================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 MARCH 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
------------------------
COMMISSION FILE NUMBER 000-25141
------------------------
METROCORP BANCSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0579161
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
9600 BELLAIRE BOULEVARD, SUITE 252
HOUSTON, TEXAS 77036
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
(713) 776-3876
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $1.00 per share
(TITLE OF CLASS)
------------------------
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 May 4, 2000, the number of outstanding shares of Common Stock was
6,944,566.
================================================================================
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS.
METROCORP BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents:
Cash and due from banks......... $ 31,659 $ 29,945
Federal funds sold and other
temporary investments......... 24,387 6,471
------------ ------------
Total cash and cash
equivalents............. 56,046 36,416
Investment securities
available-for-sale, at fair
value.............................. 79,729 74,959
Investment securities
held-to-maturity, at amortized
cost............................... 34,306 35,106
Loans, net........................... 483,222 488,132
Premises and equipment, net.......... 7,730 8,106
Accrued interest receivable.......... 3,592 3,855
Deferred income taxes................ 6,595 6,477
Due from customers on acceptances.... 1,786 831
Other real estate and repossessed
assets, net........................ 461 490
Other assets......................... 5,845 6,217
------------ ------------
Total assets............... $679,312 $660,589
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing............. $101,690 $ 96,253
Interest-bearing................ 458,552 448,183
------------ ------------
Total deposits............. 560,242 544,436
Other borrowings..................... 55,536 55,636
Accrued interest payable............. 864 1,558
Income taxes payable................. 1,361 --
Acceptances outstanding.............. 1,786 831
Other liabilities.................... 6,041 5,548
------------ ------------
Total liabilities.......... 625,830 608,009
------------ ------------
Commitments and contingencies........ -- --
Shareholders' equity:
Preferred stock, $1.00 par
value, 2,000,000 shares
authorized, none of which are
issued and outstanding........ -- --
Common stock, $1.00 par value,
20,000,000 shares authorized;
7,122,748 issued and 6,949,748
are outstanding at March 31,
2000.......................... 7,123 7,122
Additional paid-in capital........... 25,648 25,646
Retained earnings.................... 24,843 23,124
Accumulated other comprehensive
income............................. (2,761) (3,145)
Treasury stock, at cost......... (1,371) (167)
------------ ------------
Total shareholders'
equity.................. 53,482 52,580
------------ ------------
Total liabilities and
shareholders' equity.... $679,312 $660,589
============ ============
See accompanying Notes to Condensed Consolidated Financial Statements
2
<PAGE>
METROCORP BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
2000 1999
------- -------
Interest income:
Loans........................... $13,056 $10,299
Investment Securities:
Taxable....................... 1,615 1,680
Tax-exempt.................... 268 248
Federal funds sold and other
temporary investments......... 231 170
------- -------
Total interest income...... 15,170 12,397
------- -------
Interest expense:
Time deposits................... 4,238 3,295
Demand and savings deposits..... 1,063 927
Other borrowings................ 740 628
------- -------
Total interest expense..... 6,041 4,850
------- -------
Net interest income.................. 9,129 7,547
Provision for loan losses............ 699 1,010
------- -------
Net interest income after provision
for loan losses.................... 8,430 6,537
------- -------
Noninterest income:
Service charges on deposit
accounts...................... 872 1,018
Other loan-related fees......... 174 372
Letters of credit commissions
and fees...................... 125 102
Gain on sale of investment
securities, net............... -- 24
Other noninterest income........ 303 73
------- -------
Total noninterest income... 1,474 1,589
------- -------
Noninterest expense:
Employee compensation and
benefits...................... 3,235 2,703
Occupancy....................... 1,436 1,204
Other real estate, net.......... (32) 44
Data processing................. 42 207
Professional fees............... 519 178
Advertising..................... 96 130
Other noninterest expense....... 1,193 903
------- -------
Total noninterest
expense................. 6,489 5,369
------- -------
Income before provision for income
taxes.............................. 3,415 2,757
Provision for income taxes........... 1,278 896
------- -------
Net income........................... $ 2,137 $ 1,861
======= =======
Earnings per common share:
Basic........................... $ 0.30 $ 0.26
Diluted......................... $ 0.30 $ 0.26
Weighted average shares outstanding:
Basic........................... 7,014 7,095
Diluted......................... 7,014 7,095
See accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE>
METROCORP BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
2000 1999
--------- ---------
Net income........................... $ 2,137 $ 1,861
--------- ---------
Other comprehensive income (loss),
net of tax:
Unrealized gains (losses) on
investment securities, net:
Unrealized holding gains
(losses) arising during the
period....................... 384 (439)
