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, 2000
[ ] 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 9, 2000
Class
Common stock, no par value 2,030,181
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
MCB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollar amounts in thousands December 31, March 31,
1999 2000
ASSETS (Unaudited)
Cash and due from banks $ 6,556 $ 16,678
Federal funds sold 10,400 14,900
Total cash and cash equivalents 16,956 31,578
Interest-bearing deposits with banks 286 286
Investment securities available for sale at fair value 34,118 26,144
Investment securities held to maturity; fair values
of $1,979 in 1999 and $1,975 in 2000 2,000 2,000
Loans held for investment (net of allowance for possible
credit losses of $1,492 in 1999 and $1,642 in 2000 136,474 143,733
Premises and equipment, net 2,791 2,853
Accrued interest receivable 1,077 1,124
Deferred income taxes 1,068 1,081
Other assets 1,349 1,389
Total assets $ 196,119 $ 210,188
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 41,011 $ 50,014
Interest-bearing:
Transaction accounts 112,742 117,117
Time certificates, $100,000 and over 14,471 14,724
Savings and other time deposits 11,560 11,551
Total interest-bearing deposits 138,773 143,392
Total deposits 179,784 193,406
Other borrowings 750 750
Accrued interest payable and other liabilities 1,188 1,487
Total liabilities 181,722 195,643
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 and outstanding 2,078,501 shares in 1999
and 2,030,181 shares in 2000 10,750 10,512
Accumulated other comprehensive income (518) (535)
Retained earnings 4,165 4,568
Total shareholders' equity 14,397 14,545
Total liabilities and shareholders' equity $ 196,119 $ 210,188
See notes to condensed consolidated financial statements.
MCB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
Dollar amounts in thousands, March 31,
except per share amounts 1999 2000
(Unaudited)
INTEREST INCOME:
Loans, including fees $ 2,864 $ 3,573
Federal funds sold 34 134
Investment securities 538 483
Total interest income 3,436 4,190
INTEREST EXPENSE:
Interest-bearing transaction, savings
and other time deposits 876 1,070
Time certificates, $100,000
and over 155 179
Other interest 9 7
Total interest expense 1,040 1,256
NET INTEREST INCOME 2,396 2,934
PROVISION FOR POSSIBLE
CREDIT LOSSES 90 120
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE CREDIT LOSSES 2,306 2,814
OTHER INCOME:
Gain on sale of loans 52 15
Service fees on deposit
accounts 163 129
Loan servicing fees 11 13
Gain on sale of investment
securities 19 (2)
Other 46 56
Total other income 291 211
OTHER EXPENSES:
Salaries and employee benefits 975 1,069
Occupancy expense 227 254
Furniture and equipment expense 101 110
Professional services 130 54
Supplies 59 71
Promotional expenses 113 129
Data processing fees 110 88
Regulatory assessments 9 15
Other 91 128
Total other expenses 1,815 1,918
INCOME BEFORE INCOME TAXES 782 1,107
INCOME TAX PROVISION 321 454
NET INCOME $ 461 $ 653
BASIC EARNINGS PER SHARE $ 0.22 $ 0.32
DILUTED EARNINGS PER SHARE $ 0.21 $ 0.30
See notes to condensed consolidated financial statements
MCB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended
Dollar amounts in thousands March 31,
1999 2000
(Unaudited)
Net income $ 461 $ 653
Other comprehensive income (loss)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period,
net of tax (280) (16)
Reclassification adjustment for gains (losses) included
in net income, net of tax 11 (1)
Other comprehensive income (loss) (269) (17)
Comprehensive income $ 192 $ 636
See notes to condensed consolidated financial statements.
