<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10 - Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________________ to___________________
Commission file number 000-21553
---------------------------------------------------------
METROPOLITAN FINANCIAL CORP.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Ohio 34-1109469
- ---------------------------------------- ------------------------------------
(State or Other Jurisdiction (I.R.S. Employer
Incorporation or Organization) Identification No.)
6001 Landerhaven Drive Mayfield Heights, Ohio 44124
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(216) 646-1111
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- ---------
As of August 12, 1997, there were 3,525,635 shares of the Registrant's Common
Stock issued and outstanding.
1
<PAGE> 2
METROPOLITAN FINANCIAL CORP.
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Statements of Financial Condition as of
June 30, 1997 and December 31, 1996 ................ 3
Consolidated Statements of Operations for the three
and six months ended June 30, 1997 and 1996 ........ 4
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 1997 and 1996 ........ 5
Notes to Consolidated Financial Statements ......... 6-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................ 14-29
PART II. OTHER INFORMATION................................... 30-31
SIGNATURES ................................................... 32
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
METROPOLITAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 15,155 $ 16,522
Securities available for sale (Note 3) 6,659 13,174
Mortgage-backed securities (Note 3) 67,282 56,672
Loans held for sale 4,898 8,973
Loans receivable, net (Note 4) 684,320 637,493
Federal Home Loan Bank stock, at cost 5,160 3,989
Accrued interest receivable 5,350 4,791
Premises and equipment, net 13,454 11,332
Real estate owned, net 1,999 177
Cost in excess of fair value of net
assets acquired 3,118 3,239
Cost of loan servicing rights (Note 5) 7,563 8,051
Prepaid expenses and other assets 6,322 4,663
------- -------
Total assets $821,280 $769,076
======== ========
LIABILITIES
Deposits (Note 6) $664,564 $622,105
Other borrowings (Note 7) 105,074 101,874
Accrued interest payable 2,418 4,120
Official checks 3,333 3,882
Other liabilities 13,399 6,851
------- -------
Total liabilities 788,788 738,832
------- -------
SHAREHOLDERS' EQUITY
Common stock, no par value, 10,000,000
shares authorized, 3,525,635 shares
issued and outstanding
Additional paid-in capital 11,101 11,101
Retained earnings 20,971 18,467
Unrealized gain on securities available
for sale, net of tax 420 676
------- -------
Total shareholders' equity 32,492 30,244
------- -------
Total liabilities & shareholders'
equity $821,280 $769,076
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
METROPOLITAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------ ------ ------ -----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $15,124 $11,867 $29,985 $23,323
Interest on mortgage-backed
securities 1,119 651 2,129 1,265
Interest and dividends on
other investments 249 435 501 683
------ ------ ------ ------
Total interest income 16,492 12,953 32,615 25,271
------ ------ ------ ------
INTEREST EXPENSE
Interest on deposits 8,351 6,798 16,281 13,345
Interest on other borrowings 1,618 1,018 3,373 2,104
------ ------ ------ ------
Total interest expense 9,969 7,816 19,654 15,449
------ ------ ------ ------
NET INTEREST INCOME 6,523 5,137 12,961 9,822
Provision for loan losses 585 379 1,170 686
------ ------ ------ ------
Net interest income after
provision for loan losses 5,938 4,758 11,791 9,136
------ ------ ------ ------
Non-interest income
Loan servicing income, net 309 319 604 633
Gain on sale of loans 146 (67) 212 36
Loan option income 75 298 123 406
Gain on sale of securities, net 89
Other operating income 453 292 881 689
------ ------ ------ ------
Total non-interest income 983 842 1,909 1,764
------ ------ ------ ------
Non-interest expense
Salaries and related
personnel costs 2,543 2,023 5,220 4,072
Occupancy and equipment expense 740 553 1,432 1,125
Federal deposit insurance
premiums 148 331 288 640
Data processing expense 126 147 269 295
Marketing expense 179 158 310 284
State franchise taxes 155 114 310 232
Amortization of intangibles 65 55 131 110
Other operating expenses 920 849 1,783 1,605
------ ------ ------ ------
Total non-interest expense 4,876 4,230 9,743 8,363
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 2,045 1,370 3,957 2,537
Provision for income taxes 752 505 1,453 956
------ ------ ------ ------
NET INCOME $ 1,293 $ 865 $ 2,504 $ 1,581
====== ====== ====== ======
Earnings per share $ 0.37 $ 0.27 $ 0.71 $ 0.49
====== ====== ====== ======
Weighted average shares
outstanding 3,525,635 3,125,635 3,525,635 3,125,635
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
4
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METROPOLITAN FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
-------- -------
(In thousands)
<S> <C> <C>
NET CASH PROVIDED (USED FOR) BY
OPERATING ACTIVITIES $ 10,164 $ (8,449)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale (5,053) (9,122)
Proceeds from sale of securities
available for sale 11,430 19,405
Disbursement of loan proceeds (94,524) (118,420)
Purchases of loans (40,464) (33,584)
Proceeds from loan repayments 78,757 59,599
Proceeds from sale of loans 1,950 4,915
Purchases of mortgage-backed securities (10,574) (6,541)
Proceeds from mortgage-backed securities
principal repayments and maturities 5,278 3,607
Proceeds from sale of real estate owned 79 41
Purchase of premises and equipment (2,671) (1,588)
Purchase of FHLB stock (1,012) (156)
Premium paid for credit card relationships (10) (296)
Purchase of mortgage loan servicing rights (340) (445)
-------- -------
Net cash used for investing activities (57,154) (82,585)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposit accounts 42,423 55,006
Proceeds from borrowings 187,656 120,650
Repayment of borrowings (184,456) (90,450)
-------- --------
Net cash provided by financing
activities 45,623 85,206
-------- -------
Net change in cash and cash equivalents (1,367) (5,828)
Cash and cash equivalents at beginning
of period 16,522 18,170
------- -------
Cash and cash equivalents at end
of period $ 15,155 $ 12,342
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 21,356 $ 16,873
Income taxes 1,063 895
Transfer from loans receivable to
other real estate 2,018
Loans securitized 5,363
See notes to consolidated financial statements.
