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 June 30, 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: August 9, 2000
Class
Common stock, no par value 2,043,146
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
MCB FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollar amounts in thousands December 31, June 30,
1999 2000
ASSETS (Unaudited)
Cash and due from banks $ 6,556 $ 11,358
Federal funds sold 10,400 10,900
Total cash and cash equivalents 16,956 22,258
Interest-bearing deposits with banks 286 286
Investment securities available for sale at fair value 34,118 26,228
Investment securities held to maturity at cost; fair
values of $1,979 in 1999 and $1,979 in 2000 2,000 2,000
Loans held for investment (net of allowance for possible
credit losses of $1,492 in 1999 and $1,742 in 2000 136,474 145,885
Premises and equipment - net 2,791 2,935
Accrued interest receivable 1,077 1,131
Deferred income taxes 1,068 1,040
Other assets 1,349 745
Total assets $ 196,119 $ 202,508
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 41,011 $ 48,635
Interest-bearing:
Transaction accounts 112,742 108,561
Time certificates, $100,000 and over 14,471 16,313
Savings and other time deposits 11,560 11,284
Total interest-bearing deposits 138,773 136,158
Total deposits 179,784 184,793
Other borrowings 750 750
Accrued interest payable and other liabilities 1,188 1,622
Total liabilities 181,722 187,165
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) (478)
Retained earnings 4,165 5,309
Total shareholders' equity 14,397 15,343
Total liabilities and shareholders' equity $ 196,119 $ 202,508
See notes to condensed consolidated financial statements.
MCB FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
Dollar amounts in thousands, June 30, June 30,
except per share amounts 1999 2000 1999 2000
(Unaudited) (Unaudited)
INTEREST INCOME:
Loans, including fees $ 3,165 $ 3,814 $ 6,029 $ 7,387
Federal funds sold 55 183 89 317
Investment securities 417 434 955 917
Total interest income 3,637 4,431 7,073 8,621
INTEREST EXPENSE:
Interest-bearing transaction, savings
and other time deposits 889 1,119 1,765 2,189
Time certificates, $100,000
and over 150 200 305 379
Other interest 14 9 23 16
Total interest expense 1,053 1,328 2,093 2,584
NET INTEREST INCOME 2,584 3,103 4,980 6,037
PROVISION FOR POSSIBLE
CREDIT LOSSES 35 100 125 220
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE CREDIT LOSSES 2,549 3,003 4,855 5,817
OTHER INCOME:
Gain on sale of loans 30 20 82 35
Service fees on deposit
accounts 153 116 316 245
Loan servicing fees 15 14 26 27
Gain (loss) on sale of investment
securities - net (7) 12 (2)
Other 51 87 97 143
Total other income 242 237 533 448
OTHER EXPENSES:
Salaries and employee benefits 1,037 1,118 2,012 2,187
Occupancy expense 238 273 465 527
Furniture and equipment expense 98 114 199 224
Professional services 44 72 174 126
Supplies 75 79 134 150
Promotional expenses 55 19 168 148
Data processing fees 85 89 195 177
Regulatory assessments 10 15 19 30
Other 101 155 192 283
Total other expenses 1,743 1,934 3,558 3,852
INCOME BEFORE INCOME TAXES 1,048 1,306 1,830 2,413
INCOME TAX PROVISION 433 545 754 999
NET INCOME $ 615 $ 761 $ 1,076 $ 1,414
BASIC EARNINGS PER SHARE $ 0.30 $ 0.37 $ 0.52 $ 0.69
DILUTED EARNINGS PER SHARE $ 0.29 $ 0.36 $ 0.49 $ 0.66
See notes to condensed consolidated financial statements
MCB FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended
Dollar amounts in thousands June 30,
1999 2000
(Unaudited)
Net income $ 615 $ 761
Other comprehensive income (loss)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period,
net of tax (304) 57
Reclassification adjustment for gains (losses) included
in net income, net of tax (4)
Other comprehensive income (loss) (308) 57
Comprehensive income $ 307 $ 818
MCB FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Six Months Ended
Dollar amounts in thousands June 30,
1999 2000
(Unaudited)
Net income $ 1,076 $ 1,414
Other comprehensive income (loss)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period,
net of tax (584) 41
Reclassification adjustment for gains (losses) included
in net income, net of tax 7 (1)
Other comprehensive income (loss) (577) 40
Comprehensive income $ 499 $ 1,454
See notes to condensed consolidated financial statements.
