
prior to the date hereof, and has made adequate provision for the
payment of such taxes, assessments, or other charges accruing but not
yet payable; the Borrower has no knowledge of any deficiency or
additional assessment in a materially important amount in connection
with any taxes, assessments, or charges not provided for on its books;
(K) The Borrower and each of the Subsidiaries have complied
with all applicable Laws with respect to: (1) any restrictions,
specifications, or other requirements pertaining to the services they
perform; (2) the conduct of their respective businesses; and (3) the
use, maintenance, and operation of the real and personal properties
owned or leased by them then in the conduct of their respective
businesses;
(L) No representation or warranty by or with respect to the
Borrower and/or the Subsidiaries contained herein or in any certificate
or other document furnished by the Borrower pursuant hereto contains
any untrue statement of a material fact or omits to state a material
fact necessary to make such representation or warranty not misleading
in light of the circumstances under which it was made;
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(M) Each consent, approval, or authorization of, or filing,
registration, or qualification with, any Person required to be obtained
or effected by the Borrower in connection with the execution and
delivery of this Agreement, the Note, and the other Loan Documents or
the undertaking or performance of any obligation hereunder or
thereunder has been duly obtained or effected;
(N) All existing Indebtedness (other than amounts deposited by
customers) of the Borrower and/or the Subsidiaries: (1) for money
borrowed, or (2) under any security agreement, mortgage, or agreement
covering any lease by the Borrower and/or any of the Subsidiaries as
lessee of real or personal property is disclosed in the Financial
Statements or Schedule 5.01(I) or has otherwise been disclosed to the
Bank in writing;
(O) The Borrower is not in default in the performance,
observance, or fulfillment of any of the material obligations,
covenants, or conditions contained in (i) any evidence of Indebtedness
for Borrowed Money, or (ii) any lease or other instrument by which such
Borrowers has acquired a real property interest. Neither the execution
and delivery of the Loan agreement of any other Loan Documents, nor the
consummation of the transactions contemplated thereby, nor compliance
with the terms and provisions thereof, will violate the provisions of
any applicable law or of any applicable order or regulations of any
governmental authority having jurisdiction over this Loan Agreement, or
any of the other Loan Documents, or will conflict with any permit, or
will conflict with or result in a breach of any of the terms,
conditions or provisions of any restriction or of any agreement or
instrument to which the Borrower is now a party, or will constitute a
default thereunder, or will result in the creation or imposition of any
lien, charge, or encumbrance of any nature whatsoever upon any of the
properties or assets of the Borrower except in favor of the Bank;
(P) The Borrower has not made any agreement or taken any
action that may cause anyone to become entitled to a commission or
finder's fee as a result of or in connection with the making of the
Loans;
(Q) Any Employee Pension Benefit Plans, as defined in ERISA,
of the Borrower or any of the Subsidiaries meet, as of the date hereof,
the minimum funding standards of 29 U.S.C.A. Section 1082 (Section 302
of ERISA), and no Reportable Event or Prohibited Transaction has
occurred with respect to any Employee Benefit Plan, as defined in
ERISA, of the Borrower or any of the Subsidiaries, and the Borrower
does not have a profit sharing plan;
(R) Neither the registration of any security under the
Securities Act of 1933, as amended, or any other federal, state, or
local securities laws, nor the qualification of the
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Loan Documents under the Trust Indenture Act of 1939, as amended, is
required in connection with (a) the Loan or the issuance and delivery
of the Note pursuant hereto, (b) the Pledge Agreement, (c) the
Subordination Agreement;
(S) Except as disclosed in Schedule 5.01(S) attached hereto,
the Borrower is conducting its business, in compliance in all material
respects, with all applicable federal, state, and local Environmental
Laws , and, there is not pending or, to the best knowledge of the
Borrower after diligent investigation, threatened, civil or criminal
litigation, notice of violation or lien, or administrative proceeding
relating to environmental matters involving the Borrower and/or any of
the Subsidiaries. There is currently no Borrower's Collateral in
existence. Except as described in the Schedule 5.01(S), there is no
condition or situation, including without limitation any lien or
encumbrance, with respect to environmental matters which, either
individually or in the aggregate, has or is reasonably expected to have
a material adverse effect on the business, operations, properties or
condition (financial or otherwise) of the Borrower. Except as disclosed
in Schedule 5.01(S), the Borrower has obtained from every federal,
state, and local Governmental Authority, all approvals, consents,
licenses, permits, and orders necessary to carry on its business as
currently conducted;
(T) The Borrower does not own, nor does it have any present
intention of acquiring, any "margin stock" within the meaning of
Regulation U (12 CFR Part 221) of the Board of Governors of the Federal
Reserve System (herein called "margin stock"). None of the proceeds of
the Loan will be used, directly or indirectly, by the Borrower for the
purpose of purchasing or carrying, or for the purpose of reducing or
retiring any indebtedness or other liability which was originally
incurred to purchase or carry, any margin stock or for any other
purpose which might cause the transactions contemplated hereby to be
considered a "purpose credit" within the meaning of said Regulation U,
or which might cause this Loan Agreement to violate Regulation G,
Regulation U, Regulation T, Regulation X, or any other regulation of
the Board of Governors of the Federal Reserve System or the Securities
Exchange Act of 1934. Upon request, the Borrower will promptly furnish
the Bank with a statement in conformity with the requirements of
Federal Reserve Form U-1 referred to in said Regulation U; and
(U) The Borrower is solvent and has assets having a fair value
in excess of the amount required to pay its probable liabilities on its
existing debts as they become absolute and matured, and has access to
adequate capital for the conduct of its business and the ability to pay
its debts from time to time incurred in connection therewith as such
debts mature.
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5.02 Survival. All of the representations and warranties set forth in
Section 5.01 shall survive until all Obligations are satisfied in full and there
remain no outstanding commitments hereunder.
SECTION VI. COVENANTS OF THE BORROWER
6.01 Affirmative Covenants. The Borrower hereby covenants and agrees
with the Bank that, so long as any of the Obligations remain unsatisfied or any
commitments hereunder remain outstanding, the Borrower will comply, at all times
with the following affirmative covenants:
(A) The Borrower will use the proceeds of the Loans only for
the purposes set forth in Schedule 2.01 and will furnish the Bank such
evidence as it may reasonably require with respect to such use;
(B) The Borrower will cause to be done all things necessary to
preserve and to keep in full force and effect its existence and rights.
The Borrower will comply in all material respects with all federal,
state, and local laws and regulations now in effect or hereafter
promulgated by any properly constituted governmental authority having
jurisdiction. The Borrower and the Subsidiaries will continue to comply
with all regulations of the Office of Thrift Supervision and all other
regulatory agencies as applicable. The Borrower and the Subsidiaries
shall also receive satisfactory ratings from all governmental entities
with which they conduct business, including but not limited to the
Federal National Mortgage Association. In connection with and without
limiting the generality of the foregoing, the Borrower and the
Subsidiaries will maintain and preserve their respective permits
granted by governmental authorities necessary to operate their
respective facilities in full force and effect and will take all action
which may be required to comply with all such laws and regulations now
in effect or hereafter promulgated by any federal, state, and local
governmental authority having jurisdiction over such facilities. The
Borrower and the Subsidiaries will obtain, renew and extend their
respective permits and will give prompt written notice to the Bank of
(i) any citation or order relating thereto or any claim or notice of
any default thereunder, (ii) any lapse or other termination thereof, or
(iii) any refusal of any Person to grant or extend any of them.
