FORM 10-QSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
[X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _____________________
Commission file number: 033-76832
MCB FINANCIAL CORPORATION
(exact name of small business issuer)
California 68-0300300
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1248 Fifth Avenue, San Rafael, California 94901
(Address of principal executive offices)
(415) 459-2265
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: November 6, 1998
Class
Common stock, no par value 2,013,471
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
MCB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollar amounts in thousands September 30, December 31,
1998 1997
ASSETS (Unaudited)
Cash and due from banks $ 8,989 $ 6,557
Federal funds sold 5,000 4,900
Total cash and cash equivalents 13,989 11,457
Interest-bearing deposits with banks 286 286
Investment securities available for sale at fair value 32,704 10,314
Investment securities held to maturity; fair values
of $10,617 in 1998 and $25,197 in 1997 10,553 25,242
Loans held for investment (net of allowance for possible
credit losses of $1,062 in 1998 and $1,007 in 1997 103,914 87,179
Premises and equipment - net 2,517 2,586
Accrued interest receivable 1,174 1,070
Deferred income taxes 255 568
Other assets 1,170 1,175
Total assets $ 166,562 $ 139,877
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 33,026 $ 29,151
Interest-bearing:
Transaction accounts 94,868 75,488
Time certificates, $100,000 and over 13,325 11,565
Savings and other time deposits 10,212 9,928
Total interest-bearing deposits 118,405 96,981
Total deposits 151,431 126,132
Other borrowings 306 750
Accrued interest payable and other liabilities 1,134 1,028
Total liabilities 152,871 127,910
SHAREHOLDERS' EQUITY
Preferred stock, no par value: authorized 20,000,000 shares;
none issued or outstanding
Common stock, no par value: authorized 20,000,000 shares;
2,076,763 issued and outstanding at September 30, 1998
2,054,715 issued and outstanding at
December 31, 1997 10,400 10,310
Accumulated other comprehensive income 440 1
Retained earnings 2,851 1,656
Total shareholders' equity 13,691 11,967
Total liabilities and shareholders' equity $ 166,562 $ 139,877
See notes to condensed consolidated financial statements.
MCB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended For the Nine Months
In thousands, September 30, Ended September 30,
except per share amounts 1998 1997 1998 1997
(Unaudited) (Unaudited)
INTEREST INCOME:
Loans, including fees $ 2,788 $ 2,235 $ 7,790 $ 6,340
Federal funds sold 154 80 370 250
Investment securities 511 687 1,576 1,895
Total interest income 3,453 3,002 9,736 8,485
INTEREST EXPENSE:
Interest-bearing transaction, savings
and other time deposits 1,050 948 2,943 2,742
Time certificates, $100,000
and over 173 142 492 392
Other interest 7 6 18 21
Total interest expense 1,230 1,096 3,453 3,155
NET INTEREST INCOME 2,223 1,906 6,283 5,330
PROVISION FOR POSSIBLE
CREDIT LOSSES 35 20 70 60
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE CREDIT LOSSES 2,188 1,886 6,213 5,270
OTHER INCOME:
Gain on sale of loans 18 26 137 116
Service fees on deposit
accounts 129 125 373 361
Loan servicing fees 11 8 32 23
Other 45 56 192 125
Total other income 203 215 734 625
OTHER EXPENSES:
Salaries and employee benefits 922 709 2,707 2,255
Occupancy expense 214 201 648 583
Furniture and equipment expense 99 74 313 248
Professional services 101 166 214 268
Supplies 66 49 215 151
Promotional expenses 57 47 247 152
Data processing fees 80 106 242 253
Regulatory assessments 18 16 49 45
Other 97 87 340 275
Total other expenses 1,654 1,455 4,975 4,230
INCOME BEFORE INCOME TAXES 737 646 1,972 1,665
INCOME TAX PROVISION 299 267 807 684
NET INCOME $ 438 $ 379 $ 1,165 $ 981
BASIC EARNINGS PER SHARE $ 0.21 $ 0.19 $ 0.56 $ 0.49
DILUTED EARNINGS PER SHARE $ 0.20 $ 0.18 $ 0.53 $ 0.47
See notes to condensed consolidated financial statements
MCB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended Nine Months Ended
Dollar amounts in thousands September 30, September 30,
1998 1997 1998 1997
(Unaudited) (Unaudited)
Net income $ 438 $ 379 $1,165 $ 981
Other comprehensive income, net of tax:
Unrealized gain (loss) on available
for sale investments:
Unrealized holding gain (loss)
arising during period 422 48 439 27
Comprehensive income $ 860 $ 427 $1,604 $1,008
See notes to condensed consolidated financial statements.
MCB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months
Dollar amounts in thousands Ended September 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
Net income $ 1,165 $ 981
Adjustments to reconcile net income to net cash
provided by operating activities:
Settlement of mortgage loans sold 647
Provision for possible credit losses 70 60
Depreciation and amortization 347 242
Change in deferred income taxes (59)
(Increase) decrease in accrued interest receivable (104) 63
Increase in other assets (6) (56)
Increase in accrued interest payable and
other liabilities 149 76
Net cash provided by operating activities 1,621 1,954
CASH FLOWS FROM INVESTING ACTIVITIES:
Held to maturity securities:
Calls 16,750 2,000
Purchases (2,055) (3,000)
Available for sale securities:
Maturities 2,880 3,997
Calls 1,000 2,000
Purchases (25,547) (8,017)
Decrease in interest-bearing deposits with banks 98
Net increase in loans held for investment (16,805) (5,869)
Purchases of premises and equipment (257) (409)
Net cash used by investing activities (24,034) (9,200)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest-bearing
demand deposits 3,875 3,584
Net increase in interest-bearing transaction,
savings and other time deposits 21,424 6,864
Net (decrease) increase in other borrowings (444) 289
Cash dividends paid (2)
Proceeds from the exercise of stock options 90 249
Net cash provided by financing activities 29,945 10,984
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,532 3,738
CASH AND CASH EQUIVALENTS:
Beginning of period 11,457 10,380
End of period $ 13,989 $ 14,118
CASH PAID DURING THE PERIOD FOR:
Interest on deposits and other borrowings $ 3,497 $ 3,167
Income taxes 596 $ 720
NONCASH INVESTING AND FINANCING ACTIVITIES:
Stock dividends paid on common stock $ 591
See notes to condensed consolidated financial statements.
