U.S. Securities and Exchange Commission
Washington D.C. 20549
Form 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31,
1999.
Commission file number 0-23790
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MetroBanCorp
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(Name of small business issuer in its charter)
Indiana 35-1712167
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10333 N. Meridian Street, Suite 111, Indianapolis, Indiana 46290
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (317) 573-2400
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Securities to be registered under Section 12 (b) of the Act: None.
Securities to be registered under Section 12 (g) of the Act:
Common Shares, No Par Value
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities 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
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Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's net interest income for its most recent fiscal year:
$6,223,000.
State the aggregate market value of the voting and non-voting common stock
held by non-affiliates computed by reference to the price at which the stock
was sold, or the average bid and asked price of such common stock, as of a
specified date within the past 60 days (See definition of affiliate in Rule
12b-2 of the Exchange Act): The aggregate market value of the voting common
stock of the issuer held by non-affiliates, based upon the price of a share of
common stock as quoted on the Small-Cap Issues Market of NASDAQ on February
29, 2000 was $7,541,964.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,033,036.
DOCUMENTS INCORPORATED BY REFERENCE. If the following documents are
incorporated by reference, briefly describe them and identify the part of the
Form 10-KSB (e.g. Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; (3) any prospectus filed pursuant to Rule 424(b) or (c)
of the Securities Act of 1933 ("Securities Act"). The listed documents should
be clearly described for identification purposes (e. g. annual report to
security holders for fiscal year ended December 31, 1999). The Registrant's
Proxy Statement for the Annual Meeting of Shareholders to be held May 18, 2000
is incorporated by reference into Part III hereof, and the Annual Report of
Shareholders for the year ended December 31, 1999 is incorporated by reference
into Part II hereof.
Transitional Small Business Disclosure Format: Yes No X
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Total number of sequentially numbered pages - 69
Exhibit index on sequentially numbered page - 17-19
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Form 10-KSB Table of Contents
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Part I Page
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Item 1 - Description of Business . . . . . . . . . . . . . . . . . . . 3
Item 2 - Description of Property . . . . . . . . . . . . . . . . . . . 11
Item 3 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 12
Item 4 - Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . 12
Part II
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Item 5 - Market for Common Equity and Related Stockholder Matters . . 12
Item 6 - Management's Discussion and Analysis or Results of Operation 13
Item 7 - Financial Statements . . . . . . . . . . . . . . . . . . . . 13
Item 8 - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . 13
Part III
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Item 9 - Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act . . . . . . 13
Item 10 - Executive Compensation . . . . . . . . . . . . . . . . . . . 13
Item 11 - Security Ownership of Certain Beneficial Owners and Management 13
Item 12 - Certain Relationships and Related Transactions . . . . . . . 13
Item 13 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 13
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Part I.
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ITEM 1. DESCRIPTION OF BUSINESS
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MetroBanCorp ("Metro") was incorporated under the laws of the State of Indiana
on June 22, 1987 for the purpose of holding all of the shares of common stock of
MetroBank ("Bank"), an Indiana chartered commercial bank which commenced
operations in April, 1988. The Bank offers a broad range of commercial and
consumer lending and deposit services to its customers located principally in
Hamilton County and northern Marion County, Indiana. The Bank conducts its
business through seven banking offices located in Hamilton County. The Bank's
products are principally oriented toward small- and medium-sized business and
the professional community. Beginning in late 1991, the Bank began offering
discount brokerage and mortgage lending services. At December 31, 1999, Metro
had consolidated total assets of $141.2 million, total deposits of $118.1
million and shareholders' equity of $13.3 million, representing annual
increases/(decrease) from 1998 of 5.4 percent, (1.4) percent, and 3.4 percent,
respectively.
The Bank's primary market area consists of Hamilton County, situated in the
northern section of the Indianapolis Metropolitan Statistical Area, which is the
fastest growing county in the State of Indiana. Annually, the county's
population is growing at a pace of 5.7 percent in the 1990's compared to 1.1
percent for the balance of the Indianapolis area. Each Hamilton County community
is experiencing solid population gains with an approximate total population of
159,000 at the end of 1998. Hamilton County is Indiana's most affluent county
with an estimated per capita income in 1998 of $30,636. Hamilton County is known
for its high quality residential neighborhoods, premier corporate environment,
outstanding public schools and well-developed infrastructure. These
characteristics have contributed to dynamic and significant population growth, a
low 1.1 percent (as of 5/98) unemployment rate, and a younger average resident
population employed in predominantly professional, managerial sales and service
occupations. Labor force issues have emerged as the single most important
corporate site selection factor in the 1990's. Despite a labor force of
approximately 87,300, a tight labor market exists in the county. However, due to
the sizable expansion of the county's workforce and changing corporate
employment practices, many employers continue to report success in finding the
workers they need. The county is the leading suburban location in greater
Indianapolis for headquarters and other office operations of companies such as
USA Group, Inc., Thomson Consumer Electronics, Conseco, Marsh Supermarkets,
Charles Schwab & Co, as well as many large manufacturing and distribution
operations.
Since liberalization of Indiana's banking laws in 1985, all six commercial banks
headquartered in Hamilton County were acquired by bank holding companies located
either out-of-county or out-of-state. Those acquirors, with only one exception,
have subsequently been acquired by larger, out-of-state bank holding companies.
The strategy of Metro's founding investors and its management was designed to
capitalize on the customer dissatisfaction which often accompanies
centralization of out-of-state customer servicing and standardization of
financial products. Management believes that Metro's target customers, i.e.
small business owners and professionals, are not only greater users of financial
services but also are the most sensitive to such change. Further, it is the
belief of management that such users of financial services will prefer to do
business with a local bank with responsive decision making.
Since the end of its first year of operations, Metro's consolidated total assets
have grown from $14.6 million at December 31, 1988 to $141.2 million at December
31, 1999. Metro's acquisition of two branches of Colonial Central Savings Bank,
FSB was a contributing factor in this growth. The Bank's growth has put pressure
on earnings, with Metro reporting losses or negligible earnings for its first
four years of operations. The efficiency ratio of 250.8 percent in 1988 and
117.7 percent in the first full year of operations in 1989 has fallen to 65.7
percent in 1999 as Metro has grown into its infrastructure (the efficiency ratio
is calculated by dividing non-interest expense by the sum of net interest income
and recurring non-interest income). Metro's efficiency ratio, excluding core
deposit intangible, amounted to 65.1 percent in 1999. This ratio would be
reduced further to 64.7 percent when excluding the student loan servicing
expense.
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The Bank conducts a general banking business offering various commercial and
consumer banking services. A member of the FDIC, the Bank currently operates one
main and six traditional staffed branch offices. The Bank opened its first
traditional staffed branch office in Noblesville, Indiana in June, 1988, and the
Bank became fully operational in its main office, located in Carmel, Indiana, in
August, 1988. The Bank established additional traditional staffed branch offices
in Noblesville and Carmel, Indiana, as a result of the April, 1991 acquisition
of certain assets of Colonial Central Savings Bank, FSB. The offices of
MetroBank include two facilities which are owned by MB Realty Corporation, a
wholly owned subsidiary of the Bank. The Bank has also deployed numerous
automated teller machines (ATMs) at sites which are leased from the owners of
retail businesses in the market area.
MARKET AREA AND COMPETITION. The Bank's primary market area, Hamilton County and
northern Marion County, in Indiana, is highly competitive, with numerous other
commercial banks having banking or loan production offices in the market place.
Many of these banks are affiliated with multi-bank holding companies and have
numerous branch offices located throughout the Bank's market area. Several
competing financial institutions have entered the Bank's market area in recent
years. In addition to competition from commercial banks, competition also exists
from savings and loan associations, credit unions, finance companies, insurance
companies, mortgage companies, securities brokerage firms, money market and
mutual funds, loan production offices and other providers of financial services
in the area. These entities generally have greater financial resources than
Metro or the Bank. The Bank competes in the marketplace primarily on the basis
of responsible decision making and personalized service.
LENDING ACTIVITY. The Bank's two principal lending categories are
commercial/business credits and consumer loans. Commercial or business credits
include, among other things, loans for working capital, machinery and equipment
purchases, commercial real estate acquisitions and other corporate needs.
Consumer loans include, among other things, loans for purchases of automobiles,
homes, home improvements and other consumer purposes. These loans may be
extended by the Bank on a secured or unsecured basis. The Bank's consumer loans
include a portfolio of guaranteed student loans ("GSLs"). These GSLs consist of
approximately 1,200 notes made to nearly 600 borrowers who are geographically
dispersed throughout the United States. These loans are guaranteed and serviced,
pursuant to the Higher Education Act of 1965, as amended ("HEA"), by USA Group
Loan Services ("Loan Services") and USA Funds, both affiliates of USA Group.
The Bank's GSLs are substantially guaranteed by USA Funds, and are reinsured in
various amounts by the federal government. Under HEA and the regulations
thereunder, lenders and their assignees making and servicing GSLs and guarantors
guaranteeing GSLs are required to follow specified procedures to ensure that the
GSLs are properly made and disbursed and repaid on a timely basis by or on
behalf of borrowers. Loan Services has agreed, pursuant to a servicing
agreement, to perform servicing and collection procedures on behalf of the Bank.
However, failure to follow these procedures or failure of the seller to follow
procedures relating to the origination of any GSL may result either in the
federal Department of Education's refusal of reinsurance payments to USA Funds
or to make interest subsidy and special allowance payments to the Bank with
respect to the GSLs, or in USA Funds refusal to honor its guarantee agreement
with the Bank with respect to the GSLs. Failure of USA Funds to receive federal
reinsurance payments could adversely affect USA Funds ability or legal
obligation to make guarantee payments to the Bank. Loss of such guarantee
payments, interest subsidy payments or special allowance payments could
adversely affect the Bank and the performance of its GSL portfolio. The Bank has
the right, under certain circumstances specified in the GSL purchase agreement
and the servicing agreement, to cause the seller or Loan Services, as the case
may be, to reimburse the Bank for accrued interest amounts not guaranteed by
Loan Services, or any lost interest subsidy payments and special allowance
payments with respect to a GSL as a result of a breach of the seller
representations and warranties or Loan Services covenants, as the case may be,
with respect to such GSL. There can be no assurance, however, that the seller
will have the financial resources, or that Loan Services will have the ability,
to do so. The failure of the seller to repurchase or Loan Services to arrange
for the
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repurchase of a GSL would constitute a breach of the related GSL sale agreement
or servicing agreement, as the case may be, which are enforceable by the Bank.
Commercial lending requires a thorough analysis of the borrower, its industry,
current and projected economic conditions and various other factors. Depending
upon factors such as, but not limited to, collateral, type of loan, loan
maturity, and specific loan terms and conditions, various loan-to-value ratios
are established upon application for a loan.
The Bank typically requires its commercial/business borrowers to prepare annual
financial statements and, to the extent possible, requires such financial
statements to be audited or reviewed by independent accountants. The Bank
requires appraisals in connection with loans secured by real estate. Such
appraisals are obtained prior to the time funds are advanced. The Bank also
typically requires personal guaranties from principals involved with
closely-held corporate and other entity borrowers.
The Bank requires completed loan applications, including personal financial
information, from all of its consumer borrowers on loans the Bank originates.
With respect to consumer loans that are secured, the Bank obtains a valuation of
the collateral prior to extending such loans. Loan officers of the Bank are
required to complete a debt-to-income analysis that should meet established
lending standards prior to loan approval. Depending upon the type and age of
collateral offered, various down payment and equity requirements are set based
upon established guidelines. Loan officers are also required to follow all other
standard underwriting techniques established by the Board of Directors and the
Bank's primary federal regulatory agency.
The Bank maintains a loan policy which establishes specific lending authority
for each of its loan officers. Loans exceeding a loan officer's individual
lending authority must be approved by a loan officer with a higher lending
authority. All loans for which the borrower's aggregate debt to the Bank exceeds
$50,000 must be reported to the Bank's Management Loan Committee for approval or
for informational purposes. Further, secured loans exceeding $500,000 and
unsecured loans exceeding $75,000 must be approved by the Bank's Board of
Directors' Loan Committee. All loans exceeding $1,000,000 up to the legal
lending limit of the bank must be approved by the MetroBank Board of Directors.
The Bank also has established general guidelines relating to the ratio between
the loan amount and collateral value which must be met before a loan is
approved. All loans are graded prior to being approved using an internal grading
system.
Consumer and commercial loans are made primarily in the Bank's designated market
area. The Bank anticipates loan demand to increase at a rapid rate in the coming
year, but loan balances to grow more slowly due to management's conservative
lending standards. Loans are made for portfolio purposes only and not for
resale.
The Bank's Residential Mortgage Loan Department completed its fifth year of
operations in 1999. The Department offers both conventional and non-conventional
mortgages as well as construction loans and lot financing. The majority of the
loans and their servicing rights originated by this Department will be sold in
secondary markets.
BANK HOLDING COMPANY REGULATION. Metro is registered as a bank holding company
and is subject to the supervision of, and regulation by, the Board of Governors
of the Federal Reserve System ("Federal Reserve") under the Bank Holding Company
Act of 1956, as amended ("BHC Act"). The Federal Reserve had issued regulations
under the BHC Act requiring a bank holding company to serve as a source of
financial and managerial strength to its subsidiary banks. It is the policy of
the Federal Reserve that, pursuant to this requirement, a bank holding company
should stand ready to use its resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity.
The BHC Act requires the prior approval of the Federal Reserve to acquire more
than a 5% voting interest of any bank or bank holding company. Additionally, the
BHC Act restricts the Registrant's nonbanking activities
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to those which are determined by the Federal Reserve to be closely related to
banking and a proper incident thereto.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), a bank holding company is required to guarantee the compliance of
any insured depository institution subsidiary that may become "undercapitalized"
(as defined in FDICIA) with the terms of any capital restoration plan filed by
such subsidiary with its appropriate federal banking agency.
Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines. For the Registrant's regulatory capital rations
as of December 31, 1999, see the information incorporated by reference in Part
II, Item 7.
The Registrant and affiliate bank is subject to the provisions of the banking
laws of Indiana and is supervised, regulated and examined by the respective
state banking agency, and is subject to the rules and regulations of the Federal
Deposit Insurance Corporation ("FDIC").
Dividends are subject to various legal and regulatory restrictions as summarized
in Footnote 15 to the consolidated financial statements.
Both federal and state law extensively regulate various aspects of the banking
business, such as reserve requirements, truth-in-lending and truth-in-savings
disclosure, equal credit opportunity, fair credit reporting, trading in
securities and other aspects of banking operations.
Insured state-chartered banks are prohibited under FDICIA from engaging as
principal in activities that are not permitted for national banks, unless (i)
the FDIC determines that the activity would pose no significant risk to the
appropriate deposit insurance fund, and (ii) the bank is, and continues to be,
in compliance with all applicable capital standards.
The FDIC and the OCC have adopted risk-based capital ratio guidelines to which
depository institutions under their respective supervision are subject. The
guidelines establish a systematic analytical framework that makes regulatory
capital requirements more sensitive to differences in risk profiles among
banking organizations. Risk-based capital ratios are determined by allocating
assets and specified off-balance sheet commitments to four risk weighted
categories, with higher levels of capital being required for the categories
perceived as representing greater risk. The Bank exceeded the risk-based capital
guidelines of the FDIC and OCC as of December 31, 1999.
Branching by the Registrant's affiliate banks in Indiana is subject to the
jurisdiction, and requires the prior approval of, the bank's primary federal
regulatory authority and state's banking agency.
The Registrant and its affiliate bank is subject to the Federal Reserve Act,
which restricts financial transactions between banks and affiliated companies.
The statute limits credit transactions between a bank and its executive officers
and its affiliates, prescribes terms and conditions for bank affiliate
transactions deemed to be consistent with safe and sound banking practices, and
restricts the types of collateral security permitted in connection with a bank's
extension of credit to an affiliate.
FDICIA accomplished a number of sweeping changes in the regulation of depository
institutions, including the Registrant's affiliated banks. FDICIA requires,
among other things, federal bank regulatory authorities to take "prompt
corrective action" with respect to banks which do not meet minimum capital
requirements. FDICIA further directs that each federal banking agency prescribe
standards for depository institutions and depository institution holding
companies relating to internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, management compensation, a maximum ratio of classified assets to
capital, minimum earnings sufficient to absorb losses, a minimum ratio of
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market value to book value of publicly traded shares and such other standards as
the agency deems appropriate.
The deposits of Registrant's affiliate banks are insured up to $100,000 per
insured account by the Bank Insurance fund ("BIF"), which is administered by the
FDIC, except for deposits acquired in connection with affiliations with savings
associations, which deposits are insured by the Savings Association Insurance
fund ("SAIF"). Accordingly, the Registrant's affiliated banks pay deposit
insurance premiums to both BIF and SAIF.
The Riegle-Neal Community Development and Regulatory Improvement Act of 1994
("ACT") contains seven titles pertaining to community development and home
ownership protection, small business capital formation, paperwork reduction and
regulatory improvement, money laundering and flood insurance. The applicable
federal supervisory agencies continues to promulgate regulations implementing
the Act which apply to Registrant's affiliate banks.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 allows
for interstate banking and interstate branching without regard to whether such
activity is permissible under state law. Bank holding companies may now acquire
banks anywhere in the United States subject to certain state restrictions.
The Federal Reserve and FDIC have issued regulations requiring that any bank
holding company or bank which has significant exposure to market risk must
measure such risk using its own internal model, subject to the requirements
contained in the regulations, and must maintain adequate capital to support that
exposure.
The regulations apply to any bank holding company or bank whose trading activity
equals 10% or more of its total assets, or whose trading activity equals $1
billion or more. Examiners may require a bank holding company or bank that does
not meet the applicability criteria to comply with the capital requirements if
necessary for safety and soundness purposes. The regulations contain
supplemental rules to determine qualifying and excess capital, calculate
risk-weighted assets, calculate market risk equivalent assets and calculate
risk-based capital ratios adjusted for market risk.
Safety and soundness guidance on the risks posed to financial institutions by
the Year 2000 problem was issued by the Federal Institutions Examination
Council, whose members include the FDIC and the Federal Reserve Board. The
guidance underscored that Year 2000 preparation was not only an information
systems issue, but also an enterprise-wide challenge that must be addressed at
the highest level of a financial institution.
In response, Metro formed a Year 2000 Committee and developed a Year 2000 Plan
to identify all internal and external systems which could have been affected by
the Year 2000. Systems were prioritized based on an assessment of Year 2000 risk
and potential impact to operations, earnings and capital. A timeline was
developed to ensure that tasks in the Year 2000 Plan would be completed
consistent with management's objectives and regulatory guidelines.
Metro developed a monitoring and testing plan over the January 1, 2000 week-end.
All systems which could have been affected by Year 2000 were reviewed on
Saturday, January 1, 2000 to ensure proper operation. A Contingency Plan was
developed to address any Year 2000 failures. No issues were identified as
requiring additional action.
Metro will monitor remaining Year 2000 critical dates as well as customer risk
as required by regulators.
In addition to the matters discussed above, the Registrant's affiliate banks are
subject to additional regulation of their activities, including a variety of
consumer protection regulations affecting their lending, deposit and collection
activities and regulations affecting secondary mortgage market activities. The
earnings of financial institutions are also affected by general economic
conditions and prevailing interest rates, both domestic and
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foreign and by the monetary and fiscal policies of the United States Government
and its various agencies, particularly the Federal Reserve.
