<PAGE> 1
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 March 31, 1999
[ ] 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: May 6, 1999
CLASS
Common stock, no par value 1,953,539
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
MCB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Dollar amounts in thousands December 31, March 31,
1998 1999
--------- ---------
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $ 8,804 $ 7,589
Federal funds sold 3,200 6,400
--------- ---------
Total cash and cash equivalents 12,004 13,989
Interest-bearing deposits with banks 286 286
Investment securities available for sale at fair value 36,023 31,172
Investment securities held to maturity; fair values
of $6,081 in 1998 and $5,070 in 1999 6,055 5,055
Loans held for investment (net of allowance for possible
credit losses of $1,117 in 1998 and $1,254 in 1999) 109,958 115,243
Premises and equipment - net 2,431 2,520
Accrued interest receivable 1,152 1,055
Deferred income taxes 547 738
Other assets 1,040 1,146
--------- ---------
Total assets $ 169,496 $ 171,204
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 38,788 $ 39,604
Interest-bearing:
Transaction accounts 92,491 93,707
Time certificates, $100,000 and over 12,622 12,333
Savings and other time deposits 11,003 10,472
--------- ---------
Total interest-bearing deposits 116,116 116,512
--------- ---------
Total deposits 154,904 156,116
Other borrowings 356 504
Accrued interest payable and other liabilities 1,154 1,479
--------- ---------
Total liabilities 156,414 158,099
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;
issued 1,994,316 shares in 1998 and 2,011,858 shares in 1999,
outstanding 1,989,016 shares in 1998 and 1,978,605 in 1999 9,578 9,368
Accumulated other comprehensive income 191 (78)
Retained earnings 3,313 3,815
--------- ---------
Total shareholders' equity 13,082 13,105
--------- ---------
Total liabilities and shareholders' equity $ 169,496 $ 171,204
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 3
MCB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
In thousands, except per share amounts March 31,
---------------------
1998 1999
------ ------
(Unaudited)
<S> <C> <C>
INTEREST INCOME:
Loans, including fees $2,353 $2,864
Federal funds sold 78 34
Investment securities 567 538
------ ------
Total interest income 2,998 3,436
------ ------
INTEREST EXPENSE:
Interest-bearing transaction, savings and other time deposits 891 876
Time certificates, $100,000 and over 156 155
Other interest 6 9
------ ------
Total interest expense 1,053 1,040
------ ------
NET INTEREST INCOME 1,945 2,396
------ ------
PROVISION FOR POSSIBLE CREDIT LOSSES 0 90
------ ------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE CREDIT LOSSES 1,945 2,306
------ ------
OTHER INCOME:
Gain on sale of loans 70 52
Service fees on deposit accounts 124 163
Loan servicing fees 9 11
Gain on sale of investment securities - net 0 19
Other 72 46
------ ------
Total other income 275 291
------ ------
OTHER EXPENSES:
Salaries and employee benefits 884 975
Occupancy expense 216 227
Furniture and equipment expense 110 101
Professional services 47 130
Supplies 70 59
Promotional expenses 116 113
Data processing fees 87 110
Regulatory assessments 16 9
Other 128 91
------ ------
Total other expenses 1,674 1,815
------ ------
INCOME BEFORE INCOME TAXES 546 782
INCOME TAX PROVISION 223 321
------ ------
NET INCOME $ 323 $ 461
====== ======
BASIC EARNINGS PER SHARE $ 0.16 $ 0.23
====== ======
DILUTED EARNINGS PER SHARE $ 0.15 $ 0.22
====== ======
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE> 4
MCB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months Ended
Dollar amounts in thousands March 31,
---------------------
1998 1999
------ ------
(Unaudited)
<S> <C> <C>
Net income $ 323 $ 461
Other comprehensive income (loss)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period, net of tax (34) (280)
Reclassification adjustment for gains included in net income, net of tax 11
----- -----
Other comprehensive income (loss) (34) (269)
----- -----
Comprehensive income $ 289 $ 192
----- -----
</TABLE>
4
<PAGE> 5
MCB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months
Dollar amounts in thousands Ended March 31,
--------------------------
1998 1999
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
<S> <C> <C>
Net income $ 323 $ 461
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for possible credit losses 90
Depreciation and amortization 117 130
Gain on sale of investment securities, net (19)
Decrease in accrued interest receivable 85 97
Decrease (increase) in other assets 70 (106)
Increase in accrued interest payable and
other liabilities 71 370
-------- --------
Net cash provided by operating activities 666 1,023
CASH FLOWS FROM INVESTING ACTIVITIES:
Held to maturity securities:
Calls 7,250 1,000