</TABLE>
5
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METROPOLITAN FINANCIAL CORP.
Notes to Consolidated Financial Statements (Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements of Metropolitan Financial Corp.
("Metropolitan" or "Corporation") include the accounts of the Corporation and
the accounts of its wholly-owned subsidiaries, MetroCapital Corporation and
Metropolitan Savings Bank of Cleveland (the "Bank"), and its wholly-owned
subsidiaries, Kimberly Construction Company, Incorporated, and Metropolitan
Savings Service Corporation, and its wholly-owned subsidiary Metropolitan
Securities Corporation. All significant intercompany transactions have been
eliminated. In the opinion of management, the accompanying unaudited financial
statements include all adjustments (consisting only of normal recurring
accruals) which the Corporation considers necessary for a fair presentation of
(a) the results of operations for the three and six month periods ended June 30,
1997 and 1996; (b) the financial condition at June 30, 1997 and December 31,
1996; and (c) the statement of cash flows for the six month periods ended June
30, 1997 and 1996. The results of operations for the six month period ended June
30, 1997 are not necessarily indicative of the results that may be expected for
a full year. The annual report for Metropolitan for the year ended December 31,
1996, contains consolidated financial statements and related notes which should
be read in conjunction with the accompanying consolidated financial statements.
2. ACCOUNTING POLICIES
SECURITIES: 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 sale. Securities
available for sale are carried at fair value with unrealized gains and losses
included as a separate component of shareholders' equity, net of tax. Gains or
losses on dispositions are based on net proceeds and the carrying amount of
securities sold adjusted for amortization of premium and accretion of discount,
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. At June 30, 1997 and December 31, 1996, management had the intent
and the Bank had the ability to hold all loans
6
<PAGE> 7
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: An allowance for losses on loans is maintained
because some loans may not be repaid in full. 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.
Loans which are 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. As allowed, management excludes all
consumer loans and residential single family loans with balances less than
$200,000 from classification as impaired.
A loan is classified as non-accrual when collectability is in doubt (this is
generally when the borrower is 90 days past due on contractual principal or
interest payments or when a determination is made to classify a loan as
impaired). When a loan is placed on non-accrual status, unpaid interest is
reversed. Income is subsequently recognized only to the extent that cash
payments are received. Loans are returned to accrual status when, in
management's judgment, the borrower has the ability and intent to make periodic
principal and interest payments (this generally requires that the loan be
brought current in accordance with its original contractual terms).
EARNINGS PER SHARE: In connection with the initial public offering of stock
completed in October, 1996, the Board of Directors approved 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.
7
<PAGE> 8
3. SECURITIES
The amortized cost, gross unrealized gains and losses and fair values of
investment securities available for sale at June 30, 1997 and December 31, 1996
are as follows (In thousands):
<TABLE>
<CAPTION>
June 30, 1997
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
COST GAINS LOSSES VALUE
------- -------- --------- ------
<S> <C> <C> <C> <C>
Mutual funds $ 1,707 $ $ $ 1,707
FNMA note 5,003 (51) 4,952
------- -------- --------- ------
Total investment securities 6,710 (51) 6,659
------- -------- --------- ------
Mortgage-backed securities 66,575 812 (105) 67,282
------- -------- --------- ------
Totals $ 73,285 $ 812 $ (156) $73,941
======= ======== ========= ======
December 31, 1996
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
COST GAINS LOSSES VALUE
------- -------- --------- ------
U.S. Treasury securities $ 6,094 $ 40 $ (69) $ 6,065
Mutual funds 2,009 2,009
FNMA preferred stock 5,000 100 5,100
------- -------- --------- ------
Total investment securities 13,103 140 (69) 13,174
------- -------- --------- ------
Mortgage-backed securities 55,719 954 (1) 56,672
------- -------- --------- ------
Totals $ 68,822 $ 1,094 $ (70) $69,846
======= ======== ========= ======
</TABLE>
8
<PAGE> 9
4. LOANS RECEIVABLE
The composition of the loan portfolio at June 30, 1997 and December 31, 1996 is
as follows (In thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
Real estate loans
Construction loans
Residential single family $ 85,222 $ 61,735
Commercial 10,969 9,825
Loans in process (44,119) (31,758)
------- --------
Construction loans, net 52,072 39,802
Permanent loans
Residential single family 121,742 114,758
Residential apartments 283,721 276,545
Commercial 139,633 135,635
Other 327 137
-------- --------
Total real estate loans 597,495 566,877
Consumer loans 57,947 54,179
Business and other loans 37,651 23,508
-------- --------
Total loans 693,093 644,564
Discounts on loans (898) (560)
Deferred loan fees (2,720) (2,336)
Allowance for losses on loans (5,155) (4,175)
-------- --------
$ 684,320 $ 637,493
========= =========
</TABLE>
Activity in the allowance for losses on loans for the periods ended June 30,
1997 and 1996 is as follows (In thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
-------- --------
<S> <C> <C>
Balance at the beginning of the period $ 4,175 $ 2,765
Provision for loan losses 1,170 686
Net charge-offs (190) (14)
-------- --------