(C) The Borrower will furnish the Bank:
(1) Within thirty (30) days after the close of each
monthly accounting period in each Fiscal Year: (a) income
statements of Metropolitan Savings Bank of Cleveland for such
quarter; and (b) balance sheets of Metropolitan Savings Bank
of Cleveland as of the end of such month -- all in reasonable
detail, subject to normal
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year-end audit adjustments, certified by the
Secretary/Treasurer of Metropolitan Savings Bank of Cleveland
to have been prepared in accordance with GAAP;
(2) Within thirty (30) days after the close of each
quarterly account period in each Fiscal Year: (a) income
statements of the Borrower, on a consolidated basis, for such
quarter; and (b) balance sheets of the Borrower, on a
consolidated basis, as of the end of such month -- all in
reasonable detail, subject to normal year-end audit
adjustments, certified by the Borrower's Secretary/Treasurer
to have been prepared in accordance with GAAP;
(3) Within one hundred twenty (120) days after the
close of each annual accounting period in each Fiscal Year:
(a) income statements of the Borrower and Metropolitan Savings
Bank, on a consolidated basis, for such year; and (b) balance
sheets of the Borrower and Metropolitan Savings Bank, on a
consolidated basis, for such year; and -- all in reasonable
detail, subject to normal year-end audit adjustments,
certified by an outside auditor satisfactory to the Bank to
have been prepared in accordance with GAAP;
(4) Borrower and Metropolitan Savings Bank of
Cleveland shall provide the Bank with a quarterly "Covenant
Compliance Certificate" in the form prescribed by the Bank and
signed by the Chief Financial Officer or President of the
Borrower; and
(5) Upon the Bank's request from time to time of
copies of any or all agreements, contracts, or commitments
referred to in Schedule 5.01(I) hereof.
(D) The Borrower will maintain its equipment, real estate
interests, and other properties in good condition and repair (normal
wear and tear excepted), and will pay and discharge or cause to be paid
and discharged when due, the cost of repairs to, or maintenance of, the
same, and will pay or cause to be paid, in a timely manner, all rental
or mortgage payments due on such real estate. The Borrower hereby
agrees that, in the event it fails to pay or cause to be paid any such
payment, it will promptly notify the Bank thereof, and the Bank, in its
discretion, may do so on demand and be reimbursed therefor by the
Borrower;
(E) The Borrower will maintain, or cause to be maintained,
public liability insurance and fire and extended coverage insurance on
all assets that are of a character usually insured by a corporation
engaged in the same or similar businesses, all in form and amount
sufficient to indemnify the Borrower for one hundred percent (100%) of
the appraised value of any such asset lost or damaged (subject to any
deductible customary in the Borrower's industry) or in an
23
<PAGE> 24
amount consistent with the amount of insurance generally carried on
comparable assets within the industry and with such insurers as may be
satisfactory to the Bank. Within thirty (30) days after the Closing,
the Borrower will cause all such insurance policies to contain a
standard mortgage clause and to be payable to the Bank as its interest
may appear, to deliver the certificates of insurance to the Bank, and,
in the case of all policies of insurance carried for the benefit of the
Borrower by any lessee, sublessee, subtenant, or other party having
rights to occupy or use the mortgaged property or any part thereof or
interest therein under any lease, sublease, or other agreement (whether
oral, written, or otherwise evidenced), to cause all such policies to
be payable to the Bank as its interest may appear. Such policies shall
contain a provision whereby they cannot be cancelled except after ten
(10) days written notice to the Bank. The Borrower will furnish to the
Bank such evidence of insurance as the Bank may require. The Borrower
hereby agrees that, in the event it fails to pay or causes to be paid
the premium on any such insurance when due, the Bank, in its
discretion, may do so and be reimbursed by the Borrower therefor. The
Borrower hereby assigns to the Bank any returned or unearned premiums
that may be due the Borrower upon cancellation by the insurer of any
such policy for any reason whatsoever and directs any such insurer to
pay the Bank any amount so due; provided, however, that the Bank will
pay to the Borrower any such returned or unearned premiums within five
(5) days after the receipt thereof if there has not occurred and be
continuing an Event of Default hereunder. The Bank is hereby appointed
the Borrower's attorney-in-fact (without requiring the Bank to act as
such) to endorse any check that may be payable to the Borrower to
collect any premiums or the proceeds of such insurance (other than
proceeds of public liability insurance), and any amount so collected
may be applied by the Bank toward the satisfaction of any of the
Obligations if an Event of Default has occurred and is continuing. If
the Bank receives any proceeds from insurance in the absence of an
Event of Default, it shall remit such proceeds to the Borrower within
three (3) Business Days after its receipt of such proceeds;
(F) The Borrower will pay or cause to be paid when due, all
taxes, assessments, and charges or levies imposed upon it or on any of
its property or which it is required to withhold and pay, except where
contested in good faith by appropriate proceedings with adequate
reserves therefor having been set aside on its books; provided,
however, that the Borrower shall pay or cause to be paid all such
taxes, assessments, charges, or levies forthwith whenever foreclosure
on any lien that may have attached (or security therefor) appears
imminent;
(G) Metropolitan Savings Bank of Cleveland shall maintain a
rating from the Office of Thrift Supervision (the "OTS") of "Adequately
Capitalized," or better;
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(H) Metropolitan Savings Bank of Cleveland shall maintain an
ROA ratio as of each calendar quarter-end of at least 0.7% on a
weighted average basis for the preceding three quarters; provided,
however, that any assessments against Metropolitan Savings Bank of
Cleveland by or for the benefit of the Savings Association Insurance
Fund ("SAIF") shall be considered an extraordinary event and will not
be included in the calculation of the ROA ratio for purposes of this
Section 6.0(H). The weighted average will be calculated with the most
recent quarters' ROA at 50%, followed by 33.3% and 16.7%, respectively,
for the succeeding prior quarters;
(I) Metropolitan Savings Bank shall maintain a ratio of its
Non-performing Assets to the sum of its Equity plus Reserves of not
more than 35% as of the end of each quarter;
(J) Metropolitan Savings Bank shall provide the Bank with a
copy of each Thrift-Financial Report required by the OTS, as well as a
copy of the Monthly Management Report on Metropolitan Savings Bank,
which shall include the information listed in Exhibit "A" attached to
such report;
(K) The Borrower will, when requested to do so, make available
during normal business hours for inspection by duly authorized
representatives of the Bank, any of its books and records and will
furnish the Bank any information regarding its business affairs and
financial condition within a reasonable time after written request
therefor. In the event the Bank elects to conduct field examinations of
the Borrower they will be performed at the reasonable convenience of
Borrower and at the Bank's expense;
(L) The Borrower will keep accurate and complete Records of
its Accounts and Equipment, consistent with sound business practices;
(M) The Borrower will give immediate notice to the Bank of:
(1) Any litigation or proceedings in which it or any of
the Subsidiaries is a party if, in the opinion of the
Borrower or its legal counsel, an adverse decision
therein would require it or any of its Subsidiaries
to pay more than Two Hundred Fifty Thousand Dollars
($250,000.00) or deliver assets the value of which
exceeds such sum (whether or not the claim is
considered to be covered by insurance); and
(2) The institution of any other suit or proceeding
involving the Borrower or any of the Subsidiaries
that might materially and adversely affect their
respective operations, financial condition, property,
or business prospects;
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(N) The Borrower shall give prompt written notice to the Bank
of:
(1) Any proceedings or inquiries by any governmental
authority (Federal, State or Local) brought pursuant
to any Environmental Law affecting Borrower's
Collateral or any property adjacent to
Borrower's Collateral;
(2) All claims made or threatened by any third party
against the Borrower, any of the Subsidiaries, or
Borrower's Collateral relating to any loss or injury
arising under any Environmental Laws; and
(3) Discovery of any occurrence or condition on any real
property adjoining or in the vicinity of Borrower's
Collateral that could cause Borrower's Collateral or
any part thereof to be subject to any restrictions on
the ownership, occupancy, transferability or use of
the land or real property under any Environmental or
other applicable Laws.