Less: reclassification adjustment for
gains included in net income -- (16)
--------- ---------
Other comprehensive income
(loss)......................... 384 (455)
--------- ---------
Total comprehensive income...... $ 2,521 $ 1,406
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE>
METROCORP BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TREASURY
----------------- PAID-IN RETAINED COMPREHENSIVE STOCK,
SHARES AT PAR CAPITAL EARNINGS INCOME (LOSS) AT COST TOTAL
--------- ------ ---------- --------- ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999........... 7,005 $7,005 $ 24,569 $ 17,702 $ 748 -- $50,024
Issuance of common stock............. 100 100 916 -- -- -- 1,016
Repurchase of common stock........... -- -- -- -- -- -- --
Other comprehensive loss............. -- -- -- -- (455) -- (455)
Net income........................... -- -- -- 1,861 -- -- 1,861
Dividend payment..................... -- -- -- (426) -- -- (426)
--------- ------ ---------- --------- ------------- -------- -------
Balance at March 31, 1999............ 7,105 $7,105 $ 25,485 $ 19,137 $ 293 $ -- $52,020
========= ====== ========== ========= ============= ======== =======
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TREASURY
----------------- PAID-IN RETAINED COMPREHENSIVE STOCK,
SHARES AT PAR CAPITAL EARNINGS INCOME (LOSS) AT COST TOTAL
--------- ------ ---------- --------- ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000........... 7,102 $7,122 $ 25,646 $ 23,124 $(3,145) $ (167) $52,580
Issuance of common stock............. 1 1 2 -- -- -- 3
Repurchase of common stock........... (153) -- -- -- -- (1,204) (1,204)
Other comprehensive income........... -- -- -- -- 384 -- 384
Net income........................... -- -- -- 2,137 -- -- 2,137
Dividend payment..................... -- -- -- (418) -- -- (418)
--------- ------ ---------- --------- ------------- -------- -------
Balance at March 31, 2000............ 6,950 $7,123 $ 25,648 $ 24,843 $(2,761) $ (1,371) $53,482
========= ====== ========== ========= ============= ======== =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE>
METROCORP BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2000 1999
--------- ----------
Cash flows from operating activities:
Net income......................... $ 2,137 $ 1,861
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation.................... 551 513
Provision for loan losses....... 699 1,010
Gain on sales of securities,
net............................ -- (24)
Loss (gain) on sale of other
real estate.................... (39) 22
Deferred loan fees.............. 73 (150)
Deferred income taxes........... (315) (579)
Changes in:
Accrued interest receivable... 263 17
Accrued interest payable...... (694) 1,041
Other assets.................. 372 255
Other liabilities............. 502 489
Income taxes payable.......... 1,361 (175)
Net cash provided by
operating activities.... 4,910 4,280
--------- ----------
Cash flows from investing activities:
Purchases of investments
available-for-sale............. (5,058) (10,042)
Proceeds from sales, maturities
and principal paydowns of
investments
available-for-sale............. 869 5,062
Purchases of investments
held-to-maturity............... -- (1,857)
Proceeds from maturities and
principal paydowns of
investments held-to-maturity... 800 1,745
Net change in loans............. 2,909 (16,804)
Proceeds from sales of other
real estate.................... (1,297) 434
Purchases of premises and
equipment...................... (175) (524)
--------- ----------
Net cash used by investing
activities.............. 642 (21,986)
--------- ----------
Cash flows from financing activities:
Net change in:
Deposits........................ 15,806 (176)
Other borrowings................ (100) 10,573
Federal funds sold.............. -- --
Net proceeds from issuance of
common stock.................... 3 1,016
Treasury stock sold (purchased),
net............................. 1,204 --
Dividends paid..................... (427) (426)
--------- ----------
Net cash provided by
financing activities.... 14,708 10,987
--------- ----------
Net increase (decrease) in cash and
cash equivalents................... 19,630 (6,719)
Cash and cash equivalents at
beginning of period................ 36,416 35,893
--------- ----------
Cash and cash equivalents at end of
period............................. $ 56,046 $ 29,174
========= ==========
See accompanying Notes to Condensed Consolidated Financial Statements
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include the
accounts of MetroCorp Bancshares, Inc. (the "Company") and its wholly-owned
subsidiary MetroBank, National Association (the "Bank"). All material
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements were
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q. In the opinion of
management, the unaudited condensed consolidated financial statements reflect
all adjustments, consisting only of normal and recurring adjustments, necessary
to present fairly the Company's consolidated financial position at March 31,
2000, the Company's consolidated results of operations for the three months
ended March 31, 2000 and 1999, consolidated cash flows for the three months
ended March 31, 2000 and 1999 and consolidated changes in shareholders' equity
for the three months ended March 31, 2000 and 1999. Interim period results are
not necessarily indicative of results of operations or cash flows for a
full-year period. The 1999 year-end condensed consolidated balance sheet and
statement of changes in shareholders' equity data were derived from audited
financial statements, but do not include all disclosures required by generally
accepted accounting principles.
