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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 MARCH 31, 2001
[ ] 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 April 30, 2001, the number of outstanding shares of Common Stock, par
value $1.00 per share was 6,992,171.
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FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS.
METROCORP BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2001 2000
------------------ ------------------
(UNAUDITED)
ASSETS
Cash and cash equivalents:
Cash and due from banks.............................................. $ 60,821 $ 42,573
Federal funds sold and other temporary investments................... 19,667 49,653
--------- ---------
Total cash and cash equivalents................................... 80,488 92,226
Investment securities available-for-sale, at fair value............... 150,042 112,016
Investment securities held-to-maturity, at amortized cost............. - 31,743
Loans, net............................................................ 458,795 474,467
Premises and equipment, net........................................... 6,258 6,575
Accrued interest receivable........................................... 3,795 4,271
Deferred income taxes................................................. 5,300 5,797
Due from customers on acceptances..................................... 3,934 3,322
Other real estate and repossessed assets, net......................... 927 757
Other assets.......................................................... 5,129 5,583
-------- --------
Total assets...................................................... $714,668 $736,757
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing.................................................. $ 98,256 $107,924
Interest-bearing..................................................... 516,297 517,982
-------- --------
Total deposits.................................................... 614,553 625,906
Other borrowings...................................................... 25,382 25,573
Accrued interest payable.............................................. 1,268 1,816
Income taxes payable.................................................. 1,512 671
Acceptances outstanding............................................... 3,934 3,322
Other liabilities..................................................... 6,535 20,768
--------- --------
Total liabilities................................................. 653,184 678,056
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 shares authorized;
7,181,984 shares and 7,180,030 shares are issued and 6,981,484
and 6,979,530 shares are outstanding at March 31, 2001 and
December 31, 2000, respectively.................................... 7,182 7,180
Additional paid-in-capital........................................... 26,048 26,033
Retained earnings.................................................... 28,598 26,936
Accumulated other comprehensive income............................... 1,225 121
Treasury stock, at cost.............................................. (1,569) (1,569)
-------- --------
Total shareholders' equity........................................ 61,484 58,701
-------- --------
Total liabilities and shareholders' equity........................ $714,668 $736,757
======== ========
See accompanying notes to consolidated financial statements
1
METROCORP BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------------
2001 2000
---- ----
Interest income:
Loans......................................................... $12,019 $13,056
Investment securities:
Taxable..................................................... 2,174 1,615
Tax-exempt.................................................. 269 268
Federal funds sold and other temporary investments............ 601 231
------- -------
Total interest income...................................... 15,063 15,170
------- -------
Interest expense:
Time deposits................................................. 5,660 4,238
Demand and savings deposits................................... 1,178 1,063
Other borrowings.............................................. 312 740
------- -------
Total interest expense..................................... 7,150 6,041
------- -------
Net interest income............................................. 7,913 9,129
Provision for loan losses....................................... 427 699
------- -------
Net interest income after provision for loan losses............. 7,486 8,430
------- -------
Noninterest income:
Service charges............................................... 1,522 1,063
Other loan-related fees....................................... 200 174
Letters of credit commissions and fees........................ 165 125
Gain on sale of investment securities, net.................... 70 -
Other noninterest income...................................... 145 112
------- -------
Total noninterest income................................... 2,102 1,474
------- -------
Noninterest expense:
Employee compensation and benefits............................ 3,319 3,235
Occupancy..................................................... 1,366 1,436
Other real estate, net........................................ 7 (32)
Data processing............................................... 16 42
Professional fees............................................. 396 519
Advertising................................................... 114 96
Other noninterest expense..................................... 1,221 1,193
------- -------
Total noninterest expense.................................. 6,439 6,489
------- -------
Income before provision for income taxes........................ 3,149 3,415
Provision for income taxes...................................... 1,069 1,278
------- -------
Net income...................................................... $ 2,080 $ 2,137
======= =======
Earnings per common share:
Basic......................................................... $0.30 $0.30
Diluted....................................................... $0.30 $0.30
Weighted average shares outstanding:
Basic......................................................... 6,981 7,014
Diluted....................................................... 7,028 7,014
See accompanying notes to consolidated financial statements
2
METROCORP BANCSHARES, INC.
