MONTEREY BAY BANCORP INC
8-K, 2000-10-31
SAVINGS INSTITUTION, FEDERALLY CHARTERED
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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 8-K

    Current Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange
                                  Act Of 1934


                        Date Of Report: October 31, 2000
                        (Date Of Earliest Event Reported)

                           MONTEREY BAY BANCORP, INC.
             (Exact Name Of Registrant As Specified In Its Charter)

                  DELAWARE                           77-0381362
      (State Or Other Jurisdiction Of     (I.R.S. Employer Identification
       Incorporation Or Organization)                 Number)



                         Commission File Number: 0-24802

              567 Auto Center Drive, Watsonville, California 95076
               (Address Of Principal Executive Offices)(Zip Code)

                                (831) 768 - 4800
              (Registrant's Telephone Number, Including Area Code)

                             WWW.MONTEREYBAYBANK.COM
                          (Registrant's Internet Site)

                            [email protected]
                     (Registrant's Electronic Mail Address)


<PAGE>



Item 5.           Other Events

         On October 31,  2000,  Monterey  Bay Bancorp,  Inc.  ("Registrant"  and
"Company")  issued a press  release  that  announced  its  results for the third
quarter of 2000 and changes in the Board of Directors.

Item 7.           Financial Statements And Exhibits

         (c)      Exhibits

         The following Exhibits are filed as part of this Report:

         99.1     Press Release dated October 31, 2000.



                                       2

<PAGE>




                                   SIGNATURES

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  Registrant  has duly  caused  this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                                                      Monterey Bay Bancorp, Inc.
                                                                    (Registrant)




Date:    October 31, 2000       By:   /s/ C. Edward Holden
                                      --------------------
                                      C. Edward Holden
                                      Chief Executive Officer

Date:    October 31, 2000       By:   /s/ Mark R. Andino
                                      ------------------
                                      Mark R. Andino
                                      Chief Financial Officer
                                      (Principal Financial & Accounting Officer)



                                       3

<PAGE>


                                  EXHIBIT INDEX

Exhibit Number                      Exhibit

Exhibit 99.1                        Press Release Dated October 31, 2000



                                       4

<PAGE>


Exhibit 99.1
------------

October 31, 2000

FOR IMMEDIATE RELEASE
---------------------



                      MONTEREY BAY BANCORP, INC. ANNOUNCES:
                             THIRD QUARTER RESULTS;
                        CHANGES IN THE BOARD OF DIRECTORS


                                                      Common Stock Symbol:  MBBC
                                                          NASDAQ National Market


         Watsonville,   CA.  October  31,  2000.  Monterey  Bay  Bancorp,   Inc.
("Company")  today  reported net income of $461,000,  or $0.15 basic and diluted
earnings per share, for the third quarter ended September 30, 2000,  compared to
net income of  $950,000,  or $0.29 basic  earnings  per share and $0.28  diluted
earnings per share,  for the third quarter of 1999. For the first nine months of
2000, the Company  reported net income of $1,814,000,  equivalent to $0.58 basic
and diluted earnings per share. This compares to net income of $2,656,000 during
the first nine months of 1999,  equivalent to $0.82 basic earnings per share and
$0.80 diluted earnings per share.

         During the third  quarter of 2000,  the Company  recorded an accrual of
$250,000 for a separation  package  presently being  negotiated with Marshall G.
Delk,  who resigned as President and Chief  Operating  Officer of the Company on
September 29, 2000.  This accrual,  on an after-tax  basis,  decreased basic and
diluted  earnings per share for the third quarter by $0.05. On October 25, 2000,
Mr. Delk presented his resignation  from the Board of Directors of both Monterey
Bay Bancorp, Inc. and its subsidiary, Monterey Bay Bank ("Bank").