Available for sale securities:
Maturities 1,240 263
Calls 1,000
Purchases (6,201)
Sales 4,117
Net increase in loans held for investment (4,756) (5,375)
Purchases of premises and equipment (151) (193)
-------- --------
Net cash used by investing activities (1,618) (188)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest-bearing demand deposits 39 816
Net increase in interest-bearing transaction,
savings and other time deposits 4,188 396
Net (decrease) increase in other borrowings (205) 148
Proceeds from the exercise of stock options 75 128
Purchases of common stock (338)
-------- --------
Net cash provided by financing activities 4,097 1,150
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,145 1,985
CASH AND CASH EQUIVALENTS:
Beginning of period 11,457 12,004
-------- --------
End of period $ 14,602 $ 13,989
======== ========
CASH PAID DURING THE PERIOD FOR:
Interest on deposits and other borrowings $ 1,054 $ 1,041
Income taxes $ 180
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
MCB FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
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, 1998. 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
three months ended March 31, 1999 may not be indicative of operating results for
the year ending December 31, 1999. 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.
2. Earnings Per Share
The following is a reconciliation of basic earnings per share (EPS) to
diluted EPS for the three month periods ended March 31, 1999 and 1998.
6
<PAGE> 7
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999:
-------------------------------------------
Net Per Share
Income Shares Amount
In thousands, except per share amounts (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------
<S> <C> <C> <C>
BASIC EPS:
Income available to common shareholders $ 461 1,996 $ 0.23
EFFECT OF DILUTIVE SECURITIES:
Stock options 105
----- ----- --------
DILUTED EPS:
Income available to common shareholders plus
assumed conversions $ 461 2,101 $ 0.22
===== ===== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998:
-------------------------------------------
Net Per Share
Income Shares Amount
In thousands, except per share amounts (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------
<S> <C> <C> <C>
BASIC EPS:
Income available to common shareholders $ 323 2,062 $ 0.16
EFFECT OF DILUTIVE SECURITIES:
Stock options 131
----- ----- --------
DILUTED EPS:
Income available to common shareholders plus
assumed conversions $ 323 2,193 $ 0.15
===== ===== ========
</TABLE>
7
<PAGE> 8
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 months ended March 31, 1999 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, 1998.
OVERVIEW
EARNINGS SUMMARY. The Company reported net income of $461,000, or
$0.23 per share basic and $0.22 per share diluted, for the first quarter of
1999. This compares to net income of $323,000, or $0.16 per share basic and
$0.15 per share diluted, for the same period in 1998. Growth in average loans as
a percentage of earning assets continued to positively impact the net interest
margin during the three months ended March 31, 1999.
Return on average assets and return on average equity for the first
quarter of 1999 were 1.11% and 13.86%, respectively, as compared to 0.91% and
10.59%, respectively, for the same period of 1998.
FINANCIAL CONDITION
8
<PAGE> 9
LOANS HELD FOR INVESTMENT. Net loans held for investment increased by
$5.3 million, or 4.8%, during the first three months of 1999 as demand for
commercial real estate, construction and land loans increased. The following
table sets forth the amount of total loans outstanding by category as of the
dates indicated (dollar amounts in thousands):
<TABLE>
<CAPTION>
TOTAL LOANS DECEMBER 31, MARCH 31,
1998 1999
---------- ---------
<S> <C> <C>
Commercial $ 22,504 $ 21,701
Real estate:
Commercial 72,605 73,326
Construction 9,619 12,296
Land 2,592 5,617
Home equity 1,703 1,768
Loans to consumers and individuals 2,085 1,916
--------- ---------
Total 111,108 116,624
Deferred loan fees (33) (127)
Allowance for possible credit losses (1,117) (1,254)
========= =========
Total net loans $ 109,958 $ 115,243
========= =========
</TABLE>
In the normal practice of extending credit, the Company accepts real
estate collateral on loans which have primary sources of repayment from
commercial operations. The total amount of loans secured by real estate equaled
$99.2 million, or 85.0% of the total portfolio as of March 31, 1999. Due to the
Company's limited marketing area, 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 March 31, 1999, the two largest industry concentrations within
the loan portfolio were real estate and related services at 31.9% and the
business/personal service industry at 21.0% 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.