Balance at the end of the period $ 5,155 $ 3,437
======== ========
</TABLE>
9
<PAGE> 10
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 terms of the contract. Information regarding impaired
loans at June 30, 1997 and December 31, 1996 is as follows (In thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
Balance of impaired loans $ 520 $ 3,495
Less portion for which no allowance
for losses on loans is allocated 31 2,774
------ ------
Portion of impaired loans for which
an allowance for loan losses is
allocated $ 489 $ 721
====== ======
Portion of allowance for losses on
loans allocated to the impaired
loan balance $ 369 $ 241
====== ======
</TABLE>
Information regarding impaired loans is as follows for the six months ended
June 30, 1997 and the year ended December 31, 1996 (In Thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
Average investment in impaired loans
during the period $ 1,500 $ 4,220
Interest income recognized during
impairment 17 48
Interest income recognized on a
cash basis during the period 17 48
</TABLE>
5. 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 at June 30, 1997 and December 31, 1996 are summarized as follows (In
thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
Mortgage loans underlying pass-through
securities
FNMA $ 143,046 $ 134,568
Mortgage loan portfolios serviced for
FHLMC 670,671 713,290
FNMA 214,740 219,295
Other 35,558 35,362
--------- ---------
Total loans serviced for others $1,064,015 $1,102,515
========== ==========
</TABLE>
10
<PAGE> 11
Custodial balances maintained in connection with the foregoing loan servicing
were approximately $14,096,000 and $12,895,000 at June 30, 1997 and December 31,
1996, respectively.
The following is an analysis of the changes in cost of loan servicing rights for
the six month periods ended June 30, 1997 and 1996 (In thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
-------- --------
<S> <C> <C>
Balance at the beginning of the period $ 8,051 $ 9,130
Acquired or originated 462 618
Amortization (950) (1,055)
------ ------
Balance at the end of the period $ 7,563 $ 8,693
====== ======
</TABLE>
6. DEPOSITS
Deposits consist of the following (In thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
Noninterest-bearing checking accounts $ 35,264 $ 30,851
Interest-bearing checking accounts 39,794 39,364
Passbook savings and statement savings 171,742 176,430
Certificates of Deposit 417,764 375,460
------- -------
$664,564 $622,105
======= =======
</TABLE>
At June 30, 1997, scheduled maturities of certificates of deposit are as follows
(In thousands):
<TABLE>
<CAPTION>
Year Weighted Average
Ended Amount Interest Rate
----- ------ -------------
<S> <C> <C> <C>
1997 $159,132 5.69%
1998 196,967 5.95
1999 39,848 6.17
2000 17,149 7.15
2001 3,583 5.92
Thereafter 1,085 6.90
-------
$417,764 5.93
=======
</TABLE>
11
<PAGE> 12
7. OTHER BORROWINGS
Other borrowings consisted of the following at June 30, 1997 and December 31,
1996 (In thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
Federal Home Loan Bank Advances
(5.8% and 5.5% at June 30, 1997
and December 31, 1996, respectively) $ 61,200 $ 59,500
Reverse repurchase agreements (5.6% and
5.7% at June 30, 1997 and December 31,
1996, respectively) 25,000 23,500
Subordinated debt maturing December 31,
2001 (10% fixed rate) 4,874 4,874
Subordinated debt maturing January 1,
2005 (9.625% fixed rate) 14,000 14,000
-------- --------
Total $105,074 $101,874
======== ========
</TABLE>
Federal Home Loan Bank ("FHLB") advances are collateralized by FHLB stock
and first mortgage loans with an aggregate carrying value of $91,800,000 and
$89,250,000 at June 30, 1997 and December 31, 1996, respectively.
At June 30, 1997, scheduled payments on FHLB advances and reverse
repurchase agreements are as follows (In thousands):
<TABLE>
<CAPTION>
Year Weighted Average
ENDED AMOUNT INTEREST RATE
----- ------- ----------------
<S> <C> <C>
1997 $45,200 5.99%
1998 15,000 5.40
1999 23,000 5.55
2001 3,000 6.15
------
$86,200 5.78
======
</TABLE>
8. 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 commitments 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
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<PAGE> 13
contractual amount of these 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, 1997, the Bank had fixed and variable rate commitments to
originate and/or purchase loans (at market rates) of approximately $17,878,000
and $49,695,000, respectively. Metropolitan's commitments to originate and
purchase loans are for loans with rates ranging from 6.375% to 16% and
commitment periods up to one year. In addition, the Bank has firm commitments to
sell loans totalling $3,533,000 and optional commitments to sell loans totalling
$3,225,000.
At June 30, 1997 and December 31, 1996, the Bank had outstanding options which
gave the holder the option to purchase certain loans at a specified price within
a specified time period. The Bank collected a non-refundable fee on each option
which is recognized as income at the time the transaction is complete. At June
30, 1997, loans with a carrying value of $3,225,000 were held for sale in
connection with outstanding purchase options. At December 31, 1996, loans with a
carrying value of $6,409,841 were held for sale in connection with an
outstanding purchase options. The options may be exercised at the carrying value
for an initial period. The option price escalates after the initial period until
the option expires.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 and gains or losses
from sales of loans and securities. From time to time, Metropolitan engages in
certain transactions aimed at increasing its non-interest income such as 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. The average balances of mortgage-backed
securities are presented at historical cost.