On November 12, 1999 the President of the United States signed into law the
Gramm-Leach-Bliley Act ("GLBA"). The GLBA contains a number of provisions that
will fundamentally alter the banking and financial services industries. The GLBA
repeals Section 20 of the Banking Act of 1933, commonly known as the
Glass-Steagall Act, which generally has separated commercial from investment
banking. The GLBA will also for the first time allow banks, securities firms and
insurance companies to affiliate in a new financial holding company structure.
Under the GLBA, national bank affiliates will be able to conduct a broad range
of financial activities, including providing insurance and securities services.
However, the national bank must be well-capitalized and well-managed. In
addition, insurance and securities activities will be functionally regulated.
For example, the Securities and Exchange Commission will regulate most national
bank affiliates' securities activities and the states will regulate their
insurance activities. The GLBA preserves the thrift charter, but bars new
unitary thrift holding companies from approval that were applied for after May
4, 1999.
It is not possible to predict what impact the GLBA will have on the Company and
the Bank. One consequence may be increased competition from large financial
services companies, that under the GLBA, will be permitted to provide many types
of financial services to customers. Another consequence will be the imposition
and new regulations regarding the privacy of consumer and customer financial
information. Recently, regulations were proposed governing the privacy of
financial information of bank customers. The privacy regulations, which will
apply to the Company and the Bank, are due to be finalized in May, with an
effective date next fall.
Additional legislation and administrative actions affecting the banking industry
may be considered by the United States Congress, state legislatures and various
regulatory agencies, including those referred to above. It cannot be predicted
with certainty whether such legislation or administrative action will be enacted
or the extent to which the banking industry in general or the Registrant and its
affiliate banks in particular would be affected thereby.
CAPITAL ADEQUACY GUIDELINES FOR BANK HOLDING COMPANIES. The Federal Reserve is
the federal regulatory and examining authority for bank holding companies. The
Federal Reserve has adopted capital adequacy guidelines for bank holding
companies.
Bank holding companies with consolidated assets in excess of $150 million or
with consolidated assets of less than $150 million which are engaged in non-bank
activity involving significant leverage or which have a significant amount of
outstanding debt held by the general public are required to comply with the
Federal Reserve's risk-based capital guidelines which require a minimum ratio of
total capital to risk-weighted assets (including certain off-balance sheet
activities such as standby letters of credit) of 8 percent. In addition to the
risk-based capital guidelines, the Federal Reserve has adopted a Tier 1
(leverage) capital ratio under which the bank holding company must maintain a
minimum ratio of Tier 1 capital to average total consolidated assets of 3
percent in the case of bank holding companies which have the highest regulatory
examination ratings and are not contemplating significant growth or expansion.
All other bank holding companies are expected to maintain a ratio of at least 1
percent to 2 percent above the stated minimum.
Certain regulatory capital ratios for Metro as of December 31, 1999 are shown
below:
Tier 1 Capital to Risk-Weighted Assets . . . . . . . . . 14.33%
Total Risk Based Capital to Risk-Weighted Assets . . . . 15.58%
Tier 1 Leverage Ratio . . . . . . . . . . . . . . . . . 10.19%
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BANK REGULATION. The Bank is organized under the laws of the State of Indiana
and is subject to the supervision of the Indiana Department of Financial
Institutions ("DFI"), whose examiners conduct periodic examinations of state
banks. The Bank is not a member of the Federal Reserve System, so its principal
federal regulator is the Federal Deposit Insurance Corporation ("FDIC"), which
also conducts periodic examinations of the Bank. A majority of the Bank's
deposits are insured by the Bank Insurance Fund ("BIF") administered by the FDIC
and are subject to the FDIC's rules and regulations respecting the insurance of
deposits. See "Deposit Insurance" following. The deposits acquired from Colonial
Central Savings Bank, FSB in 1991 are insured by the Savings Association
Insurance Fund ("SAIF"), which is administered by the federal Office of Thrift
Supervision ("OTS").
Both federal and state law extensively regulate various aspects of the banking
business such as reserve requirements, truth-in-lending and truth-in-savings
disclosure, equal credit opportunity, fair credit reporting, trading in
securities and other aspects of banking operations. Current federal law also
requires banks, among other things, to make deposited funds available within
specified time periods.
Insured state-chartered banks are prohibited under the FDICIA from engaging as
principal in activities that are not permitted for national banks, unless (i)
the FDIC determines that the activity would pose no significant risk to the
appropriate deposit insurance fund, and (ii) the bank is, and continues to be,
in compliance with all applicable capital standards.
BANK CAPITAL REQUIREMENTS. The Bank is also required to meet capital adequacy
ratios. The guidelines establish a systematic analytical framework that makes
regulatory capital requirements more sensitive to differences in risk profiles
among banking organizations. Risk-based capital ratios are determined by
allocating assets and specified off-balance sheet commitments to four risk
weighted categories, with higher levels of capital being required for the
categories perceived as representing greater risk.
Certain regulatory capital ratios under the FDIC's risk-based capital guidelines
for the Bank at December 31, 1999 are shown below:
Tier 1 Capital to Risk-Weighted Assets . . . . . . . . . . 11.99%
Total Risk-Based Capital to Risk-Weighted Assets . . . . . 13.24%
Tier 1 Leverage Ratio . . . . . . . . . . . . . . . . . . 8.61%
The FDIC included, in its evaluations of a bank's capital adequacy, an
assessment of the bank's exposure to declines in the economic value of the
bank's capital due to changes in interest rates. On June 26, 1996, the FDIC,
along with the Office of the Comptroller of the Currency and the Federal
Reserve, issued a joint policy statement to provide guidance on sound practices
for managing interest rate risk. The statement sets forth the factors the
federal regulatory examiners will use to determine the adequacy of a bank's
capital for interest rate risk. These qualitative factors include the adequacy
and effectiveness of the bank's internal interest rate risk management process
and the level of interest rate exposure. Other qualitative factors that will be
considered include the size of the bank, the nature and complexity of its
activities, the adequacy of its capital and earnings in relation to the bank's
overall risk profile, and its earning exposure to interest rate movements.
The interagency supervisory policy statement describes the responsibilities of a
bank's board of directors in implementing a risk management process and the
requirements of the bank's senior management in ensuring an effective management
process.
In August, 1996, the Federal Reserve and the FDIC issued final regulations
further revising their risk-based capital standards to include a supervisory
framework for measuring market risk. The effect of the new regulations is that
any bank holding company or bank which has significant exposure to market risk
must measure such risk using its own internal model, subject to the requirements
contained in the regulations, and must maintain adequate capital to support that
exposure.
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The new regulations apply to any bank holding company or bank whose trading
activity equals 10 percent or more of its total assets, or whose trading
activity equals $1.0 billion or more. Examiners may require a bank holding
company or bank that does not meet the applicability criteria to comply with the
capital requirements if necessary for safety and soundness purposes.
The regulations contain supplemental rules to determine qualifying and excess
capital, calculated risk-weighted assets, calculate market risk equivalent
assets and calculate risk-based capital ratios adjusted for market risk.
DIVIDEND LIMITATIONS. Under Federal Reserve supervisory policy, a bank holding
company generally should not maintain its existing rate of cash dividends on
common shares unless (i) the organization's net income available to common
shareholders over the past year has been sufficient to fully fund the dividends
and (ii) the prospective rate or earnings retention appears consistent with the
organization's capital needs, asset quality, and overall financial condition.
Metro's Board of Directors has adopted a policy consistent with these
guidelines. The FDIC also has authority under the Financial Institutions
Supervisory Act to prohibit a bank from paying dividends if, in its opinion, the
payment of dividends would constitute an unsafe or unsound practice in light of
the financial condition of the bank.
Under Indiana law, the Bank may pay dividends so long as its capital is
unimpaired and it has unimpaired retained surplus equal to 25% of capital.
Dividends may not exceed undivided profits less losses, bad debts and expenses.
The most stringent capital requirement affecting the Bank, however, are those
established by the prompt corrective action provisions of FDICIA, which are
discussed below. At December 31, 1999, the Bank's capital levels exceeded the
criteria necessary to be designated as a "well capitalized" institution, which
requires a total risk-based capital ratio of 10 percent or greater, a Tier 1
risk-based capital ratio of 6 percent or greater, and a leverage ratio of 5
percent or greater.
LENDING LIMITS. Under Indiana law, the total loans and extension of credit by an
Indiana-chartered bank to a borrower outstanding at one time and not fully
secured may not exceed 15 percent of such bank's capital and unimpaired surplus.
An additional amount up to 10 percent of the bank's capital and unimpaired
surplus may be loaned to the same borrower if such loan is fully secured by
readily marketable collateral having a market value, as determined by reliable
and continuously available price quotations, at least equal to the amount of
such additional loans outstanding.
BRANCHES AND AFFILIATES. Establishment of bank branches is subject to approval
of the DFI and FDIC. A bank may also merge with any national or state chartered
bank located anywhere in the United States without geographic restrictions. See
"Interstate Banking" following.
INTERSTATE BANKING. The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 allows for interstate banking and interstate branching without
regard to whether such activity is permissible under state law. An insured bank
may merge with an insured bank in another state without regard to whether such
merger is prohibited by state law. Additionally, an out-of-state bank may
acquire the branches on an insured bank in another state without acquiring the
entire bank; provided, however, that the law of the state where the branch is
located permits such an acquisition. Further, bank holding companies may merge
existing bank subsidiaries located in different states into one bank.
An insured bank subsidiary may now act as an agent for an affiliated bank or
savings association in offering limited banking services (receive deposits,
renew time deposits, close loans, service loans and receive payments on loan
obligations) both within the same state and across state lines.
FDICIA. FDICIA accomplished a number of sweeping changes in the regulation of
depository institutions. FDICIA requires federal bank regulatory authorities to
take "prompt corrective action" with respect to banks
Page 10
<PAGE>
which do not meet minimum capital requirements.
FDICIA further directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
management compensation, a maximum ratio of classified assets to capital,
minimum earnings sufficient to absorb losses, a minimum ratio of market value to
book value of publicly traded shares and such other standards as the agency
deems appropriate.
DEPOSIT INSURANCE. The Bank's deposits are insured up to $100,000 per insured
account, partly by the BIF and partly by the SAIF. As an institution whose
deposits are insured by BIF and SAIF, the Bank is required to pay deposit
insurance premiums to BIF and to SAIF.
The FDIC has adopted rules that implement a transitional risk-based assessment
system whereby a base insurance premium will be adjusted according to the
capital category and subcategory of an institution to one of three capital
categories consisting of (1) well capitalized (2) adequately capitalized, or (3)
under capitalized, and one of three subcategories consisting of (a) health, (b)
supervisory concern, or (c) substantial supervisory concern. An institution's
annual assessment rate will depend upon the capital category and supervisory
category to which it is assigned. Annual assessment rates for banks range from
0.00 percent for an institution in the highest category (i.e. well capitalized)
to 0.27 percent for an institution in the lowest category (i.e. undercapitalized
and substantial supervisory concern), and for saving associations the rates
range from 0.00 percent for well capitalized institutions to 0.27 percent for
institutions in the lowest category. The FDIC Board of Directors also voted to
collect an assessment against BIF assessable deposits to be paid to the
Financing Corporation (FICO). The FDIC, through enactment of the Deposit
Insurance Funds Act of 1996, stipulates that the rate must equal one-fifth of
the FICO assessment rate that is applied to deposits assessable by the SAIF. In
1999, rates ranged from 1.16 percent to 1.22 percent for BIF deposits and 5.80
percent to 6.10 percent for SAIF deposits. The supervisory subgroups to which an
institution is assigned by the FDIC is confidential and may not be disclosed.
Deposit insurance assessments may increase depending upon the category and
subcategory, if any, to which the bank is assigned by the FDIC. Any increase in
insurance assessments could have an adverse effect on the earnings of the Bank.
ADDITIONAL MATTERS. In addition to the matters discussed above, Metro and the
Bank are subject to additional regulation of their business activities,
including a variety of consumer protection regulations affecting their lending,
deposit and collection activities and regulations affecting secondary mortgage
market activities.
The earnings of financial institutions, including Metro and the Bank, are also
affected by general economic conditions and prevailing interest rates, both
domestic and foreign and by the monetary and fiscal policies of the U.S.
Government and its various agencies, particularly the Federal Reserve.
Additional legislation and administrative actions affecting the banking industry
may be considered by the United States Congress, the Indiana General Assembly
and various regulatory agencies, including those referred to above. It cannot be
predicted with certainty whether such legislation or administrative action will
be enacted or the extent to which the banking industry in general or Metro and
the Bank in particular would be affected thereby.
EMPLOYEES. At December 31, 1999, the Bank had a total of 59 full-time equivalent
employees. This included 52 full-time and 16 part-time employees
ITEM 2. DESCRIPTION OF PROPERTY
-----------------------
The principal executive office of Metro and the Bank is located at Three
Meridian Plaza, 10333 North Meridian Street, Suite 111, Indianapolis, Indiana,
and is leased from an unaffiliated third party. In addition to the
Page 11
<PAGE>
executive office which includes a bank branch office, the Bank operates six
traditional staffed branch offices. Two offices are owned by MB Realty, a wholly
owned subsidiary of the Bank, while the other four branches are leased
facilities. Traditional staffed branches owned by MB Realty are located at 225
North Ninth Street, Noblesville, Indiana, and 20 South Rangeline Road, Carmel,
Indiana. A traditional staffed branch is leased from an unaffiliated third party
located at 255 Sheridan Road, Noblesville, Indiana and in the Wal-Mart
SuperCenter in Noblesville. The Bank also has a traditional staffed branch
located at 2025 North Cherry Street, Noblesville, Indiana, and 14610 US 31
North, Carmel, Indiana that are leased from affiliated third parties. The Bank
has multiple ATM locations throughout its market area that are leased from
unaffiliated retail business owners.
ITEM 3. LEGAL PROCEEDINGS
-----------------
There are no pending legal proceedings of a material nature to which Metro or
the Bank is a party or in which any of their property is subject, other than
routine litigation incidental to the normal business of Metro and the Bank.
There is no material legal proceeding in which any director, executive officer,
principal shareholder or affiliate of Metro, or any associate of any such
director, executive officer, principal shareholder or affiliate, is a party and
has an interest adverse to Metro. None of the ordinary routine litigation in
which Metro or the Bank is involved is expected to have a material adverse
impact upon the financial condition or results of operations of Metro.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted during the fourth quarter of 1999 to Metro's
shareholders, either through the solicitation of proxies or otherwise.
Part II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
---------------------------------------------------------
In conjunction with a public offering of common stock completed in the second
quarter of 1994, Metro obtained approval for quotation on the National
Association of Securities Dealers Automated Quotation System Small-Cap Market
("NASDAQ") under the symbol "METB."
At December 31, 1999, there were 335 shareholders of record of Metro common
stock.
The following table sets forth the high and low sale prices for Metro common
stock for the quarters during the years indicated, as reported by NASDAQ. Such
over-the-counter quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Sale Price Per Share
1999 1998
---- ----
Quarter High Low High Low
------- ----------------------- ---------------------
<S> <C> <C> <C> <C>
First Quarter $10.00 $7.14 $9.96 $7.90
Second Quarter 8.33 6.67 10.17 8.01
Third Quarter 8.57 6.79 9.09 6.93
Fourth Quarter 8.16 5.83 9.52 7.14
</TABLE>
Page 12
<PAGE>
Metro declared and paid on a quarterly basis four cash dividends on its shares
of Common Stock during 1999. The amount of each dividend was approximately
$106,700 or $0.055 per share. Future cash dividend payments by Metro are subject
to regulatory and legal limitations and may be dependent upon dividends paid to
Metro by the Bank.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
--------------------------------------------------------------
Management's discussion and analysis and results of operations are included in
Metro's Annual Report to Shareholders for the year ended December 31, 1999 and
are incorporated herein by reference in regard to this item.
ITEM 7. FINANCIAL STATEMENTS
--------------------
Financial statements are included in Metro's Annual Report to Shareholders for
the year ended December 31, 1999 and are incorporated herein by reference in
regard to this item.
ITEM 8. CHANGE IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
-----------------------------------------------------------------------
None.
Part III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
-------------------------------------------------------------
Pages 2 through 7, inclusive, of Metro's Definitive Proxy Statement for the
Annual Meeting of Shareholders, dated April 18, 2000, is incorporated herein by
reference in regard to this item.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
Pages 5 through 11, inclusive, of Metro's Definitive Proxy Statement for the
Annual Meeting of Shareholders, dated April 18, 2000, is incorporated herein by
reference in regard to this item.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Pages 2 through 4, inclusive, of Metro's Definitive Proxy Statement for the
Annual Meeting of Shareholders, dated April 18, 2000, is incorporated herein by
reference in regard to this item.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Page 12 through 13, of Metro's Definitive Proxy Statement for the Annual Meeting
of Shareholders, Dated April 18, 2000, is incorporated herein by reference in
regard to this item.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
---------------------------------
(a) The following Exhibits are being filed as part of this Registration
Statement:
3(i)* Articles of Incorporation
3(ii)* By-Laws
Page 13
<PAGE>
10.01* Employment Agreement dated December 31, 1992 between
Registrant and Ike G. Batalis
10.02* Employment Agreement dated July 1, 1991 between Registrant
and Charles V. Turean
10.03* Employment Agreement dated July 1, 1991 between Registrant
and Andrew E. Illyes
10.04* Letter of Agreement dated December 31, 1992 between the
Registrant and Heptagon, Inc.
10.05* Lease dated September 11, 1987 between Registrant and
Western Plaza Company with respect to property at 255
Sheridan Road, Noblesville, Indiana
10.06* Lease dated October 11, 1993 between Registrant and Three
Meridian Plaza Company with respect to property at 10333
North Meridian Street, Suite 111, Indianapolis, Indiana
10.07* Form of indemnification Agreement for Directors and
Officers of Registrant
10.08* Registrant's 1987 Directors' Stock Option Plan
10.09* Registrant's Incorporators' and Founders' Stock Option Plan
10.10* Registrant's 1987 Stock Option and Stock Appreciation
Rights Plan
10.11* Registrant's 1991 Directors' Stock Option Plan
10.12* Registrant's 1991 Stock Option and Stock Appreciation
Rights Plan
10.13** Registrant's Supplemental Executive Retirement Plan
10.15* Student Loan Sale Agreement, dated May 19, 1989
10.16* Student Loan Sale Agreement, dated July 1, 1992
10.17* Consent to Assignment to Secondary Market Services, Inc. of
Student loan purchase and sale agreements effective April
1, 1993
10.18* Student Loan Guarantee Agreement, dated August 19, 1989
10.19* Student Loan Servicing Agreement, dated September 1, 1992
10.20** Registrant's Employees' Thrift and Retirement Plan
10.20(a)****Amendment No. 1, dated October 26, 1995 to the
Registrant's Employees' Thrift and Retirement Plan
10.21*** Registrant's 1994 Stock Option and Stock Appreciation
Rights Plan
10.22*** Registrant's 1994 Directors' Stock Option Plan
Page 14
<PAGE>
10.24***** Lease dated March 18, 1997 between Registrant and Riverview
Hospital, for property at 2025 Cherry Street, Noblesville,
Indiana
10.25****** Sublease dated September 11, 1997 between Registrant and
Wal-Mart Stores, Inc., for property at 16865 Clover Road,
Noblesville, Indiana
10.26****** Amendment No. 1 to Lease Agreement dated September 30,
1997, between the Registrant and Phoenix Home Life Mutual
Insurance Company for property at 10333 North Meridian
Street, Suite 111, Indianapolis, Indiana
10.27 Employment Agreement dated May 10, 1999 between Registrant
and Gregory J. Murray
10.28 Memorandum of In-Store Bank Facility License Agreement
dated August 13, 1999 between Registrant and SUPERVALU
INC., d/b/a Cub Foods for property located at 14610 US
North, Carmel, Indiana
10.29 Memorandum of Lease dated August 26, 1999 between
Registrant and G & J PARTNERSHIP for property located at
11815 Allisonville Road, Fishers, Indiana
13 The Annual Report to Shareholders of the Company for the
year ended December 31, 1999 (Except for the pages and
information thereof expressly incorporated by reference in
this Form 10-KSB, the Annual Report to Shareholders is
provided solely for the information of the Securities and
Exchange Commission and is not deemed "filed" as part of
this Form 10-KSB).