MCB FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months
Dollar amounts in thousands Ended June 30,
1999 2000
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
Net income $ 1,076 $ 1,414
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible credit losses 125 220
Depreciation and amortization 253 154
(Gain) loss on sale of investment securities, net (12) 2
Change in deferred income taxes 90
Decrease (increase) in accrued interest receivable 142 (54)
(Increase) decrease in other assets (131) 604
Increase in accrued interest payable and
other liabilities 285 445
Net cash provided by operating activities 1,828 2,785
CASH FLOWS FROM INVESTING ACTIVITIES:
Held to maturity securities:
Calls 4,055
Available for sale securities:
Maturities 695 3,000
Purchases (6,925)
Sales 11,183 11,957
Net increase in loans held for investment (16,807) (9,631)
Purchases of premises and equipment (773) (383)
Net cash used in investing activities (1,647) (1,982)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest-bearing
demand deposits 1,305 7,624
Net increase in interest-bearing transaction,
savings and other time deposits 2,634 (2,615)
Net increase in other borrowings 394
Cash dividends paid (41)
Proceeds from the exercise of stock options 207 12
Purchases of common stock (559) (481)
Net cash provided by financing activities 3,981 4,499
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,162 5,302
CASH AND CASH EQUIVALENTS:
Beginning of period 12,004 16,956
End of period $ 16,166 $ 22,258
CASH PAID DURING THE PERIOD FOR:
Interest on deposits and other borrowings $ 2,139 $ 2,539
Income taxes 646 $ 825
See notes to condensed consolidated financial statements.
MCB FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
1. BASIS OF PRESENTATION - The unaudited condensed consolidated financial
information included herein has been prepared in conformity with generally
accepted accounting principles and practices in MCB Financial Corporation's
(the "Company") consolidated financial statements included in the Annual
Report on Form 10-KSB for the year ended December 31, 1999. The interim
condensed 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 and
six months ended June 30, 2000 may not be indicative of operating results to be
expected 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 June 30,
1999 2000
Basic shares 2,065 2,030
Dilutive effect of stock options 86 92
Diluted shares 2,151 2,122
In thousands Six months ended June 30,
1999 2000
Basic shares 2,080 2,042
Dilutive effect of stock options 99 105
Diluted shares 2,179 2,147
3. RECENTLY ISSUED ACCOUNTING STANDARDS - Statement of Financial Accounting
Standards (SFAS) No. 133,"Accounting for Derivative Instruments and Hedging
Activities," was issued June 1998 and amended by SFAS No. 138, issued in June
2000. The standard defines derivatives, requires that all derivatives be
carried at fair value, and provides for hedge accounting when certain conditions
are met. The requirements of SFAS No. 133 as amended by SFAS No. 138 will be
effective for the Company in the first quarter of the fiscal year beginning
January 1, 2001. Management does not expect the adoption of SFAS No. 133 as
amended by SFAS No. 138 to have a significant impact on the Company's financial
statements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
MCB Financial Corporation (the "Company") is the holding company for Metro
Commerce Bank in San Rafael, California. This discussion focuses primarily on
the results of operations of the Company on a consolidated basis for the three
and six months ended June 30, 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 $761,000, or $0.37 per
share basic and $0.36 per share diluted, for the second quarter of 2000. This
compares to net income of $615,000, or $0.30 per share basic and $0.29 per share
diluted, for the same period in 1999.