MCB FINANCIAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months
Dollar amounts in thousands Ended March 31,
1999 2000
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
Net income $ 461 $ 653
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible credit losses 90 120
Depreciation and amortization 130 23
(Gain) loss on sale of investment securities, net (19) 2
Decrease (increase) in accrued interest receivable 97 (47)
Increase in other assets (106) (40)
Increase in accrued interest payable and
other liabilities 370 305
Net cash provided by operating activities 1,023 1,016
CASH FLOWS FROM INVESTING ACTIVITIES:
Held to maturity securities:
Calls 1,000
Available for sale securities:
Maturities 263 3,000
Purchases (6,925)
Sales 4,117 11,957
Net increase in loans held for investment (5,375) (7,379)
Purchases of premises and equipment (193) (179)
Net cash used by investing activities (188) 474
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest-bearing
demand deposits 816 9,003
Net increase in interest-bearing transaction,
savings and other time deposits 396 4,619
Net increase in other borrowings 148
Cash dividends paid (21)
Proceeds from the exercise of stock options 128 12
Purchases of common stock (338) (481)
Net cash provided by financing activities 1,150 13,132
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,985 14,622
CASH AND CASH EQUIVALENTS:
Beginning of period 12,004 16,956
End of period $ 13,989 $ 31,578
CASH PAID DURING THE PERIOD FOR:
Interest on deposits and other borrowings $ 1,041 $ 1,214
Income taxes 180 $ 95
See notes to condensed consolidated financial statements.
MCB FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
1. BASIS OF PRESENTATION - 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, 1999. 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, 2000 may not be indicative of
operating results for the year ending December 31, 2000. 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 - Basic earnings per share is computed by dividing net
income by the number of weighted average common shares outstanding. Diluted
earnings per share reflects potential dilution from outstanding stock options,
using the treasury stock method. The number of weighted average shares used in
computing basic and diluted earnings per share are as follows:
In thousands Three months ended March 31,
1999 2000
Basic shares 2,096 2,054
Dilutive effect of stock options 110 118
Diluted shares 2,206 2,172
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, 2000 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 and liquidity risks. 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, 1999.
OVERVIEW
EARNINGS SUMMARY. The Company reported net income of $653,000, or $0.32 per
share basic and $0.30 per share diluted, for the first quarter of 2000. This
compares to net income of $461,000, or $0.22 per share basic and $0.21 per share
diluted, for the same period in 1999. Growth in average loans as a percentage
of earning assets contributed to a 22% increase in interest income and an
increase in the net interest margin to 6.38%.
Return on average assets and return on average equity for the first quarter
of 2000 were 1.32% and 17.91%, respectively, as compared to 1.11% and 13.86%,
respectively, for the same period of 1999.
FINANCIAL CONDITION
SUMMARY. Total assets of the Company increased by $14.1 million, or 7.2%,
from the end of 1999 to reach $210.2 million at March 31, 2000.
LOANS HELD FOR INVESTMENT. Net loans held for investment increased by $7.3
million, or 5.3%, during the first three months of 2000 as demand for commercial
real estate loans increased. The following table sets forth the amount of total
loans outstanding by category as of the dates indicated (dollar amounts in
thousands):
Total Loans December 31, March 31,
1999 2000
Commercial $ 23,413 $ 22,878
Real estate:
Commercial 83,737 92,421
Construction 23,546 21,236
Land 4,440 5,924
Home equity 1,289 1,434
Loans to consumers and individuals 1,672 1,617
Total 138,097 145,510
Deferred loan fees (131) (135)
Allowance for possible credit losses (1,492) (1,642)
Total net loans $ 136,474 $ 143,733
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 $121.5
million, or 83.5% of the total portfolio as of March 31, 2000. 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 March 31, 2000 the two largest industry concentrations within
the loan portfolio were real estate and related services at 30.1% and the
services - personal/business industry at 21.7% 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 March 31, 2000, the Company had nonperforming assets in the amount of
$1,747,000, of which $1,707,000 represented two nonaccrual loans. Had these
nonaccrual loans performed under their contractual terms, approximately $42,000
in additional interest income would have been recognized during 2000. In April,
2000 the nonaccrual loan balance was reduced from $1,707,000 to $126,000 due to
the close of escrow on one of the properties securing one of the nonaccrual
loans. At March 31, 2000, the Company had one loan 90 days or more past due and
still accruing in the aggregate 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 December 31, March 31,
1999 2000
Nonaccrual loans $ 1,707 $ 1,707
Loans 90 days or more past due and
still accruing 40 40
$ 1,747 $ 1,747
As a percent of total loans 1.27% 1.20%
As a percent of total assets 0.89% 0.83%
No specific allowance for possible credit losses was applied to the
nonaccrual loans because they were adequately collateralized.