21* Subsidiaries of the Registrant
24 Powers of Attorney
27 Financial Data Schedule
* Incorporated by reference to Registrant's Registration Statement on
Form SB-2, File No. 33-75360 filed on February 16, 1994.
** Incorporated by reference to Registrant's Pre-Effective Amendment No. 1
to Registration Statement on Form SB-2, File No. 33-75360, filed March
16, 1994.
*** Incorporated by reference to Registrant's Form 10-QSB for the fiscal
quarter ended June 30, 1994, filed in August, 1994.
**** Incorporated by reference to Registrant's Form 10-KSB for the fiscal
year ended December 31, 1995.
***** Incorporated by reference to Registrant's Form 10-QSB for the fiscal
quarter ended March 31, 1998, filed May 13, 1998.
****** Incorporated by reference to Registrant's Form 10-QSB for the fiscal
quarter ended September 30, 1998, filed November 12, 1998.
(b) No Reports on Form 8-K were filed during the last quarter of 1999.
Page 15
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 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.
MetroBanCorp
(Registrant)
Date: March 30, 2000 By: /s/Ike G. Batalis
-----------------
Ike G. Batalis, President
(Principal Executive Officer)
Date: March 30, 2000 By: /s/ Charles V. Turean
---------------------
Charles V. Turean
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date: March 30, 2000 By: CHRIS G. BATALIS*
-----------------
Chris G. Batalis, Director
Date: March 30, 2000 By: TERRY L. EATON*
---------------
Terry L. Eaton, Director
Date: March 30, 2000 By: EVANS M. HARRELL*
-----------------
Evans M. Harrell, Director
Date: March 30, 2000 By: EDWARD G. McMAHON*
------------------
Edward G. McMahon, Director
Date: March 30, 2000 By: ROBERT L. LAUTH, JR.*
----------------------
Robert L. Lauth, Jr., Director
Date: March 30, 2000 By: JAMES C. LINTZENICH*
--------------------
James C. Lintzenich, Director
Date: March 30, 2000 By: RUSSELL D. RICHARDSON*
----------------------
Russell D. Richardson, Director
Date: March 30, 2000 By: EDWARD R. SCHMIDT*
------------------
Edward R. Schmidt, Director
Date: March 30, 2000 By: DONALD F. WALTER*
-----------------
Donald F. Walter, Director
*By: /s/ Ike G. Batalis
--------------------------------
Ike G. Batalis, Attorney-in-Fact
Page 16
<PAGE>
Index to Exhibits
-----------------
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Exhibit Number
- ---------------- ------------------------------------------------------------------------------------- ----------------
<S> <C> <C>
3 (i)* Articles of Incorporation of the Registrant N/A
3 (ii)* By-Laws of the Registrant N/A
10.01* Employment Agreement dated December 31, 1992 between N/A
Registrant and Ike G. Batalis
10.02* Employment Agreement dated July 1, 1991 between N/A
Registrant and Charles V. Turean
10.03* Employment Agreement dated July 1, 1991 between N/A
Registrant and Andrew E. Illyes
10.04* Letter of Agreement dated December 31, 1992 between N/A
the Registrant and Heptagon, Inc.
10.05* Lease dated September 11, 1987 between Registrant N/A
and Western Plaza Company with respect to property
at 255 Sheridan Road, Noblesville, Indiana
10.06* Lease dated October 11, 1993 between Registrant and N/A
Three Meridian Plaza Company with respect to property
at 10333 North Meridian Street, Suite 111, Indianapolis,
Indiana
10.07* Form of Indemnification Agreement for Directors and Officers N/A
of the Registrant
10.08* Registrant's 1987 Directors' Stock Option Plan N/A
10.09* Registrant's Incorporators' and Founders' Stock N/A
Option Plan
10.10* Registrant's 1987 Stock Option and Stock N/A
Appreciation Rights Plan
10.11* Registrant's 1991 Directors' Stock Option Plan N/A
10.12* Registrant's 1991 Stock Option and Stock Appreciation N/A
Rights Plan
10.13** Registrant's Supplemental Executive Retirement Plan N/A
Page 17
<PAGE>
10.15* Student Loan Sale Agreement, dated May 19, 1989 N/A
10.16* Student Loan Sale Agreement, dated July 1, 1992 N/A
10.17* Consent to Assignment to Secondary Market Services, Inc. N/A
of Student Loan Purchase and Sale Agreements
Effective April 1, 1993
10.18* Student Loan Servicing Agreement, dated August 19, 1989 N/A
10.19* Student Loan Servicing Agreement, dated February 1, 1997 N/A
10.20** Registrant's Employees' Thrift and Retirement Plan N/A
10.20 (a)**** Amendment No. 1, dated October 26, 1995 to the N/A
Registrant's Employees' Thrift and Retirement Plan
10.21*** Registrant's 1994 Stock Option and Stock Appreciation N/A
Rights Plan
10.22*** Registrant's 1994 Directors' Stock Option Plan N/A
10.24***** Lease dated March 18, 1997 between Registrant and N/A
Riverview Hospital, for property at 2025 Cherry Street,
Noblesville, Indiana
10.25****** Sublease dated September 11, 1997 between Registrant and N/A
Wal-Mart Stores, Inc., for property at 16865 Clover Road,
Noblesville, Indiana
10.26****** Amendment No. 1 to Lease Agreement, dated September 30, 1997 N/A
between the Registrant and Phoenix Home Life Mutual Insurance
Company for property at 10333 North Meridian Street, Suite 111,
Indianapolis, Indiana
10.27 Employment Agreement dated May 10, 1999 between Registrant and 57
Gregory J. Murray
10.28 Memorandum of In-Store Bank Facility License Agreement dated August 13, 66
1999 between Registrant and SUPERVALU INC., d/b/a Cub Foods for
property located at 14610 US North, Carmel, Indiana
10.29 Memorandum of Lease dated August 26, 1999 between Registrant and G & J 67
PARTNERSHIP for property located at 11815 Allisonville Road, Fishers,
Indiana
Page 18
<PAGE>
13 The Annual Report to Shareholders of the Company for N/A
the year ended December 31, 1999
(Except for the pages and information thereof expressly
incorporated by reference in this Form 10-KSB, the Annual
Report to Shareholders is provided solely for the information
of the Securities and Exchange Commission and is not
deemed "filed" as part of this Form 10-KSB)
21* Subsidiaries of the Registrant N/A
24 Powers of Attorney 16
27 Financial Data Schedule 68
</TABLE>
Page 19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following information is intended to provide an analysis of the consolidated
financial condition and performance of MetroBanCorp ("Metro") and MetroBank
("Bank") as of December 31, 1999 and 1998 and for each of the three years ended
December 31, 1999, 1998 and 1997. This information should be read in conjunction
with the Consolidated Financial Statements and footnotes included elsewhere in
this Annual Report.
RESULTS OF OPERATIONS
Net Income
Net income in 1999 was $1,402,000, an increase of 33.4 percent from the
$1,051,000 reported in 1998. Total loans amounted to $88.1 million and $80.5
million at December 31, 1999 and 1998, respectively. The investment portfolio
amounted to $41.0 million and $41.3 million at December 31, 1999 and 1998,
respectively. Total interest income increased by $327,000 or 3.3 percent for the
year, due principally to growth in the Bank's loan portfolio. The Bank decreased
its provisions for loan losses from $311,000 in 1998 to $232,000 in 1999. This
represents a decrease of $79,000 or (25.4) percent over the amount provided in
1998. The provisions made in 1999 were at 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 allowance account. The
decrease is principally due to continued high quality in the loan portfolio and
low levels of historic net losses.
Net income in 1998 was $1,051,000, a 29.9 percent increase from the $809,000
reported in 1997. During 1998, Metro's total loans outstanding increased by $3.2
million or 4.1 percent. During that same period, the investment portfolio
increased $13.3 million or 47.4 percent. Interest income increased by $1.2
million or 13.1 percent during 1998.
Net Interest Income
Net interest income is the principal source of the Bank's earnings and
represents the difference between interest and fees on earning assets earned by
the Bank and the interest cost of deposits and other borrowed funds paid by the
Bank. The net interest margin is the difference expressed as a percentage of
average earning assets. Factors contributing to the determination of net
interest margin include the volume and mix of earning assets and interest
bearing liabilities as well as interest rates. The Bank can control the effects
of some of these factors through its management of credit extension and interest
rate sensitivity, both of which are discussed later. External factors such as
the overall condition of the economy, strength of credit demand and Federal
Reserve monetary policy can also have significant effects on the changes in net
interest income from one period to another.
In 1999, net interest income was $6.2 million, an increase of 9.4 percent over
1998. In 1999, the net interest margin increased to 4.62 percent of average
earning assets compared to 4.42 percent in 1998. This increase is primarily a
result of growth in the Bank's loan portfolio.
In 1998, net interest income was $5.7 million, an increase of 13.1 percent over
1997. In 1998, the net interest margin decreased to 4.42 percent of average
earning assets compared to 4.87 percent in 1997.
Page 20
<PAGE>
Net Interest Income
(dollars in thousands)
<TABLE>
<CAPTION>
For the year ended December 31, Percentage change from
INTEREST INCOME 1999 1998 1997 1998 to 1999 1997 to 1998
---- ---- ---- ------------ ------------
<S> <C> <C> <C> <C> <C>
Interest and Fees on Loans $7,925 $7,851 $7,133 0.9% 10.1%
Interest on Investment Securities 2,275 1,739 1,586 30.8 9.6
Interest on Federal Funds Sold 108 391 104 (72.4) 276.0
---------- ---------- ----------- ---------------- ----------------
Total Interest Income 10,308 9,981 8,823 3.3 13.1
---------- ---------- ----------- ----------------- ----------------
INTEREST EXPENSE
Interest on Deposits 3,998 4,292 3,754 (6.8) 14.3
Interest on Repurchase Agreements 66 - - - -
Interest on Borrowings 21 - 37 - 100.0
---------- ---------- ---------- ---------------- ----------------
Total Interest Expense 4,085 4,292 3,791 (4.8) 13.2
---------- ---------- ---------- ---------------- ----------------
Net Interest Income $6,223 $5,689 $5,032 9.4% 13.1%
========== ========== ========== ================ ================
</TABLE>
<TABLE>
<CAPTION>
Rate Volume Analysis of Change in Net Income
(dollars in thousands)
1998 vs. 1999 1997 vs. 1998
------------------------------------------ -----------------------------------------------
Dollar Attributable Attributable Dollar Attributable Attributable
Interest and Fee Income on: Change to Volume(1) to Rate(1) Change to Volume to Rate
------ ------------ ------------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Loans $74 $334 $(260) $718 $623 $95
Investment Securities 536 387 149 153 153 -
Federal Funds Sold (283) (246) (37) 287 291 (4)
----------- -------------- -------------- ----------- --------------- --------------
Total Interest Income 327 475 (148) 1,158 1,067 91
Interest Expense on:
Savings and Time Deposits (294) 127 (421) 538 493 45
Term Borrowings 21 21 - (37) (30) (7)
Repurchase Agreements 66 66 - - - -
----------- -------------- ------------- ----------- --------------- --------------
Total Interest Expense (207) 214 (421) 501 463 38
----------- -------------- ------------- ----------- --------------- --------------
Net Interest Income(2) $534 $261 $273 $657 $604 $53
=========== ============== ============= =========== =============== ==============
</TABLE>
- ---------------
1 Changes not solely attributable to volume or rate changes have been allocated
in proportion to the changes due to volume or rate.
2 Interest on non-accruing loans is not included.
Page 21
<PAGE>
Distribution of Assets, Liabilities and Shareholders' Equity
and Interest Rates and Differential Variance Analysis
(dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------- ---------------------------------- -------------------------------
Average Yield / Average Yield / Average Yield /
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Earning Assets:
Investment Securities $39,737 $2,275 5.73% $32,819 $1,739 5.30% $29,595 $1,586 5.36%
Federal Funds Sold 2,189 108 4.93% 7,108 391 5.50% 1,824 104 5.70%
Loans, net(3) 81,661 7,925 9.71% 78,276 7,851 10.03% 71,997 7,133 9.91%
------------ --------- --------- ------------- -------- ----------- ----------- --------- ---------
Total Earning Assets $123,587 $10,308 8.34% $118,203 $9,981 8.44% $103,416 $8,823 8.53%
--------- --------- -------- ----------- --------- ---------
Non-Earning Assets:
Cash and Due from Banks 7,756 7,498 5,574
Premises and
Equipment, net 1,474 1,476 1,575
Other Assets 1,887 1,609 1,835
------------ ------------- -----------
Total Assets $134,704 $128,786 $112,400
============ ============= ===========
Liabilities and Shareholders' Equity
- ------------------------------------
Interest Bearing Liabilities:
Savings and Time
Deposits $92,821 $3,998 4.31% $90,096 $4,292 4.76% $79,748 $3,754 4.70%
Repurchase Agreements 1,713 66 3.85% - - - - - 0%
Term Borrowings 410 21 5.12% 2 - - 581 37 6.37%
-------------------------------- ---------------------------------- -------------------------------
Total Interest Bearing
Liabilities $94,944 $4,085 4.30% $90,098 $4,292 4.76% $80,329 $3,791 4.72%
------------------- -------------------- -------------------
Non-Interest Bearing
Liabilities:
Demand Deposits 25,386 24,896 18,993
Other Liabilities 1,376 1,422 1,275
Shareholders' Equity 12,998 12,370 11,803
------------ ------------- -----------
Total Liabilities and
Shareholders' Equity $134,704 $128,786 $112,400
============ ============= ===========
Net Interest Margin $6,223 4.62% $5,689 4.42% $5,032 4.87%
========== ========== ========
</TABLE>
- ---------------
3 Includes principal balances of non-accruing loans. Interest on non-accuring
loans is not included.
Page 22
<PAGE>
Provision for Loan Losses
The Bank 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 losses inherent in the loan
portfolio. A detailed evaluation of the estimated losses along with an
assessment of the adequacy of the loan loss allowance is completed quarterly by
management. The evaluation includes, but is not limited to, analysis of risk
classification, past due status, historical write-off experience, type of loan,
collateral and other significant factors as management deems necessary.
The provision for loan losses amounted to $232,000, $311,000 and $200,000 in
1999, 1998 and 1997, respectively. At December 31, 1999 and 1998, the Bank had
an allowance for loan losses of $1,464,000 and $1,300,000, respectively. The
Bank's allowance for loan losses to ending total loans, as a percentage,
amounted to 1.66 percent and 1.62 percent at December 31, 1999 and 1998,
respectively. The decreases in the provision during 1999 was considered
appropriate by management relative to the loan loss allowance adequacy analysis.
Based upon management's assessment of the guaranteed nature of its student loan
portfolio, including the strength of the guarantor, a minimal amount of loan
loss is allocated for this portfolio of loans (see "Loan Quality" discussed
hereinafter). The allowance for loan losses as a percentage of the remaining
loan portfolio (excluding guaranteed student loans) amounted to 1.74 percent at
December 31, 1999, as compared to 1.71 percent at December 31, 1998.
Non-Interest Income
In 1999, Metro's non-interest income to average total assets increased to 0.82
percent from 0.75 percent in 1998, compared to 0.78 percent in 1997. Excluding
net securities losses and gain on the sale of real estate, non-interest income
was $1,107,000, $970,000 and $802,000 in 1999, 1998 and 1997, respectively.
Service charges on deposit accounts increased 12.71 percent while other service
charges, commissions and fees increased $92,000 or 14.94 percent in 1999. The
1999 increase in other service charges, commissions and fees was due primarily
to additional fee income resulting from transactions performed at the Bank's
ATMs by non-customers. A surcharge for non-customers using the Bank's ATMs was
implemented in April, 1997.
Non-Interest Income
(dollars in thousands)
<TABLE>
<CAPTION>
Percent Change From
1998 1997
For the year ended December 31, To To
1999 1998 1997 1999 1998
------------ ------------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Service Charges on
Deposit Accounts $399 $354 $319 12.71% 10.97%
Other Service Charges,
Commissions & Fees 708 616 483 14.94 27.54
------------ ------------- --------------- ------------ -------------
1,107 970 802 14.12 20.95
Securities Loss, Net - (9) (15) (100.00) (40.00)
Gain on Sale of Real Estate - - 90 - (100.00)
------------ ------------- --------------- ------------ -------------
Total Non-Interest Income $1,107 $961 $877 15.19% 9.58%
============ ============= =============== ============ =============
</TABLE>
Page 23
<PAGE>
Non-Interest Expense
Non-interest expense increased $246,000 in 1999, or 5.4 percent over the 1998
level. As a percentage of total average assets, non-interest expense was 3.6
percent in 1999 compared to 3.5 percent in 1998 and 3.9 percent in 1997. Salary
and employee benefits, the largest non-interest expense, increased $297,000 or
15.2 percent in 1999. This reflects an increase in the Bank's staff, combined
with higher employee compensation and benefit costs. Metro's remaining expenses
decreased $51,000 or 2.0 percent from 1998, and is due primarily to decreases
in the amortization of core deposit intangible, which decreased by $100,000 in
1999 compared to 1998.
Throughout 1999, 1998 and 1997, the Bank continued to develop an extensive ATM
network. The Bank entered into agreements with several area Shell ETD and Amoco
stores to deploy ATMs in their facilities. During 1999, 1998 and 1997, Metro
installed an additional two ATMs, two ATMs and four ATMs respectively. At
December 31, 1999, Metro's ATM network includes twenty-four machines, of which,
sixteen are located at off-premise locations and seven are located at Bank
branches. Currently, the Bank disburses cash at these sites and intends to allow
users to conduct other paper based transactions in the future.
Non-interest expense increased $206,000 or 4.7 percent in 1998 over the 1997
level. Salaries and employee benefits, the largest non-interest expense,
increased $160,000 or 8.9 percent from 1997. This increase reflects an increase
in the Bank's employee base and higher employee compensation and benefit costs.
During 1998, net occupancy expense increased $64,000 or 19.6% from 1997. This
increase is primarily due to the opening of the Noble Creek branch during 1997.
During 1998, the FDIC insurance assessment increased $3,000 or 12.0 percent from
1997. This increase is due principally to recognition of a one time
recapitalization charge incurred in 1996.
