U.S. Securities and Exchange Commission
Washington D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2002.
Commission file number: 0-23790
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MetroBanCorp
- ------------
(Exact name of small business issuer as specified in its charter)
Indiana 35-1712167
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10333 N. Meridian Street, Suite 111, Indianapolis, Indiana 46290
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(317) 573-2400
- --------------
(Issuer's telephone number)
http://www.metb.com
-------------------
(Issuer's Internet Website Address)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date August 12, 2002:
2,056,837 Shares of Common Stock
- --------------------------------
Transitional Small Business Disclosure Format:
Yes No X
--- ---
MetroBanCorp
FORM 10-QSB
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Condition
June 30, 2002 and December 31, 2001 3
Consolidated Statements of Operations and Comprehensive Income
Three Months Ended June 30, 2002 and 2001 4
Consolidated Statements of Operations and Comprehensive Income
Six Months Ended June 30, 2002 and 2001 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2002 and 2001 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Under Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
Page 2 of 20
MetroBanCorp
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Condition
(dollars in thousands)
(unaudited)
06/30/02 12/31/01
--------- ---------
Assets
Cash and Due from Banks $ 21,775 $ 28,955
Securities Held to Maturity
(Fair Value: 2002 - $3,304 and 2001 - $3,272) 3,202 3,204
Securities Available for Sale 28,573 34,029
--------- ---------
Total Securities 31,775 37,233
Loans held for sale 73 2,018
Loans, net of allowance of $1,463 and $1,457, respectively 116,992 112,325
Premises and Equipment, net 1,193 1,168
Accrued Interest Receivable and Other Assets 1,945 2,286
--------- ---------
Total Assets $ 173,753 $ 183,985
========= =========
Liabilities
Deposits:
Non-Interest Bearing $ 31,672 $ 37,341
Interest Bearing 103,904 105,177
--------- ---------
Total Deposits 135,576 142,518
Repurchase Agreements 11,760 17,544
Other Borrowings 9,000 7,000
Accrued Interest Payable and Other Liabilities 2,075 1,993
--------- ---------
Total Liabilities 158,411 169,055
--------- ---------
Shareholders' Equity
Preferred Stock: 1,000,000 shares authorized; none outstanding -- --
Common Stock: no par value, 3,000,000 shares authorized; 2,107,888 and
2,107,453 issued; 2,063,418 and 2,064,823 outstanding,
respectively 14,971 14,968
Treasury Stock, 44,470 and 42,630 shares, at cost (256) (238)
Retained Earnings/(Accumulated Deficit) 343 (81)
Accumulated Other Comprehensive Income 284 281
--------- ---------
Total Shareholders' Equity 15,342 14,930
--------- ---------
Total Liabilities and Shareholders' Equity $ 173,753 $ 183,985
========= =========
See accompanying notes.
Page 3 of 20
MetroBanCorp
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations and Comprehensive Income
(unaudited)
(dollars in thousands, except per share data)
Three Months Ended
------------------------
06/30/02 06/30/01
---------- ----------
Interest Income
Loans, including related fees $ 2,172 $ 2,593
Securities 443 668
Other -- 1
---------- ----------
Total Interest Income 2,615 3,262
Interest Expense
Deposits 622 1,235
Other 93 180
---------- ----------
Total Interest Expense 715 1,415
---------- ----------
Net Interest Income 1,900 1,847
---------- ----------
Provision for Loan Losses 93 60
---------- ----------
Net Interest Income after Provision for Loan Losses 1,807 1,787
---------- ----------
Non-Interest Income
Service Charges on Deposit Accounts 158 154
Securities Gains 14 --
ATM Fee Income 97 97
Other Service Charges, Commissions and Fees 67 133
---------- ----------
Total Non-Interest Income 336 384
Non-Interest Expense
Salaries and Employee Benefits 825 717
Occupancy, net 127 132
Equipment 72 96
Advertising and Public Relations 50 55
Legal and Professional 56 83
Data Processing 107 104
Other 303 326
---------- ----------
Total Non-Interest Expense 1,540 1,513
---------- ----------
Income Before Income Taxes 603 658
Provision for Income Taxes 229 250
---------- ----------
Net Income $ 374 $ 408
========== ==========
Comprehensive Income $ 548 $ 537
========== ==========
Basic net income per common share $ 0.18 $ 0.19
Diluted net income per common share $ 0.17 $ 0.19
Weighted Average Shares Outstanding 2,064,022 2,128,203
Weighted Average Shares Outstanding - Assuming Dilution 2,226,080 2,193,924
See accompanying notes.
