================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 000-25141
------------------------
METROCORP BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 76-0579161
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
9600 BELLAIRE BOULEVARD, SUITE 252
HOUSTON, TEXAS 77036
(Address of principal executive offices including zip code)
(713) 776-3876
(Registrant's telephone number, including area code)
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $1.00 per share
(Title of class)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
As of August 10, 2000, the number of outstanding shares of Common Stock,
par value $1.00 per share was 6,939,566.
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PART I
FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS.
METROCORP BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2000 1999
--------- ---------
(UNAUDITED)
ASSETS
Cash and cash equivalents:
Cash and due from banks .............................. $ 27,960 $ 29,945
Federal funds sold and other temporary investments ... 47,006 6,471
--------- ---------
Total cash and cash equivalents .................... 74,966 36,416
Investment securities available-for-sale, at fair value . 93,064 74,959
Investment securities held-to-maturity, at amortized cost 33,678 35,106
Loans, net .............................................. 477,332 488,132
Premises and equipment, net ............................. 7,371 8,106
Accrued interest receivable ............................. 4,073 3,855
Deferred income taxes ................................... 6,563 6,477
Due from customers on acceptances ....................... 4,942 831
Other real estate and repossessed assets, net ........... 579 490
Other assets ............................................ 6,628 6,217
--------- ---------
Total assets ....................................... $ 709,196 $ 660,589
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing .................................. $ 102,969 $ 96,253
Interest-bearing ..................................... 498,376 448,183
--------- ---------
Total deposits ..................................... 601,345 544,436
Other borrowings ........................................ 45,525 55,636
Accrued interest payable ................................ 1,463 1,558
Income taxes payable .................................... -- --
Acceptances outstanding ................................ 4,942 831
Other liabilities ....................................... 3,895 5,548
--------- ---------
Total liabilities .................................. 657,170 608,009
--------- ---------
Commitments and contingencies ........................... -- --
Shareholders' equity:
Preferred stock, $1.00 par value,
2,000,000 shares authorized, none
of which are issued and outstanding ................ -- --
Common stock, $1.00 par value,
20,000,000 authorized, 7,140,066 (unaudited) and
7,122,479 shares issued and 6,939,566 (unaudited)
and 7,102,470 shares outstanding at June 30, 2000
and December 31, 1999, respectively ................ 7,140 7,122
Additional paid-in capital ........................... 25,758 25,646
Retained earnings .................................... 23,274 23,124
Accumulated other comprehensive income ............... (2,577) (3,145)
Treasury stock, at cost .......................... (1,569) (167)
--------- ---------
Total shareholders' equity ...................... 52,026 52,580
--------- ---------
Total liabilities and shareholders' equity ...... $ 709,196 $ 660,589
========= =========
See accompanying notes to consolidated financial statements
1
METROCORP BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
Interest income:
Loans ................................ $ 12,865 $ 10,826 $ 25,921 $ 21,125
Investment Securities:
Taxable ............................ 1,677 1,682 3,292 3,362
Tax-exempt ......................... 268 281 536 529
Federal funds sold and other
temporary investments .............. 718 106 949 276
-------- -------- -------- --------
Total interest income ............ 15,528 12,895 30,698 25,292
-------- -------- -------- --------
Interest expense:
Time deposits ........................ 4,753 3,277 8,991 6,572
Demand and savings deposits .......... 1,071 948 2,134 1,875
Other borrowings ..................... 677 780 1,417 1,408
-------- -------- -------- --------
Total interest expense ........... 6,501 5,005 12,542 9,855
-------- -------- -------- --------
Net interest income ..................... 9,027 7,890 18,156 15,437
Provision for loan losses ............... 5,580 1,060 6,279 2,070
-------- -------- -------- --------
Net interest income after provision for
loan losses .......................... 3,447 6,830 11,877 13,367
-------- -------- -------- --------
Noninterest income:
Service charges on deposit accounts .. 941 941 1,813 1,959
Other loan-related fees .............. 230 480 404 852
Letters of credit commissions and fees 152 103 277 205
Gain on sale of investment
securities, net .................... -- 250 -- 274
Other noninterest income ............. 590 59 893 132
-------- -------- -------- --------
Total noninterest income ......... 1,913 1,833 3,387 3,422
-------- -------- -------- --------
Noninterest expense:
Employee compensation and benefits ... 3,166 2,769 6,401 5,472
Occupancy ............................ 1,476 1,233 2,912 2,437
Other real estate, net ............... 16 8 (16) 52
Data processing ...................... 44 39 86 246
Professional fees .................... 1,007 145 1,526 323
Advertising .......................... 150 106 246 236
Other noninterest expense ............ 1,406 1,168 2,599 2,071
-------- -------- -------- --------
Total noninterest expense ........ 7,265 5,468 13,754 10,837
-------- -------- -------- --------
Income before provision for income taxes (1,905) 3,195 1,510 5,952
Provision for income taxes .............. (752) 1,050 526 1,946
-------- -------- -------- --------
Net income .............................. $ (1,153) $ 2,145 $ 984 $4 ,006
======== ======== ======== ========
Earnings per common share:
Basic ................................ $ (0.17) $ 0.30 $ 0.14 $ 0.56
Diluted .............................. $ (0.17) $ 0.30 $ 0.14 $ 0.56
Weighted average shares outstanding:
Basic ................................ 6,942 7,118 6,978 7,107
Diluted .............................. 6,942 7,118 6,978 7,107
See accompanying notes to consolidated financial statements
2
METROCORP BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ -----------------
2000 1999 2000 1999
------- ------- ------- -------
