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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998.
COMMISSION FILE NUMBER: 0-23790
-------------
METROBANCORP
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
INDIANA 35-1712167
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10333 N. MERIDIAN STREET, SUITE 111, INDIANAPOLIS, INDIANA 46290
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(317) 573-2400
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(Issuer's telephone number)
http://www.metb.com
- -------------------
(Issuer's Internet Website Address)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 1,765,308 Shares of Common Stock
Transitional Small Business Disclosure Format:
Yes No X
--- ---
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<PAGE>
METROBANCORP
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Condition
September 30, 1998 and December 31, 1997 3
Consolidated Statement of Operations
Three Months Ended September 30, 1998 and 1997 4
Consolidated Statement of Operations
Nine Months Ended September 30, 1998 and 1997 5
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBITS
2
<PAGE>
METROBANCORP
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CONDITION
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
09/30/98 12/31/97
---------- ----------
<S> <C> <C>
Assets
Cash and Due from Banks $ 7,757 $ 9,595
Federal Funds Sold 10,400 7,500
---------- ----------
Total Cash and Cash Equivalents 18,157 17,095
Investment Securities HTM - at Cost 3,217 9,519
Investment Securities AFS - at Market 30,893 18,518
---------- ----------
Total Investment Securities 34,110 28,037
Loans:
Gross Loans 81,113 77,295
Less: Allowance for Loan Losses (1,226) (998)
---------- ----------
Loans, Net 79,887 76,297
Premises and Equipment, Net 1,473 1,406
Accrued Interest Receivable 889 834
Core Deposit Intangible, Net 76 182
Deferred Tax Asset 369 419
Other Assets 397 448
---------- ----------
Total Assets $ 135,358 $ 124,718
========== ==========
Liabilities
Deposits:
Non-Interest Bearing Demand $29,780 $28,552
Interest Bearing:
Savings and NOW Accounts 45,866 40,500
Time Deposits of $100,000 and over 12,730 12,530
Other Time Deposits 32,739 29,652
---------- ----------
Total Deposits 121,115 111,234
Accrued Interest Payable 442 426
Other Liabilities 1,126 926
---------- ----------
Total Liabilities 122,683 112,586
---------- ----------
Commitments and Contingencies - -
Shareholders' Equity
Preferred Stock: 1,000,000 Shares Authorized; None Outstanding - -
Common Stock: 3,000,000 Shares Authorized;
1,765,308 Shares Issued and Outstanding 12,134 11,210
Accumulated Earnings 432 880
Net Unrealized Gain on Investment Securities AFS 109 42
---------- ----------
Total Shareholders' Equity 12,675 12,132
---------- ----------
Total Liabilities and Shareholders' Equity $ 135,358 $ 124,718
========== ==========
</TABLE>
See "Notes to Consolidated Financial Statements"
3
<PAGE>
METROBANCORP
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
09/30/98 09/30/97
----------- -----------
<S> <C> <C>
Interest Income
Interest and Fees on Loans $ 1,987 $ 1,850
Interest on Investment Securities 473 392
Interest on Federal Funds Sold 98 29
----------- -----------
Total Interest Income 2,558 2,271
Interest Expense
Interest on Deposits 1,118 971
Other Interest Expense - 4
----------- -----------
Total Interest Expense 1,118 975
----------- -----------
Net Interest Income 1,440 1,296
----------- -----------
Provision for Loan Losses 75 45
----------- -----------
Net Interest Income after Provision for Loan Losses 1,365 1,251
----------- -----------
Non-Interest Income
Service Charges on Deposit Accounts 95 79
Gain on Sale of Investment Securities - 1
Other Service Charges, Commissions and Fees 155 136
----------- -----------
Total Non-Interest Income 250 216
Non-Interest Expense
Salaries and Employee Benefits 488 466
Occupancy Expense 100 88
Equipment Expense 81 91
Advertising and Public Relations 60 59
Legal, Professional and Audit Services 47 41
Data Processing 76 69
Student Loan Servicing Fees 9 13
FDIC Insurance Assessment 3 8
Amortization of Core Deposit Intangible 35 35
Postage Expense 14 14
Telephone Expense 20 20
Other 171 196
----------- -----------
Total Non-Interest Expense 1,104 1,100
Income before Income Taxes 511 367
Applicable Income Taxes 200 150
=========== ===========
Net Income $ 310 $ 217