MCB FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. Significant Accounting Policies
The unaudited consolidated financial information included herein has been
prepared in conformity with the accounting principles and practices in MCB
Financial Corporation's (the "Company") consolidated financial statements
included in the Annual Report for the year ended December 31, 1997. The
accompanying interim consolidated financial statements contained herein are
unaudited. However, in the opinion of the Company, all adjustments, consisting
of normal recurring items necessary for a fair presentation of the operating
results for the periods shown, have been made. The results of operations for
the nine months ended September 30, 1998 may not be indicative of operating
results for the year ending December 31, 1998. Certain prior year and prior
quarter amounts have been reclassified to conform to current classifications.
Cash and cash equivalents consists of cash, due from banks, and federal funds
sold.
Stock Split
In February 1998, the Company's outstanding shares of common stock were split
four-for-three. In August 1998, the Company's outstanding shares of common
stock were split three-for-two. All shares and per share amounts reported have
been restated to reflect the splits.
Recently Issued Accounting Pronouncements
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income." This statement establishes standards
for all entities for reporting comprehensive income and its components in
financial statements. This statement requires that all items which are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income is equal to net
income plus the change in "other comprehensive income," as defined by SFAS No.
130. The only component of other comprehensive income currently applicable to
the Company is the net unrealized gain or loss on available for sale
investments. SFAS No. 130 requires that an entity: (a) classify items of other
comprehensive income by their nature in a financial statement, and (b) report
the accumulated balance of other comprehensive income separately from common
stock and retained earnings in the equity section of the balance sheet. This
statement is effective for financial statements issued for fiscal years
beginning after December 15, 1997.
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information",
which establishes annual and interim reporting standards for an enterprise's
operating segments and related disclosures about its products, services,
geographic areas, and major customers. Adoption of this statement will not
impact the Company's consolidated financial position, results of operations or
cash flows, and any effect will be limited to the form and content of its
disclosures. This statement is effective with the year-end 1998 financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
statement requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The statement requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the income statement, and requires that a company formally document, designate
and assess the effectiveness of transactions that receive hedge accounting.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after 6/15/99. Initial application of SFAS No. 133 would be as of the beginning
of an entity's fiscal quarter. On that date, hedging relationships must be
designated anew and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged, but
it is permitted only as of the beginning of any fiscal quarter that begins after
issuance. SFAS No. 133 should not be applied retroactively to financial
statements of prior periods. The Company has no derivative or hedged
instruments and therefore the implementation of this statement is not expected
to have a material impact on the Company's financial position or results of
operations.
2. Earnings Per Share
The following is a reconciliation of basic earnings per share (EPS) to diluted
EPS for the three and nine month periods ended September 30, 1998 and 1997.
Three months ended September 30, 1998:
Net Per Share
Income Shares Amount
In thousands, except per share amounts (Unaudited) (Unaudited) (Unaudited)
Basic EPS:
Income available to common shareholders $438 2,077 $0.21
Effect of Dilutive Securities:
Stock options 142
Diluted EPS:
Income available to common shareholders
plus assumed conversions $438 2,219 $0.20
Nine months ended September 30, 1998:
Net Per Share
Income Shares Amount
In thousands, except per share amounts (Unaudited) (Unaudited) (Unaudited)
Basic EPS:
Income available to common shareholders $1,165 2,071 $0.56
Effect of Dilutive Securities:
Stock options 144
Diluted EPS:
Income available to common shareholders
plus assumed conversions $1,165 2,215 $0.53
Three months ended September 30, 1997:
Net Per Share
Income Shares Amount
In thousands, except per share amounts (Unaudited) (Unaudited) (Unaudited)
Basic EPS:
Income available to common shareholders $379 2,016 $0.19
Effect of Dilutive Securities:
Stock options 92
Diluted EPS:
Income available to common shareholders
plus assumed conversions $379 2,108 $0.18
Nine months ended September 30, 1997:
Net Per Share
Income Shares Amount
In thousands, except per share amounts (Unaudited) (Unaudited) (Unaudited)
Basic EPS:
Income available to common shareholders $981 2,000 $0.49
Effect of Dilutive Securities:
Stock options 83
Diluted EPS:
Income available to common shareholders
plus assumed conversions $981 2,083 $0.47
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
MCB Financial Corporation (the "Company") is the holding company for Metro
Commerce Bank in San Rafael, California. This discussion focuses primarily on
the results of operations of the Company on a consolidated basis for the three
and nine months ended September 30, 1998 and the financial condition of the
Company as of that date.
The following discussion presents information pertaining to the financial
condition and results of operations of the Company and its subsidiary and should
be read in conjunction with the financial statements and notes thereto presented
in this 10-QSB. Average balances, including balances used in calculating
certain financial ratios, are generally comprised of average daily balances.
Certain matters discussed in this report are forward-looking statements that
are subject to risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. Such risks
and uncertainties include, but are not limited to, the competitive environment
and its impact on the Company's net interest margin, changes in interest rates,
asset quality risks, concentrations of credit and the economic health of the San
Francisco Bay Area and Southern California, volatility of rate sensitive
deposits, asset/liability matching risks, the dilutive impact which might occur
upon the issuance of new shares of common stock, liquidity risks, and the impact
of the Year 2000 problem. Therefore, the matters set forth below should be
carefully considered when evaluating the Company's business and prospects. For
additional information concerning these risks and uncertainties, please refer to
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997.
OVERVIEW
Earnings Summary. The Company reported net income of $438,000, or $0.21 per
share basic and $0.20 per share diluted, for the third quarter of 1998. This
compares to net income of $379,000, or $0.19 per share basic and $0.18 per share
diluted, for the same period in 1997.
For the nine months ended September 30, 1998, the Company reported net income of
$1,165,000, or $0.56 per share basic and $0.53 per share diluted. This compares
to net income of $981,000, or $0.49 per share basic and $0.47 per share diluted
for the same period in 1997. Growth in average loans as a percentage of earning
assets continued to positively impact the net interest margin during the three
and nine month periods ended September 30, 1998.
Return on average assets and return on average equity for the third quarter
of 1998 were 1.09% and 13.11%, respectively, as compared to 1.06% and 13.49%,
respectively, for the same period of 1997. Return on average assets and return
on average equity for the nine months ended September 30, 1998 were 1.02% and
12.17%, respectively, as compared to 0.96% and 12.12%, respectively, for the
same period of 1997.