(O) The Bank shall have the right to join and participate in,
as a party if it so elects, any legal proceeding or actions initiated
under any Environmental Law in connection with Borrower's Collateral
and have its reasonable attorneys' fees in connection therewith paid by
the Borrower. In the event that any investigation, site monitoring,
containment, cleanup, removal, restoration or other remedial work of
any kind or nature (the "Remedial Work") is reasonably necessary or
desirable under any applicable local, state or federal law or
regulation, any judicial order, or by any governmental or
nongovernmental entity or person because of, or in connection with, the
current or future presence, suspected presence, release or suspected
releases of a hazardous material or substance or regulated by any
Environmental Law in or into the air, soil, groundwater, surface water
or soil vapor at, on, about, under or within the Borrower's Collateral
(or any portion thereof), the Borrower shall, within thirty (30) days
after written demand for performance thereof by the Bank (or such
shorter period of time as may be required under any applicable law,
regulation, order or agreement), commence to perform, or cause to be
commenced, and thereafter diligently prosecute to completion, all such
Remedial Work. All costs and expenses of such Remedial Work shall be
paid by the Borrower, including, without limitation, the charges of
such contractor(s) and/or the consulting engineer, and the Bank's
reasonable attorneys' fees and costs incurred in connection with
monitoring or review of such Remedial Work. In the event the Borrower
shall fail to timely commence, or cause to be commenced, or fail to
diligently prosecute to completion, such Remedial Work, the Bank may,
but shall not be obligated or required to, cause such Remedial Work to
be performed and all costs and expenses thereof, or incurred in
connection therewith, shall at Bank's
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discretion become part of the Obligations of this Loan Agreement or be
paid to Bank pursuant to the indemnity provided for in paragraph 2.11.
(P) The Borrower will (a) pay immediately from the proceeds of
the initial disbursement of the Loan proceeds at the Closing, all of
its outstanding loans from Emigrant Savings Bank and cause any security
for repayment of such loans to be released, and (b) pay when due (or
within applicable grace periods) all of its Indebtedness due third
Persons, except when the amount thereof is being contested in good
faith by appropriate proceedings and with adequate reserves therefor
being set aside on its books. If default be made by the Borrower in the
payment of any principal (or installment thereof) of, or interest on,
any such Indebtedness, the Borrower shall immediately notify the Bank
of such default and the Bank shall have the right, in its discretion,
to pay such interest or principal for the account of the Borrower and
be reimbursed by the Borrower therefor;
(Q) The Borrower will notify the Bank immediately if it
becomes aware of the occurrence of any Event of Default or of any fact,
condition, or event that only with the giving of notice or passage of
time or both, would become an Event of Default or if it becomes aware
of any material adverse change in the business prospects, financial
condition (including, without limitation, proceedings in bankruptcy,
insolvency, reorganization, or the appointment of a receiver or
trustee), or results of operation of the Borrower, or its failure of
the Borrower to observe any of their undertakings hereunder or under
any of the other Loan Documents;
(R) The Borrower will notify the Bank thirty (30) days in
advance of any change in the location of any of the places of business
of the Borrower, or, in the case of any of the Subsidiaries, the
Borrower will notify the Bank quarterly, of the establishment of any
new, or the discontinuance of any existing, place of business;
(S) The Borrower will: (1) fund any of its Employee Pension
Benefit Plans in accordance with no less than the minimum funding
standard of 20 U.S.C. A. Section 1082 (Section 302 of ERISA); (2)
furnish the Bank, promptly after the filing of the same, with copies of
any reports or other statements filed with the United States Department
of Labor or the Internal Revenue Service with respect to any such Plan;
and (3) promptly advise the Bank of the occurrence of any Reportable
Event or Prohibited Transaction with respect to any of its Employee
Benefit Plans;
(T) The Borrower and Metropolitan Savings Bank of Cleveland
shall maintain their correspondent banking relationship with the Bank;
and
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<PAGE> 28
(U) The Borrower agrees to execute and deliver to the Bank any
agreements, documents and instruments, including, without limitation,
additional Notes as replacements or substitutions as may be required by
the Bank, and to take such other actions as reasonably requested by the
Bank to effect the transactions contemplated hereby.
6.02 Negative Covenants. The Borrower hereby covenants and agrees with
the Bank that, so long as any of the Obligations remain unsatisfied or any
commitments hereunder remain outstanding, the Borrower, unless the Bank shall
otherwise have agreed in writing, which agreement will not be unreasonably
withheld, will not:
(A) Change its name or enter into any merger, consolidation,
or reorganization;
(B) Sell, transfer, lease, or otherwise dispose of all or
(except in the ordinary course of business) any material part of its
assets in excess of One Hundred Thousand Dollars ($100,000.00);
(C) Mortgage, pledge, grant, or permit to exist a security
interest in, or a lien upon, any of its assets of any kind, now owned
or hereafter acquired, except for Permitted Liens, and liens granted
under the Collateral Documents, and existing liens listed on Schedule
1.01;
(D) Become liable, directly or indirectly, as guarantor or
otherwise for any obligation of any other Person;
(E) Incur, create, assume, or permit to exist any Indebtedness
except: (1) the amount of the Loan; (2) existing Indebtedness listed on
Schedule 5.01(I); (3) trade Indebtedness incurred in the ordinary
course of business; (4) contingent Indebtedness permitted by Section
5.01(I); and (5) Indebtedness secured by Permitted Liens;
(F) Make any assignment or transfer of Accounts nor declare or
pay any dividends on, or purchase, redeem or otherwise acquire for
value any securities now or hereafter outstanding, or return any
capital to holders of any such securities, or make any distribution of
assets to holders of any such securities except that the Borrower may
declare and pay dividends or make purchases or redemptions or make
distributions in cash or property to holders of any such securities if
the Borrower's ratio of tangible equity to total assets after any such
transaction is in excess of 7.0%. For purposes of this Section 6.02(F),
"tangible equity" shall be Consolidated Net Worth less goodwill. For
purposes of this Section, the amount of any dividend payable in
property shall be deemed to be the fair market value of such property
as determined by the Board of Directors of the Borrower;
28
<PAGE> 29
(G) Form any new subsidiaries or make any investment in any
Person;
(H) Make any loan or advance to any officer, shareholder,
director, or employee of the Borrower, except for business travel and
similar temporary advances in the ordinary course of business.