Net income ................................... $(1,153) $ 2,145 $ 984 $ 4,006
======= ======= ======= =======
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment
securities, net:
Unrealized holding gains (losses) arising
during the period ..................... 184 (1,750) 568 (2,189)
Less: reclassification adjustment for gains
included in net income ................ -- (165) -- (181)
------- ------- ------- -------
Other comprehensive income (loss) ......... 84 (1,915) 568 (2,370)
------- ------- ------- -------
Total comprehensive income ................ $ (969) $ 230 $ 1,552 $ 1,636
======= ======= ======= =======
See accompanying notes to consolidated financial statements
3
METROCORP BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(IN THOUSANDS)
(UNAUDITED)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TREASURY
---------------------- PAID-IN RETAINED COMPREHENSIVE STOCK
SHARES AT PAR CAPITAL EARNINGS INCOME (LOSS) AT COST TOTAL
-------- -------- -------- -------- ------------ -------- --------
Balance at January 1, 1999 . 7,005 $ 7,005 $ 24,569 $ 17,702 $ 748 $-- $ 50,024
Insurance of common stock .. 116 116 1,065 -- -- -- 1,181
Repurchase of common stock . -- -- -- -- -- -- --
IPO adjustment ............. -- -- -- -- -- -- --
Other comprehensive income
(loss) .................. -- -- -- -- (2,370) -- (2,370)
Net Income ................. -- -- -- 4,006 -- -- 4,006
Dividend ................... -- -- -- (854) -- -- (854)
-------- -------- -------- -------- -------- ---- --------
Balance at June 30, 1999 ... 7,121 $ 7,121 $ 25,634 $ 20,854 $ (1,622) $-- $ 51,987
======== ======== ======== ======== ======== ==== ========
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TREASURY
---------------------- PAID-IN RETAINED COMPREHENSIVE STOCK
SHARES AT PAR CAPITAL EARNINGS INCOME (LOSS) AT COST TOTAL
-------- -------- -------- -------- ------------ -------- --------
Balance at January 1, 2000 . 7,102 $ 7,122 $ 25,646 $ 23,124 $ (3,145) $ (167) $ 52,580
Insurance of common stock .. 18 18 112 -- -- -- 130
Repurchase of common stock . (181) -- -- -- -- (1,402) (1,402)
IPO adjustment ............. -- -- -- -- -- -- --
Other comprehensive
gain/(loss) ............... -- -- -- -- 568 -- 568
Net Income ................. -- -- -- 984 -- -- 984
Dividend ................... -- -- -- (834) -- -- (834)
-------- -------- -------- -------- -------- -------- --------
Balance at June 30, 2000 ... 6,939 $ 7,140 $ 25,758 $ 23,274 $ (2,577) $ (1,569) $ 52,026
======== ======== ======== ======== ======== ======== ========
See accompanying notes to consolidated financial statements
4
METROCORP BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JUNE 30,
-----------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net income ................................................ $ 984 $ 4,006
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation ............................................ 1,092 1,046
Provision for loan losses ............................... 6,279 2,070
Gain on sales of securities, net ........................ -- (274)
Loss on sale of other real estate ....................... (26) 22
Deferred income taxes ................................... (376) (426)
Changes in:
Accrued interest receivable ........................... (218) (267)
Other assets .......................................... (410) (314)
Accrued interest payable .............................. (95) 28
Deferred loan fees .................................... 176 411
Other liabilities ..................................... (1,642) 550
Income taxes payable .................................. -- 58
-------- --------
Net cash provided by operating activities ........... 5,764 6,910
-------- --------
Cash flows from investing activities:
Purchases of securities available-for-sale .............. (19,585) (21,099)
Proceeds from sales of securities available-for-sale .... -- 9,969
Proceeds from maturities and calls of securities
available-for-sale .................................... 2,332 8,153
Purchases of securities held-to-maturity ................ -- (1,857)
Proceeds from maturities of securities held-to-maturity . 1,433 4,114
Net change in loans ..................................... 2,927 (44,362)
Proceeds from sales of other real estate ................ 1,355 255
Purchases of premises and equipment ..................... (357) (1,021)
-------- --------
Net cash used by investing activities ................. (11,895) (45,848)
-------- --------
Cash flows from financing activities:
Net change in:
Deposits ................................................ 56,909 2,668
Other borrowings ........................................ (10,111) 10,578
Federal funds purchased ................................. -- 14,430
Net proceeds from issuance of common stock ................ 130 1,182
Treasury stock sold ....................................... (1,402) --
Dividends paid ............................................ (845) (854)
-------- --------
Net cash provided by financing activities ............. 44,681 28,004
-------- --------
Net increase (decrease) in cash and cash equivalents ......... 38,550 (10,934)
Cash and cash equivalents at beginning of period ............. 36,416 35,893
-------- --------
Cash and cash equivalents at end of period ................... $ 74,966 $ 24,959
======== ========
See accompanying notes to consolidated financial statements
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include the
accounts of MetroCorp Bancshares, Inc. (the "Company") and its wholly-owned
subsidiary MetroBank, National Association (the "Bank"). All material
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements
were prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q. In the
opinion of management, the unaudited condensed consolidated financial statements
reflect all adjustments, consisting only of normal and recurring adjustments,
necessary to present fairly the Company's consolidated financial position at
June 30, 2000, the Company's consolidated results of operations for the six
months ended June 30, 2000 and 1999, consolidated cash flows for the six months
ended June 30, 2000 and 1999 and consolidated changes in shareholders' equity
for the six months ended June 30, 2000 and 1999. Interim period results are not
necessarily indicative of results of operations or cash flows for a full-year
period. The 1999 year-end condensed consolidated balance sheet and statement of
changes in shareholders' equity data were derived from audited financial
statements, but do not include all disclosures required by generally accepted
accounting principles.