FINANCIAL CONDITION
Summary. Total assets of the Company increased by $26.7 million, or 19.1%,
from the end of 1997 to reach $166.6 million at September 30, 1998. This
increase resulted primarily from growth in existing operations, largely due to
improved economic conditions in the Company's market areas.
Loans Held for Investment. Net loans held for investment increased by $16.7
million, or 19.2%, during the first nine months of 1998 as demand for commercial
real estate and construction loans continued to increase. The following table
sets forth the amount of total loans outstanding by category as of the dates
indicated (dollar amounts in thousands):
Total Loans September 30, December 31,
1998 1997
Commercial $ 21,523 $ 21,217
Real estate:
Commercial 68,064 57,385
Construction 10,571 3,757
Land 908 1,307
Home equity 1,718 2,314
Loans to consumers and individuals 2,241 2,331
Total 105,025 88,311
Deferred loan fees (49) (125)
Allowance for possible credit losses (1,062) (1,007)
Total net loans $ 103,914 $ 87,179
In the normal practice of extending credit, the Company accepts real estate
collateral for loans which have primary sources of repayment from commercial
operations. The total amount of loans secured by real estate equaled $87.1
million, or 82.9% of the total portfolio as of September 30, 1998. Due to the
Company's limited marketing areas, its real estate collateral is primarily
concentrated in the San Francisco Bay Area and Southern California. The Company
believes that its prudent underwriting standards for real estate secured loans
provide an adequate safeguard against declining real estate prices which may
effect a borrower's ability to liquidate the property and repay the loan.
However, no assurance can be given that real estate values will not decline and
impair the value of the security for loans held by the Company.
The Company focuses its portfolio lending on commercial, commercial real
estate, and construction loans. These loans generally carry a higher level of
risk than conventional real estate loans; accordingly, yields on these loans are
typically higher than those of other loans. The performance of commercial and
construction loans is generally dependent upon future cash flows from business
operations (including the sale of products, merchandise and services) and the
successful completion or operation of large real estate projects. Risks
attributable to such loans can be significantly increased, often to a greater
extent than other loans, by regional economic factors, real estate prices, the
demand for commercial and retail office space, and the demand for products and
services of industries which are concentrated within the Company's loan
portfolio. As of September 30, 1998, the two largest industry concentrations
within the loan portfolio were real estate and related services at 26.1% and the
business/personal service industry at 22.9% of the portfolio. Because credit
concentrations increase portfolio risk, the Company places significant emphasis
on the purpose of each loan and the related sources of repayment. The Company
generally limits unsecured commercial loans to maturities of three years and
secured commercial loans to maturities of five years.
Nonperforming Assets. The Company carefully monitors the quality of its
loan portfolio and the factors that affect it, including regional economic
conditions, employment stability, and real estate values. The accrual of
interest on loans is discontinued when the payment of principal or interest is
considered to be in doubt, or when a loan becomes contractually past due by 90
days or more with respect to principal or interest, except for loans that are
well secured and in the process of collection.
As of September 30, 1998, the Company had nonperforming assets in the amount
of $584,000, of which $544,000 represented three nonaccrual loans. Had these
nonaccrual loans performed under their contractual terms approximately $22,237
in additional interest income would have been recognized during 1998. Also, as
of September 30, 1998, the Company had one loan 90 days or more past due and
still accruing in the amount of $40,000. This loan is well secured and in the
process of collection. The following table sets forth the balance of
nonperforming assets as of the dates indicated (dollar amounts in thousands):
Nonperforming Assets September 30, December 31,
1998 1997
Nonaccrual loans $ 544 $ 69
Loans 90 days or more past due and
still accruing 40 40
Other real estate owned 0 0
$ 584 $ 109
As a percent of total loans 0.56% 0.12%
As a percent of total assets 0.35% 0.08%
At September 30, 1998, the Company had loans identified as impaired in the
amount of $584,000. At September 30, 1998, no specific allowance for possible
credit losses was required for these impaired loans because they were adequately
collateralized.
Allowance for Possible Credit Losses. The Company maintains an allowance for
possible credit losses ("APCL") which is reduced by credit losses and increased
by credit recoveries and provisions to the APCL charged against operations.
Provisions to the APCL and the total of the APCL are based, among other factors,
upon the Company's credit loss experience, current and projected economic
conditions, the performance of loans within the portfolio, evaluation of loan
collateral value, and the prospects or worth of respective borrowers and
guarantors.
In determining the adequacy of its APCL and after carefully analyzing each
loan individually, the Company segments its loan portfolio into pools of
homogeneous loans that share similar risk factors. Each pool is given a risk
assessment factor which largely reflects the expected future losses from each
category. These risk assessment factors change as economic conditions shift and
actual loan losses are recorded. As of September 30, 1998, the APCL of
$1,062,000, or 1.01% of total loans was determined by management to be adequate
against foreseeable future losses. No assurance can be given that nonperforming
loans will not increase or that future losses will not exceed the amount of the
APCL.
The following table summarizes, for the periods indicated, loan balances at
the end of each period and average balances during the period, changes in the
APCL arising from credit losses, recoveries of credit losses previously
incurred, additions to the APCL charged to operating expense, and certain ratios
relating to the APCL (dollar amounts in thousands):
Nine Months Year
Ended Ended
September 30, December 31,
1998 1997
Balances:
Average loans during period (net of unearned income) $ 97,395 $ 82,893
Loans at end of period (net of unearned income) 104,976 88,186
Allowance for Possible Credit Losses:
Balance at beginning of period 1,007 944
Actual credit losses:
Commercial loans 17 105
Loans to consumers and individuals 3
Total 17 108
Actual credit recoveries:
Commercial loans 1 51
Loans to consumers and individuals 1
Total 2 51
Net credit losses 15 57
Provision charged to operating expenses 70 120
Balance at end of period $ 1,062 $ 1,007
Ratios:
Net credit losses to average loans 0.02% 0.07%
Allowance for possible credit losses to loans
at end of period 1.01% 1.14%
Net credit losses to beginning of period
allowance for credit losses 1.49% 6.04
The Company provided $35,000 to the allowance for possible credit losses
during the third quarter of 1998 as compared to $20,000 during the third quarter
of 1997. For the nine months ended September 30, 1998, the Company provided
$70,000 to the allowance for possible credit losses as compared to $60,000
during the same period of 1997. The $35,000 provision in the third quarter of
1998 was recorded as a prudent measure, based upon growth in the loan portfolio.