14
<PAGE> 15
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
--------------------------- ------------------------------
(Dollars in thousands)
Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $682,625 $ 15,124 8.86% $554,494 $ 11,867 8.56%
Mortgage-backed securities
available for sale 68,706 1,119 6.51 38,857 651 6.70
Other 15,670 249 6.36 26,572 435 6.55
-------- -------- -------- --------
Total interest-earning
assets 767,001 16,492 8.60 619,923 12,953 8.36
-------- --------
Nonearning assets 39,967 34,020
-------- --------
Total assets $806,968 $653,943
======== ========
Interest-bearing liabilities:
Deposits $627,070 8,351 5.34 $521,607 6,798 5.23
Other borrowings 98,925 1,618 6.56 61,626 1,018 6.63
-------- -------- -------- --------
Total interest-bearing
liabilities 725,995 9,969 5.51 583,233 7,816 5.38
-------- --------
Noninterest-bearing
liabilities 49,337 44,406
Shareholders' equity 31,636 26,304
-------- --------
Total liabilities and
shareholders' equity $806,968 $653,943
======== ========
Net interest income $ 6,523 $ 5,137
======== ========
Interest rate spread 3.09% 2.98%
Net interest margin 3.40% 3.31%
Average interest-earning
assets to average
interest-bearing
liabilities 105.65% 106.29%
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
--------------------------- ------------------------------
(Dollars in thousands)
Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $673,497 $ 29,985 8.90% $538,347 $ 23,323 8.66%
Mortgage-backed securities
available for sale 65,027 2,129 6.55 38,301 1,265 6.61
Other 16,464 501 6.09 21,720 683 6.29
------- ------- ------- -------
Total interest-earning
assets 754,988 32,615 8.64 598,368 25,271 8.45
------- -------
Nonearning assets 43,349 36,781
------- -------
Total assets $798,337 $635,149
======= =======
Interest-bearing liabilities:
Deposits $616,606 16,281 5.32 $507,053 13,345 5.31
Other borrowings 104,350 3,373 6.52 61,624 2,104 6.89
------- ------- ------- -------
Total interest-bearing
liabilities 720,956 19,654 5.50 568,677 15,449 5.48
------- -------
Noninterest-bearing
liabilities 46,209 40,480
Shareholders' equity 31,172 25,992
------- -------
Total liabilities and
shareholders' equity $798,337 $635,149
======= =======
Net interest income $ 12,961 $ 9,822
======= ======
Interest rate spread 3.14% 2.97%
Net interest margin 3.43% 3.28%
Average interest-earning
assets to average
interest-bearing
liabilities 104.72% 105.22%
</TABLE>
16
<PAGE> 17
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>
Three Months ended June 30,
1997 vs. 1996
Increase (Decrease)
---------------------------------
Change Change
Total Due to Due to
Change Volume Rate
------ ------ ----
(In thousands)
<S> <C> <C> <C>
INTEREST INCOME ON:
Loans receivable $ 3,257 $ 2,829 $ 428
Mortgage-backed securities 468 486 (18)
Other (186) (174) (12)
----- ----- ---
Total interest income 3,539 $ 3,141 $ 398
----- ===== ===
INTEREST EXPENSE ON:
Deposits 1,553 1,375 178
Other borrowings 600 617 (17)
----- ----- ---
Total interest expense 2,153 1,992 161
----- ===== ===
Increase in net interest income $ 1,386
=====
</TABLE>
<TABLE>
<CAPTION>
Six Months ended June 30,
1997 vs. 1996
Increase (Decrease)
---------------------------------
Change Change
Total Due to Due to
Change Volume Rate
------ ------ ----
(In thousands)
INTEREST INCOME ON:
<S> <C> <C> <C>
Loans receivable $ 6,662 $ 6,000 $ 662
Mortgage-backed securities 864 875 (11)
Other (182) (161) (21)
----- ----- ---
Total interest income 7,344 $ 6,714 $ 630
----- ===== ===
INTEREST EXPENSE ON:
Deposits 2,936 2,893 43
Other borrowings 1,269 1,375 (106)
----- ----- ----
Total interest expense 4,205 4,268 (63)
----- ===== ====
Increase in net interest income $ 3,139
=====
</TABLE>
17
<PAGE> 18
RESULTS OF OPERATIONS
Net Income. Net income increased 49.5% to $1.3 million for the three months
ended June 30, 1997 as compared to $865,000 for the second quarter, 1996. Net
interest income and non-interest income increased $1.4 million and $141,000
respectively over the prior year period. These increases were partially offset
by increases in both provision for loan losses and non-interest expense of
$206,000 and $646,000 respectively for the second quarter.
Net income for the six month period ending June 30, 1997 increased 58.3% to $2.5
million from $1.6 million for the prior year period. This increase was the
result of increases in net interest income of $3.1 million and non-interest
income of $145,000. These increases were partially offset by increases in
provision for loan losses of $484,000 and non-interest expense of $1.4 million.
Metropolitan's net interest margin increased nine basis points to 3.40% for the
three month period ended June 30, 1997 as compared to 3.31% for the same period
in 1996, primarily because the increased yield of interest earning assets
exceeded the increased cost of interest-bearing liabilities. For the six month
period ending June 30, 1997, net interest margin increased 15 basis points to
3.43% from 3.28% largely as a result of the increased yield on interest earning
assets and a relatively stable cost paid on deposits and borrowings.