9
<PAGE> 10
NONPERFORMING ASSETS. The Company carefully monitors the quality of its
loan portfolio and the factors that effect 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 March 31, 1999, the Company had nonperforming assets in the amount
of $145,000, of which $105,000 represented two nonaccrual loans. Had these
nonaccrual loans performed under their contractual terms approximately $2,200 in
additional interest income would have been recognized during 1999. The Company
had loans 90 days or more past due and still accruing in the amount of $40,000.
These loans are 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):
<TABLE>
<CAPTION>
NONPERFORMING ASSETS DECEMBER 31, MARCH 31,
1998 1999
--------- ---------
<S> <C> <C>
Nonaccrual loans $563 $ 105
Loans 90 days or more past due and still accruing 404 40
==== =======
$967 $ 145
==== =======
As a percent of total loans 0.87% 0.12%
As a percent of total assets 0.57% 0.08%
</TABLE>
The decrease in nonperforming assets was due to payoffs on nonaccrual
loans and the past due loans becoming current at March 31, 1999.
At March 31, 1999, the Company had loans identified as impaired in the
amount of $145,000. At March 31, 1999, no specific allowance for possible credit
losses was required for these impaired loans since 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 March 31, 1999, the APCL of $1,254,000,
or 1.08% of total loans was determined by management to be adequate against
foreseeable future
10
<PAGE> 11
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):
<TABLE>
<CAPTION>
AT AND FOR AT AND FOR THE
THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1998 1999
--------- ---------
<S> <C> <C>
Balances:
Average loans during period $ 100,130 $ 112,509
Loans at end of period 111,075 116,497
ALLOWANCE FOR POSSIBLE CREDIT LOSSES:
Balance at beginning of period 1,007 1,117
Actual credit losses:
Commercial 53
Consumer
--------- ---------
Total 53 0
Actual credit recoveries:
Commercial 9 47
Consumer 1
--------- ---------
Total 10 47
--------- ---------
Net credit losses (recoveries) 43 (47)
--------- ---------
Provision charged to operating expenses 153 90
========= =========
Balance at end of period $ 1,117 $ 1,254
========= =========
RATIOS:
Net credit losses (recoveries) to average loans 0.04% -0.04%
Allowance for possible credit losses to loans at end of period 1.01% 1.08%
Net credit losses to beginning of period allowance for credit losses 4.27% -4.21%
</TABLE>
The Company provided $90,000 to the allowance for possible credit losses
during the first quarter of 1999. No provision was made during the first quarter
of 1998. The $90,000 provision in the first quarter of 1999 was recorded as a
prudent measure, based upon growth in the loan portfolio.