At March 31, 2000, the Company had loans identified as impaired in the
amount of $1,747,000. At March 31, 2000, 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 March 31, 2000, the APCL of $1,642,000,
or 1.13% 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):
At and For At and For the
the Year Ended Three Months Ended
December 31, March 31,
1999 2000
Balances:
Average loans during period $125,035 $139,943
Loans at end of period 137,966 145,375
Allowance for Possible Credit Losses:
Balance at beginning of period 1,117 1,492
Actual credit losses:
Commercial 62
Consumer
Total 62 0
Actual credit recoveries:
Commercial loans 72 30
Consumer
Total 72 30
Net credit losses (recoveries) (10) (30)
Provision charged to operating expenses 365 120
Balance at end of period $ 1,492 $ 1,642
Ratios:
Net credit losses (recoveries) to
average loans (0.01)% (0.02)%
Allowance for possible credit losses to loans
at end of period 1.08% 1.13%
Net credit losses (recoveries) to beginning
of period allowance for credit losses (0.90)% (2.01)%
The Company provided $120,000 to the allowance for possible credit losses
during the first quarter of 2000 as compared to $90,000 during the first quarter
of 1999. The provision during the first quarter of 2000 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):
December 31, 1999 March 31, 2000
% of % of
Category Category
to Total to Total
APCL Loans APCL Loans
Commercial loans $ 904 47.87% $ 897 44.79%
Real estate loans 260 48.98% 287 51.80%
Consumer loans 30 3.15% 32 3.41%
Not allocated 298 N/A 426 N/A
Total $ 1,492 100.00% $ 1,642 100.00%
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 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
March 31, 2000: Cost Gains Losses Value Value
Held to maturity securities:
U.S. Government agencies $ 2,000 $ (25) $ 1,975 $ 2,000
Total held to maturity 2,000 (25) 1,975 2,000
Available for sale securities:
U.S. Treasury 13,988 $ 10 (299) 13,699 13,699
U.S. Government agencies 11,127 (591) 10,536 10,536
Corporate securities 1,945 (36) 1,909 1,909
Total available for sale 27,060 10 (926) 26,144 26,144
Total investment
securities $29,060 $ 10 $ (951) $28,119 $28,144
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
December 31, 1999: Cost Gains Losses Value Value
Held to maturity securities:
U.S. Government agencies $ 2,000 $ (21) $ 1,979 $ 2,000
Total held to maturity 2,000 (21) 1,979 2,000
Available for sale securities:
U.S. Treasury 21,920 (320) 21,600 21,600
U.S. Government agencies 11,134 (537) 10,597 10,597
Corporate securities 1.950 (29) 1,921 1,921
Total available for sale 35,004 (886) 34,118 34,118
Total investment
securities $37,004 $ $ (907) $36,097 $36,118
DEPOSITS. Total consolidated deposits increased by $13.6 million, or 7.6%,
during the three months ended March 31, 2000. Approximately $7 million in
short-term deposits were received from a customer in March, 2000 and
subsequently withdrawn in April, 2000. The remaining increase in deposits was
due to growth in the Company's existing operations.