Page 4 of 20
MetroBanCorp
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations and Comprehensive Income
(unaudited)
(dollars in thousands, except per share data)
Six Months Ended
------------------------
06/30/02 06/30/01
---------- ----------
Interest Income
Loans, including related fees $ 4,340 $ 5,129
Securities 941 1,376
Other -- 5
---------- ----------
Total Interest Income 5,281 6,510
Interest Expense
Deposits 1,330 2,595
Other 192 352
---------- ----------
Total Interest Expense 1,522 2,947
---------- ----------
Net Interest Income 3,759 3,563
---------- ----------
Provision for Loan Losses 185 111
---------- ----------
Net Interest Income after Provision for Loan Losses 3,574 3,452
---------- ----------
Non-Interest Income
Service Charges on Deposit Accounts 300 291
Securities Gains 71 --
ATM Fee Income 180 195
Other Service Charges, Commissions and Fees 141 237
---------- ----------
Total Non-Interest Income 692 723
Non-Interest Expense
Salaries and Employee Benefits 1,589 1,400
Occupancy, net 252 266
Equipment 153 194
Advertising and Public Relations 104 114
Legal and Professional 128 143
Data Processing 211 209
Other 635 647
---------- ----------
Total Non-Interest Expense 3,072 2,973
---------- ----------
Income Before Income Taxes 1,194 1,202
Provision for Income Taxes 454 455
---------- ----------
Net Income $ 740 $ 747
========== ==========
Comprehensive Income $ 743 $ 1,191
========== ==========
Basic net income per common share $ 0.36 $ 0.35
Diluted net income per common share $ 0.34 $ 0.34
Weighted Average Shares Outstanding 2,064,554 2,134,211
Weighted Average Shares Outstanding - Assuming Dilution 2,204,571 2,198,949
See accompanying notes.
Page 5 of 20
MetroBanCorp
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Cash Flows
(unaudited)
(dollars in thousands)
Six Months Ended
---------------------
06/30/02 06/30/01
-------- --------
Operating Activities:
Net Income $ 740 $ 747
Adjustments to Reconcile Net Income to Cash Provided by
Operating Activities:
Provision for Loan Losses 185 111
Depreciation and Amortization 132 184
Net Amortization on Securities (122) 38
Gain on Sale of Securities (71) --
Change in Accrued Interest Receivable and Other Assets 339 117
Change in Accrued Interest Payable and Other Liabilities 83 114
Change in Loans Held for Sale 1,945 (272)
-------- --------
Total Adjustments 2,491 292
-------- --------
Net Cash Provided by Operating Activities 3,231 1,039
-------- --------
Investing Activities:
Proceeds from Maturities and Paydowns of Securities Available for Sale 6,475 3,971
Proceeds from Sales of Securities Available for Sale 7,632 5,998
Purchases of Securities Available for Sale (8,452) (11,427)
Proceeds from the Repayment of Student Loans 382 158
Net Loans Made to Customers (5,234) (12,531)
Purchases of Premises and Equipment, net (157) (92)
-------- --------
Net Cash Provided by (Used in) Investing Activities 646 (13,923)
-------- --------
Financing Activities:
Change in Deposits (6,942) (41)
Change in Fed Funds Purchased -- 3,400
Change in Repurchase Agreements (5,784) 3,798
Change in FHLB Advances 2,000 --
Cash Dividends Paid (316) (286)
Purchase of Treasury Stock (18) --
Issuance of Common Stock 5 37
Repurchase of Common Stock and Fractional Shares (2) (352)
-------- --------
Net Cash Provided by (Used in) Financing Activities (11,057) 6,556
-------- --------
Net Decrease in Cash and Cash Equivalents (7,180) (6,328)
Cash and Cash Equivalents at Beginning of Period 28,955 22,192
-------- --------
Cash and Cash Equivalents at End of Period $ 21,775 $ 15,864
======== ========
See accompanying notes.
Page 6 of 20
MetroBanCorp
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
1. Basis of Presentation
---------------------
The consolidated financial statements include the accounts of
MetroBanCorp and its wholly-owned affiliate, MetroBank ("Bank")
(together, "Metro"). All significant intercompany transactions and
balances have been eliminated.