11
<PAGE> 12
The following table sets forth the allocation of the APCL as of the
dates indicated (dollar amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
--------------------- -------------------------
% of % of
Category Category
to Total to Total
APCL Loans APCL Loans
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Commercial loans $ 641 42.79% $ 611 45.74%
Real estate loans 245 53.27% 245 50.42%
Consumer loans 38 3.94% 37 3.84%
Not allocated 193 N/A 361 N/A
====== ====== ====== ======
Total $1,117 100.00% $1,254 100.00%
====== ====== ====== ======
</TABLE>
The allowance is available to absorb losses from all loans, although
allocations have been made for certain loans and loan categories. The allocation
of the allowance 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 following tables set forth the amortized cost and
approximate market value of investment securities as of the dates indicated
(dollar amounts in thousands):
12
<PAGE> 13
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
MARCH 31, 1999 COST GAINS LOSSES VALUE VALUE
----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Held to maturity securities:
U.S. Government agencies $ 5,055 $ 15 $ $ 5,070 $ 5,055
------- ------- ------- ------- -------
Total held to maturity 5,055 15 5,070 5,055
------- ------- ------- ------- -------
Available for sale securities:
U.S. Treasury 13,109 63 (81) 13,091 13,091
U.S. Government agencies 15,221 7 (146) 15,082 15,082
Mortgage-backed securities 908 1 (2) 907 907
Corporate securities 1,966 26 1,992 1,992
Municipal bonds 100 100 100
------- ------- ------- ------- -------
Total available for sale 31,304 97 (229) 31,172 31,172
------- ------- ------- ------- -------
Total investment securities $36,359 $ 112 $ (229) $36,242 $36,227
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
DECEMBER 31, 1998: COST GAINS LOSSES VALUE VALUE
----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Held to maturity securities:
U.S. Government agencies $ 6,055 $ 26 $ $ 6,081 $ 6,055
------- ------- ------- ------- -------
Total held to maturity 6,055 26 6,081 6,055
------- ------- ------- ------- -------
Available for sale securities:
U.S. Treasury 15,206 214 (6) 15,414 15,414
U.S. Government agencies 17,247 137 (60) 17,324 17,324
Mortgage-backed securities 1,172 5 1,177 1,177
Corporate securities 1,971 36 2,007 2,007
Municipal bonds 100 1 101 101
------- ------- ------- ------- -------
Total available for sale 35,696 393 (66) 36,023 36,023
------- ------- ------- ------- -------
Total investment securities $41,751 $ 419 $ (66) $42,104 $42,078
======= ======= ======= ======= =======
</TABLE>
13
<PAGE> 14
DEPOSITS/OTHER BORROWINGS. Total consolidated deposits increased by $1.2
million during the three months ended March 31, 1999.
Rates paid on deposits decreased during the three months ended March 31,
1999 contributing to the decrease in the cost of funds to 2.74% during the three
months ended March 31, 1999 from 3.23% for the year ended December 31, 1998. The
following table summarizes the distribution of average deposits and the average
rates paid for the periods indicated (dollar amount in thousands):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
--------------------------- --------------------------
Average Average Average Average
Balance Rate Balance Rate
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 31,371 $ 35,645
Interest-bearing demand deposits (includes
money market deposit accounts) 88,255 3.93% 91,807 3.35%
Savings deposits 1,845 1.92% 2,264 1.77%
Time deposits, $100,000 and over 12,493 5.31% 12,661 4.90%
Other time deposits 8,194 5.06% 8,264 4.71%
-------- ------- -------- -------
Total interest-bearing 110,787 4.14% 114,996 3.59%
-------- ------- -------- -------
Total deposits $142,158 3.23% $150,641 2.74%
======== ======= ======== =======
</TABLE>
The following table sets forth the time remaining to maturity of the
Company's time deposits in amounts of $100,000 or more (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
TIME REMAINING TO MATURITY 1998 1999
------------ ----------
<S> <C> <C>
Three months or less $ 4,682 $ 4,211
After three months to six months 3,620 3,861
After six months to one year 3,620 3,861
After twelve months 700 400
======= =======
Total $12,622 $12,333
======= =======
</TABLE>
14
<PAGE> 15
RESULTS OF OPERATIONS
NET INTEREST INCOME/NET INTEREST MARGIN. Net interest income for the
quarter ended March 31, 1999 was $2,396,000, an increase of 23.2% over the net
interest income of $1,945,000 during the same period of 1998. The increase 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):
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31,
---------------------------------------------------------------------------------------
1998 1999
----------------------------------------- ----------------------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- ---------- --------- ---------- ----------- ----------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 5,896 $ 78 5.29% $ 3,016 $ 34 4.51%