Non-Interest Expense
(dollars in thousands)
<TABLE>
<CAPTION>
For the year ended December 31, Percent Change From
1999 1998 1997 1998 to 1999 1997 to 1998
---- ---- ---- ------------ ------------
<S> <C> <C> <C> <C> <C>
Salaries and Employee Benefits $2,254 $1,957 $1,797 15.18% 8.90%
Net Occupancy Expense 432 391 327 10.49 19.57
Equipment Expense 356 359 437 (0.84) (17.85)
Advertising and Public Relations 249 241 234 3.32 2.99
Legal and Professional Services 189 225 258 (16.00) (12.79)
Data Processing 343 325 275 5.54 18.18
FDIC Insurance Assessment 29 28 25 3.57 12.00
Student Loan Servicing Fees 31 37 63 (16.22) (41.27)
Amortization of Core Deposit
Intangible 41 141 141 (70.92) 0.00
Other 888 862 803 3.02 7.35
----------- ------------- ------------ ---------------- -----------------
Total $4,812 $4,566 $4,360 5.39% 4.72%
=========== ============= ============ ================ =================
</TABLE>
Provision for Income Taxes
Metro provides for income taxes under the liability method of accounting for
income taxes. Effective January 1, 1993, Metro adopted the provisions of SFAS
109, "Accounting for Income Taxes". Metro's provision for income taxes of
$884,000 represents an effective tax rate of 38.7 percent in 1999. This compares
to an effective tax rate of 40.7 percent in 1998 and 40.0 percent in 1997.
Details relative to Metro's income tax provisions are discussed in Note 11 to
the Consolidated Financial Statements included in this Annual Report.
Page 24
<PAGE>
CAPITAL RESOURCES AND CAPITAL ADEQUACY
Metro is subject to various capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on Metro's financial
statements. Under federal capital adequacy guidelines and the regulatory
framework for prompt corrective action, Metro must meet specific capital
guidelines that involve quantitative measure of Metro's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. Metro's capital amounts and classification are also subject to
qualitative judgments by regulators involving capital components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Metro to maintain minimum amounts and ratios of total and Tier 1 capital
(as defined in the regulations) to risk-weighted assets, and Tier 1 capital to
average assets. Management believes, as of December 31, 1999, that Metro meets
all capital adequacy requirements to which it is subject. The following table
sets forth the actual and minimum capital amounts and ratios of Metro and the
Bank as of December 31, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------------- ---------------------------- ----------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets)
Consolidated $14,921 15.58% > $7,662 > 8.00% > $ 9,578 > 10.00%
- - - -
Bank 12,593 13.24% > 7,609 > 8.00% > 9,512 > 10.00%
- - - -
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated 13,724 14.33% > 3,831 > 4.00% > 5,747 > 6.00%
- - - -
Bank 11,404 11.99% > 3,805 > 4.00% > 5,707 > 6.00%
- - - -
Tier 1 Capital
(to Average Assets)
Consolidated 13,724 10.19% > 5,388 > 4.00% > 6,735 > 5.00%
- - - -
Bank 11,404 8.61% > 5,296 > 4.00% > 6,620 > 5.00%
- - - -
</TABLE>
As of December 31, 1999, 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 and leverage ratios as set forth in
the table. There are no conditions or events since this notification that
management believes have changed Metro's or the Bank's capital categories.
USE OF FUNDS
Investment Securities
Investment securities are the second major category of earning assets for the
Bank. This portfolio, together with Federal Funds Sold, is used to manage the
Bank's interest rate sensitivity and liquidity as other components of the
balance sheet change. Management's objective is to maximize, within quality
standards, its net interest margin while providing a stable source of liquidity
through the scheduled stream of maturities and interest income.
Page 25
<PAGE>
Metro holds certain investment securities as "available for sale." Available for
sale securities are stated at their current market value. Unrealized gains and
losses associated with available for sale securities, net of taxes, are excluded
from earnings and reported as a net amount in a separate component of
shareholders' equity until realized.
Metro has the intent and ability to hold securities classified as "held to
maturity" until their respective maturities. Accordingly, such securities are
stated at cost and are adjusted for amortization of premiums and accretion of
discounts.
Realized gains or losses from the sale of securities are reflected in income on
a specific identification basis. Interest income and the amortization of the
premium and discount arising at the time of acquisition are included in income.
Investment securities comprise 32.1 percent of total earning assets at December
31, 1999. The "held to maturity" portfolio is managed to provide a stable source
of liquidity through scheduled maturities and interest income payments. The
"available for sale" portfolio is managed to maximize investment yields and to
provide liquidity to react timely to the needs of the Bank. During 1999,
proceeds from sales of investment securities consisted of 2 sales totaling $1.1
million and $7.4 million in principal paydowns.
Total investment securities at December 31, 1999 decreased by $0.4 million or
0.9 percent over the prior year. This decrease is considered nominal.
Weighted average yields of the investment securities portfolio were 6.18 percent
in 1999 and 5.85 percent in 1998.
Investment securities consist primarily of U.S. government agency and
corporation bonds, mortgage backed securities with both fixed and floating
interest rates and municipal securities with fixed interest rates. Securities
designated as "held to maturity" include $1.5 million of dual indexed derivative
securities as of December 31, 1999, a decrease of $0.5 million from the prior
year. Although these securities' current market values are below cost, Metro
believes these securities to be only temporarily impaired due to their interest
rate characteristics. The bank has the ability to hold these securities until
their respective maturity dates, when significant differences between book value
and market value will no longer exist. The mortgage backed securities are
subject to both prepayment and interest rate risk and have been classified
primarily as available for sale.
Federal funds sold amounted to $0 at December 31, 1999 compared to $2.3 million
at December 31, 1998, a decrease of $2.3 million from year-end 1998. This
decrease is attributable to the Bank's daily fluctuations in cash and liquidity
requirements.
Investment security information including costs, market value, unrealized
gains/losses and maturity distribution is presented in Note 3 to the
consolidated financial statements.
Investment Securities Weighted Average Yield
<TABLE>
<CAPTION>
Due within 1 to Less than 5 5 to Less than Due After 10
1 Year Years 10 Years Years Overall
------------- ------------------ ----------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
1999 6.13% 5.92% 6.53% 6.22% 6.18%
1998 6.44% 5.55% 5.47% 6.08% 5.85%
</TABLE>
These investment securities weighted average yields are presented on a tax
equivalent basis.
Page 26
<PAGE>
Loans
Total loans increased by 9.4 percent from the prior year to $88.1 million at
December 31, 1999. The increase is due to the growth of both the commercial
portfolio and the installment portfolio, which grew in 1999 by 15.4 percent and
9.6 percent, respectively. The Bank continued to make a concerted effort to
increase its commercial and installment loan portfolio through the use of an
extensive loan officer calling program aimed at the Bank's target market. During
1999, the Bank increased the installment loan portfolio by expanding its
indirect lending relationship through a local window manufacturer.
The Bank's growth in commercial and other loans is centered around short- and
intermediate-term maturities. The Bank has maintained a competitive approach
toward high quality loans in its marketplace. While Guaranteed Student Loans
(GSLs) account for 4.3 percent of the Bank's loan portfolio at December 31,
1999, these loans are comprised of approximately 1,200 promissory notes made to
approximately 600 borrowers who are geographically dispersed throughout the
United States. These loans are serviced and guaranteed, pursuant to the Higher
Education Act of 1965, as amended ("HEA"), by USA Group Loan Services and USA
Funds, respectively, affiliates of USA Group, Inc.
<TABLE>
<CAPTION>
Loan Portfolio at Year-End
(dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
Percent change from
December 31, 1998 to 1997 to
1999 1998 1997 1999 1998
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Commercial & Agricultural $22,067 $20,288 $18,648 8.8% 8.8%
Real Estate - Construction 1,295 2,399 3,689 (46.0%) (35.0%)
Real Estate - Mortgage 41,603 36,890 32,152 12.8% 14.7%
Installment 19,338 16,487 17,840 17.3% (7.6%)
Student Loans 3,764 4,405 4,966 (14.6%) (11.3%)
--------------- ------------ ------------- ------------ ------------
88,067 80,469 77,295 9.4% 4.1%
--------------- ------------ ------------- ------------ ------------
Less: Allowance for Loan
Losses (1,464) (1,300) (998) 12.6% 30.3%
--------------- ------------ ------------- ------------ ------------
Net Loans $86,603 $79,169 $76,297 9.4% 3.8%
============== ============ ============= ============ ============
</TABLE>
Page 27
<PAGE>
<TABLE>
<CAPTION>
After One
Maturity Distributions Within But Within After Five
(dollar amounts in thousands) One Year Five Years Years Total
- ---------------------------------------------- ------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Commercial, Financial & Agricultural $ 8,660 $ 8,142 $ 5,265 $ 22,067
Real Estate - Construction 200 522 573 1,295
------------------ ------------------- ------------------ ------------------
TOTAL $ 8,860 $ 8,664 $ 5,838 $ 23,362
================== =================== ================== ------------------
Real Estate - Mortgage 41,603
Installment 19,338
Student Loans 3,764
------------------
TOTAL $ 88,067
==================
Loans Maturing After One Year With :
Fixed Interest Rates $ 19,488 $ 17,964
Variable Interest Rates 5,592 14,297
------------------- ------------------
TOTAL $ 25,080 $ 32,261
=================== ==================
</TABLE>
The Bank's loan portfolio is comprised primarily of commercial and installment
loans. At December 31, 1999, the Bank did not have any significant outstanding
loan concentration in similar industries that could cause an adverse impact
during an economic downturn in any one industry segment.
Loan Quality
The primary responsibility and accountability for the day-to-day lending
activities of the Bank rest with each loan officer. Bank management has
established specific lending authority for each loan officer based upon the loan
officer's experience and performance. The Bank also has a management loan
committee and a director loan committee (loan committees) which meet weekly and
semi-monthly, respectively. The loan committees provide for continuous
communication through the collective knowledge, judgment and experience of its
members. Additionally, they offer valuable input to lending personnel, act as a
loan approval body and monitor the overall quality of the Bank's loan portfolio.
The Bank maintains a comprehensive loan review program. The purpose of the
program is to evaluate credit quality and loan documentation. Bank management
uses this program to evaluate the loan portfolio against its credit quality
standards and its assessment of the adequacy of the allowance for loan losses.
The Bank's Board of Directors meets monthly to review and approve the activity
of the loan committees. Additionally, the Bank's Board of Directors reviews all
problem loans and delinquency reports at each Board meeting.
The Bank utilizes a risk system whereby each loan (excluding student loans) is
assigned a risk rating, with the individual ratings monitored on an ongoing
basis. Each week, reports of problem loans are prepared and reviewed by the
Bank's loan committees. In addition to under-performing loans, these reports
include loans where a customer's cash flow or net worth may be insufficient with
regard to loan repayment, loans which have been criticized in a regulatory
examination and any other loans where either the ultimate collectibility of the
loan is in question or the loan has characteristics requiring special
monitoring.
Page 28
<PAGE>
Assets considered to be under-performing are monitored closely by Bank
management. Under-performing assets are defined as: 1) non-accrual loans where
the ultimate collectibility of interest is uncertain but the principal is
considered collectible; 2) loans past due ninety days or more as to principal or
interest; 3) loans which have been renegotiated to provide a reduction or
deferral of interest or principal because of deterioration in the financial
condition of the borrower; and 4) other real estate owned.
The Bank adopted Statement of Financial Accounting Standard (SFAS) No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118,
on January 1, 1995. As of December 31, 1999, Metro had investments in loans
which were impaired in accordance with SFAS No.'s 114 and 118 of $443,000. Of
this amount, none had a related specific allowance. As of December 31, 1998,
Metro had investments in loans which were impaired in accordance with SFAS No.'s
114 and 118 of $368,700. Of this amount, $364,100 had no related specific
allowance. The remaining $4,600 of impaired loans were fully reserved.
The Bank's policy for recognizing income on impaired loans is to accrue interest
until a loan is classified as impaired. For loans which receive the
classification of impaired during the current period, interest accrued to date
is charged against current earnings. No interest is accrued after a loan is
classified as impaired. All payments received for loans which are classified as
impaired are utilized to reduce the principal balance outstanding. Interest
income of $38,000 would have been recorded in 1999 on impaired loans if such
loans had been accruing interest throughout the year in accordance with their
original terms. In 1999, interest income in the amount of $10,000 was recorded
on impaired loans prior to being classified as impaired. The average balance of
impaired loans was $373,000 at December 31, 1999.
Loans are charged off when they are deemed uncollectible. Total charged-off
loans, net of recoveries, were $68,000 in 1999, compared to $9,000 in 1998 and
$68,000 in 1997.
The following tables present activity in the allowance for loan losses account
and allocation of the allowance among loan categories:
Allowance for Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>
For the year ended
December 31,
1999 1998
---- ----
<S> <C> <C>
Allowance for Loan Losses, January 1 $1,300 $998
-------------- -------------
Loans Charged-Off:
Commercial 34 -
Installment 44 29
-------------- -------------
Total Charged-Off Loans 78 29
-------------- -------------
Recoveries on Charged-Off Loans:
Commercial 7 -
Installment 3 20
-------------- -------------
Total Recoveries on Charged-Off Loans 10 20
Net Charged-Off Loans 68 9
Provision for Loan Losses 232 311
-------------- -------------
Allowance for Loan Losses, December 31 $1,464 $1,300
============== =============
Average Loans Outstanding $82,678 $79,149
============== =============
Net Charged-Off Loans to Average Loans 0.08% 0.01%
============== =============
</TABLE>
Page 29
<PAGE>
Allocation of Allowance for Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
1999 1998
-------------------------------- ----------------------------
Percent of Percent of
Loans to Loans to
Amount Total Loans Amount Total Loans
--------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Commercial & Agricultural $377 25.1% $347 25.2%
Real Estate - Construction 22 1.5% 41 3.0%
Real Estate - Mortgage 714 47.2% 624 45.8%
Installment 341 21.9% 278 20.5%
Student Loans 10 4.3% 10 5.5%
--------------- ---------------- ------------- --------------
Total $1,464 100.0% $1,300 100.0%
=============== ================ ============= ==============
</TABLE>
The student loan portfolio is fully guaranteed by a third party for all loans
which were first disbursed prior to October 1, 1993. For those loans disbursed
on or after October 1, 1993 (or consolidated on or after that date), the
guarantee is 98 percent of the principal and interest due, provided that the
lender did not incur violations sufficient to cause the assessment of an
interest penalty or the loss of guarantee on the loan. All guaranteed student
loans are re-insured in various amounts by the federal government. As of
December 31, 1999, approximately $994,400 or 26.4 percent of the Bank's student
loan portfolio was disbursed after October 1, 1993.
Under-Performing Assets
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1999 1998
---- ----
<S> <C> <C>
Non-Accruing Loans $443 $369
Renegotiated Loans - -
Ninety (90) Days Past Due 202 134
-------------- -------------
Total Under-Performing Assets $645 $503
============== =============
Under-Performing Assets as a
Percentage of Total Loans 0.73% 0.63%
============== =============
Past Due Loans (90 Days or More)
Commercial - -
Real Estate - Construction - -
Mortgage - -
Installment - -
Student Loans 202 134
-------------- -------------
Total $202 $134
============== =============
</TABLE>
In addition to the loans classified as under-performing, management is closely
monitoring loans approximating $589,000 as of December 31, 1999 for the
borrowers' ability to continue to comply with contractual terms. For these
loans, existing conditions do not warrant either a partial charge-off or
classification as non-accrual. Management believes it has taken a conservative
approach in its evaluation of under-performing credits and the loan portfolio in
general, both in acknowledging the general condition of the portfolio and in
establishing the allowance for loan losses.
Page 30
<PAGE>
SOURCES OF FUNDS
The Bank's primary funding source is its base of core customer deposits, which
includes non-interest bearing demand deposits, regular savings and money market
accounts, and small denomination (under $100,000) certificates of deposit. Other
shorter term sources of funds are large denomination certificates of deposit and
securities sold under agreements to repurchase. The following table presents
information with respect to the average balances of these funding sources.
Funding Sources-Average Balances
(dollars in thousands)
<TABLE>
<CAPTION>
Percent Change from
For the year ended December 31, -----------------------------
------------------------------------------ 1998 to 1997 to
1999 1998 1997 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Core Deposits:
Non-Interest Bearing Demand $25,386 $24,896 $18,993 1.97% 31.08%
Savings Accounts 5,238 4,961 5,354 5.58% (7.34%)
Money Market and NOW Accounts 46,373 40,835 31,992 13.56% 27.64%
Other Time Deposits 30,299 31,043 29,963 (2.40%) 3.60%
------------------------------------------ --------------- ------------
Total Core Deposits $107,296 $101,735 $86,302 5.47% 17.88%
------------------------------------------ --------------- ------------
Time Deposits of $100,000 and Over $10,911 $13,257 $12,439 (17.70%) 6.58%
Federal Funds Purchased and
Securities Sold under 70,666.67% (99.41%)
Agreements to Repurchase 2,123 3 510
------------------------------------------ --------------- ------------
Total Funding Sources $120,330 $114,995 $99,251 4.64% 15.86%
========================================== =============== ============
</TABLE>
Funding Sources - Average Rates
<TABLE>
<CAPTION>
Percent Change from
For the year ended December 31, --------------------------
-------------------------------------- 1998 to 1997 to
1999 1998 1997 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Core Deposits
Non-Interest Bearing Demand - - - - -
Savings Accounts 2.00% 2.27% 2.72% (11.89%) (16.54%)
Money Market and NOW Accounts 3.61% 3.96% 3.69% (8.84%) 7.32%
Other Time Deposits 4.99% 5.63% 5.75% (11.37%) (2.09%)
-------------------------------------- ------------ -------------
Total Core Deposits 3.07% 3.41% 3.54% (8.21%) (3.67%)
-------------------------------------- ------------ -------------
Federal Funds Purchased and
Securities Sold Under
Agreements to Repurchase 4.11% 5.14% 5.42% (20.04%) (5.17%)
-------------------------------------- ------------ -------------
Total Funding Sources 3.34% 3.73% 3.83% (8.85%) (2.61%)
====================================== ============ =============
</TABLE>
The Bank's average total core deposits have shown steady growth over the past
several years, increasing by $5.6 million or 5.5 percent in 1999 compared to
17.9 percent in 1998. During 1999, the Bank experienced increases in all
categories of average deposits, except for time deposits. The daily average
balance of savings, money market and NOW accounts and other time deposits
increased 6.6 percent during 1999.
No one category of deposits dominated the growth experienced by the Bank. This
growth was generated primarily by the Bank's loan calling program which produced
a number of new commercial deposits. Also,
Page 31
<PAGE>
the Bank continues to service a number of bank accounts which relate to the real
estate title services industry. Due to the nature of the title services
industry, these deposits are short-term and usually deposited in the Bank during
the last week of each month and withdrawn during the first week of the following
month. This typically increases the Bank's deposits at the end of each month.
Time Deposit of $100,000 and Over
(dollars in thousands)
<TABLE>
<CAPTION>
Year End Balance 1 - 90 Days 91 - 180 Days 181 - 366 Beyond 1 Year
---------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
1999 $10,763 $2,037 $2,577 $3,548 $2,601
1998 $11,728 $3,459 $2,386 $2,704 $3,179
</TABLE>
Currently, the Bank has available separate agreements with two regional banks
which provide for the purchase of Federal funds to meet short-term liquidity
needs. The total amount of Federal funds available to the Bank under these
agreements is $4.0 million. The Bank also maintains a line of credit with the
Federal Home Loan Bank in the amount of $ 7.5 million to meet liquidity needs.