In the opinion of management of Metro, the consolidated financial
statements contain all the normal and recurring adjustments
necessary to present fairly the consolidated financial condition of
Metro as of June 30, 2002 and December 31, 2001, and the results of
its operations and cash flows for the periods ended June 30, 2002
and 2001.
These financial statements should be read in conjunction with
Metro's latest Annual Report on Form 10-KSB for the year ending
December 31, 2001.
2. Comprehensive Income
--------------------
Comprehensive Income is defined as the change in equity of a
business enterprise during a period from transactions and other
events and circumstances from non-owner sources. It includes all
changes in equity during a period, except those resulting from
investment by owners and distributions to owners. In Metro's case,
comprehensive income includes net income and the change in
unrealized gains and losses on available for sale securities.
3. Per Share Data
--------------
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during each
period. Diluted earnings per share is computed the same, except that
the denominator is increased to include the number of additional
common shares that would have been outstanding if the dilutive
potential common shares (stock options) had been issued. Below is a
table reconciling basic earnings per share and diluted earnings per
share:
For the Three Months Ended June 30,
2002 2001
---------- ----------
Basic
Net income $ 374 $ 408
========== ==========
Weighted average common shares outstanding 2,064,022 2,128,203
Basic earnings per common share $ 0.18 $ 0.19
========== ==========
Diluted
Net income $ 374 $ 408
========== ==========
Weighted average common shares outstanding for basic
earnings per common share 2,064,022 2,128,203
Add: Dilutive effects of assumed exercises of stock
options 162,058 65,721
---------- ----------
Average shares and dilutive potential common shares 2,226,080 2,193,924
========== ==========
Diluted earnings per common share $ 0.17 $ 0.19
========== ==========
Page 7 of 20
For the Six Months Ended June 30,
2002 2001
---------- ----------
Basic
Net income $ 740 $ 747
========== ==========
Weighted average common shares outstanding 2,064,554 2,134,211
Basic earnings per common share $ 0.36 $ 0.35
========== ==========
Diluted
Net income $ 740 $ 747
========== ==========
Weighted average common shares outstanding for basic
earnings per common share 2,064,554 2,134,211
Add: Dilutive effects of assumed exercises of stock
options 140,017 64,739
---------- ----------
Average shares and dilutive potential common shares 2,204,571 2,198,949
========== ==========
Diluted earnings per common share $ 0.34 $ 0.34
========== ==========
4. New Accounting Pronouncements
-----------------------------
Beginning January 1, 2001, a new accounting standard required all
derivatives to be recorded at fair value. Unless designated as
hedges, changes in these fair values are recorded in the income
statement. Fair value changes involving hedges are generally
recorded by offsetting gains and losses on the hedge and on the
hedged item, even if the fair value of the hedged item is not
otherwise recorded. Adoption of this pronouncement did not have a
material effect on Metro's financial results.
On January 1, 2002, new accounting guidelines revised the accounting
for goodwill and intangible assets. Intangible assets with
indefinite lives and goodwill will no longer be amortized, but will
periodically be reviewed for impairment and written down if
impaired. Additional disclosures about intangible assets and
goodwill may be required. Adoption of this standard in 2002 did not
have an impact on the financial statements as the Company does not
currently have any intangible assets.
Effective January 1, 2002, the Company adopted a new accounting
standard on impairment and disposal of long-lived assets. The effect
of this new standard was not material to the financial statements.
New accounting standards will apply for 2003 regarding asset
retirement obligations, debt extinguishment and certain lease
modifications, and activity exit costs. Management does not believe
these standards will have a material effect on the Corporation's
financial statements, but the effects will depend on the existence
of applicable activities at the effective date of the standards.
Page 8 of 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The following discussion is presented to provide information concerning the
consolidated financial condition of MetroBanCorp and its wholly-owned affiliate,
MetroBank ("Bank") (together, "Metro") as of June 30, 2002 as compared to
December 31, 2001, and the results of operations for the three and six month
periods ending June 30, 2002 and 2001.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This discussion contains certain forward-looking statements that are subject to
risks and uncertainties and includes information about possible or assumed
future results of operations. Many possible events or factors could affect
Metro's future financial results and performance. This could cause results or
performance to differ materially from those expressed in any forward-looking
statements. Words such as "expects", "anticipates", "believes", "estimates",
variations of such words and other similar expressions are intended to identify
such forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions which are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in, or implied by, such
forward-looking statements. Readers should not rely solely on the
forward-looking statements and should consider all uncertainties and risks
discussed throughout this discussion. These statements are representative only
on the date hereof.
