UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
Current Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange
Act Of 1934
Date Of Report: October 31, 2000
(Date Of Earliest Event Reported)
MONTEREY BAY BANCORP, INC.
(Exact Name Of Registrant As Specified In Its Charter)
DELAWARE 77-0381362
(State Or Other Jurisdiction Of (I.R.S. Employer Identification
Incorporation Or Organization) Number)
Commission File Number: 0-24802
567 Auto Center Drive, Watsonville, California 95076
(Address Of Principal Executive Offices)(Zip Code)
(831) 768 - 4800
(Registrant's Telephone Number, Including Area Code)
WWW.MONTEREYBAYBANK.COM
(Registrant's Internet Site)
INFO@MONTEREYBAYBANK.COM
(Registrant's Electronic Mail Address)
Item 5. Other Events
On October 31, 2000, Monterey Bay Bancorp, Inc. ("Registrant" and
"Company") issued a press release that announced its results for the third
quarter of 2000 and changes in the Board of Directors.
Item 7. Financial Statements And Exhibits
(c) Exhibits
The following Exhibits are filed as part of this Report:
99.1 Press Release dated October 31, 2000.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Monterey Bay Bancorp, Inc.
(Registrant)
Date: October 31, 2000 By: /s/ C. Edward Holden
--------------------
C. Edward Holden
Chief Executive Officer
Date: October 31, 2000 By: /s/ Mark R. Andino
------------------
Mark R. Andino
Chief Financial Officer
(Principal Financial & Accounting Officer)
3
EXHIBIT INDEX
Exhibit Number Exhibit
Exhibit 99.1 Press Release Dated October 31, 2000
4
Exhibit 99.1
- ------------
October 31, 2000
FOR IMMEDIATE RELEASE
- ---------------------
MONTEREY BAY BANCORP, INC. ANNOUNCES:
THIRD QUARTER RESULTS;
CHANGES IN THE BOARD OF DIRECTORS
Common Stock Symbol: MBBC
NASDAQ National Market
Watsonville, CA. October 31, 2000. Monterey Bay Bancorp, Inc.
("Company") today reported net income of $461,000, or $0.15 basic and diluted
earnings per share, for the third quarter ended September 30, 2000, compared to
net income of $950,000, or $0.29 basic earnings per share and $0.28 diluted
earnings per share, for the third quarter of 1999. For the first nine months of
2000, the Company reported net income of $1,814,000, equivalent to $0.58 basic
and diluted earnings per share. This compares to net income of $2,656,000 during
the first nine months of 1999, equivalent to $0.82 basic earnings per share and
$0.80 diluted earnings per share.
During the third quarter of 2000, the Company recorded an accrual of
$250,000 for a separation package presently being negotiated with Marshall G.
Delk, who resigned as President and Chief Operating Officer of the Company on
September 29, 2000. This accrual, on an after-tax basis, decreased basic and
diluted earnings per share for the third quarter by $0.05. On October 25, 2000,
Mr. Delk presented his resignation from the Board of Directors of both Monterey
Bay Bancorp, Inc. and its subsidiary, Monterey Bay Bank ("Bank").
At the meeting of the Company's Board of Directors held on October 26,
2000, the Directors unanimously approved paying all future Directors fees
exclusively in the Company's common stock commencing on November 1, 2000.
Payment of Directors fees in the Company's stock had previously been an option.
Commenting on this change, Eugene R. Friend, Chairman of the Board, stated "The
Board of Directors desired to communicate their strong support of the Company
during a year of challenging earnings comparisons, and their continued
commitment to shareholder value."
Also at the October 26, 2000 meeting of the Board of Directors,
McKenzie Moss was elected Chairman of the Board effective January 1, 2001.