The Bank had no Federal Funds purchased during 1999.
LIQUIDITY AND RATE SENSITIVITY
The primary function of liquidity and interest rate sensitivity management is to
provide for and assure an ongoing flow of funds that is adequate to meet all
current and future financial needs of the Bank. Such financial needs include
funding credit commitments, satisfying deposit withdrawal requests, purchasing
property and equipment and paying operating expenses. The funding sources of
liquidity are principally the maturing assets and short-term and long-term
borrowings. The purposes of liquidity management are to match sources of funds
with anticipated customer borrowings, withdrawals, other obligations and to
ensure a dependable funding base. Rate sensitivity analysis places each of the
Bank's balance sheet components in its appropriate maturity category according
to its repricing frequency, thus enabling management to measure the exposure to
changes in interest rates.
The Bank's Asset/Liability and Investment Committee, which sets forth the
guidelines under which the Bank manages its deposits and its investment and loan
portfolios, is responsible for monitoring the Bank's investment portfolio. The
objective of this committee is to provide for the maintenance of an adequate net
interest margin and adequate level of liquidity to keep the Bank sound and
profitable during all stages of an interest rate cycle. Metro utilizes the
services of an external investment consultant and widely recognized research
firm. These outside consultants provide Metro with decision support information
necessary to monitor, analyze and track the performance of the Bank's investment
portfolio.
At December 31, 1999, $45.3 million or 51.7 percent of the loan portfolio are
fixed rate loans, excluding non-accruing loans. Variable rate loans, excluding
non-accruing loans, amounted to $42.3 million or 48.3 percent of the loan
portfolio at December 31, 1999. Fixed and variable rate loans with a scheduled
maturity date greater than one year amounted to $37.5 million and $19.9 million,
respectively, at December 31, 1999. In the investment securities category, $1.3
million or 3.2 percent of the portfolio matures within one year. The Bank's
average loan-to-deposit ratio, another indication of liquidity, was 70.3 percent
in 1999 compared to 69.1 percent for 1998.
Management also monitors the Bank's balance between interest rate sensitive
assets and liabilities to ensure that changes in interest rates will not
adversely affect earnings. Management of these sensitive items is important to
protect the net interest margin and assure earnings stability during periods of
adverse fluctuations in market interest rates.
Interest rate sensitivity occurs when assets and liabilities are subject to rate
and yield changes within a designated time horizon. An interest rate sensitivity
gap ("GAP") is determined by the differential of interest-earning assets and
interest-bearing liabilities. For an institution with a negative GAP for a given
period, the amount of its interest-bearing liabilities maturing or otherwise
repricing within such period exceeds the
Page 32
<PAGE>
amount of the interest-earning assets repricing within the same period.
Accordingly, in a rising interest rate environment, institutions with a negative
GAP will generally experience greater increases in costs of their
interest-bearing liabilities than in yields on their interest-earning assets.
Conversely, the yields on interest-earning assets of institutions with a
negative GAP will generally decrease less than the cost of their
interest-bearing liabilities during declining interest rate environments.
Changes in interest rates will generally have the opposite effect on
institutions with a positive GAP.
Management closely monitors its liquidity and interest rate sensitivity.
Management's objective in interest rate sensitivity management is to reduce the
Bank's vulnerability to future interest rate fluctuations while providing for
growth of the net interest margin. Management's goal is to maintain a GAP ratio
of rate-sensitive assets to rate-sensitive liabilities within a range of 0.70 to
1.30 for the one year time frame.
The cumulative GAP ratio of the Bank on December 31, 1999 was 52.6 percent for
expected maturities of ninety days or less and 75.2 percent for maturities of
one year or less. The ratios fall within the Bank's desired liquidity range for
one year. Management will continue to maximize its net interest margin while
managing interest rate risk within prudent boundaries. Based upon the current
balance sheet structure of the Bank, any future increase in interest rates could
have a positive impact on the Bank's net interest margin and earnings. Given
current economic conditions, management expects any decrease in general interest
rates to have a minimal effect on the Bank's earnings.
Interest Rate Sensitivity Analysis
(dollars in thousands)
<TABLE>
<CAPTION>
91 - 365 Beyond 5
1 - 90 Days Days 1 - 5 Years Years Total
-------------- -------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Earning Assets:
Investment Securities $ 2,650 $ 19,352 $ 16,711 $ 2,244 $ 40,957
Loans (excluding non-accruing) 34,948 12,303 27,318 13,055 87,624
-------------- -------------- ---------------- ------------- ------------
Total Earning Assets $ 37,598 $ 31,655 $ 44,029 $ 15,299 $ 128,581
============== ============== ================ ============= ============
Interest-Bearing Liabilities:
Savings and Time Deposits $ 62,810 $ 20,602 $ 10,509 $ - $ 93,921
Repurchase Agreements 5,395 - - - 5,395
Borrowed Funds 3,300 - - - 3,300
-------------- -------------- ---------------- ------------- ------------
Total Interest-Bearing Liabilities $ 71,505 $ 20,602 $ 10,509 $ - $ 102,616
============== ============== ================ ============= ============
Interest Rate Sensitivity Gap Per ($ 33,907) $ 11,053 $ 33,520 $ 15,299 $ 25,965
Period
Cumulative Interest Rate Gap ($ 33,907) ($ 22,854) $ 10,666 $ 25,965 $ 25,965
Cumulative Ratio of Interest Rate
Sensitivity 52.6% 75.2% 110.4% 125.3% 125.3%
</TABLE>
EFFECTS OF INFLATION
The assets and liabilities of a banking entity are unlike companies with
investments in inventory, plant and equipment. Being primarily monetary in
nature and, in this respect, different from most non-financial services
companies, the performance of a bank is affected more by changes in interest
rates than by inflation.
Over the past five years, the rate of inflation has been relatively low. As a
result, the impact upon the Bank's balance sheet and levels of income and
expense has been minimal.
Page 33
<PAGE>
THE YEAR 2000 ISSUE
Metro formed a Year 2000 Committee to address all areas related to Year 2000 in
January, 1998. The Committee consisted of senior management and representatives
from each functional area of the organization.
The Committee developed a Year 2000 Plan to identify all internal and external
systems which could have been affected by the Year 2000. Systems were
prioritized based on an assessment of Year 2000 risk and potential impact to
operations, earnings and capital. A timeline was developed to ensure that tasks
in the Year 2000 Plan would be completed consistent with management's objectives
and regulatory guidelines.
Metro developed a monitoring and testing plan for the January 1, 2000 week-end.
All systems which could have been affected by Year 2000 were reviewed on
Saturday, January 1, 2000 to ensure proper operation. A Contingency Plan was
developed to address any Year 2000 failures. No issues were identified as
requiring additional action.
Metro will monitor the remaining Year 2000 critical dates as well as customer
risk as required by regulators.
Costs related to Year 2000 for equipment, software upgrade, security or customer
awareness totaled $48,000. As of December 31, 1999, all Year 2000 costs have
been recognized by Metro in the Statement of Operations and no additional
expenses are anticipated.
Page 34
<PAGE>
Consolidated Statement of Condition
MetroBanCorp & Subsidiary
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
ASSETS 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and Due from Banks $ 9,526 $ 7,719
Federal Funds Sold - 2,325
------------------------------------
Total Cash and Cash Equivalents 9,526 10,044
------------------------------------
Investment Securities Held to Maturity - at Amortized
Cost (Market Value: 1999 - $3,067 and 1998 - $3,571) 3,212 3,605
Investment Securities Available for Sale - at Market
Value (Amortized Cost: 1999 - $38,497 and 1998 - $37,642) 37,745 37,726
------------------------------------
Total Investment Securities 40,957 41,331
------------------------------------
Loans 88,067 80,469
Allowance for Loan Losses (1,464) (1,300)
------------------------------------
Loans, net 86,603 79,169
------------------------------------
Premises and Equipment, net 1,543 1,536
Accrued Interest Receivable 992 956
Core Deposit Intangible, net of Accumulated
Amortization of $0 in 1999 and $1,085 in 1998 - 41
Deferred Tax Asset 1,033 554
Other Assets 583 349
------------------------------------
Total Assets $ 141,237 $ 133,980
====================================
LIABILITIES
- ---------------------------------------------------------------------------------------------------------------
Deposits:
Non-Interest Bearing Demand $ 24,225 $ 29,534
Interest Bearing:
Savings and NOW Accounts 57,386 46,594
Time Deposits of $100,000 and over 10,763 11,728
Other Time Deposits 25,772 31,972
------------------------------------
Total Deposits 118,146 119,828
------------------------------------
Accrued Interest Payable 472 449
Securities Sold Under Agreements to Repurchase 5,395 -
Federal Funds Purchased 3,300 -
Other Liabilities 648 864
------------------------------------
Total Liabilities 127,961 121,141
------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 11) - -
SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------
Preferred Stock: 1,000,000 authorized;
none outstanding - -
Common Stock: 3,000,000 authorized;
2,033,036 and 1,941,726 issued and outstanding in 1999 and
1998, respectively 14,232 13,548
Accumulated Earnings (508) (756)
Net Unrealized Gain/(Loss) on Investment Securities Available for Sale (448) 47
------------------------------------
Total Shareholders' Equity 13,276 12,839
------------------------------------
Total Liabilities and Shareholders' Equity $ 141,237 $ 133,980
====================================
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
Page 35
<PAGE>
Consolidated Statement of Operations
MetroBanCorp & Subsidiary
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and Fees on Loans $ 7,925 $ 7,851 $ 7,133
Interest on Investment Securities 2,275 1,739 1,586
Interest on Federal Funds Sold 108 391 104
------------- ------------- ------------
Total Interest Income 10,308 9,981 8,823
------------- ------------- ------------
INTEREST EXPENSE:
Interest on Deposits 3,998 4,292 3,754
Interest on Term Borrowings 87 - 37
------------- ------------- ------------
Total Interest Expense 4,085 4,292 3,791
------------- ------------- ------------
Net Interest Income 6,223 5,689 5,032
Provision for Loan Losses 232 311 200
------------- ------------- ------------
Net Interest Income after Provision
for Loan Losses 5,991 5,378 4,832
------------- ------------- ------------
NON-INTEREST INCOME:
Service Charges on Deposit Accounts 399 354 319
Net Securities Loss - (9) (15)
Other Service Charges, Commissions and Fees 708 616 483
Gain on Sale of Real Estate - - 90
------------- ------------- ------------
Total Non-Interest Income 1,107 961 877
------------- ------------- ------------
NON-INTEREST EXPENSE:
Salaries and Employee Benefits 2,254 1,957 1,797
Net Occupancy Expense 432 391 327
Equipment Expense 356 359 437
Advertising and Public Relations 249 241 234
Legal and Professional Services 189 225 258
Data Processing 343 325 275
FDIC Insurance Assessment 29 28 25
Student Loan Servicing Fees 31 37 63
Amortization of Core Deposit Intangible 41 141 141
Other 888 862 803
------------- ------------- ------------
Total Non-Interest Expense 4,812 4,566 4,360
------------- ------------- ------------
Income Before Income Taxes 2,286 1,773 1,349
Applicable Income Taxes 884 722 540
------------- ------------- ------------
$ 1,402 $ 1,051 $ 809
NET INCOME ============= ============= ============
$ 0.69 $ 0.52 $ 0.40
NET INCOME PER COMMON SHARE ============= ============= ============
$ 0.67 $ 0.49 $ 0.39
NET INCOME PER COMMON SHARE - ASSUMING DILUTION ============= ============= ============
WEIGHTED AVERAGE SHARES OUTSTANDING 2,035,442 2,038,812 2,038,812
------------- ------------- ------------
WEIGHTED AVERAGE SHARES OUTSTANDING-ASSUMING DILUTION 2,104,165 2,147,284 2,078,706
------------- ------------- ------------
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
Page 36
<PAGE>
Consolidated Statement of Cash Flows
MetroBanCorp & Subsidiary
(dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
OPERATING ACTIVITIES: 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $ 1,402 $ 1,051 $ 809
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Provision for Loan Losses 232 311 200
Deferred Income Tax Benefit (115) (141) (164)
Depreciation and Amortization 360 451 517
Gain on Sale of Real Estate - - (90)
Gain on Sale of Securities - 9 15
(Increase)/Decrease in Accrued Interest Receivable (36) (122) 37
(Increase)/Decrease in Other Assets (234) 99 51
Increase in Accrued Interest Payable 23 23 7
Increase/(Decrease) in Other Liabilities (217) (62) 247
----------- ----------- ------------
Total Adjustments 13 568 820
----------- ----------- ------------
Net Cash Provided by Operating Activities 1,415 1,619 1,629
----------- ----------- ------------
INVESTING ACTIVITIES:
- ------------------------------------------------------------------------------------------------------------------
Proceeds from Maturities of Investment Securities Held to Maturity - 8,020 500
Proceeds from Maturities of Investment Securities Available for Sale 2,230 8,876 400
Proceeds from Sales of Investment Securities Available for Sale 8,476 4,500 10,997
Purchases of Investment Securities Available for Sale (11,080) (32,973) (8,483)
Purchases of Investment Securities Held to Maturity - (1,717) -
Proceeds from Sales of Student Loans 32 - 3,546
Proceeds from the Repayment of Student Loans 608 562 1,119
Net Loans made to Customers (8,459) (3,744) (16,643)
Purchases of Premises and Equipment (326) (439) (320)
Proceeds from the Sale of Real Estate - - 461
----------- ----------- ------------
Net Cash Used for Investing Activities (8,519) (16,915) (8,423)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------------------------------------------------------------------------------------
Net Increase in Demand Deposits, NOW and Savings Accounts 5,483 7,076 10,404
Net Increase/(Decrease) in Time Deposits (7,165) 1,518 1,546
Net Increase/(Decrease) in Securities Sold under
Agreements to Repurchase 5,395 - (1,500)
Cash Dividends Paid (427) (349) (336)
Net Increase in Fed Funds Purchased 3,300 - -
----------- ----------- ------------
Net Cash Provided by Financing Activities 6,586 8,245 10,114
----------- ----------- ------------
Net Increase/(Decrease) in Cash and
Cash Equivalents (518) (7,051) 3,320
Cash and Cash Equivalents at Beginning of Period 10,044 17,095 13,775
----------- ----------- ------------
Cash and Cash Equivalents at End of Period $ 9,526 $10,044 $17,095
=========== =========== ============
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year for Interest Expense $ 3,902 $ 4,288 $ 3,767
Cash Paid During the Year for Income Taxes 1,036 912 612
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
Page 37
<PAGE>
CONSOLIDATED STATEMENT OF
SHAREHOLDERS' EQUITY
MetroBanCorp & Subsidiary
(dollars in thousands)
<TABLE>
<CAPTION> Total
Common Accumulated Accumulated Other Share-
Shares Common Earnings / Comprehensive Comprehensive holders'
Outstanding Stock (Deficit) Income Income Equity
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996 1,681,291 11,210 407 (116) 11,501
Net Income - - 809 - 809 809
Unrealized Gains on Securities,
net of Tax and - - -
Reclassification Adjustment 158 158 158
(see Disclosure) -------------
Comprehensive Income - - - 967 -
=============
Cash Dividend ($0.16 per share) (336) (336)
- ----------------------------------------------------------------------------------------------- -------------
Balances, December 31, 1997 1,681,291 11,210 880 42 12,132
Net Income - - 1,051 - 1,051 1,051
Unrealized Gains on Securities,
net of Tax and - - -
Reclassification Adjustment 5 5 5
(see Disclosure) -------------
Comprehensive Income 1,056 -
=============
Cash Dividend ($0.17 per share) (349) (349)
5% Stock Dividend 84,017 880 (880) -
10% Stock Dividend 176,418 1,458 (1,458) -
- ----------------------------------------------------------------------------------------------- -------------
Balances, December 31, 1998 1,941,726 13,548 (756) 47 12,839
Net Income - - 1,402 - 1,402 1,402
Unrealized Gains on Securities,
net of Tax and - - -
Reclassification Adjustment (495) (495) (495)
(see Disclosure) -------------
Comprehensive Income 907 -
=============
Cash Dividend ($0.21 per share) (427) (427)
MetroBanCorp Employee Equity Plan 382 3 - 3
Purchases of Common Stock (5,983) (46) - (46)
5% Stock Dividend 96,911 727 (727) -
- ----------------------------------------------------------------------------------------------- -------------
Balances, December 31, 1999 2,033,036 14,232 (508) (448) 13,276
======================================================= =============
</TABLE>
<TABLE>
<CAPTION>
Disclosure of Reclassification Amount 1999 1998 1997
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized Holding (Losses)/Gains Arising
During Period (495) 13 272
Less: Reclassification Adjustment for
Losses Included in Net Income - (5) (9)
Income Tax Expense Related to Items of
Other Comprehensive Income - (3) (105)
---------------------------------------------
Net Unrealized Gains on Securities (495) 5 158
=============================================
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
Page 38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
METROBANCORP & SUBSIDIARY
1. BACKGROUND OF CORPORATION
MetroBanCorp ("Metro") was incorporated in the State of Indiana in 1987
for the purpose of holding all of the shares of common stock of MetroBank
("Bank"), an Indiana-chartered commercial bank which commenced operations
in April, 1988.
The Bank's primary market and service area is Hamilton County and northern
Marion County, which are together considered part of the Northside
Suburban Indianapolis metropolitan area. The Bank's primary mission is to
provide commercial and individual banking services in the previously
defined service area.
2. SUMMARY OF ACCOUNTING AND REPORTING POLICIES
Basis of Accounting - The accompanying consolidated financial statements
include the accounts of Metro and the Bank. The consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles and conform with general practices in the banking
industry. Such principles require management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the amounts of income and expenses during the
reporting period. Actual results could differ from those estimated. All
significant intercompany balances and transactions have been eliminated.
Cash Equivalents - For purposes of the Consolidated Statement of Cash
Flows, cash and cash equivalents include cash on hand, amounts due from
banks and overnight Federal Funds Sold.
Investment Securities - Metro has the intent and ability to hold
securities classified as held to maturity until their respective
maturities. Accordingly, such securities are stated at cost and are
adjusted for amortization of premiums and accretion of discounts.
All securities not classified as held to maturity are considered available
for sale. Available for sale securities are stated at their current market
value. Unrealized gains and losses associated with available for sale
securities, net of taxes, are excluded from earnings and reported as a net
amount in a separate component of shareholders' equity until realized.
Net income reflects realized gains or losses from the sale of investment
securities on a specific identification basis. Interest income and the
amortization of the premium and discount arising at acquisition are
included in net income.
Allowance for Loan Losses - The allowance for loan losses is maintained at
a level believed adequate by management to absorb losses inherent in the
loan portfolio. Management's determination of the adequacy of the reserve
is based upon an evaluation of the portfolio, a review of loan
delinquencies, current economic conditions, volume, growth and composition
of the loan portfolio, and other relevant factors. The reserve is
increased by provisions for loan losses charged against income.
Page 39
<PAGE>
Loans - Interest income on all loans is calculated using the simple
interest method on the daily balances of the principal amount outstanding.
The Bank's policy is to place loans on non-accrual status when management
believes the collection of interest to be doubtful. Loans are charged off
when they are deemed uncollectible.