The possible events or factors include the following: the Bank's loan growth is
dependent on economic conditions, as well as various discretionary factors, such
as decisions to securitize, sell or purchase certain loans or loan portfolios;
syndications or participations of loans; retention of residential mortgage
loans; and the management of borrower, industry, product and geographic
concentrations and the mix of the loan portfolio. The rate of charge-offs and
provision expense can be affected by local, regional and international economic
and market conditions, concentrations of borrowers, industries, products and
geographic locations, the mix of the loan portfolio and management's judgments
regarding the collectibility of loans. Liquidity requirements may change as a
result of fluctuations in assets and liabilities and off-balance sheet
exposures, which will impact our capital and debt financing needs and the mix of
funding sources. Decisions to purchase, hold or sell securities are also
dependent on liquidity requirements and market volatility, as well as on- and
off-balance sheet positions. Factors that may impact interest rate risk include
local, regional and international economic conditions, levels, mix, maturities,
yields or rates of assets and liabilities, utilization and effectiveness of
interest rate contracts and Metro's wholesale and retail funding sources. Metro
is also exposed to the potential of losses arising from adverse changes in
market rates and prices which can adversely impact the value of financial
products, including securities, loans, deposits, debt and derivative financial
instruments, such as futures, forwards, swaps, options and other financial
instruments with similar characteristics.
In addition, the banking industry in general is subject to various monetary and
fiscal policies and regulations, which include those determined by the Federal
Reserve Board, the OCC, the FDIC, state banking regulators and the Office of
Thrift Supervision, whose policies and regulations could affect Metro's
financial results. Other factors that may cause actual results to differ from
the forward-looking statements include the following: competition with other
local, regional and international banks, thrifts, credit unions and other
nonbank financial institutions, such as investment banking firms, investment
advisory firms, brokerage firms, investment companies and insurance companies,
as well as other entities which offer financial services, located both within
and outside the United States and through alternative delivery channels such as
the World Wide Web; interest rate and market and monetary fluctuations;
inflation; market volatility; general economic conditions and economic
conditions in the geographic regions and industries in which Metro operates;
introduction and acceptance of new banking-related products, services and
enhancements; fee pricing strategies, mergers and acquisitions and Metro's
ability to manage these and other risks.
Page 9 of 20
FINANCIAL CONDITION
ASSETS
- ------
At June 30, 2002, Metro had total assets of $173.8 million, a decrease of $10.2
million or 5.6 percent from December 31, 2001, principally due to a decrease in
Cash and Due from Banks of $7.2 million and a decrease in Total Securities of
$5.5 million. Consolidated earning assets totaled $162.2 million, or 93.3
percent of total assets, at June 30, 2002. The principal components of earning
assets were loans in the amount of $118.0 million or 72.8 percent of total
earning assets, securities of $31.8 million or 19.6 percent of total earning
assets and interest bearing due from bank accounts of $12.4 million or 7.6
percent of total earning assets. Earning assets at December 31, 2001 were $166.8
million, or 90.7 percent of total assets.
SECURITIES
- ----------
Total securities at June 30, 2002 were $31.8 million, decreasing by $5.5 million
or 14.7 percent from the amount at December 31, 2001. Purchases of securities
totaled $8.5 million during 2002, which were offset by reductions from
securities sold, principal paydowns and maturities.
LOANS
- -----
Gross loans outstanding increased $4.7 million or 4.1 percent from December 31,
2001 to June 30, 2002. Metro continued to make a concerted effort to increase
its commercial, real estate and installment loan portfolios through the use of
an extensive loan officer calling program aimed at Metro's target market. At
June 30, 2002, net loans amounted to 67.3 percent of total assets, compared to
61.1 percent of total assets at year end 2001. Metro's loan to deposit ratio,
which is one measure of liquidity, was 87.4 percent at June 30, 2002, compared
to 79.8 percent at year end 2001.