For the six months ended June 30, 2000, the Company reported net income of
$1,414,000, or $0.69 per share basic and $0.66 per share diluted. This compares
to net income of $1,076,000, or $0.52 per share basic and $0.49 per share
diluted for the same period in 1999. For the six months ended June 30, 2000,
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 6.50%.
The growth in average loans was largely due to the continuation of favorable
economic conditions in the Company's market areas.
Return on average assets and return on average equity for the second quarter
of 2000 were 1.52% and 20.16%, respectively, as compared to 1.45% and 18.51%,
respectively, for the same period of 1999. Return on average assets and return
on average equity for the six months ended June 30, 2000 were 1.42% and 19.00%,
respectively, as compared to 1.28% and 16.26%, respectively, for the same period
of 1999.
FINANCIAL CONDITION
SUMMARY. Total assets of the Company increased by $6.4 million, or 3.3%,
from the end of 1999 to reach $202.5 million at June 30, 2000.
LOANS HELD FOR INVESTMENT. Net loans held for investment increased by $9.4
million, or 6.9%, during the first six 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, June 30,
1999 2000
Commercial $ 23,413 $ 24,043
Real estate:
Commercial 83,737 95,697
Construction 23,546 21,076
Land 4,440 3,600
Home equity 1,289 1,602
Loans to consumers and individuals 1,672 1,721
Total 138,097 147,739
Deferred loan fees (131) (112)
Allowance for possible credit losses (1,492) (1,742)
Total net loans $ 136,474 $ 145,885
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 $122.9
million, or 83.2% of the total portfolio as of June 30, 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 underwriting standards for real estate secured loans are
prudent and 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 June 30, 2000 the two largest industry concentrations within
the loan portfolio were real estate and related services at 31.9% and the
services - personal/business industry at 20.9% of the portfolio. Because credit
concentrations increase portfolio risk, the Company places significant emphasis
on the purpose of each loan and the related sources of repayment. The Company
generally limits unsecured commercial loans to maturities of three years and
secured commercial loans to maturities of five years.
NONPERFORMING ASSETS. The Company carefully monitors the quality of its
loan portfolio and the factors that affect it, including regional economic
conditions, employment stability, and real estate values. The accrual of
interest on loans is discontinued when the payment of principal or interest is
considered to be in doubt, or when a loan becomes contractually past due by 90
days or more with respect to principal or interest, except for loans that are
well secured and in the process of collection.
As of June 30, 2000, the Company had nonperforming assets in the amount of
$166,000, of which $126,000 represented two nonaccrual loans. Had these
nonaccrual loans performed under their contractual terms, approximately $5,000
in additional interest income would have been recognized during the six months
ended June 30, 2000. At June 30, 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, June 30,
1999 2000
Nonaccrual loans $ 1,707 $ 126
Loans 90 days or more past due and
still accruing 40 40
$ 1,747 $ 166
As a percent of total loans 1.27% 0.11%
As a percent of total assets 0.89% 0.08%
Nonaccrual loans decreased by $1.6 million during the six months ended June
30, 2000. The decrease was due to the sale of a property securing one of the
loans. No specific allowance for possible credit losses was applied to the
nonaccrual loans because they were adequately collateralized.