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------------
2001 2000
---- ----
Net income..................................................................... $2,080 $2,137
------ ------
Other comprehensive income, net of tax:
Unrealized gain (loss) on investment securities, net of tax:
Unrealized holding gain arising during the period............................ 1,104 384
Less: reclassification adjustment for gain (loss) included in net income..... - -
------ ------
Other comprehensive income..................................................... 1,104 384
------ ------
Total comprehensive income..................................................... $3,184 $2,521
====== ======
See accompanying notes to consolidated financial statements
3
METROCORP BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(IN THOUSANDS)
(UNAUDITED)
ACCUMULATED
COMMON STOCK ADDITIIONAL 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
Issuance of common stock.............. 1 1 2 - - - 3
Repurchase of common stock............ (153) - - - - (1,204) (1,204)
Other comprehensive income............ - - - - 384 - 384
Net income............................ - - - 2,137 - - 2,137
Dividend payment...................... - - - (418) - - (418)
----- ------ ------- ------- ------ ------- -------
Balance at March 31, 2000............. 6,950 $7,123 $25,648 $24,843 $ (2,761) $ (1,371) $ 53,482
===== ====== ======= ======= ======== ======== ========
ACCUMULATED
COMMON STOCK ADDITIIONAL OTHER TREASURY
----------------- PAID-IN RETAINED COMPREHENSIVE STOCK
SHARES AT PAR CAPITAL EARNINGS INCOME(LOSS) AT COST TOTAL
------- ------ ----------- -------- -------------- ------- -----
Balance at January 1, 2001............ 6,979 $7,180 $26,033 $26,936 $ 121 $(1,569) $58,701
Issuance of common stock.............. 2 2 14 - - - 16
Adjustment............................ - - 1 - - - 1
Other comprehensive income............ - - - - 1,104 - 1,104
Net income............................ - - - 2,080 - - 2,080
Dividend payment...................... - - - (418) - - (418)
----- ------ ------- ------- -------- ------- -------
Balance at March 31, 2001............. 6,981 $7,182 $26,048 $28,598 $ 1,225 $(1,569) $61,484
===== ====== ======= ======= ======== ======= =======
See accompanying notes to consolidated financial statements
4
METROCORP BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------------
2001 2000
---- ----
Cash flows from operating activities:
Net income............................................................... $ 2,080 $ 2,137
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation........................................................... 459 551
Provision for loan losses.............................................. 427 699
Gain on securities sales............................................... (70) -
Gain on sale of other real estate...................................... - (39)
Deferred loan fees..................................................... (79) 73
Deferred income taxes.................................................. (72) (315)
Changes in:
Accrued interest receivable........................................... 476 263
Accrued interest payable.............................................. (548) (694)
Income taxes payable.................................................. 841 1,361
Other liabilities..................................................... (14,805) 502
Other assets.......................................................... 454 372
-------- --------
Net cash provided by (used in) operating activities.................. (10,837) 4,910
-------- --------
Cash flows from investing activities:
Purchases of securities available-for-sale............................... (21,270) (5,058)
Proceeds from sales, maturities and principal paydowns of
securities available-for-sale.......................................... 16,730 869
Proceeds from maturities and principal paydowns of
securities held-to-maturity............................................ - 800
Net change in loans...................................................... 15,149 2,909
Proceeds from sale of other real estate.................................. 5 1,297
Purchases of premises and equipment...................................... (142) (175)
-------- --------
Net cash provided by investing activities............................. 10,472 642
-------- --------
Cash flows from financing activities:
Net change in:
Deposits............................................................... (11,353) 15,806
Other borrowings....................................................... 382 (100)
Proceeds from issuance of common stock................................... 17 3
Treasury stock purchased, net............................................ - (1,204)
Dividends paid........................................................... (419) (427)
-------- --------
Net cash provided by (used in) financing activities................... (11,373) 14,078
-------- --------
Net (decrease) increase in cash and cash equivalents....................... (11,738) 19,630
Cash and cash equivalents at beginning of period........................... 92,226 36,416
-------- --------
Cash and cash equivalents at end of period................................. $ 80,488 $ 56,046
======== ========
See accompanying notes to consolidated financial statements
5
METROCORP BANCSHARES, INC.
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 accounting principles generally accepted in the
United States of America 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 March 31, 2001, the Company's
consolidated results of operations for the three months ended March 31, 2001 and
2000, respectively, consolidated cash flows for the three months ended March 31,
2001 and 2000, respectively, and consolidated changes in shareholders' equity
for the three months ended March 31, 2001 and 2000, respectively. Interim
period results are not necessarily indicative of results of operations or cash
flows for a full-year period.