Interest Income. Total interest income increased 27.3% and 29.1% to $16.5
million and $32.6 million in the three and six month periods ended June 30,
1997, respectively, as compared to $13.0 million and $25.3 million in the same
periods in 1996. This increase primarily resulted from a 23.7% and 26.2%
increase in average interest-earning assets in the three and six month periods
ended June 30, 1997. Increased loans and their related higher yields were the
primary reason for the increase. The average balance of loans increased $128.1
million and $135.2 million for the two periods, respectively, which was a result
of Metropolitan's consistent strategy of increasing assets as long as quality
loans with acceptable yield and term characteristics are available. The weighted
average yield on interest-earning assets increased to 8.60% and 8.64% during the
three and six month periods ended June 30, 1997, respectively, as compared to
8.36% and 8.45% during the same periods in 1996.
Interest Expense. Total interest expense increased 27.6% and 27.2% to $10.0
million and $19.7 million for the three and six month periods ended June 30,
1997, respectively, as compared to $7.8 million and $15.4 million for the same
periods in 1996. Interest expense increased due to a higher average balance of
interest-bearing liabilities outstanding for the three and six month periods
ending June 30, 1997 compared to the same periods in 1996. In
18
<PAGE> 19
accordance with Metropolitan's strategy to fund its growth in assets
primarily with deposits, the average balance of deposit accounts increased
$105.5 million, or 20.2%, during the three months ended June 30, 1997 compared
to 1996, and increased $109.6 million, or 21.6%, during the six months ended
June 30, 1997 compared to 1996.
Due to an increase in the market interest rates paid for deposits and the
changing mix of other borrowings, Metropolitan's cost of funds increased to
5.51% for the second quarter and 5.50% for the six months ended June 30, 1997 as
compared to 5.38% and 5.48% in the same periods in 1996.
Provision for Loan Losses. The provision for loan losses increased $206,000 and
$484,000 in the three and six month periods ended June 30, 1997, respectively.
While net charge-offs to average loans for the six months ended June 30, 1997
were only 0.06%, management increased the provision for loan losses due to
continued loan growth. Non-performing loans as a percentage of total loans
declined to 0.34% at June 30, 1997, as compared to 0.80% at December 31, 1996.
The allowance for losses on loans at June 30, 1997 was $5.2 million or 0.74% of
total loans, as compared to $4.2 million, or 0.64% of total loans, at December
31, 1996. 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, an analysis of impaired loans, economic conditions affecting real
estate markets, regulatory considerations, and other matters.
Non-Interest Income. Total non-interest income increased 16.7% and 8.2% to $1.0
million and $1.9 million in the three and six months ended June 30, 1997 as
compared to $842,000 and $1.8 million in the same periods in 1996. The following
table sets forth Metropolitan's non-interest income for the periods indicated:
<TABLE>
<CAPTION>
Three Months ended June 30, Six Months ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Loan servicing income, net $ 309 $ 319 604 $ 633
Gain on sale of loans 146 (67) 212 36
Loan option income 75 298 123 406
Gain on sale of securities, net 89
Other operating income 453 292 881 689
--- --- --- -----
Total $ 983 $ 842 $1,909 $1,764
=== === ===== =====
</TABLE>
Net loan servicing income decreased 3.1% to $309,000 in the three month period
ended June 30, 1997 and 4.6% to $604,000 for the six month period ended June 30,
1997 as compared to the same periods in 1996. The main reason for this decline
was the reduction in the portfolio being serviced for others to $1,064,000,000
from $1,136,000,000 at June 30, 1996. This decrease was due to the normal runoff
experienced in the loan portfolio over the past
19
<PAGE> 20
year. Metropolitan remains committed to this line of business and continues to
evaluate new acquisitions. 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 $146,000 and $212,000 in the three and six month
periods ended June 30, 1997, as compared to $(67,000) and $36,000 during the
same periods in 1996. This income was dependent upon 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.
As such, the primary reason for the gain in the second quarter, 1997 was the
sale of a multifamily loan held for sale resulting in a gain of $93,000. Other
loan sales comprised the remaining portion of this amount. The loss that was
incurred in the second quarter, 1996 was the result of loan sales made in a
rising interest rate environment.
Loan option income was $75,000 and $123,000 in the three and six month periods
ended June 30, 1997, respectively, as compared to $298,000 and $406,000 in each
of the same periods in 1996. This income was dependent upon the amount of loans
for which options were written and the price negotiated, both of which are
affected by market conditions. In these transactions, Metropolitan purchased
loans and sold nonrefundable options to a third party to purchase these same
loans at a later date. At the time the transaction is complete, Metropolitan
recognizes a non-refundable fee in income.
Net gain on sale of securities in the six months ended June 30, 1997 was
$89,000. This gain was the result of the sale of $5.0 million of Federal
National Mortgage Association ("FNMA") preferred stock and the sale of $6.0
million of U.S. Treasury Notes from the liquidity portfolio.
Other noninterest income increased $161,000 and $192,000 in the three and the
six month periods ended June 30, 1997, compared to the same periods in the
previous year. This increase was primarily due to increased fee income earned on
investment services, rental income at retail sales office locations, and various
fee income from consumer checking, commercial checking, and credit cards due to
increased business levels.