Loan Portfolio at Period-End
(dollars in thousands)
June 30, 2002 December 31, 2001 % Change
--------- ----------------- --------
Commercial & Agricultural $ 26,593 $ 26,782 (0.71%)
Real Estate - Construction 7,508 6,095 23.18%
Real Estate - Mortgage 60,739 56,164 8.15%
Installment 21,485 22,229 (3.35%)
Student Loans 2,130 2,512 (15.21%)
--------- --------- ---------
Gross Loans 118,455 113,782 4.11%
Less:
Allowance for Loan Losses (1,463) (1,457) 0.41%
--------- --------- ---------
Loans, net $ 116,992 $ 112,325 4.15%
========= ========= =========
Delinquent loans at June 30, 2002 were $1.3 million, representing 1.1 percent of
gross loans, compared to $1,026,000 of delinquent loans, or 0.9 percent of gross
loans, at year end 2001. Delinquent loans at June 30, 2002 and December 31, 2001
included $198,000 and $244,000, respectively, of student loans guaranteed by a
third party. Non-accruing loans at June 30, 2002 amounted to $513,000, compared
to $424,000 at December 31, 2001.
Page 10 of 20
At June 30, 2002 and December 31, 2001, Metro had an allowance for loan losses
of $1,463,000 and $1,457,000, respectively, representing 1.2 percent of gross
loans at June 30, 2002 and 1.3 percent of gross loans at December 31, 2001.
Metro provides for probable incurred loan losses through regular provisions to
the allowance for loan losses based upon a detailed quarterly assessment of the
adequacy of Metro's loan loss reserve account. The increased provision in 2002
provides for higher levels of net charge-offs and responds to generally higher
levels of non accrual loans during 2002.
Allowance for Loan Losses Activity
Six months ended June 30, 2002 and 2001
(dollars in thousands)
2002 2001
---- ----
Allowance for Loan Losses, January 1 $ 1,457 $ 1,352
Loans Charged-Off:
Commercial (141) (79)
Real Estate -- --
Mortgage -- --
Installment (60) (17)
Student Loans -- --
--------- ---------
Total Charged-Off Loans (201) (96)
--------- ---------
Recoveries on Charged-Off Loans:
Commercial 11 10
Real Estate -- --
Mortgage -- --
Installment 11 7
Student Loans -- --
--------- ---------
Total Recoveries 22 17
--------- ---------
Net Charged-Off Loans (179) (79)
--------- ---------
Provision for Loan Losses 185 111
--------- ---------
Allowance for Loan Losses, June 30 $ 1,463 $ 1,384
========= =========
Average Loans Outstanding $ 114,807 $ 106,804
========= =========
Net Charged-Off loans to Average Loans .156% .074%
========= =========
DEPOSITS
- --------
Total deposits at June 30, 2002 amounted to $135.6 million decreasing $6.9
million from total deposits at December 31, 2001. Since December 31, 2001,
non-interest bearing demand deposits decreased by $5.7 million or 15.2 percent,
while interest bearing deposits decreased by $1.3 million or 1.2 percent.
Non-interest bearing demand deposits historically reflect a decrease from
December 31 to June 30. The decrease in interest bearing demand deposits is
considered to be due to competitive products and interest rates in the local
market.
OTHER LIABILITIES
- -----------------
Liabilities other than deposits decreased to $22.8 million from $26.5 million at
December 31, 2001. This change resulted principally from decreases in short-term
funding sources. Repurchase agreements decreased $5.8 million or 33.0 percent
from December 31, 2001, due to changes in customer account balances since year
end. Liabilities other than deposits also include $9.0 million in borrowings
from the Federal Home Loan Bank. Membership in the Federal Home Loan Bank
provides Metro with an ongoing source of funds to assist in liquidity management
and funding loans.
Page 11 of 20
LIQUIDITY
- ---------
The primary function of liquidity and interest rate sensitivity management is to
provide for and assure an ongoing flow of funds that is adequate to meet all
current and future financial needs of the Bank. Such financial needs include
funding credit commitments, satisfying deposit withdrawal requests, purchasing
property and equipment and paying operating expenses. The funding sources of
liquidity are principally the maturing assets and short- and long-term
borrowings. The purposes of liquidity management are to match sources of funds
with anticipated customer borrowings, withdrawals and other obligations and to
ensure a dependable funding base. Rate sensitivity analysis places each of the
Bank's balance sheet components in its appropriate maturity category according
to its repricing frequency, enabling management to measure the exposure to
changes in interest rates.