Certain amounts applicable to the prior periods have been reclassified to
conform to the classifications currently followed. Such reclassifications do
not affect earnings.
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, 2000.
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
ENDED MARCH 31,
--------------------
2001 2000
------ ------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Net income available to common shareholders..... $2,080 $2,137
====== ======
Weighted average common shares outstanding:
Basic......................................... 6,981 7,014
Diluted....................................... 7,028 7,014
Earnings per common share:
Basic......................................... $ 0.30 $ 0.30
Diluted....................................... $ 0.30 $ 0.30
3. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS 133, as amended, became
effective for reporting periods beginning after June 15, 2000, and was not to be
applied retroactively. In June 1999, FASB issued SFAS 137 that deferred the
effective date of adoption of SFAS 133 for
6
one year. This was followed in June 2000 by the issuance of SFAS 138, Accounting
for Certain Derivative Instruments and Certain Hedging Activities, which amended
SFAS 133. SFAS 133 establishes accounting and reporting standards for derivative
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 or losses) of a 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 a cash flow hedge,
or 3) hedge foreign currency exposure. The implementation of this pronouncement
on January 1, 2001 did not have a material effect on the Company's financial
statements, nor does management expect SFAS 133 to have a significant impact on
future operations.
In September 2000, FASB issued SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, which replaces
SFAS 125. The statement revises the standards for accounting for the
secutitization and other transfers of financial assets and collateral, and
requires certain disclosures, but carries over most of SFAS 125's provisions
without reconsideration. SFAS 140 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. Management believes that adopting these components of SFAS 140 will not
have a material impact on the Company's financial position or results of
operations. SFAS 140 must be applied prospectively.
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:
. Changes in interest rates and market prices, which could reduce the
Company's net interest margins, asset valuations and expense
expectations;
. Changes in the levels of loan prepayments and the resulting effects on
the value of the Company's loan portfolio;
. 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;
. Increased competition for deposits and loans adversely affecting rates
and terms;
. The Company's ability to identify suitable acquisition candidates;
. The timing, impact and other uncertainties of the Company's ability to
enter new markets successfully and capitalize on growth opportunities;
. 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;
. The failure of assumptions underlying the establishment of and
provisions made to the allowance for loan losses;
. Changes in the availability of funds resulting in increased costs or
reduced liquidity;
7
. Increased asset levels and changes in the composition of assets and the
resulting impact on our capital levels and regulatory capital ratios;
. The Company's ability to acquire, operate and maintain cost effective
and efficient systems without incurring unexpectedly difficult or
expensive but necessary technological changes;
. The loss of senior management or operating personnel and the potential
inability to hire qualified personnel at reasonable compensation
levels; and
. 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.
The Company undertakes no obligation to publicly update or otherwise revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. All written or oral forward-looking statements
attributable to the Company are expressly qualified in their entirety by these
cautionary statements.
General. Net income for the three months ended March 31, 2001 was $2.1
million, relatively unchanged compared with net income for same period in 2000.
In the first quarter 2001, the Federal Reserve lowered interest rates three
times totaling 150 basis points: 50 basis points at the beginning of January,
50 basis points at the end of January and 50 basis points in March. The
relatively flat net income for the first quarter 2001, compared with the first
quarter 2000, was due, in part, to lowered loan volumes as a result of loan
prepayments and a decrease in interest rates. This was partially offset by
increased investment income due to increased volume in the investment portfolio.
Interest-bearing deposits increased significantly incurring greater interest
expense while noninterest income improved and noninterest expense remained
basically unchanged. The Company's basic and diluted EPS for the three months
ended March 31, 2001 was $0.30, or unchanged from $0.30 per share reported for
the same quarter in 2000.
At March 31, 2001, total assets and net loans were $714.7 million and
$458.8 million, respectively, compared with $736.8 million and $474.5 million,
respectively, at December 31, 2000. The $22.1 million or 3.0% decrease in total
assets in the first quarter 2001 was attributable to decreased net loan balances
of $15.7 million, decreased cash and cash equivalents of $11.7 million, offset
by increased investment securities and other assets of $5.3 million. The
decrease in net loans was primarily due to loan prepayments. The decrease in
cash and cash equivalents, which includes overnight Federal funds sold, for the
first quarter 2001 was the effect of new deposit growth offset by $20.0 million
in CD's called as part of two interest rate swap contracts initiated in 1999.