The following table sets forth the allocation of the APCL as of the dates
indicated (dollar amounts in thousands):
September 30, 1998 December 31, 1997
% of % of
Category Category
to Total to Total
APCL Loans APCL Loans
Commercial loans $ 600 43.75% $ 570 41.79%
Real estate loans 227 52.00% 245 52.39%
Consumer loans 40 4.25% 43 5.82%
Not allocated 195 N/A 149 N/A
Total $ 1,062 100.00% $ 1,007 100.00%
The APCL is available to absorb losses from all loans, although allocations
have been made for certain loans and loan categories. The allocation of the
APCL as shown above should not be interpreted as an indication that charge-offs
in future periods will occur in these amounts or proportions, or that the
allocation indicates future charge-off trends. In addition to the most recent
analysis of individual loans and pools of loans, management's methodology also
places emphasis on historical loss data, delinquency and nonaccrual trends by
loan classification category and expected loan maturity. This analysis,
management believes, identifies potential losses within the loan portfolio and
therefore results in allocation of a large portion of the allowance to specific
loan categories.
Investments. The Company continues to invest in callable U.S. government
agency securities. These securities offer above market yields, but may be
called if interest rates fall below certain levels. If these securities are
called, the Company may not be able to reinvest the proceeds to obtain the same
yield.
The following tables set forth the amortized cost and approximate market
value of investment securities as of the dates indicated (dollar amounts in
thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
September 30, 1998: Cost Gains Losses Value Value
Held to maturity securities:
U.S. Government agencies $10,553 $ 64 $ $10,617 $10,553
Total held to maturity 10,553 64 10,617 10,553
Available for sale securities:
U.S. Treasury 13,313 390 13,703 13,703
U.S. Government Agencies 15,224 282 15,506 15,506
Mortgage-backed
Securities 1,338 12 1,350 1,350
Corporate securities 1,976 68 2,044 2,044
Municipal bonds 100 1 101 101
Total available for sale 31,951 753 32,704 32,704
Total investment
securities $42,504 $ 817 $ $43,321 $43,257
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
December 31, 1997: Cost Gains Losses Value Value
Held to maturity securities:
U.S. Government agencies $25,242 $ 44 $ (89) $25,197 $25,242
Total held to maturity 25,242 44 (89) 25,197 25,242
Available for sale securities:
U.S. Treasury 5,004 29 5,033 5,033
U.S. Government agencies 1,000 (2) 998 998
Mortgage-backed
Securities 2,176 (30) 2,146 2,146
Corporate securities 1.992 5 (1) 1,996 1,996
Municipal bonds 140 1 141 141
Total available for sale 10,312 35 (33) 10,314 10,314
Total investment
securities $35,554 $ 79 $ (122) $35,511 $35,556
Deposits. Total consolidated deposits increased by $25.3 million, or 20.1%,
during the nine months ended September 30, 1998. This increase was primarily
the result of growth in existing operations, largely due to improved economic
conditions in the Company's market areas.
Rates paid on time deposits decreased during the nine months ended September
30, 1998 contributing to the decrease in the cost of funds to 3.33% during the
nine months ended September 30, 1998 from 3.36% for the year ended December 31,
1997. The following table summarizes the distribution of average deposits and
the average rates paid for the periods indicated (dollar amounts in thousands):
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
Average Average Average Average
Balance Rate Balance Rate
Noninterest-bearing demand deposits $ 30,010 $ 27,019
Interest-bearing demand deposits
(includes money market
deposit accounts) 85,402 4.07% 78,521 4.10%
Savings deposits 1,772 1.92% 1,928 1.93%
Time deposits, $100,000 and over 12,306 5.33% 10,214 5.42%
Other time deposits 8,065 5.09% 8,080 5.13%
Total interest-bearing 107,545 4.26% 98,743 4.28%
Total deposits $137,555 3.33% $125,762 3.36%
The following table sets forth the time remaining to maturity of the
Company's time deposits in amounts of $100,000 or more as of the dates indicated
below (dollar amounts in thousands):
September 30, December 31,
Time remaining to maturity 1998 1997
Three months or less $ 3,280 $ 4,359
After three months to six months 3,380 3,388
After six months to one year 5,965 3,388
After twelve months 700 430
Total $ 13,325 $ 11,565
RESULTS OF OPERATIONS
Net Interest Income / Net Interest Margin. Net interest income for the
quarter ended September 30, 1998 was $2,223,000, an increase of 16.6% over the
net interest income of $1,906,000 during the same period of 1997. Net interest
income for the nine months ended September 30, 1998 was $6,283,000, an increase
of 17.9% over the net interest income of $5,330,000 during the same period of
1997. The increase in both periods was primarily due to the growth in average
loans, largely due to improved economic conditions in the Company's market
areas.