At June 30, 2000, the Company had loans identified as impaired in the amount
of $166,000. At June 30, 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 by the provision to the APCL which is 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 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 June 30, 2000, the APCL of $1,742,000,
or 1.18% 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 Six Months Ended
December 31, June 30,
1999 2000
Balances:
Average loans during period $125,035 $143,341
Loans at end of period 137,966 147,627
Allowance for Possible Credit Losses:
Balance at beginning of period 1,117 1,492
Actual credit losses:
Commercial 62
Total 62 0
Actual credit recoveries:
Commercial loans 72 30
Total 72 30
Net credit losses (recoveries) (10) (30)
Provision charged to operating expenses 365 220
Balance at end of period $ 1,492 $ 1,742
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% 1.18%
Net credit losses (recoveries) to beginning
of period allowance for credit losses (0.90)% (2.01)%
The Company provided $100,000 to the allowance for possible credit losses
during the second quarter of 2000 as compared to $35,000 during the second
quarter of 1999. For the six months ended June 30, 2000, the Company provided
$220,000 to the allowance for possible credit losses as compared to $125,000
during the same period of 1999. The provisions during both periods were
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):
June 30, 1999 December 31, 1999 June 30, 2000
% of % of % of
Category Category Category
to Total to Total to Total
APCL Loans APCL Loans APCL Loans
Commercial loans $ 659 47.78% $ 904 47.87% $ 636 43.22%
Real estate loans 260 48.69% 260 48.98% 294 53.37%
Consumer loans 37 3.53% 30 3.15% 32 3.41%
Not allocated 345 N/A 298 N/A 780 N/A
Total $ 1,301 100.00% $ 1,492 100.00% $ 1,742 100.00%
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
June 30, 2000: 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 13,987 $ 27 (265) 13,749 13,749
U.S. Government agencies 11,120 (546) 10,574 10,574
Corporate securities 1,939 (34) 1,905 1,905
Total available for sale 27,046 27 (845) 26,228 26,228
Total investment
securities $29,046 $ 27 $ (866) $28,207 $28,228
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 $5.0 million, or 2.8%,
during the six months ended June 30, 2000.
Rates paid on deposits increased during the six months ended June 30, 2000
contributing to the increase in the cost of funds to 2.82% for the six months
ended June 30, 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 Six Months Ended
December 31, 1999 June 30, 2000
Average Average Average Average
Balance Rate Balance Rate
Noninterest-bearing demand deposits $ 40,290 $ 46,086
Interest-bearing demand deposits
(includes money market
deposit accounts) 98,954 3.42% 109,688 3.56%
Savings deposits 2,259 1.90% 2,088 1.92%
Time deposits, $100,000 and over 13,477 4.85% 14,792 5.12%
Other time deposits 8,816 4.41% 9,290 4.69%
Total interest-bearing 123,506 3.62% 135,858 3.78%
Total deposits $163,796 2.73% $181,944 2.82%
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, June 30,
Time remaining to maturity 1999 2000
Three months or less 5,719 8,447
After three months to six months 3,229 4,594
After six months to one year 4,766 2,862
After twelve months 757 410
Total 14,471 16,313
RESULTS OF OPERATIONS
NET INTEREST INCOME / NET INTEREST MARGIN. Net interest income for the
quarter ended June 30, 2000 was $3,103,000, an increase of 20.1% over the net
interest income of $2,584,000 during the same period of 1999. Net interest
income for the six months ended June 30, 2000 was $6,037,000, and increase of
21.2% over the net interest income of $4,980,000 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 June 30,
1999 2000
Average Average
Balance Interest Rate Balance Interest Rate
ASSETS
Federal funds sold $ 4,751 $ 55 4.63% $ 11,744 $ 183 6.23%
Interest-bearing deposits
with banks 286 3 4.20% 286 4 5.59%
Investment securities 29,732 414 5.57% 28,652 430 6.00%
Loans (1) 123,844 3,165 10.22% 146,740 3,814 10.40%
Total earning assets 158,613 3,637 9.17% 187,422 4,431 9.46%
Total non-earning assets 11,380 13,448
Total assets $169,993 $200,870
LIABILITIES & SHAREHOLDERS' EQUITY
Demand deposits $ 37,488 $ 46,065
Interest-bearing transaction
accounts 93,624 $ 789 3.37% 110,639 $ 997 3.60%
Time deposits, $100,000 or more 12,153 150 4.94% 15,376 200 5.20%
Savings and other time 10,801 100 3.70% 11,323 122 4.31%
Total interest-bearing deposits 116,578 1,039 3.56% 137,338 1,319 3.84%
Other borrowings 1,252 14 4.47% 650 9 5.54%
Total interest-bearing
Liabilities 117,830 1,053 3.57% 137,988 1,328 3.85%
Other liabilities 1,386 1,716
Shareholders' equity 13,289 15,101
Total liabilities
and shareholders' equity $169,993 $200,870
Net interest income $2,584 $3,103
Net interest margin 6.52% 6.62%
(1) Nonaccrual loans are included in the average balance.