20
<PAGE> 21
Non-Interest Expense. Total non-interest expense increased to $4.9 million and
$9.7 million in the three and six month periods ended June 30, 1997,
respectively, as compared to $4.2 million and $8.4 million for the same periods
in 1996. The following table sets forth Metropolitan's non-interest expense for
the periods indicated:
<TABLE>
<CAPTION>
Three Months ended June 30, Six Months ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Salaries and related personnel costs $ 2,543 $ 2,023 $ 5,220 $4,072
Occupancy and equipment expense 740 553 1,432 1,125
Federal deposit insurance premiums 148 331 288 640
Data processing expense 126 147 269 295
Marketing expense 179 158 310 284
State franchise tax 155 114 310 232
Amortization of intangibles 65 55 131 110
Other operating expenses 920 849 1,783 1,605
----- ----- ----- -----
Total $ 4,876 $ 4,230 $ 9,743 $ 8,363
===== ===== ===== =====
</TABLE>
Personnel related expenses increased $520,000 and $1.1 million, which
represented 80.5% and 83.2% of the increase in total non-interest expense in the
three and six month periods ended June 30, 1997, respectively, over the same
periods in 1996. The increase was primarily a result of having two additional
full service retail sales offices open in the 1997 periods, incentive payments
for loan production, and the addition to staff in various departments.
Occupancy costs increased $187,000 and $307,000, in the three and six month
periods ended June 30, 1997, respectively, over the same periods in 1996. These
increases are generally the result of additional full service retail sales
offices, remodeling of certain other retail sales offices, and expanded space at
the corporate headquarters office.
Federal deposit insurance premium expense decreased $183,000 and $412,000 in the
three and six month periods ending June 30, 1997 as compared to the same periods
in 1996. These declines in expense are the result of reductions in assessment
rates made possible by the recapitalization of the Savings Association Insurance
Fund which occurred in September, 1996.
Other operating expenses, which include miscellaneous general and administrative
costs such as loan servicing, loan processing costs, business development, check
processing and ATM expenses, increased $71,000 and $178,000, in the three and
six month periods ended June 30, 1997, respectively, over the same periods in
1996. This increase was generally the result of increases in legal and
accounting fees and credit card fees.
21
<PAGE> 22
Provision for Income Taxes. The provision for income taxes increased $247,000
and $497,000 for the three and six month periods ended June 30, 1997,
respectively as compared to the same periods in 1996. The primary reason for the
increase in the provision was the increased levels of income over the prior
year.
ASSET QUALITY
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 collectability 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.
22
<PAGE> 23
The table below provides information concerning Metropolitan's non-performing
assets and the allowance for losses on loans as of the dates indicated. All
loans classified by management as impaired were also classified as
non-performing.
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Non-accrual loans $2,032 $4,923
Loans past due greater than
90 days or impaired, still accruing 340 271
----- -----
Total non-performing loans 2,372 5,194
Real estate owned 1,999 177
----- -----
Total non-performing assets $4,371 $5,371
===== =====
Allowance for losses on loans $5,155 $4,175
===== =====
Non-performing loans to total loans 0.34% 0.80%
Non-performing assets to total assets 0.53% 0.70%
Net charge-offs to average loans 0.06%(1) 0.04%
Provision for loan losses to
average loans 0.35%(1) 0.28%
Allowance for losses on loans to
total non-performing loans at
end of period 117.94% 77.73%
Allowance for losses on loans to
total loans at end of period 0.74% 0.64%
<FN>
(1) Annualized for comparative purposes.
</TABLE>
Non-performing assets at June 30, 1997 decreased $1.0 million, or 18.6% to $4.4
million as compared to $5.4 million at December 31, 1996. The primary reason for
this decline was the full recovery at sheriff's sale on one commercial real
estate loan for approximately $952,000.
Non-performing loans include $520,000 and $3.5 million of loans at June 30, 1997
and December 31, 1996, respectively, considered by management to be impaired.
The circumstances and trends associated with these loans have been included in
management's consideration of the adequacy of the allowance for losses on loans.
FINANCIAL CONDITION
Total assets amounted to $821.3 million at June 30, 1997, as compared to $769.1
million at December 31, 1996, an increase of $52.2 million, or 6.8%. The
increase in assets was funded primarily with deposit growth of $42.5 million.
Securities available for sale decreased $6.5 million, or 49.5%, to $6.7 million.
The decline was primarily due to the sale of $6.0 million of U.S. Treasury notes
in the first quarter.
Mortgage-backed securities increased $10.6 million, or 18.7%, to $67.3 million
compared to December 31, 1996. The increase was due to the purchase of $10.4
million of Federal Home Loan Mortgage Corporation ("FHLMC") securities to
23
<PAGE> 24
meet regulatory liquidity requirements and the securitization of $5.4 million of
originated mortgage loans, also with FHLMC.
Loans receivable, including loans held for sale, increased $42.8 million, or
6.6% to $689.2 million at June 30, 1997. This increase was consistent with
Metropolitan's overall strategy of increasing assets while adhering to prudent
underwriting standards and preserving its adequately capitalized status.
Real estate owned increased from $177,000 to $2.0 million from December 31, 1996
to June 30, 1997. This increase was the result of the foreclosures of one retail
strip shopping center and one office condominium complex during the six month
period ended June 30, 1997.
Prepaid expenses and other assets increased $1.7 million, or 35.6%, from
December 31, 1996 to June 30, 1997. This increase was primarily the result of a
$1.0 million limited partnership investment in mortgage servicing and a
$344,000 increase in prepaid expenses.
Deposits totalled $664.6 million at June 30, 1997, an increase of $42.5 million,
or 6.8%, over the balance at December 31, 1996. The increase resulted from
management's marketing efforts, continued growth at newer retail sales offices,
and increased custodial checking balances.