The following table sets forth average assets, liabilities, and shareholders'
equity; the amount of interest income or interest expense; and the average yield
or rate for each category of interest-bearing assets and interest-bearing
liabilities and the net interest margin (net interest income divided by average
earning assets) for the periods indicated (dollar amounts in thousands):
For the quarter ended September 30,
1998 1997
Average Average
Balance Interest Rate Balance Interest Rate
ASSETS
Federal funds sold $ 11,382 $ 154 5.41% $ 5,801 $ 80 5.52%
Interest-bearing deposits
with banks 286 4 5.59% 338 5 5.92%
Investment securities 34,289 507 5.92% 42,168 682 6.47%
Loans 103,558 2,788 10.77% 83,380 2,235 10.72%
Total earning assets 149,515 3,453 9.24% 131,687 3,002 9.12%
Total non-earning assets 11,937 11,051
Total assets $161,452 $142,738
LIABILITIES & SHAREHOLDERS' EQUITY
Demand deposits $ 30,899 $ 27,957
Interest-bearing transaction
accounts 92,480 $ 936 4.05% 81,569 $ 836 4.10%
Time deposits, $100,000 or more 12,722 173 5.44% 10,292 143 5.56%
Savings and other time 10,168 114 4.48% 9,780 111 4.54%
Total interest-bearing deposits 115,370 1,223 4.24% 101,641 1,090 4.29%
Other borrowings 514 7 5.45% 484 6 4.96%
Total interest-bearing
liabilities 115,884 1,230 4.25% 102,125 1,096 4.29%
Other liabilities 1,308 1,414
Shareholders' equity 13,361 11,242
Total liabilities
and shareholders' equity $161,452 $142,738
Net interest income $2,223 $1,906
Net interest margin 5.95% 5.79%
For the nine months ended September 30,
1998 1997
Average Average
Balance Interest Rate Balance Interest Rate
ASSETS
Federal funds sold $ 9,216 $ 370 5.35% $ 6,214 $ 250 5.36%
Interest-bearing deposits
with banks 286 13 6.06% 369 17 6.14%
Investment securities 34,293 1,563 6.09% 39,059 1,878 6.42%
Mortgage loans held for sale 87 5 7.66%
Loans 96,379 7,790 10.78% 80,354 6,335 10.51%
Total earning assets 140,174 9,736 9.26% 126,083 8,485 8.98%
Total non-earning assets 11,827 10,840
Total assets $152,001 $136,923
LIABILITIES & SHAREHOLDERS' EQUITY
Demand deposits $ 30,010 $ 26,069
Interest-bearing transaction
accounts 85,402 2,609 4.07% 78,476 2,403 4.08%
Time deposits, $100,000 or more 12,306 492 5.33% 9,692 392 5.39%
Savings and other time 9,837 334 4.53% 10,041 339 4.50%
Total interest-bearing deposits 107,545 3,435 4.26% 98,209 3,134 4.25%
Other borrowings 481 18 4.99% 597 21 4.69%
Total interest-bearing
liabilities 108,026 3,453 4.26% 98,806 3,155 4.26%
Other liabilities 1,197 1,260
Shareholders' equity 12,768 10,788
Total liabilities
and shareholders' equity $152,001 $136,923
Net interest income $6,283 $5,330
Net interest margin 5.98% 5.64%
The net interest margin increased to 5.95% during the third quarter of 1998
from 5.79% in the same quarter of 1997. For the nine months ended September 30,
1998, the net interest margin increased to 5.98% from 5.64% during the same
period of 1997. The increase in both periods was primarily attributable to
growth in average loans as a percentage of earning assets. The increase in
average loans was largely due to the improved economic conditions in the
Company's market areas.
The following table presents the dollar amount of changes in interest earned
and interest paid for each major category of interest-earning asset and
interest-bearing liability and the amount of change attributable to average
balances (volume) fluctuations and average rate fluctuations for the periods
indicated. The variance attributable to both balance and rate fluctuations is
allocated to a combined rate/volume variance (dollar amounts in thousands):
Quarter Ended Nine Months Ended
Septmeber 30, 1998 September 30, 1998
Compared to Compared to
Quarter Ended Nine Months Ended
September 30, 1997 September 30, 1997
Change in Change in
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
Interest Income:
Federal funds sold $77 ($2) ($2) $73 $121 $0 $0 $121
Interest-bearing deposits
with banks (1) 0 0 (1) (4) 0 0 (4)
Investment securities (127) (58) 11 (174) (229) (97) 12 (314)
Mortgage loans held
for sale (5) 0 0 (5)
Loans 540 10 3 553 1,258 163 32 1,453
Total Interest Income 489 (50) 12 451 1,141 66 44 1,251
Interest Expense:
Interest-bearing
transaction accounts 111 (10) (1) 100 211 (6) (1) 204
Time deposits,
$100,000 or more 34 (3) (1) 30 105 (4) (1) 100
Savings and other time 4 (1) 0 3 (5) 2 0 (3)
Other borrowings 0 1 0 1 (4) 1 0 (3)
Total Interest Expense 149 (13) (2) 134 307 (7) (2) 298
Net Interest Income $340 ($37) $14 $317 $834 $73 $46 $953
Noninterest Income. The following table summarizes noninterest income for
the periods indicated and expresses the amounts as a percentage of average
assets (dollar amounts in thousands):
Quarter Ended Nine Months Ended
September 30, September 30,
Components of Noninterest Income 1998 1997 1998 1997
Gain on sale of loans $ 18 $ 26 $ 137 $ 116
Service fees on deposit accounts 129 125 373 361
Loan servicing fees 11 8 32 23
Other 45 56 192 125
Total $ 203 $ 215 $ 734 $ 625
As a Percentage of Average Assets (Annualized)
Gain on sale of loans 0.04% 0.07% 0.12% 0.11%
Service fees on deposit accounts 0.32% 0.35% 0.32% 0.35%
Loan servicing fees 0.03% 0.02% 0.03% 0.02%
Other 0.11% 0.16% 0.17% 0.12%
Total 0.50% 0.60% 0.64% 0.60%
Noninterest Expense. The following table summarizes noninterest expenses and
the associated ratios to average assets for the periods indicated (dollar
amounts in thousands):
Quarter Ended Nine Months Ended
September 30, September 30,
Components of Noninterest Expense 1998 1997 1998 1997
Salaries and employee benefits $ 922 $ 709 $ 2,707 $ 2,255
Occupancy expense 214 201 648 583
Furniture and equipment expense 99 74 313 248
Professional services 101 166 214 268
Supplies 66 49 215 151
Promotional expenses 57 47 247 152
Data processing fees 80 106 242 253
Regulatory assessments 18 16 49 45
Other 97 87 340 275
Total $ 1,654 $ 1,455 $ 4,975 $ 4,230
Average full-time equivalent employees 56 46 55 48
As a Percentage of Average Assets (Annualized)
Salaries and employee benefits 2.28% 1.99% 2.37% 2.20%
Occupancy expense 0.53% 0.56% 0.57% 0.57%
Furniture and equipment expense 0.25% 0.21% 0.27% 0.24%
Professional services 0.25% 0.47% 0.19% 0.26%
Supplies 0.16% 0.14% 0.19% 0.15%
Promotional expenses 0.14% 0.13% 0.22% 0.15%
Data processing fees 0.20% 0.30% 0.21% 0.25%
Regulatory assessments 0.05% 0.04% 0.04% 0.04%
Other 0.24% 0.24% 0.30% 0.27%
Total 4.10% 4.08% 4.36% 4.13%
Noninterest expense increased to $1.7 million during the third quarter of
1998 from $1.5 million during the same period of the prior year. For the nine
months ended September 30, 1998, noninterest expense increased to $5.0 million
from $4.2 million during the same period of the prior year. In January, 1998,
the Company opened a branch office in San Francisco which contributed to the
increase in noninterest expense during the third quarter of 1998 and for the
nine months ended September 30, 1998.