Rates paid on deposits increased during the three months ended March 31,
2000 contributing to the increase in the cost of funds to 2.77% for the three
months ended March 31, 2000 as compared to 2.73% for the year ended December 31,
1999. The following table summarizes the distribution of average deposits and
the average rates paid for the periods indicated (dollar amounts in thousands):
Year Ended Three Months Ended
December 31, 1999 March 31, 2000
Average Average Average Average
Balance Rate Balance Rate
Noninterest-bearing demand deposits $ 40,290 $ 46,108
Interest-bearing demand deposits
(includes money market
deposit accounts) 98,954 3.42% 108,821 3.51%
Savings deposits 2,259 1.90% 2,233 1.91%
Time deposits, $100,000 and over 13,477 4.85% 14,207 5.05%
Other time deposits 8,816 4.41% 9,201 4.57%
Total interest-bearing 123,506 3.62% 134,462 3.72%
Total deposits $163,796 2.73% $180,570 2.77%
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):
December 31, March 31,
Time remaining to maturity 1999 2000
Three months or less 5,719 6,063
After three months to six months 3,229 4,268
After six months to one year 4,766 3,736
After twelve months 757 657
Total 14,471 14,724
RESULTS OF OPERATIONS
NET INTEREST INCOME / NET INTEREST MARGIN. Net interest income for the
quarter ended March 31, 2000 was $2,934,000, an increase of 22.5% over the net
interest income of $2,396,000 during the same period of 1999. The increase was
primarily due to the growth in average loans, largely due to the continuation of
favorable 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 March 31,
1999 2000
Average Average
Balance Interest Rate Balance Interest Rate
ASSETS
Federal funds sold $ 3,016 $ 34 4.51% $ 9,506 $ 134 5.64%
Interest-bearing deposits
with banks 286 4 5.59% 286 4 5.59%
Investment securities 39,065 534 5.47% 34,242 479 5.60%
Loans 112,509 2,864 10.18% 139,942 3,573 10.21%
Total earning assets 154,876 3,436 8.88% 183,976 4,190 9.11%
Total non-earning assets 11,244 13,115
Total assets $166,120 $197,091
LIABILITIES & SHAREHOLDERS' EQUITY
Demand deposits $ 35,645 $ 46,108
Interest-bearing transaction
accounts 91,807 769 3.35% 108,821 954 3.51%
Time deposits, $100,000 or more 12,661 155 4.90% 14,207 179 5.04%
Savings and other time 10,528 107 4.07% 11,434 116 4.06%
Total interest-bearing deposits 114,996 1,031 3.59% 134,462 1,249 3.72%
Other borrowings 800 9 4.50% 581 7 4.82%
Total interest-bearing
Liabilities 115,796 1,040 3.59% 135,043 1,256 3.72%
Other liabilities 1,379 1,361
Shareholders' equity 13,300 14,579
Total liabilities
and shareholders' equity $166,120 $197,091
Net interest income $2,396 $2,934
Net interest margin 6.19% 6.38%
The net interest margin increased to 6.38% during the first quarter of 2000
from 6.19% in the same quarter of 1999. 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 continuation of favorable 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
March 31, 1999
Compared to
Quarter Ended
March 31, 2000
Change in
Rate/
Volume Rate Volume Total
Interest Income:
Federal funds sold $73 $9 $18 $100
Interest-bearing deposits
with banks 0 0 0 0
Investment securities (66) 13 (2) (55)
Loans 699 8 2 709
Total Interest Income 706 30 18 754
Interest Expense:
Interest-bearing
transaction accounts 141 37 7 185
Time deposits,
$100,000 or more 19 4 1 24
Savings and other time 9 0 0 9
Other borrowings (3) 1 0 (2)
Total Interest Expense 166 42 8 216
Net Interest Income $540 ($12) $10 $538
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
March 31,
Components of Noninterest Income 1999 2000
Gain on sale of loans $ 52 $ 15
Service fees on deposit accounts 163 129
Loan servicing fees 11 13
Gain (loss) on sale of investment
securities - net 19 (2)
Other 46 56
Total $ 291 $ 211