Other liabilities increased $6.5 million or 95.6% from December 31, 1996 to
June 30, 1997. The increase was the result of funds held on behalf of mortgage
customers for payment of real estate taxes and hazard insurance and increased
escrow balances due to greater funding loan volume.
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 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%. The Bank's liquidity ratio for June 1997 was
5.75%. 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.
The Corporation's primary use of funds is for interest payments on
24
<PAGE> 25
its existing debt. At June 30, 1997, the Corporation, excluding the Bank, had
cash and readily convertible investments of $2.2 million.
Metropolitan's liquidity, represented by cash equivalents, is a result of its
operating, investing, and financing activities. These activities are summarized
as follows (In thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Net cash provided(used for) by
operating activities $ 10,164 $ (8,449)
Net cash used for investing
activities (57,154) (82,585)
Net cash provided by
financing activities 45,623 85,206
-------- --------
Net change in cash and
cash equivalents (1,367) (5,828)
Cash and cash equivalents
at beginning of period 16,522 18,170
-------- --------
Cash and cash equivalents
at end of period $ 15,155 $ 12,342
======== ========
</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 six months ended
June 30, 1997 and 1996, net cash was used in investing activities, primarily to
fund and purchase new loans.
Cash provided from financing activities consists primarily of increased deposits
but also includes wholesale borrowings like FHLB advances and reverse repurchase
agreements.
At June 30, 1997, $69.6 million, or 10.5%, 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.
Metropolitan's total deposits also have increased due to the acceptance of
out-of-state time deposits from individuals and entities, predominantly credit
unions. Of the total certificate of deposit balance, $75.3 million, or 11.3% of
Metropolitan's total deposits were held by these individuals and
25
<PAGE> 26
entities. Of that amount, $8.1 million were in the form of certificates of
deposit of $100,000 and over. These deposits typically have balances of $90,000
to $100,000, a term of one year or more, and are not accepted through brokers.
Metropolitan has access to wholesale borrowings based on the availability of
eligible collateral. The FHLB makes funds available for housing finance based
upon the blanket or specific pledge of certain one- to four-family loans and
various types of investment and mortgage-backed securities. The Bank had
borrowing capacity at the FHLB under its blanket pledge agreement of
approximately $81.8 million at June 30, 1997, of which $61.2 million was
utilized. The financial market makes funds available through reverse repurchase
agreements by accepting various investment and mortgage-backed securities as
collateral. The Bank had borrowing capacity for reverse repurchase agreements of
approximately $44.2 million at June 30, 1997, of which $25.0 was utilized.
Capital. The Office of Thrift Supervision ("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 Bank's regulatory capital ratios at June 30, 1997 were in excess of the
capital requirements specified by OTS regulations as shown by the following
table:
<TABLE>
<CAPTION>
Tangible Capital Core Capital Risk-based Capital
---------------- ------------ ------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Capital amount
Actual $44,938 5.52% $45,319 5.56% $49,259 8.36%
Required 12,220 1.50 32,603 4.00 47,163 8.00
------ ------ ------
Excess $32,718 4.02% $12,716 1.56% $ 2,096 0.36%
====== ====== ======
</TABLE>
Metropolitan anticipates that under the current regulations, the Bank will
continue to meet its minimum capital requirements in the foreseeable future. The
Corporation maintains a $4.0 million line of credit with the Huntington National
Bank which it could access to make future contributions to the capital of the
Bank. At June 30, 1997, there was no outstanding balance under the line of
credit. However, events beyond the control of the Bank, such as increased
interest rates or a downturn in the economy, could adversely affect future
earnings and consequently, the ability of the Bank to meet its future capital
requirements.
26
<PAGE> 27
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
principal strategy used by Metropolitan to manage interest rate risk has been to
build a portfolio of adjustable rate interest-earning assets.
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) the sale of 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 result in loans with
generally 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.
Presented below, as of June 30, 1997 and December 31, 1996, is an analysis of
Metropolitan's interest rate risk measured using Net Portfolio Value ("NPV")
methodology. Generally, NPV is the discounted present value of the difference
between incoming cash flows on interest-earning assets and outgoing cash flows
on interest-bearing and other liabilities. 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>
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
Changes in
Interest Rate Board Limit Change in % Change Change in % Change
(basis points) % Change NPV in NPV NPV in NPV
- ------------- ----------- --------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+400 (75)% $(25,647) (39)% $(26,596) (44)%
+300 (50) (20,582) (31) (19,790) (33)
+200 (25) (12,137) (19) (12,853) (21)
+100 (10) (5,815) (9) (6,302) (10)
-100 (10) 5,420 8 6,294 10
-200 (25) 11,686 18 14,644 24
-300 (50) 21,883 33 26,402 44
-400 (75) 35,629 54 40,742 68
</TABLE>
27
<PAGE> 28
As illustrated in the table, Metropolitan's NPV is unfavorably affected in the
rising rate scenarios. This occurs principally because the interest 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.
At June 30, 1997 and December 31, 1996, the Bank was within the Board
established limits for various changes in interest rates and the Bank's
level of sensitivity to rising rates is relatively unchanged.
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, 1997, The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for the reporting
and presentation of comprehensive income and its components in a full set of
financial statements. The purpose of reporting comprehensive income is to
report a measure of all changes in equity that result from recognized
transactions and other economic events of the period other than transactions
with owners. This Statement is effective for fiscal years beginning after
December 15, 1997. The Corporation expects SFAS No. 130 to have no effect on
its financial position other than changes in financial presentation
classifications.