=========== ===========
Net Income per Common Share $ 0.18 $ 0.12
Net Income per Common Share - Assuming Dilution $ 0.17 $ 0.12
Weighted Average Shares Outstanding 1,765,308 1,765,308
Weighted Average Shares Outstanding - Assuming Dilution 1,838,145 1,819,496
</TABLE>
See "Notes to Consolidated Financial Statements"
4
<PAGE>
METROBANCORP
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------
09/30/98 09/30/97
----------- -----------
<S> <C> <C>
Interest Income
Interest and Fees on Loans $ 5,839 $ 5,233
Interest on Investment Securities 1,220 1,211
Interest on Federal Funds Sold 327 40
----------- -----------
Total Interest Income 7,386 6,484
Interest Expense
Interest on Deposits 3,204 2,754
Other Interest Expense - 32
----------- -----------
Total Interest Expense 3,204 2,786
----------- -----------
Net Interest Income 4,182 3,698
----------- -----------
Provision for Loan Losses 225 112
----------- -----------
Net Interest Income after Provision for Loan Losses 3,957 3,586
----------- -----------
Non-Interest Income
Service Charges on Deposit Accounts 262 234
Loss on Sale of Investment Securities (8) (15)
Other Service Charges, Commissions and Fees 439 432
----------- -----------
Total Non-Interest Income 693 651
Non-Interest Expense
Salaries and Employee Benefits 1,496 1,388
Occupancy Expense 307 247
Equipment Expense 253 272
Advertising and Public Relations 184 178
Legal, Professional and Audit Services 146 135
Data Processing 241 213
Student Loan Servicing Fees 29 56
FDIC Insurance Assessment 7 48
Amortization of Core Deposit Intangible 105 105
Postage Expense 41 42
Telephone Expense 62 63
Other 555 590
----------- -----------
Total Non-Interest Expense 3,426 3,337
Income before Income Taxes 1,224 900
Applicable Income Taxes 487 366
=========== ===========
Net Income $ 737 $ 534
=========== ===========
Net Income per Common Share $ 0.42 $ 0.30
Net Income per Common Share - Assuming Dilution $ 0.40 $ 0.30
Weighted Average Shares Outstanding 1,765,308 1,765,308
Weighted Average Shares Outstanding - Assuming Dilution 1,852,048 1,801,230
</TABLE>
See "Notes to Consolidated Financial Statements"
5
<PAGE>
METROBANCORP
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
09/30/98 09/30/97
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 737 $ 534
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Provision for Loan Losses 225 112
Depreciation and Amortization 314 326
Gain on Sale of Real Estate - (56)
Loss on Sale of Securities 8 15
(Increase)/Decrease in Accrued Interest Receivable (55) 4
Decrease in Other Assets 66 84
Increase in Accrued Interest Payable 16 152
Increase in Other Liabilities 200 262
---------- ----------
Total Adjustments 774 899
---------- ----------
Net Cash Flows Provided by Operating Activities 1,511 1,433
---------- ----------
Cash Flows from Investing Activities:
Proceeds from Maturities of Investment Securities Held to Maturity 6,520 57
Proceeds from Maturities of Investment Securities Available for Sale 7,873 -
Proceeds from Sales of Investment Securities Available for Sale 3,500 9,342
Purchases of Investment Securities Available for Sale (22,155) (6,861)
Purchases of Investment Securities Held to Maturity (1,717) 1,334
Proceeds from the Repayment of Student Loans 364 3,194
Net Loans Made to Customers (4,183) (15,216)
Purchases of Premises and Equipment (271) (340)
Proceeds from the Sale of Real Estate - 461
---------- ----------
Net Cash Flows Used in Investing Activities (10,069) (8,029)
---------- ----------
Cash Flows from Financing Activities:
Net Increase in DDA, NOW and Savings Accounts 6,594 3,350
Net Increase in Time Deposits 3,287 3,596
Net Decrease in Securities Sold Under Agreements to Repurchase - (1,500)
Cash Dividends Paid (261) (252)
---------- ----------
Net Cash Flows Provided by Financing Activities 9,620 5,194
---------- ----------
Net Increase/(Decrease) in Cash and Cash Equivalents 1,062 (1,402)
Cash and Cash Equivalents at Beginning of Period 17,095 13,775
---------- ----------
Cash and Cash Equivalents at End of Period $ 18,157 $ 12,373
========== ==========
</TABLE>
See "Notes to Consolidated Financial Statements"
6
<PAGE>
MetroBanCorp
Notes to Consolidated Financial Statements
1. Basis of Presentation
---------------------
The consolidated financial statements include the accounts of MetroBanCorp
and its wholly-owned affiliate, MetroBank, ("Bank") (together, "Metro").