         At the meeting of the Company's  Board of Directors held on October 26,
2000,  the  Directors  unanimously  approved  paying all future  Directors  fees
exclusively  in the  Company's  common  stock  commencing  on  November 1, 2000.
Payment of Directors fees in the Company's  stock had previously been an option.
Commenting on this change, Eugene R. Friend,  Chairman of the Board, stated "The
Board of Directors  desired to  communicate  their strong support of the Company
during  a  year  of  challenging  earnings  comparisons,   and  their  continued
commitment to shareholder value."

         Also at the  October  26,  2000  meeting  of the  Board  of  Directors,
McKenzie  Moss was  elected  Chairman  of the Board  effective  January 1, 2001.
Eugene R. Friend will retire as Chairman of the Board and serve as Vice Chairman
until  his  planned   retirement  from  the  Board  at  the  Annual  Meeting  of
Stockholders in 2001.  Commenting on this change,  C. Edward Holden,  President,
Chief  Executive  Officer,  and Vice  Chairman,  stated "Gene Friend has devoted
almost all of his  professional  career to the  Company  and the Bank,  with his
service  extending  over more than forty years.  Gene and the Board of Directors
thought it time to continue the  transition in leadership  which  commenced with
Gene's  retirement as Chief Executive  Officer earlier this year." McKenzie Moss
is a banking industry veteran, having held a long series of successful positions
in the financial  services  industry,  including  Chief  Executive  Officer of a
California  commercial bank.  Director P. W. Bachan, with 46 years of service on
the Board of Directors,  has also  communicated his plan to retire at the Annual
Meeting of Stockholders in 2001.


                                       5

<PAGE>


Monterey Bay Bancorp, Inc.                                                Page 2
Press Release
October31, 2000

         During  the third  quarter  of 2000,  the  Company  recorded a $650,000
provision  for loan  losses,  up  significantly  from  $265,000  during the same
quarter in 1999. This higher provision  primarily  stemmed from two factors,  as
discussed below.

         A commercial construction loan with a disbursed balance of $2.8 million
and a commitment  amount of $3.1 million was graded  substandard  by the Company
during  the third  quarter of 2000.  This loan was  negatively  impacted  by the
inability  of  the   principals  to  obtain  an  occupancy   permit  from  local
governmental  agencies.  Under  the  Company's  loan loss  reserve  methodology,
substandard  loans require a higher level of general  reserve  allocations  than
loans with a more favorable credit grading.  The substandard  classification  of
this commercial  construction loan therefore  increased the need for the Company
to charge operations to expand the loan loss allowance. The Company is currently
negotiating and working with the principals to:

o    have them  complete the final  stages of  construction  without  additional
     Company funds

o    have them place additional funds on deposit with the Company

o    timely pursue the  acquisition  of at least a partial  occupancy  permit in
     order to generate cash flow from the project

Based  upon the  value of the  real  property  and the  financial  strength  and
liquidity of the principals,  no specific  reserve was allocated to this loan at
September 30, 2000. The loan is current in its payments.

         In addition to the aforementioned construction loan, the Company's need
for a higher  allowance  for loan  losses  at the end of the third  quarter  was
increased by $179,000 in conjunction with a special  residential loan pool which
the Company  purchased  in 1998.  This pool is comprised of loans that present a
borrower  credit  profile  and / or a loan  to  value  ratio  outside  of  (less
favorable  than) the Company's  normal  underwriting  criteria.  To mitigate the
credit risk for this  portfolio,  the Company  obtained a scheduled  principal /
scheduled interest loan servicing agreement from the seller. This agreement also
contained  a  guaranty  by the  seller to  absorb  any  principal  losses on the
portfolio  in exchange  for the  seller's  retention  of a portion of the loans'
yield through loan servicing fees.  While the seller has met all its contractual
obligations through October, 2000, the Company determined to allocate additional
reserves due to concerns  regarding  the future  capacity of the seller to honor
the guaranty,  the present delinquency profile of the special mortgage pool, and
the  differential  between loan  principal  balances and current  appraisals for
loans in the process of  foreclosure.  The original  balance of the loan pool in
1998 was $40.0 million, declining to $26.5 million by October 20, 2000.