Loan origination and commitment fees and certain direct loan origination
costs are deferred and the net amount amortized as an adjustment to the
related loan's yield. The Bank is generally amortizing these amounts over
the contractual life of the related loans.
Premises and Equipment - Premises and equipment are stated at cost less
accumulated depreciation. Depreciation included in non-interest expense
are computed using the straight-line method over the estimated useful
lives of the related assets ranging from 3 to 30 years. Routine
maintenance, repairs and minor improvements are charged to non-interest
expense as incurred.
Core Deposit Intangible - The core deposit intangible represents the
excess of acquisition costs over the fair value of net assets acquired and
is being amortized on the straight-line basis over a period of eight
years.
Securities Sold Under Agreements to Repurchase - These securities are
generally treated as collateralized financing transactions and are
recorded at the amount at which the securities were sold plus accrued
interest. It is Metro's policy to relinquish control of securities sold
under the agreements to repurchase. Metro also monitors its exposure with
respect to securities borrowed transactions. The maximum amount of
outstanding agreements at any month-end was $5.4 and $0 million during
1999 and 1998, respectively. The daily average outstanding balance of
securities sold under agreements to repurchase amounted to $1.7 million
and $0 for the years ended December 31, 1999 and 1998 respectively.
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 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 dilution:
<TABLE>
<CAPTION>
For the Year Ended 1999
Income
(Numerator) Shares Per-Share
(in thousands) (Denominator) Amount
------------------ ----------------- ------------
<S> <C> <C> <C>
Net Income per Common Share
Income available to common
Stockholders $1,402 2,035,442 $.69
============
Effects of Dilutive Options
Stock options - 68,723
------------------ -----------------
Net Income per Common Share-Assuming Dilution $1,402 2,104,165 $.67
================== ================= ============
</TABLE>
Page 40
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended 1998
Income
(Numerator) Shares Per-Share
(in thousands) (Denominator) Amount
------------------ ----------------- ------------
<S> <C> <C> <C>
Net Income per Common Share
Income available to common
Stockholders $1,051 2,038,812 $.52
============
Effects of Dilutive Options
Stock options - 108,472
------------------ -----------------
Net Income per Common Share-Assuming Dilution $1,051 2,147,284 $.49
================== ================= ============
For the Year Ended 1997
Income
(Numerator) Shares Per-Share
(in thousands) (Denominator) Amount
------------------ ----------------- ------------
Net Income per Common Share
Income available to common
Stockholders $809 2,038,812 $.40
============
Effects of Dilutive Options
Stock options - 39,894
------------------ -----------------
Net Income per Common Share-Assuming Dilution $809 2,078,706 $.39
================== ================= ============
</TABLE>
Per share data included in Metro's consolidated statement of operations
for 1999, 1998 and 1997 was based on the weighted average number of common
shares outstanding.
Reclassifications - Certain prior year amounts in the consolidated
financial statements have been reclassified to conform with the 1999
presentation. Such reclassifications had no effect on net income.
Impact of Accounting Changes - Effective January 1, 1998, Metro adopted
the provisions of Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income" which establishes standards for
reporting and display of comprehensive income and its components. The
impact of this adoption is presented in the Consolidated Statement of
Shareholders' Equity.
Effective January 1, 1998, Metro adopted the provisions of SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits"
which standardized the disclosure requirements for pensions and other
postretirement benefits. The adoption of this statement does not impact
Metro's financial condition or its results of operations.
In June, 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement requires, among other things, that all
derivative instruments be recorded on the balance sheet at their fair
value. During 1999, the FASB issued SFAS No. 137 which delays the
implementation of SFAS No. 133. Under SFAS No. 137, Metro is required to
adopt SFAS No. 133 for all fiscal quarters of all fiscal years beginning
after June 15, 2000 (January 1, 2001 for Metro). Metro is currently
evaluating the impact of this statement on its results of operations and
its financial position.
Page 41
<PAGE>
Stock Dividends - A five percent stock dividend was declared on March 12,
1998 to shareholders of record on March 18, 1998 and distributed on April
6, 1998. A ten percent stock dividend was declared on January 8, 1999 to
shareholders of record on January 19, 1999 and distributed on February 8,
1999. A five percent stock dividend was declared on January 10, 2000 to
shareholders of record on January 20, 2000 and distributed on February 7,
2000. All average share and per share amounts have been retroactively
adjusted for all prior years to reflect these stock dividends.
3. INVESTMENT SECURITIES
Investment securities consist primarily of U.S. government agency and
corporation bonds, mortgage backed securities with both fixed and floating
interest rates and municipal securities with fixed interest rates. During
1999, dual index derivative securities balances were reduced from $ 2.0
million to $ 1.5 million through maturity or sale. Interest rate risk
associated with the remaining dual index derivative securities is not
material. The bank has the ability to hold remaining derivative securities
until the maturity dates, when differences between book value and market
value will no longer exist. The mortgage backed securities are subject to
both prepayment and interest rate risk and have been classified primarily
as available for sale. The amortized cost and estimated market values of
investment securities are as follows:
<TABLE>
<CAPTION>
Investment Securities Portfolio
(dollars in thousands)
Gross Gross
Amortized Unrealized Unrealized Fair Market
Cost Gains Losses Values
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
December 31, 1999
Investment Securities Held to Maturity
- --------------------------------------
U.S. Government Agencies and Corporations $1,500 $- ($109) $1,391
Municipal Securities 1,712 - (36) 1,676
-------------- ------------- -------------- -------------
Total Investment Securities Held to Maturity $3,212 $- ($145) $3,067
-------------- ------------- -------------- -------------
Investment Securities Available for Sale
- ----------------------------------------
Mortgage-Backed & Other Securities $30,001 $- ($597) $29,404
U.S. Government Agencies and Corporations 8,496 - (155) 8,341
-------------- ------------- -------------- -------------
Total Investment Securities Available for Sale $38,497 $- ($752) $37,745
-------------- ------------- -------------- -------------
Total Investment Securities $41,709 $- ($897) $40,812
============== ============= ============== =============
Page 42
<PAGE>
December 31, 1998
Investment Securities Held to Maturity
- --------------------------------------
U.S. Government Agencies and Corporations $1,889 $- ($63) $1,826
Municipal Securities 1,716 29 - 1,745
-------------- ------------- ------------- -------------
Total Investment Securities Held to Maturity $3,605 $29 ($63) $3,571
-------------- ------------- ------------- -------------
Investment Securities Available for Sale
- ----------------------------------------
Mortgage-Backed Securities $28,843 $46 $- $28,889
U.S. Government Agencies and Corporations 8,799 38 - 8,837
-------------- ------------- ------------- -------------
Total Investment Securities Available for Sale $37,642 $84 $- $37,726
-------------- ------------- ------------- -------------
Total Investment Securities $41,247 $113 ($63) $41,297
============== ============= ============= =============
</TABLE>
The carrying value of U.S. government agencies, corporation securities, and
mortgaged backed securities at December 31, 1999 and 1998 are shown below by the
contractual maturity date. Actual maturities will differ because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties (dollars in thousands):
Maturity Distribution of Investment Securities
(dollars in thousands)
<TABLE>
<CAPTION>
As of December 31, 1999
Held to Maturity Available for Sale
---------------------------- --------------------------------
Amortized Fair Market Amortized Fair Market
Cost Value Cost Value
------------ -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Mortgage Backed Securities
--------------------------
Due Within One Year $- $- $797 $795
1 - 5 Years - - - -
5 - 10 Years - - 4,045 3,981
Due After 10 Years - - 25,159 24,628
------------ -------------- ------------- ----------------
Total Mortgage Backed Securities $- $- $30,001 $29,404
------------ -------------- ------------- ----------------
U.S. Government Agencies and Corporations
-----------------------------------------
Due Within One Year $- $- $500 $498
1 - 5 Years 1,500 1,391 7,996 7,843
5 - 10 Years - - - -
Due After 10 Years - - - -
------------ -------------- ------------- ----------------
Total U.S. Government Agencies and
Corporations $1,500 $1,391 $8,496 $8,341
------------ -------------- ------------- ----------------
Municipal Securities
--------------------
Due Within One Year $- $- $- $-
1 - 5 Years 658 646 - -
5 - 10 Years 1,054 1,030 - -
Due After 10 Years - - - -
------------ -------------- ------------- ----------------
Total Municipal Securities $1,712 $1,676 $- $-
------------ -------------- ------------- ----------------
Total Investment Securities $3,212 $3,067 $38,497 $37,745
------------ -------------- ------------- ----------------
</TABLE>
Page 43
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 1998
Held to Maturity Available for Sale
---------------------------- --------------------------------
Amortized Fair Market Amortized Fair Market
Cost Value Cost Value
------------ -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Mortgage Backed Securities
--------------------------
Due Within One Year $- $- $- $-
1 - 5 Years - - 721 722
5 - 10 Years - - 4,004 4,039
Due After 10 Years - - 24,118 24,128
------------ -------------- ------------- ----------------
Total Mortgage Backed Securities $- $- $28,843 $28,889
------------ -------------- ------------- ----------------
U.S. Government Agencies and Corporations
-----------------------------------------
Due Within One Year $389 $389 $500 $503
1 - 5 Years 1,500 1,437 6,299 6,331
5 - 10 Years - - 2,000 2,003
Due After 10 Years - - - -
------------ -------------- ------------- ----------------
Total U.S. Government Agencies and
Corporations $1,889 $1,826 $8,799 $8,837
------------ -------------- ------------- ----------------
Municipal Securities
--------------------
Due Within One Year $- $- $- $-
1 - 5 Years 154 157 - -
5 - 10 Years 1,562 1,588 - -
Due After 10 Years - - - -
------------ -------------- ------------- ----------------
Total Municipal Securities $1,716 $1,745 $- $-
------------ -------------- ------------- ----------------
Total Investment Securities $3,605 $3,571 $37,642 $37,726
------------ -------------- ------------- ----------------
</TABLE>
Securities with a carrying value of approximately $10.5 million and $0.5
million were pledged at December 31, 1999 and 1998, to secure certain
deposits and securities sold under repurchase agreements, and for other
purposes as permitted or required by law.
In addition, all otherwise unpledged securities are pledged as collateral
for Federal Home Loan Bank advances.
Proceeds from sales of investment securities available for sale were $8.5
million in 1999 as compared to $4.5 million in 1998. The gross realized
gains/losses on sale of investment securities amounted to $0 during 1999
compared to gains of $0 and losses of $9,000 in 1998.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 107 (SFAS 107), "Disclosures about Fair Value of
Financial Instruments." SFAS 107 requires entities to disclose the fair
market value of financial instruments, both assets and liabilities
recognized and not recognized in the consolidated balance sheet, for which
it is practicable to estimate fair value. The following methods and
assumptions were used to estimate the fair value of each type of financial
instrument:
Page 44
<PAGE>
Cash and Cash Equivalents - For these instruments, the carrying amount is
a reasonable estimate of fair value.
Federal Funds Sold/Purchased - For these instruments, the carrying amount
is a reasonable estimate of fair value.
Investment Securities - For investment securities, fair values are based
on quoted market prices, if available. For securities where quoted prices
are not available, fair value is estimated based on market prices of
similar securities.
Loans - The fair value of loans is estimated by discounting future cash
flows using current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
Deposits - The fair value of non-interest bearing demand deposits and
savings and NOW accounts is the amount payable as of the reporting date.
The fair value of fixed-maturity certificates of deposit is estimated
using rates currently offered for deposits of similar remaining
maturities.
Securities Sold Under Agreements to Repurchase - For these instruments,
the carrying amount is a reasonable estimate of fair value.
Off-Balance Sheet Financial Instruments - Loan commitments and standby
letters of credit are generally of a short-term nature and therefore,
their carrying amount is a reasonable estimate of their fair value.
Carrying amounts which are comprised of the unamortized fee income are
immaterial.
The estimated carrying and fair values of Metro's financial instruments as
of December 31, 1999, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1999 1998
------------------------------ -----------------------------
Carrying Carrying
Value Fair Value Value Fair Value
-------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash & Due from Bank $9,526 $9,526 $7,719 $7,719
Federal Funds Sold - - 2,325 2,325
Investment Securities 40,957 40,812 41,331 41,297
Loans, Net 86,603 88,289 79,169 84,070
Deposits 118,146 118,054 119,828 120,848
Securities Sold Under
Agreements to Repurchase 5,395 5,395 - -
Federal Funds Purchased 3,300 3,300 - -
</TABLE>
Page 45
<PAGE>
5. LOANS
Total loans at December 31, 1999 and 1998 by major loan categories are as
follows (dollars in thousands):
1999 1998
---- ----
Commercial & Agricultural $22,067 $20,288
Real Estate - Construction 1,295 2,399
Real Estate - Mortgage 41,603 36,890
Installment 19,338 16,487
Student Loans 3,764 4,405
----------- -----------
Total Loans 88,067 80,469
Allowance for Loan Losses (1,464) (1,300)
----------- -----------
Loans, Net $86,603 $79,169
=========== ===========
Transactions in the allowance for loan loss account for the years
indicated were as follows (dollars in thousands):
1999 1998 1997
---- ---- ----
Balance at Beginning of Year $1,300 $998 $866
Provision for Loan Losses 232 311 200
Charged-Off Loans (78) (29) (80)
Recoveries 10 20 12
------ ------ ------
Balance at End of Year $1,464 $1,300 $998
====== ====== ======
As of December 31, 1999, Metro had investments in loans which were
impaired in accordance with SFAS No.'s 114 and 118 of $443,000. Of this
amount, none had a related specific allowance. As of December 31, 1998,
Metro had investments in loans which were impaired in accordance with SFAS
No.'s 114 and 118 of $368,700. Of this amount, $364,100 had no related
specific allowance. The remaining $4,600 of impaired loans were fully
reserved.
The Bank's policy for recognizing income on impaired loans is to accrue
interest until a loan is classified as impaired. For loans which receive
the classification of impaired during the current period, interest accrued
to date is charged against current earnings. No interest is accrued after
a loan is classified as impaired. All payments received for loans which
are classified as impaired are utilized to reduce the principal balance
outstanding.
For the year ended December 31, 1999, the average balance of impaired
loans was $373,000. Interest income of $38,000 would have been recorded in
1999 on impaired loans if such loans had been accruing interest throughout
the year in accordance with their original terms. In 1999, interest income
in the amount of $10,000 was recorded on impaired loans prior to being
classified as impaired. For the year ended December 31, 1998, the average
balance of impaired loans was $215,400. Interest income of $20,832 would
have been recorded in 1998 on impaired loans if such loans had been
accruing
Page 46
<PAGE>
interest throughout the year in accordance with their original terms. In
1998, interest income in the amount of $7,922 was recorded on impaired
loans prior to being classified as impaired.
6. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1999 and 1998 consist of the
following (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land and Improvements $200 $200
Building and Improvements 1,314 1,182
Furniture and Equipment 2,080 1,896
------------ -------------
Total 3,594 3,278
Less: Accumulated Depreciation and
Amortization (2,051) (1,742)
------------ -------------
Total, Net $1,543 $1,536
============ =============
</TABLE>
7. DEPOSITS
The aggregate amount of time deposits in denominations of $ 100,000 or
more at December 31, 1999 and 1998 was $10,763,000 and $ 11,728,000,
respectively.
At December 31, 1999, the scheduled maturities of time deposits (in
thousands) are as follows:
2000 $27,059
2001 6,157
2002 1,628
2003 1,001
2004 376
Thereafter 314
----------
$36,535
Currently, the Bank has available separate agreements with two regional
banks which provide for the purchase of Federal funds to meet short-term
liquidity needs. The total amount of Federal funds available to the Bank
under these agreements is $4.0 million. The Bank also maintains a line of
credit with the Federal Home Loan Bank in the amount of $ 7.5 million to
meet liquidity needs. The Bank had no Federal Funds purchased during 1999.
8. BENEFIT PLANS
Employees' Thrift and Retirement Plan - Metro maintains a trusteed
contributory thrift and retirement plan (Employees' Thrift and Retirement
Plan) covering all employees who have attained the age of twenty-one and
work a minimum of one thousand hours per calendar year. Salary redirection
or "401(k)" contributions are made to the Employees' Thrift and Retirement
Plan pursuant to a Salary Redirection Agreement between each eligible
employee and the Bank. Eligible employees may contribute up to 10 percent
of their pre-tax compensation, limited by the amount allowed by the IRS.
Effective January 1, 1995, Metro increased the amount of employee
contributions it matches from 75 percent to 100 percent of the first 6
percent of the employee's compensation, provided the employee contributes
at least 2 percent of their compensation to the Plan. Metro may make
additional profit sharing contributions to the Plan as determined and
approved by the Board of Directors. Employees vest 100 percent in Metro's
matching and discretionary profit sharing contributions at the end of five
Page 47
<PAGE>
years of Plan participation. Metro's contribution expense related to the
Employees' Thrift and Retirement Plan amounted to $69,000, $68,000, and
$58,000 in 1999, 1998, and 1997, respectively.
Supplemental Executive Retirement Plan - Effective January 1, 1993, Metro
established the Supplemental Executive Retirement Plan (SERP), a
non-qualified deferred compensation plan, for certain executive officers
of Metro. The provisions of the SERP allow the Plan's participants who are
also participants of the Employees' Thrift and Retirement Plan to defer
compensation from Metro or receive contributions without regard to the
amounts limited by the IRS under the Employee's Thrift and Retirement
Plan. SERP participants' salary deferrals, however, are limited to amounts
not to exceed 25 percent of the participant's compensation, including
amounts contributed to the Employees' Thrift and Retirement Plan. Metro
may make matching contributions in percentage amounts as described under
the Employees' Thrift and Retirement Plan. Also, Metro may make
discretionary contributions to the SERP as determined and approved by the
Board of Directors. Metro's contribution expense related to the SERP was
$28,000, $19,000, and $13,000 in 1999, 1998, and 1997, respectively.
Employee Equity Ownership Plan - Effective January 1, 1999, Metro
established the Employee Equity Ownership Plan (EEOP), an equity-based
compensation plan, for certain employees of Metro as defined by the plan.
In order to receive an award under the EEOP, the employee must be actively
employed throughout the computation period. The EEOP is designed and
intended to promote the achievement of the Bank's goals by providing an
incentive to employees to assist in meeting those goals, and to share the
results of meeting or exceeding those goals with the employees. Metro's
contribution expense related to the EEOP was $3,000 in 1999.
9. STOCK AND CAPITAL ADEQUACY
For information on capital adequacy, see section entitled "Capital
Resources and Capital Adequacy," in Management's Discussion and Analysis
section on page 11 of the Annual Report.
10. STOCK OPTION PLANS
Prior to 1991, Metro had three stock option plans: the 1987 Stock Option
and Stock Appreciation Rights Plan for officers and key employees of Metro
and the Bank, the 1987 Directors' Stock Option Plan for those persons who
serve as directors of Metro and the Bank, and the Incorporators' and
Founders' Stock Option Plan. During 1991, shareholders of Metro approved
the repricing of all outstanding options and stock appreciation rights
(SAR's) granted under these plans to a then current fair market price of
$5.57 per share, and shareholders approved extending, until December 31,
2000, the term of each outstanding option and SAR. Shareholders also
approved termination of all three of these plans. All options and SAR's
granted under such plans prior to their termination may be exercised until
the expiration date.