The Bank's Asset/Liability and Investment Committee, which sets forth the
guidelines under which the Bank manages its deposits and its investment and loan
portfolios, is responsible for monitoring the Bank's investment portfolio. The
objective of this committee is to provide for the maintenance of an adequate net
interest margin and adequate level of liquidity to keep the Bank sound and
profitable during all stages of an interest rate cycle. Metro utilizes the
services of an external investment consultant and a recognized research firm.
These outside consultants provide Metro with decision support information
necessary to monitor, analyze and track the performance of the Bank's investment
portfolio.
Metro experienced a decrease in cash and cash equivalents, a primary source of
liquidity, of $7.2 million during the first six months of 2002. Net cash from
operating activities provided $3.2 million and investing activities provided
$0.6 million. Financing activities used $11.1 million, principally due to a
reduction in deposit accounts of $6.9 million and a reduction in repurchase
agreements of $5.8 million.
In addition to core deposit funding, Metro also maintains revolving credit
agreements with The Federal Home Loan Bank in the amount of $13.0 million and
two regional banks in the amount of $4.0 million to meet short-term and
long-term liquidity needs.
CAPITAL
- -------
For the six months ending June 30, 2002, Metro's total capital increased by
$412,000 to $15.3 million. Equity increased by: earnings of $740,000, grants of
Metro's common stock to employees under the MetroBanCorp Equity Ownership Plan
of $5,000, and an increase in accumulated other comprehensive income of $3,000.
These increases were offset by: dividend and fractional share payments to
shareholders of $318,000 and an increase in treasury stock of $18,000.
Metro is subject to various capital requirements imposed by the federal banking
regulatory authorities. Quantitative measures established by regulation to
ensure capital adequacy require Metro to maintain minimum amounts and ratios of
total and Tier 1 capital (as defined in the regulations) to risk-weighted
assets, and Tier 1 capital to average assets. Management believes that, as of
June 30, 2002, Metro meets all capital adequacy requirements to which it is
subject. The following table sets forth the actual and minimum capital amount
and ratios of Metro and MetroBank as of June 30, 2002 (dollars in thousands):
Page 12 of 20
To Be Well Capitalized
Under Prompt Corrective
Actual Action Provisions
---------------- -----------------------
Amount Ratio Amount Ratio
------- ----- -------- -----
Total Capital
(to Risk Weighted Assets)
Metro $16,571 12.90% > $12,844 > 10.00%
- -
MetroBank $15,556 12.19% > $12,764 > 10.00%
- -
Tier 1 Capital
(to Risk Weighted Assets)
Metro $15,108 11.76% > $7,706 > 6.00%
- -
MetroBank $14,093 11.04% > $7,659 > 6.00%
- -
Tier 1 Capital
(to Average Assets)
Metro $15,108 8.92% > $8,470 > 5.00%
- -
MetroBank $14,093 8.41% > $8,377 > 5.00%
- -
As of December 31, 2001, the most recent notification from the FDIC categorized
MetroBank as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as "well capitalized", MetroBank must
maintain minimum total risk-weighted, Tier 1 capital and leverage ratios as set
forth in the above table. There are no conditions or events since this
notification that management believes have changed Metro's or the Bank's capital
category.
RESULTS OF OPERATIONS
NET INTEREST INCOME
- -------------------
Net interest income after provision for loan losses was $3.6 million for the six
months ended June 30, 2002, compared to $3.5 million for the comparable period
of 2001, an increase of 3.5 percent. The increase in net interest income was
driven primarily by a decline in funding costs compared to 2001. Metro's
provision for loan losses was $185,000 for the six months ended June 30, 2002,
compared to $111,000 for the same period in 2001.
PROVISION FOR LOAN LOSSES
- -------------------------
The Bank records regular provisions to the allowance for loan losses. The
provisions are made at a level determined to be necessary by management to
absorb probable incurred losses in the loan portfolio. A detailed evaluation of
the estimated losses, along with an assessment of the adequacy of the loan loss
allowance, is completed quarterly by management. The evaluation includes, but is
not limited to, analysis of risk classification, past due status, historical
write-off experience, type of loan, collateral and other significant factors as
management deems necessary.
The provision for loan losses totaled $185,000 for the six months ended June 30,
2002, compared to $111,000 for the comparable period in 2001. At June 30, 2002
and 2001, the Bank had an allowance for loan losses of $1,463,000 and $1,384,000
respectively. The Bank's allowance for loan losses to ending total loans, as a
percentage, amounted to 1.24% and 1.20% at June 30, 2002 and 2001, respectively.