These financial statements and the notes thereto should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
December 31, 1999.
2. EARNING PER COMMON SHARE
Basic earnings per share ("EPS") is computed by dividing net income
available to common shareholders by the weighted-average number of common shares
outstanding during the period. Diluted EPS is computed by dividing net income
available to common shareholders by the weighted-average number of common shares
and potential dilutive common shares outstanding during the period. Potential
dilutive common shares are computed using the treasury stock method.
FOR THE THREE
MONTHS
ENDED MARCH 31,
------------------
2000 1999
------ ------
(IN THOUSANDS,
EXCEPT SHARE DATA)
Net income available to common
shareholders....................... $2,137 $1,861
====== ======
Weighted-average common shares
outstanding........................ 7,014 7,095
Potentially dilutive common shares
from options....................... -- --
------ ------
Weighted -- average common shares and
potentially diluted common
shares............................. 7,014 7,095
====== ======
Basic EPS............................ $ 0.30 $ 0.26
Diluted EPS.......................... $ 0.30 $ 0.26
3. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." ("SFAS No. 133"). SFAS No. 133 becomes
effective for reporting periods beginning after June 15, 2000, and will not be
applied retroactively. SFAS No. 133 establishes accounting and reporting
standards for derivatives instruments and hedging activities. Under the
standard, all derivatives must be measured at fair value and recognized as
either assets or liabilities in the financial condition. In addition, hedge
accounting should only be provided for transactions that meet certain specified
criteria. The accounting for changes in fair value (gains and losses) of a
derivative is dependent on the intended use of the derivative and its
designation. Derivatives may be used to: 1) hedge exposure to change the fair
value of a recognized asset or liability or from a commitment, referred to as a
fair value hedge, 2) hedge exposure to variable cash flow of forecasted
transactions, referred to as cash flow hedge, or 3) hedge foreign currency
exposure. Management is currently assessing the potential impact of SFAS No. 133
on future corporate operations.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Statements and financial discussion and analysis contained in this
Quarterly Report on Form 10-Q and documents incorporated herein by reference
that are not historical facts are forward-looking statements made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements describe the Company's future plans, strategies
and expectations, are based on assumptions and involve a number of risks and
uncertainties, many of which are beyond the Company's control. The important
factors that could cause actual results to differ materially from the results,
performance or achievements expressed or implied by the forward-looking
statements include, without limitation:
o Changes in interest rates and market prices, which could reduce the
Company's net interest margins, asset valuations and expense
expectations;
o Changes in the levels of loan prepayments and the resulting effects on
the value of the Company's loan portfolio;
o Changes in local economic and business conditions which adversely affect
the ability of the Company's customers to transact profitable business
with the Company, including the ability of borrowers to repay their loans
according to their terms or a change in the value of the related
collateral;
o Increased competition for deposits and loans adversely affecting rates
and terms;
o The Company's ability to identify suitable acquisition candidates;
o The timing, impact and other uncertainties of the Company's ability to
enter new markets successfully and capitalize on growth opportunities;
o Increased credit risk in the Company's assets and increased operating
risk caused by a material change in commercial, consumer and/or real
estate loans as a percentage of the total loan portfolio;
o The failure of assumptions underlying the establishment of and provisions
made to the allowance for loan losses;
o Changes in the availability of funds resulting in increased costs or
reduced liquidity;
o Increased asset levels and changes in the composition of assets and the
resulting impact on our capital levels and regulatory capital ratios;
o The Company's ability to acquire, operate and maintain cost effective and
efficient systems without incurring unexpectedly difficult or expensive
but necessary technological changes;
o The loss of senior management or operating personnel and the potential
inability to hire qualified personnel at reasonable compensation levels;
and
o Changes in statutes and government regulations or their interpretations
applicable to bank holding companies and our present and future banking
and other subsidiaries, including change in tax requirements and tax
rates.