         The Company's  ratio of loan loss  reserves to gross loans  outstanding
increased  from 0.96% at December 31, 1999 to 1.24% at September  30, 2000.  The
Company's  ratio of loan loss reserves to non-accrual  loans rose from 50.84% at
December 31, 2000 to 71.14% at September 30, 2000.  Non-accrual  loans  declined
from  $6,888,000  at December  31, 1999 to  $6,756,000  at  September  30, 2000.
Included in the  Company's  non-accrual  loan totals at September 30, 2000 was a
$4,850,000  business  term loan  primarily  secured  by the  common  stock of an
insured depository institution.  During the third quarter, $150,000 in principal
reduction  payments  were  received  on this loan,  with an  additional  $25,000
curtailment  received  during the first week of October.  At September 30, 2000,
this loan was current in its contractual  payments.  The loan has, however, been
maintained  on  non-accrual  status  due to  concern  regarding  the  borrower's
potential sources of funds to repay the loan at maturity near the end of 2000.


                                       6

<PAGE>


Monterey Bay Bancorp, Inc.                                                Page 3
Press Release
October31, 2000


         Other factors  contributing to the decline in earnings during the first
nine months of 2000 versus the same period in 1999 were:

o    less favorable results on the sale of securities

o    an  adjustment  to net deferred  loan fees during the third quarter of 1999
     that increased interest income by $140,000 on a one-time basis

o    higher general & administrative expenses

         No gain or loss on the sale of securities was recorded during the third
quarter  of 2000 or the third  quarter  of 1999.  However,  gains on the sale of
securities  totaled $503,000 during the first nine months of 1999, versus a loss
on sale of securities of $77,000 during the first nine months of 2000. The first
nine months of 1999 therefore  benefited from $580,000 in improved  results from
the sales of securities versus the like period in 2000.

         General &  administrative  expenses  climbed from $3.0 million and $8.7
million during the three and nine months ended September 30, 1999, respectively,
to $3.6 million and $10.3  million  during the like periods in 2000. In addition
to the aforementioned $250,000 accrual for a separation package during the third
quarter of 2000,  operating  expenses  during 2000 have increased as a result of
the greater  number of customers  and accounts  serviced by the Company,  higher
data processing  costs,  Bank staff additions and changes  including a new Chief
Executive Officer,  Chief Financial Officer,  and Controller,  the settlement of
certain non-qualified benefits obligations, the adoption of a Directors Emeritus
program, the development of expanded  performance based incentive  compensation,
and higher  outside  professional  costs.  In addition,  at the end of the third
quarter of 2000, the Company commenced incurring its first incremental operating
costs for the upcoming core systems  conversion  that was previously  announced.
The  Company  anticipates  realizing  higher  expenses  for  travel,   training,
personnel, and outside professional costs as it continues to prepare for a major
upgrade to its technology infrastructure in 2001.

         Net  interest  income  improved  in 2000  versus  the prior  year.  Net
interest  income for the three and nine months ended September 30, 2000 was $4.4
million and $13.4 million, respectively, comparing favorably to $4.4 million and
$12.0 million during the like periods in 1999  (including the one-time  $140,000
increase during the third quarter of 1999).  The Company's ratio of net interest
income to average  total  assets was 3.67%  during the most  recent  quarter and
3.80%  during the first nine months of 2000,  compared to 3.87% during the third
quarter of 1999 and 3.56%  during the first nine months of 1999.  The  Company's
ratio of net  interest  income to  average  total  assets  was lower in the most
recent quarter than during the first half of 2000 due to:

o    the  maturity of certain  funding  locked in during the latter part of 1999
     and early 2000,  which  provided the Company with  additional  net interest
     income during a rising interest rate  environment  during the first half of
     the year

o    loans  receivable  representing a lower  percentage of average total assets
     during the third quarter of 2000 than earlier in 2000, in conjunction  with
     a weakening in loan production during the most recent quarter

o    a lower average balance of relatively  higher yielding  construction  loans
     during the third quarter of 2000 than during the first half of 2000