All significant intercompany transactions and balances have been
eliminated.
In the opinion of management of Metro, the consolidated financial
statements contain all the normal and recurring adjustments necessary to
present fairly the consolidated financial condition of Metro as of
September 30, 1998 and December 31, 1997, and the results of its operations
and cash flows for the nine months ended September 30, 1998 and 1997.
These financial statements should be read in conjunction with Metro's
latest Annual Report on Form 10-KSB for the year ending December 31, 1997.
2. Investments
-----------
The market value and amortized cost of investment securities of Metro as of
September 30, 1998 are set forth below:
<TABLE>
<CAPTION>
Market Value Amortized Cost
------------ --------------
<S> <C> <C>
Held to Maturity $ 3,217,000 $ 3,217,000
Available for Sale 30,893,000 30,676,000
------------ --------------
Total Investments $ 34,110,000 $ 33,893,000
============ ==============
</TABLE>
3. Allowance for Loan Losses
-------------------------
As of September 30, 1998, Metro had investments in loans which are
impaired, in accordance with Statement of Financial Accounting Standard
Nos. 114 and 118, of $302,000. Of this amount, $286,000 had no related
specific allowance. The remaining $16,000 of impaired loans were fully
reserved.
Metro's policy for recognizing income on impaired loans is to accrue
earnings until a loan is classified as impaired. For loans which receive a
classification of impaired during the current period, interest accrued to
date is charged against current earnings. All payments received on a loan
which is classified as impaired are utilized to reduce the principal
outstanding.
7
<PAGE>
For the nine months ended September 30, 1998, the average balance of
impaired loans was $187,000. Additionally, there was $11,000 in interest
income earned on these loans during the first nine months of 1998.
4. Comprehensive Income
--------------------
During the first quarter of 1998, Metro adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income."
Comprehensive Income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity
during a period except those resulting from investment by owners and
distributions to owners. In Metro's case, comprehensive income includes net
income and unrealized gains and losses on available for sale securities.
Total comprehensive income was $382,000 and $303,000 for the three-month
period ended September 30, 1998 and 1997, respectively. Total comprehensive
income was $804,000 and $640,000 for the nine-month period ended September
30, 1998 and 1997, respectively.
5. Per Share Data
--------------
Basic net income per common share is computed by dividing net income by the
weighted average number of common shares outstanding during each year. Net
income per common share, assuming full dilution, is computed as above,
except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the dilutive
potential common shares (stock options) had been issued. Below is a table
reconciling basic net income per common share and net income per common
share assuming full dilution:
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------------------------------------------------------------------
September 30, September 30,
1998 1997
----------------------------------------- ----------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Income per Common Share
Income Available to Common
Shareholders $310,000 1,765,308 $ 0.18 $217,000 1,765,308 $ 0.12
======== ========
Effects of Dilutive Stock Options - 72,837 - 54,188
-------------------------- -------------------------
Net Income per Common
Share - Assuming Dilution $310,000 1,838,145 $ 0.17 $217,000 1,819,496 $ 0.12
========================================= ========================================
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
For the Nine Months Ended
----------------------------------------------------------------------------------
September 30, September 30,
1998 1997
---------------------------------------- -----------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Income per Common Share
Income Available to Common
Shareholders $737,000 1,765,308 $ 0.42 $534,000 1,765,308 $ 0.30
======== ========
Effects of Dilutive Stock Options - 86,740 - 35,922
-------------------------- --------------------------
Net Income per Common
Share - Assuming Dilution $737,000 1,852,048 $ 0.40 $534,000 1,801,230 $ 0.30
======================================== =========================================
</TABLE>
Per share data included in Metro's consolidated statements of operations
for the three months and nine months ended September 30, 1998 and 1997 was
based on the weighted average number of common shares outstanding.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The following management discussion is presented to provide information
concerning the consolidated financial condition of Metro as of September 30,
1998 as compared to December 31, 1997, and the results of operations for the
three and nine month periods ending September 30, 1998 and 1997.