All written or oral forward-looking statements attributable to the Company are
expressly qualified in their entirety by these cautionary statements.
8
<PAGE>
GENERAL. Net income for the quarters ended March 31, 2000 and 1999 was
$2.1 million and $1.9 million, respectively. The increase in net income was
primarily due to higher net interest income resulting from a greater volume of
loans and investment securities. Basic and diluted EPS for the three months
ended March 31, 2000 were $0.30, compared to $0.26 for the same period in 1999.
At March 31, 2000, total assets and net loans were $679.3
million and $483.2 million compared with $660.6 million and $488.1 million at
December 31, 1999. Total liabilities and total shareholders' equity at March 31,
2000 were $625.8 million and $53.5 million, compared with $608.0 million and
$52.6 million at December 31, 1999.
NET INTEREST INCOME. Net interest income for the quarter ended March 31,
2000 increased by $1.6 million or 20.9% to $9.1 million compared with $7.5
million for the same period in 1999. The increase was principally due to a $2.8
million increase in interest income on loans partially offset by an increase of
$1.2 million in interest expense on deposits and other borrowings. The increase
in the loan and securities portfolios, coupled with reduced interest expense,
resulted in improved net interest margins and net interest spreads which
increased from 5.43% to 5.91%, and from 4.51% to 5.04%, for the quarters ended
March 31, 1999 and 2000, respectively.
Interest income for the quarter ended March 31, 2000 increased to $15.2
million from $12.4 million for the same period in 1999. The increase was driven
by growth in the average loan portfolio of $70.4 million or 16.7% as well as an
increase in the yield on average loans, which increased to 10.60% for the three
months ended March 31, 2000, from 9.76% in the same period in 1999. The average
securities portfolio decreased by $8.8 million or 7.3%, while its yield rose 34
basis points from 6.34% in 1999 to 6.68% as of March 31, 2000 as a result of
change in the mix of the investment portfolio from agency securities into
mortgage-backed securities.
Interest expense increased $1.2 million to $6.1 million at March 31, 2000
compared with $4.9 million at March 31, 1999. The increase was the result of
higher interest paid on time deposits and improved funding efficiency resulting
from an $8.4 million or 9.4% increase in average noninterest-bearing deposits.
The Company views time deposits as a stable means of supporting loan growth. The
Company believes that based on its historical experience its large time deposits
have core-type characteristics. The Company anticipates that this source of
funding will continue to sustain a portion of the Company's assets growth in the
future.
9
<PAGE>
The following table presents 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. No tax-equivalent adjustments were made and all average
balances are yearly average balances. Non-accruing loans have been included in
the tables as loans having a zero yield.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------
2000 1999
----------------------------------- -----------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED YIELD/
BALANCE PAID RATE BALANCE PAID RATE
----------- --------- ------- ----------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Total loans..................... $ 492,472 $ 13,056 10.60% $ 422,111 $ 10,299 9.76%
Taxable securities.............. 91,100 1,615 7.09 103,020 1,680 6.52
Tax-exempt securities........... 21,653 268 4.95 18,582 248 5.34
Federal funds sold and other
temporary investments.............. 12,561 231 7.36 12,493 170 5.44
----------- --------- ----------- ---------
Total interest-earning assets........ 617,786 15,170 9.82% 556,206 12,397 8.92%
----------- --------- ----------- ---------
Less allowance for loan losses....... (7,870) (6,218)
----------- -----------
Total interest-earning assets, net of
allowance for loan losses.......... 609,916 549,988
Nonearning assets.................... 56,376 38,902
----------- -----------
Total assets............... $ 666,292 $ 588,890
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits..... $ 41,076 308 3.00% $ 32,761 $ 204 2.49%
Savings and money market accounts.... 93,459 755 3.23 97,257 723 2.97
Time deposits........................ 315,376 4,238 5.38 258,917 3,295 5.09
Federal funds purchased and
securities sold under repurchase
agreements......................... 47 1 5.99 25,000 306 4.90
Other borrowings..................... 55,561 739 5.32 26,345 322 4.89
----------- --------- ----------- ---------
Total interest-bearing liabilities... 505,519 6,041 4.78% 440,280 4,850 4.41%
--------- ---------
Noninterest-bearing liabilities:
Noninterest-bearing demand
deposits...................... 97,602 89,183
Other liabilities............... 10,463 7,520
Total liabilities.......... 613,584 536,983
----------- -----------
Shareholders' equity................. 52,708 51,907
----------- -----------
Total liabilities and shareholders'
equity............................. $ 666,292 $ 588,890
=========== ===========
Net interest income.................. $ 9,129 $ 7,547
========= =========
Net interest spread.................. 5.04% 4.51%
Net interest margin.................. 5.91% 5.43%
</TABLE>
10
<PAGE>
The following table presents the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase related
to higher outstanding balances and changes in interest rates. For purposes of
this table, changes attributable to both rate and volume have been allocated to
rate.