Total liabilities and total deposits at March 31, 2001 were $653.2 million and
$614.6 million, respectively, compared with $678.1 million and $625.9 million,
respectively, at December 31, 2000. The $11.3 million or 1.8% decrease in
deposits over the three month period ended March 31, 2001 was primarily due to a
$9.7 million decrease in noninterest-bearing demand deposits and the $20.0
million in called CD's, offset by interest-bearing deposit growth of $18.4
million. While total deposits decreased over the first quarter 2001, interest-
bearing deposit growth was still recognized, which is a result of the continued
efforts on the "total relationship banking" initiatives. This has had a
positive impact on liquidity and has allowed the Company to continue funding
loans from internally-generated deposits.
Shareholders' equity at March 31, 2001 was $61.5 million compared with
$58.7 million at December 31, 2000, an increase of $2.8 million or 4.7%. The
increase is primarily due to net income and a gain on securities offset by a
dividend payment of $418,000. The unrealized gain on securities was a market
value gain in the available-for-sale bond portfolio as a result of lower market
interest rates. The Company's return on average assets for the first quarter
2001 was 1.17% versus 1.29% for the same quarter in 2000. The return on average
shareholders' equity was 13.97% for the first quarter of 2001, down from 16.31%
for the same quarter in 2000. The decreased performance ratios are primarily
the result of a decrease in interest income combined with an increase in
interest-bearing deposits that incurred greater interest expense.
8
Net Interest Income. For the three months ended March 31, 2001, net
interest income, before the provision for loan losses, decreased by $1.2 million
or 13.3% to $7.9 million from $9.1 million for the same period in 2000. The
decrease in net interest income for the first quarter of 2001, compared with the
first quarter of 2000, was due to the combination of a decrease in loan volumes,
a decrease in rates on loans and investments and growth in interest-bearing
deposits that incurred greater interest expense. For the quarters ended March
31, 2001 and 2000, the net interest margin narrowed 114 basis points to 4.77%
from 5.91%, respectively. The narrowing of the net interest margin was the
combined result of lower loan volumes repricing as the market "prime rate"
moves, offset by increased interest-bearing deposit volumes repricing on a
contractual basis rather than monthly. Pressure was felt in the net interest
margin as declining interest rates brought down the yields on the loan and
investment portfolios faster than the contractual rates paid for interest-
bearing deposits changed, further compressing the net interest margin.
Interest income for the three months ended March 31, 2001 decreased
slightly by 0.7% to $15.1 million from $15.2 million for the same period in
2000. The decrease was due primarily to lower market interest rates and
decreased loan volume as a result of prepayments. The loan portfolio is
weighted toward variable rate loans that reprice as the market "prime rate"
moves and is therefore sensitive to interest rate movement. The average prime
rate in the first quarter 2001 was 8.67% compared to 8.75% in the first quarter
2000. At March 31, 2001 the prime rate was 8.50% compared to 9.00% at March 31,
2000. Interest income from loans for the first quarter 2001 was $12.0 million,
down $1.1 million or 7.9% from $13.1 million in the first quarter 2000 primarily
due to loan prepayments. The average yield on average total loans of $475.2
million in the first quarter 2001 was 10.12% compared to the same period last
year with average total loans of $492.5 million with an average yield of 10.60%,
a volume and yield decrease of $17.3 million and 48 basis points, respectively.
Interest income from investments for the first quarter 2001 was $3.0 million, up
$0.9 million or 44.0% from $2.1 million in the first quarter 2000 primarily due
to an increase in investments. In the first quarter 2001, the average yield on
average total investments of $197.8 million was 6.15% compared to the same
quarter last year with average total investments of $125.3 million at 6.75%, an
increase in volume and a decrease in yield of $72.5 million and 60 basis points,
respectively. For the first quarter 2001, total earning assets averaged $673.0
million with an average yield of 9.08% compared to $617.8 million with an
average yield of 9.82% for the first quarter 2000, an increase in average volume
of $55.2 million and a decrease in average yield of 74 basis points.
Interest expense for the three months ended March 31, 2001 increased by
$1.1 million or 18.4% to $7.1 million compared with $6.0 million for the same
period in 2000. Included in total interest expense is interest expense paid on
borrowed funds which was $312,000 for the first quarter 2001 compared with
$740,000 for the first quarter 2000, a decrease of $428,000 or 57.8%. The
decrease was primarily due to the repayment of a $25.0 million Federal Home Loan
Bank ("FHLB") loan in the third quarter 2000. The overall increased interest
expense in the first quarter 2001 compared to the first quarter 2000 was the
result of higher interest-bearing deposit volumes coupled with contractually
higher interest rates paid. The higher interest paid in 2001 was due to the
interest-bearing deposit growth that occurred in the year 2000 while market
rates were at a cyclical high. Typically, interest-bearing time deposits are
contracted with terms of six months to one year. Therefore, when market rates
decline, the average rates paid for interest-bearing deposits generally decline
at a slower pace. Average interest-bearing deposits for the first quarter 2001
were $519.5 million compared with average interest-bearing deposits for the
first quarter 2000 of $449.9 million, an increase of $69.6 million or 15.5%.