FINANCIAL CONDITION
At September 30, 1998, Metro had total assets of $135.4 million, an increase of
$10.6 million or 8.5 percent from December 31, 1997. This growth is due to
increases in non-interest bearing deposits and all categories of interest
bearing deposits.
Consolidated earning assets totaled $125.6 million, or 92.8 percent of total
assets, at September 30, 1998. The principal components of earning assets, were
loans in the amount of $81.1 million or 64.6 percent of total earning assets and
investment securities of $34.1 million or 27.2 percent of total earning assets.
Earning assets at December 31, 1997 were $112.8 million, or 90.5 percent of
total assets.
LOANS
- -----
Total gross loans outstanding increased $3.8 million or 4.9 percent from
December 31, 1997 to September 30, 1998. This growth is a result of increased
indirect consumer lending and growth in the commercial loan portfolio. Overall
loan demand has been strong in Metro's market area.
9
<PAGE>
At September 30, 1998, net loans amounted to 59.0 percent of total assets as
compared to 61.2 percent at year-end 1997. Metro's loan to deposit ratio, which
is one measure of liquidity, was 66.0 percent at September 30, 1998, as compared
to 68.6 percent at year-end 1997.
<TABLE>
<CAPTION>
LOAN PORTFOLIO AT PERIOD-END
(dollars in thousands)
September 30, 1998 December 31, 1997 % Change
-------------------- ------------------- ------------
<S> <C> <C> <C>
Commercial $51,828 $47,527 9.05%
Real Estate - Construction 2,568 3,689 -30.39%
Mortgage 519 646 -19.66%
Installment 21,596 20,467 5.52%
Student Loans 4,602 4,966 -7.33%
--------- --------- ---------
Total Loans $81,113 $77,295 4.94%
Less:
Allowance for Loan Losses (1,226) (998) 22.85%
--------- --------- ---------
Net Loans $79,887 $76,297 4.71%
========= ========= =========
</TABLE>
Delinquent loans at September 30, 1998 were $731,000, representing 0.9 percent
of total loans outstanding. At December 31, 1997, delinquent loans amounted to
$915,000 or 1.2 percent of total loans outstanding. Delinquent loans in both
periods shown above consisted primarily of student loans guaranteed by USA
Funds, a subsidiary of USA Group, Inc. Non-accruing loans at September 30, 1998
amounted to $302,000, as compared to $10,000 at December 31, 1997. Net
recoveries on charged-off loans amounted to $4,000 for the nine months ending
September 30, 1998.
At September 30, 1998 and December 31, 1997, Metro had an allowance for loan
losses of $1,226,000 and $998,000, respectively. The percentage of provision for
loan losses to ending loans amounted to 1.51 percent and 1.29 percent for
September 30, 1998 and December 31, 1997, respectively. Metro provides for
possible loan losses through regular provisions to the allowance for loan
losses. The provisions are made at a level which is considered necessary by
management to absorb estimated losses in the loan portfolio and is based upon an
assessment of adequacy of Metro's loan loss reserve account.
10
<PAGE>
ALLOWANCE FOR LOAN LOSSES
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(dollars in thousands)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Allowance for Loan Losses, January 1 $ 998 $ 866
Loans Charged-Off:
Commercial - -
Real Estate - -
Mortgage - -
Installment (17) (56)
Student Loans - -
---------- ----------
Total Charged-Off Loans (17) (56)
---------- ----------
Recoveries on Charged-Off Loans:
Commercial - 5
Real Estate - -
Mortgage - -
Installment 21 2
Student Loans - -
---------- ----------
Total Recoveries 21 7
---------- ----------
Net Charged-Off Loans 4 (49)
---------- ----------
Provision for Loan Losses 224 112
---------- ----------
Allowance for Loan Losses, September 30 $ 1,226 $ 929
========== ==========
Average Loans Outstanding $ 79,656 $ 71,748
========== ==========
Net Charged-Off Loans to Average Loans -.01% .07%
========== ==========
</TABLE>
INVESTMENT SECURITIES
- ---------------------
Total investments at September 30, 1998 were $34.1 million, increasing by $6.1
million or 21.7 percent from December 31, 1997.