                                       7

<PAGE>


Monterey Bay Bancorp, Inc.                                                page 4
Press Release
October 31, 2000

         Total  assets rose from $462.8  million at December  31, 1999 to $485.0
million at September 30, 2000.  The increase in assets was  concentrated  in net
loans,  which  increased  from  $360.7  million at  December  31, 1999 to $382.3
million at September 30, 2000.  Total deposits  increased from $367.4 million at
December 31, 1999 to a record $398.1  million at September 30, 2000. The rise in
deposits stemmed from:

o    an increase in lower cost transaction  accounts,  particularly NOW checking
     accounts and money market accounts - areas where the Company has introduced
     new products during 2000

o    the  Company's  initial  participation  ($8.0  million)  in  the  State  of
     California time deposit program during the third quarter, whereby the State
     places time  deposits with banks as a means of  encouraging  the lending of
     funds back into California's communities

The percentage of the deposit portfolio  comprised of comparatively  higher cost
certificates of deposit declined from 60.5% at December 31, 1999 to 58.7% at the
close of the most recent  quarter  despite the  Company's  participation  in the
State of California program.  The total number of customer deposit accounts rose
to a record 29,507 at September 30, 2000, up over 1,600 net accounts  during the
first nine months of 2000.

         The rise in deposits  experienced  during 2000 permitted the Company to
repay wholesale  borrowings.  Total  borrowings  decreased from $52.0 million at
December 31, 1999 to $40.6 million at September 30, 2000.

         Monterey  Bay Bank  continues to be in the highest  regulatory  capital
classification  of  "well  capitalized",  with  its  regulatory  capital  ratios
increasing during 2000.

         Consolidated  stockholders'  equity  increased  from  $40.8  million at
December 31, 1999 to $42.4  million at September 30, 2000, as the effects of net
income and  continued  amortization  of deferred  stock  compensation  more than
offset the impacts of the repurchase of 120,000  shares of the Company's  common
stock  during  the first  quarter  of 2000 and an eight  cents  per  share  cash
dividend payment during the first quarter of 2000. As previously announced,  the
Company's  Board  of  Directors  has  determined  to  indefinitely  suspend  the
declaration and payment of cash dividends. The Company's tangible book value per
share  increased  from $11.07 at December  31, 1999 to $12.07 at  September  30,
2000.

         In reviewing the most recent  quarter,  C Edward Holden  commented "The
Company  continues to make progress in its transition from a 75 year old savings
& loan to a  community  based  financial  services  firm.  Many key  steps  have
recently  been  achieved.  We  signed  an  agreement  to  convert  to a new core
processing platform built upon a leading relational database and client / server
technology.  Internet  banking was  introduced  to our customer  base  following
several months of testing by the Bank's employees.  The Bank's new remote ATM at
the hugely popular Monterey Bay Aquarium was recently activated.  The remodeling
of the North Salinas branch is essentially complete,  providing the Company with
additional monthly rental income. David E. Porter, with 26 years of high quality
commercial banking experience, started working for the Bank on October 30. David
will lead our commercial  and retail  banking  activities and be a key member of
the  management  team.  Jack  Evans,  with over 25 years of  commercial  banking
experience, has joined the Bank as a commercial lending relationship manager and
business development  officer.  Jack has lived in Santa Cruz County for 18 years
and represents the type of community banker we are seeking to best serve current
and future business customers.  In realizing these accomplishments,  the Company
is establishing the human and  technological  infrastructure  that is vital to a
successful transformation into an effective community commercial bank."