(I) Purchase or otherwise invest in or hold securities,
non-operating real estate, or other non-operating assets except:
Negotiable instruments or securities represented by instruments in
bearer or registered form which evidence (i) obligations fully
guaranteed as to timely payment of principal and interest by the full
faith and credit of the United States of America; (ii) certificates of
deposit of, or banker's acceptances (having original maturities of not
more than 180 days) issued by, any depository institution or trust
company and subject to supervision and examination by federal or state
banking or depository institution authorities; provided, however, that
at the time of the Borrower's investment or contractual commitment to
invest therein, such depository institution or trust company shall have
a commercial paper credit rating, if any, and a long-term unsecured
debt obligation (other than such obligations whose rating is based on
the credit of a person or entity other than such institution or trust
company) credit rating from a nationally recognized rating agency of a
least "A-1+," or its equivalent, in the case of commercial paper, and a
rating not lower than "A," or its equivalent, in the case of long-term
unsecured debt obligations, or such deposits are fully insured by the
FDIC; (iii) commercial paper (having original maturities of not more
than 30 days) having, at the time of the Borrower's investment or
contractual commitment to invest therein, a rating of at least "AA" or
its equivalent; (iv) investments in money market funds having a rating
from a nationally recognized rating agency in one of the two highest
rating categories for money market funds; and (v) any other investment
if the rating agency confirms in writing that such investment will not
adversely affect any ratings with respect to the Notes and (b) demand
deposits or time deposits in the name of the Borrower in any depository
institution or trust company referred to in (a)(ii) above; (2) the
present investment in any such assets held as of the date of Closing
and reflected in the Financial Statements; (3) operating assets that
hereafter become nonoperating assets; and (4) other instruments
approved in advance in writing by the Bank;
(J) Issue, redeem, purchase, or retire any of the Borrower's
capital stock or grant or issue or purchase or retire for any
consideration any warrant, right, or option pertaining thereto or other
security convertible into any of the foregoing, or permit any transfer,
sale, redemption, retirement, or other change in the ownership of the
outstanding capital stock of the Borrower;
29
<PAGE> 30
(K) Prepay any Indebtedness for borrowed money or Indebtedness
secured by any of its assets other then in the ordinary course of
business (except the Obligations), or enter into or modify any
agreements as a result of which the terms of payment of any of the
foregoing Indebtedness are waived or modified;
(L) Enter into any sale-leaseback transaction;
(M) Acquire or agree to acquire any stock in, or all of, or
substantially all of the assets of, any Person;
(N) Furnish the Bank any certificate or other document that
will contain any untrue statement of material fact or that will omit to
state a material fact necessary to make it not misleading in light of
the circumstances under which it was furnished;
(O) Directly or indirectly apply any part of the proceeds of
the Loans to the purchasing or carrying of any margin stock within the
meaning of Regulation U of the Board of Governors of the Federal
Reserve System, or any regulations, interpretations or rulings
thereunder.
SECTION VII. DEFAULT
7.01 Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default (sometimes referred to as
"Default") hereunder:
(A) The Borrower shall fail to pay when due any installment of
principal, interest, fee, or any other Obligation payable hereunder and
such failure to pay shall continue seven (7) days;
(B) The Borrower and/or Robert M. Kaye shall fail to observe
or perform any Obligation or covenant to be observed or performed by
the Borrower and/or Robert M. Kaye hereunder or under any of the Loan
Documents or the Collateral Documents and such failure shall continue
beyond thirty (30) days after notice thereof from the Bank;
(C) The Borrower shall fail to pay any Indebtedness due any
third Person, and such failure shall continue beyond any applicable
grace period, or the Borrower shall suffer to exist any other Event of
Default under any agreement binding the Borrower;
(D) Any financial statement, representation, warranty, or
certificate made or furnished by or with respect to the Borrower to the
Bank in connection with this Agreement, or as inducement to the Bank to
enter into this Agreement, or in any separate statement or document to
be delivered to the Bank hereunder, shall be materially false,
incorrect, or incomplete when made;
30
<PAGE> 31
(E) The Borrower shall admit in writing its inability to pay
its debts as they mature or shall make any assignment for the benefit
of any of their creditors;
(F) Proceedings in bankruptcy, or for reorganization of the
Borrower or for the readjustment of any of its debts, under the
Bankruptcy Code, as amended, or any part thereof, or under any other
Laws, whether state or federal, for the relief of debtors, now or
hereafter existing, shall be commenced against or by the Borrower and,
except with respect to any such proceedings instituted by the Borrower,
shall not be discharged within thirty (30) days of their commencement;
(G) A receiver or trustee shall be appointed for the Borrower
or for any substantial part of their respective assets, or any
proceedings shall be instituted for the dissolution or the full or
partial liquidation of the Borrower and, except with respect to any
such appointments requested or instituted by the Borrower, such
receiver or trustee shall not be discharged within thirty (30) days of
his appointment, and, except with respect to any such proceedings
instituted by the Borrower such proceedings shall not be discharged
within thirty (30) days of their commencement, or the Borrower shall
discontinue business or materially change the nature of its business,
or the Collateral becomes, in the reasonable judgment of the Bank,
insufficient in value to satisfy the Obligations, or the Bank otherwise
reasonably finds itself insecure as to the prompt and punctual payment
and discharge of the Obligations;
(H) The Borrower shall suffer final judgments for payment of
money aggregating in excess of Two Hundred Fifty Thousand Dollars
($250,000.00) and shall not discharge the same within any applicable
time period provided under such a judgment, or, if no time period is
provided, a period of thirty (30) days (or such longer period as the
Bank may agree in writing) from the date of judgment unless, pending
further proceedings, execution has not been commenced or, if commenced,
has been effectively stayed;
(I) A judgment creditor of the Borrower shall obtain
possession of any of the Collateral by any means, including (without
implied limitation) levy, distraint, replevin, self-help or
attachment; or
(J) Transfer(s) of funds out of the ordinary course by
Metropolitan Savings Bank of Cleveland to any of its subsidiaries or
their subsidiaries in excess of the amount of Ten Thousand Dollars
($10,000.00) per transfer, or the aggregate amount of One Hundred
Thousand Dollars ($100,000.00) per year for all such transfers, without
the prior written consent of the Bank.
7.02 Acceleration. Immediately and without notice upon the occurrence
of an Event of Default specified in the foregoing
31
<PAGE> 32
Section 7.01(E), (F), (G), or (J) or at the option of the Bank, but only upon
notice to the Borrower upon the occurrence of any other Event of Default, all
Obligations, whether hereunder or otherwise, shall become due and payable
without further action of any kind. All payments, collections on receipts in
connection with any Collateral and all cash proceeds received by the Bank in
respect to any sale of, collection from, or other realization upon all or any
part of the Collateral may, in the discretion of the Bank, be held by the Bank
as collateral for, and/or then or at any time thereafter applied in whole or in
part by the Bank against all or any part of the Obligations, in such order as
the Bank shall elect. Any surplus of such cash proceeds held by the Bank and
remaining after payment in full of all the Obligations shall be paid over to the
Borrowers or to whomsoever may be lawfully entitled to receive such surplus.
7.03 Remedies. After any acceleration, as provided for in Section 7.02,
the Bank shall have, in addition to the rights and remedies given it by this
Agreement, the Loan Documents and the Collateral Documents, all those allowed by
all applicable laws, including, but without limitation, the Uniform Commercial
Code as enacted in any jurisdiction in which any Collateral may be located.
Without limiting the generality of the foregoing, the Bank may immediately,
without demand of performance and without other notice (except as specifically
required by this Agreement, the Loan Documents or the Collateral Documents) or
demand whatsoever to the Borrower, all of which are hereby expressly waived, and
without advertisement, sell at public or private sale or otherwise realize upon,
in Cuyahoga County, Ohio, or in any other place or places as the Bank may
designate, the whole or, from time to time, any part of the Collateral, or any
interest which the Borrower may have therein. After deducting from the proceeds
of sale or other disposition of the Collateral all expenses (including all
reasonable expenses for legal services), the Bank shall apply such proceeds
toward the satisfaction of the Obligations. Any remainder of the proceeds after
satisfaction in full of the Obligations shall be distributed as required by
applicable Laws. Notice of any sale or other disposition shall be given to the
Borrower at least five (5) Business Days before the time of any intended public
sale or of the time after which any intended private sale or other disposition
of the Collateral is to be made, which the Borrower hereby agrees shall be
reasonable notice of such sale or other disposition. The Borrower agrees to
assemble, or to cause to be assembled, at their own expense, the Collateral at
such place or places as the Bank shall reasonably designate. At any such sale or
other disposition, the Bank may, to the extent permissible under applicable
Laws, purchase the whole or any part of the Collateral, free from any right of
redemption on the part of the Borrower, which right is hereby waived and
released. Notwithstanding the foregoing, nothing in this Agreement shall be
construed as a wavier of the requirement that the Bank act in a "commercially
reasonable" manner, as defined in the Uniform Commercial Code and decisions
interpreting the Uniform Commercial Code.