For the six months ended June 30,
1999 2000
Average Average
Balance Interest Rate Balance Interest Rate
ASSETS
Federal funds sold $ 3,888 $ 89 4.58% $ 10,625 $ 317 5.97%
Interest-bearing deposits
with banks 286 7 4.90% 286 8 5.59%
Investment securities 34,368 948 5.53% 31,457 909 5.78%
Loans (1) 118,216 6,029 10.20% 143,341 7,387 10.31%
Total earning assets 156,758 7,073 9.03% 185,709 8,621 9.28%
Total non-earning assets 11,315 13,279
Total assets $168,073 $198,988
LIABILITIES & SHAREHOLDERS' EQUITY
Demand deposits $ 36,571 $ 46,086
Interest-bearing transaction
accounts 92,786 $1,558 3.36% 109,688 $1,951 3.56%
Time deposits, $100,000 or more 12,406 305 4.92% 14,792 379 5.12%
Savings and other time 10,665 207 3.88% 11,378 238 4.18%
Total interest-bearing deposits 115,857 2,070 3.57% 135,858 2,568 3.78%
Other borrowings 1,027 23 4.48% 615 16 5.20%
Total interest-bearing
Liabilities 116,884 2,093 3.58% 136,473 2,584 3.79%
Other liabilities 1,385 1,545
Shareholders' equity 13,233 14,884
Total liabilities
and shareholders' equity $168,073 $198,988
Net interest income $4,980 $6,037
Net interest margin 6.35% 6.50%
(1) Nonaccrual loans are included in the average balance.
The net interest margin increased to 6.62% during the second quarter of 2000
from 6.52% in the same quarter of 1999. For the six months ended June 30, 2000,
the net interest margin increased to 6.50% from 6.35% during the same period of
1999. The increase was primarily attributable to growth in average earnings
assets exceeding growth in average interest-bearing liabilities.
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 Six Months Ended
June 30, 1999 June 30, 1999
Compared to Compared to
Quarter Ended Six Months Ended
June 30, 2000 June 30, 2000
Change in Change in
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
Interest Income:
Federal funds sold $81 $19 $28 $128 $154 $27 $47 $228
Interest-bearing deposits
with banks 0 1 0 1 0 1 0 1
Investment securities (15) 32 (1) 16 (78) 43 (4) (39)
Loans 583 56 10 649 1,279 65 14 1,358
Total Interest Income 649 108 37 794 1,355 136 57 1,548
Interest Expense:
Interest-bearing
transaction accounts 144 54 10 208 283 93 17 393
Time deposits,
$100,000 or more 40 8 2 50 60 12 2 74
Savings and other time 5 16 1 22 14 16 1 31
Other borrowings (6) 3 (2) (5) (10) 4 (1) (7)
Total Interest Expense 183 81 11 275 347 125 19 491
Net Interest Income $466 $27 $26 $519 $1,008 $11 $38 $1,057
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 Six Months Ended
June 30, June 30,
Components of Noninterest Income 1999 2000 1999 2000
Gain on sale of loans $ 30 $ 20 $ 82 $ 35
Service fees on deposit accounts 153 116 316 245
Loan servicing fees 15 14 26 27
Gain (loss) on sale of investment
securities - net (7) 12 (2)
Other 51 87 97 143
Total $ 242 $ 237 $ 533 $ 448
As a Percentage of Average Assets (Annualized)
Gain on sale of loans 0.07% 0.04% 0.10% 0.03%
Service fees on deposit accounts 0.36% 0.23% 0.38% 0.25%
Loan servicing fees 0.04% 0.03% 0.03% 0.03%
Gain (loss) on sale of investment
securities - net (0.02)% 0.01% 0.00%
Other 0.12% 0.17% 0.11% 0.14%
Total 0.57% 0.47% 0.63% 0.45%
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 Six Months Ended
June 30, June 30,
Components of Noninterest Expense 1999 2000 1999 2000
Salaries and employee benefits $ 1,037 $ 1,118 $ 2,012 $ 2,187