Eugene R. Friend will retire as Chairman of the Board and serve as Vice Chairman
until his planned retirement from the Board at the Annual Meeting of
Stockholders in 2001. Commenting on this change, C. Edward Holden, President,
Chief Executive Officer, and Vice Chairman, stated "Gene Friend has devoted
almost all of his professional career to the Company and the Bank, with his
service extending over more than forty years. Gene and the Board of Directors
thought it time to continue the transition in leadership which commenced with
Gene's retirement as Chief Executive Officer earlier this year." McKenzie Moss
is a banking industry veteran, having held a long series of successful positions
in the financial services industry, including Chief Executive Officer of a
California commercial bank. Director P. W. Bachan, with 46 years of service on
the Board of Directors, has also communicated his plan to retire at the Annual
Meeting of Stockholders in 2001.
5
Monterey Bay Bancorp, Inc. Page 2
Press Release
October31, 2000
During the third quarter of 2000, the Company recorded a $650,000
provision for loan losses, up significantly from $265,000 during the same
quarter in 1999. This higher provision primarily stemmed from two factors, as
discussed below.
A commercial construction loan with a disbursed balance of $2.8 million
and a commitment amount of $3.1 million was graded substandard by the Company
during the third quarter of 2000. This loan was negatively impacted by the
inability of the principals to obtain an occupancy permit from local
governmental agencies. Under the Company's loan loss reserve methodology,
substandard loans require a higher level of general reserve allocations than
loans with a more favorable credit grading. The substandard classification of
this commercial construction loan therefore increased the need for the Company
to charge operations to expand the loan loss allowance. The Company is currently
negotiating and working with the principals to:
o have them complete the final stages of construction without additional
Company funds
o have them place additional funds on deposit with the Company
o timely pursue the acquisition of at least a partial occupancy permit in
order to generate cash flow from the project
Based upon the value of the real property and the financial strength and
liquidity of the principals, no specific reserve was allocated to this loan at
September 30, 2000. The loan is current in its payments.
In addition to the aforementioned construction loan, the Company's need
for a higher allowance for loan losses at the end of the third quarter was
increased by $179,000 in conjunction with a special residential loan pool which
the Company purchased in 1998. This pool is comprised of loans that present a
borrower credit profile and / or a loan to value ratio outside of (less
favorable than) the Company's normal underwriting criteria. To mitigate the
credit risk for this portfolio, the Company obtained a scheduled principal /
scheduled interest loan servicing agreement from the seller. This agreement also
contained a guaranty by the seller to absorb any principal losses on the
portfolio in exchange for the seller's retention of a portion of the loans'
yield through loan servicing fees. While the seller has met all its contractual
obligations through October, 2000, the Company determined to allocate additional
reserves due to concerns regarding the future capacity of the seller to honor
the guaranty, the present delinquency profile of the special mortgage pool, and
the differential between loan principal balances and current appraisals for
loans in the process of foreclosure. The original balance of the loan pool in
1998 was $40.0 million, declining to $26.5 million by October 20, 2000.
The Company's ratio of loan loss reserves to gross loans outstanding
increased from 0.96% at December 31, 1999 to 1.24% at September 30, 2000. The
Company's ratio of loan loss reserves to non-accrual loans rose from 50.84% at
December 31, 2000 to 71.14% at September 30, 2000. Non-accrual loans declined
from $6,888,000 at December 31, 1999 to $6,756,000 at September 30, 2000.
Included in the Company's non-accrual loan totals at September 30, 2000 was a
$4,850,000 business term loan primarily secured by the common stock of an
insured depository institution. During the third quarter, $150,000 in principal
reduction payments were received on this loan, with an additional $25,000
curtailment received during the first week of October. At September 30, 2000,
this loan was current in its contractual payments. The loan has, however, been
maintained on non-accrual status due to concern regarding the borrower's
potential sources of funds to repay the loan at maturity near the end of 2000.
6
Monterey Bay Bancorp, Inc. Page 3
Press Release
October31, 2000
Other factors contributing to the decline in earnings during the first
nine months of 2000 versus the same period in 1999 were:
o less favorable results on the sale of securities
o an adjustment to net deferred loan fees during the third quarter of 1999
that increased interest income by $140,000 on a one-time basis
o higher general & administrative expenses
No gain or loss on the sale of securities was recorded during the third
quarter of 2000 or the third quarter of 1999. However, gains on the sale of
securities totaled $503,000 during the first nine months of 1999, versus a loss
on sale of securities of $77,000 during the first nine months of 2000. The first
nine months of 1999 therefore benefited from $580,000 in improved results from
the sales of securities versus the like period in 2000.