These financial statements and the notes thereto should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
December 31, 1999.
2. EARNINGS PER COMMON SHARE
Basic earnings per share ("EPS") is computed by dividing net income
available to common shareholders by the weighted-average number of common shares
outstanding during the period. Diluted EPS is computed by dividing net income
available to common shareholders by the weighted-average number of common shares
and potentially dilutive common shares outstanding during the period.
Potentially dilutive common shares are computed using the treasury stock method.
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
(IN THOUSANDS)
Net Income available to common
shareholders ............................ $(1,153) $ 2,145 $ 984 $ 4,006
======= ======= ======= =======
Weighted-average common shares
outstanding ............................. 6,942 7,118 6,978 7,107
Potentially dilutive common shares from
options ................................. -- -- -- --
Weighted-average common shares and
potentially dilutive common shares ...... 6,942 7,118 6,978 7,107
======= ======= ======= =======
Basic EPS ................................ $ (0.17) $ 0.30 $ 0.14 $ 0.56
Diluted EPS .............................. $ (0.17) $ 0.30 $ 0.14 $ 0.56
3. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." ("SFAS No. 133"). SFAS No. 133 became
effective for reporting periods beginning after June 15, 2000, and will not be
applied retroactively. SFAS No. 133 establishes accounting and reporting
standards for derivatives instruments and hedging activities. Under the
standard, all derivatives must be measured at fair value and recognized as
either assets or liabilities in the statement of financial condition. In
addition, hedge accounting should only be provided for transactions that meet
certain specified criteria. The accounting for changes in fair value (gains and
losses) of a
6
derivative is dependent on the intended use of the derivative and its
designation. Derivatives may be used to: 1) hedge exposure to change the fair
value of a recognized asset or liability or from a commitment, referred to as a
fair value hedge, 2) hedge exposure to variable cash flow of forecasted
transactions, referred to as cash flow hedge, or 3) hedge foreign currency
exposure. Management is currently assessing the potential impact of SFAS No. 133
on future corporate operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Statements and financial discussion and analysis contained in this
Quarterly Report on Form 10-Q and documents incorporated herein by reference
that are not historical facts are forward-looking statements made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements describe the Company's future plans,
strategies and expectations, are based on assumptions and involve a number of
risks and uncertainties, many of which are beyond the Company's control. The
important factors that could cause actual results to differ materially from the
results, performance or achievements expressed or implied by the
forward-looking statements include, without limitation:
o Changes in interest rates and market prices, which could reduce the
Company's net interest margins, asset valuations and expense
expectations;
o Changes in the levels of loan prepayments and the resulting effects
on the value of the Company's loan portfolio;
o Changes in local economic and business conditions which adversely
affect the ability of the Company's customers to transact profitable
business with the Company, including the ability of borrowers to
repay their loans according to their terms or a change in the value
of the related collateral;
o Increased competition for deposits and loans adversely affecting
rates and terms;
o The Company's ability to identify suitable acquisition candidates;
o The timing, impact and other uncertainties of the Company's ability
to enter new markets successfully and capitalize on growth
opportunities;
o Increased credit risk in the Company's assets and increased
operating risk caused by a material change in commercial, consumer
and/or real estate loans as a percentage of the total loan
portfolio;
o The failure of assumptions underlying the establishment of and
provisions made to the allowance for loan losses;
o Changes in the availability of funds resulting in increased costs or
reduced liquidity;
o Increased asset levels and changes in the composition of assets and
the resulting impact on our capital levels and regulatory capital
ratios;
o The Company's ability to acquire, operate and maintain cost
effective and efficient systems without incurring unexpectedly
difficult or expensive but necessary technological changes;
o The loss of senior management or operating personnel and the
potential inability to hire qualified personnel at reasonable
compensation levels; and
7
o Changes in statutes and government regulations or their
interpretations applicable to bank holding companies and our present
and future banking and other subsidiaries, including change in tax
requirements and tax rates.