THREE MONTHS ENDED MARCH 31,
2000 VS. 1999
------------------------------
INCREASE (DECREASE)
DUE TO
-------------------
VOLUME RATE TOTAL
------- --------- ------
(IN THOUSANDS)
INTEREST-EARNING ASSETS:
Total loans..................... $(1,404) $ 4,161 $2,757
Securities...................... (248) 203 (45)
Federal funds sold and other
temporary investments......... (179) 240 61
------- --------- ------
Total increase (decrease)
in interest income...... (1,831) 4,604 2,773
INTEREST-BEARING LIABILITIES:
Interest-bearing demand
deposits...................... (105) 209 104
Savings and money market
accounts...................... (209) 241 32
Time deposits................... 45 898 943
Federal funds purchased......... (306) 1 (305)
Other borrowings................ 177 240 417
------- --------- ------
Total increase (decrease)
in interest expense..... (398) 1,589 1,191
------- --------- ------
Increase (decrease) in net interest
income............................. $(1,433) $ 3,015 $1,582
======= ========= ======
PROVISION FOR LOAN LOSSES. Provisions for loan losses are charged to
income to bring the Company's allowance for loan losses to a level deemed
appropriate by management. The March 31, 2000 quarter end provision for loan
losses decreased by $311,000 or 30.8% to $699,000 compared with the provision as
of March 31, 1999, as management has determined this amount is adequate to meet
the Company's historical loan loss experience and the current size and
composition of the loan portfolio.
NONINTEREST INCOME. Noninterest income for the quarters ended March 31,
2000 and 1999 was $1.5 million and $1.6 million, respectively. The majority of
the $115,000 decrease in noninterest income resulted from decreases in service
charges on deposit accounts and other loan related fees. The decrease in service
charges was due to higher average balances in deposit accounts for the first
quarter of 2000. No loan sales occurred in the quarter ended March 31, 2000;
therefore the loan related fees received were lower than prior year amounts. The
following table presents the major categories of noninterest income:
FOR THE THREE
MONTHS
ENDED MARCH 31,
------------------
2000 1999
------ ------
(IN THOUSANDS)
Service charges on deposit
accounts........................... $ 872 $1,018
Other loan-related fees.............. 174 372
Letters of credit commissions and
fees............................... 125 102
Gain on sale of investment
securities, net.................... -- 24
Other noninterest income............. 303 73
------ ------
Total noninterest income........ $1,474 $1,589
====== ======
NONINTEREST EXPENSE. For the quarters ended March 31, 2000 and 1999,
noninterest expense totaled $6.5 million and $5.4 million, respectively. The
$1.1 million or 20.82% increase was primarily due to higher employee benefits
and compensation, and occupancy expense related to the new branches opened in
late November 1999. The Company's efficiency ratio was 60.0% and 58.9% as of
March 31, 2000 and 1999, respectively. The relative stability in the efficiency
ratio over the last twelve months reflects the Company's continued efforts to
control operating expenses and gain other efficiencies through such means
11
<PAGE>
as upgrading its centralized computer systems. The following table presents the
major categories in noninterest expense:
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
2000 1999
--------- ---------
(IN THOUSANDS)
Employee compensation and benefits... $ 3,235 $ 2,703
Nonstaff expenses:
Occupancy....................... 1,436 1,204
Other real estate, net.......... (32) 44
Data processing................. 42 207
Professional, legal and
accounting fees............... 519 383
Advertising..................... 96 130
Director compensation........... 124 66
Printing and supplies........... 93 143
Telecommunications.............. 141 124
Other noninterest expense....... 835 365
--------- ---------
Total non-staff expenses...... 3,254 2,666
--------- ---------
Total noninterest expense..... $ 6,489 $ 5,369
========= =========
Employee compensation and benefits expense for the quarters ended March 31,
2000 and 1999 was $3.2 million and $2.7 million, respectively, reflecting an
increase of $500,000 or 18.5%. The increase in the first quarter 2000 resulted
primarily from the costs associated with a change in mix of professional versus
clerical employees and the establishment of the Boone Road (Houston) and Garland
(Dallas) branches, which opened in late November 1999. Total full-time
equivalent employees at March 31, 2000 and 1999 were 285 and 286, respectively.