Year 2000. The Year 2000 creates challenges with respect to the automated
systems used by financial institutions and other companies. Many software
programs are not able to recognize the year 2000, since most programs and
systems were designed to store calendar years in the 1900's by assuming the "19"
and storing only the last two digits of the year. For example, these automated
systems would recognize a year stored as "00" as the year "1900", rather than as
the year "2000". If these automated systems are not appropriately re-coded,
updated or replaced before the year 2000, they will likely crash or fail in some
manner. In addition, many software programs and automated systems will fail to
recognize the year 2000 as a leap year. The problem is not limited to computer
systems. Year 2000 issues will potentially affect every system that has an
embedded microchip, such as automated teller machines, elevators and vaults.
The year 2000 challenge is especially problematic for financial institutions,
since many transactions such as interest accruals and payments are date
sensitive. It also may affect the operations of third parties with whom the
Company does business, including the Company's vendors, suppliers, utility
companies and customers.
The Company's State of Readiness. The Company is committed to addressing
these year 2000 challenges in a prompt and responsible manner and has dedicated
resources to do so. Management has completed an assessment of its automated
systems and has implemented a plan to resolve these issues, including purchasing
appropriate computer technology. The Company's year 2000 compliance plan
("Plan") has five phases. These phases are (1) project management, (2)
awareness, (3) assessment, (4) testing, and (5) renovation and implementation.
The Company has substantially completed phases one through four, although
appropriate follow-up activities are continuing to occur. The Company is
currently involved in the renovation and implementation phase of the Plan.
Project Management. The Company's senior management provides periodic
reports to its board of directors in order to assist them in overseeing the
Company's year 2000 readiness.
Awareness. The Company has completed several projects designed to promote
awareness of year 2000 issues throughout the Company and the Company's customer
base. These projects include mailing information to deposit and loan customers,
providing training for lending officers and other staff, and responding to
vendor, customer, and shareholder inquiries.
Assessment. Assessment is the process of identifying all mission-critical
applications that could potentially be negatively affected by dates in the year
2000 and beyond. The Company's assessment phase is substantially complete.
Systems examined during this phase included telecommunications systems, account-
processing applications, and other software and hardware used in connection with
customer accounts. The Company's operations, like those of many other
companies, are intertwined with the operations of certain of its business
partners. Accordingly, the Company's operations could be materially affected if
the operations of those companies who provide the Company with mission critical
applications, systems, and services are materially affected. For example, the
Company depends upon vendors who provide equipment, technology, and software to
it in connection with its business operations. Failure of these software
vendors to achieve year 2000 readiness could substantially affect the operations
of the Company. In addition, lawsuits and other financial challenges materially
affecting the financial viability of these vendors could materially affect the
Company. In response to this concern, the Company has identified and contacted
those vendors who provide our mission-critical applications. The Company has
assessed their year 2000 compliance efforts and will continue to monitor their
progress as the year 2000 approaches.
Testing. Updating and testing of the Company's mission-critical automated
systems is substantially complete. Testing of modified or new systems will
continue throughout 1998 and 1999.
Renovation and Implementation. This phase involves obtaining and
implementing renovated software applications provided by our vendors. As these
applications are received and implemented, the Company will test them for year
2000 compliance. This phase also involves upgrading and replacing automated
systems where appropriate and will continue throughout 1998 and 1999. Although
this phase will be substantially complete before the end of 1999, additional
follow-up activities may take place in the year 2000 and beyond.
The Costs to Address the Company's Year 2000 Issues. The total financial
effect of these year 2000 challenges on the Company cannot be predicted with
certainty at this time. In fact, in spite of all efforts being made to rectify
these problems, the success of these efforts cannot be predicted until the year
2000 actually arrives. The Company upgraded and replaced its data processing
and network system in 1997. The Company spent a total of approximately $500,000
on this conversion. The Company will continue to upgrade or replace certain
automated systems before the year 2000; however some of these systems would have
been replaced before the year 2000 without regard to year 2000 compliance
issues, due to technology updates and Company expansion. Management does not
believe that future expenses related to meeting the Company's year 2000
challenges will have a material effect on the operations or financial
performance of the Company. However, factors beyond the control of management,
such as the effects on vendors of our mission-critical software and systems, the
effects of year 2000 issues on the economy, and the development of the risks
identified below under "The Risks of the Company's Year 2000 Issues," among
other things, could have a material effect on the operations or financial
performance of the Company.
The Risks of the Company's Year 2000 Issues. The year 2000 presents certain
risks to the Company and its operations. Some of these risks are present
because the Company purchases technology applications from other parties who
face year 2000 challenges. Other of these risks are inherent in the business of
banking or are risks faced by many other companies in other industries.
Although it is impossible to identify every possible risk that the Company may
face moving into the new millennium, management has to date identified the
following potential risks:
1. Commercial banks, such as the Company, may experience a contraction in
their deposit base if a significant amount of deposited funds are withdrawn by
customers prior to the year 2000. Also, interest rates may increase in the
latter part of 1999. This potential deposit contraction could make it necessary
for the Company to change its sources of funding and could materially impact
future earnings. The Company is currently developing a contingency plan for
addressing this situation, should it occur.
2. The Company lends significant amounts to businesses in its market area.
If these businesses are adversely affected by year 2000 issues, their ability to
repay loans could be impaired. This increased credit risk could affect the
Company's financial performance. As part of the Company's Plan, its primary
borrowers were identified and the assessment of their year 2000 readiness and
risk to the Company is in progress.
3. The Company's operations, like those of many other companies, can be
affected by the year 2000 triggered failures of other companies upon whom the
Company depends for the functioning of its automated systems. Accordingly, the
Company's operations could be materially affected if the operations of those
companies who provide the Company with mission critical systems and services are
materially affected. As described above, the Company has identified its
mission-critical vendors and is monitoring their year 2000 compliance progress.
4. All companies with publicly traded stock, including the Company, could
experience a drop in stock price as investors change their investment portfolios
or sell stock prior to the new millennium. At this time, it is impossible to
predict whether or not this will in fact be the case with respect to the stock
of the MCB Financial Corporation or any other company.