During 1991, shareholders of Metro adopted the 1991 Stock Option and Stock
Appreciation Rights Plan for officers and key employees of Metro and the
Bank and the 1991 Directors' Stock Option Plan for directors of Metro and
the Bank. Options and SARs under these plans are fully vested at the grant
date, except for options granted to the directors of the Bank which vest
at 20 percent per year. All options granted under these plans have an
exercise price of $5.57 per share.
During 1994, shareholders of Metro adopted the 1994 Stock Option and Stock
Appreciation Rights Plan for officers and key employees of Metro and the
Bank, and the 1994 Directors' Stock Option Plan for directors of Metro.
Options and SAR's under these plans are fully vested at the grant date.
Options granted under these plans have exercise prices ranging from $4 to
$9 per share.
Page 48
<PAGE>
As of December 31, 1999, there were 465,878 shares of common stock
reserved for issuance under these plans. Stock option activity under these
plans was as follows (information has been restated for stock dividend
issuances):
<TABLE>
<CAPTION>
Number of Weighted Average
Options Shares Share Price
----------------------------------------------------------------------------------
<S> <C> <C>
December 31, 1996 198,419 $5.34
Granted 52,633 5.50
----------------------------------------------------------------------------------
December 31, 1997 251,052 $5.37
Granted 42,446 7.52
Granted 8,662 8.55
Cancelled (2,205) 5.93
----------------------------------------------------------------------------------
December 31, 1998 299,955 $5.77
Granted 40,430 8.55
Granted 6,300 7.14
Granted 8,925 7.14
Cancelled (18,018) 6.52
----------------------------------------------------------------------------------
December 31, 1999 337,592 $6.13
===========
Shares exercisable 337,592
===============
</TABLE>
Metro accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for these
plans been determined consistent with FASB Statement No. 123, Metro's net
income would have been reduced to $1,283,000 ($0.63 per share) in 1999,
$960,000 ($0.49 per share) in 1998, and $734,000 ($0.38 per share) in
1997. Because the Statement No. 123 method of accounting has not been
applied to options granted prior to January 1, 1995, the resulting
pro-forma compensation cost may not be representative of that to be
expected in future years.
The Black Scholes Model was utilized to calculate the estimated fair value
of options utilizing the information and assumptions that follows. Options
outstanding at December 31, 1999, have a weighted average remaining life
of 4.1 years. The weighted average fair value of the options granted was
$4.01 per share in 1999 and $3.58 per share in 1998. The fair value of
each option is estimated on the date of grant using a risk-free interest
rate of 5.07 percent in 1999 and 5.50 percent in 1998; expected dividend
yields of 2.44 percent in 1999 and 1.94 percent in 1998; expected lives of
9.9 years in 1999 and 6.1 years in 1998; and expected volatility of 41.8
percent in 1999 and 38.7 percent in 1998.
Page 49
<PAGE>
11. INCOME TAXES
Metro and the Bank file a consolidated income tax return. Deferred tax
assets and liabilities are recorded based on differences between the
financial statement and tax bases of assets and liabilities and income tax
rates expected to be in effect when the amounts related to such
differences are realized or settled. The provision (benefit) for income
taxes consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal - Current $784 $659 $572
- Deferred (97) (120) (139)
-------------- --------------- --------------
$687 $539 $433
-------------- --------------- --------------
State - Current $215 $204 $132
- Deferred (18) (21) (25)
-------------- --------------- --------------
$197 $183 $107
-------------- --------------- --------------
$884 $722 $540
============== =============== ==============
</TABLE>
A reconciliation between Metro's effective tax rate and the U.S. federal
statutory rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
U.S. Federal Statutory Rate 35.0% 35.0% 35.0%
State Income Taxes, Net of U.S. Federal Income Tax
Benefit 5.6 6.5 6.5
Effect of Graduated Income Taxes (1.0) (1.0) (1.0)
Tax Exempt Interest (1.0) (0.8) -
Other 0.1 1.0 (0.5)
--------- --------- ---------
38.7% 40.7% 40.0%
========= ========= =========
</TABLE>
The significant components of Metro's net deferred tax asset as of
December 31, 1999 and 1998 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<C> <C> <C>
Book over Tax Depreciation $105 $82
Provision for Loan Losses 537 444
Net Unrealized Loss/(Gain) on Investment
Securities Available for Sale 304 (37)
Other 87 65
------------ ------------
$1,033 $554
============ ============
</TABLE>
No valuation allowance was required for the years reported due to
management's belief that it is more likely than not that future operations
will generate sufficient taxable income to realize the deferred tax
assets.
Page 50
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
Metro has entered into non-cancelable operating leases for its main office
and five branch offices. The main office lease will expire in 2005 while
the expiration of the branch office leases range from 2000 through 2004.
Each operating lease has options to extend into the future. Rental expense
for all six offices in 1999 was $174,000. Future aggregate minimum annual
rentals (not considering renewal options) are payable as follows:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter
----------- ------------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
$363,000 $334,000 $302,000 $274,000 $244,000 $23,000
</TABLE>
Metro is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit under lines of credit, real estate draw note arrangements and
standby letters of credit. These instruments involve varying degrees of
credit risk in excess of the amount recognized in the consolidated
statement of condition.
Metro's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitment to extend credit
and standby letters of credit is represented by the contractual amount of
these instruments. Metro uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
Metro's financial instruments where contract amounts represent credit risk
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Standby Letters of Credit $13 $50
Unused Commercial Lines of Credit & Real
Estate Draw Notes 17,056 13,807
Unused Home Equity & Personal Lines of Credit 2,191 2,253
------------- -------------
Total Commitments $19,260 $16,110
============= =============
</TABLE>
Commitments to extend credit under lines of credit are agreements to lend
to a customer as long as there is no violation of any condition
established in the contract. These commitments generally have fixed
expiration dates or other termination clauses and typically require the
payment of fees. The total commitment amounts do not necessarily represent
future cash requirements. Commitments sometimes expire before being drawn
upon while others may not be drawn upon to the full amount available. The
Bank evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral required, if deemed necessary, by the Bank upon
extension of credit is based upon management's credit evaluation of the
borrower. The type of collateral typically involves a mortgage position in
the underlying property collateralized by the loan, but may include
accounts receivable, inventory, fixtures and equipment, general
intangibles and the personal guarantee of the borrower.
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. These
guarantees are primarily issued to support private borrowing arrangements.
Substantially all guarantees expire in less than one year. The credit risk
involved in issuing standby letters of credit is essentially the same as
that involved in extending credit under line of credit arrangements. The
Bank may require cash, marketable securities, property and/or mortgage
Page 51
<PAGE>
positions as collateral supporting these commitments in those instances in
which collateral is deemed necessary.
Metro's investment in off-balance sheet derivative financial instruments,
as defined by SFAS No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments," is limited to fixed
and variable interest rate loan commitments. Fixed rate loan commitments
are generally extended for no longer than six months. Interest rates on
the variable rate loan commitments are adjustable on either a daily or
monthly basis.
13. RELATED PARTY TRANSACTIONS
Certain directors of Metro and companies with which they are affiliated,
and certain principal officers of the Bank, are customers of, and have
banking transactions with, the Bank in the ordinary course of business.
All such loans, commitments for loans and deposits included in such
transactions have been made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and, in the opinion of
management, did not involve more than a normal risk of collectibility or
present other unfavorable features.
Loan transactions with directors and their affiliates and principal
officers of Metro for 1999 were as follows (dollars in thousands):
Balance at Beginning of Year $1,326
Loans Made 561
Loan Repayments (775)
----------
Balance at End of Year $1,112
==========
Deposits held for directors and their affiliates and principal officers of
Metro as of December 31, 1999 were $4.4 million.
Certain directors and the companies with which they are affiliated also
provide services to Metro. Metro conducts business with these affiliated
companies for advertising and public relations, legal services and leasing
office space.
Payments made to director-affiliated companies are as follows (dollars in
thousands):
1999 1998 1997
---- ---- ----
Advertising & Public Relations $212 $178 $208
Lease Payments - 2 11
Legal Services 7 6 7
-------- -------- --------
Total $219 $186 $226
======== ======== ========
The Bank purchased student loans from a company of which certain executive
officers serve as directors of Metro and the Bank. The loans are serviced
by and guaranteed by the seller. Loan servicing fees paid to the seller
were $31,000, $37,000 and $63,000 in 1999, 1998 and 1997, respectively.
The loans are purchased on the same terms as those offered by the seller
to other institutions. There were no purchases of student loans in 1999,
1998 or 1997. In 1999 and 1998, the Bank sold $32,000 and $3.5 million
respectively, of student loans back to the seller.
Page 52
<PAGE>
14. PARENT COMPANY FINANCIAL STATEMENTS
The following are the condensed statements of the parent company.
MetroBanCorp (Parent Company Only) Condensed Statement of Condition as of
December 31, 1999 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
ASSETS: 1999 1998
---- ----
<S> <C> <C>
Cash and Cash Equivalents $62 $142
Investment Securities Available for Sale
- Market Value (Amortized Cost:
1999 - $2,058 and 1998 - $2,498) 2,039 2,515
Investment in MetroBank 10,968 9,991
Other 261 204
--------------- ---------------
Total Assets $13,330 $12,852
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Other Liabilities $54 $13
Shareholders' Equity 13,276 12,839
--------------- ---------------
Total Liabilities and Shareholders' Equity $13,330 $12,852
=============== ===============
</TABLE>
MetroBanCorp (Parent Company Only) Condensed Statement of Operations for
the years ended December 31, 1999, 1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest Income $134 $166 $181
Non-Interest Expenses (215) (281) (213)
--------------- --------------- ---------------
Loss Before Income Taxes and
Equity in Undistributed Earnings of
MetroBank (81) (115) (32)
Income Tax Benefit 32 46 -
--------------- --------------- ---------------
Loss Before Equity in Undistributed
Earnings of MetroBank (49) (69) (32)
Equity in Undistributed Earnings of
MetroBank 1,451 1,120 841
--------------- --------------- ---------------
Net Income $1,402 $1,051 $809
=============== =============== ===============
</TABLE>
Page 53
<PAGE>
MetroBanCorp (Parent Company Only) Condensed Statement of Cash Flows for
the years ended December 31, 1999, 1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------- --------------- ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $1,402 $1,051 $809
------------- --------------- ------------
Adjustments to Reconcile Net Income to
Cash Provided by/(Used in) Operating Activities:
Equity in Undistributed Earning of MetroBank (1,451) (1,120) (841)
Depreciation and Amortization - - 12
(Increase)/Decrease in Other Assets (57) 6 336
Increase/(Decrease) in Other Liabilities 41 (64) 61
------------- --------------- ------------
Total Adjustments (1,467) (1,178) (432)
------------- --------------- ------------
Net Cash Flows Provided by/(Used in) Operating Activities (65) (127) 377
------------- --------------- ------------
Cash Flows From Investing Activities:
Proceeds from the Sale of Investment Securities 100 2,000 2,669
Proceeds from Maturity of Investment Securities 400 2,000 400
Purchases of Investment Securities - (4,005) (2,500)
Net Purchases of Treasury Stock (88) - -
------------- --------------- ------------
Net Cash Flows Provided by/(Used in) Investing Activities 412 (5) 569
------------- --------------- ------------
Cash Flows from Financing Activities:
Cash Dividends Paid (427) (349) (336)
------------- --------------- ------------
Net Increase/(Decrease) in Cash and Cash Equivalents (80) (481) 610
Cash and Cash Equivalents at Beginning of Year 142 623 13
------------- --------------- ------------
Cash and Cash Equivalents at End of Year $62 $142 $623
============= =============== ============
</TABLE>
15. RESTRICTION ON TRANSFERS FROM METROBANK
According to banking regulations, the Bank is restricted as to the amount
of dividends that can be paid to Metro without prior regulatory approval.
Indiana chartered banks are limited in the amount of dividends they may
pay to undivided profits of the bank adjusted for statutorily defined bad
debts.
Page 54
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
10.27 EMPLOYMENT AGREEMENT DATED MAY 10, 1999 BETWEEN
REGISTRANT AND GREGORY J. MURRAY
THIS EMPLOYMENT AGREEMENT, executed and effective as of this 10th day
of May, 1999 ("Effective Date"), by and between GREGORY J. MURRAY, residing at
85 Chesterfield Drive, Noblesville, Indiana 46060 ("Executive"), and METROBANK,
a financial institution organized under the laws of the State of Indiana with
its principal office located at 10333 North Meridian Street, Indianapolis,
Indiana;
WITNESSETH:
WHEREAS, MetroBank and the Executive desire to enter into an employment
relationship and to set forth the terms and conditions thereof in this
Agreement; and
WHEREAS, it is in the interests of MetroBank and the Executive to
provide certain protections to the Executive;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. General.
-------
(a) Duties and Responsibilities. MetroBank hereby agrees to employ the
Executive as its Executive Vice President/Commercial Lending, for the term of
one (1) year, as specified in Section 2. The Executive hereby accepts and agrees
to such employment and agrees to perform the duties customarily pertaining to
the offices in which he is employed and such other duties commensurate with such
offices as may be assigned to him by the Board of Directors of MetroBank
("Board"). The Executive shall faithfully, loyally and diligently devote his
best efforts and such business time and attention to the affairs of MetroBank as
is necessary to perform fully the duties and responsibilities of his offices,
all in accordance with the policies established, from time to time, by
MetroBank. The duties and responsibilities of the Executive shall be customary
and usual for an Executive Vice President/Commercial Lending of a financial
institution and shall include, without limitation, the development of a
commercial loan base for MetroBank primarily in the towns of Carmel and Fishers
and in central and northern Marion County, Indiana. The Executive agrees that he
shall be subject to the supervision and direction of the Board and the Chief
Executive Officer of MetroBank.
(b) Recommendation for Election as Director. MetroBank agrees that, at
the May 20, 1999 meeting of the Board of Directors of MetroBanCorp
("MetroBanCorp Board"), and thereafter during the term of the Executive's
employment hereunder, it shall recommend the Executive be elected to serve as a
member of the Board. Provided, however, the Executive agrees to resign as a
Director of MetroBank effective upon his Date of Termination, as defined in
Section 2(f).
Page 55
<PAGE>
(c) Legal and Regulatory Compliance. The Executive agrees and covenants
that in the performance of his duties and responsibilities hereunder, he will
comply, and will use his best efforts to cause those employees of MetroBank
under his supervision to comply, in all respects, with all laws, rules and
regulations applicable to MetroBank and to the conduct of MetroBank's business.
2. Term and Termination.
---------------------
(a) Term. The term of employment hereunder for the Executive shall
commence on May 10, 1999 and shall continue for a term of twelve (12)
consecutive months, subject to renewal as provided in Section 6 (the "Term").
(b) Termination by MetroBank. At any time during the Term, MetroBank
shall have the right to terminate the Executive's employment (i) upon fifteen
(15) days' prior written notice, at any time after the Board has determined that
the Executive has failed to satisfactorily perform his duties and
responsibilities under this Agreement or is subject to termination under
MetroBank's established personnel policies; or (ii) upon such shorter notice as
the Board or the Chief Executive Officer of MetroBank determines in their
respective discretion required for the proper, safe and sound management of
MetroBank.
(c) Termination by Executive for Good Reason or Change in Control.
Notwithstanding the provisions of Section 2(b), the Executive shall have the
right to terminate his employment hereunder upon thirty (30) days' prior written
notice (i) for Good Reason, or (ii) at any time during the six (6) month period
commencing upon the occurrence of a Change in Control of MetroBank or
MetroBanCorp.
(i) Definition of Good Reason. For purposes of this
Agreement, "Good Reason" shall mean
------------------------- (A) any assignment of the
Executive to any duties inconsistent with his present
duties and responsibilities as Executive Vice
President/Commercial Lending of MetroBank or a change
in the Executive's present responsibilities without
his express written consent; (B) the failure of
MetroBank to elect the Executive as Executive Vice
President/Commercial Lending of MetroBank or any
removal of the Executive from or any failure to
re-elect the Executive to the office of Executive
Vice President/Commercial Lending or such other
office requiring the performance of duties of an
Executive Vice President of MetroBank, except in
connection with termination of the Executive's
employment pursuant to Section 2(b)(ii) or as a
result of his death or disability or by him other
than for Good Reason; (C) a reduction in the
Executive's Base Salary as in effect on the date
hereof or as the same may be increased from time to
time, or a reduction in the Executive's other
benefits; or (D) the failure of MetroBank to obtain
the assumption of the agreement to perform this
Agreement by any successor as contemplated in Section
14, regardless of the use of best efforts to obtain
such agreement.
Page 56
<PAGE>
(ii) Definition of Change in Control. For purposes of
this Agreement, a "Change in Control of MetroBank or
MetroBanCorp" shall be deemed to have occurred if (A)
any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934
("Exchange Act")), other than MetroBank or
MetroBanCorp, or any "person" who on the date hereof
is a director or officer of MetroBank or MetroBanCorp
is or becomes the "beneficial owner" (as defined in
Rule 23d-3 under the Exchange Act), directly or
indirectly, of securities of MetroBank or
MetroBanCorp representing 20 percent (20%) or more of
the combined voting power of MetroBank's or
MetroBanCorp's then outstanding securities; or (B)
during any period of two (2) consecutive years during
the Term, individuals who, at the beginning of such
period, constitute the Board or the MetroBanCorp
Board cease for any reason to constitute at least a
majority thereof, unless the election of each
director who was not a director at the beginning of
such period has been approved in advance by directors
representing at least two-thirds of the directors
then in office who were directors at the beginning of
the period; or (C) MetroBank or MetroBanCorp merges,
consolidates or otherwise combines with or into any
"person" or sells all or substantially all of the
assets of MetroBank or MetroBanCorp to any "person"
as defined herein.
(d) Voluntary Termination by Executive. The Executive shall have the
right to terminate his employment hereunder, at any time and for any reason,
upon ninety (90) days' prior written notice.
(e) Notice of Termination. Any termination of the Executive's
employment by MetroBank or by the Executive shall be communicated by written
Notice of Termination to the other party. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which states the specific
termination provision in this Agreement relied upon and sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated.
(f) Date of Termination. For purposes of this Agreement, "Date of
Termination" shall mean (i) if the Executive's employment is terminated by his
death, the date of his death, (ii) if the Executive's employment is terminated
for any other reason, the date specified in the Notice of Termination; provided
that, if within thirty (30) days after any Notice of Termination is given, the
party receiving such Notice of Termination notify the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement of
the parties, by a binding and final arbitration award or by a final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).
Page 57
<PAGE>
3. Compensation.
------------
(a) Base Salary. During the Term, MetroBank shall pay to the Executive
a base annual salary of not less than Ninety Thousand Dollars ($90,000.00)
payable in equal installments no less frequently than monthly ("Base Salary").
The Executive's performance and Base Salary will be reviewed by the President
and Chief Executive Officer at the end of each calendar year, with the first
such review to be conducted in December, 1999. From time to time, the Board, in
its sole discretion, may elect to increase (but not decrease) the Base Salary
based on such annual performance reviews. Provided, however, any such increase
shall be limited to cost-of-living adjustments. Provided, further, on a periodic
basis, as determined by MetroBank in its sole discretion, it shall review the
Executive's Base Salary with a view towards determining whether, based on local
and regional market conditions, the Base Salary, when considered with the
Executive's other compensation and benefits hereunder, should be increased.