Interest-bearing deposits with banks 286 4 5.59% 286 4 5.59%
Investment securities 36,000 563 6.27% 39,065 534 5.47%
Loans 89,349 2,353 10.53% 112,509 2,864 10.18%
----------- ---------- --------- ---------- ----------- ---------
Total earning assets 131,531 2,998 9.12% 154,876 3,436 8.88%
Total non-earning assets 10,658 11,244
----------- ----------
Total assets $ 142,189 $ 166,120
=========== ==========
LIABILITIES & SHAREHOLDERS' EQUITY
Demand deposits $ 29,448 $ 35,645
Interest-bearing transaction accounts 77,413 $ 783 4.04% 91,807 $ 769 3.35%
Time deposits, $100,000 or more 12,059 156 5.18% 12,661 155 4.90%
Savings and other time 9,621 108 4.49% 10,528 107 4.07%
----------- ---------- --------- ---------- ----------- ---------
Total interest-bearing deposits 99,093 1,047 4.23% 114,996 1,031 3.59%
----------- ---------- --------- ---------- ----------- ---------
Other borrowings 445 6 5.39% 800 9 4.50%
----------- ---------- --------- ---------- ----------- ---------
Total interest-bearing liabilities 99,538 1,053 4.23% 115,796 1,040 3.59%
Other liabilities 1,002 1,379
Shareholders' equity 12,201 13,300
----------- ----------
Total liabilities and shareholders'
equity $ 142,189 $ 166,120
=========== ---------- ========== -----------
Net interest income $ 1,945 $ 2,396
========== ===========
Net interest margin 5.92% 6.19%
</TABLE>
The net interest margin increased to 6.19% during the first quarter of
1999 from 5.92% in the same quarter of 1998. The increase 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.
15
<PAGE> 16
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. The variance
attributable to both balance and rate fluctuations is allocated to a combined
rate/volume variance (dollar amounts in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, 1999
COMPARED TO
QUARTER ENDED MARCH 31, 1998
CHANGE IN
--------------------------------------------
RATE/
VOLUME RATE VOLUME TOTAL
--------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Federal funds sold $(39) $ (11) $ 6 $(44)
Interest-bearing deposits with banks 0 0 0 0
Investment securities 48 (71) (6) (29)
Loans 609 (78) (20) 511
--------------------------------------------
Total Interest Income 618 (160) (20) 438
--------------------------------------------
INTEREST EXPENSE:
Interest-bearing transaction accounts 145 (134) (25) (14)
Time deposits, $100,000 or more 8 (9) 0 (1)
Savings and other time 10 (10) (1) (1)
Other borrowings 5 (1) (1) 3
--------------------------------------------
Total Interest Expense 168 (154) (27) (13)
--------------------------------------------
NET INTEREST INCOME $450 $ (6) $ 7 $451
============================================
</TABLE>
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):
16
<PAGE> 17
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
----------------------
COMPONENTS OF NONINTEREST INCOME 1998 1999
- ----------------------------------------------------------------- --------- -------
<S> <C> <C>
Gain on sale of loans $ 70 $ 52
Service fees on deposit accounts 124 163
Loan servicing fees 9 11
Gain on sale of investment securities - net 19
Other 72 46
-------- -------
Total $ 275 $ 291
======== =======
AS A PERCENTAGE OF AVERAGE ASSETS (ANNUALIZED)
- -----------------------------------------------------------------
Gain on sale of loans 0.20% 0.13%
Service fees on deposit accounts 0.35% 0.39%
Loan servicing fees 0.02% 0.03%
Gain on sale of investment securities - net 0.05%
Other 0.20% 0.11%
-------- -------
Total 0.77% 0.71%
======== =======
</TABLE>
17
<PAGE> 18
NONINTEREST EXPENSES. The following table summarizes noninterest
expenses and the associated ratios to average assets for the periods indicated
(dollar amounts in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
---------------------------
COMPONENTS OF NONINTEREST EXPENSE 1998 1999
- ---------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Salaries and employee benefits $ 884 $ 975
Occupancy expense 216 227
Furniture and equipment expense 110 101
Professional services 47 130
Supplies 70 59
Promotional expenses 116 113
Data processing fees 87 110
Regulatory assessments 16 9
Other 128 91
----------- ---------
Total $ 1,674 $ 1,815
=========== =========
Average full-time equivalent employees 55 55
AS A PERCENTAGE OF AVERAGE ASSETS (ANNUALIZED)
- ----------------------------------------------------------------
Salaries and employee benefits 2.49% 2.35%
Occupancy expense 0.61% 0.55%
Furniture and equipment expense 0.31% 0.24%
Professional services 0.13% 0.31%
Supplies 0.20% 0.14%
Promotional expenses 0.33% 0.27%
Data processing fees 0.24% 0.26%
Regulatory assessments 0.04% 0.02%
Other 0.36% 0.22%
----------- --------
Total 4.71% 4.36%
=========== ========
</TABLE>
Noninterest expense increased to $1.8 million during the first quarter of 1999
from $1.7 million during the same period of the prior year.