                                       8

<PAGE>


Monterey Bay Bancorp, Inc.                                                page 5
Press Release
October 31, 2000

                  Mr.  Holden  continued  "Despite  these  achievements,  we are
disappointed with the level of earnings  generated by the Company.  The Board of
Directors strongly  appreciates the importance of building shareholder value and
producing a competitive  return on shareholders'  equity.  However,  many of the
initiatives  integral to the strategic  transformation of the Company require up
front operating costs and initial capital investments before associated revenues
may be realized.  In addition, at the same time the Company requires significant
resources to achieve  strategic  change, we must also devote time and expense to
resolving several key historical issues.  During the fourth quarter, the Company
will  address a key period for the special  residential  mortgage  pool,  as the
associated  loans reach an important rate adjustment date; and the collection of
the large  non-accrual  business term loan extended by the Monterey Bay Bancorp,
Inc.  holding  company.  The  fourth  quarter  will also be a key period for the
Company  to  address  a number  of  relatively  higher  balance  loans  that are
currently graded as criticized or classified assets.  Looking forward into 2001,
we intend to continue  accelerating  the  implementation  of our strategic plan,
leveraging 75 years of superior customer  service,  community  involvement,  and
local decision-making."

         The  Company's  common  stock is listed on the NASDAQ  National  Market
under  the  symbol  "MBBC".  The  Company  and the  Bank  are  headquartered  in
Watsonville, California. The Bank operates through its administrative offices in
Watsonville and eight full service  branches located in the Greater Monterey Bay
Area of Central  California.  The Bank's  deposits  are  insured by the  Federal
Deposit Insurance Corporation up to the maximum allowed by law.

         This news release contains certain forward-looking  statements that are
subject to various factors that could cause actual results to differ  materially
from such statements. Such factors include, but are not limited to, the economic
and real estate market  conditions in the Company's  market areas,  competition,
the  possibility  that the  Company  will not be  successful  in  achieving  its
strategic  objectives,  the  performance  and  contributions  of new  employees,
borrower  willingness to work out troubled credits,  and other factors discussed
in documents  filed by the Company with the Securities  and Exchange  Commission
from time to time. The Company does not undertake,  and  specifically  disclaims
any obligation, to update any forward-looking  statements to reflect occurrences
or unanticipated events or circumstances after the date of such statements.

                        For further information contact:

C. Edward Holden                                         Mark R. Andino
Chief Executive Officer                or                Chief Financial Officer
(831) 768 - 4840                                         (831) 768 - 4806




                            [email protected]
                              Fax: (831) 722 - 6794



                         --- financial data follows ---


                                       9

<PAGE>

<TABLE>
                           MONTEREY BAY BANCORP, INC.
                        Consolidated Financial Highlights
                                    Unaudited
                 (Dollars In Thousands Except Per Share Amounts)
<CAPTION>
                                                               September         December
                                                                     30,              31,
                                                                    2000             1999
                                                                    ----             ----
Financial Condition Data
------------------------------------------------------
<S>                                                            <C>              <C>
Cash and cash equivalents                                      $  18,089        $  12,833
Investment and mortgage backed securities available for sale      65,219           69,179
Investment and mortgage backed securities held to maturity            --               60
Loans held for sale                                                  174               --
Loans receivable held for investment, net                        382,168          360,686
Investment in capital stock of the Federal Home Loan Bank          2,836            3,213
Accrued interest receivable                                        2,922            2,688
Premises and equipment, net                                        7,138            7,042
Core deposit premiums and other intangible assets, net             2,394            2,918
Real estate acquired via foreclosure, net                             --               96
Other assets                                                       4,061            4,112
                                                               ---------        ---------
Total assets                                                   $ 485,001        $ 462,827
                                                               =========        =========

Non-interest bearing demand deposits                              16,078       $   17,316
Interest bearing NOW checking accounts                            40,402           31,385
Savings accounts                                                  16,472           15,312
Money market accounts                                             91,381           81,245
Certificates of deposit                                          233,718          222,144
                                                               ---------        ---------

Total deposits                                                   398,051          367,402
Borrowings                                                        40,582           51,992
Other liabilities                                                  3,925            2,630
                                                               ---------        ---------

Total liabilities                                                442,558          422,024
                                                               ---------        ---------

Stockholders' equity                                              42,443           40,803
                                                               ---------        ---------
Total liabilities and stockholders' equity                     $ 485,001       $  462,827
                                                               =========        =========
</TABLE>
<TABLE>
<CAPTION>