5. The Company's ability to operate effectively in the year 2000 could be
affected by communications abilities and access to utilities, such as
electricity, water and telephone. To the extent access is interrupted due to
the effects of year 2000 issues on these and other utilities, the operations of
the Company will be disrupted.
The Company's Contingency Plans. The Company is currently developing a
contingency plan to handle the most reasonably likely worst case scenarios
related to year 2000 issues. This plan will range from obtaining mission-
critical system back-up capabilities to funds management contingencies.
Income Taxes. The Company's effective tax rate was 40.6% for the quarter
ended September 30, 1998 compared to 41.3% in the same period of the prior year.
For the nine months ended September 30, 1998, the effective tax rate was 40.9%
compared to 41.1% in the same period of the prior year.
Liquidity and Asset / Liability Management. Liquidity is the Company's
ability to absorb fluctuations in deposits while simultaneously providing for
the credit needs of its borrowers. The objective in liquidity management is to
balance the sources and uses of funds. Primary sources of liquidity for the
Company include payments of principal and interest on loans and investments,
proceeds from the sale or maturity of loans and investments, growth in deposits,
and other borrowings. The Company holds overnight federal funds as a cushion
for temporary liquidity needs. During the nine months ended September 30, 1998,
federal funds sold averaged $9.2 million, or 6.1% of total assets. In addition
to its federal funds, the Company maintains various lines of credit with
correspondent banks, the Federal Reserve Bank of San Francisco, and the Federal
Home Loan Bank of San Francisco.
At September 30, 1998, the Company had cash, time deposits with banks,
federal funds sold, and unpledged investment securities of approximately $53.1
million, or 31.9% of total assets. This represented all available liquid
assets.
Several methods are used to measure liquidity. One method is to measure the
balance between loans and deposits (gross loans divided by total deposits). In
general, the closer this ratio is to 100%, the more reliant an institution
becomes on its illiquid loan portfolio to absorb temporary fluctuations in
deposit levels. At September 30, 1998, the loan-to-deposit ratio was 69.3% as
compared to 69.9% at December 31, 1997.
Another frequently used method is the relationship between short-term liquid
assets (federal funds sold and investments maturing within one year) and short-
term liabilities (total deposits and other borrowings) as measured by the
liquidity ratio. The Company targets a minimum ratio of 5%. At September 30,
1998, this ratio was 3.85% as compared to 6.3% at December 31, 1997. Although
the liquidity ratio was below target at September 30, 1998, the ratio increased
after that date to 9.06% at October 31, 1998.
As of September 30, 1998, the Company had no material commitments that were
expected to adversely impact liquidity.
Net interest income and the net interest margin are largely dependent on the
Company's ability to closely match interest-earning assets with interest-bearing
liabilities. As interest rates change, the Company must constantly balance
maturing and repricing liabilities with maturing and repricing assets. This
process is called asset/liability management and is commonly measured by the
maturity/repricing gap. The maturity/repricing gap is the dollar difference
between maturing or repricing assets and maturing or repricing liabilities at
different intervals of time.
The following table sets forth rate sensitive interest-earning assets and
interest-bearing liabilities as of September 30, 1998, the interest rate
sensitivity gap (i.e. interest sensitive assets minus interest sensitive
liabilities), the cumulative interest rate sensitivity gap, the interest rate
sensitivity gap ratio (interest sensitive assets divided by interest sensitive
liabilities) and the cumulative interest rate sensitivity gap ratio. For the
purposes of the following table, an asset or liability is considered rate
sensitive within a specified period when it matures or can be repriced within
that period pursuant to its original contractual terms (dollar amounts in
thousands):
September 30, 1998 After
One
Over 90 Over 180 Year After
90 days days to days to to Five Five
or less 180 days 365 days Years Years Total
Earning Assets (Rate Sensitive):
Federal funds sold $ 5,000 $ 5,000
Interest-bearing deposits
with other banks 196 $ 90 286
Investment securities 96 96 $ 389 $31,551 $10,372 42,504
Loans, gross of allowance
for possible losses 44,604 757 4,432 40,296 14,887 104,976
Total 49,896 943 4,821 71,847 25,259 152,766
Interest-Bearing Liabilities (Rate Sensitive):
Interest-bearing
transaction deposits 41,032 53,836 94,868
Time deposits, $100,000
or more 3,280 3,380 5,965 700 13,325
Savings and other
time deposits 2,531 1,395 3,586 2,700 10,212
Other borrowings 306 306
Total 6,117 4,775 50,583 57,236 $118,711
Period GAP $43,779 $(3,832) $(45,762) $14,611 $25,259
Cumulative GAP $43,779 $39,947 $ (5,815) $ 8,796 $34,055
Interest Sensitivity
GAP Ratio 87.74% (406.36%) (949.22%) 20.34% 100.00%
Cumulative Interest
Sensitivity 87.74% 78.58% (10.45%) 6.90% 22.29%
The Company classifies its interest-bearing transaction accounts and savings
accounts into the over 180 days to 365 days time period as well as the after one
year to five years time period. This is done to adjust for the insensitivity of
these accounts to changes in interest rates. Although rates on these accounts
can contractually be reset at the Company's discretion, historically these
accounts have not demonstrated strong correlation to changes in the prime rate.
Generally, a positive gap at one year indicates that net interest income and the
net interest margin will increase if interest rates rise in the future. A
negative gap at one year indicates that net interest income and the net interest
margin will decrease if interest rates rise in the future. The Company neither
currently utilizes financial derivatives to hedge its asset/liability position
nor has any plans to employ such strategies in the near future.
Capital Resources. The principal source of capital for the Company is and
will continue to be the retention of operating profits. The ratios of average
equity to average assets for the periods indicated are set forth below.
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
8.40% 7.96%
Regulatory authorities have issued guidelines to implement risk-based capital
requirements. The guidelines establish a systematic analytical framework that
makes regulatory capital requirements more sensitive to differences in risk
profiles among banking organizations. Capital is classified into two
components: Tier 1 (primarily shareholder's equity) and Tier 2 (supplementary
capital including allowance for possible credit losses, certain preferred stock,
eligible subordinated debt, and other qualifying instruments). The guidelines
require that qualifying capital be 8% of risk-based assets, of which at least 4%
must be Tier 1 capital. As of September 30, 1998, the Company's qualifying
capital ratio was 11.80% and its Tier 1 capital ratio was 10.90%. In addition,
the Company, under the guidelines established for adequately capitalized
institutions, must also maintain a minimum leverage ratio (Tier 1 capital
divided by total assets) of 4%. As of September 30, 1998, the Company's
leverage ratio was 7.99%. It is the Company's intention to maintain risk-based
capital ratios at levels characterized as "well-capitalized" for banking
organizations: Tier 1 risk-based capital of 6 percent or above and total risk-
based capital at 10 percent or above.