All written or oral forward-looking statements attributable to the Company are
expressly qualified in their entirety by these cautionary statements.
GENERAL. Income for the quarters ended June 30, 2000 and 1999 was a net
loss of $1.2 million and net income of $2.1 million, respectively. The decrease
in net income was primarily due to the $5.3 million factoring charge off which
occurred during the quarter. A customer with a longstanding factoring
relationship sold accounts receivable to the Bank's wholly owned subsidiary,
Advantage Finance Corporation ("Advantage"), at a customary factor's discount
from the face amount due on the accounts. The customer subsequently informed
Advantage and the Federal Bureau of Investigation that it fraudulently
documented and sold to Advantage and other financial institutions fabricated or
inflated accounts receivable. Following the charge off which resulted from this
event, MetroCorp's basic and diluted EPS for the three months ended June 30,
2000 were $(0.17), compared to $0.30 for the same period in 1999.
At June 30, 2000, total assets and net loans were $709.2 million and
$477.3 million, respectively, compared with $660.6 million and $488.1 million,
respectively, at December 31, 1999. Total liabilities and total shareholders'
equity at June 30, 2000 were $657.2 million and $52.0 million, respectively,
compared with $608.0 million and $52.6 million at December 31, 1999.
NET INTEREST INCOME. Net interest income for the quarter ended June 30,
2000 increased by $1.1 million or 14.1% to $9.0 million compared with $7.9
million for the same period in 1999. The increase was principally due to a $2.0
million increase in interest income on loans partially offset by an increase of
$1.5 million in interest expense on deposits and other borrowings. The increase
in the loan and securities portfolios resulted in improved net interest margins
and net interest spreads which increased from 5.49% to 5.64%, and from 4.56% to
4.71%, for the quarters ended June 30, 1999 and 2000, respectively. For the six
months ended June 30, 2000, net interest income increased 17.6% or $2.7 million
from $15.4 million for the six months ended June 30, 1999.
Interest income for the quarter ended June 30, 2000 increased to $15.5
million from $12.9 million for the same period in 1999. The increase was driven
by growth in the average loan portfolio of $39.9 million or 8.9% as well as an
increase in the yield on average loans, which increased to 10.62% for the three
months ended June 30, 2000, from 9.71% in the same period in 1999. The average
securities portfolio decreased by $10.7 million or 10.5%, while its yield rose
77 basis points from 6.62% at June 30, 1999 to 7.39% as of June 30, 2000 as a
result of change in the mix of the investment portfolio from agency securities
into mortgage-backed securities. For the six months ended June 30, 2000,
interest income rose 21.4% to $30.7 million compared with $25.3 million for the
six months ended June 30, 1999.
Interest expense increased $1.5 million to $6.5 million at June 30,
2000 compared with $5.0 million at June 30, 1999. The increase was the result of
higher interest paid on time deposits and improved funding efficiency resulting
from a $12.3 million or 14.0% increase in average noninterest-bearing deposits.
The Company views time deposits as a stable means of supporting loan growth. The
Company believes that based on its historical experience its large time deposits
have core-type characteristics. The Company anticipates that this source of
funding will continue to sustain a portion of the Company's assets growth in the
future. For the six months ended June 30, 2000, interest expense increased 27.3%
or $2.7 million to $12.5 million when compared to the six months ended June 30,
1999.
8
The following tables present the total dollar amount of interest income
from average interest-earning assets and the resultant yields, as well as the
interest expense on average interest-bearing liabilities, expressed both in
dollars and rates for the periods indicated. No tax-equivalent adjustments were
made and all average balances are yearly average balances. Non-accruing loans
have been included in the tables as loans having a zero yield.