General & administrative expenses climbed from $3.0 million and $8.7
million during the three and nine months ended September 30, 1999, respectively,
to $3.6 million and $10.3 million during the like periods in 2000. In addition
to the aforementioned $250,000 accrual for a separation package during the third
quarter of 2000, operating expenses during 2000 have increased as a result of
the greater number of customers and accounts serviced by the Company, higher
data processing costs, Bank staff additions and changes including a new Chief
Executive Officer, Chief Financial Officer, and Controller, the settlement of
certain non-qualified benefits obligations, the adoption of a Directors Emeritus
program, the development of expanded performance based incentive compensation,
and higher outside professional costs. In addition, at the end of the third
quarter of 2000, the Company commenced incurring its first incremental operating
costs for the upcoming core systems conversion that was previously announced.
The Company anticipates realizing higher expenses for travel, training,
personnel, and outside professional costs as it continues to prepare for a major
upgrade to its technology infrastructure in 2001.
Net interest income improved in 2000 versus the prior year. Net
interest income for the three and nine months ended September 30, 2000 was $4.4
million and $13.4 million, respectively, comparing favorably to $4.4 million and
$12.0 million during the like periods in 1999 (including the one-time $140,000
increase during the third quarter of 1999). The Company's ratio of net interest
income to average total assets was 3.67% during the most recent quarter and
3.80% during the first nine months of 2000, compared to 3.87% during the third
quarter of 1999 and 3.56% during the first nine months of 1999. The Company's
ratio of net interest income to average total assets was lower in the most
recent quarter than during the first half of 2000 due to:
o the maturity of certain funding locked in during the latter part of 1999
and early 2000, which provided the Company with additional net interest
income during a rising interest rate environment during the first half of
the year
o loans receivable representing a lower percentage of average total assets
during the third quarter of 2000 than earlier in 2000, in conjunction with
a weakening in loan production during the most recent quarter
o a lower average balance of relatively higher yielding construction loans
during the third quarter of 2000 than during the first half of 2000
7
Monterey Bay Bancorp, Inc. page 4
Press Release
October 31, 2000
Total assets rose from $462.8 million at December 31, 1999 to $485.0
million at September 30, 2000. The increase in assets was concentrated in net
loans, which increased from $360.7 million at December 31, 1999 to $382.3
million at September 30, 2000. Total deposits increased from $367.4 million at
December 31, 1999 to a record $398.1 million at September 30, 2000. The rise in
deposits stemmed from:
o an increase in lower cost transaction accounts, particularly NOW checking
accounts and money market accounts - areas where the Company has introduced
new products during 2000
o the Company's initial participation ($8.0 million) in the State of
California time deposit program during the third quarter, whereby the State
places time deposits with banks as a means of encouraging the lending of
funds back into California's communities
The percentage of the deposit portfolio comprised of comparatively higher cost
certificates of deposit declined from 60.5% at December 31, 1999 to 58.7% at the
close of the most recent quarter despite the Company's participation in the
State of California program. The total number of customer deposit accounts rose
to a record 29,507 at September 30, 2000, up over 1,600 net accounts during the
first nine months of 2000.
The rise in deposits experienced during 2000 permitted the Company to
repay wholesale borrowings. Total borrowings decreased from $52.0 million at
December 31, 1999 to $40.6 million at September 30, 2000.
Monterey Bay Bank continues to be in the highest regulatory capital
classification of "well capitalized", with its regulatory capital ratios
increasing during 2000.
Consolidated stockholders' equity increased from $40.8 million at
December 31, 1999 to $42.4 million at September 30, 2000, as the effects of net
income and continued amortization of deferred stock compensation more than
offset the impacts of the repurchase of 120,000 shares of the Company's common
stock during the first quarter of 2000 and an eight cents per share cash
dividend payment during the first quarter of 2000. As previously announced, the
Company's Board of Directors has determined to indefinitely suspend the
declaration and payment of cash dividends. The Company's tangible book value per
share increased from $11.07 at December 31, 1999 to $12.07 at September 30,
2000.