32
<PAGE> 33
7.04 Right of Set-Off. Upon the occurrence of any Event of Default and
during the continuance thereof, the Bank may, and is hereby authorized by the
Borrower at any time and from time to time, to the fullest extent permitted by
applicable Laws, without advance notice to the Borrower (any such notice being
expressly waived by the Borrower), set-off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
any other Indebtedness at any time owing by the Bank to or for the credit or the
account of the Borrower against any or all of the Obligations of the Borrower
now or hereafter existing, whether or not such Obligations have matured and
irrespective of whether the Bank has exercised any other rights that it has or
may have with respect to such Obligations, including, without limitation any
acceleration rights. The Bank agrees promptly to notify the Borrower after any
such set-off and application, provided that the failure to give such notice
shall not affect the validity of such set-off and application. The rights of the
Bank under this Section 7.04 are in addition to the other rights and remedies
(including, without limitation other rights of set-off) which the Bank may have.
SECTION VIII. MISCELLANEOUS
8.01 Construction. The provisions of this Agreement shall be in
addition to those of any guaranty, pledge, or security agreement, note, or other
evidence of liability now or hereafter held by the Bank, all of which shall be
construed as complementary to each other. Nothing herein contained shall prevent
the Bank from enforcing any or every other guaranty, pledge, or security
agreements, notes, or other evidences of liability in accordance with their
respective terms.
8.02 Further Assurance. From time to time, the Borrower will execute
and deliver to the Bank such additional documents and will provide such
additional information as the Bank may reasonably require to carry out the terms
of this Agreement and be informed of the status and affairs of the Borrower.
8.03 Enforcement and Waiver by the Bank. The Bank shall have the right
at all times to enforce the provisions of this Agreement, the Loan Documents,
and the Collateral Documents in strict accordance with the terms hereof and
thereof. The failure of the Bank at any time or times to enforce its rights
under such provisions, strictly in accordance with the same, shall not be
construed as having created a waiver in any way or manner contrary to specific
provisions of this Agreement or as having in any way or manner modified or
waived the same. All rights and remedies of the Bank are cumulative and
concurrent, and the exercise of one right or remedy shall not be deemed a waiver
or release of any other right or remedy.
8.04 Notices. Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed delivered if delivered in
person or, three Business Days after being
33
<PAGE> 34
deposited in First Class Mail as follows, unless such address is changed by
written notice hereunder:
(A) If to the Borrower: Metropolitan Financial Corp.
6001 Landerhaven Drive
Mayfield Heights, OH 44124
Attn: David G. Lodge, President
(B) If to the Bank: The Huntington National Bank
917 Euclid Avenue, CM62
Cleveland, Ohio 44115
Attn: Dawn Enovitch
Portfolio Manager
8.05 Waiver and Release by the Borrower. To the maximum extent
permitted by applicable Laws and except as otherwise provided herein, the
Borrower:
(A) Waives (1) protest of all commercial paper at any time
held by the Bank on which the Borrower is in any way liable; (2) except
as the same may herein be specifically granted, notice of acceleration
and intention to accelerate; and (3) notice and opportunity to be
heard, after acceleration in the manner provided in Section 7.02,
before exercise by the Bank of the remedies of self-help, set-off, or
of other summary procedures permitted by any applicable Laws or by any
agreement with the Borrower and, except where required hereby or by any
applicable Laws, notice of any other action taken by the Bank; and
(B) Releases the Bank and its officers, attorneys, agents, and
employees from all claims for loss or damage caused by any act or
omission on the part of any of them except willful misconduct or
negligence.
8.06 Applicable Law. This Agreement is entered into and performable in
Cuyahoga County, Ohio and shall be subject to and construed and enforced in
accordance with the laws of the State of Ohio.
8.07 Binding Effect, Assignment, and Entire Agreement. This Agreement
shall inure to the benefit of, and shall be binding upon, the respective
successors and permitted assigns of the parties hereto. The Borrower has no
right to assign any of its rights or obligations hereunder without the prior
written consent of the Bank. This Agreement, including the Schedules and
Exhibits hereto, all of which are hereby incorporated herein by reference, and
the documents executed and delivered pursuant hereto constitute the entire
agreement between the parties and may be amended only by writing signed on
behalf of each party.
8.08 Severability. If any provision of this Agreement shall be held
invalid under any applicable Laws, such invalidity shall not affect any other
provision of this Agreement that can be given
34
<PAGE> 35
effect without the invalid provision, and, to this end, the provisions hereof
are severable.
8.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
THE BANK: THE BORROWER:
THE HUNTINGTON NATIONAL BANK METROPOLITAN FINANCIAL CORP.
By: /s/ BRENNAN C. NOALE By:/s/ ROBERT M. KAYE
------------------------------ ---------------------------
Name: BRENNAN C. NOALE Name: ROBERT M. KAYE
------------------------ Title: Chairman
Title: AVP
------------------------
and
By: /s/ DAVID G. LODGE
--------------------------
Name: DAVID G. LODGE
Title: President
35
<PAGE> 36
EXHIBIT A
COGNOVIT PROMISSORY NOTE
$4,000,000.00 Dated as of February 22, 1995
FOR VALUE RECEIVED, METROPOLITAN FINANCIAL CORP., an Ohio
corporation (the "Borrower"), HEREBY PROMISES TO PAY, to the order of THE
HUNTINGTON NATIONAL BANK (the "Bank"), the principal sum of Four Million Dollars
($4,000,000.00) or, if less, the aggregate unpaid principal amount of the loan
made by the Bank to the Borrower pursuant to the Restated Loan Agreement dated
as of February 22, 1995 by and between the Borrower and the Bank (the "Loan
Agreement"), together with interest on any and all principal amounts until such
amounts are paid in full, at such interest rates, and payable at such times, as
are specified in the Loan Agreement.
Both principal and interest are payable in lawful money of the
United States of America to the Bank in same day funds.
This Note is the Note referred to in, and is entitled to the
benefits of, the Loan Agreement, which Loan Agreement, among other things,
provides for: (i) the making of a line of credit loan by the Bank to the
Borrower from time to time in an aggregate amount not to exceed at any time
outstanding the principal amount of this Note, to be converted into a term loan
repayment schedule on May 1, 1998, the indebtedness of the Borrower resulting
from such loan being evidenced by this Note; and (ii) acceleration of the
maturity hereof upon the terms and conditions therein specified. Capitalized
terms not otherwise defined herein shall have the respective meanings assigned
to them in the Loan Agreement. This Note is secured by the Pledge and Collateral
Assignment Agreement of even date herewith by and between the Bank and Robert M.
Kaye.
This Note has been made and executed in Cleveland, Cuyahoga
County, Ohio and shall be construed according to the laws of the State of Ohio
without regard to principles of conflict of law. If any provision hereof is in
conflict with any statute or rule of law of the State of Ohio or is otherwise
unenforceable for any reason whatsoever, then such provision shall be deemed
separable from and shall not invalidate any other provision of this Note.