Non-staff expenses for the quarter ended March 31, 2000 increased by
$588,000 or 22.0% to $3.2 million when compared with the same period in 1999.
The increase in the first quarter of 2000 was primarily due to an increase in
other noninterest expenses of $470,000. Of this amount there were operational
losses of $200,000 caused by fraudulent endorsements of several cashiers'
checks, increased business development expenses of $100,000, and various other
miscellaneous expenses. Professional fees increased $126,000 primarily due to
legal and professional fees associated with problem loan and other bank related
expenses. Occupancy expense is higher due to the increased number of operating
branches as well as the cost of technology upgrades in the branches. Director
compensation increased due to the monthly accruals made for year-end stock
bonuses which may be awarded to the Company's directors pursuant to the terms of
the Company's Non-Employee Director Stock Bonus Plan.
INCOME TAXES. The provision for income taxes as a percentage of net income
before taxes increased from 32.5% to 37.4% for the quarter ended March 31, 2000
as a result of higher taxable income and a reduction in nontaxable income
related to a decrease in the tax-exempt municipal securities portfolio.
FINANCIAL CONDITION
LOAN PORTFOLIO. Total loans decreased from $495.7 million at year-end
December 31, 1999 to $491.6 million at March 31, 2000. The $4.1 million or .8%
decline in total loans reflected the seasonality of loan demand as well as the
Company's increased efforts to acquire depository relationships with each
banking customer. At March 31, 2000 and December 31, 1999, the ratio of total
loans to total deposits was 90.96% and 88.05%, respectively. For the same
periods, total loans represented 75.80% and 73.12% of total assets,
respectively.
12
<PAGE>
The following table summarizes the loan portfolio of the Company by type of
loan:
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
------------------- -------------------
2000 1999
------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- -------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Commercial and industrial............ $297,383 59.87% $298,150 59.55%
Real estate mortgage
Residential.................... 10,683 2.15 10,934 2.18
Commercial..................... 121,981 24.56 126,363 25.24
Real estate construction
Residential..................... 11,112 2.24 11,348 2.27
Commercial...................... 29,870 6.01 28,661 5.72
Consumer and other................... 11,598 2.34 11,550 2.31
Factored receivables................. 14,049 2.83 13,700 2.74
-------- ------- -------- -------
Gross loans.......................... 496,676 100.00% 500,706 100.00%
-------- ======= -------- =======
Less: unearned discounts, interest
and deferred fees.................. (5,111) (5,037)
-------- --------
Total loans..................... $491,565 $495,669
======== ========
</TABLE>
NONPERFORMING ASSETS. Nonperforming assets at March 31, 2000 and December
31, 1999 were $4.2 million and $7.0 million, respectively. The decrease is due
to several loans which were paid off during the first quarter of 2000, as well
as the establishment of the Bank's Special Asset Department. This department
handles the identification and collection of potentially problem loans. Included
in the nonperforming assets are the portions guaranteed by the United States
Small Business Administration (the "SBA"), the Overseas Chinese Community
Guaranty Fund ("OCCGF") which is sponsored by the government of Taiwan, and
the Export Import Bank of the United States (the "Ex-Im Bank"), an agency of
the U.S. government, which were $1.6 million and $1.8 million at March 31, 2000
and December 31, 1999, respectively.