In reviewing the most recent quarter, C Edward Holden commented "The
Company continues to make progress in its transition from a 75 year old savings
& loan to a community based financial services firm. Many key steps have
recently been achieved. We signed an agreement to convert to a new core
processing platform built upon a leading relational database and client / server
technology. Internet banking was introduced to our customer base following
several months of testing by the Bank's employees. The Bank's new remote ATM at
the hugely popular Monterey Bay Aquarium was recently activated. The remodeling
of the North Salinas branch is essentially complete, providing the Company with
additional monthly rental income. David E. Porter, with 26 years of high quality
commercial banking experience, started working for the Bank on October 30. David
will lead our commercial and retail banking activities and be a key member of
the management team. Jack Evans, with over 25 years of commercial banking
experience, has joined the Bank as a commercial lending relationship manager and
business development officer. Jack has lived in Santa Cruz County for 18 years
and represents the type of community banker we are seeking to best serve current
and future business customers. In realizing these accomplishments, the Company
is establishing the human and technological infrastructure that is vital to a
successful transformation into an effective community commercial bank."
8
Monterey Bay Bancorp, Inc. page 5
Press Release
October 31, 2000
Mr. Holden continued "Despite these achievements, we are
disappointed with the level of earnings generated by the Company. The Board of
Directors strongly appreciates the importance of building shareholder value and
producing a competitive return on shareholders' equity. However, many of the
initiatives integral to the strategic transformation of the Company require up
front operating costs and initial capital investments before associated revenues
may be realized. In addition, at the same time the Company requires significant
resources to achieve strategic change, we must also devote time and expense to
resolving several key historical issues. During the fourth quarter, the Company
will address a key period for the special residential mortgage pool, as the
associated loans reach an important rate adjustment date; and the collection of
the large non-accrual business term loan extended by the Monterey Bay Bancorp,
Inc. holding company. The fourth quarter will also be a key period for the
Company to address a number of relatively higher balance loans that are
currently graded as criticized or classified assets. Looking forward into 2001,
we intend to continue accelerating the implementation of our strategic plan,
leveraging 75 years of superior customer service, community involvement, and
local decision-making."
The Company's common stock is listed on the NASDAQ National Market
under the symbol "MBBC". The Company and the Bank are headquartered in
Watsonville, California. The Bank operates through its administrative offices in
Watsonville and eight full service branches located in the Greater Monterey Bay
Area of Central California. The Bank's deposits are insured by the Federal
Deposit Insurance Corporation up to the maximum allowed by law.
This news release contains certain forward-looking statements that are
subject to various factors that could cause actual results to differ materially
from such statements. Such factors include, but are not limited to, the economic
and real estate market conditions in the Company's market areas, competition,
the possibility that the Company will not be successful in achieving its
strategic objectives, the performance and contributions of new employees,
borrower willingness to work out troubled credits, and other factors discussed
in documents filed by the Company with the Securities and Exchange Commission
from time to time. The Company does not undertake, and specifically disclaims
any obligation, to update any forward-looking statements to reflect occurrences
or unanticipated events or circumstances after the date of such statements.
For further information contact:
C. Edward Holden Mark R. Andino
Chief Executive Officer or Chief Financial Officer
(831) 768 - 4840 (831) 768 - 4806
INFO@MONTEREYBAYBANK.COM
Fax: (831) 722 - 6794
--- financial data follows ---
9
MONTEREY BAY BANCORP, INC.