This Note shall be binding upon the undersigned and its
successors and assigns, and shall inure to the benefit of the Bank, it
successors and assigns and all subsequent holders of this Note.
The undersigned hereby authorizes any attorney-at-law to
appear in any court of record in the State of Ohio, or in any other state or
federal district of the United States, at any
<PAGE> 37
time or times after the above sum becomes due, and waive the issuance and
service of process and confess judgment against the undersigned in favor of any
holder of this Note, for the amount then appearing due, together with the costs
of suit, and thereupon to release all errors and waive all rights of appeal and
stay of execution. The foregoing warrant of attorney shall survive any judgment,
and should any judgment be vacated for any reason the Lender may nevertheless
utilize the foregoing warrant of attorney in thereafter obtaining an additional
judgment or judgments against the undersigned.
WARNING: BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO
NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN
AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED
TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR
WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE.
METROPOLITAN FINANCIAL CORP.
By:____________________________
Title:___________________________
2
<PAGE> 38
EXHIBIT C
GUARANTY
Guaranty, dated as of February 22, 1995, is made by ROBERT M.
KAYE (the "Guarantor"), in favor of THE HUNTINGTON NATIONAL BANK (the "Bank").
W I T N E S S E T H
WHEREAS, the Guarantor is the Chairman and a shareholder of
Metropolitan Financial Corp., an Ohio corporation (the "Borrower"), which is
borrowing the principal amount of up to Four Million Dollars ($4,000,000.00) in
accordance with the terms and conditions of The Restated Loan Agreement by and
between the Borrower and the Bank to be executed concurrently with this
Agreement (as amended or supplemented from time to time the "Loan Agreement",
the terms defined therein and not otherwise defined herein being used herein as
therein defined); and
WHEREAS, as a condition to entering into the Loan Agreement,
the Bank is requiring that the satisfaction of all of the Obligations owed to
the Bank by the Borrower under the Loan Agreement and related documents entered
into by the Borrower and the Bank in connection therewith (collectively, the
"Loan Documents") be guaranteed by the Guarantor.
NOW, THEREFORE, for valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, the Guarantor and the Bank hereby
agree as follows:
SECTION 1. Guaranty. The Guarantor hereby unconditionally
guarantees the punctual repayment, when due, of the Loan, and all other
obligations of the Borrower now or hereafter existing under the Loan Agreement,
the Note or any of the other Loan Documents (such obligations being collectively
referred to herein as the "Obligations"), and agrees to pay any and all expenses
incurred by the Bank in enforcing any of its rights under this Guaranty and all
documents and instruments securing this Guaranty.
SECTION 2. Guaranty Absolute. The Guarantor guarantees that
the Obligations will be paid strictly in accordance with the terms of the Loan
Agreement, the Note and the other Loan Documents regardless of any law,
regulation or order now or hereafter in effect in any jurisdiction affecting any
of such terms or the rights of the Bank with respect thereto. The liability of
the Guarantor under this Guaranty shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the Loan
Agreement, the Note and/or the other Loan Documents;
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to departure from the Loan Agreement, the Note and/or
the other Loan Documents;
<PAGE> 39
(c) any exchange, release or nonperfection of any Collateral,
or any release or amendment or waiver of or consent to departure from any other
guaranty, for all or any of the Obligations; or
(d) any other circumstance which might otherwise constitute a
defense (other than payment) available to, or a discharge of, the Borrower in
respect of the Obligations or the Guarantor in respect of this Guaranty.
SECTION 3. Continuing Guaranty. This Guaranty shall continue
to be effective or be reinstated, as the case may be, if at any time any payment
of any of the Obligations is rescinded or must otherwise be returned by the Bank
upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise,
all as though such payment had not been made.
SECTION 4. Guaranty of Payment. This is a Guaranty of payment
and not merely of collection. In the event of any default by the Borrower in
payment or otherwise on any of Indebtedness, the Guarantor will pay all or any
portion of Indebtedness due or thereafter becoming due, whether by acceleration
or otherwise, without defalcation or offset of any kind, without the Bank first
being required to make demand upon the Borrower or pursue any of its rights
against the Borrower, or against any other Person, including other guarantors,
and without being required to liquidate or realize on any collateral security.
In any right of action accruing to the Bank, the Bank may elect to proceed
against (a) the Guarantor together with the Borrower; and/or (b) the Guarantor
and the Borrower individually; and/or (c) the Guarantor only without having
first commenced any action against the Borrower.
SECTION 5. Notice. The Bank, without notice to the Guarantor,
may deal with Indebtedness and any collateral security for Indebtedness in such
manner as the Bank may deem advisable and may renew or extend Indebtedness or
any part thereof; accept partial payment, or settle, release, compound, or
compromise the same; demand additional collateral security for Indebtedness, and
substitute or release the same; and may compromise or settle with or release and
discharge from liability any of the Guarantor or any other guarantor of
Indebtedness, or any other person totally or partially liable to the Bank for
the obligations of the Borrower to the Bank; all without impairing the liability
of the Guarantor hereunder.
SECTION 6. Waiver. The Guarantor hereby unconditionally
waives: (a) notice of acceptance of this Guaranty Agreement by the Bank and any
notice of the incurring by the Borrower of any Indebtedness; (b) presentment for
payment, notice of non-payment, demand, protest, notice of protest and notice of
dishonor or default to any party including the Guarantor; (c) all other notices
to which the Guarantor may be entitled but which may legally be waived; (d)
demand for payments as a condition of liability under this Guaranty Agreement;
(e) any disability of the Borrower or defense available to the Borrower,
including absence or cessation of the Borrower's liability for any reason
whatsoever; (f) any defense or circumstance which might otherwise constitute a
legal or equitable discharge of a guarantor; (g) all rights under any state or
federal statute dealing with or affecting the rights of creditors; (h) until the
Obligations are satisfied in full, any right to subrogation or realization on
any of the Borrower's property, including participation in the marshalling of
the Borrower's assets.
2
<PAGE> 40
SECTION 7. Subordination. Until Indebtedness is paid in full,
the Guarantor hereby unconditionally subordinates all present and future debts,
liabilities, or obligations of the Borrower to the Guarantor to the Obligations,
and all amounts due under such debts, liabilities, or obligations shall be
collected and paid over to the Bank on account of the Obligations. The
Guarantor, at the Bank's request, shall execute a subordination agreement in
favor of the Bank to further evidence and support the purpose of this Paragraph.
SECTION 8. Defenses. The Guarantor warrants to the Bank: (a)
no other agreement, representation or special condition exists between the
Guarantor and the Bank regarding the liability of the Guarantor hereunder; nor
does any understanding exist between the Guarantor and the Bank that the
obligations of the Guarantor hereunder are or will be other than as set out
herein; (b) as of the date hereof the Guarantor has no defense whatsoever to any
action or proceeding that may be brought to enforce this Guaranty.
SECTION 9. Financial Information. The Guarantor will provide
financial information to the Bank upon request, including balance sheets and
income statements, in form and content satisfactory to the Bank.
SECTION 10. Delay. No failure or delay on the part of the Bank
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof, or the
exercise of any other right, power or privilege. Failure by the Bank to insist
upon strict performance hereof shall not constitute a relinquishment of its
right to demand strict performance at another time. Receipt by the Bank of any
payment by any person on the Obligations, with knowledge of a default on any of
the Obligations or of a breach of this Guaranty, or both, shall not be construed
as a waiver of the default or breach.