On October 8, 1998, the Company's Board of Directors authorized the Company
to repurchase an additional $500,000 of the Company's common stock in addition
to the $500,000 authorized pursuant to the existing repurchase program announced
in 1994, of which $395,000 remained available at September 30, 1998. The new
repurchase program authorizes the Company to repurchase and retire up to
$500,000 of its common stock in open market and private transactions from time
to time depending on market conditions and pursuant to the rules and regulations
of the Securities and Exchange Commission. The Company's strong capital
position and healthy profitability contributed to the initiation of this
program, which is being implemented to optimize the Company's use of equity
capital and enhance shareholder value. As of November 12, 1998, no amounts
remained available under the repurchase program announced in 1994 and $268,000
remained available under the additional repurchase program authorized on October
8, 1998.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
On July 23, 1998, the Company's Board of Directors declared a 3-for-2 stock
split of the Company's common stock. On August 20, 1998, the Company amended
and restated its Articles of Incorporation to effect this stock split.
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits:
(3)(a) -- Restated Articles of Incorporation
(3)(b) -- By-laws (incorporated by reference to the
registrant's registration statement on Form S-4 (File No. 33-
76832))
(10)(a)(1) -- Stock Option Plan (incorporated by reference to the
registrant's registration statement on Form S-4 (File No. 33-
76832))
(10)(a)(2) -- Deferred Compensation Plan for Executives (incorporated by
reference to Exhibit (10)(a)(2) to the registrant's Annual
Report on Form 10-KSB for its fiscal year ended December 31,
1994).
(10)(b) -- Leases
(10)(b)(1) -- San Rafael Office Lease (incorporated by reference to
Exhibit (10)(b)(1) to the registrant's Annual Report on
Form 10-KSB for its fiscal year ended December 31, 1994).
(10)(b)(2) -- South San Francisco Office Lease (incorporated by reference
to Exhibit (10)(b)(2) to the registrant's Annual Report on
Form 10-KSB for its fiscal year ended December 31, 1994).
(10)(b)(3) -- Hayward Office Lease (incorporated by reference to Exhibit
(10)(b)(3) to the registrant's Annual Report on Form 10-KSB
for its fiscal year ended December 31, 1994).
(10)(b)(4) -- Upland Office Lease (incorporated by reference to Exhibit
(10)(b)(4) to the registrant's Annual Report on Form 10-KSB
for its fiscal year ended December 31, 1994).
(10)(b)(5) -- San Francisco Office Lease (incorporated by reference to
Exhibit (10)(b)(5) to the registrant's Annual Report on
Form 10-KSB for its fiscal year ended December 31, 1997).
(27) -- Financial Data Schedule
(b) Reports on Form 8-K. The Company filed the following Current Report on Form
8-K:
(i) A Current Report on Form 8-K dated October 20, 1998, pertaining
to an additional Common Stock Repurchase Program.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MCB FINANCIAL CORPORATION
(Registrant)
Date: November 13, 1998 /s/ Patrick E. Phelan
Patrick E. Phelan
Chief Financial Officer
(Principal Accounting Officer and officer
authorized to sign on behalf of the
registrant)
Exhibit 3(a)
RESTATED ARTICLES OF INCORPORATION OF MCB FINANCIAL CORPORATION
ARTICLE I
The name of this corporation is:
MCB FINANCIAL CORPORATION
ARTICLE II
The purpose of this corporation is to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
(a) This corporation is authorized to issue two classes of shares designated
"Preferred Stock" and "Common Stock," no par value per share, respectively. The
number of shares of Preferred Stock authorized to be issued is 20,000,000 and
the number of shares of Common Stock authorized to be issued is 20,000,000.
Upon the amendment of this Article III as set forth herein, each outstanding
share of Common Stock is divided into one and one-half shares of Common Stock.
(b) The Preferred Stock may be divided into such number of series as the Board
of Directors may determine. The Board of Directors is authorized to determine
and alter the rights, preferences, privileges and restrictions granted to and
imposed upon any wholly unissued series of Preferred Stock, and to fix the
number of shares of any series of Preferred Stock and the designation of any
such series of Preferred Stock. The Board of Directors, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, may increase or
decrease (but not below the number of shares of such series then outstanding)
the number of shares of any series subsequent to the issue of shares of that
series.
ARTICLE IV
(a) The liability of directors of the corporation for monetary damages shall be
eliminated to the fullest extent permissible under California law.
(b) The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through Bylaw
provisions, agreements with agents, vote of shareholders or disinterested
directors, or otherwise, to the fullest extent permissible under California law.
(c) Any amendment, repeal or modification of any provision of this Article IV
shall not adversely affect any right or protection of an agent of this
corporation existing at the time of such amendment, repeal or modification.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 8,989
<INT-BEARING-DEPOSITS> 286
<FED-FUNDS-SOLD> 5,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32,704
<INVESTMENTS-CARRYING> 10,553
<INVESTMENTS-MARKET> 10,617
<LOANS> 104,976
<ALLOWANCE> 1,062
<TOTAL-ASSETS> 166,562
<DEPOSITS> 151,431
<SHORT-TERM> 306
<LIABILITIES-OTHER> 1,134
<LONG-TERM> 0
0
0
<COMMON> 10,400
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<INTEREST-OTHER> 370
<INTEREST-TOTAL> 9,736
<INTEREST-DEPOSIT> 3,435
<INTEREST-EXPENSE> 3,453
<INTEREST-INCOME-NET> 6,283
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<EXPENSE-OTHER> 4,975
<INCOME-PRETAX> 1,972
<INCOME-PRE-EXTRAORDINARY> 1,972
<EXTRAORDINARY> 0
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<NET-INCOME> 1,165
<EPS-PRIMARY> .56
<EPS-DILUTED> .53
<YIELD-ACTUAL> 9.26
<LOANS-NON> 544
<LOANS-PAST> 40
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,007
<CHARGE-OFFS> 17
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