The average rate paid for these deposits also increased, by 56 basis points, to
5.27% for the first quarter 2001, compared to 4.71% for the first quarter 2000.
The Company views its time deposits as a stable means of supporting loan growth.
The Company believes, based on its historical experience, that its large time
deposits have core-type characteristics and the Company continues to anticipate
that this source of funding will continue to sustain a substantial portion of
the Company's asset growth in the future.
9
The following table presents 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. 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 MARCH 31,
-------------------------------------------------------------------
2001 2000
-------------------------------- -----------------------------
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......................................... $475,193 $12,019 10.12% $492,472 $13,056 10.60%
Taxable securities.................................. 130,016 2,174 6.69% 91,100 1,615 7.09%
Tax-exempt securities............................... 20,873 269 5.15% 21,653 268 4.95%
Federal funds sold and other temporary investments.. 46,958 601 5.12% 12,561 231 7.36%
-------- ------- -------- -------
Total interest-earning assets..................... 673,040 15,063 9.08% 617,786 15,170 9.82%
Less allowance for loan losses...................... (9,271) (7,870)
-------- --------
Total interest-earning assets, net of allowance for
loan losses......................................... 663,769 609,916
Noninterest-earning assets............................ 55,416 56,376
-------- --------
Total assets...................................... $719,185 $666,292
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Interest-bearing liabilities:
Interest-bearing demand deposits.................... $ 49,429 $ 368 3.02% $ 41,076 $ 308 3.00%
Saving and money market deposits.................... 96,050 810 3.42% 93,459 755 3.23%
Time deposits....................................... 373,979 5,660 6.14% 315,376 4,238 5.38%
Federal funds purchased and securities sold under
repurchase agreements.............................. - - - 47 1 5.99%
Other borrowings.................................... 25,823 312 4.83% 55,561 739 5.32%
-------- ------- -------- -------
Total interest-bearing liabilities................ 545,281 7,150 5.32% 505,519 6,041 4.78%
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits................. 102,706 97,602
Other liabilities................................... 10,812 10,463
-------- --------
Total liabilities................................. 658,799 613,584
Shareholders' equity.................................. 60,386 52,708
-------- --------
Total liabilities and shareholders' equity........ $719,185 $666,292
========= ========
Net interest income................................... $ 7,912 $ 9,129
======= =======
Net interest spread................................... 3.76% 5.04%
Net interest margin................................... 4.77% 5.91%
10
The following table presents 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 month
period ended March 31, 2001 compared with the three month period ended March 31,
2000. For purposes of these tables, changes attributable to both rate and
volume have been allocated to rate.
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------
2001 VS 2000
----------------------------------------------------
INCREASE (DECREASE)
DUE TO
-----------------------------------
VOLUME RATE TOTAL
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans.............................................................. $ 1,279 $(2,316) $(1,037)
Securities......................................................... 860 (300) 560
Federal funds sold and other temporary investments................. 1,422 (1,052) 370
------- ------- -------
Total increase (decrease) in interest income................. 3,561 (3,668) (107)
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits................................... 50 10 60
Saving and money market deposits................................... (124) 179 55
Time deposits...................................................... (1,431) 2,853 1,422
Federal funds purchased............................................ (1) - (1)
Other borrowings................................................... (301) (126) (427)
------- ------ -------
Total increase (decrease) in interest expense................ (1,807) 2,916 1,109
------- ------ -------
Increase (decrease) in net interest income........................... $ 5,368 $(6,584) $(1,216)
======= ======= =======
Provision for Loan Losses. Provisions for loan losses are charged to
income to bring the Company's allowance for loan losses to a level which
management considers adequate to absorb probable losses inherent in the loan
portfolio. For the three months ended March 31, 2001, the provision for loan
losses was $427,000 compared to $699,000 for the three months ended March 31,
2000, down $272,000 or 38.9% primarily due to a higher balance in the allowance
for loan losses. The allowance for loan losses at March 31, 2001 was $9.3
million, compared with $8.3 million at March 31, 2000. At March 31, 2001, the
ratio of the allowance for loan losses to total loans was 1.99% compared with
1.70% at March 31, 2000. As of March 31, 2001, management believed the
allowance for loan losses to be adequate to absorb probable losses inherent in
the loan portfolio.