(b) Signing Bonus. Upon the execution and delivery of this Agreement by
the Executive, MetroBank shall pay to him, in a single lump sum, a one-time
signing bonus of Twenty Thousand Dollars ($20,000.00). The parties acknowledge
and agree that such bonus is not for services performed by the Executive. If the
Executive's employment is terminated by MetroBank pursuant to Section 2(b) or by
the Executive pursuant to Section 2(d) within twelve (12) months from the date
hereof, the Executive shall repay the gross amount of such signing bonus to
MetroBank, without interest, in a single lump sum on or before the Executive's
Date of Termination.
(c) Loan to Executive. Upon the execution and delivery of this
Agreement by the Executive, MetroBanCorp shall loan to him Thirty Five Thousand
Dollars ($35,000.00) in accordance with the terms and conditions of the Term
Note attached hereto as Exhibit "A". It is noted that such terms and conditions
include the forgiveness of the full amount of the loan, including all accrued
interest thereon, if the Executive remains actively employed by MetroBank in the
capacity of Executive Vice President/Commercial Lending, or such other capacity
as may be specified by MetroBank throughout the period ended on the third
anniversary hereof. The forgiveness of the loan by MetroBanCorp shall be made on
a pro rata basis in accordance with the following schedule so long as the
Employee is actively employed on each of the following anniversaries of the
Effective Date:
Amount of Principal And
Date Accrued Interest Forgiven
---- -------------------------
First Anniversary of the Effective Date 1/3
Second Anniversary of the Effective Date 1/3
Third Anniversary of the Effective Date 1/3
Provided, however, if the Executive's employment is terminated pursuant
to Section 2(c) or on account of the Executive's death or total and permanent
disability (as such term is defined in MetroBank's long term disability plan in
effect on the Executive's Date of Termination) before the third anniversary of
the Effective Date, neither the Executive nor his estate shall be liable for
repayment of any portion of the loan. The repayment required by this Section
3(c) and
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<PAGE>
the Term Note shall be made by the Executive, in a single lump sum, on or before
his Date of Termination.
(d) Management Bonus Program. During the term of his employment
hereunder, the Executive shall be entitled to participate, subject to the terms
and conditions thereof, in any bonus or other incentive program for executive
employees of MetroBank.
(e) Withholding Taxes. MetroBank shall have the right to deduct and
withhold from all compensation payable hereunder to the Executive all applicable
federal, state and local taxes and charges and social security taxes required to
be withheld.
4. Compensation Upon Termination.
-----------------------------
(a) Termination by Board. If the Executive's employment is terminated
by MetroBank pursuant to Section 2(b)(i), the Executive shall continue to
receive his compensation, as provided in Section 3, at the rate and intervals at
which it is then paid, for a period of six (6) months from the Executive's Date
of Termination; and, except as provided in Section 4(e), MetroBank shall have no
further obligations to the Executive under this Agreement.
(b) Termination by Board or by Executive Voluntarily. If the
Executive's employment is terminated by MetroBank pursuant to Section 2(b)(ii)
or if the Executive shall terminate his employment pursuant to Section 2(d),
MetroBank shall pay the Executive his Base Salary through the Date of
Termination at the rate in effect at the time Notice of Termination is given,
and MetroBank shall have no further obligations to the Executive under this
Agreement.
(c) Termination for Good Reason or Change in Control. If the
Executive's employment is terminated pursuant to Section 2(c), the following
shall apply:
(i) MetroBank shall pay the Executive his full Base
Salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given.
(ii) In lieu of any further salary and incentive
compensation payments to the Executive for periods
subsequent to the Date of Termination, MetroBank
shall pay to the Executive as liquidated damages, in
the Executive's sole discretion, on or before the
thirtieth (30th) day following the Date of
Termination, a lump sum cash amount equal to two (2)
times the Executive's Base Salary as in effect on the
Date of Termination. The Executive acknowledges and
agrees that payment in accordance with this Section
4(c)(ii) shall be deemed to constitute a full
settlement and discharge of any and all obligations
of MetroBank to the Executive arising out of his
employment by MetroBank and the termination thereof,
except for any vested rights the Executive may then
have under any of MetroBank's benefit plans.
Page 59
<PAGE>
(iii) To the extent that any payment made to the Executive
pursuant to this Section 4 constitutes an "excess
parachute payment," as such term is defined in
Section 280G(b)(1) of the Internal Revenue Code of
1986, as amended ("Code"), MetroBank shall pay to
the Executive an amount equal to (x) divided by (y),
where (x) is the aggregate dollar amount of excise
taxes and any surtax the Executive becomes obligated
to pay on such "excess parachute payments" and (y) is
1- the maximum marginal federal income tax rate for
married individuals filing jointly applicable for the
year in which he receives the payment provided under
this Section 4, it being the intent of this Section 4
that, if the Executive incurs any such excise tax or
surtax with respect to the payments, such payments to
him shall be grossed up in full for such excise tax
and surtax, so that the amount he retains, after
paying all applicable federal income, surtaxes and
excise taxes due with respect to payments to him
under this Section 4, is the same as the amount he
would have retained if Section 280G of the Code and
any applicable surtax had not been applicable.
(d) No Requirement to Continue Employment. Nothing in this Section 4
shall be deemed to require the Executive to continue his active employment
hereunder after the termination thereof.
(e) Continuation of Coverage Under Benefit Plans. Unless the Executive
is terminated pursuant to Section 2(b)(ii) or terminates his employment pursuant
to Section 2(d), MetroBank shall, at the written request of the Executive,
maintain (or cause to be maintained) in full force and effect, for the continued
benefit of the Executive for a period of twelve (12) months after the Date of
Termination, all employee benefit plans and programs in which the Executive was
entitled to participate immediately prior to the Date of Termination, including,
without limitation, those benefits contemplated in Section 5; provided, that the
Executive's continued participation is possible under the general terms and
provisions of such plans and programs. In the event the Executive's
participation in any such plan or program is barred, MetroBank shall arrange to
provide the Executive with benefits substantially similar to those which the
Executive would otherwise have been entitled to receive under such plans and
programs.
(f) No Mitigation Required. The Executive shall not be required to
mitigate the amount of any payment provided for in Section 4(a) by seeking other
employment or otherwise; provided, that the obligations of MetroBank under
Section 4(a) shall be offset and deemed satisfied to the extent the Executive
receives any compensation or benefits from any other employer or any person to
whom or which the Executive is providing services as an independent contractor.
Page 60
<PAGE>
5. Benefits.
--------
(a) Retirement and Welfare Benefits. During the Term, the Executive
shall be entitled to participate in any retirement, life, accident and health
insurance, hospitalization or any other plan or benefits generally available to
the executive officers of MetroBank, if and to the extent the Executive is
eligible to participate in accordance with the provisions of any such plan or
for such benefits; provided, however, that nothing herein shall be deemed to
require MetroBank to institute any, or any particular, plan or benefits.
(b) Stock Option Grants. MetroBank shall recommend to the Compensation
Committee of the MetroBanCorp Board that such committee make a grant to the
Executive, at its meeting on May 20, 1999, of options, in the form of "incentive
stock options" as described in Section 422 of the Code, to acquire six thousand
(6,000) shares of MetroBanCorp common stock. Such option shall be granted under
the 1994 Employees' Stock Option and Stock Appreciation Rights Plan of
MetroBanCorp and shall contain such terms and conditions as are customarily
included in stock options granted under such plan.
(c) Automobile. During the term of his employment hereunder, MetroBank
shall provide the Executive with an automobile allowance of Five Hundred
Twenty-Five Dollars ($525.00) per month. MetroBank shall also reimburse the
Executive for the cost of gasoline to operate such vehicle for business
purposes. At such time as is mutually agreed upon by MetroBank and the
Executive, MetroBank shall provide the Executive with a leased automobile of a
model which is mutually agreed upon by the parties but with a total monthly
lease cost which does not exceed Four Hundred Seventy-Five Dollars ($475.00).
MetroBank shall also reimburse the Executive for insurance and gasoline costs
with respect to such automobile. The Executive agrees to reimburse MetroBank in
accordance with its policies adopted from time to time for any personal use of
such automobile.
(d) Membership Dues. During the term of the Executive's employment
hereunder, MetroBank shall pay the membership dues associated with the
Executive's social and civic club memberships, subject to the prior approval of
MetroBank's Compensation Committee.
(e) Vacation. During the calendar year ended December 31, 1999, the
Executive shall be entitled to paid vacation calculated, on a pro rata basis
through December 31, 1999, based on three weeks' paid vacation for a full
calendar year. For calendar years commencing on and after January 1, 2000, the
Executive shall be entitled to paid vacation calculated, on a pro rata basis
through the Executive's Date of Termination, based on four weeks' paid vacation
for a full calendar year. All such vacation shall be taken in accordance with
MetroBank's policies as in effect from time to time.
6. Renewal. Provided this Agreement has not been terminated by either
party pursuant to Section 2, the Term shall automatically be renewed and
extended for additional periods of one (1) year upon confirmation by the Board,
expressed by its official minutes, of affirmative intention to extend the
Agreement according to its terms. Such confirming action shall be taken and
memorialized prior to the first and, thereafter, each succeeding, anniversary of
the Effective Date.
Page 61
<PAGE>
7. Expenses. MetroBank shall pay to the Executive, or to the extent paid
in the first instance by the Executive, shall reimburse the Executive for,
travel and other expenses incident to the Executive's rendering of services
hereunder and properly incurred by the Executive, in accordance with such
policies as MetroBank may establish from time to time.
8. Insurance. MetroBank shall have the right to obtain insurance
policies against the death or disability of the Executive, in such amounts as
the Board deems appropriate, and to name itself as beneficiary under any such
policy. The Executive agrees to cooperate in the obtaining of any such insurance
and acknowledges and agrees that unless named as beneficiary under any such
policy, the Executive and anyone claiming by or through him, shall have no
interest in any proceeds or monies paid under any such policy.
9. Further Covenants of Executive. For purposes of this Section 9, the
term "Bank" includes any direct or indirect parent or subsidiary of MetroBank,
including MetroBanCorp.
(a) Noncompete and Nonsolicitation. If this Agreement is terminated
pursuant to Section 2(d), the Executive shall not, directly or indirectly, on
his own behalf or on behalf of any other person, corporation or other business
entity, for a period of one (1) year from the Date of Termination:
(i) Engage, within the relevant geographic market of MetroBank
as stated from time to time in MetroBank's Community Reinvestment Act
Statement, as an employee, officer, director, consultant, independent
contractor, partner or sole proprietor of, or have any financial
interest in, any business activity that competes with any business
conducted by MetroBank prior to the termination of the Executive's
employment hereunder; provided, however, that nothing in this Section
9(a)(i) shall be deemed to prohibit any investment by, or interest of,
the Executive in the securities of a corporation or other business
entity, if such investment or interest does not exceed five percent (5%)
of the outstanding securities of any class of securities of such a
corporation or business entity; or
(ii) Solicit business (for products or services similar to those
under active development or provided by MetroBank prior to the
termination of the Executive's employment hereunder) of any person,
firm, company or other business entity that is doing business with, is a
customer or account of, or that has been solicited within six months
prior to the termination of the Executive's employment hereunder by,
MetroBank.
(b) Confidentiality. Except as shall be required in the course of his
employment hereunder, during the Term and thereafter, the Executive shall keep
secret and shall not, directly or indirectly, without the prior express written
consent of MetroBank:
(i) Divulge or communicate to any third person or entity, or use
for the benefit of the Executive or any third person or entity any trade
secrets, or any trade knowledge, formulae, processes, programs, methods
and other information relating to the operation of the business of
MetroBank or which were originated in connection therewith and any and
all privileged, proprietary or confidential information relating to the
business, planning or
Page 62
<PAGE>
research activities of MetroBank or any of its clients, customers,
consultants or licensees; or
(ii) Retain for the benefit of the Executive or any third person
or entity any document or paper (other than the Executive's own work
product) used or owned by MetroBank which comes into the Executive's
possession in the course of his employment with MetroBank, or make or
cause to be made any copy, abstract or summary thereof.
(c) Injunctive Relief to MetroBank. Because the services to MetroBank of
the Executive are unique and extraordinary and MetroBank does not have an
adequate remedy at law to protect its business from the Executive's competition
or its interests in its trade secrets, privileged, proprietary and confidential
information and similar commercial assets, MetroBank shall be entitled to
injunctive relief, in addition to such other remedies and relief that would, in
the event of a breach of the provisions of this Section 9, be available to
MetroBank. In the event of such a breach, in addition to any other remedies,
MetroBank shall be entitled to receive from the Executive payment of, or
reimbursement for, MetroBank's reasonable attorneys' fees and disbursements
incurred in enforcing any such provision.
(d) Survival. The provisions of this Section 9 shall survive any
termination of this Agreement.
10. Notice. All communications, notices, requests, consents or demands
given under this Agreement shall be in writing and shall be deemed to have been
duly given when delivered to, or mailed by prepaid registered or certified mail
addressed to, the party for whom intended, as follows, or to such other address
as may be furnished by such party in the manner provided herein:
If to the Executive:
Gregory J. Murray
85 Chesterfield Drive
Noblesville, IN 46060
If to MetroBank:
MetroBank
10333 North Meridian Street
Indianapolis, IN 46290
ATTN: Chief Executive Officer
11. Governing Law. This Agreement shall in all respects be governed by
and construed under the laws of the State of Indiana, without regard to the
choice of law principles thereof, applicable to agreements fully to be performed
in such state. Any action, suit, proceeding or controversy brought by any party
hereto with respect to any dispute arising under this Agreement shall be
instituted solely in either of the Circuit or Superior Courts of the County of
Hamilton, Indiana, or the Federal District Court for the Southern District of
Indiana. Each of
Page 63
<PAGE>
the parties hereto hereby submits to the exclusive jurisdiction and venue of
such courts in this regard.
12. Entire Agreement. This Agreement sets forth the entire understanding
of the parties hereto with respect to its subject matter, merges and supersedes
all prior and contemporaneous understandings with respect to its subject matter,
and may not be waived or modified, in whole or in part, except by a writing
signed by each of the parties hereto. No waiver of any provision of this
Agreement in any instance shall be deemed to be a waiver of the same or any
other provision in any other instance.
13. Construction. Headings contained in this Agreement are for
convenience only and shall not be used in the interpretation of this Agreement.
References herein to Sections are to the Sections of this Agreement. As used
herein, the singular includes the plural and the masculine, feminine and neuter
gender each includes the others where the context so indicates.
14. Successor to MetroBank. MetroBank shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of MetroBank, by
agreement in form and substance satisfactory to the Executive, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that MetroBank would be required to perform it if no such succession had
taken place. The failure of MetroBank to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from MetroBank in the same amount
and on the same terms as he would be entitled to hereunder as if he terminated
his employment under Section 2(c), except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed to be the Date of Termination. As used in this Agreement, "MetroBank"
shall mean MetroBank as hereinbefore defined and any successor to its business
and/or assets.
15. Successors and Assigns. This Agreement shall be binding upon,
enforceable against, and inure to the benefit of, the parties hereto and their
respective heirs, successors and assigns, and nothing herein is intended to
confer any right, remedy or benefit upon any other person. The rights, duties
and obligations of the Executive hereunder may not be assigned. This Agreement
may not be assigned by MetroBank without the prior written consent of the
Executive, which consent shall not be unreasonably withheld.
16. Severability. If any provision of this Agreement is held to be
invalid or unenforceable by a court of competent jurisdiction, this Agreement
shall be interpreted and enforceable as if such provision were severed or
limited, but only to the extent necessary to render such provision and this
Agreement enforceable.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, MetroBank, by its officers thereunder duly
authorized, and the Executive, have executed this Agreement effective as of the
date first set forth above.
Page 64
<PAGE>
Gregory J. Murray
METROBANK
By:
Ike G. Batalis, President and Chief
Executive Officer
Page 65
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
10.28 MEMORANDUM OF IN-STORE BANK FACILITY
LICENSE AGREEMENT DATED AUGUST 13, 1999 BETWEEN
REGISTRANT AND SUPERVALU INC., D/B/A CUB FOODS FOR
PROPERTY LOCATED
AT 14610 US 31 North, CARMEL, INDIANA
The parties (hereinafter referred to separately as "Licensor" and
"Licensee") hereby set forth certain terms of a License Agreement entered into
between such parties on August 13, 1999 ("License").
Section 1. Name and Mailing Address of Licensor. The name and
mailing address of Licensor is SuperValu Inc., d/b/a CUB Foods, 7140 East
Washington Street, Indianapolis, Indiana 46219.
Section 2. Name and Mailing Address of Licensee. The name and
mailing address of Licensee is MetroBank, 10333 North Meridian Street, Suite
111, Indianapolis, Indiana 46290.
Section 3. Common Address and Legal Description. The common street
address of the premises Licensed by Licensee is 14610 US 31 North, Carmel,
Indiana 46032.
Section 4. Term. The term of the License is five (5) years from the
Commencement Date.
Section 5. Renewal Options. Licensee has two (2) renewal options of five
(5) years each.
Section 6. Additional Provisions. None.
Page 66
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
10.29 MEMORANDUM OF LEASE DATED AUGUST 26, 1999 BETWEEN
REGISTRANT AND G & J PARTNERSHIP FOR PROPERTY LOCATED AT
11815 ALLISONVILLE ROAD, FISHERS, INDIANA
The parties (hereinafter referred to separately as "Lessor" and
"Lessee") hereby set forth certain terms of a Lease entered into between such
parties on August 25, 1999 ("Lease").
Section 1. Name and Mailing Address of Lessor. The name and mailing
address of Lessor is G & J PARTNERSHIP, 4525 East 82nd Street, Indianapolis,
Indiana 46250.
Section 2. Name and Mailing Address of Lessee. The name and mailing
address of Lessee is MetroBank, 10333 North Meridian Street, Suite 111,
Indianapolis, Indiana 46290.
Section 3. Common Address and Legal Description. The common street
address of the premises leased by Lessee is 11815 Allisonville Road, Fishers,
Indiana 46038. The legal description of leased premises is:
Part of the Southeast Quarter of Section 35, Township 18 North, Range 4 East
in Hamilton County, Indiana, being more particularly described as follows:
Commencing at the Southeast corner of the said Southeast Quarter Section:
thence South 89 degrees 57 minutes 32 seconds West (assumed bearing) along the
South Line of the said Southeast Quarter Section 2086.04 feet to the
centerline of Allisonville Road (S.R. 37A) per Indiana State Highway Plans for
Project 297 Sheet Nos. 7 and 8, dated 1938, and a curve having a radius of
79,947.599 feet, the radius point of said curve being North 74 degrees 30
minutes 06.9 seconds West; thence Northerly along said centerline and curve
500.43 feet to a point which bears South 74 degrees 51 minutes 38 seconds East
from said radius point; thence North 15 degrees 08 minutes 22 seconds East
along the said centerline 507.29 feet to the BEGINNING POINT; thence North 15
degrees 08 minutes 22 seconds East along the said centerline 240.00 feet;
thence South 74 degrees 51 minutes 38 seconds East 262.80 feet; thence South
15 degrees 08 minutes 22 seconds West 240.00 feet; thence North 74 degrees 51
minutes 38 seconds West 262.80 feet to the BEGINNING POINT, containing 1.448
acres, more or less.
Section 4. Term. The term of the Lease is five (5) years from the
Commencement Date.
Section 5. Renewal Options. Lessee has one (1) renewal option for a 5
year period.
Section 6. Additional Provisions. None.
Page 67
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0
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