                                                            Three Months Ended September 30,     Nine Months Ended September 30,
                                                            --------------------------------     -------------------------------
                                                                   2000             1999                2000             1999
                                                                   ----             ----                ----             ----
Operating Data
------------------------------------------------------
<S>                                                           <C>              <C>                 <C>              <C>
Interest income                                               $    9,514       $    8,578          $   27,976       $   24,976
Interest expense                                                   5,115            4,218              14,530           12,936
                                                               ---------        ---------           ---------        ---------

Net interest income before provision for loan losses               4,399            4,360              13,446           12,040
Provision for loan losses                                            650              265               1,675              685
                                                               ---------        ---------           ---------        ---------
Net interest income after provision for loan losses                3,749            4,095              11,771           11,355
Non-interest income                                                  630              564               1,714            2,026
General & administrative expense                                   3,552            2,971              10,260            8,684
                                                               ---------        ---------           ---------        ---------

Income before income tax expense                                     827            1,688               3,225            4,697
Income tax expense                                                   366              738               1,411            2,041
                                                               ---------        ---------           ---------        ---------

Net income                                                    $      461       $      950          $    1,814       $    2,656
                                                               =========        =========           =========        =========

Shares applicable to basic earnings per share                  3,100,164        3,256,419           3,104,580        3,235,183
Basic earnings per share                                      $     0.15       $     0.29          $     0.58       $     0.82
                                                               =========        =========           =========        =========

Shares applicable to diluted earnings per share                3,103,799        3,359,124           3,110,342        3,330,384
Diluted earnings per share                                    $     0.15       $     0.28          $     0.58       $     0.80
                                                               =========        =========           =========        =========
</TABLE>


                                                                    10

<PAGE>

<TABLE>
                                                   MONTEREY BAY BANCORP, INC.
                                                 Selected Ratios And Other Data
                                                            Unaudited
                                                     (Dollars In Thousands)
<CAPTION>


                                                   Three Months Ended September 30,             Nine Months Ended September 30,
                                                   --------------------------------             -------------------------------
                                                          2000                 1999                   2000                 1999
                                                          ----                 ----                   ----                 ----

Profitability Ratios
------------------------------------------
<S>                                                     <C>                  <C>                    <C>                  <C>
Return on average assets                                 0.38%                0.84%                  0.51%                0.79%
Return on average equity                                 4.55%                9.11%                  6.06%                8.50%
Interest rate spread during the period                   3.44%                3.67%                  3.55%                3.27%
Net interest income / average total assets               3.67%                3.87%                  3.80%                3.56%
Efficiency ratio                                        70.63%               60.34%                 67.68%               61.74%
G&A expense / average total assets                       2.96%                2.64%                  2.90%                2.57%




                                                            At                   At
                                                 September 30,         December 31,
                                                          2000                 1999
                                                          ----                 ----
Asset Quality Information
------------------------------------------

Non-accrual loans                                   $    6,756          $    6,888
Non-performing loans                                     6,831               8,182
Real estate acquired via foreclosure                        --                  96
Allowance for loan losses                                4,806               3,502

Allowance for loan losses / loans outstanding             1.24%               0.96%
Allowance for loan losses / non-accrual loans            71.14%              50.84%


Bank Regulatory Capital Ratios
------------------------------------------

Tangible capital ratio                                    7.43%               7.11%
Core capital ratio                                        7.43%               7.11%
Tier one risk based capital ratio                        10.53%               9.58%
Total risk based capital ratio                           11.79%              10.56%


Other Information
------------------------------------------

Number of deposit accounts                              29,507              27,831
Full-service customer facilities                             8                   8
Number of ATM's                                             10*                 10
Loan to deposit ratio                                    96.05%              98.17%
Tangible book value per share                       $    12.07          $    11.07
Shares outstanding                                   3,317,913           3,422,637






<FN>
-----------------------------------------------------------------------------------
* 11 ATM's as of October 16, 2000
</FN>
</TABLE>

                                                               11




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