DEPOSITS
- --------
Total deposits at September 30, 1998 amounted to $121.1 million in comparison to
$111.2 million at December 31, 1997, representing an increase of $9.9 million or
8.9 percent. Since December 31, 1997, non-interest bearing demand deposits
increased by $1.2 million or 4.3 percent. In the first nine months of 1998,
interest-bearing deposits increased by $8.7 million or 10.5 percent.
11
<PAGE>
OTHER LIABILITIES
- -----------------
Other liabilities increased to $1,126,000 from $926,000 at December 31, 1997.
Total liabilities increased by $10.1 million or 9.0 percent to $122.7 million
since December 31, 1997.
CAPITAL
- -------
Metro's total capital increased by a net amount of $543,000 or 4.5 percent
during the first nine months of 1998. Metro's earnings in the first nine months
of 1998 amounted to $737,000. The net unrealized gain on investment securities
available for sale amounted to $109,000 at September 30, 1998, increasing by
$67,000 or 159.5 percent since December 31, 1997. Capital decreased by $261,000
in 1998 following the payment of a $.05 quarterly cash dividend in the months of
March, June and September, 1998.
During the first quarter of 1998, the Board of Directors of Metro declared a
five-percent stock dividend issuable April 6, 1998 to shareholders of record as
of March 18, 1998. Fractional shares resulting from the stock dividend were paid
in cash. As a result, there were 84,017 shares issued, bringing the number of
common shares outstanding to 1,765,308. A transfer from accumulated earnings
equity account to the common stock equity account in the amount of $924,000
followed issuance of the stock dividend.
Metro is subject to various capital requirements imposed by the federal banking
agencies. Quantitative measures established by regulation to ensure capital
adequacy require Metro to maintain minimum amounts and ratios of total Tier 1
capital (as defined in the regulations) to risk-weighted assets, and Tier 1
capital to average assets. Management believes, as of September 30, 1998, that
Metro meets all capital adequacy requirements to which it is subject. The
following table sets forth the actual and minimum capital amount and ratios of
Metro and the Bank as of September 30, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt Corrective
Actual Action Provisions
------------------------- ------------------------------
Amount Ratio Amount Ratio
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets)
Consolidated $13,579 15.59% > $8,709 > 10.00%
Bank $10,604 12.21% > $8,681 > 10.00%
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated $12,490 14.34% > $5,225 > 6.00%
Bank $ 9,518 10.96% > $5,209 > 6.00%
Tier 1 Capital
(to Average Assets)
Consolidated $12,490 9.65% > $6,471 > 5.00%
Bank $ 9,518 7.51% > $6,337 > 5.00%
</TABLE>
12
<PAGE>
As of December 31, 1997, the most recent notification from the FDIC categorized
the Bank as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as "well capitalized", the Bank must
maintain minimum total risk-weighted, Tier 1 capital and leverage ratios as set
forth in the table. There are no conditions or events since the FDIC
notification that management believes have changed Metro's or the Bank's capital
categories.
RESULTS OF OPERATIONS
NET INTEREST INCOME
- -------------------
Net interest income after provision for loan losses was $4.0 million for the
nine months ending September 30, 1998, compared to $3.6 million for the
comparable period of 1997, an increase of 10.3 percent. Net Interest income
increased principally due to growth in earning assets in 1998. The Bank's
provision for loan loss expense was $225,000 for the nine months ended September
30, 1998, compared to $112,000 for the same period in 1997. The provision made
in 1998 was a level considered necessary by management to absorb estimated
losses in the loan portfolio and is based upon an assessment of the adequacy of
the Bank's loan loss reserve account.
NON-INTEREST EXPENSE
- --------------------
Non-interest expense amounted to $3.4 million for the nine-month period ending
September 30, 1998, compared to $3.3 million for the same period in 1997.
NET INCOME
- ----------
Metro recognized net income of $737,000 for the nine month period ending
September 30, 1998, compared to $534,000 for the same period one year earlier.
THE YEAR 2000 ISSUE
- -------------------
Year 2000 issues relate to proper functionality of internal and external systems
based on the century date change. Internal systems include computer hardware and
software systems, processing equipment, facilities and Metro's employee base.
External systems include data processing service companies, other vendor
relationships, customer relationships and public utilities.
13
<PAGE>
Metro's State of Readiness
Metro has established a Year 2000 Committee ("Committee") to address Year 2000
issues. The Committee has representatives from senior management and all
functional areas of the Bank. The Committee meets on a regular basis to review
progress of Year 2000 issues. Metro's Board of Directors receives a written
update on Year 2000 status on a monthly basis.