FOR THE THREE MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
Interest-earning assets:
Total loans ................. $ 487,229 $ 12,865 10.62% $ 447,349 $ 10,832 9.71%
Taxable securities .......... 91,212 1,677 7.39 101,923 1,682 6.62
Tax-exempt securities ....... 21,656 268 4.98 21,591 281 5.22
Federal funds sold and
Other temporary investments . 43,263 718 6.67 5,758 106 7.38
--------- --------- --------- ---------
Total interest earning
assets .................... 643,360 15,528 9.71% 576,621 12,901 8.97%
--------- ---------
Less allowance for loan
losses ....................... (8,554) (6,507)
--------- ---------
Total interest-earning
assets, net of allowance for
loan losses .................... 634,806 570,114
Nonearning assets .............. 55,846 34,140
--------- ---------
Total assets .............. $ 690,652 $ 604,254
========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing
demand deposits ........... $ 42,304 $ 316 3.00% $ 35,898 $ 235 2.63%
Savings and money
market accounts ........... 97,674 755 3.11 95,786 713 2.99
Time deposits ............. 334,600 4,753 5.71 260,122 3,277 5.05
Federal funds purchased
and securities sold
under Repurchase agreements -- -- -- 27,916 345 4.96
Other borrowings .......... 48,317 677 5.64 35,562 435 4.91
--------- --------- --------- ---------
Total interest-bearing
liabilities ............. 522,895 6,501 5.00% 455,284 5,005 4.41%
--------- ---------
Noninterest-bearing
liabilities:
Noninterest-bearing
demand deposits ........... 100,012 87,706
Other liabilities ........... 14,709 8,116
Total liabilities ......... 637,616 551,106
--------- ---------
Shareholders' equity ........... 53,036 53,148
--------- ---------
Total liabilities and
shareholders equity ........... $ 690,652 $ 604,254
========= =========
Net interest income ............ $ 9,027 $ 7,896
========= =========
Net interest spread ............ 4.71% 4.56%
Net interest margin ............ 5.64% 5.49%
9
FOR THE SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
----------- -------- ------- ----------- -------- -------
(DOLLARS IN THOUSANDS)
ASSETS
Interest-earning assets:
Total loans ...................... $ 489,850 $ 25,921 10.64% $ 432,337 $ 21,125 9.85%
Taxable securities ............... 91,241 3,292 7.26 102,464 3,362 6.62
Tax-exempt securities ............ 21,655 536 4.98 20,095 529 5.31
Federal funds sold and
other temporary investments ...... 27,912 949 6.84 9,111 276 6.11
-------- --------- --------- --------
Total interest earning assets .... 630,658 30,698 9.79% 564,007 25,292 9.04%
--------- --------
Less allowance for loan losses .... (8,212) (6,364)
--------- --------
Total interest-earning assets, net
of allowance for loan losses ...... 622,446 557,643
Noninterest-earning assets .......... 56,026 38,026
--------- ---------
Total assets ................... $ 678,472 $ 595,669
========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Interest-bearing demand
deposits ...................... $ 41,690 $ 624 3.01% $ 34,338 $ 439 2.58%
Savings and money market
accounts ...................... 95,567 1,510 3.18 96,498 1,436 3.00
Time deposits .................. 324,988 8,991 5.56 259,527 6,572 5.11
Federal funds purchased and
securities sold under repurchase
agreements .................... 23 1 8.59 26,457 651 4.96
Other borrowings ............... 51,939 1,416 5.48 30,978 757 4.93
--------- --------- --------- ---------
Total interest-bearing liabilities .. 514,207 12,542 4.90% 447,798 9,855 4.44%
--------- --------
Noninterest-bearing liabilities:
Noninterest-bearing demand
deposits ....................... 98,807 87,321
Other liabilities ................ 12.586 8,218
Total liabilities .............. 625,600 543,337
--------- ---------
Shareholders' equity ................ 52,872 52,332
--------- ---------
Total liabilities and shareholders
equity ............................. $ 678,472 $ 595,669
========= =========
Net interest income ................. $ 18,156 $ 15,437
========= =========
Net interest spread ................. 4.88% 4.60%
Net interest margin ................. 5.79% 5.52%
10
The following tables present the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase related
to higher outstanding balances and changes in interest rates for the three- and
six-month periods ended June 30, 2000 compared with June 30, 1999. For purposes
of these tables, changes attributable to both rate and volume have been
allocated to rate.
THREE MONTHS ENDED JUNE 30,
----------------------------------
2000 VS. 1999
----------------------------------
INCREASE (DECREASE)
DUE TO
---------------------
VOLUME RATE TOTAL
---------- ---------- -----------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
Total loans ........................... $(2,400) $ 4,433 $ 2,033
Securities ............................ (618) 600 (18)
Federal funds sold and other temporary
investments ......................... 917 (305) 612
------- ------- -------
Total increase (decrease) in interest
income ............................ (2,101) 4,728 2,627
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits ...... (77) 158 81
Savings and money market accounts ..... (74) 116 42
Time deposits ......................... (743) 2,219 1,476
Federal funds purchased ............... (345) -- (345)
Other borrowings ...................... (109) 351 242
------- ------- -------
Total increase (decrease) in interest
expense ........................... (1,348) 2,844 1,496
------- ------- -------
Increase (decrease) in net interest income $ (753) $ 1,884 $ 1,131
======= ======= =======
SIX MONTHS ENDED JUNE 30,
----------------------------------
2000 VS. 1999
----------------------------------
INCREASE (DECREASE)
DUE TO
---------------------
VOLUME RATE TOTAL
---------- ---------- -----------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
Total loans ........................... $ 936 $ 3,860 $ 4,796
Securities ............................ (411) 348 (63)
Federal funds sold and other temporary
investments ......................... 470 203 673
------- ------- -------
Total increase (decrease) in interest
income ............................ 995 4,411 5,406
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits ...... 5 180 185
Savings and money market accounts ..... (95) 169 74
Time deposits ......................... 934 1,485 2,419
Federal funds purchased ............... (651) 1 (650)
Other borrowings ...................... 371 288 659
------- ------- -------
Total increase (decrease) in interest
expense ........................... 564 2,123 2,687
------- ------- -------
Increase (decrease) in net interest income $ 431 $ 2,288 $ 2,719
======= ======= =======
PROVISION FOR LOAN LOSSES. Provisions for loan losses are charged to
income to bring the Company's allowance for loan losses to a level deemed
appropriate by management. For the three months ended June 30, 2000 the
provision for loan losses increased by $4.5 million to $5.6 million when
compared with the same period last year. For the six months ended June 30, 2000,
the provision for loan losses increased by $4.2 million to $6.3 million when
compared with the same period last year. This is the principal result of
management's decision to bring the reserve for loan losses to a level which
approximates the Company's historical loss experience and the loan portfolio
risk profile.