Noninterest Income. Total noninterest income for the three months ended
March 31, 2001 was $2.1 million, up $628,000 or 42.6% from the same quarter in
2000. This was the result of increased deposit volumes and the Company's
efforts to maximize fee income. The effects of the improvements made were
primarily in the category of "service charges" which include the collection of
bank services fees in addition to the customary monthly service charges and NSF
fees on deposit accounts. For the three months ended March 31, 2001 and 2000,
such service charges were $1.5 million and $1.1 million, respectively, and
represented 72.4% and 72.1% of total noninterest income. For the three months
ended March 31, 2001 and 2000, all other noninterest income was $580,000 and
$411,000, respectively, and represented 27.6% and 27.9% of total noninterest
income.
11
The following table presents, for the periods indicated, the categories of
noninterest income:
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------------
2001 2000
---- ----
(DOLLARS IN THOUSANDS)
Service charges....................................... $1,522 $1,063
Other loan-related fees............................... 200 174
Letters of credit commissions and fees................ 165 125
Gain on sale of investment securities, net............ 70 -
Other noninterest income.............................. 145 112
------ ------
Total noninterest income............................ $2,102 $1,474
====== ======
Noninterest Expense. For the three months ended March 31, 2001,
noninterest expense decreased slightly by $50,000 or 0.77% to $6.4 million
compared with $6.5 million for the same quarter in 2000. The decrease in total
noninterest expense for the first quarter 2001 was a combination of decreased
non-staff expense of $134,000 and increased employee compensation and benefits
expense of $84,000. The Company's quarterly average for noninterest expense in
the year 2000 was $6.8 million reflecting higher legal and professional fees due
to the factored receivables charge-off. Compared to the quarterly average in
the year 2000, total noninterest expense decreased $400,000 in the first quarter
2001. The Company's efficiency ratio, however, softened over the three month
period ended March 31, 2001, compared to the same period in 2000, to 64.29% from
61.20%, respectively.
The following table presents, for the periods indicated, the major
categories in noninterest expense:
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------------
2001 2000
---- ----
(DOLLARS IN THOUSANDS)
Employee compensation and benefits............... $3,319 $3,235
Non-staff expenses:
Occupancy....................................... 1,366 1,436
Other real estate, net.......................... 7 (32)
Data processing................................. 16 42
Professional fees............................... 396 519
Advertising..................................... 114 96
Director compensation........................... 98 124
Printing and supplies........................... 107 93
Telecommunications.............................. 171 141
Other noninterest expense....................... 845 835
------ ------
Total non-staff expenses....................... 3,120 3,254
------ ------
Total noninterest expenses..................... $6,439 $6,489
====== ======
Employee compensation and benefits expenses represented 51.5% and 49.8% of
total noninterest expense for the three months ended March 31, 2001 and 2000,
respectively. Employee compensation and benefits expense for the quarters ended
March 31, 2001 and 2000 were $3.3 million and $3.2 million, respectively, an
increase of $84,000 or 2.6%. The increase for the first quarter 2001 was
primarily due to salary increases. Full-time equivalent (FTE) employees at
March 31, 2001 and 2000 were 306.6 and 309.4, respectively.
For the three months ended March 31, 2001, non-staff expenses decreased by
$134,000 or 4.1% compared
12
with the same quarter in 2000. The decrease in non-staff expenses for the first
quarter ended 2001 resulted primarily from decreased professional fees and the
closing of the Bank's Galleria branch in November 2000. Professional fees were
down from the first quarter 2000 by $123,000 and down from the fourth quarter
2000 by $233,000.
Financial Condition
Loan Portfolio. Total loans decreased by $15.6 million or 3.2%, from
$483.7 million at December 31, 2000 to $468.1 million at March 31, 2001. The
decrease was primarily the result of loan prepayments. Historically, the first
quarter is the Bank's slowest time of year in terms of loan growth. At March
31, 2001 and December 31, 2000, the ratio of total loans to total deposits was
76.2% and 77.3%, respectively. For the same periods, total loans represented
65.5% and 65.7% of total assets, respectively.