Consolidated Financial Highlights
Unaudited
(Dollars In Thousands Except Per Share Amounts)
September December
30, 31,
2000 1999
---- ----
Financial Condition Data
- ------------------------------------------------------
Cash and cash equivalents $ 18,089 $ 12,833
Investment and mortgage backed securities available for sale 65,219 69,179
Investment and mortgage backed securities held to maturity -- 60
Loans held for sale 174 --
Loans receivable held for investment, net 382,168 360,686
Investment in capital stock of the Federal Home Loan Bank 2,836 3,213
Accrued interest receivable 2,922 2,688
Premises and equipment, net 7,138 7,042
Core deposit premiums and other intangible assets, net 2,394 2,918
Real estate acquired via foreclosure, net -- 96
Other assets 4,061 4,112
--------- ---------
Total assets $ 485,001 $ 462,827
========= =========
Non-interest bearing demand deposits 16,078 $ 17,316
Interest bearing NOW checking accounts 40,402 31,385
Savings accounts 16,472 15,312
Money market accounts 91,381 81,245
Certificates of deposit 233,718 222,144
--------- ---------
Total deposits 398,051 367,402
Borrowings 40,582 51,992
Other liabilities 3,925 2,630
--------- ---------
Total liabilities 442,558 422,024
--------- ---------
Stockholders' equity 42,443 40,803
--------- ---------
Total liabilities and stockholders' equity $ 485,001 $ 462,827
========= =========
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
---- ---- ---- ----
Operating Data
- ------------------------------------------------------
Interest income $ 9,514 $ 8,578 $ 27,976 $ 24,976
Interest expense 5,115 4,218 14,530 12,936
--------- --------- --------- ---------
Net interest income before provision for loan losses 4,399 4,360 13,446 12,040
Provision for loan losses 650 265 1,675 685
--------- --------- --------- ---------
Net interest income after provision for loan losses 3,749 4,095 11,771 11,355
Non-interest income 630 564 1,714 2,026
General & administrative expense 3,552 2,971 10,260 8,684
--------- --------- --------- ---------
Income before income tax expense 827 1,688 3,225 4,697
Income tax expense 366 738 1,411 2,041
--------- --------- --------- ---------
Net income $ 461 $ 950 $ 1,814 $ 2,656
========= ========= ========= =========
Shares applicable to basic earnings per share 3,100,164 3,256,419 3,104,580 3,235,183
Basic earnings per share $ 0.15 $ 0.29 $ 0.58 $ 0.82
========= ========= ========= =========
Shares applicable to diluted earnings per share 3,103,799 3,359,124 3,110,342 3,330,384
Diluted earnings per share $ 0.15 $ 0.28 $ 0.58 $ 0.80
========= ========= ========= =========
10
MONTEREY BAY BANCORP, INC.
Selected Ratios And Other Data
Unaudited
(Dollars In Thousands)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
---- ---- ---- ----
Profitability Ratios
- ------------------------------------------
Return on average assets 0.38% 0.84% 0.51% 0.79%
Return on average equity 4.55% 9.11% 6.06% 8.50%
Interest rate spread during the period 3.44% 3.67% 3.55% 3.27%
Net interest income / average total assets 3.67% 3.87% 3.80% 3.56%
Efficiency ratio 70.63% 60.34% 67.68% 61.74%
G&A expense / average total assets 2.96% 2.64% 2.90% 2.57%
At At
September 30, December 31,
2000 1999
---- ----
Asset Quality Information
- ------------------------------------------
Non-accrual loans $ 6,756 $ 6,888
Non-performing loans 6,831 8,182
Real estate acquired via foreclosure -- 96
Allowance for loan losses 4,806 3,502
Allowance for loan losses / loans outstanding 1.24% 0.96%
Allowance for loan losses / non-accrual loans 71.14% 50.84%
Bank Regulatory Capital Ratios
- ------------------------------------------
Tangible capital ratio 7.43% 7.11%
Core capital ratio 7.43% 7.11%
Tier one risk based capital ratio 10.53% 9.58%
Total risk based capital ratio 11.79% 10.56%
Other Information
- ------------------------------------------
Number of deposit accounts 29,507 27,831
Full-service customer facilities 8 8
Number of ATM's 10* 10
Loan to deposit ratio 96.05% 98.17%
Tangible book value per share $ 12.07 $ 11.07
Shares outstanding 3,317,913 3,422,637
<FN>
- -----------------------------------------------------------------------------------
* 11 ATM's as of October 16, 2000
</FN>
11