SECTION 11. Assignment. This Guaranty Agreement is freely
assignable and transferable by the Bank; however, the duties and obligations of
the Guarantor may not be delegated or transferred by the Guarantor without the
written consent of the Bank. The rights and privileges of the Bank shall inure
to the benefit of its successors and assigns, and the duties and obligations of
The Guarantor shall bind the Guarantor's heirs, personal representatives,
successors and assigns.
SECTION 12. Unenforceability. If any provision hereof shall
for any reason be held invalid or unenforceable, no other provision shall be
affected thereby, and this Guaranty shall be construed as if the invalid or
unenforceable provision had never been a part of it.
SECTION 13. Governing Law. This Guaranty Agreement shall in
all respects be governed by the law of the State of Ohio.
SECTION 14. Waiver of Attorney. The Guarantor hereby
authorizes any attorney-at-law to appear in any court of record in the State of
Ohio, or in any other state or federal district of the United States, at any
time or times after the Indebtedness becomes due, and waive the issuance and
service of process and confess judgment against the Guarantor in favor of the
Bank or its assignee, for the amount of the Indebtedness, together with the
costs of suit. The Guarantor hereby forever waives and releases all errors which
may intervene in any
3
<PAGE> 41
such proceedings, waives all rights of appeal and stay of execution. The
Guarantor shall not cause any bill of equity to be filed to interfere in any
manner with the operation of said judgment, hereby ratifying and confirming all
that said attorney may do by virtue hereof. The Guarantor waives all laws
exempting real or personal property, and the inquisition and extension upon any
levy on real estate are hereby waived and condemnation agreed to, and no benefit
of exemption will be claimed under and by virtue of any exemption law now in
force or which may be hereafter enacted. No single exercise of the foregoing
warrant to confess judgment shall be deemed to exhaust the warrant whether or
not any such exercise shall be held by any court to be valid, voidable or void,
but the warrant shall continue undiminished and it may be exercised from time to
time as often as the Bank or its assignee shall elect, until such time as the
Bank or its assignee shall have received payment in full of the Indebtedness.
Witness the due execution hereof intending to be legally
bound.
WARNING: BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO
NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN
AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED
TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR
WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT OR ANY OTHER CAUSE.
WITNESSES:
_____________________________ ______________________________
ROBERT M. KAYE
_____________________________
4
<PAGE> 42
EXHIBIT E
PLEDGE AND COLLATERAL ASSIGNMENT AGREEMENT
THIS PLEDGE AND COLLATERAL ASSIGNMENT AGREEMENT is entered
into on the _______ day of ____________, 1996, by and among ROBERT M. KAYE (the
"Pledgor") and THE HUNTINGTON NATIONAL BANK (the "Bank").
W I T N E S S E T H
WHEREAS, the Pledgor is the Chairman and a shareholder of
Metropolitan Financial Corp., an Ohio corporation (the "Borrower"), which
previously entered into a Loan Agreement dated as of February 22, 1995 with the
Bank;
WHEREAS, in order to combine the terms of such Loan Agreement
and the various Amendments thereto into a single document and to reflect certain
changes in the capital structure of the Borrower relating to an initial public
offering of the common stock of the Borrower (the "Loan Agreement"), the Bank
and the Borrower are entering into a Restated Loan Agreement of even date
herewith; and
WHEREAS, as a condition to entering into the Loan Agreement,
the Bank is requiring that outstanding shares of capital stock of the Borrower
with a fair market value of at least 200% of the amount of Obligations existing
from time to time be pledged by the Pledgor as security as provided herein.
NOW, THEREFORE, for valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, the Pledgor and the Bank hereby
agree that the following terms and conditions shall apply to shares of stock of
the Borrower that are pledged by the Pledgor pursuant to the Loan Agreement:
1. Collateral Pledged. For valuable consideration received to
the full satisfaction of the Pledgor, the Pledgor hereby pledges, assigns and
grants a security interest in and sets over to the Bank the entire interest
(beneficial, equitable or otherwise) of the Pledgor in (i) the outstanding
shares of stock of the Borrower evidenced by certificates for such shares
delivered by the Pledgor to the Bank and (ii) all options and rights to purchase
and all rights to profits and distributions from the Borrower by virtue of such
shares of stock, and any cash or other securities derived therefrom, substituted
therefor, or otherwise subjected to the lien hereof, pursuant to any provision
hereof, together with all proceeds thereof (all of which shares of stock,
partnership interests, options, cash, securities and proceeds are herein called
the "Collateral").
Certificates, and all other documentation of the Pledgor
evidencing ownership of such shares of stock of the Borrower pledged under this
Agreement and any evidence of options to purchase comprised in the Collateral,
shall be delivered to the Bank, accompanied by assignments (with signatures
guaranteed) sufficient to transfer the title thereto to the Bank. The
<PAGE> 43
Bank is hereby authorized to hold any and all of the Collateral delivered to it
in its name or at its option to cause such items to be transferred to and held
in the name of its nominee(s). The Collateral pledged, assigned and set over
under this Pledge Agreement secures the following:
(a) The payment by the Borrower of the principal,
interest and any other amounts owing under the
promissory note entered into by the Borrower pursuant
to the Loan Agreement (the "Note");
(b) The payment of any and all amounts due or which
hereafter may become due to the Bank pursuant to the
Loan Agreement, the other documents to be entered
into by the Borrower pursuant to such Agreements
(collectively with the Note and this Agreement,
referred to as the "Documents", and each as a
"Document"), whether from the Borrower or any other
party thereto;
(c) The payment by the Borrower of all costs and expenses
incurred in the collection of the Note and in the
enforcement of the rights of the Bank hereunder and
under any other Document; and
(d) The performance by the Borrower of all of its
respective obligations, covenants and agreements
under any Document.
2. Distributions on Collateral; Voting Rights. The Bank shall
receive and hold, as security for the obligations referred to in Section 1
hereof, the Collateral and all distributions (other than in the ordinary course)
upon the Collateral, including, but not limited to, distributions in the course
of dissolution or liquidation of the Borrower, or distributions as the result of
or rearrangements of the capital structure of the Borrower; provided that so
long as no "Event of Default" (as defined in the Loan Agreement) shall have
occurred and be continuing, the Pledgor shall have the right to (a) vote and
give proxies and consents with respect to the shares of stock of the Borrower
and (b) consent to or ratify action taken at, or waive notice of, any meeting of
directors with the same force and effect as if such shares of stock were not
pledged hereunder (the Bank shall, from time to time upon written request of the
Pledgor, give any necessary waivers of notice, consents and powers of attorney
or proxies necessary to enable the Pledgor to exercise any of the foregoing
rights).
3. Warranties. The Pledgor represents and warrants to the Bank
that all outstanding shares of stock of the Borrower comprised in the Collateral
pledged and to be pledged hereunder are, and at the time of such pledge, will be
fully paid for non-assessable free and clear of all liens, claims, demands and
equities of third parties and that such pledge will not contravene any agreement
binding upon the Pledgor. The Pledgor will warrant and defend the title to the
Collateral pledged hereby and the lien created hereunder against the claims of
any persons or entities.
<PAGE> 44
4. Rights of the Bank to Deal with the Borrower. The Pledgor
hereby grants to the Bank full power and authority, without notice to or the
consent, of the Pledgor hereunder and without affecting the Bank's rights under
this Agreement, to deal in any manner with the Note, the Loan Agreement and the
other Documents including, but without limiting the generality of the foregoing,
to accelerate the maturity of the Note as provided therein. No action which the
Bank may take or fail to take pursuant to the foregoing powers shall operate to
release the pledge hereby created. The Pledgor shall have no right of recourse
against the Bank by reason of any action that the Bank may take or fail to take
pursuant to the foregoing powers.