Metro developed a Year 2000 Plan ("Plan") in December, 1997. The Plan was
designed to identify all internal and external systems which could be affected
by Year 2000 issues and remediate or replace systems which are not Year 2000
compliant based on testing or actual non-compliance. The Plan also requires Year
2000 certification by the Committee for internal and external systems deemed to
be Year 2000 compliant. The Plan defines responsibility as well as beginning and
completion dates for all phases of the Year 2000 process and observes regulatory
guidelines and requirements.
The assessment phase of the Plan was completed during the first quarter of 1998.
Internal and external systems which, could be affected by Year 2000 issues, as
well as mission critical systems, were identified during the assessment phase.
Mission critical systems are those internal and external systems required by the
Bank to provide primary services to customers and maintain fundamental
operations.
Metro contracts the services of Computer Services, Inc. ("CSI"), Paducah,
Kentucky, for data processing and related functions. The Bank has been a client
of CSI since 1993. Year 2000 proxy testing of CSI core systems was performed by
members of CSI's client base in July and August, 1998. A member of management
represented Metro on the Year 2000 Proxy Test Team. Based on a review of the
test results, CSI's core processing functions are considered to be Year 2000
compliant.
The Committee identified ninety-two vendor relationships deemed to be mission
critical. Letters were mailed to mission critical vendors by March 31, 1998
requesting information as to their Year 2000 readiness based on products or
services used by the Bank. Follow-up contact with vendors has been initiated
based on completeness of vendor responses. The Committee is evaluating vendor
readiness based on information received and has prioritized vendors requiring
additional follow-up. Based on an initial review, the Bank will upgrade some
computer software to Year 2000 compliant versions by January 31, 1999.
Customers with significant relationships ($100,000 or greater in aggregate loan
commitments or non-consumer deposits) were identified during the second quarter
of 1998. Review of significant customer relationships is designed to identify
Year 2000 risks inherent in the Bank's deposit base and loan portfolios. Bank
Officers contacted customers with significant relationships and reviewed their
Year 2000 readiness using a questionnaire developed by the Committee. The
Committee has assigned a Year 2000 risk grade to individual customers with
significant relationships with the Bank based on a review of the questionnaires
using a risk grading system. Customers with high or moderate risk are being
re-contacted prior to December 31, 1998 to review additional progress toward
Year 2000 readiness. The Bank's Loan Loss Reserve began addressing Year 2000
risks as of March 31, 1998.
14
<PAGE>
Metro operates twenty-three automated teller machines ("ATMs"), including six
located at Bank branches and seventeen at off-site locations. Management plans
to replace an ATM located at one of the Bank's branches during the fourth
quarter of 1998. Of the remaining twenty-two ATMs, twenty are scheduled to be
upgraded to Year 2000 compliance by December 31, 1998, with an additional ATM
scheduled to be upgraded in February, 1999. The remaining ATM is already Year
2000 compliant.
The Bank plans to install a wide area network computer system during the fourth
quarter of 1998. The network and related software is expected to be certified as
Year 2000 compliant based on testing following installation. The network
standardizes most computer hardware and software used internally by the Bank.
Management will evaluate strategies for upgrading the FedLine system during the
fourth quarter of 1998. FedLine is used primarily by the Bank to process wire
transfers and United States Savings Bond sales.
The Committee developed a Year 2000 Testing Plan in the second quarter of 1998.
The Testing Plan is designed to establish methodologies for Year 2000 testing of
internal and external systems identified as mission critical in the Plan.
Testing commenced during the third quarter of 1998. The Committee expects
testing to be completed by December 31, 1998.
A Year 2000 Contingency Plan was developed during the third quarter of 1998. The
Contingency Plan addresses remediation of systems related to Year 2000 testing
and outlines a business resumption plan in the event that mission critical
systems fail on critical dates. Primary risks identified in the Contingency Plan
include electric power, data communications with the Bank's data processor and
telephone service. All were identified as mission critical vendors. The Year
2000 Contingency Plan is coordinated with the Bank's Disaster Recovery Plan.
A Customer Awareness Program was developed during the third quarter of 1998. The
purpose of the program is to provide all Bank customers and potential customers
with information relating to the Bank's Year 2000 efforts and status. The
program calls for Year 2000 information to be included in deposit customers'
monthly statements beginning in the fourth quarter of 1998. In addition to the
questionnaire reviewed with significant customers, the Bank has mailed Year 2000
informational letters to many of its customers and conducted a seminar for
invited customers to relate Year 2000 information.