28
<PAGE> 29
Also in June, 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
presentation of information about operating segments in financial statements
including interim financial statements to shareholders. Under SFAS No. 131,
financial information is to be reported on the basis that it is used internally
for evaluating segment performance and asset allocation. This Statement is
effective for fiscal years beginning after December 15, 1997. Similar to SFAS
No. 130, the Corporation expects SFAS No. 131 to have no effect on its financial
position other than changes in financial presentation classifications.
In March 1997, FASB issued SFAS No. 128, "Earnings Per Share." SFAS No. 128
simplifies the calculation of earnings per share ("EPS") by replacing primary
EPS with basic EPS. Basic EPS includes no dilution and is computed by dividing
net income by weighted average shares outstanding. SFAS No. 128 is effective
for financial statements for both interim and annual reports ending after
December 15, 1997. The Corporation expects SFAS No. 128 to have no effect on
its earnings per share calculation, other than changing terminology.
Effective January 1, 1997, Metropolitan adopted the provisions of 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 extinguishments 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 extinguishments
of liabilities occurring after December 31, 1996 applied prospectively. SFAS No.
125 supersedes SFAS No. 122, "Accounting for Mortgage Servicing Rights." SFAS
No. 125 expands the requirements of SFAS No. 122 by introducing the concept of
adequate compensation into the determination of the value of the servicing
assets. Adoption of SFAS No. 125 has not materially effected the comparability
of results among years.
29
<PAGE> 30
PART II. OTHER INFORMATION
Items 1,2,3, and 5 are not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of the shareholders of Metropolitan Financial Corp. was
held on May 20, 1997, at 11:00 (the "Annual Meeting") at 6001 Landerhaven
Drive, Mayfield Heights, Ohio.
(b) At the Annual Meeting, the shareholders of Metropolitan considered and
voted upon proposals to (i) elect Lois K. Goodman, Marguerite B. Humphrey, and
Alfonse M. Mattia as directors of Metropolitan to serve for the term expiring
at the Annual Meeting of Shareholders to be held in the year 2000, and (ii) to
ratify the appointment of Crowe, Chizek, and Company LLP as independent
auditors for the fiscal year ending December 31, 1997. The shares represented
at the Annual Meeting in person or by proxy were voted as follows with respect
to each of the proposals:
<TABLE>
<CAPTION>
PROPOSAL FOR AGAINST WITHHELD NON-
VOTES
<S> <C> <C> <C> <C>
Election of Directors
Lois K. Goodman 3,479,830 0 4,700 41,105
Marguerite B. Humphrey 3,479,830 0 4,700 41,105
Alfonse M. Mattia 3,479,830 0 6,700 41,105
PROPOSAL FOR AGAINST ABSTENTIONS NON-
VOTES
Ratification of
appointment of Crowe,
Chizek and Company LLP 3,477,895 4,000 2,635 41,105
</TABLE>
30
<PAGE> 31
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit
Number Description
------ -----------
3.1 Amended and Restated Articles of Incorporation of Metropolitan
Financial Corp. (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. (filed as Exhibit 3 to Metropolitan's Form 8-A
filed October 15, 1996 and incorporated herein by reference).
27 Financial Data Schedule(1)
b. Reports on Form 8-K - No reports on Form 8-K were filed by
Metropolitan during the first six months of 1997.
(1) Filed only in electronic format pursuant to item 601(b)(27) of
Regulation S-K.
31
<PAGE> 32
METROPOLITAN FINANCIAL CORP.
SIGNATURES
Pursuant to the requirements of Sections 13 and 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
METROPOLITAN FINANCIAL CORP.
By: /s/ David G. Lodge
---------------------------------------
David G. Lodge,
President (principal financial
and accounting officer)
Date: August 14, 1997
32
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
METROPOLITAN FINANCIAL CORP. JUNE 30, 1997 FORM 10-Q INCLUDING THE CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION CONSOLIDATED STATEMENTS OF OPERATIONS,
CONSOLIDATED STATEMENTS OF CASH FLOWS, AND THE ACCOMPANYING NOTES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 13,875
<INT-BEARING-DEPOSITS> 1,280
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 73,941
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 694,373
<ALLOWANCE> 5,155
<TOTAL-ASSETS> 821,280
<DEPOSITS> 664,564
<SHORT-TERM> 45,200
<LIABILITIES-OTHER> 19,150
<LONG-TERM> 59,974
<COMMON> 0
0
0
<OTHER-SE> 32,492
<TOTAL-LIABILITIES-AND-EQUITY> 821,280
<INTEREST-LOAN> 29,985
<INTEREST-INVEST> 2,630
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 32,615
<INTEREST-DEPOSIT> 16,281
<INTEREST-EXPENSE> 19,654
<INTEREST-INCOME-NET> 12,961
<LOAN-LOSSES> 1,170
<SECURITIES-GAINS> 89
<EXPENSE-OTHER> 9,743
<INCOME-PRETAX> 3,957
<INCOME-PRE-EXTRAORDINARY> 3,957
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,504
<EPS-PRIMARY> .71
<EPS-DILUTED> .71
<YIELD-ACTUAL> 3.43
<LOANS-NON> 2,032
<LOANS-PAST> 340
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 944
<ALLOWANCE-OPEN> 4,175
<CHARGE-OFFS> 195
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 5,155
<ALLOWANCE-DOMESTIC> 5,155
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