The following table presents information regarding nonperforming assets at
the periods indicated:
AS OF MARCH 31, AS OF DECEMBER 31,
2000 1999
--------------- ------------------
(IN THOUSANDS)
Nonaccrual loans..................... $ 3,741 $6,552
Accruing loans 90 days or more past
due................................ -- --
Other real estate.................... 461 490
--------------- --------
Total nonperforming
assets.................. $ 4,202 $7,042
=============== ========
Nonperforming assets to total loans
and other real estate.............. 0.85% 1.42%
Nonperforming assets to total
assets............................. 0.38% 0.78%
ALLOWANCE FOR LOAN LOSSES. For the quarter ended March 31, 2000, net loan
recoveries were $108,000 or 0.02% of average loans outstanding, compared with
charge offs of $4.1 million or 0.9% of average loans outstanding for the year
ended December 31, 1999. During the three months ended March 31, 2000, the
provision for loan losses decreased by $311,000 to $699,000 when compared with
the $1.0 million provision made for the first quarter in 1999. This decrease was
necessary to meet the Company's goal to maintain an overall allowance of 1.6% of
total loans for the year ended December 31, 2000. At March 31, 2000 and December
31, 1999, the allowance for loan losses aggregated to $8.3 million and $7.5
million, or 1.70% and 1.52% of total loans, respectively.
13
<PAGE>
The following table presents an analysis of the allowance for loan losses
and other related data:
AS OF MARCH 31, AS OF DECEMBER 31,
---------------- -------------------
2000 1999
---------------- -------------------
(IN THOUSANDS)
Average loans outstanding............ $497,553 $ 461,500
================ ===================
Total loans outstanding at end of
period............................. $496,676 $ 500,706
================ ===================
Allowance for loan losses at
beginning of period................ $ 7,537 $ 6,119
Provision for loan losses............ 699 5,550
Chargeoffs:
Commercial and industrial....... (342) (3,563)
Real estate -- mortgage......... -- (32)
Real estate -- construction..... -- --
Consumer and other.............. (103) (807)
---------------- -------------------
Total chargeoffs........... (445) (4,402)
---------------- -------------------
Recoveries:
Commercial and industrial....... 536 94
Real estate -- mortgage......... -- --
Real estate -- construction..... -- --
Consumer and other.............. 17 176
---------------- -------------------
Total recoveries........... 553 270
---------------- -------------------
Net loan chargeoffs.................. 108 (4,132)
---------------- -------------------
Allowance for loan losses at end of
period............................. $ 8,343 $ 7,537
================ ===================
Ratio of allowance to end of period
total loans........................ 1.70% 1.52%
Ratio of net loan chargeoffs to
average loans...................... (0.02) 0.90
Ratio of allowance to end of period
nonperforming loans................ 223.04 115.03
SECURITIES. At March 31, 2000, the securities portfolio totaled $114.0
million, reflecting a decrease of $4.0 million or 3.6% from $110.1 million for
the year ended December 31, 1999. The growth was due primarily to an increase in
fixed rate mortgage-backed securities which were funded by the sale of lower
yielding securities in the last quarter of 1999 and by the increased liquidity
from the successful deposit gathering program during the quarter ending March
31, 2000.
DEPOSITS. Total deposits for the first quarter of 2000 increased by $15.8
million or 2.9% to $560.2 million at March 31, 2000 from $544.4 million at March
31, 1999. The noninterest-bearing deposits on March 31, 2000 increased by $5.4
million or 5.6% to $101.7 million from $96.2 million at March 31, 1999. The
Company's ratios of noninterest-bearing demand deposits to total deposits for
March 31, 2000 and December 31, 1999 were 18.1% and 17.7%, respectively.
OTHER BORROWINGS. The Company has three ten-year loans totaling $30
million and one short-term loan for $25 million from the Federal Home Loan Bank
of Dallas ("FHLB") in an attempt to further leverage its balance sheet and
diversify its funding sources. The loans bear interest at the average rate for
the March 31, 2000 quarter of 4.82% and 5.98%. Other short-term borrowings
principally consist of U.S. Treasury tax note option accounts and have a
maturity of 14 days or less. Additionally, the Company had several unused,
unsecured lines of credit with correspondent banks totaling $17.0 million and
$12.0 million at March 31, 2000 and 1999, respectively.