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
18
<PAGE> 19
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 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 is testing them for year 2000
compliance. This phase also involves upgrading and replacing automated systems
where appropriate and will continue throughout
19
<PAGE> 20
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 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 areas. 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
20
<PAGE> 21
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
contingency plans to handle the most reasonably likely worst case scenarios
related to year 2000 issues. These plans will range from obtaining
mission-critical system back-up capabilities to funds management contingencies.
INCOME TAXES. The Company's effective tax rate was 41.0% for the quarter
ended March 31, 1999 compared to 40.8% 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 three months ended March 31, 1999 federal
funds sold averaged $3.0 million, or 1.8% 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 March 31, 1999, the Company had cash, time deposits with banks,
federal funds sold, and unpledged investment securities of approximately $48.3
million, or 28.2% 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 March 31, 1999, the loan-to-deposit ratio was 74.6% as
compared to 71.7% at December 31, 1998.
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
21
<PAGE> 22
deposits and other borrowings) as measured by the liquidity ratio. At March 31,
1999, this ratio was 6.8% as compared to 3.1% at December 31, 1998.
As of March 31, 1999, 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 March 31, 1999, 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):
<TABLE>
<CAPTION>
MARCH 31, 1999 OVER 90 OVER 180 AFTER ONE AFTER
90 DAYS DAYS TO DAYS TO YEAR TO FIVE
OR LESS 180 DAYS 365 DAYS FIVE YEARS YEARS TOTAL
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS (RATE SENSITIVE):
Federal funds sold $ 6,400 $ 6,400
Interest-bearing deposits with other banks 0 $ 286 286
Investment securities 336 $ 33 3,655 $ 26,212 $ 6,123 36,359
Loans, gross of allowance for possible losses 55,136 3,306 2,730 39,018 16,307 116,497
-------- -------- -------- -------- -------- --------
Total 61,872 3,339 6,671 65,230 22,430 159,542
-------- -------- -------- -------- -------- --------
INTEREST-BEARING LIABILITIES (RATE SENSITIVE):
Interest-bearing transaction deposits 42,008 51,699 93,707
Time deposits, $100,000 or more 4,211 3,861 3,861 400 12,333
Savings and other time deposits 3,169 113 4,087 3,103 10,472
Other borrowings 504 504
-------- -------- -------- -------- -------- --------
Total 7,884 3,974 49,956 55,202 $117,016
-------- -------- -------- -------- -------- --------
Period GAP $ 53,988 $ (635) $(43,285) $ 10,028 $ 22,430
======== ======== ======== ======== ========
Cumulative GAP $ 53,988 $ 53,353 $ 10,068 $ 20,096 $ 42,526
======== ======== ======== ======== ========
Interest Sensitivity GAP Ratio 87.26% (19.02)% (648.85)% 15.37% 100.00%
======== ======== ======== ======== ========
Cumulative Interest Sensitivity 87.26% 81.82 % 14.01 % 14.66% 26.66%
======== ======== ======== ======== ========
</TABLE>
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,
22
<PAGE> 23
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.