11
NONINTEREST INCOME. Noninterest income for the quarters ended June 30,
2000 and 1999 was $1.9 million and $1.8 million, respectively. For the six
months ended June 30, 2000 and 1999, noninterest income was $3.39 million and
$3.42 million, respectively.
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ ------------------
2000 1999 2000 1999
------ ------ ------ ------
(DOLLARS IN THOUSANDS)
Service charges on deposit accounts .... $ 941 $ 941 $1,813 $1,959
Other loan-related fees ................ 230 480 404 852
Gain on sale of securities, net ........ -- 250 -- 274
Letters of credit commissions and fees . 152 103 277 205
Other noninterest income ............... 590 59 893 132
------ ------ ------ ------
Total noninterest income .......... $1,913 $1,833 $3,387 $3,422
====== ====== ====== ======
NONINTEREST EXPENSE. For the quarters ended June 30, 2000 and 1999,
noninterest expense totaled $7.3 million and $5.5 million, respectively, an
increase of $1.8 million or 32.9%. For the six months ended June 30, 2000,
noninterest expense increased by $2.9 million or 26.9% to $13.8 million compared
with the same period in 1999. The increase in noninterest expense is principally
the result of higher employee compensation, benefits, and professional fees. For
the three-month period ended June 30, 2000 and 1999, the Company's efficiency
ratios were 66.3% and 56.24%, respectively. For the six-month period ended June
30, 2000 and 1999, the Company's efficiency ratios were 63.80% and 57.46%,
respectively. The change in the efficiency ratios for the three- and six- month
periods ended June 30, 2000 reflects the Company's continued efforts to gain
customer and branch analysis improvements through employment of additional
system applications.
The following table presents the major categories in noninterest
expense:
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Employee compensation and benefits $ 3,166 $ 2,769 $ 6,401 $ 5,472
Non-staff expenses:
Occupancy ..................... 1,476 1,233 2,912 2,437
Other real estate, net ........ 16 8 (16) 52
Data processing ............... 44 39 86 246
Professional fees ............. 1,007 145 1,526 323
Advertising ................... 150 106 246 236
Consultants/contract labor .... -- 141 -- 346
Director compensation ......... 65 12 189 78
Printing and supplies ......... 128 96 221 239
Telecommunications ............ 150 136 291 260
Other noninterest expense ..... 1,063 783 1,898 1,148
-------- -------- -------- --------
Total non-staff expenses .... 4,099 2,699 7,353 5,365
-------- -------- -------- --------
Total noninterest expense ... $ 7,265 $ 5,468 $ 13,754 $ 10,837
======== ======== ======== ========
Employee compensation and benefits expense for the quarters ended June
30, 2000 and 1999 was $3.2 million and $2.8 million, respectively, reflecting an
increase of $397,000 or 14.3% in 2000 compared with 1999. For the six months
ended June 30, 2000 and 1999, employee compensation and benefits expense was
$6.4 million and $5.5 million, respectively, reflecting an increase of $929,000
or 17.0%. The increases for the three- and six-month periods ended June 30, 2000
resulted primarily from the costs associated with the full effect of the Dulles
and Long Point branches, which opened in March and April 1999, and the Boone
Road and Garland branches that opened in November 1999. Total full-time
equivalent employees at June 30, 2000 and 1999 were 295 and 287, respectively.
12
For the three months ended June 30, 2000, non-staff expenses increased
by $1.4 million when compared with the same period last year. For the six-month
period ended June 30, 2000, non-staff expenses increased by $2.0 million. The
increases in the three month and six month periods were primarily due to higher
occupancy expenses from the full effect of four additional branches and further
impacted by an increase in professional fees associated with systems
infrastructure improvements as well as legal and accounting fees associated with
the $5.3 million factoring receivables charge-off.
FINANCIAL CONDITION
LOAN PORTFOLIO. Total loans decreased from $495.7 million at December
31, 1999 to $485.9 million at June 30, 2000 due to the roll out of the bank's
relationship banking program which had an emphasis on increasing deposits and
the adoption of additional credit policies. At June 30, 2000 and December 31,
1999, the ratio of total loans to total deposits was 80.8% and 91.0%,
respectively. For the same periods, total loans represented 68.5% and 75.0% of
total assets, respectively.