CAPITAL RESOURCES. Shareholders' equity increased from $52.5 million at
December 31, 1999 to $53.4 million at March 31, 2000, an increase of $0.9
million or 1.7%. This increase was primarily due to net income of $2.1 million
for the quarter ended March 31, 2000, which was partially offset by the
repurchase of treasury stock for $1.2 million.
14
<PAGE>
The following table provides a comparison of the Company's and the Bank's
leverage and risk-weighted capital ratios as of March 31, 2000 to the minimum
and well-capitalized regulatory standards:
ACTUAL RATIO
MINIMUM WELL AT
REQUIRED CAPITALIZED MARCH 31, 2000
------- ----------- --------------
THE COMPANY
Leverage ratio.................. 4.00%(1) N/A 8.44%
Tier 1 risk-based capital
ratio......................... 4.00 N/A 11.10
Risk-based capital ratio........ 8.00 N/A 12.36
THE BANK
Leverage ratio.................. 4.00%(2) 5.00% 8.06%
Tier 1 risk-based capital
ratio......................... 4.00 8.00 10.60
Risk-based capital ratio........ 8.00 10.00 11.85
- ------------
(1) The Federal Reserve Board may require the Company to maintain a leverage
ratio of up to 100 basis points above the required minimum.
(2) The OCC may require the Bank to maintain a leverage ratio of up to 100 basis
points above the required minimum.
YEAR 2000 COMPLIANCE The Company suffered no failures of any system or
product through the end of the year 1999 and into the year 2000. During 2000,
the Company's Year 2000 project team will continue to monitor the Company's
computer systems and products and the Year 2000 compliance of the third parties
with which the Company transacts business in an attempt to identify any
potential problems.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes in the previously disclosed market risk
information in the Company's Form 10-K for the year ended December 31, 1999. See
Form 10-K, Item 7 "Management's Discussion and Analysis of Financial Condition
and Results of Operations "Interest Rate Sensitivity and Liquidity."
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
15
<PAGE>
ITEM 6A. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
11 -- Computation of Earnings Per Common Share, included as Note (2)
to Condensed Consolidated Financial Statements on Page 3 of
this Form 10-Q.
27 -- Financial Data Schedule. The required Financial Data Schedule
has been included as Exhibit 27 of the Form 10-Q filed
electronically with the Securities and Exchange Commission.
ITEM 6B. REPORTS ON FORM 8-K
Not applicable
16
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
METROCORP BANCSHARES, INC.
Date: May 15, 2000 By: /s/ DON J. WANG
----------------------------------------
DON J. WANG
CHAIRMAN OF THE BOARD AND PRESIDENT
Date: May 15, 2000 By: /s/ RUTH E. RANSOM
----------------------------------------
RUTH E. RANSOM
CHIEF FINANCIAL OFFICER
17
[EXHIBIT TO COME]
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 27,992
<INT-BEARING-DEPOSITS> 3,667
<FED-FUNDS-SOLD> 24,387
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 79,729
<INVESTMENTS-CARRYING> 34,306
<INVESTMENTS-MARKET> 34,332
<LOANS> 483,222
<ALLOWANCE> 8,343
<TOTAL-ASSETS> 679,312
<DEPOSITS> 560,242
<SHORT-TERM> 30,536
<LIABILITIES-OTHER> 10,052
<LONG-TERM> 25,000
0
0
<COMMON> 7,123
<OTHER-SE> 46,359
<TOTAL-LIABILITIES-AND-EQUITY> 679,312
<INTEREST-LOAN> 13,056
<INTEREST-INVEST> 1,883
<INTEREST-OTHER> 231
<INTEREST-TOTAL> 15,170
<INTEREST-DEPOSIT> 5,301
<INTEREST-EXPENSE> 6,041
<INTEREST-INCOME-NET> 9,129
<LOAN-LOSSES> 699
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,489
<INCOME-PRETAX> 3,415
<INCOME-PRE-EXTRAORDINARY> 3,415
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,137
<EPS-BASIC> 0.30
<EPS-DILUTED> 0.30
<YIELD-ACTUAL> 0
<LOANS-NON> 3,741
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,537
<CHARGE-OFFS> 445
<RECOVERIES> 553
<ALLOWANCE-CLOSE> 8,343
<ALLOWANCE-DOMESTIC> 5,830
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,513
</TABLE>