The following table summarizes the loan portfolio of the Company by type of
loan:
AS OF MARCH 31, 2001 AS OF DECEMBER 31, 2000
--------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
Commercial and industrial............................................. $282,822 59.70% $298,134 60.92%
Real estate mortgage:
Residential..................................................... 9,064 1.91 10,141 2.07
Commercial...................................................... 136,103 28.73 128,242 26.20
Real estate construction:
Residential..................................................... 7,079 1.49 7,542 1.54
Commercial...................................................... 27,956 5.90 32,059 6.55
Consumer and other.................................................... 10,685 2.26 11,986 2.45
Factored receivables.................................................. - - 1,297 0.27
-------- ------ -------- ------
Gross loans........................................................... 473,709 100.00% 489,401 100.00%
====== ======
Less: unearned discounts, interest and deferred fees............ (5,584) (5,663)
-------- --------
Total loans........................................................... 468,125 483,738
Less: allowance for loan losses................................. (9,330) (9,271)
-------- --------
Loans, net............................................................ $458,795 $474,467
======== ========
Nonperforming Assets. Net nonperforming assets at March 31, 2001 and
December 31, 2000 were $2.9 million and $1.9 million, respectively. The
increase of $1.0 million, or 48.0%, resulted from two loans that moved into
workout. These figures are net of the loan portions guaranteed by 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 United States Government, and the Overseas Chinese Community
Guaranty Fund ("OCCGF"), an agency sponsored by the government of Taiwan, which
were $1.5 million at March 31, 2001 and $1.0 million at December 31, 2000. The
ratios for net nonperforming assets to total loans and other real estate were
0.61% and 0.40%, for March 31, 2001 and December 31, 2000, respectively. The
ratios for net nonperforming assets to total assets were 0.40% and 0.26%, for
the same periods, 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 nonperforming 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 AS OF
MARCH 31, 2001 DECEMBER 31, 2000
-------------- -----------------
(DOLLARS IN THOUSANDS)
Nonaccrual loans $3,389 $2,225
Accruing loans 90 days or more past due .......................................... - -
Other real estate................................................................. 871 696
Other assets repossessed.......................................................... 56 61
------ ------
Total nonperforming assets.................................................. 4,316 2,982
Less:
Nonperforming loans guaranteed by the SBA, Ex-Im Bank
and OCCGF................................................................. 1,455 1,049
------ ------
Total net nonperforming assets.............................................. $2,861 $1,933
====== ======
Nonperforming assets to total assets.............................................. 0.60% 0.40%
Nonperforming assets to total loans and other real estate......................... 0.92% 0.62%
Net nonperforming assets to total assets (1)...................................... 0.40% 0.26%
Net nonperforming assets to total loans and other real estate (1)................. 0.61% 0.40%
___________
(1) Net nonperforming assets are net of the loan portions guaranteed by the
SBA, Ex-Im Bank and OCCGF.
Allowance for Loan Losses. For the three months ended March 31, 2001, net
loan charge-offs were $368,000 or 0.08% of average loans outstanding compared
with $5.8 million or 1.19% for the year ended December 31, 2000. The Company
seeks recovery of charge-offs through all available channels. The Company
continues working to further strengthen its credit administration systems and
loan review procedures. At both March 31, 2001 and December 31, 2000, the
allowance for loan losses aggregated $9.3 million, or 1.99% and 1.92% of total
loans, respectively.
The following table presents an analysis of the allowance for loan losses
and other related data:
AS OF AS OF
MARCH 31, 2001 DECEMBER 31, 2000
-------------- -----------------
(DOLLARS IN THOUSANDS)
Average year-to-date total loans outstanding.................. $475,193 $486,549
======== ========
Total loans outstanding at end of period...................... $468,125 $483,738
======== ========
Allowance for loan losses at beginning of period.............. $ 9,271 $ 7,537
Provision for loan losses..................................... 427 7,508
Charge-offs:
Commercial and industrial............................... (348) (1,479)
Real estate - mortgage.................................. - (23)
Real estate - construction.............................. - -
Consumer and other...................................... (58) (5,524)
-------- --------
Total charge-offs....................................... (406) (7,026)
-------- --------
Recoveries:
Commercial and industrial............................... 7 901
Real estate - mortgage.................................. 11 8
Real estate - construction.............................. - -
Consumer and other...................................... 20 343
-------- --------
Total recoveries........................................ 38 1,252
-------- --------
Net loan charge-offs.......................................... (368) (5,774)
-------- --------
Allowance for loan losses at end of period.................... $ 9,330 $ 9,271
======== ========
Ratio of allowance to end of period total loans............... 1.99% 1.92%
Ratio of net loan charge-offs to average total loans.......... 0.08% 1.19%
Ratio of allowance to end of period non-performing loans...... 275.30% 416.67%
14
Securities. At March 31, 2001, the securities portfolio totaled $150.0
million, reflecting an increase of $6.3 million or 4.4% from $143.8 million at
December 31, 2000. While loan growth slowed in the first quarter 2001, the
Company's liquidity was invested in securities. The securities portfolio is
primarily comprised of mortgage-backed securities, collateralized mortgage
obligations, tax-free municipal bonds, and U.S. government agency securities.