The following table summarizes the loan portfolio of the Company by type
of loan:
AS OF JUNE 30, 2000 AS OF DECEMBER 31, 1999
--------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
Commercial and industrial $ 298,984 60.87% $ 298,150 59.55%
Real estate mortgage
Residential ........... 10,048 2.05 10,934 2.18
Commercial ............ 122,945 25.03 126,363 25.24
Real estate construction
Residential ........... 10,589 2.16 11,348 2.27
Commercial ............ 29,003 5.90 28,661 5.72
Consumer and other ....... 11,328 2.31 11,550 2.31
Factored receivables ..... 8,294 1.69 13,700 2.74
--------- --------- --------- ---------
Gross loans .............. 491,191 100.00% 500,706 100.00%
========= =========
Less: unearned discounts,
interest and deferred fees (5,214) (5,037)
--------- ---------
Total loans ......... $ 485,978 $ 495,669
========= =========
NONPERFORMING ASSETS. Nonperforming assets at June 30, 2000 and
December 31, 1999, were $1.9 million and $5.2 million, respectively. The
decrease of $3.3 million, or 64%, is primarily due to credit policy changes and
continual work by the special assets department and all the loan relationship
officers on collection efforts. These figures are net of guarantees from the
United States Department of Commerce's Small Business Administration (the
"SBA"), the Export Import Bank of the United States (the "Ex-Im Bank"), an
independent agency of the Unites States Government, and the Overseas Chinese
Community Guaranty Fund ("OCCGF") an agency sponsored by the government of
Taiwan, which were $1.2 million and $1.8 million at June 30, 2000 and December
31, 1999, respectively.
The Company is actively involved in the origination and sale of certain
federally guaranteed loans into the secondary market with servicing retained.
Under the terms of these programs, the Company is required to repurchase any
loans which may become nonperforming. As a result of this requirement, the
Company's non-performing loans may increase during the period of time in which
any loan repurchased is either restored to an accrual status or the Company
claims on the guarantee.
13
The following table presents information regarding nonperforming assets
at the periods indicated:
AS OF JUNE 30, 2000 AS OF DECEMBER 31, 1999
------------------- -----------------------
(DOLLARS IN THOUSANDS)
Nonaccrual loans ........................ $2,510 $6,552
Accruing loans 90 days or more past due . -- --
Other real estate ....................... 579 490
------ ------
Total nonperforming assets ......... $3,089 $7,042
------ ------
Less:
Nonperforming loans guaranteed by
the SBA, Ex-Im Bank, OCCGF ......... 1,223 1,821
------ ------
Total net nonperforming assets ..... $1,866 $5,221
====== ======
Nonperforming assets to total assets .... .43 % 1.05 %
Nonperforming assets to total loans
and other real estate ................. .64 1.42
Nonperforming assets to total
assets (1) ............................ .26 .78
Nonperforming assets to total loans
and other real estate (1) ............. .39 1.05
- - ---------------
(1) Nonperforming assets are net of guarantees from the SBA, Ex-Im Bank and
OCCGF.
ALLOWANCE FOR LOAN LOSSES. For the six months ended June 30, 2000, net
loan charge-offs were $5.2 million or 1.05% of average loans outstanding,
compared with $4.1 million or 0.90% of average loans outstanding for the year
ended December 31, 1999. At June 30, 2000 and December 31, 1999, the allowance
for loan losses aggregated $8.6 million and $7.5 million, or 1.79% and 1.52% of
total loans, respectively.
The following table presents an analysis of the allowance for loan
losses and other related data:
AS OF JUNE 30, 2000 AS OF DECEMBER 31, 1999
------------------- -----------------------
(DOLLARS IN THOUSANDS)
Average loans outstanding ...... $ 489,850 $ 461,500
========= =========
Total gross loans outstanding
at end of period ............. $ 491,191 $ 500,706
========= =========
Allowance for loan losses at
beginning of period .......... $ 7,537 $ 6,119
Provision for loan losses ...... 6,279 5,550
Charge-offs:
Commercial and industrial ... (767) (3,563)
Real estate - mortgage ...... (11) (32)
Real estate - construction .. -- --
Consumer and other .......... (5,359) (807)
--------- ---------
Total charge-offs ......... (6,137) (4,402)
--------- ---------
Recoveries:
Commercial and industrial ... 654 94
Real estate - mortgage ...... -- --
Real estate - construction .. -- --
Consumer and other .......... 314 176
--------- ---------
Total recoveries .......... 967 270
--------- ---------
Net loan charge-offs ........... (5,170) (4,132)
--------- ---------
Allowance for loan losses at
end of period ................ $ 8,646 $ 7,537
========= =========
Ratio of allowance to end of
period total loans ........... 1.79 % 1.52 %
Ratio of net loan charge-offs
to average loans ............. 1.05 0.90
Ratio of allowance to end of
period nonperforming loans ... 344.45 115.03
Ratio of allowance to end of
period nonperforming loans (1) 671.80 159.34
- - ---------
(1) Nonperforming assets are net of guarantees from the SBA, Ex-Im Bank and
OCCGF.
14
SECURITIES. At June 30, 2000, the securities portfolio totaled $126.7
million, reflecting an increase of $16.7 million or 15.2% from $110.1 million at
December 31, 1999. This growth was due primarily to an increase in fixed rate
mortgage-backed securities and tax-free securities which were funded by
increased deposits.