The increase in the provision during 2002 was considered appropriate by
management relative to its evaluation of the loan loss allowance adequacy.
Page 13 of 20
NON-INTEREST INCOME
- -------------------
Non-interest income decreased 4.3 percent to $692,000 compared to $723,000 in
2001, due primarily to the recognition of loan processing fees over the
respective term of each loan as interest income beginning in 2002. For the six
month period in 2001, the Bank recognized $96,000 of loan processing fees in
non-interest income. Securities gains amounted to $71,000 for the six month
period ending June 30, 2002 compared to $0 for the same period in 2001. Mortgage
related fees increased $8,000 or 10.8 percent to $82,000 in 2002 due principally
to an increase in mortgage loans originated and sold to outside investors during
the quarter.
NON-INTEREST EXPENSE
- --------------------
Non-interest expense amounted to $3.1 million for the six month period ending
June 30, 2002, compared to $3.0 million for the same period one year earlier, an
increase of 3.3 percent. There was a 13.5 percent increase in salaries and
employee benefits in 2002. This increase resulted from three additional full
time equivalents in 2002 necessary to staff existing departments and branches,
increased commissions paid to mortgage originators due to higher mortgage
related revenues in 2002 and higher employee group health insurance costs and
retirement plan benefit costs.
Occupancy and equipment expenses decreased by $14,000 and $41,000 or 5.3 percent
and 21.1 percent respectively in 2002, due principally to expense reductions
attributable to the Cub Foods branch office which closed in the second quarter
of 2001.
Other expenses decreased $35,000 or 3.1 percent in 2002. This decrease is due
principally to reductions in outside services, including advertising, legal and
professional, and reduction in referral fees paid on indirect consumer loans.
NET INCOME
- ----------
Metro recorded net income of $740,000 for the six month period ending June 30,
2002, compared to $747,000 for the same period one year earlier, a decrease of
0.9 percent. Net income for the three months ended June 30, 2002 was $374,000,
down 8.3 percent over 2001's same period net income of $408,000.
Page 14 of 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - none.
- ------- -----------------
Item 2. Changes in Securities - none.
- ------- ---------------------
Item 3. Defaults Upon Senior Securities - none.
- ------- -------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
(a) Metro held its annual meeting of shareholders on May 16, 2002.
(b)-(c) At the annual meeting, Metro's shareholders elected eleven directors
to serve until the next annual meeting of the shareholders and until
their successors are duly elected, qualified and serving. The votes
cast for the directors at the annual meeting were as follows:
Number of Votes
---------------------------------
Broker
Director's Name For Withheld Non-Votes
------------------------- --------- -------- ---------
Chris G. Batalis 1,989,878 - 74,834
Ike G. Batalis 1,985,021 4,857 74,834
Terry L. Eaton 1,989,878 - 74,834
James F. Keenan 1,989,878 - 74,834
Robert L. Lauth, Jr. 1,989,878 - 74,834
James C. Lintzenich 1,989,878 - 74,834
R. D. "Rusty" Richardson 1,989,878 - 74,834
Edward R. Schmidt 1,989,614 264 74,834
Donald F. Walter 1,989,746 132 74,834
------------------------- --------- -------- ---------
At the annual meeting, Metro's shareholders also ratified the
appointment of Crowe, Chizek and Company LLP as independent public
accountants for MetroBanCorp and its subsidiary for the fiscal year
ending December 31, 2002.
For: 2,018,956 Against: 5,076 Abstaining: 1,412
--------- ----- -----
Broker Non-Votes: 39,268
------
Item 5. Other Information - none.
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits - Exhibits required by Item 601 of Regulation S-B are listed in
the Exhibit Index hereto.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarterly
period ending June 30, 2002.
Page 15 of 20
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
METROBANCORP
(Registrant)
August 14, 2002 By: /S/ Ike G. Batalis
-------------------------------
Ike G. Batalis
President (Principal
Executive Officer)
August 14, 2002 By: /S/ Charles V. Turean
-----------------------------
Charles V. Turean
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
Page 16 of 20
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
99.1 Certification pursuant to 18 U.S.C. Section 1350 for Chief
Executive Officer.
99.2 Certification pursuant to 18 U.S.C. Section 1350 for Chief
Financial Officer.
Page 17 of 20