The securities portfolio has been funded by the liquidity created from deposit
growth in excess of loan funding requirements. Effective January 1, 2001, the
Company adopted SFAS 133, which allowed for a one-time transfer of investment
securities between the held-to-maturity and available-for-sale categories. The
Company reclassified its "held-to-maturity" investment portfolio to the
"available-for-sale" category which has provided greater flexibility in the
ongoing management of the Company's liquidity.
Deposits. At March 31, 2001, total deposits were $614.6 million, down
$11.3 million or 1.8% from $625.9 million at December 31, 2000. Noninterest-
bearing deposits at March 31, 2001 decreased by $9.7 million or 9.0% to $98.3
million from $107.9 million at December 31, 2000. Interest-bearing deposits at
March 31, 2001 decreased by $1.7 million or 0.3% to $516.3 million from $518.0
million at December 31, 2000. The Company's ratios of noninterest-bearing
demand deposits to total deposits at March 31, 2001 and December 31, 2000 were
16.0% and 17.2%, respectively. The $1.7 million decrease in interest-bearing
deposits for the first quarter 2001 was the net effect of a decrease of $20.0
million in CD's which were called as a result of two called interest rate swap
contracts and an $18.3 million increase in interest-bearing deposits.
Other Borrowings. The Company has two ten year loans totaling $25.0
million from the FHLB to further leverage its balance sheet and diversify its
funding sources. The Company has an additional unused, unsecured line of credit
with the FHLB totaling $50.0 million. The ten year loans bear interest at an
average rate of 4.99% per annum until the fifth year anniversary of the loans,
September 2003, at which time the loans may be repaid or the interest rate may
be renegotiated. 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 $5.0 million at March 31, 2001 and December 31,
2000.
Capital Resources. Shareholders' equity increased from $58.7 million at
December 31, 2000 to $61.5 million at March 31, 2001, an increase of $2.8
million or 4.7%. The increase was primarily due to net income of $2.1 million,
an unrealized gain on securities of $1.1 million offset by a dividend payment of
$418,000.
The following table provides a comparison of the Company's and the Bank's
leverage and risk-weighted capital ratios as of March 31, 2001 to the minimum
and well-capitalized regulatory standards:
MINUMUM TO BE WELL
REQUIRED FOR CAPITALIZED UNDER
CAPITAL ADEQUACY PROMPT CORRECTIVE ACTUAL RATIO AT
PURPOSES ACTION PROVISIONS MARCH 31, 2001
----------------- ----------------- ----------------
THE COMPANY
Leverage ratio......................... 4.00%(1) N/A 8.38%
Tier 1 risk-based capital ratio........ 4.00 N/A 12.38
Risk-based capital ratio............... 8.00 N/A 13.64
THE BANK
Leverage ratio......................... 4.00%(2) 5.00% 8.01%
Tier 1 risk-based capital ratio........ 4.00 8.00 11.82
Risk-based capital ratio............... 8.00 10.00 13.08
_________________
(1) The Federal Reserve Board may require the Company to maintain a leverage
ratio above the required minimum.
(2) The OCC may require the Bank to maintain a leverage ratio above the required
minimum.
15
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,
2000. See Form 10-K, Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition - Interest Rate
Sensitivity and Liquidity."
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
Not applicable
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 Interim Consolidated Financial Statements on Page 6 of this
Form 10-Q.
ITEM 6B. REPORTS ON FORM 8-K
Not applicable
16
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: May 15, 2001 Don J. Wang
Chairman of the Board and President
(principal executive officer)
Date: May 15, 2001 By: /s/ Ruth E. Ransom
------------------------------------
Ruth E. Ransom
Chief Financial Officer and Senior Vice
President (principal financial officer
and principal accounting officer)
17