23
<PAGE> 24
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.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C>
8.20% 8.01%
</TABLE>
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. Total 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 total capital be 8% of risk-based assets, of which at least 4% must
be Tier 1 capital. As of March 31, 1999, the Company's total capital ratio was
10.98% and its Tier 1 capital ratio was 10.01%. 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 March 31, 1999, the Company's leverage ratio was 7.73%. 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.
24
<PAGE> 25
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In January 1999 the Company adopted a shareholder rights plan designed to
maximize the long-term value of the Company and to protect the Company's
shareholders from improper takeover tactics and takeover bids that are not
fair to all shareholders. A Rights Agreement was filed with the SEC on Form
8 - A126 on January 25, 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
25
<PAGE> 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits:
(3)(a) -- Restated Articles of Incorporation
(incorporated by reference to the registrant's
Quarterly Report on Form 10-QSB for its quarter
ended September 30, 1998).
(3)(b) -- By-laws (incorporated by reference to the
registrant's registration statement on Form S-4
(File No. 33-76832)).
(4) -- Rights Agreement (incorporated by reference
from the registrant's Form 8-A12G filed with the
SEC on January 25, 1999).
(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).
(10)(b)(6) - Petaluma Office Lease (incorporated by reference
to Exhibit (10)(b)(6) to the registrant's Annual
Report on Form 10-KSB for its fiscal year ended
December 31, 1998).
(27) -- Financial Data Schedule
(b) Reports on Form 8-K.
(i) A current Report on Form 8-K filed January 25, 1999, pertaining to the
adoption of a Shareholder Rights Plan.
(ii) A current Report on Form 8-K filed January 25, 1999, pertaining to a
press release regarding the appointment of Charles O. Holl to President and
Chief Executive Officer.
26
<PAGE> 27
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: May 13, 1999 /s/ Patrick E. Phelan
------------------------------------------
Patrick E. Phelan
Chief Financial Officer
(Principal Accounting Officer and officer
authorized to sign on behalf of the
registrant)
27
<PAGE> 28
EXHIBIT INDEX
Exhibit
Number Exhibit
------- -------
(3)(a) -- Restated Articles of Incorporation
(incorporated by reference to the registrant's
Quarterly Report on Form 10-QSB for its quarter
ended September 30, 1998).
(3)(b) -- By-laws (incorporated by reference to the
registrant's registration statement on Form S-4
(File No. 33-76832)).
(4) -- Rights Agreement (incorporated by reference
from the registrant's Form 8-A12G filed with the
SEC on January 25, 1999).
(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).
(10)(b)(6) - Petaluma Office Lease (incorporated by reference
to Exhibit (10)(b)(6) to the registrant's Annual
Report on Form 10-KSB for its fiscal year ended
December 31, 1998).
(27) -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 7,589
<INT-BEARING-DEPOSITS> 286
<FED-FUNDS-SOLD> 6,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,172
<INVESTMENTS-CARRYING> 5,055
<INVESTMENTS-MARKET> 5,070
<LOANS> 116,497
<ALLOWANCE> 1,254
<TOTAL-ASSETS> 171,204
<DEPOSITS> 156,116
<SHORT-TERM> 504
<LIABILITIES-OTHER> 1,479
<LONG-TERM> 0
0
0
<COMMON> 9,368
<OTHER-SE> 3,737
<TOTAL-LIABILITIES-AND-EQUITY> 171,204
<INTEREST-LOAN> 2,864
<INTEREST-INVEST> 538
<INTEREST-OTHER> 34
<INTEREST-TOTAL> 3,436
<INTEREST-DEPOSIT> 1,031
<INTEREST-EXPENSE> 1,040
<INTEREST-INCOME-NET> 2,396
<LOAN-LOSSES> 90
<SECURITIES-GAINS> 19
<EXPENSE-OTHER> 1,815
<INCOME-PRETAX> 782
<INCOME-PRE-EXTRAORDINARY> 782
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 461
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.22
<YIELD-ACTUAL> 8.88
<LOANS-NON> 105
<LOANS-PAST> 40
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,117
<CHARGE-OFFS> 0
<RECOVERIES> 47
<ALLOWANCE-CLOSE> 1,254
<ALLOWANCE-DOMESTIC> 893
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 361
</TABLE>