As a Percentage of Average Assets (Annualized)
Gain on sale of loans 0.13% 0.03%
Service fees on deposit accounts 0.39% 0.26%
Loan servicing fees 0.03% 0.03%
Gain on sale of investment
securities - net 0.05% 0.00%
Other 0.11% 0.11%
Total 0.71% 0.43%
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
March 31,
Components of Noninterest Expense 1999 2000
Salaries and employee benefits $ 975 $ 1,069
Occupancy expense 227 254
Furniture and equipment expense 101 110
Professional services 130 54
Supplies 59 71
Promotional expenses 113 129
Data processing fees 110 88
Regulatory assessments 9 15
Other 91 128
Total $ 1,815 $ 1,918
Average full-time equivalent employees 55 58
As a Percentage of Average Assets (Annualized)
Salaries and employee benefits 2.35% 2.17%
Occupancy expense 0.55% 0.52%
Furniture and equipment expense 0.24% 0.22%
Professional services 0.31% 0.11%
Supplies 0.14% 0.14%
Promotional expenses 0.27% 0.26%
Data processing fees 0.26% 0.18%
Regulatory assessments 0.02% 0.03%
Other 0.22% 0.26%
Total 4.36% 3.89%
Noninterest expense increased to $1.9 million during the first quarter of
2000 from $1.8 million during the same period of the prior year. Growth in
existing operations and the addition of the Petaluma branch office contributed
to the increase.
YEAR 2000 DATA PROCESSING ISSUES. The Company and the Bank previously
recognized the material nature of the business issues surrounding computer
processing of dates into and beyond the Year 2000 and began taking corrective
action as required pursuant to the interagency statements issued by the Federal
Financial Institution Examination Council. Management believes the Company has
completed all of the activities within their control to ensure that systems are
Year 2000 compliant.
The Company and the Bank have not experienced any material disruptions due
to the start of the Year 2000 of the internal computer systems or software
applications nor have they experienced any problems with the computer systems or
software applications of their third party vendors, suppliers or service
providers. The Company will continue to monitor these third parties to
determine the impact, if any, on the business of the Company and the actions the
Company must take, if any, in the event of non-compliance by any of these third
parties. Based upon the Company's assessment of compliance by third parties,
there does not appear to be any material business risk posed by any such non-
compliance.
Although the Company's Year 2000 rollover did not present any material
business disruption, there are some remaining Year 2000 related risks.
Management believes that appropriate actions have been taken to address these
remaining Year 2000 issues and contingency plans are in place to minimize the
financial impact to the Company. Management, however, cannot be certain that
Year 2000 issues affecting customers, suppliers or service providers of the
Company will not have a material adverse impact on the Company.
INCOME TAXES. The Company's effective tax rate was 41.0% for the quarter
ended March 31, 2000 compared to 41.0% 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, 2000,
federal funds sold averaged $9.5 million, or 4.8% 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, 2000, the Company had cash, time deposits with banks, federal
funds sold, and unpledged investment securities of approximately $49.3 million,
or 23.5% of total assets. This represented all available liquid assets,
excluding other 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, 2000, the loan-to-deposit ratio was 75.2% as
compared to 76.7% at December 31, 1999.
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 March 31, 2000,
this ratio was 8.8% as compared to 15.2% at December 31, 1999.