5. Rights of the Bank upon Occurrence of an Event of Default.
Upon the occurrence and during the continuance of an "Event of Default", as
defined in the Loan Agreement, or a default under any other Document:
(a) The Bank shall have the right to vote any and all
interests comprised in the Collateral (whether or not
transferred to the name of the Bank or its
nominee(s)) and to give all consents, waivers and
ratifications in respect thereof, and in such event
and for such purpose, the Pledgor hereby irrevocably
constitutes and appoints the Bank and the proxy and
attorney-in-fact, coupled with an interest, of the
Pledgor, with full power of substitution, to do so;
and
(b) Upon compliance with any mandatory requirement of
law, but without further demand, advertisement or
notice of any kind, all of which are hereby expressly
waived, the Bank shall have the right to sell, assign
and deliver the whole or any part of the Collateral,
at any time or times, within or without the City of
Cleveland, Ohio, at public or private sale, for cash,
on credit, or for other property, for immediate or
future delivery, for such price or prices and on such
terms as the Bank shall determine to be commercially
reasonable, and in connection therewith the Bank at
any public sale may purchase and hold the whole or
any part of the Collateral so sold, free from any
right of redemption on the part of the Pledgor, which
right the Pledgor hereby waives and releases. For
purposes of this subsection (b), an agreement to sell
all or any part of Collateral shall be treated as a
sale of such Collateral and the Bank shall be free to
carry out the sale of any Collateral pursuant to any
such agreement and the Pledgor shall not be entitled
to the return of any such Collateral subject thereto,
notwithstanding that, after the Bank shall have
entered into such an agreement, all defaults may have
been remedied. The proceeds of any sale of Collateral
shall be applied (i) first to the expenses of taking,
holding and preparing for sale or disposition, and
sale or disposition and the like (including
reasonable attorneys' fees), (ii) next to any and all
amounts the payment of which is secured hereby, (iii)
next, to the holder of any subordinate security
interest therein if written notification of demand
therefor is received by the Bank before distribution
of the proceeds and (iv) lastly, any surplus to the
Pledgor. Each
<PAGE> 45
individual, corporation or any other entity liable on
or with respect to the Note ("Person") shall
nevertheless remain liable for any deficiency.
The rights and remedies provided in this Agreement are
cumulative and in addition to any rights and remedies which the Bank may have
under any other Document, at law or in equity.
6. No Right of Exoneration. The Pledgor hereby waives,
releases and discharges any right of exoneration which the Pledgor may have with
respect to this Agreement or any Document and also any right which the Pledgor
has or may have at law, in equity or by statute, to require the Bank to pursue
or otherwise avail Pledgor of any rights or remedies which the Pledgor may have
against any Person with respect to the repayment of the Note or with respect to
the performance of the terms, covenants and conditions of any other Document or
to require the Bank to pursue or exhaust any of its rights or remedies with
respect to any part of another security at any time held by it for the payment
of the Note.
7. Pledgor's Right of Reimbursement or Subrogation. The
Pledgor shall not have any right of reimbursement, contribution or subrogation
with respect to the Note, unless and until the Bank shall have received payment
in full of all principal and any other amounts owing on the Note. The Pledgor
hereby waives and releases any equity or right of marshalling of assets that the
Pledgor might otherwise have.
8. Discharge of Pledgor. At such time as all of the principal
and any other amounts owing on the Note shall have been paid in full and all of
the terms, covenants and conditions of the Loan Documents to be performed by the
parties thereto shall have been performed by each respective party, then all
rights and interests assigned and pledged hereby or pursuant hereto by the
Pledgor shall revert to the Pledgor, and the heirs, successor and assigns of the
Pledgor, and the right, title and interest of the Bank in the Collateral shall
cease and the Collateral held pursuant hereto shall forthwith be transferred and
delivered to the Pledgor.
9. Notices. All notices hereunder shall be deemed to have been
sufficiently given to or served on the Pledgor, for all purposes hereof, when
mailed regular United States mail, postage prepaid, to the address shown on the
signature page of this Agreement.
10. Registration of Collateral; Private Sales. If at any time
or times, in the opinion of counsel for the Bank, it should be necessary, in
order for the Bank to dispose of all or any part of the Collateral in any sale
or sales in accordance with Section 5 hereof, to comply with, or to register or
qualify all or any part of the Collateral under the Securities Act of 1933, as
then in effect, or under any similar Federal statute then in effect, or any
rules or regulations thereunder, or to comply with the laws of any state
regulating the sale of securities or any rules or regulations thereunder, the
Pledgor will, upon request of the Bank, as expeditiously as possible and in good
faith, use the best efforts the Pledgor to cause the Borrower to effect and
continue such registration, qualification and/or compliance as may be necessary
in the opinion of the Bank in connection with any proposed sale or sales. The
Pledgor further agrees to use the best efforts of the Pledgor to cause the
Borrower to, indemnify and hold harmless the Bank from and against any claims
and liabilities caused by any untrue statement of a material fact or
<PAGE> 46
omission to state a material fact required to be stated in any registration
statement, offering circular, prospectus or memorandum used in connection with
such registration, qualification or compliance, or necessary to make the
statements therein not misleading except insofar as such claims or liabilities
are caused by any untrue statement or omission based upon or in conformity with
information furnished in writing to the Pledgor by the Bank.
The Pledgor recognizes that the Bank may be unable to effect a
public sale of all or a part of the Collateral by reason of certain prohibitions
contained in the Securities Act of 1933 or other applicable law, but may be
compelled to resort to one or more private sales to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire such
Collateral for their own account, for investment and not with a view to the
distributions or resale thereof. The Pledgor agrees that private sales so made
may be at prices and upon other terms less favorable to the seller than if such
Collateral were sold at public sales, and that the Bank does not have any
obligation to delay sale of any such Collateral for the period of time necessary
to permit such Collateral to be registered for public sale under the Securities
Act of 1933. The Pledgor agrees that private sales made under the foregoing
circumstances shall be deemed to have been made in a commercially reasonable
manner.
11. Financing Statements. The Pledgor will prepare and execute
all financing statements requested by the Bank and supplements thereto, if any,
and will attend to the filing of any and all continuation statements as required
by the Bank or applicable law from time to time in order to continue the
validity of the security interests of the Bank hereunder. To the extent
permitted by law, the Pledgor authorizes the Bank to execute and file financing
statements in connection with the security interest crated herein.
12. Persons Bound. This Pledge Agreement shall be binding upon
the Pledgor and the successors, heirs and assigns of the Pledgor, and shall
inure to the benefit of and be enforceable by the Bank, and its successors and
assigns, and, in particular, by any holder of the Note.
13. Governing Law. This Agreement shall be deemed to be a
contract made under and shall be construed in accordance with and governed by
the laws of the State of Ohio. In the event any provision of this Agreement is
invalid, illegal or unenforceable for any reason, such provision shall be
ineffective to the extent of such invalidity, illegality or unenforceability
without affecting or impairing the remainder of such provision or any other
provision of this Agreement.
14. Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which where so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same agreement.
<PAGE> 47
IN WITNESS WHEREOF, the parties have caused this Pledge
Agreement to be executed on the date first above written.
THE HUNTINGTON BANK
By:________________________________
___________________________________
Its: ______________________________
THE PLEDGOR:
___________________________________
ROBERT M. KAYE
Address: 6001 Landerhaven Drive
Mayfield Heights, OH 44124