DEPOSITS. At June 30, 2000, total deposits were $601.3 million, up $56.9
million from $544.4 million at December 31, 1999. Noninterest-bearing deposits
at June 30, 2000 increased by $6.7 million or 7.0% to $103.0 million from $96.3
million at December 31, 1999. The Company's ratios of noninterest-bearing demand
deposits to total deposits for June 30, 2000 and December 31, 1999 were 17.1%
and 17.7%, respectively.
OTHER BORROWINGS. The Company has two ten-year loans totaling $25.0
million and one six month short term loan totaling $20.0 million from the FHLB
to further leverage its balance sheet and diversify its funding sources. The
ten-year loans bear interest at the average rate of 4.99% per annum and are set
until the fifth anniversary of the loans, at which time the loans may be repaid
or the interest rate may be renegotiated. The six month short term loan bears a
rate of 6.32% and is due in September, 2000. Other short-term borrowings
principally consist of U.S. Treasury tax note option accounts having a maturity
of 14 days or less. Additionally, the Company had several unused, unsecured
lines of credit with correspondent banks totaling $20.0 million at June 30, 2000
and at December 31, 1999.
CAPITAL RESOURCES. Shareholders' equity decreased from $52.6 million at
December 31, 1999 to $52.0 million at June 30, 2000, a decrease of $554,000 or
1.0%. The decrease was due to a net loss of $1.2 million in net income as a
result of the $5.3 million charge-off and offset by a $568,000 improvement in
unrealized securities losses.
The following table provides a comparison of the Company's and the
Bank's leverage and risk-weighted capital ratios as of June 30, 2000 to the
minimum and well-capitalized regulatory standards.
MINIMUM WELL ACTUAL RATIO AT
REQUIRED CAPITALIZED JUNE 30, 2000
-------- ----------- ---------------
THE COMPANY
Leverage ratio ................ 4.00%(1) N/A 8.05%
Tier 1 risk-based capital ratio 4.00 N/A 10.75
Risk-based capital ratio ...... 8.00 N/A 12.01
THE BANK
Leverage ratio ................ 4.00%(2) 5.00% 7.70%
Tier 1 risk-based capital ratio 4.00 8.00 10.29
Risk-based capital ratio ...... 8.00 10.00 11.55
- - -----------------
(1) The Federal Reserve Board may require the Company to maintain a leverage
ratio of up to 100 basis points above the required minimum.
(2) The OCC may require the Bank to maintain a leverage ratio of up to 100
basis points above the required minimum.
YEAR 2000 COMPLIANCE. The Company suffered no failures of any system or
product through the end of the year 1999 and in the year 2000. During 2000, the
Company's Year 2000 project team will continue to monitor the Company's computer
systems and products and the Year 2000 compliance of the third parties with
which the Company transacts business in an attempt to identify any potential
problems.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes in the previously disclosed market
risk information in the Company's Form 10-K for the year ended December 31,
1999. See Form 10-K, Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Interest Rate Sensitivity."
15
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on April 28, 2000. At
the meeting, the shareholders of the Company considered and acted upon the
proposals listed below.
1. May P. Chu, John Lee, and Don J. Wang were elected as Class II directors to
serve on the Board of Directors until the 2003 Annual Meeting of
Shareholders and until their successors are duly elected and qualified.
Tiong Loi Ang was elected as Class III director to serve on the Board of
Directors of the Company until the Company's 2001 Annual Meeting of the
Shareholders and until his successor is duly elected and qualified. A total
of 4,840,358 shares were voted in favor of each Class II and Class III
director and 120,056 shares were withheld from voting for each Class II and
Class III director.
The other directors whose term of office as a director continued after the
meeting include Helen F. Chen, Tommy F. Chen, George M. Lee, David Tai and
Joe Ting.
2. The shareholders approved as submitted the Company's Executive Bonus Plan. A
total of 4,701,175 shares were voted in favor of the proposal, 257,039
shares were voted against the proposal and 2,200 shares abstained from
voting on this proposal.
3. The shareholders ratified the appointment of Deloitte & Touche LLP as the
independent auditors of the books and accounts of the Company for the year
ending December 31, 2000. A total of 4,850,014 shares were voted in favor
the proposal, 109,900 shares were voted against the proposal and 500 shares
abstained from voting on the proposal.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6A. EXHIBITS
EXHIBIT IDENTIFICATION
NUMBER OF EXHIBIT
11 -- Computation of Earnings Per Common Share, included as Note (2)
to the 11 Interim Consolidated Financial Statements on Page 6
of this Form 10-Q.
27 -- Financial Data Schedule. The required Financial Data Schedule
has been included as Exhibit 27 of the Form 10-Q filed
electronically with the Securities and Exchange Commission.
16
ITEM 6B. REPORTS ON FORM 8-K
On June 1, 2000, the Company filed a current report on Form 8-K under Item 5 to
report the issuance of a press related to a $5.3 million receivables fraud.
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, thereunto duly authorized.
METROCORP BANCSHARES, INC.
By: /s/ DON J. WANG
Date: August 14, 2000 Don J. Wang
Chairman of the Board and
Chief Executive Officer
Date: August 14, 2000 By: /s/ RUTH E. RANSOM
Ruth E. Ransom
Chief Financial Officer