Occupancy expense 238 273 465 527
Furniture and equipment expense 98 114 199 224
Professional services 44 72 174 126
Supplies 75 79 134 150
Promotional expenses 55 19 168 148
Data processing fees 85 89 195 177
Regulatory assessments 10 15 19 30
Other 101 155 192 283
Total $ 1,743 $ 1,934 $ 3,558 $ 3,852
Average full-time equivalent employees 55 59 55 58
As a Percentage of Average Assets (Annualized)
Salaries and employee benefits 2.44% 2.22% 2.39% 2.20%
Occupancy expense 0.56% 0.54% 0.55% 0.53%
Furniture and equipment expense 0.23% 0.23% 0.24% 0.22%
Professional services 0.10% 0.14% 0.21% 0.13%
Supplies 0.18% 0.16% 0.16% 0.15%
Promotional expenses 0.13% 0.04% 0.20% 0.15%
Data processing fees 0.20% 0.18% 0.23% 0.18%
Regulatory assessments 0.02% 0.03% 0.02% 0.03%
Other 0.24% 0.31% 0.23% 0.28%
Total 4.10% 3.85% 4.23% 3.87%
Noninterest expense increased to $1.9 million during the second quarter of
2000 from $1.7 million during the same period of the prior year. For the six
months ended June 30, 2000, noninterest expense increased to $3.9 million from
$3.6 million during the same period of the prior year. Growth in existing
operations and the addition of the Petaluma branch office in July 1999
contributed to the increase.
INCOME TAXES. The Company's effective tax rate was 41.7% for the quarter
ended June 30, 2000 compared to 41.3% in the same period of the prior year. For
the six months ended June 30, 2000, the effective tax rate was 41.4% compared to
41.2% 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 six months ended June 30, 2000,
federal funds sold averaged $10.6 million, or 5.3% 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 June 30, 2000, the Company had cash, time deposits with banks, federal
funds sold, and unpledged investment securities of approximately $40.1 million,
or 19.8% 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 and its securities portfolio to absorb
temporary fluctuations in deposit levels. At June 30, 2000, the loan-to-deposit
ratio was 79.9% 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), or the liquidity ratio.
The Company targets a minimum ratio of 5%. At June 30, 2000, this ratio was
7.6% as compared to 15.2% at December 31, 1999.
As of June 30, 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 June 30, 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):
June 30, 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 $10,900 $ 10,900
Interest-bearing deposits
with other banks $ 196 $ 90 286
Investment securities 4,000 $20,023 $ 5,023 29,046
Loans, excluding allowance
for possible losses 74,369 2,256 2,907 50,695 17,512 147,739
Total 89,269 2,452 2,997 70,718 22,535 187,971
Interest-Bearing Liabilities (Rate Sensitive):
Interest-bearing
transaction deposits 47,962 60,599 108,561
Time deposits, $100,000
or more 8,447 4,594 2,862 410 16,313
Savings and other
time deposits 3,348 2,091 2,046 3,799 11,284
Other borrowings 750 750
Total 12,545 6,685 52,870 64,808 $136,908
Period GAP $76,724 $(4,233) $(49,873) $ 5,910 $22,535
Cumulative GAP $76,724 $72,491 $ 22,618 $28,528 $51,063
Interest Sensitivity
GAP Ratio 85.95% (172.63%)(1664.10%) 8.36% 100.00%
Cumulative Interest
Sensitivity 85.95% 79.03% 23.88% 17.24% 27.17%
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.