Year 2000 Costs
Management has allocated $100,000 for the Bank's Year 2000 budget. As of
September 30, 1998, approximately $30,000 has been incurred in Year 2000
expenses. The expenses relate to upgrading automated teller machine hardware and
software required for Year 2000 compliance, replacement of a non-compliant
telephone system at one Bank branch and miscellaneous expenses related to CSI
proxy testing. Management at the present time anticipates no adjustments to this
budgeted amount.
15
<PAGE>
Summary of Year 2000 Risks
Based on internal and external systems reviewed and tested through September 30,
1998, material risks for Year 2000 issues could include electric power, data
communications systems, telephone systems and borrowing relationships with
customers which may have non-compliant systems. Electric power, data
communications and telephone systems are particularly critical to the functional
operation of the Bank and are to a large extent outside of the Bank's control.
While the Committee has gathered satisfactory Year 2000 readiness information
from mission critical utility providers, interruptions in service would be
expected to create operational problems. The Bank's Year 2000 Contingency Plan
is designed to address all material Year 2000 risks.
Year 2000 Contingency Plan
Metro has developed a comprehensive Year 2000 Contingency Plan, designed to
address internal and external systems failures.
The Committee has reviewed the Year 2000 Contingency Plan for the Bank's data
processor, CSI. CSI's plan provides for alternate data center sites, along with
transportation services, in the event that one or more of its data centers is
impacted by Year 2000 system failures. The plan also addresses other potential
system failures for services provided to the Bank.
Procedures have been developed to address loss of public utilities service,
including electric power, data communications and telephone service. In general,
the Bank can operate for short periods of time without some data communications
or telephone service. Electric power is critical to operations because of
security alarm systems. The Bank has established procedures for employees at
branch locations to report to alternate locations if required by utilities or
other systems failures.
Additional paper reports for all systems will be printed on the dates
immediately prior to critical dates and distributed to branch locations. The
paper reports will serve as a manual data base of the Bank's deposit and loan
accounts in the event that data is unavailable from the Bank's data processor.
Management will also pursue back-up agreements for proof of deposit functions if
the Bank's proof equipment fails. All internal data will be backed up to provide
for timely recovery if the computer network fails. The Bank retains the services
of a local network vendor for related services. New deposit and loan platform
systems will be processed manually in the event of computer hardware or software
failure. Management will evaluate additional cash requirements for Year 2000
dates beginning in the third quarter of 1999.
Employees will be encouraged to fill their vehicles with gasoline prior to
critical dates. Employee schedules will be designed to provide for full staffing
on and around critical dates. Administrative employees and loan officers will be
available to assist customer contact personnel as needed.
16
<PAGE>
PART II-OTHER INFORMATION
Item 5. Other Information
- --------------------------
During the first quarter of 1998, the Bank opened its sixth branch office at
16825 Clover Road, Noblesville, Indiana. This new facility commenced operations
on February 11, 1998. With the continuing commercial expansion of the east-side
of Noblesville, Indiana, Metro's presence will provide greater convenience and
accessibility for local businesses and area residents with extended hours and an
increased emphasis on sales of financial products and services.
If a shareholder proposal is introduced at the 1999 Annual Meeting of
Shareholders without any discussion of the proposal in the proxy statement, and
if the proponent does not notify Metro on or before February 1, 1999, as
required by SEC Rule 14a-4(c)(1), of the intent to raise such proposal at the
Annual Meeting of Shareholders, then proxies received by Metro for the 1999
Annual Meeting will be voted by the persons named as proxies in their discretion
with respect to such proposal. Notice of such proposals is to be given to the
Secretary of Metro in writing at its principal executive office, 10333 North
Meridian Street, Suite 111, Indianapolis, Indiana 46290.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended September 30,
1998.
17
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
METROBANCORP
(Registrant)
November 12, 1998 By: /S/ Ike G. Batalis
-----------------------------
Ike G. Batalis
Chairman and
President (Principal
Executive Officer)
November 12, 1998 By: /S/ Charles V. Turean
-----------------------------
Charles V. Turean
Executive Vice President
(Principal Financial and
Accounting Officer)
18
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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