As of March 31, 2000, 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, 2000, 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, 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):
March 31, 2000 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 $14,900 $ 14,900
Interest-bearing deposits
with other banks $ 286 286
Investment securities 2,000 $ 2,001 1,018 $18,006 $ 6,035 29,060
Loans, gross of allowance
for possible losses 72,623 669 2,320 51,686 18,212 145,510
Total 89,523 2,670 3,624 69,692 24,247 189,756
Interest-Bearing Liabilities (Rate Sensitive):
Interest-bearing
transaction deposits 52,414 64,703 117,117
Time deposits, $100,000
or more 6,063 4,268 3,736 657 14,724
Savings and other
time deposits 3,882 2,279 2,517 2,873 11,551
Other borrowings 750 750
Total 10,695 6,547 58,667 68,233 $144,142
Period GAP $78,828 $(3,877) $(55,043) $ 1,459 $24,247
Cumulative GAP $78,828 $74,951 $ 19,908 $21,367 $45,614
Interest Sensitivity
GAP Ratio 88.05% (145.21%)(1518.85%) 2.09% 100.00%
Cumulative Interest
Sensitivity 88.05% 81.30% 20.78% 12.91% 24.04%
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.
Three Months Ended Three Months Ended
March 31, 1999 March 31, 2000
8.01% 7.40%
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, 2000, the
Company's total capital was 10.35% and its Tier 1 capital ratio was 9.32%. 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, 2000, the Company's
leverage ratio was 7.46%. 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits:
EXHIBITS:
(2) -- Plan of acquisition, reorganization (incorporated by reference to
the registrant's registration statement on Form S-4 (File No. 33-
76832).
(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)(a)(3) -- 1999 Stock Option Plan (incorporated by reference to Exhibit A of
registrant's Proxy Statement on Schedule 14A filed with the SEC on
April 27, 1999).
(10)(a)(4) -- Employee Stock Ownership Plan (incorporated by reference to
Exhibit (10)(a)(4) of registrant's Form 10-KSB for its fiscal year
ended December 31, 1999).
(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 (353 Sacramento Street)
(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).
(10)(b)(7) -- San Franciso Office Lease (650 Townsend Street) (incorporated
by reference to Exhibit (10)(b)(7) to the registrant's Annual
Report on Form 10-KSB for its fiscal year ended December 31,
1999).
(11) -- Statement re: computation of per share earnings (the information
required to be furnished pursuant to this exhibit is contained in
the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements)
(27) -- Financial Data Schedule
(b) Reports on Form 8-K. The Company filed the following Current Reports
on Form 8-K:
None
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 10, 2000 /s/ Patrick E. Phelan
Patrick E. Phelan
Chief Financial Officer
(Principal Accounting Officer and officer
authorized to sign on behalf of the
registrant)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 16,678
<INT-BEARING-DEPOSITS> 286
<FED-FUNDS-SOLD> 14,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 26,144
<INVESTMENTS-CARRYING> 2,000
<INVESTMENTS-MARKET> 1,975
<LOANS> 145,375
<ALLOWANCE> 1,642
<TOTAL-ASSETS> 210,188
<DEPOSITS> 193,406
<SHORT-TERM> 750
<LIABILITIES-OTHER> 1,487
<LONG-TERM> 0
0
0
<COMMON> 10,512
<OTHER-SE> 4,033
<TOTAL-LIABILITIES-AND-EQUITY> 210,188
<INTEREST-LOAN> 3,573
<INTEREST-INVEST> 483
<INTEREST-OTHER> 134
<INTEREST-TOTAL> 4,190
<INTEREST-DEPOSIT> 1,249
<INTEREST-EXPENSE> 1,256
<INTEREST-INCOME-NET> 2,934
<LOAN-LOSSES> 120
<SECURITIES-GAINS> (2)
<EXPENSE-OTHER> 1,918
<INCOME-PRETAX> 1,107
<INCOME-PRE-EXTRAORDINARY> 1,107
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 653
<EPS-BASIC> .32
<EPS-DILUTED> .30
<YIELD-ACTUAL> 9.11
<LOANS-NON> 1,707
<LOANS-PAST> 40
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,492
<CHARGE-OFFS> 0
<RECOVERIES> 30
<ALLOWANCE-CLOSE> 1,642
<ALLOWANCE-DOMESTIC> 1,216
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 426
</TABLE>