The maturities and weighted average yields of investment securities at June
30, 2000 are presented in the following table (at amortized cost) (dollar
amounts in thousands):
After 1 Year After 5 Years
Within 1 Year Within 5 Years Within 10 Years Total
Amount Yield Amount Yield Amount Yield Amount Yield
U.S. Treasury and
other U.S.
Government agencies $4,000 5.88% $18,084 5.63% $5,023 5.80% $27,107 5.70%
Corporate securities 1,939 6.32% 1,939 6.32%
Total $4,000 5.88% $20,023 5.70% $5,023 5.80% $29,046 5.74%
Maturities of Loans at June 30, 2000 (dollar amounts in thousands):
Time remaining to maturity Fixed rate Adjustable rate Total
One year or less $ 6,907 $ 35,274 $ 42,181
After one year to five years 49,867 14,787 64,654
After five years 17,511 23,393 40,904
Total $ 74,285 $ 73,454 $ 147,739
As of June 30, 2000, the percentage of loans held for investment with fixed
and floating interest rates was 50.3% and 49.7%, respectively.
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.
Six Months Ended Six Months Ended
June 30, 1999 June 30, 2000
7.87% 7.48%
In July 2000, the Company executed a letter of intent to issue approximately
$3 million in trust preferred securites through a wholly owned trust subsidiary
of the Company to be formed for the purpose of the offering. The securities
issued in the offering are to be sold in a private transaction pursuant to an
applicable exemption from registration under the Securities Act. Under
applicable regulatory guidelines, the trust preferred securities are expected to
qualifiy as Tier 1 capital. The trust preferred securities will bear a fixed
rate of interest payable semi-annually. The interest rate will be determined
during the closing of the transaction which is expected be in September 2000.
Proceeds from the sale are expected to be used for general corporate purposes.
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 June 30, 2000, the
Company's total capital was 10.96% and its Tier 1 capital ratio was 9.86%. 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 June 30, 2000, the Company's
leverage ratio was 7.69%. 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
The annual meeting of shareholders of the Company was held on May 17, 2000.
A quorum was established with the presence of 1,635,307 shares out of 2,030,181
shares of common stock outstanding. The following matters were voted upon at
the annual meeting with the voting results as indicated:
Proposal 1. - ELECTION OF DIRECTORS - The following persons were elected as
directors:
Name Votes For Votes Withheld
John Cavallucci 1,625,546 9,761
Charles O. Hall 1,625,546 9,761
Timothy J. Jorstad 1,625,546 9,761
Catherine H. Munson 1,625,546 9,761
Gary T. Ragghianti 1,625,546 9,761
Michael J. Smith 1,625,546 9,761
Edward P. Tarrant 1,625,546 9,761
Randall J. Verrue 1,625,546 9,761
Proposal 2. - RATIFICATION OF INDEPENDENT AUDITORS - The firm of Deloitte &
Touche LLP was ratified to serve as the Company's independent auditors for the
fiscal year 2000. There were 1,629,251 votes cast for the proposal, 2,580 votes
cast against the proposal, and 3,476 abstentions.
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: The Exhibit Index is incorporated by reference.
(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: August 11, 2000 /s/ Patrick E. Phelan
Patrick E. Phelan
Chief Financial Officer
(Principal Accounting Officer and
officer authorized to sign on behalf
of the registrant)
Exhibit Index
Exhibit Description
10 Severance Agreement, dated as of May 15, 2000, between MCB
Financial Corporation, Metro Commerce Bank and Patrick E. Phelan
27 Financial Data Schedule
